LIR PREMIER MONEY MARKET FUND
LIR PREMIER TAX-FREE MONEY MARKET FUND
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
STATEMENT OF ADDITIONAL INFORMATION
Premier Money Market Fund and Premier Tax-Free Money Market Fund are
professionally managed money market funds organized as diversified series of
Mitchell Hutchins LIR Money Series, a Delaware business trust ("Trust").
The funds' investment adviser, administrator and distributor is Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset
management subsidiary of PaineWebber Incorporated ("PaineWebber").
Portions of the Annual Report and Semi-Annual Report to Shareholders of
the funds' predecessors are incorporated by reference into this Statement of
Additional Information ("SAI"). The Annual Report and Semi-Annual Report
accompany this SAI. You may obtain additional copies of the Reports by calling
toll-free 1-800-442-3809.
This SAI is not a prospectus and should be read only in conjunction with
the funds' current Prospectus, dated November 12, 1999 (as revised January 12,
2000). A copy of the Prospectus may be obtained by calling your Investment
Representative at your correspondent firm or by calling toll-free
1-800-442-3809. This SAI is dated November 12, 1999 (as revised January 12,
2000).
TABLE OF CONTENTS
PAGE
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The Funds and Their Investment Policies................. 2
The Funds' Investments, Related Risks and
Limitations............................................. 3
Organization of the Trust; Trustees and
Officers; Principal Holders of Securities............ 12
Investment Advisory, Administration and
Distribution Arrangements............................... 20
Portfolio Transactions.................................. 24
Additional Purchase and Redemption Information;
Service Organizations................................ 25
Valuation of Shares..................................... 26
Performance Information................................. 26
Taxes................................................... 29
Other Information....................................... 31
Financial Statements.................................... 32
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THE FUNDS AND THEIR INVESTMENT POLICIES
Each fund's investment objective may not be changed without shareholder
approval. Except where noted, the other investment policies of each fund may be
changed by its board without shareholder approval. As with other mutual funds,
there is no assurance that a fund will achieve its investment objective.
Each fund is a money market fund that 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. Each 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").
Each 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 a 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 funds may
purchase only U.S. dollar-denominated obligations of foreign issuers.
PREMIER MONEY MARKET FUND'S investment objective is to provide a high
level of current income consistent with the preservation of capital and the
maintenance of liquidity. The fund invests in a diversified portfolio of money
market instruments. The fund's investments 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 other entities, (4) repurchase agreements and (5)
investment company securities.
The fund may invest in obligations (including certificates of deposit,
bankers' acceptances, time deposits and similar obligations) of U.S. and foreign
banks having 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 days.
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 15% of the value of its total assets for temporary purposes,
including reverse repurchase agreements. The fund may invest in the securities
of other investment companies.
PREMIER TAX-FREE MONEY MARKET FUND'S investment objective is to provide a
high level of current income exempt from federal income tax consistent with the
preservation of capital and the maintenance of liquidity. The fund invests
substantially all of its assets in money market instruments issued by states,
municipalities, public authorities and other issuers, the interest from which is
exempt from federal income tax ("Municipal Securities"). These instruments
include (1) municipal commercial paper, (2) municipal bonds and notes and (3)
variable and floating rate municipal securities.
Municipal bonds include industrial development bonds ("IDBs"), private
activity bonds ("PABs"), moral obligation bonds, municipal lease obligations and
certificates of participation therein and put bonds. The interest on most PABs
is an item of tax preference for purposes of the federal alternative minimum tax
("AMT"). Under normal market conditions, the fund intends to invest in Municipal
Securities that pay interest that is not an item of tax preference for purposes
of the AMT ("AMT exempt interest"), but may invest up to 20% of its total assets
in such securities if, in Mitchell Hutchins' judgment, market conditions
warrant. In addition, when Mitchell Hutchins believes that there is an
insufficient supply of Municipal Securities or during other unusual market
conditions, the fund may temporarily hold cash and may invest all or any portion
of its net assets in taxable money market instruments, including repurchase
agreements. To the extent that the fund holds cash, such cash would not earn
income and would reduce the fund's yield.
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The fund may invest more than 25% of its total assets in Municipal
Securities that are related in such a way that an economic, business or
political development or change affecting one such security also would affect
the other securities; for example, securities the interest upon which is paid
from revenues of similar types of projects such as mass transit or water and
sewer works, or securities whose issuers are located in the same state. As a
result of such investments, the fund's yield may be more affected by factors
pertaining to the economy of the relevant governmental issuer and other factors
specifically affecting the ability of issuers of such securities to meet their
obligations.
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 15% of its total assets for temporary purposes, including
reverse repurchase agreements. It may invest in the securities of other
investment companies.
THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS
The following supplements the information contained in the Prospectus and
above concerning the funds' investments, related risks and limitations. Except
as otherwise indicated in the Prospectus or SAI, the funds have established no
policy limitations on their ability to use the investments or techniques
discussed in these documents.
YIELDS AND CREDIT RATINGS OF MONEY MARKET INSTRUMENTS; FIRST TIER
SECURITIES. The yields on the money market instruments in which each 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 funds, an issue may cease to be rated or
its rating may be reduced. If a security in a fund's portfolio ceases to be a
First Tier Security or Mitchell Hutchins becomes aware that a security has
received a rating below the second highest rating by any 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 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. 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.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from federal income tax and (when available) from
the federal alternative minimum tax are rendered by bond counsel to the
respective issuing authorities at the time of issuance. Neither Premier Tax-Free
Money Market Fund nor Mitchell Hutchins will review the proceedings relating to
the issuance of municipal securities or the basis for these opinions. An
issuer's obligations under its municipal securities are subject to the
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors (such as the federal bankruptcy laws) and federal, state and local
laws that may be enacted that adversely affect the tax-exempt status of interest
on the municipal securities held by the fund or the exempt-interest dividends
received by the fund's shareholders, extend the time for payment of principal or
interest, or both, or impose other constraints upon enforcement of such
obligations. There is also the possibility that, as a result of litigation or
other conditions, the power or ability of issuers to meet their obligations for
the payment of principal of and interest on their municipal securities may be
materially and adversely affected.
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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. Commercial paper
includes short-term obligations issued by corporations, partnerships, trusts or
other entities to finance short-term credit needs. The funds 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 funds 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. For Premier Money
Market Fund, 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. Certain municipal securities also are structured as
asset-backed securities. 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 Funds' Investments, Related Risks and Limitations -- Credit and Liquidity
Enhancements."
VARIABLE AND FLOATING RATE SECURITIES AND DEMAND INSTRUMENTS. The funds
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 funds may purchase variable
and floating rate securities of other issuers, and Premier Tax-Free Money Market
Fund may purchase variable and floating rate securities of municipal issuers,
including tender option bonds. 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 a fund the right to tender them back to a
specified party, usually the issuer or a remarketing agent, prior to maturity. A
fund's investments in variable and floating rate 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.
The funds 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 Funds' Investments, Related Risks and Limitations -- Credit and
Liquidity Enhancements."
Generally, a 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.
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VARIABLE AMOUNT MASTER DEMAND NOTES. Premier Money Market 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.
