<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1995
SECURITIES ACT FILE NO. 33-14400
INVESTMENT COMPANY ACT FILE NO. 811-5168
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[x]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 9 [x]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 10 [x]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
PAINEWEBBER/KIDDER, PEABODY
CALIFORNIA TAX EXEMPT MONEY FUND
(FORMERLY, 'KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND')
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 713-2000
DIANNE E. O'DONNELL, ESQ.
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
LEWIS G. COLE, ESQ.
STROOCK & STROOCK & LAVAN
7 HANOVER SQUARE
NEW YORK, NEW YORK 10004-2696
------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on December 1, 1995 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates
a new effective date for a previously
filed post-effective amendment.
------------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S FISCAL YEAR ENDED
JULY 31, 1995 WAS FILED ON SEPTEMBER 25, 1995.
________________________________________________________________________________
<PAGE>
<PAGE>
PAINEWEBBER/KIDDER, PEABODY CALIFORNIA
TAX EXEMPT MONEY FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
PART A
ITEM NO. LOCATION
- --------------------- --------------------------------------
<S> <C> <C>
Item 1. Cover Page......................................... Cover Page
Item 2. Synopsis........................................... Fee Table; Highlights
Item 3. Condensed Financial Information.................... Financial Highlights; Yield
Item 4. General Description of Registrant.................. Cover Page; Investment Objective and
Policies
Item 5. Management of the Fund............................. Cover Page; Fee Table; Management of
the Fund; Portfolio Transactions;
Custodian, and Transfer, Dividend
Disbursing and Recordkeeping Agent
Item 5(a). Management's Discussion of Fund's Performance...... Not Applicable
Item 6. Capital Stock and Other Securities................. Cover Page; Shares of the Fund;
Dividends, Distributions and Taxes
Item 7. Purchase of Securities Being Offered............... Cover Page; Fee Table; Determination
of Net Asset Value; Purchase of
Shares; The Distributor; Exchange
Privilege
Item 8. Redemption or Repurchase........................... Redemption of Shares
Item 9. Pending Legal Proceedings.......................... Not Applicable
<CAPTION>
PART B
<S> <C> <C>
Item 10. Cover Page......................................... Cover Page
Item 11. Table of Contents.................................. Cover Page
Item 12. General Information and History.................... Not Applicable
Item 13. Investment Objective and Policies.................. Investment Objective and Policies
Item 14. Management of the Fund............................. Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities....................................... Management of the Fund; Principal
Shareholders
Item 16. Investment Advisory and Other Services............. Investment Advisory and Other Services
Item 17. Brokerage Allocation............................... Portfolio Transactions
Item 18. Capital Stock and Other Securities................. Shares of the Fund
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered.................................... Redemption and Exchange of Shares;
Determination of Net Asset Value
Item 20. Tax Status......................................... Dividends, Distributions and Taxes
Item 21. Underwriters....................................... Not Applicable
Item 22. Calculation of Performance Data.................... Determination of Current and Effective
Yields
Item 23. Financial Statements............................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
<PAGE>
Prospectus December 1, 1995
- --------------------------------------------------------------------------------
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (800) 647-1568
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund (the 'Fund') is a
non-diversified, open-end management investment company. The Fund's objective is
the maximization of current income exempt from Federal and State of California
personal income taxes consistent with the preservation of capital and the
maintenance of liquidity. The Fund attempts to achieve its objective by
investing primarily in short-term California Municipal Obligations. See
'Investment Objective and Policies.' Shares of the Fund are offered exclusively
to existing shareholders and shareholders of other PaineWebber/Kidder, Peabody
money market funds who may exchange their shares for shares of the Fund.
The board of trustees of the Fund has approved a Plan of Reorganization and
Termination ('Reorganization') for submission to the Fund's shareholders, at a
special meeting expected to be held on December 4, 1995. If the proposed
Reorganization is approved and implemented, all of the Fund's assets will be
acquired and its liabilities assumed by PaineWebber RMA California Municipal
Money Fund in a tax-free reorganization. As a result of the Reorganization, the
two funds' assets would be combined and each Fund shareholder would, on the
closing date of the transaction, receive shares of PaineWebber RMA California
Municipal Money Fund having an aggregate value equal to the value of the
shareholder's holdings in the Fund. There can be no assurance that the Fund's
shareholders will approve the Reorganization.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. While the Fund seeks to maintain a stable net asset value of $1.00
per share, there can be no assurance that it will be able to do so.
PaineWebber Incorporated ('PaineWebber'), 1285 Avenue of the Americas, New York,
New York 10019, serves as the Fund's investment adviser, administrator and
distributor. Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), 1285
Avenue of the Americas, New York, New York 10019, a wholly owned subsidiary of
PaineWebber, serves as the Fund's sub-adviser and sub-administrator. See
'Management of the Fund.'
The Fund's Trustees and shareholders have approved a Plan of Distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the 'Plan of
Distribution'), pursuant to which the Fund pays a maximum annual fee of .12% of
its average daily net assets to PaineWebber. See 'The Distributor.'
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund has been filed with the Securities and Exchange Commission (the 'SEC') in a
Statement of Additional Information dated December 1, 1995 which is hereby
incorporated by reference, and is available without charge upon request made to
the Fund at the above address. Shareholder inquiries may be directed to the Fund
at the same address.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
PaineWebber Incorporated
SUB-ADVISER AND SUB-ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE
The purpose of the Fee Table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For more detailed information on these costs and expenses, see
'Management of the Fund' and 'The Distributor.'
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES FOR THE FISCAL YEAR ENDED JULY 31, 1995
(as a percentage of average daily net assets)
Management Fees................................................................. .50%
12b-1 Fees...................................................................... .12
Other Expenses.................................................................. .11
---
Total Fund Operating Expenses.......................................... .73%
---
---
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE* 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A shareholder would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return,
(2) total annual operating expenses as shown in
the fee table set out above and (3) redemption at
the end of each time period...................... $7 $23 $41 $91
----------- ----------- ----------- -----------
</TABLE>
- ------------------
* The amounts shown in the example assume reinvestment of all dividends and
distributions and should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. The assumed
5% annual return is hypothetical and should not be considered a representation
of the Fund's past or future annual return. The actual annual return of the
Fund may be greater or less than the assumed return.
2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------
The Fund The Fund is a non-diversified, open-end, management investment company whose investment
objective is the maximization of current income exempt from Federal and State of California
personal income taxes to the extent consistent with the preservation of capital and the
maintenance of liquidity through investments primarily in short-term debt securities of the
State of California, its political subdivisions, authorities and corporations, the interest
from which is, in the opinion of bond counsel to the issuer, exempt from Federal and State of
California personal income taxes.
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------
Benefits of Mutual funds, such as the Fund, are flexible investment tools that are increasingly
Investing popular -- one of four American households now owns shares of at least one mutual fund -- for
in the very sound reasons. The Fund offers investors the following important benefits:
Fund
Tax Exempt Investing for California Investors
The Fund offers investors the opportunity to receive dividends consisting primarily of income
that is exempt from Federal and California personal income taxation. See 'Investment Objective
and Policies.'
Professional Management
By pooling the monies of many investors, the Fund enables shareholders to obtain the benefits
of full-time professional management and a degree of diversification of investments that is
typically beyond the means of most investors. The Fund's investment adviser reviews the
fundamental characteristics of far more securities than can a typical individual investor and
may employ portfolio management techniques that frequently are not used by individual or many
institutional investors. Additionally, the larger denominations of securities in which the
Fund invests may result in better overall prices for the investments. See 'Investment
Objective and Policies.'
Transaction Savings
By investing in the Fund, a shareholder is able to acquire ownership in a diversified
portfolio of securities without paying the higher transaction costs generally associated with
a series of small securities purchases.
Convenience
Fund shareholders are relieved of the administrative and recordkeeping burdens and
coordination of maturities normally associated with direct ownership of securities.
Quality
All securities in which the Fund invests will be rated in one of the two highest rating
categories for debt obligations by at least two nationally recognized statistical rating
organizations (or one rating organization if the instrument was rated only by one such
organization) or determined to be of comparable quality by the Fund's investment adviser
acting under the supervision of the Trustees if not so rated, and will also be determined to
present minimal credit risks.
</TABLE>
3
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Liquidity
The Fund's convenient purchase and redemption procedures provide shareholders with ready
access to their money and reduce the delays frequently involved in the direct purchase and
sale of securities. See 'Purchase of Shares' and 'Redemption of Shares.'
Exchange Privilege
Shareholders of the Fund may exchange all or a portion of their shares for shares of
specified PaineWebber/Kidder, Peabody money market funds. See 'Exchange Privilege.'
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------
Purchase of The purchase price for shares of the Fund is the net asset value per share next determined
Shares after receipt by the Fund of a purchase order in proper form. Shares of the Fund are offered
exclusively to existing shareholders and shareholders of other PaineWebber/Kidder, Peabody
money market funds who may exchange their shares for shares of the Fund. See 'Purchase of
Shares' and 'Determination of Net Asset Value.'
- ---------------------------------------------------------------------------------------------------------------------------
- --------------------
Redemption of Shares of the Fund may be redeemed at the Fund's net asset value per share next determined
Shares after receipt by the transfer agent of instructions from PaineWebber Incorporated
('PaineWebber'). See 'Redemption of Shares' for a discussion of the various alternative methods
of redeeming shares of the Fund and 'Determination of Net Asset Value.'
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------
Management PaineWebber serves as investment adviser and administrator of the Fund and receives an annual
Services fee of .50% of the Fund's average daily net assets. Mitchell Hutchins Asset Management Inc.
('Mitchell Hutchins') serves as the Fund's sub-adviser and sub-administrator and receives from
PaineWebber (not the Fund) 20% of the fee received by PaineWebber. See 'Management of the
Fund.'
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------
Distributor PaineWebber serves as distributor of the Fund's shares. See 'The Distributor.'
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------
Dividends The Fund declares dividends on each day the New York Stock Exchange is open for business of all
of its daily net income to shareholders of record. See 'Dividends, Distributions and Taxes.'
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------
Risk Factors Investing in an investment company that invests in Municipal Obligations (as defined herein)
involves risks. The value of a Municipal Obligation is dependent on, among other things, the
ability of its issuer to pay interest and repay principal in accordance with the terms of the
instrument. In addition, as a non-diversified fund, the Fund may concentrate investments in
individual issuers to a greater degree than a diversified fund and an investment in the Fund
may under certain circumstances present greater risk to an investor than an investment in a
diversified fund. Further, because the Fund invests primarily in California Municipal
Obligations, the Fund is subject to economic and other factors affecting issuers of those
obligations. See 'Investment Objective and Policies -- Risk Factors -- Investing in California
Municipal Obligations' and ' -- Other Investment Considerations.'
</TABLE>
5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for each of the
periods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Fund's Annual Report to Shareholders for the
fiscal year ended July 31, 1995, which are incorporated by reference into the
Statement of Additional Information. The financial statements and notes, and the
financial information for the fiscal year ended July 31, 1995 appearing in the
table below, have been audited by Ernst & Young LLP, independent auditors, whose
report thereon is included in the Annual Report to Shareholders. The financial
information for the prior fiscal years was audited by other auditors whose
reports thereon were unqualified. Further information about the Fund's
performance is also included in the Annual Report to Shareholders, which may be
obtained without charge.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------
1988`D' 1989 1990 1991 1992 1993 1994 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year.............................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------------
Net investment income............... 0.042 0.054 0.051 0.040 0.028 0.018 0.018 0.028
Dividends from net investment
income............................ (0.042) (0.054) (0.051) (0.040) (0.028) (0.018) (0.018) (0.028)
---------------------------------------------------------------------------------------
Contribution to capital from
predecessor advisor............... -- -- -- -- -- -- -- 0.002
---------------------------------------------------------------------------------------
Net asset value, end of year........ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Total return(1)..................... 4.20%* 5.56% 5.15% 4.11% 2.93% 1.81% 1.81% 2.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands)........................ $147,227 $221,844 $259,101 $202,779 $202,854 $202,443 $182,892 $153,882
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees.............................. .59%* .65% .67% .70% .71% .71% .70% 0.73%
Net investment income............... 4.33%* 5.47% 5.07% 4.06% 2.84% 1.79% 1.80% 2.80%
</TABLE>
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at net asset value on
the payable date, and a sale at net asset value on the last day of each
period reported.
`D' From August 17, 1987 (commencement of investment operations) to July 31,
1988.
* Annualized.
6
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
YIELD
The chart below shows the current and effective yields, calculated in accordance
with rules of the SEC, and the average portfolio maturity for the seven-day
periods ended July 31, 1995 and November 1, 1995.
<TABLE>
<CAPTION>
7/31/94 11/1/94
-------- --------
<S> <C> <C>
Current Yield.......................................................... 3.03% 2.98%
Effective Yield........................................................ 3.07% 3.03%
Average Portfolio Maturity............................................. 54 days 47 days
</TABLE>
From time to time, the Fund advertises its 'current yield' and 'effective
yield.' Both yield figures are based on historical earnings and are not intended
to indicate future performance. The 'current yield' of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then 'annualized.'
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The 'effective yield' is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The 'effective yield' will be slightly higher than the 'current
yield' because of the compounding effect of this assumed reinvestment. The
Statement of Additional Information describes in more detail the methods used to
calculate the yields of the Fund.
Performance data for the Fund may, in reports and promotional literature,
be compared to: (i) other mutual funds tracked by IBC/Donoghue's Money Fund
Report and Lipper Analytical Services, widely used independent research firms
which rank mutual funds by overall performance, investment objective and assets,
or tracked by other services, companies, publications, or persons who rank
mutual funds on overall performance or other criteria; (ii) unmanaged indices so
that investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; and (iii) the Consumer Price Index, an inflation measure.
Promotional and advertising literature also may refer to discussions of the Fund
and comparative mutual fund data and ratings reported in independent
periodicals.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is the maximization of current income
exempt from Federal and State of California personal income taxes consistent
with the preservation of capital and the maintenance of liquidity. The Fund
attempts to achieve its objective by investing primarily in debt securities of
the State of California, its political subdivisions, authorities and
corporations, the interest from which is, in the opinion of bond counsel to the
issuer, exempt from Federal and State of California personal income taxes
(collectively, 'California Municipal Obligations'). To the extent acceptable
California Municipal Obligations are at any time unavailable for investment by
the Fund, the Fund will invest, for temporary defensive purposes, primarily in
other debt securities the interest from which is, in the opinion of bond counsel
to the issuer, exempt from Federal, but not State of California, income tax. The
Fund may not generate as high a level of income as other investment companies
which invest in lower quality or long term securities. The Fund's investment
objective cannot be changed without approval by the holders of a majority of
7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
the Fund's outstanding voting shares, as defined in the Investment Company Act
of 1940, as amended (the 'Act'). There can be no assurance that the Fund's
investment objective will be achieved.
MUNICIPAL OBLIGATIONS
Debt securities, the interest from which is exempt from Federal income tax in
the opinion of bond counsel to the issuer, are referred to as 'Municipal
Obligations.' Municipal Obligations generally include debt obligations issued to
obtain funds for various public purposes as well as certain industrial
development bonds issued by or on behalf of public authorities. Municipal
Obligations are classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax exempt
industrial development bonds, in most cases, are revenue bonds and generally do
not carry the pledge of the credit of the issuing municipality, but generally
are guaranteed by the corporate entity on behalf of which they are issued. Notes
are short-term instruments which are obligations of the issuing municipalities
or agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Municipal Obligations bear
fixed, variable or floating rates of interest.
MANAGEMENT POLICIES
It is a fundamental policy of the Fund that it invest at least 80% of its net
assets in Municipal Obligations and at least 65% of its net assets in California
Municipal Obligations except when maintaining a temporary defensive position.
The remainder of the Fund's net assets may be invested in securities that are
not California Municipal Obligations and, therefore, may be subject to
California state income tax. See 'Risk Factors -- Investing in California
Municipal Obligations' below, and 'Dividends, Distributions and Taxes.'
The Fund may invest more than 25% of the value of its assets in Municipal
Obligations which are related in such a way that an economic, business, or
political development or change affecting one such security also would affect
the other securities; for example, securities the interest upon which is paid
from revenues of similar types of projects.
The Fund also may invest more than 25% of the value of its assets in
industrial development bonds which, although issued by industrial development
authorities, may be backed only by the assets and revenues of the
non-governmental users. Interest on Municipal Obligations (including certain
industrial development bonds) which are specified private activity bonds, as
defined in the Internal Revenue Code of 1986, as amended (the 'Code'), issued
after August 7, 1986, while exempt from Federal income tax, is a preference item
for the purpose of the alternative minimum tax. Where a regulated investment
company receives such interest, a proportionate share of any exempt-interest
dividend paid by the investment company may be treated as such a preference item
to the shareholder. The Fund does not presently intend to purchase any such
private activity bonds but reserves the right to acquire such bonds in the
future. The Fund does not invest more than 20% of its net assets in obligations
the interest from
8
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
which gives rise to a preference item for the purpose of the alternative minimum
tax and, except for temporary defensive purposes, in other investments subject
to Federal income tax.
The Fund may purchase floating and variable rate demand obligations which
are tax exempt obligations that normally have stated maturities in excess of 397
days, but which permit the holder to demand payment of principal at any time or
at specified intervals not exceeding 397 days, in each case upon not more than
30 days' notice. Variable rate demand notes include master demand notes which
are obligations that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rates on these obligations fluctuate
from time to time. Frequently, such obligations are secured by letters of credit
or other credit support arrangements provided by banks. Use of letters of credit
or other support arrangements will not adversely affect the tax exempt status of
these obligations. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary market
for these obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Each obligation purchased
by the Fund will meet the quality criteria established for the purchase of
Municipal Obligations. Mitchell Hutchins, on behalf of the Fund, will consider
on an ongoing basis the creditworthiness of the issuers of the floating and
variable rate demand obligations in the Fund's portfolio. The Fund will not
invest more than 10% of the value of its net assets in floating or variable rate
demand obligations as to which the Fund cannot exercise the demand feature on
not more than seven days' notice if there is no secondary market available for
these obligations, and in other securities that are not readily marketable. See
'Investment Restrictions' below.
The Fund may purchase from financial institutions participation interests
in Municipal Obligations (such as industrial development bonds and municipal
lease/purchase agreements). A participation interest gives the purchaser an
undivided interest in the Municipal Obligations in the proportion that the
purchaser's participation interest bears to the total principal amount of
Municipal Obligations. These instruments may be variable rate or fixed rate with
remaining maturities of 397 days or less. If the participation interest is
unrated, or has been given a rating below that which otherwise is permissible
for purchase by the Fund, the participation interest will be backed by an
irrevocable letter of credit or guarantee of a bank that the Trustees have
determined meets the prescribed quality standards for banks set forth below or
the payment obligation otherwise will be collateralized by U.S. Government
securities or other securities deemed appropriate by the Trustees, or the
underlying Municipal Obligations will be permissible investments for the Fund.
For certain participation interests, the Fund will have the right to demand
payment, upon a specified number of days' notice, for all or any part of the
Fund's participation interest in the Municipal Obligations, plus accrued
interest. As to these instruments, the Fund intends to exercise its right to
demand payment only upon a default under the terms of the Municipal Obligations,
as needed to provide liquidity to meet redemptions, or to maintain a high
quality investment portfolio. The Fund will not invest more than 10% of the
value of its net assets in participation interests that do not have this demand
feature, and in other securities that are not readily marketable.
9
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
The Fund may acquire stand-by commitments with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, the Fund
obligates a dealer to repurchase at the Fund's option specified securities at a
specified price. The exercise of a stand-by commitment, therefore, is subject to
the ability of the seller to make payment on demand. The Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. The Fund may pay
for stand-by commitments if such action is deemed necessary, thus increasing to
a degree the cost of the underlying Municipal Obligation and similarly
decreasing such security's yield to investors.
The Fund may invest, for other than temporary defensive purposes in an
amount not to exceed 20% of its net assets, or without limitation for temporary
defensive purposes, in taxable short-term investments ('Taxable Investments')
consisting of: notes of issuers having, at the time of purchase, a quality
rating within the two highest grades of Moody's Investors Service, Inc.
('Moody's') or Standard & Poor's Ratings Group ('S&P'); obligations of the U.S.
Government, its agencies or instrumentalities; commercial paper rated Prime-1 by
Moody's or A-1 or better by S&P; certificates of deposit of U.S. domestic banks,
including foreign branches of domestic banks, with assets of $1 billion or more;
time deposits; bankers' acceptances and other short-term bank obligations; and
repurchase agreements in respect of any of the foregoing with selected
registered or unregistered securities dealers or banks. Under normal market
conditions, the Fund does not invest more than 5% of its total assets in any one
category of Taxable Investments. Dividends paid by the Fund that are
attributable to income earned from Taxable Investments will be taxable to
shareholders. If the Fund purchases Taxable Investments, it will value them
using the amortized cost method and comply with the provisions of Rule 2a-7
under the Act relating to purchases of taxable instruments. To the extent the
Fund is invested in Taxable Investments, it will not be achieving its objective
of maximizing tax exempt income. See 'Dividends, Distributions and Taxes.'
Taxable Investments are more fully described in the Statement of Additional
Information.
The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing its securities pursuant to Rule 2a-7 under the Act, certain requirements
of which are summarized as follows. In accordance with Rule 2a-7, the Fund is
required to maintain a dollar-weighted average portfolio maturity of 90 days or
less, purchase only instruments having remaining maturities of 397 days or less
and invest only in U.S. dollar denominated securities determined in accordance
with procedures established by the Trustees to present minimal credit risks and
which are rated in one of the two highest rating categories for debt obligations
by at least two nationally recognized statistical rating organizations (or one
rating organization if the instrument was rated only by one such organization)
or, if unrated, are of comparable quality as determined in accordance with
procedures established by the Trustees. The nationally recognized statistical
rating organizations currently rating investments of the type the Fund may
purchase are Moody's and S&P and their rating criteria are described in the
Fund's Statement of Additional Information. For further information regarding
the amortized cost method of valuing securities, see 'Determination of Net Asset
Value' in the Fund's Statement of Additional Information. There can be no
assurance that the Fund will be able to maintain a stable net asset value of
$1.00 per share.
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INVESTMENT RESTRICTIONS
The policies described in this paragraph summarize certain important investment
restrictions of the Fund which can only be changed with the approval of a vote
of a majority of the outstanding voting securities of the Fund, as defined in
the Act. All of the Fund's investment restrictions are set forth in the
Statement of Additional Information. The Fund may (i) borrow money from banks,
but only for temporary or emergency (not leveraging) purposes, in an amount up
to 10% of its total assets (including the amount borrowed) based on the lesser
of cost or market, less liabilities (not including the amount borrowed) at the
time the borrowing is made; (ii) pledge, hypothecate, mortgage or otherwise
encumber its assets, but only in an amount up to 10% of the value of its total
assets to secure borrowings for temporary or emergency purposes; (iii) invest up
to 25% of its assets in the securities of issuers in any single industry,
provided that there is no such limitation on the purchase of Municipal
Obligations or, for temporary defensive purposes, in securities issued by
domestic banks and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (iv) invest up to 10% of its net assets in
repurchase agreements maturing in more than seven days and in securities not
readily marketable (which securities would include floating and variable rate
demand notes as to which the Fund cannot exercise the related demand feature
described above and as to which there is no secondary market); and (v) invest up
to 10% of its net assets in time deposits maturing in two business days through
seven calendar days.
RISK FACTORS -- INVESTING IN CALIFORNIA MUNICIPAL OBLIGATIONS
There are certain risks associated with the Fund's investment in California
Municipal Obligations. These risks result from certain amendments to the
California Constitution and other statutes that limit the taxing and spending
authority of California governmental entities and from the overall financial
condition of the State of California. Since the start of the State's 1990-91
fiscal year, the State has experienced the worst economic, fiscal and budget
conditions since the 1930s. As a result, the State has experienced recurring
budget deficits for four of the five fiscal years ending with 1991-92. The State
had an operating surplus of approximately $109 million in 1992-93 and $917
million in 1993-94. However, at June 30, 1994, according to California's
Department of Finance, the State's Special Fund for Economic Uncertainties had
an accumulated deficit, on a budget basis, of approximately $1.8 billion. A
further consequence of the large budget imbalances has been that the State
depleted its available cash resources and has had to use a series of external
borrowings to meet its cash needs. To meet its cash flow needs in the 1994-95
fiscal year, the State issued, in July and August 1994, $4.0 billion of revenue
anticipation warrants and $3.0 billion of revenue anticipation notes. The
1994-95 Budget Act contains a plan to retire a projected $1.025 billion deficit
in the 1995-96 fiscal year. The Department of Finance projects that, after
repaying the last of the carryover budget deficit, there will be a positive
balance of $28 million in the Special Fund for Economic Uncertainties at June
30, 1996. As a result of the deterioration in the State's budget and cash
situation, between October 1991 and July 1994 the rating on the State's general
obligation bonds was reduced by S&P from AAA to A and by Moody's from Aaa to A.
These and other factors may impair the ability of issuers of California
Municipal Obligations to pay interest and principal on their obligations. See
the Statement of Additional Information for a more complete discussion of such
risks.
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OTHER INVESTMENT CONSIDERATIONS
Even though interest-bearing securities are investments which promise a stable
stream of income, the prices of such securities are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. The values of fixed-income securities also may be affected
by changes in the credit rating or financial condition of the issuing entities.
New issues of Municipal Obligations usually are offered on a when-issued
basis; that is, delivery and payment for such Municipal Obligations ordinarily
take place within 45 days after the date of the commitment to purchase. The
payment obligation and the interest rate that will be received on the Municipal
Obligations are fixed at the time the Fund enters into the commitment. The Fund
will make commitments to purchase such Municipal Obligations only with the
intention of actually acquiring the securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable, although any
gain realized on such sale would be taxable. The Fund will not accrue income in
respect of a when-issued security prior to its stated delivery date. No
additional when-issued commitments will be made if more than 20% of the Fund's
net assets would be so committed.
Municipal Obligations purchased on a when-issued basis and the securities
held in the Fund's portfolio are subject to changes in value (both generally
changing in the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Municipal Obligations purchased on a when-issued basis may
expose the Fund to risk because they may experience such fluctuations prior to
their actual delivery. Purchasing Municipal Obligations on a when-issued basis
can involve a risk that the yields available in the market when the delivery
takes place actually may be higher than those obtained in the transaction
itself. A segregated account of the Fund consisting of cash or liquid debt
securities at least equal to the amount of the when-issued commitments will be
established and maintained at the Fund's custodian bank. Purchasing Municipal
Obligations on a when-issued basis when the Fund is fully or almost fully
invested may result in greater potential fluctuation in the value of the Fund's
net assets and its net asset value per share.
Certain municipal lease/purchase obligations in which the Fund may invest
may contain 'non-appropriation' clauses which provide that the municipality has
no obligation to make lease payments in future years unless money is
appropriated for such purpose on a yearly basis. Although 'non-appropriation'
lease/purchase obligations are secured by the leased property, disposition of
the lease property in the event of foreclosure might prove difficult.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of Municipal Obligations available for purchase by the Fund and thus reduce
available yield. Shareholders should consult their tax advisers concerning the
effect of these provisions on an investment in the Fund. Proposals that may
restrict or eliminate the income tax exemptions for interest on Municipal
Obligations may be introduced in the future. If any such proposal were enacted
that would reduce the availability of Municipal Obligations for investment by
the Fund so as to adversely affect Fund shareholders, the Fund would reevaluate
its investment objective and policies and submit possible changes in the Fund's
structure to shareholders for their consideration. If legislation were enacted
that would treat a
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type of Municipal Obligation as taxable, the Fund would treat such security as a
permissible Taxable Investment within the applicable limits set forth herein.
The Fund's classification as a 'non-diversified' investment company means
that the proportion of the Fund's assets that may be invested in the securities
of a single issuer is not limited by the Act. A 'diversified' investment company
is required by the Act generally to invest, with respect to 75% of its total
assets, not more than 5% of such assets in the securities of a single issuer.
