As filed with the Securities and Exchange Commission on July 1, 1999
1933 Act Registration No. 333-52965
1940 Act Registration No. 811-8767
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2
MITCHELL HUTCHINS INSTITUTIONAL SERIES
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
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)
Copies to:
ELINOR W. GAMMON, ESQ.
BENJAMIN J. HASKIN, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: Effective Date of this
Post-Effective Amendment.
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ ] On pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1)
[X] On September 1, 1999 pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On ______ pursuant to Rule 485(a)(2)
Title of Securities Being Registered: Shares of Beneficial Interest
<PAGE>
MITCHELL HUTCHINS LIR SELECT MONEY FUND
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PROSPECTUS
SEPTEMBER 1, 1999
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This prospectus offers two classes of money market fund shares. Institutional
shares are offered primarily to institutional investors and Financial
Intermediary shares are offered to banks and other financial intermediaries for
the benefit of their customers.
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Not FDIC insured. May lose value. No bank guarantee.
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As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
<PAGE>
Mitchell Hutchins LIR Select Money Fund
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CONTENTS
THE FUND
What every investor 3 LIR Select Money Fund
should know about 5 More About Risks and Investment Strategies
the fund
YOUR INVESTMENT
Information for 6 Managing Your Fund Account
managing your fund 6 Buying Shares
account 7 Selling Shares
7 Exchanging Shares
7 Additional Informtion About Your Account
8 Pricing and Valuation
ADDITIONAL INFORMATION
Additional important 8 Management
information about 9 Dividends and Taxes
the fund 10 Financial Highlights
Where to learn more Back Cover
about the fund
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The fund is not a complete or
balanced investment program.
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2
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Mitchell Hutchins LIR Select Money Fund
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MITCHELL HUTCHINS LIR SELECT MONEY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- ------------------------------------------
FUND OBJECTIVE
Maximum current income consistent with liquidity and the preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES
The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in a diversified portfolio of high quality money
market instruments of governmental and private issuers.
Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rate or other
special features that give them the financial characteristics of short-term
debt.
The fund may invest in any of these money market instruments. It invests in
foreign money market instruments only if they are denominated in U.S. dollars.
PaineWebber Incorporated, the fund's investment adviser, has appointed Mitchell
Hutchins Asset Management Inc. to serve as the fund's sub-adviser. Mitchell
Hutchins selects money market instruments for the fund based on its assessment
of relative values and changes in market and economic conditions.
PRINCIPAL RISKS
An investment in the fund is not a bank deposit and is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. While the fund seeks to maintain the value of your investment at $1.00
per share, it is possible to lose money by investing in the fund.
Money market instruments generally have a low risk of loss, but they are not
risk-free. The fund is subject to credit risk, which is that issuers may fail,
or become less able, to make payments when due. The fund also is subject to
interest rate risk. When short-term interest rates rise, the value of the fund's
investments generally will fall, and its yield will tend to lag behind
prevailing rates.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
o Credit Risk
o Interest Rate Risk
o Foreign Securities Risk
INFORMATION ON THE FUND'S RECENT HOLDINGS CAN BE FOUND IN ITS CURRENT
ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON ORDERING THOSE
REPORTS).
The fund commenced operations on August 10, 1998. As a result, the fund does not
have performance information of at least one calendar year to include in a bar
chart or table at this point in the prospectus, as some other funds might. You
can obtain some idea of how the fund has performed by requesting copies of its
annual/semi-annual reports or by speaking with your Financial Advisor.
3
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Mitchell Hutchins LIR Select Money Fund
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EXPENSES AND FEE TABLES
- -----------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investments)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % None
of offering price)
Maximum Contingent Deferred
Sales Charge (Load) (as a % of None
offering price)
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES FINANCIAL INTERMEDIARY SHARES
-------------------- ------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.18% 0.18%
12b-1 Fees 0.00% 0.00%
Other Expenses
Shareholder Servicing Fee 0.00% 0.25%
Miscallaneous Expenses* 0.00% 0.00%
0.00% 0.25%
----- -----
Total Annual Fund Operating Expenses 0.18% 0.43%
===== =====
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Institutional shares $ 18 $ 58 $ 101 $ 230
Financial Intermediary 44 138 241 542
shares
4
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Mitchell Hutchins LIR Select Money Fund
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MORE ABOUT RISKS AND INVESTMENT STRATEGIES
- ------------------------------------------
PRINCIPAL RISKS
The main risks of investing in the fund are described below. Other risks of
investing in the fund, along with further detail about some of the risks
described below, are discussed in the fund's Statement of Additional Information
("SAI"). Information on how you can obtain the SAI is on the back cover of this
prospectus.
CREDIT RISK. Credit risk is the risk that the issuer of a money market
instrument will not make principal or interest payments when they are due. Even
if an issuer does not default on a payment, a money market instrument's value
may decline if the market believes that the issuer has become less able, or less
willing, to make payments on time. Even the highest quality money market
instruments are subject to some credit risk.
INTEREST RATE RISK. The value of money market instruments generally can be
expected to fall when short-term interest rates rise and to rise when short-term
interest rates fall. Interest rate risk is the risk that interest rates will
rise, so that the value of the fund's investments will fall. Also, the fund's
yield will tend to lag behind changes in prevailing short-term interest rates.
This means that the fund's income will tend to rise more slowly than increases
in short-term interest rates. Similarly, when short-term interest rates are
falling, the fund's income will tend to fall more slowly.
FOREIGN SECURITIES RISK. Foreign securities involve risks that normally are
not associated with securities of U.S. issuers. These include risks relating
to political, social and economic developments abroad and differences between
U.S. and foreign regulatory requirements and market practices.
ADDITIONAL RISKS
YEAR 2000 RISK. The fund could be adversely affected by problems relating to the
inability of computer systems used by Mitchell Hutchins and the fund's other
service providers to recognize the year 2000. While year 2000-related computer
problems could have a negative effect on the fund, Mitchell Hutchins is working
to avoid these problems with respect to its own computer systems and to obtain
assurances from other service providers that they are taking similar steps.
Similarly, the issuers whose money market instruments are bought by the fund and
the trading systems used by the fund could be adversely affected by this issue.
The ability of an issuer or trading system to respond successfully to the issue
requires both technological sophistication and diligence, and there can be no
assurance that any steps taken will be sufficient to avoid an adverse impact on
the fund.
ADDITIONAL INVESTMENT STRATEGIES
Like all money market funds, the fund is subject to maturity, quality and
diversification requirements designed to help it maintain a stable price of
$1.00 per share. In addition, Mitchell Hutchins may employ a number of
professional money management techniques to respond to changing economic and
money market conditions and to shifts in fiscal and monetary policy. These
techniques include varying the composition and the weighted average maturity of
the portfolio based upon its assessment of the relative values of various money
market instruments and future interest rate patterns. Mitchell Hutchins also may
seek to improve the fund's yield by purchasing or selling securities to take
advantage of yield disparities among similar or dissimilar money market
instruments that regularly occur in the money markets.
5
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Mitchell Hutchins LIR Select Money Fund
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YOUR INVESTMENT
MANAGING YOUR FUND ACCOUNT
- --------------------------
BUYING SHARES
- -------------
THE FUND ACCEPTS THE SETTLEMENT OF PURCHASE ORDERS ONLY IN AVAILABLE FEDERAL
FUNDS. FEDERAL FUNDS ARE FUNDS DEPOSITED BY A COMMERCIAL BANK IN AN ACCOUNT AT A
FEDERAL RESERVE BANK THAT CAN BE TRANSFERRED TO A SIMILAR ACCOUNT OF ANOTHER
BANK IN ONE DAY AND THUS MAY BE MADE IMMEDIATELY AVAILABLE TO THE FUND THROUGH
ITS CUSTODIAN.
The fund offers two separate classes of shares -- Institutional shares and
Financial Intermediary shares -- as an economical and convenient means for
institutions to invest short-term funds that they hold for their own account or
hold or manage for others.
o You may buy Institutional shares if you are an institutional investor.
PaineWebber Incorporated, the distributor of the fund's shares, may, in its
discretion, make Institutional shares available to other individuals or other
entities.
o You may buy Financial Intermediary shares only if you are a bank or other
financial intermediary buying the shares for the benefit of your customers.
Financial Intermediary shares bear special fees at the annual rate of 0.25%
of average net assets for services that these financial intermediaries
provide to the beneficial owners of the Financial Intermediary shares.
Unless you specify otherwise, all shares purchased will be Institutional shares.
You may buy fund shares by calling the fund's transfer agent, First Data
Investors Services Group, at 1-888-LIR Fund and speaking to a representative.
You may also buy fund shares by contacting your Financial Advisor at PaineWebber
or its correspondent firms, who are then responsible for sending the order to
the transfer agent. The availability of fund shares to customers of
PaineWebber's correspondent firms may vary depending on the arrangements between
PaineWebber and those firms.
You will buy shares at the net asset value next determined after receipt and
acceptance of your purchase order by the transfer agent, subject to the fund
receiving payment the same day. Your purchase order will be effective only if
you wire payment in federal funds on the same business day that you place your
order, and your wire must actually be credited to the fund's bank account by a
Federal Reserve Bank that day. Otherwise, the order will be rejected. The fund
effects orders to buy shares three times each business day at its net asset
value determined as of noon (Eastern time), 2:30 p.m. (Eastern time) and 5:00
p.m. (Eastern time). A business day is any day that the fund's custodian, the
fund's transfer agent and PaineWebber are open for business.
You must make payment for fund shares through wire transfer of federal funds. To
buy shares on a particular business day, your wire transfer must be credited to
the fund's bank account by a Federal Reserve Bank on that business day.
Otherwise, the order will be executed on the next business day, provided that
federal funds are so credited to the fund's bank account on that business day.
The fund and PaineWebber reserve the right to reject a purchase order or suspend
the offering of fund shares. PaineWebber may return without notice money wired
to the fund where the investor fails to place a corresponding share purchase
order.
WIRE INSTRUCTIONS:
Instruct your bank to transfer federal funds by wire to:
Mitchell Hutchins Institutional Funds
c/o The Bank of New York
CR DDA A/C # 8900337516
FFC PW A/C #
[INSERT PAINEWEBBER ACCOUNT NAME AND ACCOUNT NUMBER]
ABA #021000018
PaineWebber or an investor's bank may impose a service charge for wire
transfers.
6
<PAGE>
MINIMUM INVESTMENTS:
To open an account ................................... $10,000,000
To add to account.........................................$100,000
If your account balance has fallen below $10,000,000, your purchase order to add
to the account will be accepted only if the account balance will be at least
$10,000,000 after that purchase.