INVESTING IN FOREIGN SECURITIES. Premier Money Market 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. A 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 a 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 a fund and affect its share price. The credit and liquidity enhancements may
have conditions that limit the ability of a 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 a fund has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days and
restricted securities (including certificates of participation) other than those
Mitchell Hutchins has determined are liquid pursuant to guidelines established
by the board. To the extent a fund invests in illiquid securities, it may not be
able to liquidate such investments readily and may have to sell other
investments if necessary to raise cash to meet its obligations.
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, a 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, a 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
a 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.
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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 each fund's
portfolio and reports periodically on such decisions to the board.
Mitchell Hutchins also monitors each fund's overall holdings of illiquid
securities. If a fund's holdings of illiquid securities comes to exceed 10% of
its net assets for any reason, such as a security ceasing to qualify as liquid,
changes in the relative market values of portfolio securities or shareholder
redemptions, Mitchell Hutchins will consider what action would be in the best
interests of the fund and its shareholders.
In making determinations as to the liquidity of municipal lease
obligations, Mitchell Hutchins will distinguish between direct investments in
municipal lease obligations (or participations therein) and investments in
securities that may be supported by municipal lease obligations or certificates
of participation therein. Since these municipal lease obligation-backed
securities are based on a well-established means of securitization, Mitchell
Hutchins does not believe that investing in such securities presents the same
liquidity issues as direct investments in municipal lease obligations.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
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. A 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 a 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 and
corporate bonds) 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, a fund may suffer delays, costs and possible
losses in connection with the disposition of collateral. The funds intend 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 a 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 a fund's
limitation on borrowings and may be entered into only with banks and securities
dealers. While a reverse repurchase agreement is outstanding, a 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 Funds' Investments, Related Risks and
Limitations -- Segregated Accounts."
Reverse repurchase agreements involve the risk that the buyer of the
securities sold by a 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 a fund's obligation
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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. A 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. A
fund generally would not pay for such securities or start earning interest on
them until they are received. However, when a 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 a 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 a 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 Funds' Investments, Related Risks
and Limitations -- Segregated Accounts." A 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. Each fund may invest in
securities of other money market funds, subject to Investment Company Act
limitations, which at present restrict a fund's investments in other registered
investment companies 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, a fund would continue to pay its own
management fees and expenses with respect to all its investments, including
shares of other money market funds. A 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. Each fund is authorized to lend its
portfolio securities to broker-dealers or institutional investors that Mitchell
Hutchins deems qualified. Lending securities enables a 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. Each 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. Each fund will retain authority to terminate any of its loans at any
time. Each fund may pay 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. Each fund will receive amounts
equivalent to any interest, dividends or other distributions on the securities
loaned. Each 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 each fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for each 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 funds' securities
lending program.
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SEGREGATED ACCOUNTS. When a 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 its obligation or commitment under such transactions.
TYPES OF MUNICIPAL SECURITIES. Premier Tax-Free Money Market Fund may
invest in a variety of municipal securities, as described below:
MUNICIPAL BONDS. Municipal bonds are debt obligations that are issued by
states, municipalities, public authorities or other issuers and that pay
interest that is exempt from federal income tax in the opinion of issuer's
counsel. The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as from
the user of the facility being financed. The term "municipal bonds" also
includes "moral obligation" issues, which are normally issued by special purpose
authorities. In the case of such issues, an express or implied "moral
obligation" of a related government unit is pledged to the payment of the debt
service, but is usually subject to annual budget appropriations. Custodial
receipts that represent an ownership interest in one or more municipal bonds
also are considered to be municipal bonds. Various types of municipal bonds are
described in the following sections.
MUNICIPAL LEASE OBLIGATIONS. Municipal bonds include municipal lease
obligations, such as leases, installment purchase contracts and conditional
sales contracts, and certificates of participation therein. Municipal lease
obligations are issued by state and local governments and authorities to
purchase land or various types of equipment or facilities and may be subject to
annual budget appropriations. The fund generally invests in municipal lease
obligations through certificates of participation.
Although municipal lease obligations do not constitute general obligations
of the municipality for which the municipality's taxing power is pledged, they
ordinarily are backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. The leases underlying
certain municipal lease obligations, however, provide that lease payments are
subject to partial or full abatement if, because of material damage or
destruction of the leased property, there is substantial interference with the
lessee's use or occupancy of such property. This "abatement risk" may be reduced
by the existence of insurance covering the leased property, the maintenance by
the lessee of reserve funds or the provision of credit enhancements such as
letters of credit.
Certain municipal lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Some municipal lease obligations of this type
are insured as to timely payment of principal and interest, even in the event of
a failure by the municipality to appropriate sufficient funds to make payments
under the lease. However, in the case of an uninsured municipal lease
obligation, the fund's ability to recover under the lease in the event of a
non-appropriation or default will be limited solely to the repossession of
leased property without recourse to the general credit of the lessee, and
disposition of the property in the event of foreclosure might prove difficult.
INDUSTRIAL DEVELOPMENT BONDS ("IDBs") AND PRIVATE ACTIVITY BONDS ("PABs").
IDBs and PABs are issued by or on behalf of public authorities to finance
various privately operated facilities, such as airport or pollution control
facilities. These obligations are considered municipal bonds if the interest
paid thereon is exempt from federal income tax in the opinion of the bond
issuer's counsel. IDBs and PABs are in most cases revenue bonds and thus are not
payable from the unrestricted revenues of the issuer. The credit quality of IDBs
and PABs is usually directly related to the credit standing of the user of the
facilities being financed. IDBs issued after August 15, 1986 generally are
considered PABs, and to the extent the fund invests in such PABs, shareholders
generally will be required to include a portion of their exempt-interest
dividends from the fund in calculating their liability for the AMT. See "Taxes"
8
<PAGE>
below. The fund may invest more than 25% of its assets in IDBs and PABs,
consistent with its policy of not investing more than 20% of its total assets in
securities subject to the federal alternative minimum tax.
PARTICIPATION INTERESTS. Participation interests are interests in
municipal bonds, including IDBs, PABs and floating and variable rate
obligations, that are owned by financial institutions. These interests carry a
demand feature permitting the holder to tender them back to the financial
institution, which demand feature generally is backed by an irrevocable letter
of credit or guarantee of the financial institution. The credit standing of such
financial institution affects the credit quality of the participation interests.
A participation interest gives the fund an undivided interest in a
municipal bond owned by a financial institution. The fund has the right to sell
the instruments back to the financial institution. As discussed above under "The
Funds' Investments, Related Risks and Limitations -- Credit and Liquidity
Enhancements," to the extent that payment of an obligation is backed by a letter
of credit, guarantee or liquidity support arrangement from a financial
institution, such payment may be subject to the financial institution's ability
to satisfy that commitment. Mitchell Hutchins will monitor the pricing, quality
and liquidity of the participation interests held by the fund, and the credit
standing of financial institutions issuing letters of credit or guarantees
supporting such participation interests on the basis of published financial
information, reports of rating services and financial institution analytical
services.
PUT BONDS. A put bond is a municipal bond that gives the holder the
unconditional right to sell the bond back to the issuer or a third party at a
specified price and exercise date, which is typically well in advance of the
bond's maturity date. The obligation to purchase the bond on the exercise date
may be supported by a letter of credit or other credit support arrangement from
a bank, insurance company or other financial institution, the credit standing of
which affects the credit quality of the obligation.
