<PAGE>
As filed with the Securities and Exchange Commission on September 9, 1996
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:
SUSAN M. CASEY, ESQ.
BARRY E. SIMMONS, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
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 26, 1996, the notice required by Rule 24f-2
for its fiscal year ended June 30, 1996.
It is proposed that this filing will become effective on
October 9, 1996 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 Sheet
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>
<TABLE>
<CAPTION>
PAINEWEBBER RMA TAX-FREE FUND, INC.
Form N-14 Cross Reference Sheet
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
-------------- -----------------
<S> <C> <C>
1. Beginning of Registration Statement and Outside Cover Page
Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information, and Risk Synopsis; Comparison of Principal Risk Factors
Factors
4. Information About the Transaction Synopsis; The Proposed Transaction
5. Information About the Registrant Synopsis; Comparison of Principal Risk Factors;
Miscellaneous; Prospectus of PaineWebber RMA
Tax-Free Fund, Inc., dated August 29, 1996,
previously filed on EDGAR, Accession
Number: 0000950112-96-003098, as supplemented
September 4, 1996, supplement filed on EDGAR,
Accession Number: 000050112-96-003188
6. Information About the Company Being Acquired Synopsis; Comparison of Principal Risk Factors;
Miscellaneous; Prospectus of PaineWebber RMA
Connecticut Municipal Money Fund, dated
August 29, 1996, previously filed on EDGAR,
Accession Number: 0000950112-96-003118 as
supplemented September __, 1996.
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Not Applicable
9. Additional Information Required for Reoffering Not Applicable
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
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
Form N-14 Cross Reference Sheet
12. Additional Information About the Registrant Statement of Additional Information of
PaineWebber RMA Tax-Free Fund, Inc., dated
August 29, 1996, previously filed on EDGAR,
Accession Number: 0000950112-96-003098
13. Additional Information About the Company Being Statement of Additional Information of
Acquired PaineWebber RMA Connecticut Municipal Money
Fund, dated August 29, 1996, previously filed on
EDGAR, Accession Number: 0000950112-96-003118
14. Financial Statements Annual Report of PaineWebber RMA Tax-Free Fund,
Inc., for Fiscal Year Ended June 30, 1996,
previously filed on EDGAR, Accession Number:
0000950112-96-2967; Annual Report of PaineWebber
RMA Connecticut Municipal Money Fund, for the
Fiscal Period Ended June 30, 1996, previously
filed on EDGAR, Accession Number: 0000889812-96-
001137
</TABLE>
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 RMA CONNECTICUT MUNICIPAL MONEY FUND
(a series of PaineWebber Municipal Money Market Series)
October __, 1996
Dear Shareholder:
When Mitchell Hutchins took over the management of the former
Kidder, Peabody Funds in early 1995, as a result of PaineWebber's
acquisition of certain assets of Kidder, Peabody Group Inc., we assumed
the advisory and administration responsibilities for your Fund, which was
renamed "PaineWebber RMA Connecticut Municipal Money fund" ("Connecticut
Fund") in 1995. Connecticut Fund has never achieved a substantial asset
level, and its assets have decreased from approximately $40 million in
1991 to approximately $19 million at June 30, 1996, the end of the Fund's
most recent fiscal period.
Mitchell Hutchins has concluded that, as a result of several
factors, it will be impossible to continue to operate Connecticut Fund as
a stand-alone fund. These factors include the Fund's small size and the
limited supply of Connecticut municipal securities in which the Fund is
permitted to invest, as well as recent changes made by the Securities and
Exchange Commission ("SEC") to the rules for municipal money market funds,
which further limit the percentage of the Fund's assets that may be
invested in the securities of a single issuer. Accordingly, the board of
trustees of Connecticut Fund has approved Mitchell Hutchins'
recommendation to reorganize ("merge") your Fund into PaineWebber RMA Tax-
Free Fund, Inc. ("Tax-Free Fund"). Tax-Free Fund, like Connecticut Fund,
is a money market fund that seek to maximize current income exempt from
federal income tax consistent with liqudiity and the preservation of
capital. Unlike Connecticut Fund, however, it does not seek to maximize
income exempt from both federal and Connecticut income tax. As a result,
Tax-Free Fund may not be a suitable investment vehicle for shareholders of
Connecticut Fund whose sole reason for investing in Connecticut Fund is to
obtain income exempt from both federal and Connecticut tax. However, the
board believes that combining the two Funds will benefit the shareholders
of Connecticut Fund by providing them with a fund paying dividends exempt
from federal income tax that will have substantially lower operating
expenses as a percentage of average net assets.
<PAGE>
The table below provides you with a brief summary of both Funds,
as well as of the proposed combined Fund.
<TABLE>
<CAPTION>
Connecticut Fund Tax-Free Fund Combined Fund
---------------- ------------- -------------
<S> <C> <C> <C>
Investment Maximum current Maximum current Maximum current
Objective income exempt from income exempt from income exempt from
federal income tax federal income tax federal income tax
and Connecticut consistent with consistent with
personal income tax liquidity and liquidity and
to the extent conservation of conservation of
consistent with the capital capital
preservation of
capital and liquidity
Portfolio Holdings "Municipal "Connecticut "Municipal
Securities," defined Municipal Securities"
as high quality money Securities,"
market instruments defined as
having or deemed to Municipal
have remaining Securities that are
maturities of 13 issued by the State
months or less issued of Connecticut, its
by states, political
municipalities and subdivisions,
public authorities, authorities and
the interest on which corporations, the
is exempt from interest on which
federal income tax is exempt from
federal income tax
as well as
Connecticut
personal income tax
Credit Quality Only "First Tier Only "First tier Only "First Tier
Securities"1/ Securities" Securities"
1/ "First Tier Securities" are defined as obligations that Mitchell
Hutchins determines, pursuant to procedures adopted by the Fund's board,
present minimal credit risks and 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.
<PAGE>
AMT Securities Under normal market Under normal market Under normal market
conditions, invests conditions, invests conditions, invests
in Municipal in securities that in securities that
Securities that pay pay interest that pay AMT exempt
"AMT exempt interest" is subject to the interest
(i.e., interest that AMT
is not an item of tax
preference for
purposes of the
federal alternative
minimum tax ("AMT")
Portfolio Maturity 90 days or less 90 days or less 90 days or less
</TABLE>
We have retained an outside firm that specializes in proxy
solicitation to assist us in connection with the merger. If we have not
received your vote as the meeting date approaches, you may receive a
telephone call from Shareholder Communications Corporation ("SCC") to ask
for your vote. We hope that their telephone call does not inconvenience
you.
I appreciate that the length of the attached document may be
daunting, but we have tried to make it as clear as possible while meeting
all the legal requirements. The Table of Contents has been expanded to
make it easier to find specific topics of interest. Also, we have
included a secction of questions and answers that we think will interest
most investors.
As always, I thank you for being an investor in our funds. We
are committed to serving your interests and appreciate your trust in us.
Very truly yours,
By /s/ Margo Alexander
------------------------
Margo Alexander
President
PaineWebber RMA Connecticut Municipal
Money Fund
<PAGE>
QUESTIONS & ANSWERS
Q: WHY IS THIS MERGER BEING PROPOSED?
A: Given the small size of Connecticut Fund, the lack of Connecticut
Municipal Securities that are First Tier Securities and the recent changes
may by the SEC to limit further the amount of assets of a municipal money
market fund that may be invested in securities of a single issuer,
Mitchell Hutchins determined that it would be impossible to manage
Connecticut Fund as a stand-alone Fund. However, because shareholders of
Connecticut Fund may want to continue to receive dividends exempt from
federal income tax, Mitchell Hutchins recommended that Connecticut Fund be
merged into Tax-Free, another money market fund that pays dividends exempt
from federal income tax.
Q: WHY IS THIS MERGER NOT PROPOSED IN THE PROXY STATEMENT I RECEIVED
EARLIER THIS YEAR?
A: Certain of the factors giving rise to Mitchell Hutchins'
recommendation did not exist at the time your Fund's board nominated
trustees for election and approved the proposals submitted to shareholders
earlier this year. The SEC adopted the regulatory changes for municipal
money market funds in March of this year, and, after studying the effects
of the changes, recommended to the board of Connecticut Fund in July that
the merger be submitted to shareholders for their approval.
Q: HOW WILL THE MERGER AFFECT THE FUNDS' EXPENSES?
A: The combined Fund is expected to have lower overall expenses than your
Fund currently has, due to its larger asset base and lower advisory fee.
Larger funds may achieve economies of scale not attainable by smaller
funds. As you can see in the table below, our analysis indicates that
shareholders of Connecticut Fund should benefit from lower expense ratio.
The expense ratio of Tax-Free Fund is not expected to change as a result
of the merger. (Note that operating expenses for the combined Fund are
expressed on a pro forma basis. For more details about fees and expenses,
see "Synopsis-Comparative Fee Table on pages __ of the proxy statement.)
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Fund Connecticut Fund 2/ Combined Fund
------------- ----------------- -------------
<S> <C> <C> <C>
Management Fees 0.45% 0.50% 0.45%
12b-1 Service Fees 0.08% 0.12% 0.08%
Other Expenses 0.07% 0.49% 0.07%
Total Fund Operating 0.60% 3/ 1.11% 0.60%
Expenses
Net Assets $2,013,448,085 $18,985,779 $2,032,436,042
Net Asset Value Per $1.00 $1.00 $1.00
Share
</TABLE>
_________________________
2/ Annualized.
3/ Does not include non-recurring acquisition expenses of 0.01% for the
acquisition of PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc. by
Tax-Free Fund on November 20, 1995.
Q: WILL THE MERGER SUBJECT ME TO ANY TAXES?
A: The merger is structured to be a tax-free reorganization, which means
that no gain or loss will be recognized by either fund or by you as a
result of your acquisition of Tax-Free Fund shares through the merger. If
you do not wish to receive shares of Tax-Free Fund in the merger, you are
free to redeem your Connecticut fund shares at any time prior to the
closing.
Also, in connection with the merger, Connecticut Fund is required to
declare and pay to its shareholders any distributions of income it has
accrued during its fiscal year prior to the merger.
Q: HOW MANY SHARES WILL I RECEIVE IN THE MERGER?
A: If the merger it approved, as a holder of Connecticut Fund you will
receive shares of Tax-Free Fund that will be equal in value to the shares
of Connecticut Fund you owned prior to the merger. The net asset value of
each share of Tax-Free Fund issued in connection with the merger will be
$1.00.
Q: WHAT IS MY BOARD'S RECOMMENDATION?
A: Your board of trustees recommends a vote "FOR" the merger.
<PAGE>
PAINEWEBBER RMA CONNECTICUT MUNICIPAL MONEY FUND
(a series of PaineWebber Municipal Money Market Series)
____________________
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
November __, 1996
____________________
To the Shareholders:
A special meeting of shareholders ("Meeting") of PaineWebber RMA
Connecticut Municipal Money Fund ("Connecticut Fund"), a series of
PaineWebber Municipal Money Market Series, will be held on November __,
1996 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
Termination under which PaineWebber RMA Tax-Free Fund, Inc. ("Tax-Free
Fund") would acquire the assets of Connecticut Fund in exchange solely for
shares of common stock in Tax-Free Fund and the assumption by Tax-Free
Fund of Connecticut Fund's liabilities, followed by the distribution of
those shares to the shareholders of Connecticut 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 Connecticut Fund at the close of business
on September 18, 1996. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR
SHARES IN PERSON. IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
By order of the board of trustees,
DIANNE E. O'DONNELL
Secretary
October __, 1996
1285 Avenue of the Americas
New York, New York 10019
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy
card, date and sign the card, and return it in the envelope provided.
IF YOU SIGN, DATE AND RETURN THE PROXY CARD BUT GIVE NO VOTING
INSTRUCTIONS, YOUR SHARES WILL BE VOTED "FOR" THE 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 RMA CONNECTICUT MUNICIPAL MONEY FUND
(a series of PaineWebber Municipal Money Market Series)
1285 Avenue of the Americas
New York, New York 10019
(Toll Free) 1-800-647-1568
_______________________
PROSPECTUS/PROXY STATEMENT
October __, 1996
_______________________
This Prospectus/Proxy Statement ("Proxy Statement") is being
furnished to shareholders of PaineWebber RMA Connecticut Municipal Money
Fund ("Connecticut Fund"), a series of PaineWebber Municipal Money Market
Series, in connection with the solicitation of proxies by its board of
trustees for use at a special meeting of shareholders to be held on
November __, 1996, 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. ("Tax-Free Fund") would acquire the assets of Connecticut Fund
in exchange solely for shares of common stock in Tax-Free Fund and the
assumption by Tax-Free Fund of Connecticut Fund's liabilities. Those Tax-
Free Fund shares then would be distributed to the shareholders of
Connecticut Fund, so that each shareholder of Connecticut Fund would
receive a number of full and fractional shares of Tax-Free 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
Connecticut Fund. Following the distribution, Connecticut Fund will be
terminated.
Tax-Free 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. Tax-
Free Fund seeks to achieve its investment objective by investing
substantially all of its assets in high quality municipal money market
instruments. Both Tax-Free Fund and Connecticut Fund (each a "Fund" and
collectively, the "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.
<PAGE>
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 Tax-Free Fund that a shareholder should know before voting.