However, the Fund conducts its operations so as to qualify as a 'regulated
investment company' for purposes of the Code, which requires that, at the close
of each quarter of the Fund's taxable year, (i) at least 50% of the market value
of the Fund's total assets be invested in cash, U.S. Government securities, the
securities of other regulated investment companies and other securities with,
for purposes of this calculation, not more than 5% of the Fund's total assets
invested in such other securities of a single issuer; and (ii) not more than 25%
of the Fund's total assets be invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies). Since a relatively high percentage of the Fund's assets
may be invested in the obligations of a limited number of issuers, the Fund's
portfolio securities may be more susceptible to any single economic, political
or regulatory occurrence than the portfolio securities of a diversified
investment company.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of its
Trustees. The day-to-day operations of the Fund are conducted through or under
the direction of its officers. The Statement of Additional Information contains
general background information regarding each Trustee and officer of the Fund.
MANAGEMENT
At a special meeting of shareholders on April 13, 1995, shareholders approved a
new investment advisory and administration agreement with PaineWebber and a new
sub-advisory and sub-administration agreement with Mitchell Hutchins.
PaineWebber and Mitchell Hutchins are located at 1285 Avenue of the Americas,
New York, New York 10019. Mitchell Hutchins is a wholly owned subsidiary of
PaineWebber, which in turn is wholly owned by Paine Webber Group Inc., a
publicly owned financial services holding company. As of October 31, 1995,
PaineWebber or Mitchell Hutchins served as investment adviser or sub-adviser to
38 investment companies with an aggregate of 75 separate portfolios and
aggregate assets of over $29 billion.
The Fund pays the same fee for investment advisory and administration
services to PaineWebber as previously paid to Kidder Peabody Asset Management,
Inc. ('KPAM'), the Fund's predecessor investment adviser and administrator.
PaineWebber (not the Fund) pays Mitchell Hutchins a fee for sub-advisory and
sub-administration services at the annual rate of 20% of the fee received by
PaineWebber from the Fund. PaineWebber and Mitchell Hutchins continue to manage
the Fund in accordance with the Fund's investment objective, policies and
restrictions.
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As compensation for PaineWebber's services, the Fund pays a fee, computed
daily and paid monthly, at an annual rate of .50% of the Fund's average daily
net assets. For the fiscal year ended July 31, 1995, the Fund's total expenses
represented .73% of its average daily net assets.
Mitchell Hutchins manages the Fund's portfolio in accordance with the
stated policies of the Fund, makes investment decisions for the Fund and places
the purchase and sale orders for portfolio transactions. Although investment
decisions for the Fund are made independently from those of the other accounts
managed by Mitchell Hutchins, investments of the type the Fund may make may also
be made by those other accounts. When the Fund and one or more other accounts
managed by Mitchell Hutchins are prepared to invest in, or desire to dispose of,
the same security, available investments or opportunities for sales are
allocated in a manner believed by Mitchell Hutchins to be equitable to each. In
some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund.
Mitchell Hutchins investment personnel may engage in securities
transactions for their own accounts to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
PORTFOLIO TRANSACTIONS
Mitchell Hutchins places the orders for the purchase and sale of the Fund's
portfolio securities. Transactions are allocated to various dealers by Mitchell
Hutchins in its best judgment. The primary consideration is prompt and effective
execution of orders at the most favorable price. Subject to that primary
consideration, dealers may be selected for research, statistical or other
services to enable Mitchell Hutchins to supplement its own research and analysis
with the views and information of other securities firms. No brokerage
commissions have been paid to date.
Investment decisions for the Fund are made independently from those of any
other fund(s) managed by Mitchell Hutchins. If, however, funds managed by
Mitchell Hutchins are simultaneously engaged in the purchase or sale of the same
security, the transactions are averaged as to price and allocated equitably to
each fund. In some cases, this system might adversely affect the price paid or
received by the Fund or the size of the position obtainable for the Fund.
SHARES OF THE FUND
The Fund was organized as a Massachusetts business trust on May 7, 1987 and
commenced operations on August 17, 1987. On January 30, 1995, the name of the
Fund changed from 'Kidder, Peabody California Tax Exempt Money Fund' to
'PaineWebber/Kidder, Peabody California Tax Exempt Money Fund.' The Trustees may
issue an unlimited number of full and fractional shares of beneficial interest
with $.001 par value per share. Upon liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders. Shares have no preemptive or conversion rights and
are fully paid and non-assessable. The shareholders of the Fund are entitled to
a full vote for each full share held and proportionate, fractional votes for
fractional shares held. Meetings of shareholders may be called by the Trustees
in their discretion or upon demand by the holders of at least 10% of the
outstanding shares of the Fund for the purpose of electing or removing Trustees.
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In the interest of economy and convenience, certificates representing the
Fund's shares are not physically issued. Investors Fiduciary Trust Company
('IFTC'), the Fund's custodian, and transfer, dividend disbursing and
recordkeeping agent, maintains a record of each shareholder's ownership. Each
shareholder receives confirmation of orders from PaineWebber. Fund shares and
any dividends paid by the Fund are reflected in statements from PaineWebber.
The Declaration of Trust (the 'Declaration') establishing the Fund refers
to the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Fund shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of the Fund but the Trust Estate only
shall be liable. For more information on the Fund's shares and organization as a
Massachusetts business trust, see the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund declares dividends of all of its daily net investment income on each
day the New York Stock Exchange (the 'NYSE') is open for business. Dividends are
paid monthly and are automatically reinvested in additional Fund shares at net
asset value or, at the shareholder's option, paid in cash. The Fund's earnings
for Saturdays, Sundays and holidays are declared as dividends on the preceding
business day. The amount of the dividend may fluctuate and may be omitted on
some days if net realized losses on portfolio securities exceed the Fund's net
investment income. If a shareholder redeems all of his shares at any time during
the month, all dividends to which the shareholder is entitled are paid to him
together with the proceeds of the redemption. Distributions of net realized
securities gains, if any, are paid once a year, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the Act. A shareholder may choose whether to receive distributions
in cash or to reinvest in additional Fund shares at net asset value.
The Fund qualified as a regulated investment company under the Code for the
fiscal year ended July 31, 1995, and plans to continue to so qualify as long as
the Fund determines that such qualification is in the best interest of its
shareholders. Such qualification relieves the Fund of any liability for Federal
income tax to the extent its income is distributed to shareholders in accordance
with applicable provisions of the Code. Regulated investment companies, such as
the Fund, are subject to a non-deductible 4% excise tax, measured with respect
to certain undistributed amounts of taxable investment income and capital gains.
Except for dividends from Taxable Investments, the Fund anticipates that
all dividends paid by it will not be subject to Federal income tax and that
substantially all dividends paid by the Fund will not be subject to State of
California personal income tax (but may be subject to California corporation
franchise tax). To the extent that a shareholder is obligated to pay state or
local taxes outside of California, dividends earned by an investment in the Fund
may represent taxable income. Dividends derived from Taxable Investments,
together with distributions from any net realized short-term securities gains of
the Fund and gains from the sale or other disposition of certain market discount
bonds, are subject to Federal income tax as ordinary income, whether or not
reinvested. Distributions from net realized long-term securities gains of the
Fund generally are subject to Federal income tax as long-term capital gains for
shareholders
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who are citizens or residents of the United States. The Code provides that the
net capital gain of an individual generally will not be subject to Federal
income tax at a rate in excess of 28%. No dividend paid by the Fund will qualify
for the dividends-received deduction allowable to certain U.S. corporations.
Under the Code, interest on indebtedness incurred or continued to purchase
or carry shares of the Fund which is deemed to relate to tax exempt dividends
will not be deductible. Depending on the circumstances, the Internal Revenue
Service ('IRS') may consider Fund shares to have been purchased or carried with
borrowed funds even though the shares are not directly traceable to the borrowed
funds.
Although all or a substantial portion of the dividends paid by the Fund may
be excluded by shareholders of the Fund from their gross income for Federal
income tax purposes, the Fund may purchase specified private activity bonds, the
interest from which may be (i) a preference item for purposes of the alternative
minimum tax, (ii) a component of the 'adjusted current earnings' preference item
for purposes of the corporate alternative minimum tax as well as a component in
computing the corporate environmental tax or (iii) a factor in determining the
extent to which a shareholder's Social Security benefits are taxable. If the
Fund purchases such securities, the portion of the Fund's dividends related
thereto will not necessarily be tax exempt to an investor who is subject to the
alternative minimum tax and/or tax on Social Security benefits and may cause an
investor to be subject to such taxes.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
taxable dividends and distributions from net realized securities gains of the
Fund paid to a shareholder ('backup withholding') if such shareholder fails to
certify either that the Taxpayer Identification Number, furnished in connection
with opening an account, is correct, or that such shareholder has not received
notice from the IRS of being subject to backup withholding as a result of a
failure to properly report taxable dividend or interest income on a Federal
income tax return. Furthermore, the Fund may be notified by the IRS to institute
backup withholding if the IRS determines a shareholder's Taxpayer Identification
Number is incorrect or if a shareholder has failed to properly report taxable
dividend and interest income on a Federal income tax return.
A Taxpayer Identification Number is either the Social Security number or
employer identification number of the record owner of the account. Any tax
withheld as a result of backup withholding does not constitute an additional tax
imposed on the record owner of the account, and may be claimed as a credit on
the record owner's Federal income tax return.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Shareholders are urged to consult their own
tax advisers regarding specific questions as to Federal, state or local taxes.
DETERMINATION OF NET ASSET VALUE
Net asset value is determined daily at 12:00 noon, Eastern time, Monday through
Friday, except that net asset value is not computed on any day when no orders to
purchase, sell, exchange or redeem Fund shares have been received, when there is
not sufficient trading in the Fund's portfolio securities that the Fund's net
asset value per share might be materially affected by changes in the value of
such portfolio securities or when the NYSE is not open for trading. The
determination of net asset value is made by subtracting from the value of the
assets of the Fund the amount of its liabilities and dividing the remainder by
the number of outstanding shares of
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the Fund. Expenses and fees of the Fund, including PaineWebber's fee, are
accrued daily and taken into account for the purpose of determining net asset
value.
The Fund attempts to maintain a net asset value of $1.00 per share for
purchases and redemptions, although there can be no assurance that the Fund will
always be able to do so. In order to effectuate this policy, the Fund may, under
certain circumstances, consider the sale of portfolio instruments prior to
maturity to realize capital gains or losses, withhold dividends, make
distributions from capital or capital gains, or reduce the number of outstanding
shares of the Fund held by a shareholder. The Fund determines the value of its
portfolio securities by the amortized cost method of valuation which involves
valuing a security at its cost at the time of purchase and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
Additional information concerning the amortized cost method of valuation and
certain conditions imposed upon its use is contained in the Statement of
Additional Information.
PURCHASE OF SHARES
GENERAL INFORMATION
PaineWebber serves as the Fund's distributor. Shares of the Fund are offered
exclusively to existing shareholders and must be maintained through a brokerage
account with PaineWebber (an 'Account').
Shares are sold on a continuous basis at their net asset value next
determined after an order and good funds (e.g., cash, Federal funds or certified
checks drawn on a United States bank) are received. If an investor does not have
a sufficient credit balance in his Account, payment for shares must be converted
into Federal funds before an order to purchase is effective. Purchase orders
received before 12:00 noon, Eastern time, for which payment has been received by
PaineWebber will be executed at that time and the shareholder will receive the
dividend declared on that day. Purchase orders received after 12:00 noon,
Eastern time, and purchase orders received earlier in the same day for which
payment has not been received by 12:00 noon, Eastern time, will be executed at
the close of regular trading on the New York Stock Exchange, if payment has been
received by PaineWebber by that time, and the shareholder will receive the
dividend declared on the following day.
Credit balances of $1 or more in a PaineWebber Resource Management Account
('RMA') or PaineWebber Business Services Account ('BSA') will be swept
automatically into shares of the Fund daily. Credit balances for non-RMA and
non-BSA accounts from $1 to $4,999 will be swept as of the close of business
each Friday for settlement on the next business day and credit balances of
$5,000 or more will be swept daily for settlement on the next business day. The
Fund reserves the right at any time to impose minimum initial and subsequent
purchase amounts.
PURCHASES WITH FUNDS HELD AT PAINEWEBBER
All deposits to a brokerage account and any free credit cash balances that may
arise in a brokerage account will be automatically invested in shares of the
Fund, according to sweep rules described above, provided that Federal funds are
available for the investment. Federal funds normally are available for cash
balances arising from the sale of securities held in a brokerage account on the
business day following settlement, but in some cases can take longer.
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PURCHASES BY WIRE
Shares of the Fund may also be purchased by transferring Federal funds by wire
to a PaineWebber brokerage account. Wire transfers should be directed to: Bank
of New York, ABA 021000018, PaineWebber Inc., for RMAs/BSAs A/C 890-0114-088 and
for all other accounts A/C 890-0114-096 OBI-FBO [Account Name]/[Brokerage
Account Number]. The wire must include the investor's name and PaineWebber
brokerage account number. Participants wishing to transfer Federal funds into
their accounts should contact their PaineWebber investment executives or
correspondent firms to determine the appropriate wire instructions.
To the extent that the amounts transferred by wire create a cash balance in
an investor's account, that cash balance will be automatically invested in the
Fund, as described above under 'Purchases with Funds Held at PaineWebber.'
Participants wishing to invest amounts transferred by wire in the Fund should so
instruct their PaineWebber investment executives or correspondent firms.
If PaineWebber receives a notice from an investor's bank or a wire transfer
of Federal funds by 12:00 noon, Eastern time, on a business day, the automatic
investment will be executed on that business day. Otherwise, the automatic
investment will be executed at 12:00 noon, Eastern time, on the next business
day. PaineWebber and/or an investor's bank may impose a service charge for wire
transfers.
REDEMPTION OF SHARES
A shareholder may redeem shares on any day that net asset value is determined by
following the procedures set forth below.
REDEMPTION THROUGH PAINEWEBBER
PaineWebber wires the terms of any redemption request properly received to PFPC
Inc. The price at which a redemption request is executed is the net asset value
per share next determined after proper redemption instructions are received.
Payment for redemption orders, if any, that are received before 12:00 noon,
Eastern time, normally is made on the same business day. Shares redeemed in this
manner will not be entitled to the dividend declared on the day of redemption.
Payment for redemption orders, that are received at or after 12:00 noon, Eastern
time, will be made on the next business day following the redemption. Shares
redeemed in this manner are entitled to the dividend declared on the day of
redemption. Proceeds of a redemption generally are credited to the shareholder's
Account, or sent to the shareholder, as applicable.
REDEMPTION BY MAIL
Shares may also be redeemed by submitting a written request in 'good order' to
PFPC Inc. at the following address:
PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19899
Attn: PaineWebber Mutual Funds
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Redemption requests received by PFPC Inc. by mail are processed by PFPC
Inc. which will mail a check in the appropriate redemption amount to the
shareholder the next business day after receipt of a redemption request in 'good
order.'
A redemption request is considered to have been received in 'good order' if
the following conditions are satisfied:
(1) the request is in writing, states the number of shares to be
redeemed and identifies the shareholder's Fund account number;
(2) the request is signed by each registered owner exactly as the
shares are registered; and
(3) the signatures on the written redemption request have been
guaranteed by a bank, broker-dealer, municipal securities broker or dealer,
government securities broker or dealer, credit union, a member firm of a
national securities exchange, registered securities association or clearing
agency, or savings association (the purpose of a signature guarantee is to
protect shareholders against the possibility of fraud.) The transfer agent
may reject redemption instructions if the guarantor is neither a member of
nor a participant in a signature guarantee program (currently known as
'STAMP'sm'').
Additional supporting documents may be required for redemptions by
corporations, executors, administrators, trustees and guardians.
GENERAL REDEMPTION POLICIES
Signature guarantees (as described above) are required in connection with any
redemption of shares by mail and share ownership transfer requests. These
requirements may be waived by the Fund in certain instances.
If the shares to be redeemed represent an investment for which the Fund has
not yet received good funds, the Fund reserves the right not to honor the
redemption request until such time as it has assured itself that good funds have
been collected, which may take 15 or more business days. If purchases are made
with good funds, no redemption delay would occur.
Due to the relatively high cost of maintaining a Fund account, the Fund
reserves the right to redeem, upon not less than 60 days' notice, any Fund
account reduced by a shareholder to a value of $500 or less.
PaineWebber has established procedures pursuant to which shares of the Fund
held by a client having a deficiency (i.e., amount owed to PaineWebber resulting
from Account activity or otherwise and other amounts authorized by the client to
be paid to others from the Account, less the amount of any free credit cash
balance) in his Account will be redeemed automatically to the extent of that
deficiency, unless the client notifies PaineWebber to the contrary in advance.
The amount of the redemption will be the lesser of (a) the total net asset value
of Fund shares held in the client's Account or (b) the deficiency in the
client's Account at the close of business on the redemption day adjusted for
purchase and sale transactions in other securities settling on the following
business day. Accordingly, a client who has previously consented to this
automatic redemption procedure and who wishes to pay for a securities
transaction other than through such automatic redemption procedure must do so
not later than the day before the settlement date for that transaction.
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THE DISTRIBUTOR
PaineWebber acts as distributor of the Fund's shares pursuant to a Distribution
Agreement dated January 30, 1995. To reimburse PaineWebber for the services it
provides and for the expenses it bears under the Distribution Agreement, the
Fund has adopted the Plan of Distribution. Trustees and shareholders of the Fund
approved the Plan of Distribution on July 28, 1988 and November 16, 1988,
respectively, which was most recently amended on December 16, 1994.
The Plan of Distribution provides that the Fund reimburse PaineWebber for
the expenses incurred by it in connection with the distribution of the Fund's
shares at the annual rate of up to .12% of the Fund's average daily net assets.
The expenses which may be reimbursed include compensation to investment
executives and other employees of PaineWebber, printing of prospectuses and
reports for other than existing shareholders, and the preparation, printing and
distribution of sales literature and advertising materials. It is not
anticipated that items reimbursable under the Plan of Distribution generally
will include any profit to PaineWebber. The Fund is not authorized to reimburse
PaineWebber for expenses incurred more than 12 months prior to the date of such
reimbursement. PaineWebber anticipates that there will be no carryover of
expenses from one year to the next. The expenses to be reimbursed are for
activities primarily intended to result in the sale of Fund shares and the
maintenance of Fund accounts and account balances, and there will be no
reimbursement for expenses related to PaineWebber's overhead. PaineWebber
currently intends that .10% per annum of the Fund's average daily net assets
will be paid to its investment executives proportionately in respect of Fund
share balances maintained by their respective clients. For the fiscal year ended
July 31, 1995, the Fund reimbursed PaineWebber an amount equal to .12% of the
Fund's average daily net assets.
The Plan of Distribution remains in effect for as long as such continuance
is approved annually by vote of the Trustees, including a majority of those
Trustees who are not interested persons and who have no direct or indirect
financial interest in the Plan of Distribution, cast in person at a meeting
called for such purpose. The Plan of Distribution may not be amended to increase
materially the amount to be spent for the services described therein without
approval of the shareholders of the Fund, and all material amendments of the
Plan must also be approved by the Trustees in the manner described above. The
Plan of Distribution may be terminated at any time, without payment of any
penalty, by vote of a majority of the Trustees as described above, or by vote by
the holders of a majority of the outstanding voting securities of the Fund, as
defined in the Act, on not more than 30 days' written notice to any other party
to the Plan of Distribution. So long as the Plan of Distribution is in effect,
the election and nomination of Trustees who are not interested persons of the
Fund shall be committed to the discretion of the Trustees who are not interested
persons. The Trustees have determined that, in their judgment, there is a
reasonable likelihood that the Plan of Distribution will continue to benefit the
Fund and its shareholders.
Pursuant to the Plan of Distribution, PaineWebber provides the Fund's
Trustees, at least quarterly, with a written report of the amounts expended
under the Plan of Distribution. The report includes an itemization of the
distribution expenses incurred by PaineWebber on behalf of the Fund and the
purpose of such expenditures. In their quarterly review of the Plan of
Distribution, the Trustees consider its continued appropriateness and the level
of compensation provided therein. For the fiscal year ended July 31, 1995,
PaineWebber incurred distribution expenses of approximately $ , of which
approximately $188,983 was recovered in the form of reimbursements made by the
Fund to PaineWebber at the rate provided in the Plan of Distribution.
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EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of certain other
PaineWebber/Kidder, Peabody funds, to the extent such shares are offered for
sale in the shareholder's state of residence. For a list of the
PaineWebber/Kidder, Peabody funds for which shares may be exchanged and for a
description of each of those funds, please see 'Redemption and Exchange of
Shares' in the Statement of Additional Information.
Although the Fund currently imposes no limit on the number of times the
Exchange Privilege may be exercised by any shareholder, the Fund may impose such
limits in the future, in accordance with applicable provisions of the Act and
rules thereunder. In addition, the Exchange Privilege may be terminated or
revised at any time upon 60 days' prior written notice to Fund shareholders, and
is available only to residents of states in which exchanges are permitted under
state law. The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by the
shareholder, so that a shareholder may recognize a taxable gain or loss on an
exchange.
Upon receipt of proper instructions and all necessary supporting documents,
Fund shares submitted for exchange will be redeemed at their net asset value
next determined and simultaneously invested in shares of the fund being
acquired. Settlement of an exchange would occur one business day after the date
on which the request for exchange was received in proper form, unless the dollar
amount of the transaction exceeds 5% of the Fund's net assets on any given day,
in which case settlement would occur within five business days after the date on
which the request for exchange was received in proper form. The proceeds of a
redemption of Fund shares made to facilitate the exchange of those shares for
shares of another fund must be equal to at least (1) the minimum initial
investment requirement imposed by the fund into which the exchange is being
sought if the shareholder seeking the exchange has not previously invested in
that fund or (2) the minimum subsequent investment requirement imposed by the
fund into which the exchange is being sought if the shareholder has previously
made an investment in that fund.
A shareholder of the Fund wishing to exercise the Exchange Privilege should
obtain from PaineWebber a copy of the current prospectus of the fund into which
an exchange is being sought and review that prospectus carefully before making
the exchange. PaineWebber reserves the right to reject any exchange request at
any time.
CUSTODIAN, AND TRANSFER, DIVIDEND DISBURSING AND
RECORDKEEPING AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the Fund's custodian, and transfer, dividend disbursing and
recordkeeping agent.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-2696, is
counsel for the Fund. Ernst & Young LLP, located at 787 Seventh Avenue, New
York, New York 10019, serves as the Fund's independent auditors. For the fiscal
year ended July 31, 1994, and prior thereto, the Fund's independent auditors
were Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281.
21
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No person has been authorized to give any information or to make any
representations not contained in this Prospectus or in the Statement
of Additional Information incorporated into this Prospectus by
reference in connection with the offering made by this Prospectus,
and, if given or made, any such other information or representations
must not be relied upon as having been authorized by the Fund or its
distributor. This Prospectus does not constitute an offering by the
Fund or by its distributor in any jurisdiction in which such
offering may not lawfully be made.
<TABLE>
<S> <C>
- ------------------------------------
Contents
- ------------------------------------
Fee Table 2
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Highlights 3
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Financial Highlights 6
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Yield 7
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Investment Objective and Policies 7
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Management of the Fund 13
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Portfolio Transactions 14
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Shares of the Fund 14
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Dividends, Distributions and Taxes 15
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Determination of Net Asset Value 16
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Purchase of Shares 17
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Redemption of Shares 18
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The Distributor 20
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Exchange Privilege 21
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Custodian, and Transfer,
Dividend Disbursing and
Recordkeeping Agent 21
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Counsel and Independent Auditors 21
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</TABLE>
PaineWebber/
Kidder,
Peabody
California
Tax
Exempt
Money
Fund
Prospectus
December 1, 1995
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<PAGE>
Statement of Additional Information December 1, 1995
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PaineWebber/Kidder, Peabody
California Tax Exempt Money Fund
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (800) 647-1568
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund (the 'Fund') is a
non-diversified, open-end management investment company whose investment
objective is the maximization of current income exempt from Federal and State of
California personal income taxes consistent with the preservation of capital and
the maintenance of liquidity. The Fund attempts to achieve its objective by
investing primarily in short-term California Municipal Obligations.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Fund's Prospectus. A copy of the Fund's Prospectus can
be obtained from the Fund at the above address. The date of the Prospectus to
which this Statement relates is December 1, 1995.
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INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
PaineWebber Incorporated
SUB-ADVISER AND SUB-ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
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INVESTMENT OBJECTIVE AND POLICIES
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus entitled 'Investment Objective and Policies.'
MUNICIPAL OBLIGATIONS
Municipal Obligations generally include debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, sports
facilities, convention or trade show facilities, airport, mass transit,
industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity, or
sewage or solid waste disposal; the interest paid on such obligations may be
exempt from Federal income tax, although current tax laws place substantial
limitations on the size of such issues. Such obligations are considered to be
Municipal Obligations, if the interest paid thereon qualifies as exempt from
Federal income tax in the opinion of bond counsel to the issuer. There are, of
course, variations in Municipal Obligations, both within a particular
classification and between classifications.
Floating and variable rate demand obligations are tax exempt obligations
which may have a stated maturity in excess of 397 days, but which permit the
holder to demand payment of principal upon a specified number of days' notice.
The issuer of such obligations ordinarily has a corresponding right, after a
given period, to prepay in its discretion the outstanding principal amount of
the obligation plus accrued interest upon a specified number of days' notice to
the noteholders. The interest rate on a floating rate demand obligation is based
on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable
rate demand obligation is adjusted at specified intervals. Because floating and
variable rate demand obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there is no established secondary market for these obligations,
although they are redeemable (and thus immediately repayable by the borrower) at
face value, plus accrued interest, at any time. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Each obligation purchased by
the Fund will meet the quality criteria established for the purchase of
Municipal Obligations.
The yields on Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the municipal market, size of a particular offering, maturity of
the obligation and rating of the issue. The imposition of the Fund's management
and investment advisory fee, as well as other operating
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expenses, including fees paid under its Plan of Distribution pursuant to Rule
12b-1 (the 'Plan of Distribution'), has the effect of reducing the yield to
shareholders.
Municipal lease obligations or installment purchase contract obligations
(collectively, 'lease obligations') have special risks not normally associated
with Municipal Obligations. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation ordinarily is backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain 'non-appropriation' clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Although 'non-appropriation' leased obligations are secured
by the leased property, disposition of the property in the event of foreclosure
might prove difficult. The Fund will seek to minimize these risks by investing
only in those lease obligations that (1) are rated in one of the two highest
rating categories for debt obligations by at least two nationally recognized
statistical rating organizations (or one rating organization if the lease
obligation was rated only by one such organization) or (2) if unrated, are
purchased principally from the issuer or domestic banks or other responsible
third parties, in each case only if the seller shall have entered into an
agreement with the Fund providing that the seller or other responsible third
party will either remarket or repurchase the lease obligation within a short
period after demand by the Fund. The staff of the Securities and Exchange
Commission (the 'SEC') currently considers certain lease obligations to be
illiquid. Accordingly, the Trustees have established guidelines to be used by
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins') in determining the
liquidity of municipal lease obligations. In addition, the Fund will invest no
more than 10% of the value of its net assets in lease obligations that are
illiquid and in other illiquid securities. See 'Investment Restriction No. 7'
below.
RATINGS OF MUNICIPAL OBLIGATIONS
If, subsequent to its purchase by the Fund, (a) an issue of rated Municipal
Obligations ceases to be rated in the highest rating category by at least two
rating organizations (or one rating organization if the instrument was rated by
only one such organization), or the Fund's Trustees determine that it is no
longer of comparable quality; or (b) Mitchell Hutchins becomes aware that any
portfolio security not so highly rated or any unrated security has been given a
rating by any rating organization below the rating organization's second highest
rating category, the Fund's Trustees will reassess promptly whether such
security presents minimal credit risk and will cause the Fund to take such
action as it determines is in the best interest of the Fund and its
shareholders, provided that the reassessment required by clause (b) is not
required if the portfolio security is disposed of or matures within five
business days of Mitchell Hutchins becoming aware of the new rating and the
Fund's Trustees are subsequently notified of Mitchell Hutchins' actions.
To the extent that the ratings given by Moody's Investors Service, Inc.
('Moody's') or Standard & Poor's Ratings Group ('S&P') for Municipal Obligations
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for its investments
in accordance with the investment policies contained in
3
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the Fund's Prospectus and this Statement of Additional Information. The ratings
of Moody's and S&P represent their opinions as to the quality of the Municipal
Obligations which they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
securities, Mitchell Hutchins also will evaluate these securities and the
creditworthiness of the issuers of such securities. See 'Ratings of Securities.'
