PAINEWEBBER RMA TAX FREE FUND INC, 497, 1997-09-04

PAINEWEBBER RMA TAX FREE FUND INC
497, 1997-09-04

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<PAGE>
This Prospectus concisely sets forth information that a prospective investor
should know about the Funds before investing. Please retain this Prospectus for
future reference. A Statement of Additional Information dated August 29, 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
Funds, your PaineWebber Investment Executive or PaineWebber's correspondent
firms, or by calling toll-free 1-800-762-1000.

PAINEWEBBER RMA

MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
TAX-FREE FUND
CALIFORNIA MUNICIPAL
MONEY FUND
NEW JERSEY MUNICIPAL
MONEY FUND
NEW YORK MUNICIPAL
MONEY FUND

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

- -----------------------------------
- -----------------------------------

PaineWebber RMA Money Fund, Inc. (of which Money Market Portfolio and U.S.
Government Portfolio are series) and PaineWebber RMA Tax-Free Fund, Inc. are
Maryland corporations (each a "Corporation"). PaineWebber Managed Municipal
Trust (of which California Municipal Money Fund and New York Municipal Money
Fund are series) and PaineWebber Municipal Money Market Series (of which New
Jersey Municipal Money Fund is a series) are Massachusetts business trusts (each
a "Trust").

AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. WHILE EACH 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.

CALIFORNIA MUNICIPAL MONEY FUND, NEW JERSEY MUNICIPAL MONEY FUND AND NEW YORK
MUNICIPAL MONEY FUND EACH MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN
THE SECURITIES OF A SINGLE ISSUER. THEREFORE, AN INVESTMENT IN THESE FUNDS MAY
BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.

PROFESSIONALLY MANAGED MONEY
MARKET FUNDS SEEKING:

/ / MAXIMUM CURRENT INCOME

/ / HIGH LIQUIDITY

/ / CONSERVATION OF CAPITAL

/ / INCOME FREE FROM FEDERAL INCOME TAX FOR TAX-FREE FUND

/ / CALIFORNIA DOUBLE TAX-FREE INCOME FOR CALIFORNIA MUNICIPAL MONEY FUND

/ / NEW JERSEY DOUBLE TAX-FREE INCOME FOR NEW JERSEY MUNICIPAL MONEY FUND

/ / NEW YORK STATE DOUBLE TAX-FREE INCOME OR NEW YORK CITY TRIPLE TAX-FREE
INCOME FOR NEW YORK MUNICIPAL MONEY FUND

- --------------------------------------
- --------------------------------------

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.

PROSPECTUS DATED AUGUST 29, 1997
<PAGE>
HIGHLIGHTS

See elsewhere in the Prospectus for more information on the topics discussed
in these highlights.

<TABLE>
<S> <C>
The Funds: Professionally managed money market funds (each a "Fund") offered
primarily to participants in the PaineWebber Resource Management
Account ("RMA")-Registered Trademark- program. The Funds also are
offered to participants in the PaineWebber Business Services
Account ("BSA")-Registered Trademark- program.

Investment Objectives PaineWebber RMA Money Market Portfolio ("Money Market
and Policies: Portfolio")--A diversified money market fund seeking maximum
current income consistent with liquidity and conservation of
capital; invests in high quality money market instruments.

PaineWebber RMA U.S. Government Portfolio ("U.S. Government
Portfolio")--A diversified money market fund seeking maximum
current income consistent with liquidity and conservation of
capital; invests in short-term U.S. government securities.

PaineWebber RMA Tax-Free Fund, Inc. ("Tax-Free Fund")--A
diversified money market fund seeking maximum current income
exempt from federal income tax consistent with liquidity and
conservation of capital; invests in high quality municipal money
market instruments.

PaineWebber RMA California Municipal Money Fund ("California
Municipal Money Fund")--A non-diversified money market fund
seeking maximum current income exempt from federal income tax and
California personal income tax, consistent with liquidity and
conservation of capital; invests in high quality California
Municipal Securities (as defined below).

PaineWebber RMA New Jersey Municipal Money Fund ("New Jersey
Municipal Money Fund")--A non-diversified money market fund
seeking the maximization of current income exempt from federal
income tax and New Jersey personal income tax to the extent
consistent with the preservation of capital and the maintenance of
liquidity; invests in high quality New Jersey Municipal Securities
(as defined below).

PaineWebber RMA New York Municipal Money Fund ("New York Municipal
Money Fund")--A non-diversified money market fund seeking maximum
current income exempt from federal income tax and New York State
and New York City personal income taxes, consistent with liquidity
and conservation of capital; invests in high quality New York
Municipal Securities (as defined below).
</TABLE>

2
<PAGE>

<TABLE>
<S> <C>
Net Assets at Money Market Portfolio--$9.1 billion.
July 31, 1997: U.S. Government Portfolio--$1.1 billion.
Tax-Free Fund--$2.2 billion.
California Municipal Money Fund--$524.9 million.
New Jersey Municipal Money Fund--$56.3 million.
New York Municipal Money Fund--$309.8 million.

Distributor and PaineWebber Incorporated ("PaineWebber"). See "Management."
Investment Adviser:

Sub-Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins").

Purchases: Shares 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.

Public Offering Price: Net asset value, which each Fund seeks to maintain at $1.00 per
share.
</TABLE>

WHO SHOULD INVEST. Each Fund has its own suitability considerations and
risk factors, as summarized below and described in detail under "Investment
Objectives and Policies." The Funds are designed for investors seeking liquidity
and current income. The Funds provide a convenient means for investors to earn
current income at money market rates with minimal risk of fluctuation of
principal.

Shares of the Funds are offered primarily to clients of PaineWebber and its
correspondent firms who are participants in the RMA and BSA programs. Shares of
the Funds may be offered to PaineWebber clients with other types of accounts
under certain limited circumstances.

Tax-Free Fund, California Municipal Money Fund, New Jersey Municipal Money
Fund and New York Municipal Money Fund (referred to collectively in this
Prospectus as the "Municipal Funds") are not suitable for tax-exempt
institutions or qualified retirement plans, because those investors cannot take
advantage of the tax-exempt character of these Funds' dividends.

MONEY MARKET PORTFOLIO AND U.S. GOVERNMENT PORTFOLIO are designed for
investors seeking liquidity and current income. They provide a convenient means
for investors to earn current income at money market rates with minimal risk of
fluctuation of principal.

TAX-FREE FUND is designed for investors seeking liquidity and current income
that is exempt from federal income tax. It provides a convenient means for
investors to earn current tax-free income at money market rates with minimal
risk of fluctuation of principal.

3
<PAGE>
CALIFORNIA MUNICIPAL MONEY FUND is designed for investors seeking liquidity
and current income that is exempt from federal income tax and California
personal income tax. The Fund provides a convenient means for California
investors to earn current tax-free income at money market rates with minimal
risk of fluctuation of principal.

NEW JERSEY MUNICIPAL MONEY FUND is designed for investors seeking liquidity
and current income that is exempt from federal income tax and New Jersey
personal income tax. The Fund provides a convenient means for New Jersey
investors to earn current tax-free income at money market rates with minimal
risk of fluctuation of principal.

NEW YORK MUNICIPAL MONEY FUND is designed for investors seeking liquidity
and current income that is exempt from federal income tax and New York State and
New York City personal income taxes. The Fund provides a convenient means for
New York investors to earn current tax-free income at money market rates with
minimal risk of fluctuation of principal.

RISK FACTORS. There can be no assurance that any Fund will achieve its
investment objective. In periods of declining interest rates, a Fund's yield
will tend to be somewhat higher than prevailing short-term market rates, and in
periods of rising interest rates, a Fund's yield generally will be somewhat
lower. See "Investment Objectives and Policies" for more information about this
risk factor and those described below.

THE CONCENTRATION OF THE INVESTMENTS OF CALIFORNIA MUNICIPAL MONEY FUND, NEW
JERSEY MUNICIPAL MONEY FUND AND NEW YORK MUNICIPAL MONEY FUND IN SECURITIES
ISSUED BY A SINGLE STATE OR ENTITIES WITHIN THAT STATE MAY SUBJECT THOSE FUNDS
TO GREATER RISKS THAN A MONEY MARKET FUND THAT HAS A BROADER RANGE OF
INVESTMENTS. Investors should be aware that each of the states of California,
New Jersey and New York (the "States") experienced economic recessions during
the late 1980's and/or early 1990's, and the credit ratings assigned to the
general obligation bonds of each State were reduced by at least one rating
agency since 1990. In particular, the State of New York and many of its agencies
and local governments have been experiencing, and continue to experience,
significant financial difficulties. There can be no assurance that one or more
of the States will not experience financial difficulties in the future, which
may lead to reductions in the credit standings of such States and possibly of
certain local governments (including New York City).

The status of California Municipal Money Fund, New Jersey Municipal Money
Fund and New York Municipal Money Fund as "non-diversified" investment companies
and the ability of each Municipal Fund to invest more than 25% of its total
assets in securities the interest on which is paid from similar types of
projects may further increase the risk of an investment in those Funds.

4
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS. The following tables are intended to
assist investors in understanding the expenses associated with investing in each
Fund.

SHAREHOLDER TRANSACTION EXPENSES
FOR ALL FUNDS

<TABLE>
<S> <C>
Sales charge on purchases of shares.................................... None

Sales charge on reinvested dividends................................... None

Redemption fee or deferred sales charge................................ None
</TABLE>

ANNUAL FUND OPERATING EXPENSES*
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
NEW
CALIFORNIA JERSEY NEW YORK
MONEY U.S. MUNICIPAL MUNICIPAL MUNICIPAL
MARKET GOVERNMENT TAX- MONEY MONEY MONEY
PORTFOLIO PORTFOLIO FREE FUND FUND FUND FUND
-------- ---------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Management fees............... 0.50% 0.43% 0.44% 0.47% 0.50% 0.50%
12b-1 fees.................... None 0.08 0.08 0.08 0.12 0.08
Other expenses................ 0.09 0.11 0.09 0.07 0.19 0.19
-------- ----- --------- ----- --------- --------
Total Operating Expenses...... 0.59% 0.62% 0.61% 0.62% 0.81% 0.77%
-------- ----- --------- ----- --------- --------
-------- ----- --------- ----- --------- --------
</TABLE>

- ---------

* See "Management" for additional information. The fees and expenses shown are
those actually incurred for each Fund's most recent fiscal year, except for
New York Municipal Money Fund, for which "Management fees" and "Total
Operating Expenses" are those that would have been incurred by that Fund had
PaineWebber not waived a portion of its fees during the fiscal year.
"Management Fees" and "Total Operating Expenses," stated as a percentage of
average net assets, were 0.40% and 0.67%, respectively, for New York
Municipal Money Fund during its last fiscal year after taking those waivers
into account. PaineWebber currently charges an annual $85 account charge for
the RMA program including the Gold MasterCard-Registered Trademark- without
the Bank One Line of Credit. The fee for clients who choose the Line of
Credit for their Gold MasterCard is $125. The annual account charge for the
BSA program, including the MasterCard BusinessCard-Registered Trademark-, is
$125 ($165 with a MasterCard Line of Credit). The account charges are not
included in the table because certain non-RMA and non-BSA participants are
permitted to purchase shares of the Funds.

5
<PAGE>
EXAMPLE OF EFFECT OF FUND EXPENSES

An investor would pay directly or indirectly the following expenses on a
$1,000 investment in each Fund, assuming a 5% annual return:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio.................. $ 6 $19 $33 $ 74
U.S. Government Portfolio............... $ 6 $20 $35 $ 77
Tax-Free Fund........................... $ 6 $20 $34 $ 76
California Municipal Money Fund......... $ 6 $20 $35 $ 77
New Jersey Municipal Money Fund......... $ 8 $26 $45 $100
New York Municipal Money Fund+.......... $ 8 $25 $43 $ 95
</TABLE>

- ---------

+ Taking the fee waivers that were in place during its last fiscal year into
account, under the assumptions set forth in the Example, the expenses on a
$1,000 investment in New York Municipal Money Fund at the end of one, three,
five and ten years were $7, $21, $37, and $83, respectively.

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, any Fund's projected or actual performance.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND EACH FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The actual expenses of each Fund will depend upon, among other things,
the level of average net assets and the extent to which each Fund incurs
variable expenses, such as transfer agency costs.

6
<PAGE>
FINANCIAL HIGHLIGHTS

The tables below provide selected per share data and ratios for one share of
each Fund for each of 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 each Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 1997, and are incorporated by reference into
the Statement of Additional Information. The financial statements and notes, as
well as the information in the tables appearing below insofar as it relates to
each of the five years in the period ended June 30, 1997 (except with respect to
New Jersey Municipal Money Fund, for which the relevant periods are the fiscal
year ended June 30, 1997, the eight months ended June 30, 1996 and the fiscal
year ended October 31, 1995) have been audited by Ernst & Young LLP, independent
auditors. Each Fund's Annual Report to Shareholders may be obtained without
charge by calling 1-800-762-1000. The information appearing below for the
periods ended prior to these dates also has been audited by Ernst & Young LLP
or, in the case of New Jersey Municipal Money Fund, by other auditors whose
reports thereon also were unqualified.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income.... 0.049 0.051 0.049 0.030 0.029 0.046 0.069 0.081
Dividends from net
investment income...... (0.049) (0.051) (0.049) (0.030) (0.029) (0.046) (0.069) (0.081)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of
year................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investment return
(1).................... 5.04% 5.25% 5.00% 2.95% 2.98% 4.56% 6.88% 8.10%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's)................ $8,673,055 $7,522,612 $5,398,146 $4,337,009 $4,031,398 $4,054,344 $4,208,467 $3,765,953
Expenses to average net
assets................. 0.59% 0.60%(2) 0.59% 0.59% 0.59% 0.59% 0.61% 0.58%
Net investment income to
average net assets..... 4.94% 5.14%(2) 4.91% 2.98% 2.95% 4.57% 6.89% 8.07%

1989 1988
---------- ----------
<S> <C> <C>
Net asset value,
beginning of year...... $1.00 $1.00
---------- ----------
Net investment income.... 0.084 0.064
Dividends from net
investment income...... (0.084) (0.064)
---------- ----------
Net asset value, end of
year................... $1.00 $1.00
---------- ----------
---------- ----------
Total investment return
(1).................... 8.40% 6.40%
---------- ----------
---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's)................ $2,637,820 $2,509,372
Expenses to average net
assets................. 0.59% 0.76%
Net investment income to
average net assets..... 8.48% 6.37%
</TABLE>

- ------------

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each year reported.

(2) These ratios include non-recurring acquisition expenses of 0.01%.

7
<PAGE>

<TABLE>
<CAPTION>
U.S. GOVERNMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income... 0.048 0.049 0.046 0.027 0.028 0.044 0.066 0.077 0.078 0.059
Dividends from net
investment income..... (0.048) (0.049) (0.046) (0.027) (0.028) (0.044) (0.066) (0.077) (0.078) (0.059)
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year.................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Total investment return
(1)................... 4.88% 5.04% 4.67% 2.74% 2.83% 4.36% 6.59% 7.70% 7.80% 5.90%
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's)............... $1,083,866 $1,137,510 $815,781 $854,928 $880,834 $838,023 $937,943 $488,577 $327,437 $316,349
Expenses to average net
assets................ 0.62% 0.65%(2) 0.63% 0.62% 0.61% 0.62% 0.64% 0.68% 0.60% 0.74%
Net investment income to
average net assets.... 4.78% 4.91%(2) 4.55% 2.75% 2.80% 4.37% 6.46% 7.67% 7.77% 5.92%
</TABLE>

- -------------

(2) These ratios include non-recurring acquisition expenses of 0.02%.
<TABLE>
<CAPTION>
TAX-FREE FUND
-------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income.... 0.029 0.030 0.030 0.019 0.021 0.033 0.047 0.053
Dividends from net
investment income...... (0.029) (0.030) (0.030) (0.019) (0.021) (0.033) (0.047) (0.053)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of
year................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investment return
(1).................... 2.98% 3.09% 3.03% 1.88% 2.07% 3.30% 4.74% 5.30%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's)................ $2,065,920 $2,013,448 $1,562,040 $1,427,724 $1,248,702 $1,183,719 $1,190,073 $1,097,787
Expenses to average net
assets................. 0.61% 0.61%(2) 0.63% 0.64% 0.65% 0.62% 0.67% 0.67%
Net investment income to
average net assets..... 2.94% 3.02%(2) 3.00% 1.90% 2.06% 3.30% 4.66% 5.33%

1989 1988
---------- ----------
<S> <C> <C>
Net asset value,
beginning of
year................... $1.00 $1.00
---------- ----------
Net investment income.... 0.056 0.042
Dividends from net
investment income...... (0.056) (0.042)
---------- ----------
Net asset value, end of
year................... $1.00 $1.00
---------- ----------
---------- ----------
Total investment return
(1).................... 5.60% 4.20%
---------- ----------
---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's)................ $912,865 $941,169
Expenses to average net
assets................. 0.60% 0.61%
Net investment income to
average net assets..... 5.49% 4.20%
</TABLE>

- -------------

(2) These ratios include non-recurring acquisition expenses of 0.01%.