If the put is a "one time only" put, the fund ordinarily will either sell
the bond or put the bond, depending upon the more favorable price. If the bond
has a series of puts after the first put, the bond will be held as long as, in
the judgment of Mitchell Hutchins, it is in the best interest of the fund to do
so. There is no assurance that the issuer of a put bond acquired by the fund
will be able to repurchase the bond upon the exercise date, if the fund chooses
to exercise its right to put the bond back to the issuer or to a third party.
TENDER OPTION BONDS. Tender option bonds are long-term municipal
securities sold by a bank or other financial institution subject to a demand
feature that gives the purchaser the right to sell them to the bank or other
financial institution at par plus accrued interest at designated times (the
"tender option"). The fund may invest in bonds with tender options that may be
exercisable at intervals ranging from daily to 397 days, and the interest rate
on the bonds is typically reset at the end of the applicable interval in an
attempt to cause the bonds to have a market value that approximates their par
value, plus accrued interest. The tender option may not be exercisable in the
event of a default on, or significant downgrading of, the underlying municipal
securities, and may be subject to other conditions. Therefore, the fund's
ability to exercise the tender option will be affected by the credit standing of
both the bank or other financial institution involved and the issuer of the
underlying securities.
TAX-EXEMPT COMMERCIAL PAPER AND SHORT-TERM MUNICIPAL NOTES. Municipal
bonds include tax-exempt commercial paper and short-term municipal notes, such
as tax anticipation notes, bond anticipation notes, revenue anticipation notes
and other forms of short-term securities. Such notes are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements and other revenues.
MORTGAGE SUBSIDY BONDS. The fund also may purchase mortgage subsidy bonds
with a remaining maturity of less than 13 months that are issued to subsidize
mortgages on single family homes and "moral obligation" bonds with a remaining
maturity of less than 13 months that are normally issued by special purpose
public authorities. In some cases the repayment of such bonds depends upon
annual legislative appropriations; in other cases repayment is a legal
obligation of the issuer, and if the issuer is unable to meet its obligations,
repayment becomes a moral commitment of a related government unit (subject,
however, to such appropriations).
9
<PAGE>
STAND-BY COMMITMENTS. Premier Tax-Free Money Market Fund may acquire
stand-by commitments under unusual market conditions to facilitate portfolio
liquidity. Pursuant to a stand-by commitment, a municipal bond dealer agrees to
purchase the securities that are the subject of the commitment at an amount
equal to (1) the acquisition cost (excluding any accrued interest paid on
acquisition), less any amortized market premium and plus any accrued market or
original issue discount, plus (2) all interest accrued on the securities since
the last interest payment date or the date the securities were purchased,
whichever is later.
Premier Tax-Free Money Market Fund will enter into stand-by commitments
only with those banks or other dealers that, in the opinion of Mitchell
Hutchins, present minimal credit risk. The fund's right to exercise stand-by
commitments will be unconditional and unqualified. Stand-by commitments will not
be transferable by the fund, although it may sell the underlying securities to a
third party at any time. The fund may pay for stand-by commitments either
separately in cash or by paying a higher price for the securities that are
acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The acquisition of a stand-by
commitment will not ordinarily affect the valuation or maturity of the
underlying municipal securities. Stand-by commitments acquired by the fund will
be valued at zero in determining net asset value. Whether the fund paid directly
or indirectly for a stand-by commitment, its cost will be treated as unrealized
depreciation and will be amortized over the period the commitment is held by the
fund.
TEMPORARY AND DEFENSIVE INVESTMENTS. When Mitchell Hutchins believes that
there is an insufficient supply of municipal securities or that other
circumstances warrant a defensive posture, Premier Tax-Free Money Market Fund
may hold cash and may invest all or any portion of its net assets in taxable
money market instruments, including repurchase agreements. To the extent the
fund holds cash, such cash would not earn income and would reduce the fund's
yield.
INVESTMENT LIMITATIONS OF THE FUNDS
FUNDAMENTAL LIMITATIONS. The following investment limitations cannot be
changed with respect to a 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 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.
Each 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.
With respect to Premier Tax-Free Money Market Fund, the following
interpretation applies to, but is not a part of, fundamental limitation (1):
Each state, territory and possession of the United States (including the
District of Columbia and Puerto Rico), each political subdivision, agency,
instrumentality and authority thereof, and each multi-state agency of which a
state is a member is a separate "issuer." When the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from the government creating the subdivision and the security is backed only by
10
<PAGE>
the assets and revenues of the subdivision, such subdivision would be deemed to
be the sole issuer. Similarly, in the case of an IDB or PAB, if that bond is
backed only by the assets and revenues of the non-governmental user, then that
non-governmental user would be deemed to be the sole issuer. However, if the
creating government or another entity guarantees a security, then to the extent
that the value of all securities issued or guaranteed by that government or
entity and owned by the fund exceeds 10% of the fund's total assets, the
guarantee would be considered a separate security and would be treated as issued
by that government or entity.
(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.
(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: a fund's investments in master notes 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.
11
<PAGE>
Each 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.
ORGANIZATION OF THE TRUST; TRUSTEES AND OFFICERS;
PRINCIPAL HOLDERS OF SECURITIES
The Trust was organized on April 29, 1998, as a business trust under the
laws of Delaware and has five series. The Trust has authority to issue an
unlimited number of shares of beneficial interest of separate series, par value
$0.001 per share. The Trust is governed by a board of trustees, which oversees
the funds' operations. The board is authorized to establish additional series.
The trustees and executive officers of the Trust, their ages, business addresses
and principal occupations during the past five years are:
POSITION WITH BUSINESS EXPERIENCE; OTHER
NAME AND ADDRESS; AGE TRUST DIRECTORSHIPS
- --------------------- ----- -------------
Margo N. Alexander*+; 52 Trustee and Mrs. Alexander is chairman (since
President 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.
12
<PAGE>
POSITION WITH BUSINESS EXPERIENCE; OTHER
NAME AND ADDRESS; AGE TRUST DIRECTORSHIPS
- --------------------- ----- -------------
Richard Q. Armstrong; 64 Trustee Mr. Armstrong is chairman and principal
R.Q.A. Enterprises of R.Q.A. Enterprises (management
One Old Church Road consulting firm) (since April 1991
Unit #6 and principal occupation since March
Greenwich, CT 06830 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
31 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
E. Garrett Bewkes, Jr. Director and Mr. Bewkes is a director of Paine
**+; 73 Chairman of Webber Group Inc. ("PW Group")
the Board of (holding company of PaineWebber and
Trustees 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.
