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
LIR Premier Money Market Fund and LIR 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 to Shareholders of the funds'
predecessors are incorporated by reference into this Statement of Additional
Information ("SAI"). The Annual Report accompanies this SAI. You may obtain an
additional copy of the Annual Report by calling toll-free 1-800-442-3809.
This SAI is not a prospectus and should be read only in conjunction
with the funds' current Prospectus, dated May 1, 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 May 1, 2000.
TABLE OF CONTENTS
PAGE
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............ 19
Portfolio Transactions....................................................... 23
Additional Purchase and Redemption Information; Service Organizations........ 24
Valuation of Shares.......................................................... 24
Performance Information...................................................... 25
Taxes........................................................................ 27
Other Information............................................................ 29
Financial Statements......................................................... 30
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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, including borrowing through reverse repurchase agreements, up to 15%
of the value of its total assets for temporary purposes. 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 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, including borrowing through reverse repurchase agreements, up to 15%
of its total assets for temporary purposes. 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 AMT 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 the Securities and Exchange Commission ("SEC"). 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 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
subject to the terms of the underlying security, (2) to maintain its portfolio
in accordance with its investment objective and policies or applicable legal or
regulatory requirements or (3) as needed to provide liquidity to the fund in
order to meet redemption requests. The ability of a bank or other financial
institution to fulfill its obligations under a letter of credit, guarantee or
other liquidity arrangement might be affected by possible financial difficulties
of its borrowers, adverse interest rate or economic conditions, regulatory
limitations or other factors. The interest rate on floating rate or variable
rate securities ordinarily is readjusted on the basis of the prime rate of the
bank that originated the financing or some other index or published rate, such
as the 90-day U.S. Treasury bill rate, or is otherwise reset to reflect market
rates of interest. Generally, these interest rate adjustments cause the market
value of floating rate and variable rate securities to fluctuate less than the
market value of fixed rate securities.
VARIABLE AMOUNT MASTER DEMAND NOTES. 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
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rates under a direct agreement between the fund and an issuer. The principal
amount of these notes may be increased from time to time by the parties (subject
to specified maximums) or decreased by the fund or the issuer. These notes are
payable on demand (subject to any applicable advance notice provisions) and may
or may not be rated.
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.
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)
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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
to repurchase the securities, and the fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
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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. Among other things, these limitations currently restrict a fund's
aggregate investments in other investment companies to no more than 10% of its
total assets. A fund's investments in certain private investment vehicles are
not subject to this restriction. The shares of other money market funds are
subject to the management fees and other expenses of those funds. At the same
time, 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, including other investment
companies. A fund also may reinvest cash collateral in private investment
vehicles similar to money market funds, including one managed by Mitchell
Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
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.
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
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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.
PRIVATE ACTIVITY BONDS ("PABS"). 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. PABs are in most cases revenue
bonds and thus are not payable from the unrestricted revenues of the issuer. The
credit quality of PABs is usually directly related to the credit standing of the
user of the facilities being financed. To the extent the fund invests in certain
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" below. The fund may invest more than 25% of its assets in PABs,
consistent with its policy of not investing more than 20% of its total assets in
securities subject to the AMT.
PARTICIPATION INTERESTS. Participation interests are interests in
municipal bonds, including 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.
8
<PAGE>
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).
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.
9
<PAGE>
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
the assets and revenues of the subdivision, such subdivision would be deemed to
be the sole issuer. Similarly, in the case of a 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.
10
<PAGE>
(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.
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.
11
<PAGE>
(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:
<TABLE>
<CAPTION>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
<S> <C> <C>
Margo N. Alexander*+; 53 Trustee and President Mrs. Alexander is Chairman (since March
1999), chief executive officer and a director
of Mitchell Hutchins (since January 1995) and
an executive vice president and director of
PaineWebber (since March 1984). Mrs.
Alexander is president and a director or
trustee of 31 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment adviser.
Richard Q. Armstrong; 64 Trustee Mr. Armstrong is chairman and principal of
R.Q.A. Enterprises R.Q.A. Enterprises (management consulting
One Old Church Road firm) (since April 1991 and principal
Unit #6 occupation since March 1995). Mr. Armstrong
Greenwich, CT 06830 was chairman of the board, chief executive
officer and co-owner of Adirondack Beverages
(producer and distributor of soft drinks and
sparkling/still waters) (October 1993-March
1995). He was a partner of The New England
Consulting Group (management consulting firm)
(December 1992-September 1993). He was managing
director of LVMH U.S. Corporation (U.S.
subsidiary of the French luxury goods
conglomerate, Louis Vuitton Moet Hennessey
Corporation) (1987-1991) and chairman of its
wine and spirits subsidiary, Schieffelin &
Somerset Company (1987-1991). Mr. Armstrong is
a director or trustee of 30 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.
