<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1995
SECURITIES ACT FILE NO. 2-75691
INVESTMENT COMPANY ACT FILE NO. 811-3376
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 15 [x]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 17 [x]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
1285 AVENUE OF THE AMERICAS 10019
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 713-2000
DIANNE E. O'DONNELL
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
JOHN E. BAUMGARDNER, JR., ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX)
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485
[x] ON AUGUST 1, 1995 PURSUANT TO PARAGRAPH (B) OF RULE 485
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1) OF RULE 485
[ ] ON PURSUANT TO PARAGRAPH (A)(1) OF RULE 485
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
[ ] ON PURSUANT TO PARAGRAPH (A)(2) OF RULE 485.
----------------------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON MAY 31, 1995.
________________________________________________________________________________
<PAGE>
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
- --------------------- ------------------------------------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page.................................... Cover Page
Item 2. Synopsis...................................... Fee Table
Item 3. Condensed Financial Information............... Financial Highlights
Item 4. General Description of Registrant............. Cover Page; Investment Objective and Management
Policies; Shares of the Fund
Item 5. Management of the Fund........................ Management of the Fund; Custodian and Dividend,
Transfer and Recordkeeping Agent
Item 6. Capital Stock and Other Securities............ Cover Page; Shares of the Fund; Dividends,
Distributions and Taxes
Item 7. Purchase of Securities Being Offered.......... Management of the Fund; Purchase of Shares; The
Distributor; Determination of Net Asset Value
Item 8. Redemption or Repurchase...................... Redemption of Shares
Item 9. Pending Legal Proceedings..................... Not Applicable
PART B
Item 10. Cover Page.................................... Cover Page
Item 11. Table of Contents............................. Back Page
Item 12. General Information and History............... Not Applicable
Item 13. Investment Objectives and Policies............ Investment Objective and Policies; Portfolio
Management
Item 14. Management of the Fund........................ Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities.................................. Management of the Fund
Item 16. Investment Management and Other Services...... Investment Management and Other Services
Item 17. Brokerage Allocation.......................... Portfolio Transactions
Item 18. Capital Stock and Other Securities............ General Information
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered............................... Purchase and Redemption of Shares; Determination
of Net Asset Value
Item 20. Tax Status.................................... Dividends, Distributions and Taxes
Item 21. Underwriters.................................. Investment Management and Other Services
Item 22. Calculations of Performance Data.............. Dividends, Distributions and Taxes
Item 23. Financial Statements.......................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Prospectus August 1, 1995
- --------------------------------------------------------------------------------
PaineWebber/Kidder, Peabody Premium Account Fund
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (800) 647-1568
PaineWebber/Kidder, Peabody Premium Account Fund (the 'Fund') is a diversified
open-end management investment company whose investment objective is to seek
high current income, preservation of capital and liquidity through investments
in short-term money market instruments. Shares of the Fund are offered
exclusively to existing shareholders.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. While the Fund seeks to maintain a stable net asset value of $1.00
per share, there can be no assurance that it will be able to do so.
The Fund's Trustees have approved a Plan of Distribution pursuant to Rule 12b-1
(the 'Plan of Distribution') pursuant to which the Fund pays an annual fee of
.12% of its daily net assets to PaineWebber Incorporated ('PaineWebber'). See
'The Distributor.'
PaineWebber currently charges an annual $85 account charge for the PaineWebber
Resource Management Account ('RMA') program including the Gold Visa card, and
the Gold MasterCard without the Bank One Line of Credit. The fee for RMA clients
who choose the Line of Credit for their Gold MasterCard is $125. The annual
account charge for the PaineWebber Business Services Account ('BSA') program is
$125 including the Gold Visa card, and the Gold MasterCard without the Bank One
Line of Credit. The fee for BSA clients who choose the Line of Credit for their
Gold MasterCard is $165.
This Prospectus sets forth concisely the information that prospective investors
will find helpful in making an investment decision. Investors are encouraged to
read this Prospectus and retain it for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission ('SEC') in a Statement of Additional Information dated
August 1, 1995, which is hereby incorporated by reference and is available
without charge by writing to the address or by calling the number listed above.
Shareholder inquiries may be directed to the Fund at the above address.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE
The purpose of the Fee Table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For more detailed information on these costs and expenses, see
'Management of the Fund' and 'The Distributor.'
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).......................... 0%
----
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............... 0
----
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as
applicable)........................................................................................ 0
----
Redemption Fees (as a percentage of amount redeemed, if applicable).................................. 0
----
Exchange Fee......................................................................................... 0
----
ANNUAL FUND OPERATING EXPENSES FOR THE FISCAL YEAR ENDED MARCH 31, 1995
(as a percentage of average net assets)
Management Fees.................................................................. 0.50%
12b-1 Fees....................................................................... 0.12
Other Expenses................................................................... 0.08
----
Total Fund Operating Expenses.................................................... 0.70%
----
----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------ ------- -------- -------- ---------
<S> <C> <C> <C> <C>
A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return, (2) an operating expense ratio of
.70% and (3) redemption at the end of each time period................ $7 $22 $39 $87
</TABLE>
- ------------
The amounts shown in the example assume reinvestment of all dividends and
distributions and should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. The assumed
5% annual return is hypothetical and should not be considered a representation
of past or future annual return. The actual return of the Fund may be greater or
less than the assumed return.
PaineWebber currently charges an annual $85 account charge for the RMA program
including the Gold Visa card, and the Gold MasterCard without the Bank One Line
of Credit. The fee for RMA clients who choose the Line of Credit for their Gold
MasterCard is $125. The annual account charge for the BSA program is $125
including the Gold Visa card, and the Gold MasterCard without the Bank One Line
of Credit. The fee for BSA clients who choose the Line of Credit for their Gold
MasterCard is $165.
2
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
- -------------------
The Fund
The Fund is a diversified, open-end, management investment company whose investment objective
is to seek high current income, preservation of capital and liquidity through investments in
short-term money market instruments, including securities issued or guaranteed as to principal
and interest by the U.S. Government, its agencies or instrumentalities, high quality
obligations of U.S. and foreign banks, high quality commercial paper, other high quality
obligations of corporations and repurchase agreements. PaineWebber currently charges an annual
$85 account charge for the RMA program including the Gold Visa card, and the Gold MasterCard
without the Bank One Line of Credit. The fee for RMA clients who choose the Line of Credit for
their Gold MasterCard is $125. The annual account charge for the BSA program is $125 including
the Gold Visa card, and the Gold MasterCard without the Bank One Line of Credit. The fee for
BSA clients who choose the Line of Credit for their Gold MasterCard is $165.
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Benefits of
Investment
in the
Fund
Mutual funds, such as the Fund, are flexible investment tools that are increasingly
popular -- one of four American households now owns shares of at least one mutual fund -- for
very sound reasons. The Fund offers investors the following important benefits:
Professional Management
By pooling the funds of many investors, the Fund enables shareholders to obtain the benefits
of full-time professional management and a degree of diversification of investment that is
beyond the means of most investors. The Fund's investment adviser reviews the fundamental
characteristics of far more securities than can a typical individual investor and may employ
portfolio management techniques that frequently are not used by an individual investor.
Additionally, the larger denominations of securities in which the Fund invests may result in
better overall prices for the investments. See 'Investment Objective and Management Policies.'
Transaction Savings
By investing in the Fund, a shareholder is able to acquire ownership in a diversified
portfolio of securities without paying the higher transaction costs associated with a series
of small securities purchases.
Convenience
Fund shareholders are relieved of the administrative and recordkeeping burdens and
coordination of maturities normally associated with direct ownership of securities.
Quality
All securities in which the Fund invests will be determined to be of high quality by a
nationally recognized statistical rating organization ('NRSRO'), or determined to be of
comparable quality by the Fund's investment adviser acting under the supervision of the
Trustees if not so rated, and will also be determined to present minimal credit risks. Any
purchase of unrated securities or securities that are rated only by a single rating agency
must be approved or ratified by the Trustees.
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Liquidity
The Fund's convenient purchase and redemption procedures provide shareholders with ready
access to their money and reduce the delays frequently involved in the direct purchase and
sale of securities. See 'Purchase of Shares' and 'Redemption of Shares.'
Exchange Privilege
Shareholders of the Fund may exchange all or a portion of their shares for shares of
PaineWebber/Kidder, Peabody money market funds. See 'Exchange Privilege.'
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Purchase of
Shares
Shares of the Fund are offered exclusively to existing shareholders. The purchase price for
shares of the Fund is the net asset value per share next determined after receipt by the Fund
of a purchase order in proper form. Investors will have the free credit cash balances in the
Securities Account (a margin account which may be used to purchase and sell securities and
options on margin or on a fully-paid basis) invested in shares of the Fund. The Fund seeks to
maintain a constant net asset value of $1.00 per share, although there is no assurance it will
be able to do so. See 'Purchase of Shares' and 'Determination of Net Asset Value.'
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Redemption of
Shares
Shares of the Fund may be redeemed at the Fund's net asset value per share next determined
after receipt by the transfer agent of instructions from PaineWebber in accordance with
automatic redemption procedures. See 'Redemption of Shares' for a discussion of the various
alternative methods of redeeming shares of the Fund and 'Determination of Net Asset Value.'
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Management
Services
PaineWebber serves as investment adviser and administrator of the Fund and receives an annual
fee of .50% of the Fund's average daily net assets. Mitchell Hutchins Asset Management Inc.
('Mitchell Hutchins') serves as the Fund's sub-adviser and sub-administrator and receives from
PaineWebber (not the Fund) 20% of the fee received by PaineWebber from the Fund.
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Distributor
PaineWebber serves as distributor of the Fund's shares.
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Dividends
The Fund declares dividends on each day the New York Stock Exchange is open for business of all
of its daily net income to shareholders of record. See 'Dividends, Distributions and Taxes.'
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Risk Factors
The Fund may invest in obligations of foreign branches of domestic banks and domestic branches
of foreign banks, which may present certain additional risks. The Fund may also enter into
repurchase agreements. In the event the other party to a repurchase agreement defaults, the
Fund may experience difficulties and incur certain costs in exercising its rights to the
collateral and may lose the interest it expected to receive in respect of the repurchase
agreement.
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial information for shares of the Fund has been presented in the table
below for each of the periods shown. This information is supplemented by the
financial statements and accompanying notes appearing in the Fund's Annual
Report to Shareholders for the fiscal year ended March 31, 1995, which are
incorporated by reference into the Statement of Additional Information. The
financial statements and notes, as well as the information in the table
appearing below, have been audited by Deloitte & Touche LLP, independent
auditors, whose report thereon is included in the Annual Report to Shareholders.
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 0.07 0.06 0.06 0.08 0.08 0.07 0.05 0.03 0.03
Distributions to
shareholders from
Net investment income...... (0.07) (0.06) (0.06) (0.08) (0.08) (0.07) (0.05) (0.03) (0.03)
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Total return............ 7.67% 5.86% 6.71% 7.68% 8.61% 7.48% 4.90% 2.94% 2.60%
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands)................ $564,065 $833,173 $921,414 $962,911 $1,107,670 $1,198,164 $948,674 $840,354 $876,006
RATIOS TO AVERAGE NET
ASSETS
Expenses, including
distribution fees......... 0.60% 0.58% 0.57% 0.60% 0.68% 0.68% 0.69% 0.70% 0.69%
Net investment income...... 7.40% 5.73% 6.40% 7.50% 8.29% 7.24% 4.82% 2.86% 2.57%
<CAPTION>
1995
--------
<S> <<C>
Net asset value, beginning
of year................... $ 1.00
--------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 0.04
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income...... (0.04)
--------
Net asset value, end of
year...................... $ 1.00
--------
--------
Total return............ 4.31%
--------
--------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands)................ $645,523
RATIOS TO AVERAGE NET
ASSETS
Expenses, including
distribution fees......... 0.70%
Net investment income...... 4.16%
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
YIELD
The chart below shows the current and effective yields, calculated in accordance
with rules of the SEC, and the dollar-weighted average portfolio maturity for
the seven-day periods ended March 31, 1995 and June 30, 1995.
<TABLE>
<CAPTION>
MARCH 31, 1995 JUNE 30, 1995
-------------- -------------
<S> <C> <C>
Current Yield.............................................. 5.41% 5.32%
Effective Yield............................................ 5.55% 5.47%
Dollar-Weighted Average Portfolio Maturity................. 34 days 46 days
</TABLE>
From time to time the Fund advertises its 'current yield' and 'effective
yield.' Both yield figures are based on historical earnings and are not intended
to indicate future performance. The 'current yield' of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then 'annualized.'
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The 'effective yield' is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The 'effective yield' will be slightly higher than the 'current
yield' because of the compounding effect of this assumed reinvestment. The
Statement of Additional Information describes in more detail the methods used to
calculate the yields of the Fund.
Performance data for the Fund may, in reports and promotional literature,
be compared to: (i) other mutual funds tracked by IBC/Donoghue's Money Fund
Report and Lipper Analytical Services, widely used independent research firms
which rank mutual funds by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons who
rank mutual funds on overall performance or other criteria; (ii) unmanaged
indices so that investors may compare the Fund's results with those of a group
of unmanaged securities widely regarded by investors as representative of the
securities markets in general; and (iii) the Consumer Price Index (inflation
measure). Promotional and advertising literature also may refer to discussions
of the Fund and comparative mutual fund data and ratings reported in independent
periodicals.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is high current income, preservation of
capital and liquidity. The Fund seeks to achieve its objective by investing in
the following money market instruments:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the U.S. Government or its agencies (such as the
Export - Import Bank of the U.S., Federal Housing Administration and Government
National Mortgage Association) or its instrumentalities (such as the Federal
Home Loan Bank, Federal Intermediate Credit Banks, Federal Land Bank and Federal
National Mortgage Association). Except for U.S. Treasury securities, these
obligations may or may not be backed by the 'full faith and credit' of the
United States. In the case of securities not backed by the full faith and credit
of the United States, the Fund must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitments.
6
<PAGE>
- --------------------------------------------------------------------------------
BANK OBLIGATIONS. Obligations (including time deposits, certificates of
deposit and bankers' acceptances) of domestic banks subject to regulation by the
U.S. Government (including the Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation ('FDIC') or the Comptroller of the
Currency) and having total assets of $1,000,000,000 or more, and repurchase
agreements secured by such obligations, including obligations of foreign
branches of domestic banks. Fixed time deposits, unlike negotiable certificates
of deposit, generally do not have a market and may be subject to penalties for
early withdrawal of funds. However, it is the present policy of the Fund not to
invest in fixed time deposits with a duration of over seven calendar days. The
Fund also will not invest in time deposits with a duration of from two business
to seven calendar days if more than 10% of its assets would be invested in such
deposits.
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1,000,000,000
or more.
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of domestic
banks and savings institutions, having total assets of less than $1,000,000,000,
if the principal amount of the obligation is insured by the FDIC or the Federal
Savings and Loan Insurance Corporation ('FSLIC'), limited to $100,000 principal
amount per certificate per bank and to 5% of the Fund's total assets in all such
obligations.
COMMERCIAL PAPER. Commercial paper rated the highest grade by either
Standard & Poor's Ratings Group ('S&P') or Moody's Investors Service, Inc.
('Moody's'), or, if not rated, issued by a company having an outstanding debt
issue rated at least AA by S&P or Aa by Moody's.
CORPORATE OBLIGATIONS. Corporate obligations, including bonds, debentures
and notes, rated at least AA by S&P or Aa by Moody's, with remaining maturities
of 397 days or less.
OBLIGATIONS OF FOREIGN BANKS AND INSTITUTIONS. Obligations of foreign banks
and institutions which have the equivalent credit ratings of domestic issues,
including, but not limited to, Yankee and foreign bank bankers' acceptances and
commercial paper.
Since the Fund's portfolio may contain obligations of foreign branches of
domestic banks and domestic branches of foreign banks, an investment in the Fund
involves certain additional risks. Such investment risks include future
political and economic developments, the possible imposition of withholding
taxes on interest income payable on such obligations held by the Fund, the
possible seizure or nationalization of foreign deposits and the possible
establishment of exchange controls or other foreign governmental laws or
restrictions which might affect adversely the payment of principal and interest
on such obligations held by the Fund. The Fund will not purchase obligations
which Mitchell Hutchins believes, at the time of purchase, will be subject to
exchange controls or withholding taxes; however, there can be no assurance that
such laws may not become applicable to certain of the Fund's investments. In
addition, there may be less publicly available information about a domestic
branch of a foreign bank than about a domestic bank and such branches may not be
subject to the same accounting, auditing and financial recordkeeping standards
and requirements as domestic banks.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes
issued by domestic corporations which, at the date of investment, either (a)
have an outstanding senior long-term debt issue rated at least Aa by Moody's or
AA by S&P or (b) do not have rated long-term debt outstanding but have
commercial paper rated Prime-1 by Moody's or A-1 by S&P. Variable amount
7
<PAGE>
- --------------------------------------------------------------------------------
master demand notes are obligations that permit the investment by the Fund of
fluctuating amounts as determined by the Fund at varying rates of interest
pursuant to direct arrangements between the Fund and the issuing corporation.
Although callable on demand by the Fund, these obligations are not marketable to
third parties. Investment in these obligations by the Fund is subject to
continuous monitoring by Mitchell Hutchins of the borrower's financial ability
to meet payment on demand, considering such factors as the borrower's earnings
capacity, cash flow and other liquidity ratios. For purposes of determining the
Fund's dollar-weighted average portfolio maturity, the variable amount master
demand notes shall be deemed to have maturities of no more than one day.
REPURCHASE AGREEMENTS. The Fund may invest without limit in any of the
above securities subject to repurchase agreements with major dealers in U.S.
Government securities, member banks of the Federal Reserve System and foreign
banks and dealers that are primary dealers, which are selected by Mitchell
Hutchins in accordance with procedures approved by the Trustees. A repurchase
agreement is an instrument under which the purchaser (i.e., the Fund) acquires a
debt security and the seller agrees, at the time of the sale, to repurchase the
obligation at a mutually agreed upon time and price, thereby determining the
yield during the purchaser's holding period. This results in a fixed rate of
return insulated from market fluctuations during such period. The Fund monitors
and requires that the value of such underlying securities always equals or
exceeds the amount of the repurchase obligations of the borrower. While the
maturities of the underlying securities in repurchase agreement transactions may
be more than one year, the term of each repurchase agreement will always be less
than one year. The Fund's risk is limited to the ability of the seller to pay
the agreed upon amount on the delivery date. In the opinion of Mitchell
Hutchins, the risk is not material; if the seller defaults, the underlying
security constitutes collateral for the seller's obligation to pay although the
Fund may experience difficulties and incur certain costs in exercising its
rights to the collateral and may lose the interest it expected to receive in
respect of the repurchase agreement. Repurchase agreements usually are for short
periods, such as one week or less, but could be longer. The Fund will not enter
into repurchase agreements of more than one week duration if, taken together
with illiquid securities and other securities for which there are no readily
available quotations, more than 10% of its net assets would be so invested.