13
<PAGE>
POSITION WITH BUSINESS EXPERIENCE; OTHER
NAME AND ADDRESS; AGE TRUST DIRECTORSHIPS
- --------------------- ----- -------------
Richard R. Burt; 52 Trustee Mr. Burt is chairman of IEP Advisors,
1275 Pennsylvania Ave., Inc. (international investments and
N.W. and consulting firm) (since March
Washington, DC 20004 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) and
Homestake Mining Corp. (gold mining),
vice chairman (since July 1999) of
Anchor Gaming (provides technology to
gaming and wagering industry) and
chairman (since April 1996) of Weirton
Steel Corp. (makes and finishes steel
products). 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**+; 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 30 investment companies for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
Meyer Feldberg; 57 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate School
101 Uris Hall of Business, Columbia University.
New York, NY 10027 Prior 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 34 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
14
<PAGE>
POSITION WITH BUSINESS EXPERIENCE; OTHER
NAME AND ADDRESS; AGE TRUST DIRECTORSHIPS
- --------------------- ----- -------------
George W. Gowen; 70 Trustee Mr. Gowen is a partner in the law firm
666 Third Avenue of Dunnington, Bartholow & Miller.
New York, NY 10017 Prior to May 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; 63 Trustee Mr. Malek is chairman of Thayer
1455 Pennsylvania Capital Partners (merchant bank)
Ave., N.W. and chairman of Thayer Hotel
Suite 350 Investors II and Lodging Opportunities
Washington, DC 20004 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.
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.
15
<PAGE>
POSITION WITH BUSINESS EXPERIENCE; OTHER
NAME AND ADDRESS; AGE TRUST DIRECTORSHIPS
- --------------------- ----- -------------
Carl W. Schafer; 64 Trustee Mr. Schafer is president of the
66 Witherspoon Street, Atlantic Foundation (charitable
#1100 foundation supporting mainly
Princeton, NJ 08542 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, E.I.I. Realty Trust (investment
company), 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*+; 45 Trustee Mr. Storms is president and chief
operating officer of Mitchell
Hutchins (since March 1999). Prior to
joining Mitchell Hutchins, 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.
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. Prior to 1994, Ms. Dorr was a
vice president and portfolio manager in
the money market mutual funds group of
Kidder Peabody Asset Management Inc.
Ms. Dorr is a vice president of one
investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment
adviser.
Elbridge T. Gerry Vice President Mr. Gerry is a senior vice president
III*; 42 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 five investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
16
<PAGE>
POSITION WITH BUSINESS EXPERIENCE; OTHER
NAME AND ADDRESS; AGE TRUST DIRECTORSHIPS
- --------------------- ----- -------------
John J. Lee**; 31 Vice President Mr. Lee is a vice president
and Assistant and a manager of the mutual fund
Treasurer 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.
Kevin J. Mahoney**; Vice President Mr. Mahoney is a first vice
34 and president and a senior manager
Assistant of the mutual fund finance
Treasurer 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*; Vice President Mr. Markowitz is a first vice
35 president and a portfolio manager
in the short-term strategies group of
Mitchell Hutchins. Prior to 1994, Mr.
Markowitz was an assistant treasurer
and portfolio manager in the Global
Investment Management Group at Bankers
Trust Company. Mr. Markowitz is a vice
president of one investment company for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
Dennis McCauley*; 53 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.
Kevin P. McIntyre*; Vice President Mr. McIntyre is a vice president
33 and a portfolio manager of Mitchell
Hutchins. Mr. McIntyre is a vice
president of one investment company for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
17
<PAGE>
POSITION WITH BUSINESS EXPERIENCE; OTHER
NAME AND ADDRESS; AGE TRUST DIRECTORSHIPS
- --------------------- ----- -------------
Ann E. Moran**; 42 Vice President Ms. Moran is a vice president
and and a manager of the mutual fund
Assistant finance department of Mitchell
Treasurer 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 Vice President Ms. O'Donnell is a senior vice
**; 47 and Secretary 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*; 40 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.
Susan Ryan*; 39 Vice President Ms. Ryan is a senior vice president
and portfolio manager of Mitchell
Hutchins and has been with Mitchell
Hutchins since 1982. Ms. Ryan is a vice
president of five investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Victoria E. Schonfeld Vice President Ms. Schonfeld is a managing
**; 49 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**; Vice President Mr. Schubert is a senior vice
37 and Treasurer 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.
18
<PAGE>
POSITION WITH BUSINESS EXPERIENCE; OTHER
NAME AND ADDRESS; AGE TRUST DIRECTORSHIPS
- --------------------- ----- -------------
Barney A. Taglialatela Vice President Mr. Taglialatela is a vice president
**; 38 and Assistant and a manager of the mutual fund
Treasurer 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.
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 three investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Keith A. Weller**; Vice President Mr. Weller is a first vice president
38 and Assistant and associate general counsel of
Secretary 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.
- -------------
* 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.
+ Mrs. Alexander, Mr. Bewkes, Ms. Farrell and Mr. Storms are "interested
persons" of the funds 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 for each series and up to $150 per series for each board meeting
and each meeting of a board committee. The Trust 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.
Trustees and officers of the Trust own in the aggregate less than 1% of the
outstanding shares of any class of each fund. Because Correspondent Services
Corporation (csc) and Mitchell Hutchins perform substantially all the services
necessary for the operation of the Trust, the Trust requires no employees. No
officer, director or employee of Mitchell Hutchins or PaineWebber presently
receives any compensation from the Trust for acting as a trustee or officer.
The table below includes certain information relating to the compensation
of the Trust's current board members and the compensation of those board members
from all PaineWebber funds during the 1998 calendar year.
19
<PAGE>
COMPENSATION TABLE+
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM THE
NAME OF PERSON, POSITION FROM THE TRUST* FUND COMPLEX**
------------------------ --------------- --------------
Richard Q. Armstrong, Trustee... $8,160 $101,372
Richard R. Burt, Trustee......... $8,130 $101,372
Meyer Feldberg, Trustee.......... $8,160 $116,222
George W. Gowen, Trustee......... $8,474 $108,272
Frederic V. Malek, Trustee....... $8,160 $101,372
Carl W. Schafer, Trustee......... $8,160 $101,372
- --------------------
+ 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 funds.
* Represents fees estimated to be paid to each board member during the funds'
fiscal year ending December 31, 2000.
** Represents total compensation paid during the calendar year ended December
31, 1998, 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 OF SECURITIES
As of December 31, 1999, the funds had no shareholders.
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. Mitchell Hutchins
acts as each fund's investment adviser and administrator pursuant to a contract
("Advisory and Administration Contract") under which each fund pays Mitchell
Hutchins an annual fee, computed daily and paid monthly, at the rate of 0.20% of
average daily net assets.
Services provided by Mitchell Hutchins under the Advisory and
Administration Contract, as discussed below, include the provision of a
continuous investment program for the funds and supervision of all matters
relating to the administration and operation of the funds.
Shareholders of Correspondent Cash Reserves Tax Free Money Market
Portfolio and Correspondent Cash Reserves Money Market Portfolio, series of The
Infinity Mutual Funds, Inc., approved an Agreement and Plan of Conversion and
Termination ("Plan") on November 12, 1999 and on December 3, 1999, respectively.
