As filed with the Securities and Exchange Commission on September 13, 1995
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.___ [ ] Post-Effective Amendment No.___
PAINEWEBBER RMA TAX-FREE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of Principal Executive Offices)
(212) 713-2000
(Registrant's Area Code and Telephone Number)
DIANNE E. O'DONNELL, ESQ.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and Address of Agent for Service)
Copies to:
LEWIS G. COLE, ESQ. SUSAN M. CASEY, ESQ.
Stroock & Stroock & Lavan LINDA L. RITTENHOUSE, ESQ.
7 Hanover Square Kirkpatrick & Lockhart LLP
New York, New York 10004-2698 South Lobby - 9th Floor
Telephone: (212) 806-5400 1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective.
The Registrant has filed a declaration registering an indefinite
amount of securities pursuant to Rule 24f-2 under the Investment Company
Act of 1940, as amended. Accordingly, no filing fee is payable herewith.
The Registrant filed on August 25, 1995, the notice required by Rule 24f-2
for its fiscal year ended June 30, 1995.
It is proposed that this filing will become effective on October 13,
1995 pursuant to Rule 488.
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
Form N-14 Cross Reference Sheet
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
--------------- -----------------
1. Beginning of Registration Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
3. Synopsis Information and Synopsis; Comparison of
Risk Factors Principal Risk Factors
4. Information About the Synopsis; The Proposed
Transaction Transaction
5. Information About the Synopsis; Comparison of
Registrant Principal Risk Factors;
Prospectus of PaineWebber
RMA Tax-Free Fund, Inc.,
dated August 29, 1995,
previously filed on EDGAR,
Accession Number:
0000950112-95-002293
6. Information About the Synopsis; Comparison of
Company Being Acquired Principal Risk Factors;
Prospectus of PaineWebber/
Kidder, Peabody Tax Exempt
Money Fund, Inc., dated
January 27, 1995 (as supplemented
January 30, 1995)
7. Voting Information Voting Information
8. Interest of Certain Persons Not Applicable
and Experts
9. Additional Information Not Applicable
Required for Reoffering by
Persons Deemed to be
Underwriters
Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information Statement of Additional
About the Registrant Information of PaineWebber
RMA Tax-Free Fund, Inc.,
dated August 29, 1995,
previously filed on EDGAR,
Accession Number:
0000950112-95-002293
13. Additional Information Statement of Additional
About the Company Being Information of
Acquired PaineWebber/Kidder, Peabody
Tax Exempt Money Fund, Inc.
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
Form N-14 Cross Reference Sheet
14. Financial Statements Financial Statements of
PaineWebber RMA Tax-Free
Fund, Inc. for Fiscal Year
Ended June 30, 1995,
previously filed on EDGAR,
Accession Number:
0000703875-95-000001;
Financial Statements of
PaineWebber/Kidder, Peabody
Tax Exempt Money Fund, Inc.
for Fiscal Year Ended
September 30, 1994;
Financial Statements of
PaineWebber/Kidder, Peabody
Tax Exempt Money Fund, Inc.
for Semi-Annual Period
Ended March 31, 1995,
previously filed on EDGAR,
Accession Number:
0000889812-95-000294; and
Pro Forma Financial
Statements for the twelve
months ended June 30, 1995
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PAINEWEBBER/KIDDER, PEABODY TAX EXEMPT MONEY FUND, INC.
October ___, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that
PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc. ("PW/KP Fund")
reorganize and become part of PaineWebber RMA Tax-Free Fund, Inc. ("PW
Fund"). If the proposal is approved and implemented, each shareholder of
PW/KP Fund automatically would become a shareholder of PW Fund. Both Funds
are open-end management investment companies organized as Maryland
corporations.
Your board of directors recommends a vote FOR the reorganization
proposal. The board believes that combining the two Funds will benefit
PW/KP Fund's shareholders by providing them with a portfolio that has an
investment objective substantially identical to the investment objective of
PW/KP Fund and that will have lower operating expenses as a percentage of
net assets. The attached proxy materials provide more information about
the proposed reorganization and the two Funds.
Your vote is important no matter how many shares you own. Voting your
--------------------------------------------------------
shares early will permit PW/KP Fund to avoid costly follow-up mail and
telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very truly yours,
MARGO N. ALEXANDER
President, Mitchell Hutchins/
Kidder, Peabody Tax Exempt
Money Fund, Inc.
<PAGE>
PAINEWEBBER/KIDDER, PEABODY
TAX EXEMPT MONEY FUND, INC.
-------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
November 10, 1995
------------------
To The Shareholders:
A special meeting of shareholders ("Meeting") of PaineWebber/Kidder,
Peabody Tax Exempt Money Fund, Inc. ("PW/KP Fund") will be held on November
10, 1995 at [10:00 a.m.], Eastern time, at 1285 Avenue of the Americas,
38th Floor, New York, New York 10019, for the following purposes:
(1) To consider an Agreement and Plan of Reorganization and
Dissolution under which PaineWebber RMA Tax-Free Fund, Inc. ("PW Fund")
would acquire the assets of PW/KP Fund in exchange solely for shares of
common stock in PW Fund and the assumption by PW Fund of PW/KP Fund's
liabilities, followed by the distribution of those shares to the
shareholders of PW/KP Fund, all as described in the accompanying
Prospectus/Proxy Statement; and
(2) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
You are entitled to vote at the Meeting and any adjournment thereof if
you owned shares of PW/KP Fund at the close of business on October 4, 1995.
If you attend the Meeting, you may vote your shares in person. If you do
not expect to attend the Meeting, please complete, date, sign and return
the enclosed proxy card in the enclosed postage paid envelope.
By order of the board of directors,
DIANNE E. O'DONNELL
Secretary
October ___, 1995
1285 Avenue of the Americas
New York, New York 10019
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YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed
proxy card, date and sign the card, and return it in the
envelope provided. IF YOU SIGN, DATE AND RETURN THE PROXY CARD
BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSAL NOTICED ABOVE. In order to avoid the
additional expense of further solicitation, we ask your
cooperation in mailing in your proxy card promptly. Unless
proxy cards submitted by corporations and partnerships are
signed by the appropriate persons as indicated in the voting
instructions on the proxy card, they will not be voted.
-----------------------------------------------------------------------
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
PAINEWEBBER/KIDDER, PEABODY
TAX EXEMPT MONEY FUND, INC.
1285 Avenue of the Americas
New York, New York 10019
(Toll Free) 1-800-647-1568
PROSPECTUS/PROXY STATEMENT
_________, 1995
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished
to shareholders of PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc.
("PW/KP Fund") in connection with the solicitation of proxies by its board
of directors for use at a special meeting of shareholders to be held on
November 10, 1995, at [10:00] a.m., Eastern time, and at any adjournment
thereof ("Meeting").
As more fully described in this Proxy Statement, the primary purpose
of the Meeting is to vote on a proposed reorganization ("Reorganization").
Under the Reorganization, PaineWebber RMA Tax-Free Fund, Inc. ("PW Fund")
would acquire the assets of PW/KP Fund in exchange solely for shares of
common stock in PW Fund and the assumption by PW Fund of PW/KP Fund's
liabilities. Those PW Fund shares then would be distributed to the
shareholders of PW/KP Fund, so that each shareholder of PW/KP Fund would
receive a number of full and fractional shares of PW Fund having an
aggregate value that, on the effective date of the Reorganization, is equal
to the aggregate net asset value of the shareholder's shares in PW/KP Fund.
Following the distribution, PW/KP Fund will be dissolved.
PW Fund is a diversified money market fund with an investment
objective to provide maximum current income exempt from federal income tax
consistent with liquidity and conservation of capital. PW Fund seeks to
achieve its investment objective by investing substantially all its assets
in high-grade municipal money market instruments. Both PW Fund and PW/KP
Fund (each a "Fund" and collectively, "Funds") are money market funds that
seek to maintain a stable $1.00 price per share.
An investment in either Fund is neither insured nor guaranteed by the
U.S. government. While each Fund seeks to maintain a stable net asset
value of $1.00 per share, there can be no assurance that it will be able to
do so.
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/PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement, which should be retained for future reference,
sets forth concisely the information about the Reorganization and PW Fund
that a shareholder should know before voting. This Proxy Statement is
accompanied by the Prospectus of PW Fund, dated August 29, 1995, which is
incorporated by this reference into this Proxy Statement. A Statement of
Additional Information dated __________, 1995, relating to the
Reorganization and including historical financial statements, has been
filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by this reference. A Prospectus of PW/KP Fund, dated
January 27, 1995 (as supplemented January 30, 1995), a Statement of
Additional Information of PW/KP Fund, dated January 27, 1995, and a
Statement of Additional Information of PW Fund, dated August 29, 1995,
have been filed with the SEC and also are incorporated herein by this
reference. Copies of these documents, as well as PW Fund's Annual Report
to Shareholders for the fiscal year ended June 30, 1995, PW/KP Fund's
Annual Report to Shareholders for the fiscal year ended September 30, 1994,
and PW/KP Fund's Semi-Annual Report to Shareholders for the six-month
period ended March 31, 1995, may be obtained without
<PAGE>
charge and further inquiries may be made by contacting your PaineWebber
Incorporated ("PaineWebber") investment executive or PaineWebber's
correspondent firms or by calling toll-free 1-800-647-1568.
2
<PAGE>
TABLE OF CONTENTS
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
COMPARISON OF PRINCIPAL RISK FACTORS . . . . . . . . . . . . . . . . . 8
THE PROPOSED TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . 9
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3
<PAGE>
PAINEWEBBER/KIDDER, PEABODY
TAX EXEMPT MONEY FUND, INC.
------------------------
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
To Be Held On
November 10, 1995
------------------------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished
to shareholders of PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc.
("PW/KP Fund") in connection with the solicitation of proxies by its board
of directors for use at a special meeting of shareholders to be held on
November 10, 1995, and at any adjournment thereof ("Meeting"). This Proxy
Statement will first be mailed to shareholders on or about October ___,
1995.
At least one-third of PW/KP Fund's outstanding shares on October 4,
1995, represented in person or by proxy, must be present for the
transaction of business at the Meeting. If a quorum is not present at the
Meeting or a quorum is present but sufficient votes to approve the proposal
are not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of those
shares represented at the Meeting in person or by proxy. The persons named
as proxies will vote those proxies that they are entitled to vote FOR the
proposal in favor of such an adjournment and will vote those proxies
required to be voted AGAINST the proposal against such adjournment. A
shareholder vote may be taken on the proposal in this Proxy Statement prior
to any such adjournment if sufficient votes have been received and it is
otherwise appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial
owners or other persons entitled to vote and for which the broker does not
have discretionary voting authority. Abstentions and broker non-votes will
be counted as shares present for purposes of determining whether a quorum
is present but will not be voted for or against the adjournment or
proposal. Accordingly, abstentions and broker non-votes effectively will
be a vote against adjournment or against the proposal where the required
vote is a percentage of the shares present or outstanding. Abstentions and
broker non-votes will not be counted, however, as votes cast for purposes
of determining whether sufficient votes have been received to approve the
proposal.
The individuals named as proxies on the enclosed proxy card will vote
in accordance with your direction as indicated thereon if your proxy card
is received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of the
Agreement and Plan of Reorganization and Dissolution dated as of September
12, 1995 ("Reorganization Plan"), which is attached to this Proxy Statement
as Appendix A. Under the Reorganization Plan, PaineWebber RMA Tax-Free
Fund, Inc. ("PW Fund") would acquire the assets of PW/KP Fund in exchange
solely for shares of common stock in PW Fund and the assumption by PW Fund
of PW/KP Fund's liabilities; those PW Fund shares then would be distributed
to PW/KP Fund's shareholders. (These transactions are collectively
referred to herein as the "Reorganization," and PW/KP Fund and PW Fund may
be referred to herein individually as a "Fund" or collectively, as
"Funds.") After completion of the Reorganization, PW/KP Fund will be
dissolved.
In addition, if you sign, date and return the proxy card, but give no
voting instructions, the duly appointed proxies may vote your shares, in
their discretion, upon such other matters as may come before the Meeting.
The proxy card may be revoked by giving another proxy or by letter or
telegram revoking the initial proxy. To be
<PAGE>
effective, such revocation must be received by PW/KP Fund prior to the
Meeting and must indicate your name and account number. In addition, if
you attend the Meeting in person, you may, if you wish, vote by ballot at
the Meeting, thereby canceling any proxy previously given.
As of the record date, October 4, 1995 ("Record Date"), PW/KP Fund had
_______ shares of common stock outstanding. The solicitation of proxies,
the cost of which will be borne by the Funds in proportion to their
respective net assets, will be made primarily by mail but also may include
telephone or oral communications by representatives of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), who will not receive any
compensation therefor from the Funds, or by Shareholder Communications
Corporation, professional proxy solicitors retained by the Funds, who will
be paid fees and expenses of up to approximately $10,500 for soliciting
services. Management of each Fund does not know of any single shareholder
or "group" (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934) who owns beneficially 5% or more of the shares of
either Fund. Directors and officers of PW Fund own in the aggregate less
than 1% of the shares of that Fund.
Under Maryland law, approval of the Reorganization Plan requires the
affirmative vote of a majority of the outstanding shares of PW/KP Fund
entitled to vote at the Meeting. Each outstanding full share of PW/KP Fund
is entitled to one vote, and each outstanding fractional share thereof is
entitled to a proportionate fractional share of one vote. If the
Reorganization Plan is not approved by the requisite vote of shareholders
of PW/KP Fund, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies.
Although the shareholders of PW/KP Fund may exchange or redeem out of the
Fund, they do not have the appraisal rights that may be accorded to
shareholders of corporations that propose similar types of reorganizations
under the laws of some states.
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement, the Prospectuses of the Funds (which are
incorporated herein by this reference), and the Reorganization Plan.
Shareholders should read this Proxy Statement and the Prospectus of PW Fund
carefully. As discussed more fully below, PW/KP Fund's board of directors
believes that the Reorganization will benefit PW/KP Fund's shareholders.
The Funds have substantially identical investment objectives, although
their investment policies may differ in some respects. It is anticipated
that, following the Reorganization, the former shareholders of PW/KP Fund
will, as shareholders of PW Fund, be subject to lower total operating
expenses as a percentage of net assets.
The Reorganization
PW/KP Fund's board of directors considered and approved the
Reorganization Plan at a meeting held on July 20, 1995. The Reorganization
Plan provides for the acquisition of the assets of PW/KP Fund by PW Fund,
in exchange solely for shares of common stock of PW Fund and the assumption
by PW Fund of the liabilities of PW/KP Fund. PW/KP Fund will then
distribute those shares to its shareholders, so that each PW/KP Fund
shareholder will receive the number of full and fractional shares that
equals in value such shareholder's holdings in PW/KP Fund as of the Closing
Date (defined below). PW/KP Fund then will be dissolved as soon as
practicable thereafter.
The exchange of PW/KP Fund's assets for PW Fund shares and PW Fund's
assumption of its liabilities will occur as of 12:00 noon, Eastern time, on
November 20, 1995 or such later date as the conditions to the closing are
satisfied ("Closing Date").
Each Fund currently offers a single class of shares. PW Fund shares
are offered primarily to clients of PaineWebber Incorporated
("PaineWebber") and its correspondent firms who are participants in the
Resource Management Account ("RMA") or Business Services Account ("BSA")
programs. Shareholders of PW/KP Fund who receive shares of PW Fund in the
Reorganization may be eligible to become participants in the RMA or BSA
2
<PAGE>
programs but will not become participants in such programs automatically.
Among the features of the RMA and BSA programs is a daily sweep of
uninvested cash in amounts of $1.00 or more into a designated money market
fund. PW/KP Fund shareholders who receive shares of PW Fund in the
Reorganization but who do not choose to participate in the RMA or BSA
programs will have uninvested cash of $5,000 or more swept into the PW Fund
on a daily basis, with amounts below $5,000 swept weekly. The RMA and BSA
programs include a full array of premier account service, such as
checkwriting, a Gold or Business Card MasterCard and toll-free telephone
access to a customer service center. The features of the RMA and BSA
programs are summarized in the PW Fund Statement of Additional Information.
For the reasons set forth below under "The Proposed Transaction --
Reasons for the Reorganization," PW/KP Fund's board of directors, including
its directors who are not "interested persons," as that term is defined in
the Investment Company Act of 1940 ("1940 Act") of either Fund
("Independent Directors"), has determined that the Reorganization is in the
best interests of PW/KP Fund, that the terms of the Reorganization are fair
and reasonable and that the interests of PW/KP Fund's shareholders will not
be diluted as a result of the Reorganization. Accordingly, PW/KP Fund's
board of directors recommends approval of the transaction. In addition, PW
Fund's board of directors, including its Independent Directors, has
determined that the Reorganization is in the best interests of PW Fund,
that the terms of the Reorganization are fair and reasonable and that the
interests of PW Fund's shareholders will not be diluted as a result of the
Reorganization.
Comparative Fee Table
Certain fees and expenses that PW/KP Fund's shareholders pay, directly
or indirectly, are slightly different from those incurred by PW Fund
shareholders.
PaineWebber, the investment adviser and administrator of each Fund, is
currently paid (1) by PW/KP Fund, an annual investment advisory and
administration fee at the annual rate of 0.50% of that Fund's average daily
net assets and (2) by PW Fund, an annual investment advisory and
administration fee, computed daily and paid monthly, at a rate of 0.50% of
average daily net assets up to $1 billion, 0.44% of average daily net
assets in excess of $1 billion up to $1.5 billion, and 0.36% of average
daily net assets over $1.5 billion. Based on PW Fund's average net assets
of $1,539,047,222 for the year ended June 30, 1995, PW Fund paid an
investment advisory and administration fee at the effective annual rate of
0.48% of average daily net assets, which is less than the current fee paid
by PW/KP Fund. Following the Reorganization, the investment advisory and
administration fee for the combined fund is expected to be 0.45% of average
daily net assets. With respect to both Funds, PaineWebber (not the Funds)
pays Mitchell Hutchins a fee for its sub-advisory and sub-administration
services ("sub-advisory fee") at an annual rate of 20% of the fee received
by PaineWebber for advisory and administration services. Following the
Reorganization, PaineWebber will continue to pay Mitchell Hutchins a sub-
advisory fee at the same annual rate.
In addition, certain expenses currently paid by PW Fund shareholders
will also be paid by former PW/KP Fund shareholders following the
Reorganization. PW Fund pays PaineWebber an annual fee of $4.00 per active
fund account, plus certain out-of-pocket expenses for certain services not
performed by the Fund's transfer agent. This fee will be paid by former
PW/KP Fund shareholders with respect to their PW Fund accounts.
PW/KP Fund is authorized to pay a 12b-1 service fee at the annual rate
of up to, and for the fiscal year ended September 30, 1994 paid such fee in
an amount equal to, 0.12% of the Fund's average daily net assets. PW Fund
is authorized to pay a 12b-1 service fee at the annual rate of up to 0.15%
of its average daily net assets but currently pays such fees at the annual
rate of 0.08% of its average daily net assets; any increase in the 0.08%
annual rate would require prior approval by PW Fund's board of directors.
The following tables show (1) transaction expenses currently incurred
by shareholders of each Fund and transaction expenses that each shareholder
will incur after giving effect to the Reorganization, and (2) the current
fees and expenses incurred for the fiscal year ended June 30, 1995 by PW
Fund and for the twelve months ended
3
<PAGE>
June 30, 1995 (unaudited) by PW/KP Fund, and pro forma fees for PW Fund
after giving effect to the Reorganization.
Shareholder Transaction Expenses
COMBINED
PW FUND PW/KP FUND FUND
------- ---------- ---------
Sales charge on purchases of None None None
shares
Sales charge on reinvested None None None
dividends
Redemption fee or deferred None None None
sales charge
Annual Fund Operating Expenses
(as a percentage of average net assets)
PW/KP COMBINED FUND
PW FUND FUND1/ (Pro Forma)
------- ----- -----------
Management Fees 0.48% 0.50% 0.45%
12b-1 Service Fees 0.08% 0.12% 0.08%
Other Expenses 0.07% 0.08% 0.06%
Total Fund 0.63%2/ 0.70% 0.59%
-
Operating Expenses
--------------------
1/ PaineWebber currently charges PW Fund shareholders an annual $85 account
-
charge for the RMA program including the Gold MasterCard without the Bank
One Line of Credit. The fee for clients who choose the Line of Credit for
their Gold MasterCard is $125. The annual account charge for the BSA program,
including the MasterCard Business Card, is $125 ($165 with a MasterCard Line
of Credit). The account charges are not included in the table because certain
non-RMA and non-BSA participants are permitted to purchase shares of PW Fund.
2/ The ratios of total operating expenses as a percentage of average net
-
assets for PW/KP Fund were 0.69% and 0.70% for the fiscal year ended
September 30, 1994 and for the six-month period ended March 31, 1995
(unaudited), respectively.
4
<PAGE>
Example of Effect on Fund Expenses
The following illustrates the expenses on a $1,000 investment under
the existing and estimated fees and the expenses stated above, assuming a
5% annual return.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
PW Fund . . . . . . . $ 6 $ 20 $ 35 $ 79
PW/KP Fund . . . . . $ 7 $ 22 $ 39 $ 87
Combined Fund . . . . $ 6 $ 19 $ 33 $ 74
______________________________
This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the
same in the years shown and that the shares are redeemed at the end of each
time period shown. The above tables and the assumption in this Example of
a 5% annual return are required by regulations of the Securities and
Exchange Commission ("SEC") applicable to all mutual funds; the assumed 5%
annual return is not a prediction of, and does not represent, either Fund's
projected or actual performance.
This Example should not be considered a representation of past or
future expenses, and each Fund's actual expenses may be more or less than
those shown. The actual expenses of each Fund will depend upon, among
other things, the level of its average net assets and the extent to which
it incurs variable expenses, such as transfer agency costs.
Forms of Organization
Each Fund is an open-end management investment company incorporated
under the laws of the State of Maryland. The Articles of Incorporation of
PW Fund authorize the issuance of 20 billion shares, par value $.001 per
share. PW/KP Fund's Articles of Incorporation authorize the issuance of 50
billion shares, par value $.01 per share. PW Fund commenced operations on
October 4, 1982. PW/KP Fund commenced operations on July 6, 1983. Neither
Fund is required to (and neither does) hold annual shareholder meetings.
Investment Objectives and Policies
The investment objective and policies of each Fund are set forth
below. There can be no assurance that either Fund will achieve its
investment objective. An investment in either Fund is neither insured nor
guaranteed by the U.S. government. While each Fund seeks to maintain a
stable net asset value of $1.00 per share, there can be no assurance that
it will be able to do so.
PW Fund. The investment objective of PW Fund is to provide maximum
current income exempt from federal income tax consistent with liquidity and
conservation of capital. The Fund seeks to achieve its objective by
investing substantially all of its assets in money market instruments with
remaining maturities of 13 months or less issued by states, municipalities
and public authorities, the interest from which is exempt from federal
income tax ("Municipal Securities"). The Fund purchases only those
Municipal Securities that are either (1) rated in the highest short-term
rating category by at least two nationally recognized statistical rating
organizations ("NRSROs"), (2) rated in the highest short-term rating
category by a single NRSRO if only that NRSRO has assigned the obligations
a short-term rating or (3) unrated, but determined by Mitchell Hutchins to
be of comparable quality ("First Tier Securities"). These Municipal
Securities include municipal notes, municipal commercial paper, municipal
bonds, floating and variable rate municipal obligations and participation
interests in municipal bonds and floating and variable rate obligations.
Municipal bonds include industrial development bonds, private activity
bonds ("PABs"), moral obligation bonds, municipal lease obligations and
certificates of participation therein and put bonds. The
5
<PAGE>
interest on most PABs is an item of tax preference for purposes of the
federal alternative minimum tax ("AMT"). Under normal market conditions,
the Fund intends to invest in Municipal Securities that pay interest that
is not an item of tax preference for purposes of the AMT ("AMT exempt
interest"), but may invest up to 20% of its total assets in such securities
if, in Mitchell Hutchins' judgment, market conditions warrant.
PW Fund may purchase variable and floating rate securities with
remaining maturities in excess of 13 months issued by municipal issuers.
PW Fund may enter into repurchase agreements with U.S. banks and
dealers with respect to U.S. government securities, commercial paper, bank
certificates of deposit and bankers' acceptances but intends to do so only
as a temporary measure and under unusual circumstances. During unusual
market conditions, including when, in the opinion of Mitchell Hutchins,
there are insufficient Municipal Securities that pay AMT exempt interest
("suitable Municipal Securities") available, the Fund temporarily may
invest more than 20% of its net assets in Municipal Securities that pay
interest subject to the AMT ("other Municipal Securities").
Under normal circumstances, PW Fund must invest at least 80% of its
net assets in securities that pay interest that is exempt from federal
income tax. However, when Mitchell Hutchins believes unusual circumstances
warrant a defensive posture, including when, in the opinion of Mitchell
Hutchins, neither suitable Municipal Securities nor other Municipal
Securities are available, the Fund may hold cash and may invest any portion
or all of its net assets in taxable money market instruments, including
repurchase agreements.
PW/KP Fund. The investment objective of PW/KP Fund is to maximize
short-term interest income exempt from federal income tax to the extent
consistent with the preservation of capital and the maintenance of
liquidity. In seeking to achieve its objective, the Fund invests primarily
in Municipal Obligations considered to be short-term. "Municipal
Obligations" are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate
agencies or authorities, the interest from which is exempt from federal
income tax in the opinion of bond counsel to the issuer. Except when
maintaining a temporary defensive position, the Fund invests at least 80%
of its net assets in Municipal Obligations.
PW/KP Fund may purchase floating and variable rate demand notes with
stated maturities in excess of 397 days but will not invest more than 10%
of the value of its net assets in floating or variable rate demand
obligations as to which the Fund cannot exercise the demand feature on not
more than seven days' notice if there is no secondary market available for
these obligations and in other securities that are not readily marketable.
The Fund may purchase from financial institutions participation interests
in Municipal Obligations but will not invest more than 10% of the value of
its net assets in participation interests that do not provide the Fund with
the right to demand payment, upon a specified number of days' notice, for
all or part of the Fund's participation interest in the Municipal
Obligations, plus accrued interest.
For temporary defensive purposes, PW/KP Fund may invest more than 20%
of its net assets in taxable short-term investments ("Taxable Investments")
consisting of notes of issuers having, at the time of purchase, a quality
rating within the two highest grades by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's ("S&P"); obligations of the U.S.
government, its agencies or instrumentalities; commercial paper rated P-1
by Moody's or A-1 or better by S&P; certificates of deposit of domestic
banks, including foreign branches of domestic banks, with assets of $1
billion or more; bankers' acceptances and other short-term bank
obligations; time deposits; and repurchase agreements in respect of any of
the foregoing with selected securities dealers, banks or other recognized
financial institutions. From time to time, on a temporary basis other than
for defensive purposes (but not to exceed 20% of the Fund's net assets),
the Fund may invest in Taxable Investments. Under normal market
conditions, the Fund anticipates that not more than 5% of the value of its
total assets will be invested in any one category of Taxable Investments.
The Fund may invest up to 10% of its assets in time deposits maturing from
two business days through seven calendar days.
6
<PAGE>
Other Policies of Both Funds.
Neither Fund will invest more than 10% of its net assets in securities
that are illiquid, including repurchase agreements with maturities in
excess of seven days. Under normal circumstances, both Funds invest at
least 80% of their respective net assets in municipal obligations. Both
Funds may purchase securities on a "when-issued" basis up to certain
amounts.
Operations of PW Fund Following the Reorganization
As noted above, there are some differences in the investment policies
of the two Funds, including the restriction of PW Fund to investment in
First Tier Securities. It is not expected, however, that PW Fund will
revise its investment policies following the Reorganization to reflect
those of PW/KP Fund. Based on its review of the investment portfolios of
each Fund, Mitchell Hutchins believes that all of the assets held by PW/KP
Fund will be consistent with the investment policies of PW Fund and thus
can be transferred to and held by PW Fund if the Reorganization is
approved.
Currently, PaineWebber serves as investment adviser and Mitchell
Hutchins serves as sub-adviser to both Funds. After the Reorganization,
the directors and officers of PW Fund and its investment adviser, sub-
adviser, distributor and other outside agents will continue to serve PW
Fund in their current capacities.
Purchases and Redemptions
Shares of each Fund are available only through PaineWebber and its
correspondent firms. There is no minimum initial investment in PW Fund.
PW Fund shares are offered primarily to clients of PaineWebber and its
correspondent firms who are participants in the RMA or BSA programs.
Shares of PW/KP Fund may be purchased only by existing shareholders of
PW/KP Fund through their PaineWebber brokerage accounts.
Shares of each Fund may be redeemed at their net asset value per share
next determined after a redemption request is properly received. Within
three Business Days after receipt of the request, redemption proceeds will
be credited to the shareholder's account or sent to the shareholder. A
"Business Day" is any day on which the Boston offices of the Fund's
custodian, State Street Bank and Trust Company ("Custodian"), and the New
York City offices of PaineWebber and PaineWebber's bank, are all open for
business.
If the Reorganization is approved, PW/KP Fund shares will cease to be
offered on _________, 1995, so that shares of PW/KP Fund will no longer be
available for purchase or exchange starting on _______, 1995 (the next
Business Day). If the Meeting is adjourned and the Reorganization is
approved on a later date, PW/KP Fund shares will no longer be available for
purchase or exchange on the Business Day following the date on which the
Reorganization is approved and all contingencies have been met.
Redemptions of PW/KP Fund's shares and exchanges of such shares for shares
of any other PaineWebber/Kidder, Peabody money market funds may be effected
through the Closing Date.
Exchanges
The exchange policies of the Funds differ. Shares of PW Fund are not
exchangeable for shares of any other mutual fund, while shares of PW/KP
Fund may be exchanged for shares of other PaineWebber/Kidder Peabody money
market funds. After the Reorganization, shares of PW Fund will continue to
be not exchangeable.
Dividends
Each Fund declares as dividends all of its net investment income each
Business Day and pays dividends in additional Fund shares each month.
Shares begin earning dividends on the day of purchase; shares do not earn
dividends on the day of redemption. Net investment income attributable to
the accretion of market discount on
7
<PAGE>
Municipal Securities, which is taxable to shareholders, normally is
distributed annually. PW Fund distributes its net short-term capital gain,
if any, annually but may make more frequent distributions of such gain if
necessary to maintain its net asset value per share at $1.00 or to avoid
income or excise taxes. Distributions by PW/KP Fund of realized securities
gains, if any, generally are declared and paid once a year. Because the
Funds do not expect to realize long-term capital gains, they do not
contemplate paying capital gain distributions.
On or before the Closing Date, PW/KP Fund will declare as a dividend
substantially all of its net tax-exempt interest income, taxable net
investment income and net short-term capital gain, if any, and distribute
that amount plus any previously declared but unpaid dividends, in order to
continue to maintain its tax status as a regulated investment company.
PW/KP Fund will pay these distributions only in cash.
Federal Income Tax Consequences of the Reorganization
PW Fund has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and PW/KP Fund has received an opinion of Stroock & Stroock &
Lavan, its counsel, each to the effect that the Reorganization will
constitute a tax-free reorganization within the meaning of section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code").
Accordingly, no gain or loss will be recognized to either Fund or its
shareholders as a result of the Reorganization. See "The Proposed
Transaction -- Federal Income Tax Considerations," page __.
COMPARISON OF PRINCIPAL RISK FACTORS
Because PW Fund's investment objective is substantially identical to
that of PW/KP Fund, the investment risks of the two Funds are generally
similar. These risks are those typically associated with investing in
Municipal Securities. Certain differences are identified below. See the
Prospectus of PW Fund, which accompanies this Proxy Statement, for a more
detailed discussion of the investment risks of PW Fund.
There can be no assurance that the Funds will achieve their investment
objectives. In periods of declining interest rates, the Funds' yields will
tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates the opposite will be true. Also, when interest rates
are falling, net cash inflows from the continuous sale of a Fund's shares
are likely to be invested in portfolio instruments producing lower yields
than the balance of that Fund's portfolio, thereby reducing its yield. In
periods of rising interest rates, the opposite can be true.
Each Fund may purchase variable and floating rate securities with
remaining maturities in excess of 13 months. The yield on these securities
is adjusted in relation to changes in specific rates, such as the prime
rate, and different securities may have different adjustment rates. The
Funds' investments in these securities must comply with conditions
established by the SEC under which they may be considered to have remaining
maturities of 13 months or less. Certain of these obligations carry a
demand feature that gives the Funds the right to tender them back to the
issuer or a remarketing agent and receive the principal amount of the
obligation prior to maturity. The demand feature may or may not be backed
by letters of credit or other credit support arrangements provided by banks
or other financial institutions, the credit standing of which affects the
credit quality of the obligation.
PW Fund may enter into repurchase agreements but will do so only as a
temporary measure and under unusual circumstances. PW/KP Fund is
authorized to invest up to 10% of its assets in repurchase agreements
maturing in more than seven days and, for temporary defensive purposes, may
commit more than 20% of its net assets to repurchase agreements.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible decline in the market value
of the underlying securities and delays and costs to the Fund if the other
party to the repurchase agreement becomes insolvent.
8
<PAGE>
Both Funds may purchase securities on a "when-issued" basis, that is,
for delivery beyond the normal settlement date at a stated price and yield.
A Fund generally would not pay for such securities or start earning
interest on them until they are received. However, when a Fund purchases
securities on a when-issued basis, it immediately assumes the risks of
ownership, including the risk of price fluctuation. Failure by the issuer
to deliver a security purchased on a when-issued basis may result in a loss
or missed opportunity to make an alternative investment. PW Fund expects
that commitments to purchase when-issued securities normally will not
exceed 25% of its assets. PW/KP Fund may commit up to 20% of its net
assets to such purchases.
Certain municipal/lease purchase obligations in which PW/KP Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years
unless money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of leased property in the event of foreclosure might
prove difficult.
Both Funds invest in high quality securities. While PW Fund purchases
only securities rated in the highest short-term rating category by NRSROs
or determined to be of comparable quality, PW/KP Fund invests in securities
rated in one of the two highest rating categories by NRSROs or determined
to be of comparable quality.
THE PROPOSED TRANSACTION
Reorganization Plan
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Reorganization Plan. Significant
provisions of the Reorganization Plan are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization
Plan, which is attached as Appendix A to this Proxy Statement.
The Reorganization Plan contemplates (a) the acquisition by PW Fund on
the Closing Date of the assets of PW/KP Fund in exchange solely for PW Fund
shares and the assumption by PW Fund of PW/KP Fund's liabilities, and (b)
the constructive distribution of such shares to the shareholders of PW/KP
Fund.
The assets of PW/KP Fund to be acquired by PW Fund include all cash,
cash equivalents, securities, receivables and other property owned by PW/KP
Fund. PW Fund will assume from PW/KP Fund all debts, liabilities,
obligations and duties of PW/KP Fund of whatever kind or nature; provided,
however, that PW/KP Fund will use its best efforts, to the extent
practicable, to discharge all of its known debts, liabilities, obligations
and duties prior to the Closing Date. PW Fund also will deliver its shares
to PW/KP Fund, which then will be constructively distributed to PW/KP
Fund's shareholders.
The value of PW/KP Fund's assets to be acquired, and the amount of
PW/KP Fund's liabilities to be assumed, by PW Fund and the net asset value
of a share of PW Fund will be determined as of 12:00 noon on the Closing
Date. The amortized cost method of valuation will be used to value each
Fund's securities. All other assets and liabilities will be valued at fair
value as determined in good faith by or under the direction of each Fund's
respective board of directors.
On, or as soon as practicable after, the Closing Date, PW/KP Fund will
distribute pro rata to its shareholders of record the shares of PW Fund it
received, so that each PW/KP Fund shareholder will receive a number of full
and fractional shares of PW Fund equal in value to the shareholder's
holdings in PW/KP Fund; PW/KP Fund will be dissolved as soon as practicable
thereafter. Such distribution will be accomplished by opening accounts on
the books of PW Fund in the names of PW/KP Fund shareholders and by
transferring thereto the shares
9
<PAGE>
previously credited to the account of PW/KP Fund on those books.
Fractional shares in PW Fund will be rounded to the third decimal place.
Accordingly, immediately after the Reorganization, each former
shareholder of PW/KP Fund will own shares of PW Fund that will be equal in
value to that shareholder's shares of PW/KP Fund immediately prior to the
Reorganization. Moreover, because shares of PW Fund will be issued at net
asset value in exchange for the net assets of PW/KP Fund, the aggregate
value of PW Fund shares so issued will equal the aggregate value of PW/KP
Fund shares. The net asset value per share of PW Fund will be unchanged by
the transaction. Thus, the Reorganization will not result in a dilution of
any shareholder's interest.
Any transfer taxes payable upon issuance of shares of PW Fund in a
name other than that of the registered holder of the shares on the books of
PW/KP Fund shall be paid by the person to whom such shares are to be issued
as a condition of such transfer. Any reporting responsibility of PW/KP
Fund will continue to be its responsibility up to and including the Closing
Date and such later date on which it is dissolved.
The cost of the Reorganization, including professional fees and the
cost of soliciting proxies for the Meeting, consisting principally of
printing and mailing expenses, together with the cost of any supplementary
solicitation, will be borne by both Funds in proportion to their respective
net assets. Mitchell Hutchins recommended this method of expense
allocation to the directors of each Fund. Mitchell Hutchins based its
recommendations on its belief that this method is fair because, for the
reasons discussed under "Reasons for the Reorganization," the
Reorganization has the potential to benefit both Funds. The directors of
each Fund considered this expense allocation method in approving the
Reorganization and finding that the Reorganization is in the best interests
of their respective Funds.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be
waived by each Fund. In addition, the Reorganization Plan may be amended
in any mutually agreeable manner, except that no amendment may be made
subsequent to the Meeting that has a material adverse effect on the
shareholders' interests.
Reasons for the Reorganization
PW/KP Fund's board of directors, including a majority of its
Independent Directors, has determined that the Reorganization is in the
best interests of PW/KP Fund, that the terms of the Reorganization are fair
and reasonable and that the interests of PW/KP Fund's shareholders will not
be diluted as a result of the Reorganization. PW Fund's board of
directors, including a majority of its Independent Directors, has
determined that the Reorganization is in the best interests of PW Fund,
that the terms of the Reorganization are fair and reasonable and that the
interests of PW Fund's shareholders will not be diluted as a result of the
Reorganization.
In considering the Reorganization, the boards of directors made an
extensive inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the effect of the Reorganization on expected investment
performance of the Funds;
(3) the effect of the Reorganization on the expense ratio of PW Fund
relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including continuing
to operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
especially Mitchell Hutchins and PaineWebber.
10
<PAGE>
The Reorganization was recommended to the Funds' directors by Mitchell
Hutchins at meetings of the Funds' boards of directors held on July 20,
1995. In recommending the Reorganization, Mitchell Hutchins advised the
boards of directors that the investment advisory and administration fee
schedule applicable to PW Fund would be equal to or lower than that
currently in effect for PW/KP Fund. Further, the directors of PW/KP Fund
were advised by Mitchell Hutchins that, because PW Fund has greater net
assets than PW/KP Fund, combining the two Funds would reduce the expenses
borne by the shareholders of PW/KP Fund as a percentage of net assets.
The boards were also advised that following the Reorganization, the expense
ratio for PW Fund is likely to decrease because the investment advisory and
administration fee paid by that Fund decreases as the size of the Fund
increases.
The directors were advised by Mitchell Hutchins that the Funds have
substantially identical investment objectives and generally similar
investment policies, with the material differences noted. Mitchell
Hutchins also noted its belief that there is no compelling reason to
maintain and market two substantially similar funds that invest in short-
term municipal securities, the interest on which is exempt from federal
income tax. In approving the Reorganization, the directors noted that PW
Fund's overall objective to provide maximum current income exempt from
federal income tax consistent with liquidity and conservation of capital
remains an appropriate one to offer to investors as part of an overall
investment strategy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS OF PW/KP FUND VOTE "FOR" THE REORGANIZATION
Description of Securities to be Issued
PW Fund is registered with the SEC as an open-end management
investment company. Its directors are authorized to issue 20 billion
shares of common stock (par value $.001 per share). Shares of PW Fund
entitle their holders to one vote per full share and fractional votes for
fractional shares held.
PW Fund does not hold annual meetings of shareholders. There normally
will be no meetings of shareholders for the purpose of electing directors
unless fewer than a majority of the directors holding office have been
elected by shareholders, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under the 1940
Act, shareholders of record of at least two-thirds of the outstanding
shares of an investment company may remove a director by votes cast in
person or by proxy at a meeting called for that purpose. The directors are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any director when requested in writing to do so
by the shareholders of record holding at least 10% of PW Fund's outstanding
shares.
Federal Income Tax Considerations
The exchange of PW/KP Fund's assets for PW Fund shares and PW Fund's
assumption of PW/KP Fund's liabilities is intended to qualify for federal
income tax purposes as a tax-free reorganization under section 368(a)(1)(C)
of the Code. PW Fund has received an opinion of Kirkpatrick & Lockhart
LLP, its counsel, and PW/KP Fund has received an opinion of Stroock &
Stroock & Lavan, its counsel, each substantially to the effect that--
(1) PW Fund's acquisition of PW/KP Fund's assets in exchange solely
for PW Fund shares and PW Fund's assumption of PW/KP Fund's
liabilities, followed by PW/KP Fund's distribution of those shares to
its shareholders constructively in exchange for their PW/KP Fund
shares, will constitute a "reorganization" within the meaning of
section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
11
<PAGE>
(2) No gain or loss will be recognized to PW/KP Fund on the transfer
to PW Fund of its assets in exchange solely for PW Fund shares and
PW/KP Fund's assumption of PW Fund's liabilities or on the subsequent
distribution of those shares to PW/KP Fund's shareholders in
constructive exchange for their PW/KP Fund shares;
(3) No gain or loss will be recognized to PW Fund on its receipt of
the transferred assets in exchange solely for PW Fund shares and its
assumption of PW/KP Fund's liabilities;
(4) PW Fund's basis for the transferred assets will be the same as the
basis thereof in PW/KP Fund's hands immediately prior to the
Reorganization, and PW Fund's holding period for those assets will
include PW/KP Fund's holding period therefor;
(5) A PW/KP Fund shareholder will recognize no gain or loss on the
constructive exchange of all its PW/KP Fund shares solely for PW Fund
shares pursuant to the Reorganization; and
(6) A PW/KP Fund shareholder's basis for the PW Fund shares to be
received by it in the Reorganization will be the same as the basis for
its PW/KP Fund shares to be constructively surrendered in exchange for
those PW Fund shares, and its holding period for those PW Fund shares
will include its holding period for those PW/KP Fund shares, provided
they are held as capital assets by the shareholder on the Closing
Date.
Each such opinion may state that no opinion is expressed as to the effect
of the Reorganization on the Funds or any shareholder with respect to any
asset as to which any unrealized gain or loss is required to be recognized
for federal income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of
accounting.
[Utilization by PW Fund after the Reorganization of pre-Reorganization
capital losses realized by PW/KP Fund could be subject to limitation in
future years under the Code.]
Shareholders of PW/KP Fund should consult their tax advisers regarding
the effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, those shareholders
also should consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
Capitalization
The following table shows the capitalization of each Fund as of June
30, 1995 (unaudited, with respect to PW/KP Fund) and on a pro forma
combined basis (unaudited) as of that date, giving effect to the
Reorganization:
COMBINED FUND
PW FUND PW/KP FUND (Pro Forma)
------- ---------- -----------
Net Assets . . . . . . . . . $1,562,040,318 $413,080,867 $1,975,121,185
Net Asset Value Per Share . . $1.00 $1.00 $1.00
Shares Outstanding . . . . . 1,563,026,155 413,082,838 1,976,108,993
12
<PAGE>
MISCELLANEOUS
Available Information
Each Fund is subject to the information requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files
reports, proxy material and other information with the SEC. Such reports,
proxy material and other information can be inspected and copied at the
Public Reference Room maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20459 at
prescribed rates.
Legal Matters
Certain legal matters in connection with the issuance of PW Fund
shares as part of the Reorganization will PW Fund be passed upon by
Kirkpatrick & Lockhart LLP, counsel to the Fund.
Experts
The audited financial statements of PW Fund and PW/KP Fund,
incorporated herein by reference and incorporated by reference or included
in their respective Statements of Additional Information, have been audited
by Ernst & Young LLP and Deloitte & Touche LLP, independent auditors,
respectively, whose reports thereon are included in the Funds' Annual
Reports to Shareholders for the fiscal years ended June 30, 1995 and
September 30, 1994, respectively. The financial statements audited by
Ernst & Young LLP and Deloitte & Touche LLP have been incorporated herein
by reference in reliance on their reports given on their authority as
experts in auditing and accounting.
13
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND DISSOLUTION
----------------------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION AND DISSOLUTION
("Agreement") is made as of September 12, 1995, between PaineWebber RMA
Tax-Free Fund, Inc., a Maryland corporation ("Acquiring Fund"), and
PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc., a Maryland
corporation ("Target") (individually a "Fund" and collectively "Funds.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended ("Code"). The reorganization will involve the
transfer to Acquiring Fund of Target's assets solely in exchange for voting
shares of common stock in Acquiring Fund ("Acquiring Fund Shares") and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares to the holders of
shares of common stock in Target ("Target Shares") in exchange therefor,
all upon the terms and conditions set forth herein. The foregoing transac-
tions are referred to herein as the "Reorganization."
In consideration of the mutual promises herein, the parties covenant
and agree as follows:
1. PLAN OF REORGANIZATION AND DISSOLUTION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all
of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund.
Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional Acquiring Fund Shares determined by dividing the net value
of Target (computed as set forth in paragraph 2.1) by the net asset
value (computed as set forth in paragraph 2.2) ("NAV") of an Acquiring
Fund Share; and
(b) to assume all of Target's liabilities described in paragraph
1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph
3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on Target's books,
A-1
<PAGE>
and other property owned by Target at the Effective Time (as defined in
paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided
herein) all of Target's liabilities, debts, obligations, and duties of
whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business,
whether or not determinable at the Effective Time, and whether or not
specifically referred to in this Agreement, including without limitation
Target's share of the expenses described in paragraph 7.2. Notwithstanding
the foregoing, Target agrees to use its best efforts to discharge all of
its known Liabilities prior to the Effective Time.
1.4. Before the Effective Time, Target shall declare and pay to its
shareholders a dividend in an amount large enough so that it will have
distributed substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any deduction
for dividends paid) and net interest income excludable from gross income
under section 103(a) of the Code for the current taxable year through the
Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund
Shares received by it pursuant to paragraph 1.1 to Target's shareholders of
record, determined as of the Effective Time (collectively "Shareholders"
and individually a "Shareholder"), in exchange for their Target Shares.
Such distribution shall be accomplished by the Funds' transfer agent
("Transfer Agent") opening accounts on Acquiring Fund's share transfer
books in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with the
respective pro rata number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder. All outstanding
Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Acquiring
Fund shall not issue certificates representing the Acquiring Fund Shares in
connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be dissolved
and any further actions shall be taken in connection therewith as required
by applicable law.
1.7. Any reporting responsibility of Target to a public authority is
and shall remain its responsibility up to and including the date on which
it is dissolved.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund
Shares in a name other than that of the registered holder on Target's books
of the Target Shares constructively exchanged there
A-2
<PAGE>
for shall be paid by the person to whom such Acquiring Fund Shares are to
be issued, as a condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be
(a) the value of the Assets computed as of 12:00 noon on the date of the
Closing ("Valuation Time"), using the valuation procedures set forth in
Target's then-current prospectus and statement of additional information
less (b) the amount of the Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund
Share shall be computed as of the Valuation Time, using the valuation
procedures set forth in Acquiring Fund's then-current prospectus and
statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be
made by or under the direction of Mitchell Hutchins Asset Management Inc.
2.4 If the difference between the NAVs per share of the Funds equals
or exceeds $.0025 at 5:00 p.m., Eastern time, at the Valuation Time, or
such earlier or later day and time as the parties may agree and set forth
in writing signed by their duly authorized officers, as computed by using
the market values of the Funds' assets in accordance with the policies and
procedures established by the Funds (or as otherwise mutually determined by
the Funds' boards of directors), either Fund may postpone the Valuation
Time until such time as such per share NAV difference is less than $.0025.
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office
on November 20, 1995, or at such other place and/or on such other date as
the parties may agree. All acts taking place at the Closing shall be
deemed to take place simultaneously as of 12:00 noon on the date thereof or
at such other time as the parties may agree ("Effective Time"). If,
immediately before the Valuation Time, (a) the New York Stock Exchange,
Inc. ("NYSE") is closed to trading or trading thereon is restricted or
(b) trading or the reporting of trading on the NYSE or elsewhere is
disrupted, so that accurate appraisal of the net value of Target and the
NAV per Acquiring Fund Share is impracticable, the Effective Time shall be
postponed until the first business day after the day when such trading
shall have been fully resumed and such reporting shall have been restored.