PaineWebber may waive these minimums. The fund may change its minimum investment
requirements at any time.
6A
<PAGE>
Mitchell Hutchins LIR Select Money Fund
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Financial intermediaries may establish different minimums for their customers
who purchase Financial Intermediary shares through them, provided that the
aggregate amounts purchased meet the above minimums. You may obtain additional
information about these minimums from your financial intermediary.
REMOTE TRADE ENTRY
The fund may offer eligible institutional investors who meet certain conditions
an electronic trade order entry (RTE) capability. For more information on this
option, contact your Financial Advisor or the transfer agent at 1-888-LIR-FUND.
SELLING SHARES
- --------------
You may sell your shares by calling the transfer agent at 1-888-LIR Fund and
speaking with a representative. You also may sell your shares by contacting your
Financial Advisor or correspondent firm (if you previously designated them to
give instructions to the transfer agent on your behalf). They are then
responsible for sending the order to the transfer agent. Sell orders are
effected three times each business day at the net asset value determined as of
noon (Eastern time), 2:30 p.m. (Eastern time) and 5:00 p.m. (Eastern time).
Your sales proceeds will be paid in federal funds wired to one or more accounts
you have designated, normally on the business day the sale order is accepted. If
you sell all the shares you own, dividends accrued for the month to date will be
paid in federal funds and wired at the same time to the bank account(s) that you
designate.
If the transfer agent receives your order to sell shares late in the day
especially between 3:30 p.m. to 5:00 p.m. (Eastern time) - the transfer agent
will process your order and initiate a wire. However, your bank account may not
receive the proceeds that day if a Federal Reserve Bank is experiencing delay in
transfer of funds. Neither the fund, PaineWebber nor the transfer agent is
responsible for the performance of your bank or any of its intermediaries.
The transfer agent will process your orders to sell shares only if you have on
file with it a properly completed account application, with signature guaranteed
or other authentication acceptable to the transfer agent. The account
application requires you to designate the bank account(s) or PaineWebber account
for wiring sales proceeds. You must submit any change in the designated
account(s) for sale proceeds in a form acceptable to the transfer agent. The
transfer agent will not place the sales order if the information you provide
does not correspond to the information on your application.
If you have additional questions on selling shares you should contact your
Financial Advisor or call the transfer agent at 1-888-LIR-FUND.
EXCHANGING SHARES
- -----------------
You may exchange shares of the fund for shares of the same class of any of the
Liquid Institutional Reserves funds - Money Market Fund, Government Securities
Fund and Treasury Securities Fund. Those funds all have higher total operating
expenses than the fund, but lower minimums for initial and
subsequent purchases.
You can place an exchange order by calling the transfer agent at 1-888-LIR Fund
and speaking with a representative. You also can place an order through a
PaineWebber Financial Advisor or correspondent firm, who are then responsible
for sending the order to the transfer agent..
Your exchange order must be received by noon (Eastern time), for Government
Securities Fund and Treasury Securities Fund to be effective on that business
day. Your exchange order must be received by 2:30 p.m. (Eastern time) for Money
Market Fund to effective on that business day. Exchange orders received after
those times will not be executed, and you will have to place an exchange order
before these times on the following business day if you still wish to effect an
exchange.
If you exchange all your fund shares, the dividends accrued on those shares for
the month to date also will be invested in the shares of the other fund into
which the exchange is made.
Shareholders making their initial purchase of another fund through an exchange
should allow more time and must provide the transfer agent with a properly
completed account application for the new fund. These exchange orders should be
received by the transfer agent at least one half hour before the previously
mentioned deadlines to allow the transfer agent sufficient time to establish an
account in the new fund in the investor's name. Otherwise, the transfer agent
may not be able to effect the exchange.
7
<PAGE>
If the total investment in your account has been less than $10,000,000 for 30
consecutive days, the fund may exchange your shares for shares of Liquid
Institutional Reserves -- Money Market Fund unless you elected in your account
application to have the shares sold and the proceeds paid to you.
The fund may modify or terminate the exchange privilege at any time.
7A
<PAGE>
Mitchell Hutchins LIR Select Money Fund
- ------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT YOUR ACCOUNT
- -----------------------------------------
FINANCIAL INTERMEDIARY SHARES. Financial intermediaries buying or holding shares
for their customer accounts may charge those customers for cash management and
other services provided in connection with their account. These charges may
include account maintenance fees, compensating balance requirements or fees
based on account transactions, assets or income. The dividends payable to the
financial intermediaries' customers, who are the beneficial owners of the
shares, will be lower than those on Institutional shares by the amount of the
fees paid by the fund for shareholder services. A customer should consider the
terms of his other account with a financial intermediary before purchasing
shares.
A financial intermediary buying or selling shares for its customers is
responsible for transmitting orders to the transfer agent in accordance with its
customer agreements and the procedures noted above.
INSTITUTIONAL SHARES. PaineWebber or Mitchell Hutchins (not the fund) may pay
shareholder servicing fees to financial institutions that make Institutional
shares available to their customers. The amount of these fees will be negotiated
between PaineWebber and the financial institution.
PRICING AND VALUATION
- ---------------------
The price of fund shares is based on net asset value and is determined
separately for each class of shares. The net asset value is the total value of
the fund divided by the total number of shares outstanding. In determining net
asset value, the fund values its securities at their amortized cost. This method
uses a constant amortization to maturity of the difference between the cost of
the instrument to the fund and the amount due at maturity. The fund's net asset
value per share is expected to be $1.00, although this value is not guaranteed.
The fund's net asset value is determined three times each business day:
o noon (Eastern time),
o 2:30 p.m. (Eastern time) and
o 5:00 p.m. (Eastern time).
Your price for buying or selling shares will be the net asset value that is next
calculated after the fund accepts your order.
MANAGEMENT
- ----------
INVESTMENT ADVISER
Mitchell Hutchins is the investment adviser and administrator of the fund, and
is located at 1285 Avenue of the Americas, New York, New York, 10019. Mitchell
Hutchins is a wholly owned asset management subsidiary of PaineWebber.
PaineWebber, the distributor of the fund's shares, is located at the same
address and is wholly owned by Paine Webber Group Inc., a publicly owned
financial services holding company. On July 31, 1999, Mitchell Hutchins was the
adviser or sub-adviser of __ investment companies with __ separate portfolios
and aggregate assets of approximately $__ billion.
MANAGEMENT FEES
The fund pays management fees to Mitchell Hutchins at the annual contract rate
of 0.18% of average daily net assets.
In exchange for this fee, Mitchell Hutchins has agreed to bear all expenses of
the fund other than the management fees, shareholder service fees paid for
Financial Intermediary shares, interest, taxes, extraordinary costs and the cost
of securities purchased and sold by the fund, including any transaction costs.
Although Mitchell Hutchins is not obligated to pay the fees and expenses of the
fund's independent trustees, it is contractually obligated to reduce its
management fee in an amount equal to those fees and expenses. Mitchell Hutchins
estimates that these fees and expenses will be less than 0.01% of the fund's
average net assets.
8
<PAGE>
Mitchell Hutchins LIR Select Money Fund
- ------------------------------------------------------------
DIVIDENDS AND TAXES
- -------------------
DIVIDENDS
The fund declares dividends daily and pays them monthly. Dividends are paid on
the last business day of a month or upon the sale of all the fund shares in a
shareholder's account.
The fund distributes any net short-term capital gain annually and anticipates
that any short-term capital gain distribution would be declared during the month
of December in a given year. The fund may make more frequent distributions if
necessary to maintain its share price at $1.00.
Shares earn dividends on the day they are purchased but do not earn dividends on
the day they are sold.
Dividends on Financial Intermediary shares will be lower than dividends on
Institutional shares because of the higher expenses borne by Financial
Intermediary shares.
You will receive dividends in additional shares of the same class unless you
elect to have the dividends transmitted by federal funds wire to either a
designated bank account or PaineWebber account. You must notify the transfer
agent in writing in a form acceptable to the transfer agent at least two
business days prior to the end of the month if you wish to change this election
for a particular monthly dividend.
TAXES
The dividends that you receive from the fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. If you hold fund shares through a tax-exempt account or plan, such as
an IRA or 401(k) plan, dividends on your shares generally will not be subject to
tax.
The fund expects that its dividends will be taxed primarily as ordinary income.
The fund will tell you how you should treat its dividends for tax purposes.
9
<PAGE>
Mitchell Hutchins LIR Select Money Fund
- ------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------
The following financial highlights table is intended to help you understand the
fund's financial performance since it commenced operations on August 10, 1998.
Certain information reflects financial results for a single fund share. In the
table, "total investment return" represents the rate that an investor would have
earned on an investment in the fund (assuming reinvestment of all dividends).
The information in the financial highlights has been audited by Ernst & Young,
LLP, independent auditors, whose report, along with the fund's financial
statements, are included in the fund's annual report to shareholders. The annual
report may be obtained without charge by calling 1-800-LIR-FUND.
[FINANCIAL HIGHLIGHTS TO BE PROVIDED]
10
<PAGE>
[BACK COVER]
Mitchell Hutchins LIR Select Money Fund
Ticker Symbol: SELXX
If you want more information about the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund and is incorporated by
reference into this prospectus.
You may discuss your questions about the fund by contacting your Financial
Advisor at PaineWebber or one of its correspondent firms. You may obtain free
copies of annual and semi-annual reports and the SAI by contacting the fund
directly at 1-800-LIR-FUND.
You may review and copy information about the fund, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and Exchange
Commission. You can get text-only copies of reports and other information about
the fund:
o For a fee, by writing to or calling the SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
o Free, from the SEC's Internet website at: http://www.sec.gov
Mitchell Hutchins Institutional Series
- -- Mitchell Hutchins LIR Select Money Fund
Investment Company Act File No. 811-8767
(COPYRIGHT) 1999 PaineWebber Incorporated
<PAGE>
MITCHELL HUTCHINS LIR SELECT MONEY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
Mitchell Hutchins LIR Select Money Fund is a professionally managed money
market fund. The Fund is a diversified series of Mitchell Hutchins Institutional
Series ("Trust") an open-end investment company.
The fund's investment adviser and administrator is Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber"). PaineWebber is the
fund's distributor.
Portions of the fund's Annual Report to Shareholders are incorporated by
reference into this Statement of Additional Information ("SAI"). The Annual
Report accompanies this SAI. You may obtain an additional copy of the Annual
Report by calling toll-free 1-888-LIR-FUND.
