MITCHELL HUTCHINS LIR SELECT MONEY FUND
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
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 LIR
Money 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 without charge 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, 2000. 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 other financial intermediaries that purchase the fund's Financial
Intermediary shares may obtain the Prospectus from their financial
intermediaries. This SAI is dated September 1, 2000.
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TABLE OF CONTENTS
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The Fund and Its Investment Policies............................................... 2
The Fund's Investments, Related Risks and Limitations.............................. 2
Organization of the Trust; Trustees and Officers; Principal Holders and Management
Ownership of Securities....................................................... 9
Investment Advisory, Administration and Distribution Arrangements.................. 16
Portfolio Transactions............................................................. 18
Additional Information Regarding Redemptions....................................... 19
Valuation of Shares................................................................ 20
Performance Information............................................................ 20
Taxes.............................................................................. 22
Other Information.................................................................. 23
Financial Statements............................................................... 23
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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 to earn maximum current income
consistent with liquidity and the 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. They also include longer
term bonds that have variable interest rates or other special features that give
them the financial characteristics of short-term debt. 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, trusts and similar entities, (4) funding agreements
and other insurance company obligations, (5) repurchase agreements and (6)
investment company securities. 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's investments in non-negotiable
time deposits of these institutions will be considered illiquid if they have
maturities greater than seven calendar days.
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"). First
Tier Securities include U.S. government securities and securities of other
registered investment companies that are money market funds. Other First Tier
Securities are either (1) rated in the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("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),
except that the fund may invest up to 25% of its total assets in First Tier
Securities of a single issuer for a period of up to three business days. 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 from banks or through reverse repurchase
agreements for temporary purposes, but not in excess of 33 1/3% of its total
assets. The costs associated with borrowing may reduce the fund's net income.
The fund may invest in the securities of other investment companies.
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 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.
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YIELDS AND CREDIT RATINGS OF MONEY MARKET INSTRUMENTS. 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 by a single rating agency
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. These U.S. government
securities may 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 program, the
principal and interest components are individually numbered and separately
issued by the U.S. Treasury.
COMMERCIAL PAPER AND OTHER SHORT-TERM OBLIGATIONS. Commercial paper
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 the Securities and Exchange Commission ("SEC"). 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 that have been securitized through the use of
trusts or special purpose corporations or other entities. 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.
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. 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.
Certain of these obligations carry a demand feature that gives the fund the
right to tender them back to a specified party, usually the issuer or a
remarketing agent, prior to maturity. The fund's investment in variable and
floating rate securities must comply with conditions established by the SEC
under which they may be considered to have remaining maturities of 13 months or
less. The fund will purchase variable and floating rate securities of non-U.S.
government issuers that have remaining maturities of more than 13 months only if
the securities are subject to a demand feature exercisable within 13 months or
less. See "The Fund's Investments, Related Risks and Limitations -- Credit and
Liquidity Enhancements."
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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 (subject to any applicable advance notice provisions) 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 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 and affect its share price. 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. The fund may not be
able to readily liquidate its investments in illiquid securities and may have to
sell other investments if necessary to raise cash to meet its obligations. The
lack of a liquid secondary market for illiquid securities may make it more
difficult for the fund to assign a value to those securities for purposes of
valuing its portfolio and calculating its net asset value.
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,
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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.
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 under the Securities Act, 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 them 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, which may include (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.
Mitchell Hutchins also monitors the fund's overall holdings of
illiquid securities. If the fund's holdings of illiquid securities exceed its
limitation on investments in illiquid securities for any reason (such as a
particular security becoming illiquid, changes in the relative market values of
liquid and illiquid portfolio securities or shareholder redemptions), Mitchell
Hutchins will consider what action would be in the best interests of the fund
and its shareholders. Such action may include engaging in an orderly disposition
of securities to reduce the fund's holdings of illiquid securities. However, the
fund is not required to dispose of illiquid securities under these
circumstances.
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
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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 in
transactions with counterparties believed by Mitchell Hutchins to present
minimum credit risks.
