<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
asset management 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, 1998. 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, 1998.
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.
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, (4) subject to a guarantee rated in the
highest short-term rating category or issued by a guarantor that has received
the highest short-term rating for a comparable debt obligation or (5) unrated,
but determined by Mitchell Hutchins to be of comparable quality. 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 may continue to be considered a First Tier Security.
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VARIABLE AND FLOATING RATE DEMAND INSTRUMENTS. 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 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. 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 counterparty 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 counterparty must provide additional
collateral so that at all times the collateral is at least equal to the
repurchase price plus any agreed upon additional amount. The difference between
the total amount to be received upon repurchase of the 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 counterparties 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 obligation 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.
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To the extent the Fund invests in illiquid securities, it may not be able to
readily liquidate such investments and may have to sell other investments if
necessary to raise cash to meet its obligations.
Restricted securities are not registered under the Securities Act of 1933
('1933 Act') and may be sold only in privately negotiated or other exempted
transactions or after a 1933 Act registration statement has become effective.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
However, not all restricted securities are illiquid. A large institutional
market has developed for many U.S. and foreign securities that are not
registered under the 1933 Act. Institutional investors generally will not seek
to sell these instruments to the general public, but instead will often depend
either on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Institutional markets for restricted securities also have developed as a
result of Rule 144A, which establishes a 'safe harbor' from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers, 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 of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the Fund, however, could affect adversely the marketability of such portfolio
securities, and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
The board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins, pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the 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
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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. 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, at
least equal to the market value of the securities loaned, plus accrued interest
and dividends. Acceptable collateral is limited to cash, U.S. government
securities and irrevocable letters of credit that meet certain guidelines
established by Mitchell Hutchins. The Fund may reinvest cash collateral in money
market instruments or other short-term liquid investments. In determining
whether to lend securities to a particular broker-dealer or institutional
investor, Mitchell Hutchins will consider, and during the period of the loan
will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to terminate
any of its loans at any time. The Fund may pay reasonable fees in connection
with a loan and may pay the borrower or placing broker a negotiated portion of
the interest earned on the reinvestment of cash held as collateral. The Fund
will receive amounts equivalent to any 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, when regaining such rights is considered to be in the Fund's interest.
Pursuant to procedures adopted by the board governing the Fund's securities
lending program, PaineWebber has been retained to serve as lending agent for the
Fund. The board also has authorized the payment of fees (including fees
calculated as a percentage of invested cash collateral) to PaineWebber for these
services. The board periodically reviews all portfolio securities loan
transactions for which PaineWebber acted as lending agent.
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, later
changes in percentage resulting from a change in values of portfolio securities
or amount of total assets will not be considered a violation of any of the
following limitations.
The Fund will not:
(1) purchase securities of any one issuer if, as a result, more than
5% of the Fund's total assets would be invested in securities of
that issuer or the Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to
25% of the Fund's total assets may be invested without regard to
this limitation, and except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities or to securities issued by other
investment companies.
The following interpretation applies to, but is not a part of,
this fundamental restriction: Mortgage-and asset-backed 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.
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(2) purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of
issuers having their principal business activities in the same
industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to municipal securities or to certificates of
deposit and bankers' acceptances of domestic branches of U.S.
banks.
The following interpretations apply to, but are not a part of,
this fundamental restriction: (a) domestic and foreign banking
will be considered to be different industries; and (b)
asset-backed securities will be grouped in industries based upon
their underlying assets and not treated as constituting a
single, separate industry.
(3) issue senior securities or borrow money, except as permitted under
the Investment Company Act 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.
The following interpretation applies to, but is not a part of,
this fundamental restriction. The Fund's investments in master
notes, funding agreements and similar instruments will not be
considered to be the making of a loan.
(5) engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with
its disposition of portfolio securities.
(6) purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments
in mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject
to this limitation, and except that the Fund may exercise rights
under agreements relating to such securities, including the right
to enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be
liquidated in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result
of owning securities or other instruments, but the Fund may
purchase, sell or enter into financial options and futures,
forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are 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.