This SAI is not a prospectus and should be read only in conjunction with
the fund's current Prospectus, dated September 1, 1999. A copy of the Prospectus
may be obtained by calling any PaineWebber Financial Advisor or correspondent
firm or by calling toll-free 1-888-LIR-FUND. Customers of banks and financial
intermediaries that purchase the Fund's Financial Intermediary Shares may obtain
the Prospectus from their financial intermediaries. This SAI is dated September
1, 1999.
TABLE OF CONTENTS
PAGE
----
The Fund and Its Investment Policies............ 2
The Fund's Investments, Related Risks and
Limitations..................................... 2
Organization of the Trust; Trustees and Officers
and Principal Holders of Securities.......... 9
Investment Advisory, Administration and
Distribution Arrangements....................... 16
Portfolio Transactions.......................... 18
Additional Information Regarding Redemptions.... 19
Valuation of Shares............................. 19
Performance Information......................... 20
Taxes........................................... 22
Other Information............................... 23
Financial Statements............................ 24
<PAGE>
THE FUND AND ITS INVESTMENT POLICIES
The fund's investment objective may not be changed without shareholder
approval. Except where noted, the other investment policies of the fund may be
changed by its board without shareholder approval. As with other mutual funds,
there is no assurance that the fund will achieve its investment objective.
The fund's investment objective is earn maximum current income consistent
with liquidity and preservation of capital. The fund invests in high quality
money market instruments that have, or are deemed to have, remaining maturities
of 13 months or less. Money market instruments are short-term debt-obligations
and similar securities. These instruments include (1) U.S. and foreign
government securities, (2) obligations of U.S. and foreign banks, (3) commercial
paper and other short-term obligations of U.S. and foreign corporations,
partnerships and trusts and similar entities, (4) funding agreements and other
insurance company obligations, (5) repurchase agreements regarding any of the
foregoing and (6) investment company securities. Money market instruments also
include longer term bonds that have variable interest rate or other special
features that give them the financial characteristics of short-term debt. The
fund maintains a dollar-weighted average portfolio maturity of 90 days or less.
The fund may invest in obligations (including certificates of deposit,
bankers' acceptances, time deposits and similar obligations) of U.S. and foreign
banks only if the institution has total assets at the time of purchase in excess
of $1.5 billion. The fund may invest in non-negotiable time deposits of U.S.
banks, savings associations and similar depository institutions only if the
institution has total assets at the time of purchase in excess of $1.5 billion
and the time deposits have a maturity of seven days or less.
The fund may purchase only those obligations that Mitchell Hutchins
determines, pursuant to procedures adopted by the board, present minimal credit
risks and are "First Tier Securities" as defined in Rule 2a-7 under the
Investment Company Act of 1940, as amended ("Investment Company Act"). A First
Tier Security is either (1) rated in the highest short-term rating category by
at least two nationally recognized statistical rating agencies ("rating
agencies"), (2) rated in the highest short-term rating category by a single
rating agency if only that rating agency has assigned the obligation a
short-term rating, (3) issued by an issuer that has received such a short-term
rating with respect to a security that is comparable in priority and security,
(4) subject to a guarantee rated in the highest short-term rating category or
issued by a guarantor that has received the highest short-term rating for a
comparable debt obligation or (5) unrated, but determined by Mitchell Hutchins
to be of comparable quality.
The fund generally may invest no more than 5% of its total assets in the
securities of a single issuer (other than U.S. government securities). The fund
may purchase only U.S. dollar-denominated obligations of foreign issuers.
The fund may invest up to 10% of its net assets in illiquid securities.
The fund may purchase securities on a when-issued or delayed delivery basis. The
fund may lend its portfolio securities to qualified broker-dealers or
institutional investors in an amount up to 33-1/3% of its total assets. The fund
may borrow up to 10% of its total assets for temporary purposes, including
reverse repurchase agreements. The fund may invest in the securities of other
investment companies.
The fund may be rated by a rating agency. As of the date of this SAI, Duff
& Phelps Credit Rating Co. (DCR) has given the fund a AAA rating. According to
DCR, the AAA rating means the fund's ability to meet redemption requests in a
timely manner for $1.00 per share is strong. This rating is based on the fund's
risk management procedures, internal control systems, limitations on market risk
and experienced management team.
THE FUND'S INVESTMENTS, RELATED RISKS AND LIMITATIONS
The following supplements the information contained in the Prospectus and
above concerning the fund's investments, related risks and limitations. Except
as otherwise indicated in the Prospectus or the SAI, the fund has established no
policy limitations on its ability to use the investments or techniques discussed
2
<PAGE>
in these documents. New forms of money market instruments continue to be
developed. The fund may invest in these instruments to the extent consistent
with its investment objective.
YIELDS AND CREDIT RATINGS OF MONEY MARKET INSTRUMENTS; FIRST TIER
SECURITIES. The yields on the money market instruments in which the fund invests
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings assigned by rating agencies
represent their opinions as to the quality of the obligations they undertake to
rate. Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices.
Subsequent to its purchase by the fund, an issue may cease to be rated or
its rating may be reduced. If a security in the fund's portfolio ceases to be a
First Tier Security (as defined above) or Mitchell Hutchins becomes aware that a
security has received a rating below the second highest rating by any rating
agency, Mitchell Hutchins and, in certain cases, the fund's board, will consider
whether the fund should continue to hold the obligation. A First Tier Security
rated in the highest short-term category at the time of purchase that
subsequently receives a rating below the highest rating category from a
different rating agency may continue to be considered a First Tier Security.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S. Treasury
(such as Treasury bills, notes or bonds) and obligations issued or guaranteed as
to principal and interest (but not as to market value) by the U.S. government,
its agencies or its instrumentalities. U.S. government securities include
mortgage-backed securities issued or guaranteed by government agencies or
government-sponsored enterprises. Other U.S. government securities may be backed
by the full faith and credit of the U.S. government or supported primarily or
solely by the creditworthiness of the government-related issuer or, in the case
of mortgage-backed securities, by pools of assets.
U.S. government securities also include separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury,
which are traded independently under the Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Under the STRIPS programs, the
principal and interest components are individually numbered and separately
issued by the U.S. Treasury.
COMMERCIAL PAPER AND OTHER SHORT-TERM OBLIGATIONS. The fund may purchase
commercial paper, which includes short-term obligations issued by corporations,
partnerships, trusts or other entities to finance short-term credit needs. The
fund also may purchase other types of non-convertible debt obligations subject
to maturity constraints imposed by Rule 2a-7 under the Investment Company Act.
Descriptions of certain types of short-term obligations are provided below.
ASSET-BACKED SECURITIES. The fund may invest in securities that are
comprised of financial assets. Such assets may include motor vehicle and other
installment sales contracts, home equity loans, leases of various types of real
and personal property and receivables from revolving credit (credit card)
agreements or other types of financial assets. Such assets are securitized
through the use of trusts or special purpose corporations or other entities.
Payments or distributions of principal and interest may be guaranteed up to a
certain amount and for a certain time period by a letter of credit or pool
insurance policy issued by a financial institution unaffiliated with the issuer,
or other credit enhancements may be present. See "The Fund's Investments,
Related Risks and Limitations -- Credit and Liquidity Enhancements."
VARIABLE AND FLOATING RATE SECURITIES AND DEMAND INSTRUMENTS. The fund may
purchase variable and floating rate securities with remaining maturities in
excess of 13 months issued by U.S. government agencies or instrumentalities or
guaranteed by the U.S. government. In addition, the fund may purchase variable
and floating rate securities of other issuers with remaining maturities in
excess of 13 months if the securities are subject to a demand feature
exercisable within 13 months or less. The yields on these securities are
adjusted in relation to changes in specific rates, such as the prime rate, and
different securities may have different adjustment rates. The fund's investment
in these securities must comply with conditions established by the Securities
and Exchange Commission ("SEC") under which they may be considered to have
remaining maturities of 13 months or less. Certain of these obligations carry a
demand feature that gives the fund the right to tender them back to a specified
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<PAGE>
party, usually the issuer or a remarketing agent, prior to maturity. quality of
the obligations. See "The Fund's Investments, Related Risks and Limitations --
Credit and Liquidity Enhancements."
Generally, the fund may exercise demand features (1) upon a default under
the terms of the underlying security, (2) to maintain its portfolio in
accordance with its investment objective and policies or applicable legal or
regulatory requirements or (3) as needed to provide liquidity to the fund in
order to meet redemption requests. The ability of a bank or other financial
institution to fulfill its obligations under a letter of credit, guarantee or
other liquidity arrangement might be affected by possible financial difficulties
of its borrowers, adverse interest rate or economic conditions, regulatory
limitations or other factors. The interest rate on floating rate or variable
rate securities ordinarily is readjusted on the basis of the prime rate of the
bank that originated the financing or some other index or published rate, such
as the 90-day U.S. Treasury bill rate, or is otherwise reset to reflect market
rates of interest. Generally, these interest rate adjustments cause the market
value of floating rate and variable rate securities to fluctuate less than the
market value of fixed rate securities.
VARIABLE AMOUNT MASTER DEMAND NOTES. The fund may invest in variable
amount master demand notes, which are unsecured redeemable obligations that
permit investment of varying amounts at fluctuating interest rates under a
direct agreement between the fund and an issuer. The principal amount of these
notes may be increased from time to time by the parties (subject to specified
maximums) or decreased by the fund or the issuer.
These notes are payable on demand and may or may not be rated.
FUNDING AGREEMENTS AND GUARANTEED INVESTMENT CONTRACTS. The fund may
invest in funding agreements and guaranteed investment contracts issued by
insurance companies which are obligations of the insurance company or its
separate account. Funding agreements permit the investment of varying amounts
under a direct agreement between the fund and an insurance company and provide
that the principal amount may be increased from time to time (subject to
specified maximums) by agreement of the parties or decreased by either party.
The fund expects to invest primarily in funding agreements and guaranteed
investment contracts with floating or variable rates that are subject to demand
features that permit the fund to tender its interest back to the issuer. To the
extent the fund invests in funding agreements and guaranteed investment
contracts that either do not have demand features or have demand features that
may be exercised more than seven days after the date of acquisition, these
investments will be subject to the fund's limitation on investments in illiquid
securities. See "The Fund's Investments, Related Risks and Limitations -- Credit
and Liquidity Enhancements" and "-- Illiquid Securities."
