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PAINEWEBBER AUGUST 1, 1997
CASHFUND, INC.
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
A PROFESSIONALLY MANAGED MONEY MARKET FUND, INVESTING IN HIGH QUALITY
MONEY MARKET INSTRUMENTS, DESIGNED TO PROVIDE:
/X/ Current Income
/x/ Stability of Principal
/x/ High Liquidity
This Prospectus concisely sets forth information about the Fund a prospective
investor should know before investing. Please retain this Prospectus for future
reference.
A Statement of Additional Information dated August 1, 1997 (which is
incorporated by reference herein) has been filed with the Securities and
Exchange Commission ('SEC'). The Statement of Additional Information can be
obtained without charge, and further inquiries can be made, by contacting the
Fund, your PaineWebber Investment Executive or PaineWebber's correspondent firms
or by calling toll-free 1-800-441-7756.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. WHILE THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table of Contents
Highlights.................................................... 2
Financial Highlights.......................................... 4
Investment Objective and Policies............................. 5
Purchases..................................................... 9
Redemptions................................................... 10
Valuation of Shares........................................... 12
Dividends and Taxes........................................... 12
Management.................................................... 13
Performance Information....................................... 14
General Information........................................... 15
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PAINEWEBBER CASHFUND, INC.
HIGHLIGHTS
See elsewhere in the Prospectus for more information on the topics
discussed in these highlights.
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The Fund: PaineWebber Cashfund, Inc. ('Fund') is a professionally
managed, diversified no-load money market fund.
Investment Objective Current income, stability of principal and high
and Policies: liquidity; invests primarily in high quality money market
instruments.
Total Net Assets: Over $5.2 billion as of June 30, 1997.
Distributor and
Investment Adviser: PaineWebber Incorporated ('PaineWebber'). See
'Management.'
Sub-adviser: Mitchell Hutchins Asset Management Inc. ('Mitchell
Hutchins').
Purchases: Shares of common stock are available exclusively through
PaineWebber and its correspondent firms. See 'Purchases.'
Redemptions: Shares may be redeemed through PaineWebber or its
correspondent firms. See 'Redemptions.'
Yield: Based on current money market rates; quoted in the
financial section of most newspapers.
Dividends: Declared daily and paid monthly. See 'Dividends and
Taxes.'
Reinvestment: All dividends are automatically paid in Fund shares.
Minimum Purchase: $1,000 for initial purchase.
Automatic Investment Free credit cash balances in an investor's PaineWebber
Sweep: brokerage account of $500 or more are automatically
invested in Fund shares daily; $1 or more on the next to
last Business Day of each month.
Check writing: Available to qualified shareholders upon request.
Unlimited number of checks. Minimum amount per check:
$500.
Public Offering Net asset value, which the Fund seeks to maintain at
Price: $1.00 per share.
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2
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WHO SHOULD INVEST. The Fund is designed for investors seeking safety,
liquidity and current income. The Fund provides a convenient means for investors
to enjoy current income at money market rates with minimal risk of fluctuation
of principal.
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective. In periods of declining interest rates the Fund's yield
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates the Fund's yield generally will be somewhat lower. See
'Investment Objective and Policies.'
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in the
Fund.
SHAREHOLDER TRANSACTION EXPENSES
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Sales charge on purchases of shares................. None
Sales charge on reinvested dividends................ None
Redemption fee or deferred sales charge............. None
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
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Management fees...................................... 0.36%
12b-1 fees.......................................... None
Other expenses....................................... 0.27%
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Total Operating Expenses............................. 0.63%
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EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would pay directly or indirectly the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
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ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
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$6 $20 $35 $79
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This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown. The above tables and the assumption in the Example of a 5%
annual return are required by regulations of the SEC applicable to all mutual
funds; the assumed 5% annual return is not a prediction of, and does not
represent, the Fund's projected or actual performance.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses of the Fund will depend upon, among other things, the level
of average net assets and the extent to which the Fund incurs variable expenses,
such as transfer agency costs.
3
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PAINEWEBBER
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Financial Highlights
The table below provides selected per share data and
ratios for one share of the Fund for the periods shown.
This information is supplemented by the financial
statements, accompanying notes and the report of Ernst &
Young LLP, independent auditors, which appear in the
Fund's Annual Report to Shareholders for the fiscal year
ended March 31, 1997, and are incorporated by reference
into the Statement of Additional Information. The
financial statements and notes, as well as the
information in the table appearing below insofar as it
relates to each of the five years in the period ended
March 31, 1997, have been audited by Ernst & Young LLP,
independent auditors. The Annual Report to Shareholders
may be obtained without charge by calling 1-800-647-1568.
The information appearing below for each of the five
years in the period ended March 31, 1992 also has been
audited by Ernst & Young LLP, whose reports thereon were
unqualified.
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FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
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Net asset value, beginning of year...................... $1.00 $1.00 $1.00 $1.00 $1.00
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Net investment income................................... 0.0482 0.0523 0.0433 0.0272 0.0317
Dividends from net investment income.................... (0.0482) (0.0523) (0.0433) (0.0272) (0.0317)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year............................ $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (1)............................. 4.93% 5.36% 4.44% 2.75% 3.17%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year (000's)......................... $5,260,468 $5,308,558 $3,700,678 $3,436,278 $3,774,298
Expenses to average net assets.......................... 0.63% 0.60% 0.62% 0.61% 0.57%
Net investment income to average net assets............. 4.82% 5.24% 4.35% 2.73% 3.17%
<CAPTION>
1992 1991 1990 1989 1988
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Net asset value, beginning of year...................... $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ----------
Net investment income................................... 0.0509 0.0743 0.0846 0.0761 0.0638
Dividends from net investment income.................... (0.0509) (0.0743) (0.0846) (0.0761) (0.0638)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year............................ $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (1)............................. 5.09% 7.43% 8.46% 7.61% 6.38%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year (000's)......................... $4,234,968 $5,122,338 $5,236,560 $4,416,667 $4,071,212
Expenses to average net assets.......................... 0.56% 0.53% 0.54% 0.57% 0.58%
Net investment income to average net assets............. 5.09% 7.43% 8.46% 7.61% 6.38%
</TABLE>
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends at net asset
value on the payable dates and a sale at net asset value on the last day of
each year reported.
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CASHFUND
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Investment Objective and Policies
The Fund's investment objective is to provide current
income, stability of principal and high liquidity. The
Fund invests exclusively in high quality money market
instruments having or deemed to have remaining maturities
of 13 months or less. These instruments include (1) U.S.
government securities, (2) obligations of U.S. and
foreign banks, (3) commercial paper and other short-term
obligations of U.S. and foreign companies, governments
and similar entities, including variable and floating
rate securities and participation interests, and (4)
repurchase agreements involving any of the foregoing. The
Fund maintains a dollar-weighted average portfolio
maturity of 90 days or less.
The Fund invests The Fund may invest in obligations (including
exclusively in high certificates of deposit, bankers' acceptances, time
quality money market deposits and similar obligations) of U.S. and foreign
instruments having banks having total assets at the time of purchase in
or deemed to have excess of $1.5 billion. The Fund may invest in
remaining maturities non-negotiable time deposits of U.S. banks, savings
of 13 months or associations and similar depository institutions having
less. total assets in excess of $1.5 billion at the time of
purchase only if the time deposits have maturities of
seven days or less. The Fund may also make
interest-bearing savings deposits in U.S. commercial
banks and savings associations having total assets of
$1.5 billion or less, in principal amounts at each such
bank not greater than are insured by the Federal Deposit
Insurance Corporation, provided that the aggregate amount
of such deposits (plus interest earned) does not exceed
5% of the Fund's assets.
The commercial paper and other short-term obligations
purchased by the Fund consist only of obligations that
Mitchell Hutchins determines, pursuant to procedures
adopted by the Fund's board of directors (sometimes
referred to as the 'board'), present minimal credit risks
and are 'First Tier Securities' as defined in Rule 2a-7
under the Investment Company Act of 1940 ('1940 Act'). As
so defined, First Tier Securities include securities that
are rated in the highest short-term rating category by at
least two nationally recognized statistical rating
organizations ('NRSROs') or by one NRSRO if only one
NRSRO has assigned the obligation a short-term rating.