Repurchase agreements are considered to be loans by the Fund collateralized by
the underlying securities.
ASSET-BACKED SECURITIES. The Fund may invest in high quality asset-backed
securities, including interests in pools of assets such as motor vehicle
installment purchase obligations and credit card receivables.
PORTFOLIO QUALITY AND MATURITY. The Fund maintains a dollar-weighted
average portfolio maturity of 90 days or less. All securities in which the Fund
invests have remaining maturities of 397 days or less on the date of purchase,
are denominated in U.S. dollars and have been determined to be of high quality
by NRSROs or determined to be of comparable quality if not so rated. A
description of these ratings is provided in the Statement of Additional
Information. Mitchell Hutchins, acting under the supervision of and procedures
adopted by the Trustees, will determine that unrated securities purchased by
the Fund are of high quality and will determine that all securities purchased
by the Fund present minimal credit risks and any purchase of unrated securities
or securities that are rated only by a single NRSROs will be approved
or ratified by the Trustees. Mitchell Hutchins will, under the supervision of
the Trustees, cause the Fund to dispose of any security as soon as practicable
if the security is no longer of high quality, unless the Trustees determine
that this action would not be in the best interest of the Fund.
8
<PAGE>
- --------------------------------------------------------------------------------
Purchases of high quality, short term instruments may result in a lower yield
than instruments with a lower quality or a longer term.
CERTAIN INVESTMENT RESTRICTIONS. The Fund has adopted investment
restrictions which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund, as defined in the
Investment Company Act of 1940, as amended (the 'Act'). Certain of these
investment restrictions are summarized below. The restrictions are set forth in
their entirety in the Statement of Additional Information.
These restrictions provide that the Fund may not (i) borrow money, except
from banks for temporary or emergency purposes, including the meeting of
redemption requests which might otherwise require the untimely disposition of
securities, or (ii) invest more than 15% of its assets in the securities of any
one bank. Notwithstanding the second of these restrictions, to the extent
required by the rules of the SEC, the Fund will not invest more than 5% of its
assets in the obligations of any one bank.
The investment objective and policies stated above may not be changed
without the approval of the holders of a majority of the outstanding voting
securities of the Fund, as defined in the Act. There can be no assurance that
the Fund will achieve its investment objective.
For further information about the investment policies of the Fund and an
explanation of Moody's and S&P ratings, see the Statement of Additional
Information.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
Overall responsibility for management and supervision of the Fund rests with its
Trustees. The day-to-day operations of the Fund are conducted through or under
the direction of its officers. There are five members of the Fund's Board of
Trustees, one of whom is employed by Mitchell Hutchins. No officer, director or
employee of Mitchell Hutchins or of any affiliate receives any compensation from
the Fund for serving as a Trustee or officer of the Fund. The Statement of
Additional Information contains general background information regarding each
Trustee and officer of the Fund.
MANAGEMENT
At a special meeting of shareholders on April 13, 1995, shareholders
approved a new investment advisory and administration agreement with
PaineWebber and a new sub-advisory and sub-administration agreement with
Mitchell Hutchins. PaineWebber and Mitchell Hutchins are located at 1285 Avenue
of the Americas, New York, New York 10019. Mitchell Hutchins is a wholly owned
subsidiary of PaineWebber, which in turn is wholly owned by Paine Webber Group
Inc., a publicly owned financial services holding company. As of June 30, 1995,
PaineWebber or Mitchell Hutchins served as investment adviser or sub-adviser to
41 investment companies with an aggregate of 86 separate portfolios and
aggregate assets of over $27.9 billion.
The Fund pays the same fee for investment advisory and administration
services to PaineWebber as previously paid to Kidder Peabody Asset Management,
Inc. ('KPAM'), the Fund's predecessor investment adviser and administrator.
PaineWebber (not the Fund) pays Mitchell Hutchins a fee for sub-advisory and
sub-administration services at the annual rate of 20% of the fee
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received by PaineWebber from the Fund.
Mitchell Hutchins manages the Fund's portfolio in accordance with the
stated policies of the Fund, makes investment decisions for the Fund and places
the purchase and sale orders for portfolio transactions. In addition, Mitchell
Hutchins pays the salaries of all officers and employees who are employed by
both it and the Fund.
As compensation for PaineWebber's services, the Fund pays a fee, computed
daily and paid monthly, at an annual rate of .50% of the Fund's average daily
net assets. For the fiscal year ended March 31, 1995, the Fund's total expenses
represented .70% of its average net assets. From time to time, PaineWebber in
its sole discretion may waive all or a portion of its fee and/or reimburse all
or a portion of the Fund's operating expenses.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by Mitchell Hutchins, investments of the
type the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by Mitchell Hutchins are prepared to
invest in, or desire to dispose of, the same security, available investments or
opportunities for sales are allocated in a manner believed by Mitchell Hutchins
to be equitable to each. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund.
Mitchell Hutchins investment personnel may engage in securities
transactions for their own accounts pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
PORTFOLIO TRANSACTIONS
Mitchell Hutchins is responsible for decisions to buy and sell securities for
the Fund and arranges for the execution of portfolio security transactions on
behalf of the Fund. Purchases of portfolio securities are made from dealers,
underwriters and issuers; sales, if any, prior to maturity, are made to dealers
and issuers. The Fund does not normally incur any brokerage commission expense
on such transactions. Money market instruments are generally traded on a 'net'
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid. No brokerage commissions
have been paid to date.
PURCHASE OF SHARES
GENERAL INFORMATION
The shares of the Fund are offered exclusively to existing shareholders without
any sales charge.
The purchase price for shares of the Fund is the net asset value per share
next determined after receipt by the Fund of a purchase order in proper form.
Purchase orders received before 12:00 noon, Eastern time, for which payment has
been received by PaineWebber will be executed at that time and the shareholder
will receive the dividend declared on that day. Purchase orders received after
12:00
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noon, Eastern time, and purchase orders received earlier in the same day for
which payment has not been received by 12:00 noon, Eastern time, will be
executed at 12:00 noon, Eastern time, the following day received by PaineWebber
by that time and the shareholder will receive the dividend declared on the
following day. There are no minimum investment requirements for the Fund.
AUTOMATIC SWEEP
Free credit cash balances arising from the sale of securities which do not
settle on the day of the transaction (such as most common and preferred stock
transactions) will be invested in shares of the Fund at their net asset value on
the same business day of receipt of the proceeds in the Securities Account. Free
credit cash balances arising from the sale of securities settling on a same day
basis and free credit cash balances of $1.00 or more arising from any other
transactions, such as the placement of cash or the receipt of dividends or
interest in such account, will be automatically invested in shares of the Fund
on the next business day following the day the account is so credited.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all full and fractional shares of the
Fund. The redemption price is the net asset value per share next determined
after receipt by PFPC Inc. of instructions from PaineWebber in accordance
with the automatic redemption procedure set forth below. If instructions
are delivered to PFPC Inc. prior to the determination of net asset value at
12:00 noon, Eastern time, on any day that the Fund determines its net asset
value, payment of the redemption proceeds will be made on the same day the
redemption becomes effective. Shares redeemed in this manner will not be
entitled to the dividend declared on the day of redemption. Payment for
redemption orders, that are received 12:00 noon, Eastern time, will be made on
the next business day following the redemption. Shares redeemed in this
manner are entitled to the dividend declared on the day of redemption.
Redemptions will be automatically effected by PaineWebber to satisfy debit
balances in the Securities Account created by activity therein or to satisfy
debit balances created by Visa card or MasterCard purchases, cash advances or
checks written against the Visa Account or MasterCard Account. Each PaineWebber
account will be automatically scanned for debits each day that the New York
Stock Exchange is open for business as of the close of business on that day,
and, after application of any free credit cash balances in the account to such
debits, a sufficient number of Fund shares will be redeemed at 12:00 noon,
Eastern time, the following business day to satisfy any remaining debits in
either the Securities Account or the Visa Account or MasterCard Account. Margin
loans will be utilized to satisfy debits remaining after the liquidation of all
Fund shares and Fund shares may not be purchased until all debits and margin
loans in the Securities Account are satisfied.
The total value of a shareholder's investment in the Fund at the time of
redemption may be more or less than his or her cost, depending on the value of
the securities held by the Fund at such time and income earned.
If a shareholder wishes to redeem Fund shares, the shareholder should first
call the PaineWebber Financial Service Center at (800) 762-1000 to ascertain the
balance in the Fund. The shareholder may
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then withdraw an amount equal to the value of such shares, less any charges
pending in the PaineWebber account, in any of the following ways:
(a) by writing a check against the Visa Account or MasterCard Account
in such amount;
(b) by obtaining a cash advance from a Visa or MasterCard
participating bank or branch thereof for such amount (which the bank may
limit to $5,000 per account per day);
(c) by using the Visa card or MasterCard to make retail purchases; or
(d) by electronic cash advance at a participating automated teller
machine ('ATM') for an amount of not more than $1,000 per transaction,
subject also to local bank ATM restrictions, but in no case less than $200.
In any of the above methods, the Fund share balance at any time is subject
to reduction due to prior debits against the shareholder's Securities Account.
Accordingly, if payment is requested through the check or the cash advance
methods and if any other debits are paid by automatic redemption of Fund shares
prior to the time the check or cash advance charge is presented for payment,
then the Fund share balance will be reduced. If so, payment of the check or cash
advance may be paid in part from the margin loan value of the Securities Account
or may result in an overdraft.
Both PaineWebber and Bank One have the right to terminate a PaineWebber
account for any reason. If terminated, all Fund shares in a shareholder's
account, upon at least 45 days' notice, will be redeemed.
CONFIRMATIONS
All purchases and redemptions of Fund shares and dividend reinvestments will be
confirmed to the shareholder in the PaineWebber transaction statement which is
sent to all participants monthly.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following
PaineWebber/Kidder, Peabody money market funds.
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund
PaineWebber/Kidder, Peabody Cash Reserve Fund, Inc.
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
PaineWebber/Kidder, Peabody Municipal Money Market Series --
Connecticut Series
PaineWebber/Kidder, Peabody Municipal Money Market Series --
New Jersey Series
PaineWebber/Kidder, Peabody Municipal Money Market Series --
New York Series
PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc.
Although the Fund currently imposes no limit on the number of times the
Exchange Privilege may be exercised by any shareholder, the Fund may impose such
limits in the future, in accordance with applicable provisions of the Act and
rules thereunder. In addition, the Exchange Privilege may be terminated or
revised at any time upon 60 days' prior written notice to Fund shareholders, and
is available only to residents of states in which exchanges are permitted under
state law. The exchange of shares of one fund for shares of another is treated
for federal income tax purposes as a sale of the shares given in exchange by the
shareholder, so that a shareholder may recognize a taxable gain or loss on an
exchange, although a shareholder's losses may be limited. See 'Dividends,
Distributions and Taxes.'
Upon receipt of proper instructions and all necessary supporting documents,
Fund shares submitted for exchange are redeemed at their current net asset value
next determined and simultaneously invested in shares of the fund being
acquired. Settlement of the exchange would generally occur one business day
after the date on which the request for exchange was received in
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proper form, unless the dollar amount of the transaction exceeds 5% of the
Fund's total net assets on any given day, in which case, settlement would occur
within five business days after the date on which the request for exchange was
received in proper form. The proceeds of a redemption of Fund shares made to
facilitate the exchange of those shares for shares of another fund must be equal
to at least (1) the minimum initial investment requirement imposed by the fund
into which the exchange is being sought if the shareholder seeking the exchange
has not previously invested in that fund or (2) the minimum subsequent
investment requirement imposed by the fund into which the exchange is being
sought if the shareholder has previously made an investment in that fund.
A shareholder of the Fund wishing to exercise the Exchange Privilege should
obtain from PaineWebber a copy of the current prospectus of the fund into which
an exchange is being sought and review that prospectus carefully before making
the exchange. PaineWebber reserves the right to reject any exchange request at
any time. Prior to or concurrently with the delivery of a confirmation of a
shareholder's exchange transaction, PaineWebber will deliver to that shareholder
a copy of the prospectus of the fund into which the exchange is being made.
THE DISTRIBUTOR
PaineWebber acts as distributor of the Fund's shares pursuant to a Distribution
Agreement dated April 13, 1995. To reimburse PaineWebber for the services it
provides and for the expenses it bears under the Distribution Agreement, the
Fund adopted a Plan of Distribution under the Act. The Plan of Distribution was
most recently amended by the Board of Directors of the Fund on December 16, 1994
to substitute therein the name of the new distributor, PaineWebber, for the
former distributor, Kidder, Peabody & Co. Incorporated 'Kidder Peabody.'
The Plan of Distribution provides that the Fund reimburse PaineWebber its
expenses for distribution of the Fund's shares a fee at the annual rate of up to
.12% of the Fund's average daily net assets. The expenses that may be reimbursed
include, but are not limited to, compensation to and expenses of Investment
Executives and other employees of PaineWebber who engage in or support
distribution of the Fund's shares or who service shareholder accounts and the
preparation, printing and distribution of sales literature and advertising
materials. PaineWebber anticipates that the amount of expenses reimbursed will
not exceed the amount of expenses incurred by PaineWebber and that there will be
no carry over of expenses from one year to the next. The expenses to be
reimbursed are for activities primarily intended to result in the sale of shares
of the Fund and the maintenance of Fund accounts and account balances.
PaineWebber currently intends that approximately .10% per annum of the Fund's
average daily net assets will be paid to its investment executives
proportionately in respect of Fund share balances maintained by their respective
clients and the balance on other activities. For the fiscal year ended March 31,
1995, the Fund reimbursed .12% of its average daily net assets to PaineWebber
and Kidder, Peabody.
Pursuant to the Plan of Distribution, PaineWebber provides the Fund's
Trustees, at least quarterly, with a written report of the amounts expended
under the Plan of Distribution. The report includes an itemization of the
distribution expenses incurred by PaineWebber on behalf of the Fund and the
purpose of such expenditures. In their quarterly review of the Plan of
Distribution, the Trustees consider its continued appropriateness and the level
of compensation provided therein. For the fiscal year ended March 31, 1995,
PaineWebber and Kidder Peabody incurred distribution expenses of approxi-
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mately $2.6 million of which approximately $948,000 was recovered in the form of
reimbursements made by the Fund to PaineWebber and Kidder, Peabody at the rate
provided in the Plan of Distribution.
The Plan of Distribution remains in effect for as long as such continuance
is approved annually by vote of the Trustees, including a majority of those
Trustees who are not interested persons and who have no direct or indirect
financial interest in the Plan of Distribution ('Rule 12b-1 Trustees'), cast in
person at a meeting called for such purpose. The Plan of Distribution may not be
amended to increase materially the amount to be spent for the services described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan of Distribution must also be approved by the Trustees in
the manner described above. The Plan of Distribution may be terminated at any
time by vote of a majority of the Rule 12b-1 Trustees as described above or by
vote by the holders of a majority of the outstanding voting securities of the
Fund, as defined in the Act. So long as the Plan of Distribution is in effect,
the election and nomination of Trustees who are not interested persons of the
Fund shall be committed to the discretion of the Trustees who are not interested
persons. The Trustees have determined that, in their judgment, there is a
reasonable likelihood that the Plan of Distribution benefits the Fund and its
shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund declares dividends on each day the New York Stock Exchange is open for
business of all of its daily net income to shareholders of record. Dividends are
declared daily and paid monthly and automatically are reinvested in additional
shares of the Fund at the net asset value per share determined on that day.
Net income, for dividend purposes, includes accrued interest and accretion
of original issue or market discount, less amortization of market premium and
the estimated expenses of the Fund. Net income is calculated and distributed
immediately prior to the determination of net asset value per share of the Fund.
Each shareholder receives from PaineWebber a monthly summary of his or her
account, including information as to dividends reinvested.
The Trustees may revise the above dividend policy, or postpone the payment
of dividends, if the Fund should have or anticipate any large unexpected
expense, loss or fluctuation in net assets which in the opinion of the Trustees
might have a significant adverse effect on shareholders. In order to maintain a
constant $1 per share net asset value, it is possible that the Trustees may
direct that the number of outstanding shares be reduced in each shareholder's
account. The adjustment may result in taxable income to a shareholder in excess
of the dividends reflected in a shareholder's account as of the end of a period.
The shareholder's basis in the shares of the Fund may be adjusted to reflect the
difference between taxable income and dividends reflected in a shareholder's
account after such adjustment. Such difference may be realized as a capital loss
when the shares are liquidated.
The Fund qualified as a 'regulated investment company' for the fiscal year
ended March 31, 1995 and intends to remain qualified under the Internal Revenue
Code of 1986, as amended (the 'Code'). As a regulated investment company, the
Fund pays no Federal income tax on its income and gains which it distributes to
shareholders, provided the Fund distributes at least 90% of its net investment
income and net short-term capital gains for each year.
Dividends of net investment income (i.e., interest income, net of
expenses), and distribution of net short-term capital gains are taxable to
shareholders as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund will not qualify for the dividends received deduction for
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corporations because the Fund's income will not consist of dividends paid by
U.S. corporations. Distributions of net long-term capital gains, if any, are
taxable to shareholders as long-term capital gains regardless of the length of
time a shareholder has held his shares.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. Any loss realized by a
shareholder on the sale or redemption of Fund shares held for six months or less
will be treated as a long-term capital loss, however, to the extent of any net
long-term capital gain distributions received by the shareholder with respect to
those shares. Any loss realized on a sale, redemption or exchange of shares of
the Fund by a shareholder will be disallowed to the extent the shares are
replaced within a 61-day period (beginning 30 days before the disposition of
shares). Shares purchased pursuant to the reinvestment of a dividend will
constitute a replacement of shares.