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(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 the Fund will
not purchase securities of registered open-end investment
companies or registered unit investment trusts in reliance on
sections 12(d)(1)(F) or 12(d)(1)(G) of 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**; 51 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 (since March 1984). Mrs. Alexander is a president and a director
or trustee of 31 investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard Q. Armstrong; 63 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 was chairman of the board, chief executive officer and co-owner
of Adirondack Beverages (producer and distributor of soft drinks and spar-
kling/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 Corpora-
tion) (1987-1991) and chairman of its wine and spirits subsidiary, Schieffelin
& Somerset Company (1987-1991). Mr. Armstrong is a director or trustee of 30
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
- ----------------------------- ------------------ --------------------------------------------------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 71 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 Directors a consultant to PW Group. Prior to 1988, he was chairman of the board,
president and chief executive officer of American Bakeries Company. Mr. Bewkes
is a director of Interstate Bakeries Corporation and NaPro Bio-Therapeutics,
Inc. Mr. Bewkes is a director or trustee of 31 investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Richard R. Burt; 51 Director Mr. Burt is chairman of IEP Advisors, Inc. (international investments and
1275 Pennsylvania Avenue, consulting firm) (since March 1994) and a partner of McKinsey & Company (man-
N.W. agement consulting firm) (since 1991). He is also a director of
Washington, D.C. 20004 Archer-Daniels-Midland Co. (agricultural commodities), Hollinger International
Co. (publishing), Homestake Mining Corp., Powerhouse Technologies Inc. and
Wierton Steel Corp. He was the chief negotiator in the Strategic Arms
Reduction Talks with the former Soviet Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of Germany (1985-1989). Mr. Burt is a
director or trustee of 30 investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Mary C. Farrell**; 48 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 appears as a regular panelist on Wall $treet Week
with Louis Rukeyser. She also serves on the Board of Overseers of New York
University's Stern School of Business. Ms. Farrell is a director or trustee of
30 investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
- ----------------------------- ------------------ --------------------------------------------------------------------------------
<S> <C> <C>
Meyer Feldberg; 56 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 Primedia Inc.,
New York, New York 10027 Federated Department Stores, Inc. and Revlon, Inc. Dean Feldberg is a director
or trustee of 32 investment companies for which Mitchell Hutchins, PaineWebber
or their affiliates serves as investment adviser.
George W. Gowen; 68 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 30 investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Frederic V. Malek; 61 Director Mr. Malek is chairman of Thayer Capital Partners (merchant bank). From January
1455 Pennsylvania Avenue, 1992 to November 1992, he was campaign manager of Bush-Quayle '92. From 1990
N.W. to 1992, he was vice chairman and, from 1989 to 1990, he was president of
Suite 350 Northwest Airlines Inc., NWA Inc. (holding company of Northwest Airlines Inc.)
Washington, D.C. 20004 and Wings Holdings Inc. (holding company of NWA Inc.). Prior to 1989, he was
employed by the Marriott Corporation (hotels, restaurants, airline catering
and contract feeding), where he most recently was an executive vice president
and president of Marriott Hotels and Resorts. Mr. Malek is also a director of
American Management Systems, Inc., (management consulting and computer related
services), Automatic Data Processing, Inc., CB Commercial Group, Inc. (real
estate services), Choice Hotels International (hotel and hotel franchising),
FPL Group, Inc. (electric services), Manor Care, Inc. (health care) and
Northwest Airlines Inc. Mr. Malek is a director or trustee of 30 investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
- ----------------------------- ------------------ --------------------------------------------------------------------------------
<S> <C> <C>
Carl W. Schafer; 62 Director Mr. Schafer is president of the Atlantic Foundation (charitable foundation
66 Witherspoon Street #1100 supporting mainly oceanographic exploration and research). He is a director of
Princeton, NJ 08542 Base Ten Systems, Inc. (software), Roadway Express, Inc. (trucking), The
Guardian Group of Mutual Funds, the Harding, Loevner Funds, Evans Systems,
Inc. (motor fuels, convenience store and diversified company), Electronic
Clearing House, Inc. (financial transactions processing), Frontier Oil
Corporation and Nutraceutix, Inc. (biotechnology company). Prior to January
1993, he was chairman of the Investment Advisory Committee of the Howard
Hughes Medical Institute. Mr. Schafer is a director or trustee of 30 in-
vestment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
John J. Lee; 29 Vice President Mr. Lee is a vice president and a manager of the mutual fund finance department
and Assistant of Mitchell Hutchins. Prior to September 1997, he was an audit manager in the
Treasurer financial services practice of Ernst & Young LLP. Mr. Lee is a vice president
and assistant treasurer of 31 investment companies for which Mitchell Hutch-
ins or PaineWebber serves as investment adviser.
