<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 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. 14 [x]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 16 [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
[ ] ON PURSUANT TO PARAGRAPH (b) OF RULE 485
[x] 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. The Fund seeks to maintain a stable net asset value of $1.00 per
share, although there can be no assurance that it will be able to do so at all
times.
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 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.
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> <C> <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.................................................................. .50
12b-1 Fees....................................................................... .12
Other Expenses................................................................... .08
---
Shareholder Services, Reports and Pricing.................................... .03%
Professional, Custodian & Trustees'.......................................... .02%
Registration and Miscellaneous............................................... .03%
Total Fund Operating Expenses.................................................... .70%
---
---
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------ ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, (2) an operating expense ratio of .69% 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> <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 rating organization, 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 certain
other PaineWebber/Kidder, Peabody 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 thereof is included in the Annual Report to Shareholders.
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR 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...... 0.0742 0.0578 0.0639 0.0750 0.0831 0.0726 0.0478 0.0285 0.0257
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income...... (0.0742) (0.0578) (0.0639) (0.0750) (0.0831) (0.0726) (0.0478) (0.0285) (0.0257)
----------------------------------------------------------------------------------------------------
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................... $
--------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income......
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income......
--------
Net asset value, end of
year...................... $
--------
--------
Total return............ %
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands)................ $
RATIOS TO AVERAGE NET
ASSETS
Expenses, including
distribution fees......... %
Net investment income...... %
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
YIELD
The chart below shows the current and effective yields, calculated in accordance
with rules of the SEC, and the average portfolio maturity for the seven-day
periods ended March 31, 1995 and July 1, 1995.
<TABLE>
<CAPTION>
MARCH 31, 1995 JULY 1, 1995
-------------- ------------
<S> <C> <C>
Current Yield............................................... 5.41% %
Effective Yield............................................. 5.55% %
Average Portfolio Maturity.................................. 34 days 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 Corporation ('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 which 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 nationally recognized statistical rating organizations 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
rating agency 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 that took place 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
[42] investment companies with an aggregate of [77] separate portfolios and
aggregate assets of approximately [$26] 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
9
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received by PaineWebber from the Fund. PaineWebber and Mitchell Hutchins
continue to manage the Fund in accordance with the Fund's investment objective,
policies and restrictions.
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.
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 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 the close of regular trading on the New York Stock Exchange if
payment has been received by PaineWebber by that time and the shareholder
10
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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 the transfer agent of instructions from PaineWebber in
accordance with the automatic redemption procedure set forth below. If
instructions are delivered to the transfer agent 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. Redemption orders,
if any, that are received between 12:00 noon, Eastern time, and the close of
regular trading on the New York Stock Exchange are effective at the 4:00 p.m.
price on that day, but payment normally is 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 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;
11
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(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 other PaineWebber/Kidder,
Peabody funds. For a list of the PaineWebber/Kidder, Peabody funds for which
shares may be exchanged, please see 'Exchange Privilege' in the Statement of
Additional Information.
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 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
12
<PAGE>
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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.
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.
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 incurred distribution expenses of approximately $ of which
approximately $ was recovered in the form of reimbursements made by the
Fund to PaineWebber and Kidder, Peabody & Co. Incorporated, the Fund's
predecessor distributor, at the rate provided in the Plan of Distribution.
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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 but 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
corporations because the Fund's income will not consist of dividends paid by
U.S. corporations.
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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. IFTC 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.
16
<PAGE>
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.
<TABLE>
<S> <C>
- ------------------------------------
Contents
- ------------------------------------
Fee Table 2
- ------------------------------------
Highlights 3
- ------------------------------------
Financial Highlights 5
- ------------------------------------
Yield 6
- ------------------------------------
Investment Objective and
Management Policies 6
- ------------------------------------
Management of the Fund 9
- ------------------------------------
Portfolio Transactions 10
- ------------------------------------
Purchase of Shares 10
- ------------------------------------
Redemption of Shares 11
- ------------------------------------
Exchange Privilege 12
- ------------------------------------
The Distributor 13
- ------------------------------------
Dividends, Distributions
and Taxes 14
- ------------------------------------
Determination of Net Asset Value 15
- ------------------------------------
Custodian and Dividend, Transfer
and Recordkeeping Agent 16
- ------------------------------------
Counsel and Independent Auditors 16
- ------------------------------------
Shares of the Fund 16
- ------------------------------------
</TABLE>
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.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
PaineWebber Incorporated
SUB-ADVISER AND SUB-ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
- --------------------------------------------------------------------------------
<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,
together with illiquid securities and other securities for which there are
no readily available market
2
<PAGE>
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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
Manager 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.