First Tier Securities also include unrated securities if
Mitchell Hutchins has determined the obligations to be of
comparable quality to rated securities that so qualify.
The Fund may also purchase participation interests in any
of the securities in which it is permitted to invest.
Participation interests are pro rata interests in
securities held by others. The Fund generally may invest
no more than 5% of its total assets in the securities of
a single issuer (other than
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PAINEWEBBER
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securities issued by the U.S. government, its agencies or
instrumentalities).
In managing the Fund's portfolio, Mitchell Hutchins may
employ a number of professional money management
techniques, including varying the composition and the
weighted average maturity of the portfolio based upon its
assessment of the relative values of various money market
instruments and future interest rate patterns, in order
to respond to changing economic and money market
conditions and to shifts in fiscal and monetary policy.
Mitchell Hutchins may also seek to improve the Fund's
yield by purchasing or selling securities to take
advantage of yield disparities among similar or
dissimilar money market instruments that regularly occur
in the money markets.
In periods of In periods of declining interest rates, the Fund's yield
declining interest will tend to be somewhat higher than prevailing market
rates, the Fund's rates, and in periods of rising interest rates the
yield will tend to opposite generally will be true. Also, when interest
be somewhat higher rates are falling, net cash inflows from the continuous
than prevailing sale of Fund shares are likely to be invested in
market rates, and portfolio instruments producing lower yields than the
in periods of balance of the Fund's portfolio, thereby reducing its
rising rates, lower. yield. In periods of rising interest rates, the opposite
can be true. There can be no assurance that the Fund will
achieve its investment objective.
U.S. GOVERNMENT SECURITIES. The U.S. government
securities in which the Fund may invest include direct
obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and obligations issued or guaranteed by
U.S. government agencies and instrumentalities, including
securities that are supported by the full faith and
credit of the United States (such as Government National
Mortgage Association certificates ('GNMAs')), securities
supported primarily or solely by the creditworthiness of
the issuer (such as securities of the Resolution Funding
Corporation and the Tennessee Valley Authority) and
securities that are supported primarily or solely by
specific pools of assets and the creditworthiness of a
U.S. government-related issuer (such as mortgage-backed
securities issued by Fannie Mae, also known as the
Federal National Mortgage Association, and the Federal
Home Loan Mortgage Corporation).
The Fund may also acquire custodial receipts that
evidence ownership of future interest payments, principal
payments or both that have been 'stripped' from certain
U.S. Treasury notes or bonds. These custodial receipts
are known by various names, including 'Treasury
Investment Growth Receipts' ('TIGRs') and 'Certificates
of Accrual on Treasury Securities' ('CATS'). The Fund may
also invest in separately traded principal and interest
components of securities issued or guaranteed by
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CASHFUND
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the U.S. Treasury. The principal and interest components
of selected securities are traded independently under the
Separate Trading of Registered Interest and Principal of
Securities ('STRIPS') program. Under the STRIPS program,
the principal and interest components are individually
numbered and separately issued by the U.S. Treasury.
VARIABLE AND FLOATING RATE SECURITIES. The Fund may
purchase variable and floating rate securities with
remaining maturities in excess of 13 months issued by
U.S. government agencies or instrumentalities or
guaranteed by the U.S. government. In addition, the Fund
may purchase variable and floating rate securities of
other issuers with remaining maturities in excess of 13
months if the securities are subject to a demand feature
exercisable within 13 months or less. The yields on these
securities are adjusted in relation to changes in
specific rates, such as the prime rate, and different
securities may have different adjustment rates. The
Fund's investment in these securities must comply with
conditions established by the SEC under which they may be
considered to have remaining maturities of 13 months or
less. Certain of these obligations carry a demand feature
that gives the Fund the right to tender them back to the
issuer or a remarketing agent and receive the principal
amount of the security prior to maturity. The demand
feature may be backed by letters of credit or other
liquidity support arrangements provided by banks or other
financial institutions, whose credit standing affects the
credit quality of the obligation. Changes in the credit
quality of these institutions could cause losses to the
Fund and affect its share price.
VARIABLE AMOUNT MASTER DEMAND NOTES. Securities
purchased by the Fund may include variable amount master
demand notes, which are unsecured redeemable obligations
that permit investment of varying amounts at fluctuating
interest rates under a direct agreement between the Fund
and the issuer. The principal amount of these notes may
be increased from time to time by the parties (subject to
specified maximums) or decreased by the Fund or the
issuer. These notes are payable on demand and are
typically unrated.
REPURCHASE AGREEMENTS. Repurchase agreements are
transactions in which the Fund purchases securities from
a bank or recognized securities dealer and simultaneously
commits to resell the securities to that bank or dealer
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 securities.
Although repurchase agreements carry certain risks not
associated with direct investments in securities,
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PAINEWEBBER
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including possible decline in the market value of the
underlying securities and delays and costs to the Fund if
the other party to the repurchase agreement becomes
insolvent, the Fund intends to enter into repurchase
agreements only with banks and dealers in transactions
believed by Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by the
board.
FOREIGN SECURITIES. The Fund may invest in U.S.
dollar-denominated securities of foreign issuers,
including debt securities of foreign banks, corporations,
governments and similar entities. Such investments may
consist of obligations of foreign and domestic branches
of foreign banks and foreign branches of domestic banks.
Such investments 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 securities held by the
Fund. Additionally, there may be less publicly available
information about foreign issuers, as these issuers may
not be subject to the same regulatory requirements as
domestic issuers.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its
securities to qualified broker-dealers or institutional
investors in an amount up to 33 1/3% of its total assets
taken at market value. Lending securities enables the
Fund to earn additional income but could result in a loss
or delay in recovering these securities.
OTHER INFORMATION. The Fund may borrow money for
temporary purposes, but not in excess of 10% of its total
assets, including reverse repurchase agreements involving
up to 5% of its net assets.
The Fund may not invest more than 10% of its net assets
in illiquid securities, including repurchase agreements
with maturities in excess of seven days.
The Fund's investment objective may not be changed
without the approval of its shareholders. Certain
investment limitations, as described in the Statement of
Additional Information, also may not be changed without
shareholder approval. All other investment policies may
be changed by the board without shareholder approval.
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CASHFUND
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Purchases
The minimum initial GENERAL. Shares of the Fund are available through
investment is PaineWebber and its correspondent firms. Investors may
$1,000. Free credit contact a local PaineWebber office to open an account.
cash balances of The minimum initial investment in the Fund is $1,000, and
$500 or more are the minimum for additional purchases is $500, except as
invested daily and described below. All free credit cash balances in an
those of $1 or more investor's PaineWebber brokerage account (including
are invested at each proceeds from securities sold) of $500 or more are
month end. automatically invested or 'swept' into shares of the Fund
daily for settlement on the next Business Day, and all
remaining free credit cash balances of $1 or more are
'swept' on the next to last Business Day of each month
for settlement on the last Business Day of that month.
An order to purchase Fund shares will be executed on the
Business Day on which federal funds become available to
the Fund, at the Fund's next determined net asset value
per share. 'Federal funds' are funds deposited by a
commercial bank in an account at a Federal Reserve Bank
that can be transferred to a similar account of another
bank in one day and thus may be made immediately
available to the Fund through its custodian. A 'Business
Day' is any day on which the Boston offices of the Fund's
custodian, State Street Bank and Trust Company, and the
New York City offices of PaineWebber and PaineWebber's
bank, The Bank of New York, are all open for business.
The Fund and PaineWebber reserve the right to reject any
purchase order and to suspend the offering of Fund shares
for a period of time.
On any Business Day, the Fund will accept purchase orders
and credit shares to investors' accounts as follows:
PURCHASES BY CHECK. Investors may purchase Fund shares
by placing an order with their PaineWebber Investment
Executives or correspondent firms and forwarding checks
drawn on a U.S. bank. Checks should be made payable to
PaineWebber Cashfund, Inc. and should include the
investor's PaineWebber account number on the check.