Pursuant to the Plan, Correspondent Cash Reserves Money Market Portfolio will be
reorganized into Premier Money Market Fund, and Correspondent Cash Reserves Tax
Free Money Market Portfolio will be reorganized into Premier Tax-Free Money
Market Fund, expected to occur in January 2000, or another date agreed to by the
parties to the Plan. Mitchell Hutchins serves as investment adviser to
Correspondent Cash Reserves Money Market Portfolio and Correspondent Cash
Reserves Tax Free Money Market Portfolio. Premier Money Market Fund and Premier
Tax-Free Money Market Fund will have no investment operations prior to the
reorganizations. During each of the periods indicated, Mitchell Hutchins was
paid the fees indicated below under a substantially similar advisory agreement
with the predecessor entity to each Premier fund:
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FISCAL YEAR ENDED DECEMBER 31
------------------------------------
1998 1997 1996
---------- ---------- ------------
Correspondent Cash Reserves Money
Market Portfolio $1,328,616 $1,088,088 $950,074
Correspondent Cash Reserves Tax Free
Money Market
Portfolio........................... 113,647 79,470* 9,950**
- ---------------------
* Pursuant to an undertaking by Mitchell Hutchins, $14,024 of the $93,494
advisory fee payable for the fiscal year ended December 31, 1997 was waived
resulting, in the net payment of $79, 470.
** Pursuant to an undertaking by Mitchell Hutchins, $9,950 of the $19,900
advisory fee payable for the fiscal year ended December 31, 1996 was waived,
resulting in the net payment of $9,950.
Under a contract with BISYS Fund Services Ohio, Inc. ("BISYS") ("BISYS
Administration Contract"), BISYS served as the administrator to Correspondent
Cash Reserves Money Market Portfolio and Correspondent Cash Reserves Tax Free
Money Market Portfolio, the predecessor entities to Premier Money Market Fund
and Premier Tax-Free Money Market Fund. Under the BISYS Administration Contract,
each fund paid BISYS a fee, computed daily and paid monthly, at an annual rate
of 0.10% of the value of each fund's average daily net assets. For the fiscal
years ended December 31, 1998, 1997 and 1996, Correspondent Cash Reserves Money
Market Portfolio and Correspondent Cash Reserves Tax Free Money Market Portfolio
paid BISYS fees in the amount of $1,328,616, $1,088,088 and $950,074; and
$66,199, $26,487 and $0, respectively.
Pursuant to the terms of a Special Management Services Agreement with
Mitchell Hutchins and BISYS, Correspondent Cash Reserves Money Market Portfolio
and Correspondent Cash Reserves Tax Free Money Market Portfolio had agreed to
pay Mitchell Hutchins and BISYS each a monthly fee at the annual rate of 0.05%
of each fund's average daily net asset value. The fees payable to Mitchell
Hutchins by Correspondent Cash Reserves Money Market Portfolio under the Special
Management Services Agreement for the fiscal years ended December 31, 1998, 1997
and 1996, amounted to $664,308, $544,044 and $461,556, respectively; however,
pursuant to an undertaking, Mitchell Hutchins waived its fee in its entirety for
each such fiscal year. The fees payable to Mitchell Hutchins by Correspondent
Cash Reserves Tax Free Money Market Portfolio under the Special Management
Services Agreement for the fiscal years ended December 31, 1998, 1997 and 1996,
amounted to $56,824, $46,747 and $9,950, respectively, which amounts were waived
in their entirety pursuant to an undertaking. The fees payable to BISYS by
Correspondent Cash Reserves Money Market Portfolio under the Special Management
Services Agreement for the fiscal years ended December 31, 1998, 1997 and 1996
amounted to $664,308, $544,044 and $461,555, respectively; however, pursuant to
an undertaking, BISYS waived its fee in its entirety for each such fiscal year.
The fees payable to BISYS by Correspondent Cash Reserves Tax Free Money Market
Portfolio under the Special Management Services Agreement for the fiscal years
ended December 31, 1998, 1997 and 1996 amounted to $56,823, $46,747 and $9,950,
respectively, which amounts were waived in their entirety pursuant to an
undertaking.
Under the Advisory and Administration Contract, Mitchell Hutchins will not
be liable for any error of judgment of mistake of law or for any loss suffered
by the funds in connection with the performance of the Advisory and
Administration 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 and Administration Contract terminates automatically upon
assignment and is terminable at any time without penalty by the board or by vote
of the holders of a majority of the funds' outstanding voting securities on 60
days' written notice to Mitchell Hutchins, or by Mitchell Hutchins on 60 days'
written notice to the funds.
Under the terms of the Advisory and Administration Contract, each fund
bears all expenses incurred in its operation that are not specifically assumed
by Mitchell Hutchins. General expenses of the Trust not readily identifiable as
belonging to a specific fund or to the Trust's other series are allocated among
series by or under the direction of the board of trustees in such manner as the
board deems fair and equitable. Expenses borne by the Trust include the
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following (or each fund's share of the following): (1) the cost (including
brokerage commissions) of securities purchased or sold by a fund and any losses
incurred in connection therewith; (2) fees payable to and expenses incurred on
behalf of a fund by Mitchell Hutchins under the contract; (3) expenses of
organizing the Trust and each fund; (4) filing fees and expenses relating to the
registration and qualification of a fund's shares and the Trust under federal
and/or state securities laws and maintaining such registration and
qualifications; (5) fees and salaries payable to the Trust's trustees and
officers who are not interested persons of the Trust or Mitchell Hutchins; (6)
all expenses incurred in connection with the trustees' services, including
travel expenses; (7) taxes (including any income or franchise taxes) and
governmental fees; (8) costs of any liability, uncollectible items of deposit
and other insurance and fidelity bonds; (9) any costs, expenses or losses
arising out of a liability of or claim for damages or other relief asserted
against the Trust or a fund for violation of any law; (10) legal, accounting and
auditing expenses, including legal fees of special counsel for those trustees of
the Trust who are not interested persons of the Trust; (11) charges of
custodians, transfer agents and other agents (including any lending agent); (12)
costs of preparing share certificates (if any); (13) expenses of setting in type
and printing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials for existing
shareholders; (14) costs of mailing prospectuses and supplements thereto,
statements of additional information and supplements thereto, reports and proxy
materials to existing shareholders; (15) any extraordinary expenses (including
fees and disbursements of counsel, costs of actions, suits or proceedings to
which the Trust is a party and the expenses the Trust may incur as a result of
its legal obligation to provide indemnification to its officers, trustees,
agents and shareholders) incurred by the Trust or a fund; (16) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (17) the cost of mailing and tabulating
proxies and costs of meetings of shareholders, the board and any committees
thereof; (18) the cost of investment company literature and other publications
provided by the Trust to its trustees and officers; (19) costs of mailing,
stationery and communications equipment; (20) expenses incident to any dividend,
withdrawal or redemption options; (21) charges and expenses of any outside
pricing service used to value portfolio securities; and (22) interest on
borrowings of a fund.
Mitchell Hutchins, csc and the funds have entered into a fee waiver and
reimbursement agreement pursuant to which csc will waive 12b-1 fees (described
below) in an amount equal to 0.17% of Premier Tax-Free Money Market Fund's
average daily net assets during the fund's fiscal year ending December 31, 2000.