12
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
E. Garrett Bewkes, Jr.**+; 73 Director and Chairman of the Mr. Bewkes is a director of PW Group (holding
Board of Trustees company of PaineWebber and Mitchell Hutchins).
Prior to December 1995, he was a consultant to
PW Group. Prior to 1988, he was chairman of the
board, president and chief executive officer of
American Bakeries Company. Mr. Bewkes is a
director of Interstate Bakeries Corporation.
Mr. Bewkes is a director or trustee of 34
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Richard R. Burt; 53 Trustee Mr. Burt is chairman of IEP Advisors, LLP
1275 Pennsylvania Ave., N.W. (international investments and consulting
Washington, DC 20004 firm) (since March 1994) and a partner of
McKinsey & Company (management consulting
firm) (since 1991). He is also a director of
Archer-Daniels-Midland Co. (agricultural
commodities), Hollinger International Co.
(publishing), Homestake Mining Corp. (gold
mining), six investment companies in the
Deutsche Bank family of funds, nine investment
companies in the Flag Investors family of
funds, The Central European Funds, Inc. and
The Germany Fund, Inc., vice chairman of
Anchor Gaming (provides technology to gaming
and wagering industry) (since July 1999) and
chairman of Weirton Steel Corp. (makes and
finishes steel products) (since April 1996).
He was the chief negotiator in the Strategic
Arms Reduction Talks with the former Soviet
Union (1989-1991) and the U.S. Ambassador to
the Federal Republic of Germany (1985-1989).
Mr. Burt is a director or trustee of 30
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 29
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
13
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Meyer Feldberg; 58 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of Business,
101 Uris Hall Columbia University. Prior to 1989, he was
New York, NY 10027 president of the Illinois Institute of
Technology. Dean Feldberg is also a director
of Primedia Inc. (publishing), Federated
Department Stores, Inc. (operator of
department stores) and Revlon, Inc.
(cosmetics). Dean Feldberg is a director or
trustee of 33 investment companies for which
Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
George W. Gowen; 70 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, NY 10017 1994, he was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is a director or
trustee of 33 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 Capital
1455 Pennsylvania Ave., N.W. Partners (merchant bank) and chairman of
Suite 350 Thayer Hotel Investors II and Lodging
Washington, DC 20004 Opportunities Fund (hotel investment
partnerships). From January 1992 to November
1992, he was campaign manager of Bush-Quayle
'92. From 1990 to 1992, he was vice chairman
and, from 1989 to 1990, he was president of
Northwest Airlines Inc. and NWA Inc. (holding
company of Northwest Airlines Inc.). Prior to
1989, he was employed by the Marriott
Corporation (hotels, restaurants, airline
catering and contract feeding), where he most
recently was an executive vice president and
president of Marriott Hotels and Resorts. Mr.
Malek is also a director of Aegis
Communications, Inc. (tele-services), American
Management Systems, Inc. (management
consulting and computer related services),
Automatic Data Processing, Inc., (computing
services), CB Richard Ellis, Inc. (real estate
services), FPL Group, Inc. (electric
services), Global Vacation Group (packaged
vacations), HCR/Manor Care, Inc. (health
care), SAGA Systems, Inc. (software company)
and Northwest Airlines Inc. Mr. Malek is a
director or trustee of 30 investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
14
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Carl W. Schafer; 64 Trustee Mr. Schafer is president of the Atlantic
66 Witherspoon Street, #1100 Foundation (charitable foundation supporting
Princeton, NJ 08542 mainly oceanographic exploration and
research). He is a director of 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 30 investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
Brian M. Storms*+; 45 Trustee Mr. Storms is president and chief operating
officer of Mitchell Hutchins (since March
1999). Mr. Storms was president of Prudential
Investments (1996-1999). Prior to joining
Prudential he was a managing director at
Fidelity Investments. Mr. Storms is a
director or trustee of 30 investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
Tom Disbrow**, 34 Vice President and Assistant Mr. Disbrow is a first vice president and a
Treasurer senior manager of the mutual fund finance
department of Mitchell Hutchins. Prior to
November 1999, he was a vice president of
Zweig/Glaser Advisers. Mr. Disbrow is a vice
president and assistant treasurer of 31
investment companies for which Mitchell
Hutchins, PaineWebber, or one of their
affiliates serves as investment adviser.
