<PAGE>
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
January 5, 1996
Dear Shareholder:
The attached proxy materials describe a proposal that PaineWebber/Kidder,
Peabody Premium Account Fund ("Premium Account Fund") reorganize and become part
of PaineWebber RMA Money Market Portfolio ("Money Market Portfolio"). If the
proposal is approved and implemented, each shareholder of Premium Account Fund
automatically would become a shareholder of Money Market Portfolio.
Your board of trustees recommends a vote FOR the Reorganization Proposal.
The board believes that combining the Funds will benefit Premium Account Fund's
shareholders by providing them with a portfolio that has an investment objective
similar to the investment objective of Premium Account Fund and that will have
lower operating expenses as a percentage of net assets. The attached materials
provide more information about the proposed reorganization and the Funds
involved.
Your vote is important no matter how many shares you own. Voting your
shares early will permit Premium Account Fund to avoid costly follow-up mail and
telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very truly yours,
MARGO N. ALEXANDER
President, PaineWebber/Kidder, Peabody
Premium Account Fund
<PAGE>
PAINEWEBBER/KIDDER, PEABODY CASH RESERVE FUND, INC.
January 5, 1996
Dear Shareholder:
The attached proxy materials describe a proposal that PaineWebber/Kidder,
Peabody Cash Reserve Fund, Inc. ("Cash Reserve Fund") reorganize and become part
of PaineWebber RMA Money Market Portfolio ("Money Market Portfolio"). If the
proposal is approved and implemented, each shareholder of Cash Reserve Fund
automatically would become a shareholder of Money Market Portfolio.
Your board of directors recommends a vote FOR the Reorganization Proposal.
The board believes that combining the Funds will benefit Cash Reserve Fund's
shareholders by providing them with a portfolio that has an investment objective
similar to the investment objective of Cash Reserve Fund and that will have
lower operating expenses as a percentage of net assets. The attached materials
provide more information about the proposed reorganization and the Funds
involved.
Your vote is important no matter how many shares you own. Voting your
shares early will permit Cash Reserve Fund to avoid costly follow-up mail and
telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very truly yours,
MARGO N. ALEXANDER
President, PaineWebber/Kidder, Peabody
Cash Reserve Fund, Inc.
<PAGE>
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
-------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
January 5, 1996
-------------------
To The Shareholders:
A special meeting of shareholders ("Meeting") of PaineWebber/Kidder,
Peabody Premium Account Fund ("Premium Account Fund") will be held on February
13, 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 approve an Agreement and Plan of Reorganization and Termination
under which PaineWebber RMA Money Market Portfolio ("Money Market Portfolio"), a
series of PaineWebber RMA Money Fund, Inc., would acquire the assets of Premium
Account Fund in exchange solely for shares of common stock in Money Market
Portfolio and the assumption by Money Market Portfolio of Premium Account Fund's
liabilities, followed by the distribution of those shares to the shareholders of
Premium Account 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 Premium Account Fund at the close of business on December
28, 1995. If you attend the Meeting, you may vote your shares in person. If
you do not expect to attend the Meeting, please complete, date, sign and return
the enclosed proxy card in the enclosed postage paid envelope.
By order of the
board of trustees,
DIANNE E. O'DONNELL
Secretary
January 5, 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/KIDDER, PEABODY CASH RESERVE FUND, INC.
-------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
January 5, 1996
-------------------
To The Shareholders:
A special meeting of shareholders ("Meeting") of PaineWebber/Kidder,
Peabody Cash Reserve Fund, Inc. ("Cash Reserve Fund") will be held on February
13, 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 approve an Agreement and Plan of Reorganization and Dissolution
under which PaineWebber RMA Money Market Portfolio ("Money Market Portfolio"), a
series of PaineWebber RMA Money Fund, Inc., would acquire the assets of Cash
Reserve Fund in exchange solely for shares of common stock in Money Market
Portfolio and the assumption by Money Market Portfolio of Cash Reserve Fund's
liabilities, followed by the distribution of those shares to the shareholders of
Cash Reserve Fund and the subsequent dissolution of Cash Reserve 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 Cash Reserve Fund at the close of business on December 28,
1995. If you attend the Meeting, you may vote your shares in person. If you do
not expect to attend the Meeting, please complete, date, sign and return the
enclosed proxy card in the enclosed postage paid envelope.
By order of the
board of directors,
DIANNE E. O'DONNELL
Secretary
January 5, 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 MONEY MARKET PORTFOLIO
(a series of PaineWebber RMA Money Fund, Inc.)
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
PAINEWEBBER/KIDDER, PEABODY CASH RESERVE FUND, INC.
1285 Avenue of the Americas
New York, New York 10019
(Toll Free) 1-800-647-1568
PROSPECTUS/PROXY STATEMENT
January 5, 1996
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of PaineWebber/Kidder, Peabody Premium Account Fund ("Premium
Account Fund") and PaineWebber/Kidder, Peabody Cash Reserve Fund, Inc. ("Cash
Reserve Fund") (each an "Acquired Fund" and collectively, the "Acquired Funds")
in connection with the solicitation of proxies by Premium Account Fund's board
of trustees and Cash Reserve Fund's board of directors for use at a combined
special meeting of shareholders of the Acquired Funds, to be held on February
13, 1996, at 10:00 a.m., Eastern time, and at any adjournment thereof
("Meeting").
As more fully described in this Proxy Statement, the purpose of the
Meeting is to vote on two proposed reorganizations (each a "Reorganization" and
collectively, the "Reorganizations"). In each Reorganization, PaineWebber RMA
Money Market Portfolio ("Money Market Portfolio"), a series of PaineWebber RMA
Money Fund, Inc., would acquire the assets of an Acquired Fund in exchange
solely for shares of common stock of Money Market Portfolio and the assumption
by Money Market Portfolio of that Acquired Fund's liabilities. Those Money
Market Portfolio shares then would be distributed to that Acquired Fund's
shareholders, so that each such shareholder would receive a number of full and
fractional shares of Money Market Portfolio having an aggregate net asset value
that, on the effective date of the Reorganization, is equal to the aggregate net
asset value of the shareholder's shares of the Acquired Fund. As soon as
practicable following the distributions, Premium Account Fund will be terminated
and Cash Reserve Fund will be dissolved.
Money Market Portfolio is a diversified money market series of PaineWebber
RMA Money Fund, Inc., which is an open-end management investment company. Money
Market Portfolio's investment objective is to achieve maximum current income
consistent with liquidity and conservation of capital. It seeks to achieve its
investment objective by investing primarily in high-grade money market
instruments with remaining maturities of 13 months or less. These instruments
include U.S. government securities, obligations of U.S. banks, commercial paper
and other short-term corporate obligations, corporate bonds and notes, variable-
and floating-rate securities, and participation interests or repurchase
agreements involving any of the foregoing securities. Money Market Portfolio
and both of the Acquired Funds (each a "Fund" and collectively, the "Funds") are
money market funds that seek to maintain a stable net asset value of $1.00 per
share.
An investment in any of the Funds is neither insured nor guaranteed by the
U.S. government. While each Fund seeks to maintain a stable net asset value of
$1.00 per share, there can be no assurance that it will be able to do so.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about each Reorganization and Money Market
Portfolio that a shareholder should know before voting. This Proxy Statement is
accompanied by the Prospectus of Money Market Portfolio, dated August 29, 1995,
which is incorporated by this reference into this Proxy Statement. A Statement
of Additional Information, dated January 5, 1996, relating to the
Reorganizations and including historical financial statements, has been filed
with the Securities and Exchange Commission ("SEC") and is incorporated herein
by this reference. Prospectuses of Premium Account Fund, dated August 1, 1995,
and Cash Reserve Fund, dated December 1, 1995, and Statements of Additional
Information of Money Market Portfolio, dated August 29, 1995, Premium Account
Fund, dated August 1, 1995, and Cash Reserve Fund, dated December 1, 1995, have
been filed with the SEC and also are incorporated herein by this reference.
Copies of these documents, as well as each Fund's Annual Report to Shareholders,
or semi-annual report, if applicable, may be obtained without charge and further
inquiries may be made by contacting your PaineWebber Incorporated
("PaineWebber") investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.
2
<PAGE>
TABLE OF CONTENTS
-----------------
VOTING INFORMATION. . . . . . . . . . . . . . . 1
SYNOPSIS. . . . . . . . . . . . . . . . . . . . 3
COMPARATIVE FEE TABLES. . . . . . . . . . . . . 5
COMPARISON OF PRINCIPAL RISK FACTORS. . . . . . 17
THE PROPOSED TRANSACTIONS . . . . . . . . . . . 17
MISCELLANEOUS . . . . . . . . . . . . . . . . . 24
APPENDIX A - AGREEMENT AND PLAN OF
REORGANIZATION AND TERMINATION INVOLVING
PREMIUM ACCOUNT FUND . . . . . . . . . . . A-1
APPENDIX B - AGREEMENT AND PLAN OF
REORGANIZATION AND DISSOLUTION INVOLVING
CASH RESERVE FUND . . . . . . . . . . . . . B-1
<PAGE>
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
PAINEWEBBER/KIDDER, PEABODY CASH RESERVE FUND, INC.
-----------------
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
To Be Held on
February 13, 1996
-----------------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of PaineWebber/Kidder, Peabody Premium Account Fund ("Premium
Account Fund") and PaineWebber/Kidder, Peabody Cash Reserve Fund, Inc. ("Cash
Reserve Fund") (each an "Acquired Fund" and collectively, the "Acquired Funds")
in connection with the solicitation of proxies by Premium Account Fund's board
of trustees and Cash Reserve Fund's board of directors for use at a combined
special meeting of shareholders of the Acquired Funds to be held on February 13,
1996, and at any adjournment thereof ("Meeting"). This Proxy Statement will
first be mailed to shareholders on or about January 16, 1996.
At least a majority of the shares of each Acquired Fund outstanding on
December 28, 1995, represented in person or by proxy, must be present for the
transaction of business by that Acquired Fund at the Meeting. If, with respect
to either Acquired Fund, a quorum is not present at the Meeting or a quorum is
present but it is believed that sufficient votes to approve the proposal will
not be received, the persons named as proxies may propose one or more
adjournments of the Meeting with respect to that Acquired Fund to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares of the Acquired Fund represented at the Meeting in
person or by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote FOR any such proposal in favor of such an adjournment
and will vote those proxies required to be voted AGAINST any such proposal
against such adjournment. A shareholder vote may be taken on one or more of the
proposals in this Proxy Statement prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and the broker does not have discretionary voting
authority. Abstentions and broker non-votes will be counted as shares present
for purposes of determining whether a quorum is present but will not be voted
for or against any adjournment or proposal. Accordingly, abstentions and broker
non-votes effectively will be a vote against adjournment or against any proposal
where the required vote is a percentage of the shares present or outstanding.
Abstentions and broker non-votes will not be counted, however, as votes cast for
purposes of determining whether sufficient votes have been received to approve a
proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your direction as indicated thereon if your proxy card is
received properly executed by you or your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of whichever
of the following applies to your Acquired Fund: the Agreement and Plan of
Reorganization and Termination dated as of November 30, 1995 involving Premium
Account Fund or the Agreement and Plan of Reorganization and Dissolution dated
as of November 30, 1995 involving Cash Reserve Fund (each a "Reorganization
Plan"), attached to this Proxy Statement as Appendices A and B,
<PAGE>
respectively. Under each Reorganization Plan, PaineWebber RMA Money Market
Portfolio ("Money Market Portfolio"), a series of PaineWebber RMA Money Fund,
Inc. ("PW Corporation"), would acquire the assets of an Acquired Fund in
exchange solely for shares of common stock in Money Market Portfolio and the
assumption by Money Market Portfolio of that Acquired Fund's liabilities; those
shares then would be distributed to that Acquired Fund's shareholders. (Each
of these transactions is referred to herein as a "Reorganization.") After
completion of a Reorganization, the participating Acquired Fund will be
terminated (in the case of Premium Account Fund) or dissolved (in the case of
Cash Reserve Fund).
In addition, if you sign, date and return the proxy card, but give no
voting instructions, the duly appointed proxies may vote your shares, in their
discretion, upon such other matters as may come before the Meeting. The proxy
card may be revoked by giving another proxy or by letter or telegram revoking
the initial proxy. To be effective, such revocation must be received by the
applicable Acquired 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, December 28, 1995 ("Record Date"), Premium Account
Fund had 512,711,871.03 shares of beneficial interest outstanding and Cash
Reserve Fund had 867,465,876.54 shares of common stock outstanding. The
solicitation of proxies, the cost of which will be borne by Money Market
Portfolio, Premium Account Fund and Cash Reserve Fund (each a "Fund" and
collectively, the "Funds") in proportion to their respective net assets, will be
made primarily by mail but also may include telephone or oral communications by
representatives of Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), who will not receive any compensation therefor from the Funds, or by
Shareholder Communications Corporation, professional proxy solicitors retained
by the Acquired Funds, who will be paid fees and expenses of up to approximately
$12,500 for soliciting services. Management 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 any Fund
as of the Record Date. Directors and officers of PW Corporation own in the
aggregate less than 1% of the shares of Money Market Portfolio.
Summarized below are the proposals the shareholders of each Acquired Fund
are being asked to consider:
Fund Proposal
---- --------
Premium Account Fund To approve a Reorganization Plan.
Cash Reserve Fund To approve a Reorganization Plan.
For voting purposes, the shareholders of each Acquired Fund will vote
only on the Reorganization Plan applicable to it. Approval of a Reorganization
Plan and consummation of the transactions contemplated thereby for one Acquired
Fund do not depend on the approval of the other Reorganization Plan by the other
Acquired Fund's shareholders and consummation of the transactions contemplated
thereby.