The Fund may be required to withhold U.S. Federal income tax at the rate of
31% ('backup withholding') of all taxable distributions payable to shareholders
who fail to provide the Fund with their correct taxpayer identification number
or to make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Corporate
shareholders and other shareholders specified in the Code are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against a shareholder's U.S. Federal income tax
liability.
Dividends of net investment income made to a non-resident alien individual,
a foreign trust or estate, foreign corporation, or foreign partnership not
engaged in a trade or business in the United States will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount
of the dividend.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually to shareholders. Shareholders are urged to
consult their own tax advisors regarding specific questions as to Federal, state
or local taxes.
DETERMINATION OF NET ASSET VALUE
Net asset value is determined daily at 12:00 noon, Eastern time, Monday through
Friday, except that net asset value is not computed on a day in which no orders
to purchase, sell, exchange or redeem Fund shares have been received, any day on
which there is not sufficient trading in the Fund's portfolio securities that
the Fund's net asset value per share might be materially affected by changes in
the value of such portfolio securities or on days on which the New York Stock
Exchange is not open for trading.
The Fund's net asset value per share is computed by dividing the value of
the net assets of the Fund (i.e., the value of its assets less liabilities) by
the total number of shares outstanding. Expenses and fees of the Fund, including
PaineWebber's fee, are accrued daily and taken into account for the purpose of
determining net asset value. It is the policy of the Fund to attempt to maintain
a net asset value of $1.00 per share for purposes of sales and redemptions;
accordingly, the Fund employs the amortized cost method of valuing its portfolio
securities. The Fund anticipates that any fluctuations in value will be
reflected in the daily dividend or in the number of outstanding shares in the
shareholder's account rather than in the per share dollar value. There can be no
assurance that the Fund will always be able to maintain a constant net asset
value of $1.00 per share.
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The amortized cost method of valuation involves valuing a security at its
cost at the time of purchase and thereafter assuming a constant accretion or
amortization to maturity of any discount or premium, respectively, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument. Additional information
concerning the amortized cost method and certain conditions imposed upon its use
is contained in the Statement of Additional Information.
CUSTODIAN AND DIVIDEND, TRANSFER AND RECORDKEEPING AGENT
Investors Fiduciary Trust Company ('IFTC'), 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Fund's custodian. PFPC Inc., a subsidiary of PNC
Bank, National Association, whose principal address is 400 Bellevue Parkway,
Wilmington, Delaware 19809, serves as the Fund's dividend, transfer and
recordkeeping agent. As custodian, IFTC is responsible for the custody of all
Fund securities. As dividend agent, PFPC Inc. is responsible for crediting
dividends to shareholders' accounts; as transfer agent, it maintains the Fund's
official record of shareholders; and as recordkeeping agent, it maintains
certain accounting and financial records of the Fund.
COUNSEL AND INDEPENDENT AUDITORS
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, is counsel for
the Fund. Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, has been selected as independent auditors of the Fund.
SHARES OF THE FUND
The Fund was organized as a Massachusetts business trust on January 13, 1982.
The Trustees may issue an unlimited number of full and fractional shares of
a single class and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Fund. Upon liquidation of the Fund, shareholders are entitled to share
pro rata in the net assets of the Fund available for distribution to
shareholders. Shares have no preemptive or conversion rights and are fully paid
and non-assessable.
In the interest of economy and convenience, certificates representing the
Fund's shares are not physically issued. PFPC Inc. maintains a record of each
shareholder's ownership.
The shareholders of the Fund are entitled to a full vote for each full
share held. The Fund is not required to hold annual meetings of shareholders,
however, the Trustees may call special meetings of shareholders for action by
shareholder vote as may be required by the Act or the Declaration of Trust (the
'Declaration').
The Declaration establishing the Fund provides that the name of the Fund
refers to the Trustees under the Declaration collectively as Trustees, but not
as individuals or personally; and no Trustee, shareholder, officer, employee or
agent of such Fund shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of the Fund but the Trust Estate only
shall be liable. For more information on the Fund's shares and organization as a
Massachusetts business trust, see the Statement of Additional Information.
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No person has been authorized to give any information or to make any
representations not contained in this Prospectus or in the Fund's
Statement of Additional Information incorporated herein by reference
in connection with the offering made by this Prospectus, and, if
given or made, such other information or representations must not be
relied upon as having been authorized by the Fund or its
distributor. This Prospectus does not constitute an offering by the
Fund or by its distributor in any jurisdiction in which such
offering may not lawfully be made.
- --------------------------------------------------------
Contents
- --------------------------------------------------------
Fee Table 2
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Highlights 3
- --------------------------------------------------------
Financial Highlights 5
- --------------------------------------------------------
Yield 6
- --------------------------------------------------------
Investment Objective and
Management Policies 6
- --------------------------------------------------------
Management of the Fund 9
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Portfolio Transactions 10
- --------------------------------------------------------
Purchase of Shares 10
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Redemption of Shares 11
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Exchange Privilege 12
- --------------------------------------------------------
The Distributor 13
- --------------------------------------------------------
Dividends, Distributions
and Taxes 14
- --------------------------------------------------------
Determination of Net Asset Value 15
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Custodian and Dividend, Transfer
and Recordkeeping Agent 16
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Counsel and Independent Auditors 16
- --------------------------------------------------------
Shares of the Fund 16
- --------------------------------------------------------
Although the Fund attempts to maintain a constant net asset value of
$1.00 per share, as with any investment in securities, the value of
a shareholder's investment in the Fund may fluctuate.
PaineWebber/
Kidder,
Peabody
Premium
Account
Fund
Prospectus
August 1, 1995
<PAGE>
Statement of Additional Information August 1, 1995
- --------------------------------------------------------------------------------
PaineWebber/Kidder, Peabody Premium Account Fund
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (800) 647-1568
PaineWebber/Kidder, Peabody Premium Account Fund (the 'Fund') is a diversified
open-end management investment company that seeks high current income,
preservation of capital and liquidity. This Statement of Additional Information
relating to the Fund is not a prospectus and should be read in conjunction with
the Fund's prospectus. A copy of the Fund's prospectus can be obtained from the
Fund. The date of the prospectus to which this Statement relates is August 1,
1995.
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INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
PaineWebber Incorporated
SUB-ADVISER AND SUB-ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
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<PAGE>
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INVESTMENT OBJECTIVE AND POLICIES
The following information supplements and should be read in conjunction with the
section in the Fund's prospectus entitled 'Investment Objective and Management
Policies.'
ASSET-BACKED AND RECEIVABLE-BACKED SECURITIES
The Fund may invest in asset-backed and receivable-backed securities. Several
types of asset-backed and receivable-backed securities have been offered to
investors, including 'Certificates for Automobile Receivables' ('CARs'sm'') and
interests in pools of credit card receivables. CARs'sm' represent undivided
fractional interests in a trust, the assets of which consist of a pool of motor
vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts.
Payments of principal and interest on CARs'sm' are passed through monthly
to certificate holders and are guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. An investor's return
on CARs'sm' may be affected by early prepayment of principal on the underlying
vehicle sales contracts. If the letter of credit is exhausted, the Fund may be
prevented from realizing the full amount due on a sales contract because of
state law requirements and restrictions relating to foreclosure sales of
vehicles and the availability of deficiency judgments following such sales,
because of depreciation, damage or loss of a vehicle, because of the application
of federal and state bankruptcy and insolvency laws or other factors. As a
result, certificate holders may experience delays in payment if the letter of
credit is exhausted. Consistent with the Fund's investment objective and
policies and, subject to the review and approval of the Fund's Trustees, the
Fund also may invest in other types of asset-backed and receivable-backed
securities.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions and fundamental
policies which are not described in their entirety in the prospectus, and
accordingly are set forth below. These restrictions cannot be changed without
approval by the holders of a majority of the outstanding shares of the Fund, as
defined in the Investment Company Act of 1940, as amended (the 'Act'). See
'Additional Information.'
The Fund may not:
1. Purchase any common stocks or other equity securities.
2. Borrow money, except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might
otherwise require the untimely disposition of securities. Borrowing in the
aggregate may not exceed 20%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the value of the Fund's total assets
(including the amount borrowed), less liabilities (not including the amount
borrowed) at the time the borrowing is made; investment securities will not
be purchased while borrowings are outstanding.
3. Make loans to others, except through the purchase of debt
obligations, loans of portfolio securities referred to below and through
repurchase agreements referred to under 'Investment Objective and
Management Policies' in the Fund's prospectus, provided that the Fund will
not enter into repurchase agreements of more than one week duration if,
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together with illiquid securities and other securities for which there are
no readily available market quotations, more than 10% of its assets would
be so invested. Loans of portfolio securities will not exceed 10% of the
value of the Fund's total assets.
4. Purchase or sell real estate; however, the Fund may purchase
marketable securities issued by companies which invest in real estate or
interests therein.
5. Purchase securities on margin or sell short.
6. Purchase or sell commodities or commodity futures contracts, or
oil, gas or mineral exploration or development programs.
7. Purchase any securities that are illiquid if, as a result thereof,
more than 10% of the Fund's net assets would be so invested.
8. Underwrite securities of other issuers.
9. Purchase warrants, or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof.
10. Participate on a joint or joint and several basis in any
securities trading account.
11. Purchase the securities of any other registered investment
company, except in connection with a merger, consolidation, reorganization
or acquisition of assets.
12. Purchase securities of any issuer for the purpose of exercising
control or management.
13. Invest more than 15% of its assets in the securities of any one
bank or purchase any securities (other than obligations or securities of
(i) domestic banks and savings institutions subject to regulation of the
United States Government or (ii) the United States Government, or its
agencies or instrumentalities) if, immediately after such purchase, more
than 5% of the value of the Fund's total assets would be invested in
securities of any one issuer, or more than 10% of the outstanding
securities of one issuer would be owned by the Fund (for this purpose all
indebtedness of an issuer shall be deemed a single class of security).
Notwithstanding the foregoing, to the extent required by the rules of the
Securities and Exchange Commission (the 'SEC'), the Fund will not invest
more than 5% of its assets in the obligations of any one bank.
14. Purchase any securities, other than obligations of domestic banks
and savings institutions subject to regulation of the United States
Government or of the United States Government, or its agencies or
instrumentalities, if, immediately after such purchase, more than 25% of
the value of the Fund's total assets would be invested in the securities of
issuers in the same industry; however, there is no limitation as to
investments in the obligations of such banks and savings institutions
(excluding foreign branches thereof) or in obligations issued or guaranteed
by the United States Government or its agencies or instrumentalities.
15. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer, Trustee or director of the Fund or of the Investment
Adviser and Administrator owns more than 1/2 of 1% of the outstanding
securities of such issuer and such officers, Trustees and directors who
own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions.
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PORTFOLIO MANAGEMENT
Although the Fund will generally not seek profits through short-term trading, it
may dispose of any portfolio security prior to its maturity if, on the basis of
a revised credit evaluation of the issuer or other circumstances or
considerations, it believes such disposition advisable.
The Fund may have a high portfolio turnover due to the short maturities of
securities purchased, but this should not affect income or net asset value as
brokerage commissions are not normally charged on the purchase or sale of money
market instruments.
Subject to investment restriction number 3 above, the Fund may lend
portfolio securities to brokers, dealers and financial institutions provided
that the borrower at all times maintains cash or equivalent collateral, secures
a letter of credit in favor of the Fund or otherwise secures the loan in an
amount equal to at least 100% of the market value of the securities loaned.
While such securities are on loan, the borrower will pay the Fund any income
accruing thereon, and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income. The Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which its shares are qualified for sale and will not lend more
than 10% of the value of its total assets. Loans are subject to termination by
the Fund in the normal settlement time, currently five business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Fund and its shareholders. The Fund may pay reasonable finders, borrowers,
administrative, and custodial fees in connection with a loan. In addition, in
connection with loans of portfolio securities, Mitchell Hutchins Asset
Management Inc. ('Mitchell Hutchins') will consider all facts and circumstances,
including the creditworthiness of the borrowing financial institution, and the
Fund will not make any loans in excess of one year.
The Fund attempts to balance its objective of high current income,
preservation of capital and liquidity by investing in securities of varying
maturities and risks. As a result, the Fund may not necessarily invest in
securities with the highest available yield. The Fund will not invest in
securities that mature in more than 397 days from the date of purchase. The
amounts invested in obligations of various maturities of 397 days or less will
depend on management's evaluation of the risks involved. Longer-term issues,
while generally paying higher interest rates, are subject to greater
fluctuations in value resulting from general changes in interest rates than
shorter-term issues. Thus, when rates on new debt securities increase, the value
of outstanding securities may decline, and vice versa. Such changes may also
occur, but to a lesser degree, with short-term issues. These changes, if
experienced, may cause fluctuations in the amount of daily dividends and, in
extreme cases, could cause the net asset value per share to decline. Longer-term
issues also increase the risk that the issuer may be unable to pay an
installment of interest or principal at maturity. Also, in the event of
unusually large redemption demands, such securities may have to be sold at a
loss prior to maturity, or the Fund might have to borrow money and incur
interest expenses. Either occurrence would adversely impact the amount of daily
dividends and could result in a decline in daily net asset value per share or
the reduction by the Fund of the number of shares held in a shareholder's
account. The Fund will attempt to minimize these risks by investing in
longer-term securities (while maintaining a dollar weighted average portfolio
maturity of 90 days or less) when it appears to management that interest rates
on such securities are not likely to increase substantially during the period of
expected holding, and then only in
4
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securities of high quality which are readily marketable. However, there can be
no assurance the Fund will be successful in achieving this objective. See
'Determination of Net Asset Value.'
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
Trustees and officers of the Fund, together with information as to their
principal business occupations during the last five years, are shown below. Each
Trustee who is an 'interested person' of the Fund, as defined in the Act, is
indicated by an asterisk.
David J. Beaubien, 60, Trustee. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring instruments. Director of IEC,
Inc., manufacturer of electronic assemblies, Belfort Instruments, Inc.,
manufacturer of environmental instruments, and Oriel Corp., manufacturer of
optical instruments. Prior to January 1991, Senior Vice President of EG&G, Inc.,
a company that makes and provides a variety of scientific and technically
oriented products and services. Mr. Beaubien is a director or trustee of 13
other investment companies for which Mitchell Hutchins or PaineWebber
Incorporated ('PaineWebber') serves as investment adviser.
William W. Hewitt, Jr., 66, Trustee. Trustee of The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Bond Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The
Guardian Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian
U.S. Government Trust. Mr. Hewitt is a director or trustee of 13 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Thomas R. Jordan, 66, Trustee. Principal of The Dilenschneider Group, Inc.,
a corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm. Mr. Jordan is a director or trustee
of 12 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
*Frank P. L. Minard, 50, Trustee. Chairman of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins Institutional Investors Inc. and a director of
PaineWebber. Prior to 1993, managing director of Oppenheimer Capital in New York
and Director of Oppenheimer Capital Ltd. in London. Mr. Minard is a director or
trustee of 27 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Carl W. Schafer, 59, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd. and Hidden Lake Gold
Mines Ltd., gold mining companies, Electronic Clearing House, Inc., a financial
transactions processing company, Wainoco Oil Corporation and BioTechniques
Laboratories, Inc., an agricultural biotechnology company. Prior to January
1993, chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Mr.
Schafer is a director or trustee of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
5
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Margo N. Alexander, 48, President. President, chief executive officer and a
director of Mitchell Hutchins. Prior to January 1995, an executive vice
president of PaineWebber. Ms. Alexander is also a trustee of one other
investment company and president of 38 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Teresa M. Boyle, 36, Vice President. First vice president and
manager -- advisory administration of Mitchell Hutchins. Prior to November 1993,
compliance manager of Hyperion Capital Management, Inc., an investment advisory
firm. Prior to April 1993, a vice president and manager -- legal administration
of Mitchell Hutchins. Ms. Boyle is also a vice president of 38 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Scott H. Griff, 30, Vice President and Assistant Secretary. Vice president
and attorney of Mitchell Hutchins. Prior to January 1995, an associate at the
law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff is also a vice
president and assistant secretary of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Dennis L. McCauley, 48, Vice President. Managing Director and Chief
Investment Officer -- Fixed Income of Mitchell Hutchins. Prior to December 1994,
Director of Fixed Income Investments of IBM Corporation. Mr. McCauley is also a
vice president of six other investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Susan P. Messina, 35, Vice President. Senior vice president and portfolio
manager for Mitchell Hutchins. Ms. Messina is also a vice president of three
other investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Anne E. Moran, 38, Vice President and Assistant Treasurer. Vice president
of Mitchell Hutchins. Ms. Moran is also a vice president and assistant treasurer
of 38 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dianne E. O'Donnell, 43, Vice President and Secretary. Senior vice
president and deputy general counsel of Mitchell Hutchins. Ms. O'Donnell is also
a vice president and secretary of 38 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Victoria E. Schonfeld, 44, Vice President. Managing director and general
counsel of Mitchell Hutchins. From April 1990 to May 1994, a partner in the law
firm of Arnold & Porter. Ms. Schonfeld is also a vice president and assistant
secretary of 38 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Paul H. Schubert, 32, Vice President and Assistant Treasurer. Vice
president of Mitchell Hutchins. From August 1992 to August 1994, vice president
at BlackRock Financial Management L.P. Prior to August 1992, an audit manager
with Ernst & Young LLP. Mr. Schubert is also a vice president and assistant
treasurer of 38 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Martha J. Slezak, 33, Vice President and Assistant Treasurer. Vice
president of Mitchell Hutchins. From September 1991 to April 1992, a fundraising
director for a U.S. Senate campaign. Prior to September 1991, a tax manager with
Arthur Andersen & Co. LLP. Ms. Slezak is also a vice president and assistant
treasurer of 38 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
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Julian F. Sluyters, 35, Vice President and Treasurer. Senior vice president
and the director of the mutual fund finance division of Mitchell Hutchins. Prior
to 1991, an audit senior manager with Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 38 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
Gregory K. Todd, 38, Vice President and Assistant Secretary. First vice
president and associate general counsel of Mitchell Hutchins. Prior to 1993, a
partner with the law firm of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant secretary of 38 other investment companies
for which Mitchell Hutchins or PaineWebber serves as investment adviser.