INVESTING IN FOREIGN SECURITIES. The fund's investments in U.S.
dollar-denominated securities of foreign issuers may involve risks that are
different from investments in U.S. issuers. These risks may include future
unfavorable political and economic developments, possible withholding taxes,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions that might affect the payment of principal or interest
on the fund's investments. Additionally, there may be less publicly available
information about foreign issuers because they may not be subject to the same
regulatory requirements as domestic issuers.
CREDIT AND LIQUIDITY ENHANCEMENTS. The fund may invest in securities that
have credit or liquidity enhancements or the fund may purchase these types of
enhancements in the secondary market. Such enhancements may be structured as
demand features that permit the fund to sell the instrument at designated times
and prices. These credit and liquidity enhancements may be backed by letters of
credit or other instruments provided by banks or other financial institutions
whose credit standing affects the credit quality of the underlying obligation.
Changes in the credit quality of these financial institutions could cause losses
to the fund. The credit and liquidity enhancements may have conditions that
limit the ability of the fund to use them when the fund wishes to do so.
ILLIQUID SECURITIES. The term "illiquid securities" means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the fund has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days and restricted securities other than those Mitchell Hutchins has determined
are liquid pursuant to guidelines established by the board. To the extent the
fund invests in illiquid securities, it may not be able readily to liquidate
such investments and may have to sell other investments if necessary to raise
cash to meet its obligations.
4
<PAGE>
Restricted securities are not registered under the Securities Act of 1933,
as amended ("Securities Act") and may be sold only in privately negotiated or
other exempted transactions or after a registration statement under the
Securities Act has become effective. Where registration is required, the fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the fund might obtain a less favorable price than prevailed when it
decided to sell.
However, not all restricted securities are illiquid. A large institutional
market has developed for many U.S. and foreign securities that are not
registered under the Securities Act. Institutional investors generally will not
seek to sell these instruments to the general public, but instead will often
depend either on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Institutional markets for restricted securities also have developed as a
result of Rule 144A, which establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the fund, however, could affect adversely the marketability of such portfolio
securities, and the fund might be unable to dispose of such securities promptly
or at favorable prices.
The board has delegated the function of making day-to-day determinations
of liquidity to Mitchell Hutchins pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the nature of the
security and how trading is effected (E.G., the time needed to sell the
security, how bids are solicited and the mechanics of transfer) and (4) the
existence of demand features or similar liquidity enhancements. Mitchell
Hutchins monitors the liquidity of restricted securities in the fund's portfolio
and reports periodically on such decisions to the board.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
fund purchases securities or other obligations from a bank or securities dealer
(or its affiliate) and simultaneously commits to resell them to the counterparty
at an agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased obligations.
Securities or other obligations subject to repurchase agreements may have
maturities in excess of 13 months. The fund maintains custody of the underlying
obligations prior to their repurchase, either through its regular custodian or
through a special "tri-party" custodian or sub-custodian that maintains separate
accounts for both the fund and its counterparty. Thus, the obligation of the
counterparty to pay the repurchase price on the date agreed to or upon demand
is, in effect, secured by such obligations.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including a possible decline in the market value of
the underlying obligations. If their value becomes less than the repurchase
price, plus any agreed-upon additional amount, the counterparty must provide
additional collateral so that at all times the collateral is at least equal to
the repurchase price plus any agreed-upon additional amount. The difference
between the total amount to be received upon repurchase of the obligations and
the price that was paid by the fund upon acquisition is accrued as interest and
included in its net investment income. Repurchase agreements involving
obligations other than U.S. government securities (such as commercial paper,
corporate bonds and mortgage loans) may be subject to special risks and may not
have the benefit of certain protections in the event of the counterparty's
insolvency. If the seller or guarantor becomes insolvent, the fund may suffer
delays, costs and possible losses in connection with the disposition of
collateral. The fund intends to enter into repurchase agreements only with
counterparties in transactions believed by Mitchell Hutchins to present minimum
credit risks.
5
<PAGE>
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the
sale of securities held by the fund subject to its agreement to repurchase the
securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest. Reverse repurchase agreements are subject to the fund's
limitation on borrowings and may be entered into only with banks and securities
dealers. While a reverse repurchase agreement is outstanding, the fund will
maintain, in a segregated account with its custodian, cash or liquid securities,
marked to market daily, in an amount at least equal to its obligations under the
reverse repurchase agreement. See "The Fund's Investments, Related Risks and
Limitations -- Segregated Accounts."
Reverse repurchase agreements involve the risk that the buyer of the
securities sold by the fund might be unable to deliver them when the fund seeks
to repurchase. If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, such buyer or trustee or receiver may
receive an extension of time to determine whether to enforce that fund's
obligation to repurchase the securities, and the fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The fund may purchase
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery, I.E., for issuance or delivery to or by the fund later than
the normal settlement date for such securities at a stated price and yield. The
fund generally would not pay for such securities or start earning interest on
them until they are received. However, when the fund undertakes a when-issued or
delayed delivery obligation, it immediately assumes the risks of ownership,
including the risks of price fluctuation. Failure of the issuer to deliver a
security purchased by the fund on a when-issued or delayed delivery basis may
result in the fund's incurring a loss or missing an opportunity to make an
alternative investment.
A security purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date and is subject to changes in market
value, generally based upon changes in the level of interest rates. Thus,
fluctuation in the value of the security from the time of the commitment date
will affect a fund's net asset value. When the fund commits to purchase
securities on a when-issued or delayed delivery basis, its custodian segregates
assets to cover the amount of the commitment. See "The Fund's Investments,
Related Risks and Limitations--Segregated Accounts." The fund may sell the right
to acquire the security prior to delivery if Mitchell Hutchins deems it
advantageous to do so, which may result in a gain or loss to the fund.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The fund may invest in
securities of other money market funds, subject to Investment Company Act
limitations, which at present restrict these investments in the aggregate to no
more than 10% of the fund's total assets. The shares of other money market funds
are subject to the management fees and other expenses of those funds. At the
same time, the fund would continue to pay its own management fees and expenses
with respect to all its investments, including shares of other money market
funds. The fund may invest in the securities of other money market funds when
Mitchell Hutchins believes that (1) the amounts to be invested are too small or
are available too late in the day to be effectively invested in other money
market instruments, (2) shares of other money market funds otherwise would
provide a better return than direct investment in other money market instruments
or (3) such investments would enhance the fund's liquidity.
LENDING OF PORTFOLIO SECURITIES. The fund is authorized to lend its
portfolio securities to broker-dealers or institutional investors that Mitchell
Hutchins deems qualified. Lending securities enables the fund to earn additional
income, but could result in a loss or delay in recovering these securities. The
borrower of the fund's portfolio securities must maintain acceptable collateral
with the fund's custodian in an amount, marked to market daily, at least equal
to the market value of the securities loaned, plus accrued interest and
dividends. Acceptable collateral is limited to cash, U.S. government securities
and irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. The fund may reinvest any cash collateral in money market
investments or other short-term liquid investments. In determining whether to
lend securities to a particular broker-dealer or institutional investor,
Mitchell Hutchins will consider, and during the period of the loan will monitor,
all relevant facts and circumstances, including the creditworthiness of the
borrower. The fund will retain authority to terminate any of its loans at any
time. The fund may pay reasonable fees in connection with a loan and may pay the
borrower or placing broker a negotiated portion of the interest earned on the
reinvestment of cash held as collateral. The fund will receive amounts
equivalent to any interest, dividends or other distributions on the securities
6
<PAGE>
loaned. The fund will regain record ownership of loaned securities to exercise
beneficial rights, such as voting and subscription rights, when regaining such
rights is considered to be in the fund's interest.
Pursuant to procedures adopted by the board governing the fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for the fund. The board also has authorized the payment of fees (including
fees calculated as a percentage of invested cash collateral) to PaineWebber for
these services. The board periodically reviews all portfolio securities loan
transactions for which PaineWebber acted as lending agent. PaineWebber also has
been approved as a borrower under the fund's securities lending program.
SEGREGATED ACCOUNTS. When the fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis or reverse
repurchase agreements, it will maintain with an approved custodian in a
segregated account cash or liquid securities, marked to market daily, in an
amount at least equal to the fund's obligation or commitment under such
transactions.
INVESTMENT LIMITATIONS OF THE FUND
FUNDAMENTAL LIMITATIONS. The following fundamental investment limitations
cannot be changed for the fund without the affirmative vote of the lesser of (a)
more than 50% of the outstanding shares of the fund or (b) 67% or more of the
shares of the fund present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. If a
percentage restriction is adhered to at the time of an investment or
transaction, later changes in percentage resulting from a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the following limitations.
The fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5%
of the fund's total assets would be invested in securities of that issuer or the
fund would own or hold more than 10% of the outstanding voting securities of
that issuer, except that up to 25% of the fund's total assets may be invested
without regard to this limitation, and except that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment companies.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the securities
having the same sponsor, and mortgage- and asset-backed securities issued by a
finance or other special purpose subsidiary that are not guaranteed by the
parent company will be considered to be issued by a separate issuer from the
parent company.
(2) purchase any security if, as a result of that purchase, 25% or more
of the fund's total assets would be invested in securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities or to
certificates of deposit and bankers' acceptances of domestic branches of U.S.
banks.
The following interpretations apply to, but are not a part of, this
fundamental restriction: (a) domestic and foreign banking will be considered to
be different industries; and (b) asset-backed securities will be grouped in
industries based upon their underlying assets and not treated as constituting a
single, separate industry.
(3) issue senior securities or borrow money, except as permitted under
the Investment Company Act and then not in excess of 33-1/3% of the fund's total
assets (including the amount of the senior securities issued but reduced by any
liabilities not constituting senior securities) at the time of the issuance or
borrowing, except that the fund may borrow up to an additional 5% of its total
assets (not including the amount borrowed) for temporary or emergency purposes.
7
<PAGE>
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a loan.
The following interpretation applies to, but is not a part of, this
fundamental restriction: the fund's investments in master notes, funding
agreements and similar instruments will not be considered to be the making of a
loan.
(5) engage in the business of underwriting securities of other issuers,
except to the extent that the fund might be considered an underwriter under the
federal securities laws in connection with its disposition of portfolio
securities.
(6) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by interests
in real estate are not subject to this limitation, and except that the fund may
exercise rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an orderly
manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the fund may purchase, sell or enter
into financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are
non-fundamental and may be changed by the vote of the board without shareholder
approval.
The fund will not:
(1) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions and except that the fund may
make margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.
(2) engage in short sales of securities or maintain a short position,
except that the fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(3) purchase securities of other investment companies, except to the
extent permitted by the Investment Company Act and except that this limitation
does not apply to securities received or acquired as dividends, through offers
of exchange, or as a result of reorganization, consolidation, or merger.