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3.2. Target shall deliver to Acquiring Fund at the Closing a schedule
of the Assets as of the Effective Time, which shall set forth for all
portfolio securities included therein their adjusted tax basis and holding
period by lot. Target's custodian shall deliver at the Closing a certi-
ficate of an authorized officer stating that (a) the Assets held by the
custodian will be transferred to Acquiring Fund at the Effective Time and
(b) all necessary taxes in conjunction with the delivery of the Assets, in-
cluding all applicable federal and state stock transfer stamps, if any,
have been paid or provision for payment has been made.
3.3. Target shall deliver to Acquiring Fund at the Closing a list of
the names and addresses of the Shareholders and the number of outstanding
Target Shares owned by each Shareholder, all as of the Effective Time,
certified by the Secretary or Assistant Secretary of Target. The Transfer
Agent shall deliver at the Closing a certificate as to the opening on
Acquiring Fund's share transfer books of accounts in the Shareholders'
names. Acquiring Fund shall issue and deliver a confirmation to Target
evidencing the Acquiring Fund Shares to be credited to Target at the Effec-
tive Time or provide evidence satisfactory to Target that such Acquiring
Fund Shares have been credited to Target's account on Acquiring Fund's
books. At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, stock certificates, receipts, or other documents
as the other party or its counsel may reasonably request.
3.4. Each Fund shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in
form and substance satisfactory to the recipient and dated the Effective
Time, to the effect that the representations and warranties it made in this
Agreement are true and correct at the Effective Time except as they may be
affected by the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. Target is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland, and a
copy of its Articles of Incorporation is on file with the Department
of Assessments and Taxation of Maryland;
4.1.2. Target is duly registered as an open-end management
investment company under the Investment Company Act of 1940 ("1940
Act"), and such registration will be in full force and effect at the
Effective Time;
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4.1.3. At the Closing, Target will have good and marketable
title to the Assets and full right, power, and authority to sell,
assign, transfer, and deliver the Assets free of any liens or other
encumbrances; and upon delivery and payment for the Assets, Acquiring
Fund will acquire good and marketable title thereto;
4.1.4. Target's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the Securities Act of 1933 ("1933 Act") and the 1940
Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
4.1.5. Target is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or
any provision of Target's Articles of Incorporation or By-Laws or of
any agreement, instrument, lease, or other undertaking to which Target
is a party or by which it is bound or result in the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it is
bound, except as previously disclosed in writing to and accepted by
Acquiring Fund;
4.1.6. Except as disclosed in writing to and accepted by
Acquiring Fund, all material contracts and other commitments of or
applicable to Target (other than this Agreement and investment
contracts) will be terminated, or provision for discharge of any
liabilities of Target thereunder will be made, at or prior to the
Effective Time, without either Fund's incurring any liability or
penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to
be taken by any other party thereto prior to the Closing;
4.1.7. Except as otherwise disclosed in writing to and accepted
by Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or (to Target's knowledge) threatened against Target or any of
its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the
conduct of its business; Target knows of no facts that might form the
basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body that
materially or adversely affects its busi-
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<PAGE>
ness or its ability to consummate the transactions contemplated
hereby;
4.1.8. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of Target's board of directors, which has
made the determinations required by Rule 17a-8(a) under the 1940 Act;
and, subject to approval by Target's shareholders and receipt of any
necessary exemptive relief or no-action assurances requested from the
Securities and Exchange Commission ("SEC") or its staff with respect
to sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Target, enforce-
able in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors'
rights and by general principles of equity;
4.1.9. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act
of 1934 ("1934 Act"), or the 1940 Act for the execution or performance
of this Agreement by Target, except for (a) the filing with the SEC of
a registration statement by Acquiring Fund on Form N-14 relating to
the Acquiring Fund Shares issuable hereunder, and any supplement or
amendment thereto ("Registration Statement"), including therein a
prospectus/proxy statement ("Proxy Statement"), (b) receipt of the
exemptive relief referenced in subparagraph 4.1.8, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.1.11. On the effective date of the Registration Statement, at
the time of the shareholders' meeting referred to in paragraph 5.2,
and at the Effective Time, the Proxy Statement will (a) comply in all
material respects with the applicable provisions of the 1933 Act, the
1934 Act, and the 1940 Act and the regulations thereunder and (b) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading; provided that the foregoing
shall not apply to statements in or omissions from the Proxy Statement
made in reliance on and in conformity with information furnished by
Acquiring Fund for use therein;
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4.1.12. The Liabilities were incurred by Target in the ordinary
course of its business;
4.1.13. Target qualified for treatment as a regulated investment
company under Subchapter M of the Code ("RIC") for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; and
it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it. The Assets
shall be invested at all times through the Effective Time in a manner
that ensures compliance with the foregoing;
4.1.14. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A) of the Code;
4.1.15. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is
invested in the stock and securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock and
securities of five or fewer issuers; and
4.1.16. Target will be dissolved as soon as reasonably
practicable after the Reorganization, but in all events within six
months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Acquiring Fund is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Maryland, and a copy of its Articles of Incorporation is on file with
the Department of Assessments and Taxation of Maryland;
4.2.2. Acquiring Fund is duly registered as an open-end manage-
ment investment company under the 1940 Act, and such registration will
be in full force and effect at the Effective Time;
4.2.3. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in ex-
change for the Assets in the Reorganization;
4.2.4. The Acquiring Fund Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly author-
ized and, when issued and delivered as provided herein, will be duly
and validly issued and outstanding shares of Acquiring Fund, fully
paid and non-assessable. Except as contemplated by this Agreement,
Acquiring Fund does
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<PAGE>
not have outstanding any options, warrants, or other rights to sub-
scribe for or purchase any of its shares, nor is there outstanding any
security convertible into any of its shares;
4.2.5. Acquiring Fund's current prospectus and statement of
additional information conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations thereunder and do not include any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
4.2.6. Acquiring Fund is not in violation of, and the execution
and delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or
any provision of Acquiring Fund's Articles of Incorporation or By-Laws
or of any provision of any agreement, instrument, lease, or other
undertaking to which Acquiring Fund is a party or by which it is bound
or result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which
Acquiring Fund is a party or by which it is bound, except as
previously disclosed in writing to and accepted by Target;
4.2.7. Except as otherwise disclosed in writing to and accepted
by Target, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or
(to Acquiring Fund's knowledge) threatened against Acquiring Fund or
any of its properties or assets that, if adversely determined, would
materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows of no facts that
might form the basis for the institution of any such litigation, pro-
ceeding, or investigation and is not a party to or subject to the pro-
visions of any order, decree, or judgment of any court or governmental
body that materially or adversely affects its business or its ability
to consummate the transactions contemplated hereby;
4.2.8. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of Acquiring Fund's board of directors,
which has made the determinations required by Rule 17a-8(a) under the
1940 Act; and, subject to receipt of any necessary exemptive relief or
no-action assurances requested from the SEC or its staff with respect
to sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Acquiring Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorgan-
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<PAGE>
ization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.9. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act
for the execution or performance of this Agreement by Acquiring Fund,
except for (a) the filing with the SEC of the Registration Statement,
(b) receipt of the exemptive relief referenced in subparagraph 4.2.8,
and (c) such consents, approvals, authorizations, and filings as have
been made or received or as may be required subsequent to the
Effective Time;
4.2.10. On the effective date of the Registration Statement, at
the time of the shareholders' meeting referred to in paragraph 5.2,
and at the Effective Time, the Proxy Statement will (a) comply in all
material respects with the applicable provisions of the 1933 Act, the
1934 Act, and the 1940 Act and the regulations thereunder and (b) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading; provided that the foregoing
shall not apply to statements in or omissions from the Proxy Statement
made in reliance on and in conformity with information furnished by
Target for use therein;
4.2.11. Acquiring Fund qualified for treatment as a RIC for each
past taxable year since it commenced operations and will continue to
meet all the requirements for such qualification for its current tax-
able year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M of the Code did not apply to it;
4.2.12. Acquiring Fund has no plan or intention to issue addi-
tional Acquiring Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does Acquiring Fund have any plan or intention
to redeem or otherwise reacquire any Acquiring Fund Shares issued to
the Shareholders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
4.2.13. Acquiring Fund (a) will actively continue Target's busi-
ness in substantially the same manner that Target conducted that busi-
ness immediately before the Reorganization, (b) has no plan or
intention to sell or otherwise dispose of any of the Assets, except
for dispositions made in the ordinary course of that business and
dispositions necessary to maintain its status as a RIC, and
(c) expects to retain sub-
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<PAGE>
stantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.14. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.15. Immediately after the Reorganization, (a) not more than
25% of the value of Acquiring Fund's total assets (excluding cash,
cash items, and U.S. government securities) will be invested in the
stock and securities of any one issuer and (b) not more than 50% of
the value of such assets will be invested in the stock and securities
of five or fewer issuers; and
4.2.16. Acquiring Fund does not own, directly or indirectly, nor
at the Effective Time will it own, directly or indirectly, nor has it
owned, directly or indirectly, at any time during the past five years,
any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in
exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at
the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of
as a result of or at the time of the Reorganization will be de
minimis. Nor does its management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject
to substantially the same liabilities that Target held or was subject
to immediately prior thereto,
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<PAGE>
plus any liabilities and expenses of the parties incurred in con-
nection with the Reorganization;
4.3.5. The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by Acquiring
Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds
that was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by Target immediately before
the Reorganization. For the purposes of this representation, any
amounts used by Target to pay its Reorganization expenses and
redemptions and distributions made by it immediately before the
Reorganization (except for (a) distributions made to conform to its
policy of distributing all or substantially all of its income and
gains to avoid the obligation to pay federal income tax and/or the
excise tax under section 4982 of the Code and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who
is an employee of Target will be separate consideration for, or
allocable to, any of the Target Shares held by such Shareholder-
employee; none of the Acquiring Fund Shares received by any such
Shareholder-employee will be separate consideration for, or allocable
to, any employment agreement; and the consideration paid to any such
Shareholder-employee will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders
will not own shares constituting "control" of Acquiring Fund within
the meaning of section 304(c) of the Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being
understood that (a) such ordinary course will include declaring and paying
customary dividends and other distributions and such changes in operations
as are contemplated by each Fund's normal business activities and (b) each
Fund will retain exclusive control of the composition of its portfolio
until the Closing; provided that Target shall not dispose of more than an
insignificant portion
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of its historic business assets during such period without Acquiring Fund's
prior consent.
5.2. Target covenants to call a shareholders' meeting to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist Acquiring Fund in obtaining
such information as Acquiring Fund reasonably requests concerning the
beneficial ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all
books and records required to be maintained under the 1940 Act and the
rules and regulations thereunder) will be turned over to Acquiring Fund at
the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy State-
ment in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed
and delivered all such assignments and other instruments, and will take or
cause to be taken such further action, as the other Fund may deem necessary
or desirable in order to vest in, and confirm to, (a) Acquiring Fund, title
to and possession of all the Assets, and (b) Target, title to and
possession of the Acquiring Fund Shares to be delivered hereunder, and
otherwise to carry out the intent and purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such state securities laws it may deem appropriate in order to continue
its operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause
to be taken all actions, and to do or cause to be done all things
reasonably necessary, proper, or advisable to consummate and effectuate the
transactions contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance
by the other Fund of all the obligations to be performed hereunder at or
before the Effective Time, (b) all representations
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and warranties of the other Fund contained herein being true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated hereby, as of the Effective Time,
with the same force and effect as if made at and as of the Effective Time,
and (c) the following further conditions that, at or before the Effective
Time:
6.1. This Agreement and the transactions contemplated hereby shall
have been duly adopted and approved by Target's board of directors and
shall have been approved by Target's shareholders in accordance with
applicable law.
6.2. All necessary filings shall have been made with the SEC and
state securities authorities, and no order or directive shall have been
received that any other or further action is required to permit the parties
to carry out the transactions contemplated hereby. The Registration
Statement shall have become effective under the 1933 Act, no stop orders
suspending the effectiveness thereof shall have been issued, and the SEC
shall not have issued an unfavorable report with respect to the
Reorganization under section 25(b) of the 1940 Act nor instituted any
proceedings seeking to enjoin consummation of the transactions contemplated
hereby under section 25(c) of the 1940 Act. All consents, orders, and
permits of federal, state, and local regulatory authorities (including the
SEC and state securities authorities) deemed necessary by either Fund to
permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain same would not involve a risk of a material adverse effect on the
assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or to obtain damages or other relief in
connection with, the transactions contemplated hereby.
6.4. Target shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to Acquiring Fund, substantially to the effect that:
6.4.1. Acquiring Fund is a corporation duly organized and
validly existing under the laws of the State of Maryland with power
under its Articles of Incorporation to own all of its properties and
assets and, to the knowledge of such counsel, to carry on its business
as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed,
and delivered by Acquiring Fund and (b) assuming due authorization,
execution, and delivery of this Agreement by Target, is a valid and
legally binding obligation of Acquiring
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Fund, enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer, reorgan-
ization, moratorium, and similar laws relating to or affecting cre-
ditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to
the Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly
issued and outstanding and fully paid and non-assessable, and no
shareholder of Acquiring Fund has any preemptive right to subscribe
for or purchase such shares;
6.4.4. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate Acquiring Fund's Articles of Incorporation or By-
Laws or any provision of any agreement (known to such counsel, without
any independent inquiry or investigation) to which Acquiring Fund is a
party or by which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in the accel-
eration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by Target;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or
order of any court or governmental authority is required for the
consummation by Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934
Act, and the 1940 Act and such as may be required under state secu-
rities laws;
6.4.6. Acquiring Fund is registered with the SEC as an invest-
ment company, and to the knowledge of such counsel no order has been
issued or proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative
proceeding, or investigation of or before any court or governmental
body is pending or threatened as to Acquiring Fund or any of its prop-
erties or assets and (b) Acquiring Fund is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects Acquiring
Fund's business, except as set forth in such opinion or as otherwise
disclosed in writing to and accepted by Target.
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<PAGE>
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Maryland, on an opinion of competent
Maryland counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word "knowledge" and related
terms to mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this Agreement
and the Reorganization.
6.5. Acquiring Fund shall have received an opinion of Stroock &
Stroock & Lavan, counsel to Target, substantially to the effect that:
6.5.1. Target is a corporation duly organized and validly exist-
ing under the laws of the State of Maryland with power under its
Articles of Incorporation to own all of its properties and assets and,
to the knowledge of such counsel, to carry on its business as
presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed,
and delivered by Target and (b) assuming due authorization, execution,
and delivery of this Agreement by Acquiring Fund, is a valid and
legally binding obligation of Target, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insol-
vency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general
principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate Target's Articles of Incorporation or By-Laws or
any provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Target is a party or by
which it is bound or (to the knowledge of such counsel, without any
independent inquiry or investigation) result in the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it is
bound, except as set forth in such opinion or as previously disclosed
in writing to and accepted by Acquiring Fund;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or
order of any court or governmental authority is required for the
consummation by Target of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act, and the
1940 Act and such as may be required under state securities laws;
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<PAGE>
6.5.5. Target is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued
or proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative
proceeding, or investigation of or before any court or governmental
body is pending or threatened as to Target or any of its properties or
assets and (b) Target is not a party to or subject to the provisions
of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing to and
accepted by Acquiring Fund.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Maryland, on an opinion of competent
Maryland counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word "knowledge" and related
terms to mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this Agreement
and the Reorganization.
6.6. Acquiring Fund shall have received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, addressed to and in form and substance
satisfactory to it, and Target shall have received an opinion of Stroock &
Stroock & Lavan, its counsel, addressed to and in form and substance
satisfactory to it, each as to the federal income tax consequences
mentioned below (each a "Tax Opinion"). In rendering its Tax Opinion, each
such counsel may rely as to factual matters, exclusively and without
independent verification, on the representations made in this Agreement (or
in separate letters addressed to such counsel) and the certificates
delivered pursuant to paragraph 3.4. Each Tax Opinion shall be subs-
tantially to the effect that, based on the facts and assumptions stated
therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assumption of
the Liabilities, followed by Target's distribution of those shares to
the Shareholders constructively in exchange for the Shareholders'
Target Shares, will constitute a reorganization within the meaning of
section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the
transfer to Acquiring Fund of the Assets in exchange
A-16
<PAGE>
solely for Acquiring Fund Shares and Acquiring Fund's assumption of
the Liabilities or on the subsequent distribution of those shares to
the Shareholders in constructive exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on
its receipt of the Assets in exchange solely for Acquiring Fund Shares
and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the Reorgan-
ization, and Acquiring Fund's holding period for the Assets will in-
clude Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at
the Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, each Tax Opinion may state
that no opinion is expressed as to the effect of the Reorganization on the
Funds or any Shareholder with respect to any asset as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of
the foregoing conditions if, in the judgment of its board of directors,
such waiver will not have a material adverse effect on its shareholders'
interests, and (b) Target may waive any of the foregoing conditions if, in
the judgment of its board of directors, such waiver will not have a
material adverse effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Fund represents and warrants to the other that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this
A-17
<PAGE>
Agreement (whether or not they are consummated) will be borne by the Funds
proportionately, as follows: each such expense will be borne by the Funds
in proportion to their respective net assets as of the close of business on
the last business day of the month in which such expense was incurred.
Such expenses include: (a) expenses incurred in connection with entering
into and carrying out the provisions of this Agreement; (b) expenses
associated with the preparation and filing of the Registration Statement;
(c) registration or qualification fees and expenses of preparing and filing
such forms as are necessary under applicable state securities laws to
qualify the Acquiring Fund Shares to be issued in connection herewith in
each state in which Target's shareholders are resident as of the date of
the mailing of the Proxy Statement to such shareholders; (d) printing and
postage expenses; (e) legal and accounting fees; and (f) solicitation
costs.
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not
set forth herein, and this Agreement constitutes the entire agreement
between the parties. The representations, warranties, and covenants
contained herein or in any document delivered pursuant hereto or in
connection herewith shall survive the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the
Effective Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material
breach of any representation, warranty, or covenant contained herein to be
performed at or prior to the Effective Time, (b) if a condition to its
obligations has not been met and it reasonably appears that such condition
will not or cannot be met, or (c) if the Closing has not occurred on or
before March 31, 1996; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be
no liability for damages on the part of either Fund, or the directors or
officers of either Fund, to the other Fund.
A-18
<PAGE>
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner
as may be mutually agreed upon in writing by the parties; provided that
following such approval no such amendment shall have a material adverse
effect on the Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Maryland; provided that, in the case
of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation
other than the parties and their respective successors and assigns any
rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: PAINEWEBBER RMA TAX-FREE FUND, INC.
By: /s/Ilene Shore /s/Dianne E. O'Donnell
------------------- ----------------------
Assistant Secretary Vice President
ATTEST: PAINEWEBBER/KIDDER, PEABODY TAX
EXEMPT MONEY FUND, INC.
By: /s/S. H. Johnson /s/Scott Griff
--------------------- ----------------------
Assistant Secretary Vice President
A-19
<PAGE>
PAINEWEBBER/KIDDER, PEABODY TAX EXEMPT
MONEY FUND
(formerly Kidder, Peabody Tax Exempt Money Fund, Inc.)
Supplement dated January 30, 1995
to Prospectus dated January 27, 1995
The following information supplements the information contained in the
Fund's Prospectus dated January 27, 1995:
1. Effective January 30, 1995, the following changes occurred with
respect to the Fund:
a. Name. The Fund will be doing business as the "PaineWebber/Kidder,
Peabody Tax Exempt Money Fund."
b. Investment Adviser and Sub-Adviser. As a result of an asset purchase
transaction by and among Kidder, Peabody Group Inc. ("Kidder, Peabody"),
its parent, General Electric Company, and Paine Webber Group Inc. ("PW
Group"), the investment advisory functions for the Fund have been
transferred, on an interim basis, from Kidder Peabody Asset Management,
Inc. ("KPAM") to Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"). During the interim period, Mitchell Hutchins will provide
investment advisory services to the Fund pursuant to a contract that has
substantially the same terms and conditions as the prior investment
advisory agreement between the Fund and KPAM. Fees paid by the Fund for
investment advisory services during the interim period will be paid into
escrow and, if approved by the shareholders, will be paid over to Mitchell
Hutchins. The shareholders' meeting is expected to occur on March 31,
1995.
At the shareholders' meeting, it is also proposed that PaineWebber
Incorporated ("PaineWebber") be appointed as investment adviser and
administrator of the Fund and Mitchell Hutchins be appointed as sub-adviser
and sub-administrator. If approved by the shareholders, PaineWebber and
Mitchell Hutchins, as investment adviser and sub-adviser, respectively,
would continue to manage the Fund in accordance with the Fund's investment
objective, policies and restrictions. During the interim period and
thereafter, assuming shareholder approval, the Fund would pay the same fee
for investment advisory and administration services as previously paid to
KPAM, as described in the Fund's Prospectus. After the interim period,
assuming shareholder approval, PaineWebber (not the Fund) would pay
Mitchell Hutchins a fee at the annual rate of 20% of the fee received by
PaineWebber from the Fund.
Mitchell Hutchins is a wholly owned subsidiary of PaineWebber, which
is in turn wholly owned by PW Group, a publicly owned financial services
holding company. PaineWebber, Mitchell Hutchins and PW Group are located
at 1285 Avenue of the Americas, New York, New York 10019. As of December
31, 1994, Mitchell Hutchins or PaineWebber served as investment adviser or
sub-adviser to 29 investment companies with an aggregate of 55 separate
portfolios and aggregate assets of over $22 billion.
c. Other Services. PaineWebber also serves as the Fund's distributor
pursuant to the Shareholder Servicing and/or Distribution Plan or
Agreement of the Fund. All references in the Fund's Prospectus to Kidder,
Peabody as the Fund's distributor are replaced with references to
PaineWebber.
PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal address is 400 Bellevue Parkway, Wilmington, Delaware 19809 is
the Fund's transfer agent. All references in the Prospectus to IFTC are
the Fund's transfer agent are replaced with references to PFPC.
1
<PAGE>
The address for purchase, exchange and redemption transactions has
been changed to:
PFPC Inc.
P.O. Box 8950
Wilmington, DE 19899
Attn: PaineWebber/Kidder, Peabody Tax Exempt Money Fund
800-441-7756 (PFPC Account)
800-762-1000 (PaineWebber Account)
d. Procedures Related to Valuation of Shares. The Fund no longer
values its shares daily at 4:00 p.m. The Fund's net asset value is
determined once each business day, at 12:00 noon, eastern time.
e. Purchase Restrictions. Shares of the Fund may be purchased only by
existing shareholders of the Fund.
f. Redemption by Mail. Redemption requests received by PFPC by mail
are processed by PFPC. PFPC will mail a check in the appropriate redemption
amount to the shareholder the next business day after receipt of a
redemption request in "good order" as specified in the Prospectus.
g. Automatic Investment Plan. The Automatic Investment Plan no longer
accepts twice monthly orders, but will accept monthly, quarterly and semi-
annual orders.
2. Exchange Privileges. Effective March 31, 1995, the following
modifications will occur with respect to the Fund:
The exchange privileges of the Fund's shareholders will be modified to
eliminate the exchange privilege with other former Kidder, Peabody funds
other than the former Kidder, Peabody money market funds. The first
paragraph of the section titled "Exchange Privileges" is hereby replaced
with the following:
Effective March 31, 1995, Fund shares may be exchanged only with
shares of PaineWebber/Kidder, Peabody money market funds, which are
identified below:
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund
PaineWebber/Kidder, Peabody Cash Reserve Fund
PaineWebber/Kidder, Peabody Government Money Fund
PaineWebber/Kidder, Peabody Premium Account Fund
PaineWebber/Kidder, Peabody Municipal Money Market
New York Series
PaineWebber/Kidder, Peabody Municipal Money Market
New Jersey Series
PaineWebber/Kidder, Peabody Municipal Money Market
Connecticut Series
2
<PAGE>
Prospectus January 27, 1995
--------------------------------------------------------------------------------
Kidder, Peabody Tax Exempt Money Fund, Inc.
60 BROAD STREET NEW YORK, NEW YORK 10004-2350 (212) 656-1737
Kidder, Peabody Tax Exempt Money Fund, Inc. (the 'Fund') is a diversified,
open-end, management investment company whose objective is the maximization of
short-term interest income exempt from Federal income tax to the extent
consistent with the preservation of capital and the maintenance of liquidity. It
pursues this objective by investing primarily in Municipal Obligations. There
can be no assurance that the Fund's objective will be realized. See 'Investment
Objective and Policies.'
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.
Kidder Peabody Asset Management, Inc. ('KPAM'), 60 Broad Street, New York, New
York 10004-2350, a wholly-owned subsidiary of Kidder, Peabody & Co. Incorporated
('Kidder, Peabody'), serves as the Fund's manager and investment adviser. See
'Management of the Fund -- Manager and Investment Adviser.' KPAM receives an
annual fee of .50% of the Fund's average daily net assets.
The Fund's Board of Directors has 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 average daily net assets to Kidder, Peabody. See 'The
Distributor.'
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund has been filed with the Securities and Exchange Commission (the 'SEC') in a
Statement of Additional Information dated January 27, 1995 which is hereby
incorporated by reference and is available without charge upon request made to
the Fund at the above address. Shareholder inquiries may be directed to the Fund
at the same address.
--------------------------------------------------------------------------------
MANAGER AND INVESTMENT ADVISER
Kidder Peabody Asset Management, Inc.
DISTRIBUTOR
Kidder, Peabody & Co. Incorporated
--------------------------------------------------------------------------------
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>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
(as a percentage of average daily net assets)
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------
Management Fees...................................................................... .50%
12b-1 Fees........................................................................... .12%
Other Expenses....................................................................... .07%
---
Shareholder Services and Custodian............................................... .04%
Registration, Directors and Professional......................................... .02%
All Other Expenses............................................................... .01%
Total Fund Operating Expenses........................................................ .69%
---
---
</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) total annual operating
expenses as shown in the fee table set forth above and (3)
redemption at the end of each time period..................... $7 $22 $38 $ 86
-- --- --- ----
</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 annual return of the Fund may be
greater or less than the assumed return.
2
<PAGE>
--------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------
The Fund The Fund is a diversified, open-end, management investment company whose investment objective
is the maximization of short-term interest income exempt from Federal income tax to the extent
consistent with the preservation of capital and the maintenance of liquidity. The Fund pursues
its objective through investments primarily in short-term debt obligations issued by states,
territories and possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate agencies or authorities,
the interest from which is exempt from Federal income tax in the opinion of bond counsel to the
issuer.
---------------------------------------------------------------------------------------------------------------------------
Benefits of Mutual funds, such as the Fund, are flexible investment tools that are increasingly
Investing popular--one of four American households now owns shares of at least one mutual fund--for
in the very sound reasons. The Fund offers investors the following important benefits:
Fund
Tax Exempt Investing
The Fund offers investors the opportunity to receive dividends consisting primarily of income
that is exempt from Federal income taxation. See 'Investment Objective and Policies.'
Professional Management
By pooling the monies of many investors, the Fund enables shareholders to obtain the benefits
of full-time professional management and a degree of diversification of investments that is
typically beyond the means of most investors. KPAM 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 individual or many institutional investors.
Additionally, the larger denominations of securities in which the Fund invests may result in
better overall prices for the investments. See 'Investment Objective and 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 generally 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.
</TABLE>
3
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Quality
All securities in which the Fund invests are rated in one of the two highest rating categories
for debt obligations by at least two nationally recognized statistical rating organizations
(or one rating organization if the instrument was rated only by one such organization) or, if
unrated, are determined to be of comparable quality in accordance with procedures established
by the Board of Directors, and also are determined to present minimal credit risks.
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
specified funds in the Kidder Family of Funds. See 'Exchange Privilege.'
Total Portfolio Approach
The funds in the Kidder Family of Funds are designed to be strategically combined as part of
a total portfolio approach. This investment philosophy acknowledges the interplay of a
shareholder's many different investing needs and preferences and recognizes that every
investment move a shareholder makes alters the balance of his or her overall financial
profile. The Fund may be used in conjunction with other funds in the Kidder Family of Funds to
build a portfolio that maximizes the potential of available assets while meeting many
different--and changing--financial needs.
---------------------------------------------------------------------------------------------------------------------------
Purchase of The purchase price for shares of the Fund is the net asset value per share next determined
Shares after receipt by the Fund of a purchase order in proper form. See 'Purchase of Shares' and
'Determination of Net Asset Value.'
---------------------------------------------------------------------------------------------------------------------------
Redemption of Shares of the Fund may be redeemed at the Fund's net asset value per share next determined
Shares after receipt by the transfer agent of instructions from Kidder, Peabody. 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 KPAM, a wholly-owned subsidiary of Kidder, Peabody, serves as manager and investment adviser of
Services the Fund and receives an annual fee of .50% of the Fund's average daily net assets. See
'Management of the Fund.'
---------------------------------------------------------------------------------------------------------------------------
Distributor Kidder, Peabody, a major full-line investment services firm serving domestic and foreign
securities markets, serves as distributor of the Fund's shares. General Electric Capital
Services, Inc., a wholly-owned subsidiary of General Electric Company ('GE'), owns all the
outstanding stock of Kidder, Peabody Group Inc. ('Kidder Group'), the parent company of Kidder,
Peabody. See 'Management of the Fund' and 'The Distributor.'
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------
Dividends The Fund declares dividends on each day the New York Stock Exchange (the 'NYSE') is open for
business of all of its daily net income to shareholders of record. See 'Dividends,
Distributions and Taxes.'
---------------------------------------------------------------------------------------------------------------------------
Risk Factors The Municipal Obligations in which the Fund invests involve risks. The value of a Municipal
Obligation is dependent on, among other things, the ability of its issuer to pay interest and
repay principal in accordance with the terms of the instrument. See 'Investment Objective and
Policies.'
</TABLE>
5
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial information in the table below for the seven-year period ended
June 30, 1991, the three-month period ended September 30, 1991 and the
three-year period ended September 30, 1994 has been audited by Deloitte & Touche
LLP. Financial statements for the fiscal year ended September 30, 1994 are
included in the Statement of Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------------- --------------------------------------
1985 1986 1987 1988 1989 1990 1991 1991`D' 1992 1993 1994
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year............ $ 1.0000 $ 1.0001 $ 1.0000 $ 0.9999 $ 1.0000 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 0.9996
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income.......... 0.0546 0.0472 0.0394 0.0434 0.0550 0.0545 0.0483 0.0099 0.0278 0.0189 0.0198
Net realized and
unrealized gain
(loss) on
investments..... 0.0001 (0.0001) (0.0001) 0.0001 (0.0001) 0.0001 -- -- -- (0.0004) (0.0008)
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total increase in
net asset value
from investment
operations...... 0.0547 0.0471 0.0393 0.0435 0.0549 0.0546 0.0483 0.0099 0.0278 0.0185 0.0190
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income.......... (0.0546) (0.0472) (0.0394) (0.0434) (0.0550) (0.0545) (0.0483) (0.0099) (0.0278) (0.0189) (0.0198)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of year..... $ 1.0001 $ 1.0000 $ 0.9999 $ 1.0000 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 0.9996 $ 0.9988
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total return...... 5.42% 4.78% 3.96% 4.49% 5.62% 5.57% 4.92% 3.93%* 2.83% 1.95% 2.00%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
thousands)...... $478,564 $911,411 $913,509 $797,023 $696,212 $749,057 $725,183 $722,224 $691,231 $669,672 $604,745
RATIOS TO AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees............ .60% .58% .55% .55% .57% .56% .56% .57%* .58% 0.58% 0.57%
Expenses,
including
distribution
fees............ .60% .58% .55% .55% .63% .68% .68% .69%* .70% 0.70% 0.69%
Net investment
income.......... 5.30% 4.69% 3.93% 4.33% 5.48% 5.44% 4.83% 3.91%* 2.78% 1.89% 1.97%
</TABLE>
------------
`D' Effective July 1, 1991, the Fund changed its fiscal-year-end from June 30 to
September 30. The figures presented represent such 3-month period.
* Annualized.
6
<PAGE>
--------------------------------------------------------------------------------
YIELD
The chart below shows the Fund's current and effective yields, calculated in
accordance with rules of the SEC, and the average portfolio maturity for the
seven-day periods ended September 30, 1994 and January 3, 1995.
<TABLE>
<CAPTION>
9/30/94 1/3/95
-------- ---------
<S> <C> <C>
Current Yield..................................................................... 2.73% 3.84%
Effective Yield................................................................... 2.77% 3.91%
Average Portfolio Maturity........................................................ 57 days 44 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 POLICIES
The Fund's investment objective is to maximize short-term interest income exempt
from Federal income tax to the extent consistent with the preservation of
capital and the maintenance of liquidity. To achieve its objective, the Fund
invests primarily in Municipal Obligations considered to be short-term (as
described below). The Fund's investment objective cannot be changed without
approval by the holders of a majority of the Fund's outstanding voting shares,
as defined in the Investment Company Act of 1940, as amended (the 'Act'). There
can be no assurance that the Fund's investment objective will be achieved.
MUNICIPAL OBLIGATIONS
Municipal Obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate agencies
or authorities, the interest from which is exempt from Federal income tax in the
7
<PAGE>
--------------------------------------------------------------------------------
opinion of bond counsel to the issuer. Municipal Obligations generally include
debt obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities. Municipal Obligations are classified as general obligation bonds,
revenue bonds and notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general taxing
power. Tax exempt industrial development bonds, in most cases, are revenue bonds
and generally do not carry the pledge of the credit of the issuing municipality,
but generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations include
municipal lease/purchase agreements which are similar to installment purchase
contracts for property or equipment issued by municipalities. Municipal
Obligations bear fixed, variable or floating rates of interest.
MANAGEMENT POLICIES
It is a fundamental policy of the Fund that it invest at least 80% of its net
assets (except when maintaining a temporary defensive position) in Municipal
Obligations.
The Fund may invest more than 25% of the value of its assets in Municipal
Obligations which are related in such a way that an economic, business, or
political development or change affecting one such security also would affect
the other securities; for example, securities the interest upon which is paid
from revenues of similar types of projects, or securities whose issuers are
located in the same state.
The Fund also may invest more than 25% of the value of its assets in
industrial development bonds which, although issued by industrial development
authorities, may be backed only by the assets and revenues of the
non-governmental users. Interest on Municipal Obligations (including certain
industrial development bonds) which are specified private activity bonds, as
defined in the Internal Revenue Code of 1986, as amended (the 'Code'), issued
after August 7, 1986, while exempt from Federal income tax, is a preference item
for the purpose of the alternative minimum tax. Where a regulated investment
company receives such interest, a proportionate share of any exempt-interest
dividend paid by the investment company will be treated as such a preference
item to shareholders. The Fund will invest no more than 20% of the value of its
net assets in Municipal Obligations the interest from which gives rise to a
preference item for the purpose of the alternative minimum tax and, except for
temporary defensive purposes, in other investments subject to Federal income
tax.
The Fund also may purchase floating and variable rate demand notes, which
are tax exempt obligations that may have a stated maturity in excess of 397
days, but which permit the holder to demand payment of principal plus accrued
interest at any time or at specified intervals not exceeding 397 days, in each
case upon not more than thirty days' notice. Variable rate demand notes include
master demand notes which are obligations that permit the Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these obligations fluctuate from time to time. Frequently, such obligations
are secured by letters of credit or other credit support arrangements
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provided by banks. Use of letters of credit or other credit support arrangements
does not adversely affect the tax exempt status of these obligations. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments will generally be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Each obligation purchased by the Fund will
meet the quality criteria established for the purchase of Municipal Obligations.
KPAM, on behalf of the Fund, considers on an ongoing basis the creditworthiness
of the issuers of the floating and variable rate demand obligations in the
Fund's portfolio. The Fund will not invest more than 10% of the value of its net
assets in floating or variable rate demand obligations as to which the Fund
cannot exercise the demand feature on not more than seven days' notice if there
is no secondary market available for these obligations, and in other securities
that are not readily marketable.
The Fund may purchase from financial institutions participation interests
in Municipal Obligations (such as industrial development bonds and municipal
lease/purchase agreements). A participation interest gives the purchaser an
undivided interest in the Municipal Obligations in the proportion that the
Fund's participation interest bears to the total principal amount of Municipal
Obligations. These instruments may be variable rate, or fixed rate with
remaining maturities of 397 days or less. If the participation interest is
unrated, or has been given a rating below that which otherwise is permissible
for purchase by the Fund, the participation interest will be backed by an
irrevocable letter of credit or guarantee of a bank that the Board of Directors
has determined meets the prescribed quality standards set forth for banks below,
or the payment obligation otherwise will be collateralized by U.S. Government
securities or other securities deemed appropriate by the Board of Directors, or
the underlying Municipal Obligations will be permissible investments for the
Fund. For certain participation interests, the Fund will have the right to
demand payment, upon a specified number of days' notice, for all or any part of
the Fund's participation interest in the Municipal Obligations, plus accrued
interest. As to these instruments, the Fund intends to exercise its right to
demand payment only upon a default under the terms of the Municipal Obligations,
as needed to provide liquidity to meet redemptions, or to maintain a high
quality investment portfolio. The Fund will not invest more than 10% of the
value of its net assets in participation interests that do not have this demand
feature, and in other securities that are not readily marketable.
The Fund may purchase tender option bonds. A tender option bond is a
Municipal Obligation (generally held pursuant to a custodial arrangement) having
a relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term tax exempt rates, that has been coupled with
the agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holders the
option, at periodic intervals, to tender their securities to the institution and
receive the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between the
Municipal Obligation's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the
prevailing short-term tax exempt rate. KPAM, on behalf of the Fund, considers on
an ongoing basis the creditworthiness of the issuer of the underlying Municipal
Obligation, of any custodian and
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of the third party provider of the tender option. In certain instances and for
certain tender option bonds, the option may be terminable in the event of
default in payment of principal or interest on the underlying Municipal
Obligations and for other reasons. The Fund will consider as illiquid securities
tender option bonds as to which it cannot exercise the tender feature on not
more than seven days' notice if there is no secondary market available for these
obligations.
New issues of Municipal Obligations usually are offered on a when-issued
basis; that is, delivery and payment for such Municipal Obligation ordinarily
take place within 45 days after the date of the commitment to purchase. The
payment obligation and the interest rate that will be received on the Municipal
Obligation are fixed at the time the Fund enters into the commitment. The Fund
will make commitments to purchase such Municipal Obligations only with the
intention of actually acquiring the securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable, although any
gain realized on such sale would be taxable. The Fund will not accrue income in
respect of a when-issued security prior to its stated delivery date. The value
of Municipal Obligations purchased on a when-issued basis fluctuates both prior
to and after delivery. No additional when-issued commitments will be made if
more than 20% of the Fund's net assets would be so committed.
Municipal Obligations purchased on a when-issued basis and the securities
held in the Fund's portfolio are subject to changes in value (both generally
changing in the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Purchasing Municipal Obligations on a when-issued basis can
involve a risk that the yields available in the market when the delivery takes
place actually may be higher than those obtained in the transaction itself. A
segregated account of the Fund consisting of cash or liquid debt securities at
least equal to the amount of the when-issued commitments will be established and
maintained at the Fund's custodian bank. Purchasing Municipal Obligations on a
when-issued basis when the Fund is fully or almost fully invested may result in
greater potential fluctuation in the value of the Fund's net assets and its net
asset value per share.
Certain municipal/lease purchase obligations in which the Fund may invest
may contain 'non-appropriation' clauses which provide that the municipality has
no obligation to make lease payments in future years unless money is
appropriated for such purpose on a yearly basis. Although 'non-appropriation'
lease/purchase obligations are secured by the leased property, disposition of
the leased property in the event of foreclosure might prove difficult.
For temporary defensive purposes, the Fund may invest more than 20% of its
net assets in taxable short-term investments ('Taxable Investments') consisting
of: notes of issuers having, at the time of purchase, a quality rating within
the two highest grades by Moody's Investors Service, Inc. ('Moody's') or
Standard & Poor's Corporation ('S&P'); obligations of the U.S. Government, its
agencies or instrumentalities; commercial paper rated P-1 by Moody's or A-1 or
better by S&P; certificates of deposit of domestic banks, including foreign
branches of domestic banks, with assets of $1 billion or more; bankers'
acceptances and other short-term bank obligations; time deposits; and repurchase
agreements in respect of any of the foregoing with selected securities dealers,
banks or other recognized financial institutions. From time to time, on a
temporary basis other than for defensive purposes (but not to exceed 20% of the
Fund's net assets), the Fund may invest in Taxable Investments. Dividends paid
by the Fund that are attributable to interest earned from Taxable
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Investments will be taxable to investors. If the Fund purchases Taxable
Investments, it will value them using the amortized cost method and comply with
the provisions of Rule 2a-7 under the Act relating to purchases of taxable
instruments. To the extent the Fund is invested in Taxable Investments, it will
not be achieving its objective of maximizing tax exempt income. See 'Dividends,
Distributions and Taxes.' Taxable Investments are more fully described in the
Statement of Additional Information. Under normal market conditions, the Fund
anticipates that not more than 5% of the value of its total assets will be
invested in any one category of Taxable Investments.
The Fund may (i) borrow money from banks, but only for temporary or
emergency (not leveraging) purposes, in an amount up to 10% of the value of the
Fund's total assets (including the amount borrowed) valued at the lesser of cost
or market, less liabilities (not including the amount borrowed) at the time the
borrowing is made; (ii) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only in an amount up to 10% of the value of its total assets to
secure borrowings for temporary or emergency purposes; (iii) invest up to 5% of
its assets in the obligations of any issuer, except that up to 25% of the value
of the Fund's total assets may be invested, and obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities may be purchased,
without regard to any such limitation; (iv) invest up to 25% of its assets in
the securities of issuers in any industry, provided that there is no such
limitation on the purchase of Municipal Obligations and securities issued by
domestic banks and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (v) invest up to 10% of its assets in repurchase
agreements maturing in more than seven days and in securities not readily
marketable; and (vi) invest up to 10% of its assets in time deposits maturing
from two business days through seven calendar days. The policies described in
this paragraph are fundamental policies that cannot be changed without approval
by the holders of a majority of the Fund's outstanding voting shares, as defined
in the Act.
Certain provisions of the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of the Municipal Obligations available for purchase by the Fund and thus
reduce the available yield. Shareholders should consult their tax advisers
concerning the effect of these provisions on an investment in the Fund.
Proposals that may restrict or eliminate the income tax exemption for interest
on Municipal Obligations may be introduced in the future. If any such proposal
were enacted that would reduce the availability of Municipal Obligations for
investment by the Fund so as to adversely affect Fund shareholders, the Fund
would reevaluate its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration. If
legislation were enacted that would treat a type of Municipal Obligation as
taxable, the Fund would treat such security as a permissible Taxable Investment
within the applicable limits set forth herein.
The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing its securities pursuant to Rule 2a-7 under the Act, certain requirements
of which are summarized as follows. In accordance with Rule 2a-7, the Fund is
required to maintain a dollar-weighted average portfolio maturity of 90 days or
less, purchase only instruments having remaining maturities of 397 days or less
and invest only in U.S. dollar denominated securities determined in accordance
with procedures established by the Board of Directors to present minimal credit
risks and which are rated in one of the two highest rating categories for debt
obligations by at least two nationally recognized statistical rating
organizations (or
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one rating organization if the instrument was rated only by one such
organization) or, if unrated, are of comparable quality as determined in
accordance with procedures established by the Board of Directors.
The nationally recognized statistical rating organizations currently rating
investments of the type the Fund may purchase are Moody's and S&P and their
rating criteria are described in the Fund's Statement of Additional Information.
For further information regarding the amortized cost method of valuing
securities, see 'Determination of Net Asset Value' in the Fund's Statement of
Additional Information. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Overall responsibility for management and supervision of the Fund rests with its
Board of Directors. The day-to-day operations of the Fund are conducted through
or under the direction of its officers. The Statement of Additional Information
contains general background information regarding each Director and officer of
the Fund.
MANAGER AND INVESTMENT ADVISER
KPAM, 60 Broad Street, New York, New York 10004-2350, serves as the Fund's
manager and investment adviser. A wholly-owned subsidiary of Kidder, Peabody,
and a registered investment adviser under the Investment Advisers Act of 1940,
as amended, KPAM currently provides investment management, investment advisory
and administrative services to a wide variety of individual and institutional
clients. The Kidder, Peabody Asset Management Group of Companies (of which KPAM
is the primary entity) provides advisory and consulting services to more than
$17 billion in assets as of December 31, 1994. General Electric Capital
Services, Inc., a wholly-owned subsidiary of GE, owns all the outstanding stock
of Kidder Group, the parent company of Kidder, Peabody.
Under an agreement dated October 17, 1994, GE and Kidder Group agreed to
sell to PaineWebber Group Inc. certain assets of Kidder Group and its
subsidiaries, including Kidder, Peabody and KPAM. The consummation of this
transaction, which is subject to a number of conditions and cannot be assured,
will result in the deemed assignment and automatic termination of the agreements
pursuant to which Kidder, Peabody serves as the principal underwriter of the
Fund's shares and KPAM serves as the Fund's manager and investment adviser.
Institution of new arrangements with Kidder, Peabody's and KPAM's successors
following the consummation of the transaction, anticipated to occur in the first
quarter of 1995, have been approved by the Board of Directors and separately by
a majority of the Directors who are not 'interested persons' of the Fund within
the meaning of the Act. In addition, the Fund's new management arrangements will
require approval by the holders of a 'majority of the outstanding voting
securities' of the Fund, as defined in the Act. No assurance can be given that
the required shareholder approvals will be obtained and, if they are not, the
Directors will take such action as they determine to be appropriate and in the
best interests of the Fund and its shareholders.
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KPAM acts as manager and investment adviser to the Fund pursuant to the
Investment Advisory and Administrative Agreement dated June 11, 1986. KPAM
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, KPAM pays the salaries of all officers
and employees who are employed by both it and the Fund.
KPAM provides the Fund with an investment officer authorized by the
Directors to execute purchases and sales of securities. The chief investment
officer of the Fund is David A. Hartman. KPAM employs a professional staff of
portfolio managers who draw upon a variety of sources, including Kidder,
Peabody, for research information for the Fund.
The Fund pays KPAM, as compensation for services rendered, a monthly fee at
the annual rate of .50% of the Fund's average daily net assets. For the fiscal
year ended September 30, 1994, the Fund's total expenses represented .69% of its
net assets.
Although the accounts which are managed or advised by KPAM have varying
investment objectives, from time to time, KPAM will be investing assets of such
accounts in investments substantially similar to those which constitute the
principal investments of the Fund. See 'Portfolio Transactions.'
PORTFOLIO TRANSACTIONS
KPAM places the orders for the purchase and sale of the Fund's portfolio
securities. Transactions are allocated to various dealers by KPAM in its best
judgment. The primary consideration is the prompt and effective execution of
orders at the most favorable price. Subject to that primary consideration,
dealers may be selected for research, statistical or other services to enable
KPAM to supplement its own research and analysis with the views and information
of other securities firms. Information so received is in addition to, and not in
lieu of, services required to be performed by KPAM and KPAM's fee is not reduced
as a consequence of its receipt of such supplemental information. Such
information may be useful to KPAM in serving both the Fund and other clients
and, conversely, supplemental information obtained by the placement of business
of other clients may be useful to KPAM in carrying out its obligations to the
Fund. No brokerage commissions have been paid by the Fund to date.
Investment decisions for the Fund are made independently from those of any
other funds that are managed by KPAM. If, however, funds managed by KPAM are
simultaneously engaged in the purchase or sale of the same security, the
transactions are averaged as to price and allocated equitably to each fund. In
some cases, this procedure might adversely affect the price paid or received by
the Fund or the size of the position obtainable for, or disposable by, the Fund.
See 'Portfolio Transactions' in the Statement of Additional Information.
The Fund will not purchase Municipal Obligations during the existence of
any underwriting or selling group relating thereto of which Kidder, Peabody is a
member. Under certain circumstances, the Fund may be at a disadvantage because
of this limitation in comparison with other investment companies which have a
similar investment objective but which are not subject to such limitations.
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PURCHASE OF SHARES
GENERAL INFORMATION
Kidder, Peabody, 10 Hanover Square, New York, New York 10005-3592, serves as the
Fund's distributor. Shares must be purchased and maintained through a brokerage
account with Kidder, Peabody (an 'Account'). Thus, an investor who wishes to
purchase shares but has no existing Account must establish one. See 'The
Distributor.'
Shares are sold on a continuous basis at their net asset value next
determined after an order and good funds (e.g., cash, Federal funds or certified
checks drawn on a United States bank) are received. Kidder, Peabody regards
instructions received from an investor as merely an indication of interest until
the existence of good funds can be verified. During the period prior to the
receipt of good funds, an investor's money will not be invested. When
verification is obtained, an indication of interest becomes an order. If an
investor does not have a sufficient credit balance in his Account, payment for
shares must be converted into Federal funds before a purchase order is
effective. Purchase orders received before 12:00 noon, New York time, for which
payment has been received by Kidder, Peabody will be executed at that time and
the shareholder will receive the dividend declared on that day. Purchase orders
received after 12:00 noon, New York time, and purchase orders received earlier
in the same day for which payment has not been received by 12:00 noon, New York
time, will be executed at the close of regular trading on the NYSE, normally
4:00 p.m., New York time, if payment has been received by Kidder, Peabody by
that time and the shareholder will receive the dividend declared on the
following day.