8
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL MONEY FUND
---------------------------------------------------------------
FOR THE YEARS ENDED FOR THE SEVEN
JUNE 30, MONTHS
------------------------------------------------ ENDED
1997 1996 1995 1994 1993 JUNE 30, 1992
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------------
Net investment
income................................... 0.028 0.029 0.029 0.018 0.019 0.016
Dividends from net investment income....... (0.028) (0.029) (0.029) (0.018) (0.019) (0.016)
-------- -------- -------- -------- -------- -------------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------------
-------- -------- -------- -------- -------- -------------
Total investment
return (1)............................... 2.87% 2.89% 2.91% 1.78% 1.88% 1.61%
-------- -------- -------- -------- -------- -------------
-------- -------- -------- -------- -------- -------------

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).......... $492,915 $473,726 $330,937 $295,183 $290,367 $259,183
Expenses to average net assets**........... 0.62% 0.70%(2) 0.69% 0.69% 0.72% 0.69%*
Net investment income to average net
assets**................................. 2.83% 2.82%(2) 2.87% 1.79% 1.86% 2.75%*

<CAPTION>
CALIFORNIA MUNICIPAL MONEY FUND
---------------------------------------------
FOR THE PERIOD
NOVEMBER 7,
FOR THE YEARS ENDED 1988+
NOVEMBER 30, TO
---------------------------- NOVEMBER 30,
1991 1990 1989 1988
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ---------------
Net investment
income................................... 0.038 0.050 0.056 0.004
Dividends from net investment income....... (0.038) (0.050) (0.056) (0.004)
-------- -------- -------- ---------------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ---------------
-------- -------- -------- ---------------
Total investment
return (1)............................... 3.81% 4.95% 5.56% 0.35%
-------- -------- -------- ---------------
-------- -------- -------- ---------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).......... $261,902 $300,516 $234,605 $53,745
Expenses to average net assets**........... 0.75% 0.70% 0.67% 0.67%*
Net investment income to average net
assets**................................. 3.83% 4.96% 5.52% 5.24%*
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL MONEY FUND
-------------------------------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEARS FOR THE PERIOD
ENDED FOR THE EIGHT MONTHS ENDED OCTOBER 31, FEBRUARY 1, 1991+
JUNE 30, ENDED ---------------------------------------- TO
1997 JUNE 30, 1996 1995(2) 1994 1993 1992 OCTOBER 31, 1991
------------ -------------------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------- ------- ------- ------- ------- -------
Net investment income.... 0.026 0.017 0.027 0.018 0.016 0.025 0.032
Dividends from net
investment income...... (0.026) (0.017) (0.027) (0.018) (0.016) (0.025) (0.032)
------------ ------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------- ------- ------- ------- ------- -------
------------ ------- ------- ------- ------- ------- -------
Total investment return
(1).................... 2.65% 1.71% 2.75% 1.76% 1.65% 2.49% 3.19%
------------ ------- ------- ------- ------- ------- -------
------------ ------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)................ $52,324 $42,233 $36,206 $31,981 $36,473 $27,625 $41,504
Expenses to average net
assets**............... 0.81% 0.95%* 0.93% 0.85% 0.93% 0.86% 0.27%*
Net investment income to
average net assets**... 2.63% 2.56%* 2.73% 1.74% 1.63% 2.51% 4.20%*
</TABLE>

- -------------
* Annualized
+ Commencement of operations
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. Total investment
returns for periods of less than one year have not been annualized.
(2) Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to PaineWebber on January 30, 1995.
** For the period February 1, 1991 to October 31, 1991, the predecessor adviser
waived and/or reimbursed the Fund for a portion of its operating expenses.
If such fee waivers and/or expense reimbursements had not been made, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income to average net assets would have been 0.83% and
3.64%, respectively.
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL MONEY FUND
-------------------------------------------------------------------------
FOR THE
FOR THE YEARS ENDED SEVEN
JUNE 30, MONTHS ENDED
--------------------------------------------------------- JUNE 30,
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- ------------
Net investment income.... 0.28 0.029 0.028 0.017 0.018 0.016
Dividends from net
investment income...... (0.28) (0.029) (0.028) (0.017) (0.018) (0.016)
-------- -------- -------- -------- -------- ------------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Total investment
return (1)............. 2.85% 2.91% 2.81% 1.70% 1.82% 1.62%
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)................ $274,338 $255,177 $192,799 $165,111 $116,604 $129,687
Expenses to average net
assets:
Before waiver from
adviser............ 0.77% 0.74%(2) 0.71% 0.75% 0.79% 0.73%*
After waiver from
adviser............ 0.67% 0.72%(2) 0.68% 0.68% 0.68% 0.68%*
Net investment income to
average net assets:
Before waiver from
adviser............ 2.71% 2.80%(2) 2.78% 1.67% 1.70% 2.54%*
After waiver from
adviser............ 2.81% 2.82%(2) 2.81% 1.74% 1.81% 2.59%*

FOR THE YEARS ENDED FOR THE PERIOD
NOVEMBER 30, NOVEMBER 10, 1988+
-------------------------------- TO
1991 1990 1989 NOVEMBER 30, 1988
-------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ----------
Net investment income.... 0.037 0.049 0.055 0.003
Dividends from net
investment income...... (0.037) (0.049) (0.055) (0.003)
-------- -------- -------- ----------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ----------
-------- -------- -------- ----------
Total investment
return (1)............. 3.74% 4.92% 5.51% 0.29%
-------- -------- -------- ----------
-------- -------- -------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)................ $121,347 $113,885 $ 78,497 $24,237
Expenses to average net
assets:
Before waiver from
adviser............ 0.89% 0.85% 0.89% 1.09%*
After waiver from
adviser............ 0.68% 0.64% 0.37% 0.27%*
Net investment income to
average net assets:
Before waiver from
adviser............ 3.52% 4.67% 5.04% 4.07%*
After waiver from
adviser............ 3.73% 4.88% 5.56% 4.89%*
</TABLE>

10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The investment objective of both Money Market Portfolio and U.S. Government
Portfolio is to provide maximum current income consistent with liquidity and
conservation of capital. Each Fund seeks to meet this objective by following
different investment policies. Tax-Free Fund's investment objective is to
provide maximum current income exempt from federal income tax consistent with
liquidity and conservation of capital. California Municipal Money Fund's
investment objective is to provide maximum current income exempt from federal
income tax and California personal income tax consistent with liquidity and
conservation of capital. New Jersey Municipal Money Fund's objective is the
maximization of current income exempt from federal income tax and New Jersey
personal income tax for residents of the State of New Jersey, consistent with
the preservation of capital and the maintenance of liquidity. New York Municipal
Money Fund's investment objective is to provide maximum current income exempt
from federal income tax and New York State and New York City personal income
taxes consistent with liquidity and conservation of capital.

Each Fund maintains a dollar-weighted average portfolio maturity of 90 days
or less, and purchases only those obligations that Mitchell Hutchins determines,
pursuant to procedures adopted by the applicable Corporation's board of
directors or Trust's board of trustees (each a "board") present minimal credit
risks. In managing each Fund's portfolio, Mitchell Hutchins may employ a number
of professional money management techniques, including varying the composition
and the weighted average maturity of each Fund's 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 a 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 declining interest rates, the Funds' yields will tend to be
somewhat higher than prevailing short-term market rates, and in periods of
rising interest rates the opposite generally will be true. Also, when interest
rates are falling, net cash inflows from the continuous sale of a Fund's shares
are likely to be invested in portfolio instruments producing lower yields than
the balance of that Fund's portfolio, thereby reducing its yield. In periods of
rising interest rates, the opposite can be true. There can be no assurance that
the Funds will achieve their investment objectives.

MONEY MARKET PORTFOLIO

Money Market Portfolio invests 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 U.S. government securities in which Money Market Portfolio 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")),

11
<PAGE>
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 Freddie Mac, also known as the
Federal Home Loan Mortgage Corporation).

Money Market Portfolio may invest in obligations (including certificates of
deposit, bankers' acceptances, time deposits and similar obligations) of U.S.
and foreign banks having total assets at the time of purchase in excess of $1.5
billion. The Fund may invest in non-negotiable time deposits of U.S. banks,
savings associations and similar depository institutions having 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 Money
Market Portfolio consist only of obligations that 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 securities issued
by the U.S. government, its agencies or instrumentalities).

U.S. GOVERNMENT PORTFOLIO

U.S. Government Portfolio invests in U.S. government securities having or
deemed to have remaining maturities of 13 months or less and repurchase
agreements secured by U.S. government securities. Under investment guidelines
adopted by the Corporation's board, the Fund currently invests only in
securities, such as U.S. Treasury bills, Treasury notes and GNMAs, that are
backed by the full faith and credit of the United States and repurchase
agreements secured by such securities. These guidelines may be modified by the
Corporation's board without shareholder approval. U.S. government securities in
which the Fund would otherwise be authorized to invest include obligations
supported primarily or solely by the creditworthiness of the issuer.

TAX-FREE FUND

Tax-Free Fund invests substantially all of its assets in high quality money
market instruments having or deemed to have remaining maturities of 13 months or
less issued by states, municipalities and public authorities, the interest from
which is exempt from federal income tax ("Municipal Securities"). The Fund
purchases only those Municipal Securities that are First Tier Securities. These
Municipal Securities include municipal notes, municipal commercial paper,
municipal

12
<PAGE>
bonds, floating and variable rate municipal obligations and participation
interests in municipal bonds and floating and variable rate obligations.
Municipal bonds include industrial development bonds ("IDBs"), private activity
bonds ("PABs"), moral obligation bonds, municipal lease obligations and
certificates of participation therein and put bonds. The interest on most PABs
is an item of tax preference for purposes of the federal alternative minimum tax
("AMT"). Under normal market conditions, the Fund intends to invest in Municipal
Securities that pay interest that is not an item of tax preference for purposes
of the AMT ("AMT exempt interest"), but may invest up to 20% of its total assets
in such securities if, in Mitchell Hutchins' judgment, market conditions
warrant. The principal Municipal Securities in which the Fund invests are
described in the Appendix to this Prospectus.

CALIFORNIA MUNICIPAL MONEY FUND

Except for temporary purposes, California Municipal Money Fund invests at
least 80% and seeks to invest 100% of its net assets in Municipal Securities
issued by the State of California, its municipalities and public authorities and
other issuers if such obligations pay interest that is exempt from federal
income tax as well as California personal income tax ("California Municipal
Securities").

California Municipal Money Fund invests in high quality California Municipal
Securities having or deemed to have remaining maturities of 13 months or less.
These instruments include the types of Municipal Securities identified above for
the Tax-Free Fund and further described in the Appendix to this Prospectus.
Under normal market conditions, the Fund intends to invest in California
Municipal Securities that pay AMT exempt interest, but may invest without limit
in securities that pay interest that is subject to the AMT if, in Mitchell
Hutchins' judgment, market conditions warrant. The California Municipal
Securities purchased by the Fund consist only of First Tier Securities.

NEW JERSEY MUNICIPAL MONEY FUND

Except for temporary purposes, New Jersey Municipal Money Fund invests at
least 65% of its total assets, and seeks to invest 100% of its net assets, in
Municipal Securities issued by the State of New Jersey, its political
subdivisions, authorities and corporations, the interest from which is exempt
from federal income tax as well as New Jersey personal income tax ("New Jersey
Municipal Securities"). Except for temporary purposes, the Fund invests at least
80% of its net assets in Municipal Securities.

New Jersey Municipal Money Fund invests in high quality New Jersey Municipal
Securities having or deemed to have remaining maturities of 13 months or less.
These instruments include the types of Municipal Securities identified above for
Tax-Free Fund and further described in the Appendix to this Prospectus. Under
normal market conditions, the Fund may invest in securities that pay interest
that is subject to the AMT. The New Jersey Municipal Securities purchased by the
Fund consist only of First Tier Securities.

NEW YORK MUNICIPAL MONEY FUND

Except for temporary purposes, New York Municipal Money Fund invests at
least 80% and seeks to invest 100% of its net assets in Municipal Securities
issued by the State of New York, its municipalities and public authorities and
other issuers if such obligations pay interest that is exempt from federal
income tax as well as New York State and New York City personal income taxes
("New York Municipal Securities").

13
<PAGE>
New York Municipal Money Fund invests in high quality New York Municipal
Securities having or deemed to have remaining maturities of 13 months or less.
These instruments include the types of Municipal Securities identified above for
the Tax-Free Fund and further described in the Appendix to this Prospectus.
Under normal market conditions, the Fund intends to invest in New York Municipal
Securities that pay AMT exempt interest, but may invest without limit in
securities that pay interest that is subject to the AMT if, in Mitchell
Hutchins' judgment, market conditions warrant. The New York Municipal Securities
purchased by the Fund consist only of First Tier Securities.

OTHER INVESTMENT POLICIES AND
RISK FACTORS

U.S. GOVERNMENT SECURITIES. Money Market and U.S. Government Portfolios 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 Funds may also invest in
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury, which are traded independently under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS program, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury. The staff of
the SEC currently takes the position that interests in "stripped" U.S.
government securities that are not part of the STRIPS program are not U.S.
government securities.

VARIABLE AND FLOATING RATE SECURITIES. The Funds may purchase variable and
floating rate securities with remaining maturities in excess of 13 months issued
by U.S. government agencies or instrumentalities or guaranteed by the U.S.
government (Money Market and U.S. Government Portfolios). In addition, Money
Market Portfolio may purchase variable and floating rate securities of other
issuers, and the Municipal Funds may purchase such securities of municipal
issuers. The Funds will only purchase these other types of variable and floating
rate securities 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 Funds' investments 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. A demand feature gives a 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 a Fund and affect its share price.

VARIABLE AMOUNT MASTER DEMAND NOTES. Securities purchased by Money Market
Portfolio 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

14
<PAGE>
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. Money Market Portfolio and U.S. Government Portfolio
each may enter into repurchase agreements with banks and dealers with respect to
any security in which that Fund is authorized to invest, except that securities
subject to repurchase agreements may have maturities in excess of 13 months.
Each Municipal Fund may enter into repurchase agreements with such institutions
with respect to U.S. government securities, commercial paper, bank certificates
of deposit and bankers' acceptances. Repurchase agreements are transactions in
which a 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, including possible decline in the market value of the
underlying securities and delays and costs to a Fund if the other party to the
repurchase agreement becomes insolvent, the Funds intend 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 applicable board. The Municipal Funds do not intend to enter
into repurchase agreements except as a temporary measure and under unusual
circumstances.

FOREIGN SECURITIES. Money Market Portfolio may invest in U.S.
dollar-denominated securities of foreign issuers, including debt securities of
foreign banks, corporations, governments and similar entitites. 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 Money Market Portfolio. 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. Each 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 a Fund to
earn additional income but could result in a loss or delay in recovering these
securities. Because the income earned through securities lending is taxable, the
Municipal Funds do not expect to engage in securities lending except under
unusual circumstances.

SPECIAL RISK CONSIDERATIONS--
CALIFORNIA MUNICIPAL MONEY FUND, NEW JERSEY MUNICIPAL MONEY FUND AND NEW YORK
MUNICIPAL MONEY FUND

Each of these Funds concentrates its investments in securities issued by a
single State or entities within that State. In addition, each of these Funds may
invest more than 25% of the value of its total assets in Municipal Securities
that are related in such a way that an economic, business or political
development or change affecting one such security would also affect the other
securities, such as securities the interest on which is paid from revenues of
similar types of

15
<PAGE>
projects. These Funds may be subject to greater risk than other money market
funds that do not follow these practices.

These Funds are "non-diversified," as that term is defined in the 1940 Act,
but each intends to continue to qualify as a "regulated investment company" for
federal income tax purposes. See "Dividends and Taxes." This means, in general,
that more than 5% of each Fund's total assets may be invested in securities of
one issuer, but only if, at the close of each quarter of the Fund's taxable
year, the aggregate amount of such holdings does not exceed 50% of the value of
its total assets and no more than 25% of the value of its total assets is
invested in the securities of a single issuer. Although Mitchell Hutchins
anticipates that normally each Fund's portfolio will include the securities of a
number of different issuers, each Fund may be subject to greater risk with
respect to its portfolio securities than a "diversified" investment company,
because changes in the financial condition or market assessment of a single
issuer may cause greater fluctuation in that Fund's yield or affect that Fund's
ability to maintain a constant net asset value per share.

As noted above, Municipal Funds purchase First Tier Securities. References
in the discussion that follows to the credit ratings assigned to certain State
obligations are intended to assist an investor in understanding a State's
perceived general economic health as of the date of this prospectus. The
standards that must be met in order for a given security to be considered for
purchase by a Municipal Fund are independent criteria.

RISKS OF CALIFORNIA MUNICIPAL SECURITIES. California Municipal Money Fund's
investment concentration in California Municipal Securities involves greater
risks than if it selected its investments from a broader geographic region. The
Fund's yield and ability to maintain a constant net asset value per share can be
affected by political and economic developments within the State of California
and by the financial condition of California, its public authorities and
political subdivisions. California suffered a severe economic recession between
1990-1993, which resulted in broad-based revenue shortfalls for the State and
many local governments. California's fiscal condition has improved as its
economy has been in a sustained recovery since 1994. During the recession, the
State substantially reduced local assistance, and further reductions could
adversely affect the financial conditions of cities, counties, and other
government agencies facing constraints in their own revenue collections.
California's long-term credit rating was reduced in the early 1990's, but was
raised in 1996 by Fitch Investors Service, L.P. ("Fitch") and Standard & Poor's,
a division of The McGraw-Hill Companies, Inc. ("S&P" or "Standard & Poor's").
California's general obligation bonds are currently rated A+ by Standard &
Poor's, A1 by Moody's Investors Service, Inc. ("Moody's") and A+ by Fitch.

In the past, California voters have passed amendments to the California
Constitution and other measures that limit the taxing and spending authority of
California governmental entities and future voter initiatives could result in
adverse consequences affecting California Municipal Securities. These factors,
among others (including the outcome of related pending litigation), could reduce
the credit standing of certain issuers of California Municipal Securities. A
more detailed discussion of the risks of investing in California Municipal
Securities is included in the Statement of Additional Information.

RISKS OF NEW JERSEY MUNICIPAL MONEY FUND. New Jersey Municipal Money Fund's
investment concentration in New Jersey Municipal Securities involves greater
risks than if it selected its investments from a broader geographic region. The
Fund's yield and ability to maintain a constant net

16
<PAGE>
asset value per share can be affected by political and economic developments
within the State of New Jersey and by the financial condition of New Jersey, its
public authorities and political subdivisions. Although New Jersey enjoyed a
period of economic growth with unemployment levels below the national average
during the mid-1980s, New Jersey's economy slowed down well before the onset of
the national recession, which, according to the National Bureau of Economic
Research, began in July 1990. Reflecting the economic downturn, New Jersey's
unemployment rate rose from a low of 3.6% in the first quarter of 1989 to a
recessionary peak of 8.4% during 1992. Since then, the State's unemployment rate
fell to 6.4% during 1995 and 6.1% for the four month period from May 1996
through August 1996. As a result of New Jersey's fiscal weakness, in July 1991
S&P lowered its rating of the State's AAA general obligation debt to AA+.

Moody's and Fitch each currently rate New Jersey general obligation bonds
Aa(1) and AA+, respectively. A more detailed discussion of the risks of
investing in New Jersey Municipal Securities is included in the Statement of
Additional Information.