With respect to Premium Account Fund, approval of the Reorganization Plan
requires the affirmative vote of a "majority of the outstanding voting
securities" thereof. As defined in the Investment Company Act of 1940 ("1940
Act"), "majority of the outstanding voting securities" means the lesser of (1)
67% of Premium Account Fund's shares present at a meeting of shareholders if the
owners of more than 50% of that Acquired Fund's shares then outstanding are
present in person or by proxy, or (2) more than 50% of that Acquired Fund's
outstanding shares. Under Maryland law and Cash Reserve Fund's Articles of
Incorporation, the affirmative vote of a majority of its outstanding shares
entitled to vote at the Meeting is required to approve the Reorganization Plan.
Each outstanding full share of each Acquired Fund is entitled to one vote, and
each outstanding fractional share of each Acquired Fund is entitled to a
proportionate fractional share of one vote.
2
<PAGE>
If a Reorganization Plan is not expected to be approved by the requisite vote of
the shareholders of the involved Acquired Fund, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies.
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 reference, and the Reorganization Plans. Shareholders should read
this Proxy Statement and the Prospectus of Money Market Portfolio carefully. As
discussed more fully below, Premium Account Fund's board of trustees and Cash
Reserve Fund's board of directors believe that the Reorganizations will benefit
their respective Acquired Funds' shareholders. Money Market Portfolio has an
investment objective similar to the investment objective of each Acquired Fund,
although its investment strategy may differ from the Acquired Funds' investment
strategies in some respects. Each Fund is a money market fund that seeks to
maintain a stable net asset value of $1.00 per share. It is anticipated that,
following the Reorganizations, the Acquired Funds' shareholders will, as
shareholders of Money Market Portfolio, be subject to lower total operating
expenses as a percentage of net assets than have historically been experienced
by the Acquired Funds.
The Reorganizations
Premium Account Fund's board of trustees and Cash Reserve Fund's board of
directors each has approved a Reorganization Plan with respect to its Acquired
Fund at a meeting held on July 20, 1995. Each Reorganization Plan provides for
the acquisition by Money Market Portfolio of the assets of an Acquired Fund in
exchange solely for Money Market Portfolio shares and the assumption by Money
Market Portfolio of the liabilities of the Acquired Fund. Each Acquired Fund
then will distribute the Money Market Portfolio shares to its shareholders so
that each shareholder will receive the number of full and fractional shares of
Money Market Portfolio that is equal in value to such shareholder's holdings in
the Acquired Fund as of the Closing Date (defined below). Premium Account Fund
then will be terminated, and Cash Reserve Fund then will be dissolved, as soon
as practicable thereafter.
The exchange of each Acquired Fund's assets for Money Market Portfolio
shares and its assumption of each Acquired Fund's liabilities will occur at or
as of 12:00 noon, Eastern time, on February 20, 1996, or such later date as the
conditions to any such closing are satisfied ("Closing Date").
Each Fund currently offers a single class of shares. Money Market
Portfolio shares are offered primarily to clients of PaineWebber Incorporated
("PaineWebber") and its correspondent firms who are participants in the Resource
Management Account ("RMA") or Business Services Account ("BSA") programs.
Shareholders of an Acquired Fund who receive shares of Money Market Portfolio in
a Reorganization may be eligible to become participants in the RMA or BSA
programs but will not become participants in such programs automatically. Among
the features of the RMA and BSA programs is a daily sweep of uninvested cash in
amounts of $1.00 or more into a designated money market fund. Acquired Fund
shareholders who receive shares of Money Market Portfolio in the Reorganization
but who do not choose to participate in the RMA or BSA programs will have
uninvested cash of $5,000 or more swept into the Money Market Portfolio on a
daily basis, with amounts below $5,000 swept weekly. 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 access to a customer service
center. The features of the RMA and BSA programs are summarized in Money Market
Portfolio's Statement of Additional Information.
3
<PAGE>
For the reasons set forth below under "The Proposed Transactions -- Reasons
for the Reorganizations," Premium Account Fund's board of trustees and Cash
Reserve Fund's board of directors, including the trustees or directors who are
not "interested persons," as that term is defined in the 1940 Act, of Premium
Account Fund or Cash Reserve Fund, as applicable ("Independent Persons"), have
determined, in each instance, that the Reorganization is in the best interests
of the participating Acquired Fund, that the terms of the Reorganization are
fair and reasonable and that the interests of such Acquired Fund's shareholders
will not be diluted as a result of the Reorganization. Accordingly, Premium
Account Fund's board of trustees and Cash Reserve Fund's board of directors
recommend approval of their respective Reorganizations. In addition, PW
Corporation's board of directors, including its Independent Persons, has
determined that the Reorganizations are in the best interests of Money Market
Portfolio, that the terms of the Reorganizations are fair and reasonable and
that the interests of Money Market Portfolio shareholders will not be diluted as
a result of the Reorganizations.
The Reorganization involving Premium Account Fund will constitute a
tax-free reorganization and no gain or loss will be recognized to Money Market
Portfolio, Premium Account Fund or their shareholders as a result of that
Reorganization. Because of the redemption or exchange, in connection with the
Reorganization involving the Cash Reserve Fund, of certain shares of that Fund
held by individual retirement accounts and qualified retirement plans, that
Reorganization will not constitute a tax-free reorganization and, instead, will
constitute a taxable sale of assets by Cash Reserve Fund followed by its
dissolution. However, it is the assessment of Mitchell Hutchins that only
minimal (or no) gain or loss will be recognized to Money Market Portfolio or
Cash Reserve Fund or their shareholders as a result of the Reorganization.
4
<PAGE>
COMPARATIVE FEE TABLES
Reorganization of Premium Account Fund into Money Market Portfolio
Certain fees and expenses that Premium Account Fund's shareholders pay,
directly or indirectly, are different from those incurred by Money Market
Portfolio's shareholders. As distributor of Premium Account Fund's shares,
PaineWebber is paid a 12b-1 service fee at the annual rate of 0.12% of Premium
Account Fund's average daily net assets. Money Market Portfolio does not pay a
12b-1 service fee. Both Funds pay PaineWebber an annual investment advisory and
administration fee, computed daily and paid monthly, at a rate of 0.50% 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 investment advisory and administration services. Following the
Reorganization, PaineWebber will continue to pay Mitchell Hutchins a
sub-advisory fee at the same annual rate. Money Market Portfolio 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. Premium Account Fund does not pay this fee.
The following tables show (1) transaction expenses currently incurred by
shareholders of Premium Account Fund and Money Market Portfolio and transaction
expenses those shareholders will incur after giving effect to the Reorganization
and (2) the current fees and expenses incurred for the twelve months ended June
30, 1995 (unaudited) by Premium Account Fund and for the fiscal year ended June
30, 1995 by Money Market Portfolio and pro forma fees for Money Market Portfolio
after giving effect to the Reorganization.
Shareholder Transaction Expenses
Premium Account Money Market
Fund Portfolio Combined Fund
--------------- ------------ -------------
Sales charge on purchases
of shares None None None
Sales charge on reinvested
dividends None None None
Redemption fee or deferred
sales charge None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Premium Account Money Market Combined Fund
Fund Portfolio (Pro Forma)
--------------- ------------ -------------
Management Fees 0.50% 0.50% 0.50%
12b-1 Expenses 0.12% None None
Other Expenses 0.08% 0.09% 0.09%
---- ---- ----
Total Fund Operating
Expenses 0.70%(1) 0.59% 0.59%
(1) Premium Account Fund's ratio of Total Fund Operating Expenses as a
percentage of average net assets was 0.70% for the fiscal year ended
March 31, 1995.
5
<PAGE>
Example of Effect of Fund Expenses
The following illustrates the expenses on a $1,000 investment under the
fees and expenses stated in the table above, assuming a 5% annual return.
1 year 3 years 5 years 10 years
------ ------- ------- --------
Premium Account Fund $7 $22 $39 $87
Money Market Portfolio $6 $19 $33 $74
Combined Fund $6 $19 $33 $74
This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown. The above tables and the assumption in this Example of a 5%
annual return are required by regulations of the Securities and Exchange
Commission ("SEC") applicable to all mutual funds; the assumed 5% annual return
is not a prediction of, and does not represent, the projected or actual
performance of either Fund's shares.
This Example should not be considered a representation of past or future
expenses, and a Fund's actual expenses may be more or less than those shown.
The actual expenses 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.
Reorganization of Cash Reserve Fund into Money Market Portfolio
Certain fees and expenses that Cash Reserve Fund's shareholders pay,
directly or indirectly, are different from those incurred by Money Market
Portfolio's shareholders. PaineWebber, the investment adviser and administrator
of each Fund, is currently paid (1) by Cash Reserve Fund, an annual investment
advisory and administration fee at an annual rate based upon a sliding scale
related to average daily net assets, which was 0.49% of Cash Reserve Fund's
average daily net assets for the twelve-month period ended June 30, 1995, and
(2) by Money Market Portfolio, an annual investment advisory and administration
fee, computed daily and paid monthly, at a rate of 0.50% of average daily net
assets. In addition, as distributor of Cash Reserve Fund's shares, PaineWebber
is paid a 12b-1 service fee at the annual rate of 0.12% of Cash Reserve Fund's
average daily net assets. Money Market Portfolio does not pay a 12b-1 service
fee. With respect to both Funds, PaineWebber (not the Funds) pays Mitchell
Hutchins a sub-advisory fee at an annual rate of 20% of the fee received by
PaineWebber for investment advisory and administration services. Following the
Reorganization, PaineWebber will continue to pay Mitchell Hutchins a sub-
advisory fee at the same annual rate. Money Market Portfolio 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. Cash
Reserve Fund does not pay this fee.
The following tables show (1) transaction expenses currently incurred by
shareholders of Cash Reserve Fund and Money Market Portfolio and transaction
expenses those shareholders will incur after giving effect to the Reorganization
and (2) the current fees and expenses incurred for the twelve months ended June
30, 1995 (unaudited) by Cash Reserve Fund and for the fiscal year ended June 30,
1995 by Money Market Portfolio and pro forma fees for Money Market Portfolio
after giving effect to the Reorganization.
6
<PAGE>
Shareholder Transaction Expenses
Cash Reserve Money Market
Fund Portfolio Combined Fund
--------------- ------------ -------------
Sales charge on purchases
of shares None None None
Sales charge on reinvested
dividends None None None
Redemption fee or deferred
sales charge None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Cash Reserve Money Market Combined Fund
Fund Portfolio (Pro Forma)
--------------- ------------ -------------
Management Fees 0.49%(1) 0.50% 0.50%
12b-1 Expenses 0.12% None None
Other Expenses 0.14% 0.09% 0.09%
---- ---- ----
Total Fund Operating
Expenses 0.75%(2) 0.59% 0.59%
(1) The management fee for Cash Reserve Fund has breakpoints based upon the
Fund's net assets, as follows:
0.50% of average daily net assets up to $750 million
0.475% of average daily net assets more than $750 million up to $1 billion
0.45% of average daily net assets more than $1 billion up to $1.25 billion
0.425% of average daily net assets more than $1.25 billion up to $1.5
billion
0.40% of average daily net assets more than $1.5 billion
(2) Cash Reserve Fund's ratio of Total Fund Operating Expenses as a percentage
of average net assets was 0.74% for the fiscal year ended July 31, 1995.
Example of Effect of Fund Expenses
The following illustrates the expenses on a $1,000 investment under the
fees and expenses stated in the table above, assuming a 5% annual return.
1 year 3 years 5 years 10 years
------ ------- ------- --------
Cash Reserve Fund $8 $24 $42 $93
Money Market Portfolio $6 $19 $33 $74
Combined Fund $6 $19 $33 $74
This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown. The above tables and the assumption in this Example of a 5%
annual return are required by regulations of the SEC applicable to all mutual
funds; the assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of either Fund's shares.
7
<PAGE>
This Example should not be considered a representation of past or future
expenses, and a Fund's actual expenses may be more or less than those shown.
The actual expenses 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.
Reorganizations of Premium Account Fund and Cash Reserve Fund into Money
Market Portfolio
The following table shows the current fees and expenses incurred for the
twelve months ended June 30, 1995 (unaudited) by each Acquired Fund and for the
fiscal year ended June 30, 1995 by Money Market Portfolio and pro forma fees and
expenses for Money Market Portfolio after giving effect to both Reorganizations.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Premium Cash Money Combined
Account Reserve Market Fund
Fund Fund Portfolio (Pro Forma)
---- ---- --------- -----------
Management Fees 0.50% 0.49%(2) 0.50% 0.50%
12b-1 Expenses 0.12% 0.12% None None
Other Expenses 0.08% 0.14% 0.09% 0.08%
---- ---- ---- ----
Total Fund
Operating Expenses 0.70%(1) 0.75%(3) 0.59% 0.58%
(1) Premium Account Fund's ratio of Total Fund Operating Expenses as a
percentage of average net assets was 0.70% for the fiscal year ended
March 31, 1995.
(2) The management fee for Cash Reserve Fund has breakpoints based upon the
Fund's total assets, as follows:
0.50% of average daily net assets up to $750 million
0.475% of average daily net assets more than $750 million up to $1 billion
0.45% of average daily net assets more than $1 billion up to $1.25 billion
0.425% of average daily net assets more than $1.25 billion up to $1.5
billion
0.40% of average daily net assets more than $1.5 billion
(3) Cash Reserve Fund's ratio of Total Fund Operating Expenses as a percentage
of average net assets was 0.74% for the fiscal year ended July 31, 1995.