The minimum initial investment is $1,000 and the minimum subsequent
investment is $1, except that for accounts established pursuant to the Uniform
Gifts to Minors Act, the minimum initial investment is $250 and the minimum
subsequent investment is $1. Credit balances in an Account are swept
automatically into shares of the Fund. Credit balances from $1 to $4,999 are
swept as of the close of business each Friday for settlement on the next
business day and credit balances of $5,000 or more are swept daily for
settlement on the next business day. Also, for Fund shareholders who subscribe
to the Kidder, Peabody Premium Account asset management system, credit balances
of $1 or more in such shareholder's Account are automatically invested in shares
of the Fund on the next business day following the day the Account is so
credited. Also, upon request made to a shareholder's Investment Executive,
dividend income earned from any Tax Exempt Securities Trust with respect to
which Kidder, Peabody is or was a sponsor or co-sponsor may be used to purchase
Fund shares without regard to minimum purchase requirements. In addition, the
minimum investment requirement for initial purchases of shares of the Fund is
waived for clients of a newly employed Kidder, Peabody Investment Executive so
long as the purchase is made with the proceeds from a redemption of shares of a
money market fund sponsored by a firm other than Kidder, Peabody. The Fund
reserves the right at any time to vary the initial and subsequent minimums. It
is not recommended that the Fund be used as a vehicle for Individual Retirement
Accounts or other tax-qualified retirement plans.
All shares purchased are entered, confirmed and credited to the
shareholder's Fund account at the net asset value next determined as described
in 'Determination of Net Asset Value.' Share certificates are issued only upon
written request of the shareholder. The Fund reserves the right to reject any
purchase order.
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The Fund offers its shareholders an Automatic Investment Plan under which a
shareholder may authorize Kidder, Peabody to place monthly, twice monthly or
quarterly, as selected by the shareholder, a purchase order for Fund shares in
an amount not less than $100. The purchase price is paid automatically from a
designated bank account of the shareholder. The Fund reserves the right to
terminate or change the provisions of the Automatic Investment Plan.
REDEMPTION OF SHARES
A shareholder may redeem shares on any day that net asset value is determined by
following the procedures set forth below.
REDEMPTION THROUGH KIDDER, PEABODY
Kidder, Peabody wires the terms of any redemption request properly received to
Investors Fiduciary Trust Company ('IFTC'). The price at which a redemption
request is executed is the net asset value per share next determined after
proper redemption instructions are received. Payment for redemption orders, if
any, that are received before 12:00 noon, New York time, normally is made on the
same business day. 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, New York time, and the close of regular trading on
the NYSE, normally 4:00 p.m., New York time, 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. Proceeds of a redemption generally
are credited to the shareholder's Account, or sent to the shareholder, as
applicable. If shares to be redeemed were issued in certificate form,
shareholders must submit the certificates for the shares to be redeemed and
follow the procedures set forth in items (1) through (4) under 'Redemption by
Mail' below.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request in 'good order' to IFTC
at the following address:
Kidder, Peabody Tax Exempt Money Fund, Inc.
c/o Investors Fiduciary Trust Company
P.O. Box 419211
Kansas City, Missouri 64141
IFTC transmits any redemption request which it receives to Kidder, Peabody.
The redemption request is then treated as if it had been made through Kidder,
Peabody. See 'Redemption through Kidder, Peabody' above.
A redemption request is considered to have been received in good order if
the following conditions are satisfied:
(1) the request is in writing, states the number or dollar amount of
shares to be redeemed and identifies the shareholder's Fund account number;
(2) the request is signed by each registered owner exactly as the
shares are registered;
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(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed for transfer (or are accompanied by an endorsed
stock power) and accompany the redemption request which should be sent by
registered mail for the protection of shareholders; and
(4) the signatures on the written redemption request have been
guaranteed by a bank, broker-dealer, municipal securities broker or dealer,
government securities broker or dealer, credit union, a member firm of a
national securities exchange, registered securities association or clearing
agency, or savings association (the purpose of a signature guarantee is to
protect Fund shareholders against the possibility of fraud). The transfer
agent may reject redemption instructions if the guarantor is neither a
member of nor a participant in a signature guarantee program (currently
known as 'STAMPsm').
Additional supporting documents may be required for redemptions by
corporations, executors, administrators, trustees and guardians.
GENERAL REDEMPTION POLICIES
Signature guarantees (as described above) are required in connection with any
redemption by mail and share ownership transfer requests. These requirements may
be waived by the Fund in certain instances.
If the shares to be redeemed represent an investment for which the Fund has
not yet received good funds, the Fund reserves the right not to honor the
redemption request until such time as it has assured itself that good funds have
been collected, which may take 15 or more business days. If purchases are made
with good funds, no redemption delay would occur.
Due to the relatively high cost of maintaining a Fund account, the Fund
reserves the right to redeem, upon not less than 45 days' notice, any Fund
account reduced by a shareholder to a value of $500 or less.
Kidder, Peabody has established procedures pursuant to which shares of the
Fund held by a client having a deficiency (i.e., amount owed to Kidder, Peabody
resulting from Account activity or otherwise and other amounts authorized by the
client to be paid to others from the Account, less the amount of any free credit
cash balance) in his Account will be redeemed automatically to the extent of
that deficiency, unless the client notifies Kidder, Peabody to the contrary in
advance. The amount of the redemption will be the lesser of (a) the total net
asset value of Fund shares held in the client's Account or (b) the deficiency in
the client's Account at the close of business on the redemption day adjusted for
purchase and sale transactions in other securities settling on the following
business day. Accordingly, a client who has previously consented to this
automatic redemption procedure and who wishes to pay for a securities
transaction other than through such automatic redemption procedure must do so
not later than the day before the settlement date for that transaction.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of certain other funds in the
Kidder Family of Funds, to the extent such shares are offered for sale in the
shareholder's state of residence. For a list of the funds in the Kidder Family
of Funds for which shares may be exchanged and for a description of each of
those funds, please see 'Exchange of Shares' in the Statement of Additional
Information. Under the Choice Pricing SystemSM (pursuant to which non-money
market funds in the Kidder Family of
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Funds offer multiple classes of shares to the public), an exchange of shares of
a non-money market fund with other funds' shares will be limited to shares of
the same class or sole class (money market funds only) of shares of a fund from
or to which the exchange is to be effected. For example, if a holder of Class A
shares of Kidder, Peabody Global Equity Fund ('Global Equity Fund') exchanges
his shares for shares of the Fund (a money market fund) and thereafter wishes to
exchange those shares for shares of Kidder, Peabody Government Income Fund,
Inc., he may receive only Class A shares in the latter transaction. As another
example, if a holder of shares of the Fund acquired as a result of an initial
investment and not from an exchange with shares of another fund wishes to
exchange his shares for shares of Global Equity Fund, he may receive Class A
shares, Class B shares or Class C shares (depending on his eligibility for Class
C shares) in the exchange transaction. Thereafter, any further exchanges would
be subject to the principle described above limiting subsequent exchanges to the
same class or the sole class of shares of other funds. If shares acquired in an
exchange are subject to payment of a sales charge higher than the sales charge
paid on the shares relinquished in the exchange (or any predecessor of those
shares), the exchange will be subject to payment of an amount equal to the
difference, if any, between the sales charge previously paid and the sales
charge payable on the shares acquired in the exchange.
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.
Upon receipt of proper instructions and all necessary supporting documents,
Fund shares submitted for exchange will be redeemed at their net asset value
next determined and simultaneously invested in shares of the fund being
acquired. Settlement of an exchange would 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 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 Kidder, Peabody 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. Kidder, Peabody reserves the right to reject any exchange
request at any time.
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THE DISTRIBUTOR
Kidder, Peabody acts as distributor of the Fund's shares pursuant to a
Distribution Agreement dated March 15, 1990. To reimburse Kidder, Peabody for
the services it provides and for the expenses it bears under the Distribution
Agreement, the Fund has adopted a Plan of Distribution under the Act. On July
28, 1988 and November 9, 1988, the Board of Directors and shareholders,
respectively, approved the Plan of Distribution which was amended on November
15, 1989. The Distribution Agreement and the Plan of Distribution were most
recently continued by action of the Fund's Board of Directors on March 2, 1994.
The Plan of Distribution provides that the Fund reimburse Kidder, Peabody
for the expenses incurred by it in connection with the distribution of the
Fund's shares at the annual rate of up to .12% of the Fund's average daily net
assets. The expenses which may be reimbursed include compensation to Investment
Executives and other employees of Kidder, Peabody, printing of prospectuses and
reports for other than existing shareholders, and the preparation, printing and
distribution of sales literature and advertising materials. Overhead expenses
including costs such as leases, depreciation, communications, training and
supplies are subject to reimbursement. It is not anticipated that items
reimbursable under the Plan of Distribution will generally include any profit to
Kidder, Peabody. Kidder, Peabody anticipates that the amount of expenses
reimbursed will not exceed the amount of expenses incurred by Kidder, Peabody
and that there will be no carryover of expenses from one year to the next. The
expenses to be reimbursed are for activities primarily intended to result in the
sale of Fund shares and the maintenance of Fund accounts and account balances.
Kidder, Peabody 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 September
30, 1994, the Fund reimbursed Kidder, Peabody in an amount equal to .12% of the
Fund's average daily net assets.
The Plan of Distribution remains in effect until October 31st of each year,
provided such continuance is approved annually by vote of the Board of
Directors, including a majority of those Directors who are not interested
persons and who have no direct or indirect financial interest in the Plan of
Distribution, 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 Directors in the manner described above. The Plan of
Distribution may be terminated at any time, without payment of any penalty, by
vote of a majority of the Directors 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, on not more than 30 days' written notice to any other party
to the Plan of Distribution. So long as the Plan of Distribution is in effect,
the election and nomination of Directors who are not interested persons of the
Fund shall be committed to the discretion of the Directors who are not
interested persons. The Directors have determined that, in their judgment, there
is a reasonable likelihood that the Plan of Distribution will continue to
benefit the Fund and its shareholders.
Pursuant to the Plan of Distribution, Kidder, Peabody provides the Fund's
Directors, 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 Kidder, Peabody on behalf of the Fund and the
purpose of such expenditures. In their quarterly review of the Plan of
Distribution, the
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Directors consider its continued appropriateness and the level of compensation
provided therein. For the fiscal year ended September 30, 1994, Kidder, Peabody
incurred distribution expenses of $2,046,957 and recovered $828,462 in the form
of reimbursements made by the Fund to Kidder, Peabody at the rate provided in
the Plan of Distribution.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares dividends daily from its net investment income.
Dividends are paid each month, and at each shareholder's option are reinvested
in additional shares or paid in cash. Dividends are declared on each day the
Fund or IFTC is open for business. The Fund's earnings for Saturdays, Sundays
and holidays are declared as dividends on the preceding business day. If a
shareholder redeems all shares in his Fund account at any time during the month,
all dividends to which the shareholder is entitled are paid to him along with
the proceeds of the redemption. Distributions of realized securities gains, if
any, generally are declared and paid once a year and are reinvested in
additional shares or, at the shareholder's option, paid in cash. Since the Fund
does not expect to realize long-term capital gains, it does not contemplate
paying capital gains distributions. The Fund intends to maintain a net asset
value of $1.00 per share for purposes of sales and redemptions. To effectuate
this policy, the Fund, under certain circumstances, may consider selling
portfolio instruments prior to maturity to realize capital gains or losses, not
declaring dividends and distributions or paying distributions from capital or
capital gains. See 'Determination of Net Asset Value.'
Management believes that the Fund qualified as a 'regulated investment
company' under the Code for the fiscal year ended September 30, 1994 and plans
to continue to so qualify as long as the Fund determines that such qualification
is in the best interest of its shareholders. Such qualification relieves the
Fund of liability for Federal income tax to the extent its earnings are
distributed, in accordance with the applicable provisions of the Code. Regulated
investment companies, such as the Fund, are subject to a non-deductible 4%
excise tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
Except for dividends from Taxable Investments, the Fund anticipates that
all dividends paid by the Fund will constitute 'exempt-interest dividends' and,
therefore, will not be subject to Federal income tax, although a portion of such
dividends may be a preference item for purposes of the alternative minimum tax.
Dividends derived from other sources, together with distributions from any
realized short-term securities gains and gains from the sale or other
disposition of market discount bonds, are taxable as ordinary income, whether or
not reinvested. Distributions from realized long-term securities gains of the
Fund generally must be included as long-term capital gains in the taxable income
of shareholders who are citizens or residents of the United States. Under the
Code, interest on indebtedness incurred or continued to purchase or carry Fund
shares that is deemed to relate to exempt-interest dividends is not deductible.
No dividend will qualify for the dividends received deduction allowable to
certain corporations.
Although all or a substantial portion of the dividends paid by the Fund may
be excluded by shareholders of the Fund from their gross income for Federal
income tax purposes, the Fund may purchase specified private activity bonds, the
interest from which may be (i) a preference item for purposes of the alternative
minimum tax, (ii) a component of the 'adjusted current earnings' preference item
for purposes of the corporate alternative minimum tax as well as a component in
19
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computing the corporate environmental tax or (iii) a factor in determining the
extent to which a shareholder's Social Security benefits are taxable. If the
Fund purchases such securities, the portion of the Fund's dividends related
thereto will not necessarily be tax exempt to an investor who is subject to the
alternative minimum tax and/or tax on Social Security benefits and may cause an
investor to be subject to such taxes.
Taxable dividends derived from net investment income, together with
distributions from net realized short-term securities gains and gains from the
sale or other disposition of market discount bonds, paid by the Fund to a
foreign investor generally are subject to U.S. nonresident withholding taxes at
the rate of 30%, unless the foreign investor claims the benefit of a lower rate
specified in a tax treaty. Distributions from net realized long-term securities
gains paid by the Fund to a foreign investor generally will not be subject to
U.S. nonresident withholding tax. However, such distributions may be
subject to backup withholding, as described below, unless the foreign investor
certifies his non-U.S. residency status.
Federal regulations generally require the Fund to withhold ('backup
withholding') and remit to the U.S. Treasury 31% of taxable dividends and
distributions from net realized securities gains paid to a shareholder if such
shareholder fails to certify either that the Taxpayer Identification Number
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the Internal Revenue Service (the
'IRS') of being subject to backup withholding as a result of a failure to
properly report taxable dividend or interest income on a Federal income tax
return. Furthermore, the IRS may notify the Fund to institute backup withholding
if the IRS determines a shareholder's Taxpayer Identification Number is
incorrect or if a shareholder has failed to properly report taxable dividend and
interest income on a Federal income tax return.
A Taxpayer Identification Number is either the social security number or
employer identification number of the record owner of the Fund account. Any tax
withheld as a result of backup withholding does not constitute an additional tax
imposed on the record owner of the account, and may be claimed as a credit on
the record owner's Federal income tax return.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually by the Fund's transfer agent. Shareholders are
urged to consult their own tax advisers regarding specific questions as to
Federal, state or local taxes.
DETERMINATION OF NET ASSET VALUE
The Fund computes its net asset value twice daily as of 12:00 noon, New York
time, and as of the close of regular trading on the NYSE, normally 4:00 p.m.,
New York time, Monday through Friday, except that net asset value is not
computed on any day when no orders to purchase, sell, exchange or redeem Fund
shares have been received, when 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 when
the NYSE 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
KPAM's fee, are accrued daily and taken into account for the purpose of
determining net asset value.
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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 which
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. There can be, however, no absolute assurance that the Fund will
always be able to maintain a constant net asset value of $1.00 per share.
Further information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
CUSTODIAN, AND TRANSFER, DIVIDEND AND RECORDKEEPING AGENT
IFTC, 127 West 10th Street, Kansas City, Missouri 64105, acts as custodian of
the Fund's investments and as transfer, dividend and recordkeeping agent.
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund was incorporated under the laws of the State of Maryland on January 18,
1983 and commenced operations on July 6, 1983.
The authorized capital stock of the Fund consists of 5 billion shares of
common stock, par value $.01 per share. Each share has one vote and, when issued
and paid for in accordance with the terms of offering, is fully paid and
non-assessable. Shares are redeemable at net asset value, at the option of the
shareholder. Shares have no pre-emptive, subscription or conversion rights and
are freely transferable.
During 1991, the Fund changed its fiscal year end from June 30th to
September 30th.
In the interest of economy and convenience, certificates representing the
Fund's shares are not physically issued except upon the specific request of a
shareholder to IFTC. IFTC maintains a record of each shareholder's ownership.
Each shareholder receives confirmations from IFTC which show purchases and sales
of the Fund's shares. Shares of the Fund owned by a shareholder and dividends
paid thereon are reflected in the shareholder's monthly statement from Kidder,
Peabody.
Unless otherwise required by the Act, ordinarily it will not be necessary
for the Fund to hold annual meetings of shareholders. As a result, Fund
shareholders may not consider each year the election of Directors or the
appointment of independent auditors. However, pursuant to the Fund's By-Laws,
the holders of at least 10% of the shares outstanding and entitled to vote may
require the Fund to hold a special meeting of shareholders for any purpose. Fund
shareholders may remove a Director by the affirmative vote of a majority of the
Fund's outstanding voting shares. In addition, the Board of Directors will call
a special meeting of shareholders for the purpose of electing Directors if, at
any time, less than a majority of the Directors then holding office have been
elected by shareholders.
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus or in the Statement
of Additional Information incorporated into this Prospectus by
reference in connection with the offering made by this Prospectus,
and, if given or made, any such 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 6
---------------------------------------------
Yield 7
---------------------------------------------
Investment Objective and Policies 7
---------------------------------------------
Management of the Fund 12
---------------------------------------------
Portfolio Transactions 13
---------------------------------------------
Purchase of Shares 14
---------------------------------------------
Redemption of Shares 15
---------------------------------------------
Exchange Privilege 16
---------------------------------------------
The Distributor 18
---------------------------------------------
Dividends, Distributions and Taxes 19
---------------------------------------------
Determination of Net Asset Value 20
---------------------------------------------
Custodian, and Transfer, Dividend and
Recordkeeping Agent 21
---------------------------------------------
Additional Information About
the Fund 21
---------------------------------------------
</TABLE>
Kidder,
Peabody
Tax
Exempt
Money
Fund,
Inc.
Prospectus
January 27, 1995
<PAGE>
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as 'D'
The service mark shall be expressed as 'sm'
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
PAINEWEBBER/KIDDER, PEABODY
TAX EXEMPT MONEY FUND, INC.
1285 Avenue of the Americas
New York, New York 10019
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby PaineWebber RMA Tax-Free Fund, Inc. ("PW
Fund") would acquire the assets of PaineWebber/Kidder, Peabody Tax Exempt
Money Fund, Inc. ("PW/KP Fund") in exchange solely for shares of common
stock in PW Fund and the assumption by PW Fund of PW/KP Fund's liabilities.
This Statement of Additional Information consists of this cover page and
the following described documents, each of which is incorporated by
reference herein:
(1) The Statement of Additional Information of PW Fund dated August
29, 1995 (previously filed on EDGAR, Accession Number:
0000950112-95-002293).
(2) The Statement of Additional Information of PW/KP Fund, dated
January 27, 1995.
(3) The Annual Report to Shareholders of PW Fund for the fiscal year
ended June 30, 1995 (previously filed on EDGAR, Accession Number:
0000703875-95-000001).
(4) The Annual Report to Shareholders of PW/KP Fund for the fiscal
year ended September 30, 1994.
(5) The Semi-Annual Report to Shareholders of PW/KP Fund for the six-
month period ended March 31, 1995 (previously filed on EDGAR,
Accession Number: 0000889812-95-000294).
(6) Pro forma financial statements for the 12 months ended June 30,
1995.
This Statement of Additional Information is not a prospectus and
should be read only in conjunction with the prospectus/proxy statement
dated October __, 1995 relating to the above-referenced matter. A copy of
the prospectus/proxy statement may be obtained by calling any PaineWebber
investment executive or correspondent firm or by calling toll-free 1-800-
852-4750. This Statement of Additional Information is dated October __,
1995.
<PAGE>
Statement of Additional Information January 27, 1995
--------------------------------------------------------------------------------
Kidder, Peabody Tax Exempt Money Fund, Inc.
60 BROAD STREET NEW YORK, NEW YORK 10004-2350 (212) 656-1737
Kidder, Peabody Tax Exempt Money Fund, Inc. (the 'Fund') is a diversified,
open-end, management investment company whose objective is the maximization of
short-term interest income exempt from Federal income tax to the extent
consistent with the preservation of capital and the maintenance of liquidity.
The Fund pursues this objective by investing primarily in Municipal Obligations.
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 at the above address. The
date of the Prospectus to which this Statement relates is January 27, 1995.
--------------------------------------------------------------------------------
MANAGER AND INVESTMENT ADVISER
Kidder Peabody Asset Management, Inc.
DISTRIBUTOR
Kidder, Peabody & Co. Incorporated
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
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 Policies.'
MUNICIPAL OBLIGATIONS
Municipal Obligations generally include debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, sports
facilities, convention or trade show facilities, airport, mass transit,
industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity, or
sewage or solid waste disposal; the interest paid on such obligations may be
exempt from Federal income tax, although current tax laws place substantial
limitations on the size of such issues. Such obligations are considered to be
Municipal Obligations if the interest paid thereon qualifies as exempt from
Federal income tax in the opinion of bond counsel to the issuer. There are, of
course, variations in Municipal Obligations, both within a particular
classification and between classifications.
Floating and variable rate demand notes are tax exempt obligations which
may have a stated maturity in excess of 397 days, but which permit the holder to
demand payment of principal plus accrued interest upon a specified number of
days' notice. The issuer of such notes ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the note plus accrued interest upon a specified number of days' notice
to the noteholders. The interest rate on a floating rate demand note is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
note is adjusted at specified intervals. Because variable rate demand notes are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued interest, at
any time. Accordingly, where these notes are not secured by letters of credit or
other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Each note
purchased by the Fund will meet the quality criteria established for the
purchase of Municipal Obligations.
For the purpose of diversification under the Investment Company Act of
1940, as amended (the 'Act'), the identification of the issuer of Municipal
Obligations depends on the terms and conditions of the security. When the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the case
of an industrial development bond, if that bond is backed only by the assets and
revenues of the non-governmental user then such non-governmental user would be
deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity
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guarantees a security, such a guaranty would be considered a separate security
and will be treated as an issue of such government or other entity.
The yields on Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the municipal market, size of a particular offering, maturity of
the obligation and rating of the issue. The imposition of the Fund's management
and investment advisory fee, as well as other operating expenses, including fees
paid under its Plan of Distribution pursuant to Rule 12b-1 under the Act (the
'Plan of Distribution'), has the effect of reducing the yield to shareholders.
Municipal lease obligations or installment purchase contract obligations
(collectively, 'lease obligations') have special risks not normally associated
with Municipal Obligations. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation ordinarily is backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain 'non-appropriation' clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Although 'non-appropriation' lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. The Fund will seek to minimize these risks by investing
only in those lease obligations that (1) are rated in one of the two highest
rating categories for debt obligations by at least two nationally recognized
statistical rating organizations (or one rating organization if the lease
obligation was rated only by one such organization) or (2) if unrated, are
purchased principally from the issuer or domestic banks or other responsible
third parties, in each case only if the seller shall have entered into an
agreement with the Fund providing that the seller or other responsible third
party will either remarket or repurchase the municipal lease within a short
period after demand by the Fund. The staff of the Securities and Exchange
Commission (the 'SEC') currently considers certain lease obligations to be
illiquid. Accordingly, the Directors have established guidelines to be used by
Kidder Peabody Asset Management, Inc. ('KPAM'), the Fund's manager and
investment adviser, in determining the liquidity of municipal lease obligations.
In addition, the Fund will not invest more than 10% of the value of its net
assets in lease obligations that are illiquid and in other illiquid securities.
See 'Investment Restriction No. 6' below.
The Fund will not purchase tender option bonds unless (a) the demand
feature applicable thereto is exercisable by the Fund within 397 days of the
date of such purchase upon no more than 30 days' notice and thereafter is
exercisable by the Fund no less frequently than annually upon no more than 30
days' notice and (b) at the time of such purchase, KPAM reasonably expects, (i)
based upon its assessment of current and historical interest rate trends, that
prevailing short-term tax exempt rates will not exceed the stated interest rate
on the underlying Municipal Obligations at the time of the next tender fee
adjustment, and (ii) that the circumstances which might entitle the grantor of a
tender option to terminate the tender option would not occur prior to the time
of the next tender opportunity. At the time of each tender opportunity, the Fund
will exercise the tender option with respect to any tender option bonds unless
KPAM reasonably expects, (x) based on its assessment of current and historical
interest rate trends, that prevailing short-term tax exempt rates will not
exceed the stated interest rate on the underlying Municipal Obligations at the
time of the next tender fee adjustment, and (y) that the circumstances which
might entitle the grantor of a tender option to terminate the tender option
would not occur prior to the time of the next tender opportunity. The
3
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Fund will exercise the tender feature with respect to tender option bonds, or
otherwise dispose of its tender option bonds, prior to the time the tender
option is scheduled to expire pursuant to the terms of the agreement under which
the tender option is granted. The Fund otherwise will comply with the provisions
of Rule 2a-7 under the Act in connection with the purchase of tender option
bonds, including, without limitation, the requisite determination by the Board
of Directors that the tender option bonds in question meet the quality standards
described in Rule 2a-7, which in the case of a tender option bond subject to a
conditional demand feature, would include a determination that the security has
received both the required short-term and long-term high quality rating or is
determined to be of comparable quality. In the event of a default of the
Municipal Obligation underlying a tender option bond, or the termination of the
tender option agreement, the Fund would look to the maturity date of the
underlying security for the purpose of compliance with Rule 2a-7 and, if its
remaining maturity was greater than 397 days, the Fund would sell the security
as soon as would be practicable. The Fund will purchase tender option bonds only
when it is satisfied that the custodial and tender option arrangements,
including the fee payment arrangement, will not adversely affect the tax exempt
status of the underlying Municipal Obligations and that payment of any tender
fees will not have the effect of creating taxable income for the Fund. Based on
the tender option bond arrangement, the Fund expects to be able to value the
tender option bond at par; however, the value of the instrument will be
monitored to assure that it is valued at fair value.
RATINGS OF MUNICIPAL OBLIGATIONS
If, subsequent to its purchase by the Fund, (a) an issue of rated Municipal
Obligations ceases to be rated in the highest rating category by at least two
rating organizations (or one rating organization if the instrument was rated by
only one such organization), or the Fund's Board determines that it is no longer
of comparable quality; or (b) KPAM becomes aware that any portfolio security not
so highly rated or any unrated security has been given a rating by any rating
organization below the rating organization's second highest rating category, the
Fund's Board will reassess promptly whether such security presents minimal
credit risk and will cause the Fund to take such action as it determines is in
the best interest of the Fund and its shareholders, provided that the
reassessment required by clause (b) is not required if the portfolio security is
disposed of or matures within five business days of KPAM becoming aware of the
new rating and the Fund's Board is subsequently notified of KPAM's actions.
To the extent that the ratings given by Moody's Investors Service, Inc.
('Moody's') or Standard & Poor's Corporation ('S&P') for Municipal Obligations
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for its investments
in accordance with the investment policies contained in the Fund's Prospectus
and this Statement of Additional Information. The ratings of Moody's and S&P
represent their opinions as to the quality of the Municipal Obligations which
they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality. Although
these ratings may be an initial criterion for selection of portfolio securities,
KPAM also will evaluate these securities and the creditworthiness of the issuers
of such securities. See 'Appendix.'
4
<PAGE>
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TAXABLE INVESTMENTS
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include a variety of U.S. Treasury securities, which differ in
their interest rates, maturities and times of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
greater than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, such as Goverment National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
Treasury; others, such as those of the Federal Home Loan Banks, by the right of
the issuer to borrow from the Treasury; others, such as those issued by the
Federal National Mortgage Association, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality; and
others, such as those issued by the Student Loan Marketing Association, only by
the credit of the agency or instrumentality. These securities bear fixed,
floating or variable rates of interest. Interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While the
U.S. Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law. The Fund invests in such securities
only when it is satisfied that the credit risk with respect to the issuer is
minimal.
Certificates of deposit are certificates representing the obligation of a
bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Investments in time deposits generally are limited to London branches of
domestic banks that have total assets in excess of $1 billion. Time deposits
which may be held by the Fund will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. Other short-term bank obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Repurchase agreements involve the acquisition by the Fund of an underlying
debt instrument for a relatively short period (usually not more than one week),
subject to an obligation of the seller to repurchase, and the Fund to resell,
the instrument at a fixed price. The Fund's custodian will have custody of, and
will hold in a segregated account, securities acquired by the Fund under a
repurchase agreement. Repurchase agreements are considered by the staff of the
SEC to be loans by the Fund. The Fund enters into repurchase agreements only
with selected securities dealers or banks or other recognized financial
institutions, and requires that additional securities be deposited with it if
the value of the securities purchased should decrease below resale price.
Certain costs may be incurred by the Fund in connection with the sale of the
securities if the seller does not repurchase them in accordance with the
repurchase agreement. KPAM considers on an ongoing basis the creditworthiness of
the institutions with which it enters into repurchase agreements.
Commercial paper consists of short-term, unsecured promissory notes issued
to finance short-term credit needs.
Under normal conditions, the Fund anticipates that not more than 5% of its
total assets will be invested in any one category of Taxable Investments.
5
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INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions cannot be changed without approval by the holders of a majority of
the Fund's outstanding shares, defined in the Act as the approval of the lesser
of (i) 67% of the Fund's shares present at a meeting if the holders of more than
50% of the outstanding shares are present in person or by proxy, or (ii) more
than 50% of the Fund's outstanding shares. The Fund may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Prospectus.
2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes, in an amount up to 10% of the value of the Fund's
total assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time
the borrowing is made. While borrowings exceed 5% of the value of the
Fund's total assets, the Fund will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 10% of the value of its total assets, but only to
secure borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin.
5. Underwrite the securities of other issuers, except that the Fund
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage
of the lower purchase price available.
6. Purchase securities subject to restrictions on disposition under
the Securities Act of 1933 (so called 'restricted securities'). The Fund
may not enter into repurchase agreements maturing in more than seven days
or purchase securities that are not readily marketable, if, in the
aggregate, more than 10% of its net assets would be so invested. The Fund
may not invest in time deposits maturing in more than seven days and time
deposits maturing from two business days through seven calendar days may
not exceed 10% of the Fund's net assets.
7. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests,
but this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein.
8. Make loans to others except through the purchase of qualified debt
obligations and the entry into repurchase agreements referred to above and
in the Prospectus.
9. Invest more than 15% of its assets in the obligations of any one
domestic bank, or invest more than 5% of its assets in the obligations of
any other issuer except for securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, which may be purchased
without limitation. Notwithstanding the foregoing, 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 except that up to 25% of the
value of the Fund's total assets may be invested without regard to such
limitation.
10. Invest more than 25% of its assets in the securities of issuers in
any single industry; provided that there shall be no limitation on the
purchase of Municipal Obligations and securities issued by domestic banks
and obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
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11. Purchase more than 10% of the voting securities of any issuer or
invest in companies for the purpose of exercising control.
12. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets
and except for the purchase, to the extent permitted by Section 12 of the
Act, of shares of registered unit investment trusts whose assets consist
substantially of Municipal Obligations.
For purposes of Investment Restriction No. 10, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
'industry.'
If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions listed
above so as to permit the sale of Fund shares in certain states. Should the Fund
determine that a commitment is no longer in the best interests of the Fund and
its shareholders, the Fund reserves the right to revoke the commitment by
terminating the sale of Fund shares in the state involved.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Directors and officers of the Fund, together with information as to their age
and principal business occupations during the last five years, are shown below.
Each Director who is an 'interested person' of the Fund, as defined in the Act,
is indicated by an asterisk.
David J. Beaubien, 60, Director. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring instruments. Director of IEC,
Inc., manufacturer of electronic assembles, 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 which makes and provides a variety of scientific and technically
oriented products and services.
*George V. Grune, Jr., 40, Chairman of the Board and President. Executive
Managing Director of the Asset Management Division of Kidder, Peabody & Co.
Incorporated ('Kidder, Peabody') and President and a director of KPAM.
William W. Hewitt, Jr., 66, Director. 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 Cash Management
Trust, The Guardian Park Ave. Fund, The Guardian Stock Fund, Inc., and The
Guardian U.S. Government Trust.
Thomas R. Jordan, 66, Director. 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.
Carl W. Schafer, 59, Director. 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, Wainoco Oil Corporation,
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BioTechniques Laboratories Inc., an agricultural biotechnology company, Ardic
Exploration and Development Ltd. and Hidden Lake Gold Mines Ltd., gold mining
companies, and Electronic Clearing House, Inc., a financial transactions
processing 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, manager of investments.
David A. Hartman, 48, Executive Vice President and Chief Investment
Officer. Senior Vice President of Kidder, Peabody and KPAM.
Robert B. Jones, 38, Senior Vice President. Senior Vice President of
Kidder, Peabody and director and Senior Vice President of KPAM. Prior to
December 1990, Vice President of Kidder, Peabody.
Ronald A. Huether, 56, Treasurer and Assistant Secretary. Vice President of
Kidder, Peabody and a Vice President and Treasurer of KPAM.
John J. Boretti, 42, Vice President and Chief Financial Officer. Vice
President of Kidder, Peabody and Vice President and Chief Financial Officer of
KPAM. Prior to October 1992, self employed as a consultant. Prior to August
1992, director, Executive Vice President, Chief Financial Officer and Treasurer
of USF&G Review Management Corp., Vice President and director of USF&G
Investment Management Corp., Treasurer of USF&G Mutual Funds, Executive Vice
President, Treasurer and Chief Financial Officer of USF&G Investment Services,
Inc. and director of Axe Houghton Management. Prior to December 1990, Vice
President of USF&G Financial Services.
Lawrence H. Kaplan, 38, Senior Vice President, General Counsel and
Secretary. Senior Vice President and Associate General Counsel of Kidder,
Peabody, director, Senior Vice President, General Counsel and Assistant
Secretary of KPAM, and a director and/or officer of various Kidder, Peabody
subsidiaries. Prior to December 1993, Vice President of Kidder, Peabody. Prior
to November 1990, an attorney in private practice associated with the law firm
of Brown & Wood.
Lisa S. Kellman, 36, Assistant Secretary. Assistant Vice President of
Kidder, Peabody and KPAM. Prior to January 1993, Administrative Officer of
Kidder, Peabody.
Leonard I. Chubinsky, 46, Assistant Vice President and Assistant Secretary.
Assistant Vice President and Assistant General Counsel of Kidder, Peabody and
Assistant Vice President of KPAM. Prior to July 1992, attorney with
Curtiss-Wright Corporation, a diversified manufacturing company.
Helen V. Del Bove, 34, Assistant Treasurer. Assistant Vice President of
Kidder, Peabody and Vice President of KPAM.
The address of each of the non-interested Directors 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 each of the
other Directors and officers is 60 Broad Street, New York, New York 10004-2350.
By virtue of the management responsibilities assumed by KPAM under the
Investment Advisory and Administrative Agreement, the Fund requires no executive
employees other than its officers, none of whom devotes full time to the affairs
of the Fund. Directors and officers of the Fund, as a group, owned less than 1%
of the outstanding common stock of the Fund on January 3, 1995. Each Director
and officer of the Fund, with the exception of Mr. Hartman, is a director and/or
officer of each of the 13 investment companies in the Kidder Family of Funds.
Mr. Hartman is an officer of each
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of the seven money market investment companies in the Kidder Family of Funds. No
officer, director or employee of KPAM or of any affiliate receives any
compensation from the Fund for serving as an officer or Director of the Fund.
The Fund pays each Director who is not an officer, director or employee of KPAM
or any of its affiliates an annual retainer of $1,500 and $525 for each
Director's meeting attended, and reimburses the Director for out-of-pocket
expenses associated with attendance at Directors' meetings. The Chairman of the
Directors' audit committee receives an annual fee of $250. For the most recently
ended fiscal year, the aggregate amount of compensation received by each
Director from the Fund and all other funds in the Kidder Family of Funds for
which such person serves as a Board member (other than Mr. Grune who is an
employee of KPAM and, therefore, not paid by the Fund or any other fund in the
Kidder Family of Funds) are as follows:
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM FUND
AND FUND
AGGREGATE COMPLEX PAID
NAME OF BOARD COMPENSATION TO BOARD
MEMBER FROM FUND MEMBER*
-------------------------------------------------------------- ------------ ------------
<S> <C> <C>
David J. Beaubien............................................. $3,600 $77,588.75
William W. Hewitt, Jr......................................... 3,600 77,363.75
Thomas R. Jordan.............................................. 3,600 78,488.75
Carl W. Schafer............................................... 3,600 81,588.74
</TABLE>
The Directors do not receive any pension or retirement benefits that are accrued
as part of the Fund's expenses not do they receive any benefits upon retirement.
* Total compensation is based upon each Fund's last fiscal year end.
MANAGER AND INVESTMENT ADVISER
KPAM, 60 Broad Street, New York, New York 10004-2350, the Fund's manager and
investment adviser, is a wholly-owned subsidiary of Kidder, Peabody. Kidder,
Peabody, the Fund's distributor, is a major full-line investment services firm
serving the United States and foreign securities markets. General Electric
Capital Services, Inc., a wholly-owned subsidiary of General Electric Company,
owns all the outstanding stock of Kidder, Peabody Group Inc., the parent company
of Kidder, Peabody. KPAM also serves as the manager and investment adviser to
other open-end investment companies distributed by Kidder, Peabody.
Subject to the supervision and direction of the Fund's Board of Directors,
KPAM manages the Fund's portfolio in accordance with the stated policies of the
Fund. KPAM makes investment decisions for the Fund and places the purchase and
sale orders for portfolio transactions. In addition, KPAM pays the salaries of
all officers and employees who are employed by both it and the Fund, maintains
office facilities, furnishes statistical and research data, clerical and
accounting, data processing, bookkeeping, internal auditing and legal services
and certain other services required by the Fund (other than those provided by
the Fund's transfer agent, custodian and similar agents), prepares reports to
shareholders, tax returns to and filings with the SEC and state Blue Sky
authorities, is responsible for the calculation of the net asset value of shares
of the Fund and generally assists in all aspects of the Fund's operations. KPAM
bears all expenses in connection with the performance of its services.
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Expenses incurred in the operation of the Fund, including, but not limited
to, taxes, interest, brokerage fees and commissions, if any, fees of Directors
who are not officers, directors, shareholders or employees of KPAM or Kidder,
Peabody, SEC fees and related expenses, state Blue Sky qualification fees,
charges of the custodian and transfer, dividend and recordkeeping agent, certain
insurance premiums, outside auditing and legal expenses, and costs of
maintaining corporate existence, shareholder services, printing of prospectuses
and statements of additional information for distribution to shareholders,
shareholders' reports and corporate meetings, are borne by the Fund.
The Investment Advisory and Administrative Agreement continues
automatically for successive annual periods ending on September 30th of each
year provided continuance is approved at least annually by (i) the Board of
Directors of the Fund or (ii) vote of a majority (as defined in the Act) of the
outstanding voting securities of the Fund, provided that in either event the
continuance is also approved by a majority of the Directors who are not
'interested persons' (as defined in the Act) of the Fund or KPAM, by vote cast
in person at a meeting called for the purpose of voting on such approval. The
Board of Directors, including a majority of the Directors who are not
'interested persons,' voted to continue the Investment Advisory and
Administrative Agreement at a meeting held on March 2, 1994. The Investment
Advisory and Administrative Agreement was approved by shareholders in accordance
with the terms of the Act on June 11, 1986. The Investment Advisory and
Administrative Agreement is terminable without penalty, on not less than 60
days' notice, by the Board of Directors of the Fund or by vote of the holders of
a majority of the Fund's shares or, upon not less than 90 days' notice, by KPAM.
The Investment Advisory and Administrative Agreement will terminate
automatically in the event of its assignment.
KPAM provides the Fund with investment officers who are authorized by the
Board of Directors to execute purchases and sales of securities and employs a
professional staff of portfolio managers who draw upon a variety of sources,
including Kidder, Peabody, for research information for the Fund.
As compensation for KPAM's services rendered to the Fund, the Fund pays a
fee, computed daily and paid monthly, at an annual rate of .50% of the Fund's
average daily net assets. The fees paid to KPAM for the fiscal years ended
September 30, 1992, September 30, 1993 and September 30, 1994 amounted to
$3,650,941, $3,466,069 and $3,482,587, respectively.
KPAM has agreed that if in any fiscal year the aggregate expenses of the
Fund (including fees pursuant to the Investment Advisory and Administrative
Agreement but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over the Fund,
KPAM will reimburse the Fund for such excess expense. This expense reimbursement
obligation is not limited to the amount of KPAM's fee. Such expense
reimbursement, if any, will be estimated, reconciled and paid on a monthly
basis. The most stringent state expense limitation applicable to the Fund
presently requires reimbursement of expenses in any year that such expenses
exceed 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. During the fiscal year ended September 30, 1994, the Fund's expenses did
not exceed such limitations.
KPAM 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
Investment Advisory and Administrative Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence
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on KPAM's part in the performance of its duties or from reckless disregard by it
of its obligations and duties under the Investment Advisory and Administrative
Agreement.
DISTRIBUTOR
Kidder, Peabody, 10 Hanover Square, New York, New York 10005-3592, is the
distributor of the Fund's shares and is acting on a best efforts basis. See 'The
Distributor' in the Fund's Prospectus.
The Directors believe that the Fund's expenditures under its Plan of
Distribution benefit the Fund and its shareholders by providing better
shareholder services. For the fiscal year ended September 30, 1994, Kidder,
Peabody received $828,462 from the Fund, $416,308 of which was spent on payments
to Investment Executives and $412,154 of which was spent on overhead-related
expenses.
CUSTODIAN, AND TRANSFER, DIVIDEND AND RECORDKEEPING AGENT
Investors Fiduciary Trust Company ('IFTC'), 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Fund's custodian, and transfer, dividend and
recordkeeping agent. As custodian, IFTC maintains custody of the Fund's
portfolio securities. As transfer agent, it 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.
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.
COUNSEL
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-2696, acts
as counsel for the Fund.
PORTFOLIO TRANSACTIONS
Portfolio securities are purchased from and sold to parties acting as either
principal or agent. Newly-issued securities ordinarily are purchased directly
from the issuer or from an underwriter; other purchases and sales are allocated
to various dealers. Usually no brokerage commissions, as such, are paid by the
Fund for such purchases and sales, although the price paid usually includes an
undisclosed compensation to the dealer acting as agent. The prices paid to
underwriters of newly-issued securities usually include a concession paid by the
issuer to the underwriter, and purchases of after-market securities from dealers
normally are executed at a price between the bid and asked price. No brokerage
commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by KPAM in its best judgment.
The primary consideration is the prompt and effective execution of orders at the
most favorable price. Subject to that primary consideration, dealers may be
selected for research, statistical or other services to enable
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KPAM to supplement its own research and analysis with the views and information
of other securities firms.
Information so received supplements but does not replace that to be
provided by KPAM, and KPAM's fee is not reduced as a consequence of the receipt
of any such supplemental information. Such information may be useful to KPAM in
serving both the Fund and other clients and, conversely, supplemental
information obtained by the placement of business of its other clients may be
useful to KPAM in carrying out its obligations to the Fund.
Investment decisions for the Fund are made independently from those of any
other fund managed by KPAM. If, however, funds managed by KPAM are
simultaneously engaged in the purchase or sale of the same security, the
transactions will be averaged as to price and allocated equitably to each fund.
In some cases, this system might adversely affect the price paid or received by
the Fund or the size of the position obtainable for the Fund.
No portfolio transactions are executed through Kidder, Peabody. However,
Kidder, Peabody engages in transactions in and acts as a dealer in or an
underwriter of Municipal Obligations and Taxable Investments. Kidder, Peabody's
activities may have some effect on the market for the Fund's portfolio of such
securities and Kidder, Peabody may be competing in the market place with the
Fund in the purchase and sale of such securities.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed (a)
for any period during which the New York Stock Exchange ('NYSE') is closed other
than for customary weekend and holiday closings, (b) when trading in the markets
the Fund normally utilizes is restricted, or when an emergency, as defined by
the rules and regulations of the SEC, exists, making disposal of the Fund's
investments or determination of its net asset value not reasonably practicable,
or (c) for any other periods as the SEC by order may permit for protection of
the Fund's shareholders.
EXCHANGE OF SHARES
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 applicable investment objectives,
policies and restrictions.
Shares of the Fund may be exchanged for shares of the following funds in
the Kidder Family of Funds, to the extent such shares are offered for sale in
the shareholder's state of residence.
Kidder, Peabody Adjustable Rate Government Fund, a series of Kidder,
Peabody Investment Trust ('Trust I'), seeks high current income while
limiting the degree of fluctuation of its net asset value resulting from
movements in interest rates by investing in adjustable rate securities and
securities that are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
Kidder, Peabody Asset Allocation Fund, a series of Trust I, seeks total
return by following a systematic investment strategy that actively
allocates the fund's assets among common stocks, U.S. Treasury notes and
U.S. Treasury bills.
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Kidder, Peabody California Tax Exempt Money Fund, a money market fund
designed for California investors, seeks maximum current income exempt
from federal and California income taxation to the extent consistent with
the preservation of capital and the maintenance of liquidity.
Kidder, Peabody Cash Reserve Fund, Inc., a general purpose money market
fund, seeks maximum current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
Kidder, Peabody Emerging Markets Equity Fund, a series of Kidder, Peabody
Investment Trust II ('Trust II'), seeks long term capital appreciation
through an actively managed portfolio consisting primarily of equity
securities of issuers in emerging markets in Asia, Latin America, the
Middle East, Southern Europe, Eastern Europe and Africa.
Kidder, Peabody Equity Income Fund, Inc. seeks reasonably high current
dividend and interest income and long term capital appreciation, while
limiting risk to principal, through investments primarily in equity
securities.
Kidder, Peabody Global Equity Fund, a series of Trust I, seeks long term
growth of capital by investing principally in foreign equity securities.
Kidder, Peabody Global Fixed Income Fund, a series of Trust I, seeks total
return through an actively managed portfolio of fixed income securities
issued primarily by governmental authorities, foreign government related
issuers and supranational organizations.
Kidder, Peabody Government Income Fund, Inc. seeks high current income
through investments in U.S. Government securities.
Kidder, Peabody Government Money Fund, Inc., a money market fund, seeks
maximum current income to the extent consistent with the preservation of
capital and the maintenance of liquidity through investment in U.S.
Government securities.
Kidder, Peabody Intermediate Fixed Income Fund, a series of Trust I, seeks
maximum total return through an actively managed portfolio consisting
primarily of intermediate term, fixed income securities rated in the three
highest grades by recognized rating agencies.
Kidder, Peabody Municipal Bond Fund, a series of Trust II, seeks as high a
level of current interest income that is exempt from federal income
taxation as is consistent with prudent investment management and the
preservation of capital through investments primarily in high quality
Municipal Obligations.
Kidder, Peabody Municipal Money Market Series -- Connecticut Series, a
money market fund designed for Connecticut investors, seeks maximum
current income exempt from federal and Connecticut income taxation to the
extent consistent with the preservation of capital and the maintenance of
liquidity.
Kidder, Peabody Municipal Money Market Series -- New Jersey Series, a
money market fund designed for New Jersey investors, seeks maximum current
income exempt from federal and New Jersey income taxation to the extent
consistent with the preservation of capital and the maintenance of
liquidity.
Kidder, Peabody Municipal Money Market Series -- New York Series, a money
market fund designed for New York investors, seeks maximum current income
exempt from federal, New York State and New York City income taxation to
the extent consistent with the preservation of capital and the maintenance
of liquidity.
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Kidder, Peabody Premium Account Fund, a general purpose money market fund
for persons subscribing to the Kidder, Peabody Premium Account asset
management system, seeks maximum current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
Kidder, Peabody Small Cap Equity Fund, a series of Kidder, Peabody
Investment Trust III, seeks long term capital appreciation through
investments primarily in equity securities of small capitalization
companies.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund will not be computed on the following NYSE
holidays (observed): New Year's Day, Presidents' Day, Good Friday, Memorial Day,
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. Net asset value is computed by
dividing the value of the Fund's total assets less liabilities by the total
number of shares outstanding. The Fund's expenses and fees, including KPAM's
fee, are accrued daily and taken into account for the purpose of determining net
asset value. It is the Fund's policy to attempt to maintain a net asset value of
$1.00 per share for purposes of sales and redemptions, although there can be no
assurance that the Fund will always be able to do so.
The Fund maintains a dollar-weighted average portfolio maturity of 90 days
or less, purchases only instruments having remaining maturities of 397 days or
less and invests only in securities which present minimal credit risks and are
of high quality as determined by any major rating service or, in the case of any
instrument that is not rated, of comparable quality as determined by the Board
of Directors.