TAXABLE INVESTMENTS
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include a variety of U.S. Treasury securities which differ in
their interest rates, maturities and times of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
greater than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, such as Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. These
securities bear fixed, floating or variable rates of interest. Interest may
fluctuate based on generally recognized reference rates or the relationship of
rates. While the U.S. Government provides financial support to such U.S.
Government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Fund invests
in such securities only when it is satisfied that the credit risk with respect
to the issuer is minimal.
Commercial paper consists of short-term unsecured promissory notes issued
to finance short-term credit needs.
Certificates of deposit are certificates representing the obligation of a
bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Investments in time deposits generally are limited to London branches of
domestic banks that have total assets in excess of $1 billion. Time deposits
which may be held by the Fund will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. Other short-term bank obligations may include
uninsured, direct obligations bearing fixed, floating or variable rates of
interest.
Repurchase agreements involve the acquisition by the Fund of an underlying
debt instrument for a relatively short period (usually not more than one week),
subject to an
4
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obligation of the seller to repurchase, and the Fund to resell, the instrument
at a fixed price. The Fund's custodian will have custody of, and will hold in a
segregated account, securities acquired by the Fund under a repurchase
agreement. Repurchase agreements are considered by the staff of the SEC to be
loans by the Fund. The Fund enters into repurchase agreements only with selected
registered or unregistered securities dealers or banks and requires that
additional securities be deposited with it if the value of the securities
purchased should decrease below resale price. Mitchell Hutchins will consider on
an ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. Certain costs may be incurred by the Fund in
connection with the sale of the securities if the seller does not repurchase
them in accordance with the repurchase agreement. Mitchell Hutchins considers on
an ongoing basis the creditworthiness of the institutions with which it enters
into repurchase agreements.
RISK FACTORS -- INVESTING IN CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California (the 'State') constitutional amendments, legislative
measures, executive orders, civil actions and voter initiatives, as well as the
general financial condition of the State, could adversely affect the ability of
issuers of California Municipal Obligations to pay interest and principal on
such obligations. The following information constitutes only a brief summary,
does not purport to be a complete description, and is based on information drawn
from official statements relating to securities offerings of the State and
various local agencies, available as of the date of this Statement of Additional
Information. While the Fund has not independently verified such information, it
has no reason to believe that such information is not correct in all material
respects.
RECENT DEVELOPMENTS. From mid-1990 to late 1993, the State suffered a
recession with the worst economic, fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially aerospace), exports and financial
services, among others, were all severely affected. Job losses were the worst of
any post-war recession. Unemployment reached 10.1% in January 1994, but fell
sharply to 7.7% in October and November 1994. According to the State's
Department of Finance, recovery from the recession in California began in 1994.
The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund -- K-12 schools
and community colleges, health and welfare, and corrections -- growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State has experienced recurring budget deficits in the
late 1980s and early 1990s. The Controller reported that expenditures exceeded
revenues for four of the five fiscal years ending with 1991-92. The State had an
operating surplus of approximately $109 million in 1992-93 and $917 million in
1993-94. However, at June 30, 1994, according to the Department of Finance, the
State's Special Fund for Economic Uncertainties had a deficit, on a budget
basis, of approximately $1.8 billion.
A further consequence of the large budget imbalances over the last three
fiscal years has been that the State depleted its available cash resources and
has had to use a series of external borrowings to meet its cash needs. To meet
its cash flow needs in the 1994-95 fiscal year, the State
5
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issued, in July and August 1994, $4.0 billion of revenue anticipation warrants
which mature on April 25, 1996, and $3.0 billion of revenue anticipation notes
which matured on June 28, 1995.
The 1994-95 Fiscal Year Budget (as updated in the January 10, 1995
Governor's Budget) is projected to have $41.9 billion of General Fund revenues
and transfers and $40.9 billion of budgeted expenditures. In addition, the
1994-95 Budget Act anticipates deferring retirement of about $1 billion of the
accumulated budget deficit to the 1995-96 fiscal year when it is intended to be
fully retired by June 30, 1996.
As a result of the deterioration in the State's budget and cash situation,
the rating agencies reduced the State's credit ratings. Between October 1991 and
July 1994 the rating on the State's general obligation bonds was reduced by S&P
from 'AAA' to 'A,' by Moody's from 'Aaa' to 'A1' and by Fitch from 'AAA' to 'A.'
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8 on
the Richter Scale struck Los Angeles causing significant damage to public and
private structures and facilities. Although some individuals and businesses
suffered losses totaling in the billions of dollars, the overall effect of the
earthquake on the regional and State economy is not expected to be serious.
On December 6, 1994, Orange County, California (the 'County'), together
with its pooled investment funds (the 'Pools') filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Pools had
suffered significant market losses in their investments, causing a liquidity
crisis for the Pools and the County. More than 180 other public entities, most
of which, but not all, are located in the County, were also depositors in the
Pools. The County has reported the Pools' loss at about $1.69 billion, or about
23 percent of their initial deposits of approximately $7.5 billion. Many of the
entities which deposited moneys in the Pools, including the County, faced
interim and/or extended cash flow difficulties because of the bankruptcy filing
and may be required to reduce programs or capital projects.
The State has no existing obligation with respect to any outstanding
obligations or securities of the County or any of the other participating
entities.
STATE FINANCES. State moneys are segregated into the General Fund and
approximately 600 Special Funds. The General Fund consists of the revenues
received into the State Treasury and earnings from State investments, which are
not required by law to be credited to any other fund. The General Fund is the
principal operating fund for the majority of governmental activities and is the
depository of most major State revenue sources.
The Special Fund for Economic Uncertainties is funded with General Fund
revenues and was established to protect the State from unforeseen reduced levels
of revenues and/or unanticipated expenditure increases. Amounts in the Special
Fund for Economic Uncertainties may be transferred by the Controller as
necessary to meet cash needs of the General Fund. The Controller is required to
return monies so transferred without payment of interest as soon as there are
sufficient monies in the General Fund. For budgeting and accounting purposes,
any appropriation made from the Special Fund for Economic Uncertainties is
deemed an appropriation from the General Fund. For year-end reporting purposes,
the Controller is required to add the balance in the Special Fund for Economic
Uncertainties to the balance in the General Fund so as to show the total monies
then available for General Fund purposes.
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Inter-fund borrowing has been used for many years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June 30,
1994, the General Fund had outstanding loans in the aggregate principal amount
of $5.2 billion, which consisted of $4.0 billion of internal loans to the
General Fund from the Special Fund for Economic Uncertainties and other Special
Funds and $1.2 billion of external loans represented by the 1994 revenue
anticipation warrants.
ARTICLES XIIIA AND XIIIB TO THE STATE CONSTITUTION AND OTHER REVENUE LAW
CHANGES. Prior to 1977, revenues of the State government experienced significant
growth primarily as a result of inflation and continuous expansion of the tax
base of the State. In 1978, State voters approved an amendment to the State
Constitution known as Proposition 13, which added Article XIIIA to the State
Constitution, reducing ad valorem local property taxes by more than 50%. In
addition, Article XIIIA provides that additional taxes may be levied by cities,
counties and special districts only upon approval of not less than a two-thirds
vote of the 'qualified electors' of such district, and requires not less than a
two-thirds vote of each of the two houses of the State Legislature to enact any
changes in State taxes for the purpose of increasing revenues, whether by
increased rate or changes in methods of computation.
Primarily as a result of the reductions in local property tax revenues
received by local governments following the passage of Proposition 13, the
Legislature undertook to provide assistance to such governments by substantially
increasing expenditures from the General Fund for that purpose beginning in the
1978-79 fiscal year. In recent years, in addition to such increased
expenditures, the indexing of personal income tax rates (to adjust such rates
for the effects of inflation), the elimination of certain inheritance and gift
taxes and the increase of exemption levels for certain other such taxes had a
moderating impact on the growth in State revenues. In addition, the State has
increased expenditures by providing a variety of tax credits, including renters'
and senior citizens' credits and energy credits.
The State is subject to an annual 'appropriations limit' imposed by Article
XIIIB of the State Constitution adopted in 1979. Article XIIIB prohibits the
State from spending 'appropriations subject to limitation' in excess of the
appropriations limit imposed. 'Appropriations subject to limitations' are
authorizations to spend 'proceeds of taxes,' which consist of tax revenues, and
certain other funds, including proceeds from regulatory licenses, user charges
or other fees to the extent that such proceeds exceed 'the cost reasonably borne
by such entity in providing the regulation, product or service.' One of the
exclusions from these limitations is 'debt service' (defined as 'appropriations
required to pay the cost of interest and redemption charges, including the
funding of any reserve or sinking fund required in connection therewith, on
indebtedness existing or legally authorized as of January 1, 1979 or on bonded
indebtedness thereafter approved' by voters). In addition, appropriations
required to comply with mandates of courts or the Federal government and,
pursuant to Proposition 111 enacted in June 1990, appropriations for qualified
capital outlay projects and appropriations of revenues derived from any increase
in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels are
not included as appropriations subject to limitation. In addition, a number of
recent initiatives were structured or proposed to create new tax revenues
dedicated to certain specific uses, with such new taxes expressly exempted from
the Article XIIIB limits (e.g., increased cigarette and tobacco taxes enacted by
Proposition 99 in 1988). The appropriations limit also may be exceeded in cases
7
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of emergency. However, unless the emergency arises from civil disturbance or
natural disaster declared by the Governor, and the appropriations are approved
by two-thirds of the Legislature, the appropriations limit for the next three
years must be reduced by the amount of the excess.
The State's appropriations limit in each year is based on the limit for the
prior year, adjusted annually for changes in California per capita personal
income and changes in population, and adjusted, when applicable, for any
transfer of financial responsibility of providing services to or from another
unit of government. The measurement of change in population is a blended average
of statewide overall population growth, and change in attendance at local school
and community college ('K-14') districts. As amended by Proposition 111, the
appropriations limit is tested over consecutive two-year periods. Any excess of
the aggregate 'proceeds of taxes' received over such two-year period above the
combined appropriations limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.
As originally enacted in 1979, the State's appropriations limit was based
on its 1978-79 fiscal year authorizations to expend proceeds of taxes and was
adjusted annually to reflect changes in cost of living and population (using
different definitions, which were modified by Proposition 111). Commencing with
the 1991-92 fiscal year, the State's appropriations limit is adjusted annually
based on the actual 1986-87 limit, and as if Proposition 111 had been in effect.
The State Legislature has enacted legislation to implement Article XIIIB which
defines certain terms used in Article XIIIB and sets forth the methods for
determining the State's appropriations limit. Government Code Section 7912
requires an estimate of the State's appropriations limit to be included in the
Governor's Budget, and thereafter to be subject to the budget process and
established in the Budget Act.
For the 1990-91 fiscal year, the State appropriations limit was $32.2
billion, and appropriations subject to limitation were $7.51 million under the
limit. The limit for the 1991-92 fiscal year was $34.2 billion, and
appropriations subject to limitations were $3.8 billion under the limit. The
limit for the 1992-93 fiscal year was $35.01 billion, and the appropriations
subject to limitation were $4.27 billion under the limit. The estimated limits
for the 1993-94 and 1994-95 fiscal years are $36.60 billion and $36.61 billion,
respectively, and the estimated appropriations subject to limitation are $3.77
billion and $5.49 billion, respectively, under the limit.
In November 1988, State voters approved Proposition 98, which changed State
funding of public education below the university level and the operation of the
State's appropriations limit, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues. Under Proposition 98 (as modified by Proposition
111, which was enacted in June 1990), K-14 schools are guaranteed the greater of
(a) 40.9% of General Fund revenues ('Test 1'), (b) the amount appropriated to
K-14 schools in the prior year, adjusted for changes in the cost of living
(measured as in Article XIIIB by reference to California per capita personal
income) and enrollment ('Test 2'), or (c) a third test, which would replace
'Test 2' in any year when the percentage growth in per capita General Fund
revenues from the prior year plus .5% is less than the percentage growth in
California per capita personal income ('Test 3'). Under 'Test 3', schools would
receive the amount appropriated in the prior year adjusted for changes in
enrollment and per capita General Fund revenues, plus an additional small
adjustment factor. If 'Test 3' is used in any year, the difference between 'Test
3' and 'Test 2' would become a
8
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'credit' to schools which would be the basis of payments in future years when
per capita General Fund revenue growth exceeds per capita personal income
growth.
Proposition 98 permits the Legislature by two-thirds vote of both houses,
with the Governor's concurrence, to suspend the K-14 school's minimum funding
formula for a one-year period. In the fall of 1989, the Legislature and the
Governor utilized this provision to avoid having 40.3% of revenues generated by
a special supplemental sales tax enacted for earthquake relief go to K-14
schools. Proposition 98 also contains provisions transferring certain State tax
revenues in excess of the Article XIIIB limit to K-14 schools.
The 1991-92 Budget Act, applying 'Test 2' of Proposition 98, appropriated
approximately $18.5 billion for K-14 schools pursuant to Proposition 98. During
the course of the fiscal year, revenues proved to be substantially below
expectations. By the time the Governor's Budget was introduced in January 1992,
it became clear that per capita growth in General Fund revenues for 1991-92
would be far smaller than the growth in California per capita personal income
and the Governor's Budget therefore reflected a reduction in Proposition 98
funding in 1991-92 by applying 'Test 3' rather than 'Test 2.'
In response to the changing revenue situation and to fully fund the
Proposition 98 guarantee in both the 1991-92 and 1992-93 fiscal years without
exceeding it, the Legislature enacted several bills as part of the 1992-93
budget package which responded to the fiscal crisis in education funding. In
fiscal year 1991-92, Proposition 98 appropriations for K-14 schools were reduced
by $1.083 billion. In order to not adversely impact cash received by school
districts, however, a short-term loan was appropriated from the non-Proposition
98 State General Fund. The Legislature then appropriated $16.6 billion to K-14
schools for 1992-93 (the minimum guaranteed by Proposition 98) but designated
$1.083 billion of this amount to 'repay' the prior year loan, thereby reducing
cash outlays in 1992-93 by that amount.
The 1993-94 Budget Act projected the Proposition 98 minimum funding level
at $13.5 billion based on the 'Test 3' calculation where the guarantee is
determined by the change in per capita growth in General Fund revenues, which
are projected to decrease on a year-over-year basis. This amount also takes into
account increased property taxes transferred to school districts from other
local governments.
The 1994-95 Budget Act appropriated $14.4 billion of Proposition 98 funds
for K-14 schools based on Test 12. This exceeds the minimum Proposition 98
guarantee by $8 million to maintain K-12 funding per pupil at $4,217. Based upon
updated State revenues, growth rates and inflation factors, the 1994-95 Budget
Act appropriated an additional $286 million within Proposition 98 for the
1993-94 fiscal year, to reflect a need in appropriations for school districts
and county offices of education, as well as an anticipated deficiency in special
education fundings. These appropriations increase the 1993-94 Proposition 98
guarantee to $13.8 billion, which exceeds the minimum guarantee in that year by
$272 million and provides per pupil funding of $4,225.
SOURCES OF TAX REVENUE. The California personal income tax, which in fiscal
1993-94 contributed about 44% of General Fund revenues, is closely modeled after
the Federal income tax law. It is imposed on net taxable income (gross income
less exclusions and deductions). The tax is progressive with rates ranging from
1% to 11%. Personal, dependent, and other credits are allowed against the gross
tax liability. In addition, taxpayers may be subject to an alternative
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minimum tax ('AMT') which is similar to the Federal AMT. This is designed to
ensure that excessive use of tax preferences does not reduce taxpayers'
liabilities below some minimum level. Legislation enacted in July 1991 added two
new marginal tax rates, at 10% and 11%, effective for tax years 1991 through
1995. After 1995, the maximum personal income tax rate is scheduled to return to
9.3%, and the AMT rate is scheduled to drop from 8.5% to 7%.
The personal income tax is adjusted annually by the change in the consumer
price index to prevent taxpayers from being pushed into higher tax brackets
without a real increase in income.
The sales tax is imposed upon retailers for the privilege of selling
tangible personal property in California. Most retail sales and leases are
subject to the tax. However, exemptions have been provided for certain
essentials such as food for home consumption, prescription drugs, gas,
electricity and water. Sales tax accounted for about 35% of General Fund revenue
in 1993-94. Bank and corporation tax revenues comprised about 12% of General
Fund revenue in 1993-94. In 1989, Proposition 99 added a 25 cents per pack
excise tax on cigarettes, and a new equivalent excise tax on other tobacco
products. Legislation enacted in 1993 added an additional 2 cents per pack for
the purpose of funding breast cancer research.
GENERAL FINANCIAL CONDITION OF THE STATE. Revenues in the most recent
fiscal years have been unusually difficult to forecast with a high degree of
accuracy due in major part to the volatility in the personal income tax. The
1986-87 through 1989-90 fiscal years were affected by both the Federal Tax
Reform Act of 1986 and subsequent State conformity legislation. The difficulty
with recent forecasts has occurred because taxpayers have changed their behavior
as a result of these events. Capital gains are now fully taxed. This revenue
component is subject to taxpayer discretion and is very sensitive to change in
tax law, market conditions and individual circumstances. Capital gains have
always been a volatile item and since it is contributing a greater percentage of
total revenue, it makes these collections subject to greater variance.
Primarily because of changes to the Federal and State tax statutes,
revenues for the fiscal year 1987-88 were approximately $1.1 billion less than
originally estimated. This shortfall in revenues was made up through the
application of approximately $900 million from the Special Fund for Economic
Uncertainties and a variety of expenditure reduction actions initiated by the
Governor. As a result, the Special Fund for Economic Uncertainties was
substantially depleted by June 30, 1988.
The State entered the 1988-89 fiscal year with essentially no budget
reserve. The 1988-89 Budget Act called for significant spending cuts to balance
expected revenues and expenditures and to provide an estimated balance of
approximately $600 million in the Special Fund for Economic Uncertainties at
year-end.
Revenues for the 1989-90 fiscal year were approximately $517.7 million less
than presented in the Governor's Budget in January 1990 and $1.021 billion less
than estimated in July 1989, primarily owing to lower than estimated receipts
from individual and corporate taxes. The shortfall in revenues was made up
through the transfer of moneys from the Special Fund for Economic Uncertainties
and a variety of expenditure reduction actions initiated by the Administration.
As a result, the Special Fund for Economic Uncertainties was fully depleted by
June 30, 1990.
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The California State Controller reported that the State's General Fund
ended the 1990-91 fiscal year with a negative budgetary basis balance of $1.316
billion. In order to pay necessary cash expenses through June 1991, including
payment of $4.1 billion of 1990 Revenue Anticipation Notes which were due June
28, 1991, the General Fund borrowed $1.390 billion from the Special Fund for
Economic Uncertainties and $3.266 billion from other Special Funds as of the end
of the fiscal year. Data on General Fund revenues for the 1990-91 fiscal year
show that revenues in all major categories (except insurance taxes) were lower
than receipts in 1989-90, the first time this has happened on a year-over-year
basis since the 1930s.
The Governor's 1991-92 Budget originally projected a $7 billion gap between
revenues and program needs (including restoration of a budget reserve) through
June 30, 1992. However, as revenues remained depressed in early 1991, the
estimate of the budget gap eventually increased to $14.3 billion. The
legislature passed the 1991-92 Budget Bill on June 22, 1991, but it was not
signed by the Governor until July 16, 1991, as the balancing of the budget
required enactment of dozens of additional bills to raise revenues and change
programs and laws. The 1991-92 Budget Act projected General Fund expenditures of
$43.4 billion and Special Fund expenditures of $10.6 billion. The Department of
Finance estimated that there would be a balance in the Special Fund For Economic
Uncertainties on June 30, 1992 of $1.2 billion.
The $14.3 billion estimated budget gap between revenues over the two fiscal
years 1990-91 and 1991-92 and estimated program needs based on existing laws,
including restoration of a prudent reserve for economic uncertainties, were
addressed through a combination of temporary and permanent changes in laws and
some one-time budget adjustments. The major features of the budget solutions
were: program funding reductions totaling $5.1 billion; a total of $5.1 billion
of increased State tax revenues; savings of $2.1 billion by returning certain
health and welfare programs to counties; and additional miscellaneous savings or
revenue gains and one-time accounting charges totaling $2.0 billion.
The 1992-93 Governor's Budget proposed expenditures of $56.3 billion in the
General and Special Funds for the 1992-93 fiscal year, a 1.6% increase over
corresponding figures for the 1991-92 fiscal year. General Fund expenditures
were projected at $43.8 billion, an increase of 0.2% over the 1991-92 Revised
Governor's Budget. The Budget estimated $45.7 billion of revenues and transfers
for the General Fund (a 4.7% change over 1991-92) and $12.4 billion for Special
Funds (a 9.6% change over 1991-92). To balance the proposed budget, program
reductions totaling $4.365 billion and revenue and transfer increases of $872
million were proposed for the 1991-92 and 1992-93 fiscal years. The 1992-93
Governor's Budget eliminated the deficit from 1991-92 and estimated $105.4
million as a year-end balance in the Special Fund for Economic Uncertainties,
representing approximately 0.2% of General Fund expenditures.
In early 1992, the Director of Finance acknowledged that actual economic
conditions were worse than the projections in the Governor's Budget. Because the
State had accumulated a significant budget deficit over two consecutive years,
and the continuing recession depressed revenue estimates for the coming year,
the State faced a major challenge to enact a balanced budget. The State also
began the 1992-93 fiscal year with essentially no cash reserves. By June 1992,
it was estimated that approximately $7.9 billion of budget actions would be
required to end the 1992-93 fiscal year without a budget deficit. The severity
of the budget actions needed led to a long delay in adopting the budget.
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With the failure to enact a budget by July 1, 1992, the State had no legal
authority to pay many of its vendors until the budget was passed. Starting on
July 1, 1992, the Controller was required to issue 'registered warrants' in lieu
of normal warrants backed by cash to pay many State obligations. Available cash
was used to pay constitutionally mandated and priority obligations, such as debt
service on bonds and revenue anticipation warrants. Between July 1 and September
4, 1992, the Controller issued an aggregate of approximately $3.8 billion of
registered warrants payable from the General Fund, all of which were called for
redemption by September 4, 1992 following enactment of the 1992-93 Budget Act
and issuance by the State of $3.3 billion of interim notes.
The Legislature enacted the 1992-93 Budget Bill on August 29, 1992, and it
was signed by the Governor on September 2, 1992. The 1992-93 Budget Act provides
for expenditures of $57.4 billion and consists of General Fund expenditures of
$40.8 billion and Special Fund and Bond Fund expenditures of $16.6 billion. The
Department of Finance estimates there will be a balance in the Special Fund for
Economic Uncertainties of $28 million on June 30, 1993.
The $7.9 billion estimated budget gap was closed through a combination of
increased revenues and transfers and expenditure cuts such as:
1. General Fund savings in health and welfare programs totalling $1.6
billion.
2. General Fund reductions of $1.9 billion for K-12 schools and
community colleges. This was accomplished by requiring schools to repay
$1.1 billion in excess appropriations from 1991-92.
3. Redirecting property taxes from cities ($200 million) and counties
($525 million) to schools. These shifts are permanent and will reduce the
State General Funds obligation for schools. The State will also redirect
property taxes from special districts ($375 million) and redevelopment
agencies ($200 million) to schools. The shift from redevelopment agencies
is a one-time shift.
4. Program cuts for higher education totalling $415 million ($246
million for the University of California, $143 million for California State
University, and $26 million Student Aid Commission). These reductions are
partially offset by $141 million in increased student fees.
5. A total of $1.6 billion of transfers and accelerated collections of
State revenues by conforming state schedules for estimated payments for
personal income and bank and corporate taxes with federal schedules ($105
million), accelerating settlement of outstanding tax disputes ($300
million), reaching an agreement with the Federal government to repay
federal contractors over a ten-year period beginning in 1992-93, rather
than making a lump sum payment in 1992-93 ($580 million), accelerating
liquidation of unclaimed properties through the sale of all unclaimed
securities received prior to July 1, 1992, rather than maintaining them for
three years ($70 million), transfers from Special Funds ($423 million), and
other miscellaneous actions ($122 million).
6. Approximately $1.0 billion from various additional program
reductions.
In May 1993, the Department of Finance projected that the General Fund
would end the fiscal year on June 30, 1993 with an accumulated budget deficit of
about $2.8 billion, and a
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negative fund balance of about $2.2 billion (the difference being certain
reserves for encumbrances and school funding costs). As a result, the State
issued $5 billion of revenue anticipation notes and warrants.
The Governor's 1993-94 Budget, introduced on January 8, 1993, proposed
General Fund expenditures of $37.3 billion, with projected revenues of $39.9
billion. It also proposed Special Fund expenditures of $12.4 billion and Special
Fund revenues of $12.1 billion. To balance the budget in the face of declining
revenues, the Governor proposed a series of revenue shifts from local
government, reliance on increased federal aid and reductions in state spending.
The 'May Revision' of the Governor's Budget, released on May 20, 1993,
indicated that the revenue projections of the January Budget Proposal were
tracking well, with the full year 1992-93 about $80 million higher than the
January projection. Personal income tax revenue was higher than projected, sales
tax was close to target, and bank and corporation taxes were lagging behind
projections. The May Revision projected the State would have an accumulated
deficit of about $2.75 billion by June 30, 1993. The Governor proposed to
eliminate this deficit over an 18-month period. He also agreed to retain the
0.5% sales tax scheduled to expire June 30 for a six-month period, dedicated to
local public safety purposes, with a November election to determine a permanent
extension. Unlike previous years, the Governor's Budget and May Revision did not
calculate a 'gap' to be closed, but rather set forth revenue and expenditure
forecasts and proposals designed to produce a balanced budget.
The 1993-94 Budget Act was signed by the Governor on June 30, 1993, along
with implementing legislation. The Governor vetoed about $71 million in
spending. With enactment of the Budget Act, the State carried out its regular
cash flow borrowing program for the fiscal year, which included issuance of
approximately $2 billion of revenue anticipation notes which matured on June 28,
1994.
The 1993-94 Budget Act was predicated on General Fund revenues and
transfers estimated at $40.6 billion, about $700 million higher than the January
Governor's Budget, but still about $400 million below 1992-93 (and the second
consecutive year of actual decline). The principal reasons for declining
revenues were the continued weak economy and the expiration (or repeal) of three
fiscal steps taken in 1991 -- a half cent temporary sales tax, a deferral of
operating loss carryforwards, and repeal by initiative of a sales tax on candy
and snack foods.
The 1993-94 Budget Act also assumed Special Fund revenues of $11.9 billion,
an increase of 2.9% over 1992-93.
The 1993-94 Budget Act included General Fund expenditures of $38.5 billion
(a 6.3% reduction from projected 1992-93 expenditures of $41.1 billion), in
order to keep a balanced budget within the available revenues. The Budget also
included Special Fund expenditures of $12.1 billion, a 4.2% increase.
The 1993-94 Budget Act contained no General Fund tax/revenue increases
other than a two-year suspension of the renters' tax credit.
Administration reports during the course of the 1993-94 fiscal year
indicated that while economic recovery appeared to have started in the second
half of the fiscal year, recessionary conditions continued longer than had been
anticipated when the 1993-94 Budget Act was
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adopted. Overall, revenues to the 1993-1994 fiscal year were about $800 million
lower than original projections, and expenditures were about $780 million
higher, primarily because of higher health and welfare caseloads, lower property
taxes which require greater State support for K-14 education to make up the
shortfall, and lower than anticipated Federal government payments for
immigration-related costs. The reports in May and June 1994, indicated that
revenues in the second half of the 1993-94 fiscal year have been very close to
the projections made in the Governor's Budget of January 10, 1994, which is
consistent with a slow turn around in the economy.
The Department of Finance's July 1994 Bulletin, including the final June
receipts, reported that June revenues were $114 million (2.5%) above projection,
with final end-of-year results at $377 million (about 1%) above the May Revision
projections. Part of this result was due to end-of-year adjustments and
reconciliations. Personal income tax and sales tax continued to track
projections very well. The largest factor in the higher anticipated revenues was
from bank and corporation taxes, which were $140 million (18.4%) above
projection in June.