Example of Effect of Fund Expenses
The following illustrates the expenses on a $1,000 investment under the
fees and expenses stated in the table above, assuming a 5% annual return.
1 year 3 years 5 years 10 years
------ ------- ------- --------
Premium Account Fund $7 $22 $39 $87
Cash Reserve Fund $8 $24 $42 $93
Money Market Portfolio $6 $19 $33 $74
Combined Fund $6 $19 $32 $73
This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown. The above tables and the assumption in this Example of a 5%
annual return are required by regulations of the SEC applicable to all mutual
funds;
8
<PAGE>
the assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of the Fund's shares.
This Example should not be considered a representation of past or future
expenses, and a Fund's actual expenses may be more or less than those shown.
The actual expenses 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
Cash Reserve Fund and PW Corporation are each organized as a Maryland
corporation. Cash Reserve Fund commenced operations on August 28, 1979. It is
authorized to issue five billion shares of common stock of par value $.01 per
share. Share certificates are issued by Cash Reserve Fund only upon written
request of the shareholder. Money Market Portfolio commenced operations on
October 4, 1982. It is authorized to issue 30 billion shares of common stock of
par value $.001 per share. It does not currently issue share certificates.
Neither Cash Reserve Fund nor PW Corporation is required to hold annual meetings
(and neither does).
Premium Account Fund is organized as a Massachusetts business trust
pursuant to a Declaration of Trust dated January 13, 1982. The Fund's
Declaration of Trust authorizes its trustees to issue an unlimited number of
shares of beneficial interest. The Fund does not currently issue share
certificates. It is not required to (and does not) hold annual shareholder
meetings.
Shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust of Premium Account Fund expressly disclaims, and provides
indemnification against, such liability. Accordingly, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which Premium Account Fund itself would be unable to
meet its obligations, a possibility that Mitchell Hutchins believes is remote
and, thus, does not pose a material risk.
Investment Objectives and Policies
The investment objectives and policies of each Fund are set forth below.
There can be no assurance that any Fund will achieve its investment objective.
An investment in a 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.
Money Market Portfolio. The investment objective of Money Market
Portfolio is to provide maximum current income consistent with liquidity and
conservation of capital. The Fund invests in high-grade money market
instruments with remaining maturities of 13 months or less. These instruments
include U.S. government securities, obligations of U.S. banks, commercial paper
and other short-term corporate obligations, corporate bonds and notes, variable-
and floating-rate securities, and participation interests or repurchase
agreements involving any of the foregoing securities. Participation interests
are pro rata interests in securities held by others.
The U.S. government securities in which the Fund may invest include
direct obligations of the U.S. Treasury (such as Treasury bills, notes and
bonds) and obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including securities that are supported by the full faith and
credit of the United States (such as Government National Mortgage Association
("GNMA") certificates), securities supported primarily or solely by the
creditworthiness of the issuer (such as securities of the Resolution Funding
Corporation and the Tennessee Valley Authority) and securities that are
supported primarily or solely by specific pools of assets and the
creditworthiness of a U.S. government-related issuer (such as mortgage-backed
securities issued by the Federal National Mortgage Association ("FNMA")).
9
<PAGE>
The Fund may invest in obligations (including certificates of deposit
("CDs"), bankers' acceptances and similar obligations) of U.S. banks, including
foreign branches of domestic banks and domestic branches of foreign banks,
having total assets in excess of $1.5 billion at the time of purchase. The Fund
may also invest in interest- bearing savings deposits in U.S. commercial and
savings banks having total assets of $1.5 billion or less, provided that the
principal amounts at each such bank are fully insured by the Federal Deposit
Insurance Corporation ("FDIC") and the aggregate amount of such deposits (plus
interest earned) does not exceed 5% of the value of the Fund's assets.
The commercial paper and other short-term corporate obligations purchased
by the Fund consist only of obligations that Mitchell Hutchins determines,
pursuant to procedures adopted by PW Corporation's board of directors, 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"), such as Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's"), (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"). The
Fund generally may invest no more than 5% of its total assets in the securities
of a single issuer (other than securities issued by the U.S. government, its
agencies or instrumentalities).
Cash Reserve Fund. Cash Reserve Fund seeks to maximize current income to
the extent consistent with the preservation of capital and the maintenance of
liquidity. To achieve its goal, the Fund invests in debt obligations (whether
or not subject to repurchase agreements) consisting exclusively of the following
short-term money market instruments: securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities, corporate obligations
(including bonds, debentures and notes), CDs, time deposits ("TDs"), bankers'
acceptances and other short-term obligations issued by domestic banks, foreign
branches of domestic banks and savings and loan and similar associations,
repurchase agreements and high-grade commercial paper. In addition, the Fund
may invest in obligations of foreign banks and institutions that have the
equivalent credit ratings of domestic issues, including Yankee and foreign bank
bankers' acceptances and commercial paper. All portfolio securities are
purchased with and payable in U.S. dollars.
Securities issued or guaranteed as to principal and interest by the U.S.
government include a variety of Treasury securities, which differ in their
interest rates, maturities and times of issuance: Treasury bills have initial
maturities of one year or less; Treasury notes have initial maturities of one to
ten years; and Treasury bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government, such as those issued by GNMA, are
supported by the full faith and credit of the Treasury; others, such as those
issued by the Federal Home Loan Banks, by the right of the issuer to borrow
from the Treasury; others, such as those issued by FNMA, by discretionary
authority of the U.S. government to purchase certain obligations of the issuer;
and others, such as those issued by the Student Loan Marketing Association, only
by the credit of the issuer.
CDs are certificates representing the obligation of a bank to repay funds
deposited with it for a specified period of time. TDs are non-negotiable
deposits maintained in a banking institution for a specified period of time at a
stated interest rate. The Fund does not purchase TDs maturing in more than
seven days. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer; the instrument
reflects the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term bank obligations may
include uninsured, direct obligations, bearing fixed, floating or variable
interest rates. Investments by the Fund in CDs, TDs and bankers' acceptances
are limited to banks and savings and loan and similar associations having total
assets in excess of $1 billion.
10
<PAGE>
Commercial paper purchased by the Fund consists only of direct obligations
issued by domestic and foreign entities. The other corporate obligations in
which the Fund may invest consist of high quality, U.S. dollar-denominated
short-term bonds and notes issued by domestic and foreign corporations.
The Fund may enter into repurchase agreements. Under a repurchase
agreement, the Fund acquires an underlying debt instrument for a relatively
short period (usually not more than one week) subject to an obligation of the
seller to repurchase and the Fund to resell the instrument at a fixed price and
time, thereby determining the yield during the Fund's holding period. The Fund
may enter into repurchase agreements only with domestic banks or selected
dealers or foreign banks and dealers with respect to securities of the type in
which it invests. Repurchase agreements maturing in more than seven days will
not exceed 10% of the value of the Fund's net assets.
Premium Account Fund. The investment objective of Premium Account Fund
is to seek high current income, preservation of capital and liquidity through
investments in short-term money market instruments. The Fund seeks to achieve
its objective by investing in the following money market instruments:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the U.S. government or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
GNMA) or its instrumentalities (such as the Federal Home Loan Bank, Federal
Intermediate Credit Banks, Federal Land Bank and FNMA). Except for U.S.
Treasury securities, these obligations may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Fund must look principally
to the agency or instrumentality issuing or guaranteeing the obligation for
ultimate repayment, and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments.
Bank Obligations. Obligations (including TDs, CDs and bankers'
acceptances) of domestic banks subject to regulation by the U.S. government and
having total assets of $1 billion or more, and repurchase agreements secured by
such obligations, including obligations of foreign branches of domestic banks.
Fixed TDs, unlike negotiable CDs, generally do not have a market and may be
subject to penalties for early withdrawal of funds. However, it is the present
policy of the Fund not to invest in fixed TDs with a duration of over seven
calendar days. The Fund also will not invest in TDs with a duration of from two
business to seven calendar days if more than 10% of its assets would be invested
in such deposits.
Obligations of Savings Institutions. CDs of savings banks and savings and
loan associations having total assets of $1 billion or more.
Fully Insured Certificates of Deposit. CDs of domestic banks and savings
institutions having total assets of less than $1 billion, if the principal
amount of the obligation is insured by the FDIC, limited to $100,000 principal
amount per certificate per bank and to 5% of the Fund's total assets in all such
obligations.
Commercial Paper. Commercial paper rated the highest grade by either S&P
or Moody's, or, if not rated, issued by a company having an outstanding debt
issue rated at least AA by S&P or Aa by Moody's.
Corporate Obligations. Corporate obligations, including bonds, debentures
and notes, rated at least AA by S&P or Aa by Moody's, with remaining maturities
of 397 days or less.
Obligations of Foreign Banks and Institutions. Obligations of foreign
banks and institutions that have the equivalent credit ratings of domestic
issues, including, but not limited to, Yankee and foreign bank bankers'
acceptances and commercial paper.
Variable Amount Master Demand Notes. Variable amount master demand notes
issued by domestic corporations that, at the date of investment, either (a) have
an outstanding senior long-term debt issue rated at least Aa by Moody's or AA by
S&P or (b) do not have rated long-term debt outstanding but have commercial
11
<PAGE>
paper rated Prime-1 by Moody's or A-1 by S&P. Variable amount master demand
notes are obligations that permit the investment by the Fund of fluctuating
amounts as determined by the Fund at varying rates of interest pursuant to
direct arrangements between the Fund and the issuing corporation. Although
callable on demand by the Fund, these obligations are not marketable to third
parties.
Repurchase Agreements. The Fund may invest without limit in any of the
above securities subject to repurchase agreements with major dealers in U.S.
government securities, member banks of the Federal Reserve System and foreign
banks and dealers that are primary dealers, selected by Mitchell Hutchins in
accordance with procedures approved by the trustees.
Asset-Backed Securities. The Fund may invest in high quality asset-backed
securities, including interests in pools of assets such as motor vehicle
installment purchase obligations and credit card receivables.
Additional Investment Techniques and Investment Restrictions
Money Market Portfolio. The Fund may also acquire securities issued or
guaranteed as to principal and interest by the U.S. government in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds. Such notes
and bonds are held in custody by a bank on behalf of the owners of such notes or
bonds. The Fund may also invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury ("STRIPS").
The principal and interest components of STRIPS are individually numbered and
separately issued by the U.S. Treasury, and these components are traded
separately. The 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, issued by U.S. companies.
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. Certain of these obligations carry a demand feature that
gives the Fund the right to tender them to the issuer or a remarketing agent and
receive the principal amount of the security prior to maturity. Securities
purchased by the Fund may include variable amount master demand notes. These
notes are payable on demand and are typically unrated.
The ratings of NRSROs represent their opinions as to the quality of the
obligations they undertake to rate. Ratings, however, are general and are not
absolute standards of quality. Subsequent to its purchase by the Fund, an issue
may cease to be rated or its rating may be reduced. In the event that a
security in the Fund's portfolio ceases to be a "First Tier Security," or
Mitchell Hutchins becomes aware that a security has received a rating below the
second highest rating by any NRSRO, Mitchell Hutchins will consider whether the
Fund should continue to hold the obligation.
The Fund may enter into repurchase agreements with U.S. banks and dealers
with respect to any security in which the Fund is authorized to invest.
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 becomes
insolvent. The Fund intends to enter into repurchase agreements only with banks
and dealers in transactions believed by Mitchell Hutchins to present minimal
credit risks in accordance with guidelines established by PW Corporation's board
of directors.
The Fund may enter into reverse repurchase agreements with banks and
dealers up to an aggregate value of not more than 5% of the Fund's assets. Such
agreements involve the sale of securities by the Fund subject to its agreement
to repurchase the securities at an agreed-upon date and price reflecting a
market rate of interest. Such agreements are considered to be borrowings by the
Fund and may be entered into only for temporary or emergency purposes. While a
reverse repurchase agreement is outstanding, the Fund's custodian segregates
assets to cover the Fund's obligations.
12
<PAGE>
The Fund will not invest more than 10% of its net assets in illiquid
securities. The term "illiquid securities" for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the Fund has valued the securities.
The Fund may invest in obligations of domestic branches of foreign banks
and foreign branches of domestic banks. Such investments may involve risks that
are different from investments in obligations of domestic branches of domestic
banks. These risks may include unfavorable political and economic developments,
withholding taxes, seizure of foreign deposits, currency controls, interest
limitations or other governmental restrictions that might affect the payment of
principal or interest on the securities held by the Fund.
The Fund may invest in variable- and floating-rate securities with demand
features. A demand feature gives the Fund the right to sell the securities back
to a specified party, usually a remarketing agent, on a specified date, at a
price equal to their par value. A demand feature is often backed by a letter of
credit or guarantee from a bank. The ability of a bank to fulfill its
obligations under a letter of credit or guarantee might be affected by possible
financial difficulties of its borrowers, adverse interest rate or economic
conditions, regulatory limitations or other factors.