(4) purchase portfolio securities while borrowings in excess of 5% of
its total assets are outstanding.
(5) invest more than 10% of its net assets in illiquid securities.
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<PAGE>
ORGANIZATION OF THE TRUST; TRUSTEES AND OFFICERS
AND PRINCIPAL HOLDERS OF SECURITIES
The Trust was formed on April 29, 1998 as a business trust under the laws
of Delaware and has one operating series. The board has authority to establish
additional series and to issue an unlimited number of shares of each beneficial
interest of each existing or future series, par value $0.001 per share. The
board oversees the fund's operations.
Trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
<S> <C> <C>
Margo N. Alexander**; 52 Trustee and President Mrs. Alexander is chairman (since March
1999), chief executive officer and a director
of Mitchell Hutchins (since January 1995), and
an executive vice president and a director of
PaineWebber (since March 1984). Mrs. Alexander
is president and a director or trustee of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Richard Q. Armstrong; 64 Trustee Mr. Armstrong is chairman and principal of
R.Q.A. Enterprises R.Q.A. Enterprises (management consulting
One Old Church Road firm) (since April 1991 and principal
Unit #6 occupation since March 1995). Mr. Armstrong
Greenwich, CT 06830 was chairman of the board, chief executive
officer and co-owner of Adirondack Beverages
(producer and distributor of soft drinks and
sparkling/still waters) (October 1993-March
1995). He was a partner of The New England
Consulting Group (management consulting firm)
(December 1992-September 1993). He was
managing director of LVMH U.S. Corporation
(U.S. subsidiary of the French luxury goods
conglomerate, Louis Vuitton Moet Hennessey
Corporation) (1987-1991) and chairman of its
wine and spirits subsidiary, Schieffelin &
Somerset Company (1987-1991). Mr. Armstrong is
a director or trustee of 31 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.
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<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
E. Garrett Bewkes, Jr.**; 72 Trustee and Chairman of the Mr. Bewkes is a director of Paine Webber Group
Board of Trustees Inc. ("PW Group") (holding company of
PaineWebber and Mitchell Hutchins). Prior to
December 1995, he was a consultant to PW
Group. Prior to 1988, he was chairman of the
board, president and chief executive officer
of American Bakeries Company. Mr. Bewkes is a
director of Interstate Bakeries Corporation.
Mr. Bewkes is a director or trustee of 35
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Richard R. Burt; 52 Trustee Mr. Burt is chairman of IEP Advisors, Inc.
1275 Pennsylvania Ave, N.W. (international investments and consulting
Washington, DC 20004 firm) (since March 1994) and a partner of
McKinsey & Company (management consulting
firm) (since 1991). He is also a director of
Archer-Daniels-Midland Co. (agricultural
commodities), Hollinger International Co.
(publishing), Homestake Mining Corp.,
Powerhouse Technologies Inc. and Wierton Steel
Corp. He was the chief negotiator in the
Strategic Arms Reduction Talks with the former
Soviet Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of Germany
(1985-1989). Mr. Burt is a director or
trustee of 31 investment companies for which
Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Mary C. Farrell**; 49 Trustee Ms. Farrell is a managing director, senior
investment strategist and member of the
Investment Policy Committee of PaineWebber.
Ms. Farrell joined PaineWebber in 1982. She is
a member of the Financial Women's Association
and Women's Economic Roundtable and appears as
a regular panelist on Wall $treet Week with
Louis Rukeyser. She also serves on the Board
of Overseers of New York University's Stern
School of Business. Ms. Farrell is a director
or trustee of 31 investment companies for
which Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment adviser.
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<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Meyer Feldberg; 57 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of Business,
101 Uris Hall Columbia University. Prior to 1989, he was
New York, NY 10027 president of the Illinois Institute of
Technology. Dean Feldberg is also a director
of Primedia, Inc., Federated Department
Stores, Inc. and Revlon, Inc. Dean Feldberg is
a director or trustee of 34 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.
George W. Gowen; 69 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, NY 10017 1994, he was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is a director
or trustee of 34 investment companies for
which Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment adviser.
Frederic V. Malek; 62 Trustee Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Ave, N.W. Partners (merchant bank). From January 1992 to
Suite 350 November 1992, he was campaign manager of
Washington, DC 20004 Bush-Quayle `92. From 1990 to 1992, he was
vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA Inc.
(holding company of Northwest Airlines Inc.)
and Wings Holdings Inc. (holding company of
NWA Inc.). Prior to 1989, he was employed by
the Marriott Corporation (hotels, restaurants,
airline catering and contract feeding), where
he most recently was an executive vice
president and president of Marriott Hotels and
Resorts. Mr. Malek is also a director of
American Management Systems, Inc. (management
consulting and computer related services),
Automatic Data Processing, Inc., CB Commercial
Group, Inc. (real estate services), Choice
Hotels International (hotel and hotel
franchising), FPL Group, Inc. (electric
services), Manor Care, Inc. (health care) and
Northwest Airlines Inc. Mr. Malek is a
director or trustee of 31 investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
11
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Carl W. Schafer; 63 Trustee Mr. Schafer is president of the Atlantic
66 Witherspoon Street, #1100 Foundation (charitable foundation supporting
Princeton, NJ 08542 mainly oceanographic exploration and
research). He is a director of Base Ten
Systems, Inc. (software), Roadway Express,
Inc. (trucking), The Guardian Group of Mutual
Funds, the Harding, Loevner Funds, Evans
Systems, Inc. (motor fuels, convenience store
and diversified company), Electronic Clearing
House, Inc. (financial transactions
processing), Frontier Oil Corporation and
Nutraceutix, Inc. (biotechnology company).
Prior to January 1993, he was chairman of the
Investment Advisory Committee of the Howard
Hughes Medical Institute. Mr. Schafer is a
director or trustee of 31 investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
Brian M. Storms;** 44 Trustee Mr. Storms is president and chief operating
officer of Mitchell Hutchins (since March
1999). Prior to March 1999, he was president
of Prudential Investments (1996-1999). Prior
to joining Prudential, he was a managing
director at Fidelity Investments. Mr. Storms
is a director or trustee of 31 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.
Anthony G. Balestrieri; 36 Vice President Mr. Balestrieri is a senior vice president and
a portfolio manager in the short-term
strategies group of Mitchell Hutchins. Mr.
Balestrieri is a vice president of one
investment company for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Kris L. Dorr; 35 Vice President Ms. Dorr is a first vice president and a
portfolio manager in the short-term strategies
group of Mitchell Hutchins. Ms. Dorr is a
vice president of one investment company for
which Mitchell Hutchins or PaineWebber serves
as investment adviser.
John J. Lee; 30 Vice President and Mr. Lee is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Prior to September 1997, he was an
audit manager in the financial services
practice of Ernst & Young LLP. Mr. Lee is a
vice president and assistant treasurer of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as an investment adviser.
12
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Kevin J. Mahoney; 33 Vice President and Mr. Mahoney is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
department of Mitchell Hutchins. From August
1996 through March 1999, he was the manager of
the mutual fund internal control group of
Salomon Smith Barney. Prior to August 1996, he
was an associate and assistant treasurer of
BlackRock Financial Management L.P. Mr.
Mahoney is a vice president and assistant
treasurer of 32 investment companies for which
Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Michael H. Markowitz; 33 Vice President Mr. Markowitz is a first vice president and a
portfolio manager in the short-term strategies
group of Mitchell Hutchins. Mr. Markowitz is
a vice president of one investment company for
which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dennis McCauley; 52 Vice President Mr. McCauley is a managing director and chief
investment officer--fixed income of Mitchell
Hutchins. Prior to December 1994, he was
director of fixed income investments of IBM
Corporation. Mr. McCauley is a vice president
of 22 investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Ann E. Moran; 42 Vice President and Ms. Moran is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Ms. Moran is a vice president and
assistant treasurer of 32 investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
Dianne E. O'Donnell; 47 Vice President and Secretary Ms. O'Donnell is a senior vice president and
deputy general counsel of Mitchell Hutchins.
Ms. O'Donnell is a vice president and
secretary of 31 investment companies and a
vice president and assistant secretary of one
investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Emil Polito; 38 Vice President Mr. Polito is a senior vice president and
director of operations and control for
Mitchell Hutchins. Mr. Polito is a vice
president of 32 investment companies for which
Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
13
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Victoria E. Schonfeld; 48 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins (since
May 1994) and a senior vice president of
PaineWebber (since July 1995). Ms. Schonfeld
is a vice president of 31 investment companies
and a vice president and secretary of one
investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Paul H. Schubert; 36 Vice President and Treasurer Mr. Schubert is a senior vice president and
director of the mutual fund finance department
of Mitchell Hutchins. Mr. Schubert is a vice
president and treasurer of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.
Barney A. Taglialatela; 38 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance department
of Mitchell Hutchins. Prior to February 1995,
he was a manager of the mutual fund finance
division of Kidder Peabody Asset Management,
Inc. Mr. Taglialatela is a vice president and
assistant treasurer of 32 investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
Keith A. Weller; 37 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr. Weller is a
vice president and assistant secretary of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>
- -------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes, Ms. Farrell and Mr. Storms are "interested
persons" of the trust as defined in the Investment Company Act by virtue of
their positions with Mitchell Hutchins, PaineWebber, and/or PW Group.
The Trust pays each trustee who is not an "interested person" of the Trust
$1,000 annually and up to $150 for each board meeting and each meeting of a
board committee. The Trust has only one series and thus pays each such trustee
$1,000 annually plus any additional amounts due for board or committee meetings.
Each chairman of the audit and contract review committees of individual funds
within the PaineWebber fund complex receives additional compensation,
aggregating $15,000 annually, from the relevant funds. All trustees are
reimbursed for any expenses incurred in attending meetings. Trustees and
officers of the Trust own in the aggregate less than 1% of the outstanding
shares of any class of the Trust. Because PaineWebber and Mitchell Hutchins
perform substantially all the services necessary for the operation of the fund,
the fund requires no employees. No officer, director or employee of Mitchell
Hutchins or PaineWebber presently receives any compensation from the Trust for
acting as a board member or officer.
14
<PAGE>
The table below includes certain information relating to the compensation
of the current board members who held office with the fund or with other
PaineWebber funds during the fund's fiscal year ended April 30, 1999.
ther PaineWebber funds during the fund's fiscal year ended April 30, 1999.