This Proxy Statement is accompanied by the Prospectus of Tax-Free
Fund, dated August 29, 1996, as supplemented September 4, 1996, which is
incorporated by this reference into this Proxy Statement. A Statement of
Additional Information dated October __, 1996, 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 Connecticut Fund,
dated August 29, 1996, as supplemented September 4, 1996, is combined with
the Tax-Free Fund Prospectus, and is also incorporated herein by this
reference. A combined Statement of Additional Information of Tax-Free
Fund and Connecticut Fund, dated August 29, 1996, has been filed with the
SEC and also is incorporated herein by this reference. Copies of these
documents, as well as Tax-Free Fund's Annual Report to Shareholders for
the fiscal year ended June 30, 1996 and Connecticut Fund's Annual Report
to Shareholders for the fiscal period ended June 30, 1996, may be obtained
without charge and further inquiries may be made by contacting your
PaineWebber Incorporated ("PaineWebber") Investment Executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-762-1000.
ii
<PAGE>
TABLE OF CONTENTS
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 1
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
COMPARISON OF PRINCIPAL RISK FACTORS . . . . . . . . . . . . . . . . 8
THE PROPOSED TRANSACTION . . . . . . . . . . . . . . . . . . . . . . 9
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
APPENDIX A - AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION . A - 1
[APPENDIX B - BENEFICIAL OWNERSHIP OF SHARES OF TAX-FREE FUND AND
CONNECTICUT FUND . . . . . . . . . . . . . . . . . . . . B - 1]
iii
<PAGE>
PAINEWEBBER RMA CONNECTICUT MUNICIPAL MONEY FUND
(a series of PaineWebber Municipal Money Market Series)
_____________________
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
To Be Held On
November __, 1996
_____________________
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being
furnished to shareholders of PaineWebber RMA Connecticut Municipal Money
Fund ("Connecticut Fund"), a series of PaineWebber Municipal Money Market
Series, in connection with the solicitation of proxies by its board of
trustees for use at a special meeting of shareholders to be held on
November __, 1996, at [10:00] a.m. Eastern time, and at any adjournment
thereof ("Meeting"). This Proxy Statement will first be mailed to
shareholders on or about October __, 1996.
At least thirty percent of Connecticut Fund's shares outstanding
on September 18, 1996, 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
<PAGE>
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 Termination,
dated as of August 30, 1996 ("Reorganization Plan"), which is attached to
this Proxy Statement as Appendix A. Under the Reorganization Plan,
PaineWebber RMA Tax-Free Fund, Inc. ("Tax-Free Fund") would acquire the
assets of Connecticut Fund in exchange solely for shares of common stock
in Tax-Free Fund and the assumption by Tax-Free Fund of Connecticut Fund's
liabilities; those Tax-Free Fund shares then would be constructively
distributed to Connecticut Fund's shareholders. (These transactions are
collectively referred to herein as the "Reorganization," and Connecticut
Fund and Tax-Free Fund may be referred to herein individually as a "Fund"
or, collectively, as the "Funds.") After completion of the
Reorganization, Connecticut Fund will be terminated.
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. You
may revoke the proxy card by giving another proxy or by letter or telegram
revoking the initial proxy. To be effective, such revocation must be
received by Connecticut 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, September 18, 1996 ("Record Date"),
Connecticut Fund had _______ shares of beneficial interest outstanding.
The solicitation of proxies, the cost of which will be borne by Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins") (the sub-adviser and
sub-administrator of Connecticut Fund), will be made primarily by mail but
also may include telephone or oral communications by representatives of
Mitchell Hutchins, who will not receive any compensation therefor from the
Funds. Shareholder Communications Corporation, professional proxy
solicitors retained by Mitchell Hutchins, will not be paid fees and
expenses for soliciting services. [Except as shown on Appendix B hereto,
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 Tax-Free Fund own in the aggregate less than 1%
of the shares of that Fund.]
Approval of the Reorganization Plan with respect to Connecticut
Fund requires the affirmative vote of the holders of a majority of the
outstanding shares of Connecticut Fund. Each outstanding full share of
Connecticut Fund is entitled to one vote, and each outstanding fractional
share thereof is entitled to a proportionate fractional share of one vote.
As defined in the Investment Company Act of 1940 ("1940 Act"), majority of
the outstanding voting securities means the lesser of (1) 67% of
Connecticut Fund's shares present at a meeting of shareholders if the
owners of more than 50% of Connecticut Fund's shares then outstanding are
present in person or by proxy, or (2) more than 50% of Connecticut Fund's
outstanding shares. If the Reorganization Plan is not approved by the
2
<PAGE>
requisite vote of shareholders of Connecticut 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 Connecticut
Fund may exchange or redeem out of the Fund, they do not have appraisal
rights.
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 Tax-
Free Fund carefully. As discussed more fully below, Connecticut Fund's
board of trustees believes that the Reorganization will benefit
Connecticut Fund's shareholders. The Funds have similar investment
objectives, although the focus of the Funds' investment policies differ in
that Tax-Free Fund invests to generate income exempt only from federal
income tax, while Connecticut Fund invests to generate income exempt from
both federal income tax and Connecticut personal income tax. It is
anticipated that, following the Reorganization, the former shareholders of
Connecticut Fund will, as shareholders of Tax-Free Fund, be subject to
lower total operating expenses as a percentage of net assets.
The Proposed Reorganization
Connecticut Fund's board of trustees considered and approved the
Reorganization Plan at a meeting held on July 24, 1996. The
Reorganization Plan provides for the acquisition of the assets of
Connecticut Fund by Tax-Free Fund, in exchange solely for shares of common
stock of Tax-Free Fund and the assumption by Tax-Free Fund of Connecticut
Fund's liabilities. Connecticut Fund then will distribute those shares to
its shareholders, so that each Connecticut Fund shareholder will receive
the number of full and fractional shares that equals in value such
shareholder's holdings in Connecticut Fund as of the Closing Date (defined
below). Connecticut Fund then will be terminated as soon as practicable
thereafter.
The exchange of Connecticut Fund's assets for Tax-Free Fund
shares and Tax-Free Fund's assumption of its liabilities will occur as of
12:00 noon, Eastern time, on November 20, 1996 or such later date as the
conditions to the closing are satisfied ("Closing Date").
Each Fund currently offers a single class of shares that is
offered primarily to clients of PaineWebber Incorporated ("PaineWebber")
and its correspondent firms who are participants in the Resource
Management Account(REGISTERED TRADEMARK) ("RMA") or Business Services
Account(REGISTERED TRADEMARK) ("BSA") programs. 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. The RMA and BSA
programs include a full array of premier account services, such as
checkwriting, a Gold or Business Card MasterCard, and toll-free telephone
3
<PAGE>
access to a customer service center. The features of the RMA and BSA
programs are summarized in the Funds' Statement of Additional Information.
For the reasons set forth below under "The Proposed Transaction -
- Reasons for the Reorganization," Connecticut Fund's board of trustees,
including its trustees who are not "interested persons," as that term is
defined in the 1940 Act of Connecticut Fund ("Independent Trustees"), has
determined that the Reorganization is in the best interests of Connecticut
Fund, that the terms of the Reorganization are fair and reasonable and
that the interests of Connecticut Fund's shareholders will not be diluted
as a result of the Reorganization. Accordingly, Connecticut Fund's board
of trustees recommends approval of the transaction. In addition, Tax-Free
Fund's board of directors, including its directors who are not interested
persons of Tax-Free Fund ("Independent Directors"), has determined that
the Reorganization is in the best interests of Tax-Free Fund, that the
terms of the Reorganization are fair and reasonable and that the interests
of Tax-Free Fund's shareholders will not be diluted as a result of the
Reorganization.
Comparative Fee Table
Certain fees and expenses that Connecticut Fund's shareholders
pay, directly or indirectly, are slightly different from those incurred by
Tax-Free Fund shareholders, although neither Fund's shares are subject to
any shareholder transaction expenses, i.e., no sales charges on shares
purchased or deferred sales charges for shares redeemed.
PaineWebber, the investment adviser and administrator of each
Fund, is currently paid (1) by Connecticut 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 Tax-Free 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 $1.0 billion, 0.44% of
average daily net assets in excess of $1.0 billion up to $1.5 billion, and
0.36% of average daily net assets in excess of $1.5 billion. Based on
Tax-Free Fund's average net assets of $2,003,574,609 for the year ended
June 30, 1996, Tax-Free Fund paid an investment advisory and
administration fee at the effective annual rate of 0.45% of average daily
net assets, which is less than the current fee paid by Connecticut 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.
Other Expenses. Each Fund also incurs other expenses. For the
fiscal year or period ended June 30, 1996, the ratio of expenses as a
percentage of average net assets of Tax-Free Fund and Connecticut Fund
were 0.60% (which does not include a non-recurring acquisition expense of
4
<PAGE>
0.01% for the acquisition of PaineWebber/Kidder Peabody Tax-Exempt Money
Fund, Inc. by Tax-Free Fund on November 20, 1995) and 1.11% (annualized),
respectively. In addition, certain expenses currently paid by Tax-Free
Fund shareholders will also be paid by former Connecticut Fund
shareholders following the Reorganization. Tax-Free 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 Connecticut Fund shareholders with respect
to their Tax-Free Fund accounts.
Distribution. PaineWebber is the distributor of each Fund's
shares. Under separate plans of distribution, Tax-Free Fund and
Connecticut Fund each is authorized to pay a 12b-1 service fee at the
annual rate of up to 0.15% and 0.12%, respectively. Each Fund currently
pays PaineWebber a 12b-1 fee at the annual rate of 0.08% and 0.12%,
respectively, of such Fund's average daily net assets. Any increase in
the 0.08% annual rate paid by Tax-Free Fund would require the prior
approval of that 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 period ended June
30, 1996 by Tax-Free Fund and by Connecticut Fund, and pro forma fees for
Tax-Free Fund after giving effect to the Reorganization.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Connecticut Combined
Tax-Free Fund Fund Fund
------------- ----------- --------
<S> <C> <C> <C>
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 Expenses1/
(as a percentage of average net assets)
Combined Fund
Tax-Free Fund Connecticut Fund* (Pro Forma)
------------- ----------------- ------------
Management Fees 0.45% 0.50% 0.45%
12b-1 Service Fees 0.08% 0.12% 0.08%
5
<PAGE>
Combined Fund
Tax-Free Fund Connecticut Fund* (Pro Forma)
------------- ----------------- ------------
Other Expenses 0.07% 0.49% 0.07%
------ ----- -----
Total Fund Operating 0.60% (2) 1.11% 0.60%
Expenses ====== ===== =====
_______________________
* Annualized.
</TABLE>
1/ PaineWebber currently charges each Fund's 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 the Funds.
(2) This ratio does not include non-recurring acquisition expenses of
0.01% for the acquisition of PaineWebber/Kidder Peabody Tax-Exempt Money
Fund, Inc. by Tax-Free Fund on November 20, 1995.
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.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Tax-Free Fund . . . . . . . $ 6 $19 $33 $ 75
Connecticut Fund . . . . . $11 $35 $61 $135
Combined Fund . . . . . . . $ 6 $19 $33 $ 75
______________________________
</TABLE>
This Example assumes that all dividends are reinvested, 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
6
<PAGE>
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
Tax-Free Fund is an open-end, diversified management investment
company organized as a Maryland corporation ("Corporation") on July 2,
1982. The Corporation's Articles of Incorporation authorize the directors
to issue up to 20 billion shares, par value $0.001 per share. Tax-Free
Fund currently does not issue share certificates and it is not required to
(nor does it) hold annual shareholder meetings.
Connecticut Fund is a non-diversified series of PaineWebber
Municipal Money Market Series, an open-end management investment company
organized as a Massachusetts business trust ("Trust") on September 14,
1990. The Trust's Amended and Restated Declaration of Trust, dated
August 28, 1991, authorizes the trustees to create separate series and
issue an unlimited number of full and fractional shares of beneficial
interest, par value $0.001 per share. The Trust currently does not issue
share certificates and it is not required to (nor does it) hold annual
shareholder meetings.
Although shareholders of a Massachusetts business trust may,
under certain circumstances, be held personally liable for its
obligations, the Trust's Amended and Restated Declaration of Trust
expressly disclaims, and provides indemnification against, such liability.
Accordingly, the risks of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which
Connecticut Fund itself would be unable to meet its obligations, a
possibility that PaineWebber, the investment adviser, believes is remote
and, thus, does not pose a material risk.
Investment Objectives and Policies
The investment objective and policies of each Fund are set forth
below. Tax-Free Fund has an investment objective generally similar to
that of Connecticut Fund in that each Fund seeks to maximize current
income exempt from federal income tax consistent with liquidity and
preserving capital. Connecticut Fund's investment strategies, however,
differ from those of Tax-Free Fund because Connecticut Fund seeks to
generate income that is also exempt from Connecticut personal income tax.
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
7
<PAGE>
asset value of $1.00 per share, there can be no assurance that either Fund
will be able to do so.
Tax-Free Fund. The investment objective of Tax-Free 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 having or deemed to have 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 ("IDBs"), private activity bonds ("PABs"),
moral obligation bonds, municipal lease obligations and certificates of
participation therein and put bonds. The 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.
Connecticut Fund. The investment objective of Connecticut Fund
is the maximization of current income exempt from federal income tax and
Connecticut personal income tax for residents of the State of Connecticut
consistent with the preservation of capital and the maintenance of
liquidity. Except for temporary purposes, Connecticut Fund seeks to
achieve its objective by investing primarily in Municipal Securities
issued by the State of Connecticut, its political subdivisions,
authorities and corporations, the interest from which is exempt from
federal income tax as well as Connecticut personal income tax
("Connecticut Municipal Securities").
Except when maintaining a temporary defensive position,
Connecticut Fund invests at least 65% of its total assets and seeks to
invest 100% of its net assets in Connecticut Municipal Securities.
Connecticut Fund invests in high quality Connecticut Municipal
Securities with remaining maturities of 13 months or less. Connecticut
Fund may purchase Connecticut Municipal Securities that consist only of
First Tier Securities, including 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. Such municipal bonds include IDBs and PABs, moral
8
<PAGE>
obligation bonds, municipal lease obligations and certificates of
participation therein and put bonds.