Dennis McCauley; 51 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 21
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran; 41 Vice President Ms. Moran is a vice president and a manager of the mutual fund finance
and Assistant department of Mitchell Hutchins. Ms. Moran is a vice president and assistant
Treasurer treasurer of 31 investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
- ----------------------------- ------------------ --------------------------------------------------------------------------------
<S> <C> <C>
Dianne E. O'Donnell; 46 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 30 investment
companies and vice president and assistant secretary of one investment company
for which Mitchell Hutchins or PaineWebber serves as investment adviser.
Emil Polito; 37 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 31 investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Susan Ryan; 38 Vice President Ms. Ryan is a senior vice president and portfolio manager of Mitchell Hutchins
and has been with Mitchell Hutchins since 1982. Ms. Ryan is a vice president
of five investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Victoria E. Schonfeld; 47 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 30 investment companies and vice president
and secretary of one investment company for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Paul H. Schubert; 35 Vice President Mr. Schubert is a senior vice president and the director of the mutual fund
and Treasurer finance department of Mitchell Hutchins. From August 1992 to August 1994, he
was a vice president of BlackRock Financial Management, L.P. Mr. Schubert is a
vice president and treasurer of 31 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE FUND OTHER DIRECTORSHIPS
- ----------------------------- ------------------ --------------------------------------------------------------------------------
<S> <C> <C>
Barney A. Taglialatela; 37 Vice President Mr. Taglialatela is a vice president and a manager of the mutual fund finance
and Assistant department of Mitchell Hutchins. Prior to February 1995, he was a manager of
Treasurer the mutual fund finance division of Kidder Peabody Asset Management, Inc. Mr.
Taglialatela is a vice president and assistant treasurer of 31 investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Keith A. Weller; 36 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 30 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.
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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............... $2,050 $ 94,885
Richard R. Burt,
Director............... 1,900 87,085
Meyer Feldberg,
Director............... 2,050 117,853
George W. Gowen,
Director............... 2,346 101,567
Frederic V. Malek,
Director............... 2,050 95,845
Carl W. Schafer,
Director............... 2,050 94,885
</TABLE>
- ------------------
+ Only independent board members 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,
1998.
** Represents total compensation paid to each director during the calendar year
ended December 31, 1997; 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 21, 1998. 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, 1998, 1997 and
1996, the Fund paid (or accrued) to PaineWebber investment advisory and
administrative fees in the amount of $19,457,916, $19,013,158 and $16,998,964,
respectively. During the fiscal year ended March 31, 1998, 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,
1998, 1997 and 1996, PaineWebber paid (or accrued) to Mitchell Hutchins fees in
the amount of $1,734,233, $1,715,007 and $1,593,013, 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, 1998, 1997 and
1996, PaineWebber paid (or accrued) to Mitchell Hutchins sub-administration fees
of $2,157,350, $2,087,625 and $1,806,780, respectively.