3
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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 securities of high quality
4
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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 12
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 12 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.
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. Prior
to May 1990, principal of Rockefeller and Company, Inc., manager of investments.
Mr. Schafer is a director or trustee of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
*Frank P. L. Minard, 49, Trustee and President. Mr. Minard is chairman of
Mitchell Hutchins, chairman of the board of Mitchell Hutchins Institutional
Investors Inc. and a director of PaineWebber. Prior to 1993, Mr. Minard was
managing director of Oppenheimer Capital in New York and Director of Oppenheimer
Capital Ltd. in London. Mr. Minard is a director or trustee of
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26 other investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Teresa M. Boyle, 36, Vice President. Ms. Boyle is a first vice president
and manager -- advisory administration of Mitchell Hutchins. Prior to November
1993, she was compliance manager of Hyperion Capital Management, Inc., an
investment advisory firm. Prior to April 1993, Ms. Boyle was a vice president
and manager -- legal administration of Mitchell Hutchins. Ms. Boyle is also a
vice president of 39 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Dennis L. McCauley, 48, Vice President. Mr. McCauley is a Managing Director
and Chief Investment Officer -- Fixed Income of Mitchell Hutchins. Prior to
December 1994 he was Director of Fixed Income Investments of IBM Corporation.
Mr. McCauley is also a vice president of 8 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Anne E. Moran, 37, Vice President and Assistant Treasurer. Ms. Moran is a
vice president of Mitchell Hutchins. Ms. Moran is also a vice president and
assistant treasurer of 39 other investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Dianne E. O'Donnell, 42, Vice President and Secretary. Ms. O'Donnell is a
senior vice president and deputy general counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president and secretary of 39 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Victoria E. Schonfeld, 44, Vice President. Ms. Schonfeld is a managing
director and general counsel of Mitchell Hutchins. From April 1990 to May 1994
she was a partner in the law firm of Arnold & Porter. Prior to April 1990, she
was a partner in the law firm of Shereff, Friedman, Hoffman & Goodman. Ms.
Schonfeld is also a vice president and assistant secretary of 39 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert, 31, Vice President and Assistant Treasurer. Mr. Schubert
is a vice president of Mitchell Hutchins. From August 1992 to August 1994, he
was a vice president at BlackRock Financial Management L.P. Prior to August
1992, he was an audit manager with Ernst & Young LLP. Mr. Schubert is also a
vice president and assistant treasurer of 39 other investment companies for
which Mitchell Hutchins or PaineWebber serves as investment adviser.
Martha J. Slezak, 32, Vice President and Assistant Treasurer. Ms. Slezak is
a vice president of Mitchell Hutchins. From September 1991 to April 1992, she
was a fundraising director for a U.S. Senate campaign. Prior to September 1991,
she was a tax manager with Arthur Andersen & Co. Ms. Slezak is also a vice
president and assistant treasurer of 39 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Julian F. Sluyters, 34 Vice President and Treasurer. Mr. Sluyters is a
senior vice president and the director of the mutual fund finance division of
Mitchell Hutchins. Prior to 1991, he was an audit senior manager with Ernst &
Young LLP. Mr. Sluyters is also a vice president and treasurer of 39 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd, 38, Vice President and Assistant Secretary. Mr. Todd is a
first vice president and associate general counsel of Mitchell Hutchins. Prior
to 1993, he was a partner with the law firm of Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice president and assistant
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secretary of 39 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 $ None None $ 80,700
William W. Hewitt, Jr. $ None None $ 74,425
Thomas R. Jordan $ None None $ 83,125
Carl W. Schafer $ None None $ 84,575
</TABLE>
- ------------
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to approximately $ for all Trustees as a group.
** Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.
7
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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 Kidder Peabody
Asset Management, Inc., the Fund's predecessor investment adviser and
administrator, fees of $4,332,418, $4,080,292 and $ 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
8
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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 respective duties or
from reckless disregard by it of its obligations and duties under the Agreement.
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 $ from the Fund, of which $ was spent on
payments to Investment Executives and $ was spent on printing and
overhead-related expenses.
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.
9
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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
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
10
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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
following NYSE holidays: New Year's Day, Washington's Birthday (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving and
Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will
be closed on the preceding Friday or the following Monday, respectively. 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 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
11
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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.
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,
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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.
Investors should consider carefully the tax implications of purchasing
shares of the Fund just prior to the declaration of a dividend. Although a
dividend paid shortly after shares have been purchased is in effect a return of
investment, it is subject to tax.
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
13
<PAGE>
- --------------------------------------------------------------------------------
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 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
14
<PAGE>
- --------------------------------------------------------------------------------
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 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%
15
<PAGE>
- --------------------------------------------------------------------------------
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 Corporation ('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>
<TABLE>
<S> <C>
- ---------------------------------------------
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 10
- ---------------------------------------------------
Determination of Net Asset Value 11
- ---------------------------------------------------
Dividends, Distributions and Taxes 12
- ---------------------------------------------------
General Information 14
- ---------------------------------------------------
Financial Statements 16
- ---------------------------------------------------
Appendix -- Information with Respect to
Ratings of Securities 17
- ---------------------------------------------------
</TABLE>
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:
To be filed by subsequent amendment pursuant to Rule 485(d).
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------------------
<S> <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.
(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.*
(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) -- Powers of Attorney.
</TABLE>
- ------------------
* To be supplied by amendment.
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 MAY 5, 1995
- -------------------------------------------------------------------- -----------------------
<S> <C>
Shares of beneficial interest, par value $.001 per share 13,546
</TABLE>
C-1
<PAGE>
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.
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
C-2
<PAGE>
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>
Frank P.L. Minard President and 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 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 1st day of June, 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/ FRANK P.L. MINARD* Trustee and President (Chief June 1, 1995
.................................................. Executive Officer)
FRANK P.L. MINARD
/s/ JULIAN F. SLUYTERS Vice President and Treasurer (Chief June 1, 1995
.................................................. Financial and Accounting Officer)
JULIAN F. SLUYTERS
/s/ DAVID J. BEAUBIEN** Trustee June 1, 1995
..................................................
DAVID J. BEAUBIEN
/s/ WILLIAM W. HEWITT, JR.*** Trustee June 1, 1995
..................................................
WILLIAM W. HEWITT, JR.
/s/ THOMAS R. JORDAN**** Trustee June 1, 1995
..................................................
THOMAS R. JORDAN
/s/ CARL W. SCHAFER***** Trustee June 1, 1995
..................................................
CARL W. SCHAFER
</TABLE>
- ------------
* Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated May 18, 1995 and filed herewith.
** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995 and filed herewith.
*** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995 and filed herewith.
**** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995 and filed herewith.
***** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995 and filed herewith.
C-4
<PAGE>
STATEMENT OF DIFFERENCES
The service mark shall be expressed as................ 'sm'
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------- ----
<S> <C> <C>
(17) Powers of Attorney............................................................................
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, Frank P.L. Minard, President and Trustee 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 and Trustee 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/ FRANK P.L. MINARD President and Trustee May 18, 1995
........................................
FRANK P.L. MINARD
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, David J. Beaubien, Trustee 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
Trustee 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/ DAVID J. BEAUBIEN Trustee March 8, 1995
........................................
DAVID J. BEAUBIEN
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, William W. Hewitt, Jr., Trustee 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
Trustee 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/ WILLIAM W. HEWITT, JR. Trustee March 8, 1995
........................................
WILLIAM W. HEWITT, JR.
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, Thomas R. Jordan, Trustee 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
Trustee 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/ THOMAS R. JORDAN Trustee March 8, 1995
........................................
THOMAS R. JORDAN
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, Carl W. Schafer, Trustee 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
Trustee 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/ CARL W. SCHAFER Trustee March 8, 1995
........................................
CARL W. SCHAFER
</TABLE>