The valuation of the Fund's portfolio securities is based upon amortized
cost which does not take into account unrealized capital gains or losses. This
involves valuing an instrument at its cost 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.
The Board of Directors has established procedures reasonably designed to
stabilize the Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Directors, at such intervals as it deems appropriate,
to determine whether the Fund's net asset value calculated by using available
market quotations and market equivalents deviates from $1.00 per share based on
amortized cost. Market quotations and market equivalents used in such review are
obtained from an independent pricing service (the 'Service') approved by the
Board of Directors. The Service values the Fund's investments based on methods
which include consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications of values from
dealers; and general market conditions. The Service also may employ electronic
data processing techniques and/or a matrix system to determine valuations.
The extent of any deviation between the Fund's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost is examined by the
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Board of Directors. If such deviation exceeds 1/2 of 1%, the Board of Directors
will consider what action, if any, will be initiated. In the event the Board of
Directors determines that a deviation exists which may result in material
dilution or other unfair results to shareholders, it has agreed to take such
corrective action as it regards as necessary and appropriate including: selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; not declaring dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
establishing a net asset value per share by using available market quotations or
market equivalents.
YIELD INFORMATION
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 are made in reports, sales literature and advertisements
published by the Fund.
Current yield is computed by determining the net change exclusive of
capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven day calendar period, dividing
the net change in account value by the value of the account at the beginning of
the period and multiplying the return over the seven-day period by 365/7. For
purposes of the calculation, net change in account value reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but does not
reflect realized gains or losses or unrealized appreciation or depreciation.
Effective yield is computed by annualizing the seven-day return with all
dividends reinvested in additional shares of the Fund.
Current and effective yields fluctuate and are not necessarily
representative of future results. The shareholder should remember that yield is
a function of the type and quality of the instruments in the portfolio,
portfolio maturity and operating expenses. See 'Investment Objective and
Policies' in the Fund's Prospectus and 'Management of the Fund' above. Current
and effective yield information is useful in reviewing the Fund's performance
but because current and effective yields will fluctuate such information 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.
Historical and comparative yield information may be presented by the Fund.
ADDITIONAL INFORMATION ABOUT THE FUND
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.
APPENDIX
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, KPAM believes that the quality of Municipal
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Obligations should be continuously reviewed and that individual analysts give
different weightings to the various factors involved in credit analysis. A
rating is not a recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one service, each
rating should be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources which they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
for other reasons. KPAM, through independent analysis, attempts to discern
variations in credit ratings of the published services, and to anticipate
changes in credit ratings. The following is a description of the characteristics
of ratings used by Moody's and S&P.
RATINGS BY MOODY'S
MUNICIPAL BONDS:
Aaa -- Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt edge.'
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa -- Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa bonds or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa bonds.
Conditional Ratings. The designation 'Con.' followed by a rating indicates
bonds for which the security depends upon the completion of some act or the
fulfillment of some condition. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. A parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.
Note: Those bonds in the Aa group which Moody's believes possess the
strongest investment attributes are designated by the symbols Aal.
MUNICIPAL NOTES:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
16
<PAGE>
--------------------------------------------------------------------------------
VARIABLE AND FLOATING RATE DEMAND SECURITIES:
Moody's assigns a dual rating, one representing an evaluation of the degree of
risk associated with scheduled principal and interest payments and the other
representing an evaluation of the degree of risk associated with the demand
feature (VMIG) to variable and floating rate demand securities.
Depending upon the maturity of a variable or floating rate security, it is
assigned either a municipal bond and VMIG rating or a municipal note and VMIG
rating. The VMIG ratings include the following:
VMIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
COMMERCIAL PAPER:
Moody's employs the following two designations, both judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
RATINGS BY S&P
MUNICIPAL BONDS:
AAA -- Bonds rated AAA have the highest rating. Capacity to pay interest
and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
In order to provide more detailed indications of credit quality, S&P's bond
letter ratings described above (except for the AAA category) may be modified by
the addition of a plus or a minus sign to show relative standing within the
rating category.
Provisional Ratings. The letter 'p' indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt 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, although addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
17
<PAGE>
--------------------------------------------------------------------------------
MUNICIPAL NOTES:
SP-1 -- Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are designated as SP-1 +.
SP-2 -- Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment.
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
-- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
VARIABLE AND FLOATING RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A -- Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with the designations 1, 2 and 3 to indicate the relative degree of
safety.
A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designated A-1+.
18
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
TAX EXEMPT INVESTMENTS -- 99.4%
Alabama
Alabama Special Care Fac. Fin. Auth., (City of Montgomery) Optional Tender
Bonds, 3.90%, 7/01/95, (AMBAC Insured)(b)................................. $11,715,000 $ 11,715,000 1.9%
Cherokee Variable Rate Demand Notes, Industrial Refunding, (The BOC Group),
3.75%, (LOC Wachovia Bank of Georgia)(a).................................. 3,500,000 3,500,000 0.6
St. Claire County, Variable Rate Demand Notes, (National Cement Co.) Project
II, 3.60%, (LOC Banque Nationale de Paris)(a)............................. 6,000,000 6,000,000 1.0
------------ -----
21,215,000 3.5
---------------------------------------------------------------------------------------------------------------------------
Alaska
Alaska Industrial Dev. Auth., Variable Rate Demand Notes, (Alaska Hotel),
3.81%, (LOC National Westminster Bank)(a)................................. 4,500,000 4,500,000 0.7
Alaska Industrial Dev.& Export Auth., Mandatory Tender Bonds, (Safeway Inc.
Project), Series 1991, 3.40%, 12/01/94, (LOC Bankers Trust)............... 2,460,000 2,460,000 0.4
------------ -----
6,960,000 1.1
---------------------------------------------------------------------------------------------------------------------------
Arizona
Maricopa County, Variable Rate Demand Notes, (Arizona Public Service), 3.45%,
(LOC Bank of America)(a).................................................. 1,400,000 1,400,000 0.2
---------------------------------------------------------------------------------------------------------------------------
Arkansas
Arkansas Fin. Auth., Variable Rate Demand Notes, (Hospital Equipment
Revenue), Series 1985, 3.60%, (LOC Credit Suisse)(a)...................... 6,400,000 6,400,000 1.1
---------------------------------------------------------------------------------------------------------------------------
California
California Pollution Control Fin. Auth., Mandatory Tender Bonds, (Pacific Gas
& Electric), Series 1988D, 3.30%, 10/06/94, (LOC Credit Suisse)........... 3,000,000 3,000,089 0.5
California Student Loan Marketing Corp., Mandatory Tender Bonds, Series A,
2.65%, 11/01/94, (LOC Dresdner Bank)...................................... 3,000,000 3,000,000 0.5
California School Boards Short Term Notes, Series 1993A, 4.50%, 7/05/95...... 7,500,000 7,540,843 1.3
Loma Linda, Variable Rate Demand Notes, 3.50%, (LOC Industrial Bank of
Japan)(a)................................................................. 4,000,000 4,000,000 0.7
Los Angeles County Tax and Revenue Anticipation Notes, 4.50%, 6/30/95........ 4,200,000 4,219,584 0.7
Los Angeles County USD Tax and Revenue Anticipation Notes, 4.50%, 7/10/95.... 10,000,000 10,070,805 1.7
Los Angeles Wastewater Tax Exempt Commercial Paper, Series 1991, 3.00%,
10/27/94.................................................................. 1,500,000 1,500,000 0.2
------------ -----
33,331,321 5.6
---------------------------------------------------------------------------------------------------------------------------
Colorado
Colorado Health Fac. Auth., Variable Rate Demand Notes, (Sisters of Charity
Health), Series C, 3.70%, (LOC Toronto Dominion Bank/Industrial Bank of
Japan/Dresdner Bank)(a)................................................... 9,900,000 9,900,000 1.6
Colorado Health Fac. Auth., Optional Tender Bonds, (Sisters of Charity Health
Care System-Sunny Acres), Series 1988A, 3.15%, 11/01/94, (MBIA
Insured)(b)............................................................... 3,900,000 3,900,000 0.6
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colorado (continued)
El Paso County, Variable Rate Demand Notes, (Axelson Inc. Project), Series
1985, 3.87%, (LOC National Australia Bank)(a)............................. $ 1,250,000 $ 1,250,000 0.2%
Loveland Wastewater Pre-Refunded Revenue Bonds, 10.00%, 11/01/94 @ 100 (MBIA
Insured)(b)............................................................... 1,000,000 1,006,135 0.2
Poudre Valley Hosp. Revenue Bonds., 2.70%, 12/01/94, (AMBAC Insured)(b)...... 1,760,000 1,760,000 0.3
------------ -----
17,816,135 2.9
---------------------------------------------------------------------------------------------------------------------------
Connecticut
Connecticut Dev. Auth., Variable Rate Demand Notes, (Independent Living),
Series 1990, 3.60%, (LOC Credit Commerciale de France)(a)................. 2,500,000 2,500,000 0.4
State of Connecticut Economic Recovery, Variable Rate Demand Notes, Series B,
3.70%, (LOC Industrial Bank of Japan)(a).................................. 900,000 900,000 0.1
Connecticut Health & Education Fac. Auth., Mandatory Tender Bonds, (Yale
University), Series M, 3.05%, 10/11/94.................................... 1,200,000 1,200,000 0.2
Connecticut Special Tax, Variable Rate Demand Notes, Series I, 3.75%, (LOC
Industrial Bank of Japan)(a).............................................. 2,000,000 2,000,000 0.3
Darien Bond Anticipation Notes, 3.75%, 6/20/95............................... 265,000 265,643 --
Easton Bond Anticipation Notes, 3.57%, 6/15/95............................... 700,000 700,326 0.1
Middlebury Bond Anticipation Notes, 2.50%, 2/09/95........................... 2,030,000 2,030,563 0.3
Montville Bond Anticipation Notes, 2.85%, 10/07/94........................... 505,000 504,999 0.1
New Canaan Bond Anticipation Notes, 3.47%, 5/18/95........................... 1,400,000 1,400,593 0.2
------------ -----
11,502,124 1.7
---------------------------------------------------------------------------------------------------------------------------
Florida
Boca Raton Industrial Dev. Revenue, Variable Rate Demand Notes, (Parking
Garage), Series 1984, 3.92%, (LOC Bankers Trust)(a)....................... 4,000,000 4,000,000 0.7
City of Eustis Health Fac. Auth., Variable Rate Demand Notes, (Florida
Hospital-Waterman Project), Series 1992, 3.65%, (LOC Banque Paribas)(a)... 10,030,000 10,030,000 1.7
North Broward Hospital Revenue Bonds, 4.90%, 1/01/95, (MBIA Insured)(b)...... 1,445,000 1,453,186 0.2
Polk County Industrial Dev. Auth., Variable Rate Demand Notes, (IMC
Fertilizer), Series A, 3.60%, (LOC Rabobank Nederland)(a)................. 1,200,000 1,200,000 0.2
Polk County Industrial Dev. Auth., Variable Rate Demand Notes, (IMC
Fertilizer), Series B, 3.60%, (LOC Rabobank Nederland)(a)................. 1,000,000 1,000,000 0.2
Sunshine State Government Fin. Auth., Mandatory Tender Bonds, Series 1986,
3.00%, 10/13/94, (LOC Union Bank of Switzerland/NatWest/
Morgan Guaranty Trust Co.)................................................ 12,500,000 12,500,000 2.1
Tampa Water & Sewer Revenue Pre-Refunded Bonds, 10.00%, 10/01/94 @ 102,
(AMBAC Insured)(b)........................................................ 1,235,000 1,259,947 0.2
------------ -----
31,443,133 5.3
---------------------------------------------------------------------------------------------------------------------------
Georgia
Dekalb County Housing Auth., Variable Rate Demand Notes, (Clairmont Project),
Series H, 3.55%, (LOC Citibank)(a)........................................ 3,000,000 3,000,000 0.5
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Georgia (continued)
Dekalb Private Hospital, Variable Rate Demand Notes, (Egleston Children's
Hospital), Series A, 3.50%, (LOC Trust Company Bank of Georgia)(a)........ $ 5,000,000 $ 5,000,000 0.8%
Gwinnett County, Variable Rate Demand Notes, (Greens Apt.), Series 1985,
3.55%, (LOC Citibank)(a).................................................. 1,900,000 1,900,000 0.3
Hapeville Dev. Auth., Variable Rate Demand Notes, (Hapeville Hotel Ltd.),
Series 1985, 3.65%, (LOC Swiss Bank)(a)................................... 1,000,000 1,000,000 0.2
Municipal Gas Authority of Georgia, Mandatory Tender Bonds, Series B2,
(Transco), 2.90%, 10/05/94, (LOC Credit Suisse)........................... 1,000,000 1,000,000 0.2
Richmond County Dev. Auth., Variable Rate Demand Notes, (The BOC Group Inc.
Project), 3.75%, (LOC Wachovia Bank of Georgia)(a)........................ 5,000,000 5,000,000 0.8
Richmond County, Variable Rate Demand Notes, (General Signal), 3.55%, (LOC
Wachovia Bank of Georgia)(a).............................................. 2,500,000 2,500,000 0.4
------------ -----
19,400,000 3.2
---------------------------------------------------------------------------------------------------------------------------
Illinois
Chicago Mandatory Tender Notes, Series A, 2.45%, 10/26/94, (LOC Union Bank of
Switzerland).............................................................. 10,000,000 10,000,000 1.7
Chicago, Variable Rate Demand Notes, Series B, 3.60%, (LOC Societe
Generale)(a).............................................................. 8,000,000 8,000,000 1.3
Illinois Dev. Fin. Auth., Variable Rate Demand Notes, (CPL/Downers Grove),
3.70%, (LOC ABN-AMRO)(a).................................................. 6,500,000 6,500,000 1.1
Illinois Dev. Fin. Auth., Variable Rate Demand Notes, (Foundation for Safety
& Health), 3.70%, (LOC LaSalle National Bank)(a).......................... 5,850,000 5,850,000 1.0
Illinois Health Fac. Auth., Variable Rate Demand Notes, (South Suburban
Hospital), 3.70%, (LOC Harris Trust)(a)................................... 12,500,000 12,500,000 2.1
Illinois Housing Fin. Auth. Variable Rate Demand Notes, (Revolving Pool),
Series B, 3.70%, (LOC Swiss Bank)(a)...................................... 10,000,000 10,000,000 1.7
Illinois Toll Highway Auth., Variable Rate Demand Notes, Series B, 3.65%,
(MBIA Insured)(a)(b)...................................................... 1,000,000 1,000,000 0.2
Lislee, IL Multi-Family Housing Revenue, Variable Rate Demand Notes, (Ashley
of Lislee Project), 3.60%, (LOC ABN-AMRO)(a).............................. 4,500,000 4,500,000 0.7
Tinley Park Housing Auth., Variable Rate Demand Notes, (Edgewater Walk Phase
III A & B), Series 1984, 3.70%, (LOC LaSalle National Bank)(a)............ 8,000,000 8,000,000 1.3
Winnebago & Boone Counties, Revenue Bonds, (School Dist. #205), 6.70%,
2/01/95, (Cap Guaranty Insured)(b)........................................ 1,400,000 1,418,490 0.2
------------ -----
67,768,490 11.3
---------------------------------------------------------------------------------------------------------------------------
Indiana
Indiana Health Fac. Fin. Auth., Variable Rate Demand Notes, (Methodist
Hospital), Series B, 3.75%, (LOC Credit Suisse)(a)........................ 2,000,000 2,000,000 0.3
Indiana Health Fac. Fin. Auth., Variable Rate Demand Notes, (Methodist
Hospital), Series C, 3.75%, (LOC Credit Suisse)(a)........................ 5,000,000 5,000,000 0.8
------------ -----
7,000,000 1.1
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kansas
Burlington, Mandatory Tender Bonds, (Kansas City Power & Light), 2.85%,
10/06/94, (LOC Deutsche Bank)............................................. $ 1,750,000 $ 1,750,000 0.3%
---------------------------------------------------------------------------------------------------------------------------
Kentucky
Jefferson County Pollution Control Revenue Bonds, Mandatory Tender Bonds,
(Louisville Gas & Electric Co. Project), Series 1992A, 3.05%, 10/06/94.... 6,000,000 6,000,000 1.0
Lexington-Fayette Urban County Government, Variable Rate Demand Notes,
(Charter Ridge Hospital Inc.), 3.81%, (LOC Sumitomo Bank)(a).............. 4,525,000 4,525,000 0.7
Louisville Water Revenue Bonds, 5.40%, 11/15/94.............................. 200,000 200,676 --
------------ -----
10,725,676 1.7
---------------------------------------------------------------------------------------------------------------------------
Louisiana
Lafayette Public Power Revenue Bonds, 2.80%, 11/01/94, (AMBAC Insured)(b).... 2,200,000 2,200,000 0.4
---------------------------------------------------------------------------------------------------------------------------
Maine
Maine Tax Anticipation Notes, 4.50%, 6/30/95................................. 8,500,000 8,548,844 1.4
---------------------------------------------------------------------------------------------------------------------------
Maryland
Montgomery County Housing, Mandatory Tender Bonds, Series 1993B, 2.85%,
11/01/94.................................................................. 3,000,000 3,000,000 0.5
Montgomery County, Variable Rate Demand Notes, Bond Anticipation Notes,
Series C, 3.45%, (LOC Dai-Ichi Kangyo Bank)(a)............................ 5,000,000 5,000,000 0.8
Northeast Maryland Waste Disposal, General Obligation Bonds, (Southwest
Resource Recovery Fac.), 6.40%, 1/01/95, (MBIA Insured)(b)................ 1,000,000 1,009,158 0.2
------------ -----
9,009,158 1.5
---------------------------------------------------------------------------------------------------------------------------
Michigan
Bruce Township Hospital Fin. Auth., Optional Tender Bonds, (St. Joseph
Hospital Center Program), Series 1988B, 3.10%, 11/01/94, (MBIA
Insured(b)................................................................ 4,300,000 4,300,000 0.7
Clinton Township, Variable Rate Demand Notes, (Sisters of Charity-St. Joseph
Hospital Center), Series 1988B, 3.10%, (MBIA Insured)(a)(b)............... 2,900,000 2,900,000 0.5
------------ -----
7,200,000 1.2
---------------------------------------------------------------------------------------------------------------------------
Minnesota
Minnesota Health Fac. Auth., Mandatory Tender Bonds, Series F, 2.50%,
1/16/95................................................................... 1,500,000 1,500,000 0.2
County of Olmstead, Variable Rate Demand Notes, Certificate of Participation,
(Olmstead County Building Auth.), 3.70%, (LOC Sanwa Bank)(a).............. 2,400,000 2,400,000 0.4
------------ -----
3,900,000 0.6
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mississippi
Perry County Pollution Control Revenue, Variable Rate Demand Notes, (Leaf
River Forest Project), 3.60%, (LOC Morgan Guaranty Trust Co.)(a).......... $ 6,500,000 $ 6,500,000 1.1%
---------------------------------------------------------------------------------------------------------------------------
Missouri
Kansas City Ind. Dev. Auth., Variable Rate Demand Notes, (Lo Carno Project),
3.55%, (LOC Citibank)(a).................................................. 4,800,000 4,800,000 0.8
Missouri Environmental Improvement Auth., Optional Tender Bonds, (Union
Electric), Series 1985A, 3.75%, 6/01/95 (LOC Swiss Bank).................. 1,600,000 1,600,000 0.3
Missouri Environment Improvement Auth., Optional Tender Bonds, Series 1984B,
3.75%, 6/01/95, (LOC Union Bank of Switzerland)........................... 3,200,000 3,200,000 0.5
Missouri Health & Education Fac. Auth., Variable Rate Demand Notes, (Barnes
Hospital Project), 3.55%, (LOC Sumitomo Bank)(a).......................... 6,000,000 6,000,000 1.0
Missouri Health & Education Fac. Auth., Mandatory Tender Bonds, (Baptist
Medical Center), Series 1990B, 3.60%, 2/01/95, (LOC Swiss Bank)........... 5,500,000 5,500,000 0.9
University of Missouri, Capital Project Notes, 4.50%, 6/30/95................ 15,000,000 15,107,941 2.5
------------ -----
36,207,941 6.0
---------------------------------------------------------------------------------------------------------------------------
New Hampshire
New Hampshire Education, Variable Rate Demand Notes, (VHA New England),
Series 1985G, 3.70%, (AMBAC Insured)(a)(b)................................ 2,400,000 2,400,000 0.4
New Hampshire Higher Education, Variable Rate Demand Notes, (VHA New
England), Series G, 3.70%, (AMBAC Insured)(a)(b).......................... 5,650,000 5,650,000 0.9
------------ -----
8,050,000 1.3
---------------------------------------------------------------------------------------------------------------------------
New Jersey
Essex County Improvement Auth., Variable Rate Demand Note, (Pooled Government
Loan Project), Series 1986, 3.65%, (LOC Banco Santander)(a)............... 2,400,000 2,400,000 0.4
New Jersey General Obligation, Pre-Refunded Bonds, 8.90%, 10/01/94 @ 102..... 1,000,000 1,020,157 0.2
------------ -----
3,420,157 0.6
---------------------------------------------------------------------------------------------------------------------------
New Mexico
Albuquerque Hospital Rev., Variable Rate Demand Notes, (Sisters of
Charity-St.Joseph), 3.70%, (LOC Toronto Dominion Bank)(a)................. 4,900,000 4,900,000 0.8
---------------------------------------------------------------------------------------------------------------------------
New York
New York State Energy Res. & Dev. Auth., Mandatory Tender Bonds, (Lilco
Project), Series A, 3.00%, 3/01/95, (LOC Deutsche Bank)................... 6,000,000 6,000,000 1.0
New York State Energy Res. & Dev. Auth., Mandatory Tender Bonds, 3.00%,
10/17/94, (LOC Union Bank of Switzerland)................................. 4,000,000 4,000,000 0.7
Oyster Bay Bond Anticipation Notes, 3.00%, 11/18/94.......................... 1,000,000 1,000,152 0.2
Triborough Bridge & Tunnel Auth., Pre-Refunded Bonds, (Convention Center
Project), Series D, 9.00%, 7/01/95 @ 102.................................. 3,000,000 3,176,645 0.5
------------ -----
14,176,797 2.4
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North Carolina
North Carolina Eastern Municipal Power Agency, Mandatory Tender Bonds, Series
1988B, 2.85%, 1/01/09, (LOC Morgan Guaranty Trust Co./Union Bank of
Switzerland).............................................................. $ 4,700,000 $ 4,700,000 0.8%
North Carolina Municipal Power Agency, Pre-Refunded Bonds, 9.50%, 1/01/95 @
103....................................................................... 250,000 261,582 --
North Carolina University, General Obligation Bonds, (Housing & Dining
System), 4.60%, 1/01/95, (MBIA Insured)(b)................................ 300,000 301,216 0.1
------------ -----
5,262,798 0.9
---------------------------------------------------------------------------------------------------------------------------
Ohio
Ohio State Highway, General Obligation Bonds, Series R, 4.30%, 5/15/95....... 2,500,000 2,512,214 0.4
---------------------------------------------------------------------------------------------------------------------------
Oklahoma
Tulsa Industrial Dev. Auth., Mandatory Tender Bonds, (Laureate Psychiatric
Clinic & Hospital), 3.25%, 12/15/94, (Wm. K. Warren Foundation
Guaranteed)............................................................... 2,500,000 2,500,000 0.4
Tulsa Industrial Dev. Auth., Mandatory Tender Bonds, (St. John's Physicians
Building), Series 1984, 3.30%, 11/01/94, (LOC Sanwa Bank)................. 6,730,000 6,730,000 1.1
------------ -----
9,230,000 1.5
---------------------------------------------------------------------------------------------------------------------------
Oregon
Klamath Falls, Mandatory Tender Bonds, (Electric Revenue Bonds, Salt Caves
Hydroelectric Project), Series E, 3.75%, 5/02/95.......................... 5,000,000 5,000,000 0.8
Portland General Obligation Bonds, Series B, 2.60%, 11/01/94................. 2,200,000 2,200,000 0.4
------------ -----
7,200,000 1.2
---------------------------------------------------------------------------------------------------------------------------
Pennsylvania
Allegheny County Industrial Dev. Auth., Variable Rate Demand Notes, (Chelsea
Industries), 3.70%, (LOC Bank of Tokyo)(a)................................ 3,500,000 3,500,000 0.6
Bedford Industrial Dev. Auth., Variable Rate Demand Notes, (SEPA Inc.),
3.55%, (LOC Banque Paribas)(a)............................................ 5,000,000 5,000,000 0.8
Cumberland County Municipal Auth., Variable Rate Demand Notes, (Presbyterian
Homes Inc. Project), Series 1993A, 3.60%, (LOC Kreditbank)(a)............. 6,000,000 6,000,000 1.0
Philadelphia, General Obligation Tax & Revenue Anticipation Notes, 4.75%,
6/15/95, (LOC Dresdner Bank).............................................. 15,000,000 15,091,711 2.5
Philadelphia, General Obligation Tax & Revenue Anticipation Notes, 4.75%,
6/15/95, (LOC Pittsburgh National Corp.).................................. 2,500,000 2,515,622 0.4
Philadelphia School District, General Obligation Tax and Rev. Anticipation
Notes, 3.75%, 7/01/95, (AMBAC Insured)(b)................................. 600,000 600,845 0.1
------------ -----
32,708,178 5.4
---------------------------------------------------------------------------------------------------------------------------
Puerto Rico
Puerto Rico, General Obligation Bonds, (Public Finance Corporation), Series
B, 6.35%, (LOC Chase Manhattan Bank), 7/01/95............................. 1,245,000 1,267,399 0.2
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South Carolina
Lexington County Charter Rivers, Variable Rate Demand Notes, Series 1987,
3.80%, (LOC Mitsubishi Bank)(a)........................................... $ 2,400,000 $ 2,400,000 0.4%
Piedmont Municipal Power Agency, Pre-Refunded Bonds, 10.00%, 1/01/95 @ 103... 500,000 523,984 0.1
------------ -----
2,923,984 0.5
---------------------------------------------------------------------------------------------------------------------------
South Dakota
South Dakota Health & Education, Variable Rate Demand Notes, (Sioux Valley
Hospital), 3.70%(a)....................................................... 9,000,000 9,000,000 1.5
South Dakota Health & Education, Variable Rate Demand Notes, (Sioux Valley
Hospital), 3.70%(a)....................................................... 6,000,000 6,000,000 1.0
------------ -----
15,000,000 2.5
---------------------------------------------------------------------------------------------------------------------------
Tennessee
Chattanooga, Variable Rate Demand Notes, (Seaboard Farms of Chattanooga),
3.60%, (LOC ABN-AMRO)(a).................................................. 3,000,000 3,000,000 0.5
Hamilton County, General Obligation Revenue Bonds, 5.00%, 7/01/95............ 2,440,000 2,464,839 0.4
Knox County Health & Education Fac. Auth., General Obligation Bonds, (Ft.
Sanders), 3.20%, 1/01/95, (MBIA Insured)(b)............................... 310,000 310,420 0.1
Robertson & Sumner Counties Waterworks, Pre-Refunded Bonds, 8.875%, 1/01/95 @
102....................................................................... 1,000,000 1,035,503 0.2
State of Tennessee, Variable Rate Demand Notes, General Obligation Bond
Anticipation Notes, Series 1991C, 3.60%(a)................................ 4,000,000 4,000,000 0.7
------------ -----
10,810,762 1.9
---------------------------------------------------------------------------------------------------------------------------
Texas
Bowie County Industrial Dev. Auth., Variable Rate Demand Notes, (Texarkana
Newspapers Inc. Project), Series 1985, 3.75%, (LOC Bank of New York)(a)... 3,500,000 3,500,000 0.6
Calhoun County Industrial Dev. Auth., Variable Rate Demand Notes, Series
1987, 3.75%, (LOC Credit Suisse)(a)....................................... 2,600,000 2,600,000 0.4
Capital Industrial Development Corp., Variable Rate Demand Notes, (NSI Inc.
Project), 3.75%, (LOC Wachovia Bank)(a)................................... 4,000,000 4,000,000 0.7
Gulf Coast, Variable Rate Demand Notes, (Baytank Inc.), 3.75%, (LOC Morgan
Guaranty Trust Co.)(a).................................................... 8,800,000 8,800,000 1.5
Harris County, Variable Rate Demand Notes, (Memorial Senior Services), 3.60%,
(LOC Societe General)(a).................................................. 11,100,000 11,100,000 1.8
Harris County Health Fac. Fin. Auth., Variable Rate Demand Notes, 3.80%,
(Methodist Hospital)(a)................................................... 4,900,000 4,900,000 0.8
Harris County Health Fac. Fin. Auth., Variable Rate Demand Notes, 3.80%, (St.
Luke's Episcopal Hospital), Series 1985B, (LOC Morgan Guaranty
Trust)(a)................................................................. 2,300,000 2,300,000 0.4
Harris County Health Fac. Dev. Corp., Mandatory Tender Bonds, (San Jacinto
Methodist Project), Series 1987A, 3.35%, 12/01/94, (LOC Morgan Guaranty
Trust Co.)................................................................ 14,050,000 14,050,000 2.3
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Texas (continued)
Harris County Health Fac. Dev. Corp., Mandatory Tender Bonds, (San Jacinto
Methodist Project), Series 1987B, 3.35%, 12/01/94, (LOC Morgan Guaranty
Trust Co.)................................................................ $11,250,000 $ 11,250,000 1.9%
Hays Memorial Health Fac. Dev. Corp., Variable Rate Demand Notes, (Central
Texas Medical Center), Series B, 3.65%, (LOC Swiss Bank)(a)............... 17,300,000 17,300,000 2.9
Hays Memorial Health Fac. Dev. Corp., Variable Rate Demand Notes, (Central
Texas Medical Center Project A), 3.65%, (LOC Swiss Bank)(a)............... 8,400,000 8,400,000 1.4
Hockley County Industrial Dev. Auth., Optional Tender Bonds, 3.15%, 11/01/94,
(AMOCO), Series 1985...................................................... 14,740,000 14,740,000 2.4
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series A3, 2.95%, 10/13/94, (LOC Bank of New York)............. 5,000,000 5,000,000 0.8
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series A5, 2.95%, 10/13/94, (LOC Bank of New York)............. 1,500,000 1,500,000 0.2
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series B1, 2.95%, 10/13/94, (LOC Bank of New York)............. 3,300,000 3,300,000 0.5
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series B4, 2.95%, 10/13/94, (LOC Bank of New York)............. 2,000,000 2,000,000 0.3
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series B5, 2.95%, 10/13/94, (LOC Bank of New York)............. 1,000,000 1,000,000 0.2
Plano Ind. School District, General Obligation Bonds, 2.65%, 2/15/95, (PSF
Guaranteed)(b)............................................................ 4,750,000 4,750,000 0.8
San Antonio Electric & Gas, Tax Exempt Commercial Paper, Series A, 2.90%,
10/05/94.................................................................. 10,200,000 10,200,000 1.7
------------ -----
130,690,000 21.6
---------------------------------------------------------------------------------------------------------------------------
Utah
Salt Lake City, General Obligation Tax & Revenue Notes, 4.50%, 6/30/95....... 2,500,000 2,517,094 0.4
---------------------------------------------------------------------------------------------------------------------------
Virginia
Stafford County Industrial Dev. Auth., Mandatory Tender Bonds, (Safeway Inc.
Project), 3.40%, 12/01/94, (LOC Bankers Trust)............................ 1,530,000 1,530,000 0.3
---------------------------------------------------------------------------------------------------------------------------
Washington
King County, General Obligation Bonds, Series A, 5.00%, 2/01/95.............. 425,000 426,019 0.1
Pierce County, Mandatory Tender Bonds, (Sealand Corp. Project), Series 1984,
2.80%, 11/01/94, (LOC Deutsche Bank)...................................... 9,555,000 9,555,000 1.6
Washington Suburban Sanitary District, General Obligation Bonds, 7.50%,
6/01/95................................................................... 1,800,000 1,847,855 0.3
Washington Suburban Water, General Obligation Bonds, 7.50%, 6/01/95.......... 1,900,000 1,950,514 0.3
------------ -----
13,779,388 2.3
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
West Virginia
West Virginia Hospital Fin. Auth., Variable Rate Demand Notes,
(VHA -- Mid-Atlantic), Series D, 3.70%, (AMBAC Insured)(a)(b)............. $ 3,800,000 $ 3,800,000 0.6%
West Virginia Hospital Fin. Auth., Variable Rate Demand Notes,
(VHA -- Mid-Atlantic), Series G, 3.70%, (AMBAC Insured)(a)(b)............. 6,100,000 6,100,000 1.0
------------ -----
9,900,000 1.6
---------------------------------------------------------------------------------------------------------------------------
Wisconsin
Alma Pollution Control Revenue, Variable Rate Demand Notes, (Dairyland Power
Co-op.), 3.55%, (LOC Rabobank Nederland)(a)............................... 2,000,000 2,000,000 0.3
Appleton Promissory Notes, General Obligation Bonds, Series A, 3.50%,
4/01/95................................................................... 1,020,000 1,020,000 0.2
Wisconsin General Obligation Bonds, Series 4, 4.00%, 5/01/95................. 1,500,000 1,505,078 0.2
Wisconsin Health & Education Fac. Auth., Variable Rate Demand Notes, (SSM
Health Care), Series 1990A, 3.80%, (LOC Industrial Bank of Japan)(a)...... 5,800,000 5,800,000 1.0
------------ -----
10,325,078 1.7
---------------------------------------------------------------------------------------------------------------------------
Wyoming
Lincoln County, Mandatory Tender Bonds, 3.20%, 10/12/94, (Exxon Project),
Series 1985............................................................... 4,400,000 4,400,000 0.7
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $600,881,647).......................................... 600,881,671 99.4
OTHER ASSETS LESS LIABILITIES.................................................. 3,863,631 0.6
------------ -----
NET ASSETS..................................................................... $604,745,302 100.0%
</TABLE>
Summary of Combined Ratings (Unaudited)
<TABLE>
<CAPTION>
MOODY'S or STANDARD & POOR'S % OF VALUE
-------------- ------------------ ----------
<S> <C> <C>
M1G-1(c) SP1(c) 50.6%
P1(d) A1+ & A1(d) 33.5
Not Rated(e) Not Rated(e) 14.2
Aaa, Aa AAA, AA 1.7
----------
100.0%
----------
----------
</TABLE>
Notes to Schedule of Investments:
(a) Securities payable on demand. The interest rate, which will change
periodically, is based upon bank prime rates or an index of
market interest rates.
(b) Insured or guaranteed by the respective stated municipal bond insurance
company or supported by an unconditional agreement to
repurchase the obligation at par.
(c) M1G-1 and SP1 are the highest ratings assigned to variable notes and
municipal notes by Moody's and Standard & Poor's,
respectively.
(d) P1 and A1 are the highest ratings assigned tax-exempt commercial paper by
Moody's and Standard & Poor's, respectively.
(e) Securities which, while not rated, are determined by the Fund's Board of
Directors to be of comparable quality to those rated
securities in which the Fund may invest.
See Notes to Financial Statements.
27
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost $600,881,647) (Note 2a)....................................... $600,881,671
Cash...................................................................................... 1,143,844
Receivables:
Securities sold...................................................................... $3,309,616
Interest............................................................................. 3,819,133 7,128,749
----------
Prepaid expenses (Note 2e)................................................................ 61,598
------------
TOTAL ASSETS.................................................... 609,215,862
------------
LIABILITIES
Payables:
Securities purchased................................................................. 4,000,000
Due to investment adviser (Note 3)................................................... 259,008
Distribution fees (Note 3)........................................................... 75,050
Dividends............................................................................ 46,325 4,380,383
----------
Accrued expenses.......................................................................... 90,177
------------
TOTAL LIABILITIES............................................... 4,470,560
------------
NET ASSETS
At value.................................................................................. $604,745,302
------------
------------
NET ASSET VALUE
Offering, and redemption price per share ($604,745,302[div]605,476,384 outstanding shares
of common stock, $.01 par value) (Note 4)............................................... $ 1.00
------------
------------
Net assets were comprised of:
Aggregate paid-in-capital............................................................ $605,476,546
Net unrealized appreciation on investments........................................... 24
Accumulated net realized capital losses.............................................. (731,268)
Undistributed net investment income.................................................. -0-
------------
$604,745,302
------------
------------
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Statement of Operations for the Year Ended September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income (net of $1,961,470 amortization of premiums) (Note 2b)..................... $18,368,072
EXPENSES
Investment advisory (Note 3)............................................................... $3,460,135
Distribution (Note 3)...................................................................... 830,433
Shareholder servicing...................................................................... 134,600
Federal and state registration............................................................. 105,160
Custodian.................................................................................. 72,700
Miscellaneous.............................................................................. 46,599
Prospectus and shareholders' reports....................................................... 49,722
Professional............................................................................... 24,700
Directors' fees and expenses............................................................... 14,758
----------
TOTAL EXPENSES................................................... 4,738,807
-----------
NET INVESTMENT INCOME...................................................................... 13,629,265
REALIZED LOSS ON INVESTMENTS (NOTE 2B)..................................................... (461,701)
CHANGE IN UNREALIZED GAIN ON INVESTMENTS................................................... (1,085)
-----------
NET INCREASE IN NET ASSETS
Resulting from operations.................................................................. $13,166,479
-----------
-----------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1994
<S> <C> <C>
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
Net investment income.................................. $ 13,047,613 $ 13,629,265
Net realized loss on investments....................... (258,172) (461,701)
Net change in unrealized gain on investments........... 1,109 (1,085)
---------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. 12,790,550 13,166,479
---------------------------------------
Dividends to shareholders from net investment income
(Notes 2c & d)....................................... (13,047,613) (13,629,265)
---------------------------------------
Decrease in net assets from net common stock
transactions (Note 4)................................ (21,302,526) (64,463,671)
---------------------------------------
TOTAL DECREASE IN NET ASSETS................. (21,559,589) (64,926,457)
NET ASSETS
Beginning of year...................................... 691,231,348 669,671,759
---------------------------------------
End of year............................................ $ 669,671,759 $ 604,745,302
---------------------------------------
---------------------------------------
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year... $ 1.0000 $ 1.0001 $ 1.0000 $ 0.9999 $ 1.0000 $ 0.9999 $ 1.0000
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income.............. 0.0546 0.0472 0.0394 0.0434 0.0550 0.0545 0.0483
Net realized and
unrealized gain
(loss) on
investments......... 0.0001 (0.0001) (0.0001) 0.0001 (0.0001) 0.0001 --
Total increase in net
asset value from
investment
operations.......... 0.0547 0.0471 0.0393 0.0435 0.0549 0.0546 0.0483
DISTRIBUTIONS TO
SHAREHOLDERS FROM
(NOTE 2C)
Net investment
income.............. (0.0546) (0.0472) (0.0394) (0.0434) (0.0550) (0.0545) (0.0483)
Net asset value, end
of year............. $ 1.0001 $ 1.0000 $ 0.9999 $ 1.0000 $ 0.9999 $ 1.0000 $ 1.0000
Total return.......... 5.42% 4.78% 3.96% 4.49% 5.62% 5.57% 4.92%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (in
thousands).......... $ 478,564 $ 911,411 $ 913,509 $ 797,023 $ 696,212 $ 749,057 $ 725,183
RATIOS TO AVERAGE NET
ASSETS
Expenses, excluding
distribution fees... .60% .58% .55% .55% .57% .56% .56%
Expenses, including
distribution fees... .60% .58% .55% .55% .63% .68% .68%
Net investment
income.............. 5.30% 4.69% 3.93% 4.33% 5.48% 5.44% 4.83%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1991`D' 1992 1993 1994
----------------------------------------------------
<C> <C> <C> <C>
Net asset value,
beginning of year... $ 1.0000 $ 1.0000 $ 1.0000 $ 0.9996
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income.............. 0.0099 0.0278 0.0189 0.0198
Net realized and
unrealized gain
(loss) on
investments......... -- -- (0.0004) (0.0008)
Total increase in net
asset value from
investment
operations.......... 0.0099 0.0278 0.0185 0.0190
DISTRIBUTIONS TO
SHAREHOLDERS FROM
(NOTE 2C)
Net investment
income.............. (0.0099) (0.0278) (0.0189) (0.0198)
Net asset value, end
of year............. $ 1.0000 $ 1.0000 $ 0.9996 $ 0.9988
Total return.......... 3.93%* 2.83% 1.95% 2.00%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (in
thousands).......... $ 722,224 $ 691,231 $ 669,672 $ 604,745
RATIOS TO AVERAGE NET
ASSETS
Expenses, excluding
distribution fees... .57%* .58% 0.58% 0.57%
Expenses, including
distribution fees... .69%* .70% 0.70% 0.69%
Net investment
income.............. 3.91%* 2.78% 1.89% 1.97%
</TABLE>
`D' Effective July 1, 1991, the Fund changed its fiscal-year-end from June 30 to
September 30. The figures presented represent such 3-month period.
* Annualized.
See Notes to Financial Statements.
31
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
1. The Fund is registered under the Investment Company Act of 1940 ('Act') as a
diversified, open-end management company. Kidder Peabody Asset Management, Inc.
('KPAM'), a wholly-owned subsidiary of Kidder, Peabody & Co. Incorporated
('Kidder'), serves as the Fund's investment adviser and administrator. General
Electric Capital Services, Inc., a wholly-owned subsidiary of General Electric
Company, has a 100% interest in Kidder, Peabody Group Inc., the parent company
of Kidder. Kidder acts as the exclusive distributor of the Fund's shares, which
are sold without a sales charge.
Effective July 1, 1991, the Fund changed its fiscal-year-end from June 30 to
September 30.
2. It is the Fund's policy to maintain a continuous net asset value per share of
$1.00; the Fund has adopted certain investment, portfolio valuation and dividend
and distribution policies to enable it to do so.
(a) Investments are valued at amortized cost, which has been determined by
the Board of Directors of the Fund to represent the market value of the Fund's
investments. Securities not subject to amortization are valued at cost, which
approximates market.
(b) Securities transactions are recorded on a trade date basis. Interest
income, adjusted for amortization of premiums and, when appropriate, discounts
on investments, is earned from settlement date and recognized on the accrual
basis. Realized gain and loss from securities transactions are recorded on the
identified cost basis.
(c) It is the policy of the Fund to declare dividends daily from net
investment income. Such dividends normally are paid monthly. Dividends from net
realized capital gain, if any, are declared and paid annually after the end of
the fiscal year in which earned. To the extent that the Fund earns net realized
capital gain which can be offset by capital loss carryovers, if any, it is the
policy of the Fund not to distribute such gain.
(d) It is the policy of the Fund to continue to qualify as a regulated
investment company, which can distribute tax exempt dividends, by complying with
the provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make distributions of
income and net realized capital gain sufficient to relieve it from all, or
substantially all, Federal income taxes.
(e) Prepaid registration fees are charged to income as the related shares are
issued.
At September 30, 1994, the Fund had an accumulated net capital loss of
$731,268 for book purposes.
At September 30, 1994, for Federal income tax purposes, the cost of
investments was the same as the cost for financial reporting purposes (see
Schedule of Investments).
3. KPAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment, and other services necessary to
the operations of the Fund. Fees paid by the Fund for such services are payable
monthly and calculated daily by applying an annual rate of 1/2 of 1% to the net
assets of the Fund determined as of the close of each business day. Total annual
expenses of the Fund, exclusive of taxes, interest, all brokers' commissions and
other normal charges incidental to the purchase and sale of portfolio
securities, but including fees paid to KPAM, are not expected to exceed the
limits prescribed by any state in which the Fund's shares are offered for sale,
and KPAM will reimburse the Fund for any expenses in excess of such limits. No
expense reimbursement was required for the year ended September 30, 1994.
Kidder is the exclusive distributor of the Fund's shares. For its services,
which include payment of sales commissions to registered representatives and
various other promotional and sales related expenses, it receives from the Fund
a distribution fee accrued daily and paid monthly at the rate of .12% per annum
of the Fund's daily net assets.
Certain Officers and Directors of the Fund are 'affiliated persons,' as
defined in the Act, of KPAM. Each Director who is not an 'affiliated person'
receives an annual fee of $1,500 and an attendance fee of $525 per meeting.
4. At September 30, 1994, there were 5 billion shares of $.01 par value Common
Stock authorized; paid-in-capital aggregated $605,476,546.
32
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements Report of
Independent Auditors
--------------------------------------------------------------------------------
Transactions in shares and dollars were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1994
<S> <C> <C>
Shares sold............. 2,874,584,396 3,192,477,480
Shares issued to
shareholders in
connection with the
reinvestment of
dividends............. 12,873,613 13,123,631
Shares redeemed......... (2,908,760,535) (3,270,064,782)
---------------------------------------
NET DECREASE....... (21,302,526) (64,463,671)
---------------------------------------
---------------------------------------
</TABLE>
5. The Fund's investment strategy is to invest in obligations of various states
and municipalities. Payment of the principal and interest of such securities
depends upon the revenue generated by the property financed by the securities,
and the securities are not necessarily general obligations of the issuer.
Additionally, many of the securities are guaranteed by Letters of Credit issued
from various institutions. If the issuer or guarantor defaults, or if bankruptcy
proceedings are commenced with respect to either entity, the realization of
proceeds may be delayed or limited. (See the Fund's Schedule of Investments for
information on individual securities and unaudited summary of combined ratings.)
6. Under an agreement dated as of October 17, 1994, General Electric Company has
agreed to sell to PaineWebber Group, Inc. certain assets of Kidder Group and its
subsidiaries, including Kidder and KPAM. The consummation of this transaction,
which is subject to a number of conditions and cannot be assured, will result in
the deemed assignment and automatic termination of the agreements pursuant to
which Kidder serves as the principal underwriter of the Fund's shares and KPAM
serves as the Fund's manager and investment adviser. Continuation of the Fund's
relationship with Kidder and KPAM or their successors following the consummation
of the transaction will require approval of the Board of Directors and the
separate approval of the majority of the Directors who are not 'interested
persons' of the Fund within the meaning of the Act. In addition, continuation of
the Fund's management arrangements will require approval of a 'majority of the
outstanding voting securities' of the Fund, as defined in the Act. No assurance
can be given that any of the foregoing required approvals will be obtained and,
if they are not, the Board will take such action as it determines to be
appropriate and in the best interests of the Fund and its shareholders.
The Board of Directors and Shareholders,
Kidder, Peabody Tax Exempt Money Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Kidder, Peabody Tax Exempt Money Fund, Inc. as
of September 30, 1994, the related statement of operations for the year then
ended and of changes in net assets and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Kidder, Peabody
Tax Exempt Money Fund, Inc. as of September 30, 1994, the results of its
operations, the changes in its net assets and the financial highlights for each
of the respectively stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
November 11, 1994
33
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------
Table of Contents
---------------------------------------------
Investment Objective and Policies 2
---------------------------------------------
Management of the Fund 7
---------------------------------------------
Portfolio Transactions 11
---------------------------------------------
Redemption of Shares 12
---------------------------------------------
Exchange of Shares 12
---------------------------------------------
Determination of Net Asset Value 14
---------------------------------------------
Yield Information 15
---------------------------------------------
Additional Information About the Fund 15
---------------------------------------------
Appendix 15
---------------------------------------------
Financial Statements 19
---------------------------------------------
</TABLE>
Kidder,
Peabody
Tax
Exempt
Money
Fund,
Inc.
Statement of
Additional
Information
January 27, 1995
<PAGE>
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as 'D'
<PAGE>
Dear Shareholder
--------------------------------------------------------------------------------
We are pleased to provide you with this annual report on the Kidder, Peabody Tax
Exempt Money Fund, covering the fiscal year ended September 30, 1994. As is
detailed below, Fund yields rose significantly during this time period.
Annualized Yields as of 9/30/94*
Current 7-day Average Yield 2.73%
Effective or Compounded 7-day Average Yield 2.77%
Net assets of the Fund totaled approximately $605 million on September 30, 1994.
Assets consisted primarily of high-quality, short-term municipal obligations
rated M1G1/SP1 or the equivalent (Moody's Investors Service and Standard &
Poor's Corporation, respectively), offering dividends free from Federal income
tax.
Market Review
As you are probably aware, the past six months have represented a period of
great change for fixed income markets. Short-term interest rates rose steadily
over this period, fueled primarily by the Federal Reserve's attempts to contain
inflation and slow economic growth to a manageable level. In May, the discount
rate was raised by 50 basis points (or 0.50%); a similar action took place in
August. This was capped by a rate increase of 75 basis points on November
14 -- the largest single rate hike in eight years. We expect this policy to
continue over the next six months and foresee an additional rise of at least 25
to 50 basis points by next Spring.
This environment has been positive for Fund yields. We have taken advantage of a
rising interest rate environment by maintaining short average durations, which
allows the Fund to quickly react to higher rates and pass any increased cash
flow through to investors more rapidly. We will continue to maintain short
maturities in order to take advantage of rising interest rates over the months
ahead.
Thank you for your participation in the Kidder, Peabody Tax Exempt Money Fund.