Mitchell Hutchins has also agreed to reimburse the Trust on behalf of each fund
for the fund's operating expenses (excluding management fees, 12b-1 fees,
interest expenses, taxes, brokerage commissions and extraordinary expenses) to
the extent that its aggregate net operating expenses exceed the following
amounts per annum during its fiscal year ending December 31, 2000:
Premier Money Market Fund.....................0.90%
Premier Tax-Free Money Market Fund............0.68%
(including csc's 12b-1 fee waiver)
(Each of these amounts is the "Maximum Permitted Rate" for the applicable
fund.) The Trust has agreed to repay the aggregate amount of Mitchell Hutchins'
expense reimbursements out of the assets of the fund for which the expense
reimbursements were made if the reimbursements would not cause the fund's
aggregate net operating expenses to exceed the Maximum Permitted Rate for that
fund. The Trust will only pay these reimbursements, if any, during the three
years following December 31, 2000.
NET ASSETS. The following table shows the approximate net assets as of
October 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.
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<PAGE>
NET ASSETS
INVESTMENT CATEGORY ($MIL)
Domestic (excluding Money Market).......... $7,873.9
Global..................................... $4,651.4
Equity/Balanced............................ $7,822.0
Fixed Income (excluding Money Market)...... $4,703.3
Taxable Fixed Income.......... $3,233.7
Tax-Free Fixed Income......... $1,469.6
Money Market Funds......................... $35,069.2
FUND ACCOUNTING ARRANGEMENTS. Pursuant to a Fund Accounting Agreement with
each Fund, BISYS provides accounting services to the funds, such as maintaining
their books and records, calculating each fund's daily net asset value,
obtaining prices of securities, and providing periodic and special accounting
reports. For these services, BISYS will receive the following fees, which will
be computed daily and paid monthly: 0.005% of each fund's average daily net
assets up to $1 billion, 0.0025% of each fund's average daily net assets in
excess of $1 billion up to $2 billion, and 0.001% in excess of $2 billion.
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, including trading in securities that may be purchased or held by
the funds. 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. Mitchell Hutchins acts as the distributor of
each fund's shares under a distribution contract with the Trust ("Distribution
Contract"), which requires Mitchell Hutchins to use its best efforts, consistent
with its other business, to sell shares of the funds. No separate compensation
is payable by either fund to Mitchell Hutchins or its affiliates under the
Distribution Contract. Instead, Mitchell Hutchins or an affiliate shall receive
service and distribution fees under the funds' plan of distribution, as
described below. Shares of the funds are offered continuously, except that the
Trust and Mitchell Hutchins or its affiliates reserve the right to reject any
purchase order and to suspend the offering of fund shares for a period of time.
Under a plan of distribution pertaining to each fund's shares adopted by
the Trust in the manner prescribed under Rule 12b-1 under the Investment Company
Act ("12b-1 Plan"), each fund pays csc a distribution and service fee, accrued
daily and payable monthly, at the annual rate of 0.60% of the average daily net
assets of each fund. However, csc has agreed to waive 0.17% of Premier Tax-Free
Money Market Fund's Rule 12b-1 fee through December 31, 2000, making the
effective rate of this fee 0.43% until then.
Csc uses the amounts that it receives under the 12b-1 Plan to pay certain
correspondent firms (together with csc, the "Securities Firms") with which it
has entered into clearing agreements under which the Securities Firms have
agreed to perform certain services for their clients who are shareholders of a
fund. Csc receives no special compensation from either of the funds or investors
at the time shares are bought.
Csc also uses the 12b-1 Plan fee to:
o Spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of fund shares.
o Offset each fund's marketing costs, such as preparation, printing and
distribution of sales literature, advertising and prospectuses to
prospective investors and related overhead expenses, such as employee
salaries and bonuses.
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<PAGE>
The 12b-1 Plan and the related Distribution Contract for each fund's
shares specify that the funds must pay service and distribution fees to csc for
their activities, not as reimbursement for specific expenses incurred.
Therefore, even if csc's expenses exceed the fees it receives, the funds will
not be obligated to pay more than those fees. On the other hand, if csc's
expenses are less than such fees, it will retain its full fees and realize a
profit. Expenses in excess of fees received or accrued through the termination
date of the 12b-1 Plan will be csc's sole responsibility and not that of the
funds. Annually, the board reviews the 12b-1 Plan and csc's corresponding
expenses for each fund.
Among other things, the 12b-1 Plan provides that (1) csc will submit to
the board at least quarterly, and the trustees will review, reports regarding
all amounts expended under the 12b-1 Plan and the purposes for which such
expenditures were made, (2) the 12b-1 Plan will continue in effect only so long
as it is approved at least annually, and any material amendment thereto is
approved, by the board, including those trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the 12b-1 Plan or any agreement related to the 12b-1 Plan,
acting in person at a meeting called for that purpose, (3) payments by the funds
under the 12b-1 Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the outstanding shares of the funds and (4)
while the 12b-1 Plan remains in effect, the selection and nomination of trustees
who are not "interested persons" of the Trust shall be committed to the
discretion of the trustees who are not "interested persons" of the Trust.
The funds' predecessors, Correspondent Cash Reserves Money Market
Portfolio and Correspondent Cash Reserves Tax Free Money Market Portfolio,
operated under a separate Rule 12b-1 plan with csc. Under this Rule 12b-1 plan,
$7,981,102 was payable to csc by Correspondent Cash Reserves Money Market
Portfolio for the fiscal year ended December 31, 1998. However, pursuant to an
undertaking, this amount was reduced by $110,436, resulting in a net amount paid
by Correspondent Cash Reserves Money Market Fund of $7,860,666. For the fiscal
year ended December 31, 1998, the amount payable pursuant to the Rule 12b-1 plan
by Correspondent Cash Reserves Tax Free Money Market Portfolio was $681,887;
however, pursuant to an undertaking, the amount was reduced by $196,182,
resulting in a net amount paid by Correspondent Cash Reserves Tax Free Money
Market Portfolio of $485,705. All of the above amounts were paid to
broker-dealers in connection with the sale of fund shares.
In January 2000, when the predecessor entities are expected to reorganize
into Premier Money Market Fund and Premier Tax-Free Money Market Fund, the new
12b-1 Plan with csc will take effect.
In approving the 12b-1 Plan, the board considered all the features of the
distribution system, including (1) the reasonableness of csc's fees, (2) the
likelihood that the 12b-1 Plan would facilitate distribution of fund shares, (3)
the structural continuity of the 12b-1 Plan with the plan of distribution of the
funds' predecessor entities, (4) the advantage to the shareholders of economies
of scale resulting from growth in the funds' assets and potential continued
growth and other possible benefits to shareholders of the 12b-1 Plan, (5) the
services provided to the funds and their shareholders by csc, (6) the services
provided by Securities Firms pursuant to their clearing agreements with csc, (7)
csc's shareholder service- and distribution-related expenses and costs and (8)
the similarity of the 12b-1 Plan to plans of distribution adopted by competitor
money market funds.
With respect to the 12b-1 Plan, the board considered all compensation that
csc would receive under the Plan. The board also considered the benefits that
would accrue to csc under the Plan in that csc would receive a service and
distribution fee that is calculated based upon a percentage of the average net
assets of each fund and would increase if the 12b-1 Plan were successful and the
funds attained and maintained significant asset levels.
PORTFOLIO TRANSACTIONS
The funds purchase 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
24
<PAGE>
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. During the fiscal years ended December 31, 1996, 1997 and
1998, neither fund's predecessor entity paid any brokerage commissions;
therefore, neither predecessor entity has allocated any brokerage transactions
for research, analysis, advice and similar services.