Certain of the Trustees and officers of the Fund are directors and/or
trustees and officers of other mutual funds managed by PaineWebber or Mitchell
Hutchins. The address of each of the non-interested Trustees is: Mr. Beaubien,
Montague Industrial Park, 101 Industrial Road, Box 746, Turners Falls,
Massachusetts 01376; Mr. Hewitt, P.O. Box 2359, Princeton, New Jersey
08543-2359; Mr. Jordan, 200 Park Avenue, New York, New York 10166; and Mr.
Schafer, P.O. Box 1164, Princeton, New Jersey 08542. The address of Mr. Minard
and each of the officers is 1285 Avenue of the Americas, New York, New York
10019.
By virtue of the responsibilities assumed by PaineWebber under the
Investment Advisory and Administration Agreement (the 'Agreement'), the Fund
requires no executive employees other than its officers, none of whom devotes
full time to the affairs of the Fund. See 'Investment Management and Other
Services -- Investment Adviser and Administrator.' Trustees and officers, as a
group, owned less than 1% of the Fund's outstanding shares as of July 1, 1995.
No officer, director or employee of PaineWebber or Mitchell Hutchins or of any
affiliate receives any compensation from the Fund for serving as an officer or
Trustee of the Fund. The Fund pays each Trustee who is not an officer, director
or employee of PaineWebber or Mitchell Hutchins or any of its affiliates an
annual retainer of $2,500 and $750 for each Trustees' meeting attended, and
reimburses the Trustee for out-of-pocket expenses associated with attendance at
Trustees' meetings. The Chairman of the Trustees' audit committee receives an
annual fee of $250. No officer, director or employee of Mitchell Hutchins, or
any of its affiliates, receives any compensation from the Fund for serving as an
officer or Trustee of the Fund. The amount of compensation paid by the Fund to
each Trustee for the fiscal year ended March 31, 1995, and the aggregate amount
of compensation paid to each such Trustee for the year ended December 31, 1994
by all funds in the former Kidder Family of Funds for which such person is a
Board member were as follows:
<TABLE>
<CAPTION>
(5)
(3) TOTAL COMPENSATION
(2) PENSION OR (4) FROM FUND AND 12
(1) AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL OTHER INVESTMENT
NAME OF BOARD COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPANIES IN THE
MEMBER FUND* FUND'S EXPENSES RETIREMENT FUND COMPLEX**
- ------------------------------ ----------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
David J. Beaubien $ 8,250 None None $ 80,700
William W. Hewitt, Jr. $ 8,000 None None $ 74,425
Thomas R. Jordan $ 8,000 None None $ 83,125
Frank P.L. Minard None None None None
Carl W. Schafer $ 8,000 None None $ 84,575
</TABLE>
(footnotes on next page)
7
<PAGE>
(footnotes from previous page)
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to approximately $12,000 for all Trustees as a group.
** Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT ADVISER AND ADMINISTRATOR
PaineWebber, the Fund's investment adviser and administrator, and Mitchell
Hutchins, the Fund's sub-adviser and sub-administrator, are located at 1285
Avenue of the Americas, New York, New York 10019.
Mitchell Hutchins manages the Fund's portfolio and places the orders for
the purchase and sale of portfolio securities. Mitchell Hutchins obtains and
evaluates such information and advice relating to the economy, securities
markets, and securities as it considers necessary or useful to continuously
manage the assets of the Fund in a manner consistent with its investment
objective and policies. Mitchell Hutchins maintains certain of the Fund's books
and records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, and bookkeeping services as the Fund may reasonably
require in the conduct of business and which are not provided by the custodian
and transfer, dividend and recordkeeping agent. In addition, Mitchell Hutchins
pays the salaries of all officers and employees of the Fund who are employees of
Mitchell Hutchins.
Expenses not expressly assumed by PaineWebber are paid by the Fund. The
expenses borne by the Fund include, but are not limited to: charges and expenses
of any registrar, custodian, stock transfer, dividend disbursing and
recordkeeping agents; brokerage commissions; taxes; engraving and printing stock
certificates, if any; registration costs of the Fund and its shares under
Federal and state securities laws; the cost and expense of printing, including
typesetting, and distributing prospectuses and statements of additional
information of the Fund and supplements thereto to the Fund's then current
shareholders; all expenses of shareholders' and Trustees' meetings, and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of PaineWebber or any affiliate; all expenses
incident to any dividend, withdrawal or redemption options; charges and expenses
of any outside service used for pricing of the Fund's portfolio securities and
calculating net asset value; fees and expenses of legal counsel, including
counsel to the Trustees who are not interested persons of the Fund or of
PaineWebber, and independent auditors; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Fund which inure to their
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operations.
As compensation for the services and facilities furnished to the Fund, the
Fund pays PaineWebber a fee, computed daily and paid monthly, at an annual rate
of .50% of the Fund's average daily net assets. The Fund paid PaineWebber or
Kidder Peabody Asset Management, Inc., the Fund's predecessor investment adviser
and administrator, fees of $4,332,418, $4,080,292
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and $3,949,481 for the fiscal years ended March 31, 1993, 1994 and 1995,
respectively. PaineWebber has agreed that if in any fiscal year the aggregate
expenses of the Fund (including advisory fees but excluding taxes, interest,
brokerage fees and extraordinary expenses) exceed the expense limitation of any
state having jurisdiction over the Fund, PaineWebber will reimburse the Fund for
such excess expenses. The Fund believes that currently the most stringent state
expense limitations are 2 1/2% of the first $30 million of the average value of
the Fund's net assets, 2% of the next $70 million and 1 1/2% of the remaining
net assets of the Fund. Such amount, if any, will be estimated daily and
credited on a monthly basis. For the fiscal year ended March 31, 1995, the
Fund's expenses did not exceed such limitations.
Under its terms, the Agreement shall continue automatically for successive
annual periods, provided continuance of the Agreement is approved at least
annually by the vote of a majority, as defined in the Act, of the outstanding
voting securities of the Fund or by the Trustees of the Fund, provided that in
either event such continuance is approved annually by the vote of a majority of
the Trustees who are not parties to the Agreement or 'interested persons,' as
defined in the Act, of any such party, which vote must be cast in person at a
meeting called for the purpose of voting on such approval. The Agreement may be
terminated at any time, without penalty, on 60 days' written notice by the
Trustees of the Fund, by the holders of a majority, as defined in the Act, of
the outstanding voting securities of the Fund, or by PaineWebber. The Agreement
will automatically terminate in the event of its assignment, as defined in the
Act.
PaineWebber shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the matters to which the
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the Agreement.
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber, PaineWebber/Kidder, Peabody ('PW/KP') and
Mitchell Hutchins/Kidder, Peabody ('MH/KP') mutual funds and other Mitchell
Hutchins' advisory accounts by all Mitchell Hutchins' directors, officers and
employees, establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber, PW/KP and MH/KP mutual
funds and other Mitchell Hutchins advisory clients.
DISTRIBUTOR
PaineWebber, as distributor, conducts a continuous offering of the Fund's shares
and is acting on a best efforts basis. See 'The Distributor' in the Fund's
prospectus.
The Trustees believe that the Fund's expenditures under the Fund's Plan of
Distribution pursuant to Rule 12b-1 benefit the Fund and its shareholders by
providing better shareholder services. For the fiscal year ended March 31, 1995,
PaineWebber and Kidder, Peabody & Co. Incorporated, the Fund's predecessor
distributor, received $948,000 from the Fund, of which $374,000 was spent on
payments to Investment Executives and $574,000 was spent on printing and
overhead-related expenses.
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INDEPENDENT AUDITORS
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281,
acts as independent auditors for the Fund. In such capacity, Deloitte & Touche
LLP audits the Fund's annual financial statements.
CUSTODIAN AND TRANSFER, DIVIDEND DISBURSING AND RECORDKEEPING AGENT
Investors Fiduciary Trust Company ('IFTC'), 127 West 10th Street, Kansas City,
Missouri 64105, acts as the Fund's custodian. PFPC Inc., a subsidiary of PNC
Bank, National Association, whose principal address is 400 Bellevue Parkway,
Wilmington, Delaware 19809, acts as transfer, dividend and recordkeeping agent
of the Fund. As custodian, IFTC maintains custody of the Fund's portfolio
securities. As transfer agent, PFPC Inc. maintains the Fund's official record of
shareholders, as dividend agent, it is responsible for crediting dividends to
shareholders' accounts, and as recordkeeping agent, it maintains certain
accounting and financial records of the Fund.
COUNSEL
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, acts as counsel
for the Fund.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
Purchases of shares of the Fund may be made only by existing shareholders. See
'Purchase of Shares' in the Fund's prospectus.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed for
any period during which the New York Stock Exchange (the 'NYSE') is closed
(other than for customary weekend or holiday closings), when trading in markets
the Fund normally utilizes is restricted, or an emergency exists as determined
by the SEC so that disposal of the Fund's investments or determination of net
asset value is not reasonably practicable, or for such other periods as the SEC
by order may permit for protection of the Fund's shareholders. See 'Redemption
of Shares' in the Fund's prospectus.
EXCHANGE PRIVILEGE
The right of exchange may be suspended or postponed if (a) there is a suspension
of the redemption of Fund shares under Section 22(e) of the Act, or (b) the Fund
temporarily delays or ceases the sale of its shares because it is unable to
invest amounts effectively in accordance with its investment objective, policies
and restrictions.
Shares of the Fund may be exchanged for shares of the following
PaineWebber/Kidder, Peabody funds:
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund
PaineWebber/Kidder, Peabody Cash Reserve Fund, Inc.
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
PaineWebber/Kidder, Peabody Municipal Money Market Series-Connecticut
Series
10
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PaineWebber/Kidder, Peabody Municipal Money Market Series-New Jersey
Series
PaineWebberKidder, Peabody Municipal Money Market Series-New York Series
PaineWebberKidder, Peabody Tax Exempt Money Fund, Inc.
PORTFOLIO TRANSACTIONS
Mitchell Hutchins is responsible for decisions to buy and sell securities for
the Fund and arranges for the execution of portfolio security transactions on
its behalf. Purchases of portfolio securities are made from dealers,
underwriters and issuers; sales, if any, prior to maturity, are made to dealers
and issuers. The Fund does not normally incur any brokerage commission expense
on such transactions. Money market instruments are generally traded on a 'net'
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid. No brokerage commissions
have been paid to date.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration is given to obtaining the most favorable
price and efficient execution of transactions. In seeking to implement the
Fund's policy, Mitchell Hutchins effects transactions with those dealers which
Mitchell Hutchins believes provide the most favorable prices and are capable of
providing efficient executions. If Mitchell Hutchins believes such price and
execution can be obtained from more than one dealer, it may give consideration
to placing portfolio transactions with those dealers who also furnish research
or other services to the Fund or Mitchell Hutchins. Such services include, but
are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investments; wire services; and appraisals
or evaluations of portfolio securities.
The services received by Mitchell Hutchins from dealers may be of benefit
to Mitchell Hutchins in the management of accounts of some or all of its other
clients and may not in all cases benefit the Fund directly. While such services
are useful and important in supplementing its own research and facilities,
Mitchell Hutchins believes the value of such services is not determinable and
does not significantly reduce its expenses. The Fund does not reduce the
management fee it pays to PaineWebber by any amount that may be attributable to
the value of such services. The Fund does not effect any securities transactions
with or through PaineWebber.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund will not be calculated on the
observance of the following NYSE holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The days on which net asset value is determined are the Fund's
business days.
Determination of net asset value is made by subtracting from the value of
the assets of the Fund the amount of its liabilities, and dividing the remainder
by the number of outstanding shares of the Fund. The Fund determines the value
of its portfolio securities by the amortized cost method of valuation. The
amortized cost method of valuation involves valuing a security at
11
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its cost at the time of purchase and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During such periods the yield to shareholders
in the Fund may differ somewhat from that obtained in a similar company which
uses marked to market values for all its portfolio securities. For example, if
the use of amortized cost resulted in a lower (higher) aggregate portfolio value
on a particular day, a prospective investor in the Fund would be able to obtain
a somewhat higher (lower) yield than would result from investment in such a
similar company and shareholders would receive less (more) investment income.
The purpose of this method of calculation is to attempt to maintain a constant
net asset value per share of $1.00.
The Fund's use of the amortized cost method to value its portfolio
securities is permitted upon its compliance with the following conditions: (a)
the Trustees are obligated, as a particular responsibility within the overall
duty of care owed to the Fund's shareholders, to establish procedures reasonably
designed, taking into account current market conditions and the Fund's
investment objective, to stabilize net asset value per share as computed for the
purposes of purchase and redemption at $1.00 per share; (b) the procedures will
include periodic review by the Trustees, as they deem appropriate and at such
intervals as are reasonable in light of current market conditions, of the
relationship between net asset value per share using amortized cost and net
asset value per share based upon available indications of market value with
respect to such portfolio securities; (c) the Trustees will consider what steps,
if any, should be taken in the event of a difference of more than 1/2 of 1%
between the two methods of valuation; and (d) the Trustees will take such steps
as they consider appropriate (such as shortening the average portfolio maturity,
realizing gains or losses, withholding dividends or reducing the number of its
outstanding shares) to minimize any material dilution or other unfair results
which might arise from differences between the two methods of valuation. Any
reduction of outstanding shares will be effected by having each shareholder
proportionately contribute to the Fund's capital the necessary shares that
represent the amount of excess upon such determination. Each shareholder will be
deemed to have agreed to such contribution in these circumstances by his
investment in the Fund.
The Fund also limits its investments to instruments which the Trustees
determine present minimal credit risks and which are of high quality as
determined by any major rating agency, or in the case of any instrument that is
not so rated, of comparable quality as determined by the Trustees. In addition,
the Fund maintains a dollar weighted average portfolio maturity (not more than
90 days) appropriate to its objective of maintaining a stable net asset value of
$1.00 per share and does not purchase any instrument with a remaining maturity
of more than 397 days (other than securities underlying repurchase agreements of
less than 397 days). Should the disposition of a portfolio security result in a
dollar weighted average portfolio maturity of more than 90 days, the Fund is
required to invest its available cash in such a manner as to reduce such
maturity to 90 days or less as soon as reasonably practicable.
If in the view of the Trustees it is inadvisable to continue the practice
of maintaining net asset value at $1.00 per share, the Trustees have the right
to alter the procedure. The Fund will notify shareholders of any such
alteration.
12
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund declares dividends on each day the NYSE is open for business. Dividends
are declared daily but paid monthly and automatically are reinvested in
additional shares of the Fund at the net asset value per share determined at
12:00 noon, Eastern time, on that day.
Each shareholder receives, from PaineWebber, on the monthly transaction
statement, a monthly summary of his or her account, including information as to
dividends reinvested.
Net income, for dividend purposes, includes accrued interest and accretion
of original issue or market discount, less amortization of market premium and
the estimated expenses of the Fund. Net income is calculated and distributed
immediately prior to the determination of net asset value per share of the Fund.
The Trustees may revise the above dividend policy, or postpone the payment
of dividends, if the Fund should have or anticipate any large unexpected
expense, loss or fluctuation in net assets which in the opinion of the Trustees
might have a significant adverse effect on shareholders.
The Fund qualified as a 'regulated investment company' for the fiscal year
ended March 31, 1995 and intends to remain qualified under the Internal Revenue
Code of 1986, as amended (the 'Code'). As a regulated investment company, the
Fund pays no Federal income tax on its income and gains which it distributes to
shareholders, provided it distributes at least 90% of its net investment income
for each year. To qualify as a regulated investment company, the Fund must,
among other things, (a) derive at least 90% of its annual gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock or securities, and other income derived with
respect to the Fund's business of investing in such stock or securities; (b)
derive less than 30% of its annual gross income from the sale or other
disposition of stock or securities held for less than three months; and (c)
diversify its holdings so that, at the end of each quarter of its taxable year,
(i) at least 50% of the value of the Fund's assets is represented by cash, U.S.
Government securities and other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the Fund's assets and
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of the assets is invested in the securities of any one issuer
(other than U.S. Government securities). The requirement that the Fund derive
less than 30% of its gross income from the sale or other disposition of
securities held for less than three months may impose limitations on the
investment activity of the Fund.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
The Code provides that dividends declared in October, November or December
payable in January of the following year will be treated as having been received
by shareholders on December 31 of the year in which declared. Under this rule,
therefore, a shareholder may be taxed in a year on dividends or distributions
actually received in the following year.
13
<PAGE>
- --------------------------------------------------------------------------------
The Fund may be subject to state or local tax in certain states where it is
deemed to be doing business. Furthermore, in those states which have such income
tax laws, the tax treatment of the Fund and shareholders with respect to
distributions by the Fund may differ from Federal tax treatment.
MASSACHUSETTS INCOME TAX
Under present Massachusetts law, the Fund is not subject to any state income
taxation during any fiscal year in which the Fund qualifies as a regulated
investment company. The Fund might be subject to Massachusetts income taxes for
any taxable year in which it did not so qualify as a regulated investment
company.
CALCULATION OF YIELDS
The Fund provides current and effective yield quotations based on its daily
dividends. See 'Dividends, Distributions and Taxes' in the Fund's prospectus.
Such quotations may be made in reports, sales literature and advertisements
published by the Fund.
Current yield is computed by determining the net change exclusive of
capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day calendar period, dividing
the net change in account value by the value of the account at the beginning of
the period, and multiplying the return over the seven-day period by 365/7. For
purposes of the calculation, net change in account value reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but does not
reflect realized gains or losses or unrealized appreciation or depreciation.
Effective yield is computed by annualizing the seven-day return with all
dividends reinvested in additional shares of the Fund.
Current and effective yields fluctuate and are not necessarily
representative of future results. The shareholder should remember that yield is
a function of the type and quality of the instruments in the portfolio,
portfolio maturity and operating expenses. See 'Investment Objective and
Policies' and 'Investment Management and Other Services' above and 'Investment
Objective and Management Policies' in the Fund's prospectus. Current and
effective yield information is useful in reviewing the Fund's performance, but
because current and effective yields fluctuate such information under certain
conditions may not provide a basis for comparison with bank deposits, other
investments which pay a fixed yield for a stated period of time or other
investment companies which may use a different method of calculating yield.
A shareholder's principal in the Fund is not guaranteed. See 'Determination
of Net Asset Value' for a discussion of the manner in which the Fund's price per
share is determined.
Historical and comparative yield information may be presented by the Fund.