The Fund may not (1) borrow money, except from banks for temporary purposes
and except for reverse repurchase agreements if otherwise permitted and then in
an aggregate amount not in excess of 10% of the total asset value of the Fund;
(2) mortgage, pledge or hypothecate any assets except in connection with any
such borrowing and in such case the aggregate amount may not be in excess of the
lesser of the dollar amounts borrowed or 5% of the value of the Fund's assets;
(3) make loans, except that the Fund may purchase or hold debt instruments,
including repurchase agreements, in accordance with its investment policies and
restrictions; (4) purchase or sell real estate, except that the Fund may
purchase commercial paper issued by companies, including real estate investment
trusts, which invest in real estate or interests therein; (5) purchase
securities on margin, make short sales of securities or maintain a short
position; (6) act as underwriter of securities; (7) purchase or sell commodities
or commodity contracts, or invest in oil, gas or mineral exploration or
development programs; (8) acquire voting securities of any issuer or acquire
securities of other investment companies, except in connection with a merger,
consolidation or acquisition; (9) purchase securities of any one issuer, other
than the U.S. government and its agencies and instrumentalities, if immediately
after such purchase more than 5% of the Fund's total asset value would be
invested in such issuer, except that up to 25% of the Fund's total asset value
may be invested without regard to such 5% limitation; or (10) purchase
securities if immediately after such purchase more than 25% of the Fund's total
asset value would be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that there is no limitation with respect to investments in U.S. Treasury bills,
other obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, CDs and bankers' acceptances of domestic
branches of U.S. banks.
Cash Reserve Fund. The Fund may from time to time lend securities from
its portfolio to brokers, dealers and financial institutions and receive
collateral consisting of cash or securities issued or guaranteed by the U.S.
government, which collateral will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. Such
loans may not exceed 20% of the value of the Fund's total assets.
The Fund may (1) borrow money, but only from banks for the purpose of
meeting redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 10% of the value of its total
assets (including the borrowed amount), valued at the lesser of cost or market,
less liabilities (not including the borrowed amount); (2) pledge its assets, but
only in an amount up to 10% of the value of its total assets, to secure
borrowings for temporary or emergency purposes; (3) lend its portfolio
securities up to 20%
13
<PAGE>
of the value of its total assets; and (4) invest up to 25% of its total assets
in the securities of issuers in any one industry, provided that there is no such
limitation on investments in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, CDs and bankers' acceptances.
The Fund will not invest more than 5% of its total assets in the securities
(including securities collateralizing a repurchase agreement) of, or subject to
puts issued by, a single issuer, except that (1) the Fund may invest more than
5% of its total assets in a single issuer for a period of up to three business
days in certain limited circumstances, (2) the Fund may invest in obligations
issued or guaranteed by the U.S. government without any such limitation, and (3)
the limitation with respect to puts does not apply to unconditional puts if not
more than 10% of the Fund's total assets is invested in securities issued or
guaranteed by the issuer of the unconditional put. The Fund invests only in
securities determined in accordance with procedures determined by its board of
directors to present minimal credit risks and which are rated in one of the two
highest rating categories for debt obligations by at least two NRSROs or, if
unrated, are of comparable quality. Investments not rated in the highest
category by at least two NRSROs (or by one NRSRO if the instrument was rated by
only one NRSRO) and unrated securities not determined by the Fund's board of
directors to be comparable to those rated in the highest category, will be
limited to 5% of the Fund's total assets, with the investment in any one such
issuer being limited to no more than the greater of 1% of the Fund's total
assets or $1,000,000.
Premium Account Fund. The Fund may invest in asset-backed and receivable-
backed securities. Several types of such securities have been offered to
investors, including "Certificates for Automobile Receivables" ("CARs") and
interests in pools of credit card receivables. CARs represent undivided
fractional interests in a trust, the assets of which consist of a pool of motor
vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts. Payments of principal and interest on CARs are
passed through monthly to certificate holders and are guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARs may be affected by early prepayment of principal on
the underlying vehicle sales contracts. If the letter of credit is exhausted,
the Fund may be prevented from realizing the full amount due on a sales contract
because of state law requirements and restrictions relating to foreclosure sales
of vehicles and the availability of deficiency judgments following such sales,
because of depreciation, damage or loss of a vehicle, because of the application
of federal and state bankruptcy and insolvency laws or other factors. As a
result, certificate holders may experience delays in payment if the letter of
credit is exhausted. Consistent with the Fund's investment objective and
policies and, subject to the review and approval of its trustees, it also may
invest in other types of asset-backed and receivable-backed securities.
Premium Account Fund may not:
(1) Purchase any common stocks or other equity securities;
(2) Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests that might otherwise require the
untimely disposition of securities. Borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the value of the Fund's total assets (including the amount borrowed),
less liabilities (not including the amount borrowed) at the time the borrowing
is made. Investment securities will not be purchased while borrowings are
outstanding;
(3) Make loans to others, except through the purchase of debt obligations,
loans of portfolio securities and through repurchase agreements, provided that
the Fund will not enter into repurchase agreements of more than one week
duration if, together with illiquid securities and other securities for which
there are not readily available market quotations, more than 10% of its assets
would be so invested. Loans of portfolio securities will not exceed 10% of the
value of the Fund's total assets;
14
<PAGE>
(4) Invest more than 15% of its assets in the securities of any one bank
or purchase any securities (other than obligations or securities of (a) domestic
banks and savings institutions subject to regulation of the U.S. government or
(b) the U.S. government, its agencies or instrumentalities) if, immediately
after such purchase, more than 5% of the value of the Fund's total assets would
be invested in securities of any one issuer or more than 10% of the outstanding
securities of one issuer would be owned by the Fund. Notwithstanding the
foregoing, to the extent required by the rules of the SEC, the Fund will not
invest more than 5% of its assets in the obligations of any one bank; or
(5) Purchase any securities, other than obligations or securities of (a)
domestic banks and savings institutions subject to regulation of the U.S.
government or (b) the U.S. government, its agencies or instrumentalities, if
immediately after such purchase more than 25% of the value of the Fund's total
assets would be invested in the securities of issuers in the same industry.
Operations of Money Market Portfolio Following the Reorganizations
As noted above, there are differences in the Funds' investment policies.
It is not expected, however, that Money Market Portfolio will revise its
investment policies following the Reorganizations to reflect those of either
Acquired Fund. Since the Acquired Funds are permitted to invest in securities
having characteristics different from those permitted for Money Market
Portfolio, certain of the securities currently held in the Acquired Funds'
portfolios may need to be sold, rather than transferred to Money Market
Portfolio. If the Reorganizations are approved, the Acquired Funds will sell
any assets that are inconsistent with the investment policies of Money Market
Portfolio prior to the effective time of the Reorganizations, and the proceeds
thereof will be held in temporary investments or reinvested in assets that
qualify to be held by Money Market Portfolio. The necessity for the Acquired
Funds to dispose of assets prior to the effective time of the Reorganizations
may result in selling securities at a disadvantageous time and could result in
the Acquired Funds' realizing losses that would not otherwise have been
realized.
Purchases and Redemptions
Shares of each Fund are available through PaineWebber and its
correspondent firms. There is no minimum initial investment in Money Market
Portfolio; shares of the Fund are offered primarily to clients of PaineWebber
and its correspondent firms who are participants in the RMA or BSA programs.
There is no minimum initial investment in Premium Account Fund; shares of the
Fund are offered exclusively to existing shareholders of the Fund through their
PaineWebber brokerage accounts. Shares of Cash Reserve Fund are offered
exclusively to existing shareholders of the Fund through their PaineWebber
brokerage accounts. If a Cash Reserve Fund shareholder has a brokerage account
with PaineWebber, credit balances in such account are swept automatically into
shares of the Fund. Cash Reserve Fund shares may be purchased in conjunction
with an individual retirement account or a qualified retirement plan, with an
initial investment of $250.
Shares of each Fund may be redeemed at their net asset value per share
next determined after a redemption request is properly received as described in
the Prospectus of each Fund. Within three Business Days after receipt of the
request, redemption proceeds will be credited to the shareholder's account or
sent to the shareholder. A "Business Day" is any day on which the offices of
the applicable Fund's custodian, and the New York offices of PaineWebber and
PaineWebber's bank, are all open for business. Clients of PaineWebber or its
correspondent firms may redeem shares from a Fund account by wire, telephone or
mail.
If a Reorganization is approved with respect to an Acquired Fund, its
shares will cease to be offered on February 16, 1996, so that its shares will no
longer be available for purchase or exchange thereafter. If the Meeting with
respect to an Acquired Fund is adjourned and the Reorganization Plan involving
it is approved on a later date, its shares will no longer be available for
purchase or exchange on the Business Day following
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the date on which the Reorganization Plan is approved and all contingencies have
been met. Redemptions of an Acquired Fund's shares and exchanges of those
shares for shares of any other PaineWebber/Kidder, Peabody mutual fund that is
eligible for exchange may be effected until the Closing Date.
Exchanges
The exchange policies of the Funds differ. Shares of Money Market
Portfolio are not exchangeable for shares of any other fund, while shares of
each Acquired Fund may be exchanged for shares of other PaineWebber/Kidder,
Peabody mutual funds. After the Reorganizations, shares of Money Market
Portfolio will continue to not be exchangeable.
Dividends and Other Distributions
Each Business Day, each Fund declares as dividends all of its net
investment income. Shares begin earning dividends on the day of purchase;
dividends are accrued to shareholder accounts daily and are automatically paid
in additional Fund shares monthly. 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 at $1.00 per share or to avoid
income or excise taxes.
On or before the Closing Date, each Acquired Fund will declare as a
dividend substantially all of its 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. Such distributions by an Acquired Fund will be
paid only in cash.
Federal Income Tax Consequences of the Reorganizations
PW Corporation has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and Premium Account Fund has received an opinion of Sullivan &
Cromwell, its counsel, with respect to the Reorganization involving that Fund,
each to the effect that the Reorganization will constitute a tax-free
reorganization under section 368(a)(1)(C) of the Internal Revenue Code of 1986,
as amended ("Code"). Accordingly, no gain or loss will be recognized to Money
Market Portfolio, Premium Account Fund or their shareholders as a result of the
Reorganization. See "The Proposed Transactions--Federal Income Tax
Considerations--Premium Account Fund Reorganization," page 21.
Because of the redemption or exchange, in connection with the
Reorganization involving Cash Reserve Fund, of certain shares of that Fund held
by individual retirement accounts and qualified retirement plans, the
Reorganization will not constitute a tax-free reorganization and, instead, will
constitute a taxable sale of assets by Cash Reserve Fund followed by its
dissolution. However, it is the assessment of Mitchell Hutchins that only
minimal (or no) gain or loss will be recognized to Money Market Portfolio or
Cash Reserve Fund or their shareholders as a result of the Reorganization. See
"The Proposed Transactions--Reasons for the Reorganizations," page 20, and "The
Proposed Transactions--Federal Income Tax Considerations--Cash Reserve Fund
Reorganization," page 22.
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COMPARISON OF PRINCIPAL RISK FACTORS
Because the Funds' investment objectives and policies are similar and
because the Funds are managed by the same investment adviser, the three Funds
will be subject to similar investment risks. These risks are those typically
associated with investing in a money market fund.
There are, however, the following primary differences in the investment
policies of Money Market Portfolio and the Acquired Funds.
The commercial paper and other short-term corporate obligations purchased
by Money Market Portfolio consist only of "First Tier Securities." First Tier
Securities are obligations that Mitchell Hutchins determines, pursuant to
procedures adopted by PW Corporation's board of directors, present minimal
credit risks and are either (1) rated in the highest short-term rating category
by at least two NRSROs (AAA by S&P or Aaa by Moody's for corporate bonds, and
A-1+ by S&P or Prime-1 by Moody's for commercial paper), (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. In the event that a security in
the Fund's portfolio ceases to be a "First Tier Security", or Mitchell Hutchins
becomes aware that a security has received a rating below the second highest
rating by any NRSRO, Mitchell Hutchins will consider whether the Fund should
continue to hold the obligation.
By comparison, Premium Account Fund may invest in commercial paper rated
the highest grade by one NRSRO or, if not rated, issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's; and it may
invest in corporate obligations, including bonds, debentures and notes, rated at
least AA by S&P or Aa by Moody's, with remaining maturities of 397 days or less.
Cash Reserve Fund may invest in corporate obligations determined in accordance
with procedures established by its board of directors to present minimal credit
risks and that are rated in one of the two highest rating categories for debt
obligations by at least two NRSROs or, if unrated, are of comparable quality.
Each Acquired Fund invests in obligations of foreign banks and institutions
that have the equivalent credit ratings of domestic issues, including Yankee and
foreign bank bankers' acceptances and commercial paper. Money Market Portfolio
does not invest in foreign bank obligations of this type. Such investments may
involve risks that are different from investments in obligations of domestic
branches of domestic banks. These risks may include unfavorable political and
economic developments, withholding taxes, seizure of foreign deposits, currency
controls, interest limitations or other governmental restrictions that might
affect the payment of principal or interest on the securities held by a Fund.
Money Market Portfolio invests in obligations of banks with assets in
excess of $1.5 billion, while each Acquired Fund invests in obligations of
banks with assets in excess of $1 billion. Each Acquired Fund may make loans of
portfolio securities; Money Market Portfolio may not.
THE PROPOSED TRANSACTIONS
Reorganization Plans
The terms and conditions under which the proposed transactions may be
consummated are set forth in the Reorganization Plans. Significant provisions
of the Reorganization Plans are summarized below; however, this summary is
qualified in its entirety by reference to the Reorganization Plans, which are
attached as Appendices A and B to this Proxy Statement.
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Each Reorganization Plan contemplates (a) Money Market Portfolio's
acquiring on the Closing Date the assets of an Acquired Fund in exchange solely
for Money Market Portfolio shares and the assumption by Money Market Portfolio
of the Acquired Fund's liabilities and (b) the constructive distribution of
those shares to the shareholders of the Acquired Fund.