RISKS OF NEW YORK MUNICIPAL SECURITIES. New York Municipal Money Fund's
investment concentration in New York Municipal Securities involves greater risks
than if it selected its investments from a broader geographic region. The Fund's
yield and ability to maintain a constant net asset value per share can be
affected by political and economic developments within the State of New York and
by the financial condition of the State, its public authorities and political
subdivisions, particularly the City of New York (the "City"). The State reduced
its accumulated General Fund deficits and experienced operating surpluses in
fiscal year ("FY") 1991-92 through 1993-94, an operating deficit of $1.426
billion for FY 1994-95 and a modest General Fund surplus for FY 1995-96. The
State ended its FY 1996-97 with a General Fund cash surplus of approximately
$1.4 billion. Although the FY 1997-98 budget projects a cash balance in the
General Fund, the economic and financial condition of the State may be affected
by various financial, social, economic and political factors. Because of the
uncertainty and unpredictability of changes in these factors, their impact
cannot be fully included in the assumptions underlying the State's projections.
In addition, recent changes to federal entitlement programs and uncertainties
stemming from such changes may materially adversely impact the State's ability
to achieve a balanced budget in future fiscal years. The City (which is
constrained in its fiscal flexibility by an already heavy local tax burden,
urgent social needs and its extensive and deteriorating infrastructure) and most
suburban county governments have experienced serious fiscal problems related to
the recessionary performance of the regional economy, which has caused
substantial, broad-based and recurring revenue shortfalls. Both the State of New
York's credit rating and the City's credit rating have been, and could be
further, reduced; and their ability to provide assistance to public authorities
and political subdivisions has been, and could be further, impaired. Currently,
New York's general obligation bonds are rated A by Moody's, A by S&P and A+ by
Fitch. A more detailed discussion of the risks of investing in New York
Municipal Securities is included in the Statement of Additional Information.

OTHER INVESTMENT POLICIES

When Mitchell Hutchins believes that there is an insufficient supply of the
type of Municipal Securities in which a Municipal Fund primarily invests, or
during other unusual market conditions, that Municipal Fund temporarily may

17
<PAGE>
invest all or any portion of its net assets in other types of Municipal
Securities. In addition, when Mitchell Hutchins believes that there is an
insufficient supply of any type of Municipal Securities or that other
circumstances warrant a defensive posture, each Municipal Fund may hold cash and
may invest all or any portion of its net assets in taxable money market
instruments, including repurchase agreements. To the extent that a Fund holds
cash, such cash would not earn income and would reduce the Fund's yield.

Each Fund may borrow money for temporary purposes, but not in excess of 10%
of its total assets (15% of net assets in the case of New Jersey Municipal Money
Fund). Borrowings by Money Market Portfolio and U.S. Government Portfolio may
include reverse repurchase agreements involving up to 5% of each Fund's net
assets. The Funds may also purchase securities on a "when-issued" basis, that
is, for delivery beyond the normal settlement date at a stated price and yield.
A Fund generally would not pay for such securities or start earning interest on
them until they are received. However, when a Fund purchases securities on a
when-issued basis, it immediately assumes the risks of ownership, including the
risk of price fluctuation. Failure by the issuer to deliver a security purchased
on a when-issued basis may result in a loss or missed opportunity to make an
alternative investment. Each Municipal Fund expects that commitments to purchase
when-issued securities normally will not exceed 25% of its assets (20% in the
case of New Jersey Municipal Money Fund).

No Fund will invest more than 10% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of seven days. In
order to facilitate portfolio liquidity in unusual market conditions, a
Municipal Fund may acquire standby commitments from municipal bond dealers who
would agree to purchase the Municipal Securities that are the subject of the
commitments.

Future federal, state and local laws may adversely affect the tax-exempt
status of interest on Municipal Securities held by one of the Municipal Funds or
of the exempt-interest dividends paid by the Municipal Funds, extend the time
for payment of principal or interest or otherwise constrain enforcement of such
obligations. Opinions relating to the validity of Municipal Securities and the
tax-exempt status of interest thereon are rendered by the issuer's bond counsel
at the time of issuance; Mitchell Hutchins will rely on such opinions without
independent verification.

A Fund's investment objective may not be changed without the approval of its
shareholders. California Municipal Money Fund's investment policy of investing
at least 80% of its net assets in California Municipal Securities and the
similar investment policy of New York Municipal Money Fund and New Jersey
Municipal Money Fund relating to investments in New York Municipal Securities
and New Jersey Municipal Securities, respectively, may not be changed without
approval of the appropriate Fund's shareholders. Certain other 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 applicable board without shareholder approval.

18
<PAGE>
PURCHASES

THE RMA AND BSA PROGRAMS. Shares of each Fund are available primarily
through the RMA and BSA programs. RMA and BSA participants are asked to select
one of the Funds as their designated portfolio ("Primary Sweep Money Fund").
Investors will have all free credit cash balances of over $1 (including proceeds
from securities sold) in the account invested in the Primary Sweep Money Fund.
Each Fund and PaineWebber reserve the right to reject any purchase order and to
suspend the offering of Fund shares for a period of time.

Investors who choose one Fund as their Primary Sweep Money Fund may also
purchase shares of another Fund by contacting their PaineWebber Investment
Executive or correspondent firms. Minimum purchase and maintenance requirements,
however, may apply to purchases of shares of a Fund other than the investor's
Primary Sweep Money Fund.

Certain features available to RMA and BSA participants are summarized in the
Appendices to the Statement of Additional Information. The RMA and BSA programs
are more fully described in separate materials your Investment Executive can
provide you. The availability of Fund shares to customers of PaineWebber's
correspondent firms varies depending on the arrangements between PaineWebber and
such firms.

An order to purchase shares of a Fund 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 are
all open for business.

RMA and BSA participants may change their Primary Sweep Money Fund at any
time by notifying their PaineWebber Investment Executives or correspondent
firms. However, RMA and BSA participants may not have more than one Primary
Sweep Money Fund at a time.

On any Business Day, a Fund will accept purchase orders and credit shares to
investors' accounts as follows.

PURCHASES IN GENERAL. To the extent that amounts transferred by check,
electronic funds transfer credit or wire or from funds held at PaineWebber into
an investor's brokerage account create a free credit cash balance, that cash
balance will be automatically invested in the investor's Primary Sweep Money
Fund, as described above under "The RMA and BSA Programs," when federal funds
are available for the investment. Fund shares will not be purchased until all
Debits and Charges (each as defined below) in a shareholder's RMA or BSA
brokerage account are satisfied. See "Redemptions-- Automatic Redemptions." RMA
or BSA participants wishing to invest amounts transferred in one of the other
Funds should so instruct their PaineWebber Investment Executives or
correspondent firms. All other shareholders should consult their PaineWebber
Investment Executives or correspondent firms for information on how to purchase
Fund shares.

PURCHASES WITH FUNDS HELD AT PAINEWEBBER. Investors may invest in Fund
shares with funds held in their brokerage account, including funds

19
<PAGE>
from the sale of securities, as described above under "Purchases in General."
Federal funds normally are available for cash balances arising from the sale of
securities held in a brokerage account on the Business Day following settlement,
but in some cases can take longer.

PURCHASES BY CHECK OR ELECTRONIC FUNDS TRANSFER CREDIT. RMA and BSA
participants may purchase Fund shares by depositing into their account checks
drawn on a U.S. bank. The RMA or BSA participant's brokerage account number
should be included on the check.

As noted above, shares of the participant's Primary Sweep Money Fund will be
purchased when federal funds are available. Federal funds are deemed available
to a Fund two Business Days after deposit of a personal check and/or an
Electronic Funds Transfer credit initiated by PaineWebber 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 and Electronic Funds
Transfer credits to the extent those funds are converted to federal funds in
fewer than two Business Days.

PURCHASES BY WIRE. RMA and BSA participants may also purchase shares of
their Primary Sweep Money Fund or another Fund by instructing their banks to
transfer federal funds by wire to their RMA or BSA account. Wire transfers
should be directed to: The Bank of New York, ABA 021000018, PaineWebber Inc.,
A/C 890-0114-088, OBI=FBO [Account Name]/[Brokerage Account Number]. The wire
must include the investor's name and RMA or BSA brokerage account number. RMA or
BSA participants wishing to transfer federal funds into their accounts should
contact their PaineWebber Investment Executives or correspondent firms to
determine the appropriate wire instructions.

If PaineWebber receives a notice from an investor's bank of a wire transfer
of federal funds by 12:00 noon, Eastern time, on a Business Day, the automatic
investment will be executed on that Business Day. Otherwise, the automatic
investment will be executed at 12:00 noon, Eastern time, on the next Business
Day. PaineWebber and/or an investor's bank may impose a service charge for wire
transfers.

REDEMPTIONS

Shareholders may redeem (sell) any number of shares from their Fund accounts
by wire, by telephone or by mail. Shares will be redeemed at the net asset value
per share next determined after receipt by the Funds' transfer agent ("Transfer
Agent") of instructions from PaineWebber to redeem. PaineWebber delivers such
instructions to the Transfer Agent prior to the determination of net asset value
at 12:00 noon, Eastern time, on any Business Day.

AUTOMATIC REDEMPTIONS. Under the RMA and BSA programs, PaineWebber will
redeem Fund shares automatically to satisfy outstanding "Debits" and "Charges."
"Debits" are amounts due PaineWebber on settlement date for securities purchases
and other debits in the investor's RMA or BSA brokerage account, including
margin loans, any federal funds wires arranged by PaineWebber and fees for such
wires and PaineWebber checks and fees for such checks. "Charges" are RMA or BSA
checks, MasterCard purchases, cash advances, Bill Payment Service checks and
Automated Clearing House transfers, including Electronic Funds Transfer Debits.
Shares are redeemed to cover Debits on the day the Debit is generated. Shares
are redeemed to cover RMA or BSA checks and MasterCard cash advances on the day
they are paid. Shares are redeemed to cover MasterCard purchases at the end of
the MasterCard monthly billing period.

20
<PAGE>
Shares are also redeemed to cover interest due on and credit extended and
outstanding under the Bank One Line of Credit at the end of the MasterCard
monthly billing cycle. Securities purchases are automatically paid for on
settlement date.

ORDER OF REDEMPTION. If a shareholder owns shares of more than one Fund,
shares of the Primary Sweep Money Fund are always redeemed first; thereafter,
shares held in the other Funds will be redeemed, if necessary, in the following
order: first, Money Market Portfolio; second, U.S. Government Portfolio; third,
Tax-Free Fund; and fourth, New York Municipal Money Fund, California Municipal
Money Fund or New Jersey Municipal Money Fund.

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 RMA or BSA brokerage accounts for dividends earned on
those shares to (but not including) the day of redemption. The redemption price
may be more or less than the purchase price, depending on the market value of
the Fund's portfolio; however, each Fund anticipates that its net asset value
per share will normally be $1.00 per share. See "Valuation of Shares."

Because each Fund incurs certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to establish minimum initial purchase
requirements and to redeem Fund shares in any shareholder account of less than
$500 net asset value. If a 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 of shares
that were purchased recently, a Fund may delay payment until it is assured that
it has received good payment for the purchase of the shares. In the case of
purchases by check, this can take up to 15 days.

PaineWebber has the right to terminate an RMA or BSA brokerage account for
any reason. In such event, all Fund shares held in the shareholder's RMA or BSA
brokerage account will be redeemed and the proceeds sent to the shareholder
within three Business Days.

VALUATION OF SHARES

Each Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Each Fund's net asset value per share is determined by dividing the value
of the securities plus any cash or other assets held by the Fund less all
liabilities by the number of Fund shares outstanding. Each Fund's net asset
value is computed once each Business Day at 12:00 noon, Eastern time.

Each 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 of the
applicable Corporation or Trust.

DIVIDENDS AND TAXES

DIVIDENDS. Each Business Day, each Fund declares as dividends all of its
net investment income. Shares begin earning dividends on the day they are
purchased; dividends are accrued to

21
<PAGE>
shareholder accounts daily and are automatically paid in additional Fund 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. Any amounts from accretion of market discounts on Municipal
Securities, which are taxable to each Fund's shareholders, are included in the
daily dividends.

Each 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 Funds do not
expect to realize net long-term capital gain and thus do not anticipate payment
of any long-term capital gain distributions.

FEDERAL TAX. Each Fund intends to continue to qualify for treatment as a
regulated investment company ("RIC") 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 taxable net investment income and net
short-term capital gain, if any) that is distributed to its shareholders.

Dividends paid by Money Market Portfolio and U.S. Government Portfolio
generally are taxable to their shareholders as ordinary income, notwithstanding
that such dividends are paid in additional Fund shares. Shareholders not subject
to tax on their income, however, generally are not required to pay tax on
amounts distributed to them. Distributions by a Municipal Fund that it
designates as "exempt-interest dividends" generally may be excluded from gross
income by a shareholder. Interest on indebtedness incurred by a shareholder to
purchase or carry shares of a Municipal Fund is not deductible.

Each Fund notifies its shareholders following the end of each calendar year
of the tax status of all distributions paid (or deemed paid) during that year.
The notice sent by each Municipal Fund specifies the amount of exempt-interest
dividends (and the portion thereof, if any, that is not AMT exempt interest) and
the amount of any taxable dividends.

Each Fund is required to withhold 31% of all taxable dividends payable to
any individuals and certain other non-corporate shareholders who (1) do not
provide the Fund with a correct taxpayer identification number or (2) otherwise
are subject to backup withholding.

CALIFORNIA TAXES. If California Municipal Money Fund qualifies as a RIC
under the Internal Revenue Code and at least 50% of the value of its total
assets consists of qualifying California Municipal Securities, exempt-interest
dividends derived from interest on qualifying California Municipal Securities
will be exempt from California personal income tax ("California exempt-interest
dividends"), but not California franchise tax. Dividends derived from interest
on other Municipal Securities, taxable income and net capital gains are taxable
under California law at ordinary income rates. Interest on indebtedness incurred
by a shareholder to purchase or carry shares of the Fund is not deductible for
purposes of California personal income tax. California exempt-interest dividends
may affect the calculation of certain adjustments to alternative minimum taxable
income for shareholders that are corporations. Shareholders receive notification
annually stating the portion of the Fund's exempt-interest dividends
attributable to issuers in California and other states. The Fund itself will not
be subject to California franchise or corporate income tax on interest income
distributed to its shareholders.

22
<PAGE>
NEW YORK STATE AND CITY TAXES. If New York Municipal Money Fund qualifies
as a RIC under the Internal Revenue Code and at the end of each quarter of its
taxable year at least 50% of its assets is invested in qualifying New York
Municipal Securities, exempt-interest dividends paid by the Fund that are
derived from interest on qualifying New York Municipal Securities will be exempt
from New York State and City personal income taxes, but not corporate franchise
taxes. Dividends derived from interest on other Municipal Securities, taxable
income and net capital gains are not exempt from New York State and City
personal income taxes. Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Fund is not deductible for purposes of New York
State or City personal income taxes. Shareholders receive notification annually
stating the portion of the Fund's exempt-interest dividends attributable to
issuers in New York State and City and other states.

NEW JERSEY TAXES. New Jersey Municipal Money Fund anticipates that
substantially all dividends paid by it will not be subject to New Jersey
personal income tax. Distributions paid by a "qualified investment fund" will
not be subject to the New Jersey personal income tax to the extent the
distributions are attributable to income received as interest or gain from New
Jersey Municipal Securities, direct U.S. government obligations or certain other
specified obligations. To be classified as a qualified investment fund, at least
80% of the Fund's investments must consist of such obligations. Distributions by
a qualified investment fund that are attributable to most other sources will be
subject to the New Jersey personal income tax. If the Fund continues to be
classified as a qualified investment fund, any gain on the redemption of its
shares will not be subject to the New Jersey personal income tax. To the extent
a shareholder of the Fund is obligated to pay state or local taxes outside of
New Jersey, dividends earned by such shareholder may represent taxable income.

New Jersey Municipal Money Fund shares are not subject to property taxation
by New Jersey or its political subdivisions.

ADDITIONAL INFORMATION. The foregoing is only a summary of some of the
important federal, state and local income tax considerations generally affecting
the Funds and their shareholders; see the Statement of Additional Information
for a further discussion. There may be other federal, state and local tax
considerations applicable to a particular investor. Prospective shareholders are
urged to consult their tax advisers.

MANAGEMENT

Each board, as part of its overall management responsibility, oversees
various organizations responsible for its Fund's day-to-day management.
PaineWebber, the Funds' investment adviser and administrator, provides a
continuous investment program for each Fund and supervises all aspects of its
operations. As sub-adviser to the Funds, Mitchell Hutchins makes and implements
investment decisions and, as sub-administrator, is responsible for the
day-to-day administration of the Funds.

PaineWebber receives a monthly fee for these services. For the fiscal year
ended June 30, 1997, the effective advisory and administration fees paid to
PaineWebber as a percentage of a Fund's average daily net assets were as
follows:

<TABLE>
<S> <C>
Money Market Portfolio 0.50%
U.S. Government Portfolio 0.43%
Tax-Free Fund 0.44%
California Municipal Money Fund 0.47%
New Jersey Municipal Money Fund 0.50%
New York Municipal Money Fund 0.40%
</TABLE>

23
<PAGE>
PaineWebber (not the Funds) pays Mitchell Hutchins a fee for its sub-advisory
and sub-administration services at an annual rate of 20% of the fee received by
PaineWebber from each Fund for advisory and administrative services.

PaineWebber and Mitchell Hutchins are located at 1285 Avenue of the
Americas, New York, New York 10019. Mitchell Hutchins is a wholly owned
subsidiary of PaineWebber, which is in turn wholly owned by PaineWebber Group
Inc., a publicly owned financial services holding company. At July 31, 1997,
PaineWebber or Mitchell Hutchins was investment adviser or sub-adviser to 29
registered investment companies with 64 separate portfolios and aggregate assets
in excess of $34.8 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.

DISTRIBUTION ARRANGEMENTS. PaineWebber is the distributor of each Fund's
shares and each Fund (other than Money Market Portfolio) has a separate plan of
distribution ("Plan"). Under their Plans, U.S. Government Portfolio, Tax-Free
Fund, California Municipal Money Fund and New York Municipal Money Fund each is
authorized to pay PaineWebber a 12b-1 service fee at the annual rate of up to
0.15% of the Fund's average daily net assets. Each of these Funds currently pays
PaineWebber a 12b-1 service fee at the annual rate of 0.08% of its average daily
net assets. Any increase in this annual rate would require prior approval by the
board of the applicable Corporation or Trust.