Kris L. Dorr*; 36 Vice President Ms. Dorr is a first vice president and a
portfolio manager in the short-term strategies
group of Mitchell Hutchins. Ms. Dorr is a
vice president of one investment company for
which Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment adviser.
15
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Elbridge T. Gerry III*; 43 Vice President Mr. Gerry is a senior vice president 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.
John J. Lee**; 31 Vice President and Mr. Lee is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Prior to September 1997, he was an
audit manager in the financial services
practice of Ernst & Young LLP. Mr. Lee is a
vice president and assistant treasurer of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as an investment adviser.
Kevin J. Mahoney**; 34 Vice President and Mr. Mahoney is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
department of Mitchell Hutchins. From August
1996 through March 1999, he was the manager of
the mutual fund internal control group of
Salomon Smith Barney. Prior to August 1996, he
was an associate and assistant treasurer of
BlackRock Financial Management L.P. Mr. Mahoney
is a vice president and assistant treasurer of
31 investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Michael H. Markowitz*; 35 Vice President Mr. Markowitz is a first vice president and a
portfolio manager in the short-term strategies
group of Mitchell Hutchins. Mr. Markowitz is
a vice president of one investment company for
which Mitchell Hutchins, 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. 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*; 33 Vice President Mr. McIntyre is a vice president 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.
16
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Ann E. Moran**; 42 Vice President and Ms. Moran is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Ms. Moran is a vice president and
assistant treasurer of 31 investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
Dianne E. O'Donnell**; 47 Vice President and Secretary Ms. O'Donnell is a senior vice president and
deputy general counsel of Mitchell Hutchins.
Ms. O'Donnell is a vice president and
secretary of 30 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 31 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.
Paul H. Schubert**; 37 Vice President and Treasurer Mr. Schubert is a senior vice president and
director of the mutual fund finance department
of Mitchell Hutchins. Mr. Schubert is a vice
president and treasurer of 31 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.
Barney A. Taglialatela**; 39 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance department
of Mitchell Hutchins. Mr. Taglialatela is a
vice president and assistant treasurer of 31
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.
17
<PAGE>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Keith A. Weller**; 38 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr. Weller is a
vice president and assistant secretary of 30
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>
- ---------------------
* This person's business address is 51 West 52nd Street, New York, New York
10019-6114.
** This person's business address is 1285 Avenue of the Americas, New York, New
York 10019-6028.
+ 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. 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 periods indicated:
<TABLE>
<CAPTION>
COMPENSATION TABLE+
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
---------------------- -----------------------
NAME OF PERSON, POSITION FROM THE TRUST* THE FUND COMPLEX**
------------------------ --------------- ------------------
<S> <C> <C>
Richard Q. Armstrong, Trustee........... $8,780 $104,650
Richard R. Burt, Trustee................. $8,750 $102,850
Meyer Feldberg, Trustee.................. $8,780 $119,650
George W. Gowen, Trustee................. $9,177 $119,650
Frederic V. Malek, Trustee............... $8,780 $104,650
Carl W. Schafer, Trustee................. $8,780 $104,650
</TABLE>
- --------------------
+ Only independent board members are compensated by the PaineWebber funds and
identified above; board members who are "interested persons," as defined by
the Investment Company Act, do not receive compensation from the 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, 1999, to each board member by 31 investment companies (34 in the case of
Messrs. Feldberg and Gowen) for which Mitchell Hutchins, PaineWebber or one
of their affiliates served as investment adviser. No fund within the
PaineWebber fund complex has a bonus, pension, profit sharing or retirement
plan.
18
<PAGE>
PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP OF SECURITIES
As of April 26, 2000, trustees and officers owned in the aggregate less
than 1% of the outstanding shares of either fund.
As of April 26, 2000, no shareholder owned 5% or more of either fund's
shares.
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.