During the 1993-94 fiscal year, the State implemented the Deficit
Retirement Plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 maturing December 21,
1994. This borrowing reduced the cash deficit at the end of the 1993-94 fiscal
year. Nevertheless, because of the $1.5 billion variance from the original
1993-94 Budget Act assumptions, the General Fund ended the fiscal year at June
30, 1994 carrying forward an accumulated deficit of approximately $1.8 billion.
Because of the revenue shortfall and the State's reduced internal
borrowable cash resources, in addition to the $1.2 billion of revenue
anticipation warrants issued as part of the Deficit Retirement Plan, the State
issued an additional $2.0 billion of revenue anticipation warrants, maturing
July 26, 1994, which were needed to fund the State's obligations and expenses
through the end of the 1993-94 fiscal year.
The 1994-95 fiscal year represents the fourth consecutive year the Governor
and Legislature were faced with a very difficult budget environment to produce a
balanced budget. Many program cost and budgetary adjustments were made in the
last three years. The Governor's Budget Proposal, as updated in May and June
1994, recognized that the accumulated deficit could not be repaid in one year,
and proposed a two-year solution. The budget proposal sets forth revenue and
expenditure forecasts and revenue and expenditure proposals which result in
operating surpluses for the budget for both 1994-95 and 1995-96, and lead to the
elimination of the accumulated budget deficit, estimated at about $1.8 billion
at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflected the Administration's forecast of an improving economy.
The 1994-95 Budget Act projected Special Fund revenues of $12.1 billion, a
decrease of 2.4% from 1993-94 estimated revenues. The 1994-95 Budget Act
projected General Fund expenditures of $40.9 billion, an increase of $1.6
billion over the 1993-94 fiscal year. The 1994-95 Budget Act also projected
Special Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 fiscal
year estimated expenditures.
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot
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proposition to permanently restore the renters' tax credit after this year
failed at the June 1994 election. The Legislature enacted a further one-year
suspension of the renters' tax credit, for 1995, saving about $390 million in
the 1995-96 fiscal year.
The 1994-95 Budget Act assumed that the State would use a cash flow
borrowing program in 1994-95 which combines one-year notes and two-year
warrants, which have now been issued. Issuance of the warrants allows the State
to defer repayment of approximately $1.0 billion of its accumulated budget
deficit into the 1995-96 fiscal year. The Budget Adjustment Law, described
above, enacted along with the 1994-95 Budget Act is designed to ensure that the
warrants will be repaid in the 1995-96 fiscal year.
RECENT ECONOMIC TRENDS. Reports by the Department of Finance in May, 1995
indicate that, with economic recovery well underway in the State, General Fund
revenues for the entire 1994-95 fiscal Year were above projections, and
expenditures were below projections because of slower than anticipated
health/welfare caseload growth and school enrollments. The aggregate effect
improved the budget picture by about $500 million, leaving an estimated budget
deficit of about $630 million at June 30, 1995.
For the first time in four years, the state enters the upcoming 1995-96
fiscal year with strengthening revenues based on an improving economy. On
January 10, 1995, the Governor presented his 1995-96 Fiscal Year Budget Proposal
(the ' Proposed Budget'). The Proposed Budget estimates General Fund revenues
and transfers of $42.5 billion (an increase of 0.2% over 1994-95). This nominal
increase from 1994-95 fiscal year reflects the Governor's realignment proposal
and the first year of his tax cut proposal. Without these two proposals, General
Fund revenues would be projected at approximately $43.8 billion, or an increase
of 3.3% over 1994-95. Expenditures are estimated at $41.7 billion (essentially
unchanged from 1994-95). Special Fund revenues are estimated at $13.5 billion
(10.7% higher than 1994-95) and Special Fund expenditures are estimated at $13.8
billion (12.2% higher than 1994-95). The Proposed Budget projects that the
General Fund will end the fiscal year at June 30, 1996 with a budget surplus in
SFBU of about $92 million, or less than 1% of General Fund expenditures, and
will have repaid all of the accumulated budget deficits.
Revised employment data indicate that California's recession ended in 1993,
and following a period of stability, a solid recovery is now underway. The
State's unemployment rate fell from 9.2% in fiscal 1993 to 8.6% in fiscal 1994.
The national unemployment rate in 1994 was 6.1%. The number of employed
Californians increased more than 250,000 during fiscal 1994.
Other indicators, including retail sales, homebuilding activity, existing
home sales and bank lending volume all confirm the State's recovery.
Personal income was severely affected by the Northridge Earthquake, which
reduced the first quarter 1994 figure by $22 billion at an annual rate,
reflecting the uninsured damage to residences and unincorporated businesses. As
a result, personal income growth for all of 1994 was about 2.8%. However,
excluding the Northridge effects, growth would have been in excess of 3%.
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INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions cannot be changed without approval by the holders of a majority of
the outstanding shares of the Fund, defined in the Investment Company Act of
1940, as amended (the 'Act'), as the lesser of (i) 67% of the Fund's shares
present at a meeting if the holders of more than 50% of the outstanding shares
are present in person or by proxy, or (ii) more than 50% of the Fund's
outstanding shares. The Fund may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are referred to above and in the Prospectus.
2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes, in an amount up to 10% of the Fund's total assets
(including the amount borrowed) based upon the lesser of cost or market,
less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the value of the Fund's
total assets, the Fund will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 10% of the value of its total assets, but only to
secure borrowings for temporary or emergency purposes.
4. Make loans to others, except through the purchase of qualified debt
obligations and entry into repurchase agreements referred to above and in
the Prospectus.
5. Purchase or sell real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Fund from investing in Municipal Obligations secured
by real estate or interests therein.
6. Sell securities short or purchase securities on margin.
7. Purchase securities subject to restrictions on disposition under
the Securities Act of 1933. The Fund may not enter into repurchase
agreements maturing in more than seven days or purchase securities that are
not readily marketable (which securities include floating and variable rate
demand notes as to which the Fund cannot exercise the demand feature
described in the Fund's Prospectus on less than seven days notice and as to
which there is no secondary market), if, in the aggregate, more than 10% of
its net assets would be so invested. The Fund may not invest in time
deposits maturing in more than seven days and time deposits maturing in
from two business days through seven calendar days may not exceed 10% of
the Fund's net assets.
8. Underwrite securities of other issuers, except that the Fund may
bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage
of the lower purchase price available.
9. Purchase the securities of any other registered investment company,
except in connection with a merger, consolidation, reorganization or
acquisition of assets.
10. Purchase securities of any issuer for the purpose of exercising
control or management.
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11. Invest more than 25% of its assets in the securities of issuers in
any single industry; however, there is no limitation on the purchase of
Municipal Obligations and, for temporary defensive purposes, securities
issued by domestic banks and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
For purposes of restriction 11, industrial development bonds, where payment
of principal and interest is the ultimate responsibility of companies within the
same industry, are grouped together as an 'industry.'
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in value of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions.
MANAGEMENT OF THE FUND
Information regarding the Trustees and officers of the Fund, including
information as to their principal business occupations during the last five
years, is listed below. Each Trustee who is an 'interested person' of the Fund,
as defined in the Act, is indicated by an asterisk.
David J. Beaubien, 61, Trustee. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring instruments. Director of IEC,
Inc., manufacturer of electronic assemblies, Belfort Instruments, Inc.,
manufacturer of environmental instruments, and Oriel Corp., manufacturer of
optical instruments. Prior to January 1991, Senior Vice President of EG&G, Inc.,
a company that makes and provides a variety of scientific and technically
oriented products and services. Mr. Beaubien is a director or trustee of 11
other investment companies for which Mitchell Hutchins or PaineWebber
Incorporated ('PaineWebber') serves as investment adviser.
William W. Hewitt, Jr., 67, Trustee. Trustee of The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Bond Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The
Guardian Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian
U.S. Government Trust. Mr. Hewitt is a director or trustee of 11 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Thomas R. Jordan, 66, Trustee. Principal of The Dilenschneider Group, Inc.,
a corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm. Mr. Jordan is a director or trustee
of 10 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
*Frank P.L. Minard, 50, Trustee. Chairman of Mitchell Hutchins, chairman of
the board of Mitchell Hutchins Institutional Investors Inc. and a director of
PaineWebber. Prior to 1993, managing director of Oppenheimer Capital in New York
and Director of Oppenheimer Capital Ltd. in London. Mr. Minard is a director or
trustee of 24 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
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Carl W. Schafer, 59, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd., Evans Systems, Inc.
and Hidden Lake Gold Mines Ltd., gold mining companies, Electronic Clearing
House, Inc., a financial transactions processing company, Wainoco Oil
Corporation and Nutracentix, Inc., a biotechnology company. Prior to January
1993, chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Mr.
Schafer is a director or trustee of 10 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Margo N. Alexander, 48, President. President, chief executive officer and a
director of Mitchell Hutchins. Prior to January 1995, an executive vice
president of PaineWebber. Ms. Alexander is also a trustee of two other
investment companies and president of 37 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Teresa M. Boyle, 37, Vice President. First vice president and
manager -- advisory administration of Mitchell Hutchins. Prior to November 1993,
compliance manager of Hyperion Capital Management, Inc., an investment advisory
firm. Prior to April 1993, a vice president and manager -- legal administration
of Mitchell Hutchins. Ms. Boyle is also a vice president of 37 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Scott H. Griff, 29, Vice President and Assistant Secretary. Vice president
and attorney of Mitchell Hutchins. Prior to January 1995, an associate at the
law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff is also a vice
president and assistant secretary of 10 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
C. William Maher, 34, Vice President and Assistant Treasurer. Mr. Maher is
a first vice president and the senior manager of the Fund Administration
Division of Mitchell Hutchins. Mr. Maher is also a vice president and assistant
treasurer of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran, 38, Vice President and Assistant Treasurer. Vice president of
Mitchell Hutchins. Ms. Moran is also a vice president and assistant treasurer of
37 other investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dianne E. O'Donnell, 43, Vice President and Secretary. Senior vice
president and deputy general counsel of Mitchell Hutchins. Ms. O'Donnell is also
a vice president and secretary of 37 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Gregory W. Serbe, 49, Vice President. Mr. Serbe is a managing director of
Mitchell Hutchins. Mr. Serbe is also a vice president of 8 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Victoria E. Schonfeld, 44, Vice President. Managing director and general
counsel of Mitchell Hutchins. From April 1990 to May 1994, a partner in the law
firm of Arnold & Porter. Ms.
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Schonfeld is also a vice president and assistant secretary of 37 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert, 32, Vice President and Assistant Treasurer. First vice
president of Mitchell Hutchins. From August 1992 to August 1994, vice president
at BlackRock Financial Management, Inc. Prior to August 1992, an audit manager
with Ernst & Young LLP. Mr. Schubert is also a vice president and assistant
treasurer of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Julian F. Sluyters, 35, Vice President and Treasurer. Senior vice president
and the director of the mutual fund finance division of Mitchell Hutchins. Prior
to 1991, an audit senior manager with Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 37 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
Gregory K. Todd, 38, Vice President and Assistant Secretary. First vice
president and associate general counsel of Mitchell Hutchins. Prior to 1993, a
partner with the law firm of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant secretary of 37 other investment companies
for which Mitchell Hutchins or PaineWebber serves as investment adviser.
Certain of the Trustees and officers of the Fund are directors and/or
trustees and officers of other mutual funds managed by PaineWebber or Mitchell
Hutchins. The address of each of the non-interested Trustees is: Mr. Beaubien,
Montague Industrial Park, 101 Industrial Road, Box 7461, Turners Falls,
Massachusetts 01376; Mr. Hewitt, P.O. Box 2359, Princeton, New Jersey
08543-2359; Mr. Jordan, 200 Park Avenue, New York, New York 10166; and Mr.
Schafer, P.O. Box 1164, Princeton, New Jersey 08542. The address of Mr. Minard
and the officers listed above is 1285 Avenue of the Americas, New York, New York
10019.
By virtue of the management responsibilities assumed by PaineWebber under
the Investment Advisory and Administration Agreement, the Fund requires no
executive employees other than its officers, each of whom is employed by either
PaineWebber or Mitchell Hutchins and none of whom devotes full time to the
affairs of the Fund. Trustees and officers of the Fund, as a group, owned less
than 1% of the outstanding shares of beneficial interest of the Fund as of
November 1, 1995. No officer, director or employee of PaineWebber or Mitchell
Hutchins or any affiliate receives any compensation from the Fund for serving as
an officer or Trustee of the Fund. The Fund pays each Trustee who is not an
officer, director or employee of PaineWebber or Mitchell Hutchins or any of its
affiliates an annual retainer of $1,000 and $375 for each Trustees' meeting
attended, and reimburses the Trustee for out-of-pocket expenses associated with
attendance at Trustees' meetings. The Chairman of the Trustees' audit committee
receives an annual fee of $250. The amount of compensation paid by the Fund to
each Trustee for the fiscal year ended July 31, 1995, and the aggregate amount
of compensation paid to each such Trustee
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for the year ended December 31, 1994 by all investment companies in the same
fund complex for which such person is a Board member were as follows:
<TABLE>
<CAPTION>
(5)
(3) TOTAL COMPENSATION
(2) PENSION OR (4) FROM FUND AND
(1) AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL OTHER INVESTMENT
NAME OF BOARD COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPANIES IN THE
MEMBER FUND FUND'S EXPENSES RETIREMENT FUND COMPLEX*
- ------------------------------ ----------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
David J. Beaubien $ None None $ 80,700
William W. Hewitt, Jr. $ None None $ 74,425
Thomas R. Jordan $ None None $ 83,125
Frank P.L. Minard None None None None
Carl W. Schafer $ None None $ 84,575
</TABLE>
- ------------
* Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.
INVESTMENT ADVISORY AND OTHER SERVICES
PaineWebber, the Fund's investment adviser and administrator, and Mitchell
Hutchins, the Fund's sub-adviser and sub-administrator, are located at 1285
Avenue of the Americas, New York, New York 10019.
Subject to the supervision and direction of the Fund's Trustees, Mitchell
Hutchins manages the Fund's portfolio in accordance with the stated policies of
the Fund. Mitchell Hutchins makes investment decisions for the Fund and places
the purchase and sale orders for portfolio transactions. In addition, Mitchell
Hutchins pays the salaries of all officers and employees who are employed by
both it and the Fund, maintains office facilities, furnishes statistical and
research data, clerical help and accounting, data processing, bookkeeping,
internal auditing and legal services and certain other services required by the
Fund, prepares reports to shareholders, tax returns to and filings with the SEC
and state Blue Sky authorities, is responsible for the calculation of the net
asset value of shares and generally assists in all aspects of the Fund's
operations. Mitchell Hutchins bears all expenses in connection with the
performance of its services.
Expenses incurred in the operation of the Fund, including, but not limited
to, taxes, interest, brokerage fees and commissions, fees of Trustees who are
not officers, directors, stockholders or employees of PaineWebber or Mitchell
Hutchins, SEC fees and related expenses, state Blue Sky qualification fees,
charges of the custodian and transfer, dividend disbursing and recordkeeping
agent, charges and expenses of any outside service used for pricing of the
Fund's portfolio securities and calculating net asset value, outside auditing
and legal expenses, and costs of maintenance of trust existence, investor
services, printing of prospectuses and statements of additional information for
regulatory purposes or for distribution to shareholders, shareholders' reports
and trust meetings, are borne by the Fund.
The Investment Advisory and Administration Agreement remains in effect for
successive annual periods provided continuance is approved at least annually by
(i) the Trustees of the Fund or (ii) vote by the holders of a majority, as
defined in the Act, of the outstanding voting
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securities of the Fund, provided that in either event the continuance is also
approved by a majority of the Trustees who are not interested persons, as
defined in the Act, of the Fund or PaineWebber or Mitchell Hutchins, by vote
cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory and Administration Agreement is terminable without
penalty, on not more than 60 days' nor less than 30 days' notice, by the
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund or by PaineWebber. The Investment Advisory and
Administration Agreement will terminate automatically in the event of its
assignment.
As compensation for PaineWebber's services rendered to the Fund, the Fund
pays a fee, computed daily and paid monthly, at an annual rate of .50% of the
Fund's average daily net assets. The fees paid to Kidder Peabody Asset
Management, Inc., the Fund's predecessor investment adviser and administrator,
or PaineWebber for the fiscal years ended July 31, 1993, 1994 and 1995 were
$1,009,226, $1,026,841 and $787,433, respectively.
PaineWebber has agreed that if, in any fiscal year, the aggregate expenses
of the Fund (including fees pursuant to the Investment Advisory and
Administration Agreement but excluding interest, taxes, brokerage and
distribution fees and extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, PaineWebber will reimburse the Fund
for such excess expense. This expense reimbursement obligation is not limited to
the amount of PaineWebber's fee. Such expense reimbursement, if any, will be
estimated, reconciled and credited on a monthly basis. The Fund believes that
currently the most stringent state expense limitation applicable to the Fund is
2 1/2% of the first $30 million of the average daily net assets of the Fund, 2%
of the next $70 million and 1 1/2% of the remaining average daily net assets of
the Fund. During the fiscal year ended July 31, 1995, the Fund's expenses did
not exceed such limitations.
PaineWebber shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the matters to which the
Investment Advisory and Administration Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under the Investment Advisory and Administration
Agreement.
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber and PaineWebber/Kidder, Peabody ('PW/KP') mutual
funds and other Mitchell Hutchins' advisory accounts by all Mitchell Hutchins'
directors, officers and employees, establishes procedures for personal investing
and restricts certain transactions. For example, employee accounts generally
must be maintained at PaineWebber, personal trades in most securities require
pre-clearance and short-term trading and participaton in initial public
offerings generally are prohibited. In addition, the code of ethics puts
restrictions on the timing of personal investing in relation to trades by
PaineWebber and PW/KP mutual funds and other Mitchell Hutchins advisory clients.
Investors Fiduciary Trust Company ('IFTC'), 127 West 10th Street, Kansas
City, Missouri 64105, serves as the Fund's custodian. PFPC Inc., a subsidiary of
PNC Bank, National Association, whose principal address is 400 Bellevue,
Wilmington, Delaware 19809, acts as transfer, dividend disbursing and
recordkeeping agent. As custodian, IFTC maintains custody of
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the Fund's portfolio securities. As transfer agent, PFPC Inc. maintains the
Fund's official record of shareholders, as dividend disbursing agent, it is
responsible for crediting dividends to shareholders' accounts and, as
recordkeeping agent, it maintains certain accounting and financial records of
the Fund.
PaineWebber is the distributor of the Fund's shares and is acting on a best
efforts basis.
The Trustees believe that the Fund's expenditures under the Fund's Plan of
Distribution pursuant to Rule 12b-1 benefit the Fund and its shareholders by
providing better shareholder services. For the fiscal year ended July 31, 1995,
PaineWebber received $188,983 from the Fund, of which $[ ] was spent on
payments to investment executives and $[ ] was spent on overhead-related
expenses.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, acts as
independent auditors for the Fund. In such capacity, Ernst & Young LLP audits
the Fund's annual financial statements. For the fiscal year ended July 31, 1994,
and prior thereto, the Fund's independent auditors were Deloitte & Touche LLP, 2
World Financial Center, New York, New York 10281.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-2696,
is counsel for the Fund.
PRINCIPAL SHAREHOLDERS
To the knowledge of the Fund, Nathaniel N. Ratner, Trustee, UDT 12/17/82, The
Nathaniel N. and Sara Ratner Living Trust, 666 Upas Street, San Diego,
California 92103-5043, owned of record [ ]% of the Fund's outstanding shares
of beneficial interest on November 1, 1995.
The Fund is not aware as to whether or to what extent shares owned of
record also are owned beneficially.
PORTFOLIO TRANSACTIONS
Portfolio securities are purchased from and sold to parties acting as either
principal or agent. Newly-issued securities ordinarily are purchased directly
from the issuer or from an underwriter; other purchases and sales are allocated
to various dealers. Usually no brokerage commissions, as such, are paid by the
Fund for such purchases and sales, although the price paid usually includes an
undisclosed compensation to the dealer acting as agent. The prices paid to
underwriters of newly-issued securities usually include a concession paid by the
issuer to the underwriter, and purchases of after-market securities from dealers
normally are executed at a price between the bid and asked price. No brokerage
commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by Mitchell Hutchins in its
best judgment. The primary consideration is the prompt and effective execution
of orders at the most favorable price. Subject to that primary consideration,
dealers may be selected for research, statistical or other services to enable
Mitchell Hutchins to supplement its own research and analysis with the views and
information of other securities firms.
Information so received supplements, but does not replace, that to be
provided by Mitchell Hutchins, and Mitchell Hutchins' fee is not reduced as a
consequence of the receipt of any such
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supplemental information. Such information may be useful to Mitchell Hutchins in
serving both the Fund and other clients and, conversely, supplemental
information obtained by the placement of business of its clients may be useful
to Mitchell Hutchins in carrying out its obligations to the Fund.
Investment decisions for the Fund are made independently from those of any
other fund managed by Mitchell Hutchins. If, however, funds managed by Mitchell
Hutchins are simultaneously engaged in the purchase or sale of the same
security, the transactions are averaged as to price and allocated equitably to
each fund. In some cases, this system might adversely affect the price paid or
received by the Fund or the size of the position obtainable for, or disposable
by, the Fund.
SHARES OF THE FUND
The Declaration of Trust of the Fund permits the Trustees to issue an unlimited
number of full and fractional shares of a single class and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Fund. Each share represents an
equal proportionate interest in the Fund with each other share. Upon liquidation
of the Fund, shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders. Shares have no preemptive
or conversion rights. Shares are fully paid and non-assessable by the Fund.
The shareholders of the Fund are entitled to a full vote for each full
share held (and proportionate, fractional votes for fractional shares held). The
Trustees themselves have the power to alter the number and the terms of office
of the Trustees, and they may at any time lengthen their own terms and make
their terms of unlimited duration (subject to certain removal procedures) and
appoint their own successors, provided that always at least a majority of the
Trustees have been elected by the shareholders of the Fund. The voting rights of
shareholders are not cumulative, so that holders of more than 50% of the shares
voting can, if they choose, elect all Trustees being selected, while the holders
of the remaining shares would be unable to elect any Trustees. The Fund is not
required to hold Annual Meetings of Shareholders. The Trustees may call Special
Meetings of Shareholders for action by shareholder vote as may be required by
the Act or the Declaration of Trust.
The Fund is a trust fund of the type commonly known as a 'Massachusetts
business trust.' Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the Fund, which is not the case with a corporation. The
Declaration of Trust provides that shareholders shall not be subject to any
personal liability for the acts or obligations of the Fund and that every
written agreement, obligation, instrument or undertaking made by the Fund shall
contain a provision to the effect that the shareholders are not personally
liable thereunder.
Special counsel for the Fund is of the opinion that no personal liability
will attach to the shareholders under any undertaking containing such provision
when adequate notice of such provision is given, except possibly in a few
jurisdictions. With respect to all types of claims in the latter jurisdictions
and with respect to tort claims, contract claims where the provision referred to
is omitted from the undertaking, claims for taxes and certain statutory
liabilities in other
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jurisdictions, a shareholder may be held personally liable to the extent that
claims are not satisfied by the Fund. However, upon payment of any such
liability the shareholder will be entitled to reimbursement from the general
assets of the Fund. The Trustees intend to conduct the operations of the Fund,
with the advice of counsel, in such a way so as to avoid, as far as possible,
ultimate liability of the shareholders for the liabilities of the Fund.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor is
any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise from
his or its own bad faith, willful misfeasance, gross negligence, or reckless
disregard of his or its duties. It also provides that all third persons shall
look solely to the Fund property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Fund.
REDEMPTION AND EXCHANGE OF SHARES
The right of redemption may be suspended or the date of payment postponed (a)
for any period during which the New York Stock Exchange ('NYSE') is closed other
than for customary weekend and holiday closings, (b) when trading in the markets
the Fund normally utilizes is restricted, or when an emergency, as defined by
the rules and regulations of the SEC, exists, making disposal of the Fund's
investments or determination of its net asset value not reasonably practicable,
or (c) for any other periods as the SEC by order may permit for protection of
the Fund's shareholders.
Shares of the Fund may be exchanged for shares of the following
PaineWebber/Kidder, Peabody funds, to the extent such shares are offered for
sale in the shareholder's state of residence:
PaineWebber/Kidder, Peabody Cash Reserve Fund, Inc.
PaineWebber/Kidder, Peabody Municipal Money Market
Series -- Connecticut Series.
PaineWebber/Kidder, Peabody Municipal Money Market Series -- New
Jersey Series.
PaineWebber/Kidder, Peabody Premium Account Fund.
The right of exchange may be suspended or postponed if (a) there is a
suspension of the redemption of Fund shares under Section 22(e) of the Act, or
(b) the Fund temporarily delays or ceases the sale of its shares because it is
unable to invest amounts effectively in accordance with its applicable
investment objective, policies and restrictions.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund will not be computed on the following NYSE
holidays (observed): New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. If one of these
holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively. The days on which net asset value
is determined are the Fund's business days. Net asset value is
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computed by dividing the value of the Fund's total assets less liabilities by
the total number of shares outstanding. The Fund's expenses and fees, including
PaineWebber's fee, are accrued daily and taken into account for the purpose of
determining net asset value. It is the Fund's policy to attempt to maintain a
net asset value of $1.00 per share for purposes of sales and redemptions,
although there can be no assurance that the Fund will always be able to do so.
The Fund maintains a dollar-weighted average portfolio maturity of 90 days
or less, purchases only instruments having remaining maturities of 397 days or
less and invests only in securities which present minimal credit risks and are
of high quality as determined by any major rating service or, in the case of any
instrument that is not rated, of comparable quality as determined by the
Trustees.
The valuation of the Fund's portfolio securities is based on their
amortized cost, which does not take into account unrealized gains or losses.
This involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.
In connection with the utilization of the amortized cost method of
valuation, the Trustees have established procedures reasonably designed, taking
into account current market conditions and the Fund's investment objective, to
stabilize net asset value per share as computed for the purpose of sales and
redemptions at $1.00. These procedures include periodic review, as the Trustees
deem appropriate and at such intervals as are reasonable in light of current
market conditions, of the relationship between the amortized cost value per
share and the net asset value per share based on available indications of market
value. In such review, market quotations and market equivalents are obtained
from an independent pricing service (the 'Service') approved by the Trustees.
The Service values the Fund's investments based on methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
coupon, maturity and type; indications of values from dealers; and general
market conditions. The Service also may employ electronic data processing
techniques and/or a matrix system to determine valuations.
In the event of a difference of over 1/2 of 1% between the Fund's net asset
value based on available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Trustees will promptly consider what action,
if any, should be taken. The Trustees also will take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redeeming shares in kind, selling
portfolio instruments prior to maturity to realize capital gains or losses, or
to shorten the average portfolio maturity, withholding dividends, making
distributions from capital or capital gains, utilizing a net asset value per
share as determined by using available market quotations, or reducing the number
of its outstanding shares. Any reduction of outstanding shares will be effected
by having each shareholder proportionately contribute to the Fund's capital the
necessary shares that represent the excess upon such determination. Each
shareholder will be deemed to have agreed to such contribution in these
circumstances by his investment in the Fund.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
If, at the close of each quarter of its taxable year, at least 50% of the value
of the Fund's total assets consists of municipal tax exempt obligations, then
the Fund may designate and pay Federal exempt-interest dividends from interest
earned on all such tax exempt obligations. Such exempt-interest dividends may be
excluded by shareholders of the Fund from their gross income for Federal income
tax purposes. Dividends derived from Taxable Investments, together with
distributions from any net realized short-term securities gains, generally are
taxable as ordinary income for Federal income tax purposes whether or not
reinvested. Distributions from net realized long-term securities gains generally
are taxable as long-term capital gains to a shareholder who is a citizen or
resident of the United States, whether or not reinvested and regardless of the
length of time the shareholder has held his shares.