<TABLE>
<CAPTION>
COMPENSATION TABLE+
AGGREGATE TOTAL COMPENSATION FROM
--------- -----------------------
COMPENSATION THE TRUST AND THE FUND
------------ ----------------------
NAME OF PERSON, POSITION FROM THE TRUST* COMPLEX**
------------------------ --------------- ---------
<S> <C> <C>
Richard Q. Armstrong,
Trustee $ 101,372
Richard R. Burt,
Trustee 101,372
Meyer Feldberg,
Trustee 116,222
George W. Gowen,
Trustee 108,272
Frederic V. Malek,
Trustee 101,372
Carl W. Schafer,
Trustee 101,372
</TABLE>
- --------------------
+ Only independent board members are compensated by the Trust and identified
above; board members who are "interested persons," as defined by the
Investment Company Act, do not receive compensation.
* Represents fees paid to each board member for the fiscal year ended April 31,
1999.
** Represents total compensation paid during the calendar year ended December
31, 1998, to each board member by 31 investment companies (33 in the case of
Messrs. Feldberg and Gowen) for which Mitchell Hutchins, PaineWebber or one
of their affiliates served as investment adviser. No fund within the
PaineWebber fund complex has a bonus, pension, profit sharing or retirement
plan.
PRINCIPAL HOLDERS OF SECURITIES
As of August 1, 1999, the fund's records showed the following shareholders
as owning 5% or more of a class of the fund's shares:
15
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION AND
DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. Mitchell Hutchins
acts as the Trust's investment adviser and administrator pursuant to a contract
dated July 31, 1998 ("Advisory Contract"). Under the Advisory Contract, the
Trust pays Mitchell Hutchins an annual fee, computed daily and paid monthly, at
an annual rate of 0.18% of the Fund's average daily net assets.
During the period August 10, 1998 (commencement of operations) to April
30, 1999, the fund paid (or accrued) fees of $ under the Advisory Contract.
Under the terms of the Advisory Contract, Mitchell Hutchins bears all
expenses incurred in the Fund's operation other than the fee payable under the
Advisory Contract, the fees payable pursuant to the shareholder service plan
adopted by the Trust with respect to the Fund's Financial Intermediary shares,
fees and expenses (including counsel fees) of the trustees of the Trust who are
not "interested persons" of the Trust or Mitchell Hutchins, as that term is
defined in the Investment Company Act ("Independent Trustees"), interest, taxes
and the cost (including brokerage commissions and other transaction costs, if
any) of securities purchased or sold by the Fund and any losses incurred in
connection therewith and extraordinary expenses (such as costs of litigation to
which the Trust or Fund is a party and of indemnifying officers and trustees of
the Trust).
Although Mitchell Hutchins is not obligated to pay the fees and expenses
of the Independent Trustees, the Advisory Contract requires that Mitchell
Hutchins reduce its management fee by an amount equal to those fees and
expenses.
Expenses borne by Mitchell Hutchins include the following (or the fund's
share of the following): (1) organizational expenses (if these expenses are
amortized over a period of more than one year, Mitchell Hutchins will bear in
any one year only that portion of the organizational expenses that would have
been borne by the fund in that year), (2) filing fees and expenses relating to
the registration and qualification of the shares of the fund under federal and
state securities laws and maintaining such registration and qualifications, (3)
fees and salaries payable to the trustees (other than the Independent Trustees)
and officers, (4) all expenses incurred in connection with the services of the
trustees (other than the Independent Trustees), including travel expenses, (5)
costs of any liability, uncollectable items of deposit and other insurance or
fidelity bonds, (6) ordinary legal, accounting and auditing expenses, excluding
legal fees of special counsel for the Independent Trustees and, as noted above,
excluding extraordinary expenses, such as litigation or indemnification
expenses, (7) charges of custodians, transfer agents and other agents, (8) costs
of preparing share certificate (if any); (9) expenses of setting in type and
printing prospectuses and supplements thereto, reports and statements to
shareholders and proxy materials for existing shareholders, (10) costs of
mailing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials to existing
shareholders, (11) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations, (12) costs of
mailing and tabulating proxies and costs of meetings of shareholders, the board
and any committees thereof, (13) the cost of investment company literature and
other publications provided to the trustees and officers, (14) costs of mailing
stationery and communications equipment, (15) expenses incident to any dividend,
withdrawal or redemption options, and (16) charges and expenses of any outside
pricing service used to value portfolio securities.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Mitchell Hutchins in the performance of its duties or from reckless disregard of
its duties and obligations thereunder.
The Advisory Contract is terminable with respect to the fund at any time
without penalty by vote of the board or by vote of the holders of a majority of
the outstanding voting securities of the fund on 60 days' written notice to
Mitchell Hutchins, as the case may be. The Advisory Contract is also terminable
16
<PAGE>
without penalty by Mitchell Hutchins on 60 days' written notice to the other
party. The Advisory Contract terminates automatically upon its assignment.
NET ASSETS. The following table shows the approximate net assets as of
July 31, 1999, sorted by category of investment objective, of the investment
companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
NET ASSETS
INVESTMENT CATEGORY ($MIL)
------------------- ------
Domestic (excluding Money Market)...................
Global..............................................
Equity/Balanced.....................................
Fixed Income (excluding Money Market)...............
Taxable Fixed Income..........................
Tax-Free Fixed Income.........................
Money Market Funds..................................
PERSONAL TRADING POLICIES. 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 PaineWebber 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 participation 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 Funds and other Mitchell
Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. PaineWebber acts as distributor of each class
of shares of the fund under a distribution contract with the Trust, which
requires PaineWebber to use its best efforts, consistent with its other
business, to sell shares of the fund. Shares of the fund are offered on a
continuous basis, except that the Trust and PaineWebber reserve the right to
reject any purchase order and to suspend the offering of fund shares for a
period of time. PaineWebber may pay shareholder servicing fees to banks and
broker-dealers that make Institutional shares of the fund available to their
customers. The annual rate of the shareholder servicing fees will not exceed
five basis points (0.05%) multiplied by the average daily net asset value of
Institutional shares held through the bank or broker-dealer by its institutional
customers, and will be paid monthly. The cost of these shareholder servicing
fees will be borne by PaineWebber or Mitchell Hutchins Asset Management Inc. and
will not be charged to or reimbursed by the Fund.
FINANCIAL INTERMEDIARIES. Financial intermediaries, such as banks and
savings associations, may purchase Financial Intermediary shares for the
accounts of their customers. The Trust has adopted a shareholder services plan
("Plan") with respect to Financial Intermediary shares. PaineWebber implements
the Plan on behalf of the Trust by entering into a service agreement with each
financial intermediary that purchases Financial Intermediary shares requiring it
to provide support services to its customers who are the beneficial owners of
Financial Intermediary shares.
Under the Plan, the fund pays PaineWebber an annual fee at the annual rate
of 0.25% of the average daily net assets value of the Financial Intermediary
shares held by financial intermediaries on behalf of their customers. Under each
service agreement, PaineWebber pays an identical fee to the financial
intermediary for providing the support services to its customers specified in
the service agreement. These services may include: (i) aggregating and
processing purchase and redemption requests from customers and placing net
purchase and redemption orders with PaineWebber; (ii) providing customers with a
service that invests the assets of their accounts in Financial Intermediary
shares; (iii) processing dividend payments from the Trust on behalf of
customers; (iv) providing information periodically to customers showing their
positions in Financial Intermediary shares; (v) arranging for bank wires; (vi)
17
<PAGE>
responding to customer inquiries relating to the services performed by the
financial intermediary; (vii) providing sub-accounting with respect to Financial
Intermediary shares beneficially owned by customers or the information necessary
for sub-accounting; (viii) forwarding shareholder communications from the Trust
(such as proxies, shareholder reports and dividend, distribution and tax
notices) to customers, if required by law; and (ix) other similar services if
requested by the Trust. The fund made payments through PaineWebber to financial
intermediaries in the amount of $__________ with respect to its Financial
Intermediary shares outstanding during the fiscal period ended April 30, 1999.
Under the terms of the service agreements, financial intermediaries are
required to provide to their customers a schedule of any additional fees that
they may charge customers in connection with their investments in Financial
Intermediary shares. Financial Intermediary shares are available for purchase
only by financial intermediaries that have entered into service agreements with
PaineWebber in connection with their investment. Financial intermediaries
providing services to beneficial owners of Financial Intermediary shares in
certain states may be required to be registered as dealers under the laws of
those states.
The Plan requires that PaineWebber provide to the board at least annually
a written report of the amounts expended by PaineWebber under service agreements
with financial intermediaries and the purposes for which such expenditures were
made. Each service agreement requires the financial intermediary to cooperate
with PaineWebber in providing information to the board with respect to amounts
expended and services provided under the service agreement. The Plan may be
terminated at any time, without penalty, by vote of the trustees of the Trust
who are not "interested persons" of the Trust as defined in the Investment
Company Act and who have no direct or indirect financial interest in the
operation of the Plan ("Disinterested Trustees"). Any amendment to the Plan must
be approved by the board and any material amendment must be approved by the
Disinterested Trustees.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of banks serving as financial intermediaries in
connection with the provision of support services to their customers, the Trust
and PaineWebber might be required to alter or discontinue their arrangements
with financial intermediaries and change their method of operations with respect
to Financial Intermediary shares. It is not anticipated, however, that any
change in the Trust's method of operations would affect its net asset values per
share or result in a financial loss to any shareholder.
Conflict of interest restrictions may apply to a financial institution's
receipt of compensation from a fund through PaineWebber under a service
agreement resulting from fiduciary funds being invested in Financial
Intermediary shares. Before investing fiduciary funds in Financial Intermediary
shares, financial intermediaries, including investment advisers and other money
managers under the jurisdiction of the SEC, the Department of Labor or state
securities commissions and banks regulated by the Comptroller of the Currency
should consult their legal advisors.
PORTFOLIO TRANSACTIONS
The fund purchases portfolio securities from dealers and underwriters as
well as from issuers. Securities are usually traded on a net basis with dealers
acting as principal for their own accounts without a stated commission. Prices
paid to dealers in principal transactions generally include a "spread," which is
the difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. When securities are purchased directly
from an issuer, no commissions or discounts are paid. When securities are
purchased in underwritten offerings, they include a fixed amount of compensation
to the underwriter.