Under each Plan, PaineWebber uses the 12b-1 service fee to pay PaineWebber
Investment Executives and correspondent firms for shareholder servicing,
currently at the annual rate of 0.06% of the Fund's average daily net assets
held in accounts serviced by such Investment Executives and correspondent firms.
The fee is also used to offset PaineWebber's other expenses in servicing and
maintaining shareholder accounts. These expenses may include the costs of the
PaineWebber branch office in which the Investment Executive is based, such as
rent, communications equipment, employee salaries and other overhead costs.

During the period they are in effect, each Plan and a related distribution
contract ("Distribution Contract") obligate the affected Fund to pay the 12b-1
service fee to PaineWebber as compensation for its service activities and not as
reimbursement for specific expenses incurred. Thus, even if PaineWebber's
expenses exceed the 12b-1 fee, the Fund will not be obliged to pay more than the
fee, and if PaineWebber's expenses are less than the fee, it will retain its
full fee and realize a profit. Each Fund will pay the 12b-1 fee to PaineWebber
until either the Plan or the Distribution Contract is terminated or not renewed
for that Fund. In that event, PaineWebber's service expenses in excess of fees
received or accrued through the termination date will be PaineWebber's sole
responsibility and not obligations of the Fund.

Under a separate Plan, New Jersey Municipal Money Fund is authorized to
reimburse PaineWebber its expenses for distribution of that Fund's shares at the
annual rate of up to 0.12% of its average daily net assets. The expenses which
may be reimbursed include compensation to Investment Executives and other
employees of PaineWebber, printing of prospectuses and reports for other than
existing shareholders, and the preparation, printing and distribution of sales
literature and advertising materials. It is not anticipated that items
reimbursable under this Plan will generally include any profit to PaineWebber.
The Fund is not authorized to reimburse PaineWebber for expenses incurred more
than 12 months prior to the date of such reimbursement. PaineWebber anticipates
that there will be no carryover of expenses from one year to the next. The
expenses to be reimbursed are for activities primarily intended to result in the
sale of the Fund's shares and the maintenance

24
<PAGE>
of Fund accounts and account balances, and there will be no reimbursement for
the expenses relative to PaineWebber's overhead. PaineWebber currently intends
to pay its Investment Executives at the annual rate of approximately 0.10% of
the Fund's average daily net assets held in accounts serviced by such Investment
Executives and to use the balance received under the Fund's Plan for other
activities.

PERFORMANCE INFORMATION

From time to time each 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 a Fund is the income on an
investment in that 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 Municipal Funds may also advertise "tax-equivalent yield" and
"tax-equivalent effective yield." "Tax-equivalent yield" shows the taxable yield
that would produce the same income after a stated rate of taxes as the
respective Fund's tax-exempt yield (yield excluding taxable income), with
adjustments for the portion, if any, of a Fund's yield that is not tax-exempt.
"Tax-equivalent effective yield" shows the taxable effective yield that would
produce the same income after a stated rate of taxes as the respective Fund's
tax-exempt effective yield (effective yield excluding taxable income), with
adjustments for the portion, if any, of a Fund's yield that is not tax-exempt.

Each 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 or for shorter periods. This return data may or may not assume
reinvestment of dividends (compounding).

The performance of shareholder accounts with small balances will differ from
the quoted performance because daily income for each shareholder account is
rounded to the nearest whole penny. Accordingly, very small shareholder accounts
(at current interest rates, approximately $36 or less in the case of the Money
Market Portfolio and U.S. Government Portfolio, and approximately $60 or less in
the case of Municipal Funds) that generate less than $0.005 per day of income
will earn no dividends.

GENERAL INFORMATION

Money Market and U.S. Government Portfolios are diversified series of
PaineWebber RMA Money Fund, Inc. ("Money Fund Corporation"). Both Tax-Free Fund
and Money Fund Corporation were incorporated in Maryland on July 2, 1982, and
each is registered with the SEC as an open-end, management investment company.
Money Fund Corporation has an authorized capitalization of 30 billion shares of
$0.001 par value common stock, 15 billion and 5 billion of which are designated
as shares of Money Market Portfolio and U.S. Government Portfolio, respectively.
The remaining shares are classified as shares of Money Fund Corporation's third
series. Tax-Free Fund, a diversified investment company, has an authorized
capitalization of 20 billion shares of $0.001 par value common stock.

California Municipal Money Fund and New York Municipal Money Fund are
non-diversified series of PaineWebber Managed Municipal Trust ("Managed
Municipal Trust"). The Trust is registered as an open-end management investment
company and was organized as a business trust under the laws of the Commonwealth
of Massachusetts by Declaration of Trust dated November 21, 1986. The Trust's
board has authority to

25
<PAGE>
issue an unlimited number of shares of beneficial interest of separate series,
par value $0.001 per share.

New Jersey Municipal Money Fund is a non-diversified series of PaineWebber
Municipal Money Market Series. The Trust is registered as an open-end management
investment company and was organized as a business trust under the laws of the
Commonwealth of Massachusetts by Declaration of Trust dated September 14, 1990.
The Trust's board has authority to issue an unlimited number of shares of
beneficial interest, par value $0.001 per share.

Although each Fund is offering only its own shares, it is possible that a
Fund might become liable for a misstatement in the Prospectus about another
Fund. Each board has considered this factor in approving the use of a single,
combined Prospectus.

The Corporations and the Trusts do not hold annual shareholder meetings.
There normally will be no meetings of shareholders to elect board members unless
fewer than a majority of the board members holding office have been elected by
shareholders.

The directors are required to call a meeting of shareholders of a
Corporation when requested in writing to do so by the shareholders of record
holding at least 25% of the Corporation's outstanding shares.

Shareholders of record of no less than two-thirds of the outstanding shares
of the applicable Trust may remove a trustee by vote cast in person or by proxy
at a meeting called for that purpose. The trustees are required to call a
meeting of shareholders of the applicable Trust for the purposes of voting upon
the question of removal of any trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the applicable Trust's
outstanding shares.

Each share of a Fund has equal voting, dividend and liquidation rights. The
shares of each series of Money Fund Corporation and Managed Municipal Trust will
be voted separately except when an aggregate vote of all series is required by
the 1940 Act.

Shareholders of a 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 a Corporation or
Trust may elect all of its board members.

CERTIFICATES. To avoid additional operating expense and for investor
convenience, stock certificates are not issued. Ownership of shares of each Fund
is recorded on a stock register by the Transfer Agent, and shareholders have the
same rights of ownership with respect to such shares as if certificates had been
issued.

REPORTS, CONFIRMATIONS AND STATEMENTS. Shareholders of each Fund receive
its audited annual and unaudited semiannual financial statements. All purchases
and redemptions of Fund shares are confirmed to shareholders at least quarterly.
To avoid sending duplicate copies of materials to households, a Fund may mail
only one copy of each annual and semiannual report to shareholders having the
same last name and address on the Fund's records. However, each shareholder may
call 1-800-762-1000 to ask that copies of those materials be sent personally to
that shareholder.

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is custodian of each Fund's
assets. PFPC Inc. ("PFPC"), a subsidiary of PNC Bank, N.A., 400 Bellevue
Parkway, Wilmington, Delaware 19809, is each Fund's transfer and dividend
disbursing agent. PFPC (not the Funds) pays PaineWebber for certain transfer
agency related services that PFPC has delegated to PaineWebber.

26
<PAGE>
APPENDIX
MUNICIPAL SECURITIES

The following description of the principal Municipal Securities in which,
where applicable, Tax-Free Fund, California Municipal Money Fund, New Jersey
Municipal Money Fund and New York Municipal Money Fund may invest supplements
that provided elsewhere in the Prospectus.

MUNICIPAL BONDS. Municipal bonds are debt obligations issued to obtain
funds for various public purposes, the interest on which is exempt from federal
income tax in the opinion of bond counsel. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit and taxing
power for the payment of principal and interest. Revenue bonds are payable only
from the revenue derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as from the user of the facility being financed. The term
"municipal bonds" also includes "moral obligation" issues, which are normally
issued by special purpose authorities. In the case of such issues, an express or
implied "moral obligation" of a related governmental unit is pledged to the
payment of the debt service, but is usually subject to annual budget
appropriations. The term "municipal bonds" also includes municipal lease
obligations, such as leases, installment purchase contracts and conditional
sales contracts, and certificates of participation therein. Municipal lease
obligations are issued by local and state governments and authorities to
purchase land or various types of equipment or facilities and may be subject to
annual budget appropriations. The Funds generally invest in municipal lease
obligations through certificates of participation. The term "municipal bonds"
also includes custodial receipts that represent an ownership interest in one or
more municipal bonds.

INDUSTRIAL DEVELOPMENT BONDS AND PRIVATE ACTIVITY BONDS. IDBs and PABs are
issued by or on behalf of public authorities to finance various privately
operated facilities, such as airport or pollution control facilities. PABs
generally are such bonds issued after August 15, 1986. These obligations are
included within the term "municipal bonds" if the interest paid thereon is
exempt from federal income tax in the opinion of the bond issuer's counsel. IDBs
and PABs are in most cases revenue bonds and thus are not payable from the
unrestricted revenues of the issuer. The credit quality of IDBs and PABs is
usually directly related to the credit standing of the user of the facilities
being financed. Each Fund is authorized to invest more than 25% of its assets in
IDBs and PABs.

PARTICIPATION INTERESTS. Participation interests are interests in municipal
bonds, including IDBs and PABs, and floating and variable rate obligations that
are owned by banks or other financial institutions. These interests carry a
demand feature permitting the holder to tender them back to the bank or other
financial institution. The demand feature generally is backed by a letter of
credit, guarantee or liquidity support arrangement from a bank or other
financial institution, whose credit standing affects the credit quality of the
participation interest.

PUT BONDS. A put bond is a municipal bond that gives the holder the
unconditional right to sell the bond back to the issuer or a third party at a
specified price and exercise date, which is typically well in advance of the
bond's maturity date.

TAX-EXEMPT COMMERCIAL PAPER AND SHORT-TERM MUNICIPAL NOTES. Tax-exempt
commercial paper and short-term municipal notes include tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of short-
term loans. Such notes are issued with a short-term maturity in anticipation of
the receipt of tax funds, the proceeds of bond placements or other revenues.

A-1
<PAGE>
TABLE OF CONTENTS

Highlights ............................................................. 2

Financial Highlights ................................................... 7

Investment Objectives and Policies .................................... 11

Purchases ............................................................. 19

Redemptions ........................................................... 20

Valuation of Shares ................................................... 21

Dividends and Taxes ................................................... 21

Management ............................................................ 23

Performance Information ............................................... 25

General Information ................................................... 25

Appendix ............................................................. A-1

FOR INFORMATION ON THE RMA PROGRAM OR THE RMA FUNDS, CALL PAINEWEBBER
TOLL-FREE AT 1-800-RMA-1000.

FOR INFORMATION ON THE BSA PROGRAM, CALL PAINEWEBBER TOLL-FREE AT
1-800-762-1000.

--------------------------------------------------------------------

INVESTORS SHOULD RELY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. EACH 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 A FUND IN ANY JURISDICTION WHERE THE FUND
OR ITS DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.

[LOGO]
-C-1997 PaineWebber Incorporated

[LOGO]

Prospectus

---------------------------------

RMA MONEY MARKET PORTFOLIO

RMA U.S. GOVERNMENT
PORTFOLIO

RMA TAX-FREE FUND

RMA CALIFORNIA MUNICIPAL
MONEY FUND

RMA NEW JERSEY MUNICIPAL
MONEY FUND

RMA NEW YORK MUNICIPAL
MONEY FUND

August 29, 1997
<PAGE>
PAINEWEBBER RMA
MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
TAX-FREE FUND
CALIFORNIA MUNICIPAL MONEY FUND
NEW JERSEY MUNICIPAL MONEY FUND
NEW YORK MUNICIPAL MONEY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
1-800-762-1000

STATEMENT OF ADDITIONAL INFORMATION

The six funds named above (each a "Fund") are professionally managed money
market funds, each with its own investment objective and policies as described
in the Funds' Prospectus. PaineWebber RMA Money Market Portfolio ("Money Market
Portfolio") and PaineWebber RMA U.S. Government Portfolio ("U.S. Government
Portfolio") are series of PaineWebber RMA Money Fund, Inc. ("Money Fund"). Money
Fund and PaineWebber RMA Tax-Free Fund, Inc. ("Tax-Free Fund") are Maryland
corporations (each a "Corporation"). PaineWebber RMA California Municipal Money
Fund ("California Municipal Money Fund") and PaineWebber RMA New York Municipal
Money Fund ("New York Municipal Money Fund") are non-diversified series of
PaineWebber Managed Municipal Trust ("Managed Municipal Trust"). PaineWebber RMA
New Jersey Municipal Money Fund ("New Jersey Municipal Money Fund") is a non-
diversified series of PaineWebber Municipal Money Market Series ("Municipal
Money Market Series"). Managed Municipal Trust and Municipal Money Market Series
are Massachusetts business trusts (each a "Trust"). Tax-Free Fund, California
Municipal Money Fund, New Jersey Municipal Money Fund and New York Municipal
Money Fund may be referred to collectively as the "Municipal Funds." The
investment adviser, administrator and distributor of each Fund is PaineWebber
Incorporated ("PaineWebber"); the sub-adviser and sub-administrator of each Fund
is Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber. This Statement of Additional Information is not a
prospectus and should be read only in conjunction with the Funds' current
Prospectus, dated August 29, 1997. A copy of the Prospectus may be obtained by
contacting any PaineWebber Investment Executive or correspondent firm or by
calling 1-800-762-1000. This Statement of Additional Information is dated August
29, 1997.

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INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.

YIELDS AND RATINGS OF MONEY MARKET INSTRUMENTS; FIRST TIER SECURITIES. The
yields on the money market instruments in which the Funds invest (such as U.S.
government securities, commercial paper, bank obligations and municipal
securities) 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 Funds 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 a Fund, an issue may cease to be rated or its rating may be reduced.
If a security in a Fund's portfolio ceases to be a First Tier Security, or
Mitchell Hutchins becomes aware that a security has received a rating below the
second highest rating by any NRSRO, Mitchell Hutchins, and in certain cases the
applicable Corporation's board of directors or the applicable Trust's board of
trustees (each a "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.

Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from federal income tax, California personal
income tax, New Jersey personal income tax, and New York State and New York City
personal income taxes (and also, when available, from the federal alternative
minimum tax) are rendered by bond counsel to the respective issuing authorities
at the time of issuance. Neither the Municipal Funds nor Mitchell Hutchins will
review the proceedings relating to the issuance of municipal securities or the
basis for such opinions. An issuer's obligations under its municipal securities
are subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors (such as the federal bankruptcy laws) and
federal, state and local laws that may be enacted that adversely affect the
tax-exempt status of interest on the municipal securities held by a Fund or of
the exempt-interest dividends received by a Fund's shareholders, extend the time
for payment of principal or interest, or both, or impose other constraints upon
enforcement of such obligations. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of principal of and interest on their municipal
securities may be materially and adversely affected.

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VARIABLE AND FLOATING RATE DEMAND INSTRUMENTS. As noted in the Prospectus,
each Fund may invest in variable and floating rate securities with demand
features. A demand feature gives a 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 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, a Fund intends to exercise demand features (1) upon a
default under the terms of the underlying security, (2) to maintain the Fund's
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, Money Market and U.S.
Government Portfolios may each enter into repurchase agreements with respect to
any security in which that Fund is authorized to invest, except that securities
subject to repurchase agreements may have maturities in excess of 13 months.
Each Municipal Fund may enter into repurchase agreements with banks and dealers
with respect to any obligation issued or guaranteed by the U.S. government, its
agencies or instrumentalities and also with respect to commercial paper, bank
certificates of deposit and bankers' acceptances. However, the Municipal Funds
do not intend to do so except as a temporary measure and under unusual
circumstances, because repurchase agreements are transactions that generate
taxable income. Each 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. Each 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
applicable board. Mitchell Hutchins will review and monitor the creditworthiness
of those institutions under the board's general supervision.

REVERSE REPURCHASE AGREEMENTS. Money Market and U.S. Government Portfolios
may each 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 a Fund subject to its
agreement to repurchase the securities at an agreed upon date or upon demand and
at a price reflecting a

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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, a 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. No Fund may 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, restricted securities and municipal lease obligations
(including certificates of participation) other than those Mitchell Hutchins has
determined to be liquid pursuant to guidelines established by the applicable
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 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 a Fund, however, could affect
adversely the marketability of such portfolio securities, and a Fund might be
unable to dispose of such securities promptly or at favorable prices.

The boards have delegated the function of making day-to-day determinations
of liquidity to Mitchell Hutchins, pursuant to guidelines approved by each
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 Funds and reports periodically on such
decisions to the applicable board.

In making liquidity determinations with respect to municipal lease
obligations, Mitchell Hutchins takes into account a number of additional factors
relating specifically to the credit quality of the obligations, including, where
appropriate, (1) whether the underlying lease can be cancelled, (2) what

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assurance there is that the assets underlying the lease can be sold, (3) the
strength of the lessee's general credit (E.G., its administrative, economic and
financial characteristics), (4) the likelihood that the municipality will
discontinue appropriating funding for the property because the property is no
longer deemed essential to the operations of the municipality (E.G., the
potential for an "event of nonappropriation") and (5) the legal recourse in the
event of a failure to appropriate. In making liquidity determinations, Mitchell
Hutchins will distinguish between direct investments in municipal lease
obligations (or participations therein) and investments in securities that may
be supported by municipal lease obligations or certificates of participation
therein. Because these municipal lease obligation-backed securities are based on
a well-established means of securitization, Mitchell Hutchins does not believe
that investing in such securities presents the same liquidity issues as direct
investments in municipal lease obligations.

LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, each 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. 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 relevant facts and circumstances, including the creditworthiness of the
borrower. Each Fund will retain authority to terminate any loan at any time. A
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. A Fund will receive reasonable
interest on the loan or a flat fee from the borrower and amounts equivalent to
any interest or other distributions on the securities loaned. A Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to interest or other distributions,
when regaining such rights is considered to be in its interest.

Pursuant to procedures adopted by the appropriate board governing each
Fund's securities lending program, the boards have approved retention of
PaineWebber to serve as lending agent for the Funds. The appropriate board also
has authorized each Fund to pay fees (including fees calculated as a percentage
of invested cash collateral) to PaineWebber for these services. Each board
periodically reviews all portfolio securities loan transactions for which
PaineWebber acted as lending agent.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
the Funds 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 a Fund's net asset value. When a Fund commits to purchase securities
on a when-issued or delayed delivery basis, its custodian segregates assets to
cover the amount of the commitment. See "Investment Policies and
Restrictions--Segregated Accounts."