GENERAL INFORMATION
THE FUND
The Fund is a trust fund of the type commonly known as a 'Massachusetts business
trust.' The Declaration of Trust and the By-Laws of the Fund are designed to
make the Fund similar in most respects to a Massachusetts business corporation.
The principal distinction between the two forms relates to shareholder liability
described below. Under Massachusetts law, shareholders of
14
<PAGE>
- --------------------------------------------------------------------------------
such a trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Fund, which is not the case with a
corporation. The Declaration of Trust provides that shareholders shall not be
subject to any personal liability for the acts or obligations of the Fund and
that every written agreement, obligation, instrument or undertaking made by the
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
Special counsel for the Fund is of the opinion that no personal liability
will attach to the shareholders under any undertaking containing such provision
when adequate notice of such provision is given, except possibly in a few
jurisdictions. With respect to all types of claims in the latter jurisdictions
and with respect to tort claims, contract claims where the provision referred to
is omitted from the undertaking, claims for taxes and certain statutory
liabilities in other jurisdictions, a shareholder may be held personally liable
to the extent that claims are not satisfied by the Fund. However, upon payment
of any such liability the shareholder will be entitled to reimbursement from the
general assets of the Fund. The Trustees intend to conduct the operations of the
Fund, with the advice of counsel, in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
The Declaration of Trust establishing the Fund, a copy of which is on file
in the office of the Secretary of the Commonwealth of Massachusetts, provides
that the name of the Fund refers to the Trustees under the Declaration of Trust
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of such Fund shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Fund but the Trust Estate only shall be liable.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor is
any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise from
his or its own bad faith, willful misfeasance, gross negligence, or reckless
disregard of his or its duties. It also provides that all third persons shall
look solely to the Fund property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Fund.
Other distinctions between a corporation and a Massachusetts business trust
include the fact that business trusts are not required to issue share
certificates. The Fund will not issue share certificates.
The Fund shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by the Trustees by written notice to the shareholders.
DESCRIPTION OF SHARES
The Declaration of Trust of the Fund permits the Trustees to issue an unlimited
number of full and fractional shares of a single class and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Fund. Each share represents an
equal proportional interest in the Fund with each other share. Upon liquidation
of the Fund, shareholders are entitled to share pro rata in the net assets of
the Fund
15
<PAGE>
- --------------------------------------------------------------------------------
available for distribution to shareholders. Shares have no preemptive or
conversion rights. The rights of redemption are described elsewhere herein.
Shares are fully paid and non-assessable by the Fund. See 'The Fund' above.
VOTING RIGHTS
The shareholders of the Fund are entitled to a full vote for each full share
held (and fractional votes for fractional shares). The Trustees themselves have
the power to alter the number and the terms of office of the Trustees, and they
may at any time lengthen their own terms or make their terms of unlimited
duration (subject to certain removal procedures) and appoint their own
successors, provided that always at least a majority of the Trustees have been
elected by the shareholders of the Fund. The voting rights of shareholders are
not cumulative, so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees. The Fund is not required
to hold Annual Meetings of Shareholders. The Trustees may call Special Meetings
of Shareholders for action by shareholder vote as may be required by the Act or
the Declaration of Trust.
As set forth under 'Determination of Net Asset Value,' under certain
circumstances the Fund may reduce the number of its outstanding shares in order
to maintain a constant net asset value of $1.00 per share. The shareholders of
the Fund will be deemed to have agreed to a proportionate reduction of their
shares by their investment in the Fund.
As defined in the Act, the term 'majority' of the outstanding shares of the
Fund means the vote of (a) 67% or more of the Fund's shares present at a meeting
if the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (b) more than 50% of the Fund's outstanding shares,
whichever is less.
ADDITIONAL INFORMATION
The prospectus and this Statement of Additional Information do not contain all
the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the SEC under the Securities Act
of 1933 and the Act, to which reference is hereby made.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended March 31,
1995 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.
16
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
INFORMATION WITH RESPECT TO RATINGS OF SECURITIES
CORPORATE BOND RATINGS
The four highest ratings of Moody's Investors Service, Inc. ('Moody's') for
corporate bonds are Aaa, Aa, A and Baa. Bonds rated Aaa are judged to be of the
'best quality.' The rating of Aa is assigned to bonds which are of 'high quality
by all standards,' but as to which margins of protection or other elements make
long-term risks appear somewhat greater than Aaa rated bonds. The Aaa and Aa
rated bonds comprise what are generally known as 'high grade bonds.' Bonds which
are rated A by Moody's possess many favorable investment attributes and are
considered 'upper medium grade obligations.' Factors giving security to
principal and interest of A rated bonds are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Bonds rated Baa are considered as 'medium grade' obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. The foregoing ratings for bonds are
sometimes presented in parentheses preceded with a 'con' indicating the Bonds
are rated conditionally. Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Such parenthetical rating denotes the
probable credit stature upon completion of construction or elimination of the
basis of the condition.
The four highest ratings of Standard & Poor's Ratings Group ('S & P') for
corporate bonds are AAA, AA, A, and BBB. Bonds rated AAA bear the highest rating
assigned by S & P to a debt obligation and indicates an extremely strong
capacity to pay principal and interest. Bonds rated AA also qualify as
high-quality debt obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA issues only in
small degree. Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions. The BBB rating, which is the
lowest 'investment grade' security rating by S & P, indicates an adequate
capacity to pay principal and interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category. The foregoing ratings
are sometimes followed by a 'p' indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likehood of, or
the risk of default upon failure of, such completion.
17
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1, Highest Quality and Prime-2, Higher Quality.
S & P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 397 days.
Ratings are graded into four categories, ranging from 'A' for the highest
quality obligations to 'D' for the lowest. Issues assigned A ratings are
regarded as having the greatest capacity for timely payment. Issues in this
category are further refined with the designation 1+, 1, 2 and 3 to indicate the
relative degree of safety. The 'A-1+' designation indicates that there is an
overwhelming degree of safety. The 'A-1' designation indicates that the degree
of safety regarding timely payment is very strong. The 'A-2' designation
indicates that capacity for timely payment is strong. However, the relative
degree of safety is not as overwhelming as for issues designated 'A-1.'
18
<PAGE>
- --------------------------------------------------------
Contents
- --------------------------------------------------------
Investment Objective and Policies 2
- --------------------------------------------------------
Portfolio Management 4
- --------------------------------------------------------
Management of the Fund 5
- --------------------------------------------------------
Investment Management and Other Services 8
- --------------------------------------------------------
Purchase and Redemption of Shares 10
- --------------------------------------------------------
Exchange Privilege 10
- --------------------------------------------------------
Portfolio Transactions 11
- --------------------------------------------------------
Determination of Net Asset Value 11
- --------------------------------------------------------
Dividends, Distributions and Taxes 13
- --------------------------------------------------------
General Information 14
- --------------------------------------------------------
Financial Statements 16
- --------------------------------------------------------
Appendix -- Information with Respect to
Ratings of Securities 17
- --------------------------------------------------------
Although the Fund attempts to maintain a constant net asset value of
$1.00 per share, as with any investment in securities, the value of a
shareholder's investment in the Fund may fluctuate.
PaineWebber/
Kidder,
Peabody
Premium
Account
Fund
Statement of
Additional
Information
August 1, 1995
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The Financial Statements filed as part of this Registration Statement
are as follows.
Contained in Part A:
Financial Highlights for each of the years in the ten year
period ended March 31, 1995.
Contained through incorporation by reference in Part B and filed
with the Annual Report to Shareholders with the Securities and Exchange
Commission of June 8, 1995 [File No. 881-3376], and filed herewith as an
attachment:
Schedule of Investments at March 31, 1995
Statement of Assets and Liabilities at March 31, 1995.
Statement of Operations for the year ended March 31, 1995.
Statements of Changes in Net Assets for the years ended March
31, 1994 and March 31, 1995.
Financial Highlights for each of the years in the five year
period ended March 31, 1995.
Report of Deloitte & Touche LLP, Independent Auditors, dated May
18, 1995.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
(1) -- The Declaration of Trust is incorporated by reference to Exhibit 1 to the Registration Statement on Form
N-1, filed on January 15, 1982.
(1a) -- Certificate of Amendment of Declaration of Trust.
(2) -- The By-Laws are incorporated by reference to Exhibit 2 to the Registration Statement on Form N-1, filed
on January 15, 1982 and an amendment dated June 27, 1990 is incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A, filed on July 30, 1990.
(3) -- None.
(4) -- None.
(5a) -- Form of Investment Advisory and Administration Agreement.
(5b) -- Form of Sub-Advisory and Sub-Administration Agreement.
(6) -- Form of Distribution Agreement.
(7) -- None.
(8) -- The Custody Agreement is incorporated by reference to Exhibit 8 to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A, filed on July 31, 1989.
(9) -- Form of Transfer Agency Agreement.
(10) -- The opinion of Sullivan & Cromwell is incorporated by reference to Exhibit 10 to Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-1, filed on May 7, 1982.
(11) -- The consent of Deloitte & Touche LLP.
(12) -- None.
(13) -- The investment representation letter is incorporated by reference to Exhibit 13 of Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-1, filed on May 7, 1982.
(14) -- None.
(15a) -- The Plan of Distribution pursuant to Rule 12b-1 is incorporated by reference to Exhibit 15 of
Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A, filed on July 31, 1989 and the
February 1, 1990 amendment to the Plan of Distribution pursuant to Rule 12b-1 is incorporated by
reference to Exhibit 15 of Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A,
filed on July 30, 1990.
(15b) -- Amendment to the Plan of Distribution.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
(16) -- The schedule for computation of current and effective yields is incorporated by reference to Exhibit 16
of Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A, filed on July 29, 1991.
(17) -- Power of Attorney. Powers of Attorney for Beaubien, Hewitt, Jr., Jordan, Minard and Schafer are
incorporated by reference to Exhibit 17 of Post-Effective Amendment No. 14 to the Registration Statement
on Form N-1A, filed on June 2, 1995.
(27) -- Financial Data Schedule.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORDHOLDERS
TITLE OF CLASS AT JULY 1, 1995
- -------------------------------------------------------------------- -----------------------
<S> <C>
Shares of beneficial interest, par value $.001 per share 12,656
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VII of Registrant's By-Laws. Indemnification
of the principal underwriter against certain liabilities under the Securities
Act of 1933 is provided for in the Distribution Agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant and the principal underwriter 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 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 and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person or the principal
underwriter in connection with the shares 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See 'Management of the Fund -- Investment Adviser and Administrator' in the
Prospectus and 'Management of the Fund' in the Statement of Additional
Information.
I. PaineWebber Incorporated ('PaineWebber'), a Delaware corporation, is a
registered investment adviser and is wholly owned by Paine Webber Group Inc.
PaineWebber is primarily engaged in the financial services business. Information
as to the officers and directors of PaineWebber is included in its Form ADV
filed on March 31, 1995, with the Securities and Exchange Commission
(registration number 801-7163) and is incorporated herein by reference.
II. Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a
Delaware corporation, is a registered investment adviser and is wholly owned by
PaineWebber. Mitchell Hutchins is primarily engaged in the investment advisory
business. Information as to the officers and directors of Mitchell Hutchins is
included in its Form ADV filed on April 3, 1995, with the Securities and
Exchange Commission (registration number 801-13219) and is incorporated herein
by reference.
C-2
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) PaineWebber serves as principal underwriter and/or investment adviser
for the following other investment companies:
PaineWebber CashFund, Inc.
PaineWebber Managed Municipal Trust
PaineWebber RMA Money Fund, Inc.
PaineWebber RMA Tax-Free Fund, Inc.
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund
PaineWebber/Kidder, Peabody Cash Reserve Fund, Inc.
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
PaineWebber/Kidder, Peabody Municipal Money Market
Series -- Connecticut Series
PaineWebber/Kidder, Peabody Municipal Money Market Series -- New
Jersey Series
PaineWebber/Kidder, Peabody Municipal Money Market Series -- New York
Series
PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc.
(b) PaineWebber is the principal underwriter of the Registrant. The
directors and officers of PaineWebber, their principal business addresses, and
their positions and offices with PaineWebber are identified in its Form ADV
filed March 31, 1995, with the Securities and Exchange Commission (registration
number 801-7163), and such information is hereby incorporated herein by
reference. The information set forth below is furnished for those directors and
officers of PaineWebber who also serve as directors or officers of the
Registrant:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS POSITION WITH REGISTRANT WITH UNDERWRITER
- ----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Margo N. Alexander President Director and
1285 Avenue of the Americas Executive Vice President
New York, NY 10019
Frank P.L. Minard Trustee Director
1285 Avenue of the Americas
New York, NY 10019
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
will be maintained at the offices of PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809, Investors Fiduciary Trust Company, 127 West 10th
Street, Kansas City, Missouri 64105, and the Fund, 1285 Avenue of the Americas,
New York, New York 10019.
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
this City of New York, and State of New York, on the 24th day of July, 1995.
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
By /S/ DIANNE E. O'DONNELL
............................................
DIANNE E. O'DONNELL,
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to the Registrant's Registration Statement on Form
N-1A has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- ----------------------------------- -------------
<S> <C> <C>
/s/ MARGO N. ALEXANDER* President (Chief Executive Officer) July 24, 1995
..................................................
MARGO N. ALEXANDER
/s/ JULIAN F. SLUYTERS Vice President and Treasurer (Chief July 24, 1995
.................................................. Financial and Accounting Officer)
JULIAN F. SLUYTERS
/s/ DAVID J. BEAUBIEN** Trustee July 24, 1995
..................................................
DAVID J. BEAUBIEN
/s/ WILLIAM W. HEWITT, JR.*** Trustee July 24, 1995
..................................................
WILLIAM W. HEWITT, JR.
/s/ THOMAS R. JORDAN**** Trustee July 24, 1995
..................................................
THOMAS R. JORDAN
/s/ FRANK P.L. MINARD***** Trustee July 24, 1995
..................................................
FRANK P.L. MINARD
/s/ CARL W. SCHAFER****** Trustee July 24, 1995
..................................................
CARL W. SCHAFER
</TABLE>
- ------------
* Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated July 21, 1995 and filed herewith.
** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995.
*** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995.
**** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995.
***** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated May 18, 1995.
****** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995.
C-4
STATEMENT OF DIFFERENCES
The service mark shall be expressed as................ 'sm'
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------- ----
<S> <C> <C>
(1a) Certificate of Amendment of Declaration of Trust..............................................
(5a) Form of Investment Advisory and Administration Agreement......................................
(5b) Form of Sub-Advisory and Sub-Administration Agreement.........................................
(6) Form of Distribution Agreement................................................................
(9) Form of Transfer Agency Agreement.............................................................
(11) Consent of Deloitte & Touche LLP..............................................................
(15b) Amendment to the Plan of Distribution.........................................................
(17) Power of Attorney.............................................................................
(27) Financial Data Schedule.......................................................................
</TABLE>
<PAGE>
CERTIFICATE OF AMENDMENT
OF
DECLARATION OF TRUST
OF
KIDDER, PEABODY PREMIUM ACCOUNT FUND
The undersigned, being a Trustee of Kidder, Peabody Premium Account Fund
(the 'Trust'), a Massachusetts business trust, hereby certifies pursuant to
Section 9.3 of Article IX and Section 11.1 of Article XI of the Declaration of
Trust of KIDDER, PEABODY PREMIUM ACCOUNT FUND, that the Trustees of the Trust
have duly adopted at the Board of Trustees meeting held on December 14, 1994
(adjourned to December 16, 1994) and ratified at the Board of Trustees meeting
held on January 25, 1995 the following amendment to the Declaration of Trust of
the Trust dated the 12th day of January, 1982, in the manner provided in such
Declaration of Trust.
VOTED: that the Declaration of Trust dated January 12, 1982 be, and it hereby
is, amended to change the name of the Trust from 'Kidder, Peabody Premium
Account Fund' to 'PaineWebber/Kidder, Peabody Premium Account Fund' in
the following manner:
Section 1.1. Name. The name of the trust created hereby is the
'PaineWebber/Kidder, Peabody Premium Account Fund'.
Section 1.2(n) of Article I of the Declaration of Trust is
hereby amended to read as follows:
(n) 'Trust' means 'PaineWebber/Kidder, Peabody Premium Account
Fund.
IN WITNESS WHEREOF, the undersigned, being a Trustee of the Trust, has
signed this Certificate of Amendment in duplicate, as of the 16th day of
February, 1995.
Thomas R. Jordan
______________________________________
Trustee
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
January 30, 1995
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
PaineWebber/Kidder, Peabody Premium Account Fund, a Massachusetts business
trust (the 'Trust') herewith confirms its agreement with you ('Mitchell
Hutchins') as follows:
The Trust desires to employ its capital by investing and reinvesting the
same in investments of the type and in accordance with the limitations specified
in its Declaration of Trust and in its Prospectus (including any documents from
time to time incorporated by reference to the 'Prospectus') as from time to time
in effect, copies of which have been or will be submitted to Mitchell Hutchins,
and in such manner and to such extent as may from time to time be approved by
the Trustees of the Trust. The Trust desires to employ Mitchell Hutchins to act
as its investment adviser.
In this connection it is understood that Mitchell Hutchins may from time to
time employ or associate with itself such person or persons as Mitchell Hutchins
may believe to be particularly fitted to assist it in the performance of this
Agreement, it being understood that the compensation of such person or persons
shall be paid by Mitchell Hutchins and that no obligation may be incurred on the
Trust's behalf in any such respect.
Subject to the supervision and approval of the Trustees of the Trust,
Mitchell Hutchins will provide investment management of the Trust's portfolio in
accordance with the Trust's investment objectives and policies as stated in its
most recent Prospectus delivered to Mitchell Hutchins, upon which Mitchell
Hutchins shall be entitled to rely. In connection therewith, Mitchell Hutchins
will provide investment research and supervision of the Trust's investments and
conduct a continuous program of investment, evaluation and, if appropriate, sale
and reinvestment of the Trust's assets. Mitchell Hutchins will furnish to the
Trust such statistical information, with respect to the investments which the
Trust may hold or contemplate purchasing, as the Trust may reasonably request.