The assets of each Acquired Fund to be acquired by Money Market Portfolio
shall include all cash, cash equivalents, securities, receivables and other
property owned by the Acquired Fund. Money Market Portfolio will assume from
each Acquired Fund all debts, liabilities, obligations and duties of such Fund
of whatever kind or nature; provided, however, that each Acquired Fund will use
its best efforts, to the extent practicable, to discharge all of its known
debts, liabilities, obligations and duties prior to the Closing Date. Money
Market Portfolio will also deliver to each Acquired Fund shares of Money Market
Portfolio which then will be constructively distributed to the Acquired Funds'
shareholders.
The value of an Acquired Fund's assets to be acquired, and the amount of
its liabilities to be assumed, by Money Market Portfolio and the net asset value
of a Money Market Portfolio share will be determined as of 12:00 noon, Eastern
time, 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 PW
Corporation's or Cash Reserve Fund's board of directors or Premium Account
Fund's board of trustees, as applicable.
On, or as soon as practicable after, the Closing Date, each Acquired Fund
will distribute to its shareholders of record the Money Market Portfolio shares
it received so that each shareholder of the Acquired Fund will receive a number
of full and fractional Money Market Portfolio shares equal in value to the
shareholder's holdings in the Acquired Fund; each Acquired Fund will be
terminated (in the case of Premium Account Fund) or dissolved (in the case of
Cash Reserve Fund) as soon as practicable thereafter. Such distribution will be
accomplished by opening accounts on the books of Money Market Portfolio in the
names of the Acquired Fund's shareholders and by transferring thereto the shares
previously credited to the account of each Acquired Fund on those books.
Fractional Money Market Portfolio shares will be rounded to the third decimal
place.
Accordingly, immediately after the applicable Reorganization, each former
shareholder of an Acquired Fund will own shares of Money Market Portfolio that
will equal the value of that shareholder's shares of the Acquired Fund
immediately prior to the Reorganization. Moreover, because Money Market
Portfolio shares will be issued at net asset value in exchange for the net
assets applicable to each Acquired Fund, the aggregate net asset value of Money
Market Portfolio shares so issued will equal the aggregate net asset value of
shares of the Acquired Funds. The net asset value per share of Money Market
Portfolio will be unchanged by the transaction. Thus, the Reorganization(s)
will not result in a dilution of any shareholder's interest.
Any transfer taxes payable upon issuance of any shares of Money Market
Portfolio in a name other than that of the registered holder of the shares on
the books of an Acquired Fund shall be paid by the person to whom such shares
are to be issued as a condition of such transfer. Any reporting responsibility
of an Acquired Fund will continue to be its responsibility up to and including
the Closing Date and such later date on which it is terminated or dissolved
(whichever is applicable).
The cost of the Reorganizations, including professional fees and the cost
of soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the cost of any supplementary solicitation, will
be borne by all three Funds in proportion to their respective net assets.
Mitchell Hutchins recommended this method of expense allocation to the
directors/trustees. Mitchell Hutchins based its recommendations on its belief
that this method is fair because, for the reasons discussed under "Reasons for
18
<PAGE>
the Reorganizations," the Reorganizations have the potential to benefit all
Funds. The directors of PW Corporation and Cash Reserve Fund and the trustees
of Premium Account Fund considered this expense allocation method in approving
the respective Reorganizations, finding that the Reorganizations are in the
best interests of their respective Funds.
The consummation of each Reorganization is subject to a number of
conditions set forth in the applicable Reorganization Plan, some of which may be
waived by the parties thereto. In addition, the Reorganization Plans may be
amended in any mutually agreeable manner, except that no amendment may be made
subsequent to the Meeting that would have a material adverse effect on the
shareholders' interests.
Reasons for the Reorganizations
The board of directors of Cash Reserve Fund, including a majority of its
Independent Persons, has determined that the Reorganization involving that Fund
is in its best interests, that the terms of that Reorganization are fair and
reasonable and that the interests of Cash Reserve Fund's shareholders will not
be diluted as a result of that Reorganization. Premium Account Fund's board of
trustees, including a majority of its Independent Persons, has determined that
the Reorganization is in its best interests, that the terms of that
Reorganization are fair and reasonable and that the interests of Premium Account
Fund's shareholders will not be diluted as a result of that Reorganization. The
board of directors of PW Corporation, including a majority of its Independent
Persons, has determined that each Reorganization is in the best interests of
Money Market Portfolio, that the terms of each Reorganization is fair and
reasonable, and that the interests of Money Market Portfolio's shareholders will
not be diluted as a result of either Reorganization.
In considering each Reorganization, and the Reorganizations together, the
boards of directors/trustees made an extensive inquiry into a number of factors,
including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the applicable Funds;
(2) the effect of the Reorganization(s) on expected investment performance;
(3) the effect of the Reorganization(s) on the expense ratio of Money
Market Portfolio (after the Reorganizations) relative to each Fund's
current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization(s);
(5) the tax consequences of the Reorganizations;
(6) possible alternatives to the Reorganization(s), including continuing
to operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization(s) to other persons,
especially Mitchell Hutchins and PaineWebber.
At meetings of the Acquired Funds' boards of directors/trustees and of PW
Corporation's board of directors on July 20, 1995, Mitchell Hutchins
recommended, and the boards approved, the respective Reorganizations. Mitchell
Hutchins and each board believe that the respective Reorganizations offer the
Acquired Fund shareholders the benefits of investing in a larger, diversified
open-end money market fund with an investment objective and investment policies
substantially similar to those of the respective Acquired Funds.
In recommending the Reorganizations, Mitchell Hutchins indicated to the
boards that the investment advisory and administration fee schedule applicable
to Money Market Portfolio would be equal to or lower
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<PAGE>
than that currently in effect for Premium Account Fund. The advisory fees paid
by Cash Reserve Fund for the twelve-month period ended June 30, 1995 were
slightly lower (0.49% of average net assets) than the advisory fees paid by
Money Market Portfolio (0.50% of average net assets). Such an increase in the
advisory fees payable by Cash Reserve Fund shareholders would be more than
offset by the elimination of the 12b-1 fees currently paid by Cash Reserve Fund
(0.12% of average net assets), as Money Market Portfolio does not currently pay
12b-1 fees. In approving the Reorganizations, the boards noted that the overall
investment objective of maximum or high current income consistent with liquidity
and conservation of capital remains an appropriate one to offer investors as
part of an overall investment strategy.
The boards of directors of Cash Reserve Fund and PW Corporation considered
the taxable nature of the Reorganization involving that Fund, and they have been
advised that there should be little tax impact on that Fund's shareholders
despite the taxable nature of the transaction:
(1) Although gain or loss may be recognized to Cash Reserve Fund, depending
on whether its aggregate tax basis for its assets is less than,
equal to, or exceeds the sum of the fair market value of the Money Market
Portfolio shares received and the amount of the liabilities assumed by
Money Market Portfolio, that gain or loss should be negligible. Because of
the relative stability in value of the short-term high quality obligations
purchased by Cash Reserve Fund, its tax basis for its assets should not
vary markedly from the value of those assets on the Closing Date (which
determines the amount paid for those assets by Money Market Portfolio).
(2) Although a Cash Reserve Fund shareholder may, in theory, recognize
either gain or loss on the constructive exchange of all its Cash Reserve
Fund shares for Money Market Portfolio shares pursuant to the
Reorganization, depending on whether the shareholder's tax basis for its
Cash Reserve Fund shares is less than, equal to or exceeds the fair market
value of the Money Market Portfolio shares received, that gain or loss
should be negligible (or even nonexistent). Because Cash Reserve Fund
and Money Market Portfolio attempt to maintain a stable net asset value
per share of $1.00, and their shares are purchased at net asset value (by
direct investment by the shareholder or by reinvestment of taxable
dividends and other distributions), each shareholder's tax basis for its
Cash Reserve Fund shares should be equal or close to equal to the value
of the Money Market Portfolio shares constructively received in exchange
for those Cash Reserve Fund shares.
(3) Although a Cash Reserve Fund shareholder's holding period for the
Money Market Portfolio shares it receives will not include its holding
period for its Cash Reserve Fund shares, this should have little impact
on a shareholder. Because a shareholder's tax basis for its Money Market
Portfolio shares should be equal or close to equal to the value of such
shares, the shareholder should have little or no gain on the redemption of
those shares and, therefore, there should be little tax consequence if
those shares had not been held long enough to qualify for long-term
capital gain treatment.
THE BOARD OF TRUSTEES/DIRECTORS OF EACH ACQUIRED FUND RECOMMENDS TO
ITS SHAREHOLDERS THAT THEY VOTE "FOR" THE APPLICABLE REORGANIZATION.
Description of Securities to be Issued
PW Corporation is registered with the SEC as an open-end management
investment company. Its directors are authorized to issue 30 billion shares of
common stock (par value $.001 per share), 15 billion of which are designated as
shares of Money Market Portfolio. The directors have established Money Market
Portfolio as one of PW Corporation's series. Each share of Money Market
Portfolio represents an equal
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<PAGE>
proportionate interest in the Fund with each other share thereof. Shares of
Money Market Portfolio entitle their holders to one vote per full share and
fractional votes for fractional shares held.
PW Corporation does not hold annual meetings of shareholders. The
directors are required to call a meeting of shareholders for the purpose of
voting upon the question of removal of any director when requested in writing to
do so by the shareholders of record holding at least 10% of PW Corporation's
outstanding shares.
Federal Income Tax Considerations
Premium Account Fund Reorganization
The exchange of Premium Account Fund's assets for shares of Money Market
Portfolio and Money Market Portfolio's assumption of Premium Account Fund's
liabilities is intended to qualify for federal income tax purposes as a tax-free
reorganization under section 368(a)(1)(C) of the Code. PW Corporation has
received an opinion of Kirkpatrick & Lockhart LLP, its counsel, and Premium
Account Fund has received an opinion of Sullivan & Cromwell, its counsel, with
respect to such Reorganization, each substantially to the effect that --
(1) Money Market Portfolio's acquisition of Premium Account Fund's assets
in exchange solely for Money Market Portfolio shares and Money Market
Portfolio's assumption of Premium Account Fund's liabilities, followed by
Premium Account Fund's distribution of those shares to its shareholders
constructively in exchange for their Premium Account Fund shares, will
constitute a "reorganization" within the meaning of section 368(a)(1)(C)
of the Code;
(2) No gain or loss will be recognized to Premium Account Fund on the
transfer to Money Market Portfolio of its assets in exchange solely for
Money Market Portfolio shares and Money Market Portfolio's assumption of
Premium Account Fund's liabilities or on the subsequent distribution of
those shares to Premium Account Fund's shareholders in constructive
exchange for their Premium Account Fund shares;
(3) No gain or loss will be recognized to Money Market Portfolio on its
receipt of the transferred assets in exchange solely for Money Market
Portfolio shares and its assumption of Premium Account Fund's liabilities;
(4) Money Market Portfolio's basis for the transferred assets will be the
same as the basis thereof in Premium Account Fund's hands immediately prior
to the Reorganization, and Money Market Portfolio's holding period for
those assets will include Premium Account Fund's holding period therefor;
(5) A Premium Account Fund shareholder will recognize no gain or loss on
the constructive exchange of all its Premium Account Fund shares for Money
Market Portfolio shares pursuant to the Reorganization; and
(6) A Premium Account Fund shareholder's basis for the Money Market
Portfolio shares to be received by it in the Reorganization will be the
same as the basis for its Premium Account Fund shares to be constructively
surrendered in exchange for those Money Market Portfolio shares, and its
holding period for those Money Market Portfolio shares will include its
holding period for those Premium Account Fund shares, provided they are
held as capital assets by the shareholder on the Closing Date.
Each such opinion states 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
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<PAGE>
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 Premium Account 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.
Cash Reserve Fund Reorganization
PW Corporation and Cash Reserve Fund believe that the Reorganization
involving that Fund will be treated for federal income tax purposes as a taxable
transaction, for the following reasons. PW Corporation discourages individual
retirement accounts and qualified retirement plans from purchasing Money Market
Portfolio shares. Therefore, the boards of directors of PW Corporation and Cash
Reserve Fund, in considering the Reorganization, each determined that the Cash
Reserve Fund should encourage, and should assist, its shareholders that are
individual retirement accounts and qualified retirement plans to redeem or
exchange their Cash Reserve Fund shares before the Reorganization is effected.
Accordingly, most such shareholders already have redeemed or exchanged their
Cash Reserve Fund shares. Because of this redemption of a significant portion
of Cash Reserve Fund's shares in connection with the Reorganization, PW
Corporation and Cash Reserve Fund believe that the Reorganization will not
qualify for federal income tax purposes as a tax-free reorganization and instead
will be treated for federal income tax purposes as a taxable sale of assets by
Cash Reserve Fund to Money Market Portfolio, followed by the dissolution of Cash
Reserve Fund, with the effect that --
(1) Money Market Portfolio's acquisition of Cash Reserve Fund's assets in
exchange for Money Market Portfolio shares and Money Market Portfolio's
assumption of Cash Reserve Fund's liabilities will constitute a taxable
sale of assets by Cash Reserve Fund to Money Market Portfolio;
(2) Cash Reserve Fund's distribution of the Money Market Portfolio shares
to its shareholders will be treated as a distribution in liquidation of
Cash Reserve Fund, and each Cash Reserve Fund shareholder may recognize
gain or loss on that distribution, depending on whether the shareholder's
tax basis for its Cash Reserve Fund shares is less than, is equal to or
exceeds the fair market value of the Money Market Portfolio shares
received;
(3) Gain or loss may be recognized to Cash Reserve Fund on the transfer to
Money Market Portfolio of its assets in exchange for Money Market Portfolio
shares and Money Market Portfolio's assumption of Cash Reserve Fund's
liabilities, depending on whether Cash Reserve Fund's aggregate tax basis
for the assets is less than, is equal to or exceeds the sum of the fair
market value of the Money Market Portfolio shares it receives and the
amount of the liabilities assumed by Money Market Portfolio;
(4) Except to the extent the Money Market Portfolio shares appreciate or
depreciate in value in Cash Reserve Fund's hands prior to distribution
thereof to its shareholders, no gain or loss will be recognized to Cash
Reserve Fund on the subsequent distribution of the Money Market Portfolio
shares to Cash Reserve Fund's shareholders in constructive exchange for
their Cash Reserve Fund shares;
(5) No gain or loss will be recognized to Money Market Portfolio on its
receipt of the transferred assets in exchange for Money Market Portfolio
shares and its assumption of Cash Reserve Fund's liabilities;
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<PAGE>
(6) Money Market Portfolio's aggregate tax basis for the transferred assets
will be equal to the sum of the fair market value of the Money Market
Portfolio shares exchanged for the transferred assets plus the amount of
the liabilities assumed by Money Market Portfolio, and Money Market
Portfolio's holding period for those assets will begin on the day after
the Closing Date; and
(7) A Cash Reserve Fund shareholder's basis for the Money Market Portfolio
shares to be received in the Reorganization will be the same as the fair
market value of those shares on the date of distribution, and its holding
period for those shares will begin on the day after the Closing Date.