SEGREGATED ACCOUNTS. When a Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery

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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.

CERTAIN POLICIES OF THE MUNICIPAL FUNDS

MUNICIPAL SECURITIES. The types of municipal securities identified in the
Prospectus may include obligations of issuers whose revenues are primarily
derived from mortgage loans on housing projects for moderate- to low-income
families. The Municipal Funds also may purchase mortgage subsidy bonds with a
remaining maturity of less than 13 months that are issued to subsidize mortgages
on single family homes and "moral obligation" bonds with a remaining maturity of
less than 13 months that are normally issued by special purpose public
authorities. In some cases the repayment of such bonds depends upon annual
legislative appropriations; in other cases repayment is a legal obligation of
the issuer, and if the issuer is unable to meet its obligations, repayment
becomes a moral commitment of a related government unit (subject, however, to
such appropriations).

PUT BONDS. The Municipal Funds may each invest in put bonds that have a
fixed rate of interest and a final maturity beyond the date on which the put may
be exercised. If the put is a "one time only" put, the Fund ordinarily will
either sell the bond or put the bond, depending upon the more favorable price.
If the bond has a series of puts after the first put, the bond will be held as
long as, in the judgment of Mitchell Hutchins, it is in the best interest of the
Fund to do so. There is no assurance that an issuer of a put bond acquired by
the Fund will be able to repurchase the bond on the exercise date, if the Fund
chooses to exercise its right to put the bond back to the issuer.

STAND-BY COMMITMENTS. As stated in the Prospectus, a Municipal Fund may
acquire stand-by commitments under unusual market conditions to facilitate
portfolio liquidity. Pursuant to a stand-by commitment, a municipal bond dealer
agrees to purchase the securities that are the subject of the commitment at an
amount equal to (1) the acquisition cost (excluding any accrued interest paid on
acquisition), less any amortized market premium and plus any accrued market or
original issue discount, plus (2) all interest accrued on the securities since
the last interest payment date or the date the securities were purchased,
whichever is later.

A Fund will enter into stand-by commitments only with those banks or other
dealers that, in the opinion of Mitchell Hutchins, present minimal credit risk.
A Fund's right to exercise stand-by commitments will be unconditional and
unqualified. Stand-by commitments will not be transferable by a Fund, although a
Fund may sell the underlying securities to a third party at any time. A Fund may
pay for stand-by commitments either separately in cash or by paying a higher
price for the securities that are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
acquisition of a stand-by commitment will not ordinarily affect the valuation or
maturity of the underlying municipal securities. Stand-by commitments acquired
by a Fund will be valued at zero in determining net asset value. Whether a Fund
paid directly or indirectly for a stand-by commitment, its cost will be treated
as unrealized depreciation and will be amortized over the period the commitment
is held by the Fund.

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PARTICIPATION INTERESTS. The Municipal Funds may invest in participation
interests in municipal bonds, including industrial development bonds ("IDBs"),
private activity bonds ("PABs") and floating and variable rate securities. A
participation interest gives a Fund an undivided interest in a municipal bond
owned by a bank or other financial institution. A Fund has the right to sell the
instrument back to the financial institution. As discussed above under "Variable
and Floating Rate Demand Instruments," to the extent that payment of an
obligation is backed by a letter of credit, guarantee or liquidity support
arrangement from a bank or other financial institution, such payment may be
subject to the financial institution's ability to satisfy that commitment.
Mitchell Hutchins will monitor the pricing, quality and liquidity of the
participation interests held by each Municipal Fund, and the credit standing of
financial institutions issuing letters of credit, guarantees or liquidity
support arrangements supporting such participation interests, on the basis of
published financial information, reports of rating services and bank analytical
services. Under normal market conditions, New Jersey Municipal Money Fund will
not invest more than 25% of its total assets in participation interests or other
securities issued by or purchased from banks or other financial institutions.

SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES

The financial conditions of the State of California, its public authorities
and local governments could affect the market values and marketability of, and
therefore the net asset value per share and the interest income of, California
Municipal Money Fund, or result in the default of existing obligations,
including obligations which may be held by the Fund. The following section
provides only a brief summary of the complex factors affecting the financial
condition of California, and is based on information obtained from the State of
California, as publicly available on the date of this Statement of Additional
Information. The information contained in such publicly available documents has
not been independently verified. It should be noted that the creditworthiness of
obligations issued by local issuers may be unrelated to the creditworthiness of
California, and that there is no obligation on the part of California to make
payment on such local obligations in the event of default in the absence of a
specific guarantee or pledge provided by the State of California.

During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved since 1994. The ratings of certain related debt of other issuers for
which California has an outstanding lease purchase, guarantee or other
contractual obligation (such as for state-insured hospital bonds) are generally
linked directly to California's rating. Should the financial condition of
California deteriorate again, its credit ratings could be further reduced, and
the market value and marketability of all outstanding notes and bonds issued by
California, its public authorities or local governments could be adversely
affected.

ECONOMIC FACTORS. California's economy is the largest among the 50 states
and one of the largest in the world. The State's population of more than 32
million represents over 12% of the total United States population and grew by
26% in the 1980s, more than double the national rate. Population growth slowed
to less than 1% annually in 1994 and 1995, but rose to 1.9% in 1996. During the
early 1990's, net population growth in the State was due to births and foreign
immigration.

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Total personal income in the State, at an estimated $810 billion in 1996,
accounts for almost 13% of all personal income in the nation. Total employment
is over 14 million, the majority of which is in the service, trade and
manufacturing sectors.

From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Job losses were the
worst of any post-war recession. Employment levels stabilized by late 1993 and
steady job growth has occurred since early 1994. Pre-recession job levels were
reached in 1996. Unemployment, while remaining higher than the national average,
has come down from its 10% recession peak to 6.5% in spring, 1997. Economic
indicators show a steady and strong recovery underway in California since the
start of 1994 particularly in export-related industries, services, electronics,
entertainment and tourism, although the residential housing sector has been
weaker than in prior recoveries. Any delay or reversal of the recovery may
create new shortfalls in State revenues.

CONSTITUTIONAL LIMITATIONS ON TAXES, OTHER CHARGES AND
APPROPRIATIONS--LIMITATION ON PROPERTY TAXES. Certain California Municipal
Obligations may be obligations of issuers which rely in whole or in part,
directly or indirectly, on AD VALOREM property taxes as a source of revenue. The
taxing powers of California local governments and districts are limited by
Article XIIIA of the California Constitution, enacted by the voters in 1978 and
commonly known as "Proposition 13." Briefly, Article XIIIA limits to 1% of full
cash value of the rate of AD VALOREM property taxes on real property and
generally restricts the reassessment of property to 2% per year, except under
new construction or change of ownership (subject to a number of exemptions).
Taxing entities may, however, raise AD VALOREM taxes above the 1% limit to pay
debt service on voter-approved bonded indebtedness.

Under Article XIIIA, the basic 1% AD VALOREM tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of March
1, 1975, if acquired earlier), subject to certain adjustments. This system has
resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13, but it was upheld by the U.S. Supreme Court in 1992.

Article XIIIA prohibits local governments from raising revenues through AD
VALOREM taxes above the 1% limit; it also requires voters of any governmental
unit to give two-thirds approval to levy any "special tax." Court decisions,
however, allowed a non-voter approved levy of "general taxes" which were not
dedicated to a specific use.

LIMITATIONS ON OTHER TAXES, FEES AND CHARGES. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.

Article XIIIC requires that all new or increased local taxes be submitted to
the electorate before they become effective. Taxes for general governmental
purposes require a majority vote and taxes for specific purposes require a
two-thirds vote. Further, any general purpose tax which was imposed, extended or

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increased without voter approval after December 31, 1994 must be approved by a
majority vote within two years.

Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges," defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment, imposed
by a [local government] upon a parcel or upon a person as an incident of
property ownership, including a user fee or charge for a property related
service." All new and existing property related fees and charges must conform to
requirements prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related service or
are used for unrelated purposes. There are new notice, hearing and protest
procedures for levying or increasing property related fees and charges, and,
except for fees or charges for sewer, water and refuse collection services (or
fees for electrical and gas service, which are not treated as "property related"
for purposes of Article XIIID), no property related fee or charge may be imposed
or increased without majority approval by the property owners subject to the fee
or charge or, at the option of the local agency, two-thirds voter approval by
the electorate residing in the affected area.

In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.

The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.

APPROPRIATIONS LIMITS. The State and its local governments are subject to
an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.

Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations

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for certain capital outlay projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.

The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.

"Excess" revenues are measured over a two year cycle. Local governments must
return any excess to taxpayers by rate reductions. The State must refund 50% of
any excess, with the other 50% paid to schools and community colleges. With more
liberal annual adjustment factors since 1988, and depressed revenues since 1990
because of the recession, few governments are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limits for up to four years. During
fiscal year 1986-87, State receipts from proceeds of taxes exceeded its
appropriations limit by $1.1 billion, which was returned to taxpayers. Since
that year, appropriations subject to limitation have been under the State limit.
State appropriations were $6.7 billion under the limit for fiscal year 1996-97.

Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID of
the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California Municipal Obligations or on the ability of the
State or local governments to pay debt service on such California Municipal
Obligations. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of these Articles or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Further initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or local
issuers to repay their obligations.

OBLIGATIONS OF THE STATE OF CALIFORNIA. Under the California Constitution,
debt service on outstanding general obligation bonds is the second charge to the
General Fund after support of the public school system and public institutions
of higher education. As of August 1, 1997, the State had outstanding
approximately $17.8 billion of long-term general obligation bonds, plus $1.0
billion of general obligation commercial paper which will be refunded by
long-term bonds in the future, and $6.2 billion of lease-purchase debt supported
by the State General Fund. The State also had about $10.0 billion of authorized
and unissued general obligation bonds and lease-purchase debt. In FY 1996-97,
debt service on general obligation bonds and lease purchase debt was
approximately 5.0% of General Fund revenues.

RECENT FINANCIAL RESULTS. The principal sources of General Fund revenues in
1995-1996 were the California personal income tax (45% of total revenues), the
sales tax (34%), bank and corporation taxes (13%), and the gross premium tax on
insurance (2%). The State maintains a Special Fund for Economic Uncertainties
(the "SFEU"), derived from General Fund revenues, as a reserve to meet cash
needs of the General Fund, but which is required to be replenished as soon as
sufficient revenues are available. Year-end balances in the SFEU are included
for financial reporting purposes in the General Fund balance.

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Because of the recession and an accumulated budget deficit, no reserve was
budgeted in the SFEU from 1992-93 to 1995-96.

GENERAL. Throughout the 1980's, State spending increased rapidly as the
State population and economy also grew rapidly, including increased spending for
many assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to local
public school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently about 35%).

Starting in mid-1990, the State has faced adverse economic, fiscal, and
budget conditions. The
1990-1994 economic recession seriously affected State tax revenues. It also
caused increased expenditures for health and welfare programs. The State is also
facing a structural imbalance in its budget with the largest programs supported
by the General Fund (education, health, welfare and corrections) growing at
rates significantly higher than the growth rates for the principal revenue
sources of the General Fund. These structural concerns will be exacerbated in
coming years by the expected need to substantially increase capital and
operating funds for corrections as a result of a "Three Strikes" law enacted in
1994.

RECENT BUDGETS. As a result of the recession and these factors, among
others, the State experienced substantial revenue shortfalls, and greater than
anticipated social service costs, in the early 1990's. The State accumulated and
sustained a budget deficit in the budget reserve, the SFEU, approaching $2.8
billion at its peak at June 30, 1993. The Legislature and Governor agreed on a
number of different steps to respond to the adverse financial conditions and
produce Budget Acts in the Years 1991-92 to 1994-95 (although not all of these
actions were taken in each year):

- significant cuts in health and welfare program expenditures;

- transfers of program responsibilities and some funding sources from the
State to local governments, coupled with some reduction in mandates on local
government;

- transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing State funding for schools;

- reduction in growth of support for higher education programs, coupled with
increases in student fees;

- revenue increases (particularly in the 1992-93 Fiscal Year budget), most
of which were for a short duration;

- increased reliance on aid from the federal government to offset the costs
of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal aid
than the State Administration had requested); and

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- various one-time adjustment and accounting changes (some of which have
been challenged in court).

The combination of stringent budget actions cutting State expenditures, and
the turnaround of the economy by late 1993, finally led to the restoration of
positive financial results, with revenues equaling or exceeding expenditures
starting in FY 1992-93. As a result, the accumulated budget deficit of about
$2.8 billion was eliminated by June 30, 1997, when the State showed a positive
balance of about $408 million on a budgetary basis in the SFEU.

A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. The State's cash condition became so serious that from
late spring 1992 until 1995, the State had to rely on issuance of short term
notes which matured in a subsequent fiscal year to finance its ongoing deficit,
and pay current obligations. For a two-month period in the summer of 1992,
pending adoption of the annual Budget Act, the State was forced to issue
registered warrants (IOUs) to some of its suppliers, employees and other
creditors. The last of these deficit notes was repaid in April, 1996.

The 1995-96 and 1996-97 Budget Acts reflected significantly improved
financial conditions, as the State's economy recovered and tax revenues soared
above projections. In both years, revenues were some $2 billion higher than
initially estimated. Most of the additional revenues were allocated to school
funding, as required by Proposition 98, and to make up shortfalls in federal aid
for health and welfare costs and costs of illegal aliens. The budgets for both
these years showed strong increases in funding for K-14 public education,
including implementation of initiatives to reduce class sizes for lower
elementary grades to not more than 20 pupils. Higher education funding also
increased. Spending for health and welfare programs was kept in check, as
previously-implemented cuts in benefit levels were retained.

The final results for FY 1996-97 showed General Fund revenues of $49.2
billion and expenditures of $48.9 billion. The improved revenues allowed the
repayment of the last of the recession-induced budget deficits; the SFEU had a
balance of $408 million on a budgetary basis ($281 million on a cash basis) as
of June 30, 1997, the first significant positive balance in the decade. In
1996-97, the State implemented its regular cash flow borrowing program with the
issuance of $3.0 billion of Revenue Anticipation Notes which matured on June 30,
1997, and did not require any external borrowing over the end of the fiscal
year.

FISCAL YEAR 1997-98 BUDGET. With continued strong economic recovery and
surging tax receipts, the State entered the 1997-98 Fiscal Year in the strongest
financial position in the decade. However, in May 1997, the California Supreme
Court ruled that the State had acted illegally in 1993 and 1994 by using a
deferral of payments to the Public Employees Retirement Fund to help balance
earlier budgets. In response to this court decision, the Governor ordered an
immediate repayment to the Retirement Fund of about $1.235 billion, which was
made in late July, 1997, and substantially "used up" the expected additional
revenues for the fiscal year.

On August 18, 1997, the Governor signed the 1997-98 Budget Act. The Budget
Act assumes General Fund revenues and transfers of $52.5 billion, and contains
expenditures of $52.8 billion. As a result, the

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budget reserve (SFEU) is reduced to an estimated $112 million at June 30, 1998.
The Budget Act also contains $14.4 billion of Special Fund expenditures.
Following enactment of the Budget Act, the State plans to carry out its normal
annual cash flow borrowing, totaling $3.0 billion to mature June 30, 1998.

The 1997-98 Budget Act provides another year of rapidly increasing funding
for K-14 public education. Total General Fund support will reach $5,150 per
pupil, more than 20% higher than the recession-period levels which were in
effect as late as FY 1993-94. The $2 billion in new funding will be spent on
class size reduction and other initiatives, as well as fully funding growth and
cost of living increases. Support for higher education units in the State also
increased by about 6 percent. Because of the pension payment, most other State
programs were funded at levels consistent with prior years, and several
initiatives had to be dropped. These included additional assistance to local
governments, state employee raises, and funding of a bond bank.

Part of the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new State
program, called "CalWORKs," to become effective January 1, 1998, will emphasize
programs to bring aid recipients into the workforce. As required by federal law,
new time limits will be placed on receipt of welfare aid. Grant levels for
1997-98 remain at the reduced, prior years' levels.

Although, as noted, the 1997-98 Budget Act projects a budget reserve in the
SFEU of $112 million on June 30, 1998, the General Fund fund balance on that
date also reflects $1.25 billion of "loans" which the General Fund made to local
schools in the recession years, representing cash outlays above the mandatory
minimum funding level. Settlement of litigation over these transactions in July
1996 calls for repayment of these loans over the period ending in 2001-02, about
equally split between outlays from the General Fund and from schools'
entitlements. The 1997-98 Budget Act contained a $200 million appropriation from
the General Fund toward this settlement

Although the State's strong economy is producing record revenues to the
State government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending growth
also put pressure on local governments. There can be no assurances that, if
economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.

BOND RATING. The ratings on California's long-term general obligation bonds
were reduced in the early 1990's from "AAA" levels which had existed prior to
the recession. In 1996, Fitch and Standard & Poor's raised their ratings of
California's general obligation bonds, which as of April 1997 were assigned
ratings of "A+" from Standard & Poor's, "A1" from Moody's and "A+" from Fitch.

There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.

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LEGAL PROCEEDINGS. The State is involved in certain legal proceedings
(described in the State's recent financial statements) that, if decided against
the State, may require the State to make significant future expenditures or may
substantially impair revenues. Trial courts have recently entered tentative
decisions or injunctions which would overturn several parts of the State's
recent budget compromises. The matters covered by these lawsuits include
reductions in welfare payments and the use of certain cigarette tax funds for
health costs. All of these cases are subject to further proceedings and appeals,
and if California eventually loses, the final remedies may not have to be
implemented in one year.

OBLIGATIONS OF OTHER ISSUERS--OTHER ISSUERS OF CALIFORNIA MUNICIPAL
OBLIGATIONS. There are a number of State agencies, instrumentalities and
political subdivisions of the State that issue Municipal Obligations, some of
which may be conduit revenue obligations payable from payments from private
borrowers. These entities are subject to various economic risks and
uncertainties, and the credit quality of the securities issued by them may vary
considerably from the credit quality of obligations backed by the full faith and
credit of the State.

STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately 75%
of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs. While the Governor initially proposed to
grant new aid to local governments from the State's improved fiscal condition in
1997-98, the decision to repay the State pension fund eliminated these moneys.