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,
Mitchell Hutchins 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 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.
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 its investment
processes. Information and research services furnished by brokers or dealers
through which or with which the funds effect 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 funds.
Investment decisions for the funds 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 funds 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 that fund and such
other account(s) as to amount according to a formula deemed equitable to the
fund and the other 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 funds
are 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 benefit the fund.
ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION; SERVICE ORGANIZATIONS
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION. Each 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 each fund's portfolio at
the time; although the funds attempt to maintain a constant net asset value of
$1.00 per share.
Under normal circumstances, the funds' shares may be redeemed by a
shareholder's check or through the funds' systematic withdrawal plan. Such a
redemption order will be executed at the net asset value next determined after
the order is received by Mitchell Hutchins. Redemptions of each fund's shares
effected through a broker-dealer or other financial institution may be subject
to a service charge by that broker-dealer or other financial institution.
The transfer agent may modify or terminate the funds' checkwriting service
at any time or impose service fees for checkwriting.
SERVICE ORGANIZATIONS. The funds may authorize service organizations, and
their agents, to accept on their behalf purchase and redemption orders that are
in "good form." The funds will be deemed to have received these purchase and
redemption orders when a service organization or its agent accepts them. Like
all customer orders, these orders will be priced based on each fund's net asset
25
<PAGE>
value next computed after receipt of the order by the service organizations or
their agents. Service organizations may include retirement plan service
providers who aggregate purchase and redemption instructions received from
numerous retirement plans or plan participants.
VALUATION OF SHARES
Each fund uses its best efforts to maintain its net asset value at $1.00
per share. Each fund's net asset values per share is determined as of 12:00
noon, Eastern time, on each Business Day. As defined in the Prospectus,
"Business Day" means any day on which the offices of BONY, the funds' transfer
agent, BISYS, Mitchell Hutchins and the relevant correspondent (or other
financial services) firm 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, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day
and Christmas Day.
Each 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 funds 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, a 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 a 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. Each 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, each
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 funds' 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.
All performance shown is that of the funds' predecessors.
TOTAL RETURN CALCULATIONS. Average annual total return quotes
("Standardized Return") used in each fund's Performance Advertisements are
calculated according to the following formula:
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P(1 + T)(n) = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares
T = average annual total return of shares
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.
The funds may also advertise other performance data, which may consist of
the annual or cumulative return (including 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).
The following tables show performance information for the funds' shares
outstanding for the periods indicated. All returns for periods of more than one
year are expressed as an average annual return.
PREMIER MONEY MARKET FUND
Year ended June 30, 1999:
Standardized Return................. 4.44%
Five Years ended June 30, 1999:
Standardized Return................. 4.72%
Inception* to June 30, 1999:
Standardized Return................. 4.16%
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* The inception date for the predecessor fund is May 20, 1991.
PREMIER TAX-FREE MONEY MARKET FUND
Year ended June 30, 1999:
Standardized Return................. 2.56%
Inception* to June 30, 1999:
Standardized Return................. 2.78%
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* The inception date for the predecessor fund is October 7, 1996.
YIELD. Each fund computes its yield and effective yield quotations using
standardized methods required by the SEC. Each fund from time to time advertises
(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) their
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
Premier Tax-Free Money Market Fund from time to time also advertises its
tax-equivalent yield and tax-equivalent effective yield, also based on a
recently ended seven-day period. These quotations are calculated by dividing
27
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that portion of the fund's yield (or effective yield, as the case may be) that
is tax-exempt by 1 minus a stated income tax rate and adding the product to that
portion, if any, of the fund's yield that is not tax-exempt, according to the
following formula:
E
-----
TAX EQUIVALENT YIELD = (1 - p) + t
E = tax-exempt yield of shares
p = stated income tax rate
t = taxable yield of shares
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each 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.
The following yields are for the seven-day period ended June 30, 1999:
YIELD EFFECTIVE YIELD
Premier Money Market Fund 4.14% 4.22%
Premier Tax-Free Money
Market Fund 2.82%* 2.86%
- ----------------------
* For the seven-day yield as of June 30, 1999, the predecessor fund's service
providers voluntarily waived a portion of their fees. If the service providers
had not waived a portion of their fees, the predecessor funds' seven-day yield
for this period would have been 2.61%.
The following tax equivalent yields are based, in each case, on the
maximum individual tax rates and are also for the seven-day period ended June
30, 1999:
YIELD EFFECTIVE YIELD
Premier Tax-Free Money
Market Fund 4.47% 4.53%
The funds 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 each fund since they or their
predecessors began operations or for shorter periods. This return data may or
may not assume reinvestment of dividends (compounding).
OTHER INFORMATION. The funds' 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 each fund will fluctuate. In Performance
Advertisements, the funds 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 funds
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 funds and comparative mutual fund data and ratings reported
in independent periodicals, including THE WALL STREET JOURNAL, MONEY MAGAZINE,
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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.
Each fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends on fund shares are reinvested by being paid in additional
fund shares, any future income of a fund would increase the value, not only of
the original investment in the fund, but also of the additional fund shares
received through reinvestment. As a result, the value of the investment in the
fund would increase more quickly than if dividends had been paid in cash.
Each 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 a 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 funds seek to maintain a stable net asset value of $1.00 per share,
there can be no assurance that they will be able to do so.
TAXES
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. To continue to qualify
for treatment as a regulated investment company ("RIC") under the Internal
Revenue Code, each fund must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting generally
of taxable net investment income and net short-term capital gain, if any) plus,
in the case of Premier Tax-Free Money Market Fund, its net interest income
excludable from gross income under section 103(a) of the Internal Revenue Code,
and must meet several additional requirements. With respect to each fund, these
requirements include 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, 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 and other securities, with these
other securities 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) of any one issuer. If a 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, including distributions that otherwise would be
"exempt-interest dividends" described in the following paragraph, as dividends
(that is, ordinary income) to the extent of the fund's earnings and profits. In
addition, a fund could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying for RIC treatment.
Dividends paid by Premier Tax-Free Money Market Fund will qualify as
"exempt-interest dividends," and thus will be excludable from gross income by
its shareholders, if it satisfies the additional requirement that, at the close
of each quarter of its taxable year, at least 50% of the value of its total
assets consists of securities the interest on which is excludable from gross
income under section 103(a). The fund intends to continue to satisfy this
requirement. The aggregate amount annually designated by the fund as
exempt-interest dividends may not exceed its interest for the year that is
excludable under section 103(a) over certain amounts disallowed as deductions.
The shareholders' treatment of dividends from the fund under state and local
income tax laws may differ from the treatment thereof under the Internal Revenue
Code.