Shareholders of Cash Reserve Fund should consult their tax advisers
regarding the effect 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 tables show the capitalization of each Fund as of June
30, 1995 (unaudited for each Acquired Fund) and on a pro forma combined
basis (unaudited) as of that date, giving effect to the Reorganizations and
assuming that the Acquired Funds indicated participate in the
Reorganizations.
If only Premium Account Fund participates in a Reorganization:
Premium Money Market Combined Fund
Account Fund Portfolio (Pro Forma)
------------ ------------ --------------
Net Assets $568,854,975 $5,398,145,771 $5,967,000,746
Net Asset Value
Per Share $1.00 $1.00 $1.00
Shares Outstanding 568,854,975 5,401,688,839 5,970,543,814
If only Cash Reserve Fund participates in a Reorganization:
Cash Money Market Combined Fund
Reserve Fund Portfolio (Pro Forma)
------------ ------------- -------------
Net Assets $997,802,860(1) $5,398,145,771 $6,395,948,631
Net Asset Value
Per Share $1.00 $1.00 $1.00
Shares Outstanding 997,802,860(1) 5,401,688,839 6,399,491,699
(1) After giving effect to the reduction in assets resulting from the
redemption and/or exchange of shares held by individual retirement
accounts and qualified retirement plans.
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If both Acquired Funds participate in the Reorganizations:
Cash Premium Money Market Combined Fund
Reserve Fund Account Fund Portfolio (Pro Forma)
------------ ------------ ------------ -------------
Net Assets $997,802,860(1) $568,854,975 $5,398,145,771 $6,964,803,606
Net Asset
Value Per
Share $1.00 $1.00 $1.00 $1.00
Shares
Outstanding 997,802,860(1) 568,854,975 5,401,688,839 6,968,346,674
(1) After giving effect to the reduction in assets resulting from the
redemption and/or exchange of shares held by individual retirement
accounts and qualified retirement plans.
MISCELLANEOUS
Available Information
Premium Account Fund, Cash Reserve Fund and PW Corporation are each subject
to the informational requirements of the Securities Exchange Act of 1934 and the
1940 Act and in accordance therewith file reports, proxy material and other
information with the SEC. Such reports, proxy material and other information
can be inspected and copied at the Public Reference Facilities 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. 20549 at prescribed rates.
Legal Matters
Certain legal matters in connection with the issuance of Money Market
Portfolio shares as part of the Reorganizations will be passed upon by
Kirkpatrick & Lockhart LLP, counsel to PW Corporation. Certain legal matters in
connection with the Reorganization Plans will be passed upon by Kirkpatrick &
Lockhart LLP, counsel to PW Corporation, by Sullivan & Cromwell, counsel to
Premium Account Fund, and by Stroock & Stroock & Lavan, counsel to Cash Reserve
Fund.
Experts
The audited statements of Money Market Portfolio, Premium Account Fund and
Cash Reserve Fund, incorporated by reference herein and incorporated by
reference or included in their respective Statements of Additional Information,
have been audited by Ernst & Young LLP, independent auditors, Deloitte & Touche
LLP, independent auditors, and Ernst & Young LLP, independent auditors,
respectively, whose reports thereon are included in the Funds' Annual Reports to
Shareholders for the fiscal years ended June 30, 1995, March 31, 1995 and July
31, 1995, respectively. The financial statements of Cash Reserve Fund for the
year ended July 31, 1995, insofar as they relate to the statement of changes in
net assets for the year ended July 31, 1994 and financial highlights for the
four years in the period then ended have previously been audited by Deloitte &
Touche LLP, independent auditors. The financial statements audited by Ernst &
Young LLP and Deloitte & Touche LLP have been incorporated herein by reference
in reliance on their reports given on their authority as experts in auditing and
accounting.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("Agreement") is made as of November 30, 1995, between
PaineWebber RMA Money Fund, Inc., a Maryland corporation ("PW
Corporation"), on behalf of PaineWebber RMA Money Market
Portfolio, a segregated portfolio of assets ("series") thereof
("Acquiring Fund"), and PaineWebber/Kidder, Peabody Premium
Account Fund, a Massachusetts business trust ("Target").
(Acquiring Fund and Target are sometimes referred to herein
individually as a "Fund" and collectively as the "Funds," and PW
Corporation and Target 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
Acquiring Fund are made and shall be taken or undertaken by PW
Corporation 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").
<PAGE>
Such transactions shall take place at the Closing (as defined in
paragraph 3.1).
1.2. The Assets shall include, without limitation, all
cash, cash equivalents, securities, receivables (including
interest and dividends receivable), claims and rights of action,
rights to register shares under applicable securities laws, books
and records, deferred and prepaid expenses shown as assets on
Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise
provided herein) all of Target's liabilities, debts, obligations,
and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary
course of business, whether or not determinable at the Effective
Time, and whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses
described in paragraph 7.2. Notwithstanding the foregoing,
Target agrees to use its best efforts to discharge all of its
known Liabilities prior to the Effective Time.
1.4. Before the Effective Time, Target shall declare and
pay to its shareholders a dividend in an amount large enough so
that it will have distributed substantially all (and in any event
not less than 90%) of its
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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 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 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 12:00 noon on
the date of the Closing ("Valuation Time"), using the valuation
procedures set forth in Target's then-current prospectus and
statement of additional information less (b) the amount of the
Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an
Acquiring Fund Share shall be computed as of the Valuation Time,
using the valuation procedures set forth in Acquiring Fund's
then-current prospectus and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2
shall be made by or under the direction of Mitchell Hutchins
Asset Management Inc.
2.4. If the difference between the NAVs per share of the
Funds equals or exceeds $.0025 at 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.
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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 February 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 New York Stock
Exchange, Inc. ("NYSE") is closed to trading or trading thereon
is restricted or (b) trading or the reporting of trading on the
NYSE or elsewhere is disrupted, so that accurate appraisal of the
net value of Target and the NAV per Acquiring Fund Share is
impracticable, the Effective Time shall be postponed until the
first business day after the day when such trading shall have
been fully resumed and such reporting shall have been restored.
3.2. Target shall deliver to PW Corporation 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. Target shall deliver to PW Corporation 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. PW Corporation shall issue and deliver a confirmation to
Target 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. Target is an unincorporated voluntary
association with transferable shares organized as a business
trust under a written instrument ("Business Trust"); it is
duly organized, validly existing, and in good standing under
the laws of the Commonwealth of Massachusetts; and a copy of
its Declaration of Trust is on file with the Secretary of
the Commonwealth of Massachusetts;
4.1.2. Target is duly registered as an open-end
management investment company under the Investment Company
Act of 1940 ("1940 Act"), and such registration will be in
full force and effect at the Effective Time;
4.1.3. At the Closing, Target will have good and
marketable title to the Assets and full right, power, and
authority to sell, assign, transfer, and deliver the Assets
free of any liens or other encumbrances; and upon delivery
and payment for the Assets, Acquiring Fund will acquire good
and marketable title thereto;
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4.1.4. Target's current prospectus and statement of
additional information conform in all material respects to
the applicable requirements of the Securities Act of 1933
("1933 Act") and the 1940 Act and the rules and regulations
thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading;
4.1.5. Target is not in violation of, and the
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby will not conflict with
or violate, Massachusetts law or any provision of Target'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 PW Corporation;
4.1.6. Except as disclosed in writing to and accepted
by PW Corporation, all material contracts and other
commitments of or applicable to Target (other than this
Agreement and investment contracts) will be terminated, or
provision for discharge of any liabilities of Target
thereunder will be made, at or prior to the Effective Time,
without either Fund's incurring any liability or penalty
with respect thereto and without diminishing or releasing
any rights Target may have had with respect to actions taken
or omitted to be taken by any other party thereto prior to
the Closing;
4.1.7. Except as otherwise disclosed in writing to and
accepted by PW Corporation, no litigation, administrative
proceeding, or investigation of or before any court or
governmental body is presently pending or (to Target's
knowledge) threatened against Target or any of its
properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition
or the conduct of its business; Target knows of no facts
that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party
to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially
or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.1.8. The execution, delivery, and performance of
this Agreement have been duly authorized as of the date
hereof by all necessary action on the part of Target's
board of 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;
4.1.9. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all necessary
action by Target's shareholders;
4.1.10. No governmental consents, approvals,
authorizations, or filings are required under the 1933 Act,
the Securities Exchange Act of 1934 ("1934 Act"), or the
1940 Act for the execution or performance of this Agreement
by Target, except for (a) the filing with the SEC of a
registration statement by PW Corporation on Form N-14
relating to the Acquiring Fund Shares issuable hereunder,
and any supplement or amendment thereto ("Registration
Statement"), including therein a prospectus/proxy statement
("Proxy Statement"), (b) receipt of the exemptive relief
referenced in subparagraph 4.1.8, and
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(c) such consents, approvals, authorizations, and filings as
have been made or received or as may be required subsequent
to the Effective Time;
4.1.11. On the effective date of the Registration
Statement, at the time of the shareholders' meeting referred
to in paragraph 5.2, and at the Effective Time, the Proxy
Statement will (a) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act, and the
1940 Act and the regulations thereunder and (b) not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in
or omissions from the Proxy Statement made in reliance on
and in conformity with information furnished by PW
Corporation for use therein;
4.1.12. The Liabilities were incurred by Target in the
ordinary course of its business;
4.1.13. Target qualified for treatment as a regulated
investment company under Subchapter M of the Code ("RIC")
for each past taxable year since it commenced operations and
will continue to meet all the requirements for such
qualification for its current taxable year; and it has no
earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it.
The Assets shall be invested at all times through the Effective
Time in a manner that ensures compliance with the foregoing;
4.1.14. Target is not under the jurisdiction of a
court in a proceeding under Title 11 of the United States
Code or similar case within the meaning of section
368(a)(3)(A) of the Code;
4.1.15. Not more than 25% of the value of Target's
total assets (excluding cash, cash items, and U.S.
government securities) is invested in the stock and
securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities
of five or fewer issuers; and
4.1.16. Target will be 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. PW Corporation 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. PW Corporation is duly registered as an open-
end management investment company under the 1940 Act, and
such registration will be in full force and effect at the
Effective Time;
4.2.3. Acquiring Fund is a duly established and
designated series of PW Corporation;
4.2.4. No consideration other than Acquiring Fund
Shares (and Acquiring Fund's assumption of the Liabilities)
will be issued in exchange for the Assets in the
Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and
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 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;
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4.2.6. Acquiring Fund's current prospectus and
statement of additional information conform in all material
respects to the applicable requirements of the 1933 Act and
the 1940 Act and the rules and regulations thereunder and do
not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby will not conflict with
or violate, Maryland law or any provision of PW
Corporation's Articles of Incorporation or By-Laws or of any
provision of any agreement, instrument, lease, or other
undertaking to which Acquiring Fund is a party or by which
it is bound or result in the acceleration of any obligation,
or the imposition of any penalty, under any agreement,
judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing
to and accepted by Target;
4.2.8. Except as otherwise disclosed in writing to and
accepted by Target, no litigation, administrative
proceeding, or investigation of or before any court or
governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against PW Corporation with
respect to Acquiring Fund or any of its properties or assets
that, if adversely determined, would materially and
adversely affect Acquiring Fund's financial condition or the
conduct of its business; Acquiring Fund knows of no facts
that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party
to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially
or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of
this Agreement have been duly authorized as of the date
hereof by all necessary action on the part of PW
Corporation'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;
4.2.10. 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 PW Corporation, except for
(a) the filing with the SEC of the Registration Statement,
(b) receipt of the exemptive relief referenced in
subparagraph 4.2.9, and (c) such consents, approvals,
authorizations, and filings as have been made or received or
as may be required subsequent to the Effective Time;
4.2.11. On the effective date of the Registration
Statement, at the time of the shareholders' meeting referred
to in paragraph 5.2, and at the Effective Time, the Proxy
Statement will (a) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act, and the
1940 Act and the regulations thereunder and (b) not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in
or omissions from the Proxy Statement made in reliance on
and in conformity with information furnished by Target for
use therein;
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4.2.12. Acquiring Fund is a "fund" as defined in
section 851(h)(2) of the Code; it qualified for treatment as
a RIC 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;
4.2.13. Acquiring Fund has no plan or intention to
issue additional Acquiring Fund Shares following the
Reorganization except for shares issued in the ordinary
course of its 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;
4.2.14. 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 circumstances suggest
the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring
Fund to be dissolved or merged into another corporation or
business trust or any "fund" thereof (within the meaning of
section 851(h)(2) of the Code) following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not
more than 25% of the value of Acquiring Fund's total assets
(excluding cash, cash items, and U.S. government securities)
will be invested in the stock 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
4.2.17. 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;
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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;
4.3.5. The fair market value on a going concern basis
of the Assets will equal or exceed the Liabilities to be
assumed by Acquiring Fund and those to which the Assets are
subject;
4.3.6. There is no intercompany indebtedness between
the Funds that was issued or acquired, or will be settled,
at a discount;
4.3.7. Pursuant to the Reorganization, Target will
transfer to Acquiring Fund, and Acquiring Fund will acquire,
at least 90% of the fair market value of the net assets, and at
least 70% of the fair market value of the gross assets, held by
Target immediately before the Reorganization. For the purposes of
this representation, any amounts used by Target to pay its
Reorganization expenses and redemptions and distributions made by
it immediately before the Reorganization (except for (a)
distributions made to conform to its policy of distributing all or
substantially all of its income and gains to avoid the obligation
to pay federal income tax and/or the excise tax under section 4982
of the Code and (b) redemptions not made as part of the
Reorganization) will be included as assets thereof held
immediately before the Reorganization;
4.3.8. None of the compensation received by any
Shareholder who is an employee of Target will be separate
consideration for, or allocable to, any of the Target Shares
held by such Shareholder-employee; none of the Acquiring
Fund Shares received by any such Shareholder-employee will
be separate consideration for, or allocable to, any
employment agreement; and the consideration paid to any such
Shareholder-employee will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the
Shareholders will not own shares constituting "control" of
Acquiring Fund within the meaning of section 304(c) of the
Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business
in the ordinary course between the date hereof and the Closing,
it being understood that (a) such ordinary course will include
declaring and paying customary dividends and other distributions
and such changes in operations as are contemplated by each Fund's
normal business activities and (b) each Fund will retain
exclusive control of the composition of its portfolio until the
Closing; provided that Target shall not dispose of more than an
insignificant portion of its historic business assets during such
period without Acquiring Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated
hereby.