To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. At least one rural county
(Butte) publicly announced that it might enter bankruptcy proceedings in August
1990, although such plans were put off after the Governor approved legislation
to provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. Los Angeles County, the
largest in the State, was forced to make significant cuts in services and
personnel, particularly in the health care system, in order to balance its
budget in FY1995-96 and FY1996-97. Los Angeles County's debt was downgraded by
Moody's and S&P in the summer of 1995. Orange County, which emerged from Federal
Bankruptcy Court protection in June 1996, has significantly reduced county
services and personnel, and faces strict financial conditions following large
investment fund losses in 1994 which resulted in bankruptcy.

Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were enacted in August,
1997 in order to comply with the federal welfare

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reform law. Generally, counties play a large role in the new system, and are
given substantial flexibility to develop and administer programs to bring aid
recipients into the workforce. Counties are also given financial incentives if
either at the county or statewide level, the "Welfare-to-Work" programs exceed
minimum targets; counties are also subject to financial penalties for failure to
meet such targets. Counties remain responsible to provide "general assistance"
for able-bodied indigents who are ineligible for other welfare programs. The
long-term financial impact of the new CalWORKs system on local governments is
still unknown.

ASSESSMENT BONDS. California Municipal Obligations which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.

CALIFORNIA LONG TERM LEASE OBLIGATIONS. Based on a series of court
decisions, certain long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered
"indebtedness" requiring voter approval. Such leases, however, are subject to
"abatement" in the event the facility being leased is unavailable for beneficial
use and occupancy by the municipality during the term of the lease. Abatement is
not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due.
Litigation is brought from time to time which challenges the constitutionality
of such lease arrangements.

OTHER CONSIDERATIONS. The repayment of industrial development securities
secured by real property may be affected by California laws limiting foreclosure
rights of creditors. Securities backed by health care and hospital revenues may
be affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to certain
hospitals.

Limitations on AD VALOREM property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.

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Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.

The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not possible, at present, to predict the extent to which any such legislation
will be enacted. Nor is it possible, at present, to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.

Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Fund could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage
rates; (ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to appropriate
sufficient funds within their respective budget limitations.

SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL SECURITIES

NEW JERSEY MUNICIPAL SECURITIES. The financial condition of the State of
New Jersey, its public authorities (the "Authorities") and its local
governments, could affect the market values and marketability of, and therefore
the net asset value per share and the interest income of New Jersey Municipal
Money Fund, or result in the default of existing obligations, including
obligations which may be held by the Fund. The following section provides only a
brief summary of the complex factors affecting the financial situation in New
Jersey and is based on information obtained from New Jersey, certain of its
Authorities and certain other localities, as publicly available on the date of
this Statement of Additional Information. The information contained in such
publicly available documents has not been independently verified. It should be
noted that the creditworthiness of obligations issued by local issuers may be
unrelated to the creditworthiness of New Jersey, and that there is no obligation
on the part of New Jersey to make payment on such local obligations in the event
of default in the absence of a specific guarantee or pledge provided by New
Jersey.

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ECONOMIC FACTORS. New Jersey is the ninth largest state in population and
the fifth smallest in land area. With an average of 1,062 people per square
mile, it is the most densely populated of all the states. The State's economic
base is diversified, consisting of a variety of manufacturing, construction and
service industries, supplemented by rural areas with selective commercial
agriculture. The extensive facilities of the Port Authority of New York and New
Jersey, the Delaware River Port Authority and the South Jersey Port Corporation
across the Delaware River from Philadelphia augment the air, land and water
transportation complex which has influenced much of the State's economy. The
State's central location in the northeastern corridor, the transportation and
port facilities and proximity to New York City make the State an attractive
location for corporate headquarters and international business offices.
According to the United States Bureau of the Census, the population of New
Jersey was 7,170,000 in 1970, 7,365,000 in 1980, 7,730,000 in 1990 and 7,945,000
in 1995. Historically, New Jersey's average per capita income has been well
above the national average, and in 1995 the State ranked second among the states
in per capita personal income ($29,848).

While New Jersey's economy continued to expand during the late 1980s, the
level of growth slowed considerably after 1987. By the beginning of the national
recession in July 1990 (according to the National Bureau of Economic Research),
construction activity had already been declining in New Jersey for nearly two
years, growth had tapered off markedly in the service sectors and the long-term
downward trend of factory employment had accelerated, partly because of a
leveling off of industrial demand nationally. The onset of recession caused an
acceleration of New Jersey's job losses in construction and manufacturing, as
well as an employment downturn in such previously growing sectors as wholesale
trade, retail trade, finance, utilities and trucking and warehousing. The net
effect was a decline in the State's total nonfarm wage and salary employment
from a peak of 3,689,800 in 1989 to a low of 3,445,000 in 1992. This loss has
been followed by an employment gain of 176,400 from May 1992 to October 1995, a
recovery of 67% of the jobs lost during the recession. In July 1991, S&P lowered
the State's general obligation bond rating from AAA to AA+.

Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6% during the first quarter of 1989 to a recessionary peak of 8.5%
during 1992. Since then, the unemployment rate fell to 6.4% during 1995 and 6.1%
for the four month period from May 1996 through August 1996.

For the recovery period as a whole, May 1992 to August 1996,
service-producing employment in New Jersey has expanded by 228,500 jobs. Hiring
has been reported by food stores, auto dealers, wholesale distributors, trucking
and warehousing firms, utilities, business and engineering/management service
firms, hotels/hotel-casinos, social service agencies and health care providers
other than hospitals. Employment growth was particularly strong in business
services and its personnel supply component with increases of 17,500 and 8,100,
respectively, in the 12-month period ending August 1996.

In the manufacturing sector, employment losses slowed between 1992 and 1994.
After an average annual job loss of 33,500 from 1989 through 1992, New Jersey's
factory job losses fell to 13,300 during 1993 and 7,300 during 1994. During
1995, however, manufacturing job losses increased slightly to 9,100, reflecting
a slowdown in national manufacturing production activity. While experiencing
growth in the number of production workers in 1994, the number declined in 1995
at the same time that managerial and

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office staff were also reduced as part of nationwide downsizing. Through August
1996, layoffs of white collar workers and corporate downsizing appear to be
abating.

Conditions have slowly improved in the construction industry, where
employment has risen by 15,600 since its low in May 1992. Between 1992 and 1995,
this sector's hiring rebound was driven primarily by increased homebuilding and
nonresidential projects. During 1996, public works projects and homebuilding
became the growth segments while nonresidential construction lessened.

STATE FINANCES. The State operates on a fiscal year beginning July 1 and
ending June 30. For example, "Fiscal Year 1998" refers to the State's fiscal
year beginning July 1, 1997 and ending June 30, 1998.

The General Fund is the fund into which all State revenues not otherwise
restricted by statute are deposited and from which appropriations are made. The
largest part of the total financial operations of the State is accounted for in
the General Fund. Revenues received from taxes and unrestricted by statute, most
federal revenue and certain miscellaneous revenue items are recorded in the
General Fund. The appropriations act provides the basic framework for the
operation of the General Fund. Undesignated Fund Balances are available for
appropriation in succeeding fiscal years. There have been positive Undesignated
Fund Balances in the General Fund at the end of each year since the State
Constitution was adopted in 1947. The estimates for Fiscal Year 1997 and Fiscal
Year 1998 reflect the amounts contained in the Governor's Fiscal Year 1998
Budget Message delivered on January 29, 1997 as updated by the Treasurer in his
report to the Senate Revenue Finance and Appropriations Committee and the
Assembly Appropriations Committee of the State Legislature on May 14, 1997.

In Fiscal Years 1995 and 1996, the actual General Fund balances were $569.2
million and $442.0 million, respectively, and total Undesignated Fund Balances
were $950.2 million and $882.2 million. For Fiscal Years 1997 and 1998 General
Fund balances are estimated to be $276.2 million and $242.1 million,
respectively, and total Undesignated Fund Balances are estimated to be $1,026.3
million and $560.4 million.

FISCAL YEARS 1997 AND 1998 STATE REVENUE ESTIMATES--SALES AND USE TAX. The
revised estimate as shown in the Governor's Fiscal Year 1998 Budget Message as
updated by the Treasurer's Report to the Legislature forecasts Sales and Use tax
collections for Fiscal Year 1997 of $4,835.0 million, a 1.5% increase from the
Fiscal Year 1996 revenue. The Fiscal Year 1998 estimate of $4,550.0 million is a
3.8% increase from the Fiscal Year 1997 estimate.

GROSS INCOME TAX. The revised estimate as shown in the Governor's Fiscal
Year 1998 Budget Message as updated by the Treasurer's Report to the Legislature
forecasts Gross Income Tax collections for Fiscal Year 1997 of $4,805.0 million,
a 1.5% increase from Fiscal Year 1996 revenue. The Fiscal Year 1998 estimate of
$4,915.0 million is a 2.3% increase from the Fiscal Year 1997 estimate. Included
in the Fiscal Year 1998 estimate is the enactment of a property tax deduction,
to be phased in over a three-year period, permitting a deduction by resident
taxpayers against gross income tax of a percentage of their property taxes.

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CORPORATION BUSINESS TAX. The revised estimate as shown in the Governor's
Fiscal Year 1998 Budget Message as updated by the Treasurer's Report to the
Legislature forecasts Corporation Business Tax collection for Fiscal Year 1997
as $1,268.0 million, a 8.2% decrease from Fiscal Year 1996 revenue. The Fiscal
Year 1998 forecast as shown in the Governor's Fiscal Year 1998 Budget Message as
updated by the Treasurer's Report to the Legislature of $1,272.0 million is a
0.3% increase from the Fiscal Year 1997 estimate.

GENERAL CONSIDERATIONS. Estimated receipts from State taxes and revenues,
including the three principal taxes set forth above, are forecasts based on the
best information available at the time of such forecasts. Changes in economic
activity in the State and the nation, consumption of durable goods, corporate
financial performance and other factors that are difficult to predict may result
in actual collections being more or less than forecasted.

Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised her plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent. Under the State Constitution, no general appropriations law or other law
appropriating money for any State purpose may be enacted if the amount of money
appropriated therein, together with all other prior appropriations made for the
same fiscal year, exceeds the total amount of revenue on hand and anticipated to
be available for such fiscal year, as certified by the Governor.

SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES

The financial condition of the State of New York ("New York State" or the
"State"), its public authorities and public benefit corporations (the
"Authorities") and its local governments, particularly The City of New York (the
"City"), could affect the market values and marketability of, and therefore the
net asset value per share and the interest income of a Fund, or result in the
default of existing obligations, including obligations which may be held by the
Fund. The following section provides only a brief summary of the complex factors
affecting the financial situation in New York and is based on information
obtained from New York State, certain of its Authorities, the City and certain
other localities, as publicly available on the date of this Statement of
Additional Information. The information contained in such publicly available
documents has not been independently verified. Such information is subject to
change resulting from the adoption by the State Legislature of the State's final
budget for fiscal year 1997-98 on August 4, 1997. Further, the adoption of the
final State budget may cause changes to the City budget for the City's fiscal
year 1997-98. There can be no assurance that such changes may not have adverse
effects on the City's cash flow, expenditures or revenues. It should be noted
that the creditworthiness of obligations issued by local issuers may be
unrelated to the creditworthiness of New York State, and that there is no
obligation on the part of New York State to make payment on such local
obligations in the event of default in the absence of a specific guarantee or
pledge provided by New York State.

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ECONOMIC FACTORS. New York is the third most populous state, and has a
relatively high level of personal wealth; however, the State economy has grown
more slowly than that of the nation as a whole, resulting in the gradual erosion
of its relative economic affluence (due to such factors such as relative costs
for taxes, labor and energy). The State's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. New York has a declining proportion of its
workforce engaged in manufacturing and increasing proportion engaged in service
industries. The State, therefore, is likely to be less affected than the nation
as a whole during an economic recession concentrated in construction and
manufacturing sectors of the economy, but likely to be more affected during a
recession concentrated in the service-producing sector. The State's
manufacturing and maritime base have been seriously eroded, as illustrated by
the decline of the steel industry in the Buffalo area and of the apparel and
textile industries in the City. In addition, the City experienced substantial
socio-economic changes, as a large segment of its population and a significant
share of corporate headquarters and other businesses relocated (many
out-of-state).

Both the State and the City experienced substantial revenue increases in the
mid-1980s attributable directly (corporate income and financial corporations
taxes) and indirectly (personal income and a variety of other taxes) to growth
in new jobs, rising profits and capital appreciation derived from the finance
sector of the City's economy. From 1977 to its 1988 peak, the finance, insurance
and real estate sectors rose 55%, to account in 1988 for 23% of total earnings
in the City and 14% statewide (compared to 7% nationwide). The finance sector's
growth was a catalyst for the New York metropolitan region's related business
and professional services, retail trade and residential and commercial real
estate markets. The then rising real estate market contributed to City revenues,
as higher property values and new construction added to collections from
property taxes, mortgage recording and transfer taxes and sales taxes on
building materials. The boom on Wall Street more than compensated for the
continued erosion of the State's (and the City's) manufacturing and maritime
base, since average wages in the finance, insurance and real estate sector and
related business and professional services were substantially higher (thereby
providing a net increase of higher incomes, taxed at even higher marginal
rates).

During the calendar year 1984 through 1991, the State's rate of economic
expansion was somewhat slower than that of the nation as a whole. In the
1990-1991 national recession, the economy of the Northeast region in general and
the State in particular was more heavily damaged than that of the rest of the
nation and has been slower to recover.

Although the national economy began to expand in 1991, the State economy
remained in recession until 1993, when employment growth resumed. Employment
growth has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility and defense industries. Personal
income increased substantially in 1992 and 1993. The State's economy entered
into a fourth year of a slow recovery in 1996.

The State Division of the Budget ("DOB") has reported in the Annual
Information Statement dated August 15, 1997 ("1997 Annual Information
Statement") that the forecast of the State's economy shows moderate expansion
during the first half of calendar 1997 with the trend continuing through the
year. Although industries that export goods and services are expected to
continue to do well, growth is expected

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to be moderated by tight fiscal constraints on the health care and social
services industries. On an average annual basis, employment growth in the State
is expected to be up substantially from the 1996 rate. Personal income is
expected to record moderate gains in 1997. Bonus payments in the securities
industry are expected to increase further from 1996 record level.

The forecast for continued growth, and any resultant impact on the State's
1997-98 Financial Plan, contains some uncertainties. Stronger-than-expected
gains in employment could lead to a significant improvement in consumer
spending. Investments could also remain robust. Conversely, hints of
accelerating inflation or fears of excessively rapid economic growth could
create upward pressures on interest rates. In addition, the State economic
forecast could over- or underestimate the level of future bonus payments or
inflation growth, resulting in forecasted average wage growth that could differ
significantly from actual growth. Similarly, the State forecast could fail to
correctly account for declines in banking employment and the direction of
employment change that is likely to accompany telecommunications and energy
deregulation.

There can be no assurance that the State economy will not experience
worse-than-predicted results in FY 1997-98 with corresponding material and
adverse effects on the State's projections of receipts and disbursements. As all
State Financial Plans are based upon forecasts of national and State economic
activity it should be noted that many uncertainties exist in such forecasts,
including federal, financial and monetary policies, the availability of credit
and the condition of the world economy. In addition, the economic and financial
condition of the State may be affected by various financial, social, economic
and political factors. These factors can be complex, may vary from year to year
and are frequently the results of actions taken not only by the State and its
agencies and instrumentalities, but also by other entities, such as the federal
government, that are not under the control of the State.

The fiscal health of the State may also be impacted by the fiscal health of
the City. Although the City has had a balanced budget since 1981, estimates of
the City's future revenues and expenditures are subject to various
uncertainties. For example, the effects of the October 1987 stock market crash
and the 1990-92 national recession have had a disproportionately adverse impact
on the New York City metropolitan region. According to recent staff reports,
while economic recovery in New York City has been slower than in other regions
of the Country, a surge in Wall Street profitability generated a substantial
surplus for the City in City FY 1996-97. Although several sectors of the City's
economy have expanded recently, especially tourism and business and professional
services, City tax revenues remain heavily dependent on the continued
profitability of the securities industries and the course of the national
economy.

While the State's economy is broader-based than that of the City, particular
industries are concentrated in and have a disproportionate impact on certain
areas, such as heavy industry in Buffalo, photographic and optical equipment in
Rochester, machinery and transportation equipment in Syracuse and Utica-Rome,
computers in Binghamton and in the Mid-Hudson Valley and electrical equipment in
the Albany-Troy-Schenectady area. Constraints on economic growth, taxpayer
resistance to proposed substantial increases in local tax rates, and reductions
in State aid in regions apart from the City have contributed to financial
difficulties for several county and other local governments.

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THE STATE. As noted above, the financial condition of the State is affected
by several factors, including the strength of the State and its regional
economics, actions of the federal government, and State actions affecting the
level of receipts and disbursements. Owing to these and other factors, the State
may, in future years, face substantial potential budget gaps resulting from a
significant disparity between tax revenues projected from a lower recurring
receipts base and the future costs of maintaining State programs at current
levels.

The adopted FY 1997-98 budget projects an increase in General Fund
disbursements of $1.7 billion or 5.2 percent over FY 1996-97 levels. The average
annual growth rate over the last three years is approximately 1.2 percent. State
Funds disbursements (excluding federal grants) are projected to increase by 5.4
percent from the FY 1996-97. All Governmental Funds projected disbursements
increase by 7.0 percent over the FY 1996-97.

The FY 1997-98 State Financial Plan is projected to be balanced on a cash
basis. The Financial Plan projections include a reserve for future needs of $530
million. As compared to the Governor's Executive Budget as amended in February,
the State's adopted budget for FY 1997-98 increases General Fund spending by
$1.7 billion, primarily from increases for local assistance ($1.3 billion).
Resources used to fund these additional expenditures include increased revenues
projected for the 1997-98 fiscal year, increased resources produced in the FY
1996-97 that will be utilized in FY 1997-98, reestimates of social service,
fringe benefit and other spending, and certain non-recurring resources. Total
non-recurring resources included in the FY 1997-98 Financial Plan are projected
by DOB to be $270 million, or 0.7 percent of total General Fund receipts.

However, the economic and financial condition of the State may be affected
by various financial, social, economic and political factors. Those factors can
be very complex, can vary from fiscal year to fiscal year, and are frequently
the result of actions taken not only by the State but also by entities, such as
the federal government, that are outside the State's control. Because of the
uncertainty and unpredictability of changes in these factors, their impact
cannot be fully included in the assumptions underlying the State's projections.