Fund shares will be purchased when federal funds are
available. Federal funds are deemed available to the Fund
two Business Days after deposit of a personal check and
one Business Day after deposit of a cashier's or
certified check. PaineWebber may benefit from the
temporary use of the proceeds of personal checks to the
extent those checks are converted to federal funds in
fewer than two Business Days.
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Fund shares may be PURCHASES BY WIRE. Investors may also purchase Fund
purchased by wire, shares by placing an order through their PaineWebber
check or with funds Investment Executives or correspondent firms and
held at PaineWebber. instructing their banks to transfer federal funds by wire
to: The Bank of New York, ABA 021-000018, PaineWebber
Cashfund, Inc., A/C 890-0114-061, OBI=FBO [Account Name]/
[PaineWebber Account Number]. The wire must include the
investor's name and PaineWebber account number. If
PaineWebber receives a notice from an investor's bank of
a wire transfer of federal funds for a purchase of Fund
shares by 2:00 p.m., Eastern time, on a Business Day, the
purchase will be executed on that Business Day; otherwise
the order will be executed at 2:00 p.m., Eastern time, on
the next Business Day. PaineWebber and/or an investor's
bank may impose a service charge for wire purchases.
Redemptions
Shareholders may Shareholders may redeem (sell) any number of shares from
redeem any number of their Fund accounts by wire, check, telephone or mail. In
shares from their addition, unless shareholders otherwise instruct their
Fund accounts by PaineWebber Investment Executives, any securities
wire, check, purchase or other debit in their PaineWebber brokerage
telephone or mail. accounts will be paid for automatically on settlement
date by redeeming Fund shares held in such accounts.
WIRE REDEMPTIONS. Shareholders who wish to redeem $5,000
or more may request that redemption proceeds be paid in
federal funds and wired directly to a pre-designated bank
account. To take advantage of this service, shareholders
should obtain an authorization form from their
PaineWebber Investment Executives or correspondent firms.
If a wire redemption order is received by PaineWebber's
New York City offices prior to 12:00 noon, Eastern time,
on any Business Day, the redemption proceeds will be
wired to the shareholder's bank on the same Business Day.
Proceeds of all other wire redemption orders will be
wired to the shareholder's bank on the next Business Day.
PaineWebber reserves the right to charge a fee for wiring
funds and to redeem automatically an appropriate number
of Fund shares to pay that fee.
CHECK REDEMPTIONS. Shareholders may redeem Fund shares
by drawing a check, a supply of which may be obtained
through PaineWebber, for $500 or more against their Fund
accounts. When the check is presented to the Fund's
transfer agent ('Transfer Agent') for payment, the
Transfer Agent will cause the Fund to redeem sufficient
shares to cover the amount of the check. The shareholder
will continue to receive dividends on those shares until
the check is presented to the Transfer Agent for payment.
Cancelled checks are not returned; however, shareholders
may obtain photocopies of their cancelled checks
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CASHFUND
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upon request. If a shareholder has insufficient shares to
cover a check, the check will be returned to the payee
marked 'nonsufficient funds.' Checks written in amounts
less than $500 will also be returned. Because the amount
of Fund shares owned by a shareholder is likely to change
each day, shareholders should not attempt to redeem all
shares held in their accounts by writing a check. Charges
may be imposed for specially imprinted checks, business
Shareholders who checks, copies of cancelled checks, stop payment orders,
are interested in checks returned 'nonsufficient funds' and checks returned
the check because they are written for less than $500; these
redemption service charges will be paid by redeeming automatically an
should obtain the appropriate number of Fund shares. PaineWebber reserves
necessary forms the right to modify or terminate the checkwriting service
from their at any time or to impose a service charge in connection
PaineWebber with it.
Investment
Executives or Shareholders who are interested in the check redemption
correspondent service should obtain the necessary forms from their
firms. Checks may PaineWebber Investment Executives or correspondent firms.
be written in Checkwriting generally is not available to persons who
amounts of $500 hold Fund shares through any sub-account or tax-deferred
or more. retirement plan account.
REDEMPTIONS BY TELEPHONE OR MAIL. Shareholders may
submit redemption requests in person or by telephone or
mail to their PaineWebber Investment Executives or
correspondent firms; PaineWebber Investment Executives in
local branches throughout the country and correspondent
firms are responsible for promptly forwarding orders to
PaineWebber's New York City offices. Such redemption
orders will be executed at the net asset value per share
next determined after receipt by PaineWebber's New York
City offices, and redemption proceeds will be paid
promptly by check. Under certain circumstances,
PaineWebber may impose an administrative service fee of
up to $5.00 for processing redemptions paid by check.
Shareholders who send redemption orders to their
PaineWebber Investment Executives or correspondent firms
by mail are responsible for ensuring that the request for
redemption is received in good order. 'Good order' means
that the request must be accompanied by (a) a letter of
instruction or a stock assignment specifying the number
of shares or amount of investment to be redeemed (or that
all shares credited to a Fund account be redeemed),
signed by all registered owners of the shares in the
exact names in which they are registered, (b) a guarantee
of the signature of each registered owner by an eligible
institution acceptable to the Transfer Agent and in
accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange
and (c) other
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supporting legal documents for estates, trusts,
guardianships, custodianships, partnerships and
corporations.
ADDITIONAL INFORMATION ON REDEMPTIONS. Shareholders with
questions about redemption requirements should consult
their PaineWebber Investment Executives or correspondent
firms. Shareholders who redeem all their shares will
receive cash credits to their PaineWebber accounts for
dividends earned on those shares through the day before
redemption. Because the Fund incurs certain fixed costs
in maintaining shareholder accounts, the Fund reserves
the right to redeem all Fund shares in any shareholder
account of less than $500 net asset value. If the Fund
elects to do so, it will notify the shareholder and
provide the shareholder with an opportunity to increase
the amount invested to $500 or more within 60 days of the
notice. This notice may appear on the shareholder's
account statement. If a shareholder requests redemption
Shareholders should of shares that were purchased recently, the Fund may
maintain minimum delay payment until it is assured that it has received
balances of at least good payment for the purchase of the shares. In the case
$500. of purchases by check, this can take up to 15 days.
Valuation of Shares
The Fund uses its best efforts to maintain its net asset
value at $1.00 per share. Net asset value per share is
determined by dividing the value of the securities held
by the Fund plus any cash or other assets less all
liabilities by the number of Fund shares outstanding. The
Fund's net asset value is computed once each Business Day
at 2:00 p.m., Eastern time.
The Fund values its portfolio securities using the
amortized cost method of valuation, under which market
value is approximated by amortizing the difference
between the acquisition cost and value at maturity of an
instrument on a straight-line basis over its remaining
life. All cash, receivables and current payables are
carried at their face value. Other assets are valued at
fair value as determined in good faith by or under the
direction of the board.
Dividends and Taxes
Dividends accrue to DIVIDENDS. Each Business Day, the Fund declares as
shareholder accounts dividends all of its net investment income. Shares begin
daily and are earning dividends on the day they are purchased;
automatically paid dividends are accrued to shareholder accounts daily and
in additional Fund are automatically paid in additional Fund shares monthly.
shares monthly. Shares do not earn dividends on the day they are
redeemed. Net investment income includes accrued interest
and earned discount (including both original issue and
market discounts), less amortization of premium and
accrued expenses.
</TABLE>
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12
<PAGE>
CASHFUND
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<TABLE>
<S> <C>
The Fund distributes any net short-term capital gain
annually but may make more frequent distributions of such
gain if necessary to maintain its net asset value per
share at $1.00 or to avoid income or excise taxes. The
Fund does not expect to realize net long-term capital
gain and thus does not anticipate payment of any
long-term capital gain distributions.
TAXES. The Fund intends to continue to qualify for
treatment as a regulated investment company under the
Internal Revenue Code so that it will be relieved of
federal income tax on that part of its investment company
taxable income (consisting generally of net investment
income and net short-term capital gain, if any) that is
distributed to its shareholders.
Dividends paid by the Fund generally are taxable to its
shareholders as ordinary income, notwithstanding that
such dividends are paid in additional Fund shares.