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Tax-exempt interest attributable to certain PABs (including, in the case
of Premier Tax-Free Money Market Fund receiving interest on those bonds, a
proportionate part of the exempt-interest dividends paid by that fund) is an
item of tax preference for purposes of the federal alternative minimum tax
("AMT"). Exempt-interest dividends received by a corporate shareholder also may
be indirectly subject to the AMT without regard to whether the fund's tax-exempt
interest was attributable to those bonds. PABs are issued by or on behalf of
public authorities to finance various privately operated facilities and are
described above in this SAI.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by IDBs or PABs should consult their
tax advisers before purchasing shares of Premier Tax-Free Money Market Fund
because, for users of certain of these facilities, the interest on those bonds
is not exempt from federal income tax. For these purposes, the term "substantial
user" is defined generally to include a "non-exempt person" who regularly uses
in trade or business a part of a facility financed from the proceeds of IDBs or
PABs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as Premier Tax-Free Money Market Fund) plus
50% of their benefits exceeds certain base amounts. Exempt-interest dividends
from Premier Tax-Free Money Market Fund still are tax-exempt to the extent
described above; they are only included in the calculation of whether a
recipient's income exceeds the established amounts.
If Premier Tax-Free Money Market Fund invests in any instruments that
generate taxable income, under the circumstances described in the discussion of
the fund's investment policies above and in the discussion of municipal market
discount bonds below, the portion of any fund dividend attributable to the
interest earned thereon will be taxable to its shareholders as ordinary income
to the extent of its earnings and profits and only the remaining portion will
qualify as an exempt-interest dividend. The respective portions will be
determined by the "actual earned" method, under which the portion of any
dividend that qualifies as an exempt-interest dividend may vary, depending on
the relative proportions of tax-exempt and taxable interest earned during the
dividend period. Moreover, if the fund realizes capital gain as a result of
market transactions, any distribution of that gain will be taxable to its
shareholders.
Premier Tax-Free Money Market Fund may invest in municipal bonds that are
purchased, generally not on their original issue, with market discount (that is,
at a price less than the principal amount of the bond or, in the case of a bond
that was issued with original issue discount, a price less than the amount of
the issue price plus accrued original issue discount) ("municipal market
discount bonds"). If a bond's market discount is less than the product of (1)
0.25% of the redemption price at maturity times (2) the number of complete years
to maturity after the taxpayer acquired the bond, then no market discount is
considered to exist. Gain on the disposition of a municipal market discount bond
(other than a bond with a fixed maturity date within one year from its issuance)
generally is treated as ordinary (taxable) income, rather than capital gain, to
the extent of the bond's accrued market discount at the time of disposition.
Market discount on such a bond generally is accrued ratably, on a daily basis,
over the period from the acquisition date to the date of maturity. In lieu of
treating the disposition gain as above, the fund may elect to include market
discount in its gross income currently, for each taxable year to which it is
attributable.
Dividends from investment company taxable income paid to a shareholder
who, as to the United States, is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign partnership
("foreign shareholder") generally are subject to a 30% withholding tax, unless
the applicable tax rate is reduced by a treaty between the United States and the
shareholder's country of residence. Withholding does not apply to a dividend
paid to a foreign shareholder that is "effectively connected with the
[shareholder's] conduct of a trade or business within the United States," in
which case the withholding requirements applicable to domestic taxpayers apply.
Exempt-interest dividends paid by Premier Tax-Free Money Market Fund are not
subject to withholding.
Each fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all its
ordinary (I.E., taxable) income for that year and any capital gain net income
for the one-year period ending October 31 of that year, plus certain other
amounts.
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TAX-FREE INCOME VS. TAXABLE INCOME--PREMIER TAX-FREE MONEY MARKET FUND.
The table below illustrates approximate equivalent taxable and tax-free yields
at the 1999 federal individual income tax rates in effect on the date of this
SAI. For example, a couple with taxable income of $90,000 in 1999, or a single
individual with taxable income of $55,000 in 1999, whose investments earn a 3%
tax-free yield, would have to earn a 4.17% taxable yield to receive the same
benefit.
1999 FEDERAL TAXABLE VS. TAX-FREE YIELDS*
TAXABLE INCOME (000's) A TAX-FREE YIELD OF
- ---------------------- FEDERAL ---------------------------------------------
SINGLE JOINT TAX 3.00% 4.00% 5.00% 6.00%
RETURN RETURN BRACKET IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY
- -------------------------------------------------------------------------------
$ 0 - 25.8 0 - 15.00% 3.53% 4.71% 5.88% 7.06%
43.1
25.8 - 62.5 43.1-104.1 28.00 4.17 5.56 6.94 8.33
62.5 - 130.3 104.1-158.6 31.00 4.35 5.80 7.25 8.70
130.3- 283.2 158.6-283.2 36.00 4.69 6.25 7.81 9.38
Over 283.2 Over 283.2 39.60 4.97 6.62 8.28 9.93
- --------------------
* The yields listed are for illustration only and are not necessarily
representative of the fund's yield. The fund invests primarily in
obligations the interest on which is exempt from federal income tax;
however, some of the fund's investments may generate taxable income.
Effective tax rates shown are those in effect on the date of this SAI;
such rates might change after that date. Certain simplifying assumptions
have been made. Any particular taxpayer's rate may differ. The effective
rates reflect the highest tax bracket within each range of income
listed. The figures set forth above do not reflect the federal
alternative minimum tax, limitations on federal or state itemized
deductions and personal exemptions or any state or local taxes payable
on fund distributions.
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 funds could, under certain conflicts of laws jurisprudence
in various states, be held personally liable for the obligations of the Trust or
a fund. However, the Trust Instrument of the Trust disclaims shareholder
liability for acts or obligations of the Trust or its series (the funds). The
Trust Instrument provides for indemnification from a fund's property for all
losses and expenses of a 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 a 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 a fund, the shareholder paying such liability will be entitled to
reimbursement from the general assets of that fund. The trustees intend to
conduct the operations of the funds in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the funds.
PRIOR NAMES. Prior to July 28, 1999, the name of the Trust was "Mitchell
Hutchins Institutional Series."
VOTING RIGHTS. Shareholders of the funds 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 each series
of the Trust will be voted separately, except when an aggregate vote of all the
series is required by law.
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 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. The trustees are required to call a meeting of shareholders when
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requested in writing to do so by the shareholders of record holding at least 10%
of the Trust's outstanding shares.
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. The Bank
of New York, located at 48 Wall Street, New York, NY 10286, serves as custodian
and recordkeeping agent for the funds. BISYS, located at 3435 Stelzer Road,
Columbus, OH 43219, serves as the funds' transfer and dividend disbursing agent.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the funds.
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 funds.
FINANCIAL STATEMENTS
The Annual Report to Shareholders for the last fiscal year ended December
31, 1998 and the Semi-Annual Report for the six-month period ended June 30, 1999
of the funds' predecessors are separate documents supplied with this SAI, and
the financial statements, accompanying notes and report of independent auditors
on the financial statements for the fiscal year ended December 31, 1998
appearing therein are incorporated herein by this reference.
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YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR REFERRED TO IN THE
PROSPECTUS AND THIS STATEMENT OF
ADDITIONAL INFORMATION. THE FUNDS AND
THEIR 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
FUNDS IN ANY JURISDICTION WHERE THE LIR Premier Money
FUNDS OR THEIR DISTRIBUTOR MAY NOT Market Fund
LAWFULLY SELL THOSE SHARES. LIR Premier Tax-Free Money
Market Fund
------------
------------------------------------------
Statement of Additional Information
November 12, 1999
(as revised January 12, 2000)
------------------------------------------
(C) 2000 Mitchell Hutchins Asset Management Inc. All rights reserved.
33