If, at the close of each quarter of its taxable year, at least 50% of the
value of the Fund's total assets consists of obligations which, when held by an
individual, the interest therefrom is exempt from California taxation, and if
the Fund qualifies as a management company under the California Revenue and
Taxation Code, then the Fund will be qualified to pay dividends to its
shareholders that are exempt from California personal income tax (but not from
California franchise tax). However, the total amount of such California
exempt-interest dividends paid by the Fund to a non-corporate shareholder with
respect to any taxable year cannot exceed such shareholder's pro rata share of
interest received by the Fund during such year that is exempt from California
personal income tax less any expenses and expenditures deemed to relate to such
interest.
For shareholders subject to the California personal income tax,
exempt-interest dividends derived from California Municipal Obligations will not
be subject to the California personal income tax. Distributions from net
realized short-term capital gains to California resident shareholders will be
subject to the California personal income tax as ordinary income. Distributions
from net realized long-term capital gains may constitute long-term capital gains
for individual California resident shareholders. Unlike under Federal tax law,
the Fund's shareholders will not be subject to California personal income tax,
or receive a credit for California taxes paid by the Fund, on undistributed
capital gains. In addition, California tax law does not consider any portion of
the exempt-interest dividends paid an item of tax preference for the purpose of
computing the California alternative minimum tax.
The Internal Revenue Code of 1986, as amended (the 'Code'), provides that
if a shareholder has not held his Fund shares for more than six months (or such
shorter period as the Internal Revenue Service may prescribe by regulation) and
has received an exempt-interest dividend with respect to such shares, any loss
incurred on the sale of such shares will be disallowed to the extent of the
exempt-interest dividend received.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gain or loss. However, all or a portion of any gain realized
from the sale or other disposition of certain market discount bonds will be
treated as ordinary income under Section 1276 of the Code.
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DETERMINATION OF CURRENT AND EFFECTIVE YIELDS
The Fund provides current and effective yield quotations based on its daily
dividends. See 'Dividends, Distributions and Taxes' in the Fund's Prospectus.
Such quotations are made in reports, sales literature and advertisements
published by the Fund.
Current yield is computed by determining the net change exclusive of
capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven day calendar period, dividing
the net change in account value by the value of the account at the beginning of
the period and multiplying the return over the seven day period by 365/7. For
purposes of the calculation, net change in account value reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but does not
reflect realized gains or losses or unrealized appreciation or depreciation.
Effective yield is computed by annualizing the seven-day return with all
dividends reinvested in additional shares of the Fund.
Current and effective yields fluctuate and are not necessarily
representative of future results. The shareholder should remember that yield is
a function of the type and quality of the instruments in the portfolio,
portfolio maturity and operating expenses. See 'Investment Objective and
Policies' in the Fund's Prospectus and 'Investment Advisory and Other Services'
above. Current and effective yield information is useful in reviewing the Fund's
performance, but because current and effective yields will fluctuate such
information may not provide a basis for comparison with bank deposits, other
investments which pay a fixed yield for a stated period of time or other
investment companies which may use a different method of calculating yield. A
shareholder's principal in the Fund is not guaranteed. See 'Determination of Net
Asset Value' for a discussion of the manner in which the Fund's price per share
is determined.
Historical and comparative yield information may be presented by the Fund.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended July 31, 1995
is a separate document supplied with this Statement of Additional Information,
and the financial statements, accompanying notes and report of independent
auditors appearing therein are incorporated by reference in this Statement of
Additional Information.
RATINGS OF SECURITIES
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, ratings are general and are not
absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, Mitchell Hutchins believes that the quality of Municipal
Obligations should be continuously reviewed and that individual analysts give
different weightings to the various factors involved in credit analysis. A
rating is not a recommendation to purchase, sell or hold a security, because it
does not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one service, each
rating should be evaluated independently. Ratings are based on current
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information furnished by the issuer or obtained by the rating services from
other sources which they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
for other reasons. The following is a description of the characteristics of
ratings used by Moody's and S&P.
RATING BY MOODY'S
MUNICIPAL BONDS
Aaa. Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt edge.'
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa bonds or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa bonds.
CONDITIONAL RATINGS. The designation 'Con.' followed by a rating indicates
bonds for which the security depends upon the completion of some act or the
fulfillment of some condition. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. A parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of the basis of the condition.
Note: Those bonds in the Aa group which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1.
MUNICIPAL NOTES
MIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
VARIABLE AND FLOATING RATE DEMAND OBLIGATIONS
Moody's assigns a dual rating, one representing an evaluation of the degree of
risk associated with scheduled principal and interest payments and the other
representing an evaluation of the degree of risk associated with the demand
feature (VMIG) to variable and floating rate demand obligations.
Depending upon the maturity of a variable or floating rate obligation, it
is assigned either a municipal bond and VMIG rating or a municipal note and VMIG
rating. The VMIG ratings include the following:
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VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
COMMERCIAL PAPER
PRIME-1. This designation is the highest commercial paper rating assigned
by Moody's. Denotes superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2. Denotes a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
RATINGS BY S&P
MUNICIPAL BONDS
AAA. Bonds rated AAA have the highest rating. Capacity to pay interest and
repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
In order to provide more detailed indications of credit quality, the AA
rating described above may be modified by the addition of a plus or a minus sign
to show relative standing within the rating category.
PROVISIONAL RATINGS. The letter 'p' indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated
29
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
and indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, although addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
MUNICIPAL NOTES
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming safety
characteristics are designated as SP-1+.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue will be rated as a
note).
-- Source of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be rated as a note).
VARIABLE AND FLOATING RATE DEMAND OBLIGATIONS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1/A-1+).
COMMERCIAL PAPER
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designated A-1+.
30
<PAGE>
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------
Contents
- ---------------------------------------------
Investment Objective and Policies 2
- ---------------------------------------------
Management of the Fund 17
- ---------------------------------------------
Investment Advisory and Other Services 20
- ---------------------------------------------
Principal Shareholders 22
- ---------------------------------------------
Portfolio Transactions 22
- ---------------------------------------------
Shares of the Fund 23
- ---------------------------------------------
Redemption and Exchange of Shares 24
- ---------------------------------------------
Determination of Net Asset Value 24
- ---------------------------------------------
Dividends, Distributions and Taxes 26
- ---------------------------------------------
Determination of Current and Effective Yields 27
- ---------------------------------------------
Financial Statements 27
- ---------------------------------------------
Ratings of Securities 27
- ---------------------------------------------
</TABLE>
PaineWebber/
Kidder,
Peabody
California
Tax
Exempt
Money
Fund
Statement of
Additional
Information
December 1, 1995
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Contained in Part A:
Financial Highlights for the period August 17, 1987 (commencement
of operations) to July 31, 1988 and the seven fiscal years ended July
31, 1995.
Contained through incorporation by reference in Part B and filed with
the Annual Report to Shareholders with the Securities and Exchange
Commission on September 26, 1995 (EDGAR Accession No. 889812-95-000524):
Schedule of Investments at July 31, 1995.
Statement of Assets and Liabilities as of July 31, 1995.
Statement of Operations for the year ended July 31, 1995.
Statements of Changes in Net Assets for the years ended July 31,
1994 and 1995.
Financial Highlights for the period August 17, 1987 (commencement
of operations) to July 31, 1988 and the seven fiscal years ended July
31, 1995.
Report of Ernst & Young LLP, Independent Auditors, dated September
21, 1995.
Contained in Part B through incorporation by reference to
Post-Effective Amendment No. 8 to Registrant's Registration Statement on
Form N-1A as filed on November 25, 1994:
Report of Deloitte & Touche LLP, Independent Auditors, dated
September 9, 1994.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------------
<S> <C>
(1)(a) --Declaration of Trust is incorporated by reference to Exhibit 1 of the Registration Statement on
Form N-1A, filed on May 18, 1987.`D'
(1)(b) --Articles of Amendment, dated February 16, 1995.
(2) --By-Laws are incorporated by reference to Exhibit 2 of Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on June 22, 1987.
(3) --None
(4) --None
(5)(a) --Form of Investment Advisory and Administration Agreement.
(5)(b) --Form of Sub-Advisory and Sub-Administration Agreement.
(6) --Distribution Agreement.
(7) --None
(8) --Custody Agreement is incorporated by reference to Exhibit 8 of Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A, filed on November 30, 1989.
(9) --Transfer Agency Agreement.
(10a) --Opinion and consent of Stroock & Stroock & Lavan are incorporated by reference to Exhibit 10a of
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A, filed on June 22, 1987.
(10b) --Opinion and consent of Gaston Snow & Ely Bartlett are incorporated by reference to Exhibit 10b of
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A, filed on June 22, 1987.
(11)(a) --Consent of Ernst & Young LLP.
(11)(b) --Consent of Deloitte & Touche LLP.
(12) --None
(13) --Investment Representation letter is incorporated by reference to Exhibit 13 of Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A, filed on June 22, 1987.
(14) --None
</TABLE>
C-1
<PAGE>
<PAGE>
<TABLE>
<S> <C>
(15)(a) --Plan of Distribution pursuant to Rule 12b-1 dated November 16, 1988 and the amendment dated
November 15, 1989 are incorporated by reference to Exhibit 6b of Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A, filed on November 30, 1989.`D'
(15)(b) --Amendment to Plan of Distribution, dated January 30, 1995.
(16) --Schedule for computation of each performance quotation provided in the Registration Statement in
response to Item 22 is incorporated by reference to Exhibit 16 of Post-Effective Amendment No. 5 to
the Registration Statement on Form N-1A, filed on November 29, 1991.
17 --Financial Data Schedule (filed as exhibit No. 27 pursuant to EDGAR rules).
18 --Powers of Attorney.
27 --Financial Data Schedule.
</TABLE>
- ------------
`D' Refiled pursuant to rules under EDGAR
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD
TITLE OF CLASS HOLDERS AT NOVEMBER 21, 1995
- ---------------------------------------------------------------- ----------------------------
<S> <C>
Shares of beneficial interest, par value $.001 per share........ 2,255
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Article V of Registrant's Declaration of Trust and
Article VII of Registrant's By-Laws. Indemnification of the principal
underwriter against certain liabilities is provided for in the Distribution
Agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See 'Management of the Fund' in the Prospectus and 'Management of the Fund'
and 'Investment Advisory and Other Services' in the Statement of Additional
Information.
I. PaineWebber Incorporated ('PaineWebber'), a Delaware corporation, is a
registered investment adviser and is wholly owned by Paine Webber Group Inc.
PaineWebber is primarily engaged in the financial services business. Information
as to the officers and directors of PaineWebber is included in its Form ADV
filed on March 31, 1995, with the Securities and Exchange Commission
(registration number 801-7163) and is incorporated herein by reference.
II. Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a
Delaware corporation, is a registered investment adviser and is wholly owned by
PaineWebber. Mitchell Hutchins is primarily engaged in the investment advisory
business. Information as to the officers and directors of Mitchell
C-2
<PAGE>
<PAGE>
Hutchins is included in its Form ADV filed on April 3, 1995, with the Securities
and Exchange Commission (registration number 801-13219) and is incorporated
herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) PaineWebber serves as principal underwriter and/or investment adviser
for the following other investment companies:
PaineWebber CashFund, Inc.
PaineWebber Managed Municipal Trust
PaineWebber RMA Money Fund, Inc.
PaineWebber RMA Tax-Free Fund, Inc.
PaineWebber/Kidder, Peabody Cash Reserve Fund, Inc.
PaineWebber/Kidder, Peabody Municipal Money Market
Series -- Connecticut Series
PaineWebber/Kidder, Peabody Municipal Money Market Series -- New
Jersey Series
PaineWebber/Kidder, Peabody Premium Account Fund
(b) PaineWebber is the principal underwriter of the Registrant. The
directors and officers of PaineWebber, their principal business addresses, and
their positions and offices with PaineWebber are identified in its Form ADV
filed March 31, 1995, with the Securities and Exchange Commission (registration
number 801-7163), and such information is hereby incorporated herein by
reference. The information set forth below is furnished for those directors and
officers of PaineWebber who also serve as Trustees or officers of the
Registrant:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS POSITION WITH REGISTRANT WITH UNDERWRITER
- ----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Margo N. Alexander President Director and Executive Vice
1285 Avenue of the Americas President
New York, NY 10019
Frank P.L. Minard Trustee Director
1285 Avenue of the Americas
New York, NY 10019
</TABLE>
(c) None.
ITEM 30. LOCATION ON ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder will be maintained at the
offices of Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, the Fund, 1285 Avenue of the Americas, New York, New York 10019,
and PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
Not Applicable.
C-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
this City of New York, and State of New York, on the 30th day of November, 1995.
PAINEWEBBER/KIDDER, PEABODY
CALIFORNIA TAX
EXEMPT MONEY FUND
By: /S/ DIANNE E. O'DONNELL
.............................
DIANNE E. O'DONNELL,
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ------------------------------------- ------------------
<S> <C> <C>
/s/ MARGO N. ALEXANDER* President (Chief Executive Officer) November 30, 1995
..........................................
MARGO N. ALEXANDER
/s/ JULIAN F. SLUYTERS Vice President and Treasurer (Chief November 30, 1995
.......................................... Financial and Accounting Officer)
JULIAN F. SLUYTERS
/s/ DAVID J. BEAUBIEN** Trustee November 30, 1995
..........................................
DAVID J. BEAUBIEN
/s/ WILLIAM W. HEWITT, JR.** Trustee November 30, 1995
..........................................
WILLIAM W. HEWITT, JR.
/s/ THOMAS R. JORDAN** Trustee November 30, 1995
..........................................
THOMAS R. JORDAN
/s/ FRANK P.L. MINARD*** Trustee November 30, 1995
..........................................
FRANK P.L. MINARD
/s/ CARL W. SCHAFER** Trustee November 30, 1995
..........................................
CARL W. SCHAFER
</TABLE>
- ------------
* Signature affixed by Dianne E. O'Donnell pursuant to power of attorney dated
July 21, 1995 and filed herewith.
** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney dated
March 8, 1995 and filed herewith.
*** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney dated
May 18, 1995 and filed herewith.
C-4
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as .................. 'D'
The service mark symbol shall be expressed as ............ 'sm'
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------------------------------- ----
<S> <C> <C>
(1)(a) --Declaration of Trust is incorporated by reference to Exhibit 1 of the Registration Statement on
Form N-1A, filed on May 18, 1987`D'.............................................................
(1)(b) --Articles of Amendment, dated February 16, 1995..................................................
(5)(a) --Form of Investment Advisory and Administration Agreement........................................
(5)(b) --Form of Sub-Advisory and Sub-Administration Agreement...........................................
(6) --Distribution Agreement..........................................................................
(9) --Transfer Agency Agreement.......................................................................
(11)(a) --Consent of Ernst & Young LLP....................................................................
(11)(b) --Consent of Deloitte & Touche LLP................................................................
(15)(a) --Plan of Distribution pursuant to Rule 12b-1 dated November 16, 1988 and the amendment dated
November 15, 1989 are incorporated by reference to Exhibit 6b of Post-Effective Amendment No. 3
to the Registration Statement on Form N-1A, filed on November 30, 1989`D'.......................
(15)(b) --Amendment to Plan of Distribution, dated January 30, 1995.......................................
17 --Financial Data Schedule (filed as exhibit No. 27 pursuant to EDGAR rules).......................
18 --Powers of Attorney..............................................................................
27 --Financial Data Schedule.........................................................................
</TABLE>
- ------------
`D' Refiled pursuant to rules under EDGAR
<PAGE>
<PAGE>
EXHIBIT 1(a)
DECLARATION OF TRUST
OF
KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
DATED AS OF MAY 6, 1987
THE DECLARATION OF TRUST of Kidder, Peabody California Tax Exempt Money
Fund is made as of the 6th day of May, 1987 by the parties signatory hereto, as
Trustees.
WITNESSETH:
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachussets for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust assets be
divided into transferable shares of beneficial interest as hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust
all money and property contributed to the trust fund to manage and dispose of
the same for the benefit of the holders from time to time of the shares of
beneficial interest issued hereunder and subject to the provisions hereof, to
wit:
<PAGE>
<PAGE>
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is the Kidder,
Peabody California Tax Exempt Money Fund.
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) 'Adviser' means the party, other than the Trust, to the contract
described in Section 4.1 hereof.
(b) 'By-Laws' means the By-Laws referred to in Section 3.9 hereof, as
from time to time amended.
(c) The terms 'Commission', 'Affiliated Person' and 'Interested Party'
have the meanings give them in the 1940 Act.
(d) 'Custodian' means any party, other than the Trust, to any contract
described in Section 4.3 hereof.
(e) 'Declaration' means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to 'Declaration', 'hereof',
'herein' and 'hereunder' shall be deemed to refer to this Declaration
rather than the article or section in which such words appear.
(f) 'Distributor' means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(g) 'Fundamental Policies' shall mean the investment restrictions set
forth in the Prospectus and designated as fundamental policies therein.
(h) 'Majority Shareholder Vote' means the vote of the holders of a
majority of Shares, which shall consist of: (i) a majority of Shares
represented in person or by proxy and entitled to vote at a meeting of
Shareholders at which a quorum, as determined in accordance with the
By-Laws, is present; (ii) a majority of Shares issued and outstanding and
entitled to vote when action is taken by written consent of Shareholders;
and (iii) a 'majority of the outstanding voting securities', as that phrase
is defined in the 1940 Act, when action is taken by Shareholders with
respect to matters requiring such a vote pursuant to the 1940 Act.
2
<PAGE>
<PAGE>
(i) '1940 Act' means the Investment Company Act of 1940 and the rules
and regulations thereunder as amended from time to time.
(j) 'Person' means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
(k) 'Prospectus' means the prospectus, and any statement of additional
information and any information or document incorporated by reference
therein, constituting part of the Registration Statement of the Trust under
the Securities Act of 1933 as such prospectus as may be amended or
supplemented and filed with the Commission from time to time.
(l) 'Shareholder' means a record owner of outstanding Shares.
(m) 'Shares' means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares. Shares have a designated par
value of $.001 per Share.
(n) 'Transfer Agent' means the party, other than the Trust, to the
contract described in Section 4.4 hereof.
(o) 'Trust' means the Kidder, Peabody California Tax Exempt Money
Fund.
(p) 'Trust Property' or 'Trust Estate' means any and all property,
real or personal, tangible or intangible, which is owned or held by or for
the account of the Trust of the Trustees.
(q) 'Trustees' means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in their capacity as trustees hereunder.
3
<PAGE>
<PAGE>
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees then in office, provided, however, that the number of
Trustees shall in no event be less than two (2) or more than fifteen (15).
Section 2.2. Election and Term. The Trustees shall adopt By-Laws not
inconsistent with this Declaration of any provision of law to provide for
election of Trustees by Shareholders at such time or times as the Trustees shall
determine to be necessary or advisable. The Trustees shall have the power to set
and alter the terms of office of the Trustees, and they may at any time lengthen
or lessen their own terms or make their terms of unlimited duration, subject to
the resignation and removal provision of Section 2.3 hereof. Subject to Section
16(a) of the 1940 Act, the Trustees may elect their own succesors and may,
pursuant to Section 2.4. hereof, appoint Trustees to fill vacancies.
Section 2.3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number of
Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) with cause, by the action of two-thirds of the remaining
Trustees. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in the name of the resigning
Trustees. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.
4
<PAGE>
<PAGE>
Section 2.4. Vacancies. The term of office of a Trustee shall terminate and
a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjucated incompetence or other incapacity to perform the duties of
the office of a Trustee. No such vacancy shall operate to annul the Declaration
or to revoke any existing agency created pursuant to the terms of the
Declaration. In the case of an existing vacancy, including a vacancy existing by
reason of an increase in the number of Trustees, subject to the provisions of
Section 16(a) of the 1940 Act, the remaining Trustees or, prior to the public
offering of Shares of the Trust, if only one Trustee shall then remain in
office, the remaining Trustee, shall fill such vacancy by the appointment of
such other person as they or he, in their or his discretion shall see fit, made
by a written instrument signed by a majority of the remaining Trustees or by the
remaining Trustee, as the case may be. Any such appointment shall not become
effective, however, until the person named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of the Declaration. An appointment of a Trustee
may be made in anticipation of a vacancy to occur at a later date by reason of
retirement, resignation or increase in the number of Trustees, provided that
such appointment shall not become effective prior to such retirement,
resignation or increase in the number of Trustees. Whenever a vacancy in the
number of Trustees shall occur, until such vacancy is filled as provided in this
Section 2.4., the Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the duties imposed
upon the Trustees by the Declaration. A written instrument certifying the
existence of such vacancy signed by a majority of the Trustees shall be
conclusive evidence of the existence of such vacancy.
Section 2.5. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than (2) Trustees personally exercise the powers granted to the Trustees
under the Declaration except as herein otherwise expressly provided.
5
<PAGE>
<PAGE>
ARTICLE III
POWER OF TRUSTEES
Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, in foreign countries and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign governments, and to do all such other things
and execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of the Declaration, the presumption shall be
in favor of a grant of power to the Trustees. The enumeration of any specific
power shall not be construed as limiting the aforesaid power. Such powers of the
Trustees may be exercised without order of or resort to any court.
Section 3.2. Investments. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of any investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of securities, negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of
deposits or indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, options and other securities and commodities and
commodities futures contract of any kind, including,
6
<PAGE>
<PAGE>
without limitation, those issued, guaranteed or sponsored by any and all
Persons including, without limitation, states, territories and possessions
of the United States, the District of Columbia and any of the political
subdivisions, agencies or instrumentalities, or by any bank or savings
institution, or by any corporation or organization organized under foreign
laws, or in 'when issued' or 'delayed delivery' contracts for any such
securities, or retain Trust assets in cash and from time to time change the
investments of the assets of the Trust; and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any and all
such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more persons, firms, associations or
corporations to exercise any of said rights, powers and privileges in
respect of any of said instruments; and the Trustees shall be deemed to
have the foregoing powers with respect to any additional securities in
which the Trust may invest should the Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by any
law limited the investments which may be made by fiduciaries.
Section 3.3. Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
7
<PAGE>
<PAGE>
Section 3.4. Issuance and Repurchase of Securities. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VII, VIII and IX hereof, to apply to any
such repurchase, redemption, retirement, cancellation or acquisition of Shares
any funds or property of the Trust, whether capital or surplus or otherwise, to
the full extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
Section 3.5. Borrowing Money; Lending Trust Assets. Subject to the
Fundamental Policies, the Trustees shall have power to borrow money or otherwise
obtain credit and to secure the same by mortgaging, pledging or otherwise
subjecting as securities the assets of the Trust, to endorse, guarantee, or
undertake the performance of any obligation, contract or engagement of any other
Person and to lend Trust assets.
Section 3.6. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient.
Section 3.7. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any securities interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 3.8. Expenses. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of the Declaration, to enter into a plan of
distribution and any related agreements whereby the Trust may finance directly
or indirectly any activity which is primarily intended to result in the sale of
shares, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
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Section 3.9. Manner of Acting; By-Laws. Except as otherwise provided herein
or in the By-Laws or by any provision of law, any action to be taken by the
Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consents of all the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
Section 3.10. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, managers, investment advisers, distributors, selected dealers or
independent contractors of the Trust against all claims arising by reason of
holding any such position or by reason of any action taken or omitted to be
taken by any such Person in such capacity, whether or not constituting
negligence, or whether or note the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, Share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including the Adviser,
Distributor, Custodian, Transfer, Agent and selected dealers, to such extent as
the Trustees shall determine; (g) guarantee indebtedness or contractual
obligations of others; (h) determine and change the fiscal year of the Trust and
the method by which its accounts shall be kept; and (i) adopt a seal for the
Trust, but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
Section 3.11. Principal Transactions. Except in transactions permitted by
the 1940 Act or any order of exemption issued by the Commission, or effected to
implement the provisions
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of any agreement to which the Trust is a party, the Trustees shall not, on
behalf of the Trust, buy any securities (other than Shares) from or sell any
securities (other than Shares) to, or lend any assets of the Trust to, any
Trustee or officer of the Trust or any firm of which any such Trustee or officer
is a member acting as principal, or have any dealings with the Adviser,
Distributor or Transfer Agent or with any Affiliated Person of such Person; but
the Trust may employ any such Person, or firm or company in which such Person is
an Interested Person, as broker, legal counsel, registrar, transfer agent,
dividend disbursing agent or custodian upon customary terms.
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ARTICLE IV
ADVISER, DISTRIBUTOR, CUSTODIAN AND TRANSFER AGENT
Section 4.1. Adviser. Subject to the requirements of the 1940 Act, the
Trustees may in their discretion from time to time enter into an investment
advisory or management contract or contracts whereby the other party to such
contract shall undertake to furnish the Trust such management, investment
advisory, administration, accounting, legal, statistical and research facilities
and services, promotional activities, and such other facilities and services, if
any, as the Trustees shall from time to time consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine, and
such management, advisory and administrative services may be provided by one or
more persons. Notwithstanding any provision of the Declaration, the Trustees may
authorize the Adviser (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of Portfolio securities of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of the Adviser (and all without
further action by the Trustees). Any such purchases, sales, loans and exchanges
shall be deemed to have been authorized by all of the Trustees. The Trustees
may, in their sole discretion, call a meeting of Shareholders in order to submit
to a vote of Shareholders at such meeting the approval or continuance of any
such investment advisory or management contract.
Section 4.2. Distributor. The Trustees may in their discretion from time to
time enter into a distribution contract or contracts providing for the sale of
Shares to net the Trust not less than the net asset value per share (as
described in Article VIII hereof) and pursuant to which the Trust may either
agree to sell the Shares to the other party to the contract or appoint such
other party its sale agent for such Shares. In either case, the contract shall
be on such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this Article IV.
Section 4.3. Custodian. The Trustees may in their discretion from time to
time enter into a custodian contract or contracts whereby the other party or
parties to any such contract shall undertake to furnish custodian services to
the Trust, including holding the Trust's portfolio securities and cash and
maintaining books and records with respect to the Trust's portfolio
transactions. Any such contract shall have such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the
Declaration. The By-Laws may make further provisions as to the duties and
appointment of any custodian.
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Section 4.4. Transfer Agent. The Trustees may in their discretion from time
to time enter into a transfer agency and shareholder service contract or
contracts whereby the other party to any such contract shall undertake to
furnish transfer agency and shareholder services to the Trust. Any such contract
shall have such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the Declaration. Such services may be provided
by one or more Persons.
Section 4.5. Parties to Contract. Any contract of the character described
in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV and any other contract may be
entered into with any Person, although one or more of the Trustees or officers
of the Trust may be such other party to the contract or an officer, director,
trustee, shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered voidable by reason of the existence of
any such relationship; nor shall any Person holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust under
or by reason of said contract or accountable for any profit realized directly
or indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article IV. The same Person may be
the other party to any contracts entered into pursuant to Sections 4.1, 4.2, 4.3
and 4.4 above or otherwise, and any Trustee, officer, employee or agent of the
Trust may be financially interested or otherwise affiliated with Persons
who are parties to any and all of the contracts mentioned in this Section 4.5.
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ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholders; Indemnification of
Shareholders. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or affairs of the
Trust. If any Shareholder, as such, of the Trust is made a party to any suit or
proceeding to enforce any personal liability, such Shareholder shall not, on
account thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and liabilities
to which such Shareholder may become subject by reason of his being or having
been a Shareholder and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability, and upon request of such Shareholder, the Trust shall assume the
defense of any claim made against such Shareholder by reason of his being or
having been a Shareholder; provided that any such expenses shall be paid solely
out of the Trust Property with respect to which such Shareholder's Shares are
issued. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
Section 5.2. Non-Liability of Trustees, etc. No Trustee, officer, or
employe of the Trust shall be subject to any personal liability whatsoever to
any Person (other than to the Trust or its Shareholders and then only that
arising from bad faith, wilful misfeasance, gross negligence or reckless
disregard for his or its duty to such Person) in connection with Trust Property
or the affairs of the Trust, and all Persons (other than the Trust and its
Shareholders) shall look solely to the Trust Property for satisfaction of claims
of any nature arising in connection with the affairs of the Trust. If any
Trustee, officer, or employee, as such, of the Trust is made a party to any suit
or proceeding to enforce any personal liability, such Trustee, officer or
employee shall not, on account thereof, be held to any personal liability. No
Trustee, officer, or employee of the Trust shall be liable to the Trust, its
shareholders, or to any Shareholder, Trustee, officer, or employee thereof for
any action or failure to act (including without limitation the failure to compel
in any way former or acting Trustee to redress any breach of trust) except for
his own bad faith, wilful misfeasance, gross negligence or reckless disregard of
his duties.