We are pleased to see yields rising at a steady pace for the first time in
several years and look forward to meeting your future cash management needs.
Please contact your Kidder, Peabody Investment Executive if you have any
questions or require assistance with other financial needs.
Sincerely,
GEORGE V. GRUNE, JR. DAVID A. HARTMAN
George V. Grune, Jr. David A. Hartman
Chairman Chief Investment Officer
New York, New York
November 15, 1994
* The current yield is determined by computing the net change in value of one
share during a seven-day calendar period, dividing such change by the
value of the share at the beginning of the period and multiplying the return
over the seven-day period by 365/7. The effective yield is computed by
compounding the unannualized base period return, assuming the daily
reinvestment of dividends. Both figures are based on historical earnings and
are not intended to indicate future performance.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TAX EXEMPT INVESTMENTS -- 99.4%
Alabama
Alabama Special Care Fac. Fin. Auth., (City of Montgomery) Optional Tender
Bonds, 3.90%, 7/01/95, (AMBAC Insured)(b)................................. $11,715,000 $ 11,715,000 1.9%
Cherokee Variable Rate Demand Notes, Industrial Refunding, (The BOC Group),
3.75%, (LOC Wachovia Bank of Georgia)(a).................................. 3,500,000 3,500,000 0.6
St. Claire County, Variable Rate Demand Notes, (National Cement Co.) Project
II, 3.60%, (LOC Banque Nationale de Paris)(a)............................. 6,000,000 6,000,000 1.0
------------ -----
21,215,000 3.5
---------------------------------------------------------------------------------------------------------------------------
Alaska
Alaska Industrial Dev. Auth., Variable Rate Demand Notes, (Alaska Hotel),
3.81%, (LOC National Westminster Bank)(a)................................. 4,500,000 4,500,000 0.7
Alaska Industrial Dev.& Export Auth., Mandatory Tender Bonds, (Safeway Inc.
Project), Series 1991, 3.40%, 12/01/94, (LOC Bankers Trust)............... 2,460,000 2,460,000 0.4
------------ -----
6,960,000 1.1
---------------------------------------------------------------------------------------------------------------------------
Arizona
Maricopa County, Variable Rate Demand Notes, (Arizona Public Service), 3.45%,
(LOC Bank of America)(a).................................................. 1,400,000 1,400,000 0.2
---------------------------------------------------------------------------------------------------------------------------
Arkansas
Arkansas Fin. Auth., Variable Rate Demand Notes, (Hospital Equipment
Revenue), Series 1985, 3.60%, (LOC Credit Suisse)(a)...................... 6,400,000 6,400,000 1.1
---------------------------------------------------------------------------------------------------------------------------
California
California Pollution Control Fin. Auth., Mandatory Tender Bonds, (Pacific Gas
& Electric), Series 1988D, 3.30%, 10/06/94, (LOC Credit Suisse)........... 3,000,000 3,000,089 0.5
California Student Loan Marketing Corp., Mandatory Tender Bonds, Series A,
2.65%, 11/01/94, (LOC Dresdner Bank)...................................... 3,000,000 3,000,000 0.5
California School Boards Short Term Notes, Series 1993A, 4.50%, 7/05/95...... 7,500,000 7,540,843 1.3
Loma Linda, Variable Rate Demand Notes, 3.50%, (LOC Industrial Bank of
Japan)(a)................................................................. 4,000,000 4,000,000 0.7
Los Angeles County Tax and Revenue Anticipation Notes, 4.50%, 6/30/95........ 4,200,000 4,219,584 0.7
Los Angeles County USD Tax and Revenue Anticipation Notes, 4.50%, 7/10/95.... 10,000,000 10,070,805 1.7
Los Angeles Wastewater Tax Exempt Commercial Paper, Series 1991, 3.00%,
10/27/94.................................................................. 1,500,000 1,500,000 0.2
------------ -----
33,331,321 5.6
---------------------------------------------------------------------------------------------------------------------------
Colorado
Colorado Health Fac. Auth., Variable Rate Demand Notes, (Sisters of Charity
Health), Series C, 3.70%, (LOC Toronto Dominion Bank/Industrial Bank of
Japan/Dresdner Bank)(a)................................................... 9,900,000 9,900,000 1.6
Colorado Health Fac. Auth., Optional Tender Bonds, (Sisters of Charity Health
Care System-Sunny Acres), Series 1988A, 3.15%, 11/01/94, (MBIA
Insured)(b)............................................................... 3,900,000 3,900,000 0.6
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colorado (continued)
El Paso County, Variable Rate Demand Notes, (Axelson Inc. Project), Series
1985, 3.87%, (LOC National Australia Bank)(a)............................. $ 1,250,000 $ 1,250,000 0.2%
Loveland Wastewater Pre-Refunded Revenue Bonds, 10.00%, 11/01/94 @ 100 (MBIA
Insured)(b)............................................................... 1,000,000 1,006,135 0.2
Poudre Valley Hosp. Revenue Bonds., 2.70%, 12/01/94, (AMBAC Insured)(b)...... 1,760,000 1,760,000 0.3
------------ -----
17,816,135 2.9
---------------------------------------------------------------------------------------------------------------------------
Connecticut
Connecticut Dev. Auth., Variable Rate Demand Notes, (Independent Living),
Series 1990, 3.60%, (LOC Credit Commerciale de France)(a)................. 2,500,000 2,500,000 0.4
State of Connecticut Economic Recovery, Variable Rate Demand Notes, Series B,
3.70%, (LOC Industrial Bank of Japan)(a).................................. 900,000 900,000 0.1
Connecticut Health & Education Fac. Auth., Mandatory Tender Bonds, (Yale
University), Series M, 3.05%, 10/11/94.................................... 1,200,000 1,200,000 0.2
Connecticut Special Tax, Variable Rate Demand Notes, Series I, 3.75%, (LOC
Industrial Bank of Japan)(a).............................................. 2,000,000 2,000,000 0.3
Darien Bond Anticipation Notes, 3.75%, 6/20/95............................... 265,000 265,643 --
Easton Bond Anticipation Notes, 3.57%, 6/15/95............................... 700,000 700,326 0.1
Middlebury Bond Anticipation Notes, 2.50%, 2/09/95........................... 2,030,000 2,030,563 0.3
Montville Bond Anticipation Notes, 2.85%, 10/07/94........................... 505,000 504,999 0.1
New Canaan Bond Anticipation Notes, 3.47%, 5/18/95........................... 1,400,000 1,400,593 0.2
------------ -----
11,502,124 1.7
---------------------------------------------------------------------------------------------------------------------------
Florida
Boca Raton Industrial Dev. Revenue, Variable Rate Demand Notes, (Parking
Garage), Series 1984, 3.92%, (LOC Bankers Trust)(a)....................... 4,000,000 4,000,000 0.7
City of Eustis Health Fac. Auth., Variable Rate Demand Notes, (Florida
Hospital-Waterman Project), Series 1992, 3.65%, (LOC Banque Paribas)(a)... 10,030,000 10,030,000 1.7
North Broward Hospital Revenue Bonds, 4.90%, 1/01/95, (MBIA Insured)(b)...... 1,445,000 1,453,186 0.2
Polk County Industrial Dev. Auth., Variable Rate Demand Notes, (IMC
Fertilizer), Series A, 3.60%, (LOC Rabobank Nederland)(a)................. 1,200,000 1,200,000 0.2
Polk County Industrial Dev. Auth., Variable Rate Demand Notes, (IMC
Fertilizer), Series B, 3.60%, (LOC Rabobank Nederland)(a)................. 1,000,000 1,000,000 0.2
Sunshine State Government Fin. Auth., Mandatory Tender Bonds, Series 1986,
3.00%, 10/13/94, (LOC Union Bank of Switzerland/NatWest/Morgan Guaranty
Trust Co.)................................................................ 12,500,000 12,500,000 2.1
Tampa Water & Sewer Revenue Pre-Refunded Bonds, 10.00%, 10/01/94 @ 102,
(AMBAC Insured)(b)........................................................ 1,235,000 1,259,947 0.2
------------ -----
31,443,133 5.3
---------------------------------------------------------------------------------------------------------------------------
Georgia
Dekalb County Housing Auth., Variable Rate Demand Notes, (Clairmont Project),
Series H, 3.55%, (LOC Citibank)(a)........................................ 3,000,000 3,000,000 0.5
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Georgia (continued)
Dekalb Private Hospital, Variable Rate Demand Notes, (Egleston Children's
Hospital), Series A, 3.50%, (LOC Trust Company Bank of Georgia)(a)........ $ 5,000,000 $ 5,000,000 0.8%
Gwinnett County, Variable Rate Demand Notes, (Greens Apt.), Series 1985,
3.55%, (LOC Citibank)(a).................................................. 1,900,000 1,900,000 0.3
Hapeville Dev. Auth., Variable Rate Demand Notes, (Hapeville Hotel Ltd.),
Series 1985, 3.65%, (LOC Swiss Bank)(a)................................... 1,000,000 1,000,000 0.2
Municipal Gas Authority of Georgia, Mandatory Tender Bonds, Series B2,
(Transco), 2.90%, 10/05/94, (LOC Credit Suisse)........................... 1,000,000 1,000,000 0.2
Richmond County Dev. Auth., Variable Rate Demand Notes, (The BOC Group Inc.
Project), 3.75%, (LOC Wachovia Bank of Georgia)(a)........................ 5,000,000 5,000,000 0.8
Richmond County, Variable Rate Demand Notes, (General Signal), 3.55%, (LOC
Wachovia Bank of Georgia)(a).............................................. 2,500,000 2,500,000 0.4
------------ -----
19,400,000 3.2
---------------------------------------------------------------------------------------------------------------------------
Illinois
Chicago Mandatory Tender Notes, Series A, 2.45%, 10/26/94, (LOC Union Bank of
Switzerland).............................................................. 10,000,000 10,000,000 1.7
Chicago, Variable Rate Demand Notes, Series B, 3.60%, (LOC Societe
Generale)(a).............................................................. 8,000,000 8,000,000 1.3
Illinois Dev. Fin. Auth., Variable Rate Demand Notes, (CPL/Downers Grove),
3.70%, (LOC ABN-AMRO)(a).................................................. 6,500,000 6,500,000 1.1
Illinois Dev. Fin. Auth., Variable Rate Demand Notes, (Foundation for Safety
& Health), 3.70%, (LOC LaSalle National Bank)(a).......................... 5,850,000 5,850,000 1.0
Illinois Health Fac. Auth., Variable Rate Demand Notes, (South Suburban
Hospital), 3.70%, (LOC Harris Trust)(a)................................... 12,500,000 12,500,000 2.1
Illinois Housing Fin. Auth. Variable Rate Demand Notes, (Revolving Pool),
Series B, 3.70%, (LOC Swiss Bank)(a)...................................... 10,000,000 10,000,000 1.7
Illinois Toll Highway Auth., Variable Rate Demand Notes, Series B, 3.65%,
(MBIA Insured)(a)(b)...................................................... 1,000,000 1,000,000 0.2
Lislee, IL Multi-Family Housing Revenue, Variable Rate Demand Notes, (Ashley
of Lislee Project), 3.60%, (LOC ABN-AMRO)(a).............................. 4,500,000 4,500,000 0.7
Tinley Park Housing Auth., Variable Rate Demand Notes, (Edgewater Walk Phase
III A & B), Series 1984, 3.70%, (LOC LaSalle National Bank)(a)............ 8,000,000 8,000,000 1.3
Winnebago & Boone Counties, Revenue Bonds, (School Dist. #205), 6.70%,
2/01/95, (Cap Guaranty Insured)(b)........................................ 1,400,000 1,418,490 0.2
------------ -----
67,768,490 11.3
---------------------------------------------------------------------------------------------------------------------------
Indiana
Indiana Health Fac. Fin. Auth., Variable Rate Demand Notes, (Methodist
Hospital), Series B, 3.75%, (LOC Credit Suisse)(a)........................ 2,000,000 2,000,000 0.3
Indiana Health Fac. Fin. Auth., Variable Rate Demand Notes, (Methodist
Hospital), Series C, 3.75%, (LOC Credit Suisse)(a)........................ 5,000,000 5,000,000 0.8
------------ -----
7,000,000 1.1
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kansas
Burlington, Mandatory Tender Bonds, (Kansas City Power & Light), 2.85%,
10/06/94, (LOC Deutsche Bank)............................................. $ 1,750,000 $ 1,750,000 0.3%
---------------------------------------------------------------------------------------------------------------------------
Kentucky
Jefferson County Pollution Control Revenue Bonds, Mandatory Tender Bonds,
(Louisville Gas & Electric Co. Project), Series 1992A, 3.05%, 10/06/94.... 6,000,000 6,000,000 1.0
Lexington-Fayette Urban County Government, Variable Rate Demand Notes,
(Charter Ridge Hospital Inc.), 3.81%, (LOC Sumitomo Bank)(a).............. 4,525,000 4,525,000 0.7
Louisville Water Revenue Bonds, 5.40%, 11/15/94.............................. 200,000 200,676 --
------------ -----
10,725,676 1.7
---------------------------------------------------------------------------------------------------------------------------
Louisiana
Lafayette Public Power Revenue Bonds, 2.80%, 11/01/94, (AMBAC Insured)(b).... 2,200,000 2,200,000 0.4
---------------------------------------------------------------------------------------------------------------------------
Maine
Maine Tax Anticipation Notes, 4.50%, 6/30/95................................. 8,500,000 8,548,844 1.4
---------------------------------------------------------------------------------------------------------------------------
Maryland
Montgomery County Housing, Mandatory Tender Bonds, Series 1993B, 2.85%,
11/01/94.................................................................. 3,000,000 3,000,000 0.5
Montgomery County, Variable Rate Demand Notes, Bond Anticipation Notes,
Series C, 3.45%, (LOC Dai-Ichi Kangyo Bank)(a)............................ 5,000,000 5,000,000 0.8
Northeast Maryland Waste Disposal, General Obligation Bonds, (Southwest
Resource Recovery Fac.), 6.40%, 1/01/95, (MBIA Insured)(b)................ 1,000,000 1,009,158 0.2
------------ -----
9,009,158 1.5
---------------------------------------------------------------------------------------------------------------------------
Michigan
Bruce Township Hospital Fin. Auth., Optional Tender Bonds, (St. Joseph
Hospital Center Program), Series 1988B, 3.10%, 11/01/94, (MBIA
Insured(b)................................................................ 4,300,000 4,300,000 0.7
Clinton Township, Variable Rate Demand Notes, (Sisters of Charity-St. Joseph
Hospital Center), Series 1988B, 3.10%, (MBIA Insured)(a)(b)............... 2,900,000 2,900,000 0.5
------------ -----
7,200,000 1.2
---------------------------------------------------------------------------------------------------------------------------
Minnesota
Minnesota Health Fac. Auth., Mandatory Tender Bonds, Series F, 2.50%,
1/16/95................................................................... 1,500,000 1,500,000 0.2
County of Olmstead, Variable Rate Demand Notes, Certificate of Participation,
(Olmstead County Building Auth.), 3.70%, (LOC Sanwa Bank)(a).............. 2,400,000 2,400,000 0.4
------------ -----
3,900,000 0.6
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mississippi
Perry County Pollution Control Revenue, Variable Rate Demand Notes, (Leaf
River Forest Project), 3.60%, (LOC Morgan Guaranty Trust Co.)(a).......... $ 6,500,000 $ 6,500,000 1.1%
---------------------------------------------------------------------------------------------------------------------------
Missouri
Kansas City Ind. Dev. Auth., Variable Rate Demand Notes, (Lo Carno Project),
3.55%, (LOC Citibank)(a).................................................. 4,800,000 4,800,000 0.8
Missouri Environmental Improvement Auth., Optional Tender Bonds, (Union
Electric), Series 1985A, 3.75%, 6/01/95 (LOC Swiss Bank).................. 1,600,000 1,600,000 0.3
Missouri Environment Improvement Auth., Optional Tender Bonds, Series 1984B,
3.75%, 6/01/95, (LOC Union Bank of Switzerland)........................... 3,200,000 3,200,000 0.5
Missouri Health & Education Fac. Auth., Variable Rate Demand Notes, (Barnes
Hospital Project), 3.55%, (LOC Sumitomo Bank)(a).......................... 6,000,000 6,000,000 1.0
Missouri Health & Education Fac. Auth., Mandatory Tender Bonds, (Baptist
Medical Center), Series 1990B, 3.60%, 2/01/95, (LOC Swiss Bank)........... 5,500,000 5,500,000 0.9
University of Missouri, Capital Project Notes, 4.50%, 6/30/95................ 15,000,000 15,107,941 2.5
------------ -----
36,207,941 6.0
---------------------------------------------------------------------------------------------------------------------------
New Hampshire
New Hampshire Education, Variable Rate Demand Notes, (VHA New England),
Series 1985G, 3.70%, (AMBAC Insured)(a)(b)................................ 2,400,000 2,400,000 0.4
New Hampshire Higher Education, Variable Rate Demand Notes, (VHA New
England), Series G, 3.70%, (AMBAC Insured)(a)(b).......................... 5,650,000 5,650,000 0.9
------------ -----
8,050,000 1.3
---------------------------------------------------------------------------------------------------------------------------
New Jersey
Essex County Improvement Auth., Variable Rate Demand Note, (Pooled Government
Loan Project), Series 1986, 3.65%, (LOC Banco Santander)(a)............... 2,400,000 2,400,000 0.4
New Jersey General Obligation, Pre-Refunded Bonds, 8.90%, 10/01/94 @ 102..... 1,000,000 1,020,157 0.2
------------ -----
3,420,157 0.6
---------------------------------------------------------------------------------------------------------------------------
New Mexico
Albuquerque Hospital Rev., Variable Rate Demand Notes, (Sisters of
Charity-St.Joseph), 3.70%, (LOC Toronto Dominion Bank)(a)................. 4,900,000 4,900,000 0.8
---------------------------------------------------------------------------------------------------------------------------
New York
New York State Energy Res. & Dev. Auth., Mandatory Tender Bonds, (Lilco
Project), Series A, 3.00%, 3/01/95, (LOC Deutsche Bank)................... 6,000,000 6,000,000 1.0
New York State Energy Res. & Dev. Auth., Mandatory Tender Bonds, 3.00%,
10/17/94, (LOC Union Bank of Switzerland)................................. 4,000,000 4,000,000 0.7
Oyster Bay Bond Anticipation Notes, 3.00%, 11/18/94.......................... 1,000,000 1,000,152 0.2
Triborough Bridge & Tunnel Auth., Pre-Refunded Bonds, (Convention Center
Project), Series D, 9.00%, 7/01/95 @ 102.................................. 3,000,000 3,176,645 0.5
------------ -----
14,176,797 2.4
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North Carolina
North Carolina Eastern Municipal Power Agency, Mandatory Tender Bonds, Series
1988B, 2.85%, 1/01/09, (LOC Morgan Guaranty Trust Co./Union Bank of
Switzerland).............................................................. $ 4,700,000 $ 4,700,000 0.8%
North Carolina Municipal Power Agency, Pre-Refunded Bonds, 9.50%, 1/01/95 @
103....................................................................... 250,000 261,582 --
North Carolina University, General Obligation Bonds, (Housing & Dining
System), 4.60%, 1/01/95, (MBIA Insured)(b)................................ 300,000 301,216 0.1
------------ -----
5,262,798 0.9
---------------------------------------------------------------------------------------------------------------------------
Ohio
Ohio State Highway, General Obligation Bonds, Series R, 4.30%, 5/15/95....... 2,500,000 2,512,214 0.4
---------------------------------------------------------------------------------------------------------------------------
Oklahoma
Tulsa Industrial Dev. Auth., Mandatory Tender Bonds, (Laureate Psychiatric
Clinic & Hospital), 3.25%, 12/15/94, (Wm. K. Warren Foundation
Guaranteed)............................................................... 2,500,000 2,500,000 0.4
Tulsa Industrial Dev. Auth., Mandatory Tender Bonds, (St. John's Physicians
Building), Series 1984, 3.30%, 11/01/94, (LOC Sanwa Bank)................. 6,730,000 6,730,000 1.1
------------ -----
9,230,000 1.5
---------------------------------------------------------------------------------------------------------------------------
Oregon
Klamath Falls, Mandatory Tender Bonds, (Electric Revenue Bonds, Salt Caves
Hydroelectric Project), Series E, 3.75%, 5/02/95.......................... 5,000,000 5,000,000 0.8
Portland General Obligation Bonds, Series B, 2.60%, 11/01/94................. 2,200,000 2,200,000 0.4
------------ -----
7,200,000 1.2
---------------------------------------------------------------------------------------------------------------------------
Pennsylvania
Allegheny County Industrial Dev. Auth., Variable Rate Demand Notes, (Chelsea
Industries), 3.70%, (LOC Bank of Tokyo)(a)................................ 3,500,000 3,500,000 0.6
Bedford Industrial Dev. Auth., Variable Rate Demand Notes, (SEPA Inc.),
3.55%, (LOC Banque Paribas)(a)............................................ 5,000,000 5,000,000 0.8
Cumberland County Municipal Auth., Variable Rate Demand Notes, (Presbyterian
Homes Inc. Project), Series 1993A, 3.60%, (LOC Kreditbank)(a)............. 6,000,000 6,000,000 1.0
Philadelphia, General Obligation Tax & Revenue Anticipation Notes, 4.75%,
6/15/95, (LOC Dresdner Bank).............................................. 15,000,000 15,091,711 2.5
Philadelphia, General Obligation Tax & Revenue Anticipation Notes, 4.75%,
6/15/95, (LOC Pittsburgh National Corp.).................................. 2,500,000 2,515,622 0.4
Philadelphia School District, General Obligation Tax and Rev. Anticipation
Notes, 3.75%, 7/01/95, (AMBAC Insured)(b)................................. 600,000 600,845 0.1
------------ -----
32,708,178 5.4
---------------------------------------------------------------------------------------------------------------------------
Puerto Rico
Puerto Rico, General Obligation Bonds, (Public Finance Corporation), Series
B, 6.35%, (LOC Chase Manhattan Bank), 7/01/95............................. 1,245,000 1,267,399 0.2
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South Carolina
Lexington County Charter Rivers, Variable Rate Demand Notes, Series 1987,
3.80%, (LOC Mitsubishi Bank)(a)........................................... $ 2,400,000 $ 2,400,000 0.4%
Piedmont Municipal Power Agency, Pre-Refunded Bonds, 10.00%, 1/01/95 @ 103... 500,000 523,984 0.1
------------ -----
2,923,984 0.5
---------------------------------------------------------------------------------------------------------------------------
South Dakota
South Dakota Health & Education, Variable Rate Demand Notes, (Sioux Valley
Hospital), 3.70%(a)....................................................... 9,000,000 9,000,000 1.5
South Dakota Health & Education, Variable Rate Demand Notes, (Sioux Valley
Hospital), 3.70%(a)....................................................... 6,000,000 6,000,000 1.0
------------ -----
15,000,000 2.5
---------------------------------------------------------------------------------------------------------------------------
Tennessee
Chattanooga, Variable Rate Demand Notes, (Seaboard Farms of Chattanooga),
3.60%, (LOC ABN-AMRO)(a).................................................. 3,000,000 3,000,000 0.5
Hamilton County, General Obligation Revenue Bonds, 5.00%, 7/01/95............ 2,440,000 2,464,839 0.4
Knox County Health & Education Fac. Auth., General Obligation Bonds, (Ft.
Sanders), 3.20%, 1/01/95, (MBIA Insured)(b)............................... 310,000 310,420 0.1
Robertson & Sumner Counties Waterworks, Pre-Refunded Bonds, 8.875%, 1/01/95 @
102....................................................................... 1,000,000 1,035,503 0.2
State of Tennessee, Variable Rate Demand Notes, General Obligation Bond
Anticipation Notes, Series 1991C, 3.60%(a)................................ 4,000,000 4,000,000 0.7
------------ -----
10,810,762 1.9
---------------------------------------------------------------------------------------------------------------------------
Texas
Bowie County Industrial Dev. Auth., Variable Rate Demand Notes, (Texarkana
Newspapers Inc. Project), Series 1985, 3.75%, (LOC Bank of New York)(a)... 3,500,000 3,500,000 0.6
Calhoun County Industrial Dev. Auth., Variable Rate Demand Notes, Series
1987, 3.75%, (LOC Credit Suisse)(a)....................................... 2,600,000 2,600,000 0.4
Capital Industrial Development Corp., Variable Rate Demand Notes, (NSI Inc.
Project), 3.75%, (LOC Wachovia Bank)(a)................................... 4,000,000 4,000,000 0.7
Gulf Coast, Variable Rate Demand Notes, (Baytank Inc.), 3.75%, (LOC Morgan
Guaranty Trust Co.)(a).................................................... 8,800,000 8,800,000 1.5
Harris County, Variable Rate Demand Notes, (Memorial Senior Services), 3.60%,
(LOC Societe General)(a).................................................. 11,100,000 11,100,000 1.8
Harris County Health Fac. Fin. Auth., Variable Rate Demand Notes, 3.80%,
(Methodist Hospital)(a)................................................... 4,900,000 4,900,000 0.8
Harris County Health Fac. Fin. Auth., Variable Rate Demand Notes, 3.80%, (St.
Luke's Episcopal Hospital), Series 1985B, (LOC Morgan Guaranty
Trust)(a)................................................................. 2,300,000 2,300,000 0.4
Harris County Health Fac. Dev. Corp., Mandatory Tender Bonds, (San Jacinto
Methodist Project), Series 1987A, 3.35%, 12/01/94, (LOC Morgan Guaranty
Trust Co.)................................................................ 14,050,000 14,050,000 2.3
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas (continued)
Harris County Health Fac. Dev. Corp., Mandatory Tender Bonds, (San Jacinto
Methodist Project), Series 1987B, 3.35%, 12/01/94, (LOC Morgan Guaranty
Trust Co.)................................................................ $11,250,000 $ 11,250,000 1.9%
Hays Memorial Health Fac. Dev. Corp., Variable Rate Demand Notes, (Central
Texas Medical Center), Series B, 3.65%, (LOC Swiss Bank)(a)............... 17,300,000 17,300,000 2.9
Hays Memorial Health Fac. Dev. Corp., Variable Rate Demand Notes, (Central
Texas Medical Center Project A), 3.65%, (LOC Swiss Bank)(a)............... 8,400,000 8,400,000 1.4
Hockley County Industrial Dev. Auth., Optional Tender Bonds, 3.15%, 11/01/94,
(AMOCO), Series 1985...................................................... 14,740,000 14,740,000 2.4
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series A3, 2.95%, 10/13/94, (LOC Bank of New York)............. 5,000,000 5,000,000 0.8
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series A5, 2.95%, 10/13/94, (LOC Bank of New York)............. 1,500,000 1,500,000 0.2
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series B1, 2.95%, 10/13/94, (LOC Bank of New York)............. 3,300,000 3,300,000 0.5
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series B4, 2.95%, 10/13/94, (LOC Bank of New York)............. 2,000,000 2,000,000 0.3
Lone Star Airport Improvement Auth., Mandatory Tender Bonds, (American
Airlines), Series B5, 2.95%, 10/13/94, (LOC Bank of New York)............. 1,000,000 1,000,000 0.2
Plano Ind. School District, General Obligation Bonds, 2.65%, 2/15/95, (PSF
Guaranteed)(b)............................................................ 4,750,000 4,750,000 0.8
San Antonio Electric & Gas, Tax Exempt Commercial Paper, Series A, 2.90%,
10/05/94.................................................................. 10,200,000 10,200,000 1.7
------------ -----
130,690,000 21.6
---------------------------------------------------------------------------------------------------------------------------
Utah
Salt Lake City, General Obligation Tax & Revenue Notes, 4.50%, 6/30/95....... 2,500,000 2,517,094 0.4
---------------------------------------------------------------------------------------------------------------------------
Virginia
Stafford County Industrial Dev. Auth., Mandatory Tender Bonds, (Safeway Inc.
Project), 3.40%, 12/01/94, (LOC Bankers Trust)............................ 1,530,000 1,530,000 0.3
---------------------------------------------------------------------------------------------------------------------------
Washington
King County, General Obligation Bonds, Series A, 5.00%, 2/01/95.............. 425,000 426,019 0.1
Pierce County, Mandatory Tender Bonds, (Sealand Corp. Project), Series 1984,
2.80%, 11/01/94, (LOC Deutsche Bank)...................................... 9,555,000 9,555,000 1.6
Washington Suburban Sanitary District, General Obligation Bonds, 7.50%,
6/01/95................................................................... 1,800,000 1,847,855 0.3
Washington Suburban Water, General Obligation Bonds, 7.50%, 6/01/95.......... 1,900,000 1,950,514 0.3
------------ -----
13,779,388 2.3
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Schedule of Investments as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT (NOTE 2a) ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
West Virginia
West Virginia Hospital Fin. Auth., Variable Rate Demand Notes,
(VHA -- Mid-Atlantic), Series D, 3.70%, (AMBAC Insured)(a)(b)............. $ 3,800,000 $ 3,800,000 0.6%
West Virginia Hospital Fin. Auth., Variable Rate Demand Notes,
(VHA -- Mid-Atlantic), Series G, 3.70%, (AMBAC Insured)(a)(b)............. 6,100,000 6,100,000 1.0
------------ -----
9,900,000 1.6
---------------------------------------------------------------------------------------------------------------------------
Wisconsin
Alma Pollution Control Revenue, Variable Rate Demand Notes, (Dairyland Power
Co-op.), 3.55%, (LOC Rabobank Nederland)(a)............................... 2,000,000 2,000,000 0.3
Appleton Promissory Notes, General Obligation Bonds, Series A, 3.50%,
4/01/95................................................................... 1,020,000 1,020,000 0.2
Wisconsin General Obligation Bonds, Series 4, 4.00%, 5/01/95................. 1,500,000 1,505,078 0.2
Wisconsin Health & Education Fac. Auth., Variable Rate Demand Notes, (SSM
Health Care), Series 1990A, 3.80%, (LOC Industrial Bank of Japan)(a)...... 5,800,000 5,800,000 1.0
------------ -----
10,325,078 1.7
---------------------------------------------------------------------------------------------------------------------------
Wyoming
Lincoln County, Mandatory Tender Bonds, 3.20%, 10/12/94, (Exxon Project),
Series 1985............................................................... 4,400,000 4,400,000 0.7
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $600,881,647).......................................... 600,881,671 99.4
OTHER ASSETS LESS LIABILITIES.................................................. 3,863,631 0.6
------------ -----
NET ASSETS..................................................................... $604,745,302 100.0%
------------ -----
------------ -----
</TABLE>
Summary of Combined Ratings (Unaudited)
<TABLE>
<CAPTION>
MOODY'S or STANDARD & POOR'S % OF VALUE
-------------- ------------------ ----------
<S> <C> <C> <C>
M1G-1(c) SP1(c) 50.6%
P1(d) A1+ & A1(d) 33.5
Not Rated(e) Not Rated(e) 14.2
Aaa, Aa AAA, AA 1.7
----------
100.0%
----------
----------
</TABLE>
Notes to Schedule of Investments:
(a) Securities payable on demand. The interest rate, which will change
periodically, is based upon bank prime rates or an index of
market interest rates.
(b) Insured or guaranteed by the respective stated municipal bond insurance
company or supported by an unconditional agreement to repurchase the
obligation at par.
(c) M1G-1 and SP1 are the highest ratings assigned to variable notes and
municipal notes by Moody's and Standard & Poor's, respectively.
(d) P1 and A1 are the highest ratings assigned tax-exempt commercial paper by
Moody's and Standard & Poor's, respectively.
(e) Securities which, while not rated, are determined by the Fund's Board of
Directors to be of comparable quality to those rated securities in which the
Fund may invest.
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost $600,881,647) (Note 2a)....................................... $600,881,671
Cash...................................................................................... 1,143,844
Receivables:
Securities sold...................................................................... $3,309,616
Interest............................................................................. 3,819,133 7,128,749
----------
Prepaid expenses (Note 2e)................................................................ 61,598
------------
TOTAL ASSETS.................................................... 609,215,862
------------
LIABILITIES
Payables:
Securities purchased................................................................. 4,000,000
Due to investment adviser (Note 3)................................................... 259,008
Distribution fees (Note 3)........................................................... 75,050
Dividends............................................................................ 46,325 4,380,383
----------
Accrued expenses.......................................................................... 90,177
------------
TOTAL LIABILITIES............................................... 4,470,560
------------
NET ASSETS
At value.................................................................................. $604,745,302
------------
------------
NET ASSET VALUE
Offering, and redemption price per share ($604,745,302[div]605,476,384 outstanding shares
of common stock, $.01 par value) (Note 4)............................................... $ 1.00
------------
------------
Net assets were comprised of:
Aggregate paid-in-capital............................................................ $605,476,546
Net unrealized appreciation on investments........................................... 24
Accumulated net realized capital losses.............................................. (731,268)
Undistributed net investment income.................................................. -0-
------------
$604,745,302
------------
------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Statement of Operations for the Year Ended September 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income (net of $1,961,470 amortization of premiums) (Note 2b)..................... $18,368,072
EXPENSES
Investment advisory (Note 3)............................................................... $3,460,135
Distribution (Note 3)...................................................................... 830,433
Shareholder servicing...................................................................... 134,600
Federal and state registration............................................................. 105,160
Custodian.................................................................................. 72,700
Miscellaneous.............................................................................. 46,599
Prospectus and shareholders' reports....................................................... 49,722
Professional............................................................................... 24,700
Directors' fees and expenses............................................................... 14,758
----------
TOTAL EXPENSES................................................... 4,738,807
-----------
NET INVESTMENT INCOME...................................................................... 13,629,265
REALIZED LOSS ON INVESTMENTS (NOTE 2B)..................................................... (461,701)
CHANGE IN UNREALIZED GAIN ON INVESTMENTS................................................... (1,085)
-----------
NET INCREASE IN NET ASSETS
Resulting from operations.................................................................. $13,166,479
-----------
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1994
<S> <C> <C>
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS
Net investment income................... $ 13,047,613 $ 13,629,265
Net realized loss on investments........ (258,172) (461,701)
Net change in unrealized gain on
investments........................... 1,109 (1,085)
---------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... 12,790,550 13,166,479
---------------------------------------
Dividends to shareholders from net
investment income (Notes 2c & d)...... (13,047,613) (13,629,265)
---------------------------------------
Decrease in net assets from net common
stock transactions (Note 4)........... (21,302,526) (64,463,671)
---------------------------------------
TOTAL DECREASE IN NET
ASSETS...................... (21,559,589) (64,926,457)
NET ASSETS
Beginning of year....................... 691,231,348 669,671,759
---------------------------------------
End of year............................. $ 669,671,759 $ 604,745,302
---------------------------------------
---------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year... $ 1.0000 $ 1.0001 $ 1.0000 $ 0.9999 $ 1.0000 $ 0.9999 $ 1.0000
----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income.............. 0.0546 0.0472 0.0394 0.0434 0.0550 0.0545 0.0483
Net realized and
unrealized gain
(loss) on
investments......... 0.0001 (0.0001) (0.0001) 0.0001 (0.0001) 0.0001 --
----------------------------------------------------------------------------------------------
Total increase in net
asset value from
investment
operations.......... 0.0547 0.0471 0.0393 0.0435 0.0549 0.0546 0.0483
DISTRIBUTIONS TO
SHAREHOLDERS FROM
(NOTE 2C)
Net investment
income.............. (0.0546) (0.0472) (0.0394) (0.0434) (0.0550) (0.0545) (0.0483)
----------------------------------------------------------------------------------------------
Net asset value, end
of year............. $ 1.0001 $ 1.0000 $ 0.9999 $ 1.0000 $ 0.9999 $ 1.0000 $ 1.0000
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Total return.......... 5.42% 4.78% 3.96% 4.49% 5.62% 5.57% 4.92%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (in
thousands).......... $ 478,564 $ 911,411 $ 913,509 $ 797,023 $ 696,212 $ 749,057 $ 725,183
RATIOS TO AVERAGE NET
ASSETS
Expenses, excluding
distribution fees... .60% .58% .55% .55% .57% .56% .56%
Expenses, including
distribution fees... .60% .58% .55% .55% .63% .68% .68%
Net investment
income.............. 5.30% 4.69% 3.93% 4.33% 5.48% 5.44% 4.83%
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1991'D' 1992 1993 1994
----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year... $ 1.0000 $ 1.0000 $ 1.0000 $ 0.9996
----------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income.............. 0.0099 0.0278 0.0189 0.0198
Net realized and
unrealized gain
(loss) on
investments......... -- -- (0.0004) (0.0008)
----------------------------------------------------
Total increase in net
asset value from
investment
operations.......... 0.0099 0.0278 0.0185 0.0190
DISTRIBUTIONS TO
SHAREHOLDERS FROM
(NOTE 2C)
Net investment
income.............. (0.0099) (0.0278) (0.0189) (0.0198)
----------------------------------------------------
Net asset value, end
of year............. $ 1.0000 $ 1.0000 $ 0.9996 $ 0.9988
----------------------------------------------------
----------------------------------------------------
Total return.......... 3.93%* 2.83% 1.95% 2.00%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (in
thousands).......... $ 722,224 $ 691,231 $ 669,672 $ 604,745
RATIOS TO AVERAGE NET
ASSETS
Expenses, excluding
distribution fees... .57%* .58% 0.58% 0.57%
Expenses, including
distribution fees... .69%* .70% 0.70% 0.69%
Net investment
income.............. 3.91%* 2.78% 1.89% 1.97%
</TABLE>
'D' Effective July 1, 1991, the Fund changed its fiscal-year-end from June 30 to
September 30. The figures presented represent such 3-month period.
* Annualized.
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
1. The Fund is registered under the Investment Company Act of 1940 ('Act') as a
diversified, open-end management company. Kidder Peabody Asset Management, Inc.
('KPAM'), a wholly-owned subsidiary of Kidder, Peabody & Co. Incorporated
('Kidder'), serves as the Fund's investment adviser and administrator. General
Electric Capital Services, Inc., a wholly-owned subsidiary of General Electric
Company, has a 100% interest in Kidder, Peabody Group Inc., the parent company
of Kidder. Kidder acts as the exclusive distributor of the Fund's shares, which
are sold without a sales charge.
Effective July 1, 1991, the Fund changed its fiscal-year-end from June 30 to
September 30.
2. It is the Fund's policy to maintain a continuous net asset value per share of
$1.00; the Fund has adopted certain investment, portfolio valuation and dividend
and distribution policies to enable it to do so.
(a) Investments are valued at amortized cost, which has been determined by
the Board of Directors of the Fund to represent the market value of the Fund's
investments. Securities not subject to amortization are valued at cost, which
approximates market.
(b) Securities transactions are recorded on a trade date basis. Interest
income, adjusted for amortization of premiums and, when appropriate, discounts
on investments, is earned from settlement date and recognized on the accrual
basis. Realized gain and loss from securities transactions are recorded on the
identified cost basis.
(c) It is the policy of the Fund to declare dividends daily from net
investment income. Such dividends normally are paid monthly. Dividends from net
realized capital gain, if any, are declared and paid annually after the end of
the fiscal year in which earned. To the extent that the Fund earns net realized
capital gain which can be offset by capital loss carryovers, if any, it is the
policy of the Fund not to distribute such gain.
(d) It is the policy of the Fund to continue to qualify as a regulated
investment company, which can distribute tax exempt dividends, by complying with
the provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make distributions of
income and net realized capital gain sufficient to relieve it from all, or
substantially all, Federal income taxes.
(e) Prepaid registration fees are charged to income as the related shares are
issued.
At September 30, 1994, the Fund had an accumulated net capital loss of
$731,268 for book purposes.
At September 30, 1994, for Federal income tax purposes, the cost of
investments was the same as the cost for financial reporting purposes (see
Schedule of Investments).
3. KPAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment, and other services necessary to
the operations of the Fund. Fees paid by the Fund for such services are payable
monthly and calculated daily by applying an annual rate of 1/2 of 1% to the net
assets of the Fund determined as of the close of each business day. Total annual
expenses of the Fund, exclusive of taxes, interest, all brokers' commissions and
other normal charges incidental to the purchase and sale of portfolio
securities, but including fees paid to KPAM, are not expected to exceed the
limits prescribed by any state in which the Fund's shares are offered for sale,
and KPAM will reimburse the Fund for any expenses in excess of such limits. No
expense reimbursement was required for the year ended September 30, 1994.
Kidder is the exclusive distributor of the Fund's shares. For its services,
which include payment of sales commissions to registered representatives and
various other promotional and sales related expenses, it receives from the Fund
a distribution fee accrued daily and paid monthly at the rate of .12% per annum
of the Fund's daily net assets.
Certain Officers and Directors of the Fund are 'affiliated persons,' as
defined in the Act, of KPAM. Each Director who is not an 'affiliated person'
receives an annual fee of $1,500 and an attendance fee of $525 per meeting.
4. At September 30, 1994, there were 5 billion shares of $.01 par value Common
Stock authorized; paid-in-capital aggregated $605,476,546.
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
Transactions in shares and dollars were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1994
---------------------------------------
<S> <C> <C>
Shares sold............. 2,874,584,396 3,192,477,480
Shares issued to
shareholders in
connection with the
reinvestment of
dividends............. 12,873,613 13,123,631
Shares redeemed......... (2,908,760,535) (3,270,064,782)
---------------------------------------
NET DECREASE....... (21,302,526) (64,463,671)
---------------------------------------
---------------------------------------
</TABLE>
5. The Fund's investment strategy is to invest in obligations of various states
and municipalities. Payment of the principal and interest of such securities
depends upon the revenue generated by the property financed by the securities,
and the securities are not necessarily general obligations of the issuer.
Additionally, many of the securities are guaranteed by Letters of Credit issued
from various institutions. If the issuer or guarantor defaults, or if bankruptcy
proceedings are commenced with respect to either entity, the realization of
proceeds may be delayed or limited. (See the Fund's Schedule of Investments for
information on individual securities and unaudited summary of combined ratings.)
6. Under an agreement dated as of October 17, 1994, General Electric Company has
agreed to sell to PaineWebber Group, Inc. certain assets of Kidder Group and its
subsidiaries, including Kidder and KPAM. The consummation of this transaction,
which is subject to a number of conditions and cannot be assured, will result in
the deemed assignment and automatic termination of the agreements pursuant to
which Kidder serves as the principal underwriter of the Fund's shares and KPAM
serves as the Fund's manager and investment adviser. Continuation of the Fund's
relationship with Kidder and KPAM or their successors following the consummation
of the transaction will require approval of the Board of Directors and the
separate approval of the majority of the Directors who are not 'interested
persons' of the Fund within the meaning of the Act. In addition, continuation of
the Fund's management arrangements will require approval of a 'majority of the
outstanding voting securities' of the Fund, as defined in the Act. No assurance
can be given that any of the foregoing required approvals will be obtained and,
if they are not, the Board will take such action as it determines to be
appropriate and in the best interests of the Fund and its shareholders.
Report of Independent Auditors
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
Kidder, Peabody Tax Exempt Money Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Kidder, Peabody Tax Exempt Money Fund, Inc. as
of September 30, 1994, the related statement of operations for the year then
ended and of changes in net assets and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Kidder, Peabody
Tax Exempt Money Fund, Inc. as of September 30, 1994, the results of its
operations, the changes in its net assets and the financial highlights for each
of the respectively stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
November 11, 1994
<PAGE>
Kidder Family of Funds
--------------------------------------------------------------------------------
The Kidder Family of Funds provides a comprehensive selection of mutual funds.
Because successful investing may depend on the ability to diversify across asset
classes and geographic regions, the Kidder Family of Funds has been carefully
constructed to ensure that most major asset classes and geographic regions are
represented.
Stock Funds
----------------------------------------------------------
KIDDER, PEABODY EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation by investing in the equity issues of
developing markets in Asia, Latin America, the Middle East, Southern and
Eastern Europe and Africa.
KIDDER, PEABODY EQUITY INCOME FUND, INC.
Seeks a combination of long-term capital appreciation and high current dividend
and interest income by investing in the common stocks of U.S. companies.
KIDDER, PEABODY GLOBAL EQUITY FUND
Seeks long-term capital growth by investing primarily in non-U.S. securities.
KIDDER, PEABODY SMALL CAP EQUITY FUND
Seeks long-term capital appreciation by investing primarily in the stocks of
small-capitalization companies.
Bond Funds
----------------------------------------------------------
KIDDER, PEABODY ADJUSTABLE RATE GOVERNMENT FUND
Seeks high current income with low net asset value volatility by investing
primarily in adjustable-rate mortgage-backed securities that are issued or
guaranteed by the U.S. government and its agencies (including FNMA and GNMA).
KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
Seeks maximum total return consisting primarily of current income and,
secondarily, capital appreciation, by investing in intermediate-term U.S. debt
securities rated in the three highest categories by recognized rating agencies.
KIDDER, PEABODY GOVERNMENT INCOME FUND, INC.
Seeks high current income by investing primarily in fixed-income securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
KIDDER, PEABODY GLOBAL FIXED INCOME FUND
Seeks current income and capital appreciation by investing in fixed-income
securities primarily issued by U.S. and non-U.S. governments and authorities
and supranational organizations.
KIDDER, PEABODY MUNICIPAL BOND FUND
Seeks current income exempt from federal taxation consistent with the
preservation of capital by investing primarily in high-quality, tax-exempt
municipal securities.
Flexible Funds
----------------------------------------------------------
KIDDER, PEABODY ASSET ALLOCATION FUND
Seeks total return by investing in a strategically allocated portfolio of
common stocks included in the S&P 500 and/or U.S. treasury notes or U.S.
treasury bills.
Money Market Funds
----------------------------------------------------------
The following money markets funds all seek to maximize current income to the
extent possible consistent with preservation of capital and maintenance of
liquidity.
KIDDER, PEABODY PREMIUM ACCOUNT FUND
KIDDER, PEABODY CASH RESERVE FUND, INC.
KIDDER, PEABODY GOVERNMENT MONEY FUND, INC.
KIDDER, PEABODY TAX EXEMPT MONEY FUND, INC.
KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
KIDDER, PEABODY MUNICIPAL MONEY MARKET SERIES:
CONNECTICUT, NEW YORK, NEW JERSEY
(Each state fund is available only to residents of the related state.)
Please Note . . .
With respect to the Kidder, Peabody Adjustable Rate Government Fund, the Kidder,
Peabody Government Income Fund and the Kidder, Peabody money market funds, the
U.S. government guarantee applies to the timely payment of principal and
interest for the underlying securities, which are issued or guaranteed by the
U.S. government and not the fund itself. AN INVESTMENT IN ANY OF THE MONEY
MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. EACH
MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE, BUT THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO AT
ALL TIMES.
The return and principal value of an investment in any of the Kidder funds is
not guaranteed and will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Kidder, Peabody Tax Exempt Money Fund, Inc.
60 Broad Street
New York, New York 10004
Board of Directors
-------------------------------------------------------------
George V. Grune, Jr. William W. Hewitt, Jr.
Chairman of the Board Director
and President Thomas R. Jordan
David J. Beaubien Director
Director Carl W. Schafer
Director
Manager & Investment Adviser
-------------------------------------------------------------
Kidder Peabody Asset Management, Inc.
60 Broad Street, New York, New York 10004
Distributor
-------------------------------------------------------------
Kidder, Peabody & Co. Incorporated
10 Hanover Square, New York, New York 10005
Custodian, Transfer, Dividend & Recordkeeping Agent
-------------------------------------------------------------
Investors Fiduciary Trust Company
127 West 10th Street, Kansas City, Missouri 64105
Independent Auditors
-------------------------------------------------------------
Deloitte & Touche LLP
Two World Financial Center, New York, New York 10281
Legal Counsel
-------------------------------------------------------------
Stroock & Stroock & Lavan
7 Hanover Square, New York, New York 10004
This report is for the information of the shareholders of the Kidder,
Peabody Tax Exempt Money Fund, Inc., but it may also be used as sales
literature when preceded or accompanied by the current prospectus which
gives details about charges, expenses, and investment objectives of the
Fund.
KPTEM-2
Kidder,
Peabody
Tax
Exempt
Money
Fund,
Inc.