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 or securities
dealers or their affiliates. 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, the buyer or trustee or receiver may
receive an extension of time to determine whether to enforce the 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 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's when-issued
and delayed delivery purchase commitments could cause its net asset value per
share to be more volatile.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The fund may invest in
securities of other money market funds, subject to limitations under the
Investment Company Act. Among other things, these limitations currently restrict
the fund's aggregate investments in other investment companies to no more than
10% of its total assets. The fund's investments in certain private investment
vehicles are not subject to this restriction. 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, including other investment
companies. The fund also may reinvest cash collateral in private investment
vehicles similar to money market funds, including one managed by Mitchell
Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
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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 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 investment limitations cannot
be changed 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 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, a later increase or decrease in
percentage resulting from changing values of portfolio securities or amount of
total assets will not be considered a violation of any of the following
limitations. With regard to the borrowings limitation in fundamental limitation
(3), the fund will comply with the applicable restrictions of Section 18 of the
Investment Company Act.
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.
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(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.
(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. If a percentage restriction is adhered to at the time of
an investment or transaction, a later increase or decrease in percentage
resulting from changing 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 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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ORGANIZATION OF THE TRUST; TRUSTEES AND OFFICERS;
PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP OF SECURITIES
The Trust was formed on April 29, 1998 as a business trust under the
laws of Delaware and has five operating series. The board has authority to
establish additional series and to issue an unlimited number of shares of
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*+; 53 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 30
investment companies for which
Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
Richard Q. Armstrong; 65 Trustee Mr. Armstrong is chairman and
R.Q.A. Enterprises principal of R.Q.A. Enterprises
One Old Church Road (management consulting firm) (since
Unit #6 April 1991 and principal occupation
Greenwich, CT 06830 since March 1995). Mr. Armstrong 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 29 investment
companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment
adviser.
9
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
E. Garrett Bewkes, Jr.**+; 73 Trustee and Chairman of Mr. Bewkes is a director of Paine
the Board of Trustees Webber Group Inc. ("PW Group")
(holding company of PaineWebber and
Mitchell Hutchins). Prior to 1996, he
was a consultant to PW Group. He
serves as a consultant to PaineWebber
(since May 1999). 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 40 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as investment
adviser.
Richard R. Burt; 53 Trustee Mr. Burt is chairman of IEP Advisors,
1275 Pennsylvania Ave, N.W. LLP (international investments and
Washington, DC 20004 consulting 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. (gold mining),
six investment companies in the
Deutsche Bank family of funds, nine
investment companies in the Flag
Investors family of funds, The
Central European Fund, Inc. and The
Germany Fund, Inc., vice chairman of
Anchor Gaming (provides technology to
gaming and wagering industry) (since
July 1999) and chairman of Weirton
Steel Corp. (makes and finishes steel
products) (since April 1996). 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 29 investment
companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment
adviser.
Mary C. Farrell**+; 50 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 28 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as investment
adviser.
10
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Meyer Feldberg; 58 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior
New York, NY 10027 to 1989, he was president of the
Illinois Institute of Technology.
Dean Feldberg is also a director of
Primedia, Inc. (publishing),
Federated Department Stores, Inc.
(operator of department stores) and
Revlon, Inc. (cosmetics). Dean
Feldberg is a director or trustee of
37 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
George W. Gowen; 70 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, NY 10017 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is a director
or trustee of 37 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as investment
adviser.
Frederic V. Malek; 63 Trustee Mr. Malek is chairman of Thayer
1455 Pennsylvania Ave, N.W. Capital Partners (merchant bank) and
Suite 350 chairman of Thayer Hotel Investors II
Washington, DC 20004 and Lodging Opportunities Fund (hotel
investment partnerships). From
January 1992 to November 1992, he was
campaign manager of Bush-Quayle '92.
From 1990 to 1992, he was vice
chairman and, from 1989 to 1990, he
was president of Northwest Airlines
Inc. and NWA Inc. (holding company of
Northwest Airlines 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 Aegis Communications, Inc.
(tele-services), American Management
Systems, Inc. (management consulting
and computer related services),
Automatic Data Processing, Inc.
(computing services), CB Richard
Ellis, Inc. (real estate services),
FPL Group, Inc. (electric services),
Global Vacation Group (packaged
vacations), HCR/Manor Care, Inc.
(health care), SAGA Systems, Inc.
(software company) and Northwest
Airlines Inc. Mr. Malek is a director
or trustee of 29 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; 64 Trustee Mr. Schafer is president of the
66 Witherspoon Street, #1100 Atlantic Foundation (charitable
Princeton, NJ 08542 foundation supporting mainly
oceanographic exploration and
research). He is a director of Labor
Ready, Inc. (temporary employment),
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 29
investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
Brian M. Storms*+; 45 Trustee Mr. Storms is president and chief
operating officer of Mitchell
Hutchins (since March 1999). Mr.