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Section 5.3. Indemnification.
(a) The Trustees shall provide for indemnification by the Trust of every
person who is, or has been, a Trustee or officer or employee of the Trust
against all liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof, in such manner not otherwise prohibited or limited by law as the
Trustees may provide from time to time in the By-Laws.
(b) The words 'claim,' 'action,' 'suit,' or 'proceeding' shall apply to all
claims, actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words 'liability' and 'expenses' shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
Section 5.4. No Bond Required of Trustees. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.
Section 5.5. No Duty of Investigation; Notice in Trust Instruments, etc. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed or done in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under the Declaration or in their capacity as
officers, employees or agents of the Trust. Every written obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking made
or issued by the Trustees shall recite that the same is executed or made by them
not individually, but as Trustees under the Declaration, and that the
obligations of any such instrument are not binding upon any of the Trustees or
Shareholders, individually, but bind only the Trust Estate, and may contain any
further recital which they or he may deem appropriate, but the omission of such
recital shall not operate to
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bind the Trustees or Shareholders individually. The Trustees may maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
Section 5.6. Reliance on Experts, etc. Each Trustee and officer or employee
of the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by the Adviser, the Distributor, the Custodian,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
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ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest of
$.001 par value. The number of such shares of beneficial interest authorized
hereunder is unlimited. The trustees may initially issue whole and fractional
shares of a single class, each of which shall represent an equal proportionate
shares in the Trust with each other Share. The Trustees may divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Trust. All Shares issued hereunder
including, without limitation, Shares issued in connection with a dividend in
Shares or a split in Shares, shall be fully paid and non-assessable.
Section 6.2. Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares,
and they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Trust nor can they be called upon
to assume any losses of the Trust or suffer an assessment of any kind by virtue
of their ownership of Shares. The Shares shall be personal property giving only
the rights in the Declaration specifically set forth. The Shares shall be
entitle the holder to preference, premptive, appraisal, conversion or exchange
rights. Upon liquidation of the Trust, holders of the Shares are entitled to
share pro rata in the net assets of the Trust available for distribution to the
holders.
Section 6.3. Trust Only. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
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Section 6.4. Issuance of Shares. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times (including, without limitation, each business
day in accordance with the maintenance of a constant net asset value per Share),
and on such terms as the Trustees may deem best, and may in such manner acquire
other assets (including the acquisition of assets subject to, and in connection
with the assumption liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares. The Trustees may from time
to time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust. Reductions
in the number of outstanding Shares may be made pursuant to the provisions of
Section 8.3 in order to maintain a constant net asset value per Share.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or fractions of a Shares as described in the Prospectus.
Section 6.5. Register of Shares. A register shall be kept at the principal
office of the Trust or at an office of the Transfer Agent which shall contain
the names and addresses of the Shareholders and the number of Shares held by
them respectively and a record of all transfer thereof. Such register may be in
written form or any other form capable of being converted into written form
within a reasonable time for visual inspection. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-Laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of Share
certificates and promulgate appropriate rules and regulations as to their use.
Section 6.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or to the Transfer
Agent of a duly executed instrument of transfer, together with such evidence
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of the genuineness of each such execution and authorization and of other matters
as may reasonably be required. Upon such delivery the transfer shall be recorded
on the register of the Trust. Until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes
hereunder and neither the Trustees nor any Transfer Agent or registrar nor any
officer, employee or agent of the Trust shall be affected by any notice of the
proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law, except as may otherwise be provided by the laws of
the Commonwealth of Massachusetts.
Section 6.7. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 6.8. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Section 2.2 hereof, (ii) with
respect to any investment advisory or management contract as provided in Section
4.1 or any plan of distribution adopted pursuant to Rule 12b-1 under the 1940
Act, (iii) with respect to termination of the Trust as provided in Section 9.2,
(iv) with respect to any amendment of the Declaration to the extent and as
provided in Section 9.3, (v) with respect to any merger, consolidation or sale
of assets as provided in Section 9.4, (vi) with respect to incorporation of the
Trust to the extent and as provided in Section 9.5, (vii) to the same extent as
the stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (viii) with respect to such additional matter relating to the Trust as may
be required by law, the Declaration, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state, or as and when
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that Shares held in the treasury of the Trust as of the record date, as
determined in
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accordance with By-Laws, shall not be voted. There shall be no cumulative voting
in the election of Trustees. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, the
Declaration or the By-Laws to be taken by Shareholders. The By-Laws may include
further provisions for Shareholders' votes and meetings and related matters.
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ARTICLE VII
Redemptions
7.1. Redemptions. All outstanding Shares may be redeemed at the option of
the holders thereof, upon and subject to the terms and conditions provided in
this Article VII. The Trust shall, upon application of any Shareholder or
pursuant to authorization from any Shareholder, redeem or repurchase from such
Shareholder outstanding Shares for an amount per share determined by the
Trustees in accordance with any applicable laws and regulations; provided that
(a) such amount per share shall not exceed the cash equivalent of the
appropriate interest of each Share in the assets of the Trust at the time of the
redemption or repurchase and (b) if so authorized by the Trustees, the Trust
may, at any time and from time to time, charge fees for effecting such
redemption or repurchase, at such rates as the Trustees may establish, as and to
the extent permitted under the 1940 Act, and may, at any time and from time to
time, pursuant to the 1940 Act, suspend such right of redemption. The procedures
for and fees, if any, chargeable in connection with effecting and suspending
redemption shall be set forth in the Prospectus from time to time. Payment will
be made in such manner as described in the Prospectus.
7.2. Redemption of Shares; Disclosure of Holdings. If the Trustees shall,
at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust sufficient, in the opinion of the Trustees, to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question could in the opinion of the Trustees result in such disqualification.
The redemption shall be effected at a redemption price determined in accordance
with Section 7.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other authority.
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Section 7.3. Redemptions of Accounts. The Trustees may redeem Shares of any
Shareholder in accordance with Section 7.1 if, immediately following a
redemption of Shares for any reason, the aggregate net asset value of the Shares
in such Shareholder's account is less than an amount determined by the Trustees.
If the Trustees redeem Shares pursuant to this Section 7.3, a Shareholder will
be notified that the value of his account is less than such amount and be
allowed sixty (60) days to make an additional investment before redemption is
processed.
Section 7.4. Redemptions Pursuant to Constant Net Asset Value Provisions.
The Trust may also reduce the number of outstanding Shares pursuant to the
provisions of Section 8.3.
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ARTICLE VIII
Determination of Net Asset Value,
Net Income and Distributions
Section 8.1. Net Asset Value. The net asset value of each outstanding Share
of the Trust shall be determined on such days and at such time or times as the
Trustees may determine. The method of determination of net asset value shall be
determined by the Trustees and shall be as set forth in the Prospectus. The
power and duty to make the daily calculations may be delegated by the Trustees
to the Adviser, the Custodian, the Transfer Agent or such other person as the
Trustees by resolution may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
Section 8.2. Distributions to Shareholders. The Trustees shall from time to
time distribute ratably among the Shareholders such proportion of the net
profits, surplus (including paid-in surplus), capital, or assets held by the
Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation any type of obligations of the Trust of
any assets thereof), and the Trustees may distribute ratably among the
Shareholders additional Shares issuable hereunder in such manner, at such times,
and on such terms as the Trustees may deem proper. Such distributions may be
among the Shareholders of record at the time of declaring a distribution or
among the Shareholders of record at such later date as the Trustees shall
determine. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.
The Trustees may adopt and offer to Shareholders such dividend reinvestment
plan, cash dividend payout plans or related plans as the Trustees shall deem
appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
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Section 8.3. Determination of Net Income; Reduction of Outstanding Shares.
The Trustees shall have the power to determine the net income of the Trust one
or more times on each business day and at each such determination declare such
net income as dividends in additional Shares. The determination of net income
and the resultant declaration of dividends shall be set forth in the Prospectus.
It is expected that the Trust will have a positive net income at the time of
each determination. If for any reason the net income of the Trust is a negative
amount, the Trust shall have authority to reduce the number of its outstanding
Shares. Such reduction will be effected by having each Shareholder
proportionately contribute to the Trust's capital the necessary Shares that
represent the amount of the excess upon such determination. Each Shareholder
will be deemed to have agreed to such contribution in these circumstances by his
investment in the Trust. The cash or property received shall be treated as
income or as principal and whether any item of expenses shall be charged to the
income or the principal account, and their determination made in good faith
shall be conclusive upon the Shareholders. In the case of stock dividends
received, the Trustees shall have full discretion to determine, in the light of
the particular circumstances, how much, if any, of the value thereof shall be
treated as income, the balance, if any, to be treated as principal.
Section 8.4. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and time for determining the per
Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distribution, as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, including any
rule or regulation adopted pursuant to Section 22 of the 1940 Act by the
Commission or any securities association registered under the Securities
Exchange Act of 1934, or any order of exemption issued by said Commission, all
as in effect now or hereafter amended or modified.
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ARTICLE IX
Duration; Termination of
Trust; Amendment; Mergers, etc.
Section 9.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust. (a) The Trust may be terminated (i) by
the affirmative vote of the holders of not less than two-thirds of the Shares
outstanding and entitled to vote at any meeting of Shareholders, or (ii) by an
instrument in writing, without a meeting, signed by a majority of the Trustees
and consented to by the holders of not less than two-thirds of such Shares, or
(iii) by the Trustees by written notice to the Shareholders. Upon the
termination of the Trust,
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of
all or any part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay
its liabilities, and to do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require Shareholder approval in accordance with Section 9.4
hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
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(b) After termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
Section 9.3. Amendment Procedure. (a) This Declaration may be amended by a
Majority Shareholder Vote. The Trustees may also amend this Declaration without
the vote or consent of Shareholders to change the name of the Trust, to supply
any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal or state laws or
regulations, to reduce or eliminate federal, state or local taxes payable by the
Trust or any of its Shareholders or the requirements of the regulated investment
company provisions of the Internal Revenue Code, but the Trustees shall not be
liable for failing to do so.
(b) No amendment may be made under this Section 9.3 which would change any
rights with respect to any Shares of the Trust by reducing the amount payable
thereon upon liquidation of the Trust or by diminishing or eliminating any
voting rights pertaining thereto, except with the vote or consent of the holders
of two-thirds of the Shares outstanding and entitled to vote. Nothing contained
in this Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the Secretary
or any Assistant Secretary of the Trust, setting forth an amendment and reciting
that it was duly adopted by the Shareholders or by the Trustees as aforesaid or
a copy of the Declaration, as amended, and executed by a majority of the
Trustees or certified by the Secretary or any Assistant Secretary of the Trust,
shall be conclusive evidence of such amendment when lodged among the records of
the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
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Section 9.4. Merger, Consolidation and Sale of Assets. The Trust may merge
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized, at any meeting of Shareholders called
for the purpose, by the affirmative vote of the holders of not less than
two-thirds of the Share outstanding and entitled to vote, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares; provided, however, that, if such merger,
consolidation, sale, lease or exchange is recommended by the Trustees, a
Majority Shareholder vote shall be sufficient authorization. In respect of any
such merger, consolidation sale or exchange of assets, any Shareholder shall be
entitled to rights of appraisal of his Shares to the same extent as a
shareholder of a Massachusetts business corporation in respect of a merger,
consolidation, sale or exchange of assets of Massachusetts business corporation,
and such rights shall be his exclusive remedy in respect of his dissent from any
such action.
Section 9.5. Incorporation. With approval of a Majority Shareholder Vote,
or by such other vote as may be established by the Trustees, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the Shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization in which the Trust holds or its about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one of more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organization or
entities.
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ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
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ARTICLE XI
MISCELLANEOUS
Section 11.1. Filing. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee or by the Secretary or any Assistant Secretary of the
Trust stating that such action was duly taken in a manner provided herein, and
unless such amendment or such certificate sets forth some later time for the
effectiveness of such amendment, such amendment shall be effective upon its
filing. A restated Declaration, integrating into a single instrument all of the
provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of the Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may thereafter be referred to in lieu of
the original Declaration and the various amendments thereto.
Section 11.2. Resident Agent. The name of the Trust's resident agent is CT
Corporation System, and its post office is 2 Oliver Street, Boston,
Massachusetts 02109.
Section 11.3. Governing Law. This Declaration is executed by the Trustees
with reference to the laws of the Commonwealth of Massachusetts, and the rights
of all parties and validity and construction of every provision hereof shall be
subject to and construed according to the laws of said State.
Section 11.4. Counterparts. The Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
Section 11.5. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, or Secretary or Assistant Secretary of the Trust, certifying to: (a)
the number or identity of Trustees or Shareholders, (b) the due authorization of
the execution of any instrument or writing, (c) the form of any vote passed at a
meeting of Trustees or
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Shareholders, (d) the fact that the number of the Trustees or Shareholders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by or the
identity of any officers elected by the Trustees, or (f) the existence of any
fact which in any manner related to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any Person
dealing with the Trustees and their successors.
Section 11.6. Provisions in Conflict with Law or Regulations. (a) The
provisions of the Declaration are severable, and if the Trustee shall determine,
with the advice of counsel, that any of such provisions is in conflict with the
1940 Act, the regulated investment company provisions of the Internal Revenue
Code or with other applicable laws and regulations, the conflicting provisions
shall be deemed never to have constituted a part of the Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of the Declaration or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attain only to such provision in such jurisdiction and shall not in any manner
affect such provision of the Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 6th
day of May, 1987.
/s/ , as Trustee
and not individually
20 Exchange Place
New York, New York 10005
/s/ , as Trustee
and not individually
20 Exchange Place
New York, New York 10005
29
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<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 6th day of May, 1987, James D. Taliaferro and Gilbert R. Ott, Jr.,
known to me and known to be the individuals described in and who executed the
foregoing instrument, personally appeared before me and they severally
acknowledged the foregoing instrument to be their free act and deed.
/s/
.....................................
Notary Public
PETER F. BOUGDANOS
Notary Public, State of New York
No. 01BO4838790
Qualified in Queens County
Certificate Filed in New York County
Commission Expires October 31, 1989
My commission expires: ..............
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IN WITNESS WHEREOF, the undersigned has executed this instrument this 7th
day of May, 1987.
/s/ , as Trustee
and not individually
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston MA
May 7th, 1987
Then personally appeared the above-named
who acknowledged the foregoing instrument to
be his free act and deed, before me,
/s/ JANICE M. MAHONEY
.....................................
Notary Public
My commission expires: ...............
31
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Exhibit 1(b)
CERTIFICATE OF AMENDMENT
OF
DECLARATION
OF
KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
The undersigned, being a Trustee of Kidder, Peabody California Tax Exempt
Money Fund (the 'Trust'), a Massachusetts business trust, hereby certifies
pursuant to Section 9.3 of Article IX and Section 11.1 of Article XI of the
Declaration of Trust of KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND, that
the Trustees of the Trust have duly adopted at the Board of Trustees meeting
held on December 14, 1994 (adjourned to December 16, 1994) and ratified at the
Board of Trustees meeting held on January 25, 1995 the following amendment to
the Declaration of Trust of the Trust dated the 6th day of May 1987, in the
manner provided in such Declaration of Trust.
VOTED: that the Declaration of Trust dated May 6, 1987 be, and it hereby is,
amended to change the name of the Trust from 'Kidder, Peabody California
Tax Exempt Money Fund' to 'Paine Webber/Kidder, Peabody California Tax
Exempt Money Fund' in the following manner:
Section 1.1. Name. The name of the trust created hereby is the
'PaineWebber/Kidder, Peabody California Tax Exempt Money Fund'.
Section 1.2(o) of Article I of the Declaration of Trust is hereby
amended to read as follows:
(o) 'Trust' means 'PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund'.
IN WITNESS WHEREOF, the undersigned, being a Trustee of the Trust, has
signed this Certificate of Amendment in duplicate, as of the 16th day of
February, 1995.
/s/ Thomas R. Jordan
-------------------------
Trustee
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EXHIBIT 5(a)
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of April 13, 1995 between PAINEWEBBER/KIDDER, PEABODY
CALIFORNIA TAX EXEMPT MONEY FUND, a Massachusetts business trust ('Fund'), and
PAINEWEBBER INCORPORATED ('Manager'), a Delaware corporation registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended ('1934
Act'), and as an investment adviser under the Investment Advisers Act of 1940,
as amended.
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ('1940 Act'), as an open-end management investment company, and intends
to offer for public sale distinct shares of beneficial interest ('Shares'); and
WHEREAS the Fund desires to retain Manager as investment adviser and
administrator to furnish certain administrative, investment advisory and
portfolio management services to the Fund and Manager is willing to furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Manager as investment adviser
and administrator of the Fund for the period and on the terms set forth in
this Contract. Manager accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Duties as Investment Adviser.
(a) Subject to the supervision of the Fund's Board of Trustees
('Board'), Manager will provide a continuous investment program for the
Fund, including investment research and management with respect to all
securities and investments and cash equivalents in the Fund. Manager will
determine from time to time what securities and other investments will be
purchased, retained or sold by the Fund.
(b) Manager agrees that in placing orders with brokers, it will
attempt to obtain the best net result in terms of price and
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execution; provided that, on behalf of the Fund, Manager may, in its
discretion, use brokers who provide the Fund with research, analysis,
advice and similar services to execute portfolio transactions on behalf of
the Fund, and Manager may pay to those brokers in return for brokerage and
research services a higher commission than may be charged by other brokers,
subject to Manager's determining in good faith that such commission is
reasonable in terms either of the particular transaction or of the overall
responsibility of Manager to the Fund and its other clients and that the
total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term. In no instance will portfolio
securities be purchased from or sold to Manager, or any affiliated person
thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder, or any applicable exemptive orders.
Whenever Manager simultaneously places orders to purchase or sell the same
security on behalf of the Fund and one or more other accounts advised by
Manager, such orders will be allocated as to price and amount among all
such accounts in a manner believed to be equitable to each account. The
Fund recognizes that in some cases this procedure may adversely affect the
results obtained for the Fund.
(c) Manager will oversee the maintenance of all books and records with
respect to the securities transactions of the Fund, and will furnish the
Board with such periodic and special reports as the Board reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Manager hereby agrees that all records which it maintains for the Fund
are the property of the Fund, agrees to preserve for the periods prescribed
by Rule 3la-2 under the 1940 Act any records which it maintains for the
Fund and which are required to be maintained by Rule 3la-1 under the 1940
Act and further agrees to surrender promptly to the Fund any records which
it maintains for the Fund upon request by the Fund.
(d) Manager will oversee the computation of the net asset value and
the net income of the Fund as described in the currently effective
registration statement of the Fund under the Securities Act of 1933, as
amended, and the 1940 Act and any supplements thereto ('Registration
Statement') or as more frequently requested by the Board.
(e) The Fund hereby authorizes Manager and any entity or person
associated with Manager which is a member of a national securities exchange
to effect any transaction on such exchange for the account of the Fund,
which transaction is permitted by Section 11(a) of the 1934 Act, and the
Fund hereby consents to the retention of compensation by Manager or any
person or entity associated with Manager for such transaction.
2
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3. Duties as Administrator. Manager will administer the affairs of the
Fund subject to the supervision of the Board and the following
understandings:
(a) Manager will supervise all aspects of the operations of the
Fund, including oversight of transfer agency, custodial and accounting
services, except as hereinafter set forth; provided, however, that
nothing herein contained shall be deemed to relieve or deprive the
Board of its responsibility for and control of the conduct of the
affairs of the Fund.
(b) Manager will provide the Fund with such corporate,
administrative and clerical personnel (including officers of the Fund)
and services as are reasonably deemed necessary or advisable by the
Board, including the maintenance of certain books and records of the
Fund.
(c) Manager will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as applicable) of the
Fund's Registration Statement, proxy material, tax returns and
required reports to the Fund's shareholders and the Securities and
Exchange Commission and other appropriate federal or state regulatory
authorities.
(d) Manager will provide the Fund with, or obtain for it,
adequate office space and all necessary office equipment and services,
including telephone service, heat, utilities, stationery supplies and
similar items.
(e) Manager will provide the Board on a regular basis with
economic and investment analyses and reports and make available to the
Board upon request any economic, statistical and investment services
normally available to institutional or other customers of Manager.
4. Further Duties. In all matters relating to the performance of this
Contract, Manager will act in conformity with the Declaration of Trust,
By-Laws and currently effective Registration Statement of the Fund, as
delivered to Manager and upon which it shall be entitled to rely, and with
the instructions and directions of the Board, and will comply with the
requirements of the 1940 Act, the rules thereunder, and all other
applicable federal and state laws and regulations.
5. Delegation of Manager's Duties as Investment Adviser and
Administrator. Manager may enter into one or more contracts ('Sub-Advisory
or Sub-Administration Contract') with a sub-adviser or sub-administrator in
which Manager delegates to such sub-adviser or sub-administrator any or all
of its duties specified in Paragraphs 2 and 3 of this Contract, provided
that each Sub-Advisory or Sub-Administration Contract imposes on the
sub-adviser or sub-
3
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administrator bound thereby all the duties and conditions to which Manager
is subject by Paragraphs 2, 3 and 4 of this Contract, and further provided
that each Sub-Advisory or Sub-Administration Contract meets all
requirements of the 1940 Act and rules thereunder.
6. Services Not Exclusive. The services furnished by Manager hereunder
are not to be deemed exclusive and Manager shall be free to furnish similar
services to others so long as its services under this Contract are not
impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Manager, who may also be a
Trustee, officer or employee of the Fund, to engage in any other business
or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or
dissimilar nature.
7. Expenses.
(a) During the term of this Contract, the Fund will bear all expenses,
not specifically assumed by Manager, incurred in its operations and the
offering of its shares.
(b) Expenses borne by the Fund will include but not be limited to the
following (or the Fund's proportionate share of the following): (i) the
cost (including brokerage commissions) of securities purchased or sold by
the Fund and any losses incurred in connection therewith; (ii) fees payable
to and expenses incurred on behalf of the Fund by Manager under this
Contract; (iii) expenses of organizing the Fund; (iv) filing fees and
expenses relating to the registration and qualification of the Fund's
shares and the Fund under federal and/or state securities laws and
maintaining such registration and qualification; (v) fees and salaries
payable to the Fund's Trustees and Officers who are not interested persons
of the Fund or Manager; (vi) all expenses incurred in connection with the
Trustees' services, including travel expenses in the case of Trustees who
are not interested persons of the Fund or Manager; (vii) taxes (including
any income or franchise taxes) and governmental fees; (viii) costs of any
liability, uncollectible items of deposit and other insurance and fidelity
bonds; (ix) any costs, expenses or losses arising out of a liability of or
claim for damages or other relief asserted against the Fund for violation
of any law and any indemnification relating thereto; (x) legal, accounting
and auditing expenses, including legal fees of special counsel for those
Trustees of the Fund who are not interested persons of the Fund; (xi)
charges of custodians, transfer agents and other agents; (xii) costs of
preparing share certificates; (xiii) expenses of setting in type and
printing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials for
existing shareholders; (xiv) costs of mailing prospectuses and supplements
4
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<PAGE>
thereto, statements of additional information and supplements thereto,
reports and proxy materials to existing shareholders; (xv) any
extraordinary expenses (including fees and disbursements of counsel, costs
of actions, suits or proceedings to which the Fund is a party and the
expenses the Fund may incur as a result of its legal obligation to provide
indemnification to its officers, Trustees, agents and shareholders or to
Manager) incurred by the Fund; (xvi) fees, voluntary assessments and other
expenses incurred in connection with membership in investment company
organizations; (xvii) cost of mailing and tabulating proxies and costs of
meetings of shareholders, the Board and any committees thereof; (xviii) the
cost of investment company literature and other publications provided by
the Fund to its Trustees and officers; (xix) costs of mailing, stationery
and communications equipment; (xx) expenses incident to any dividend,
withdrawal or redemption options; (xxi) charges and expenses of any outside
pricing service used to value portfolio securities and (xxii) interest on
borrowings of the Fund.
(c) Manager will assume the cost of any compensation for services
provided to the Fund received by the officers of the Fund and by those
Trustees who are interested persons of the Fund.
(d) The payment or assumption by Manager of any expenses of the Fund
that Manager is not required by this Contract to pay or assume shall not
obligate Manager to pay or assume the same or any similar expense of the
Fund on any subsequent occasion.
8. Compensation.
(a) For the services provided and the expenses assumed pursuant to
this Contract with respect to the the Fund, the Fund will pay to Manager a
fee, computed daily and paid monthly, at an annual rate of .50% of the
Fund's average daily net assets.
(b) The fee shall be computed daily and paid monthly to Manager on or
before the first business day of the next succeeding calendar month.
(c) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective day to the end of the
month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such
period bears to the full month in which such effectiveness or termination
occurs.
9. Limitation of Liability of Manager. Manager and its delegates,
including any Sub-Adviser or Sub-Administrator to the Fund, shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund or any of its shareholders, in connection with the matters to
which this Contract relates, except to the extent that such a loss results
from willful
5
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<PAGE>
misfeasance, bad faith or gross negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and
duties under this Contract. Any person, even though also an officer,
director, employee, or agent of Manager, who may be or become an officer,
Trustee, employee or agent of the Fund shall be deemed, when rendering
services to the Fund or acting with respect to any business of the Fund, to
be rendering such service to or acting solely for the Fund and not as an
officer, director, employee, or agent or one under the control or direction
of Manager even though paid by it.
10. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove
written provided that, with respect to the Fund, this Contract shall not
take effect unless it has first been approved (i) by a vote of a majority
of those Trustees of the Fund who are not parties to this Contract or
interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by vote of a majority of
the Fund's outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter,
if not terminated, this Contract shall continue automatically for
successive periods of twelve months each, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of
those Trustees of the Fund who are not parties to this Contract or
interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval (ii) by the Board or by vote of
a majority of the outstanding voting securities of the Fund with respect to
the Fund.
(c) Notwithstanding the foregoing, with respect to the Fund this
Contract may be terminated at any time, without the payment of any penalty,
by a vote of the outstanding voting securities of the Fund on sixty days'
written notice to Manager or by Manager at any time, without the payment of
any penalty, on sixty days' written notice to the Fund. This Contract will
automatically terminate in the event of its assignment.
11. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no material amendment of
this Contract as to the Fund shall be effective until approved by vote of a
majority of the Fund's outstanding voting securities.
6
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12. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts
of laws principles thereof, and in accordance with the 1940 Act, provided,
however, that Section 13 below will be construed in accordance with the
laws of the Commonwealth of Massachusetts. To the extent that the
applicable laws of the State of Delaware or the Commonwealth of
Massachusetts conflict with the applicable provisions of the 1940 Act, the
latter shall control.
13. Limitation of Liability of the Trustees and Shareholders of the
Trust. No Trustee, shareholder, officer, employee or agent of the Fund
shall be liable for any obligations of the Fund under this Contract, and
Manager agrees that, in asserting any rights or claims under this Contract,
it shall look only to the assets and property of the Fund in settlement of
such right or claim, and not to such Trustee, shareholder, officer,
employee or agent. The Fund represents that a copy of its Declaration of
Trust is on file with the Secretary of the Commonwealth of Massachusetts
and the Boston City Clerk.
14. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Contract shall
not be affected thereby. This Contract shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
As used in this Contract, the terms 'majority of the outstanding voting
securities', 'affiliated person', 'interested person', 'assignment',
'broker', 'investment adviser', 'national securities exchange', 'net
assets', 'prospectus', 'sale', 'sell' and 'security' shall have the same
meaning as such terms have in the 1940 Act, subject to such exemption as
may be granted by the Securities and Exchange Commission by any rule,
regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Contract is affected by a rule,
regulation or order of the Securities and Exchange Commission, whether of
special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
7
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
<TABLE>
<S> <C>
Attest: PAINEWEBBER INCORPORATED
JENNIFER FARRELL By THOMAS EGGERS
- --------------------------- -------------------
Attest: PAINEWEBBER/KIDDER, PEABODY
CALIFORNIA TAX EXEMPT MONEY FUND
JENNIFER FARRELL By DIANNE E. O'DONNELL
- --------------------------- -------------------
</TABLE>
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<PAGE>
EXHIBIT 5(b)
SUB-ADVISORY AND SUB-ADMINISTRATION AGREEMENT
Contract made as of April 13, 1995, between PAINEWEBBER INCORPORATED
('PaineWebber'), a Delaware corporation registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended ('1934 Act') and as an investment
adviser under the Investment Advisers Act of 1940, as amended ('Advisers Act'),
and MITCHELL HUTCHINS ASSET MANAGEMENT INC. ('Mitchell Hutchins'), a Delaware
corporation registered as a broker-dealer under the 1934 Act and as an
investment adviser under the Advisers Act.