Annual Report
September 30, 1994
[Logo]
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as 'D'
<PAGE>
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
-------------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
MUNICIPAL BONDS AND NOTES - 102.76%
<C> <S> <C> <C>
Alabama - 3.42%
$11,715 Alabama Special Care Facility Finance Authority, City of Montgomery
Adjustable Rate Bonds ........................ 07/01/95 3.900%
14,900 Chatom Industrial Development Board (Alabama Electric),
Tax Exempt Commercial Paper ................... 7/20/95 to 09/12/95 3.750 to 4.200
3,500 Cherokee Industrial Refunding (The BOC Group),
Variable Rate Demand Notes .................... @ 5.000
13,600 Macintosh Industrial Development Board Pollution Control Revenue
Bonds (Ciba Geigy), Variable Rate Demand Notes. @ 4.200
18,000 Port City Medical Clinic Board (Mobile Infirmary Association),
Tax Exempt Commercial Paper ................... 08/11/95 to 09/19/95 3.700 to 4.200
6,000 St. Claire County (National Cement Co. Project II),
Variable Rate Demand Notes .................... @ 3.100
Alaska - 0.43%
4,200 Alaska Industrial Development Authority (Alaska Hotel),
Variable Rate Demand Notes .................... @ 6.250
4,400 Alaska Industrial Development & Export Authority (Sheldon College),
Variable Rate Demand Notes .................... @ 4.300
Arizona - 0.63%
3,500 Maricopa County Industrial Development Authority (Motorola) .......... 10/01/95 4.250
2,000 Maricopa County Pollution Control Revenue,
Tax Exempt Commercial Paper ................... 08/22/95 4.150
7,100 Maricopa County Pollution Control (Southern California Edison),
Tax Exempt Commercial Paper.................... 09/20/95 to 10/20/95 3.600 to 3.700
California - 8.01%
3,000 California Health Facilities Financing (Kaiser Permanente),
Variable Rate Demand Notes .................... @ 3.900
13,400 Callifornia Pollution Control Revenue Bonds (Pacific Gas & Electric),
Tax Exempt Commercial Paper.................... 08/28/95 4.150
11,250 California State Cash Reserve Program ................................ 07/05/95 4.500
5,000 California State Wide Community Development Authority
Tax and Revenue Anticipation Notes............. 07/17/95 4.500
22,700 California Student Loan Revenue
Adjustable Rate Bonds ......................... 07/01/95 to 07/01/96 3.900 to 4.350
11,600 California Higher Education Loan Authority (Student Loan),
Variable Rate Demand Notes .................... @ 3.900 to 4.100
3,000 City of San Diego Industrial Development Revenue Bonds (San Diego
Electric & Gas), Tax Exempt Commercial Paper,
Series A....................................... 09/01/95 3.050
3,125 Contra Costa County
Tax and Revenue Anticipation Notes............. 07/03/96 4.500
4,225 Grand Terrace Community Redevelopment Authority (Multi-Family Housing),
Variable Rate Demand Notes .................... @ 3.850
9,415 Loma Linda Hospital Revenue Bonds (Loma Linda Medical Center),
Variable Rate Demand Notes .................... @ 4.000
4,300 Los Angeles County
Tax and Revenue Anticipation Notes............. 07/01/96 to 07/03/96 4.500
9,158 Los Angeles Multi - Family Housing (Studio Colony),
Variable Rate Demand Notes .................... @ 3.800
23,575 Los Angeles County Unified School District
Tax and Revenue Anticipation Notes............. 07/05/95 to 07/03/96 4.500
3,500 Los Angeles Transportation Commission................................. @ 3.950
6,000 Santa Barbara County
Tax and Revenue Anticipation Notes............. 07/05/96 4.500
9,500 San Bernardino County
Tax and Revenue Anticipation Notes............. 07/05/96 4.500
9,200 San Francisco Redevelopment Agency Multi- Family (Bayside Village),
Variable Rate Demand Notes .................... @ 4.150
6,000 Stockton Unified School District
Tax and Revenue Anticipation Notes............. 12/08/95 5.250
<PAGE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -----------
MUNICIPAL BONDS AND NOTES - 102.76%
<C> <S> <C> <C> <C>
Alabama - 3.42%
$11,715 Alabama Special Care Facility Finance Authority, City of Montgomery
Adjustable Rate Bonds ....................... $11,715,000 $11,715,000
14,900 Chatom Industrial Development Board (Alabama Electric),
Tax Exempt Commercial Paper .................. $14,900,000 14,900,000
3,500 Cherokee Industrial Refunding (The BOC Group),
Variable Rate Demand Notes ................... 3,500,000 3,500,000
13,600 Macintosh Industrial Development Board Pollution Control Revenue
Bonds (Ciba Geigy), Variable Rate Demand Notes 13,600,000 13,600,000
18,000 Port City Medical Clinic Board (Mobile Infirmary Association),
Tax Exempt Commercial Paper .................. 16,800,000 1,200,000 18,000,000
6,000 St. Claire County (National Cement Co. Project II),
Variable Rate Demand Notes ................... 6,000,000 6,000,000
-----------------------------------------------------
45,300,000 22,415,000 67,715,000
-----------------------------------------------------
Alaska - 0.43%
4,200 Alaska Industrial Development Authority (Alaska Hotel),
Variable Rate Demand Notes ................... 4,200,000 4,200,000
4,400 Alaska Industrial Development & Export Authority (Sheldon College),
Variable Rate Demand Notes ................... 4,400,000 4,400,000
-----------------------------------------------------
4,400,000 4,200,000 8,600,000
-----------------------------------------------------
Arizona - 0.63%
3,500 Maricopa County Industrial Development Authority (Motorola) ......... 3,500,000 3,500,000
2,000 Maricopa County Pollution Control Revenue,
Tax Exempt Commercial Paper .................. 2,000,000 2,000,000
7,100 Maricopa County Pollution Control (Southern California Edison),
Tax Exempt Commercial Paper................... 7,100,000 7,100,000
-----------------------------------------------------
10,600,000 2,000,000 12,600,000
-----------------------------------------------------
California - 8.01%
3,000 California Health Facilities Financing (Kaiser Permanente),
Variable Rate Demand Notes ................... 3,000,000 3,000,000
13,400 Callifornia Pollution Control Revenue Bonds (Pacific Gas & Electric),
Tax Exempt Commercial Paper................... 13,400,000 13,400,000
11,250 California State Cash Reserve Program ............................... 3,750,297 7,500,295 11,250,592
5,000 California State Wide Community Development Authority
Tax and Revenue Anticipation Notes............ 5,001,477 5,001,477
22,700 California Student Loan Revenue
Adjustable Rate Bonds ........................ 22,700,000 22,700,000
11,600 California Higher Education Loan Authority (Student Loan),
Variable Rate Demand Notes ................... 9,100,000 2,500,000 11,600,000
3,000 City of San Diego Industrial Development Revenue Bonds (San Diego
Electric & Gas), Tax Exempt Commercial Paper,
Series A...................................... 3,000,000 3,000,000
3,125 Contra Costa County
Tax and Revenue Anticipation Notes............ 2,343,949 806,520 3,150,469
4,225 Grand Terrace Community Redevelopment Authority (Multi-Family
Housing Variable Rate Demand Notes ........... 4,225,000 4,225,000
9,415 Loma Linda Hospital Revenue Bonds (Loma Linda Medical Center),
Variable Rate Demand Notes ................... 9,415,000 9,415,000
4,300 Los Angeles County
Tax and Revenue Anticipation Notes............ 3,020,100 1,308,710 4,328,810
9,158 Los Angeles Multi - Family Housing (Studio Colony),
Variable Rate Demand Notes ................... 9,158,000 9,158,000
23,575 Los Angeles County Unified School District
Tax and Revenue Anticipation Notes............ 10,636,911 13,024,768 23,661,679
3,500 Los Angeles Transportation Commission................................ 3,500,000 3,500,000
6,000 Santa Barbara County
Tax and Revenue Anticipation Notes............ 4,530,690 1,510,230 6,040,920
9,500 San Bernardino County
Tax and Revenue Anticipation Notes............ 7,137,346 2,412,624 9,549,970
9,200 San Francisco Redevelopment Agency Multi- Family (Bayside Village),
Variable Rate Demand Notes ................... 9,200,000 9,200,000
6,000 Stockton Unified School District
Tax and Revenue Anticipation Notes............ 6,013,808 6,013,808
-----------------------------------------------------
129,132,578 29,063,147 158,195,725
-----------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
-------------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
<C> <S> <C> <C>
Colorado - 0.97%
3,000 Arapahoe County Capital Improvement Highway Trust Fund (E470 Project),
Adjustable Rate Bonds.......................... 08/30/95 4.450
1,500 Arapahoe County, Capital Improvement Project
Adjustable Rate Bonds ......................... 08/30/95 4.450
10,000 Colorado Housing Finance Authority (Grant Plaza Project),
Multi-Family Housing Revenue Bonds ............ @ 4.125
4,650 Colorado Housing Finance Authority (Hamden & Estes),
Multi-Family Housing Revenue Bonds ............ @ 4.000
Connecticut - 0.38%
300 Connecticut Development Authority (Connecticut Light & Power),
Variable Rate Demand Notes ................... @ 3.600
1,700 Connecticut Development Authority Health (Independent Living),
Variable Rate Demand Notes .................... @ 2.950 to 5.000
4,500 Connecticut Economic Recovery, Variable Rate Demand Notes, Series B... @ 3.700 to 3.950
100 Connecticut Health and Educational Facilities (Kent School),
Variable Rate Demand Notes .................... @ 3.800
865 Connecticut Special Tax Obligation, Variable Rate Demand Notes........ @ 4.000 to 5.000
Delaware - 0.64%
12,600 Delaware Economic Development Authority (Hospital Billing and
Collection Service, Ltd.), Variable Demand
Notes ......................................... @ 4.250
Florida - 9.25%
4,691 City of Gainsville Utility, Tax Exempt Commercial Paper............... 09/11/95 3.800
19,065 City of Orlando Waste Water System Revenue Bonds,
Tax Exempt Commercial Paper.................... 07/21/95 to 09/20/95 3.600 to 4.150
6,000 Florida Housing Finance Agency (Cyprus Project),
Variable Rate Demand Notes .................... @ 4.000
4,100 Florida League of Cities, Tax Exempt Commercial Paper................. 09/08/95 to 09/22/95 3.200 to 3.600
43,858 Florida Local Government Finance Commission,
Tax Exempt Commercial Paper.................... 08/08/95 to 9/12/95 3.600 to 4.250
32,700 Florida Municipal Loan Council
Tax Exempt Commercial Paper.................... 08/07/95 to 09/22/95 3.600 to 4.300
5,700 Jacksonville Electric Authority,
Tax Exempt Commercial Paper.................... 09/01/95 3.650
2,000 Orange County Health Facility Authority .............................. @ 4.900
19,300 Orange County Health Facilities Authority (Pooled Hospital),
Tax Exempt Commercial Paper.................... 07/19/95 to 07/29/95 4.200
4,200 Orange County Health Facilities (Mayflower Retirement Community),
Variable Rate Demand Notes .................... @ 4.100
4,100 Palm Beach Water & Sewer, Variable Rate Demand Notes ................. @ 3.550 to 5.000
1,700 Pinellas County Health Facilities Authority (Pooled Hospital Project),
Variable Rate Demand Notes .................... @ 4.200
8,000 Pinellas County Health Facilities Authority
Tax Exempt Commercial Paper.................... 08/09/95 4.200
1,200 Polk County Industrial Development Authority (IMC Fertilizer),
Variable Rate Demand Notes, Series A ......... @ 2.700
1,000 Polk County Industrial Development Authority (IMC Fertilizer),
Variable Rate Demand Notes, Series B ......... @ 2.700
8,900 Sarasota County Public Hospital District
Tax Exempt Commercial Paper.................... 07/28/95 to 08/23/95 4.100 to 4.150
16,100 Sunshine State Government Finance Commission,
Tax Exempt Commercial Paper.................... 07/21/95 to 09/01/95 3.300 to 4.100
Georgia - 2.78%
3,600 Brunswick & Glynn County Development Authority (Jekyll Development
Association), Variable Rate Demand Notes....... @ 3.800
6,000 Burke County Development Authority Pollution Control (Oglethorpe
Power Corp.), Variable Rate Demand Notes ...... @ 4.200
2,795 Clayton County Rivers Edge Development................................ @ 4.100
11,600 DeKalb County Multi Family Housing (Wood Broch) ...................... @ 4.000
4,194 Georgia Municipal Association Pooled Revenue Bonds ................... @ 4.250
18,000 Georgia Municipal Gas Authority
Tax-Exempt Commercial Paper.................... 08/17/95 to 09/12/95 3.300 to 3.950
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -----------
<C> <S> <C> <C> <C>
Colorado - 0.97%
3,000 Arapahoe County Capital Improvement Highway Trust Fund (E470 Project),
Adjustable Rate Bonds.......................... 3,000,000 3,000,000
1,500 Arapahoe County, Capital Improvement Project
Adjustable Rate Bonds ......................... 1,500,000 1,500,000
10,000 Colorado Housing Finance Authority (Grant Plaza Project),
Multi-Family Housing Revenue Bonds ............ 10,000,000 10,000,000
4,650 Colorado Housing Finance Authority (Hamden & Estes),
Multi-Family Housing Revenue Bonds ............ 4,650,000 4,650,000
-----------------------------------------------------
17,650,000 1,500,000 19,150,000
-----------------------------------------------------
Connecticut - 0.38%
300 Connecticut Development Authority (Connecticut Light & Power),
Variable Rate Demand Notes ................... 300,000 300,000
1,700 Connecticut Development Authority Health (Independent Living),
Variable Rate Demand Notes .................... 1,700,000 1,700,000
4,500 Connecticut Economic Recovery, Variable Rate Demand Notes, Series B... 3,800,000 700,000 4,500,000
100 Connecticut Health and Educational Facilities (Kent School),
Variable Rate Demand Notes .................... 100,000 100,000
865 Connecticut Special Tax Obligation, Variable Rate Demand Notes........ 865,000 865,000
-----------------------------------------------------
3,900,000 3,565,000 7,465,000
-----------------------------------------------------
Delaware - 0.64%
12,600 Delaware Economic Development Authority (Hospital Billing and
Collection Service, Ltd.), Variable Demand
Notes ......................................... 12,600,000 12,600,000
-----------------------------------------------------
Florida - 9.25%
4,691 City of Gainsville Utility, Tax Exempt Commercial Paper............... 4,691,000 4,691,000
19,065 City of Orlando Waste Water System Revenue Bonds,
Tax Exempt Commercial Paper.................... 14,065,000 5,000,000 19,065,000
6,000 Florida Housing Finance Agency (Cyprus Project),
Variable Rate Demand Notes .................... 6,000,000 6,000,000
4,100 Florida League of Cities, Tax Exempt Commercial Paper................. 4,100,000 4,100,000
43,858 Florida Local Government Finance Commission,
Tax Exempt Commercial Paper.................... 37,865,000 5,993,470 43,858,470
32,700 Florida Municipal Loan Council
Tax Exempt Commercial Paper.................... 32,700,000 32,700,000
5,700 Jacksonville Electric Authority,
Tax Exempt Commercial Paper.................... 5,700,000 5,700,000
2,000 Orange County Health Facility Authority .............................. 2,000,000 2,000,000
19,300 Orange County Health Facilities Authority (Pooled Hospital),
Tax Exempt Commercial Paper.................... 19,300,000 19,300,000
4,200 Orange County Health Facilities (Mayflower Retirement Community),
Variable Rate Demand Notes .................... 4,200,000 4,200,000
4,100 Palm Beach Water & Sewer, Variable Rate Demand Notes ................. 1,100,000 3,000,000 4,100,000
1,700 Pinellas County Health Facilities Authority (Pooled Hospital Project),
Variable Rate Demand Notes .................... 1,700,000 1,700,000
8,000 Pinellas County Health Facilities Authority
Tax Exempt Commercial Paper.................... 8,000,000 8,000,000
1,200 Polk County Industrial Development Authority (IMC Fertilizer),
Variable Rate Demand Notes, Series A ......... 1,200,000 1,200,000
1,000 Polk County Industrial Development Authority (IMC Fertilizer),
Variable Rate Demand Notes, Series B ......... 1,000,000 1,000,000
8,900 Sarasota County Public Hospital District
Tax Exempt Commercial Paper.................... 8,900,000 8,900,000
16,100 Sunshine State Government Finance Commission,
Tax Exempt Commercial Paper.................... 10,400,000 5,700,000 16,100,000
-----------------------------------------------------
144,230,000 38,384,470 182,614,470
-----------------------------------------------------
Georgia - 2.78%
3,600 Brunswick & Glynn County Development Authority (Jekyll Development
Association), Variable Rate Demand Notes....... 3,600,000 3,600,000
6,000 Burke County Development Authority Pollution Control (Oglethorpe
Power Corp.), Variable Rate Demand Notes ...... 6,000,000 6,000,000
2,795 Clayton County Rivers Edge Development................................ 2,795,000 2,795,000
11,600 DeKalb County Multi Family Housing (Wood Broch) ...................... 5,800,000 5,800,000 11,600,000
4,194 Georgia Municipal Association Pooled Revenue Bonds ................... 4,194,402 4,194,402
18,000 Georgia Municipal Gas Authority
Tax-Exempt Commercial Paper.................... 18,000,000 18,000,000
</TABLE>
2
<PAGE>
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
-------------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
<C> <S> <C> <C>
100 Georgia State Hospital Finance Authority ............................. @ 4.600
1,900 Gwinnett County (Greens Apartment),
Variable Rate Demand Notes, Series 1985........ @ 5.000
5,000 Richmond County Development Authority (The BOC Group Inc. Project),
Variable Rate Demand Notes .................... @ 5.000
1,800 Savannah Port Authority, Variable Rate Demand Notes .................. @ 3.800
Idaho - 0.13%
2,500 Idaho Health and Education Facilities Authority Revenue (St Lukes),
Variable Rate Demand Notes .................... @ 4.300
Illinois - 9.95%
16,000 Chicago O'Hare International Airport
Revenue Bonds ................................. @ 4.000 to 4.500
10,000 City of Chicago Equipment Tender Notes
Tax-Exempt Commercial Paper.................... 09/21/95 to 11/27/95 3.900 to 4.300
5,000 Cook County Community College District ............................... 12/01/95 6.900
6,100 Decatur Water Revenue Bonds
Tax-Exempt Commercial Paper.................... 07/31/95 4.150
5,000 Illinois Development Finance Authority (Commonwealth Edison
Variable Rate Demand Notes .................... @ 4.750
1,210 Illinois Development Finance Authority (Amoco),
Variable Rate Demand Notes .................... @ 3.400
6,500 Illinois Development Finance Authority, Economic Revenue
(CPL/Downers Grove Variable Rate Demand Notes.. @ 5.000
5,650 Illinois Development Finance Authority (Safety Education Foundation
Variable Rate Demand Notes .................... @ 2.400
4,900 Illinois Development Finance Authority Industrial Revenue
(Bridgestone/Firestone),
Variable Rate Demand Notes .................... @ 4.250
10,500 Illinois Development Finance Authority Pollution Control Revenue
(Illinois Power), Tax Exempt Commercial Paper.. 08/08/95 to 09/01/95 3.900 to 4.150
12,995 Illinois Educational Facilities Authority Revenue (Northwestern
University), Variable Rate Demand Notes ....... @ 4.050 to 4.150
5,000 Illinois Educational Facilities Authority Revenue (Field Museum of
National History), Adjustable Rate Bonds ...... 09/07/95 4.250
21,900 Illinois Health Facility Authority (Central Dupage Hospital
Variable Rate Demand Notes .................... @ 4.000 to 4.350
5,000 Illinois Health Facilities Authority Revenue (Evanston Hospital),
Tax-Exempt Commercial Paper.................... 08/15/95 4.200
12,000 Illinois Health Facility Authority Revenue (Evanston Hospital),
Adjustable Rate Bonds ........................ 01/31/96 to 05/31/96 3.650 to 4.000
5,080 Illinois Health Facility Authority Revenue ( Ingalls Hospital),
Variable Rate Demand Notes .................... @ 4.350 to 4.500
21,060 Illinois Health Facility Authority Revenue (Elmhurst Hospital),
Variable Rate Demand Notes .................... @ 4.350
3,900 Illinois Health Facilities Authority Revenue (Franciscan Sisters),
Variable Rate Demand Notes .................... @ 4.350
2,300 Illinois Health Facilities Authority Revenue (Health Corporation),
Variable Rate Demand Notes .................... @ 4.500
4,200 Illinois Health Facilities Authority Revenue (Evangelical Hospital),
Variable Rate Demand Notes .................... @ 4.300
5,700 Illinois Health Facilities Authority Revenue (Methodist Medical
Center), Variable Rate Demand Notes ........... @ 4.250
5,000 Illinois State General Obligation Bonds .............................. 08/01/95 4.400
4,000 Joliet Pollution Control Supply Revenue (Peoples Gas, Lite & Coke),
Adjustable Rate Bonds.......................... 10/01/95 4.200
9,000 Lisle Multi- Family Housing Revenue Bonds............................. @ 4.000
4,500 Lislee Multi-Family Housing Revenue (Ashley of Lislee Project),
Variable Rate Demand Notes .................... @ 2.250
4,000 Tinley Park Housing Authority (Edgewater Walk Phase III A & B)
Variable Rate Demand Notes, Series 1984........ @ 3.700
Indiana - 4.31%
3,900 Hammond Pollution Control Revenue (Amoco),
Variable Rate Demand Notes .................... @ 4.150 to 4.200
18,690 Hoosier City of Sullivan National Rural Utilities Cooperative Finance
(Hoosier Energy), Tax Exempt Commercial Paper.. 07/25/95 to 10/20/95 3.300 to 4.150
<PAGE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -----------
<C> <S> <C> <C> <C>
100 Georgia State Hospital Finance Authority ............................ 100,000 100,000
1,900 Gwinnett County (Greens Apartment),
Variable Rate Demand Notes, Series 1985....... 1,900,000 1,900,000
5,000 Richmond County Development Authority (The BOC Group Inc. Project),
Variable Rate Demand Notes ................... 5,000,000 5,000,000
1,800 Savannah Port Authority, Variable Rate Demand Notes ................. 1,800,000 1,800,000
-----------------------------------------------------
36,789,402 18,200,000 54,989,402
-----------------------------------------------------
Idaho - 0.13%
2,500 Idaho Health and Education Facilities Authority Revenue (St Lukes),
Variable Rate Demand Notes ................... 2,500,000 2,500,000
-----------------------------------------------------
Illinois - 9.95%
16,000 Chicago O'Hare International Airport
Revenue Bonds ................................ 16,000,000 16,000,000
10,000 City of Chicago Equipment Tender Notes
Tax-Exempt Commercial Paper................... 9,000,000 1,000,000 10,000,000
5,000 Cook County Community College District .............................. 5,054,607 5,054,607
6,100 Decatur Water Revenue Bonds
Tax-Exempt Commercial Paper................... 6,100,000 6,100,000
5,000 Illinois Development Finance Authority (Commonwealth Edison
Variable Rate Demand Notes ................... 5,000,000 5,000,000
1,210 Illinois Development Finance Authority (Amoco),
Variable Rate Demand Notes ................... 1,210,000 1,210,000
6,500 Illinois Development Finance Authority, Economic Revenue
(CPL/Downers Grove Variable Rate Demand Notes. 6,500,000 6,500,000
5,650 Illinois Development Finance Authority (Safety Education Foundation
Variable Rate Demand Notes ................... 5,650,000 5,650,000
4,900 Illinois Development Finance Authority Industrial Revenue
(Bridgestone/Firestone),
Variable Rate Demand Notes ................... 4,900,000 4,900,000
10,500 Illinois Development Finance Authority Pollution Control Revenue
(Illinois Power), Tax Exempt Commercial Paper. 10,500,000 10,500,000
12,995 Illinois Educational Facilities Authority Revenue (Northwestern
University), Variable Rate Demand Notes ...... 12,995,000 12,995,000
5,000 Illinois Educational Facilities Authority Revenue (Field Museum of
National History), Adjustable Rate Bonds ..... 5,000,000 5,000,000
21,900 Illinois Health Facility Authority (Central Dupage Hospital
Variable Rate Demand Notes ................... 20,600,000 1,300,000 21,900,000
5,000 Illinois Health Facilities Authority Revenue (Evanston Hospital),
Tax-Exempt Commercial Paper................... 5,000,000 5,000,000
12,000 Illinois Health Facility Authority Revenue (Evanston Hospital),
Adjustable Rate Bonds ....................... 11,000,000 1,000,000 12,000,000
5,080 Illinois Health Facility Authority Revenue ( Ingalls Hospital),
Variable Rate Demand Notes ................... 4,180,000 900,000 5,080,000
21,060 Illinois Health Facility Authority Revenue (Elmhurst Hospital),
Variable Rate Demand Notes ................... 20,460,000 600,000 21,060,000
3,900 Illinois Health Facilities Authority Revenue (Franciscan Sisters),
Variable Rate Demand Notes ................... 3,900,000 3,900,000
2,300 Illinois Health Facilities Authority Revenue (Health Corporation),
Variable Rate Demand Notes ................... 2,300,000 2,300,000
4,200 Illinois Health Facilities Authority Revenue (Evangelical Hospital),
Variable Rate Demand Notes ................... 4,200,000 4,200,000
5,700 Illinois Health Facilities Authority Revenue (Methodist Medical
Center), Variable Rate Demand Notes .......... 5,700,000 5,700,000
5,000 Illinois State General Obligation Bonds ............................. 4,003,189 1,000,746 5,003,935
4,000 Joliet Pollution Control Supply Revenue (Peoples Gas, Lite & Coke),
Adjustable Rate Bonds......................... 4,000,000 4,000,000
9,000 Lisle Multi- Family Housing Revenue Bonds............................ 9,000,000 9,000,000
4,500 Lislee Multi-Family Housing Revenue (Ashley of Lislee Project),
Variable Rate Demand Notes ................... 4,500,000 4,500,000
4,000 Tinley Park Housing Authority (Edgewater Walk Phase III A & B)
Variable Rate Demand Notes, Series 1984....... 4,000,000 4,000,000
-----------------------------------------------------
163,892,796 32,660,746 196,553,542
-----------------------------------------------------
Indiana - 4.31%
3,900 Hammond Pollution Control Revenue (Amoco),
Variable Rate Demand Notes ................... 2,500,000 1,400,000 3,900,000
18,690 Hoosier City of Sullivan National Rural Utilities Cooperative Finance
(Hoosier Energy), Tax Exempt Commercial Paper. 15,590,000 3,100,000 18,690,000
</TABLE>
3
<PAGE>
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
-------------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
<C> <S> <C> <C>
1,500 Indianapolis Local Public Improvement Bonds ......................... 01/01/96 4.250
1,600 Indiana Health Facility Finance Authority (Capital Access),
Variable Rate Demand Notes ................... @ 4.500
1,500 Indiana Health Facility Finance Authority (Methodist
Hospit Variable Rate Demand Notes ............ @ 5.000
4,000 Indiana Health Facility Hospital Revenue (Rehabilitation
Hospital of Indiana),
Variable Rate Demand Notes ................... @ 3.850
1,600 Indiana Hospital Equipment Facility Finance Authority................ @ 4.500
1,700 Jasper County Pollution Control Revenue (Northern
Indiana Public Service),
Variable Rate Demand Notes ................... @ 4.200 to 4.600
22,160 Jasper County Pollution Control Revenue (Northern Indiana Public
Service), Tax Exempt Commercial Paper......... 08/04/95 to 10/13/95 3.600 to 4.150
8,000 Mt. Vernon Pollution Control Revenue (Southern Indiana Gas Co.),
Adjustable Rate Bonds......................... 05/01/96 4.600
10,200 Northumberland County Industrial Development......................... @ 4.250
4,225 Petersburg Pollution Control Revenue (Indianapolis Power and Light),
Tax-Exempt Commercial Paper................... 08/22/95 4.150
6,000 Rockport Pollution Control Revenue (AEP Generating Station),
Adjustable Rate Bonds......................... 09/01/95 6.625
Kansas - 0.83%
16,400 Burlington Pollution Control Revenue (Kansas City Power & Light),
Tax Exempt Commercial Paper................... 08/04/95 to 09/14/95 3.150 to 4.150
Kentucky - 2.37%
3,000 Jefferson County Pollution Control Revenue Bonds (Louisville Gas &
Electric Tax Exempt Commercial Paper.......... 09/07/95 to 10/20/95 3.600 to 3.700
12,100 Pendleton County Multi County (Association of Leasing Program),
Adjustable Rate Bonds ........................ 07/25/95 to 07/01/96 4.000 to 4.250
11,885 Pendleton County Multi County (Association of Leasing Program),
Tax Exempt Commercial Paper................... 07/01/96 4.000
19,815 Trimble County Pollution Control Revenue Bond (Louiseville Gas &
Electric), Tax Exempt Commercial Paper........ 07/28/95 to 09/19/95 3.650 to 4.150
Louisiana - 2.31%
1,000 Ascension Parish (Shell Oil),
Variable Rate Demand Notes ................... @ 2.900
8,000 East Baton Rouge Pollution Control (Exxon),
Variable Rate Demand Notes ................... @ 4.250
9,465 Louisiana Offshore Terminal Port Authority
Variable Rate Demand Notes ................... @ 3.850 to 4.200
12,000 Louisiana Public Facilities Authority Pollution Control Revenue
(Ciba Geigy), Variable Rate Demand Notes ..... @ 4.000
6,200 New Orleans Exhibition Hall Hotel
Variable Rate Demand Notes ................... @ 4.150
5,000 Plaquemines Port Harbor and Terminal District (International Marine
Terminal), Adjustable Rate Bonds.............. 09/01/95 4.300
4,000 State of Louisiana
Tax-Exempt Commercial Paper................... 09/13/95 3.600
Maryland - 2.27%
5,000 Baltimore County Consolidated Public Improvement,
Tax Exempt Commercial Paper................... 09/07/95 4.150
17,800 Howard County Public Improvement,
Tax Exempt Commercial Paper................... 07/31/95 to 09/22/95 3.550 to 4.100
12,000 Maryland Health and Higher Education Facilities Revenue (John Hopkins
Hospital), Tax Exempt Commercial Paper........ 09/08/95 3.950
10,000 Maryland State Health and Higher Education Facilities Revenue (Pooled
Loan Program), Variable Rate Demand Notes .... @ 4.300
Massachusetts- 2.64%
20,185 Massachusetts Health and Education (Harvard University),
Variable Rate Demand Notes .................... @ 3.550
<PAGE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- ------------
<C> <S> <C> <C> <C>
1,500 Indianapolis Local Public Improvement Bonds ......................... 1,505,787 1,505,787
1,600 Indiana Health Facility Finance Authority (Capital Access),
Variable Rate Demand Notes ................... 1,600,000 1,600,000
1,500 Indiana Health Facility Finance Authority (Methodist
Hospit Variable Rate Demand Notes ............ 1,500,000 1,500,000
4,000 Indiana Health Facility Hospital Revenue (Rehabilitation
Hospital of Indiana),
Variable Rate Demand Notes ................... 4,000,000 4,000,000
1,600 Indiana Hospital Equipment Facility Finance Authority................ 1,600,000 1,600,000
1,700 Jasper County Pollution Control Revenue (Northern
Indiana Public Service),
Variable Rate Demand Notes ................... 500,000 1,200,000 1,700,000
22,160 Jasper County Pollution Control Revenue (Northern Indiana Public
Service), Tax Exempt Commercial Paper......... 16,000,000 6,160,000 22,160,000
8,000 Mt. Vernon Pollution Control Revenue (Southern Indiana Gas Co.),
Adjustable Rate Bonds......................... 8,000,000 8,000,000
10,200 Northumberland County Industrial Development......................... 10,200,000 10,200,000
4,225 Petersburg Pollution Control Revenue (Indianapolis Power and
Light), Tax-Exempt Commercial Paper........... 4,225,000 4,225,000
6,000 Rockport Pollution Control Revenue (AEP Generating Station),
Adjustable Rate Bonds......................... 6,022,184 6,022,184
---------------------------------------------------
70,237,184 14,865,787 85,102,971
---------------------------------------------------
Kansas - 0.83%
16,400 Burlington Pollution Control Revenue (Kansas City Power & Light),
Tax Exempt Commercial Paper................... 1,300,000 5,100,000 16,400,000
---------------------------------------------------
Kentucky - 2.37%
3,000 Jefferson County Pollution Control Revenue Bonds (Louisville Gas &
Electric Tax Exempt Commercial Paper.......... 3,000,000 3,000,000
12,100 Pendleton County Multi County (Association of Leasing Program),
Adjustable Rate Bonds ........................ 10,400,000 1,700,000 12,100,000
11,885 Pendleton County Multi County (Association of Leasing Program),
Tax Exempt Commercial Paper................... 11,885,000 11,885,000
19,815 Trimble County Pollution Control Revenue Bond (Louiseville Gas &
Electric), Tax Exempt Commercial Paper........ 16,815,000 3,000,000 19,815,000
---------------------------------------------------
30,215,000 16,585,000 46,800,000
---------------------------------------------------
Louisiana - 2.31%
1,000 Ascension Parish (Shell Oil),
Variable Rate Demand Notes ................... 1,000,000 1,000,000
8,000 East Baton Rouge Pollution Control (Exxon),
Variable Rate Demand Notes ................... 8,000,000 8,000,000
9,465 Louisiana Offshore Terminal Port Authority
Variable Rate Demand Notes ................... 9,265,000 200,000 9,465,000
12,000 Louisiana Public Facilities Authority Pollution Control Revenue
(Ciba Geigy), Variable Rate Demand Notes ..... 12,000,000 12,000,000
6,200 New Orleans Exhibition Hall Hotel
Variable Rate Demand Notes ................... 6,200,000 6,200,000
5,000 Plaquemines Port Harbor and Terminal District (International Marine
Terminal), Adjustable Rate Bonds.............. 5,000,000 5,000,000
4,000 State of Louisiana
Tax-Exempt Commercial Paper................... 4,000,000 4,000,000
---------------------------------------------------
44,465,000 1,200,000 45,665,000
---------------------------------------------------
Maryland - 2.27%
5,000 Baltimore County Consolidated Public Improvement,
Tax Exempt Commercial Paper................... 3,000,000 2,000,000 5,000,000
17,800 Howard County Public Improvement,
Tax Exempt Commercial Paper................... 13,800,000 4,000,000 17,800,000
12,000 Maryland Health and Higher Education Facilities Revenue (John Hopkins
Hospital), Tax Exempt Commercial Paper........ 10,000,000 2,000,000 12,000,000
10,000 Maryland State Health and Higher Education Facilities Revenue (Pooled
Loan Program), Variable Rate Demand Notes .... 10,000,000 10,000,000
---------------------------------------------------
36,800,000 8,000,000 44,800,000
---------------------------------------------------
Massachusetts- 2.64%
20,185 Massachusetts Health and Education (Harvard University),
Variable Rate Demand Notes ................... 16,185,000 4,000,000 20,185,000
</TABLE>
4
<PAGE>
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
-------------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
<C> <S> <C> <C>
2,000 Massachusetts Health & Education (Fallon Hospital),
Tax Exempt Commercial Paper................... 07/26/95 3.950
29,900 Massachusetts Water Resource Authority,
Tax Exempt Commercial Paper................... 07/07/95 to 09/21/95 3.550 to 4.300
Michigan - 2.56%
5,100 Delta Economic Development Corp. (Mead Escambia),
Variable Rate Demand Notes ................... @ 4.050
5,000 Michigan General Obligation Bonds ................................... 09/29/95 5.000
1,900 Michigan Higher Education Facilities Authority (Pooled Hospital),
Variable Rate Demand Notes ................... @ 4.050
8,100 Michigan Hospital Finance Authority (Chelsea Community Hospital),
Variable Rate Demand Notes ................... @ 3.500 to 3.900
6,000 Michigan Municipal Bond Authority Notes ............................. 07/03/96 4.250 to 4.500
6,000 Michigan State Building Authority
Tax Exempt Commercial Paper................... 07/26/95 4.300
1,300 Michigan Strategic Fund, Variable Demand Notes ...................... @ 3.700
3,000 Northville Township Industrial Revenue Bond (Thrifty Northville),
Variable Rate Demand Notes ................... @ 4.200
10,000 State of Michigan Notes.............................................. 09/29/95 5.000
4,070 Wayne County (Down River Sewerage),
Tax Exempt Commercial Paper................... 08/21/95 4.250
Minnesota - 1.59%
31,475 University of Minnesota Board of Regents,
Tax Exempt Commercial Paper................... 07/24/95 to 08/22/95 4.100 to 4.150
Mississippi - 0.80%
3,775 Claiborne County Pollution Control Revenue (South Mississippi
Electric), Tax Exempt Commercial Paper........ 08/07/95 4.000
5,600 Harrison County Pollution Control (Dupont),
Variable Rate Demand Notes ................... @ 4.200
6,500 Perry County Pollution Control Revenue (Leaf River Forest Project),
Variable Rate Demand Notes ................... @ 3.450
Missouri - 2.71%
3,000 Columbia Water & Electric Revenue Bonds
Variable Rate Demand Notes .................... @ 4.250
3,500 Missouri Economic Development Export & Infrastructural Board (St.
Louis County), Adjustable Rate Notes .......... 08/01/95 3.950
14,400 Missouri Health & Education Facilities Authority (Washington
University), Variable Rate Demand Notes ....... @ 4.000 to 4.600
10,300 Missouri Health & Education Facilities Authority (SSM Healthcare),
Tax-Exempt Commercial Paper.................... 08/25/95 to 09/25/95 3.900
3,100 Missouri Health & Education Facilities Authority (St. Louis
University), Variable Rate Demand Notes ....... @ 4.500
13,105 Missouri Environment Pollution Control Revenue Bonds (Union
Electric), Tax-Exempt Commercial Paper......... 07/25/95 to 06/01/95 4.000 to 4.150
1,070 Missouri Environmental Improvement Authority (Union Electric),
Adjustable Rate Bonds, Series 1985 A .......... 06/01/96 4.000
5,000 Independence Water Utility Revenue Bond,
Tax Exempt Commercial Paper.................... 07/21/95 to 09/07/95 3.500 to 4.150
Nebraska - 0.08%
1,610 Omaha Public Power District Electric
Tax Exempt Commercial Paper.................... 10/20/95 3.700
Nevada- 0.76%
15,000 Clark County Airport Improvement Revenue Bonds....................... @ 4.200
New Hampshire - 0.24%
4,700 New Hampshire Higher Education Authority (Darmouth College),
Adjustable Rate Bonds ................................. 06/01/96 4.100
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -------------
<C> <S> <C> <C> <C>
2,000 Massachusetts Health & Education (Fallon Hospital),
Tax Exempt Commercial Paper................. 2,000,000 2,000,000
29,900 Massachusetts Water Resource Authority,
Tax Exempt Commercial Paper................. 19,500,000 10,400,000 29,900,000
37,685,000 14,400,000 52,085,000
Michigan - 2.56%
5,100 Delta Economic Development Corp. (Mead Escambia),
Variable Rate Demand Notes ................. 5,100,000 5,100,000
5,000 Michigan General Obligation Bonds ................................. 5,010,542 5,010,542
1,900 Michigan Higher Education Facilities Authority (Pooled Hospital),
Variable Rate Demand Notes ................. 1,900,000 1,900,000
8,100 Michigan Hospital Finance Authority (Chelsea Community Hospital),
Variable Rate Demand Notes ................. 4,900,000 3,200,000 8,100,000
6,000 Michigan Municipal Bond Authority Notes ........................... 4,530,330 1,510,110 6,040,440
6,000 Michigan State Building Authority
Tax Exempt Commercial Paper................. 6,000,000 6,000,000
1,300 Michigan Strategic Fund, Variable Demand Notes .................... 1,300,000 1,300,000
3,000 Northville Township Industrial Revenue Bond (Thrifty Northville),
Variable Rate Demand Notes ................. 3,000,000 3,000,000
10,000 State of Michigan Notes............................................ 10,021,563 10,021,563
4,070 Wayne County (Down River Sewerage),
Tax Exempt Commercial Paper................. 4,070,000 4,070,000
-----------------------------------------------------
34,421,893 16,120,652 50,542,545
-----------------------------------------------------
Minnesota - 1.59%
31,475 University of Minnesota Board of Regents,
Tax Exempt Commercial Paper................. 27,450,000 4,025,000 31,475,000
-----------------------------------------------------
Mississippi - 0.80%
3,775 Claiborne County Pollution Control Revenue (South Mississippi
Electric), Tax Exempt Commercial Paper...... 3,775,000 3,775,000
5,600 Harrison County Pollution Control (Dupont),
Variable Rate Demand Notes ................. 5,600,000 5,600,000
6,500 Perry County Pollution Control Revenue (Leaf River Forest Project),
Variable Rate Demand Notes ................. 6,500,000 6,500,000
-----------------------------------------------------
9,375,000 6,500,000 15,875,000
-----------------------------------------------------
Missouri - 2.71%
3,000 Columbia Water & Electric Revenue Bonds
Variable Rate Demand Notes .................. 3,000,000 3,000,000
3,500 Missouri Economic Development Export & Infrastructural Board (St.
Louis County), Adjustable Rate Notes ........ 3,500,000 3,500,000
14,400 Missouri Health & Education Facilities Authority (Washington
University), Variable Rate Demand Notes ..... 14,400,000 14,400,000
10,300 Missouri Health & Education Facilities Authority (SSM Healthcare),
Tax-Exempt Commercial Paper.................. 10,300,000 10,300,000
3,100 Missouri Health & Education Facilities Authority (St. Louis
University), Variable Rate Demand Notes ..... 3,100,000 3,100,000
13,105 Missouri Environment Pollution Control Revenue Bonds (Union
Electric), Tax-Exempt Commercial Paper....... 13,105,000 13,105,000
1,070 Missouri Environmental Improvement Authority (Union Electric),
Adjustable Rate Bonds, Series 1985 A ........ 1,070,000 1,070,000
5,000 Independence Water Utility Revenue Bond,
Tax Exempt Commercial Paper.................. 2,000,000 3,000,000 5,000,000
-----------------------------------------------------
49,405,000 4,070,000 53,475,000
-----------------------------------------------------
Nebraska - 0.08%
1,610 Omaha Public Power District Electric
Tax Exempt Commercial Paper.................. 1,610,000 1,610,000
-----------------------------------------------------
Nevada- 0.76%
15,000 Clark County Airport Improvement Revenue Bonds..................... 15,000,000 15,000,000
-----------------------------------------------------
New Hampshire - 0.24%
4,700 New Hampshire Higher Education Authority (Darmouth College),
Adjustable Rate Bonds ....................... 3,700,000 1,000,000 4,700,000
-----------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
-------------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
<C> <S> <C> <C>
New Jersey - 0.10%
700 New Jersey Economic Development Authority (Burmah Control).
Variable Rate Demand Notes ................. @ 3.900
600 New Jersey Economic Development Authority (Exxon),
Variable Rate Demand Notes ................. @ 4.050
700 Union County Industrial Pollution Control (Exxon),
Variable Rate Demand Notes ................. @ 4.350
New Mexico - 0.42%
4,500 Albuquerque (Gross Receipts), Variable Rate Demand Notes ......... @ 3.000
3,800 Dona Ana County Pollution Control Revenue Bonds
Variable Rate Demand Notes ................. @ 3.900
New York - 4.13%
17,000 New York City
Tax Exempt Commercial Paper................. 07/28/95 to 08/18/95 4.100 to 4.200
8,400 New York City, New York (Related 96th St.), Variable
Rate Demand Notes........................... @ 3.600
10,600 New York City Water
Tax Exempt Commercial Paper................. 07/27/95 to 08/25/95 4.150
12,235 New York City
Variable Rate Demand Notes ................. @ 3.450 to 4.000
18,100 New York State, Series I,
Tax Exempt Commercial Paper ................ 08/10/95 to 08/14/95 3.750
1,500 New York State Dormitory Authority Revenue Bonds (Oxford
University Press) Variable Rate Demand
Notes ...................................... @ 4.500 to 5.250
800 New York State Dormitory Authority Revenue Bonds (St. Francis),
Variable Rate Demand Notes ................. @ 4.100
7,800 New York State Dormitory Authority Revenue Bonds (Museum of
Modern Art), Variable Rate Demand Notes .... @ 3.900
2,000 New York State Energy Research and Development Authority
Pollution Control Revenue Bonds (Niagara
Mohawk), Variable Demand.................... @ 4.200 to 4.550
3,000 Triborough Bridge & Tunnel Authority (Convention Center
Project), Pre-Refunded Bonds, Series D...... 07/01/95 9.000
North Carolina - 1.86%
9,200 Charlotte Airport Revenue Bonds
Variable Rate Demand Notes ................. @ 4.200
6,000 North Carolina Educational Facility (Duke University),
Variable Rate Demand Notes ................. @ 3.450 to 3.950
8,900 North Carolina Education and Medicare (Duke University),
Variable Rate Demand Notes ................. @ 3.950
4,600 North Carolina Educational Facility (Guilford College),
Variable Rate Demand Notes ................. @ 4.200
8,000 Wake County Pollution Control Revenue (Carolina Power & Light),
Tax-Exempt Commercial Paper................. 09/08/95 4.200
North Dakota - 1.01%
20,000 Grand Forks Hospital Facilities Revenue (United Hospital),
Variable Rate Demand Notes ................. @ 4.000 to 4.350
Ohio - 0.38%
7,525 Montgomery County Hospital Revenue (Miami Valley Hospital),
Tax Exempt Commercial Paper................. 08/11/95 to 10/11/95 3.750 to 4.150
Oklahoma - 1.58%
4,000 Oklahoma County Industrial Authority Revenue (Baptist Hospital),
Adjustable Rate Bonds....................... 09/01/95 4.150
5,000 Oklahoma Water Resources Board, Adjustable Rate Bonds ............ 09/01/95 4.500
10,770 Tulsa Industrial Authority Hospital Revenue
(Hillcrest Hospital), Variable
Rate Demand Notes .......................... @ 3.500 to 4.150
6,520 Tulsa Industrial Development Authority (St. Johns Physician),
Adjustable Rate Bonds ...................... 11/01/95 4.350
5,000 Tulsa Parking Authority Revenue (Williams Center),
Adjustable Rate Bond......................... 11/15/95 4.300
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -------------
<C> <S> <C> <C> <C>
New Jersey - 0.10%
700 New Jersey Economic Development Authority (Burmah Control).
Variable Rate Demand Notes ................. 700,000 700,000
600 New Jersey Economic Development Authority (Exxon),
Variable Rate Demand Notes ................. 600,000 600,000
700 Union County Industrial Pollution Control (Exxon),
Variable Rate Demand Notes ................. 700,000 700,000
-----------------------------------------------------
1,300,000 700,000 2,000,000
-----------------------------------------------------
New Mexico - 0.42%
4,500 Albuquerque (Gross Receipts), Variable Rate Demand Notes ......... 4,500,000 4,500,000
3,800 Dona Ana County Pollution Control Revenue Bonds
Variable Rate Demand Notes ................. 3,800,000 3,800,000
-----------------------------------------------------
3,800,000 4,500,000 8,300,000
---------------------------------------------------
New York - 4.13%
17,000 New York City
Tax Exempt Commercial Paper................. 10,700,000 6,300,000 17,000,000
8,400 New York City, New York (Related 96th St.), Variable
Rate Demand Notes........................... 8,400,000 8,400,000
10,600 New York City Water
Tax Exempt Commercial Paper................. 10,600,000 10,600,000
12,235 New York City
Variable Rate Demand Notes ................. 8,235,000 4,000,000 12,235,000
18,100 New York State, Series I,
Tax Exempt Commercial Paper ................ 16,000,000 2,100,000 18,100,000
1,500 New York State Dormitory Authority Revenue Bonds (Oxford
University Press) Variable Rate Demand
Notes ...................................... 700,000 800,000 1,500,000
800 New York State Dormitory Authority Revenue Bonds (St. Francis),
Variable Rate Demand Notes ................. 800,000 800,000
7,800 New York State Dormitory Authority Revenue Bonds (Museum of
Modern Art), Variable Rate Demand Notes .... 7,800,000 7,800,000
2,000 New York State Energy Research and Development Authority
Pollution Control Revenue Bonds (Niagara
Mohawk), Variable Demand.................... 800,000 1,200,000 2,000,000
3,000 Triborough Bridge & Tunnel Authority (Convention Center
Project), Pre-Refunded Bonds, Series D...... 3,059,989 3,059,989
-----------------------------------------------------
55,635,000 25,859,989 81,494,989
-----------------------------------------------------
North Carolina - 1.86%
9,200 Charlotte Airport Revenue Bonds
Variable Rate Demand Notes ................. 9,200,000 9,200,000
6,000 North Carolina Educational Facility (Duke University),
Variable Rate Demand Notes ................. 4,000,000 2,000,000 6,000,000
8,900 North Carolina Education and Medicare (Duke University),
Variable Rate Demand Notes ................. 8,900,000 8,900,000
4,600 North Carolina Educational Facility (Guilford College),
Variable Rate Demand Notes ................. 4,600,000 4,600,000
8,000 Wake County Pollution Control Revenue (Carolina Power & Light),
Tax-Exempt Commercial Paper................. 8,000,000 8,000,000
-----------------------------------------------------
34,700,000 2,000,000 36,700,000
-----------------------------------------------------
North Dakota - 1.01%
20,000 Grand Forks Hospital Facilities Revenue (United Hospital),
Variable Rate Demand Notes ................. 17,300,000 2,700,000 20,000,000
-----------------------------------------------------
Ohio - 0.38%
7,525 Montgomery County Hospital Revenue (Miami Valley Hospital),
Tax Exempt Commercial Paper................. 4,025,000 3,500,000 7,525,000
-----------------------------------------------------
Oklahoma - 1.58%
4,000 Oklahoma County Industrial Authority Revenue (Baptist Hospital),
Adjustable Rate Bonds....................... 4,000,000 4,000,000
5,000 Oklahoma Water Resources Board, Adjustable Rate Bonds ............ 3,500,000 1,500,000 5,000,000
10,770 Tulsa Industrial Authority Hospital Revenue
(Hillcrest Hospital), Variable
Rate Demand Notes .......................... 10,770,000 10,770,000
6,520 Tulsa Industrial Development Authority (St. Johns Physician), 0
Adjustable Rate Bonds ...................... 6,520,000 6,520,000
5,000 Tulsa Parking Authority Revenue (Williams Center), 0
Adjustable Rate Bond......................... 5,000,000 5,000,000
-----------------------------------------------------
23,270,000 8,020,000 31,290,000
-----------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE><CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
<C> <S> <C> <C>
Oregon - 1.06%
7,800 Hillsboro Higher Education (Oregon Graduate Institute),
Variable Rate Demand Notes ......................... @ 4.200
13,200 Oregon State General Obligation (Veterans Welfare),
Variable Rate Demand Notes ......................... @ 4.450
Pennsylvania - 1.99%
18,830 Beaver County Pollution Control Revenue (Duquesne Light),
Tax Exempt Commercial Paper......................... 07/13/95 to 10/10/95 4.100 to 4.500
2,100 Delaware County Pollution Control Revenue Bonds (British Petroleum) ........... @ 3.700
8,900 Delaware County Industrial Development Authority (Scott Paper),
Variable Rate Demand Notes ......................... @ 4.150
5,300 Northumberland County Industrial Development Authority (Merck & Company),
Variable Rate Demand Notes ......................... @ 4.250
3,500 Pennsylvania Hospital & Higher Education (Philadelphia Children's Hospital),
Variable Rate Demand Notes ......................... @ 4.350
600 Philadelphia School District, General Obligation Tax and Revenue
Anticipation Notes ................................. 07/01/95 3.750
Puerto Rico - 0.06%
1,245 Puerto Rico (Public Finance Corp.), General Obligation Bonds, Series B ........ 07/01/95 6.350
South Carolina - 0.53% 0.12%
2,300 Lexington County (Charter Rivers Hospital),
Variable Rate Demand Notes, Series 1987 ............ @ 5.000
Tennessee - 3.32%
3,600 Chattanooga Hamilton County.................................................... @ 4.600
3,000 Chattanooga Industrial Development Board (Seaboard Farms of Chattanooga),
Variable Rate Demand Notes ......................... @ 3.100
2,440 Hamilton County, General Obligation Revenue Bonds ............................. 07/01/95 5.000
4,000 Metropolitan Nashville Airport Authority....................................... @ 3.950
5,000 Metropolitan Nashville & Davidson Health & Education Facilities Board
(Vanderbilt University),
Adjustable Rate Bonds............................... 01/15/96 5.100
1,000 Metropolitan Nashville & Davidson Health and Education,
Tax Exempt Commercial Paper......................... 09/21/95 3.700
6,260 Metropolitan Nashville & Davidson Health & Education Facilities Board
(Vanderbilt University),
Tax Exempt Commercial Paper......................... 10/11/95 3.650
18,040 Metropolitan Nashville & Davidson Health & Education Facilities Board
(Baptist Hospital),
Tax Exempt Commercial Paper......................... 08/14/95 to 10/20/95 3.600 to 4.150
8,600 Metropolitan Nashville Industrial (Timberlake),
Variable Rate Demand Notes ......................... @ 4.000
6,400 Shelby County Health & Education Facilities Revenue (Methodist Health System),
Adjustable Rate Bonds............................... 08/01/95 4.200
100 State of Tennessee, General Obligation Bond Anticipation Notes,
Variable Rate Demand Notes, Series 1991C ........... @ 2.250
7,000 Tennessee Local Development Authority Revenue Notes............................ 05/31/96 4.750
Texas - 15.51%
8,883 Austin Combined Utility,
Tax Exempt Commercial Paper......................... 09/14/95 3.400 to 3.650
7,910 Bexar County Health Facility Development (Army Retirement Foundation),
Variable Rate Demand Notes ......................... @ 4.000
3,500 Bowie County Industrial Development Authority (Texarkana Newspapers Inc.