The Trust wishes to be kept in touch with important developments materially
affecting its portfolio and shall expect Mitchell Hutchins, on
<PAGE>
its own initiative, to furnish to the Trust from time to time such information
as Mitchell Hutchins may believe appropriate for this purpose. Mitchell Hutchins
shall exercise its best judgment in rendering these services to the Trust and
the Trust agrees as an inducement to Mitchell Hutchins' undertaking the same
that Mitchell Hutchins shall not be liable hereunder for any mistake of judgment
or in any other event whatsoever, provided that nothing herein shall be deemed
to protect or purport to protect Mitchell Hutchins against any liability to the
Trust or to its securityholders to which Mitchell Hutchins would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties hereunder, or by reason of Mitchell Hutchins' reckless
disregard of its obligations and duties hereunder.
Mitchell Hutchins shall, at its own expense, maintain such staff and employ
or retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of Mitchell Hutchins shall be deemed to
include persons employed or otherwise retained by Mitchell Hutchins to furnish
statistical and other factual data, advice regarding economic factors and
trends, information with respect to technical and scientific developments, and
such other information, advice and assistance as Mitchell Hutchins may desire.
Mitchell Hutchins shall, as agent for the Trust, maintain the Trust's records
and books of account (other than those maintained by the Trust's transfer agent,
registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Trust and, upon request therefor,
Mitchell Hutchins shall surrender to the Trust such of the books and records so
requested.
Mitchell Hutchins shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Trust who are employees of Mitchell Hutchins, and
provide such office space, facilities and equipment and such clerical help and
bookkeeping services as the Trust shall reasonably require in the conduct of its
business. Mitchell Hutchins shall also bear the organizational expenses of the
Trust and the cost of telephone service, heat, light, power and other utilities
provided to the Trust; provided, however, that the Trust shall reimburse
Mitchell Hutchins for such organizational expenses up to $100,000, when and if
the net assets of the Trust reach $15,000,000. Other expenses to be incurred in
the operation of the Trust including charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes, engraving and printing stock certificates, if any; registration costs of
the Trust and its shares under federal and state
-2 -
<PAGE>
securities laws; the cost and expense of printing, including typesetting, and
distributing prospectuses of the Trust and supplements thereto to the Trust's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of Mitchell Hutchins or any corporate affiliate
of Mitchell Hutchins; all expenses incident to any dividend, withdrawal or
redemption options; charges and expenses of any outside service used for pricing
of the Trust's portfolio securities; fees and expenses of legal counsel,
including counsel to the Trustees who are not interested persons of the Trust or
of Mitchell Hutchins and independent accountants; membership dues of industry
associations; interest on Trust borrowings; postage; insurance premiums on
property or personnel (including officers and Trustees) of the Trust which inure
to their benefit; extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification relating
thereto); and all other costs of the Trust's operations will be borne by the
Trust.
In consideration of services rendered pursuant to this Agreement, the Trust
will pay Mitchell Hutchins on the first business day of each month a fee at the
annual rate of .5 of 1% of the Trust's average daily net assets. Net asset value
shall be computed at least once each business day. Upon any termination of this
Agreement before the end of any month, such fee for such part of a month shall
be prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to Mitchell Hutchins, the value
of the Trust's net assets shall be computed in the manner specified in the
Trust's Declaration of Trust for the computation of the value of such net
assets.
If, in any fiscal year, the Trust's total operating expenses, exclusive of
taxes, interest, brokerage fees and extraordinary expenses (to the extent
permitted by applicable state securities laws and regulations), exceed the
lowest applicable annual expense limitation established pursuant to statute or
regulation of any jurisdictions in which shares of the Trust are offered for
sale, Mitchell Hutchins will reimburse the Trust for the amount of such excess.
Such expense reimbursement will be estimated, reconciled and paid on a monthly
basis.
The Trust understands that Mitchell Hutchins now acts and will continue to
act as investment adviser to various fiduciary or other managed accounts, and
the Trust has no objection to Mitchell Hutchins' so acting. In addition, it is
understood that the persons employed by Mitchell Hutchins to assist in the
performance of its duties hereunder will not devote their full
-3 -
<PAGE>
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of Mitchell Hutchins or any affiliate of Mitchell Hutchins to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
The Trust understands that from time to time hereafter Mitchell Hutchins
may act as investment adviser to one or more other investment companies, and the
Trust has no objection to Mitchell Hutchins' so acting, provided that when two
or more companies managed by Mitchell Hutchins have available funds for
investment in money market instruments, available money market investments will
be allocated in accordance with a formula believed to be equitable to each
company. It is recognized that in some cases this procedure may adversely affect
the size of the position obtainable for the Trust.
Mitchell Hutchins shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust in connection with the matters to
which this Agreement relates, except for a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, partner, employee, or agent
of Mitchell Hutchins, who may be or become an officer, director, employee or
agent of the Trust, shall be deemed, when rendering services to the Trust or
acting on any business of the Trust, to be rendering such services to, or acting
solely for, the Trust and not as an officer, partner, employee, or agent or one
under the control or direction of Mitchell Hutchins even though paid by it.
This Agreement shall continue until December 31, 1996, and thereafter shall
continue automatically for successive annual periods ending on December 31st, of
each year, provided such continuance is specifically approved at least annually
by (i) the Trustees of the Trust or (ii) by a vote of a majority (as defined in
the Investment Company Act of 1940) of the Trust's outstanding voting
securities; provided that in either event the continuance is also approved by a
majority of the Trustees who are not 'interested persons' (as defined in said
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable without
penalty, on not more than 60 days' nor less than 30 days' notice, by the
Trustees of the Trust or by vote of holders of a majority of the Trust's shares
or by Mitchell Hutchins. This Agreement will also terminate automatically in the
event of its assignment (as defined in said Act).
No trustee, shareholder, officer, employee or agent of the Trust shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any
-4 -
<PAGE>
obligation or claim or otherwise, in connection with the affairs of the Trust,
but the Trust estate only shall be liable.
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
PAINEWEBBER/KIDDER, PEABODY
PREMIUM ACCOUNT FUND
By: Dianne E. O'Donnell
---------------------------------
Accepted:
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By: J. P. Minard
----------------------------------
-5 -
<PAGE>
EXHIBIT B
[FORM OF NEW SUB-ADVISORY AGREEMENT WITH MITCHELL HUTCHINS]
SUB-ADVISORY AND SUB-ADMINISTRATION AGREEMENT
Contract made as of , 1995, between PAINEWEBBER INCORPORATED
('PaineWebber'), a Delaware corporation registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended ('1934 Act') and as an investment
adviser under the Investment Advisers Act of 1940, as amended ('Advisers Act'),
and MITCHELL HUTCHINS ASSET MANAGEMENT INC. ('Mitchell Hutchins'), a Delaware
corporation registered as a broker-dealer under the 1934 Act and as an
investment adviser under the Advisers Act.
WHEREAS PaineWebber has entered into an Investment Advisory and
Administration Contract dated [date] ('Advisory Contract') with [Name of Fund]
('Fund'), an open-end investment company registered under the Investment Company
Act of 1940, as amended ('1940 Act'), [which offers for public sale distinct
series of shares of [common stock/beneficial interest] ('Series'),(1) each
corresponding to a distinct portfolio]; and
WHEREAS under the Advisory Contract PaineWebber has agreed to provide
certain investment advisory and administrative services to the Series as now
exist and as hereafter may be established; and
WHEREAS the Advisory Contract authorizes PaineWebber to delegate certain of
its duties as investment adviser and administrator under the Advisory Contract
to a sub-adviser or sub-administrator; and
WHEREAS PaineWebber wishes to retain Mitchell Hutchins as sub-adviser and
sub-administrator to provide certain investment advisory and administrative
services to PaineWebber and each Series of the Fund as listed in Schedule A to
this agreement, as such schedule may be revised from time to time, and Mitchell
Hutchins is willing to render such services as described herein upon the terms
set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. PaineWebber hereby appoints Mitchell Hutchins as its
sub-adviser and sub-administrator with respect to each Series and Mitchell
Hutchins accepts such appointment and agrees that it will furnish the
services set forth in Paragraph 2.
2. Services and Duties of Mitchell Hutchins.
(a) Subject to the supervision of the [Board of Directors/Trustees]
('Board') and PaineWebber, Mitchell Hutchins will provide a continuous
investment program for each Series, including investment research and
management with respect to all securities, investments and cash equivalents
held in the portfolio of each Series. Mitchell Hutchins will determine from
time to time what investments will be purchased, retained or sold by each
Series. Mitchell Hutchins will be responsible for placing purchase and sale
orders for investments and for other related transactions. Mitchell
Hutchins will provide services under this agreement in accordance with the
Series' investment objective, policies and restrictions as stated in the
Series' Prospectuses.
(b) Mitchell Hutchins agrees that, in placing orders with brokers, it
will attempt to obtain the best net result in terms of price and execution;
provided that, on behalf of any Series, Mitchell Hutchins may, in its
discretion, effect securities transactions with brokers and dealers who
provide the Series with research, analysis, advice and similar services,
and Mitchell Hutchins may pay to those brokers and dealers, in return for
brokerage and research services and analysis, a higher commission than may
be charged by other brokers and dealers, subject to Mitchell Hutchins'
determining in good faith that such commission is reasonable in terms
either of the particular transaction or of the overall responsibility of
Mitchell Hutchins and its affiliates to such Series and its other clients
and that the total commissions paid by such Series will be reasonable in
relation to the benefits to such Series over the long term. In no instance
will portfolio securities be purchased
- ------------
(1) In the event a Fund has only one portfolio, bracketed language will be
deleted and the term 'Series' will be replaced with the word 'Fund' as
appropriate.
B-1
<PAGE>
from or sold to PaineWebber, Mitchell Hutchins or any affiliated person
thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder, or any applicable exemptive orders.
Whenever Mitchell Hutchins simultaneously places orders to purchase or sell
the same security on behalf of a Series and one or more other accounts
advised by Mitchell Hutchins, such orders will be allocated as to price and
amount among all such accounts in a manner believed to be equitable to each
account. The Fund recognizes that in some cases this procedure may
adversely affect the results obtained for a Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series and will
furnish the Board with such periodic and special reports as PaineWebber or
the Board reasonably may request. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, Mitchell Hutchins hereby agrees that all
records which it maintains for the Fund are the property of the Fund,
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940
Act any records which it maintains for the Fund and which are required to
be maintained by Rule 31a-1 under the 1940 Act, and further agrees to
surrender promptly to the Fund any records which it maintains for the Fund
upon request by the Fund.
(d) Mitchell Hutchins will oversee the computation of the net asset
value and net income of each Series as described in the currently effective
registration statement of the Fund under the Securities Act of 1933, as
amended, and 1940 Act and any supplements thereto ('Registration
Statement') or as more frequently requested by the Board.
(e) Mitchell Hutchins will assist in administering the affairs of the
Fund and each Series, subject to the supervision of the Board and
PaineWebber, and further subject to the following understandings:
(i) Mitchell Hutchins will supervise all aspects of the operation
of the Fund and each Series except as hereinafter set forth; provided,
however, that nothing herein contained shall be deemed to relieve or
deprive the Board of its responsibility for and control of the conduct
of affairs of the Fund and each Series.
(ii) Mitchell Hutchins will provide the Fund and each Series with
such administrative and clerical personnel (including officers of the
Fund) as are reasonably deemed necessary or advisable by the Board and
PaineWebber and Mitchell Hutchins will pay the salaries of all such
personnel.
(iii) Mitchell Hutchins will provide the Fund and each Series with
such administrative and clerical services as are reasonably deemed
necessary or advisable by the Board and PaineWebber, including the
maintenance of certain of the books and records of the Fund and each
Series.
(iv) Mitchell Hutchins will arrange, but not pay for, the periodic
preparation, updating, filing and dissemination (as applicable) of the
Fund's Registration Statement, proxy material, tax returns and reports
to shareholders of each Series, the Securities and Exchange Commission
and other appropriate federal or state regulatory authorities.
(v) Mitchell Hutchins will provide the Fund and each Series with,
or obtain for, adequate office space and all necessary office equipment
and services, including telephone service, heat, utilities, stationery
supplies and similar items.
3. Duties Retained by PaineWebber. PaineWebber will continue to
provide to the Board and each Series the services described in subparagraph
3(e) of the Advisory Contract.
4. Further Duties. In all matters relating to the performance of this
Contract, Mitchell Hutchins will act in conformity with the Fund's
[Articles of Incorporation/Declaration of Trust], By-Laws and Registration
Statement of the Fund and with the written instructions and directions of
the Board and PaineWebber, and will comply with the requirements of the
1940 Act, the Investment Advisers Act of 1940 ('Advisers Act'), the rules
thereunder, and all other applicable federal and state laws and
regulations.
5. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive, and Mitchell Hutchins shall be
free to furnish similar services to others so long
B-2
<PAGE>
as its services under this Contract are not impaired thereby. Nothing in
this Contract shall limit or restrict the right of any director, officer or
employee of Mitchell Hutchins, who may also be a trustee, officer or
employee of the Fund, to engage in any other business or to devote his or
her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
6. Expenses. During the term of this Contract, Mitchell Hutchins will
pay all expenses incurred by it in connection with its services under this
Contract.
7. Compensation. For the services provided and the expenses assumed by
Mitchell Hutchins pursuant to this Contract with respect to each Series,
PaineWebber will pay to Mitchell Hutchins a fee equal to 20% of the fee
received by PaineWebber from the Fund pursuant to the Advisory Contract
with respect to such Series, such compensation to be paid monthly.
8. Limitation of Liability. Mitchell Hutchins and its delegates will
not be liable for any error of judgment or mistake of law or for any loss
suffered by PaineWebber or the Fund or the shareholders of any Series in
connection with the performance of this Contract, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Contract. Any person, even though also an
officer, director, employee, or agent of Mitchell Hutchins, who may be or
become an officer, director, employee or agent of the Fund shall be deemed,
when rendering services to any Series of the Fund or acting with respect to
any business of such Series or the Fund, to be rendering such services to
or acting solely for the Series or the Fund and not as an officer,
director, employee, or agent or one under the control or direction of
Mitchell Hutchins even though paid by it.
9. Duration and Termination.
(a) This Contract will become effective upon the date first above
written, provided that, with respect to any Series, this Contract shall not
take effect unless it has first been approved (i) by a vote of a majority
of those [directors/trustees] of the Fund who are not parties to this
Contract or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by vote
of a majority of that Series' outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Contract will
continue in effect for two years from the above written date. Thereafter,
if not terminated, this Contract will continue automatically for successive
periods of twelve months each, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of
those [directors/trustees] of the Fund who are not parties to this Contract
or interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by the Board or, with
respect to any given Series, by vote of a majority of the outstanding
voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated by any party hereto at any time, without the
payment of any penalty, on sixty days' written notice to the other party;
this Contract also may be terminated at any time, without the payment of
any penalty, by vote of the Board or by a vote of a majority of the
outstanding voting securities of such Series on sixty days' written notice
to Mitchell Hutchins and PaineWebber. Termination of this Contract with
respect to any given Series shall in no way affect the continued validity
of this Contract or the performance thereunder with respect to any other
Series. This Contract will terminate automatically in the event of its
assignment or upon termination of the Advisory Contract.
10. Amendment of this Agreement. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no amendment of this
Contract as to any given Series shall be effective until approved by vote
of a majority of such Series' outstanding voting securities.
11. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Delaware without giving effect to the conflicts of
laws principles thereof and the 1940 Act [provided, however, that Section
12 will be construed in accordance with the laws of the
B-3
<PAGE>
Commonwealth of Massachusetts.] To the extent that the applicable laws of
the State of Delaware [or the Commonwealth of Massachusetts] conflict with
the applicable provisions of the 1940 Act, the latter shall control.
[12. Limitation of Liability of the Trustees and Shareholders of the
Trust. No Trustee, shareholder, officer, employee or agent of any Series
shall be liable for any obligations of any Series or the Trust under this
Contract, and Mitchell Hutchins agrees that, in asserting any rights or
claims under this Contract, it shall look only to the assets and property
of the Trust in settlement of such right or claim, and not to such Trustee,
shareholder, officer, employee or agent. The Trust represents that a copy
of its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and the Boston City Clerk.]
13. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Contract shall
not be affected thereby. This Contract shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
As used in this Contract, the terms 'majority of the outstanding voting
securities,' 'affiliated person,' 'interested person,' 'assignment,'
'broker,' 'investment adviser,' 'net assets,' 'sale,' 'sell' and 'security'
shall have the same meaning as such terms have in the 1940 Act, subject to
such exemption as may be granted by the SEC by any rule, regulation or
order. Where the effect of a requirement of the federal securities laws
reflected in any provision of this Agreement is affected by a rule,
regulation or order of the SEC, whether of special or general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
<TABLE>
<CAPTION>
PAINEWEBBER INCORPORATED
<S> <C>
Attest:
................................... By .......................................................................
Title ....................................................................
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
................................... By .......................................................................
Title ....................................................................
</TABLE>
B-4
<PAGE>
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
DISTRIBUTION CONTRACT
CONTRACT made as of January 30, 1995, between PAINEWEBBER/KIDDER, PEABODY
PREMIUM ACCOUNT FUND, a Massachusetts business trust, ('Fund'), and PAINEWEBBER
INCORPORATED, a Delaware corporation ('PaineWebber').
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ('1940 Act'), as an open-end management investment company and has one
series of shares of beneficial interest ('Shares'); and
WHEREAS the Fund's board of trustees ('Board') has established an unlimited
number of Shares; and
WHEREAS PaineWebber is willing to act as principal distributor for the Fund
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints PaineWebber as its exclusive agent
to be the principal distributor to sell and to arrange for the sale of the
Shares on the terms and for the period set forth in this Contract. PaineWebber
hereby accepts such appointment and agrees to act hereunder.
2. Services and Duties of PaineWebber.
(a) PaineWebber agrees to solicit orders for the sale of Shares and to
undertake advertising and promotion that it believes reasonable in connection
with such solicitation as agent for the Fund and upon the terms described in the
Registration Statement. As used in this Contract, the term 'Registration
Statement' shall mean the currently effective registration statement of the
Fund, and any supplements thereto, under the Securities Act of 1933, as amended
('1933 Act'), and the 1940 Act.
(b) Upon the later of the date of this Contract or the initial offering of
the Shares to the public by the Fund,
<PAGE>
PaineWebber will hold itself available to receive purchase orders, satisfactory
to PaineWebber, for Shares and will accept such orders on behalf of the Fund as
of the time of receipt of such orders and promptly transmit such orders as are
accepted to the Fund's transfer agent. Purchase orders shall be deemed effective
at the time and in the manner set forth in the Registration Statement.