REVENUE BASE. The State's principal revenue sources are economically
sensitive, and include the personal income tax, user taxes and fees and business
taxes.

The PERSONAL INCOME TAX is imposed on the income of individuals, estates and
trusts and is based on federal definitions of income and deductions with certain
modifications. In 1995, the State enacted a tax-reduction program designed to
reduce receipts from the personal income tax by 20 percent over three years.
Prior to 1995, the tax had remained substantially unchanged since 1989 as a
result of annual deferrals of tax reductions originally enacted in 1987. The
tax-reduction program is estimated to reduce receipts by $4.0 billion in FY
1997-98, compared to what tax receipts would have been under the pre-1995 rate
structure. The maximum rate was reduced from the 7.875 percent in effect between
1989 and 1994 to 7.59375 percent for 1995, to 7.125 percent for 1996, and to
6.85 percent for 1997 and thereafter. In addition to significant reductions in
overall tax rates, the program also includes increases in the standard
deduction, widening tax brackets to increase the income thresholds to which
higher tax rates apply, and modification of certain tax credits. Net personal
income tax collections are projected to reach

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$18.87 billion, over half of all General Fund receipts and $2.5 billion above
the reported 1996-97 fiscal year total. Virtually all of the projected annual
growth in this category, however, is provided by refunds and refund reserve
transactions which affect reported receipts levels in the 1995-96 through
1997-98 fiscal years. Without these transactions between years, income tax
receipts in 1997-98 would be virtually flat.

USER TAXES AND FEES are comprised of three-quarters of the State four
percent sales and use tax (the balance, one percent, flows to support Local
Government Assistance Corporation ("LGAC") debt service requirements),
cigarette, alcoholic beverage container, and auto rental taxes, and a portion of
the motor fuel excise levies. Also included in this category are receipts from
the motor vehicle registration fees and alcoholic beverage license fees.
Beginning in 1993-94, a portion of the motor fuel tax and motor vehicle
registration fees and all of the highway use tax are earmarked for dedicated
transportation funds. The 1997 Annual Information Statement states that receipts
in this category in the State's FY 1997-98 are expected to total $7.0 billion,
an increase of $204 million from reported FY 1996-97 results. Underlying growth
in the continuing sales tax base is forecast to be 5 percent, accounting for the
increase in the category as a whole.

BUSINESS TAXES include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as
gross-receipts-based taxes on utilities and gallonage-based petroleum business
taxes. Through 1993, these levies had been subject to a 15 percent surcharge
initially imposed in 1990. Beginning in 1994, the surcharge rate has been phased
out and, for more taxpayers, there will be no surcharge liability for taxable
periods ending in 1997 and thereafter. The 1997 Annual Information Statement
states that total business tax receipts in the State's FY 1997-98 fiscal year
are projected at $4.825 billion, a decline of $253 million from reported FY
1996-97 results. The decline results primarily from the continuing effects of
tax reductions originally enacted in 1994 and 1995.

STATE DEBT. The State anticipates that its capital programs will be
financed, in part, through borrowings by the State and its public authorities in
FY 1997-98. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding BANs) and $140
million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in COPs (including costs of issuance,
reserve funds and other costs) during the State's 1997-98 fiscal year for
equipment purchases. The projection of State borrowings for FY 1997-98 is
subject to change as market conditions, interest rates and other factors vary
throughout the fiscal year.

BUDGETARY FLEXIBILITY. A significant portion of the State's General Fund
budget is accounted for by contractually required expenses (such as pension and
debt service costs) and by federally mandated programs (such as AFDC and
Medicaid). In addition, State aid for school districts comprises a major share
of the budget, and total appropriations and distribution of such aid is
especially contentious politically. Furthermore, the State's ability to respond
to unanticipated developments in the future may have been impaired since the
State has utilized a substantial range of actions of a non-recurring nature in
recent years to finance its General Fund operations, including tapping excess
monies in special funds, refinancing outstanding debt to reduce reserve fund
requirements and current (but not long-term) debt service costs, recalculating
pension fund contributions, selling State assets, reimbursing past General Fund
expenditures by the issuance of authority debt and deferring payment for
expenditures to future fiscal years.

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LABOR COSTS. The State government workforce is mostly unionized, subject to
the Taylor Law which authorizes collective bargaining and prohibits (but has
not, historically, prevented) strikes and work slowdowns. Costs for employee
health benefits have increased substantially, and can be expected to further
increase. The State has a substantial unfunded liability for future pension
benefits, and has utilized changes in its pension fund investment return
assumptions to reduce current contribution requirements. If such investment
earnings assumptions are not sustained by actual results, additional State
contributions will be required in future years to meet the State's contractual
obligations. The State's change in actuarial method from the aggregate cost
method to a modified projected unit credit in FY 1990-91 created a substantial
surplus that was amortized and applied to offset the State's contribution
through FY 1993-94. This change in actuarial method was ruled unconstitutional
by the State's highest court and the State returned to the aggregate cost method
in FY 1994-95 using a four-year phase-in. Employer contributions, including the
State's, are expected to increase over the next five to ten years.

PUBLIC ASSISTANCE. On August 22, 1996, the President signed into law the
Personal Responsibility and Work Opportunity Reconciliation Act of 1996. This
federal legislation fundamentally changed the programmatic and fiscal
responsibilities for administration of welfare programs at the federal, state
and local levels. The new law abolishes the federal Aid to Families with
Dependent Children program (AFDC), and creates a new Temporary Assistance to
Needy Families with Dependent Children program (AFDC), and creates a new
Temporary Assistance to Needy Families program (TANF) funded with a fixed
federal block grant to states. The new law also imposes (with certain
exceptions) a five-era durational limit on TANF recipients, requires that
virtually all recipients be engaged in work or community service activities
within two years of receiving benefits, and limits assistance provided to
certain immigrants and other classes of individuals. States are required to meet
work activity participation targets for their TANF caseload; these requirements
are phased in over time. States that fail to meet these federally mandated job
participation rates, or that fail to conform with certain other federal
standards, face potential sanctions in the form of a reduced federal block
grant.

Proposed legislation that includes both provisions necessary to implement
the State's TANF plan to conform with federal law and implement the Governor's
welfare reform proposal is still pending before the Legislature. There can be no
assurances of timely enactment of certain conforming provisions required under
the federal law. Further delay increases the risk that the State could incur
fiscal penalties for failure to comply with federal law.

MEDICAID. New York participates in the federal Medicaid program under a
state plan approved by the Health Care Financing Administration. The federal
government provides a substantial portion of eligible program costs, with the
remainder shared by the State and its counties (including the City). Basic
program eligibility and benefits are determined by federal guidelines, but the
State provides a number of optional benefits and expanded eligibility. Program
costs have increased substantially in recent years, and account for a rising
share of the State budget. Federal law requires that the State adopt
reimbursement rates for hospitals and nursing homes that are reasonable and
adequate to meet the costs that must be incurred by efficiently and economically
operated facilities in providing patient care, a standard that has led to past
litigation by hospitals and nursing homes seeking higher reimbursement from the
State. The 1997 Annual Information Statement states that General Fund payments
for Medicaid are projected to be $5.42 billion, virtually unchanged from the
level of $5.38 billion in FY 1996-97. This slow growth is due

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primarily to continuation of cost containment measures enacted in FY 1995-96,
new reforms included in the FY 1996-97 adopted budget, and forecasts for lower
caseload based upon actual experience. Other social service spending is forecast
to increase by only $115 million to $3.15 billion in FY 1997-98.

THE STATE AUTHORITIES. There are numerous public authorities with various
responsibilities, including those which finance, construct and/or operate
revenue producing public facilities. Public authority operating expenses and
debt service costs are generally paid by revenues generated by the projects
financed or operated, such as tolls charged for the use of highways, bridges or
tunnels, rentals charged for housing units, and charges for occupancy at medical
care facilities. In addition, State legislation authorizes several financing
techniques for public authorities. Also there are statutory arrangements
providing for State local assistance payments otherwise payable to localities to
be made under certain circumstances to public authorities. Although the State
has no obligation to provide additional assistance to localities whose local
assistance payments have been paid to public authorities under these
arrangements, if local assistance payments are diverted the affected localities
could seek additional State assistance. Some authorities also receive moneys
from State appropriations to pay for the operating costs of certain of their
programs. As described below, the MTA receives the bulk of this money in order
to provide transit and commuter services.

Since 1980, the State has enacted several taxes--including a surcharge on
the profits of banks, insurance corporations and general business corporations
doing business in the 12-county Metropolitan Transportation Region served by the
MTA and a special one-quarter of 1 percent regional sales and use tax--that
provide revenues for mass transit purposes, including assistance to the MTA.
Since 1987 State law has required that the proceeds of a one-quarter of 1
percent mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. In 1993, the State dedicated a portion of certain additional
State petroleum business tax receipts to fund operating or capital assistance to
the MTA. For the FY 1996-97, total State assistance to the MTA is estimated at
approximately $1.09 billion.

State legislation accompanying the FY 1996-97 adopted State budget
authorized the MTA, Triborough Bridge and Tunnel Authority and Transit Authority
to issue an aggregate of $6.5 billion in bonds to finance a portion of a new
$11.98 billion MTA capital plan for the 1995 through 1999 calendar years (the
"1995-99 Capital Program"), and authorized the MTA to submit the 1995-99 Capital
Program to the Capital Program Review Board for approval. This plan will
supersede the overlapping portion of the MTA's 1992-96 Capital Program. This is
the fourth capital plan since the Legislature authorized procedures for the
adoption, approval and amendment of MTA capital programs and is designed to
upgrade the performance of the MTA's transportation systems by investing in new
rolling stock, maintaining replacement schedules for existing assets and
bringing the MTA system into a state of good repair. The 1995-99 Capital Program
assumes the issuance of an estimated $5.1 billion in bonds under this $6.5
billion aggregate bonding authority. The remainder of the plan is projected to
be financed through assistance from the State, the federal government, and the
City of New York, and from various other revenues generated from actions taken
by the MTA.

There can be no assurance that all the necessary governmental actions for
the 1995-99 Capital Program or future capital programs will be taken, that
funding sources currently identified will not be

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decreased or eliminated, or that the 1995-99 Capital Program, or parts thereof,
will not be delayed or reduced. Should funding levels fall below current
projections, the MTA would have to revise its 1995-99 Capital Program
accordingly. If the 1995-99 Capital Program is delayed or reduced, ridership and
fare revenues may decline, which could, among other things, impair the MTA's
ability to met its operating expenses without additional assistance.

THE CITY. The City has required, and continues to require significant
financial assistance from the State. The City depends on the State to enable the
City to balance its budget and meet its cash requirements. In the early 1970s,
the City incurred substantial operating deficits, and its financial controls,
accounting practices and disclosure policies were widely criticized. In 1975,
the City encountered severe financial difficulties and lost access to the public
credit markets. The State Legislature responded in 1975 by creating the
Municipal Assistance Corporation For The City of New York ("MAC") to provide
financing assistance for the City and the Financial Control Board to exercise
certain oversight and review functions with respect to the City's finances. The
Financial Control Board's powers over the City were suspended in June 1986, but
would be reinstated (under current law) if the City experiences certain adverse
financial circumstances. At the time of the fiscal crisis the State provided
substantial financial assistance to the City, the Federal government provided
the City with direct seasonal loans and guarantees on the City's long-term debt
and the City's labor unions accepted deferrals of wage increases and approved
purchases of City bonds by the pension funds. No assurance can be given that
similar assistance would again be made available if needed, particularly given
the current budgetary constraints faced by both the Federal and State
governments.

The City provides services usually undertaken by counties, school districts
or special districts in other large urban areas, including the provision of
social services such as day care, foster care, health care, family planning,
services for the elderly and special employment services for needy individuals
and families who qualify for such assistance. State law requires the City to
allocate a large portion of its total budget to Board of Education operations,
and mandates that the City assume the local share of public assistance and
Medicaid costs. For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable generally accepted accounting principles ("GAAP"). The City was
required to close substantial budget gaps in recent years in order to maintain
balanced operating results. There can be no assurance that the City will
continue to maintain a balanced budget as required by State law without
additional tax or other revenue increases or additional reductions in City
services or entitlement programs, which could adversely affect the City's
economic base.

Pursuant to the New York State Financial Emergency Act for The City of New
York (the "Financial Emergency Act" or the "Act"), the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City's
projections set forth in the 1997-2000 Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly effect the City's ability to
balance its budget and to meet its annual cash flow and financing requirements.
Such assumptions and contingencies include the timing and pace of a regional and
local economic recovery, increases in tax revenues, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives which may require in certain cases the cooperation of the

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City's municipal unions, the ability of New York City Health and Hospitals
Corporation and the Board of Education to take actions to offset reduced
revenues, the ability to complete revenue generating transactions, provision of
State and federal aid and mandate relief, and the impact on City revenues of
proposals for federal and State welfare reform. No assurance can be given that
the assumptions used by the City in the 1997-2000 Financial Plan will be
realized. Due to the uncertainty existing on the federal and state levels, the
ultimate adoption of the State budget for FY 1997-98 may result in substantial
reductions in projected expenditures for social spending programs.
Cost-containment assumptions contained in the 1997-2000 Financial Plan and the
City FY 1997-98 Budget may therefore be significantly adversely affected upon
the final adoption of the State budget for FY 1997-98. Furthermore, actions
taken in recent fiscal years to avert deficits may have reduced the City's
flexibility in responding to future budgetary imbalances, and have deferred
certain expenditures to later fiscal years.

The 1997-2000 Financial Plan published on November 14, 1996 reflects actual
receipts and expenditures and changes in forecast revenues and expenditures
since the June, 1996 Financial Plan. The 1997-2000 Financial Plan projects
revenues and expenditures for FY 1996-97 balanced in accordance with GAAP, and
projects gaps of $1.2 billion, $2.1 billion and $3.0 billion for the 1998, 1999
and 2000 fiscal years, respectively.

In connection with the Financial Plan, the City has outlined a gap-closing
program for the 1998 through 2000 fiscal years to eliminate the remaining $1.2
billion, $2.1 billion and $3.0 billion projected budget gaps for such fiscal
years. This program, which is not specified in detail, assumes additional agency
programs to reduce expenditures or increase revenues by $400 million, $950
million and $1.4 billion in the 1998 through 2000 fiscal years, respectively;
additional revenue initiatives and asset sales of $76 million, $229 million and
$281 million in the 1998 through 2000 fiscal years, respectively; additional
Federal and State aid of $250 million, $250 million and $325 million in the 1998
through 2000 fiscal years, respectively; additional reductions in entitlement
costs of $400 million, $600 million and $975 million in the 1998 through 2000
fiscal years, respectively; and availability in each of the 1998 through 2000
fiscal years of $100 million of the General Reserve.

The City's projected budget gaps for the 1999 and 2000 fiscal years do not
reflect the savings expected to result from prior years' programs to close the
gaps set forth in the Financial Plan. Thus, for example, recurring savings
anticipated from the actions which the City proposes to take to balance the
fiscal year 1998 budget are not taken into account in projecting the budget gaps
for the 1999 and 2000 fiscal years.

Although the City has maintained balanced budgets in each of its last
sixteen fiscal years and is projected to achieve balanced operating results for
the 1997 fiscal year, there can be no assurance that the gap-closing actions
proposed in the Financial Plan can be successfully implemented or that the City
will maintain a balanced budget in future years without additional State aid,
revenue increases or expenditure reductions. Additional tax increases and
reductions in essential City services could adversely affect the City's economic
base.

The City derives its revenues from a variety of local taxes, user charges,
miscellaneous revenues and federal and State unrestricted and categorical
grants. The City projected that local revenues would provide approximately 67.8%
of total revenues in FY 1996-97 while federal aid, including categorical grants,
will provide 11.9% in FY 1996-97 and State aid, including unrestricted aid and
categorical grants, will provide

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20.3% in FY 1996-97. The largest source of the City's revenues is the real
estate tax (approximately 21% of total revenues projected for FY 1996-97), at
rates levied by the City council (subject to certain State constitutional
limits). The City derives the remainder of its tax revenues from a variety of
other economically sensitive local taxes (subject to authorization by the
legislature), including: a local sales and compensating use tax (primarily
dedicated to MAC debt service) imposed in addition to the State's retail sales
tax; the personal income tax on City residents and the earnings tax on
non-residents; a general corporation tax; and a financial corporation tax. High
tax burdens in the City impose political and economic constraints on the ability
of the City to increase local tax rates. The City's four-year financial plans
have been the subject of extensive public comment and criticism, principally
questioning the reasonableness of assumptions that the City will have the
capacity to generate sufficient revenues in the future to provide the level of
services contained in such City financial plans. On July 10, 1995, S&P lowered
the City's credit rating from A- to BBB+, among the lowest ratings of any major
city in the country. The rating agency cited specifically the City budget's
reliance on "one-shot" measures to balance the budget for FY 1995-96 without
rectifying the underlying structural problems, its continued optimistic
projections of State and federal aid, and continued high debt levels.

The City is the largest municipal debt issuer in the nation, and has more
than doubled its debt load since the end of FY 1987-88, in large measure to
rehabilitate its extensive, aging physical plant. The City's seasonal borrowing
needs increased significantly during FY 1989-90 and FY 1990-91, largely due to
delayed State aid payments, and totalled $2.25 billion in FY 1991-92, $1.40
billion in FY 1992-93, $1.75 billion in FY 1993-94, $2.2 billion in FY 1994-95,
$2.4 billion in FY 1995-96 and $2.4 billion in FY 1996-97.

The City makes substantial capital expenditures to reconstruct and
rehabilitate the City's infrastructure and physical assets, including City mass
transit facilities, sewers, streets, bridges and tunnels, and to make capital
investments that will improve productivity in City operations. However, when
operating revenues come under increasing pressure, funding levels of the City's
capital program are reduced from those previously forecast in order to reduce
debt service costs. In addition, the City's projection of total debt subject to
the general debt limit that would be required to fund the Updated Ten-Year
Capital Strategy published in April 1995 indicated that, if no action were
taken, projected contracts for capital projects and debt issuance may exceed the
general debt limit by the end of FY 1996-97 and would exceed the general debt
limit by a substantial amount thereafter.