Under normal market conditions, Connecticut Fund may invest in
Connecticut Municipal Securities that pay interest that is subject to the
AMT.
Other Policies of Both Funds. Each Fund may purchase variable
and floating rate securities with remaining maturities in excess of 13
months issued by U.S. government agencies or instrumentalities or
guaranteed by the U.S. government or, if subject to a demand feature
exercisable within 13 months or less, municipal issuers. Both Funds 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. However, each Fund does not intend to
enter repurchase agreements except as a temporary measure and under
unusual circumstances.
Both Funds are authorized to lend up to 33 1/3% of the total
value of their portfolio securities to broker-dealers or institutional
investors that Mitchell Hutchins deems qualified. Neither Fund expects to
engage in securities lending except under unusual circumstances.
When Mitchell Hutchins believes there is an insufficient supply
of the type of Municipal Securities in which Tax-Free Fund or Connecticut
Fund primarily invests, or during other unusual market conditions, each
Fund temporarily may invest all or any portion of its net assets in other
types of Municipal Securities. In addition, when Mitchell Hutchins
believes that there is an insufficient supply of any type of Municipal
Securities or that other circumstances warrant a defensive posture, each
Fund may hold cash and may invest all or any portion of its net assets in
taxable money market instruments, including repurchase agreements. To the
extent either Fund holds cash, such cash would not earn income and would
reduce its yield.
Each Fund may borrow money for temporary purposes; Tax-Free Fund
may not borrow in excess of 10% of its total assets and Connecticut Fund
may not borrow in excess of 15% of its net assets.
Each Fund may purchase Municipal Securities on a "when-issued"
basis, that is, for delivery beyond the normal settlement date at a stated
price and yield. Tax-Free Fund expects that commitments to purchase when-
issued securities normally will not exceed 25% of its assets, whereas
Connecticut Fund expects that commitments to purchase when-issued
securities normally will not exceed 20% of its assets.
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.
9
<PAGE>
Operations of Tax-Free Fund Following the Reorganization
As indicated above, the primary difference in the investment
policies of the two Funds is the focus of Connecticut Fund on investment
in Connecticut Municipal Securities. It is not expected, however, that
Tax-Free Fund will revise its investment policies following the
Reorganization to reflect those of Connecticut Fund. Based on its review
of the investment portfolios of each Fund, Mitchell Hutchins believes that
all of the assets held by Connecticut Fund will be consistent with the
investment policies of Tax-Free Fund and thus can be transferred to and
held by Tax-Free 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 Tax-Free Fund and its investment adviser,
sub-adviser, distributor and other outside agents will continue to serve
Tax-Free Fund in their current capacities.
Purchases and Redemptions
The RMA and BSA Programs. Shares of each Fund are offered
primarily to clients of PaineWebber and its correspondent firms who are
participants in the RMA or BSA programs. An order to purchase shares of
either Fund will be executed on the Business Day on which federal funds
become available to each Fund, at the Fund's next-determined net asset
value per share. A "Business Day" is any day on which the Boston offices
of the Funds' custodian, State Street Bank and Trust Company (the
"Custodian"), and the New York offices of PaineWebber and PaineWebber's
bank are all open for business. "Federal funds" are funds deposited by a
commercial bank in an account at a Federal Reserve Bank that can be
transferred to a similar account of another bank in one day and thus may
be made immediately available to a Fund through its Custodian.
Redemptions. Shares of each Fund may be redeemed by wire, by
telephone, or by mail. Such redemptions are made at the net asset value
per share next determined after receipt by the Funds' transfer agent, PFPC
Inc. ("Transfer Agent") of redemption instructions from PaineWebber.
PaineWebber delivers redemption instruction to the Transfer Agent prior to
the determination of net asset value at 12:00 noon, Eastern time, on any
Business Day.
If the Reorganization is approved, Connecticut Fund shares will
cease to be offered on November [ ], 1996, so that shares of Connecticut
Fund will no longer be available for purchase starting on November [ ],
1996 (the next Business Day). If the Meeting is adjourned and the
Reorganization is approved on a later date, Connecticut Fund shares will
no longer be available for purchase on the Business Day following the date
on which the Reorganization is approved and all contingencies have been
met. Redemptions of Connecticut Fund's shares may be effected through the
Closing Date.
10
<PAGE>
Exchanges
Shares of the Funds are not exchangeable for shares of any other
mutual fund. After the Reorganization, shares of Tax-Free Fund will
continue to be non-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 and continue to earn
dividends up to, but not including, the day of redemption. Net investment
income attributable to the accretion of market discount on Municipal
Securities, which is taxable to shareholders, normally is distributed with
the daily dividends.
Each 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. 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, Connecticut 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. Connecticut Fund will pay these distributions only in cash.
Federal Income Tax Consequences of the Reorganization
The Funds have received an opinion of Kirkpatrick & Lockhart LLP,
their counsel, 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
The risks of investing in Tax-Free Fund and Connecticut Fund are
those typically associated with investing in Municipal Securities.
Connecticut Fund is also subject to the risks of investment in Municipal
Securities of a single state. See the Prospectus of Tax-Free Fund, which
accompanies this Proxy Statement, for a more detailed discussion of the
investment risks of Tax-Free Fund.
There can be no assurance that either Fund will achieve its
investment objective. In periods of declining interest rates, the Funds'
11
<PAGE>
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 be backed by letters of credit or other liquidity support arrangements
provided by banks or other financial institutions, whose credit standing
affects the credit quality of the obligation. Changes in the credit
quality of these institutions could cause losses to a Fund and affect its
share price.
Each Fund may enter into repurchase agreements but will do so
only as a temporary measure and under unusual circumstances. 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.
Both Funds may purchase Municipal 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 Municipal 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. Tax-Free Fund expects that commitments to purchase when-
issued securities normally will not exceed 25% of its assets. Connecticut
Fund may commit up to 20% of its net assets to such commitments.
Both Funds purchase only those Municipal Securities that are
First Tier Securities, i.e., rated in the highest short-term rating
category by at least two NRSROs, rated in the highest short-term rating
category by a single NRSRO if only that NRSRO has assigned the obligation
a short-term rating, or unrated but determined by Mitchell Hutchins to be
of comparable quality.
12
<PAGE>
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 Tax-
Free Fund on the Closing Date of the assets of Connecticut Fund in
exchange solely for Tax-Free Fund shares and the assumption by Tax-Free
Fund of Connecticut Fund's liabilities, and (b) the constructive
distribution of such shares to the shareholders of Connecticut Fund.
The assets of Connecticut Fund to be acquired by Tax-Free Fund
include all cash, cash equivalents, securities, receivables and other
property owned by Connecticut Fund. Tax-Free Fund will assume from
Connecticut Fund all debts, liabilities, obligations and duties of
Connecticut Fund of whatever kind or nature; provided, however, that
Connecticut 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. Tax-Free Fund also will deliver its shares to
Connecticut Fund, which then will be constructively distributed to
Connecticut Fund's shareholders.
The value of Connecticut Fund's assets to be acquired, and the
amount of Connecticut Fund's liabilities to be assumed, by Tax-Free Fund
and the net asset value of a share of Tax-Free 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.
On, or as soon as practicable after, the Closing Date,
Connecticut Fund will distribute pro rata to its shareholders of record
the shares of Tax-Free Fund it received, so that each Connecticut Fund
shareholder will receive a number of full and fractional shares of Tax-
Free Fund equal in value to the shareholder's holdings in Connecticut
Fund; Connecticut Fund will be terminated as soon as practicable
thereafter. Such distribution will be accomplished by opening accounts on
the books of Tax-Free Fund in the names of Connecticut Fund shareholders
and by transferring thereto the shares previously credited to the account
of Connecticut Fund on those books. Fractional shares in Tax-Free Fund
will be rounded to the third decimal place.
Accordingly, immediately after the Reorganization, each former
shareholder of Connecticut Fund will own shares of Tax-Free Fund that will
be equal in value to that shareholder's shares of Connecticut Fund
immediately prior to the Reorganization. Moreover, because shares of Tax-
Free Fund will be issued at net asset value in exchange for the net assets
13
<PAGE>
of Connecticut Fund, the aggregate value of Tax-Free Fund shares so issued
will equal the aggregate value of Connecticut Fund shares. The net asset
value per share of Tax-Free 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 Tax-Free
Fund in a name other than that of the registered holder of the shares on
the books of Connecticut 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 Connecticut 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 Mitchell Hutchins. The directors or
trustees of each Fund considered the fact that Mitchell Hutchins will pay
these expenses 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
Connecticut Fund's board of trustees, including a majority of its
Independent Trustees, has determined that the Reorganization is in the
best interests of Connecticut Fund, that the terms of the Reorganization
are fair and reasonable and that the interests of Connecticut Fund's
shareholders will not be diluted as a result of the Reorganization. Tax-
Free Fund's board of directors, including a majority of its Independent
Directors, has determined that the Reorganization is in the best interests
of Tax-Free Fund, that the terms of the Reorganization are fair and
reasonable and that the interests of Tax-Free Fund's shareholders will not
be diluted as a result of the Reorganization.
In considering the Reorganization, Connecticut Fund's board of
trustees, including a majority of its Independent Trustees, and Tax-Free
Fund's board of directors, including a majority of its Independent
Directors, each 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;
14
<PAGE>
(3) the effect of the Reorganization on the expense ratio of
Tax-Free Fund relative to each Fund's current expense
ratio;
(4) the costs, if any, 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
whether Connecticut Fund could continue to operate on a
stand-alone basis or should be liquidated; and
(7) the potential benefits of the Reorganization to other
persons, especially Mitchell Hutchins and PaineWebber.
The Reorganization was recommended to the board of each Fund by
Mitchell Hutchins at meetings of the boards held on July 24, 1996. In
recommending the Reorganization, Mitchell Hutchins advised the board of
each Fund that the investment advisory and administration fee schedule
applicable to Tax-Free Fund would be equal to or lower than that currently
in effect for Connecticut Fund. Further, the trustees of Connecticut Fund
were advised by Mitchell Hutchins that, because Tax-Free Fund has greater
net assets than Connecticut Fund, combining the two Funds would reduce the
expenses borne by the shareholders of Connecticut Fund as a percentage of
net assets. The boards were also advised that following the
Reorganization, the expense ratio for Tax-Free Fund may possibly decrease
because the investment advisory and administration fee paid by that Fund
decreases as its size increases.
The boards were advised by Mitchell Hutchins that, because Tax-
Free Fund focuses on investments exempt from federal income tax, while
Connecticut Fund focuses on investments exempt from both federal and
Connecticut income tax, Tax-Free Fund may not be a suitable investment
vehicle for those Connecticut Fund shareholders whose sole reason for
investing in Connecticut Fund is to obtain income exempt from both federal
and Connecticut income tax. Mitchell Hutchins advised the boards,
however, that a lack of First Tier Connecticut Municipal Securities,
combined with recent changes made by the SEC to the issuer diversification
requirements for municipal money market funds, have made it impossible for
Connecticut Fund to be operated on a stand-alone basis in compliance with
regulatory requirements. In approving the Reorganization, the boards
noted that Tax-Free 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 TRUSTEES RECOMMENDS THAT THE
SHAREHOLDERS OF CONNECTICUT FUND VOTE "FOR" THE REORGANIZATION
Description of Securities to be Issued
Tax-Free Fund is registered with the SEC as an open-end
management investment company. It has an authorized capitalization of 20
billion shares of common stock (par value $0.001 per share). Shares of
15
<PAGE>
Tax-Free Fund entitle their holders to one vote per full share and
fractional votes for fractional shares held.
Tax-Free 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.
The directors are required to call a meeting of shareholders when
requested in writing to do so by the shareholders of record holding at
least 25% of Tax-Free Fund's outstanding shares.
Federal Income Tax Considerations
The exchange of Connecticut Fund's assets for Tax-Free Fund
shares and Tax-Free Fund's assumption of Connecticut 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. Tax-Free Fund and
Connecticut Fund each has received an opinion of Kirkpatrick & Lockhart
LLP, its counsel, each substantially to the effect that--
(1) Tax-Free Fund's acquisition of Connecticut Fund's assets in
exchange solely for Tax-Free Fund shares and Tax-Free Fund's
assumption of Connecticut Fund's liabilities, followed by
Connecticut Fund's distribution of those shares to its
shareholders constructively in exchange for their Connecticut
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;
(2) No gain or loss will be recognized to Connecticut Fund on the
transfer to Tax-Free Fund of its assets in exchange solely for
Tax-Free Fund shares and Connecticut Fund's assumption of Tax-
Free Fund's liabilities or on the subsequent distribution of
those shares to Connecticut Fund's shareholders in constructive
exchange for their Connecticut Fund shares;
(3) No gain or loss will be recognized to Tax-Free Fund on its
receipt of the transferred assets in exchange solely for Tax-Free
Fund shares and its assumption of Connecticut Fund's liabilities;
(4) Tax-Free Fund's basis for the transferred assets will be the
same as the basis thereof in Connecticut Fund's hands immediately
prior to the Reorganization, and Tax-Free Fund's holding period
for those assets will include Connecticut Fund's holding period
therefor;
(5) A Connecticut Fund shareholder will recognize no gain or loss
on the constructive exchange of all its Connecticut Fund shares
solely for Tax-Free Fund shares pursuant to the Reorganization;
and
16
<PAGE>
(6) A Connecticut Fund shareholder's basis for the Tax-Free Fund
shares to be received by it in the Reorganization will be the
same as the basis for its Connecticut Fund shares to be
constructively surrendered in exchange for those Tax-Free Fund
shares, and its holding period for those Tax-Free Fund shares
will include its holding period for those Connecticut 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.