(b) PaineWebber in its discretion may enter into agreements to sell Shares
to such registered and qualified retail dealers, including but not limited to
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), as it may select.
In making agreements with such dealers, PaineWebber shall act only as principal
and not as agent for the Fund.
(c) The offering price of the Shares shall be the net asset value per Share
as next determined by the Fund following receipt of an order at PaineWebber's
principal office. The Fund shall promptly furnish PaineWebber with a statement
of each computation of net asset value.
(d) PaineWebber shall not be obligated to sell any certain number of
Shares.
(e) To facilitate redemption of Shares by shareholders directly or through
dealers, PaineWebber is authorized but not required on behalf of the Fund to
repurchase Shares presented to it by shareholders and dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement.
(f) PaineWebber shall provide ongoing shareholder services, which include
responding to shareholder inquiries, providing shareholders with information on
their investments in the Shares and any other services now or hereafter deemed
to be appropriate subjects for the payments of 'service fees' under Section
26(d) of the National Association of Securities Dealers, Inc. ('NASD') Rules of
Fair Practice (collectively, 'service activities').
(g) PaineWebber shall have the right to use any list of shareholders of the
Fund or any other list of investors which it obtains in connection with its
provision of services under this Contract; provided, however, that PaineWebber
shall not sell or knowingly provide such list or lists to any unaffiliated
person.
3. Authorization to Enter into Exclusive Dealer Agreements and to Delegate
Duties as Distributor. With respect to the Shares of the Fund, PaineWebber may
enter into an exclusive dealer agreement with Mitchell Hutchins or any other
registered and qualified dealer with respect to sales of the Shares or the
-2-
<PAGE>
provision of service activities. In a separate contract or as part of any such
exclusive dealer agreement, PaineWebber also may delegate to Mitchell Hutchins
or another registered and qualified dealer ('sub-distributor') any or all of its
duties specified in this Contract, provided that such separate contract or
exclusive dealer agreement imposes on the sub-distributor bound thereby all
applicable duties and conditions to which PaineWebber is subject under this
Contract, and further provided that such separate contract or exclusive dealer
agreement meets all requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by PaineWebber hereunder
are not to be deemed exclusive and PaineWebber shall be free to furnish similar
services to others so long as its services under this Contract are not impaired
thereby. Nothing in this Contract shall limit or restrict the right of any
director, officer or employee of PaineWebber, who may also be a trustee, officer
or employee of the Fund, to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any other
business, whether of a similar or a dissimilar nature.
5. Compensation.
(a) As compensation for its service activities under this Contract,
PaineWebber shall receive from the Fund a service fee at the rate and under the
terms and conditions of the Plan of Distribution pursuant to Rule 12b-1 under
the 1940 Act ('Plan') adopted by the Fund, as such Plan is amended from time to
time, and subject to any further limitations on such fee as the Board may
impose.
(b) PaineWebber may reallow any or all of the service fees which it is paid
under this Contract to such dealers as PaineWebber may from time to time
determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw offering Shares by
written notice to PaineWebber at its principal office.
(b) The Fund shall determine in its sole discretion whether certificates
shall be issued with respect to the Shares. If the Fund has determined that
certificates shall be issued, the Fund will not cause certificates representing
Shares to be issued unless so requested by shareholders. If such request is
transmitted by PaineWebber, the Fund will cause certificates evidencing Shares
to be issued in such names and denominations as PaineWebber shall from time to
time direct.
-3-
<PAGE>
(c) The Fund shall keep PaineWebber fully informed of its affairs and shall
make available to PaineWebber copies of all information, financial statements,
and other papers which PaineWebber may reasonably request for use in connection
with the distribution of Shares, including, without limitation, certified copies
of any financial statements prepared for the Fund by its independent public
accountant and such reasonable number of copies of the most current prospectus,
statement of additional information, and annual and interim reports of the Fund,
and the Fund shall cooperate fully in the efforts of PaineWebber to sell and
arrange for the sale of the Shares and in the performance of PaineWebber under
this Contract.
(d) The Fund shall take, from time to time, all necessary action, including
payment of the related filing fee, as may be necessary to register the Shares
under the 1933 Act to the end that there will be available for sale such number
of Shares as PaineWebber may be expected to sell. The Fund agrees to file, from
time to time, such amendments, reports, and other documents as may be necessary
in order that there will be no untrue statement of a material fact in the
Registration Statement, nor any omission of a material fact which omission would
make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares for sale under the securities
laws of such states or other jurisdictions as PaineWebber and the Fund may
approve, and, if necessary or appropriate in connection therewith, to qualify
and maintain the qualification of the Fund as a broker or dealer in such
jurisdictions; provided that the Fund shall not be required to execute a general
consent to the service of process in any state. PaineWebber shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Shares with the Securities and Exchange Commission and state and
other regulatory bodies, and shall assume expenses related to communications
with shareholders of the Fund, including (i) fees and disbursements of its
counsel and independent public accountant; (ii) the preparation, filing and
printing of registration statements and/or prospectuses or statements of
additional information required under the federal securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses, statements
of additional information and proxy materials to shareholders; and (iv) the
qualifications of Shares for sale and of the Fund as a broker or dealer under
the securities laws of such jurisdictions as shall be selected by the Fund and
PaineWebber pursuant to Paragraph 6(e) hereof, and the costs and expenses
payable to each such jurisdiction for continuing qualification therein.
-4-
<PAGE>
8. Expenses of PaineWebber. PaineWebber shall bear all costs and expenses
of (i) preparing, printing and distributing any materials not prepared by the
Fund and other materials used by PaineWebber in connection with the sale of
Shares under this Contract, including the additional cost of printing copies of
prospectuses, statements of additional information, and annual and interim
shareholder reports other than copies thereof required for distribution to
existing shareholders or for filing with any federal or state securities
authorities; (ii) any expenses of advertising incurred by PaineWebber in
connection with such offering; (iii) the expenses of registration or
qualification of PaineWebber as a broker or dealer under federal or state laws
and the expenses of continuing such registration or qualification; and (iv) all
compensation paid to PaineWebber's employees and others for selling Shares, and
all expenses of PaineWebber, its employees and others who engage in or support
the sale of Shares as may be incurred in connection with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold PaineWebber, its officers
and trustees, and any person who controls PaineWebber within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which PaineWebber, its officers, trustees or any such
controlling person may incur under the 1933 Act, or under common law or
otherwise, arising out of or based upon any untrue statement, or alleged untrue
statement, of a material fact contained in the Registration Statement or any
related prospectus ('Prospectus') or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in the
Registration Statement or Prospectus or necessary to make the statements therein
not misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by PaineWebber to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any person who is also an officer or
trustee of the Fund or who controls the Fund within the meaning of Section 15 of
the 1933 Act, unless a court of competent jurisdiction shall determine, or it
shall have been determined by controlling precedent, that such result would not
be against public policy as expressed in the 1933 Act; and further provided,
that in no event shall anything contained herein be so construed as to protect
PaineWebber against any liability to the Fund or to the shareholders to which
PaineWebber would otherwise be subject by
-5-
<PAGE>
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations under
this Contract. The Fund shall not be liable to PaineWebber under this indemnity
agreement with respect to any claim made against PaineWebber or any person
indemnified unless PaineWebber or other such person shall have notified the Fund
in writing of the claim within a reasonable time after the summons or other
first written notification giving information of the nature of the claim shall
have been served upon PaineWebber or such other person (or after PaineWebber or
the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to PaineWebber or any person against whom such
action is brought otherwise than on account of this indemnity agreement. The
Fund shall be entitled to participate at its own expense in the defense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to the indemnified defendants in the suit. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify PaineWebber promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Shares.
(b) The Fund's indemnification agreement contained in this Section 9 will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of PaineWebber, its officers and trustees, or any
controlling person, and will survive the delivery of any shares of the Fund.
(c) PaineWebber agrees to indemnify, defend, and hold the Fund, its
officers and trustees and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Fund, its trustees or officers, or
any such controlling person may incur under the 1933 Act or under common law or
otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by PaineWebber to
the Fund for use in the Registration Statement, or arising out of or based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the
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<PAGE>
Registration Statement necessary to make such information not misleading, or in
the event that Shares of the Fund are offered to eligible participants in the
PaineWebber/Kidder, Peabody Premium Account program ('PW/KPPA'), losses or costs
in connection with the redemption of Shares due to unauthorized use of a Visa
card or Visa checks or due to any error, fault or breakdown of the PW/KPPA
computer programs or operating procedures. PaineWebber shall have the right to
control the defense of any action contemplated by this Section 9(c), with
counsel of its own choosing, satisfactory to the Fund, unless the action is not
based solely upon an alleged misstatement or omission on PaineWebber's part. In
such event, the Fund, its officers or trustees or controlling persons will each
have the right to participate in the defense or preparation of the defense of
the action. In the event that PaineWebber elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If PaineWebber does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
(d) PaineWebber shall not be liable to the Fund under this indemnity
agreement with respect to any claim made against the Fund or any person
indemnified unless the Fund or other such person shall have notified PaineWebber
in writing of the claim within a reasonable time after the summons or other
first written notification giving information of the nature of the claim shall
have been served upon the Fund or such other person (or after the Fund shall
have received notice of service on any designated agent). PaineWebber will not
be obligated to indemnify any entity or person against any liability to which
the Fund, its officers and trustees, or any controlling person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
performance of, or reckless disregard of, the obligations and duties set forth
in this Agreement.
10. Limitation of Liability of the Trustees and Shareholders of the Fund.
The trustees and shareholders of the Fund shall not be liable for any
obligations of the Fund under this Contract, and PaineWebber agrees that, in
asserting any rights or claims under this Contract, it shall look only to the
assets and property of the Fund in settlement of such right or claims, and not
to such trustees or shareholders. The Fund represents that a copy of the
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and with the Boston City Clerk.
11. Services Provided to the Fund by Employees of PaineWebber. Any person,
even though also an officer, director, employee or agent of PaineWebber, who may
be or become an officer, trustee, employee or agent of the Fund, shall be
deemed,
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<PAGE>
when rendering services to the Fund or acting in any business of the Fund, to be
rendering such services to or acting solely for the Fund and not as an officer,
trustee, employee or agent or one under the control or direction of PaineWebber
even though paid by PaineWebber.
12. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove written,
provided that this Contract shall not take effect unless such action has first
been approved by vote of a majority of the Board and by vote of a majority of
those trustees of the Fund who are not interested persons of the Fund, and have
no direct or indirect financial interest in the operation of the Plan relating
to the Shares or in any agreements related thereto (all such trustees
collectively being referred to herein as the 'Independent Trustees') cast in
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or by vote of a majority of the outstanding voting securities of
the Fund.
(c) Notwithstanding the foregoing, this Contract may be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the Fund on sixty days' written notice to PaineWebber or by
PaineWebber at any time, without the payment of any penalty, on sixty days'
written notice to the Fund. This Contract will automatically terminate in the
event of its assignment.
13. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the 1940 Act, the latter shall control.
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<PAGE>
15. Notice. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms 'majority of the outstanding voting securities,' 'interested person'
and 'assignment' shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
<TABLE>
<S> <C>
ATTEST: PAINEWEBBER/KIDDER, PEABODY
PREMIUM ACCOUNT FUND
Ilene Shore By: Dianne E. O'Donnell
......................................... ...............................
ATTEST: PAINEWEBBER INCORPORATED
Ilene Shore By: Thomas Eggers
.......................................... ...............................
</TABLE>
<PAGE>
TRANSFER AGENCY SERVICES AND SHAREHOLDER SERVICES AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of January 30, 1995, to be effective as of
such date as is agreed to in writing by the parties, by and between
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND (the "Fund"), a Massachusetts
business trust and PFPC INC. ("PFPC"), a Delaware corporation, which is an
indirect wholly-owned subsidiary of PNC Bank Corp.
The Fund is registered as an open-end management series investment
company under the Investment Company Act of 1940, as amended ("1940 Act"). The
Fund wishes to retain PFPC to serve as the transfer agent, registrar, dividend
disbursing agent and shareholder servicing agent for such series listed in
Appendix C to this agreement, as amended from time to time (the "Series"), and
PFPC wishes to furnish such services.
In consideration of the promises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person who is duly authorized by the
Fund's Governing Board to give Oral and Written Instructions on behalf of the
Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix or any amendment thereto as may be received by PFPC
from time to time.
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<PAGE>
If PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
(b) "Governing Board". The term "Governing Board" shall mean
the Fund's Board of Directors if the Fund is a corporation or the Fund's Board
of Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(c) "Oral Instructions". The term "Oral Instructions"
shall mean oral instructions received by PFPC from an Authorized Person by
telephone or in person.
(d) "SEC". The term "SEC" shall mean the Securities and
Exchange Commission.
(e) "Securities Laws". The term "Securities Laws" shall mean
the 1933 Act, the 1934 Act and the 1940 Act. The terms the "1933 Act" shall mean
the Securities Act of 1933, a amended, and the "1934 Act" shall mean the
Securities Exchange Act of 1934, a amended.
(f) "Shares". The term "Shares" shall mean the shares of
beneficial interest of any Series or class of the Fund.
(g) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by one Authorized Person and received by
PFPC. The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as
transfer agent, registrar, dividend disbursing agent and shareholder servicing
agent to each of its Series, in accordance
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<PAGE>
with the terms set forth in this Agreement, and PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of
the Fund's Governing Board, approving the appointment of PFPC to provide
services to each Series and approving this agreement;
(b) A copy of the Fund's most recent Post-Effective Amendment
to its Registration Statement on Form N-1A under the 1933 Act and 1940 Act as
filed with the SEC;
(c) A copy of the Fund's investment advisory and
administration agreement or agreements;
(d) A copy of the Fund's distribution agreement or agreements;
(e) Copies of any shareholder servicing agreements made
in respect of the Fund; and
(f) Copies of any and all amendments or supplements to
the foregoing.
4. Compliance with Government Rules and Regulations. PFPC undertakes to
comply with all applicable requirements of the Securities Laws, and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to all duties to be performed by PFPC hereunder. Except as specifically
set forth herein, PFPC assumes no responsibility for such compliance by the
Fund.
3
<PAGE>
5. Instructions. Unless otherwise provided in this Agreement, PFPC
shall act only upon Oral and Written Instructions. PFPC shall be entitled to
rely upon any Oral and Written Instruction it receives from an Authorized Person
pursuant to this Agreement. PFPC may assume that any Oral or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or of any vote, resolution or proceeding of the Fund's
Governing Board or of the Fund's shareholders, unless and until it receives
Written Instructions to the contrary.
The Fund agrees to forward to PFPC Written Instructions confirming Oral
Instructions so that PFPC receives the Written Instructions by the close of
business on the next business day after such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such instructions provided that
PFPC's actions comply with the other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any action
it should or should not take, PFPC will request directions or advice, including
Oral or Written Instructions, from the Fund.
4
<PAGE>
(b) Advice of Counsel. If PFPC shall be in doubt as to any
question of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing (who may be
counsel for the Fund, the Fund's investment adviser or PFPC, at the option of
PFPC).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PFPC receives from the Fund
and the advice it receives from counsel, PFPC may rely upon and follow the
advice of counsel. In the event PFPC so relies on the advice of counsel, PFPC
remains liable for any action or omission on the part of PFPC which constitutes
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities provided for in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel in accordance with this
Agreement and which PFPC believes, in good faith, to be consistent with those
directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed to impose an obligation
upon PFPC (i) to seek such directions, advice or Oral or Written Instructions,
or (ii) to act in accordance with such directions, advice or Oral or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
5
<PAGE>
Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, negligence or reckless
disregard of PFPC of any duties, obligations or responsibilities provided for in
this Agreement.
7. Records and Visits. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, including (a) all those records required to be prepared and maintained by
the Fund under the 1940 Act, by other applicable Securities Laws, rules and
regulations and by state laws and (b) such books and records as are necessary
for PFPC to perform all of the services it agrees to provide in this Agreement
and the appendices attached hereto, including but not limited to the books and
records necessary to effect the conversion of Class B Shares, the calculation of
any contingent deferred sales charges and the calculation of front-end sales
charges. The books and records pertaining to the Fund which are in the
possession, or under the control, of PFPC shall be the property of the Fund. The
Fund or the Fund's Authorized Persons shall have access to such books and
records at all times during PFPC's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
PFPC to the Fund or to an Authorized Person of the Fund. Upon reasonable notice
by the Fund, PFPC shall make available during regular business hours its
facilities and premises employed in connection with its performance of this
Agreement for reasonable
6
<PAGE>
visits by the Fund, any agent or person designated by the Fund or any regulatory
agency having authority over the Fund.
8. Confidentiality. PFPC agrees on its own behalf and that of its
employees to keep confidential all records of the Fund and information relating
to the Fund and its shareholders (past, present and future), its investment
adviser and its principal underwriter, unless the release of such records or
information is otherwise consented to, in writing, by the Fund prior to its
release. The Fund agrees that such consent shall not be unreasonably withheld,
and may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. Cooperation with Accountants. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for periodic backup of computer files and data with respect to the
Fund and emergency use of electronic data processing equipment. In the event of
equipment failures, PFPC shall, at no additional expense to the Fund, take all
reasonable steps to minimize service interruptions. PFPC shall
7
<PAGE>
have no liability with respect to the loss of data or service interruptions
caused by equipment failures, provided such loss or interruption is not caused
by the negligence of PFPC and provided further that PFPC has complied with the
provisions of this Paragraph 10.
11. Compensation. As compensation for services rendered by PFPC
during the term of this Agreement, the Fund will pay to PFPC a fee or fees as
may be agreed to, from time to time, in writing by the Fund and PFPC.
12. Indemnification.
(a) The Fund agrees to indemnify and hold harmless PFPC and
its nominees from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws, and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including, without limitation, reasonable
attorneys' fees and disbursements arising directly or indirectly from any action
or omission to act which PFPC (i) at the request of or on the direction of or in
reliance on the advice of the Fund or (ii) upon Oral or Written Instructions.
Neither PFPC, nor any of its nominees, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of PFPC's or
its nominees' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement.
8
<PAGE>
(b) PFPC agrees to indemnify and hold harmless the Fund from
all taxes, charges, expenses, assessments, claims and liabilities arising from
PFPC's obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses, including,
without limitation, reasonable attorneys' fees and disbursements, arising
directly or indirectly out of PFPC's or its nominee's own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations under
this Agreement.