Storms 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 29 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
Thomas Disbrow***;34 Vice President and Mr. Disbrow is a first vice president
Assistant Treasurer and a senior manager of the mutual
fund finance department of Mitchell
Hutchins. Prior to November 1999, he
was a vice president of Zweig/Glaser
Advisers. Mr. Disbrow is a vice
president and assistant treasurer of
30 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
Kris L. Dorr*; 36 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.
Elbridge T. Gerry III*; 43 Vice President Mr. Gerry is a managing director and
a portfolio manager of Mitchell
Hutchins. Prior to January 1996, he
was with J.P. Morgan Private Banking
where he was responsible for managing
municipal assets, including several
municipal bond funds. Mr. Gerry is a
vice president of six investment
companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment
adviser.
12
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
John J. Lee***; 32 Vice President and Mr. Lee is a vice president and a
Assistant Treasurer manager of 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 30 investment
companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment
adviser.
Kevin J. Mahoney***; 34 Vice President and Mr. Mahoney is a first vice president
Assistant Treasurer and a 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 30 investment
companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment
adviser.
Michael H. Markowitz*; 35 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*; 53 Vice President Mr. McCauley is a managing director
and chief investment officer-fixed
income of Mitchell Hutchins. Mr.
McCauley is a vice president of 20
investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
Kevin P. McIntyre*; 33 Vice President Mr. McIntyre is a vice president and
a portfolio manager of Mitchell
Hutchins. Mr. McIntyre is a vice
president of two investment companies
for which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as investment
adviser.
Ann E. Moran***; 43 Vice President and Ms. Moran is a vice president and a
Assistant Treasurer manager of the mutual fund finance
department of Mitchell Hutchins. Ms.
Moran is a vice president and
assistant treasurer of 30 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
--------------------- ------------------- ----------------------------------------
Dianne E. O'Donnell**; 48 Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy general counsel
of Mitchell Hutchins. Ms. O'Donnell
is a vice president and secretary of
30 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
Susan P. Ryan*; 40 Vice President Ms. Ryan is a senior vice president
and a portfolio manager of Mitchell
Hutchins. Ms. Ryan is a vice
president of six investment companies
for which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as investment
adviser.
Paul H. Schubert***; 37 Vice President and Mr. Schubert is a senior vice
Treasurer president and the director of the
mutual fund finance department of
Mitchell Hutchins. Mr. Schubert is a
vice president and treasurer of 30
investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
Barney A. Taglialatela***; 39 Vice President and Mr. Taglialatela is a vice president
Assistant Treasurer and a manager of the mutual fund
finance department of Mitchell
Hutchins. Mr. Taglialatela is a vice
president and assistant treasurer of
30 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
Debbie Vermann*; 41 Vice President Ms. Vermann is a vice president and a
portfolio manager of Mitchell
Hutchins. Ms. Vermann is a vice
president of four investment
companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment
adviser.
Keith A. Weller**; 39 Vice President and Mr. Weller is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Mr. Weller is a
vice president and assistant
secretary of 29 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as investment
adviser.
</TABLE>
-------------
* This person's business address is 51 West 52nd Street, New York, New York
10019-6114.
** This person's business address is 1285 Avenue of the Americas, New York, New
York 10019-6028.
*** This person's business address is Newport Center III, 499 Washington Blvd.,
14th Floor, Jersey City, New Jersey 07310-1998.
+ Mrs. Alexander, Mr. Bewkes, Ms. Farrell and Mr. Storms are "interested
persons" of the fund and 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 per series and up to $150 per series for attending each
board meeting and each separate meeting of a board committee. The Trust has five
14
<PAGE>
operating series and thus pays each such trustee $5,000 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. 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.
The table below includes certain information relating to the
compensation of the Trust's current board members who held office with the Trust
or with other PaineWebber funds during the periods indicated.