Shareholders of Connecticut 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, 1996, and on a pro forma combined basis (unaudited) as of June
30, 1996, giving effect to the Reorganization:
<TABLE>
<CAPTION>
Combined Fund
Tax-Free Fund Connecticut Fund (Pro Forma)
------------- ---------------- ------------
<S> <C> <C> <C>
Net Assets . . . . . . $2,013,448,085 $ 18,987,957 $2,032,436,042
Net Asset Value Per $1.00 $1.00 $1.00
Share . . . . . . . . .
Shares Outstanding . . 2,014,777,848 18,985,779 2,033,763,627
</TABLE>
17
<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, the Midwest Regional Office of the
SEC, Northwest Atrium Center, 500 West Madison Street, Suite 400, Chicago,
Illinois 60611, and the Northeast Regional Office of the SEC, Seven World
Trade Center, Suite 1300, New York, New York 10048. 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 Tax-Free
Fund shares as part of the Reorganization will be passed upon by Tax-Free
Fund's counsel, Kirkpatrick & Lockhart LLP.
Experts
The audited financial statements of Tax-Free Fund and Connecticut
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, independent auditors for the Funds,
whose reports thereon are included in the Funds' Annual Reports to
Shareholders for the fiscal year or period ended June 30, 1996. The
financial statements audited by Ernst & Young LLP have been incorporated
herein by reference in reliance on their reports given on their authority
as experts in auditing and accounting matters.
18
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("Agreement") is made as of August 30, 1996, between PaineWebber RMA Tax-
Free Fund, Inc., a Maryland corporation ("Acquiring Fund"), and
PaineWebber Municipal Money Market Series, a Massachusetts business trust
("PW Trust") on behalf of PaineWebber RMA Connecticut Municipal Money
Fund, a segregated portfolio of assets ("series") thereof ("Target").
(Acquiring Fund and Target are sometimes referred to herein individually
as a "Fund" and collectively as the "Funds," and Acquiring Fund and PW
Trust are sometimes referred to herein individually as an "Investment
Company" and collectively as the "Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of
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 transactions are referred to herein as the "Reorganization."
All agreements, representations, actions, and obligations described herein
made or to be taken or undertaken by Target are made and shall be taken or
undertaken by PW Trust on its behalf.
In consideration of the mutual promises herein, the parties
covenant and agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and
deliver all of its assets described in paragraph 1.2 ("Assets") to
Acquiring Fund. Acquiring Fund agrees in exchange therefor
(a) to issue and deliver to Target the number of full and
fractional 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).
<PAGE>
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, 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. Notwithstanding the
foregoing, Target agrees to use its best efforts to discharge all of its
known Liabilities prior to the Effective Time.
1.4. At or immediately 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) 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
terminated as a series of PW Trust 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 terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring
Fund Shares in a name other than that of the registered holder on Target's
A-2
<PAGE>
books of the Target Shares constructively exchanged therefor shall be paid
by the person to whom such Acquiring Fund Shares are to be issued, as a
condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value
shall be (a) the value of the Assets computed as of the close of regular
trading on the New York Stock Exchange, Inc. ("NYSE") on the date of the
Closing ("Valuation Time"), using the valuation procedures set forth in
Target's then current prospectus and 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 Investment Companies' boards of directors or trustees),
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, 1996, 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 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.
A-3
<PAGE>
3.2. PW Trust 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
certificate 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, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made.
3.3. PW Trust 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 PW Trust evidencing the Acquiring Fund Shares to be
credited to Target at the Effective Time or provide evidence satisfactory
to Target that such Acquiring Fund Shares have been credited to Target's
account on Acquiring Fund's books. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, stock
certificates, receipts, or other documents as the other party or its
counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the
Closing a certificate executed in its name by its President or a Vice
President in form and substance satisfactory to the 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. PW Trust is an unincorporated voluntary
association with transferable shares organized as a business
trust under a written instrument ("Business Trust"); it is duly
organized, validly existing, and in good standing under the laws
of the Commonwealth of Massachusetts, and a copy of its
Declaration of Trust is on file with the Secretary of State of
the Commonwealth of Massachusetts;
4.1.2. PW Trust 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;
A-4
<PAGE>
4.1.3. Target is a duly established and designated
series of PW Trust.
4.1.4. 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;
4.1.5. Target's current prospectus and statement of
additional information conform in all material respects to the
applicable requirements of the Securities Act of 1933 ("1933
Act") and the 1940 Act and the rules and regulations 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;
4.1.6. 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, Massachusetts law or any provision of PW Trust's
Declaration of Trust or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by
which it is bound or result in the acceleration of any
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;
4.1.7. 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;
4.1.8. 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 PW Trust with respect to 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
A-5
<PAGE>
the provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its
business or its ability to consummate the transactions
contemplated hereby;
4.1.9. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of PW Trust's board of trustees,
which has made the determinations required by Rule 17a-8(a) under
the 1940 Act; and, subject to approval by Target's shareholders
and receipt of any necessary exemptive relief or no-action
assurances requested from the Securities and Exchange Commission
("SEC") or its staff with respect to sections 17(a) and 17(d) of
the 1940 Act, this Agreement will constitute a valid and legally
binding obligation of Target, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and
similar laws relating to or affecting creditors' rights and by
general principles of equity;
4.1.10. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all necessary action
by Target's shareholders;
4.1.11. No governmental consents, approvals,
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 PW Trust,
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 4.1.9, and (c)
such consents, approvals, authorizations, and filings as have
been made or received or as may be required subsequent to the
Effective Time;
4.1.12. On the effective date of the Registration
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;
A-6
<PAGE>
4.1.13. The Liabilities were incurred by Target in the
ordinary course of its business;
4.1.14. 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;
4.1.15. Target is not under the jurisdiction of a court
in a proceeding under Title 11 of the United States Code or
similar case within the meaning of section 368(a)(3)(A) of the
Code;
4.1.16. Not more than 25% of the value of Target's total
assets (excluding cash, cash items, and U.S. government
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
4.1.17. Target will be terminated 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
management 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 exchange 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 authorized 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 not have
A-7
<PAGE>
outstanding any options, warrants, or other rights to subscribe
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 its 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 PW Trust;
4.2.7. Except as otherwise disclosed in writing to and
accepted by PW Trust, 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, proceeding, or
investigation and is not a party to or subject to the provisions
of any order, decree, or judgment of any court or governmental
body that materially or adversely affects its business or its
ability to consummate the transactions contemplated hereby;
4.2.8. 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, reorganization, moratorium, and
similar laws relating to or affecting creditors' rights and by
general principles of equity;
A-8
<PAGE>
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 PW Trust for use therein;
4.2.11. Acquiring Fund is a "fund" as defined in section
851(h)(2) of the Code; it qualified for treatment as a RIC for
each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for
its current taxable year; Acquiring Fund intends to continue to
meet all such requirements for the next taxable year; and it has
no earnings and profits accumulated in any taxable year in which
the provisions of Subchapter M of the Code did not apply to it;
4.2.12. Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization
except for shares issued in the ordinary course of its business
as a series of an open-end investment company; nor does Acquiring
Fund have any plan or intention to redeem or otherwise reacquire
any Acquiring Fund Shares issued to the Shareholders pursuant to
Reorganization, other than through redemptions arising in the
ordinary course of that business;
4.2.13. 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, 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
A-9
<PAGE>
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, plus any
liabilities and expenses of the parties incurred in connection
with the Reorganization;
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<PAGE>
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
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 of its historic business assets during such period
without Acquiring Fund's prior consent.
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<PAGE>
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
Statement in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as
and when requested by the other Fund, execute and deliver or cause to be
executed and delivered all such assignments and other 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 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:
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<PAGE>
6.1. This Agreement and the transactions contemplated hereby
shall have been duly adopted and approved by PW Trust's board of trustees
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 the 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. PW Trust 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 PW
Trust on behalf of Target, is 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, reorganization, moratorium, and
similar laws relating to or affecting creditors' rights and by
general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and
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
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<PAGE>
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 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 set forth in such opinion or
as previously disclosed in writing to and accepted by PW Trust;
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 securities laws;
6.4.6. Acquiring Fund is registered with the SEC as an
investment company, and to the knowledge of such counsel no order
has been issued or proceeding instituted to suspend such
registration; and
6.4.7. To the knowledge of such counsel (without any
independent inquiry or investigation), (a) no litigation,
administrative proceeding, or investigation of or before any
court or governmental body is pending or threatened as to
Acquiring Fund or any of its properties or assets and (b)
Acquiring Fund is not 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 PW Trust.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Maryland, on an opinion of competent
Maryland counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and 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 the firm who have
devoted substantive attention to the matters directly related to this
Agreement and the Reorganization.
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<PAGE>
6.5. Acquiring Fund shall have received an opinion of
Kirkpatrick & Lockhart LLP, counsel to PW Trust, substantially to the
effect that:
6.5.1. Target is a duly established series of PW Trust,
a Business Trust duly organized and validly existing under the
laws of the Commonwealth of Massachusetts with power under its
Declaration of Trust to own all of its properties and assets and,
to the knowledge of such counsel, to carry on its business as
presently conducted;
6.5.2. This Agreement (a) has been duly authorized,
executed, and delivered by PW Trust on behalf of Target and (b)
assuming due authorization, execution, and delivery of this
Agreement by Acquiring Fund, is a valid and legally binding
obligation of PW Trust with respect to Target, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors'
rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby
will not, materially violate PW Trust's Declaration of Trust or
By-Laws or any provision of any agreement (known to such counsel,
without any independent inquiry or investigation) to which PW
Trust (with respect to 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 PW Trust (with respect to
Target) is a party or by which it is bound, except as set forth
in such opinion or as previously disclosed in writing to and
accepted by 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 PW Trust on behalf of Target of
the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act, and the 1940 Act and
such as may be required under state securities laws;
6.5.5. PW Trust is registered with the SEC as an
investment company, and to the knowledge of such counsel no order
has been issued or proceeding instituted to suspend such
registration; and
6.5.6. 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 PW
A-15
<PAGE>
Trust (with respect to Target) or any of its properties or assets
attributable or allocable to Target and (b) PW Trust (with
respect to Target) is not a party to or subject to the provisions
of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business, except
as set forth in such opinion or as otherwise disclosed in writing
to and accepted by Acquiring Fund.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an opinion
of competent Massachusetts counsel, (ii) make assumptions regarding the
authenticity, genuineness, and/or conformity of 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 the firm
who have devoted substantive attention to the 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 PW Trust shall have received an opinion
of Kirkpatrick & Lockhart LLP, 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 substantially to the effect that, based on the facts and assumptions
stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in
exchange solely for Acquiring Fund Shares and Acquiring Fund's
assumption of the Liabilities, followed by Target's 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 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;
A-16
<PAGE>
6.6.4. Acquiring Fund's basis for the Assets will be the
same as the basis thereof in Target's hands immediately before
the Reorganization, and Acquiring Fund's holding period for the
Assets will include Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on
the constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares, and its
holding period for those Acquiring Fund Shares will 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 Acquiring Fund's 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 PW Trust's board of trustees, such
waiver will not have a material adverse effect on the Shareholders'
interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Investment Company represents and warrants to the
other that there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses
incurred in connection with the transactions contemplated by this
Agreement (whether or not they are consummated) will be borne by Mitchell
Hutchins Asset Management Inc.
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
A-17
<PAGE>
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 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, 1997; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall
be no liability for damages on the part of either Fund, or the trustees,
directors, or officers of either Investment Company, to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any
time, notwithstanding approval thereof by Target's 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.
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<PAGE>
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 MUNICIPAL MONEY MARKET
SERIES, on behalf of its series,
PAINEWEBBER RMA CONNECTICUT MUNICIPAL
MONEY FUND
By: /s/ Ilene Shore /s/ Julian F. Sluyters
---------------------- -----------------------------
Assistant Secretary Vice President
A-19
<PAGE>
APPENDIX B
BENEFICIAL OWNERSHIP OF SHARES OF TAX-FREE FUND AND CONNECTICUT FUND
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
PAINEWEBBER RMA CONNECTICUT MUNICIPAL MONEY FUND
(a series of PaineWebber Municipal Money Market Series)
1285 Avenue of the Americas
New York, New York 10019
(Toll Free) 1-800-647-1568
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the proposed
reorganization whereby PaineWebber RMA Tax-Free Fund, Inc. ("Tax-Free
Fund") would acquire the assets of PaineWebber RMA Connecticut Municipal
Money Fund ("Connecticut Fund"), a series of PaineWebber Municipal Money
Market Series, in exchange solely for shares of common stock in Tax-Free
Fund, and the assumption by Tax-Free Fund of Connecticut Fund's
liabilities. This Statement of Additional Information consists of this
cover page and the following described documents, each of which is
incorporated herein by this reference.
(1) The Statement of Additional Information of Tax-Free Fund,
dated August 29, 1996, previously filed on EDGAR, SEC
Accession Number 0000950112-96-003098.
(2) The Statement of Additional Information of Connecticut
Fund, dated August 29, 1996, previously filed on EDGAR,
SEC Accession Number 0000950112-96-003118.
(3) The Annual Report to Shareholders of Tax-Free Fund for
the Fiscal Year Ended June 30, 1996, previously filed on
EDGAR, SEC Accession Number 0000950112-96-2967.
(4) The Annual Report to Shareholders of Connecticut Fund for
the Fiscal Period Ended June 30, 1996, previously filed
on EDGAR, SEC Accession Number 0000889812-96-001137
This Statement of Additional Information is not a prospectus and
should be read only in conjunction with the prospectus/proxy statement
dated October __, 1996, relating to the above-referenced transaction. A
copy of this prospectus/proxy statement may be obtained by calling a
PaineWebber Incorporated Investment Executive or correspondent firm or by
calling toll-free 1-800-762-1000. This Statement of Additional
Information is dated October __, 1996.