(c) In order that the indemnification provisions contained in
this Paragraph 12 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep the
other party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate with
the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
13. Insurance. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement,
9
<PAGE>
the contracts of insurance shall take precedence, and no provision of this
Agreement shall be construed to relieve an insurer of any obligation to pay
claims to the Fund, PFPC or other insured party which would otherwise be a
covered claim in the absence of any provision of this Agreement.
14. Security. PFPC represents and warrants that, to the best of its
knowledge, the various procedures and systems which PFPC has implemented with
regard to the safeguarding from loss or damage attributable to fire, theft or
any other cause (including provision for twenty-four hours a day restricted
access) of the Fund's blank checks, certificates, records and other data and
PFPC's equipment, facilities and other property used in the performance of its
obligations hereunder are adequate, and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Fund shall have access to review these systems and
procedures.
15. Responsibility of PFPC. PFPC shall be under no duty to take any
action on behalf of the Fund except as specifically set forth herein or as may
be specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise due care and diligence in the performance of its duties hereunder, to
act in good faith and to use its best efforts in performing services provided
for under this Agreement. PFPC shall be liable only for any damages arising out
of or in connection with PFPC's performance of or omission or failure to perform
its duties under this
10
<PAGE>
Agreement to the extent such damages arise out of PFPC's negligence, reckless
disregard of its duties, bad faith or willful misfeasance.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC, in connection with its duties under this
Agreement, shall not be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or authority or lack thereof of
any Oral or Written Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PFPC reasonably
believes to be genuine; or (b) subject to the provisions of Paragraph 10, delays
or errors or loss of data occurring by reason of circumstances beyond PFPC's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, flood or catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power supply.
16. Description of Services. PFPC shall perform the duties of the
transfer agent, registrar, dividend disbursing agent and shareholder servicing
agent of the Fund and its specified Series.
(a) Purchase of Shares. PFPC shall issue and credit an
account of an investor in the manner described in each Series
prospectus once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder
account; and
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<PAGE>
(iii) Confirmation of receipt or crediting of funds
for such order from the Series' custodian.
(b) Redemption of Shares. PFPC shall redeem a Series' Shares
only if that function is properly authorized by the Fund's organizational
documents or resolution of the Fund's Governing Board. Shares shall be redeemed
and payment therefor shall be made in accordance with each Series' prospectus
when the shareholder tenders his or her Shares in proper form and directs the
method of redemption.
(c) Dividends and Distributions. Upon receipt of a resolution
of the Fund's Governing Board authorizing the declaration and payment of
dividends and distributions, PFPC shall issue dividends and distributions
declared by the Fund in Shares, or, upon shareholder election, pay such
dividends and distributions in cash if provided for in each Series' prospectus.
Such issuance or payment, as well as payments upon redemption as described
above, shall be made after deduction and payment of the required amount of funds
to be withheld in accordance with any applicable tax law or other laws, rules or
regulations. PFPC shall mail to each Series' shareholders such tax forms and
other information, or permissible substitute notice, relating to dividends and
distributions paid by the Fund as are required to be filed and mailed by
applicable law, rule or regulation.
PFPC shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends above a
stipulated amount paid by the Fund to its shareholders as required by tax or
other law, rule or regulation.
12
<PAGE>
(d) PFPC will provide the services listed on Appendix A and
Appendix B on an ongoing basis. Performance of certain of these services, with
accompanying responsibilities and liabilities, may be delegated and assigned to
PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or to an
affiliated person of either.
17. Duration and Termination.
(a) This Agreement shall continue until January 30, 1997 and
shall automatically be renewed thereafter on a year-to-year basis and with
respect to the year-to-year renewal, provided that the Fund's Governing Board
approves such renewal; and provided further that this Agreement may be
terminated by either party for cause.
(b) With respect to the Fund, cause includes, but is not
limited to: (i) PFPC's material breach of this Agreement causing it to fail to
substantially perform its duties under this Agreement. In order for such
material breach to constitute "cause" under this Paragraph, PFPC must receive
written notice from the Fund specifying the material breach and PFPC shall not
have corrected such breach within a 15-day period; (ii) financial difficulties
of PFPC evidenced by the authorization or commencement of a voluntary or
involuntary bankruptcy under the U.S. Bankruptcy Code or any applicable
bankruptcy or similar law, or under any applicable law of any jurisdiction
relating to the liquidation or reorganization of debt, the appointment of a
receiver or to the modification or alleviation of the rights of creditors; and
(iii)
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<PAGE>
issuance of an administrative or court order against PFPC with regard to the
material violation or alleged material violation of the Securities Laws or other
applicable laws related to its business of performing transfer agency services.
(c) With respect to PFPC, cause includes, but is not limited
to, the failure of the Fund to pay the compensation set forth in writing
pursuant to Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be effective
thirty (30) days from the date of such notice. Any notice of termination for
cause by PFPC shall be effective 90 days from the date of such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC
such compensation as may be due for the period prior to the date of such
termination. In the event that the Fund designates a successor to any of PFPC's
obligations under this Agreement, PFPC shall, at the direction and expense of
the Fund, transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including a certified list of the
shareholders of each Series of the Fund with name, address, and if provided
taxpayer identification or Social Security number, and a complete record of the
account of each shareholder. To the extent that PFPC incurs expenses related to
a transfer of responsibilities to a successor, other than expenses involved in
PFPC's providing the Fund's books and records to the successor, PFPC shall be
entitled to be reimbursed for such expenses, including any
14
<PAGE>
out-of-pocket expenses reasonably incurred by PFPC in connection with the
transfer.
(f) Any termination effected pursuant to this Paragraph shall
not affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall
terminate with respect to the Fund and any Series thereof upon the liquidation,
merger or other dissolution of the Fund or Series or upon the Fund's ceasing to
be registered investment company.
19. Registration as a Transfer Agent. PFPC represents that it is
currently registered with the appropriate federal agency for the registration of
transfer agents, or is otherwise permitted to lawfully conduct its activities
without such registration and that it will remain so registered for the duration
of this Agreement. PFPC agrees that it will promptly notify the Fund in the
event of any material change in its status as a registered transfer agent.
Should PFPC fail to be registered with the SEC as a transfer agent at any time
during this Agreement, and such failure to register does not permit PFPC to
lawfully conduct its activities, the Fund may terminate this Agreement upon five
days written notice to PFPC.
20. Notices. All notices and other communications, other than Oral or
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to PFPC at
PFPC's address, 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the
Fund, at 1285 Avenue of the Americas, 15th Floor, New York, N.Y. 10005;
15
<PAGE>
or (c) if to neither of the foregoing, at such other address as shall have been
notified to the sender of any such notice or other communication. If the notice
is sent by confirming telegram, cable telex or facsimile sending device during
regular business hours, it shall be deemed to have been given immediately. If
sent during a time other than regular business hours, such notice shall be
deemed to have been given at the opening of the next business day. If notice is
sent by first-class mail, it shall be deemed to have been given three business
days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. All postage, cable,
telegram, telex and facsimile sending device charges arising from the sending of
a notice hereunder shall be paid by the sender.
21. Amendments. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
22. Additional Series. In the event that the Fund establishes one or
more investment Series in addition to and with respect to which it desires to
have PFPC render services as transfer agent, registrar, dividend disbursing
agent and shareholder servicing agent under the terms set forth in this
Agreement, it shall so notify PFPC in writing, and PFPC shall agree in writing
to provide such services, and such investment Series shall become a Series
hereunder, subject to such additional terms, fees and conditions as are agreed
to by the parties.
23. Assignment and Delegation.
16
<PAGE>
(a) PFPC may, at its owns expense, assign its rights and
delegate its duties hereunder to any wholly-owned direct or indirect subsidiary
of PNC Bank, National Association or PNC Bank Corp., provided that (i) PFPC
gives the Fund thirty (30) days' prior written notice; (ii) the delegate agrees
with PFPC to comply with all relevant provisions of the Securities Laws; and
(iii) PFPC and such delegate promptly provide such information as the Fund may
request and respond to such questions as the Fund may ask relating to the
delegation, including, without limitation, the capabilities of the delegate. The
assignment and delegation of any of PFPC's duties under this subparagraph (a)
shall not relieve PFPC of any of its responsibilities or liabilities under this
Agreement.
(b) PFPC may assign its rights and delegate its duties
hereunder to PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc.
or affiliated person of either provided that (i) PFPC gives the Fund thirty (30)
days' prior written notice; (ii) the delegate agrees to comply with all relevant
provisions of the Securities Laws; and (iii) PFPC and such delegate promptly
provide such information as the Fund may request and respond to such questions
as the Fund may ask relative to the delegation, including, without limitation,
the capabilities of the delegate. In assigning its rights and delegating its
duties under this paragraph, PFPC may impose such conditions or limitations as
it determines appropriate including the condition that PFPC be retained as a
sub-transfer agent.
17
<PAGE>
(c) In the event that PFPC assigns its rights and delegates
its duties under this section, no amendment of the terms of this Agreement shall
become effective without the written consent of PFPC.
24. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
26. Limitation of Liability. The Trust and PFPC agree that the
obligations of the Trust under this Agreement will not be binding upon any of
the Trustees, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Trust, individually, but are binding only upon
the assets and property of the Trust, as provided in the Declaration of Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust, and signed by an authorized officer of the Trust, acting
as such, and neither the authorization by the Trustees nor the execution and
delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the trust property of the Trust as provided in the Declaration of Trust. No
Series of the Trust will be liable for any claims against any other Series.
27. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all
18
<PAGE>
prior agreements and understandings relating to the subject matter hereof,
provided that the parties may embody in one or more separate documents their
agreement, if any, with respect to services to be performed and compensation to
be paid under this Agreement.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware Law, except that, to the extent provision of the Securities
Laws govern the subject matter of this Agreement, such Securities Laws will
controlling. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding and inure to the
benefit of the parties hereto and their respective successors and assigns.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PFPC INC.
By: GEO. W. GARVEY
---------------
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
By: DIANNE E. O'DONNELL
-------------------
20
<PAGE>
APPENDIX A
Description of Services
(a) Services Provided on an Ongoing Basis by PFPC to the Fund, If
Applicable.
(i) Calculate 12b-1 payments and broker trail commissions;
(ii) Develop, monitor and maintain all systems necessary to
implement and operate the three-tier distribution
system, including Class B conversion feature, as
described in the registration statement and related
documents of the Fund, as they may be amended from
time to time;
(iii) Calculate contingent deferred sales charge amounts
upon redemption of Fund Shares and deduct such amounts
from redemption proceeds;
(iv) Calculate front-end sales load amounts at time of
purchase of Shares;
(v) Determine dates of Class B conversion and effect same;
(vi) Establish and maintain proper shareholder
registrations, unless requested by the Fund;
(vii) Review new applications with correspondence to
shareholders to complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction
with proxy solicitations;
(x) Countersign share certificates;
(xi) Prepare and mail to shareholders confirmation of
activity;
(xii) Provide toll-free lines for direct shareholder use,
plus customer liaison staff for on-line inquiry
response;
(xiii) Send duplicate confirmations to broker-dealers of
their clients' activity, whether executed through the
broker-dealer or directly with PFPC;
A-1
<PAGE>
(xiv) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the Fund;
(xv) Provide detailed data for underwriter/broker
confirmations;
(xvi) Periodic mailing of year-end tax and statement
information;
(xvii) Notify on a daily basis the investment advisor,
accounting agent, and custodian of fund activity; and
(xviii) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) Services Provided by PFPC Under Oral or Written Instructions
of the Fund.
(i) Accept and post daily Series and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and
exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates.
(c) Shareholder Account Services.
(i) PFPC may arrange, in accordance with the Series'
prospectus, for issuance of Shares obtained through:
The transfer of funds from shareholders'
account at financial institutions; and
Any pre-authorized check plan.
(ii) PFPC, if requested, shall arrange for a shareholder's:
Exchange of Shares for shares of a fund for
which the Fund has exchange privileges;
A-2
<PAGE>
Systematic withdrawal from an account where
that shareholder participates in a
systematic withdrawal plan; and/or
Redemption of Shares from an account with a
checkwriting privilege.
(d) Communications to Shareholders. Upon timely written
instructions, PFPC shall mail all communications by the Fund
to its shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of fund Shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
If requested by the Fund, PFPC will receive and tabulate the proxy
cards for the meetings of the Fund's shareholders and supply personnel
to serve as inspectors of election.
(e) Records. PFPC shall maintain records of the accounts for
each shareholder showing the following information:
(i) Name, address and United States Tax Identification or
Social Security number;
(ii) Number and class of Shares held and number and class
of Shares for which certificates, if any, have been
issued, including certificate numbers and
denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions
paid and the date and price for all transactions on a
shareholder's account;
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current maintenance
of a shareholder's account;
(vi) Information with respect to withholdings; and
A-3
<PAGE>
(vii) Any information required in order for the transfer
agent to perform any calculations contemplated or
required by this Agreement.
(f) Lost or Stolen Certificates. PFPC shall place a stop notice
against any certificate reported to be lost or stolen and
comply with all applicable federal regulatory requirements for
reporting such loss or alleged misappropriation.
A new certificate shall be registered and issued upon:
(i) Shareholder's pledge of a lost instrument bond or such
other and appropriate indemnity bond issued by a
surety company approved by PFPC; and
(ii) Completion of a release and indemnification agreement
signed by the shareholder to protect PFPC.
(g) Shareholder Inspection of Stock Records. Upon requests from
Fund shareholders to inspect stock records, PFPC will notify
the Fund and require instructions granting or denying such
request prior to taking any action. Unless PFPC has acted
contrary to the Fund's instructions, the Fund agrees to
release PFPC from any liability for refusal of permission for
a particular shareholder to inspect the Fund's shareholder
records.
A-4
<PAGE>
APPENDIX B
PFPC will perform or arrange for others to perform the following activities,
some or all of which may be delegated and assigned by PFPC to PaineWebber
Incorporated ("PaineWebber") or Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins") or to an
affiliated person of either:
(i) providing, to the extent reasonable, uninterrupted
processing of new accounts, shareholder account
changes, sales and redemption activity, dividend
calculations and payments, check settlements, blue sky
reporting, tax reporting, recordkeeping, communication
with all shareholders, resolution of discrepancies and
shareholder inquiries and adjustments, maintenance of
dual system, development and maintenance of repricing
system, and development and maintenance of correction
system;
(ii) develop and maintain all systems for custodian
interface and reporting, and underwriter interface and
reporting;
(iii) develop and maintain all systems necessary to
implement and operate the three-tier distribution
system, including Class B conversion features as
described in the registration statement and related
documents of the Fund, as they may be amended from
time to time; and
(iv) provide administrative, technical and legal support
for the foregoing services.
In undertaking its activities and responsibilities under this Appendix, PFPC
will not be responsible, except to the extent caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this agreement, for any charges or fees billed, expenses
incurred or penalties, imposed by any party, including the Fund or any current
or prior services providers of the Fund, without the prior written approval by
PFPC.
B-1
APPENDIX C
PaineWebber/Kidder, Peabody Premium Account Fund
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
PaineWebber/Kidder, Peabody Premium Account Fund:
We consent to the incorporation by reference in Post-Effective Amendment No. 15
to Registration Statement No. 2-75691 of our report dated May 18, 1995,
appearing in the annual report to shareholders for the year ended March 31,
1995, and to the references to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
New York, New York
July 25, 1995
<PAGE>
AMENDMENT TO
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
KIDDER, PEABODY PREMIUM ACCOUNT FUND
WHEREAS, pursuant to resolutions adopted by the Board of Directors of
Kidder, Peabody Premium Account Fund ('Fund') on December 16, 1994, PaineWebber
Incorporated ('PaineWebber') was appointed distributor of the Fund, and it was
determined to change the name of the Fund to the 'PaineWebber/Kidder, Peabody
Premium Account Fund';
NOW, THEREFORE, the Fund hereby adopts the following amendments to the
above-referenced plan ('Plan'):
1. All references to the 'Kidder, Peabody Premium Account Fund'
contained in the Plan are hereby replaced with 'PaineWebber/Kidder, Peabody
Premium Account Fund.'
2. All references to 'Kidder, Peabody & Co. Incorporated' contained in
the Plan are hereby replaced with 'PaineWebber Incorporated,' and all
references to 'Kidder, Peabody' contained in the Plan are hereby replaced
with 'PaineWebber.'
IN WITNESS WHEREOF, the Fund and PaineWebber have executed this 'Amendment
to the Plan of Distribution Pursuant to Rule 12b-l of Kidder, Peabody Premium
Account Fund' on the day and year set forth below.
Date: January 30, l995
PAINEWEBBER/KIDDER, PEABODY
PREMIUM ACCOUNT FUND
By: Dianne E. O'Donnell
-------------------------------
Attest: Ilene Shore
---------------------------
PAINEWEBBER INCORPORATED
By: Thomas Eggers
_______________________________
Attest: Ilene Shore
---------------------------
<PAGE>
POWER OF ATTORNEY
I, Margo N. Alexander, President of PaineWebber/Kidder, Peabody California
Tax Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
President for each of the Funds, any and all amendments to each of the
particular registration statements of the Funds, and all instruments necessary
or desirable in connection therewith, filed with the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it may be signed by
said attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ MARGO N. ALEXANDER President July 21, 1995
........................................
(MARGO N. ALEXANDER)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 646665198
<INVESTMENTS-AT-VALUE> 646665198
<RECEIVABLES> 68258
<ASSETS-OTHER> 139047
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 646872503
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1349182
<TOTAL-LIABILITIES> 1349182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 645523321
<SHARES-COMMON-STOCK> 645523321
<SHARES-COMMON-PRIOR> 876005988
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 645523321
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38424753
<OTHER-INCOME> 0
<EXPENSES-NET> 5528175
<NET-INVESTMENT-INCOME> 32896578
<REALIZED-GAINS-CURRENT> (1663026)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 31233552
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 32896578
<DISTRIBUTIONS-OF-GAINS> 1160
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3997365909
<NUMBER-OF-SHARES-REDEEMED> 4258741761
<SHARES-REINVESTED> 30893185
<NET-CHANGE-IN-ASSETS> (230482667)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3949481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5528175
<AVERAGE-NET-ASSETS> 789896256
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