The Advisory Contract authorizes Mitchell Hutchins (with the approval of
the board) to select brokers and dealers to execute purchases and sales of the
fund's portfolio securities. It directs Mitchell Hutchins to use its best
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the fund. To the extent that the execution and
price offered by more than one dealer are comparable, Mitchell Hutchins may, in
its discretion, effect transactions in portfolio securities with dealers who
provide the fund or Mitchell Hutchins with research, analysis, advice and
similar services. Although Mitchell Hutchins may receive certain research or
execution services in connection with these transactions, Mitchell Hutchins on
18
<PAGE>
behalf of the fund will not purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid had no services been
provided by the executing dealer. Moreover, Mitchell Hutchins will not enter
into any explicit soft dollar arrangements relating to principal transactions
and will not receive in principal transactions the types of services that could
be purchased for hard dollars. Research services furnished by the dealers
through which or with which the fund effects securities transactions may be used
by Mitchell Hutchins in advising other funds or accounts it advises and,
conversely, research services furnished to Mitchell Hutchins in connection with
other funds or accounts that Mitchell Hutchins advises may be used in advising
the fund. Information and research received from dealers will be in addition to,
and not in lieu of, the services required to be performed by Mitchell Hutchins
under the Advisory Contract.
During its fiscal period ended April 30, 1999, the fund paid no brokerage
commissions.
Mitchell Hutchins may engage in agency transactions in over-the-counter
debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide research
or execution services. These procedures include a requirement that Mitchell
Hutchins obtain multiple quotes from dealers before executing the transactions
on an agency basis.
Investment decisions for the fund and for other investment accounts
managed by Mitchell Hutchins are made independently of each other in light of
differing considerations for the various accounts. However, the same investment
decision may occasionally be made for the fund and one or more of such accounts.
In such cases, simultaneous transactions are inevitable. Purchases or sales are
then averaged as to price and allocated between the fund and such other
account(s) as to amount according to a formula deemed equitable to the fund and
such account(s). While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the fund is concerned,
or upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the fund.
As of April 30, 1999, the fund owned securities issued by the following
companies which are regular broker-dealers for the fund:
[to be added]
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION. The fund may suspend
redemption privileges or postpone the date of payment during any period (1) when
the New York Stock Exchange ("NYSE") is closed or trading on the NYSE is
restricted as determined by the SEC, (2) when an emergency exists, as defined by
the SEC, that makes it not reasonably practicable for the fund to dispose of
securities owned by it or fairly to determine the value of its assets or (3) as
the SEC may otherwise permit. The redemption price may be more or less than the
shareholder's cost, depending on the market value of the fund's portfolio at the
time; although the fund attempts to maintain a constant net asset value of $1.00
per share.
If conditions exist that make cash payments undesirable, the fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the fund and valued in the same way as they would
be valued for purposes of computing the fund's net asset value. If payment is
made in securities, the shareholder may incur brokerage expenses in converting
these securities into cash.
VALUATION OF SHARES
The fund uses its best efforts to maintain its net asset value at $1.00
per share. The fund's net asset value per share is determined by The Bank of New
York ("BONY") as of noon, Eastern time, 2:30 p.m., Eastern time and again at
5:00 p.m. Eastern time, on each Business Day. As defined in the Prospectus,
"Business Day" means any day on which the New York City offices of BONY, the
fund's transfer agent (First Data Investors Services Group, Inc.) and
PaineWebber are all open for business. One or more of these institutions will be
19
<PAGE>
closed on the observance of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
The fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 ("Rule") under the Investment Company
Act. To use amortized cost to value its portfolio securities, the fund must
adhere to certain conditions under the Rule relating to its investments, some of
which are discussed in this SAI. Amortized cost is an approximation of market
value of an instrument, whereby the difference between its acquisition cost and
value at maturity is amortized on a straight-line basis over the remaining life
of the instrument. The effect of changes in the market value of a security as a
result of fluctuating interest rates is not taken into account, and thus the
amortized cost method of valuation may result in the value of a security being
higher or lower than its actual market value. If a large number of redemptions
take place at a time when interest rates have increased, the fund might have to
sell portfolio securities prior to maturity and at a price that might not be
desirable.
The board has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share, which include a review of the
extent of any deviation of net asset value per share, based on available market
quotations, from the $1.00 amortized cost per share. If that deviation exceeds
1/2 of 1% for the fund, the board will promptly consider whether any action
should be initiated to eliminate or reduce material dilution or other unfair
results to shareholders. Such action may include redeeming shares in kind,
selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less and will not purchase any instrument
having, or deemed to have, a remaining maturity of more than 397 days, will
limit portfolio investments, including repurchase agreements, to those U.S.
dollar-denominated instruments that are of high quality under the Rule and that
Mitchell Hutchins, acting pursuant to the procedures, determines present minimal
credit risks, and will comply with certain reporting and recordkeeping
procedures. There is no assurance that constant net asset value per share will
be maintained. If amortized cost ceases to represent fair value per share, the
board will take appropriate action.
In determining the approximate market value of portfolio investments, the
fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. Other assets, if any, are valued at fair value as
determined in good faith by or under the direction of the board.
PERFORMANCE INFORMATION
The fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return will fluctuate.
TOTAL RETURN CALCULATIONS. Average annual total return quotes
("Standardized Return") used in the fund's Performance Advertisements are
calculated according to the following formula:
n
P(1 + T) = ERV
where: P = a hypothetical initial payment of $1,000 to purchase share
of a specified class
T = average annual total return of shares of that class n =
number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at
the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. All dividends are assumed to have been reinvested at net asset value.
20
<PAGE>
The fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in fund shares
and assuming the reinvestment of all dividends. The rate of return is determined
by subtracting the initial value of the investment from the ending value and by
dividing the remainder by the initial value.
The following tables show performance information for the fund's shares
outstanding for the periods indicated. All returns for periods of more than one
year are expressed as an average annual return.
FINANCIAL
INSTITUTIONAL INTERMEDIARY
SHARES SHARES
------ ------
Inception* to April 30, 1999:
Standardized Return.................
Non-Standardized Return.............
- ------------------
* The inception date for the fund's Institutional shares is August 10, 1998;
the inception date for its Financial Intermediary shares is ____________,
1998.
CALCULATION OF YIELD. The fund computes its yield and effective yield
quotations for each class of shares using standardized methods required by the
SEC. The fund from time to time advertises for each class of shares (1) its
current yield based on a recently ended seven-day period, 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 the period, subtracting a hypothetical charge reflecting deductions from that
shareholder account, dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent; and (2) its effective
yield based on the same seven-day period by compounding the base period return
by adding 1, raising the sum to a power equal to (365/7) and subtracting 1 from
the result, according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) ] - 1
The fund may also advertise other performance data, which may consist of
the annual or cumulative return (including net short-term capital gain, if any)
earned on a hypothetical investment in the fund since it began operations or for
shorter periods. This return data may or may not assume reinvestment of
dividends (compounding).
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of the fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.
21
<PAGE>
For the seven-day period ended April 30, 1999, the yield and effective
yield of the fund's shares was as follows:
YIELD EFFECTIVE YIELD
----- ---------------
Institutional shares......................
Financial Intermediary shares.............
OTHER INFORMATION. The fund's performance data quoted in advertising and
other promotional materials ("Performance Advertisements") represent past
performance and are not intended to predict or indicate future results. The
return on an investment in the fund will fluctuate. In Performance
Advertisements, the fund may compare its yield with data published by Lipper
Analytical Services, Inc. for money funds ("Lipper"), CDA Investment
Technologies, Inc. ("CDA"), IBC Financial Data, Inc. ("IBC"), Wiesenberger
Investment Companies Service ("Wiesenberger") or Investment Company Data Inc.
("ICD"), or with the performance of recognized stock and other indexes,
including the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Morgan Stanley Capital International World Index, the
Lehman Brothers Treasury Bond Index, the Lehman Brothers Government/Corporate
Bond Index, the Salomon Brothers Government Bond Index and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The fund
also may refer in such materials to mutual fund performance rankings and other
data, such as comparative asset, expense and fee levels, published by Lipper,
CDA, IBC, Wiesenberger or ICD. Performance Advertisements also may refer to
discussions of the fund and comparative mutual fund data and ratings reported in
independent periodicals, including THE WALL STREET JOURNAL, MONEY MAGAZINE,
FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES,
THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons
in Performance Advertisements may be in graphic form.
The fund may also compare its performance with the performance of bank
certificates of deposit ("CDs") as measured by the CDA Certificate of Deposit
Index and the Bank Rate Monitor National Index and the average of yields of CDs
of major banks published by Banxquotes(R) Money Markets. In comparing the fund's
performance to CD performance, investors should keep in mind that bank CDs are
insured in whole or in part by an agency of the U.S. government and offer fixed
principal and fixed or variable rates of interest, and that bank CD yields may
vary depending on the financial institution offering the CD and prevailing
interest rates. Bank accounts are insured in whole or in part by an agency of
the U.S. government and may offer a fixed rate of return. Fund shares are not
insured or guaranteed by the U.S. government and returns thereon will fluctuate.
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.
The fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends on the fund investment are reinvested by being paid in
additional fund shares, any future income of the fund would increase the value,
not only of the original fund investment, but also of the additional fund shares
received through reinvestment. As a result, the value of the fund investment
would increase more quickly than if dividends had been paid in cash. The fund
may also make available to shareholders a daily accrual factor or "mil rate"
representing dividends accrued to shareholder accounts on a given day or days.
Certain shareholders may find that this information facilitates accounting or
recordkeeping.
TAXES
BACKUP WITHHOLDING. The fund is required to withhold 31% of all dividends
and redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the fund or PaineWebber with a correct taxpayer
identification number or who otherwise are subject to backup withholding.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. To continue to qualify
for treatment as a regulated investment company ("RIC") under the Internal
Revenue Code, the fund must distribute to its shareholders for each taxable year
at least 90% of its investment company taxable income (consisting generally of
net investment income and net short-term capital gains, if any) and must meet
several additional requirements. Among these requirements are the following: (1)
22
<PAGE>
the fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities and certain other income; (2) at the
close of each quarter of the fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. government
securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the fund's total assets; and (3) at the close of each quarter of the fund's
taxable year, not more than 25% of the value of its total assets may be invested
in securities (other than U.S. government securities or the securities of other
RICs) of any one issuer. If the fund failed to qualify for treatment as a RIC
for any taxable year, (a) it would be taxed as an ordinary corporation on the
full amount of its taxable income for that year without being able to deduct the
distributions it makes to its shareholders and (b) the shareholders would treat
all those distributions as dividends (that is, ordinary income) to the extent of
the fund's earnings and profits. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest, and make
substantial distributions before requalifying for RIC treatment.