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
PART C
OTHER INFORMATION
Item 15. Indemnification
---------------
Article Fourteenth of the Corporation's 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 Maryland law or any other applicable
provisions of 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, employee, or agent of the Registrant,
or is or was serving at the request of the Registrant as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against
him or her out of that person's 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
between the Registrant and PaineWebber, Inc. ("PaineWebber") provides that
PaineWebber shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the 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, director, employee, or agent
of PaineWebber, who may be or become an officer, director, employee or
agent of the 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
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<PAGE>
an officer, director, 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
between PaineWebber and Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") 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 8 further provides that any person,
even though also an officer, director, employee, or agent of Mitchell
Hutchins, who may be or become an officer, director, employee or agent of
the 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, director, employee, or agent or one under the control or
direction of Mitchell Hutchins even though paid by it.
Section 9 of the Distribution Contract between the Registrant and
PaineWebber provides that the Registrant will indemnify PaineWebber, its
officers and directors, and any 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; provided, however, that this indemnity
agreement shall not protect any such persons against liabilities arising
by reason of their bad faith, gross negligence or willful misfeasance; and
shall not inure to the benefit of any such persons unless a court of
competent jurisdiction or controlling precedent determines that such
result is not against public policy as expressed in the Securities Act of
1933. Section 9 further provides that PaineWebber agrees to indemnify,
defend and hold free and harmless the Registrant, its officers and
directors, and any controlling persons from and against any claims and
liabilities arising out of or based upon any alleged untrue statement of a
material fact or any alleged omission of a 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 sales literature or advertising used by
PaineWebber in connection with its duties under the Contract.
Section 7 of the Service Contract between the Registrant and
PaineWebber provides that PaineWebber and its agents shall be indemnified
and held harmless by the Registrant against all liabilities, except those
arising out of bad faith, gross negligence, willful misfeasance or
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<PAGE>
reckless disregard of its duties under the Contract or its failure to
perform 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.
Item 16. 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 Termination (see
Appendix A filed herewith)
(5) All Instruments defining the rights of holders of the
securities being registered 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, Pension Plans or Other Similar
Contracts - none
(9) Custodian Agreement 2/
(10) (a) Plan of Distribution pursuant to Rule 12b-1 8/
(b) Plan of Distribution pursuant to Rule
18f-3 with respect to Multiple Class
Shares (not applicable)
(11) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding
the legality of the securities being registered (filed
herewith)
(12) (a) Opinion and Consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters with respect to Tax-Free
Fund (filed herewith)
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<PAGE>
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters with respect to
Connecticut Fund (filed herewith)
(13) (a) Transfer Agency Agreement 6/
(b) Service Contract 4/
(14) Consent of Ernst & Young LLP (filed herewith)
(15) Financial Statements Omitted from Part B - none
(16) Manually-signed copies of Powers of Attorney - see signature
page
(17) Additional Exhibits:
(a) Declaration under Rule 24f-2 (filed herewith)
(b) Proxy Card (filed herewith)
(27) Financial Data Schedule (filed herewith)
_______________________________
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.
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<PAGE>
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-5
<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 9th day of September,
1996.
PAINEWEBBER RMA TAX-FREE FUND, INC.
By: /s/ Dianne E. O'Donnell
---------------------------
Dianne E. O'Donnell
Vice President and 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 and Director September 9, 1996
--------------------------- (Chief Executive Officer)
Margo N. Alexander
/s/ E. Garrett Bewkes, Jr. Director and Chairman September 9, 1996
--------------------------- of the Board of Directors
E. Garrett Bewkes, Jr.
/s/ Richard Q. Armstrong Director September 9, 1996
---------------------------
Richard Q. Armstrong
<PAGE>
Signature Title Date
--------- ----- ----
Director
---------------------------
Richard R. Burt
/s/ Mary C. Farrell Director September 9, 1996
---------------------------
Mary C. Farrell
/s/ Meyer Feldberg Director September 9, 1996
---------------------------
Meyer Feldberg
/s/ George W. Gowen Director September 9, 1996
---------------------------
George W. Gowen
/s/ Frederic V. Malek Director September 9, 1996
---------------------------
Frederic V. Malek
/s/ Carl W. Schafer Director September 9, 1996
---------------------------
Carl W. Schafer
/s/ John R. Torell III Director September 9, 1996
---------------------------
John R. Torell III
/s/Julian F. Sluyters Vice President and September 9, 1996
--------------------------- Treasurer
Julian F. Sluyters (Principal Financial and
Accounting Officer)
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS FILED WITH
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.
File No. _________
<PAGE>
PAINEWEBBER RMA TAX-FREE FUND, INC.
EXHIBIT INDEX
_____________________________
Exhibit Number Page
-------------- ----
(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 Termination
(see Appendix A filed herewith) . . . . . . . . . . . . .
(5) All Instruments defining the rights of holders of the
securities being registered 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, Pension Plans or Other Similar
Contracts - none
(9) Custodian Agreement 2/
(10) (a) Plan of Distribution pursuant to Rule 12b-1 8/
(b) Plan of Distribution pursuant to Rule 18f-3
with respect to Multiple Class Shares
(not applicable)
(11) Opinion and Consent of Kirkpatrick & Lockhart LLP
regarding the legality of the securities being
registered (filed herewith) . . . . . . . . . . . . . . . . .
(12) (a) Opinion and Consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters
with respect to Tax-Free Fund (filed herewith) . . . . .
(b) Opinion and Consent of Kirkpatrick &
Lockhart LLP regarding certain tax matters
with respect to Connecticut Fund (filed herewith) . . . .
(13) (a) Transfer Agency Agreement 6/
(b) Service Contract 4/
(14) Consent of Ernst & Young LLP (filed herewith) . . . . . . . .
(15) Financial Statements Omitted from Part B - none
(16) Manually signed copies of Powers of Attorney - see
signature page
(17) Additional Exhibits:
(a) Declaration under Rule 24f-2 (filed herewith) . . . . . .
(b) Proxy Card (filed herewith) . . . . . . . . . . . . . . .
(27) Financial Data Schedule (filed herewith) . . . . . . . . . . .
_________________________
1/ Incorporated by reference from initial registration statement, SEC
File No. 2-78310, filed July 2, 1982.
<PAGE>
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.
<PAGE>
<PAGE>
EXHIBIT 11
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C. 20036-1800
Susan M. Casey
(202) 778-9036
September 6, 1996
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. ("Tax-Free Fund") of
shares of common stock (the "Shares") pursuant to an Agreement and Plan of
Reorganization and Termination (the "Plan") between Tax-Free Fund and
PaineWebber RMA Connecticut Municipal Money Series ("Connecticut Fund"), a
series of PaineWebber Municipal Money Market Series. Under the Plan,
Tax-Free Fund would acquire the assets of Connecticut Fund in exchange
solely for the Shares and the assumption by Tax-Free Fund of Connecticut
Fund's liabilities. In connection with the Plan, Tax-Free Fund is
preparing to file a Registration Statement on Form N-14 ("N-14") for the
purpose of registering the Shares under the Securities Act of 1933, as
amended (the "1933 Act") to be issued pursuant to the Plan.
We have examined originals or copies believed by us to be genuine
of Tax-Free Fund's Articles of Incorporation and By-Laws, minutes of
meetings of Tax-Free Fund's board of directors, the form of the Plan, and
such other documents relating to the authorization and issuance of the
Shares as we have deemed relevant. Based upon that examination, we are of
the opinion that:
The Shares being registered by the N-14 may be issued in
accordance with the Plan and Tax-Free 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 will be
legally issued, fully paid and non-assessable.
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 6, 1996
Page 2
We hereby consent to this opinion accompanying the N-14 that
Tax-Free 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/ Susan M. Casey
--------------------------
Susan M. Casey
<PAGE>
<PAGE>
EXHIBIT 12(a)
KIRKPATRICK & LOCKHART LLP
One International Plaza
Boston, MA 02110-2637
September 3, 1996
PaineWebber RMA Tax-Free Fund, Inc.
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber RMA Tax-Free Fund, Inc., a Maryland corporation
("Acquiring Fund"), has requested our opinion as to certain federal income
tax consequences of the proposed acquisition of PaineWebber RMA
Connecticut Municipal Money Fund ("Target"), a series of PaineWebber
Municipal Money Market Series, a Massachusetts business trust ("PW
Trust"),1/ by Acquiring Fund, pursuant to an Agreement and Plan of Reor-
ganization and Termination between them dated as of August 30, 1996
("Plan"), attached as an exhibit to the prospectus/proxy statement to be
furnished in connection with the solicitation of proxies by PW Trust's
Board of Trustees for use at a special meeting of Target shareholders
("Special Meeting") to be held on November 20, 1996 ("Proxy"), included in
the registration statement on Form N-14 to be filed with the Securities
and Exchange Commission ("SEC") on 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
beneficial interest in Acquiring Fund and the assumption
by Acquiring Fund of Target's liabilities, followed by
the distribution of those shares by Target pro rata to
its shareholders of record as of the Effective Time (as
hereinafter defined) ("Shareholders") constructively in
exchange for their shares of common stock in Target
("Target Shares") (such transaction sometimes being re-
ferred to herein as the "Reorganization"), will consti-
tute a "reorganization" within the meaning of section
_____________________________
1/ Target and Acquiring Fund are sometimes referred to herein
individually either by such names or as a "Fund" and collectively as the
"Funds," and PW Trust and Acquiring Fund are sometimes referred to herein
individually either by such names or as an "Investment Company" and
collectively as the "Investment Companies."
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 2
368(a)(1)(C)2/ and that each Fund will be a "party to a
reorganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring
Fund will recognize no gain or loss upon the Reorganiza-
tion, and
(3) regarding the basis and holding period after
the Reorganization of the transferred assets and the
shares of Acquiring Fund issued pursuant thereto.
In rendering this opinion, we have examined (1) Target's
prospectus dated August 29, 1996 and statement of additional information
dated August 29, 1996, and the currently effective prospectus and state-
ment of additional information of Acquiring Fund, both dated August 29,
1996, (2) the Proxy, (3) the Plan, and (4) such other documents as we have
deemed necessary or appropriate for the purposes hereof. As to various
matters of fact material to this opinion, we have relied, exclusively and
without independent verification, on statements of responsible officers of
each Investment Company and 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. PW Trust is as an unincorporated voluntary association with
transferable shares formed on September 14, 1990, as a business trust
under the laws of the Commonwealth of Massachusetts (commonly referred to
as a "Massachusetts business trust") pursuant to a Declaration of Trust.
Target commenced operations as a series thereof on November 6, 1990. Each
Investment Company 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 investment adviser and
administrator to each Fund and is the distributor of each Fund's shares.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly
___________________________
2/ All section references are to the Internal Revenue Code of 1986, as
amended ("Code"), and all "Treas. Reg. Section" references are to the
regulations under the Code ("Regulations").
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 3
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, 1996 (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 (com-
puted without regard to any deduction for dividends paid) 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 differences in those policies, it is not expected that
Acquiring Fund will revise its investment policies following the Reorgani-
zation to reflect Target's. Because Target is permitted to invest in
securities having characteristics different from those permitted for
Acquiring Fund, certain of the securities currently held by Target may
need to be sold rather than transferred to Acquiring Fund. If the Reor-
ganization is approved, Target will sell prior to the Effective Time any
assets that are inconsistent with Acquiring Fund's investment policies,
and the proceeds thereof will be held in temporary investments or
reinvested in assets that qualify to be held by Acquiring Fund.
The Reorganization was recommended by Mitchell Hutchins to each
Investment Company's board of directors or board of trustees, as
applicable (each a "board") at meetings thereof held on July 24, 1996. In
considering the Reorganization, each board made an extensive inquiry into
a number of factors (which are described in the Proxy, together with
Mitchell Hutchins's advice and recommendations to the respective boards
and the purposes of the Reorganization). Pursuant thereto, each board
approved the Plan, subject to the approval of Target's stockholders. In
doing so, each board, including a majority of its members who are not
"interested persons" (as that term is defined in the 1940 Act) of either
Investment Company, determined that the Reorganization is in its Fund's
best interests, that the terms of the Reorganization are fair and reason-
able, 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:
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 4
(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 records, deferred
and prepaid expenses shown as assets on Target's books,
and other property owned by Target at the Effective Time
(collectively "Assets") in exchange solely for
(a) the number of full and fractional
shares of beneficial interest 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 abso-
lute, accrued, contingent, or otherwise, whether
or not arising in the ordinary course of busi-
ness, 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),
(2) The constructive distribution of such
Acquiring Fund Shares to the Shareholders, and
(3) The subsequent termination 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 outstanding Target Shares, including any
represented by certificates, simultaneously will be canceled on Target's
share transfer records.
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 5
The representations enumerated below have been made to us by
appropriate officers of each Investment Company.
Each of Acquiring Fund, and PW Trust, on behalf of Target, has
represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares,
when received by the Shareholders, will be approximately equal to
the fair market value of their Target Shares constructively
surrendered in exchange therefor;
2. Its management (a) is unaware of any plan or inten-
tion 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 dispo-
sitions 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 Reorganiza-
tion, Acquiring Fund will hold substantially the same assets and
be subject to substantially the same liabilities that Target held
or was subject to immediately prior thereto, plus any liabilities
and expenses of the parties incurred in connection with the Reor-
ganization;
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
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 6
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 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 Sharehold-
ers will not own shares constituting "control" of Acquiring Fund
within the meaning of section 304(c).