Project), Variable Rate Demand Notes, Series 1985 .. @ 2.250 to 5.000
3,500 Brownsville Utilities
Tax Exempt Commercial Paper......................... 09/21/95 3.100
2,600 Calhoun County Industrial Development Authority (Alcoa),
Variable Rate Demand Notes, Series 1987............. @ 5.000
4,000 Capital Industrial Development Corp. (NSI Inc. Project),
Variable Rate Demand Notes ......................... @ 5.000
22,300 City of'Austin Combined Utilities System
Tax Exempt Commercial Paper......................... 09/14/95 to 10/05/95 3.650 to 4.200
3,300 City of Houston
Adjustable Rate Bonds............................... 10/01/95 4.350
<PAGE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -------------
<C> <S> <C> <C> <C>
Oregon - 1.06%
7,800 Hillsboro Higher Education (Oregon Graduate Institute),
Variable Rate Demand Notes ......................... 7,800,000 7,800,000
13,200 Oregon State General Obligation (Veterans Welfare),
Variable Rate Demand Notes .........................13,200,000 13,200,000
----------------------------------------------
21,000,000 21,000,000
----------------------------------------------
Pennsylvania - 1.99%
18,830 Beaver County Pollution Control Revenue (Duquesne Light),
Tax Exempt Commercial Paper.........................15,830,000 3,000,000 18,830,000
2,100 Delaware County Pollution Control Revenue Bonds (British Petroleum) ........... 2,100,000 2,100,000
8,900 Delaware County Industrial Development Authority (Scott Paper),
Variable Rate Demand Notes ......................... 8,900,000 8,900,000
5,300 Northumberland County Industrial Development Authority (Merck & Company),
Variable Rate Demand Notes ......................... 5,300,000 5,300,000
3,500 Pennsylvania Hospital & Higher Education (Philadelphia Children's Hospital),
Variable Rate Demand Notes ......................... 3,500,000 3,500,000
600 Philadelphia School District, General Obligation Tax and Revenue
Anticipation Notes ................................. 600,000 600,000
----------------------------------------------
33,530,000 5,700,000 39,230,000
----------------------------------------------
Puerto Rico - 0.06%
1,245 Puerto Rico (Public Finance Corp.), General Obligation Bonds, Series B ........ 1,245,000 1,245,000
----------------------------------------------
South Carolina - 0.53% 0.12%
2,300 Lexington County (Charter Rivers Hospital),
Variable Rate Demand Notes, Series 1987 ............ 2,300,000 2,300,000
----------------------------------------------
Tennessee - 3.32%
3,600 Chattanooga Hamilton County.................................................... 3,600,000 3,600,000
3,000 Chattanooga Industrial Development Board (Seaboard Farms of Chattanooga),
Variable Rate Demand Notes ......................... 3,000,000 3,000,000
2,440 Hamilton County, General Obligation Revenue Bonds ............................. 2,440,000 2,440,000
4,000 Metropolitan Nashville Airport Authority....................................... 4,000,000 4,000,000
5,000 Metropolitan Nashville & Davidson Health & Education Facilities Board
(Vanderbilt University),
Adjustable Rate Bonds............................... 5,000,000 5,000,000
1,000 Metropolitan Nashville & Davidson Health and Education,
Tax Exempt Commercial Paper......................... 1,000,000 1,000,000
6,260 Metropolitan Nashville & Davidson Health & Education Facilities Board
(Vanderbilt University),
Tax Exempt Commercial Paper......................... 6,260,000 6,260,000
Metropolitan Nashville & Davidson Health & Education Facilities Board
(Baptist Hospital),
Tax Exempt Commercial Paper.........................18,040,000 18,040,000
8,600 Metropolitan Nashville Industrial (Timberlake),
Variable Rate Demand Notes ......................... 8,600,000 8,600,000
6,400 Shelby County Health & Education Facilities Revenue (Methodist Health System),
Adjustable Rate Bonds............................... 6,400,000 6,400,000
100 State of Tennessee, General Obligation Bond Anticipation Notes,
Variable Rate Demand Notes, Series 1991C ........... 100,000 100,000
7,000 Tennessee Local Development Authority Revenue Notes............................ 5,037,365 2,014,857 7,052,222
-----------------------------------------------
56,937,365 8,554,857 65,492,222
-----------------------------------------------
Texas - 15.51%
8,883 Austin Combined Utility,
Tax Exempt Commercial Paper......................... 8,883,000 8,883,000
7,910 Bexar County Health Facility Development (Army Retirement Foundation),
Variable Rate Demand Notes ......................... 7,910,000 7,910,000
3,500 Bowie County Industrial Development Authority (Texarkana Newspapers Inc.
Project), Variable Rate Demand Notes, Series 1985 .. 3,500,000 3,500,000
3,500 Brownsville Utilities
Tax Exempt Commercial Paper......................... 3,500,000 3,500,000
2,600 Calhoun County Industrial Development Authority (Alcoa),
Variable Rate Demand Notes, Series 1987............. 2,600,000 2,600,000
4,000 Capital Industrial Development Corp. (NSI Inc. Project),
Variable Rate Demand Notes ......................... 4,000,000 4,000,000
22,300 City of'Austin Combined Utilities System
Tax Exempt Commercial Paper.........................22,300,000 22,300,000
3,300 City of Houston
Adjustable Rate Bonds............................... 3,300,000 3,300,000
</TABLE>
<PAGE>
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
-------------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
<C> <S> <C> <C>
1,900 City of Houston
Variable Rate Demand Notes ................. @ 4.000
18,000 City of Houston General Obligation
Tax Exempt Commercial Paper.................07/19/95 to 09/22/95 3.900 to 4.200
3,000 Dallas Fort Worth Regional Airport
Tax Exempt Commercial Paper................. 09/08/95 3.375
10,500 Dallas Waterworks & Sewer System
Tax-Exempt Commercial Paper.................08/17/95 to 08/18/95 4.150
12,800 Georgetown Higher Education Finance.................................... @ 3.900
24,700 Gulf Coast Pollution Control Revenue (Exxon),
Tax Exempt Commercial Paper.................08/01/95 to 08/29/95 3.500 to 4.150
1,300 Gulf Coast Pollution Control Revenue (Exxon),
Variable Rate Demand Notes ................. @ 4.50
5,800 Harris County Health Facilities (Methodist Hospital),
Variable Rate Demand Notes ................. @ 3.850 to 4.500
2,000 Harris County Health Facilities (SSM Healthcare),
Tax Exempt Commercial Paper................. 07/25/95 4.150
7,000 Harris County (Memorial Senior Services),
Variable Rate Demand Notes ................. @ 2.000
2,900 Harris County Industrial Development Corp (Exxon),
Variable Rate Demand Notes ................. @ 4.250
5,000 Harris County SCH Health Care (Sisters of Charity),
Tax Exempt Commercial Paper................. 07/20/95 4.050
7,900 Harris County Health Facilities (YMCA),
Tax Exempt Commercial Paper................. 07/13/95 4.250
21,000 Harris County Subordinate Lien Toll Road, Variable Rate Demand Notes .. @ 3.400 to 3.750
8,500 Klein Industries School District
Tax & Revenue Anticipation Notes............ 08/30/95 4.750
19,500 Lower Colorado River Authority Series C
Tax Exempt Commercial Paper.................08/29/95 to 09/28/95 3.150 to 3.950
7,900 North Century Health Facilities (Methodist Hospital),
Tax Exempt Commercial Paper.................07/25/95 to 10/01/95 4.150 to 4.500
8,700 Port of Corpus Christi Authority (Koch Industries),
Tax Exempt Commercial Paper................. 09/06/95 3.600
1,700 Southwest Higher Education Authority Inc. (Southwestern
Methodist University),
Variable Rate Demand Notes ................. @ 4.200
1,500 Texas A&M Board of Regents,
Tax Exempt Commercial Paper................. 07/27/95 4.100
1,400 Texas Municipal Power Authority,
Tax Exempt Commercial Paper................. 08/08/95 4.150
28,800 Texas State Public Finance Authority,
Tax Exempt Commercial Paper................. 07/26/95 to 08/15/95 4.150 to 4.250
1,900 Tyler Health Facility Development,
Tax Exempt Commercial Paper................. 09/08/95 3.300
11,900 Tyler Health Facility (East Texas Medical Center),
Tax-Exempt Commercial Paper................. 08/09/95 to 08/10/95 4.300 to 4.350
12,000 Texas State Tax and Revenue Anticipation Notes ....................... 08/31/95 5.000
15,016 University of Texas Board of Regents
Tax Exempt Commercial Paper................. 08/21/95 to 09/18/95 3.600 to 4.150
7,700 West Side Calhoun County Development (British Petroleum),
Variable Rate Demand Notes ................. @ 4.500
Utah - 3.60%
2,300 Carbon County Pollution Control Revenue (Pacificorp),
Variable Rate Demand Notes ................. @ 4.000 to 4.200
3,500 City of Provo Housing Authority Revenue, Variable Rate Demand Notes ... @ 4.150
6,435 Emery County Pollution Control Revenue (Pacificorp),
Tax Exempt Commercial Paper................. 09/18/95 to 09/20/95 3.600
24,100 Intermountain Power Agency,
Tax Exempt Commercial Paper................. 07/25/95 to 06/15/96 3.800
5,750 Intermountain Power Agency
Adjustable Rate Bonds....................... 06/15/96 3.800 to 4.100
5,000 Salt Lake City
Tax Exempt Commercial Paper................. 10/10/95 3.650
1,775 Salt Lake City Pollution Control Revenue...............................
Adjustable Rate Bonds....................... 10/01/95 4.400
13,035 Salt Lake City Pooled Hospital Revenue Bonds
Tax-Exempt Commercial Paper................. 08/01/95 to 09/12/95 3.800 to 4.150
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -------------
<C> <S> <C> <C> <C>
1,900 City of Houston
Variable Rate Demand Notes ................. 1,900,000 1,900,000
18,000 City of Houston General Obligation
Tax Exempt Commercial Paper................. 17,000,000 1,000,000 18,000,000
3,000 Dallas Fort Worth Regional Airport
Tax Exempt Commercial Paper................. 3,000,000 3,000,000
10,500 Dallas Waterworks & Sewer System
Tax-Exempt Commercial Paper................. 10,500,000 10,500,000
12,800 Georgetown Higher Education Finance.................................... 12,800,000 12,800,000
24,700 Gulf Coast Pollution Control Revenue (Exxon),
Tax Exempt Commercial Paper................. 16,100,000 8,600,000 24,700,000
1,300 Gulf Coast Pollution Control Revenue (Exxon),
Variable Rate Demand Notes ................. 1,300,000 1,300,000
5,800 Harris County Health Facilities (Methodist Hospital),
Variable Rate Demand Notes ................. 4,100,000 1,700,000 5,800,000
2,000 Harris County Health Facilities (SSM Healthcare),
Tax Exempt Commercial Paper................. 2,000,000 2,000,000
7,000 Harris County (Memorial Senior Services),
Variable Rate Demand Notes ................. 7,000,000 7,000,000
2,900 Harris County Industrial Development Corp (Exxon),
Variable Rate Demand Notes ................. 2,900,000 2,900,000
5,000 Harris County SCH Health Care (Sisters of Charity),
Tax Exempt Commercial Paper................. 5,000,000 5,000,000
7,900 Harris County Health Facilities (YMCA),
Tax Exempt Commercial Paper................. 7,900,000 7,900,000
21,000 Harris County Subordinate Lien Toll Road, Variable Rate Demand Notes .. 15,000,000 6,000,000 21,000,000
8,500 Klein Industries School District
Tax & Revenue Anticipation Notes............ 8,496,260 8,496,260
19,500 Lower Colorado River Authority Series C
Tax Exempt Commercial Paper................. 19,500,000 19,500,000
7,900 North Century Health Facilities (Methodist Hospital),
Tax Exempt Commercial Paper................. 7,900,000 7,900,000
8,700 Port of Corpus Christi Authority (Koch Industries),
Tax Exempt Commercial Paper................. 6,700,000 2,000,000 8,700,000
1,700 Southwest Higher Education Authority Inc. (Southwestern
Methodist University),
Variable Rate Demand Notes ................. 1,700,000 1,700,000
1,500 Texas A&M Board of Regents,
Tax Exempt Commercial Paper................. 1,500,000 1,500,000
1,400 Texas Municipal Power Authority,
Tax Exempt Commercial Paper................. 1,400,000 1,400,000
28,800 Texas State Public Finance Authority,
Tax Exempt Commercial Paper................. 16,000,000 12,800,000 28,800,000
1,900 Tyler Health Facility Development,
Tax Exempt Commercial Paper................. 1,900,000 1,900,000
11,900 Tyler Health Facility (East Texas Medical Center),
Tax-Exempt Commercial Paper................. 11,900,000 11,900,000
12,000 Texas State Tax and Revenue Anticipation Notes ....................... 8,511,841 3,504,720 12,016,561
15,016 University of Texas Board of Regents
Tax Exempt Commercial Paper................. 7,500,000 7,516,000 15,016,000
7,700 West Side Calhoun County Development (British Petroleum),
Variable Rate Demand Notes ................. 7,700,000 7,700,000
-----------------------------------------------
229,118,101 77,203,720 306,321,82
-----------------------------------------------
Utah - 3.60%
2,300 Carbon County Pollution Control Revenue (Pacificorp),
Variable Rate Demand Notes ................. 1,400,000 900,000 2,300,000
3,500 City of Provo Housing Authority Revenue, Variable Rate Demand Notes ... 3,500,000 3,500,000
6,435 Emery County Pollution Control Revenue (Pacificorp),
Tax Exempt Commercial Paper................. 2,435,000 4,000,000 6,435,000
24,100 Intermountain Power Agency,
Tax Exempt Commercial Paper................. 22,850,000 1,250,000 24,100,000
5,750 Intermountain Power Agency
Adjustable Rate Bonds....................... 3,750,000 2,000,000 5,750,000
5,000 Salt Lake City
Tax Exempt Commercial Paper................. 5,000,000 5,000,000
1,775 Salt Lake City Pollution Control Revenue...............................
Adjustable Rate Bonds....................... 1,775,847 1,775,847
13,035 Salt Lake City Pooled Hospital Revenue Bonds
Tax-Exempt Commercial Paper................. 13,035,000 13,035,000
</TABLE>
<PAGE>
<TABLE><CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
-----------------------------------------------------------------------------------------------------------------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- --------------------- ------------
<C> <S> <C> <C>
4,700 Salt Lake County Pollution Control Revenue (British Petroleum),
Variable Rate Demand Notes ............ @ 4.250 to 4.500
4,500 State of Utah...................................................... 07/01/95 5.750
Virginia - 1.16%
3,800 Henrico County Industrial Development Authority (Health Facility),
Variable Rate Demand Notes ............ @ 4.400
10,000 Norfolk Industrial Development Authority (Norfolk Hospital Sentera),
Tax Exempt Commercial Paper............ 09/25/95 3.600
3,085 Peninsula Port Dominion Authority (Terminal), @ 4.250
Variable Rate Demand Notes ............
1,000 Roanoke Industrial Development Authority (Carilion Hospital), @ 4.500
Variable Rate Demand Notes ............
5,000 Virginia State Housing Development Authority (Series D)
Adjustable Rate Bonds.................. 07/12/95 4.250
Washington - 1.39%
7,100 Port of Vancouver Refunding Revenue Bonds (United Grain
Corporation of Oregon),
Variable Rate Demand Notes ............ @ 4.350
3,250 Seattle Municipal Light and Power Revenue
Tax-Exempt Commercial Paper............ 09/11/95 3.250
12,065 Washington Health Care Facilities (Fred Hutchinson Hospital),
Variable Rate Demand Notes ............ @ 2.000 to 4.350
5,055 Washington Nonprofit Housing Finance Commission (Emerald Heights),
Variable Rate Demand Notes ............ @ 4.200
West Virginia - 0.54%
4,600 Marshall County Pollution Control (British Petroleum),
Variable Rate Demand Notes ............ @ 4.500
6,100 West Virginia Hospital (Midatlantic),
Variable Rate Demand Notes ............ @ 3.400 to 5.000
Wisconsin - 2.40%
2,000 Alma Pollution Control Revenue (Dairyland Power Co-op),
Variable Rate Demand Notes ............ @ 5.930
6,100 City of Oak Creek Pollution Control Revenue (Wisconsin
Electric Power Company),
Variable Rate Demand Notes ............ @ 4.100
6,500 Milwaukee Revenue Anticipation Notes.............................. 08/24/95 5.000
9,500 New Berlin School District
Tax & Revenue Anticipation Notes....... 08/24/95 5.000
5,000 Racine Unified School District
Tax & Revenue Anticipation Notes....... 08/23/95 5.000
10,000 State of Wisconsin Operating Notes................................ 06/17/96 4.500
5,000 Wisconsin Operating Notes ........................................ 06/17/96 4.250
3,095 Wisconsin State Health Facilities Authority (Franciscan Sisters),
Variable Rate Demand Notes ............ @ 4.400
Wyoming - 2.07%
2,100 Converse County Pollution Control Revenue (Pacificorp), @ 4.500
Variable Rate Demand Notes ............
3,600 Lincoln County Pollution Control (Amoco), @ 4.400
Variable Rate Demand Notes ............
7,560 Lincoln County Pollution Control Revenue (Pacificorp),
Variable Rate Demand Notes ............ @ 3.300 to 4.250
7,900 Lincoln County Pollution Control Revenue (Exxon),
Variable Rate Demand Notes ............ @ 4.150 to 4.350
2,500 Platte County Pollution Control Revenue........................... @ 4.350
8,000 Platte River Power Authority Co
Tax Exempt Commercial Paper............ 09/13/95 3.300
7,035 Sweetwater County Pollution Control (Pacificorp),
Tax-Exempt Commercial Paper............ 07/20/95 to 08/14/95 4.150
2,100 Sublette County (Exxon),
Variable Rate Demand Notes ............ @ 3.500
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -------------
<C> <S> <C> <C> <C>
4,700 Salt Lake County Pollution Control Revenue (British Petroleum),
Variable Rate Demand Notes ............ 4,700,000 4,700,000
4,500 State of Utah...................................................... 4,500,000 4,500,000
--------------------------------------------------
52,670,000 18,425,847 71,095,847
--------------------------------------------------
Virginia - 1.16%
3,800 Henrico County Industrial Development Authority (Health Facility),
Variable Rate Demand Notes ............ 3,800,000 3,800,000
10,000 Norfolk Industrial Development Authority (Norfolk Hospital Sentera),
Tax Exempt Commercial Paper............ 8,500,000 1,500,000 10,000,000
3,085 Peninsula Port Dominion Authority (Terminal), 3,085,000 3,085,000
Variable Rate Demand Notes ............
1,000 Roanoke Industrial Development Authority (Carilion Hospital), 1,000,000 1,000,000
Variable Rate Demand Notes ............
5,000 Virginia State Housing Development Authority (Series D)
Adjustable Rate Bonds.................. 5,000,000 5,000,000
--------------------------------------------------
21,385,000 1,500,000 22,885,000
--------------------------------------------------
Washington - 1.39%
7,100 Port of Vancouver Refunding Revenue Bonds (United Grain
Corporation of Oregon),
Variable Rate Demand Notes ............ 7,100,000 7,100,000
3,250 Seattle Municipal Light and Power Revenue
Tax-Exempt Commercial Paper............ 3,250,000 3,250,000
12,065 Washington Health Care Facilities (Fred Hutchinson Hospital),
Variable Rate Demand Notes ............ 8,240,000 3,825,000 12,065,000
5,055 Washington Nonprofit Housing Finance Commission (Emerald Heights),
Variable Rate Demand Notes ............ 5,055,000 5,055,000
--------------------------------------------------
23,645,000 3,825,000 27,470,000
--------------------------------------------------
West Virginia - 0.54%
4,600 Marshall County Pollution Control (British Petroleum),
Variable Rate Demand Notes ............ 4,600,000 4,600,000
6,100 West Virginia Hospital (Midatlantic),
Variable Rate Demand Notes ............ 6,100,000 6,100,000
--------------------------------------------------
4,600,000 6,100,000 10,700,000
Wisconsin - 2.40%
2,000 Alma Pollution Control Revenue (Dairyland Power Co-op),
Variable Rate Demand Notes ............ 2,000,000 2,000,000
6,100 City of Oak Creek Pollution Control Revenue (Wisconsin
Electric Power Company),
Variable Rate Demand Notes ............ 6,100,000 6,100,000
6,500 Milwaukee Revenue Anticipation Notes.............................. 4,007,305 2,504,396 6,511,701
9,500 New Berlin School District
Tax & Revenue Anticipation Notes....... 9,510,837 9,510,837
5,000 Racine Unified School District
Tax & Revenue Anticipation Notes....... 4,997,450 4,997,450
10,000 State of Wisconsin Operating Notes................................ 10,070,400 10,070,400
5,000 Wisconsin Operating Notes ........................................ 5,035,200 5,035,200
3,095 Wisconsin State Health Facilities Authority (Franciscan Sisters),
Variable Rate Demand Notes ............ 3,095,000 3,095,000
--------------------------------------------------
37,780,992 9,539,596 47,320,588
--------------------------------------------------
Wyoming - 2.07%
2,100 Converse County Pollution Control Revenue (Pacificorp), 2,100,000 2,100,000
Variable Rate Demand Notes ............
3,600 Lincoln County Pollution Control (Amoco), 3,601,757 3,601,757
Variable Rate Demand Notes ............
7,560 Lincoln County Pollution Control Revenue (Pacificorp),
Variable Rate Demand Notes ............ 6,100,000 1,460,000 7,560,000
7,900 Lincoln County Pollution Control Revenue (Exxon),
Variable Rate Demand Notes ............ 7,200,000 700,000 7,900,000
2,500 Platte County Pollution Control Revenue........................... 2,500,000 2,500,000
8,000 Platte River Power Authority Co
Tax Exempt Commercial Paper............ 8,000,000 8,000,000
7,035 Sweetwater County Pollution Control (Pacificorp),
Tax-Exempt Commercial Paper............ 7,035,000 7,035,000
2,100 Sublette County (Exxon),
Variable Rate Demand Notes ............ 2,100,000 2,100,000
--------------------------------------------------
36,536,757 4,260,000 40,796,757
--------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1995 (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
Principal PaineWebber PW/KP Pro Forma
Amount RMA Tax- Tax Exempt Combined
(000) Free Fund, Inc. Money Fund, Inc. Value
--------- ------------------ ---------------- -------------
<C> <S> <C> <C> <C>
Total Investments (cost $1,599,892,068, $429,788,811
and $2,029,680,879 which approximates costs for
federal income tax purposes, respectively)-102.46%, 104.03%
and 102.76%, respectively ......................................... 1,599,892,068 429,788,811 2,029,680,879
Other liabilities in excess of assets - (2.46%), (4.03%), and (2.76%),
respectively ...................................................... (37,851,750) (16,707,944) (54,559,694)
Net Assets (applicable to 1,563,026,155,413,082,838, and 1,976,108,993 ----------------------------------------------
share, respectively) - 100.00%, 100.00%, and 100.00%, respectively. $1,562,040,318 $413,080,867 $1,975,121,185
==============================================
</TABLE>
@ Variable rate demand notes and variable rate certificates of
participation that are payable on demand. The interest rates
shown are the current rates as of June 30, 1995 and reset
periodically.
See accompanying notes to proforma combined financial statements.
<PAGE>
Pro Forma Combined
Statement of Operations(unaudited)
<TABLE><CAPTION>
For the twelve months Ended June 30, 1995
PaineWebber RMA PW/KP Tax Exempt
Tax-Free Fund Money Fund, Inc.
------------------ ------------------
<S> <C> <C>
Investment Income:
Interest........................................ $55,770,282 $18,634,465
Expenses:
Investment advisory and administration fees..... 7,340,127 2,683,700
Distribution fees............................... 1,231,236 649,818
Transfer agency and service fees................ 534,227 125,371
Federal and State registration fees............. 166,083 106,879
Custody and accounting fees..................... 193,150 57,927
Reports and notices to shareholders............. 40,090 54,051
Legal and audit fees............................ 89,290 36,964
Directors' fees and expenses.................... 21,250 28,067
Other expenses.................................. 33,873 25,155
9,649,326 3,767,932
Net investment income....................................... 46,120,956 14,866,533
Net realized gains ( losses) from investment transactions.. 26,835 (52,387)
Net increase in net assets resulting from operations........ $46,147,791 $14,814,146
<CAPTION> Pro Forma
Adjustments Combined
------------- -------------
<S> <C> <C>
Investment Income:
Interest........................................ $0 $74,404,747
Expenses:
Investment advisory and administration fees..... (752,865) 9,270,962
Distribution fees............................... (220,840) 1,660,214
Transfer agency and service fees................ (6,355) 653,243
Federal and State registration fees............. (130,861) 142,101
Custody and accounting fees..................... 18,708 269,785
Reports and notices to shareholders............. (50,042) 44,099
Legal and audit fees............................ (28,035) 98,219
Directors' fees and expenses.................... (28,067) 21,250
Other expenses.................................. 73,100 132,128
(1,125,257) 12,292,001
Net investment income....................................... 1,125,257 62,112,746
Net realized gains ( losses) from investment transactions.. (25,552)
Net increase in net assets resulting from operations........ $1,125,257 $62,087,194
</TABLE>
See Notes to Pro Forma Combined Financial Statements
<PAGE>
Pro Forma Capitalization
as of June 30, 1995
(unaudited)
<TABLE><CAPTION>
PaineWebber RMA
PaineWebber RMA PW/KP Tax Exempt Tax-Free Fund
Tax-Free Fund Money Fund, Inc. (as Adjusted) (1)
--------------- ---------------- -----------------
<S> <C> <C> <C>
Shareholders' Equity
Common stock of $0.001 par value per share 1,563,026 413,083 1,976,109 (2)
1,563,026,155 shares outstanding for PaineWebber RMA
Tax-Free Fund (Actual) 413,082,838 shares outstanding
for PW/KP Tax-Exempt Fund (Actual) Paid in capital in
excess of par value of common stock 1,561,378,942 413,401,161 1,974,780,103 (3)
Accumulated net realized loss from investments.......... (901,650) (733,377) (1,635,027)(4)
--------------- ------------ --------------
Net assets........................................... $1,562,040,318 $413,080,867 $1,975,121,185
=============== ============ ==============
</TABLE>
(1) The adjusted balances are presented as if the Reorganization involving
both Funds was effective as of June 30, 1995 for information purposes
only. The actual effective time of Reorganization is expected to be
November. 1995, at which time the results would be reflective of the
actual composition of shareholders' equity at that date.
(2) Assumes the issuance of 413,082,838 shares in exchange for the net assets
applicable to capital stock holders of PW/KP Tax Exempt Fund. The exchange
is based on the net asset value for PaineWebber RMA Tax-Free Fund of
$1.00, and the net assets applicable to capital stock holders of PW/KP Tax
Exempt Money Fund as of June 30, 1995.
(3) Does not include the impact of estimated Reorganization costs of $250,000.
(4) Assumes PW/KP Tax Exempt Money Fund's net realized losses from the
investment transactions carryforward into PW Tax-Free Fund.
<PAGE>
Notes To Pro Forma Combined Financial Statements
(unaudited)
Basis of Presentation:
Subject to approval of the Plan of Reorganization by the shareholders of
PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc. ("PW/KP Fund") and
PaineWebber RMA Tax-Free Fund, Inc. ("PW Fund") PW Fund would acquire
the assets of PW/KP Fund in exchange solely for shares of capital stock
in PW Fund and the assumption of PW/KP Fund's liabilities.
Shares of PW Fund will be distributed to PW/KP Fund shareholders at
$1.00 per share, and PW/KP Fund will be dissolved as soon as practicable
thereafter. Each shareholder of PW/KP Fund will receive the number
of full and fractional shares of PW Fund equal in value to such shareholder's
holdings in PW/KP Fund as of the closing date of the reorganization.
The pro forma combined financial statements reflect the financial position
of PW Fund and PW/KP Fund at June 30, 1995 and the combined results of
operations of PW Fund and PW/KP Fund for the twelve months ended
June 30, 1995. Certain expenses have been adjusted to reflect the expected
combined entity. Pro forma operating expenses include the actual expenses of
the Funds and the combined Fund, adjusted for certain items.
As a result of the Reorganization, investment advisory and administration
fees for PW/KP Fund will decrease due to a lower fee schedule applicable to
PW Fund. Other expenses will also be reduced due to duplication of expenses.
In addition, the pro forma combined statement of net assets has not been
adjusted as a result of the proposed transaction because such adjustment would
not be material. It is estimated that costs of approximately $250,000
associated with the reorganization will be charged to the Funds in proportion
to their respective net assets.
The pro forma combined financial statements are presented for the information
of the reader and may not necessarily be representative of what the actual
combined financial statements would have been had the Reorganization occurred
at June 30, 1995. The pro forma combined financial statements should be read
in conjunction with the historical financial statements of the constituent
Funds included in the statement of additional information.
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
PART C
OTHER INFORMATION
Item 15. Indemnification
Article Fourteenth of the Articles of Incorporation provides that the
directors and officers of the Registrant shall not be liable to the
Registrant or to any of its stockholders for monetary damages. Article
Fourteenth also provides that no amendment, alteration or repeal of the
contents in the preceding sentence or the adoption, alteration or amendment
of any other provision of the Articles or By-Laws inconsistent with Article
Fourteenth shall adversely affect any limitation of liability of any
director or officer of the Registrant with respect to any act or failure to
act which occurred prior to such amendment, alteration, repeal or adoption.
Section 10.01 of Article X of the Bylaws provides that the Registrant
shall indemnify its present and past directors, officers, employees and
agents, and any persons who are serving or have served at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or enterprise, to the
fullest extent permitted by law.
Section 10.02 of Article X of the Bylaws further provides that the
Registrant may purchase and maintain insurance on behalf of any person who
is or was a director, officer or employee of the Registrant, or is or was
serving at the request of the Registrant as a director, officer or employee
of a corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or out of his or her status as such whether or not the
Registrant would have the power to indemnify him or her against such
liability.
Section 9 of the Investment Advisory and Administration Contract
provides that PaineWebber shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Registrant in connection with
the matters to which the Contract relates except for a loss resulting from
willful misfeasance, bad faith or gross negligence of PaineWebber in the
performance of its duties or from its reckless disregard of its obligations
and duties under the Contract. Section 9 further provides that any person,
even though also an officer, partner, employee or agent of PaineWebber, who
may be or become an officer, director, employee or agent of Registrant
shall be deemed, when rendering services to the Registrant or acting with
respect to any business of the Registrant, to be rendering such service to
or acting solely for the Registrant and not as an officer, partner,
employee, or agent or one under the control or direction of PaineWebber
even though paid by it.
Section 8 of the Sub-Advisory and Sub-Administration Contract provides
that Mitchell Hutchins will not be liable for any error of judgment or
mistake of law or for any loss suffered by PaineWebber or the Registrant or
its shareholders in connection with the performance of those Contracts,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations or duties under the Contracts.
Section 9 of the Distribution Contract provides that the Registrant
will indemnify PaineWebber and its officers, directors or controlling
persons against all liabilities arising from any alleged untrue statement
of material fact in the Registration Statement or from alleged omission to
state in the Registration Statement a material fact required to be stated
in it or necessary to make the statements in it, in light of the
circumstances under which they were made, not misleading, except insofar as
liability arises from untrue statements or omissions made in reliance upon
and in conformity with information furnished by PaineWebber to the
Registrant for use in the Registration Statement; and provided that this
indemnity agreement shall not protect any such persons against liabilities
arising by reason of their bad faith, gross negligence or willful
misfeasance; and shall not inure to the benefit of any such persons unless
a court of competent jurisdiction or controlling precedent determines that
such result is not against
C-1
<PAGE>
public policy as expressed in the Securities Act of 1933. Section 9 of the
Distribution Contract also provides that PaineWebber agrees to indemnify,
defend and hold the Registrant, its officers and directors free and
harmless of any claims arising out of any alleged untrue statement or any
alleged omission of material fact contained in information furnished by
PaineWebber for use in the Registration Statement or arising out of an
agreement between PaineWebber and any retail dealer, or arising out of
supplementary literature or advertising used by PaineWebber in connection
with the Contract.
Section 7 of the Service Contract provides that PaineWebber shall be
indemnified and held harmless by the Registrant against all liabilities,
except those arising out of bad faith, gross negligence, willful
misfeasance or reckless disregard of its duties under the Contract.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act"), as amended, may be provided to directors,
officers and controlling persons of the Registrant, pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(b) Exhibits:
(1) (a) Articles of Incorporation 1/
-
(b) Articles of Amendment 3/
-
(c) Articles of Amendment effective August 4, 1989 4/
-
(2) (a) By-Laws 5/
-
(b) Amendment dated September 28, 1994 9/
-
(3) Voting trust agreement - none
(4) Agreement and Plan of Reorganization and Dissolution (filed
herewith)
(5) Instruments defining the rights of holders of the Registrant's
shares of common stock 7/
-
(6) (a) Investment Advisory and Administration Contract 4/
-
(b) Sub-Advisory and Sub-Administration Contract 4/
-
(7) Distribution Contract 8/
-
(8) Bonus, profit sharing or pension plans - none
(9) Custodian Contract 2/
-
(10) Distribution Contract 8/
-
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered (filed herewith)
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters (filed herewith)
(b) Opinion and consent of Stroock & Stroock & Lavan regarding
certain tax matters (filed herewith)
(13) (a) Transfer Agency Agreement 6/
-
(b) Service Contract 4/
-
(14) (a) Consent of Ernst & Young LLP (filed herewith)
(b) Consent of Deloitte & Touche LLP (filed herewith)
(15) Financial statements omitted from Part B - none
(16) Copies of manually signed Powers of Attorney - none
(17) Additional Exhibits
(a) Declaration of Rule 24f-2 (filed herewith)
(b) Proxy Card (filed herewith)
C-2
<PAGE>
1/ Incorporated by reference from initial registration statement, SEC
-
File No. 2-78310, filed July 2, 1982.
2/ Incorporated by reference from Post-Effective Amendment No. 1 to
-
registration statement, SEC File No. 2-78310, filed February 8,
1983.
3/ Incorporated by reference from Post-Effective Amendment No. 7 to
-
registration statement, SEC File No. 2-78310, filed August 29, 1985.
4/ Incorporated by reference from Post-Effective Amendment No. 15 to
-
registration statement, SEC File No. 2-78310, filed August 29, 1989.
5/ Incorporated by reference from Post-Effective Amendment No. 17 to
-
registration statement, SEC File No. 2-78310, filed August 29, 1990.
6/ Incorporated by reference from Post-Effective Amendment No. 18 to
-
registration statement, SEC File No. 2-78310, filed August 29, 1991.
7/ Incorporated by reference from Articles Fifth, Sixth, Seventh,
-
Ninth, Tenth, Twelfth and Fourteenth of Registrant's Articles of
Incorporation, as amended August 4, 1989, and from Articles II, III,
VIII, X, XI, XII and XIII of the Registrant's By-Laws, as amended
September 28, 1994.
8/ Incorporated by reference from Post-Effective Amendment No. 28 to
-
the registration statement, SEC File No. 2-89016, filed August 29,
1994.
9/ Incorporated by reference from Post-Effective Amendment No. 24 to
-
registration statement, SEC File No. 2-78310, filed August 29, 1995.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of the
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by
the applicable registration form for reoffering by persons who may
be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the Registration Statement and will not be used until
the amendment is effective, and that, in determining any liability
under the Securities Act of 1933, each post-effective amendment
shall be deemed to be a new Registration Statement for the
securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of
them.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the Registrant, in the
City of New York and the State of New York, on this 12th day of September,
----- ---------
1995.
PAINEWEBBER RMA TAX-FREE FUND, INC.
By:/s/Gregory K. Todd
----------------------------------
Gregory K. Todd
Vice President and Assistant Secretary
Each of the undersigned directors and officers of PaineWebber RMA Tax-
Free Fund, Inc. ("Fund") hereby severally constitutes and appoints Victoria
E. Schonfeld, Dianne E. O'Donnell, Gregory K. Todd, Elinor W. Gammon and
Robert A. Wittie, and each of them singly, our true and lawful attorneys,
with full power to them to sign for each of us, and in each of our names
and in the capacities indicated below, any and all amendments to the
Registration Statement of the Fund, and all instruments necessary or
desirable in connection therewith, filed with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE><CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Margo N. Alexander President September 12, 1995
------------------------------------- (Chief Executive Officer)
Margo N. Alexander
/s/E. Garrett Bewkes, Jr. Director and Chairman September 12, 1995
------------------------------------- of the Board of Directors
E. Garrett Bewkes, Jr.
/s/Meyer Feldberg Director September 12, 1995
-------------------------------------
Meyer Feldberg
/s/George W. Gowen Director September 12, 1995
-------------------------------------
George W. Gowen
/s/Frederic V. Malek Director September 12, 1995
-------------------------------------
Frederic V. Malek
/s/Frank P. L. Minard Director September 12, 1995
-------------------------------------
Frank P. L. Minard
/s/Judith Davidson Moyers Director September 12, 1995
-------------------------------------
Judith Davidson Moyers
/s/Thomas F. Murray Director September 12, 1995
-------------------------------------
Thomas F. Murray
/s/Julian F. Sluyters Vice President and September 12, 1995
------------------------------------- Treasurer (Principal Financial
Julian F. Sluyters and Accounting Officer)
</TABLE>
Exhibit 4
AGREEMENT AND PLAN OF REORGANIZATION AND DISSOLUTION
----------------------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION AND DISSOLUTION
("Agreement") is made as of September 12, 1995, between PaineWebber RMA
Tax-Free Fund, Inc., a Maryland corporation ("Acquiring Fund"), and
PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc., a Maryland
corporation ("Target") (individually a "Fund" and collectively "Funds.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended ("Code"). The reorganization will involve the
transfer to Acquiring Fund of Target's assets solely in exchange for voting
shares of common stock in Acquiring Fund ("Acquiring Fund Shares") and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares to the holders of
shares of common stock in Target ("Target Shares") in exchange therefor,
all upon the terms and conditions set forth herein. The foregoing transac-
tions are referred to herein as the "Reorganization."
In consideration of the mutual promises herein, the parties covenant
and agree as follows:
1. PLAN OF REORGANIZATION AND DISSOLUTION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all
of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund.
Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional Acquiring Fund Shares determined by dividing the net value
of Target (computed as set forth in paragraph 2.1) by the net asset
value (computed as set forth in paragraph 2.2) ("NAV") of an Acquiring
Fund Share; and
(b) to assume all of Target's liabilities described in paragraph
1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph
3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on Target's books,
1
<PAGE>
and other property owned by Target at the Effective Time (as defined in
paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided
herein) all of Target's liabilities, debts, obligations, and duties of
whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business,
whether or not determinable at the Effective Time, and whether or not
specifically referred to in this Agreement, including without limitation
Target's share of the expenses described in paragraph 7.2. Notwithstanding
the foregoing, Target agrees to use its best efforts to discharge all of
its known Liabilities prior to the Effective Time.
1.4. Before the Effective Time, Target shall declare and pay to its
shareholders a dividend in an amount large enough so that it will have
distributed substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any deduction
for dividends paid) and net interest income excludable from gross income
under section 103(a) of the Code for the current taxable year through the
Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund
Shares received by it pursuant to paragraph 1.1 to Target's shareholders of
record, determined as of the Effective Time (collectively "Shareholders"
and individually a "Shareholder"), in exchange for their Target Shares.
Such distribution shall be accomplished by the Funds' transfer agent
("Transfer Agent") opening accounts on Acquiring Fund's share transfer
books in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with the
respective pro rata number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder. All outstanding
Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Acquiring
Fund shall not issue certificates representing the Acquiring Fund Shares in
connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be dissolved
and any further actions shall be taken in connection therewith as required
by applicable law.
1.7. Any reporting responsibility of Target to a public authority is
and shall remain its responsibility up to and including the date on which
it is dissolved.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund
Shares in a name other than that of the registered holder on Target's books
of the Target Shares constructively exchanged there
2
<PAGE>
for shall be paid by the person to whom such Acquiring Fund Shares are to
be issued, as a condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be
(a) the value of the Assets computed as of 12:00 noon on the date of the
Closing ("Valuation Time"), using the valuation procedures set forth in
Target's then-current prospectus and statement of additional information
less (b) the amount of the Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund
Share shall be computed as of the Valuation Time, using the valuation
procedures set forth in Acquiring Fund's then-current prospectus and
statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be
made by or under the direction of Mitchell Hutchins Asset Management Inc.
2.4 If the difference between the NAVs per share of the Funds equals
or exceeds $.0025 at 5:00 p.m., Eastern time, at the Valuation Time, or
such earlier or later day and time as the parties may agree and set forth
in writing signed by their duly authorized officers, as computed by using
the market values of the Funds' assets in accordance with the policies and
procedures established by the Funds (or as otherwise mutually determined by
the Funds' boards of directors), either Fund may postpone the Valuation
Time until such time as such per share NAV difference is less than $.0025.
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office
on November 20, 1995, or at such other place and/or on such other date as
the parties may agree. All acts taking place at the Closing shall be
deemed to take place simultaneously as of 12:00 noon on the date thereof or
at such other time as the parties may agree ("Effective Time"). If,
immediately before the Valuation Time, (a) the New York Stock Exchange,
Inc. ("NYSE") is closed to trading or trading thereon is restricted or
(b) trading or the reporting of trading on the NYSE or elsewhere is
disrupted, so that accurate appraisal of the net value of Target and the
NAV per Acquiring Fund Share is impracticable, the Effective Time shall be
postponed until the first business day after the day when such trading
shall have been fully resumed and such reporting shall have been restored.
3
<PAGE>
3.2. Target shall deliver to Acquiring Fund at the Closing a schedule
of the Assets as of the Effective Time, which shall set forth for all
portfolio securities included therein their adjusted tax basis and holding
period by lot. Target's custodian shall deliver at the Closing a certi-
ficate of an authorized officer stating that (a) the Assets held by the
custodian will be transferred to Acquiring Fund at the Effective Time and
(b) all necessary taxes in conjunction with the delivery of the Assets, in-
cluding all applicable federal and state stock transfer stamps, if any,
have been paid or provision for payment has been made.
3.3. Target shall deliver to Acquiring Fund at the Closing a list of
the names and addresses of the Shareholders and the number of outstanding
Target Shares owned by each Shareholder, all as of the Effective Time,
certified by the Secretary or Assistant Secretary of Target. The Transfer
Agent shall deliver at the Closing a certificate as to the opening on
Acquiring Fund's share transfer books of accounts in the Shareholders'
names. Acquiring Fund shall issue and deliver a confirmation to Target
evidencing the Acquiring Fund Shares to be credited to Target at the Effec-
tive Time or provide evidence satisfactory to Target that such Acquiring
Fund Shares have been credited to Target's account on Acquiring Fund's
books. At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, stock certificates, receipts, or other documents
as the other party or its counsel may reasonably request.