Correspondent Cash Reserves Money Market Portfolio and Correspondent
Cash Reserves Tax Free Money Market Portfolio reorganized into Premier Money
Market Fund and Premier Tax-Free Money Market Fund, respectively, on January 21,
2000. Premier Money Market Fund and Premier Tax-Free Money Market Fund had no
investment operations prior to the reorganizations. During each of the periods
indicated, Mitchell Hutchins was paid the fees indicated below under an advisory
agreement pursuant to which each predecessor entity paid fees to Mitchell
Hutchins at the annual rate of 0.10% of average daily net assets:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
------------------------------------------------------
1999 1998 1997
----------------- ---------------- --------------
<S> <C> <C> <C>
Correspondent Cash Reserves Money Market Portfolio.... $1,669,144 $1,328,616 $1,088,088
Correspondent Cash Reserves Tax Free Money Market
Portfolio............................................. 115,099 113,647 79,470*
</TABLE>
- ---------------------
* 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.
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, 1999, 1998 and 1997. Correspondent Cash Reserves Money
Market Portfolio and Correspondent Cash Reserves Tax Free Money Market Portfolio
paid BISYS fees in the amount of $1,669,144, $1,328,616 and $1,088,088; and
$115,099, $66,199 and $26,487; respectively. However, BISYS waived $46,040 of
its fees for the fiscal year ended December 31, 1999 with respect to
Correspondent Cash Reserves Tax Free Portfolio, resulting in a net payment of
$69,059.
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, 1999, 1998
and 1997, amounted to $834,572, $664,308 and $544,044 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
19
<PAGE>
Services Agreement for the fiscal years ended December 31, 1999, 1998 and 1997,
amounted to $57,550, $56,824 and $46,747, 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 1999, 1998
and 1997 amounted to $834,572, $664,308 and $544,044, 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, 1999, 1998 and 1997 amounted to $57,550, $56,823
and, $46,747, 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
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:
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Premier Money Market Fund................0.90%
Premier Tax-Free Money Market Fund.......0.68% (including CSC's 12b-1 fee waiver)
</TABLE>
(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
February 29, 2000, sorted by category of investment objective, of the investment
companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
NET ASSETS
INVESTMENT CATEGORY ($MIL)
------------------- ------
Domestic (excluding Money Market)................ $9,931.5
Global........................................... $4,757.8
Equity/Balanced.................................. $10,115.9
Fixed Income (excluding Money Market)............ $4,573.4
Taxable Fixed Income................ $3,146.1
Tax-Free Fixed Income............... $1,427.3
Money Market Funds............................... $39,977.1
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.
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 is a wholly owned
subsidiary of PaineWebber.
CSC uses the amounts that it receives under the 12b-1 Plan to pay
certain correspondent firms and other financial services firms (together with
CSC, the "Securities Firms") with which it has entered into 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:
21
<PAGE>
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.
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
its service- and distribution-related 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,
$10,014,988 was payable to CSC by Correspondent Cash Reserves Money Market
Portfolio for the fiscal year ended December 31, 1999. However, pursuant to an
undertaking, this amount was reduced by $186,666, resulting in a net amount paid
by Correspondent Cash Reserves Money Market Fund of $9,828,322. For the fiscal
year ended December 31, 1999, the amount payable pursuant to the Rule 12b-1 plan
by Correspondent Cash Reserves Tax Free Money Market Portfolio was $690,600;
however, pursuant to an undertaking, the amount was reduced by $195,668,
resulting in a net amount paid by Correspondent Cash Reserves Tax Free Money
Market Portfolio of $494,932.
CSC estimates that it incurred the following shareholder
service-related and distribution-related expenses with respect to each fund's
predecessor entity during the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
CORRESPONDENT CASH
CORRESPONDENT CASH RESERVES TAX
RESERVES MONEY FREE MONEY
MARKET PORTFOLIO MARKET PORTFOLIO
---------------- -----------------
<S> <C> <C>
Marketing and advertising................... $2,998,720 $149,937
Printing of prospectuses and statements of
additional information to other than
current shareholders...................... $0 $0
Service and distribution fees paid to
correspondent or other financial
services firms............................ $6,829,620 $344,995
</TABLE>
22
<PAGE>
"Marketing and advertising" includes various internal costs allocated
by CSC to its efforts at distributing the funds' shares. These internal costs
encompass office rent, salaries and other overhead expenses of various
departments and areas of operations at CSC.