<TABLE>
COMPENSATION TABLE+
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM THE
COMPENSATION TRUST AND THE FUND
NAME OF PERSON,POSITION FROM THE TRUST* COMPLEX**
----------------------- --------------- ---------
<S> <C> <C>
Richard Q. Armstrong,
Trustee................................. $8,180 $ 104,650
Richard R. Burt,
Trustee................................. 8,180 102,850
Meyer Feldberg,
Trustee................................. 8,180 143,650
George W. Gowen,
Trustee................................. 9,994 138,400
Frederic V. Malek,
Trustee................................. 8,180 104,650
Carl W. Schafer,
Trustee................................. 8,180 104,650
</TABLE>
--------------------
+ Only independent board members are compensated by the PaineWebber funds and
identified above; board members who are "interested persons," as defined by
the Investment Company Act, do not receive compensation from the PaineWebber
funds.
* Represents fees paid to each board member for the fiscal year ended April
30, 2000.
** Represents total compensation paid during the calendar year ended December
31, 1999, to each board member by 31 investment companies (34 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 AND MANAGEMENT OWNERSHIP OF SECURITIES. As of
August 1, 2000, trustees and officers owned in the aggregate less than 1% of the
outstanding shares of any class of the fund.
As of August 1, 2000, the following shareholders were shown in the
fund's records as owning 5% or more of a class of its shares:
15
<PAGE>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED AS OF
NAME AND ADDRESS* AUGUST 1, 2000
----------------- --------------
State of Iowa - State Treasurer 13.96% of
Institutional Shares
Norfolk Southern Railway 5.85% of
Institutional Shares
--------------------
*The shareholders listed above may be contacted c/o Mitchell Hutchins Asset
Management Inc., 51 West 52nd Street, New York, NY 10019-6114.
INVESTMENT ADVISORY, ADMINISTRATION AND
DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. Mitchell
Hutchins acts as investment adviser and administrator of the fund pursuant to a
contract with the Trust ("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 fiscal year ended April 30, 2000 and the fiscal period
August 10, 1998 (commencement of operations) to April 30, 1999, the fund paid
(or accrued) to Mitchell Hutchins investment advisory and administration fees of
$2,528,347 and $447,162, respectively, after giving effect to $687,813 and
$668,641, respectively, in fee waivers.
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 certificates (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
16
<PAGE>
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. The Advisory Contract is also terminable without
penalty by Mitchell Hutchins on 60 days' written notice to the fund. The
Advisory Contract terminates automatically upon its assignment.
SECURITIES LENDING. During the fiscal year ended April 30, 2000 and
the fiscal period August 10, 1998 (commencement of operations) to April 30,
1999, the fund paid no fees to PaineWebber for its services as securities
lending agent because the fund did not engage in any securities lending
activities.
NET ASSETS. The following table shows the approximate net assets as
of July 31, 2000, 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)..................... $ 9,156.5
Global................................................ 4,703.4
Equity/Balanced....................................... 9,585.7
Fixed Income (excluding Money Market)................. 4,274.2
Taxable Fixed Income....................... 2,859.4
Tax-Free Fixed Income...................... 1,414.8
Money Market Funds.................................... 39,450.0
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 these shareholder servicing fees will not exceed
0.05% of 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 and will not be charged to or reimbursed by the
fund. PaineWebber is located at 1285 Avenue of the Americas, New York, New York
10019-6028, and Mitchell Hutchins is located at 51 West 52nd Street, New York,
New York 10019-6114.
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 a monthly fee at the annual
rate of 0.25% of the average daily net asset value of the Financial Intermediary
shares held by financial intermediaries on behalf of their customers. Under each
17
<PAGE>
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)
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) such other similar services
as the fund may reasonable request from time to time to the extent the financial
intermediary is permitted to do so under federal and state statutes, rules and
regulations. The fund made payments through PaineWebber to financial
intermediaries in the amount of $5,518 and $373, for its Financial Intermediary
shares that were outstanding during the fiscal year ended April 30, 2000 and the
fiscal period ended April 30, 1999, respectively.
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 or insurance 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.
18
<PAGE>
For purchases or sales with broker-dealer firms that act as
principal, Mitchell Hutchins seeks best execution. Although Mitchell Hutchins
may receive certain research or execution services in connection with these
transactions, it will not purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid if no weight was
attributed to the services provided by the executing dealer. Mitchell Hutchins
may engage in agency transactions in over-the-counter securities in return for
research and execution services. These transactions are entered into only
pursuant to procedures that are designed to ensure 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.