Shareholders not subject to tax on their income generally
will not be required to pay tax on amounts distributed to
them.
The Fund notifies its shareholders following the end of
each calendar year of the amount of all dividends paid
that year.
The Fund is required to withhold 31% of all dividends
payable to any individuals and certain other noncorporate
shareholders who (1) do not provide the Fund with a
correct taxpayer identification number or (2) otherwise
are subject to backup withholding.
The foregoing is only a summary of some of the important
federal income tax considerations generally affecting the
Fund and its shareholders; see the Statement of
Additional Information for a further discussion. There
may be other federal, state or local tax considerations
applicable to a particular investor. Prospective
shareholders are urged to consult their tax advisers.
The Fund's directors Management
oversee various
organizations The board, as part of its overall management
responsible for the responsibility, oversees various organizations
Fund's day-to-day responsible for the Fund's day-to-day management.
management. PaineWebber, the Fund's investment adviser and
administrator, provides a continuous investment program
for the Fund and supervises all aspects of its
operations. As sub-adviser to the Fund, Mitchell Hutchins
makes and implements investment decisions and, as
sub-administrator, is responsible for the day-to-day
administration of the Fund.
PaineWebber receives a monthly fee for these services,
and for the fiscal year ended March 31, 1997, the Fund's
effective advisory and administration fee paid to
PaineWebber was equal to 0.36% of the Fund's average
daily net assets. PaineWebber (not the Fund) pays
Mitchell
</TABLE>
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13
<PAGE>
PAINEWEBBER
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<TABLE>
<S> <C>
Hutchins fees for its sub-advisory and sub-administrative
services, in an aggregate annual amount equal to 20% of
the fee received by PaineWebber from the Fund for
advisory and administrative services.
In accordance with procedures adopted by the board, the
Fund may pay fees to PaineWebber for its services as
lending agent in its portfolio securities lending
program.
PaineWebber and Mitchell Hutchins are located at 1285
Avenue of the Americas, New York, New York 10019. Michell
Hutchins is a wholly owned subsidiary of PaineWebber,
which is in turn wholly owned by Paine Webber Group Inc.,
a publicly owned financial services holding company. At
June 30, 1997, PaineWebber or Mitchell Hutchins was
investment adviser to 29 registered investment companies
with 64 separate portfolios and aggregate assets
exceeding $33 billion.
Mitchell Hutchins personnel may engage in securities
transactions for their own accounts pursuant to a code of
ethics that establishes procedures for personal investing
and restricts certain transactions.
Performance Information
From time to time the Fund may advertise its 'yield' and
'effective yield.' Both yield figures are based on
historical earnings and are not intended to indicate
future performance. The 'yield' of the Fund is the income
on an investment in the Fund over a specified seven-day
period. This income is then 'annualized' (that is,
assumed to be earned each week over a 52-week period) and
shown as a percentage of the investment. The 'effective
yield' is calculated similarly but, when annualized, the
income earned is assumed to be reinvested. The 'effective
yield' will be higher than the 'yield' because of the
compounding effect of this assumed reinvestment.
The Fund may also advertise other performance data, which
may consist of the annual or cumulative return (including
realized net short-term capital gain, if any) earned on a
hypothetical investment in the Fund since it began
operations on May 1, 1978, or for shorter periods. This
return data may or may not assume reinvestment of
dividends (compounding).
The Fund may The performance of shareholder accounts with small
advertise its balances will differ from the quoted performance because
'yield' and daily income for each shareholder account is rounded to
'effective yield.' the nearest whole penny. Accordingly, very small
The 'effective shareholder accounts (approximately $31 or lower at
yield' assumes current interest rates) that generate less than 1/2cents
dividends are per day of income will earn no dividends.
reinvested.
</TABLE>
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14
<PAGE>
CASHFUND
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<S> <C>
General Information
The Fund is registered with the SEC as a diversified,
open-end management investment company and was
incorporated in Maryland on January 20, 1978. The Fund
has an authorized capitalization of 20 billion shares of
$0.001 par value common stock. Shareholders of the Fund
are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting
rights are not cumulative, and as a result, the holders
of more than 50% of the shares of the Fund may elect all
of its directors.
The Fund does not hold annual shareholder meetings. There
normally will be no meetings of shareholders to elect
directors unless fewer than a majority of the directors
holding office have been elected by shareholders. The
directors are required to call a meeting of shareholders
when requested in writing to do so by the shareholders of
record holding at least 25% of the Fund's outstanding
shares. Each share of the Fund has equal voting, dividend
and liquidation rights.
To avoid additional CERTIFICATES. To avoid additional operating expense and
expense, share for investor convenience, share certificates are not
certificates are not issued. Ownership of Fund shares is recorded on a stock
issued. register by the Transfer Agent, and shareholders have the
same rights of ownership with respect to such shares as
if certificates had been issued.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and
Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, is custodian of the Fund's assets.
PFPC Inc. ('PFPC'), a subsidiary of PNC Bank, N.A., 400
Bellevue Parkway, Wilmington, Delaware 19809, is the
Fund's transfer and dividend disbursing agent. PFPC (not
the Fund) pays PaineWebber for certain transfer agency
related services that PFPC has delegated to PaineWebber.
PRINCIPAL UNDERWRITER. PaineWebber serves as principal
underwriter of the Fund's shares.
CONFIRMATIONS AND STATEMENTS. Shareholders receive
confirmations of initial purchases of Fund shares, and
subsequent transactions are reported on account
statements sent to PaineWebber clients. These statements
are sent monthly except that, if a shareholder's only
Fund activity in a quarter was reinvestment of dividends,
the activity may be reported on a quarterly rather than
monthly statement. Shareholders also receive audited
annual and unaudited semiannual financial statements.
</TABLE>
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15
<PAGE>
o Current Income
o Stability of Principal
o High Liquidity
o Professional Management
o Dividend Reinvestment
o Checkwriting Privileges
Investors should rely on the information contained or referred to in this
prospectus. The Fund and its distributor have not authorized anyone to provide
investors with information that is different. The prospectus is not an offer to
sell shares of the Fund in any jurisdiction where the Fund or its distributor
may not lawfully sell those shares.
(Copyright) 1997 PaineWebber Incorporated
PAINEWEBBER
CASHFUND, INC.
PROSPECTUS
AUGUST 1, 1997
<PAGE>
PAINEWEBBER CASHFUND, INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Cashfund, Inc. ('Fund') is a professionally managed, no load
money market fund designed to provide investors with current income, stability
of principal and high liquidity. The Fund's investment adviser, administrator
and distributor is PaineWebber Incorporated ('PaineWebber'); its sub-adviser is
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly owned
subsidiary of PaineWebber. Mitchell Hutchins also serves as the Fund's
sub-administrator. This Statement of Additional Information is not a prospectus
and should be read only in conjunction with the Fund's current Prospectus, dated
August 1, 1997. A copy of the Prospectus may be obtained by contacting any
PaineWebber Investment Executive or correspondent firm or by calling toll-free
1-800-647-1568. This Statement of Additional Information is dated August 1,
1997.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
YIELDS AND RATINGS OF MONEY MARKET INSTRUMENTS; FIRST TIER SECURITIES. The
yields on the money market instruments in which the Fund invests (such as U.S.
government securities, commercial paper and bank obligations) 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 of nationally recognized statistical rating organizations
('NRSROs') 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.
As noted in the Prospectus, the Fund may only purchase securities that are
'First Tier Securities.' To qualify as a First Tier Security, a security must
either be (1) rated in the highest short-term rating category by at least two
NRSROs, (2) rated in the highest short-term rating category by a single NRSRO if
only that NRSRO 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 terms of priority and security or (4) unrated, but
determined by Mitchell Hutchins to be of comparable quality. Subsequent to its
purchase by the Fund, an issue may cease to be rated or its rating may be
reduced. If a security in the Fund's portfolio ceases to be a First Tier
Security, or Mitchell Hutchins becomes aware that a security has received a
rating below the second highest rating by any NRSRO, Mitchell Hutchins, and in
certain cases the Fund's board of directors ('board'), will consider whether the
Fund should continue to hold the obligation. A First Tier Security rated in the
highest short-term rating category by a single NRSRO at the time of purchase
that subsequently receives a rating below the highest rating category from a
different NRSRO will continue to be considered a First Tier Security.