On January 21, 2000, when the predecessor entities reorganized into the
funds, the new 12b-1 Plan with CSC took 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 or other 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 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,
1997, 1998 and 1999, 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
23
<PAGE>
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
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 value 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
24
<PAGE>
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:
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 December 31, 1999:
Standardized Return................. 4.40%
Five Years ended December 31, 1999:
Standardized Return................. 4.78%
Inception* to December 31, 1999:
Standardized Return................. 4.16%
- --------------
* The inception date for the predecessor fund is May 20, 1991.
25
<PAGE>
PREMIER TAX-FREE MONEY MARKET FUND
Year ended December 31, 1999:
Standardized Return................. 2.53%
Inception* to December 31, 1999:
Standardized Return................. 2.75%
- --------------
* 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
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:
TAX EQUIVALENT YIELD = [ E ] + t
---
[1-p]
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 December 31,
1999:
YIELD EFFECTIVE YIELD
----- ---------------
Premier Money Market Fund 4.79%* 4.90%
Premier Tax-Free Money Market Fund 3.59%* 3.66%
- ----------------------
* For the seven-day yield as of December 31, 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 4.68% for Premier Money Market
Fund and 3.28% for Premier Tax-Free Money Market Fund.
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
December 31, 1999:
26
<PAGE>
YIELD EFFECTIVE YIELD
----- ---------------
Premier Tax-Free Money Market Fund 5.94% 6.06%
- ----------------------
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, a fund may compare its yield with data published by Lipper
Analytical Services, Inc. for money funds ("Lipper"), CDA Investment
Technologies, Inc. ("CDA"), IBC Financial Data, Inc. ("IBC"), Wiesenberger
Investment Companies Service ("Wiesenberger") or Investment Company Data Inc.
("ICD"), or with the performance of recognized stock and other indexes,
including the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Morgan Stanley Capital International World Index, the
Lehman Brothers Treasury Bond Index, the Lehman Brothers Government/Corporate
Bond Index, the Salomon Smith Barney Government Bond Index and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The 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,
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. For 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
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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.
By qualifying for treatment as a RIC, a fund (but not its shareholders)
will be relieved of federal income tax on the part of its investment company
taxable income that it distributes to its shareholders. 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.
Tax-exempt interest attributable to certain PABs (including, in the
case of Premier Tax-Free Money Market Fund, a proportionate part of the
exempt-interest dividends paid by that fund that is attributable thereto) is an
item of tax preference for purposes of the 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 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 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 that 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
its 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
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(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.
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 2000 federal individual income tax rates in effect on the date of this
SAI. For example, a couple with taxable income of $90,000 in 2000, or a single
individual with annual taxable income of $55,000 in 2000,whose investments earn
a 3% tax-free yield, would have to earn a 4.17% taxable yield to receive the
same benefit.
<TABLE>
<CAPTION> FEDERAL TAXABLE VS. TAX-FREE YIELDS*
TAXABLE INCOME (000'S) FEDERAL A TAX-FREE YIELD OF
- ----------------------------------- ------------------------------------------------------
SINGLE JOINT TAX BRACKET 3.00% 4.00% 5.00% 6.00%
----- ----- ----- -----
RETURN RETURN IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 26.3 $0 - 43.9 15.00% 3.53% 4.71% 5.88% 7.06%
26.3 - 63.6 43.9 - 106.0 28.00 4.17 5.56 6.94 8.33
63.6 - 132.6 106.0 -161.5 31.00 4.35 5.80 7.25 8.70
132.6 - 288.4 161.5 -288.4 36.00 4.69 6.25 7.81 9.38
Over 288.4 Over 288.4 39.60 4.97 6.62 8.28 9.93
</TABLE>
- --------------------
* The yields listed are for illustration only and are not necessarily
representative of Premier Tax-Free Money Market Fund's yield. The fund
invests primarily in obligations the interest on which is exempt from
federal income tax; however, some of its investments may generate
taxable income. The tax rates might change after the date of this SAI.
Certain simplifying assumptions have been made. Any particular
taxpayer's rate may differ. The rates reflect the highest tax bracket
within each range of income listed. The figures set forth above do not
reflect the AMT, 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
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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
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, 1999 of each fund's predecessor is a separate document supplied
with this SAI, and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated herein by this
reference.
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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
FUNDS OR THEIR DISTRIBUTOR MAY NOT LIR Premier Money
LAWFULLY SELL THOSE SHARES. Market Fund
LIR Premier Tax-Free
--------- Money Market Fund
------------------------------
Statement of Additional Information
May 1, 2000
------------------------------
(C)2000 Mitchell Hutchins Asset Management Inc. All rights reserved.