5.3. Target covenants that the Acquiring Fund Shares to be
delivered hereunder are not being acquired for the purpose of
making any distribution thereof, other than in accordance with
the terms hereof.
5.4. Target covenants that it will assist PW Corporation in
obtaining such information as PW Corporation reasonably requests
concerning the beneficial ownership of Target Shares.
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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 PW Corporation 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. PW Corporation 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:
6.1. This Agreement and the transactions contemplated
hereby shall have been duly adopted and approved by Target'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 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.
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6.4. Target shall have received an opinion of Kirkpatrick &
Lockhart LLP, counsel to PW Corporation, substantially to the
effect that:
6.4.1. Acquiring Fund is a duly established series of
PW Corporation, 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 PW Corporation on behalf of
Acquiring Fund and (b) assuming due authorization,
execution, and delivery of this Agreement by Target, is a
valid and legally binding obligation of PW Corporation with
respect to 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 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 PW
Corporation'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 PW
Corporation (with respect to Acquiring Fund) is a party or
by which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
PW Corporation (with respect to Acquiring Fund) is a party
or by which it is bound, except as set forth in such opinion
or as previously disclosed in writing to and accepted by Target;
6.4.5. To the knowledge of such counsel (without any
independent inquiry or investigation), no consent, approval,
authorization, or order of any court or governmental
authority is required for the consummation by PW Corporation
on behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933
Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities laws;
6.4.6. PW Corporation 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 PW
Corporation (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring
Fund and (b) PW Corporation (with respect to Acquiring Fund)
is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects Acquiring Fund's business,
except as set forth in such opinion or as otherwise
disclosed in writing to and accepted by Target.
In rendering such opinion, such counsel may (i) rely, as to
matters governed by the laws of the 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
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terms to mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.5. PW Corporation shall have received an opinion of
Sullivan & Cromwell, counsel to Target, substantially to the
effect that:
6.5.1. Target is 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 Target and (b) assuming due
authorization, execution, and delivery of this Agreement by
PW Corporation on behalf of Acquiring Fund, is a valid and
legally binding obligation of Target, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium,
and similar laws relating to or affecting creditors' rights
and by general principles of equity;
6.5.3. The execution and delivery of this Agreement
did not, and the consummation of the transactions
contemplated hereby will not, materially violate Target's
Declaration of Trust or By-Laws or any provision of any
agreement (known to such counsel, without any independent
inquiry or investigation) to which Target is a party or by
which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
Target is a party or by which it is bound, except as set
forth in such opinion or as previously disclosed in writing
to and accepted by PW Corporation;
6.5.4. To the knowledge of such counsel (without any
independent inquiry or investigation), no consent, approval,
authorization, or order of any court or governmental
authority is required for the consummation by Target of the
transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act, and the 1940 Act
and such as may be required under state securities laws;
6.5.5. Target is registered with the SEC as an
investment company, and to the knowledge of such counsel no
order has been issued or proceeding instituted to suspend such
registration; and
6.5.6. To the knowledge of such counsel (without any
independent inquiry or investigation), (a) no litigation,
administrative proceeding, or investigation of or before any
court or governmental body is pending or threatened as to
Target or any of its properties or assets and (b) Target is
not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing
to and accepted by PW Corporation.
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 such firm who have devoted substantive attention to
matters directly related to this Agreement and the
Reorganization.
6.6. PW Corporation shall have received an opinion of
Kirkpatrick & Lockhart LLP, its counsel, addressed to and in form
and substance satisfactory to it, and Target shall have received an
opinion of Sullivan
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& Cromwell, 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;
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 PW
Corporation'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 its board of trustees, such waiver will not have a
material adverse effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the
other that there are no brokers or finders entitled to receive
any payments in connection with the transactions provided for
herein.
7.2. Except as otherwise provided herein, all expenses
incurred in connection with the transactions contemplated by this
Agreement (whether or not they are consummated) will be borne by
the Funds
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proportionately, as follows: each such expense will be
borne by the Funds in proportion to their respective net assets
as of the close of business on the last business day of the month
in which such expense was incurred. Such expenses include:
(a) expenses incurred in connection with entering into and
carrying out the provisions of this Agreement; (b) expenses
associated with the preparation and filing of the Registration
Statement; (c) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable
state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which Target's
shareholders are resident as of the date of the mailing of the
Proxy Statement to such shareholders; (d) printing and postage
expenses; (e) legal and accounting fees; and (f) solicitation
costs.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or
covenant not set forth herein, and this Agreement constitutes the
entire agreement between the parties. The representations,
warranties, and covenants contained herein or in any document
delivered pursuant hereto or in connection herewith shall survive
the Closing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to
the Effective Time, whether before or after approval by Target's
shareholders:
9.1. By either Fund (a) in the event of the other Fund's
material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective
Time, (b) if a condition to its obligations has not been met and
it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before June 30,
1996; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2,
there shall be no liability for damages on the part of either
Fund, or the 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.
11.3. The parties acknowledge that Target is a Business
Trust. Notice is hereby given that this instrument is executed
on behalf of Target's trustees solely in their capacity as trustees,
and not individually, and that
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Target's obligations under this instrument are not binding on or
enforceable against any of its trustees, officers, or shareholders, but
are only binding on and enforceable against Target's assets and
property. Acquiring Fund agrees that, in asserting any rights or claims
under this Agreement, it shall look only to Target's assets and property
in settlement of such rights or claims and not to such trustees or
shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to
be executed by its duly authorized officer.
ATTEST: PAINEWEBBER RMA MONEY FUND, INC.
on behalf of its series,
PAINEWEBBER RMA MONEY MARKET
PORTFOLIO
By: /s/ Ilene Shore /s/ Dianne E. O'Donnell
------------------- ---------------------------
Assistant Secretary Vice President
ATTEST: PAINEWEBBER/KIDDER, PEABODY
PREMIUM ACCOUNT FUND
By: /s/ Scott H. Griff /s/ Gregory K. Todd
------------------- ---------------------------
Assistant Secretary Vice President
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APPENDIX B
AGREEMENT AND PLAN OF REORGANIZATION AND DISSOLUTION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND DISSOLUTION
("Agreement") is made as of November 30, 1995, between
PaineWebber RMA Money Fund, Inc., a Maryland corporation ("PW
Corporation"), on behalf of PaineWebber RMA Money Market
Portfolio, a segregated portfolio of assets ("series") thereof
("Acquiring Fund"), and PaineWebber/Kidder, Peabody Cash Reserve
Fund, Inc., a Maryland corporation ("Target"). (Acquiring Fund
and Target are sometimes referred to herein individually as a
"Fund" and collectively as the "Funds," and PW Corporation and
Target are sometimes referred to herein individually as an
"Investment Company" and collectively as the "Investment
Companies.")
The transactions provided for herein (collectively
"Reorganization") 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 agreements, representations, actions, and
obligations described herein made or to be taken or undertaken by
Acquiring Fund are made and shall be taken or undertaken by PW
Corporation on its behalf.
In consideration of the mutual promises herein, the parties
covenant and agree as follows:
1. PLAN OF REORGANIZATION AND DISSOLUTION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and
deliver all of its assets described in paragraph 1.2 ("Assets")
to Acquiring Fund. Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full
and fractional Acquiring Fund Shares determined by dividing
the net value of Target (computed as set forth in paragraph
2.1) by the net asset value (computed as set forth in
paragraph 2.2) ("NAV") of an Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in
paragraph 1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in
paragraph 3.1).
1.2. The Assets shall include, without limitation, all
cash, cash equivalents, securities, receivables (including
interest and dividends receivable), claims and rights of action,
rights to register shares under applicable securities laws, books
and records, deferred and prepaid expenses shown as assets on
Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1). After the Investment
Companies' boards of directors resolved to engage in the Reorganization,
Target encouraged its individual retirement account and qualified
retirement plan shareholders to redeem their Target Shares or exchange their
Target Shares for shares in another investment company, and prior to the date
hereof substantially all of them did so; accordingly, the Assets do not
include any amount paid to those shareholders as redemption proceeds.
1.3. The Liabilities shall include (except as otherwise
provided herein) all of Target's liabilities, debts, obligations,
and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary
course of business, whether or not determinable at the Effective
Time, and whether or not specifically referred to in this Agreement,
including without limitation Target's share of
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the expenses described in paragraph 7.2. Notwithstanding the foregoing,
Target agrees to use its best efforts to discharge all of its known
Liabilities prior to the Effective Time.
1.4. Before the Effective Time, Target shall declare and
pay to its shareholders a dividend in an amount large enough so
that it will have distributed substantially all (and in any event
not less than 90%) of its investment company taxable income
(computed without regard to any deduction for dividends paid) for
the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is
reasonably practicable), Target shall constructively distribute
the Acquiring Fund Shares received by it pursuant to paragraph
1.1 to Target's shareholders of record, determined as of the
Effective Time (collectively "Shareholders" and individually a
"Shareholder"), in exchange for their Target Shares. Such
distribution shall be accomplished by the Funds' transfer agent
("Transfer Agent") opening accounts on Acquiring Fund's share
transfer books in the Shareholders' names and transferring such
Acquiring Fund Shares thereto. Each Shareholder's account shall
be credited with the respective pro rata number of full and
fractional (rounded to the third decimal place) Acquiring Fund
Shares due that Shareholder. All outstanding Target Shares,
including any represented by certificates, shall simultaneously
be canceled on Target's share transfer records. Acquiring Fund
shall not issue certificates representing the Acquiring Fund
Shares in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution
of the Acquiring Fund Shares pursuant to paragraph 1.5, Target
shall be dissolved and any further actions shall be taken in
connection therewith as required by applicable law (including
Target's filing of Articles of Transfer, effective as of the
Effective Time, with the State Department of Assessments and
Taxation of Maryland ("Department")).
1.7. Any reporting responsibility of Target to a public
authority is and shall remain its responsibility up to and
including the date on which it is dissolved.
1.8. Any transfer taxes payable upon issuance of Acquiring
Fund Shares in a name other than that of the registered holder on
Target's books of the Target Shares constructively exchanged
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 12:00 noon on
the date of the Closing ("Valuation Time"), using the valuation
procedures set forth in Target's then-current prospectus and
statement of additional information less (b) the amount of the
Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an
Acquiring Fund Share shall be computed as of the Valuation Time,
using the valuation procedures set forth in Acquiring Fund's
then-current prospectus and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2
shall be made by or under the direction of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins").
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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 February 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 New York Stock
Exchange, Inc. ("NYSE") is closed to trading or trading thereon
is restricted or (b) trading or the reporting of trading on the
NYSE or elsewhere is disrupted, so that accurate appraisal of the
net value of Target and the NAV per Acquiring Fund Share is
impracticable, the Effective Time shall be postponed until the
first business day after the day when such trading shall have
been fully resumed and such reporting shall have been restored.