PW Trust also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordi-
nary course of its business;
2. Target is a "fund" as defined in section 851(h)(2) of
the Code; it qualified for treatment as a regulated investment
company ("RIC") under Subchapter M of the Code ("Subchapter M")
for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for
its current taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Sub-
chapter 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;
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);
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 7
4. Not more than 25% of the value of Target's total
assets (excluding cash, cash items, and U.S. government secu-
rities) is invested in the stock or securities of any one issuer,
and not more than 50% of the value of such assets is invested in
the stock or securities of five or fewer issuers; and
5. Target will be terminated as soon as reasonably prac-
ticable after the Reorganization, but in all events within six
months after the Effective Time.
Acquiring Fund also has represented and warranted to us on behalf
of Acquiring Fund as follows:
1. Acquiring Fund qualified for treatment as a RIC under
Subchapter M for each past taxable year since it commenced
operations and will continue to meet all the requirements for
such qualification for its current taxable year; Acquiring Fund
intends to continue to meet all such requirements for the next
taxable year; and it has no earnings and profits accumulated in
any taxable year in which the provisions of Subchapter M did not
apply to it;
2. Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization
except for shares issued in the ordinary course of its business
as a series of an open-end investment company; nor does Acquiring
Fund have any plan or intention to redeem or otherwise reacquire
any Acquiring Fund Shares issued to the Shareholders pursuant to
the Reorganization, other than through redemptions arising in the
ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's
business in substantially the same manner that Target conducted
that business immediately before the Reorganization, (b) has no
plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of
that business and dispositions necessary to maintain its status
as a RIC under Subchapter M, and (c) expects to retain
substantially all the Assets in the same form as it receives them
in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
4. There is no plan or intention for Acquiring Fund to
be dissolved or merged into another corporation or business trust
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 8
or any "fund" thereof (within the meaning of section 851(h)(2))
following the Reorganization;
5. Immediately after the Reorganization, (a) not more
than 25% of the value of Acquiring Fund's total assets (excluding
cash, cash items, and U.S. government securities) will be in-
vested in the stock or securities of any one issuer and (b) not
more than 50% of the value of such assets will be invested in the
stock or securities of five or fewer issuers; and
6. Acquiring fund does not own, directly or indirectly,
nor at the Effective Time will it own, directly or indirectly,
nor has it owned, directly or indirectly, at any time during the
past five years, any shares of Target.
OPINION
-------
Based solely on the facts set forth above, and conditioned on
(1) the Representations being true at the time of Closing and (2) the
Reorganization being consummated in accordance with the Plan, our opinion
(as explained more fully in the next section of this letter) is as
follows:
1. Acquiring Fund's acquisition of the Assets solely in
exchange for the Acquiring Fund Shares and Acquiring Fund's
assumption of the Liabilities, followed by Target's distribution
of those shares pro rata to the Shareholders constructively in
exchange for their Target Shares, will constitute a reorgani-
zation within the meaning of section 368(a)(1)(C), and each Fund
will be "a party to a reorganization" within the meaning of
section 368(b);
2. No gain or loss will be recognized to Target on the
transfer of the Assets to Acquiring Fund solely in exchange for
the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities or upon the subsequent distribution of those shares
to the Shareholders in constructive exchange for their Target
Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund
on its receipt of the Assets solely in exchange for the Acquiring
Fund Shares and its assumption of the Liabilities (section
1032(a));
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 9
4. Acquiring Fund's basis for the Assets will be the
same as the basis thereof in Target's hands immediately before
the Reorganization (section 362(b)), and Acquiring Fund's holding
period for the Assets will include Target's holding period
therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization (section
354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares
to be received by it in the Reorganization will be the same as
the basis for its Target Shares to be constructively surrendered
in exchange for those Acquiring Fund Shares (section 358(a)), and
its holding period for those Acquiring Fund Shares will include
its holding period for those Target Shares, provided they are
held as capital assets by the Shareholder on the Closing Date
(section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the
Regulations, judicial decisions, and rulings and other pronouncements of
the Internal Revenue Service ("Service") in existence on the date hereof
and (2) is applicable only to the extent each Fund is solvent. We express
no opinion about the tax treatment of the transactions described herein if
either Fund is insolvent.
ANALYSIS
--------
I. The Reorganization Will Be a Reorganization under Section
368(a)(1)(C), and Each Fund Will Be a Party to a Reorganization.
----------------------------------------------------------------
A. Each Fund Is a Separate Corporation.
-----------------------------------
A reorganization under section 368(a)(1)(C) (a "C reorganiza-
tion") involves the acquisition by one corporation, in exchange solely for
all or a part of its voting stock, of substantially all of the properties
of another corporation. For the transaction to qualify under that
section, therefore, both entities involved therein must be corporations
(or associations taxable as corporations). Acquiring Fund is a
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 10
corporation. PW Trust, however, is a business trust, not a corporation,
and Target is a separate series of PW Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees
for the benefit of beneficiaries) will not be classified as trusts for
purposes of the Code because they are not simply arrangements to protect
or conserve the property for the beneficiaries. These "business or
commercial trusts" are created simply as devices to carry on profit-making
businesses that normally would have been carried on through corporations
or partnerships. Treasury Regulation section 301.7701-4(c) further
provides that an "`investment' trust will not be classified as a trust if
there is a power under the trust agreement to vary the investment of the
certificate holders." See Commissioner v. North American Bond Trust, 122
F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701 (1942).
Based on these criteria, PW Trust does not qualify as a trust for
federal income tax purposes. While PW Trust is an "investment trust," it
does not have fixed pools of assets -- Target has been a managed
portfolios of securities, and its investment advisers have had the
authority to buy and sell securities for them. PW Trust is not simply an
arrangement to protect or conserve property for the beneficiaries, but is
designed to carry on a profit-making business. In addition, the word
"association" has long been held to include "business trusts," such as PW
Trust. See Hecht v. Malley, 265 U.S. 144 (1924). Accordingly, we believe
that PW Trust will be treated as a corporation for federal income tax pur-
poses.
PW Trust as such, however, is not participating in the
Reorganization, but rather a series of PW Trust is a participant.
Ordinarily, a transaction involving a segregated pool of assets (such as
Target) could not qualify as a reorganization, because the pool would not
be a corporation. Under section 851(h), however, Target is treated as a
separate corporation for all purposes of the Code save the definitional
requirement of section 851(a) (which is satisfied by PW Trust). Thus, we
believe that Acquiring Fund and Target each will be a separate
corporation, and the shares of each will be treated as shares of corporate
stock, for purposes of section 368(a)(1)(C).
B. Satisfaction of Section 368(a)(2)(F).
------------------------------------
Under section 368(a)(2)(F), if two or more parties to a
transaction described in section 368(a)(1) (other than subparagraph (E)
thereof) are "investment companies," the transaction will not be
considered a reorganization with respect to any such investment company or
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 11
its shareholders unless, among other things, the investment company is a
RIC or --
(1) not more than 25% of the value of its
total assets is invested in the stock or
securities of any one issuer and
(2) not more than 50% of the value of its
total assets is invested in the stock or
securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a
RIC for its respective current taxable year, and the foregoing percentage
tests will be satisfied by each Fund. Accordingly, we believe that
section 368(a)(2)(F) will not cause the Reorganization to fail to qualify
as a C reorganization with respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
-------------------------------------------------
For an acquisition to qualify as a C reorganization, the ac-
quiring corporation must acquire "substantially all of the properties" of
the transferor corporation solely in exchange for all or part of the
acquiring corporation's stock. For purposes of issuing private letter
rulings, the Service considers the transfer of at least 70% of the
transferor's gross assets, and at least 90% of its net assets, held
immediately before the reorganization to satisfy the "substantially all"
requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The Reorganization will
involve such a transfer. Accordingly, we believe that the Reorganization
will involve the transfer to Acquiring Fund of substantially all of
Target's properties.
D. Qualifying Consideration.
------------------------
For an acquisition to qualify as a C reorganization, the
acquiring corporation must acquire at least 80% (by fair market value) of
the transferor's property solely in exchange for voting stock. Section
368(a)(2)(B)(iii). The assumption of liabilities by the acquiring
corporation or its acquisition of property subject to liabilities normally
are 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
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 12
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 prerequi-
sites to a valid reorganization: (1) a continuity of the business enter-
prise under the modified corporate form ("continuity of business") and (2)
a continuity of interest therein on the part of those persons who,
directly or indirectly, were the owners of the enterprise prior to the
reorganization ("continuity of interest").
1. Continuity of Business.
----------------------
The continuity of business enterprise test as set forth in Treas.
Reg. section 1.368-1(d)(2) requires that the acquiring corporation must
either (i) continue the acquired corporation's historic business
("business continuity") or (ii) use a significant portion of the acquired
corporation's historic business assets in a business ("asset continuity").
While there is no authority that deals directly with the re-
quirement of continuity of business in the context of a transaction such
as the Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a
somewhat similar situation. In that ruling, P was a RIC that invested
exclusively in municipal securities. P acquired the assets of T in
exchange for P common stock in a transaction that was intended to qualify
as a C reorganization. Prior to the exchange, T sold its entire portfolio
of corporate securities and purchased a portfolio of municipal bonds. The
Service held that this transaction did not qualify as a reorganization for
the following reasons: (1) because T had sold its historic assets prior
to the exchange, there was no asset continuity; and (2) the failure of P
to engage in the business of investing in corporate securities after the
exchange caused the transaction to lack business continuity as well.
The Funds' investment objectives are 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
dispose of any of the Assets, except for dispositions made in the ordinary
course of its business and dispositions necessary to maintain its status
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 13
as a RIC, and (2) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless and until
subsequent investment circumstances suggest the desirability of change or
it becomes necessary to make dispositions thereof to maintain such status.
Accordingly, there will be asset continuity as well.
For all the foregoing reasons, we believe that the Reorganization
will meet the continuity of business requirement.
2. Continuity of Interest.
----------------------
For purposes of issuing private letter rulings, the Service
considers the continuity of interest requirement of Treas. Reg.
section 1.368-1(b) satisfied if ownership in an acquiring corporation on
the part of a transferor corporation's former shareholders is equal in
value to at least 50% of the value of all the formerly outstanding shares
of the transferor corporation. Rev. Proc. 77-37, supra; but see Rev. Rul.
56-345, 1956-2 C.B. 206 (continuity of interest was held to exist in a
reorganization of two RICs where immediately after the reorganization 26%
of the shares were redeemed in order to allow investment in a third RIC);
also see Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966), cert.
denied, 386 U.S. 1018 (1967) (a redemption of 48% of a transferor corpora-
tion'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 sharehold-
ers 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
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 14
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 Share-
holders to dispose of any portion of the Acquiring Fund Shares to be
received by them in the Reorganization or (2) anticipates dispositions
thereof at the time of or soon after the Reorganization to exceed the
usual rate and frequency of dispositions of shares of Target as an
open-end investment company. Consequently, each Fund expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis.
Accordingly, we believe that the Reorganization will meet the continuity
of interest requirement of Treas. Reg. section 1.368-1(b).
F. Distribution by Target.
----------------------
Section 368(a)(2)(G)(i) provides that a transaction will not
qualify as a C reorganization unless the corporation whose properties are
acquired distributes the stock it receives and its other property in
pursuance of the plan of reorganization. Under the Plan -- which we
believe constitutes a "plan of reorganization" within the meaning of
Treas. Reg. section 1.368-2(g) -- Target will distribute all the Acquiring
Fund Shares to its shareholders in constructive exchange for their Target
Shares; as soon as is reasonably practicable thereafter, Target will be
terminated. Accordingly, we believe that the requirements of section
368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
----------------
All reorganizations must meet the judicially imposed requirements
of the "business purpose doctrine," which was established in Gregory v.
Helvering, 293 U.S. 465 (1935), and is now set forth in Treas. Reg.
sectionsection 1.368-1(b), -1(c), and -2(g) (the last of which provides
that, to qualify as a reorganization, a transaction must be "undertaken
for reasons germane to the continuance of the business of a corporation a
party to the reorganization"). Under that doctrine, a transaction must
have a bona fide business purpose (and not a purpose to avoid federal
income tax) to constitute a valid reorganization. The substantial
business purposes of the Reorganization are outlined above. Accordingly,
we believe that the Reorganization is being undertaken for bona fide
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 15
business purposes (and not a purpose to avoid federal income tax) and
therefore meets the requirements of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization
will constitute a reorganization within the meaning of section
368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
--------------------------------------------
Section 368(b)(2) and Treas. Reg. section 1.368-1(f) provide that
if one corporation transfers substantially all of its properties to a
second corporation in exchange for all or a part of the voting stock of
the second corporation, then both corporations are parties to a reorgan-
ization. Target is transferring substantially all of its properties to
Acquiring Fund in exchange for Acquiring Fund Shares. Accordingly, we
believe that each Fund will be "a party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
--------------------------------------------
Under sections 361(a) and (c), no gain or loss will be recognized
to a corporation that is a party to a reorganization (1) on the exchange
of property, pursuant to the plan of reorganization, solely for stock or
securities in another corporate party to the reorganization or (2) on the
distribution to its shareholders, pursuant to that plan, of stock in such
other corporation that was received by the distributing corporation in the
exchange. (Such a distribution is required by section 368(a)(2)(G)(i) for
a reorganization to qualify as a C reorganization.) Section 361(c)(4)
provides that specified provisions requiring recognition of gain on
certain distributions shall not apply to a distribution described in (2)
above.
Section 357(a) provides in pertinent part that, except as pro-
vided in section 357(b), if a taxpayer receives property that would be
permitted to be received under section 361 without recognition of gain if
it were the sole consideration and, as part of the consideration, another
party to the exchange assumes a liability of the taxpayer or acquires from
the taxpayer property subject to a liability, then that assumption or
acquisition shall not be treated as money or other property and shall not
prevent the exchange from being within section 361. Section 357(b)
applies where the principal purpose of the assumption or acquisition was a
tax avoidance purpose or not a bona fide business purpose.