WHEREAS PaineWebber has entered into an Investment Advisory and
Administration Contract dated April 13, 1995 ('Advisory Contract') with
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund ('Fund'), an
open-end investment company registered under the Investment Company Act of 1940,
as amended ('1940 Act'), which offers for public sale distinct shares of
beneficial interest; and
WHEREAS under the Advisory Contract PaineWebber has agreed to provide
certain investment advisory and administrative services to the Fund; and
WHEREAS the Advisory Contract authorizes PaineWebber to delegate certain of
its duties as investment adviser and administrator under the Advisory Contract
to a sub-adviser or sub-administrator; and
WHEREAS PaineWebber wishes to retain Mitchell Hutchins as sub-adviser and
sub-administrator to provide certain investment advisory and administrative
services to PaineWebber and the Fund, and Mitchell Hutchins is willing to render
such services as described herein upon the terms set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. PaineWebber hereby appoints Mitchell Hutchins as its
sub-adviser and sub-administrator with respect to the Fund and Mitchell
Hutchins accepts such appointment and agrees that it will furnish the
services set forth in Paragraph 2.
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2. Services and Duties of Mitchell Hutchins.
(a) Subject to the supervision of the Board of Trustees ('Board') and
PaineWebber, Mitchell Hutchins will provide a continuous investment program
for the Fund, including investment research and management with respect to
all securities, investments and cash equivalents held in the portfolio of
the Fund. Mitchell Hutchins will determine from time to time what
investments will be purchased, retained or sold by the Fund. Mitchell
Hutchins will be responsible for placing purchase and sale orders for
investments and for other related transactions. Mitchell Hutchins will
provide services under this agreement in accordance with the Fund's
investment objective, policies and restrictions as stated in the Fund's
Prospectuses.
(b) Mitchell Hutchins agrees that, in placing orders with brokers, it
will attempt to obtain the best net result in terms of price and execution;
provided that, on behalf of the Fund, Mitchell Hutchins may, in its
discretion, effect securities transactions with brokers and dealers who
provide the Fund with research, analysis, advice and similar services, and
Mitchell Hutchins may pay to those brokers and dealers, in return for
brokerage and research services and analysis, a higher commission than may
be charged by other brokers and dealers, subject to Mitchell Hutchins'
determining in good faith that such commission is reasonable in terms
either of the particular transaction or of the overall responsibility of
Mitchell Hutchins and its affiliates to the Fund and its other clients and
that the total commissions paid by the Fund will be reasonable in relation
to the benefits to the Fund over the long term. In no instance will
portfolio securities be purchased from or sold to PaineWebber, Mitchell
Hutchins or any affiliate person thereof, except in accordance with the
federal securities laws and the rules and regulations thereunder, or any
simultaneously places orders to purchase or sell the same security on
behalf of the Fund and one or more other accounts advised by Mitchell
Hutchins, such orders will be allocated as to price and amount among all
such accounts in a manner believed to be equitable to each account. The
Fund recognizes that in some cases this procedure may adversely affect the
results obtained for the Fund.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of the Fund and will
furnish the Board with such periodic and special reports as PaineWebber or
the Board reasonably may request. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, Mitchell Hutchins hereby agrees that all
records which it maintains for the Fund are the property of the Fund,
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940
Act any records which it maintains for the Fund and which are required to
be maintained by Rule 31a-1 under the 1940 Act, and further agrees to
surrender promptly to the Fund any records which it maintains for the Fund
upon request by the Fund.
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(d) Mitchell Hutchins will oversee the computation of the net asset
value and net income of the Fund as described in the currently effective
registration statement of the Fund under the Securities Act of 1933, as
amended, and 1940 Act and any supplements thereto ('Registration
Statement') or as more frequently requested by the Board.
(e) Mitchell Hutchins will assist in administering the affairs of the
Fund, subject to the supervision of the Board and PaineWebber, and further
subject to the following understandings:
(i) Mitchell Hutchins will supervise all aspects of the operation
of the Fund except as hereinafter set forth; provided, however, that
nothing herein contained shall be deemed to relieve or deprive the
Board of its responsibility for and control of the conduct of affairs
of the Fund.
(ii) Mitchell Hutchins will provide the Fund with such
administrative and clerical personnel (including officers of the Fund)
as are reasonably deemed necessary or advisable by the Board and
PaineWebber and Mitchell Hutchins will pay the salaries of all such
personnel.
(iii) Mitchell Hutchins will provide the Fund with such
administrative and clerical services as are reasonably deemed
necessary or advisable by the Board and PaineWebber, including the
maintenance of certain of the books and records of the Fund.
(iv) Mitchell Hutchins will arrange, but not pay for, the
periodic preparation, updating, filing and dissemination (as
applicable) of the Fund's Regitration Statement, proxy material, tax
returns and reports to shareholders of the Fund, the Securities and
Exchange Commission and other appropriate federal or state regulatory
authorities.
(v) Mitchell Hutchins will provide the Fund with, or obtain for
it, adequate office space and all necessary office equipment and
services, including telephone service, heat, utilities, stationery
supplies and similar items.
3. Duties Retained by PaineWebber. PaineWebber will continue to
provide to the Board and the Fund the services described in subparagraph
3(e) of the Advisory Contract.
4. Further Duties. In all matters relating to the performance of this
Contract, Mitchell Hutchins will act in conformity with the Fund's
Declaration of Trust, By-Laws and Registration Statement of the Fund and
with the written instructions and directions of the Board and PaineWebber,
and will comply with the requirements of the 1940 Act, the Investment
Advisers Act of 1940 ('Advisers Act'), the rules thereunder, and all other
applicable federal and state laws and regulations.
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5. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive, and Mitchell Hutchins shall be
free to furnish similar services to others so long as its services under
this Contract are not impaired thereby. Nothing in this Contract shall
limit or restrict the right of any director, officer or employee of
Mitchell Hutchins, who may also be a trustee, officer or employee of the
Fund, to engage in any other business or to devote his or her time and
attention in part to the management or other aspects of any other business,
whether of a similar nature or a dissimilar nature.
6. Expenses. During the term of this Contract, Mitchell Hutchins will
pay all expenses incurred by it in connection with its services under this
Contract.
7. Compensation. For the services provided and the expenses assumed by
Mitchell Hutchins pursuant to this Contract with respect to the Fund,
PaineWebber will pay to Mitchell Hutchins a fee equal to 20% of the fee
received by PaineWebber from the Fund pursuant to the Advisory Contract
with respect to the Fund, such compensation to be paid monthly.
8. Limitation of Liability. Mitchell Hutchins and its delegates will
not be liable for any error of judgment or mistake of law or for any loss
suffered by PaineWebber or the Fund or the shareholders of the Fund in
connection with the performance of this Contract, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Contract. Any person, even though also an
officer, director, employee, or agent of Mitchell Hutchins, who may be or
become an officer, trustee, employee or agent of the Fund shall be deemed,
when rendering services to the Fund or acting with respect to any business
of the Fund, to be rendering such services to or acting solely for the Fund
and not as an officer, director, employee, or agent or one under the
control or direction of Mitchell Hutchins even though paid by it.
9. Duration and Termination.
(a) This Contract will become effective upon the date first above
written, provided that, with respect to the Fund, this Contract shall not
take effect unless it has first been approved (i) by a vote of a majority
of those trustees of the Fund who are not parties to this Contract or
interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by vote of a majority
of the Fund's outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Contract will
continue in effect for two years from the above written date. Thereafter,
if not terminated, this Contract will
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continue automatically for successive periods of twelve months each,
provided that such continuance is specifically approved at least annually
(i) by a vote of a majority of those trustees of the Fund who are not
parties to this Contract or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting
securities of the Fund.
(c) Notwithstanding the foregoing, with respect to the Fund, this
Contract may be terminated by any party hereto at any time, without the
payment of any penalty, on sixty days' written notice to the other party;
this Contract also may be terminated at any time, without the payment of
any penalty, by vote of the Board or by a vote of a majority of the
outstanding voting securities of the Fund on sixty days' written notice to
Mitchell Hutchins and PaineWebber. This Contract will terminate
automatically in the event of its assignment or upon termination of the
Advisory Contract.
10. Amendment of this Agreement. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no amendment of this
Contract as to the Fund shall be effective until approved by vote of a
majority of the Fund's outstanding voting securities.
11. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Delaware without giving effect to the conflicts of
laws principles thereof and the 1940 Act provided, however, that Section 12
will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of
Delaware or the Commonwealth of Massachusetts conflict with the applicable
provisions of the 1940 Act, the latter shall control.
12. Limitation of Liability of the Trustees and Shareholders of the
Trust. No Trustee, shareholder, officer, employee or agent of the Fund
shall be liable for any obligations of the Fund under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund in
settlement of such right or claim, and not to such Trustee, shareholder,
officer, employee or agent. The Fund represents that a copy of its
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and the Boston City Clerk.
13. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court
decision, statute, rule or other-
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wise, the remainder of this Contract shall not be affected thereby.This
Contract shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors. As used in this Contract,
the terms 'majority of the outstanding voting securities,' 'affiliated
person,' 'interested person,' 'assignment,' 'broker,' 'investment adviser,'
'net assets,' 'sale,' 'sell' and 'security' shall have the same meaning as
such terms have in the 1940 Act, subject to such exemption as may be
granted by the SEC by any rule, regulation or order. Where the effect of a
requirement of the federal securities laws reflected in any provision of
this Agreement is affected by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
<TABLE>
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Attest: PAINEWEBBER INCORPORATED
JENNIFER FARRELL By THOMAS EGGERS
- --------------------------- ----------------------
Title: Managing Director
Attest: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
JENNIFER FARRELL By: DIANNE E. O'DONNELL
- --------------------------- ----------------------
Title: Senior Vice President
</TABLE>
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PAINEWEBBER/KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
DISTRIBUTION CONTRACT
CONTRACT made as of January 30, 1995, between PAINEWEBBER/KIDDER, PEABODY
CALIFORNIA TAX EXEMPT MONEY FUND, a Massachusetts business trust, ('Fund'), and
PAINEWEBBER INCORPORATED, a Delaware corporation ('PaineWebber').
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ('1940 Act'), as an open-end management investment company and has one
series of shares of beneficial interest ('Shares'); and
WHEREAS the Fund's board of trustees ('Board') has established an unlimited
number of Shares; and
WHEREAS PaineWebber is willing to act as principal distributor for the Fund
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints PaineWebber as its exclusive agent
to be the principal distributor to sell and to arrange for the sale of the
Shares on the terms and for the period set forth in this Contract. PaineWebber
hereby accepts such appointment and agrees to act hereunder.
2. Services and Duties of PaineWebber.
(a) PaineWebber agrees to solicit orders for the sale of Shares and to
undertake advertising and promotion that it believes reasonable in connection
with such solicitation as agent for the Fund and upon the terms described in the
Registration Statement. As used in this Contract, the term 'Registration
Statement' shall mean the currently effective registration statement of the
Fund, and any supplements thereto, under the Securities Act of 1933, as amended
('1933 Act'), and the 1940 Act.
(b) Upon the later of the date of this Contract or the initial offering of
the Shares to the public by the Fund,
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PaineWebber will hold itself available to receive purchase orders, satisfactory
to PaineWebber, for Shares and will accept such orders on behalf of the Fund as
of the time of receipt of such orders and promptly transmit such orders as are
accepted to the Fund's transfer agent. Purchase orders shall be deemed effective
at the time and in the manner set forth in the Registration Statement.
(b) PaineWebber in its discretion may enter into agreements to sell Shares
to such registered and qualified retail dealers, including but not limited to
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), as it may select.
In making agreements with such dealers, PaineWebber shall act only as principal
and not as agent for the Fund.
(c) The offering price of the Shares shall be the net asset value per Share
as next determined by the Fund following receipt of an order at PaineWebber's
principal office. The Fund shall promptly furnish PaineWebber with a statement
of each computation of net asset value.
(d) PaineWebber shall not be obligated to sell any certain number of
Shares.
(e) To facilitate redemption of Shares by shareholders directly or through
dealers, PaineWebber is authorized but not required on behalf of the Fund to
repurchase Shares presented to it by shareholders and dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement.
(f) PaineWebber shall provide ongoing shareholder services, which include
responding to shareholder inquiries, providing shareholders with information on
their investments in the Shares and any other services now or hereafter deemed
to be appropriate subjects for the payments of 'service fees' under Section
26(d) of the National Association of Securities Dealers, Inc. ('NASD') Rules of
Fair Practice (collectively, 'service activities').
(g) PaineWebber shall have the right to use any list of shareholders of the
Fund or any other list of investors which it obtains in connection with its
provision of services under this Contract; provided, however, that PaineWebber
shall not sell or knowingly provide such list or lists to any unaffiliated
person.
3. Authorization to Enter into Exclusive Dealer Agreements and to Delegate
Duties as Distributor. With respect to the Shares of the Fund, PaineWebber may
enter into an exclusive dealer agreement with Mitchell Hutchins or any other
registered and qualified dealer with respect to sales of the Shares or the
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provision of service activities. In a separate contract or as part of any such
exclusive dealer agreement, PaineWebber also may delegate to Mitchell Hutchins
or another registered and qualified dealer ('sub-distributor') any or all of its
duties specified in this Contract, provided that such separate contract or
exclusive dealer agreement imposes on the sub-distributor bound thereby all
applicable duties and conditions to which PaineWebber is subject under this
Contract, and further provided that such separate contract or exclusive dealer
agreement meets all requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by PaineWebber hereunder
are not to be deemed exclusive and PaineWebber shall be free to furnish similar
services to others so long as its services under this Contract are not impaired
thereby. Nothing in this Contract shall limit or restrict the right of any
director, officer or employee of PaineWebber, who may also be a trustee, officer
or employee of the Fund, to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any other
business, whether of a similar or a dissimilar nature.
5. Compensation.
(a) As compensation for its service activities under this Contract,
PaineWebber shall receive from the Fund a service fee at the rate and under the
terms and conditions of the Plan of Distribution pursuant to Rule 12b-1 under
the 1940 Act ('Plan') adopted by the Fund, as such Plan is amended from time to
time, and subject to any further limitations on such fee as the board of
trustees ('Board') may impose.
(b) PaineWebber may reallow any or all of the service fees which it is paid
under this Contract to such dealers as PaineWebber may from time to time
determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw offering Shares of
the Fund by written notice to PaineWebber at its principal office.
(b) The Fund shall determine in its sole discretion whether certificates
shall be issued with respect to the Shares. If the Fund has determined that
certificates shall be issued, the Fund will not cause certificates representing
Shares to be issued unless so requested by shareholders. If such request is
transmitted by PaineWebber, the Fund will cause certificates evidencing Shares
to be issued in such names and denominations as PaineWebber shall from time to
time direct.
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(c) The Fund shall keep PaineWebber fully informed of its affairs and shall
make available to PaineWebber copies of all information, financial statements,
and other papers which PaineWebber may reasonably request for use in connection
with the distribution of Shares, including, without limitation, certified copies
of any financial statements prepared for the Fund by its independent public
accountant and such reasonable number of copies of the most current prospectus,
statement of additional information, and annual and interim reports of the Fund,
and the Fund shall cooperate fully in the efforts of PaineWebber to sell and
arrange for the sale of the Shares and in the performance of PaineWebber under
this Contract.
(d) The Fund shall take, from time to time, all necessary action, including
payment of the related filing fee, as may be necessary to register the Shares
under the 1933 Act to the end that there will be available for sale such number
of Shares as PaineWebber may be expected to sell. The Fund agrees to file, from
time to time, such amendments, reports and other documents as may be necessary
in order that there will be no untrue statement of a material fact in the
Registration Statement, nor any omission of a material fact which omission would
make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares for sale under the securities
laws of such states or other jurisdictions as PaineWebber and the Fund may
approve, and, if necessary or appropriate in connection therewith, to qualify
and maintain the qualification of the Fund as a broker or dealer in such
jurisdictions; provided that the Fund shall not be required to execute a general
consent to the service of process in any state. PaineWebber shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Shares with the Securities and Exchange Commission and state and
other regulatory bodies, and shall assume expenses related to communications
with shareholders of the Fund, including (i) fees and disbursements of its
counsel and independent public accountant; (ii) the preparation, filing and
printing of registration statements and/or prospectuses or statements of
additional information required under the federal securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses, statements
of additional information and proxy materials to shareholders; and (iv) the
qualifications of Shares for sale and of the Fund as a broker or dealer under
the securities laws of such jurisdictions as shall be selected by the Fund and
PaineWebber pursuant to Paragraph 6(e) hereof, and the costs and expenses
payable to each such jurisdiction for continuing qualification therein.
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8. Expenses of PaineWebber. PaineWebber shall bear all costs and expenses
of (i) preparing, printing and distributing any materials not prepared by the
Fund and other materials used by PaineWebber in connection with the sale of
Shares under this Contract, including the additional cost of printing copies of
prospectuses, statements of additional information, and annual and interim
shareholder reports other than copies thereof required for distribution to
existing shareholders or for filing with any federal or state securities
authorities; (ii) any expenses of advertising incurred by PaineWebber in
connection with such offering; (iii) the expenses of registration or
qualification of PaineWebber as a broker or dealer under federal or state laws
and the expenses of continuing such registration or qualification; and (iv) all
compensation paid to PaineWebber's employees and others for selling Shares, and
all expenses of PaineWebber, its employees and others who engage in or support
the sale of Shares as may be incurred in connection with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold PaineWebber, its officers
and trustees, and any person who controls PaineWebber within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which PaineWebber, its officers, trustees or any such
controlling person may incur under the 1933 Act, or under common law or
otherwise, arising out of or based upon any untrue statement, or alleged untrue
statement, of a material fact contained in the Registration Statement or any
related prospectus ('Prospectus') or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in the
Registration Statement or Prospectus or necessary to make the statements therein
not misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by PaineWebber to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any person who is also an officer or
trustee of the Fund or who controls the Fund within the meaning of Section 15 of
the 1933 Act, unless a court of competent jurisdiction shall determine, or it
shall have been determined by controlling precedent, that such result would not
be against public policy as expressed in the 1933 Act; and further provided,
that in no event shall anything contained herein be so construed as to protect
PaineWebber against any liability to the Fund or to the shareholders to which
PaineWebber would otherwise be subject by
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reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations under
this Contract. The Fund shall not be liable to PaineWebber under this indemnity
agreement with respect to any claim made against PaineWebber or any person
indemnified unless PaineWebber or other such person shall have notified the Fund
in writing of the claim within a reasonable time after the summons or other
first written notification giving information of the nature of the claim shall
have been served upon PaineWebber or such other person (or after PaineWebber or
the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to PaineWebber or any person against whom such
action is brought otherwise than on account of this indemnity agreement. The
Fund shall be entitled to participate at its own expense in the defense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to the indemnified defendants in the suit. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify PaineWebber promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Shares.
(b) The Fund's indemnification agreement contained in this Section 9 will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of PaineWebber, its officers and trustees, or any
controlling person, and will survive the delivery of any shares of the Fund.
(c) PaineWebber agrees to indemnify, defend, and hold the Fund, its
officers and trustees and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Fund, its trustees or officers, or
any such controlling person may incur under the 1933 Act or under common law or
otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by PaineWebber to
the Fund for use in the Registration Statement, or arising out of or based upon
any alleged omission to state a material fact in
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connection with such information required to be stated in the Registration
Statement necessary to make such information not misleading, or in the event
that Shares of the Fund are offered to eligible participants in the
PaineWebber/Kidder, Peabody Premium Account program ('PW/KPPA'), losses or costs
in connection with the redemption of Shares due to unauthorized use of a Visa
card or Visa checks or due to any error, fault or breakdown of the PW/KPPA
computer programs or operating procedures. PaineWebber shall have the right to
control the defense of any action contemplated by this Section 9(c), with
counsel of its own choosing, satisfactory to the Fund, unless the action is not
based solely upon an alleged misstatement or omission on PaineWebber's part. In
such event, the Fund, its officers or trustees or controlling persons will each
have the right to participate in the defense or preparation of the defense of
the action. In the event that PaineWebber elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If PaineWebber does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
(d) PaineWebber shall not be liable to the Fund under this indemnity
agreement with respect to any claim made against the Fund or any person
indemnified unless the Fund or other such person shall have notified PaineWebber
in writing of the claim within a reasonable time after the summons or other
first written notification giving information of the nature of the claim shall
have been served upon the Fund or such other person (or after the Fund shall
have received notice of service on any designated agent). PaineWebber will not
be obligated to indemnify any entity or person against any liability to which
the Fund, its officers and trustees, or any controlling person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
performance of, or reckless disregard of, the obligations and duties set forth
in this Agreement.
10. Limitation of Liability of the Trustees and Shareholders of the Fund.
The trustees and shareholders of the Fund shall not be liable for any
obligations of the Fund under this Contract, and PaineWebber agrees that, in
asserting any rights or claims under this Contract, it shall look only to the
assets and property of the Fund in settlement of such right or claims, and not
to such trustees or shareholders. The Fund represents that a copy of the
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and with the Boston City Clerk.
11. Services Provided to the Fund by Employees of PaineWebber. Any person,
even though also an officer, director, employee or agent of PaineWebber, who may
be or become an
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officer, trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting in any business of the Fund, to be rendering such
services to or acting solely for the Fund and not as an officer, trustee,
employee or agent or one under the control or direction of PaineWebber even
though paid by PaineWebber.
12. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove written,
provided that this Contract shall not take effect unless such action has first
been approved by vote of a majority of the Board and by vote of a majority of
those trustees of the Fund who are not interested persons of the Fund, and have
no direct or indirect financial interest in the operation of the Plan relating
to the Shares or in any agreements related thereto (all such trustees
collectively being referred to herein as the 'Independent Trustees') cast in
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or by vote of a majority of the outstanding voting securities of
the Fund.
(c) Notwithstanding the foregoing, this Contract may be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the Fund on sixty days' written notice to PaineWebber or by
PaineWebber at any time, without the payment of any penalty, on sixty days'
written notice to the Fund. This Contract will automatically terminate in the
event of its assignment.
13. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable
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provisions of the 1940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms 'majority of the outstanding voting securities,' 'interested person'
and 'assignment' shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
<TABLE>
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PAINEWEBBER/KIDDER, PEABODY
ATTEST: CALIFORNIA TAX EXEMPT MONEY FUND
/s/ ILENE SHORE By: /s/ DIANNE E. O'DONNELL
- ----------------------------- -----------------------
ATTEST: PAINEWEBBER INCORPORATED
/s/ ILENE SHORE By: /s/ THOMAS EGGERS
- ----------------------------- -----------------------
</TABLE>
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TRANSFER AGENCY SERVICES AND SHAREHOLDER SERVICES AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of January 30, 1995, to be effective as of such
date as is agreed to in writing by the parties, by and between
PAINEWEBBER/KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND (the 'Fund'), a
Massachusetts business trust and PFPC INC. ('PFPC'), a Delaware corporation,
which is an indirect wholly-owned subsidiary of PNC Bank Corp.
The Fund is registered as an open-end management series investment company
under the Investment Company Act of 1940, as amended ('1940 Act'). The Fund
wishes to retain PFPC to serve as the transfer agent, registrar, dividend
disbursing agent and shareholder servicing agent for such series listed in
Appendix C to this agreement, as amended from time to time (the 'Series'), and
PFPC wishes to furnish such services.
In consideration of the promises and mutual covenants herein contained, the
parties agree as follows:
1. Definitions.
(a) 'Authorized Person'. The term 'Authorized Person' shall mean any
officer of the Fund and any other person who is duly authorized by the
Fund's Governing Board to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix or any amendment thereto as may be received by
PFPC from time to time.
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If PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
(b) 'Governing Board'. The term 'Governing Board' shall mean the
Fund's Board of Directors if the Fund is a corporation or the Fund's Board
of Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(c) 'Oral Instructions'. The term 'Oral Instructions' shall mean oral
instructions received by PFPC from an Authorized Person by telephone or in
person.
(d) 'SEC'. The term 'SEC' shall mean the Securities and Exchange
Commission.
(e) 'Securities Laws'. The term 'Securities Laws' shall mean the 1933
Act, the 1934 Act and the 1940 Act. The terms the 1933 Act' shall mean the
Securities Act of 1933, a amended, and the '1934 Act' shall mean the
Securities Exchange Act of 1934, as amended.
(f) 'Shares'. The term 'Shares' shall mean the shares of beneficial
interest of any Series or class of the Fund.
(g) 'Written Instructions'. The term 'Written Instructions' shall mean
written instructions signed by one Authorized Person and received by PFPC.
The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to each of
its Series, in accordance
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with the terms set forth in this Agreement, and PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable, will
provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the Fund's
Governing Board, approving the appointment of PFPC to provide services to
each Series and approving this agreement;
(b) A copy of the Fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A under the 1933 Act and 1940 Act as
filed with the SEC;
(c) A copy of the Fund's investment advisory and administration
agreement or agreements;
(d) A copy of the Fund's distribution agreement or agreements;
(e) Copies of any shareholder servicing agreements made in respect of
the Fund; and
(f) Copies of any and all amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PFPC undertakes to
comply with all applicable requirements of the Securities Laws, and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to all duties to be performed by PFPC hereunder. Except as specifically
set forth herein, PFPC assumes no responsibility for such compliance by the
Fund.
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5. Instructions. Unless otherwise provided in this Agreement, PFPC shall
act only upon Oral and Written Instructions. PFPC shall be entitled to rely upon
any Oral and Written Instruction it receives from an Authorized Person pursuant
to this Agreement. PFPC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of organizational
documents or of any vote, resolution or proceeding of the Fund's Governing Board
or of the Fund's shareholders, unless and until it receives Written Instructions
to the contrary.
The Fund agrees to forward to PFPC Written Instructions confirming Oral
Instructions so that PFPC receives the Written Instructions by the close of
business on the next business day after such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such instructions provided that
PFPC's actions comply with the other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should
or should not take, PFPC will request directions or advice, including Oral
or Written Instructions, from the Fund.
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(b) Advice of Counsel. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be
counsel for the Fund, the Fund's investment adviser or PFPC, at the option
of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PFPC receives from the Fund and the
advice it receives from counsel, PFPC may rely upon and follow the advice
of counsel. In the event PFPC so relies on the advice of counsel, PFPC
remains liable for any action or omission on the part of PFPC which
constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities provided
for in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel in accordance with
this Agreement and which PFPC believes, in good faith, to be consistent
with those directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed to impose an obligation upon
PFPC (i) to seek such directions, advice or Oral or Written Instructions, or
(ii) to act in accordance with such directions, advice or Oral or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
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Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, negligence or reckless
disregard of PFPC of any duties, obligations or responsibilities provided for in
this Agreement.
7. Records and Visits. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, including (a) all those records required to be prepared and maintained by
the Fund under the 1940 Act, by other applicable Securities Laws, rules and
regulations and by state laws and (b) such books and records as are necessary
for PFPC to perform all of the services it agrees to provide in this Agreement
and the appendices attached hereto, including but not limited to the books and
records necessary to effect the conversion of Class B Shares, the calculation of
any contingent deferred sales charges and the calculation of front-end sales
charges. The books and records pertaining to the Fund which are in the
possession, or under the control, of PFPC shall be the property of the Fund. The
Fund or the Fund's Authorized Persons shall have access to such books and
records at all times during PFPC's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
PFPC to the Fund or to an Authorized Person of the Fund. Upon reasonable notice
by the Fund, PFPC shall make available during regular business hours its
facilities and premises employed in connection with its performance of this
Agreement for reasonable
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visits by the Fund, any agent or person designated by the Fund or any regulatory
agency having authority over the Fund.