Research services and information received from brokers or dealers
are supplemental to Mitchell Hutchins' own research efforts and, when utilized,
are subject to internal analysis before being incorporated into their investment
processes. Information and research services furnished by brokers or dealers
through which or with which the fund effects securities transactions may be used
by Mitchell Hutchins in advising other funds or accounts and, conversely,
research services furnished to Mitchell Hutchins by brokers or dealers in
connection with other funds or accounts that it advises may be used in advising
the fund.
During the fiscal year ended April 30, 2000 and the fiscal period
ended April 30, 1999, the fund paid no brokerage commissions. Therefore, the
fund has not allocated any brokerage transactions for research, analysis, advice
and similar services.
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 in a manner 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, 2000, the fund owned securities issued by the
following companies which are regular broker-dealers for the fund:
<TABLE>
<CAPTION>
ISSUER TYPE OF SECURITY VALUE
------ ---------------- -----
<S> <C> <C>
Bank of America Securities LLC Domestic Master Notes $ 100,000,000
Bear Stearns Companies Incorporated Domestic Master Notes 100,000,000
J. P. Morgan Securities, Inc. Domestic Master Notes 50,000,000
Morgan Stanley, Dean Witter & Company Domestic Master Notes 100,000,000
</TABLE>
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The fund may suspend redemption privileges or postpone the date of
payment during any period (1) when the New York Stock Exchange is closed or
trading on the New York Stock Exchange 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.
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<PAGE>
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 BONY, the fund's transfer agent (PFPC
Inc.) and PaineWebber are all open for business. One or more of these
institutions will be 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 ("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:
P(1 + T)n(superscript) = ERV
where: P = a hypothetical initial payment of
$1,000 to purchase shares 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 at the beginning
of that period.
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<PAGE>
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.
The following table shows performance information for the fund's
shares outstanding for the period indicated. Any returns for periods of more
than one year are expressed as an average annual return.
INSTITUTIONAL
SHARES
(INCEPTION DATE) (08/10/98)
---------------- ----------
Year ended April 30, 2000:
Standardized Return................. 5.54%
Inception to April 30, 2000:
Standardized Return................. 5.44%
The fund had Financial Intermediary shares outstanding only during
the periods December 29, 1998 to February 9, 1999 and November 4, 1999 to March
6, 2000. Accordingly, no performance information is provided for Financial
Intermediary shares.
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).
CALCULATION OF YIELD. The fund computes its 7-day current yield and
its 7-day 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:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7(superscript)] - 1
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.
For the seven-day period ended April 30, 2000, the yield and
effective yield of the fund's Institutional shares was 6.02% and 6.20%,
respectively. The fund had Financial Intermediary shares outstanding only during
the period November 4, 1999 to March 6, 2000. Accordingly, no yield information
is provided for Financial Intermediary shares. The fund may also advertise
non-standardized yields calculated in a manner similar to that described above,
but for different time periods (E.G., one-day yield, 30-day yield).
OTHER INFORMATION. The fund's performance data quoted in advertising
and other promotional materials ("Performance Advertisements") represent past
21
<PAGE>
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 Smith Barney 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 gain, if any) and
must meet several additional requirements. Among these requirements are the
following: (1) 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, (1) 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 (2) 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.
22
<PAGE>
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 Trust does not hold annual meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees holding office have been elected by the shareholders. Shareholders of
record of no less than two-thirds of the outstanding shares of the Trust may
remove a trustee 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 trustee at the
written request of holders of record of at least 10% of the outstanding shares
of the Trust.
PRIOR NAME. Prior to July 28, 1999, the Trust was known as "Mitchell
Hutchins Institutional Series."
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. PFPC Inc.,
a subsidiary of PNC Bank, N.A., serves as the fund's transfer and dividend
disbursing agent. It is located at 4400 Computer Drive, Westborough,
Massachusetts 01581-5159.
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 fiscal year ended
April 30, 2000 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.
23
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION MITCHELL HUTCHINS LIR
CONTAINED OR REFERRED TO IN THE SELECT MONEY FUND
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 ARE -----------------------------------
NOT AN OFFER TO SELL SHARES OF THE FUND Statement of Additional Information
IN ANY JURISDICTION WHERE THE FUND OR
ITS DISTRIBUTOR MAY NOT LAWFULLY SELL September 1, 2000
THOSE SHARES. -----------------------------------
-----------
PAINEWEBBER
(C)2000 PaineWebber Incorporated. All rights reserved.