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 16
As noted above, the Reorganization will constitute a C reorgan-
ization, 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 terminated pursuant to the Plan, dis-
tributing 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 Reor-
ganization.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
recognized to the transferor on the transfer. As noted above, the Reor-
ganization will constitute a C reorganization and Target will recognize no
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 (including certain options, futures,
and forward contracts included in the Assets) as to which any unrealized
gain or loss is required to be recognized for federal income tax purposes
at the end of a taxable year (or on the termination or transfer thereof)
under a mark-to-market system of accounting.
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 17
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 share-
holder who exchanges shares for other shares pursuant to a plan of reor-
ganization, 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 ex-
change 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 reorgan-
ization 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
<PAGE>
PaineWebber RMA Tax-Free Fund, Inc.
September 3, 1996
Page 18
no money will be distributed to them pursuant to the Reorganization. Ac-
cordingly, we believe that a Shareholder's basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the same as the
basis for its Target Shares to be constructively surrendered in exchange
for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in
an exchange includes the holding period of the property exchanged therefor
if the acquired property has, for the purpose of determining gain or loss,
the same basis in the holder's hands as the property exchanged therefor
("substituted basis") and such property was a capital asset. As noted
above, a Shareholder will have a substituted basis for the Acquiring Fund
Shares it receives in the Reorganization; accordingly, provided that the
Shareholder held its Target Shares as capital assets on the Closing Date,
we believe its holding period for those Acquiring Fund Shares will include
its holding period for those Target Shares.
We hereby consent to this opinion accompanying the Registration
Statement and to the references to our firm under the captions "Synopsis -
- Federal Income Tax Consequences of the Reorganizations" and "The
Proposed Transactions -- Federal Income Tax Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Joel D. Almquist
-----------------------
Joel D. Almquist
<PAGE>
<PAGE>
EXHIBIT 12(b)
KIRKPATRICK & LOCKHART LLP
One International Plaza
Boston, MA 02110-2637
September 3, 1996
PaineWebber Municipal Money Market Series
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber Municipal Money Market Series, a Massachusetts
business trust ("PW Trust"), has requested our opinion as to certain fed-
eral income tax consequences of the proposed acquisition of its series,
PaineWebber RMA Connecticut Municipal Money Fund ("Target"), by
PaineWebber RMA Tax-Free Fund, Inc., a Maryland corporation ("Acquiring
Fund"),1/ pursuant to an Agreement and Plan of Reorganization and
Termination between them dated as of August 30, 1996 ("Plan"), attached as
an exhibit to the prospectus/proxy statement to be furnished in connection
with the solicitation of proxies by PW Trust's Board of Trustees for use
at a special meeting of Target shareholders ("Special Meeting") to be held
on November 20, 1996 ("Proxy"), included in the registration statement on
Form N-14 to be filed with the Securities and Exchange Commission ("SEC")
on the date hereof ("Registration Statement"). Specifically, PW Trust has
requested our opinion:
(1) that the acquisition by Acquiring Fund of
Target's assets in exchange solely for voting shares of
beneficial interest in Acquiring Fund and the assumption
by Acquiring Fund of Target's liabilities, followed by
the distribution of those shares by Target pro rata to
its shareholders of record as of the Effective Time (as
hereinafter defined) ("Shareholders") constructively in
exchange for their shares of common stock in Target
("Target Shares") (such transaction sometimes being re-
ferred to herein as the "Reorganization"), will consti-
tute a "reorganization" within the meaning of section
_________________________
1/ Target and Acquiring Fund are sometimes referred to herein indi-
vidually either by such names or as a "Fund" and collectively as the
"Funds," and PW Trust and Acquiring Fund are sometimes referred to herein
individually either by such names or as an "Investment Company" and
collectively as the "Investment Companies."
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 2
368(a)(1)(C)2/ and that each Fund will be a "party to a
reorganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring
Fund will recognize no gain or loss upon the Reorganiza-
tion, and
(3) regarding the basis and holding period after
the Reorganization of the transferred assets and the
shares of Acquiring Fund issued pursuant thereto.
In rendering this opinion, we have examined (1) Target's
prospectus dated August 29, 1996 and statement of additional information
dated August 29, 1996, and the currently effective prospectus and state-
ment of additional information of Acquiring Fund, both dated August 29,
1996, (2) the Proxy, (3) the Plan, and (4) such other documents as we have
deemed necessary or appropriate for the purposes hereof. As to various
matters of fact material to this opinion, we have relied, exclusively and
without independent verification, on statements of responsible officers of
each Investment Company and 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. PW Trust is as an unincorporated voluntary association with
transferable shares formed on September 14, 1990, as a business trust
under the laws of the Commonwealth of Massachusetts (commonly referred to
as a "Massachusetts business trust") pursuant to a Declaration of Trust.
Target commenced operations as a series thereof on November 6, 1990. Each
Investment Company 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 investment adviser and
administrator to each Fund and is the distributor of each Fund's shares.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly
_________________________
2/ All section references are to the Internal Revenue Code of 1986, as
amended ("Code"), and all "Treas. Reg. Section" references are to the
regulations under the Code ("Regulations").
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 3
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, 1996 (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 (com-
puted without regard to any deduction for dividends paid) 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 differences in those policies, it is not expected that
Acquiring Fund will revise its investment policies following the Reorgani-
zation to reflect Target's. Because Target is permitted to invest in
securities having characteristics different from those permitted for
Acquiring Fund, certain of the securities currently held by Target may
need to be sold rather than transferred to Acquiring Fund. If the Reor-
ganization is approved, Target will sell prior to the Effective Time any
assets that are inconsistent with Acquiring Fund's investment policies,
and the proceeds thereof will be held in temporary investments or
reinvested in assets that qualify to be held by Acquiring Fund.
The Reorganization was recommended by Mitchell Hutchins to each
Investment Company's board of directors or board of trustees, as
applicable (each a "board") at meetings thereof held on July 24, 1996. In
considering the Reorganization, each board made an extensive inquiry into
a number of factors (which are described in the Proxy, together with
Mitchell Hutchins's advice and recommendations to the respective boards
and the purposes of the Reorganization). Pursuant thereto, each board
approved the Plan, subject to the approval of Target's stockholders. In
doing so, each board, including a majority of its members who are not
"interested persons" (as that term is defined in the 1940 Act) of either
Investment Company, determined that the Reorganization is in its Fund's
best interests, that the terms of the Reorganization are fair and reason-
able, 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:
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 4
(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 records, deferred
and prepaid expenses shown as assets on Target's books,
and other property owned by Target at the Effective Time
(collectively "Assets") in exchange solely for
(a) the number of full and fractional
shares of beneficial interest 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 abso-
lute, accrued, contingent, or otherwise, whether
or not arising in the ordinary course of busi-
ness, 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),
(2) The constructive distribution of such
Acquiring Fund Shares to the Shareholders, and
(3) The subsequent termination 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 outstanding Target Shares, including any
represented by certificates, simultaneously will be canceled on Target's
share transfer records.
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 5
The representations enumerated below have been made to us by
appropriate officers of each Investment Company.
Each of Acquiring Fund, and PW Trust, on behalf of Target, has
represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares,
when received by the Shareholders, will be approximately equal to
the fair market value of their Target Shares constructively
surrendered in exchange therefor;
2. Its management (a) is unaware of any plan or inten-
tion 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 dispo-
sitions 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 Reorganiza-
tion, Acquiring Fund will hold substantially the same assets and
be subject to substantially the same liabilities that Target held
or was subject to immediately prior thereto, plus any liabilities
and expenses of the parties incurred in connection with the Reor-
ganization;
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
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 6
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 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 Sharehold-
ers will not own shares constituting "control" of Acquiring Fund
within the meaning of section 304(c).
PW Trust also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordi-
nary course of its business;
2. Target is a "fund" as defined in section 851(h)(2) of
the Code; it qualified for treatment as a regulated investment
company ("RIC") under Subchapter M of the Code ("Subchapter M")
for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for
its current taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Sub-
chapter 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;
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);
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PaineWebber Municipal Money Market Series
September 3, 1996
Page 7
4. Not more than 25% of the value of Target's total
assets (excluding cash, cash items, and U.S. government secu-
rities) is invested in the stock or securities of any one issuer,
and not more than 50% of the value of such assets is invested in
the stock or securities of five or fewer issuers; and
5. Target will be terminated as soon as reasonably prac-
ticable after the Reorganization, but in all events within six
months after the Effective Time.
Acquiring Fund also has represented and warranted to us on behalf
of Acquiring Fund as follows:
1. Acquiring Fund qualified for treatment as a RIC under
Subchapter M for each past taxable year since it commenced
operations and will continue to meet all the requirements for
such qualification for its current taxable year; Acquiring Fund
intends to continue to meet all such requirements for the next
taxable year; and it has no earnings and profits accumulated in
any taxable year in which the provisions of Subchapter M did not
apply to it;
2. Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization
except for shares issued in the ordinary course of its business
as a series of an open-end investment company; nor does Acquiring
Fund have any plan or intention to redeem or otherwise reacquire
any Acquiring Fund Shares issued to the Shareholders pursuant to
the Reorganization, other than through redemptions arising in the
ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's
business in substantially the same manner that Target conducted
that business immediately before the Reorganization, (b) has no
plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of
that business and dispositions necessary to maintain its status
as a RIC under Subchapter M, and (c) expects to retain
substantially all the Assets in the same form as it receives them
in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
4. There is no plan or intention for Acquiring Fund to
be dissolved or merged into another corporation or business trust
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 8
or any "fund" thereof (within the meaning of section 851(h)(2))
following the Reorganization;
5. Immediately after the Reorganization, (a) not more
than 25% of the value of Acquiring Fund's total assets (excluding
cash, cash items, and U.S. government securities) will be in-
vested in the stock or securities of any one issuer and (b) not
more than 50% of the value of such assets will be invested in the
stock or securities of five or fewer issuers; and
6. Acquiring fund does not own, directly or indirectly,
nor at the Effective Time will it own, directly or indirectly,
nor has it owned, directly or indirectly, at any time during the
past five years, any shares of Target.
OPINION
-------
Based solely on the facts set forth above, and conditioned on
(1) the Representations being true at the time of Closing and (2) the
Reorganization being consummated in accordance with the Plan, our opinion
(as explained more fully in the next section of this letter) is as
follows:
1. Acquiring Fund's acquisition of the Assets solely in
exchange for the Acquiring Fund Shares and Acquiring Fund's
assumption of the Liabilities, followed by Target's distribution
of those shares pro rata to the Shareholders constructively in
exchange for their Target Shares, will constitute a reorgani-
zation within the meaning of section 368(a)(1)(C), and each Fund
will be "a party to a reorganization" within the meaning of
section 368(b);
2. No gain or loss will be recognized to Target on the
transfer of the Assets to Acquiring Fund solely in exchange for
the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities or upon the subsequent distribution of those shares
to the Shareholders in constructive exchange for their Target
Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund
on its receipt of the Assets solely in exchange for the Acquiring
Fund Shares and its assumption of the Liabilities (section
1032(a));
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 9
4. Acquiring Fund's basis for the Assets will be the
same as the basis thereof in Target's hands immediately before
the Reorganization (section 362(b)), and Acquiring Fund's holding
period for the Assets will include Target's holding period
therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization (section
354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares
to be received by it in the Reorganization will be the same as
the basis for its Target Shares to be constructively surrendered
in exchange for those Acquiring Fund Shares (section 358(a)), and
its holding period for those Acquiring Fund Shares will include
its holding period for those Target Shares, provided they are
held as capital assets by the Shareholder on the Closing Date
(section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the
Regulations, judicial decisions, and rulings and other pronouncements of
the Internal Revenue Service ("Service") in existence on the date hereof
and (2) is applicable only to the extent each Fund is solvent. We express
no opinion about the tax treatment of the transactions described herein if
either Fund is insolvent.
ANALYSIS
--------
I. The Reorganization Will Be a Reorganization under Section
368(a)(1)(C), and Each Fund Will Be a Party to a Reorganization.
----------------------------------------------------------------
A. Each Fund Is a Separate Corporation.
-----------------------------------
A reorganization under section 368(a)(1)(C) (a "C reorganiza-
tion") involves the acquisition by one corporation, in exchange solely for
all or a part of its voting stock, of substantially all of the properties
of another corporation. For the transaction to qualify under that
section, therefore, both entities involved therein must be corporations
(or associations taxable as corporations). Acquiring Fund is a
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 10
corporation. PW Trust, however, is a business trust, not a corporation,
and Target is a separate series of PW Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees
for the benefit of beneficiaries) will not be classified as trusts for
purposes of the Code because they are not simply arrangements to protect
or conserve the property for the beneficiaries. These "business or
commercial trusts" are created simply as devices to carry on profit-making
businesses that normally would have been carried on through corporations
or partnerships. Treasury Regulation section 301.7701-4(c) further
provides that an "`investment' trust will not be classified as a trust if
there is a power under the trust agreement to vary the investment of the
certificate holders." See Commissioner v. North American Bond Trust, 122
F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701 (1942).
Based on these criteria, PW Trust does not qualify as a trust for
federal income tax purposes. While PW Trust is an "investment trust," it
does not have fixed pools of assets -- Target has been a managed
portfolios of securities, and its investment advisers have had the
authority to buy and sell securities for them. PW Trust is not simply an
arrangement to protect or conserve property for the beneficiaries, but is
designed to carry on a profit-making business. In addition, the word
"association" has long been held to include "business trusts," such as PW
Trust. See Hecht v. Malley, 265 U.S. 144 (1924). Accordingly, we believe
that PW Trust will be treated as a corporation for federal income tax pur-
poses.