VARIABLE AND FLOATING RATE DEMAND INSTRUMENTS. As noted in the Prospectus,
the Fund may invest in variable and floating rate securities with demand
features. A demand feature gives the Fund the right to sell the securities back
to a specified party, usually a remarketing agent, on a specified date, at a
price equal to their amortized cost value plus accrued interest. A demand
feature is often backed by a letter of credit, guarantee or
<PAGE>
other liquidity support arrangement from a bank or other financial institution
that may be drawn upon demand, after specified notice, for all or any part of
the exercise price of the demand feature. Generally, the Fund intends to
exercise demand features (1) upon a default under the terms of the underlying
security, (2) to maintain its portfolio in accordance with its investment
objective and policies or applicable legal or regulatory requirements or (3) as
needed to provide liquidity to the Fund in order to meet redemption requests.
The ability of a bank or other financial institution to fulfill its obligations
under a letter of credit, guarantee or other liquidity arrangement might be
affected by possible financial difficulties of its borrowers, adverse interest
rate or economic conditions, regulatory limitations or other factors. The
interest rate on floating rate or variable rate securities ordinarily is
readjusted on the basis of the prime rate of the bank that originated the
financing or some other index or published rate, such as the 90-day U.S.
Treasury bill rate, or is otherwise reset to reflect market rates of interest.
Generally, these interest rate adjustments cause the market value of floating
rate and variable rate securities to fluctuate less than the market value of
fixed rate obligations.
REPURCHASE AGREEMENTS. As stated in the Prospectus, the Fund may enter
into repurchase agreements with respect to any security in which it is
authorized to invest, except that securities subject to repurchase agreements
may have maturities in excess of 13 months. The Fund maintains custody of the
underlying securities prior to their repurchase; thus, the obligation of the
bank or securities dealer to pay the repurchase price on the date agreed to or
upon demand is, in effect, secured by such securities. If the value of these
securities is less than the repurchase price, plus any agreed upon additional
amount, the other party to the agreement 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 securities and the price that was paid by the
Fund upon acquisition is accrued as interest and included in the Fund's net
investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities. The Fund intends to enter into repurchase agreements
only with banks and dealers in transactions believed by Mitchell Hutchins to
present minimal credit risks in accordance with guidelines established by the
board. Mitchell Hutchins will review and monitor the creditworthiness of those
institutions under the board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of its net assets. Such agreements involve the sale of securities
held by the Fund subject to its agreement to repurchase the securities at an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, the Fund's custodian segregates assets to cover the
Fund's obligations under the reverse repurchase agreement. See 'Investment
Policies and Restrictions--Segregated Accounts.'
ILLIQUID SECURITIES. The Fund will not invest more than 10% of its net
assets in illiquid securities. The term 'illiquid securities' for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, repurchase agreements maturing in
more than seven days and restricted securities other than those Mitchell
Hutchins has determined to be liquid pursuant to guidelines established by the
board.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933 ('1933 Act'), including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments
2
<PAGE>
are often restricted securities because the securities are sold in transactions
not requiring registration. 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.
Rule 144A under the 1933 Act establishes a 'safe harbor' from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment in
order to satisfy share redemption orders. Such markets include automated systems
for the trading, clearance and settlement of unregistered securities, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc. An insufficient number of qualified institutional buyers interested in
purchasing certain restricted securities held by the Fund, however, could affect
adversely the marketability of such portfolio securities, and the Fund might be
unable to dispose of such securities promptly or at favorable prices.
The board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins, pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities held by the Fund and reports periodically on such
decisions to the board.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a 'when-issued' or 'delayed delivery' basis. 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 the Fund's net asset
value. When the Fund commits to purchase securities on a when-issued or delayed
delivery basis, its custodian segregates assets to cover the amount of the
commitment. See 'Investment Policies and Restrictions--Segregated Accounts.'
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis or reverse
repurchase agreements, the Fund will maintain with an approved custodian in a
segregated account cash or liquid securities, marked to market daily, in an
amount at least equal to the Fund's obligation or commitment under such
transactions.
LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, the Fund
is authorized to lend up to 33 1/3% of its total assets to broker-dealers or
institutional investors that Mitchell Hutchins deems qualified, but only when
the borrower maintains acceptable collateral with the Fund's custodian, marked
to market daily, in an amount 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. 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
3
<PAGE>
relevant facts and circumstances, including the creditworthiness of the
borrower. The Fund will retain authority to terminate any loan at any time. The
Fund may pay reasonable fees in connection with a loan and may pay a negotiated
portion of the interest earned on the cash or money market instruments held as
collateral to the borrower or placing broker. The Fund will receive reasonable
interest on the loan or a flat fee from the borrower and amounts equivalent to
any dividends, interest or other distributions on the securities loaned. The
Fund will regain record ownership of loaned securities to exercise beneficial
rights, such as voting and subscription rights and rights to dividends, interest
or other distributions, when regaining such rights is considered to be in the
Fund's interest.
Pursuant to procedures adopted by the board governing the Fund's securities
lending program, the board has approved retention of PaineWebber to serve as
lending agent for the Fund. The board also has authorized the payment of fees
(including fees calculated as a percentage of invested cash collateral) to
PaineWebber for these services. The board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
INVESTMENT LIMITATIONS OF THE FUND
FUNDAMENTAL LIMITATIONS. The following fundamental investment limitations
cannot be changed without the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the Fund or (2) 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 a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the following limitations.
The Fund will not:
(1) purchase securities of any one issuer if, as a result, more than
5% of the Fund's total assets would be invested in securities of
that issuer or the Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to
25% of the Fund's total assets may be invested without regard to
this limitation, and except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities or to securities issued by other
investment companies.
The following interpretation applies to, but is not a part of,
this fundamental restriction: Mortgage-and asset-backed securites
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.
4
<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 interpretation applies to, but is not a part of,
this fundamental restriction: With respect to this limitation,
domestic and foreign banking will be considered to be different
industries.
(3) issue senior securities or borrow money, except as permitted under
the Investment Company Act of 1940 ('1940 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.
(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 not
fundamental and may be changed by the board without shareholder approval.
The Fund will not:
(1) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions and except that
the Fund may make margin deposits in connection with its use of
financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or
derivative instruments.
5
<PAGE>
(2) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short 'against the box' and (b)
maintain short positions in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments.
(3) purchase securities of other investment companies, except to the
extent permitted by the 1940 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.
DIRECTORS AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The directors and executive officers of the Fund, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
---------------------- ------------- --------------------
<S> <C> <C>
Margo N. Alexander**; 50 Director and Mrs. Alexander is president, chief executive officer and a director of Mitchell
President Hutchins (since January 1995) and an executive vice president and director of
PaineWebber. Mrs. Alexander is a president and a director or trustee of 28
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Richard Q. Armstrong; 62 Director Mr. Armstrong is chairman and principal of RQA Enterprises (management
78 West Brother Drive consulting firm) (since April 1991 and principal occupation since March 1995).
Greenwich, CT 06830 Mr. Armstrong is also a director of Hi Lo Automotive, Inc. He 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 27 investment companies
for which Mitchell Hutchins or PaineWebber serves as investment adviser.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
---------------------- ------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 70 Director and Mr. Bewkes is a director of Paine Webber Group Inc. ('PW Group') (holding
Chairman of the company of PaineWebber and Mitchell Hutchins). Prior to December 1995, he was
Board of a consultant to PW Group. Prior to 1988, he was chairman of the board,
Directors president and chief executive officer of American Bakeries Company. Mr. Bewkes
is also a director of Interstate Bakeries Corporation and NaPro
BioTherapeutics, Inc. Mr. Bewkes is a director or trustee of 28 investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Richard Burt; 50 Director Mr. Burt is chairman of International Equity Partners (international investments
1101 Connecticut Avenue, N.W. and consulting firm) (since March 1994) and a partner of McKinsey & Company
Washington, D.C. 20036 (management consulting firm) (since 1991). He is also a director of American
Publishing Company and Archer-Daniels-Midland Co. (agricultural commodities).