3.4. Each Fund shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in
form and substance satisfactory to the recipient and dated the Effective
Time, to the effect that the representations and warranties it made in this
Agreement are true and correct at the Effective Time except as they may be
affected by the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. Target is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland, and a
copy of its Articles of Incorporation is on file with the Department
of Assessments and Taxation of Maryland;
4.1.2. Target is duly registered as an open-end management
investment company under the Investment Company Act of 1940 ("1940
Act"), and such registration will be in full force and effect at the
Effective Time;
4
<PAGE>
4.1.3. At the Closing, Target will have good and marketable
title to the Assets and full right, power, and authority to sell,
assign, transfer, and deliver the Assets free of any liens or other
encumbrances; and upon delivery and payment for the Assets, Acquiring
Fund will acquire good and marketable title thereto;
4.1.4. Target's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the Securities Act of 1933 ("1933 Act") and the 1940
Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
4.1.5. Target is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or
any provision of Target's Articles of Incorporation or By-Laws or of
any agreement, instrument, lease, or other undertaking to which Target
is a party or by which it is bound or result in the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it is
bound, except as previously disclosed in writing to and accepted by
Acquiring Fund;
4.1.6. Except as disclosed in writing to and accepted by
Acquiring Fund, all material contracts and other commitments of or
applicable to Target (other than this Agreement and investment
contracts) will be terminated, or provision for discharge of any
liabilities of Target thereunder will be made, at or prior to the
Effective Time, without either Fund's incurring any liability or
penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to
be taken by any other party thereto prior to the Closing;
4.1.7. Except as otherwise disclosed in writing to and accepted
by Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or (to Target's knowledge) threatened against Target or any of
its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the
conduct of its business; Target knows of no facts that might form the
basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body that
materially or adversely affects its busi-
5
<PAGE>
ness or its ability to consummate the transactions contemplated
hereby;
4.1.8. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of Target's board of directors, which has
made the determinations required by Rule 17a-8(a) under the 1940 Act;
and, subject to approval by Target's shareholders and receipt of any
necessary exemptive relief or no-action assurances requested from the
Securities and Exchange Commission ("SEC") or its staff with respect
to sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Target, enforce-
able in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors'
rights and by general principles of equity;
4.1.9. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act
of 1934 ("1934 Act"), or the 1940 Act for the execution or performance
of this Agreement by Target, except for (a) the filing with the SEC of
a registration statement by Acquiring Fund on Form N-14 relating to
the Acquiring Fund Shares issuable hereunder, and any supplement or
amendment thereto ("Registration Statement"), including therein a
prospectus/proxy statement ("Proxy Statement"), (b) receipt of the
exemptive relief referenced in subparagraph 4.1.8, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.1.11. On the effective date of the Registration Statement, at
the time of the shareholders' meeting referred to in paragraph 5.2,
and at the Effective Time, the Proxy Statement will (a) comply in all
material respects with the applicable provisions of the 1933 Act, the
1934 Act, and the 1940 Act and the regulations thereunder and (b) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading; provided that the foregoing
shall not apply to statements in or omissions from the Proxy Statement
made in reliance on and in conformity with information furnished by
Acquiring Fund for use therein;
6
<PAGE>
4.1.12. The Liabilities were incurred by Target in the ordinary
course of its business;
4.1.13. Target qualified for treatment as a regulated investment
company under Subchapter M of the Code ("RIC") for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; and
it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it. The Assets
shall be invested at all times through the Effective Time in a manner
that ensures compliance with the foregoing;
4.1.14. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A) of the Code;
4.1.15. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is
invested in the stock and securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock and
securities of five or fewer issuers; and
4.1.16. Target will be dissolved as soon as reasonably
practicable after the Reorganization, but in all events within six
months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Acquiring Fund is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Maryland, and a copy of its Articles of Incorporation is on file with
the Department of Assessments and Taxation of Maryland;
4.2.2. Acquiring Fund is duly registered as an open-end manage-
ment investment company under the 1940 Act, and such registration will
be in full force and effect at the Effective Time;
4.2.3. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in ex-
change for the Assets in the Reorganization;
4.2.4. The Acquiring Fund Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly author-
ized and, when issued and delivered as provided herein, will be duly
and validly issued and outstanding shares of Acquiring Fund, fully
paid and non-assessable. Except as contemplated by this Agreement,
Acquiring Fund does
7
<PAGE>
not have outstanding any options, warrants, or other rights to sub-
scribe for or purchase any of its shares, nor is there outstanding any
security convertible into any of its shares;
4.2.5. Acquiring Fund's current prospectus and statement of
additional information conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations thereunder and do not include any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
4.2.6. Acquiring Fund is not in violation of, and the execution
and delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or
any provision of Acquiring Fund's Articles of Incorporation or By-Laws
or of any provision of any agreement, instrument, lease, or other
undertaking to which Acquiring Fund is a party or by which it is bound
or result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which
Acquiring Fund is a party or by which it is bound, except as
previously disclosed in writing to and accepted by Target;
4.2.7. Except as otherwise disclosed in writing to and accepted
by Target, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or
(to Acquiring Fund's knowledge) threatened against Acquiring Fund or
any of its properties or assets that, if adversely determined, would
materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows of no facts that
might form the basis for the institution of any such litigation, pro-
ceeding, or investigation and is not a party to or subject to the pro-
visions of any order, decree, or judgment of any court or governmental
body that materially or adversely affects its business or its ability
to consummate the transactions contemplated hereby;
4.2.8. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of Acquiring Fund's board of directors,
which has made the determinations required by Rule 17a-8(a) under the
1940 Act; and, subject to receipt of any necessary exemptive relief or
no-action assurances requested from the SEC or its staff with respect
to sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Acquiring Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorgan-
8
<PAGE>
ization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.9. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act
for the execution or performance of this Agreement by Acquiring Fund,
except for (a) the filing with the SEC of the Registration Statement,
(b) receipt of the exemptive relief referenced in subparagraph 4.2.8,
and (c) such consents, approvals, authorizations, and filings as have
been made or received or as may be required subsequent to the
Effective Time;
4.2.10. On the effective date of the Registration Statement, at
the time of the shareholders' meeting referred to in paragraph 5.2,
and at the Effective Time, the Proxy Statement will (a) comply in all
material respects with the applicable provisions of the 1933 Act, the
1934 Act, and the 1940 Act and the regulations thereunder and (b) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading; provided that the foregoing
shall not apply to statements in or omissions from the Proxy Statement
made in reliance on and in conformity with information furnished by
Target for use therein;
4.2.11. Acquiring Fund qualified for treatment as a RIC for each
past taxable year since it commenced operations and will continue to
meet all the requirements for such qualification for its current tax-
able year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M of the Code did not apply to it;
4.2.12. Acquiring Fund has no plan or intention to issue addi-
tional Acquiring Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does Acquiring Fund have any plan or intention
to redeem or otherwise reacquire any Acquiring Fund Shares issued to
the Shareholders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
4.2.13. Acquiring Fund (a) will actively continue Target's busi-
ness in substantially the same manner that Target conducted that busi-
ness immediately before the Reorganization, (b) has no plan or
intention to sell or otherwise dispose of any of the Assets, except
for dispositions made in the ordinary course of that business and
dispositions necessary to maintain its status as a RIC, and
(c) expects to retain sub-
9
<PAGE>
stantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.14. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.15. Immediately after the Reorganization, (a) not more than
25% of the value of Acquiring Fund's total assets (excluding cash,
cash items, and U.S. government securities) will be invested in the
stock and securities of any one issuer and (b) not more than 50% of
the value of such assets will be invested in the stock and securities
of five or fewer issuers; and
4.2.16. Acquiring Fund does not own, directly or indirectly, nor
at the Effective Time will it own, directly or indirectly, nor has it
owned, directly or indirectly, at any time during the past five years,
any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in
exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at
the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of
as a result of or at the time of the Reorganization will be de
minimis. Nor does its management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject
to substantially the same liabilities that Target held or was subject
to immediately prior thereto,
10
<PAGE>
plus any liabilities and expenses of the parties incurred in con-
nection with the Reorganization;
4.3.5. The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by Acquiring
Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds
that was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by Target immediately before
the Reorganization. For the purposes of this representation, any
amounts used by Target to pay its Reorganization expenses and
redemptions and distributions made by it immediately before the
Reorganization (except for (a) distributions made to conform to its
policy of distributing all or substantially all of its income and
gains to avoid the obligation to pay federal income tax and/or the
excise tax under section 4982 of the Code and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who
is an employee of Target will be separate consideration for, or
allocable to, any of the Target Shares held by such Shareholder-
employee; none of the Acquiring Fund Shares received by any such
Shareholder-employee will be separate consideration for, or allocable
to, any employment agreement; and the consideration paid to any such
Shareholder-employee will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders
will not own shares constituting "control" of Acquiring Fund within
the meaning of section 304(c) of the Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being
understood that (a) such ordinary course will include declaring and paying
customary dividends and other distributions and such changes in operations
as are contemplated by each Fund's normal business activities and (b) each
Fund will retain exclusive control of the composition of its portfolio
until the Closing; provided that Target shall not dispose of more than an
insignificant portion
11
<PAGE>
of its historic business assets during such period without Acquiring Fund's
prior consent.
5.2. Target covenants to call a shareholders' meeting to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist Acquiring Fund in obtaining
such information as Acquiring Fund reasonably requests concerning the
beneficial ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all
books and records required to be maintained under the 1940 Act and the
rules and regulations thereunder) will be turned over to Acquiring Fund at
the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy State-
ment in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed
and delivered all such assignments and other instruments, and will take or
cause to be taken such further action, as the other Fund may deem necessary
or desirable in order to vest in, and confirm to, (a) Acquiring Fund, title
to and possession of all the Assets, and (b) Target, title to and
possession of the Acquiring Fund Shares to be delivered hereunder, and
otherwise to carry out the intent and purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such state securities laws it may deem appropriate in order to continue
its operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause
to be taken all actions, and to do or cause to be done all things
reasonably necessary, proper, or advisable to consummate and effectuate the
transactions contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance
by the other Fund of all the obligations to be performed hereunder at or
before the Effective Time, (b) all representations
12
<PAGE>
and warranties of the other Fund contained herein being true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated hereby, as of the Effective Time,
with the same force and effect as if made at and as of the Effective Time,
and (c) the following further conditions that, at or before the Effective
Time:
6.1. This Agreement and the transactions contemplated hereby shall
have been duly adopted and approved by Target's board of directors and
shall have been approved by Target's shareholders in accordance with
applicable law.
6.2. All necessary filings shall have been made with the SEC and
state securities authorities, and no order or directive shall have been
received that any other or further action is required to permit the parties
to carry out the transactions contemplated hereby. The Registration
Statement shall have become effective under the 1933 Act, no stop orders
suspending the effectiveness thereof shall have been issued, and the SEC
shall not have issued an unfavorable report with respect to the
Reorganization under section 25(b) of the 1940 Act nor instituted any
proceedings seeking to enjoin consummation of the transactions contemplated
hereby under section 25(c) of the 1940 Act. All consents, orders, and
permits of federal, state, and local regulatory authorities (including the
SEC and state securities authorities) deemed necessary by either Fund to
permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain same would not involve a risk of a material adverse effect on the
assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or to obtain damages or other relief in
connection with, the transactions contemplated hereby.
6.4. Target shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to Acquiring Fund, substantially to the effect that:
6.4.1. Acquiring Fund is a corporation duly organized and
validly existing under the laws of the State of Maryland with power
under its Articles of Incorporation to own all of its properties and
assets and, to the knowledge of such counsel, to carry on its business
as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed,
and delivered by Acquiring Fund and (b) assuming due authorization,
execution, and delivery of this Agreement by Target, is a valid and
legally binding obligation of Acquiring
13
<PAGE>
Fund, enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer, reorgan-
ization, moratorium, and similar laws relating to or affecting cre-
ditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to
the Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly
issued and outstanding and fully paid and non-assessable, and no
shareholder of Acquiring Fund has any preemptive right to subscribe
for or purchase such shares;
6.4.4. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate Acquiring Fund's Articles of Incorporation or By-
Laws or any provision of any agreement (known to such counsel, without
any independent inquiry or investigation) to which Acquiring Fund is a
party or by which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in the accel-
eration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by Target;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or
order of any court or governmental authority is required for the
consummation by Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934
Act, and the 1940 Act and such as may be required under state secu-
rities laws;
6.4.6. Acquiring Fund is registered with the SEC as an invest-
ment company, and to the knowledge of such counsel no order has been
issued or proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative
proceeding, or investigation of or before any court or governmental
body is pending or threatened as to Acquiring Fund or any of its prop-
erties or assets and (b) Acquiring Fund is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects Acquiring
Fund's business, except as set forth in such opinion or as otherwise
disclosed in writing to and accepted by Target.
14
<PAGE>
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Maryland, on an opinion of competent
Maryland counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word "knowledge" and related
terms to mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this Agreement
and the Reorganization.
6.5. Acquiring Fund shall have received an opinion of Stroock &
Stroock & Lavan, counsel to Target, substantially to the effect that:
6.5.1. Target is a corporation duly organized and validly exist-
ing under the laws of the State of Maryland with power under its
Articles of Incorporation to own all of its properties and assets and,
to the knowledge of such counsel, to carry on its business as
presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed,
and delivered by Target and (b) assuming due authorization, execution,
and delivery of this Agreement by Acquiring Fund, is a valid and
legally binding obligation of Target, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insol-
vency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general
principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate Target's Articles of Incorporation or By-Laws or
any provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Target is a party or by
which it is bound or (to the knowledge of such counsel, without any
independent inquiry or investigation) result in the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it is
bound, except as set forth in such opinion or as previously disclosed
in writing to and accepted by Acquiring Fund;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or
order of any court or governmental authority is required for the
consummation by Target of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act, and the
1940 Act and such as may be required under state securities laws;
15
<PAGE>
6.5.5. Target is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued
or proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative
proceeding, or investigation of or before any court or governmental
body is pending or threatened as to Target or any of its properties or
assets and (b) Target is not a party to or subject to the provisions
of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing to and
accepted by Acquiring Fund.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Maryland, on an opinion of competent
Maryland counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word "knowledge" and related
terms to mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this Agreement
and the Reorganization.
6.6. Acquiring Fund shall have received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, addressed to and in form and substance
satisfactory to it, and Target shall have received an opinion of Stroock &
Stroock & Lavan, its counsel, addressed to and in form and substance
satisfactory to it, each as to the federal income tax consequences
mentioned below (each a "Tax Opinion"). In rendering its Tax Opinion, each
such counsel may rely as to factual matters, exclusively and without
independent verification, on the representations made in this Agreement (or
in separate letters addressed to such counsel) and the certificates
delivered pursuant to paragraph 3.4. Each Tax Opinion shall be subs-
tantially to the effect that, based on the facts and assumptions stated
therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assumption of
the Liabilities, followed by Target's distribution of those shares to
the Shareholders constructively in exchange for the Shareholders'
Target Shares, will constitute a reorganization within the meaning of
section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the
transfer to Acquiring Fund of the Assets in exchange
16
<PAGE>
solely for Acquiring Fund Shares and Acquiring Fund's assumption of
the Liabilities or on the subsequent distribution of those shares to
the Shareholders in constructive exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on
its receipt of the Assets in exchange solely for Acquiring Fund Shares
and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the Reorgan-
ization, and Acquiring Fund's holding period for the Assets will in-
clude Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at
the Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, each Tax Opinion may state
that no opinion is expressed as to the effect of the Reorganization on the
Funds or any Shareholder with respect to any asset as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of
the foregoing conditions if, in the judgment of its board of directors,
such waiver will not have a material adverse effect on its shareholders'
interests, and (b) Target may waive any of the foregoing conditions if, in
the judgment of its board of directors, such waiver will not have a
material adverse effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Fund represents and warrants to the other that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this
17
<PAGE>
Agreement (whether or not they are consummated) will be borne by the Funds
proportionately, as follows: each such expense will be borne by the Funds
in proportion to their respective net assets as of the close of business on
the last business day of the month in which such expense was incurred.
Such expenses include: (a) expenses incurred in connection with entering
into and carrying out the provisions of this Agreement; (b) expenses
associated with the preparation and filing of the Registration Statement;
(c) registration or qualification fees and expenses of preparing and filing
such forms as are necessary under applicable state securities laws to
qualify the Acquiring Fund Shares to be issued in connection herewith in
each state in which Target's shareholders are resident as of the date of
the mailing of the Proxy Statement to such shareholders; (d) printing and
postage expenses; (e) legal and accounting fees; and (f) solicitation
costs.
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not
set forth herein, and this Agreement constitutes the entire agreement
between the parties. The representations, warranties, and covenants
contained herein or in any document delivered pursuant hereto or in
connection herewith shall survive the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the
Effective Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material
breach of any representation, warranty, or covenant contained herein to be
performed at or prior to the Effective Time, (b) if a condition to its
obligations has not been met and it reasonably appears that such condition
will not or cannot be met, or (c) if the Closing has not occurred on or
before March 31, 1996; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be
no liability for damages on the part of either Fund, or the directors or
officers of either Fund, to the other Fund.
18
<PAGE>
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner
as may be mutually agreed upon in writing by the parties; provided that
following such approval no such amendment shall have a material adverse
effect on the Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Maryland; provided that, in the case
of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation
other than the parties and their respective successors and assigns any
rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: PAINEWEBBER RMA TAX-FREE FUND, INC.
By: /s/Ilene Shore /s/Dianne E. O'Donnell
------------------- ----------------------
Assistant Secretary Vice President
ATTEST: PAINEWEBBER/KIDDER, PEABODY TAX
EXEMPT MONEY FUND, INC.
By: /s/S. 2H. Johnson /s/Scott Griff
--------------------- ----------------------
Assistant Secretary Vice President
19
Exhibit 11
Elinor W. Gammon
(202) 778-9090
September 12, 1995
PaineWebber RMA Tax-Free Fund, Inc.
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding the
issuance by PaineWebber RMA Tax-Free Fund, Inc. ("PW Fund") of shares of
common stock pursuant to an Agreement and Plan of Reorganization and
Dissolution ("Plan") between PW Fund and PaineWebber/Kidder, Peabody Tax
Exempt Money Fund, Inc. ("PW/KP Fund"). Under the Plan, PW Fund would
acquire the assets of PW/KP Fund in exchange solely for shares of common
stock and the assumption by PW Fund of PW/KP Fund's liabilities. In
connection with the Plan, PW Fund is about to file a Registration Statement
on Form N-14 (the "N-14") for the purpose of registering the shares of
common stock under the Securities Act of 1933, as amended ("1933 Act") to
be issued pursuant to the Plan.
We have examined originals or copies believed by us to be genuine of
PW Fund's Articles of Incorporation and By-Laws, minutes of meetings of PW
Fund's board of directors, the form of the Plan, and such other documents
relating to the authorization and issuance of the shares of common stock as
we have deemed relevant. Based upon that examination, we are of the
opinion that:
The shares of common stock being registered by the N-14 may be
issued in accordance with the Plan and PW Fund's Articles of Incorporation
and By-Laws, subject to compliance with the 1933 Act, the Investment
Company Act of 1940, as amended, and applicable state laws regulating the
distribution of securities, and when so issued, those shares of common
stock will be legally issued, fully paid and non-assessable.
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 12, 1995
Page 2
We hereby consent to this opinion accompanying the N-14
that PW Fund plans to file with the Securities and Exchange Commission and
to the reference to our firm under the caption "Miscellaneous -- Legal
Matters" in the Prospectus/Proxy Statement filed as part of the N-14.
Sincerely yours,
KIRKPATRICK & LOCKHART LLP
By: /s/Elinor W. Gammon
---------------------------------
Elinor W. Gammon
Exhibit 12(a)
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
THEODORE L. PRESS
(202) 778-9025
[email protected]
September 13, 1995
PaineWebber RMA Tax-Free Fund, Inc.
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber RMA Tax-Free Fund, Inc. ("Acquiring Fund") has requested
our opinion as to certain federal income tax consequences of the proposed
acquisition by Acquiring Fund of PaineWebber/Kidder, Peabody Tax Exempt
Money Fund, Inc. ("Target"),1/ pursuant to an Agreement and Plan of Reor-
-
ganization and Dissolution between them dated as of September 12, 1995
("Plan"), attached as an exhibit to the prospectus/proxy statement to be
furnished in connection with the solicitation of proxies by Target's board
of directors for use at a special meeting of Target shareholders ("Special
Meeting") to be held on November 10, 1995 ("Proxy"), included in the regis-
tration statement on Form N-14 to be filed with the Securities and Exchange
Commission ("SEC") on or about the date hereof ("Registration Statement").
Specifically, Acquiring Fund has requested our opinion:
(1) that the acquisition by Acquiring Fund of Target's
assets in exchange solely for voting shares of common stock in
Acquiring Fund and the assumption by Acquiring Fund of Target's
liabilities, followed by the distribution of those shares by
Target pro rata to its shareholders of record as of the Effective
Time (as hereinafter defined) ("Shareholders") constructively in
exchange for their shares of common stock in Target ("Target
Shares") (such transaction sometimes being referred to herein as
the "Reorganization"), will constitute a "reorganization" within
the meaning of section 368(a)(1)(C)2/ and that each Fund will
-
be a "party to a reorganization" within the meaning of section
368(b),
--------------------
1/ Acquiring Fund and Target are sometimes referred to herein individually
-
either by such names or as a "Fund" and collectively as the "Funds."
2/ All section references are to the Internal Revenue Code of 1986, as
-
amended ("Code"), and all "Treas. Reg. Sec." references are to the regulations
under the Code ("Regulations").
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 2
(2) that Target, the Shareholders, and Acquiring Fund will
recognize no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the Reor-
ganization of the transferred assets and the shares of Acquiring
Fund issued pursuant thereto.
In rendering this opinion, we have examined (1) Target's currently
effective prospectus and statement of additional information ("SAI"), both
dated January 27, 1995, and Acquiring Fund's currently effective prospectus
and SAI, both dated August 29, 1995, (2) the Proxy, (3) the Plan, and
(4) such other documents as we have deemed necessary or appropriate for the
purposes hereof. As to various matters of fact material to this opinion,
we have relied, exclusively and without independent verification, on state-
ments of responsible officers of each Fund and the representations
described below and made in the Plan (as contemplated in paragraph 6.6
thereof) (collectively "Representations").
FACTS
-----
Acquiring Fund is a corporation organized under the laws of the State
of Maryland pursuant to Articles of Incorporation dated July 2, 1982, and
commenced operations on October 4, 1982. Target is a Maryland corporation
organized pursuant to Articles of Incorporation dated January 18, 1983, and
commenced operations on July 6, 1983. Each Fund is registered with the SEC
as an open-end management investment company under the Investment Company
Act of 1940 ("1940 Act"). PaineWebber Incorporated ("PaineWebber") serves
as each Fund's investment adviser and administrator and is the distributor
of each Fund's shares. Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber, serves as sub-adviser
and sub-administrator to each Fund.
The Reorganization, together with all related acts necessary to
consummate the same ("Closing"), shall occur as of 12:00 noon on November
20, 1995 (or on such other date or at such other time as the parties may
agree) ("Effective Time"). Before the Effective Time, Target shall declare
and pay to its shareholders a dividend in an amount large enough so that it
will have distributed substantially all (and in any event not less than
90%) of its investment company taxable income (computed without regard to
any deduction for dividends paid) and net interest income excludable from
gross income under section 103(a) for the current taxable year through the
Effective Time.
The Funds' investment objectives, which are substantially identical,
and investment policies, which are generally similar, are described in the
Proxy and their respective prospectuses and SAIs. Although there are some
differences in those policies, it is not expected that Acquiring Fund will
revise its investment policies following the Reorganization to reflect
Target's.
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 3
Mitchell Hutchins believes that all of Target's assets will be consistent
with Acquiring Fund's investment policies and thus can be transferred to
and held by Acquiring Fund pursuant to the Reorganization.
The Reorganization was recommended by Mitchell Hutchins to each Fund's
board of directors (each a "board") at meetings thereof held on July 20,
1995. In considering the Reorganization, each board made an extensive in-
quiry into a number of factors (which are described in the Proxy, together
with Mitchell Hutchins's advice and recommendations to the boards and the
purposes of the Reorganization). Pursuant thereto, each board approved the
Plan, subject to approval of Target's shareholders. In doing so, each
board, including a majority of its members who are not "interested persons"
(as that term is defined in the 1940 Act) of either Fund, determined that
the Reorganization is in its Fund's best interests, that the terms of the
Reorganization are fair and reasonable, and that its Fund's shareholders'
interests will not be diluted as a result of the Reorganization.
The Plan, which specifies that it is intended to be, and is adopted
as, a plan of a reorganization described in section 368(a)(1)(C), provides
in relevant part for the following:
(1) The acquisition by Acquiring Fund of all cash, cash
equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and rec-
ords, deferred and prepaid expenses shown as assets on Target's
books, and other property owned by Target at the Effective Time
(collectively "Assets") in exchange solely for
(a) the number of full and fractional shares of
common stock in Acquiring Fund ("Acquiring Fund
Shares") determined by dividing the net value of Target
by the net asset value ("NAV") of an Acquiring Fund
Share, and
(b) Acquiring Fund's assumption of all of Target's
liabilities, debts, obligations, and duties of whatever
kind or nature, whether absolute, accrued, contingent,
or otherwise, whether or not arising in the ordinary
course of business, whether or not determinable at the
Effective Time, and whether or not specifically
referred to in the Plan, including without limitation
Target's share of the expenses incurred in connection
with the Reorganization (collectively "Liabilities")
(Target having agreed in the Plan to use its best
efforts to discharge all of its known liabilities and
obligations prior to the Effective Time),
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 4
(2) The constructive distribution of such Acquiring Fund
Shares to the Shareholders, and
(3) The subsequent dissolution of Target.
The distribution described in (2) will be accomplished by transferring
the Acquiring Fund Shares then credited to Target's account on Acquiring
Fund's share transfer records to open accounts on those records established
in the Shareholders' names, with each Shareholder's account being credited
with the respective pro rata number of full and fractional (rounded to
three decimal places) Acquiring Fund Shares due such Shareholder. All out-
standing Target Shares, including any represented by certificates,
simultaneously will be canceled on Target's share transfer records.
REPRESENTATIONS
---------------
The representations enumerated below have been made to us by
appropriate officers of each Fund.
Each Fund has represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when re-
ceived by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in
exchange therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at
the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of
as a result of or at the time of the Reorganization will be de
minimis. Nor does its management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject
to substantially the same liabilities
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 5
that Target held or was subject to immediately prior thereto, plus any
liabilities and expenses of the parties incurred in connection with
the Reorganization;
5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund
and those to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by Target immediately before
the Reorganization. For the purposes of this representation, any
amounts used by Target to pay its Reorganization expenses and
redemptions and distributions made by it immediately before the
Reorganization (except for (a) distributions made to conform to its
policy of distributing all or substantially all of its income and
gains to avoid the obligation to pay federal income tax and/or the
excise tax under section 4982 and (b) redemptions not made as part of
the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
8. None of the compensation received by any Shareholder who is
an employee of Target will be separate consideration for, or allocable
to, any of the Target Shares held by such Shareholder-employee; none
of the Acquiring Fund Shares received by any such Shareholder-employee
will be separate consideration for, or allocable to, any employment
agreement; and the consideration paid to any such Shareholder-employee
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services; and
9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the
meaning of section 304(c).
Target also has represented and warranted to us as follows:
1. The Liabilities were incurred by Target in the ordinary
course of its business;
2. Target qualified for treatment as a regulated investment
company ("RIC") under Subchapter M of the Code ("Subchapter M") for
each past taxable year since it commenced operations and will continue
to meet all the requirements for such qualification for its current
taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M did not apply to
it;
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PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 6
3. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A);
4. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is
invested in the stock and securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock and
securities of five or fewer issuers; and
5. Target will be dissolved as soon as reasonably practicable
after the Reorganization, but in all events within six months after
the Effective Time.
Acquiring Fund also has represented and warranted to us as follows:
1. Acquiring Fund qualified for treatment as a RIC under Sub-
chapter M for each past taxable year since it commenced operations and
will continue to meet all the requirements for such qualification for
its current taxable year; Acquiring Fund intends to continue to meet
all such requirements for the next taxable year; and it has no
earnings and profits accumulated in any taxable year in which the pro-
visions of Subchapter M did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as an open-end
investment company; nor does Acquiring Fund have any plan or intention
to redeem or otherwise reacquire any Acquiring Fund Shares issued to
the Shareholders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's business
in substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to
sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and
dispositions necessary to maintain its status as a RIC under
Subchapter M, and (c) expects to retain substantially all the Assets
in the same form as it receives them in the Reorganization, unless and
until subsequent investment circumstances suggest the desirability of
change or it becomes necessary to make dispositions thereof to
maintain such status;
4. There is no plan or intention for Acquiring Fund to be dis-
solved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2)) following the
Reorganization;
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PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 7
5. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash
items, and U.S. government securities) will be invested in the stock
and securities of any one issuer and (b) not more than 50% of the
value of such assets will be invested in the stock and securities of
five or fewer issuers; and
6. Acquiring Fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it
owned, directly or indirectly, at any time during the past five years,
any shares of Target.
OPINION
-------
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reor-
ganization being consummated in accordance with the Plan, our opinion (as
explained more fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets in exchange solely
for the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro
rata to the Shareholders constructively in exchange for their Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(C), and each Fund will be "a party to a reorganization"
within the meaning of section 368(b);
2. No gain or loss will be recognized to Target on the transfer
of the Assets to Acquiring Fund in exchange solely for the Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities or upon
the subsequent distribution of those shares to the Shareholders in
constructive exchange for their Target Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for the Acquiring Fund Shares
and its assumption of the Liabilities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization
(section 362(b)), and Acquiring Fund's holding period for the Assets
will include Target's holding period therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization (section 354(a)); and
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PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 8
6. A Shareholder's basis for the Acquiring Fund Shares to be re-
ceived by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares (section 358(a)), and its holding period
for those Acquiring Fund Shares will include its holding period for
those Target Shares, provided they are held as capital assets by the
Shareholder on the Closing Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the Regulations,
judicial decisions, and rulings and other pronouncements of the Internal
Revenue Service ("Service") in existence on the date hereof and (2) is
applicable only to the extent each Fund is solvent. We express no opinion
about the tax treatment of the transactions described herein if either Fund
is insolvent.
ANALYSIS
--------
I. The Reorganization Will Be a Reorganization under Section
---------------------------------------------------------
368(a)(1)(C), and Each Fund Will Be a Party to a Reorganization.
---------------------------------------------------------------
A. Each Fund Is a Separate Corporation.
-----------------------------------
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or
a part of its voting stock, of substantially all of the properties of
another corporation. For the transaction to qualify under that section,
therefore, both entities involved therein must be corporations (or associ-
ations taxable as corporations). Target and Acquiring Fund are both
corporations.
B. Satisfaction of Section 368(a)(2)(F).
------------------------------------
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorgan-
ization with respect to any such investment company or its shareholders
unless, among other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is
invested in the stock and securities of any one issuer
and
(2) not more than 50% of the value of its total assets is
invested in the stock and securities of five or fewer
issuers.
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PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 9
Each Fund will meet the requirements for qualification and treatment as a
RIC for its respective current taxable year, and the foregoing percentage
tests will be satisfied by each Fund. Accordingly, we believe that section
368(a)(2)(F) will not cause the Reorganization to fail to qualify as a C
reorganization with respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
-------------------------------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the
transferor corporation solely in exchange for all or part of the acquiring
corporation's stock. For purposes of issuing private letter rulings, the
Service considers the transfer of at least 70% of the transferor's gross
assets, and at least 90% of its net assets, held immediately before the
reorganization to satisfy the "substantially all" requirement. Rev. Proc.
77-37, 1977-2 C.B. 568. The Reorganization will involve such a transfer.
Accordingly, we believe that the Reorganization will involve the transfer
to Acquiring Fund of substantially all of Target's properties.
D. Qualifying Consideration.
------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the
transferor's property solely in exchange for voting stock. Section
368(a)(2)(B)(iii). The assumption of liabilities by the acquiring corpora-
tion or its acquisition of property subject to liabilities normally are
disregarded (section 368(a)(1)(C)), but the amount of any such liabilities
will be treated as money paid for the transferor's property if the
acquiring corporation exchanges any money or property (other than its
voting stock) therefor. Section 368(a)(2)(B). Because Acquiring Fund will
exchange only the Acquiring Fund Shares, and no money or other property,
for the Assets, we believe that the Reorganization will satisfy the solely-
for-voting-stock requirement to qualify as a C reorganization.
E. Requirements of Continuity.
--------------------------
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to
a valid reorganization: (1) a continuity of the business enterprise under
the modified corporate form ("continuity of business") and (2) a continuity
of interest therein on the part of those persons who, directly or
indirectly, were the owners of the enterprise prior to the reorganization
("continuity of interest").
1. Continuity of Business.
----------------------
The continuity of business enterprise test as set forth in Treas. Reg.
Sec. 1.368-1(d)(2) requires that the acquiring corporation must either
(i) continue the acquired corporation's historic
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 10
business ("business continuity") or (ii) use a significant portion of the
acquired corporation's historic business assets in a business ("asset
continuity").
While there is no authority that deals directly with the requirement
of continuity of business in the context of a transaction such as the Reor-
ganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in
municipal securities. P acquired the assets of T in exchange for P common
stock in a transaction that was intended to qualify as a C reorganization.
Prior to the exchange, T sold its entire portfolio of corporate securities
and purchased a portfolio of municipal bonds. The Service held that this
transaction did not qualify as a reorganization for the following reasons:
(1) because T had sold its historic assets prior to the exchange, there was
no asset continuity; and (2) the failure of P to engage in the business of
investing in corporate securities after the exchange caused the transaction
to lack business continuity as well.
The Funds' investment objectives are substantially identical and their
investment policies are generally similar. Furthermore, Acquiring Fund
will actively continue Target's business in the same manner that Target
conducted it immediately before the Reorganization. Accordingly, there
will be business continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dis-
pose of any of the Assets, except for dispositions made in the ordinary
course of its business and dispositions necessary to maintain its status as
a RIC, and (2) expects to retain substantially all the Assets in the same
form as it receives them in the Reorganization, unless and until subsequent
investment circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status. Although
there are some differences in the Funds' investment policies, Mitchell
Hutchins believes that all of Target's assets will be consistent with
Acquiring Fund's investment policies and thus can be transferred to and
held by Acquiring Fund pursuant to the Reorganization. Accordingly, there
will be asset continuity as well.
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
2. Continuity of Interest.
----------------------
For purposes of issuing private letter rulings, the Service considers
the continuity of interest requirement of Treas. Reg. Sec. 1.368-1(b)
satisfied if ownership in an acquiring corporation on the part of a
transferor corporation's former shareholders is equal in value to at least
50% of the value of all the formerly outstanding shares of the transferor
corporation. Rev. Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2
----- --- ---
C.B. 206 (continuity of interest was held to exist in a reorganization of
two RICs where immediately after the reorganization 26% of the shares were
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PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 11
redeemed in order to allow investment in a third RIC); also see Reef Corp.
---- --- ----------
v. Commissioner, 368 F.2d 125 (5th Cir. 1966), cert. denied, 386 U.S. 1018
--------------- ------------
(1967) (a redemption of 48% of a transferor corporation's stock was not a
sufficient shift in proprietary interest to disqualify a transaction as a
reorganization under section 368(a)(2)(F) ("F Reorganization"), even though
only 52% of the transferor's shareholders would hold all the transferee's
stock); Aetna Casualty and Surety Co. v. U.S., 568 F.2d 811, 822-23 (2d
-------------------------------------
Cir. 1976) (redemption of a 38.39% minority interest did not prevent a
transaction from qualifying as an F Reorganization); Rev. Rul. 61-156,
1961-2 C.B. 62 (a transaction qualified as an F Reorganization even though
the transferor's shareholders acquired only 45% of the transferee's stock,
while the remaining 55% of that stock was issued to new shareholders in a
public underwriting immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev.
Rul. 66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of
ownership for a period of time sufficient to warrant the conclusion that
such ownership is definite and substantial" will suffice and that
"ordinarily, the Service will treat five years of unrestricted . . .
ownership as a sufficient period" for continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired cor-
poration's shareholders to dispose of more than 50% of an acquiring
corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any
part of the shares received by them in the reorganization without fear of
breaking continuity of interest, because the subsequent sale will be
treated as an independent transaction from the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them
in the Reorganization or (2) anticipates dispositions thereof at the time
of or soon after the Reorganization to exceed the usual rate and frequency
of dispositions of shares of Target as an open-end investment company.
Consequently, each Fund expects that the percentage of Shareholder inter-
ests, if any, that will be disposed of as a result of or at the time of the
Reorganization will be de minimis. Accordingly, we believe that the Reor-
ganization will meet the continuity of interest requirement of Treas. Reg.
Sec. 1.368-1(b).
F. Distribution by Target.
----------------------
Section 368(a)(2)(G)(i) provides that a transaction will not qualify
as a C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of
the plan of reorganization. Under the Plan -- which we believe constitutes
a "plan of reorganization" within the meaning of Treas. Reg. Sec. 1.368-2(g) -
- Target will distribute all the Acquiring Fund Shares to its shareholders
in constructive exchange for their
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 12
Target Shares; as soon as is reasonably practicable thereafter, Target will
be dissolved. Accordingly, we believe that the requirements of section
368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
----------------
All reorganizations must meet the judicially imposed requirements of
the "business purpose doctrine," which was established in Gregory v.
----------
Helvering, 293 U.S. 465 (1935), and is now set forth in Treas. Reg. Sec.Sec.
---------
1.368-1(b), -1(c), and -2(g) (the last of which provides that, to qualify
as a reorganization, a transaction must be "undertaken for reasons germane
to the continuance of the business of a corporation a party to the reorgan-
ization"). Under that doctrine, a transaction must have a bona fide
business purpose (and not a purpose to avoid federal income tax) to consti-
tute a valid reorganization. The substantial business purposes of the
Reorganization are described in the Proxy. Accordingly, we believe that
the Reorganization is being undertaken for bona fide business purposes (and
not a purpose to avoid federal income tax) and therefore meets the require-
ments of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
--------------------------------------------
Section 368(b)(2) and Treas. Reg. Sec. 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization.
Target is transferring substantially all of its properties to Acquiring
Fund in exchange for Acquiring Fund Shares. Accordingly, we believe that
each Fund will be "a party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
--------------------------------------------
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of
property, pursuant to the plan of reorganization, solely for stock or
securities in another corporate party to the reorganization or (2) on the
distribution to its shareholders, pursuant to that plan, of stock in such
other corporation that was received by the distributing corporation in the
exchange. (Such a distribution is required by section 368(a)(2)(G)(i) for
a reorganization to qualify as a C reorganization.) Section 361(c)(4) pro-
vides that specified provisions requiring recognition of gain on certain
distributions shall not apply to a distribution described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to
be received under section 361 without
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 13
recognition of gain if it were the sole consideration and, as part of the
consideration, another party to the exchange assumes a liability of the
taxpayer or acquires from the taxpayer property subject to a liability,
then that assumption or acquisition shall not be treated as money or other
property and shall not prevent the exchange from being within section 361.
Section 357(b) applies where the principal purpose of the assumption or
acquisition was a tax avoidance purpose or not a bona fide business pur-
pose.
As noted above, the Reorganization will constitute a C reorganization,
each Fund will be a party to a reorganization, and the Plan constitutes a
plan of reorganization. Target will exchange the Assets solely for the
Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities
and then will be dissolved pursuant to the Plan, distributing those shares
to its shareholders in constructive exchange for their Target Shares. As
also noted above, we believe that the Reorganization is being undertaken
for bona fide business purposes (and not a purpose to avoid federal income
tax); we also do not believe that the principal purpose of Acquiring Fund's
assumption of the Liabilities is avoidance of federal income tax on the
proposed transaction. Accordingly, we believe that no gain or loss will be
recognized to Target on the Reorganization.3/
-
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
----------------------------------------------------
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for
its shares. Acquiring Fund will issue the Acquiring Fund Shares to Target
in exchange for the Assets, which consist of money and securities.
Accordingly, we believe that no gain or loss will be recognized to
Acquiring Fund on the Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis,
----------------------------------------------------------------
and Its Holding Period Will Include Target's Holding Period.
-----------------------------------------------------------
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that
corporation's hands as the basis of the property in the transferor
corporation's hands immediately before the exchange, increased by any gain
--------------------
3/ Notwithstanding anything herein to the contrary, no opinion is
-
expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the
end of a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 14
recognized to the transferor on the transfer. As noted above, the Reorgan-
ization will constitute a C reorganization and Target will recognize no
gain on the Reorganization under section 361(a). Accordingly, we believe
that Acquiring Fund's basis for the Assets will be the same as the basis
thereof in Target's hands immediately before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange
has a carryover basis, the property will have a holding period in the hands
of the acquiror that includes the holding period of the property in the
transferor's hands. As stated above, Acquiring Fund's basis for the Assets
will be a carryover basis. Accordingly, we believe that Acquiring Fund's
holding period for the Assets will include Target's holding period
therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
----------------------------------------------------
Under section 354(a), no gain or loss is recognized to a shareholder
who exchanges shares for other shares pursuant to a plan of reorganization,
where the shares exchanged, as well as the shares received, are those of a
corporation that is a party to the reorganization. As stated above, the
Reorganization will constitute a C reorganization, the Plan constitutes a
plan of reorganization, and each Fund will be a party to a reorganization.
Accordingly, we believe that under section 354 a Shareholder will recognize
no gain or loss on the constructive exchange of all its Target Shares
solely for Acquiring Fund Shares pursuant to the Reorganization.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a
---------------------------------------------------------
Substituted Basis, and its Holding Period therefor Will Include
---------------------------------------------------------------
its Holding Period for its Target Shares.
----------------------------------------
Section 358(a)(1) provides, in part, that in the case of an exchange
to which section 354 applies, the basis of any shares received in the
transaction without the recognition of gain is the same as the basis of the
property transferred in exchange therefor, decreased by, among other
things, the fair market value of any other property and the amount of any
money received in the transaction and increased by the amount of any gain
recognized on the exchange by the shareholder.
As noted above, the Reorganization will constitute a C reorganization
and under section 354 no gain or loss will be recognized to a Shareholder
on the constructive exchange of its Target Shares for Acquiring Fund Shares
in the Reorganization. No property will be distributed to the Shareholders
other than the Acquiring Fund Shares, and no money will be distributed to
them pursuant to the Reorganization. Accordingly, we believe that a Sha-
reholder's basis for the Acquiring Fund Shares to be received by it in the
Reorganization will be the same as the basis for its Target Shares to be
constructively surrendered in exchange for those Acquiring Fund Shares.
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 13, 1995
Page 15
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if
the acquired property has, for the purpose of determining gain or loss, the
same basis in the holder's hands as the property exchanged therefor
("substituted basis") and such property was a capital asset. As noted
above, a Shareholder will have a substituted basis for the Acquiring Fund
Shares it receives in the Reorganization; accordingly, provided that the
Shareholder held its Target Shares as capital assets on the Closing Date,
we believe its holding period for those Acquiring Fund Shares will include
its holding period for those Target Shares.
We hereby consent to this opinion accompanying the Registration
Statement and to the references to our firm under the captions "Synopsis --
Federal Income Tax Consequences of the Reorganization" and "The Proposed
Transaction -- Federal Income Tax Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
----------------------
Theodore L. Press
Exhibit 12(b)
September 13, 1995
PaineWebber/Kidder, Peabody Tax
Exempt Money Fund, Inc.
1285 Avenue of the Americas
New York, New York 10019
Re: Registration Statement on Form N-14
-----------------------------------
Ladies and Gentlemen:
You have requested our opinion as to certain Federal income tax
consequences of the reorganization contemplated by the Agreement and Plan
of Reorganization and Dissolution, substantially in the form included as
Appendix A to the Registration Statement on Form N-14 of PaineWebber RMA
Tax-Free Fund, Inc., the initial filing of which will be made with the
Securities and Exchange Commission on or about the date hereof, (the
"Registration Statement"), between PaineWebber/Kidder, Peabody Tax Exempt
Money Fund, Inc. ("PW/KP Fund"), a Maryland corporation, and PaineWebber
RMA Tax-Free Fund, Inc. ("PW Fund"), a Maryland corporation.
In rendering this opinion, we have examined the Agreement and Plan of
Reorganization and Dissolution, the Registration Statement, and such other
documents as we have deemed necessary or relevant for the purpose of this
opinion. In issuing our opinion, we have relied, exclusively and without
independent verification, on the representations set forth in the Agreement
and Plan of Reorganization and Dissolution. We have examined such matters
of law as we have deemed necessary or appropriate for the purpose of this
opinion. We note that our opinion is based on our examination of such law,
our review of the documents described above, the representations in the
Registration Statement and the Agreement and Plan of Reorganization and
Dissolution, the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the regulations, published rulings and announcements
thereunder, and the judicial interpretations thereof currently in effect.
Any change in applicable law or any of the facts and circumstances
<PAGE>
PaineWebber/Kidder, Peabody Tax
Exempt Money Fund, Inc.
September 13, 1995
Page 2
described in the Registration Statement, or inaccuracy of any
representations on which we have relied, may affect the continuing validity
of our opinion.
Capitalized terms not defined herein have the respective meanings given
such terms in the Agreement and Plan of Reorganization and Dissolution.
Based on the foregoing, it is our opinion that for Federal income tax
purposes:
(a) PW Fund's acquisition of the Assets in exchange solely for PW
Fund shares and PW Fund's assumption of the Liabilities, followed by PW/KP
Fund's distribution of those PW Fund shares to the Shareholders
constructively in exchange for the Shareholders' PW/KP Fund shares, will
constitute a reorganization within the meaning of section 368(a)(1)(C) of
the Code, and each Fund will be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
(b) No gain or loss will be recognized to PW/KP Fund on the transfer
to PW Fund of the Assets in exchange solely for PW Fund shares and PW
Fund's assumption of the Liabilities or on the subsequent distribution of
those PW Fund shares to the Shareholders in constructive exchange for their
PW/KP Fund shares;
(c) No gain or loss will be recognized to PW Fund on its receipt of
the Assets in exchange solely for PW Fund shares and its assumption of the
Liabilities;
(d) PW Fund's basis for the Assets will be the same as the basis
thereof in PW/KP Fund's hands immediately before the Reorganization, and PW
Fund's holding period for the Assets will include PW/KP Fund's holding
period therefor;
(e) A Shareholder will recognize no gain or loss on the constructive
exchange of all of its PW/KP Fund shares solely for PW Fund shares pursuant
to the Reorganization; and
(f) A Shareholder's basis for the PW Fund shares to be received by it
in the Reorganization will be the same as the basis for its PW/KP Fund
shares to be constructively surrendered in
<PAGE>
PaineWebber/Kidder, Peabody Tax
Exempt Money Fund, Inc.
September 13, 1995
Page 3
exchange for those PW Fund shares, and its holding period for those PW Fund
shares will include its holding period for those PW/KP shares, provided
they are held as capital assets by the Shareholder at the Effective Time.
Notwithstanding the above, no opinion is expressed as to the effect of the
Reorganization on PW/KP Fund or PW Fund or any Shareholder with respect to
any Asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer thereof) under a mark-to-market system of
accounting.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus/Proxy
Statement included in the Registration Statement, and to the filing of this
opinion as an exhibit to any Registration Statement, and to the filing of
this opinion as an exhibit to any application made by or on behalf of PW
Fund or any distributor or dealer in connection with the registration and
qualification of PW Fund shares under the securities laws of any state or
jurisdiction. In giving such permission, we do not admit hereby that we
come within the category of persons whose consent is required under Section
7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan
STROOCK & STROOCK & LAVAN
Exhibit 14(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference of our report on PaineWebber RMA Tax-Free
Fund, Inc. dated August 17, 1995. In this Registration Statement (Form N-
14) of PaineWebber RMA Tax-Free Fund, Inc.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
September 11, 1995
Exhibit 14(b)
CONSENT OF INDEPENDENT AUDITORS
PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc.:
We consent to the incorporation by reference in this Registration Statement
on Form N-14 of our report dated November 11, 1994, appearing in the annual
report to shareholders for the year ended September 30, 1994, and to the
references to us under the captions "Experts" and "Financials Highlights"
appearing in the Prospectus/Proxy Statement, which also is a part of
such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
September 6, 1995
Exhibit 17(a)
Registration 2-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
---
Pre-Effective Amendment No. ______ [______]
Post-Effective Amendment No. ______ [______]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
---
Amendment No. ________
(Check appropriate box or boxes.)
PAINE WEBBER RMA TAX-FREE FUND, INC.
(Exact name of registrant as specified in charter)
1120 20th Street, N.W.
Washington, D.C. 20036
(Address of principal executive offices)
Registrant's telephone number, including area code:
(202)887-6000
SAM SCOTT MILLER, Esq.
J. JULIE JASON, Esq.
Paine, Webber, Jackson & Curtis Incorporated
140 Broadway
New York, New York 10005
(Name and address of agent for service)
Copies to:
RICHARD M. PHILLIPS, Esq.
CLIFFORD J. ALEXANDER, Esq.
ARTHUR J. BROWN, Esq.
Kirkpatrick, Lockhart, Hill,
Christopher & Phillips
1900 M Street, N.W.
Washington, D.C. 20036
Telephone: (202) 452-7000
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
Pursuant to the provisions of Rule 24f-2 under the Investment Company
Act of 1940, an indefinite number of shares
of capital stock is being registered by this Registration Statement.
Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
- 2 -
Exhibit 17(b)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing
-------------------------------------------------------------------------------
PAINEWEBBER/KIDDER, PEABODY TAX EXEMPT MONEY FUND, INC.
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 10, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Rita
Barnett and each of them (with power of substitution) to vote for the
undersigned all shares of common stock of the undersigned at the
aforesaid meeting and any adjournment thereof with all the power the undersigned
would have if personally present. The shares represented by this proxy will
be voted as instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL
BE DEEMED TO GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PAINEWEBBER/KIDDER,
PEABODY TAX EXEMPT MONEY FUND, INC.
This proxy will not be voted unless it is dated and
signed exactly as instructed.
If shares are held jointly, each Shareholder named
should sign. If only one signs, his or her
signature will be binding. If the Shareholder is a
corporation, the President or a Vice President
should sign in his or her own name, indicating title.
If the Shareholder is a partnership, a partner should
sign his or her own name, indicating that he or she
is a "Partner".
Sign exactly as name appears hereon.
Dated: , 1995
----------------------------
----------------------------
Signature of Shareholder
----------------------------
Signature of Co-Owner
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing
-------------------------------------------------------------------------------
PLEASE INDICATE YOUR VOTE BY FILLING IN THE APPROPRIATE BOX BELOW.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR"
1. Approval of an Agreement and Plan of Reorganization and Dissolution
between PaineWebber RMA Tax-Free Fund, Inc. and PaineWebber/Kidder,
Peabody Tax Exempt Money Fund, Inc.
For Against Abstain
[ ] [ ] [ ]