PW Trust as such, however, is not participating in the Reorgan-
ization, but rather a series of PW Trust is a participant. Ordinarily, a
transaction involving a segregated pool of assets (such as Target) could
not qualify as a reorganization, because the pool would not be a corpora-
tion. Under section 851(h), however, Target is treated as a separate
corporation for all purposes of the Code save the definitional requirement
of section 851(a) (which is satisfied by PW Trust). Thus, we believe that
Acquiring Fund and Target each will be a separate corporation, and the
shares of each will be treated as shares of corporate stock, for purposes
of section 368(a)(1)(C).
B. Satisfaction of Section 368(a)(2)(F).
------------------------------------
Under section 368(a)(2)(F), if two or more parties to a trans-
action described in section 368(a)(1) (other than subparagraph (E)
thereof) are "investment companies," the transaction will not be con-
sidered a reorganization with respect to any such investment company or
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 11
its shareholders unless, among other things, the investment company is a
RIC or --
(1) not more than 25% of the value of its
total assets is invested in the stock or
securities of any one issuer and
(2) not more than 50% of the value of its
total assets is invested in the stock or
securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a
RIC for its respective current taxable year, and the foregoing percentage
tests will be satisfied by each Fund. Accordingly, we believe that
section 368(a)(2)(F) will not cause the Reorganization to fail to qualify
as a C reorganization with respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
-------------------------------------------------
For an acquisition to qualify as a C reorganization, the ac-
quiring corporation must acquire "substantially all of the properties" of
the transferor corporation solely in exchange for all or part of the
acquiring corporation's stock. For purposes of issuing private letter
rulings, the Service considers the transfer of at least 70% of the
transferor's gross assets, and at least 90% of its net assets, held
immediately before the reorganization to satisfy the "substantially all"
requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The Reorganization will
involve such a transfer. Accordingly, we believe that the Reorganization
will involve the transfer to Acquiring Fund of substantially all of
Target's properties.
D. Qualifying Consideration.
------------------------
For an acquisition to qualify as a C reorganization, the
acquiring corporation must acquire at least 80% (by fair market value) of
the transferor's property solely in exchange for voting stock. Section
368(a)(2)(B)(iii). The assumption of liabilities by the acquiring
corporation or its acquisition of property subject to liabilities normally
are 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
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 12
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 prerequi-
sites to a valid reorganization: (1) a continuity of the business enter-
prise under the modified corporate form ("continuity of business") and (2)
a continuity of interest therein on the part of those persons who,
directly or indirectly, were the owners of the enterprise prior to the
reorganization ("continuity of interest").
1. Continuity of Business.
----------------------
The continuity of business enterprise test as set forth in Treas.
Reg. section 1.368-1(d)(2) requires that the acquiring corporation must
either (i) continue the acquired corporation's historic business
("business continuity") or (ii) use a significant portion of the acquired
corporation's historic business assets in a business ("asset continuity").
While there is no authority that deals directly with the re-
quirement of continuity of business in the context of a transaction such
as the Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a
somewhat similar situation. In that ruling, P was a RIC that invested
exclusively in municipal securities. P acquired the assets of T in
exchange for P common stock in a transaction that was intended to qualify
as a C reorganization. Prior to the exchange, T sold its entire portfolio
of corporate securities and purchased a portfolio of municipal bonds. The
Service held that this transaction did not qualify as a reorganization for
the following reasons: (1) because T had sold its historic assets prior
to the exchange, there was no asset continuity; and (2) the failure of P
to engage in the business of investing in corporate securities after the
exchange caused the transaction to lack business continuity as well.
The Funds' investment objectives are 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
dispose of any of the Assets, except for dispositions made in the ordinary
course of its business and dispositions necessary to maintain its status
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 13
as a RIC, and (2) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless and until
subsequent investment circumstances suggest the desirability of change or
it becomes necessary to make dispositions thereof to maintain such status.
Accordingly, there will be asset continuity as well.
For all the foregoing reasons, we believe that the Reorganization
will meet the continuity of business requirement.
2. Continuity of Interest.
----------------------
For purposes of issuing private letter rulings, the Service
considers the continuity of interest requirement of Treas. Reg.
section 1.368-1(b) satisfied if ownership in an acquiring corporation on
the part of a transferor corporation's former shareholders is equal in
value to at least 50% of the value of all the formerly outstanding shares
of the transferor corporation. Rev. Proc. 77-37, supra; but see Rev. Rul.
56-345, 1956-2 C.B. 206 (continuity of interest was held to exist in a
reorganization of two RICs where immediately after the reorganization 26%
of the shares were redeemed in order to allow investment in a third RIC);
also see Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966), cert.
denied, 386 U.S. 1018 (1967) (a redemption of 48% of a transferor corpora-
tion'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 sharehold-
ers 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
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 14
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 Share-
holders to dispose of any portion of the Acquiring Fund Shares to be
received by them in the Reorganization or (2) anticipates dispositions
thereof at the time of or soon after the Reorganization to exceed the
usual rate and frequency of dispositions of shares of Target as an
open-end investment company. Consequently, each Fund expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis.
Accordingly, we believe that the Reorganization will meet the continuity
of interest requirement of Treas. Reg. section 1.368-1(b).
F. Distribution by Target.
----------------------
Section 368(a)(2)(G)(i) provides that a transaction will not
qualify as a C reorganization unless the corporation whose properties are
acquired distributes the stock it receives and its other property in
pursuance of the plan of reorganization. Under the Plan -- which we
believe constitutes a "plan of reorganization" within the meaning of
Treas. Reg. section 1.368-2(g) -- Target will distribute all the Acquiring
Fund Shares to its shareholders in constructive exchange for their Target
Shares; as soon as is reasonably practicable thereafter, Target will be
terminated. Accordingly, we believe that the requirements of section
368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
----------------
All reorganizations must meet the judicially imposed requirements
of the "business purpose doctrine," which was established in Gregory v.
Helvering, 293 U.S. 465 (1935), and is now set forth in Treas. Reg.
sectionsection 1.368-1(b), -1(c), and -2(g) (the last of which provides
that, to qualify as a reorganization, a transaction must be "undertaken
for reasons germane to the continuance of the business of a corporation a
party to the reorganization"). Under that doctrine, a transaction must
have a bona fide business purpose (and not a purpose to avoid federal
income tax) to constitute a valid reorganization. The substantial
business purposes of the Reorganization are outlined above. Accordingly,
we believe that the Reorganization is being undertaken for bona fide
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 15
business purposes (and not a purpose to avoid federal income tax) and
therefore meets the requirements of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization
will constitute a reorganization within the meaning of section
368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
--------------------------------------------
Section 368(b)(2) and Treas. Reg. section 1.368-1(f) provide that
if one corporation transfers substantially all of its properties to a
second corporation in exchange for all or a part of the voting stock of
the second corporation, then both corporations are parties to a reorgan-
ization. Target is transferring substantially all of its properties to
Acquiring Fund in exchange for Acquiring Fund Shares. Accordingly, we
believe that each Fund will be "a party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
--------------------------------------------
Under sections 361(a) and (c), no gain or loss will be recognized
to a corporation that is a party to a reorganization (1) on the exchange
of property, pursuant to the plan of reorganization, solely for stock or
securities in another corporate party to the reorganization or (2) on the
distribution to its shareholders, pursuant to that plan, of stock in such
other corporation that was received by the distributing corporation in the
exchange. (Such a distribution is required by section 368(a)(2)(G)(i) for
a reorganization to qualify as a C reorganization.) Section 361(c)(4)
provides that specified provisions requiring recognition of gain on
certain distributions shall not apply to a distribution described in (2)
above.
Section 357(a) provides in pertinent part that, except as pro-
vided in section 357(b), if a taxpayer receives property that would be
permitted to be received under section 361 without recognition of gain if
it were the sole consideration and, as part of the consideration, another
party to the exchange assumes a liability of the taxpayer or acquires from
the taxpayer property subject to a liability, then that assumption or
acquisition shall not be treated as money or other property and shall not
prevent the exchange from being within section 361. Section 357(b)
applies where the principal purpose of the assumption or acquisition was a
tax avoidance purpose or not a bona fide business purpose.
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 16
As noted above, the Reorganization will constitute a C reorgan-
ization, 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 terminated pursuant to the Plan, dis-
tributing 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 Reor-
ganization.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 (including certain options, futures,
and forward contracts included in the Assets) as to which any unrealized
gain or loss is required to be recognized for federal income tax purposes
at the end of a taxable year (or on the termination or transfer thereof)
under a mark-to-market system of accounting.
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 17
recognized to the transferor on the transfer. As noted above, the Reor-
ganization 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 share-
holder who exchanges shares for other shares pursuant to a plan of reor-
ganization, 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 ex-
change 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 reorgan-
ization and under section 354 no gain or loss will be recognized to a
Shareholder on the constructive exchange of its Target Shares for
<PAGE>
PaineWebber Municipal Money Market Series
September 3, 1996
Page 18
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. Ac-
cordingly, we believe that a Shareholder's basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the same as the
basis for its Target Shares to be constructively surrendered in exchange
for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in
an exchange includes the holding period of the property exchanged therefor
if the acquired property has, for the purpose of determining gain or loss,
the same basis in the holder's hands as the property exchanged therefor
("substituted basis") and such property was a capital asset. As noted
above, a Shareholder will have a substituted basis for the Acquiring Fund
Shares it receives in the Reorganization; accordingly, provided that the
Shareholder held its Target Shares as capital assets on the Closing Date,
we believe its holding period for those Acquiring Fund Shares will include
its holding period for those Target Shares.
We hereby consent to this opinion accompanying the Registration
Statement and to the references to our firm under the captions "Synopsis -
- Federal Income Tax Consequences of the Reorganizations" and "The
Proposed Transactions -- Federal Income Tax Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Joel D. Almquist
-----------------------
Joel D. Almquist
<PAGE>
<PAGE>
EXHIBIT 14
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference of our reports on PaineWebber RMA Tax-Free
Fund, Inc. and PaineWebber RMA Connecticut Municipal Money Fund dated
August 12, 1996, 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 4, 1996
<PAGE>
<PAGE>
Exhibit 17(a)
Registration 2-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1
REGISTRATION STATEMENT UNDER THE SECURITION 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
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 necesssary to delay its effective date until the Registration
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.
<PAGE>
<PAGE>
Exhibit 17(b)
PROXY
-----
PAINEWEBBER RMA CONNECTICUT MUNICIPAL MONEY FUND
Special Meeting of Shareholders - November __, 1996
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Ilene
Shore and each of them (with power of substitution) to vote for the
undersigned all shares of beneficial interest in 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 INDICATE AUTHORITY TO VOTE "FOR" ALL
PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF
PAINEWEBBER MUNICIPAL MONEY MARKET SERIES.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive,
Deer Park, NY 11729.
This proxy will not be voted unless it is dated and signed exactly as
instructed below.
Sign exactly as name appears hereon.
<TABLE>
<CAPTION>
<S> <C> <C>
______________________(L.S.) If the shares are held jointly, each Shareholder named
______________________(L.S.) Date _____________, 1996 should sign. If only one signs, his or her signature will
be binding. If the Shareholder is a corporation, the
President or Vice President should sign in his or her own
name, indicating title. If the shareholder is a
partnership, a partner should sign in his or her own name,
indicating that he or she is a "Partner."
</TABLE>
<PAGE>
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
1. Approval of an Agreement and Plan of Reorganization and
Termination between PaineWebber RMA Tax-Free Fund, Inc. and PaineWebber
RMA Connecticut Municipal Money Fund.
FOR _______ AGAINST _______ ABSTAIN ______
PLEASE SIGN AND DATE THE REVERSE SIDE OF THIS CARD
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000703875
<NAME> PAINEWEBBER RMA TAX-FREE FUND, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 2,069,519
<INVESTMENTS-AT-VALUE> 2,069,519
<RECEIVABLES> 14,651
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,084,270
<PAYABLE-FOR-SECURITIES> 67,411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,411
<TOTAL-LIABILITIES> 70,822
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,014,778
<SHARES-COMMON-STOCK> 2,014,778
<SHARES-COMMON-PRIOR> 1,563,026
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (350)
<ACCUMULATED-NET-GAINS> (980)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,013,448
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 72,768
<OTHER-INCOME> 0
<EXPENSES-NET> 12,313
<NET-INVESTMENT-INCOME> 60,455
<REALIZED-GAINS-CURRENT> 8
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 60,463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 60,678
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,346,307
<NUMBER-OF-SHARES-REDEEMED> (10,953,673)
<SHARES-REINVESTED> 58,989
<NET-CHANGE-IN-ASSETS> 451,752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (902)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,013
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,313
<AVERAGE-NET-ASSETS> 2,003,575
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000868055
<NAME> PAINEWEBBER MUNICIPAL MONEY MARKET SERIES
<SERIES>
<NUMBER> 1
<NAME> RMA CONNECTICUT MUNICIPAL MONEY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 17,589
<INVESTMENTS-AT-VALUE> 17,589
<RECEIVABLES> 148
<ASSETS-OTHER> 1,822
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,559
<PAYABLE-FOR-SECURITIES> 502
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69
<TOTAL-LIABILITIES> 571
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,995
<SHARES-COMMON-STOCK> 18,986
<SHARES-COMMON-PRIOR> 22,207
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (7)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 18,988
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 545
<OTHER-INCOME> 0
<EXPENSES-NET> (169)
<NET-INVESTMENT-INCOME> 376
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 376
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (376)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 79,979
<NUMBER-OF-SHARES-REDEEMED> (83,573)
<SHARES-REINVESTED> 373
<NET-CHANGE-IN-ASSETS> (3,221)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 76
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 169
<AVERAGE-NET-ASSETS> 22,946
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> .016
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.016)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
</TABLE>