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 27
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Mary C. Farrell**; 47 Director Ms. Farrell is a managing director, senior investment strategist, and member of
the Investment Policy Committee of PaineWebber. Ms. Farrell joined PaineWeb-
ber in 1982. She is a member of the Financial Women's Association and Women's
Economic Roundtable, and is employed 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
27 investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
---------------------- ------------- --------------------
<S> <C> <C>
Meyer Feldberg; 55 Director Mr. Feldberg is Dean and Professor of Management of the Graduate School of
Columbia University Business, Columbia University. Prior to 1989, he was president of the Illinois
101 Uris Hall Institute of Technology. Dean Feldberg is also a director of K-III
New York, New York 10027 Communications Corporation, Federated Department Stores, Inc. and Revlon, Inc.
Dean Feldberg is a director or trustee of 27 other investment companies for
which Mitchell Hutchins or PaineWebber serves as investment adviser.
George W. Gowen; 67 Director Mr. Gowen is a partner in the law firm of Dunnington, Bartholow & Miller. Prior
666 Third Avenue to May 1994, he was a partner in the law firm of Fryer, Ross & Gowen. Mr.
New York, New York 10017 Gowen is a director of Columbia Real Estate Investments, Inc. Mr. Gowen is a
director or trustee of 27 investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Frederic V. Malek; 59 Director Mr. Malek is chairman of Thayer Capital Partners (merchant bank). From January
1455 Pennsylvania Avenue, N.W. 1992 to November 1992, he was campaign manager of Bush-Quayle '92. From 1990
Suite 350 to 1992, he was vice chairman and, from 1989 to 1990, he was president of
Washington, D.C. 20004 Northwest Airlines Inc., NWA Inc. (holding company of Northwest Airlines Inc.)
and Wings Holdings Inc. (holding company of NWA Inc.). Prior to 1989, he was
employed by the Marriott Corporation (hotels, restaurants, airline catering
and contract feeding), where he most recently was an executive vice president
and president of Marriott Hotels and Resorts. Mr. Malek is also a director of
American Management Systems, Inc., (management consulting and computer related
services), Automatic Data Processing, Inc., CB Commercial Group, Inc. (real
estate services), Choice Hotels International (hotel and hotel franchising),
FPL Group, Inc. (electric services), Integra, Inc. (bio-medical), Manor Care,
Inc. (health care), National Education Corporation and Northwest Airlines Inc.
Mr. Malek is a director or trustee of 27 investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
---------------------- ------------- --------------------
<S> <C> <C>
Carl W. Schafer; 61 Director Mr. Schafer is president of the Atlantic Foundation (charitable foundation
P.O. Box 1164 supporting mainly oceanographic exploration and research). He is a director of
Princeton, NJ 08542 Roadway Express, Inc. (trucking), The Guardian Group of Mutual Funds, Evans
Systems, Inc. (motor fuels, convenience store and diversified company),
Electronic Clearing House, Inc. (financial transactions processing), Wainoco
Oil Corporation and Nutraceutix, Inc. (biotechnology company). Prior to Jan-
uary 1993, he was chairman of the Investment Advisory Committee of the Howard
Hughes Medical Institute. Mr. Schafer is a director or trustee of 27 in-
vestment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Dennis McCauley; 50 Vice President Mr. McCauley is a managing director and chief investment officer--fixed income
of Mitchell Hutchins. Prior to December 1994, he was director of fixed
income investments of IBM Corporation. Mr. McCauley is a vice president of 19
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran; 40 Vice President Ms. Moran is a vice president and a manager of the mutual fund finance division
and Assistant of Mitchell Hutchins. Ms. Moran is a vice president and assistant treasurer of
Treasurer 28 investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 45 Vice President Ms. O'Donnell is a senior vice president and deputy general counsel of Mitchell
and Secretary Hutchins. Ms. O'Donnell is a vice president and secretary of 27 investment
companies and vice president and assistant secretary of one investment company
for which Mitchell Hutchins or PaineWebber serves as investment adviser.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
---------------------- ------------- --------------------
<S> <C> <C>
Emil Polito; 36 Vice President Mr. Polito is a senior vice president and director of operations and control for
Mitchell Hutchins. From March 1991 to September 1993 he was director of the
mutual funds sales support and service center for Mitchell Hutchins and
PaineWebber. Mr. Polito is vice president of 28 investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Susan Ryan; 37 Vice President Ms. Ryan is a senior vice president of Mitchell Hutchins and has been with
Mitchell Hutchins since 1982. Ms. Ryan is a vice president of five investment
com- panies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing director and general counsel of Mitchell Hutchins.
Prior to May 1994, she was a partner in the law firm of Arnold & Porter. Ms.
Schonfeld is a vice president of 27 investment companies and vice president
and secretary of one investment company for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Paul H. Schubert; 34 Vice President Mr. Schubert is a first vice president and the director of the mutual fund
and Treasurer finance division of Mitchell Hutchins. From August 1992 to August 1994, he was
a vice president of BlackRock Financial Management, L.P. Prior to August 1992,
he was an audit manager with Ernst & Young LLP. Mr. Schubert is a vice
president and treasurer of 28 investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Barney A. Taglialatela; 36 Vice President Mr. Taglialatela is a vice president and a manager of the mutual fund finance
and Assistant division of Mitchell Hutchins. Prior to February 1995, he was a manager of the
Treasurer mutual fund finance division of Kidder Peabody Asset Management, Inc. Mr.
Taglialatela is a vice president and assistant treasurer of 28 investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
---------------------- ------------- --------------------
<S> <C> <C>
Keith A. Weller; 35 Vice President Mr. Weller is a first vice president and associate general counsel of Mitchell
and Assistant Hutchins. Prior to May 1995, he was an attorney in private practice. Mr.
Secretary Weller is a vice president and assistant secretary of 27 investment companies
for which Mitchell Hutchins or PaineWebber serves as investment adviser.
Ian W. Williams; 40 Vice President Mr. Williams is a vice president and a manager of the mutual fund finance
and Assistant division of Mitchell Hutchins. Prior to June 1992, he was an audit senior
Treasurer accountant with Price Waterhouse LLP. Mr. Williams is a vice president and
assistant treasurer of 28 investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
- ------------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are 'interested persons' of the
Fund as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber and/or PW Group.
The Fund pays directors who are not 'interested persons' of the Fund $1,000
annually and $150 for each board meeting and each meeting of a board committee
(other than committee meetings held on the same day as a board meeting). 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 directors are reimbursed for any
expenses incurred in attending meetings. Directors and officers of the Fund own
in the aggregate less than 1% of the Fund's shares. Because PaineWebber and
Mitchell Hutchins perform substantially all of the services necessary for the
operation of the Fund, the Fund requires no employees. No officer, director or
employee of PaineWebber or Mitchell Hutchins presently receives any compensation
from the Fund for acting as a director or officer.
11
<PAGE>
The table below includes certain information relating to the compensation
of the current directors of the Fund who held office with the Fund or with other
PaineWebber funds during the Fund's last fiscal year.
COMPENSATION TABLE+
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM THE
FROM FUND AND THE
NAME OF PERSON, POSITION THE FUND* FUND COMPLEX**
- ------------------------- ------------ --------------
<S> <C> <C>
Richard Q. Armstrong, Director............... $1,173 $ 59,873
Richard R. Burt, Director.................... 1,023 51,173
Meyer Feldberg, Director..................... 5,042 96,181
George W. Gowen, Director.................... 5,042 92,431
Frederic V. Malek, Director.................. 5,042 92,431
Carl W. Schafer, Director.................... 1,173 62,307
</TABLE>
- ------------------
+ Only independent members of the board of directors are compensated by the
Fund and identified above; directors who are 'interested persons,' as defined
by the 1940 Act, do not receive compensation.
* Represents fees paid to each director during the fiscal year ended March 31,
1997.
** Represents total compensation paid to each director during the calendar year
ended December 31, 1996; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.