Prior to August 1, 1997, PaineWebber provided certain services to the Fund
not otherwise provided by the Fund's transfer agent. Pursuant to an agreement
relating to those services, PaineWebber earned (or accrued) $1,002,742 for the
period April 1, 1997 to July 31, 1997; $2,893,343 for the fiscal year ended
March 31, 1997; and $2,762,836 for the fiscal year ended March 31, 1996.
Effective August 1, 1997, PFPC (not the Fund) pays PaineWebber for certain
transfer agency related services that PFPC has delegated to PaineWebber.
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 of
counsel) incurred by the Fund; and (m) fees and other expenses incurred in
connection with membership in investment company organizations.
14
<PAGE>
The following table shows the approximate net assets as of June 30, 1998,
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)....... $ 7,856.5
Global.................................. 3,875.8
Equity/Balanced......................... 6,513.6
Fixed Income (excluding Money Market)... 5,218.7
Taxable Fixed Income............... 3,641.0
Tax-Free Fixed Income.............. 1,577.7
Money Market Funds...................... 28,628.1
</TABLE>
PERSONNEL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of 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 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
15
<PAGE>
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.
HOLDINGS OF REGULAR BROKER-DEALERS. As of March 31, 1998, the Fund held
the following securities issued by entities which are regular broker-dealers for
the Fund:
<TABLE>
<CAPTION>
ISSUER TYPE OF SECURITY VALUE
- -------------------------------------- -------------------------------------- ------------
<S> <C> <C>
Bear Stearns Companies, Inc. Short-Term Corporate Obligations $200,300,000
Goldman Sachs Group L.P. Commercial Paper $180,226,549
Merrill Lynch & Company Inc. Commercial Paper $153,750,579
Merrill Lynch & Company Inc. Short-Term Corporate Obligations $ 50,000,000
Morgan Stanley Group Inc. Short-Term Corporate Obligations $ 70,000,000
</TABLE>
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange ('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
To continue to qualify for treatment as a regulated investment company
('RIC') under the Internal Revenue Code, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-term
capital gain, if any) and must meet several additional requirements. Among these
requirements are the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of securities and
certain other income; (2) at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. government securities, securities of other RICs and other
securities that are limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets; and (3) at the close
of each quarter of the Fund's taxable year, not more than 25% of the value of
its total assets may be
17
<PAGE>
invested in securities (other than U.S. government securities or securities of
other RICs) of any one issuer. If the Fund failed to qualify for treatment as a
RIC for any taxable year, it would be taxed as an ordinary corporation on its
taxable income for that year (even if that income was distributed to its
shareholders) and all distributions out of its earnings and profits would be
taxable to its shareholders as dividends (that is, ordinary income).
Dividends paid to a shareholder who, as to the United States, is a
nonresident alien, nonresident alien fiduciary of a trust or estate, foreign
corporation or foreign partnership ('foreign shareholder') generally will be
subject to a U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply, however, to a dividend paid by the Fund to a foreign
shareholder that is 'effectively connected with the conduct of a U.S. trade or
business,' in which case the reporting and withholding requirements applicable
to domestic shareholders will apply. A distribution of net capital gain by a
Fund to a foreign shareholder generally will be subject to U.S. federal income
tax (at the rates applicable to domestic persons) only if the distribution is
'effectively connected' or the foreign shareholder is treated as a resident
alien individual for federal income tax purposes.
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:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7] - 1
The Fund may also advertise other performance data, which may consist of
the annual or cumulative return (including net short-term capital gain, if any)
earned on a hypothetical investment in the fund since it began operations or for
shorter periods. This return data may or may not assume reinvestment of
dividends (compounding).
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of the Fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.
The Fund's yield and effective yield for the seven-day period ended March
31, 1998 were 5.10% and 5.22%, 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'),
18
<PAGE>
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.
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, 1998 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
----
<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) 1998 PaineWebber Incorporated
PaineWebber
Cashfund, Inc.
- ------------------------------------------------------
Statement of Additional Information
August 1, 1998
- ------------------------------------------------------