8. Confidentiality. PFPC agrees on its own behalf and that of its employees
to keep confidential all records of the Fund and information relating to the
Fund and its shareholders (past, present and future), its investment adviser and
its principal underwriter, unless the release of such records or information is
otherwise consented to, in writing, by the Fund prior to its release. The Fund
agrees that such consent shall not be unreasonably withheld, and may not be
withheld where PFPC may be exposed to civil or criminal contempt proceedings or
when required to divulge such information or records to duly constituted
authorities.
9. Cooperation with Accountants. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
periodic backup of computer files and data with respect to the Fund and
emergency use of electronic data processing equipment. In the event of equipment
failures, PFPC shall, at no additional expense to the Fund, take all reasonable
steps to minimize service interruptions. PFPC shall
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have no liability with respect to the loss of data or service interruptions
caused by equipment failures, provided such loss or interruption is not caused
by the negligence of PFPC and provided further that PFPC has complied with the
provisions of this Paragraph 10.
11. Compensation. As compensation for services rendered by PFPC during the
term of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed
to, from time to time, in writing by the Fund and PFPC.
12. Indemnification.
(a) The Fund agrees to indemnify and hold harmless PFPC and its
nominees from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, Exhibit liabilities arising
under the Securities Laws, and any state and foreign securities and blue
sky laws, and amendments thereto), and expenses, including, without
limitation, reasonable attorneys' fees and disbursements arising directly
or indirectly from any action or omission to act which PFPC (i) at the
request of or on the direction of or in reliance on the advice of the Fund
or (ii) upon Oral or Written Instructions. Neither PFPC, nor any of its
nominees, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its nominees' own
willful misfeasance, bad faith, negligence or reckless disregard of its
duties and obligations under this Agreement.
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(b) PFPC agrees to indemnify and hold harmless the Fund from all
taxes, charges, expenses, assessments, claims and liabilities arising from
PFPC's obligations pursuant to this Agreement (including, without
limitation, liabilities arising under the Securities Laws, and any state
and foreign securities and blue sky laws, and amendments thereto) and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements, arising directly or indirectly out of PFPC's or its
nominee's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion,
and shall keep the other party advised with respect to all developments
concerning such claim. The party who may be required to indemnify shall
have the option to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no
case confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other party's
prior written consent.
13. Insurance. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement,
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the contracts of insurance shall take precedence, and no provision of this
Agreement shall be construed to relieve an insurer of any obligation to pay
claims to the Fund, PFPC or other insured party which would otherwise be a
covered claim in the absence of any provision of this Agreement.
14. Security. PFPC represents and warrants that, to the best of its
knowledge, the various procedures and systems which PFPC has implemented with
regard to the safeguarding from loss or damage attributable to fire, theft or
any other cause (including provision for twenty-four hours a day restricted
access) of the Fund's blank checks, certificates, records and other data and
PFPC's equipment, facilities and other property used in the performance of its
obligations hereunder are adequate, and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Fund shall have access to review these systems and
procedures.
15. Responsibility of PFPC. PFPC shall be under no duty to take any action
on behalf of the Fund except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise
due care and diligence in the performance of its duties hereunder, to act in
good faith and to use its best efforts in performing services provided for under
this Agreement. PFPC shall be liable only for any damages arising out of or in
connection with PFPC's performance of or omission or failure to perform its
duties under this
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Agreement to the extent such damages arise out of PFPC's negligence, reckless
disregard of its duties, bad faith or willful misfeasance.
Without limiting the generality of the foregoing or of any other provision
of this Agreement, PFPC, in connection with its duties under this Agreement,
shall not be under any duty or obligation to inquire into and shall not be
liable for (a) the validity or invalidity or authority or lack thereof of any
Oral or Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PFPC reasonably believes to
be genuine; or (b) subject to the provisions of Paragraph 10, delays or errors
or loss of data occurring by reason of circumstances beyond PFPC's control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God, insurrection, war, riots
or failure of the mails, transportation, communication or power supply.
16. Description of Services. PFPC shall perform the duties of the transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent of
the Fund and its specified Series.
(a) Purchase of Shares. PFPC shall issue and credit an account of
an investor in the manner described in each Series prospectus once it
receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account; and
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(iii) Confirmation of receipt or crediting of funds for such order
from the Series' custodian.
(b) Redemption of Shares. PFPC shall redeem a Series' Shares only if
that function is properly authorized by the Fund's organizational documents
or resolution of the Fund's Governing Board. Shares shall be redeemed and
payment therefor shall be made in accordance with each Series' prospectus
when the shareholder tenders his or her Shares in proper form and directs
the method of redemption.
(c) Dividends and Distributions. Upon receipt of a resolution of the
Fund's Governing Board authorizing the declaration and payment of dividends
and distributions, PFPC shall issue dividends and distributions declared by
the Fund in Shares, or, upon shareholder election, pay such dividends and
distributions in cash if provided for in each Series' prospectus. Such
issuance or payment, as well as payments upon redemption as described
above, shall be made after deduction and payment of the required amount of
funds to be withheld in accordance with any applicable tax law or other
laws, rules or regulations. PFPC shall mail to each Series' shareholders
such tax forms and other information, or permissible substitute notice,
relating to dividends and distributions paid by the Fund as are required to
be filed and mailed by applicable law, rule or regulation.
PFPC shall prepare, maintain and file with the IRS and other appropriate
taxing authorities reports relating to all dividends above a stipulated amount
paid by the Fund to its shareholders as required by tax or other law, rule or
regulation.
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(d) PFPC will provide the services listed on Appendix A and Appendix B
on an ongoing basis. Performance of certain of these services, with
accompanying responsibilities and liabilities, may be delegated and
assigned to PaineWebber Incorporated or Mitchell Hutchins Asset Management
Inc. or to an affiliated person of either.
17. Duration and Termination.
(a) This Agreement shall continue until January 30, 1997 and shall
automatically be renewed thereafter on a year-to-year basis and with
respect to the year-to-year renewal, provided that the Fund's Governing
Board approves such renewal; and provided further that this Agreement may
be terminated by either party for cause.
(b) With respect to the Fund, cause includes, but is not limited to:
(i) PFPC's material breach of this Agreement causing it to fail to
substantially perform its duties under this Agreement. In order for such
material breach to constitute 'cause' under this Paragraph, PFPC must
receive written notice from the Fund specifying the material breach and
PFPC shall not have corrected such breach within a 15-day period; (ii)
financial difficulties of PFPC evidenced by the authorization or
commencement of a voluntary or involuntary bankruptcy under the U.S.
Bankruptcy Code or any applicable bankruptcy or similar law, or under any
applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the
modification or alleviation of the rights of creditors; and (iii)
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issuance of an administrative or court order against PFPC with regard to the
material violation or alleged material violation of the Securities Laws or
other applicable laws related to its business of performing transfer agency
services.
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant
to Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be
effective thirty (30) days from the date of such notice. Any notice of
termination for cause by PFPC shall be effective 90 days from the date of
such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC such
compensation as may be due for the period prior to the date of such
termination. In the event that the Fund designates a successor to any of
PFPC's obligations under this Agreement, PFPC shall, at the direction and
expense of the Fund, transfer to such successor all relevant books, records
and other data established or maintained by PFPC hereunder including a
certified list of the shareholders of each Series of the Fund with name,
address, and if provided taxpayer identification or Social Security number,
and a complete record of the account of each shareholder. To the extent
that PFPC incurs expenses related to a transfer of responsibilities to a
successor, other than expenses involved in PFPC's providing the Fund's
books and records to the successor, PFPC shall be entitled to be reimbursed
for such expenses, including any
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out-of-pocket expenses reasonably incurred by PFPC in connection with the
transfer.
(f) Any termination effected pursuant to this Paragraph shall not
affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Fund and any Series thereof upon the liquidation, merger or
other dissolution of the Fund or Series or upon the Fund's ceasing to be
registered investment company.
19. Registration as a Transfer Agent. PFPC represents that it is currently
registered with the appropriate federal agency for the registration of transfer
agents, or is otherwise permitted to lawfully conduct its activities without
such registration and that it will remain so registered for the duration of this
Agreement. PFPC agrees that it will promptly notify the Fund in the event of any
material change in its status as a registered transfer agent. Should PFPC fail
to be registered with the SEC as a transfer agent at any time during this
Agreement, and such failure to register does not permit PFPC to lawfully conduct
its activities, the Fund may terminate this Agreement upon five days written
notice to PFPC.
20. Notices. All notices and other communications, other than Oral or
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to PFPC at
PFPC's address, 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the
Fund, at 1285 Avenue of the Americas, 15th Floor, New York, N.Y. 10005;
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or (c) if to neither of the foregoing, at such other address as shall have been
notified to the sender of any such notice or other communication. If the notice
is sent by confirming telegram, cable telex or facsimile sending device during
regular business hours, it shall be deemed to have been given immediately. If
sent during a time other than regular business hours, such notice shall be
deemed to have been given at the opening of the next business day. If notice is
sent by first-class mail, it shall be deemed to have been given three business
days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. All postage, cable,
telegram, telex and facsimile sending device charges arising from the sending of
a notice hereunder shall be paid by the sender.
21. Amendments. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
22. Additional Series. In the event that the Fund establishes one or more
investment Series in addition to and with respect to which it desires to have
PFPC render services as transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent under the terms set forth in this Agreement, it
shall so notify PFPC in writing, and PFPC shall agree in writing to provide such
services, and such investment Series shall become a Series hereunder, subject to
such additional terms, fees and conditions as are agreed to by the parties.
23. Assignment and Delegation.
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(a) PFPC may, at its own expense, assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC
Bank, National Association or PNC Bank Corp., provided that (i) PFPC gives
the Fund thirty (30) days' prior written notice; (ii) the delegate agrees
with PFPC to comply with all relevant provisions of the Securities Laws;
and (iii) PFPC and such delegate promptly provide such information as the
Fund may request and respond to such questions as the Fund may ask relating
to the delegation, including, without limitation, the capabilities of the
delegate. The assignment and delegation of any of PFPC's duties under this
subparagraph (a) shall not relieve PFPC of any of its responsibilities or
liabilities under this Agreement.
(b) PFPC may assign its rights and delegate its duties hereunder to
PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or
affiliated person of either provided that (i) PFPC gives the Fund thirty
(30) days' prior written notice; (ii) the delegate agrees to comply with
all relevant provisions of the Securities Laws; and (iii) PFPC and such
delegate promptly provide such information as the Fund may request and
respond to such questions as the Fund may ask relative to the delegation,
including, without limitation, the capabilities of the delegate. In
assigning its rights and delegating its duties under this paragraph, PFPC
may impose such conditions or limitations as it determines appropriate
including the condition that PFPC be retained as a sub-transfer agent.
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(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall
become effective without the written consent of PFPC.
24. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
26. Limitation of Liability. The Trust and PFPC agree that the obligations
of the Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Trust, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust as provided in the Declaration of Trust. No Series of the
Trust will be liable for any claims against any other Series.
27. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all
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prior agreements and understandings relating to the subject matter hereof,
provided that the parties may embody in one or more separate documents their
agreement, if any, with respect to services to be performed and compensation to
be paid under this Agreement.
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware Law, except that, to the extent provision of the Securities
Laws govern the subject matter of this Agreement, such Securities Laws will
controlling. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding and
inure to the benefit of the parties hereto and their respective successors and
assigns.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PFPC INC.
By: /s/ GEORGE W. GARNER
-------------------------
PAINEWEBBER/KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
By: /s/ DIANNE E. O'DONNELL
-------------------------
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APPENDIX A
Description of Services
(a) Services Provided on an Ongoing Basis by PFPC to the Fund, If
Applicable.
<TABLE>
<C> <S>
(i) Calculate 12b-1 payments and broker trail commissions;
(ii) Develop, monitor and maintain all systems necessary to implement and operate the three-tier distribution
system, including Class B conversion feature, as described in the registration statement and related
documents of the Fund, as they may be amended from time to time;
(iii) Calculate contingent deferred sales charge amounts upon redemption of Fund Shares and deduct such amounts
from redemption proceeds;
(iv) Calculate front-end sales load amounts at time of purchase of Shares;
(v) Determine dates of Class B conversion and effect same;
(vi) Establish and maintain proper shareholder registrations, unless requested by the Fund;
(vii) Review new applications with correspondence to shareholders to complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction with proxy solicitations;
(x) Countersign share certificates;
(xi) Prepare and mail to shareholders confirmation of activity;
(xii) Provide toll-free lines for direct shareholder use, plus customer liaison staff for on-line inquiry
response;
(xiii) Send duplicate confirmations to broker-dealers of their clients' activity, whether executed through the
broker-dealer or directly with PFPC;
</TABLE>
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<TABLE>
<C> <S>
(xiv) Provide periodic shareholder lists, outstanding share calculations and related statistics to the Fund;
(xv) Provide detailed data for underwriter/broker confirmations;
(xvi) Periodic mailing of year-end tax and statement information;
(xvii) Notify on a daily basis the investment advisor, accounting agent, and custodian of fund activity; and
(xviii) Perform other participating broker-dealer shareholder services as may be agreed upon from time to time.
</TABLE>
(b) Services Provided by PFPC Under Oral or Written Instructions of the
Fund.
<TABLE>
<C> <S>
(i) Accept and post daily Series and class purchases and redemptions;
(ii) Accept, post and perform shareholder transfers and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates.
</TABLE>
(c) Shareholder Account Services.
(i) PFPC may arrange, in accordance with the Series' prospectus, for
issuance of Shares obtained through:
The transfer of funds from shareholders' account at financial
institutions; and
Any pre-authorized check plan.
(ii) PFPC, if requested, shall arrange for a shareholder's:
Exchange of Shares for shares of a fund for which the Fund has
exchange privileges;
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Systematic withdrawal from an account where that shareholder
participates in a systematic withdrawal plan; and/or
Redemption of Shares from an account with a checkwriting privilege.
(d) Communications to Shareholders. Upon timely written instructions, PFPC
shall mail all communications by the Fund to its shareholders, including:
<TABLE>
<C> <S>
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of fund Shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
</TABLE>
If requested by the Fund, PFPC will receive and tabulate the proxy cards
for the meetings of the Fund's shareholders and supply personnel to serve as
inspectors of election.
(e) Records. PFPC shall maintain records of the accounts for each
shareholder showing the following information:
<TABLE>
<C> <S>
(i) Name, address and United States Tax Identification or Social Security number;
(ii) Number and class of Shares held and number and class of Shares for which certificates, if any, have been
issued, including certificate numbers and denominations;
(iii) Historical information regarding the account of each shareholder, including dividends and distributions
paid and the date and price for all transactions on a shareholder's account;
(iv) Any stop or restraining order placed against a shareholder's account;
(v) Any correspondence relating to the current maintenance of a shareholder's account;
(vi) Information with respect to withholdings; and
</TABLE>
A-3
<PAGE>
<PAGE>
<TABLE>
<C> <S>
(vii) Any information required in order for the transfer agent to perform any calculations contemplated or
required by this Agreement.
</TABLE>
(f) Lost or Stolen Certificates. PFPC shall place a stop notice against any
certificate reported to be lost or stolen and comply with all applicable federal
regulatory requirements for reporting such loss or alleged misappropriation.
A new certificate shall be registered and issued upon:
<TABLE>
<C> <S>
(i) Shareholder's pledge of a lost instrument bond or such other and appropriate indemnity bond issued by a
surety company approved by PFPC; and
(ii) Completion of a release and indemnification agreement signed by the shareholder to protect PFPC.
</TABLE>
(g) Shareholder Inspection of Stock Records. Upon requests from Fund
shareholders to inspect stock records, PFPC will notify the Fund and require
instructions granting or denying such request prior to taking any action. Unless
PFPC has acted contrary to the Fund's instructions, the Fund agrees to release
PFPC from any liability for refusal of permission for a particular shareholder
to inspect the Fund's shareholder records.
A-4
<PAGE>
<PAGE>
APPENDIX B
PFPC will perform or arrange for others to perform the following
activities, some or all of which may be delegated and assigned by PFPC to
PaineWebber Incorporated ('PaineWebber') or Mitchell Hutchins Asset Management
Inc. ('Mitchell Hutchins') or to an affiliated person of either:
<TABLE>
<C> <S>
(i) providing, to the extent reasonable, uninterrupted processing of new accounts, shareholder account
changes, sales and redemption activity, dividend calculations and payments, check settlements, blue sky
reporting, tax reporting, recordkeeping, communication with all shareholders, resolution of discrepancies
and shareholder inquiries and adjustments, maintenance of dual system, development and maintenance of
repricing system, and development and maintenance of correction system;
(ii) develop and maintain all systems for custodian interface and reporting, and underwriter interface and
reporting;
(iii) develop and maintain all systems necessary to implement and operate the three-tier distribution system,
including Class B conversion features as described in the registration statement and related documents of
the Fund, as they may be amended from time to time; and
(iv) provide administrative, technical and legal support for the foregoing services.
</TABLE>
In undertaking its activities and responsibilities under this Appendix,
PFPC will not be responsible, except to the extent caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this agreement, for any charges or fees billed, expenses
incurred or penalties, imposed by any party, including the Fund or any current
or prior services providers of the Fund, without the prior written approval by
PFPC.
B-1
<PAGE>
<PAGE>
APPENDIX C
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions 'Financial
Highlights' in the Prospectus and 'Independent Auditors' in the Prospectus and
Statement of Additional Information and to the incorporation by reference of our
report dated September 21, 1995, in this Registration Statement (Form N-1A No.
33-14400 ) of PaineWebber Kidder, Peabody California Tax Exempt Money Fund.
ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
November 30, 1995
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund
(Formerly the Kidder, Peabody California Tax Exempt Money Fund):
We consent to the incorporation by reference in the Statement of Additional
Information in this Post-Effective Amendment No. 9 to Registration Statement No.
33-14400 of our report dated September 9, 1994, appearing in the annual report
to shareholders for the year ended July 31, 1994.
Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
November 28, 1995
<PAGE>
<PAGE>
Exhibit 15(a)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
OF
KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
Whereas, Kidder, Peabody California Tax Exempt Money Fund (the 'Fund') is
engaged in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
'Act'); and
Whereas, the Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 (the 'Plan') under the Act, and the Trustees have determined that there is
a reasonable likelihood that adoption of this Plan will benefit the Fund and its
shareholders; and
Whereas, the Fund currently employs Kidder, Peabody & Co. Incorporated
('Kidder, Peabody') as exclusive principal underwriter of the securities of
which it is the issuer (the 'Fund's Shares'); and
Whereas, the Fund and Kidder, Peabody propose, subject to the adoption of
the Plan, to enter into an amended Distribution Agreement (the 'Amended
Distribution Agreement') pursuant to which the Fund will continue to employ
Kidder, Peabody as such exclusive principal underwriter;
Now, Therefore, the Fund hereby adopts, and Kidder, Peabody hereby agrees
to the terms of, this Plan in accordance with Rule 12-1 under the Act on the
following terms and conditions:
1. The Fund shall reimburse Kidder, Peabody as the exclusive principal
underwriter of the Fund's Shares for its expenses in respect of the
distribution of the Fund's Shares at the rate of up to .12 of 1% per annum
of the Fund's average daily net assets. The amount of such reimbursement
shall be accrued daily at the rate of .12 of 1% per annum and paid monthly
or at such other intervals as the Trustees shall determine and shall be
reconciled with Kidder, Peabody's actual expenses, but not greater than
such .12 of 1% per annum, on an annual basis. The Fund is not authorized
hereunder to reimburse Kidder, Peabody for expenses incurred more than 12
months prior to the date of such reimbursement.
2. The expenses for which reimbursement is authorized hereunder are
those which Kidder, Peabody may spend on any activities primarily intended
to result in the sale of the Fund's Shares and the maintenance of accounts
and account balances with the Fund, including, but not limited to,
compensation to and expenses of Kidder, Peabody's Registered
Representatives or other employees of Kidder, Peabody who engage in or
support distribution of the Fund's Shares, service shareholder accounts or
provide other services to current or prospective shareholders of the Fund;
printing of prospectuses and reports for other than existing shareholders;
and preparation, printing and distribution of sales literature and
advertising materials. It is understood that Kidder, Peabody currently
intends that approximately. 10 of 1% per annum of the Fund's average daily
net assets shall be paid to Registered Representatives proportionately in
respect of Fund Share balances maintained by clients of such Registered
Representatives, and the balance on other activities. At least annually and
in advance of any annual continuance of the Plan as contemplated by
paragraph 3, Kidder, Peabody shall prepare and present to the Trustees a
marketing plan and budgets, including reasonable estimates and projections
of its contemplated distribution activities and attendant expenses, for the
succeeding 12 month period.
<PAGE>
<PAGE>
3. The Plan will continue in effect until October 31, 1989 unless
terminated pursuant to its terms. This Plan shall, unless terminated as
hereinafter provided, continue in full force and effect from year to year
thereafter for so long as such continuance is specifically approved at
least annually by votes of a majority of both (a) the Trustees of the Fund
and (b) those Trustees of the Fund who are not 'interested persons' of the
Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
'Rule 12b-1 Trustees'), cast in person at a meeting (or meetings) called
for the purpose of voting on this Plan.
4. Agreements related to the Plan shall be subject to the approval of
the Trustees and the Rule 12b-1 Trustees in the manner required for
continuance of this Plan, and shall be subject to the annual continuance
thereof in the same manner. It is currently contemplated that the only such
related agreement shall be the Amended Distribution Agreement.
5. Kidder, Peabody shall provide to the Trustees of the Fund and the
Trustees shall review, at least quarterly, a written report of the amounts
so expended and the purposes for which such expenditures were made. Such
reports shall provide a comparison with the budgets presented pursuant to
paragraph 2 and shall explain material discrepancies between actual and
budgeted expenditures.
6. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees, or by a vote of a majority of the outstanding
voting securities of the Fund. Upon termination as provided in this
paragraph 6, the Fund shall immediately cease to make any payments
hereunder or under any related agreement.
7. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in paragraph 2 hereof, unless such
amendment is approved by a vote of at least a majority (as defined in the
Act) of the outstanding voting securities of the Fund and no material
amendment to this Plan shall be made unless approved in the manner provided
for annual continuance in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Trustees who are not interested
persons.
9. The Fund shall preserve copies of this Plan, any related agreements
and all plans presented and reports made pursuant to paragraphs 2 and 5
hereof for period of not less than six years from the date of this Plan, or
the agreements or such plans and reports, as the case may be, the first two
years in an easily accessible place.
2
<PAGE>
<PAGE>
In Witness Whereof, the Fund and Kidder, Peabody have executed this Plan on
the day and year set forth below in New York, New York.
Date: _________________________________
KIDDER, PEABODY CALIFORNIA TAX EXEMPT
MONEY FUND
By: /s/ DAVID HARTMAN
----------------------------
Attest: /s/
-------------------------------
KIDDER, PEABODY & CO. INCORPORATED
By: /s/
----------------------------
Attest: /s/ WILLIAM E. MCKINLEY
-------------------------------
3
<PAGE>
<PAGE>
AMENDMENT EFFECTIVE FEBRUARY 1, 1990 TO
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
DATED NOVEMBER 16, 1988
Amend paragraph 2 to read in its entirety as follow:
2. The expenses for which reimbursement is authorized hereunder are those
which Kidder, Peabody may spend on any activities primarily intended to
result in the sale of the Fund's Shares and the maintenance of accounts and
account balances with the Fund, including, but not limited to, compensation
to and expenses of Kidder, Peabody's Registered Representatives, other
selected broker-dealers or their Registered Representatives, or other
employees of Kidder, Peabody who engage in or support distribution of the
Fund's Shares, service shareholder accounts or provide other services to
current or prospective shareholders of the Fund; printing of prospectuses
and reports for other than existing shareholders; and preparation, printing
and distribution of sales literature and advertising materials. It is
understood that Kidder, Peabody currently intends that approximately .10% of
1% per annum of the Fund's average daily net assets shall be paid to
Registered Representatives proportionately in respect of Fund Share balances
maintained by clients of such Registered Representatives, and the balance on
other activities. At least annually and in advance of any annual continuance
of the Plan as contemplated by paragraph 3, Kidder, Peabody shall prepare
and present to the Board of Directors a marketing plan and budgets,
including reasonable estimates and projections of its contemplated
distribution activities and attendant expenses, for the succeeding 12 month
period.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Fund and Kidder, Peabody have executed this
Amendment on the day and year set forth below in New York, New York.
Date: November 15, 1989 KIDDER, PEABODY CALIFORNIA TAX EXEMPT
MONEY FUND
By: /s/
----------------------------
Attest:
/s/ LISA KELLMAN
- -----------------------------
KIDDER, PEABODY & CO. INCORPORATED
By:
----------------------------
Attest:
/s/ ELIZABETH M. KNOBLOCK
- -----------------------------
<PAGE>
<PAGE>
Exhibit 15(b)
AMENDMENT TO
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
WHEREAS, pursuant to resolutions adopted by the Board of Directors of
Kidder, Peabody California Tax Exempt Money Fund ('Fund') on December 16, 1994,
PaineWebber Incorporated ('PaineWebber') was appointed distributor of the Fund,
and it was determined to change the name of the Fund to the 'PaineWebber/Kidder,
Peabody California Tax Exempt Money Fund;
NOW, THEREFORE, the Fund hereby adopts the following amendments to the
above-referenced plan ('Plan'):
1. All references to the 'Kidder, Peabody California Tax Exempt Money
Fund' contained in the Plan are hereby replaced with 'PaineWebber/Kidder,
Peabody California Tax Exempt Money Fund.'
2. All references to 'Kidder, Peabody & Co. Incorporated' contained in
the Plan are hereby replaced with 'PaineWebber Incorporated,' and all
references to 'Kidder, Peabody' contained in the Plan are hereby replaced
with 'PaineWebber.'
IN WITNESS WHEREOF, the Fund and PaineWebber have executed this 'Amendment
to the Plan of Distribution Pursuant to Rule 12b-1 of Kidder, Peabody California
Tax Exempt Money Fund' on the day and year set forth below.
Date: January 30, 1995
PAINEWEBBER/KIDDER, PEABODY
CALIFORNIA TAX EXEMPT
MONEY FUND
By: /s/ DIANNE E. O'DONNELL
----------------------------------
Attest: /s/ ILENE SHORE
---------------------------
PAINEWEBBER INCORPORATED
By: /s/
----------------------------------
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, Margo N. Alexander, President of PaineWebber/Kidder, Peabody California
Tax Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
President for each of the Funds, any and all amendments to each of the
particular registration statements of the Funds, and all instruments necessary
or desirable in connection therewith, filed with the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it may be signed by
said attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ MARGO N. ALEXANDER President July 21, 1995
........................................
(MARGO N. ALEXANDER)
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, Frank P.L. Minard, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ FRANK P.L. MINARD Trustee May 18, 1995
........................................
(FRANK P.L. MINARD)
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, David J. Beaubien, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ DAVID J. BEAUBIEN Trustee March 8, 1995
........................................
(DAVID J. BEAUBIEN)
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, William W. Hewitt, Jr., Trustee of PaineWebber/Kidder, Peabody
California Tax Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account
Fund, PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ WILLIAM W. HEWITT, JR. Trustee March 8, 1995
........................................
(WILLIAM W. HEWITT, JR.)
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, Thomas R. Jordan, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ THOMAS R. JORDAN Trustee March 8, 1995
........................................
(THOMAS R. JORDAN)
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, Carl W. Schafer, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ CARL W. SCHAFER Trustee March 8, 1995
........................................
(CARL W. SCHAFER)
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 151,265,165
<INVESTMENTS-AT-VALUE> 151,265,165
<RECEIVABLES> 1,095,218
<ASSETS-OTHER> 1,821,930
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154,182,313
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 299,896
<TOTAL-LIABILITIES> 299,896
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 153,898,792
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (358,628)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 153,882,417
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,571,004
<OTHER-INCOME> 0
<EXPENSES-NET> 1,151,065
<NET-INVESTMENT-INCOME> 4,419,939
<REALIZED-GAINS-CURRENT> (27,632)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,392,307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,419,939
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 641,776,055
<NUMBER-OF-SHARES-REDEEMED> 675,247,310
<SHARES-REINVESTED> 4,147,327
<NET-CHANGE-IN-ASSETS> (29,323,928)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 787,433
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,151,065
<AVERAGE-NET-ASSETS> 157,851,299
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