PRINCIPAL HOLDERS OF SECURITIES
PaineWebber, 1285 Avenue of the Americas, New York, New York 10019, owned
of record all of the Fund's shares as of July 18, 1997. None of the persons on
whose behalf those shares were held was known by the Fund to own beneficially 5%
or more of those shares.
INVESTMENT ADVISORY SERVICES
PaineWebber acts as the Fund's investment adviser and administrator
pursuant to a contract with the Fund dated July 23, 1987 ('PaineWebber
Contract'). Under the PaineWebber Contract, the Fund pays PaineWebber an annual
fee, computed daily and paid monthly, according to the following schedule:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ----------------------------------------------- ------
<S> <C>
Up to $500 million............................. 0.500 %
In excess of $500 million up to $1.0 billion... 0.425
In excess of $1.0 billion up to $1.5 billion... 0.390
In excess of $1.5 billion up to $2.0 billion... 0.380
In excess of $2.0 billion up to $2.5 billion... 0.350
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ----------------------------------------------- ------
<S> <C>
In excess of $2.5 billion up to $3.5 billion... 0.345%
In excess of $3.5 billion up to $4.0 billion... 0.325
In excess of $4.0 billion up to $4.5 billion... 0.315
In excess of $4.5 billion up to $5.0 billion... 0.300
In excess of $5.0 billion up to $5.5 billion... 0.290
In excess of $5.5 billion...................... 0.280
</TABLE>
Services provided by PaineWebber under the PaineWebber Contract, some of
which may be delegated to Mitchell Hutchins, as discussed below, include the
provision of a continuous investment program for the Fund and supervision of all
matters relating to the operation of the Fund. Under the PaineWebber Contract,
PaineWebber is also obligated to distribute the Fund's shares on an agency, or
'best efforts,' basis under which the Fund only issues such shares as are
actually sold. Shares of the Fund are offered continuously. Under the
PaineWebber Contract, during the fiscal years ended March 31, 1997, March 31,
1996 and March 31, 1995, the Fund paid (or accrued) to PaineWebber investment
advisory and administrative fees in the amount of $19,013,158, $16,998,964 and
$13,839,569, respectively. During the fiscal year ended March 31, 1997, the Fund
did not pay fees to PaineWebber for its services as lending agent because the
Fund did not engage in any securities lending activities.
Under a contract with PaineWebber dated July 23, 1987 ('Sub-Advisory
Contract'), Mitchell Hutchins is responsible for the actual investment
management of the Fund's assets, including the responsibility for making
decisions and placing orders to buy, sell or hold particular securities. Under
the Sub-Advisory Contract, PaineWebber (not the Fund) pays Mitchell Hutchins an
annual fee, computed daily and paid monthly, according to the following
schedule:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ----------------------------------------------- ------
<S> <C>
Up to $500 million............................. 0.0900%
In excess of $500 million up to $1.0 billion... 0.0500
In excess of $1.0 billion up to $1.5 billion... 0.0400
In excess of $1.5 billion up to $2.0 billion... 0.0300
In excess of $2.0 billion up to $2.5 billion... 0.0250
In excess of $2.5 billion up to $3.5 billion... 0.0250
In excess of $3.5 billion up to $4.5 billion... 0.0200
In excess of $4.5 billion up to $5.5 billion... 0.0125
In excess of $5.5 billion...................... 0.0100
</TABLE>
Under the Sub-Advisory Contract, during the fiscal years ended March 31,
1997, March 31, 1996 and March 31, 1995, PaineWebber paid (or accrued) to
Mitchell Hutchins fees in the amount of $1,715,007, $1,593,013 and $1,435,247,
respectively.
Under a contract with PaineWebber dated May 24, 1988 ('Sub-Administration
Contract'), Mitchell Hutchins also serves as the Fund's sub-administrator. Under
the Sub-Administration Contract, PaineWebber (not the Fund) pays Mitchell
Hutchins 20% of the fees received by PaineWebber under the PaineWebber Contract,
such amount to be paid monthly and reduced by any amount paid by PaineWebber in
each such month under the
13
<PAGE>
Sub-Advisory Contract. During the fiscal years ended March 31, 1997, March 31,
1996 and March 31, 1995, PaineWebber paid (or accrued) to Mitchell Hutchins
sub-administration fees of $2,087,625, $1,806,780 and $1,332,667, respectively.
Prior to August 1, 1997, PaineWebber provided certain services to the Fund
not otherwise provided by its transfer agent. Pursuant to an agreement between
PaineWebber and the Fund relating to these services, during the fiscal years
ended March 31, 1997, March 31, 1996 and March 31, 1995, the Fund paid (or
accrued) to PaineWebber $2,893,343, $2,762,836 and $2,551,016, respectively.
This agreement was reviewed annually by the board. Effective August 1, 1997,
PaineWebber provides transfer agency related services to the Fund pursuant to a
delegation of authority from PFPC Inc. and is compensated for those services by
PFPC Inc., not the Fund.
Each of the advisory, sub-advisory and sub-administration contracts noted
above provides that PaineWebber or Mitchell Hutchins, as the case may be, shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of the contract, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of PaineWebber or Mitchell Hutchins, in the performance of its duties or
from reckless disregard of its duties and obligations thereunder. The
PaineWebber Contract also provides that PaineWebber shall not be liable for
losses arising out of the receipt by PaineWebber of inadequate consideration in
connection with an order to purchase Fund shares whether in the form of a
fraudulent check, draft or wire; a check returned for insufficient funds; or any
other such inadequate consideration (hereinafter 'check losses'), except under
the circumstances noted above, but the Fund shall not be liable for check losses
resulting from negligence on the part of PaineWebber. Each of the advisory, sub-
advisory and sub-administration contracts is terminable by vote of the Fund's
board or by the holders of a majority of the outstanding voting securities of
the Fund at any time without penalty, on 60 days' written notice to PaineWebber
or Mitchell Hutchins, as the case may be. Each of the advisory and sub-advisory
contracts may also be terminated by PaineWebber or Mitchell Hutchins, as the
case may be, on 90 days' written notice to the Fund. The sub-administration
contract may also be terminated by Mitchell Hutchins on 60 days' written notice
to the Fund. Each of the advisory, sub-advisory and sub-administration contracts
terminates automatically upon its assignment.
Under the terms of the PaineWebber Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by PaineWebber.
Expenses borne by the Fund include the following: (a) the cost (including
brokerage commissions, if any) of securities purchased or sold by the Fund or
any losses incurred in connection therewith; (b) fees payable to and expenses
incurred on behalf of the Fund by PaineWebber; (c) filing fees and expenses
relating to the registration and qualification of the Fund's shares under
federal or state securities laws and maintaining such registrations and
qualifications; (d) fees and salaries payable to the Fund's directors and
officers who are not officers or employees of PaineWebber or interested persons
(as defined in the 1940 Act) of any investment adviser or underwriter of the
Fund ('Independent Directors'); (e) taxes (including any income or franchise
taxes) and governmental fees; (f) costs of any liability, uncollectible items of
deposit and other insurance or fidelity bonds; (g) any costs, expenses or losses
arising out of any liability of or claim for damage or other relief asserted
against the Fund for violation of any law; (h) legal, accounting and auditing
expenses, including legal fees of special counsel for the Independent Directors;
(i) charges of custodians, transfer agents and other agents; (j) costs of
preparing share certificates; (k) expenses of setting in type and printing
prospectuses, statements of additional information and supplements thereto for
existing shareholders, reports and statements to shareholders and proxy
materials; (l) any extraordinary expenses (including fees and disbursements
14
<PAGE>
of counsel) incurred by the Fund; and (m) fees and other expenses incurred in
connection with membership in investment company organizations.
The following table shows the approximate net assets as of June 30, 1997,
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.
<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
- ---------------------------------------- ----------
<S> <C>
Domestic (excluding Money Market)....... $5,864.6
Global.................................. 3,208.3
Equity/Balanced......................... 4,195.0
Fixed Income (excluding Money Market)... 4,877.9
Taxable Fixed Income............... 3,328.9
Tax-Free Fixed Income.............. 1,549.0
Money Market Funds...................... 24,227.8
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds and other Mitchell Hutchins'
advisory accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber funds and other Mitchell
Hutchins advisory clients.