3.2. Target shall deliver to PW Corporation 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. Target shall deliver to PW Corporation 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. PW Corporation shall issue and deliver a confirmation to
Target 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. Target is a corporation duly organized, validly
existing, and in good standing under the laws of the State
of Maryland, and a copy of its Articles of Incorporation is
on file with the Department;
4.1.2. Target is duly registered as an open-end
management investment company under the Investment Company
Act of 1940 ("1940 Act"), and such registration will be in
full force and effect at the Effective Time;
4.1.3. At the Closing, Target will have good and
marketable title to the Assets and full right, power, and
authority to sell, assign, transfer, and deliver the Assets
free of any liens or other encumbrances; and upon delivery
and payment for the Assets, Acquiring Fund will acquire good
and marketable title thereto;
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4.1.4. Target's current prospectus and statement of
additional information conform in all material respects to
the applicable requirements of the Securities Act of 1933
("1933 Act") and the 1940 Act and the rules and regulations
thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading;
4.1.5. Target is not in violation of, and the
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby will not conflict with
or violate, Maryland law or any provision of Target's
Articles of Incorporation or By-Laws or of any agreement,
instrument, lease, or other undertaking to which Target is a
party or by which it is bound or result in the acceleration
of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Target is a
party or by which it is bound, except as previously
disclosed in writing to and accepted by PW Corporation;
4.1.6. Except as disclosed in writing to and accepted
by PW Corporation, all material contracts and other
commitments of or applicable to Target (other than this
Agreement and investment contracts) will be terminated, or
provision for discharge of any liabilities of Target
thereunder will be made, at or prior to the Effective Time,
without either Fund's incurring any liability or penalty
with respect thereto and without diminishing or releasing
any rights Target may have had with respect to actions taken
or omitted to be taken by any other party thereto prior to
the Closing;
4.1.7. Except as otherwise disclosed in writing to and
accepted by PW Corporation, no litigation, administrative
proceeding, or investigation of or before any court or
governmental body is presently pending or (to Target's
knowledge) threatened against Target or any of its
properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition
or the conduct of its business; Target knows of no facts
that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party
to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially
or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.1.8. The execution, delivery, and performance of
this Agreement have been duly authorized as of the date
hereof by all necessary action on the part of Target's board
of directors, which has made the determinations required by
Rule 17a-8(a) under the 1940 Act; and, subject to approval
by Target's shareholders and receipt of any necessary
exemptive relief or no-action assurances requested from the
Securities and Exchange Commission ("SEC") or its staff with respect to
sections 17(a) and 17(d) of the 1940 Act, this
Agreement will constitute a valid and legally binding
obligation of Target, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium,
and similar laws relating to or affecting creditors' rights
and by general principles of equity;
4.1.9. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all necessary
action by Target's shareholders;
4.1.10. No governmental consents, approvals,
authorizations, or filings are required under the 1933 Act,
the Securities Exchange Act of 1934 ("1934 Act"), or the
1940 Act for the execution or performance of this Agreement
by Target, except for (a) the filing with the SEC of a
registration statement by PW Corporation 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
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statement ("Proxy Statement"), (b) receipt of the exemptive
relief referenced in subparagraph 4.1.8, and (c) such consents,
approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective
Time;
4.1.11. On the effective date of the Registration
Statement, at the time of the shareholders' meeting referred
to in paragraph 5.2, and at the Effective Time, the Proxy
Statement will (a) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act, and the
1940 Act and the regulations thereunder and (b) not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in
or omissions from the Proxy Statement made in reliance on
and in conformity with information furnished by PW
Corporation for use therein;
4.1.12. Target qualified for treatment as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended ("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; and
4.1.13. Target will be dissolved as soon as reasonably
practicable after the Reorganization.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. PW Corporation 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;
4.2.2. PW Corporation is duly registered as an open-
end management investment company under the 1940 Act, and
such registration will be in full force and effect at the
Effective Time;
4.2.3. Acquiring Fund is a duly established and designated
series of PW Corporation;
4.2.4. No consideration other than Acquiring Fund
Shares (and Acquiring Fund's assumption of the Liabilities)
will be issued in exchange for the Assets in the
Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and
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 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;
4.2.6. Acquiring Fund's current prospectus and
statement of additional information conform in all material
respects to the applicable requirements of the 1933 Act and
the 1940 Act and the rules and regulations thereunder and do
not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
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4.2.7. Acquiring Fund is not in violation of, and the
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby will not conflict with
or violate, Maryland law or any provision of PW
Corporation's Articles of Incorporation or By-Laws or of any
provision of any agreement, instrument, lease, or other
undertaking to which Acquiring Fund is a party or by which
it is bound or result in the acceleration of any obligation,
or the imposition of any penalty, under any agreement,
judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing
to and accepted by Target;
4.2.8. Except as otherwise disclosed in writing to and
accepted by Target, no litigation, administrative
proceeding, or investigation of or before any court or
governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against PW Corporation with
respect to Acquiring Fund or any of its properties or assets
that, if adversely determined, would materially and adversely
affect Acquiring Fund's financial condition or the
conduct of its business; Acquiring Fund knows of no facts
that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party
to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially
or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of
this Agreement have been duly authorized as of the date
hereof by all necessary action on the part of PW
Corporation'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;
4.2.10. 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 PW Corporation, except for
(a) the filing with the SEC of the Registration Statement,
(b) receipt of the exemptive relief referenced in
subparagraph 4.2.9, and (c) such consents, approvals,
authorizations, and filings as have been made or received or
as may be required subsequent to the Effective Time;
4.2.11. On the effective date of the Registration
Statement, at the time of the shareholders' meeting referred
to in paragraph 5.2, and at the Effective Time, the Proxy
Statement will (a) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act, and the
1940 Act and the regulations thereunder and (b) not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in
or omissions from the Proxy Statement made in reliance on
and in conformity with information furnished by Target for
use therein; and
4.2.12. Acquiring Fund is a "fund" as defined in
section 851(h)(2) of the Code; it qualified for treatment as
a RIC 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.
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<PAGE>
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.
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 PW Corporation in
obtaining such information as PW Corporation 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 PW Corporation 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. PW Corporation 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:
6.1. This Agreement and the transactions contemplated
hereby shall have been duly adopted and approved by Target's
board of directors and shall have been approved by Target's
shareholders in accordance with applicable law.
B-7
<PAGE>
6.2. All necessary filings shall have been made with the
SEC and state securities authorities, and no order or directive
shall have been received that any other or further action is
required to permit the parties to carry out the transactions
contemplated hereby. The Registration Statement shall have
become effective under the 1933 Act, no stop orders suspending
the effectiveness thereof shall have been issued, and the SEC
shall not have issued an unfavorable report with respect to the
Reorganization under section 25(b) of the 1940 Act nor instituted
any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940
Act. All consents, orders, and permits of federal, state, and
local regulatory authorities (including the SEC and state
securities authorities) deemed necessary by either Fund to permit
consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where
failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund,
provided that either Fund may for itself waive any of such
conditions.
6.3. At the Effective Time, no action, suit, or other
proceeding shall be pending before any court or governmental agency
in which it is sought to restrain or prohibit, or to obtain
damages or other relief in connection with, the transactions
contemplated hereby.
6.4. Target shall have received an opinion of Kirkpatrick &
Lockhart LLP, counsel to PW Corporation, substantially to the
effect that:
6.4.1. Acquiring Fund is a duly established series of
PW Corporation, 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 PW Corporation on behalf of
Acquiring Fund and (b) assuming due authorization, execution,
and delivery of this Agreement by Target, is a valid and
legally binding obligation of PW Corporation with respect to
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 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 PW
Corporation'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 PW
Corporation (with respect to Acquiring Fund) is a party or
by which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
PW Corporation (with respect to Acquiring Fund) is a party
or by which it is bound, except as set forth in such opinion
or as previously disclosed in writing to and accepted by
Target;
6.4.5. To the knowledge of such counsel (without any
independent inquiry or investigation), no consent, approval,
authorization, or order of any court or governmental
authority is required for the consummation by PW Corporation
on behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933
Act, the 1934 Act, and the 1940 Act and such as may
B-8
<PAGE>
be required under state securities laws, and except for the
filing of Articles of Transfer with the Department;
6.4.6. PW Corporation 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 PW
Corporation (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring
Fund and (b) PW Corporation (with respect to 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 Target.
In rendering such opinion, such counsel may (i) rely, as to
matters governed by the laws of the State of Maryland, on an
opinion of competent Maryland counsel, (ii) make assumptions
regarding the authenticity, genuineness, and/or conformity of
documents and copies thereof without independent verification
thereof, (iii) limit such opinion to applicable federal and state
law, and (iv) define the word "knowledge" and related terms to
mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.5. PW Corporation shall have received an opinion of
Stroock & Stroock & Lavan, counsel to Target, substantially to
the effect that:
6.5.1. Target is a corporation duly organized and
validly existing under the laws of the State of Maryland
with power under its Articles of Incorporation to own all of
its properties and assets and, to the knowledge of such
counsel, to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized,
executed, and delivered by Target and (b) assuming due
authorization, execution, and delivery of this Agreement by
PW Corporation on behalf of Acquiring Fund, is a valid and
legally binding obligation of Target, enforceable in
accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of
equity;
6.5.3. The execution and delivery of this Agreement
did not, and the consummation of the transactions
contemplated hereby will not, materially violate Target's
Articles of Incorporation or By-Laws or any provision of any
agreement (known to such counsel, without any independent
inquiry or investigation) to which Target is a party or by
which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
Target is a party or by which it is bound, except as set
forth in such opinion or as previously disclosed in writing
to and accepted by PW Corporation;
6.5.4. To the knowledge of such counsel (without any
independent inquiry or investigation), no consent, approval,
authorization, or order of any court or governmental
authority is required for the consummation by Target of the
transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act, and the 1940 Act
and such as may be required under state securities laws, and
except for the filing of Articles of Transfer with the
Department;
B-9
<PAGE>
6.5.5. Target is registered with the SEC as an
investment company, and to the knowledge of such counsel no order
has been issued or proceeding instituted to suspend such
registration; and
6.5.6. To the knowledge of such counsel (without any
independent inquiry or investigation), (a) no litigation,
administrative proceeding, or investigation of or before any
court or governmental body is pending or threatened as to
Target or any of its properties or assets and (b) Target is
not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing
to and accepted by PW Corporation.
In rendering such opinion, such counsel may (i) rely, as to
matters governed by the laws of the State of Maryland, on an
opinion of competent Maryland counsel, (ii) make assumptions
regarding the authenticity, genuineness, and/or conformity of
documents and copies thereof without independent verification
thereof, (iii) limit such opinion to applicable federal and state
law, and (iv) define the word "knowledge" and related terms to
mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.6. PW Corporation shall have received an opinion of
Kirkpatrick & Lockhart LLP, its counsel, addressed to and in form and
substance satisfactory to it, and Target shall have received an
opinion of Stroock & Stroock & Lavan, its counsel, addressed to
and in form and substance satisfactory to it, each as to the
federal income tax treatment of the Reorganization. In rendering its
tax opinion, each 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.
At any time before the Closing, (a) Acquiring Fund may waive any
of the foregoing conditions if, in the judgment of PW
Corporation'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 its board of directors, such waiver will not have a
material adverse effect on the Shareholders' interests.
7. POSTPONEMENT OF CLOSING
7.1. If the difference between the NAVs per share of the
Funds equals or exceeds $.0025 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), either Fund may postpone the
Closing until such time as such per share NAV difference is less
than $.0025.
7.2. If, as of the Valuation Time, Mitchell Hutchins, as
Target's investment adviser, reasonably determines that consummation
of the Reorganization will result in recognition to Target
for federal income tax purposes of gain or loss of $.0010 or more
per share, the Closing shall be postponed until the first date on
which, as of 12:00 noon, Mitchell Hutchins shall determine that
such recognition of gain or loss will be less that $.0010 per
share, in which event 12:00 noon on such date shall be the Valuation
Time, unless the parties otherwise agree.
B-10
<PAGE>
8. BROKERAGE FEES AND EXPENSES
8.1. 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.
8.2. Except as otherwise provided herein, all expenses
incurred in connection with the transactions contemplated by this
Agreement (whether or not they are consummated) will be borne by
the Funds proportionately, as follows: each such expense will be
borne by the Funds in proportion to their respective net assets
as of the close of business on the last business day of the month
in which such expense was incurred. Such expenses include:
(a) expenses incurred in connection with entering into and
carrying out the provisions of this Agreement; (b) expenses
associated with the preparation and filing of the Registration
Statement; (c) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable
state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which Target's
shareholders are resident as of the date of the mailing of the
Proxy Statement to such shareholders; (d) printing and postage
expenses; (e) legal and accounting fees; and (f) solicitation
costs.
9. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or
covenant not set forth herein, and this Agreement constitutes the
entire agreement between the parties. The representations,
warranties, and covenants contained herein or in any document
delivered pursuant hereto or in connection herewith shall survive
the Closing.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to
the Effective Time, whether before or after approval by Target's
shareholders:
10.1. 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 June 30,
1996; or
10.2. By the parties' mutual agreement.
In the event of termination under paragraphs 10.1.(c) or 10.2,
there shall be no liability for damages on the part of either
Fund, or the directors or officers of either Investment Company,
to the other Fund.
11. 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.
12. MISCELLANEOUS
12.1. 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.
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<PAGE>
12.2. Nothing expressed or implied herein is intended or
shall be construed to confer upon or give any person, firm,
trust, or corporation other than the parties and their respective
successors and assigns any rights or remedies under or by reason
of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to
be executed by its duly authorized officer.
ATTEST: PAINEWEBBER RMA MONEY FUND, INC.
on behalf of its series,
PAINEWEBBER RMA MONEY MARKET
PORTFOLIO
By: /s/ Ilene Shore /s/ Dianne E. O'Donnell
------------------- ----------------------------------
Assistant Secretary Vice President
ATTEST: PAINEWEBBER/KIDDER, PEABODY
CASH RESERVE FUND, INC.
By: /s/ Scott H. Griff /s/ Gregory K. Todd
------------------- ----------------------------------
Assistant Secretary Vice President
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