OTHER INFORMATION
DELAWARE BUSINESS TRUST. Although Delaware law statutorily limits the
potential liabilities of a Delaware business trust's shareholders to the same
extent as it limits the potential liabilities of a Delaware corporation,
shareholders of the fund could, under certain conflicts of laws jurisprudence in
various states, be held personally liable for the obligations of the Trust or
Fund. However, the Trust Instrument of the Trust disclaims shareholder liability
for acts or obligations of the Trust or its series (the fund). The Trust
Instrument provides for indemnification from the fund's property for all losses
and expenses of any fund shareholder held personally liable for the obligations
of the fund. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the fund
itself would be unable to meet its obligations, a possibility which Mitchell
Hutchins believes is remote and not material. Upon payment of any liability
incurred by a shareholder solely by reason of being or having been a shareholder
of the fund, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the fund. The trustees intend to
conduct the operations of the fund in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the fund.
CLASSES OF SHARES. A share of each class of the fund represents an
interest in the fund's investment portfolio and has similar rights, privileges
and preferences. Each share has equal voting, dividend and liquidation rights,
except that beneficial owners of Financial Intermediary shares receive certain
services directly from financial intermediaries and bear the related service
costs.
VOTING RIGHTS. Shareholders of the fund are entitled to one vote for each
full share held and fractional votes for fractional shares held. Voting rights
are not cumulative and, as a result, the holders of more than 50% of all the
shares of the Trust may elect all its board members. The shares of the fund will
be voted together, except that only the shareholders of a particular class of
the fund may vote on matters affecting only that class. Financial intermediaries
holding shares for their own accounts must undertake to vote the shares in the
same proportion as the vote of shares held for their customers.
The fund does not hold annual meetings. Shareholders of record of no less
than two-thirds of the outstanding shares of the Trust may remove a board member
by vote cast in person or by proxy at a meeting called for that purpose. A
meeting will be called to vote on the removal of a board member at the written
request of holders of record of at least 10% of the outstanding shares of the
Trust.
CUSTODIAN; TRANSFER AND DIVIDEND AGENT. The Bank of New York, 48 Wall
Street, New York, New York 10286, is custodian of the fund's assets. First Data
Investor Services Group, Inc., whose principal business address is 4400 Computer
Drive, Westborough, Massachusetts 01581-5159, is the fund's transfer and
dividend disbursing agnet
23
<PAGE>
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the fund.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the fund.
FINANCIAL STATEMENTS
The fund's Annual Report to Shareholders for its last fiscal year ended
April 30, 1999 is a separate document supplied with this SAI, and the financial
statements, accompanying notes and report of independent auditors appearing
therein are incorporated herein by this reference.
24
<PAGE>
YOU SHOULD RELY ONLY ON THE
INFORMATION CONTAINED OR REFERRED TO
IN THE PROSPECTUS AND THIS STATEMENT
OF ADDITIONAL INFORMATION. THE FUND
AND ITS DISTRIBUTOR HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THE
PROSPECTUS AND THIS STATEMENT OF
ADDITIONAL INFORMATION IS NOT AN OFFER
TO SELL SHARES OF THE FUND IN ANY
JURISDICTION WHERE THE FUND OR ITS
DISTRIBUTOR MAY NOT LAWFULLY SELL
THOSE SHARES.
-----------
Mitchell Hutchins LIR
Select Money Fund.
------------------------------------------
Statement of Additional Information
September 1, 1999
------------------------------------------
PAINEWEBBER
(COPYRIGHT)1999 PaineWebber Incorporated
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
(1) Trust Instrument 1/
(2) By-Laws 1/
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
(4) Investment Advisory and Administration Contract (to be filed)
(5) Distribution Contract (to be filed)
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (to be filed)
(8) (a) Transfer Agency Agreement (to be filed)
(b) Shareholder Service Plan (to be filed)
(c) Shareholder Service Agreement (to be filed)
(9) Opinion and consent of counsel (to be filed)
(10) Other opinions, appraisals, rulings and consents: Auditors' consent (to be
filed)
(11) Omitted Financial Statements - none
(12) Letter of investment intent 1/
-
(13) Plan of Distribution pursuant to Rule 12b-1 - none
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan Pursuant to Rule 18f-3 1/
- ---------------------------
1/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-52965, filed July 29, 1998.
2/ Incorporated by reference from Articles IV, VI and X of Registrant's Trust
Instrument and from Articles VI and IX of Registrant's By-Laws.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 25. INDEMNIFICATION
Section 2 of Article IX of the Trust Instrument, "Indemnification,"
provides that the appropriate series of the Registrant will indemnify the
trustees and officers of the Registrant to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee or officer; provided that no such person shall be
indemnified where there has been an adjudication or other determination, as
described in Article IX, that such person is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
C-1
<PAGE>
reckless disregard of the duties involved in the conduct of his or her office or
did not act in good faith in the reasonable belief that his action was in the
best interest of the Registrant. Section 2 of Article IX also provides that the
Registrant may maintain insurance policies covering such rights of
indemnification.
Additionally, "Limitation of Liability" in Section 1 of Article IX of the
Trust Instrument provides that the trustees or officers of the Registrant shall
not be personally liable to any person extending credit to, contracting with or
having a claim against the Registrant or a particular series; and that, provided
they have exercised reasonable care and have acted under the reasonable belief
that their actions are in the best interest of the Registrant, the trustees and
officers shall not be liable for neglect or wrongdoing by them or any officer,
agent, employee, investment adviser or independent contractor of the Registrant.
Section 9 of the Investment Advisory and Administration Contract with
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides that
Mitchell Hutchins shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any series of the Registrant in connection with
the matters to which the Contract relates, except for a loss resulting from the
willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations and
duties under the Contract. Section 10 of the Contract provides that the Trustees
shall not be liable for any obligations of the Trust or any series under the
Contract and that Mitchell Hutchins shall look only to the assets and property
of the Registrant in settlement of such right or claim and not to the assets and
property of the Trustees.
Section 9 of the Distribution Contract provides that the Trust will
indemnify PaineWebber and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by PaineWebber to the Trust for use in the Registration Statement; and
provided that this indemnity agreement shall not protect any such persons
against liabilities arising by reason of their bad faith, gross negligence or
willful misfeasance; and shall not inure to the benefit of any such persons
unless a court of competent jurisdiction or controlling precedent determines
that such result is not against public policy as expressed in the Securities Act
of 1933. Section 9 of the Distribution Contract also provides that PaineWebber
agrees to indemnify, defend and hold the Trust, its officers and Trustees free
and harmless of any claims arising out of any alleged untrue statement or any
alleged omission of material fact contained in information furnished by
PaineWebber for use in the Registration Statement or arising out of an agreement
between PaineWebber and any retail dealer, or arising out of supplementary
literature or advertising used by PaineWebber in connection with the Contract.
Section 10 of the Distribution Contract contains provisions similar to Section
10 of the Investment Advisory and Administration Contract, with respect to
Mitchell Hutchins and PaineWebber, as appropriate.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to the
C-2
<PAGE>
officers and directors of Mitchell Hutchins is included in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-13219), and is incorporated herein by reference.
Item 27. PRINCIPAL UNDERWRITERS
a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following investment companies:
ALL AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE MUNICPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
MANAGED HIGH YIELD PLUS FUND INC.
MITCHELL HUTCHINS INSTITUTIONAL SERIES
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
2002 TARGET TERM TRUST INC.
b) PaineWebber is the Registrant's principal underwriter. The directors
and officers of PaineWebber, their principal business addresses, and their
positions and offices with PaineWebber are identified in its Form ADV, as filed
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 Trust. Unless otherwise indicated, the
principal business address of each person named is 1285 Avenue of the Americas,
New York, NY 10019.
Positions and Offices Positions and Offices With
Name With Registrant Underwriter
- ---- --------------- -----------
Margo N. Alexander Trustee and President Executive Vice President and
Director of PaineWebber
Mary C. Farrell Trustee Managing Director, Senior
Investment Strategist and
member of the Investment
Policy Committee
Brian M. Storms Trustee President and Chief Operating
Officer of Mitchell Hutchins
C-3
<PAGE>
c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
The books and other documents required by paragraphs (b)(4), (c) and (d)
of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's investment adviser, Mitchell Hutchins, 1285
Avenue of the Americas, New York, New York 10019. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession of
Registrant's transfer agent and custodian.
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS
None.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 30th day of June, 1999.
MITCHELL HUTCHINS INSTITUTIONAL SERIES
By: /s/ Dianne E. O'Donnell
--------------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Margo N. Alexander President and Trustee June 30, 1999
- --------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman June 30, 1999
- --------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee June 30, 1999
- ---------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee June 30, 1999
- ---------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee June 30, 1999
- ---------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee June 30, 1999
- ---------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee June 30, 1999
- ---------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee June 30, 1999
- ---------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee June 30, 1999
- ---------------------------
Carl W. Schafer *
/s/ Brian M. Storms Trustee June 30, 1999
- ---------------------------
Brian M. Storms **
/s/ Paul H. Schubert Vice President and June 30, 1999
- --------------------------- Treasurer (Chief Financial
Paul H. Schubert and Accounting Officer)
<PAGE>
SIGNATURES (CONTINUED)
* Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
May 13, 1998 and incorporated by reference from the Initial Registration
Statement of Mitchell Hutchins Institutional Series, SEC File 333-52965,
filed May 19, 1998.
** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
May 14, 1999 and incorporated by reference from Post-Effective Amendment
No. 61 to the registration statement of PaineWebber Managed Investments
Trust, SEC File 2-91362, filed June 1, 1999.
<PAGE>
MITCHELL HUTCHINS INSTITUTIONAL SERIES
EXHIBIT INDEX
Exhibit
Number
- ------
(1) Trust Instrument 1/
(2) By-Laws 1/
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
(4) Investment Advisory and Administration Contract (to be filed)
(5) Distribution Contract (to be filed)
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (to be filed)
(8) (a) Transfer Agency Agreement (to be filed)
(b) Shareholder Service Plan (to be filed)
(c) Shareholder Service Agreement (to be filed)
(9) Opinion and consent of counsel (to be filed)
(10) Other opinions, appraisals, rulings and consents: Auditors' consent (to be
filed)
(11) Omitted Financial Statements - none
(12) Letter of investment intent 1/
-
(13) Plan of Distribution pursuant to Rule 12b-1 - none
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan Pursuant to Rule 18f-3 1/
- ---------------------------
1/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-52965, filed July 29, 1998.
2/ Incorporated by reference from Articles IV, VI and X of Registrant's Trust
Instrument and from Articles VI and IX of Registrant's By-Laws.