PORTFOLIO TRANSACTIONS
The Fund purchases portfolio securities from dealers and underwriters as
well as from issuers. Securities are usually traded on a net basis with dealers
acting as principal for their own accounts without a stated commission. Prices
paid to dealers in principal transactions generally include a 'spread,' which is
the difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. When securities are purchased directly
from an issuer, no commissions or discounts are paid. When securities are
purchased in underwritten offerings, they include a fixed amount of compensation
to the underwriter.
The Sub-Advisory Contract authorizes Mitchell Hutchins (with the approval
of the Fund's board) to select brokers and dealers to execute purchases and
sales of the Fund's portfolio securities. It directs Mitchell Hutchins to use
its best efforts to obtain the best available price and the most favorable
execution with respect to all transactions for the Fund. To the extent that the
execution and price offered by more than one dealer are comparable, Mitchell
Hutchins may, in its discretion, effect transactions in portfolio securities
with dealers who provide the Fund with research, analysis, advice and similar
services. 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. Moreover, Mitchell Hutchins will not enter into any
explicit soft dollar arrangements relating to principal transactions and will
not receive in principal transactions the types of services which could be
purchased for hard dollars. Research services furnished by the dealers through
which or with which the Fund effects securities transactions may be used by
Mitchell Hutchins in
15
<PAGE>
advising other funds or accounts and, conversely, research services furnished to
Mitchell Hutchins in connection with other funds or accounts that Mitchell
Hutchins advises may be used in advising the Fund. During its past three fiscal
years, the Fund has not paid any brokerage commissions; therefore, it has not
allocated any brokerage transactions for research, analysis, advice and similar
services.
Mitchell Hutchins may engage in agency transactions in over-the-counter
equity and debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide research
or execution services. These procedures include Mitchell Hutchins' receiving
multiple quotes from dealers before executing the transactions on an agency
basis.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
As of March 31, 1997, the Fund owned commercial paper and short-term
corporate obligations issued by the following persons who are regular
broker-dealers for the Fund: Goldman Sachs Group LP ($34,963,931); Merrill Lynch
& Co., Inc. ($116,945,088); and Morgan Stanley Group, Inc. ($214,468,736).
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange ('NYSE') is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the market value of its assets or (3) as the SEC may otherwise permit.
The redemption price may be more or less than the shareholder's cost, depending
on the market value of the Fund's portfolio at the time, although the Fund
attempts to maintain a constant net asset value of $1.00 per share.
Under normal circumstances, the Fund will redeem shares when so requested
by a shareholder's broker-dealer other than PaineWebber by telegram or telephone
to PaineWebber. Such a redemption order will be executed at the net asset value
next determined after the order is received by PaineWebber. Redemptions of Fund
shares effected through a broker-dealer other than PaineWebber may be subject to
a service charge by that broker-dealer.
VALUATION OF SHARES
The Fund uses its best efforts to maintain its net asset value at $1.00 per
share. The Fund's net asset value per share is determined by State Street Bank
and Trust Company ('State Street') as of 2:00 p.m., Eastern time, on each
Business Day. As defined in the Prospectus, 'Business Day' means any day on
which State Street's Boston offices, and the New York City offices of
PaineWebber and PaineWebber's bank, The Bank of New
16
<PAGE>
York, 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.
The Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 ('Rule') under the 1940 Act. To use
amortized cost to value its portfolio securities, the Fund must adhere to
certain conditions under the Rule relating to the Fund's investments, some of
which are discussed in the Prospectus and this Statement of Additional
Information. Amortized cost is an approximation of market value, whereby the
difference between acquisition cost and value at maturity of the instrument is
amortized on a straight-line basis over the remaining life of the instrument.
The effect of changes in the market value of a security as a result of
fluctuating interest rates is not taken into account, and thus the amortized
cost method of valuation may result in the value of a security being higher or
lower than its actual market value. If a large number of redemptions take place
at a time when interest rates have increased, the Fund might have to sell
portfolio securities prior to maturity and at a price that might not be
desirable.
The Fund's 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%, the board will promptly consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redeeming shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. The Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less and except as otherwise indicated herein will not purchase
any instrument with a remaining maturity greater than 13 months, will limit
portfolio investments, including repurchase agreements, to those U.S.
dollar-denominated instruments that are of high quality and that Mitchell
Hutchins determines (pursuant to delegated authority from the board) 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, the board will
take appropriate action.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used.
TAXES
In order to continue to qualify for treatment as a regulated investment
company under the Internal Revenue Code, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-term
capital gain, if any) and must meet several additional requirements. Among these
requirements are the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of securities and
certain other income; (2) the Fund must derive less than 30% of its gross income
each taxable year from the sale or other disposition of securities held for less
than three months; (3) 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
17
<PAGE>
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 (4) at the close of
each quarter of the Fund's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. government
securities) of any one issuer.
CALCULATION OF YIELD
The Fund computes its yield and effective yield quotations using
standardized methods required by the SEC. The 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) its effective
yield based on the same seven-day period by compounding the base period return
by adding 1, raising the sum to a power equal to (365/7) and subtracting 1 from
the result, according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) ] - 1
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of the Fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.
The Fund's yield and effective yield for the seven-day period ended March
31, 1997 were 4.89% and 5.01%, respectively.
OTHER INFORMATION. The Fund's performance data quoted in advertising and
other promotional materials ('Performance Advertisements') represent past
performance and are not intended to predict or indicate future results. The
return on an investment in the Fund will fluctuate. In Performance
Advertisements, the Fund may compare its yield with data published by Lipper
Analytical Services, Inc. for money funds ('Lipper'), CDA Investment
Technologies, Inc. ('CDA'), IBC/Donoghue's Money Market Fund Report
('Donoghue'), Wiesenberger Investment Companies Service ('Wiesenberger'),
Investment Company Data Inc. ('ICD') or Morningstar Mutual Funds
('Morningstar'), 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 World Index, the Lehman Brothers
Treasury Bond Index, the Lehman Brothers Government-Corporate Bond Index, the
Salomon Brothers Non-U.S. World Government Bond Index and the Consumer Price
Index as published by the U.S. Department of Commerce. The Fund also may refer
in such materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper, CDA, Donoghue,
Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to
discussions of the Fund and comparative mutual fund data and ratings reported in
independent periodicals, including THE WALL STREET JOURNAL, MONEY Magazine,
FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES,
THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS.
18
<PAGE>
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. 'Compounding' refers to the fact
that, if dividends on a Fund investment are reinvested by being paid in
additional Fund shares, any future income of the Fund would increase the value,
not only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends had been paid in cash.
The Fund may also 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 averages of yields of CDs
of major banks published by Banxquotes(Registered) Money Markets. In comparing
the Fund's performance to CD performance, investors should keep in mind that
bank CDs are insured in whole or in part by an agency of the U.S. government and
offer fixed principal and fixed or variable rates of interest and that bank CD
yields may vary depending on the financial institution offering the CD and
prevailing interest rates. Fund shares are not insured or guaranteed by the U.S.
government, and returns will fluctuate. While the Fund seeks to maintain a
stable net asset value of $1.00 per share, there can be no assurance that it
will be able to do so.
OTHER INFORMATION
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Fund.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as the Fund's independent auditors.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended March
31, 1997 is a separate document supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.
19
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or in this Statement of
Additional Information in connection with the offering made by the Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Fund or its distributor. The Prospectus
and this Statement of Additional Information do not constitute an offering by
the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Investment Policies and Restrictions............ 1
Directors and Officers; Principal Holders of
Securities.................................... 6
Investment Advisory Services.................... 12
Portfolio Transactions.......................... 15
Additional Information Regarding
Redemptions................................... 16
Valuation of Shares............................. 16
Taxes........................................... 17
Calculation of Yield............................ 18
Other Information............................... 19
Financial Statements............................ 19
</TABLE>
(Copyright) 1997 PaineWebber Incorporated
PaineWebber
Cashfund, Inc.
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Statement of Additional Information
August 1, 1997
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