OTHER LOCALITIES. Certain localities in addition to the City could have
financial problems which, if significant, could lead to requests for additional
State assistance during the State's FY 1997-98 and thereafter. Fiscal
difficulties experienced by the City of Yonkers, for example, could result in
State actions to allocate State resources in amounts that cannot yet be
determined. Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.

Seventeen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities.

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Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1994, the total indebtedness of all localities in
the State other than New York City was approximately $17.7 billion. A small
portion (approximately $82.9 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Seventeen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1994.

INVESTMENT LIMITATIONS

FUNDAMENTAL LIMITATIONS. The following investment limitations cannot be
changed with respect to a Fund 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 changing values of portfolio
securities or amount of total assets will not be considered a violation of any
of the following limitations.

Each Fund will not:

(1) purchase 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 limitation (1): With respect to this limitation, domestic
and foreign banking will be considered to be different industries.

(2) 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.

(3) 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.

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(4) 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.

(5) 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.

(6) 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.

Money Market Portfolio, U.S. Government Portfolio and Tax-Free Fund will
not:

(7) 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.

With respect to Money Market Portfolio and U.S. Government Portfolio, the
following interpretation applies to, but is not a part of, fundamental
limitation (7): Mortgage and asset-backed securities will not be considered to
have been issued by the same issuer by reason of the securities having the same
sponsor, and mortgage- and asset-backed securities issued by a finance or other
special purpose subsidiary that are not guaranteed by the parent company will be
considered to be issued by a separate issuer from the parent company.

With respect to Tax-Free Fund, the following interpretation applies to, but
is not a part of, fundamental limitation (7): Each state, territory and
possession of the United States (including the District of Columbia and Puerto
Rico), each political subdivision, agency, instrumentality and authority
thereof, and each multi-state agency of which a state is a member is a separate
"issuer." When the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from the government creating the
subdivision and the security is backed only by the assets and revenues of the
subdivision, such subdivision would be deemed to be the sole issuer. Similarly,
in the case of an IDB or PAB, if that bond is backed only by the assets and
revenues of the non-governmental user, then that non-governmental user would be
deemed to be the sole issuer. However, if the creating government or another
entity guarantees a security, then to the extent that the value of all
securities issued or guaranteed by that government or entity and owned by the
Fund exceeds 10% of the Fund's total assets, the guarantee would be considered a
separate security and would be treated as issued by that government or entity.

30
<PAGE>
NON-FUNDAMENTAL INVESTMENT LIMITATIONS. The following investment
restrictions are not fundamental and may be changed by each board without
shareholder approval.

Each Fund will not:

(1) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions and except that
the Fund may make margin deposits in connection with its use of
financial options and futures, forward and spot currency contracts,
swap transactions and other financial contracts or derivative
instruments.

(2) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short "against the box" and (b)
maintain short positions in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments.

(3) purchase securities of other investment companies, except to the
extent permitted by the 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.

(5) invest more than 10% of its net assets in illiquid securities.

DIRECTORS/TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES

The directors and trustees (each also referred to as "board members") and
executive officers of the Corporations and the Trusts, their ages, business
addresses and principal occupations during the past five years are:

<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -------------------------------------------------------
<S> <C> <C>
Margo N. Alexander**; 50 Director/Trustee and Mrs. Alexander is president, chief executive officer
President and a director of Mitchell Hutchins (since January
1995) and also an executive vice president and a
director of PaineWebber. Mrs. Alexander is 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/Trustee Mr. Armstrong is chairman and principal of RQA
78 West Brother Drive Enterprises (management consulting firm) (since April
Greenwich, CT 06830 1991 and principal occupation since March 1995). 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
</TABLE>

31
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -------------------------------------------------------
<S> <C> <C>
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.
E. Garrett Bewkes, Jr.**; 70 Director/Trustee and Mr. Bewkes is a director of Paine Webber Group Inc.
Chairman of the ("PW Group") (holding company of PaineWebber and
Boards of Mitchell Hutchins). Prior to December 1995, he was a
Directors/Trustees 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 28 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
Richard R. Burt; 50 Director/Trustee Mr. Burt is chairman of International Equity Partners
1101 Connecticut Avenue, N.W. (international investments and consulting firm)
Washington, D.C. 20036 (since March 1994) and a partner of McKinsey &
Company (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/Trustee Ms. Farrell is a managing director, senior investment
strategist, and member of the Investment Policy
Committee of PaineWebber. Ms. Farrell joined
PaineWebber in 1982. She is a member of the Financial
Women's Association and Women's Economic Roundtable,
and
</TABLE>

32
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -------------------------------------------------------
<S> <C> <C>
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 27
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Meyer Feldberg; 55 Director/Trustee Mr. Feldberg is Dean and Professor of Management of the
Columbia University Graduate School of Business, Columbia University.
101 Uris Hall Prior to 1989, he was president of the Illinois
New York, New York Institute of Technology. Dean Feldberg is also a
10027 director of K-III Communications Corporation,
Federated Department Stores Inc. and Revlon, Inc.
Dean Feldberg is a director or trustee of 27
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
George W. Gowen; 67 Director/Trustee Mr. Gowen is a partner in the law firm of Dunnington,
666 Third Avenue Bartholow & Miller. Prior to May 1994, he was a
New York, New York partner in the law firm of Fryer, Ross & Gowen. Mr.
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; 60 Director/Trustee Mr. Malek is chairman of Thayer Capital Partners
1455 Pennsylvania Ave, N.W. (merchant bank). From January 1992 to November 1992,
Suite 350 he was campaign manager of Bush-Quayle '92. From 1990
Washington, D.C. 20004 to 1992, he was vice chairman and, from 1989 to 1990,
he was president of 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
</TABLE>

33
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -------------------------------------------------------
<S> <C> <C>
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.

Carl W. Schafer; 61 Director/Trustee Mr. Schafer is president of the Atlantic Foundation
P.O. Box 1164 (charitable foundation supporting mainly
Princeton, NJ 08542 oceanographic exploration and research). He also is a
director of Roadway Express, Inc. (trucking), The
Guardian Group of Mutual Funds, Evans Systems, Inc.
(major fuels, convenience store and diversified
company), Electronic Clearing House, Inc. (financial
transactions processing), Wainoco 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 27
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Cynthia Bow; 38 Vice President Ms. Bow is a vice president and a manager of Mitchell
(Managed Municipal Hutchins. Ms. Bow has been with Mitchell Hutchins
Trust) since 1982. Ms. Bow is a vice president of four
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Kimberly Brown; 30 Vice President (Money Ms. Brown is a vice president and a portfolio manager
Fund) of Mitchell Hutchins. She has been a portfolio
manager since March 1995 and has been with Mitchell
Hutchins since December 1992. Prior to joining
Mitchell Hutchins Ms. Brown was with Visual Impact
Advertising. Ms. Brown is vice president of one
investment company for which Mitchell Hutchins or
PaineWebber serves as investment advisor.
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 18 investment
companies for which Mitchell
</TABLE>

34
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -------------------------------------------------------
<S> <C> <C>
Hutchins or PaineWebber serves as investment adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president and a manager of the
Assistant Treasurer mutual fund finance division of Mitchell Hutchins.
Ms. Moran is a vice president and assistant treasurer
of 28 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
Dianne E. O'Donnell; 45 Vice President and Ms. O'Donnell is a senior vice president and deputy
Secretary general counsel of Mitchell 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.
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 P. Ryan; 37 Vice President (Money Ms. Ryan is a senior vice president of Mitchell
Fund) Hutchins. Ms. Ryan 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; 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 and Mr. Schubert is a first vice president and the director
Treasurer of the mutual fund 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
</TABLE>

35
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -------------------------------------------------------
<S> <C> <C>
Mitchell Hutchins or PaineWebber serves as investment
adviser.
Barney A. Taglialatela; 36 Vice President and Mr. Taglialatela is a vice president and a manager of
Assistant Treasurer the mutual fund finance division of Mitchell
Hutchins. Prior to February 1995, he was a manager of
the mutual fund finance division of Kidder Peabody
Asset Management, Inc. Mr. Taglialatela is a vice
president and assistant treasurer of 28 investment
companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Debbie Vermann; 38 Vice President Ms. Vermann is a vice president and a portfolio manager
(Tax-Free Fund, of Mitchell Hutchins. Ms. Vermann is a vice president
Managed Municipal of three investment companies for which Mitchell
Trust, and Municipal Hutchins or PaineWebber serves as investment adviser.
Money Market Series)
Keith A. Weller; 36 Vice President and Mr. Weller is a first vice president and associate
Assistant Secretary general counsel of Mitchell Hutchins. Prior to May
1995, he was an attorney in private practice. Mr.
Weller is a vice president and assistant secretary of
27 investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Ian W. Williams; 40 Vice President and Mr. Williams is a vice president and a manager of the
Assistant Treasurer mutual fund finance division of Mitchell Hutchins.
Prior to June 1992, he was an audit senior 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 each
Fund as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber and/or PW Group.

Each Corporation or Trust pays board members who are not "interested
persons" of the Corporation or Trust $1,000 annually for each series and $150
per meeting of the board and each meeting of a board committee (other than
committee meetings held on the same day as a board meeting). Money Fund,
Tax-Free Fund, Managed Municipal Trust and Municipal Money Market Series
presently pay such directors and trustees $3,000, $1,000, $2,000 and $1,000
annually, respectively, plus any additional amounts due for board or committee
meetings. Each chairman of the audit and contract review committees of
individual funds within the PaineWebber fund complex receives additional
compensation aggregating $15,000 annually from the relevant funds. Board members
are reimbursed for any expenses incurred in

36
<PAGE>
attending meetings. Board members and officers of the Corporations/Trusts own in
the aggregate less than 1% of the shares of each Fund. Because PaineWebber and
Mitchell Hutchins perform substantially all of the services necessary for the
operation of the Corporations/Trusts and the Funds, the Corporations and Trusts
require no employees. No officer, director or employee of Mitchell Hutchins or
PaineWebber presently receives any compensation from the Corporations and Trusts
for acting as a board member or officer.

The table below includes certain information relating to the compensation of
the current board members of the Corporations/Trusts who held office with one of
the Funds or with other PaineWebber funds during the fiscal year ended June 30,
1997.

COMPENSATION TABLE+

<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION FROM COMPENSATION
--------------------------------------------------------- FROM THE
MUNICIPAL CORPORATIONS/TRUSTS
MONEY TAX-FREE MANAGED MONEY MARKET AND THE
NAME OF PERSONS, POSITION FUND* FUND* MUNICIPAL TRUST* SERIES* FUND COMPLEX**
- ------------------------------------------ ----------- ----------- ---------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Richard Q. Armstrong
Director/Trustee........................ $ 4,553 $ 1,518 $ 3,335 $ 2,317 $ 59,873
Richard R. Burt
Director/Trustee........................ 4,103 1,368 3,035 2,017 51,173
Meyer Feldberg,
Director/Trustee........................ 5,992 1,997 3,583 2,317 96,181
George W. Gowen,
Director/Trustee........................ 5,992 1,997 3,583 2,317 92,431
Frederic V. Malek,
Director/Trustee........................ 5,992 1,997 3,583 2,317 92,431
Carl W. Schafer
Director/Trustee........................ 4,553 1,518 3,335 2,445 62,307
</TABLE>

- ------------

+ Only independent board members are compensated by the Corporations or Trusts
and identified above; board members who are "interested persons" as defined
by the 1940 Act do not receive compensation.

* Represents fees paid to each board member during the fiscal years ended June
30, 1997.

** Represents total compensation paid to each board member 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

The following shareholders are shown in the records of New Jersey Municipal
Money Fund as owning more than 5% of its shares.

<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE OF SHARES
BENEFICIALLY OWNED AS OF JULY 31,
NAME AND ADDRESS++ 1997
- ------------------------------------------------------- -------------------------------------
<S> <C>
Frank V. Grace & Barbara J. Grace 4,834,443.490 (8.76%)
G. George Rogers & Rolfa Rogers 3,087,561.170 (5.59%)
</TABLE>

- ------------

++ The shareholders listed may be contacted c/o Mitchell Hutchins Asset
Management Inc., 1285 Avenue of the Americas, New York, New York 10019.

New Jersey Municipal Money Fund is not aware of the extent to which these
shareholders are beneficial owners of the securities they hold of record and is
not aware of any other shareholders who may be the beneficial owners of 5% or
more of its shares. As of July 31, 1997, the other Funds had no shareholders who
owned of record 5% or more of a Fund's shares, and none is aware of any
shareholder who is the beneficial owner of 5% or more of its shares.

37
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. PaineWebber acts as
the Funds' investment adviser and administrator pursuant to separate contracts
dated March 23, 1989 with Money Fund, March 1, 1989 with Tax-Free Fund,
September 10, 1990 with Managed Municipal Trust and April 13, 1995 with
Municipal Money Market Series ("PaineWebber Contracts"). Under the PaineWebber
Contracts, each 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>
MONEY MARKET PORTFOLIO:
All............................................................................ 0.50%
U.S. GOVERNMENT PORTFOLIO:
Up to $300 million............................................................. 0.50%
In excess of $300 million up to $750 million................................... 0.44%
Over $750 million.............................................................. 0.36%
TAX-FREE FUND:
Up to $1 billion............................................................... 0.50%
In excess of $1 billion up to $1.5 billion..................................... 0.44%
Over $1.5 billion.............................................................. 0.36%
CALIFORNIA MUNICIPAL MONEY FUND AND NEW YORK MUNICIPAL MONEY FUND:
Up to $300 million............................................................. 0.50%
In excess of $300 million up to $750 million................................... 0.44%
Over $750 million.............................................................. 0.36%
NEW JERSEY MUNICIPAL MONEY FUND:
All............................................................................ 0.50%
</TABLE>

For the periods indicated, the Funds paid (or accrued) to PaineWebber the
following fees.

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 30,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Money Market Portfolio.................. $40,972,909 $32,952,818 $23,493,781
U.S. Government Portfolio............... 4,931,890 4,457,510 3,746,439
Tax-Free Fund........................... 9,479,630 9,012,871 7,340,127
California Municipal Money Fund......... 2,493,144 2,050,593 1,587,620
New York Municipal Money Fund........... 1,446,166 1,263,305 923,010
($292,698) ($46,118) ($50,014)
waived waived waived
</TABLE>

38
<PAGE>
For the periods indicated, New Jersey Municipal Money Fund paid (or accrued)
to PaineWebber and/ or Kidder Peabody Asset Management, Inc., the Fund's
predecessor manager and investment adviser, the following fees:

<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR ENDED OCTOBER
31,
FOR THE FISCAL YEAR FOR THE EIGHT MONTHS ------------------
ENDED JUNE 30, 1997 ENDED JUNE 30, 1996 1995 1994
------------------- -------------------- -------- --------
<S> <C> <C> <C> <C>
New Jersey Municipal Money Fund......... $239,816 $138,224 $167,865 $207,338
</TABLE>

During its fiscal year ended June 30, 1997, no Fund paid fees to PaineWebber
for its services as lending agent because no Fund engaged in any securities
lending activities during that period. Prior to August 1, 1997, PaineWebber
provided certain services to each Fund (other than New Jersey Municipal Money
Fund) not otherwise provided by its transfer agent. Pursuant to agreements
between PaineWebber and each of the Funds relating to these services, each Fund
paid (or accrued) to PaineWebber the following fees:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 30,
----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ ------------
Money Market Portfolio................................... $ 1,736,778 $ 1,391,745 $ 1,168,942
U.S. Government Portfolio................................ 148,113 144,758 122,640
Tax-Free Fund............................................ 247,472 242,449 217,437
California Municipal Money Fund.......................... 54,029 50,117 43,682
New York Municipal Money Fund............................ 39,481 36,019 30,749
</TABLE>

These agreements were reviewed annually by the appropriate boards. Effective
August 1, 1997, PaineWebber provides transfer agency related services to each
Fund pursuant to a delegation of authority from PFPC Inc. and is compensated for
these services by PFPC Inc., not the Funds.

Under separate contracts with PaineWebber dated March 23, 1989 with respect
to Money Fund, March 1, 1989 with respect to Tax-Free Fund, September 10, 1990
with respect to Managed Municipal Trust and April 13, 1995 with respect to
Municipal Money Market Series ("Mitchell Hutchins Contracts"), Mitchell Hutchins
serves as each Fund's sub-adviser and sub-administrator. Under the Mitchell
Hutchins Contracts, PaineWebber (not the Funds) pays Mitchell Hutchins fees,
computed daily and paid monthly, at an annual rate of 20% of the fee paid by
each Fund to PaineWebber under the PaineWebber Contracts.

For the periods indicated, PaineWebber paid (or accrued) to Mitchell
Hutchins the following fees.

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Money Market Portfolio...................................................... $ 8,194,582 $ 6,590,564 $ 4,698,756
U.S. Government Portfolio................................................... 986,378 891,502 749,288
Tax-Free Fund............................................................... 1,895,926 1,802,574 1,468,025
California Municipal Money Fund............................................. 498,629 410,119 317,524
New York Municipal Money Fund............................................... 347,773 252,661 184,602
</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL YEAR
FISCAL YEAR FOR THE ENDED OCTOBER 31,
ENDED EIGHT MONTHS ENDED --------------------
JUNE 30, 1997 JUNE 30, 1996 1995 1994
---------------- ------------------- --------- ---------
<S> <C> <C> <C> <C>
New Jersey Municipal Money Fund..................... $ 47,963 $ 27,645 $ 18,580 $ --
</TABLE>

Under the terms of the PaineWebber Contracts, each Fund bears all expenses
incurred in its operation that are not specifically assumed by PaineWebber.
General expenses of a Corporation or Trust not readily identifiable as belonging
to a specific Fund or to any other series of the Corporation or Trust are
allocated among series by or under the direction of the Corporation's or Trust's
board in such manner as the board deems fair and equitable. Expenses borne by
the Funds include the following (or each Fund's share of the following): (1) the
cost (including brokerage commissions and other transaction costs, if any) of
securities purchased or sold by the Funds and any losses incurred in connection
therewith, (2) fees payable to and expenses incurred on behalf of the Funds by
PaineWebber, (3) organizational expenses, (4) filing fees and expenses relating
to the registration and qualification of the shares of the Funds under federal
and state securities laws and maintaining such registrations and qualifications,
(5) fees and salaries payable to the board members and officers who are not
interested persons of a Corporation or a Trust, or of PaineWebber, (6) all
expenses incurred in connection with the board members' services, including
travel expenses, (7) taxes (including any income or franchise taxes) and
governmental fees, (8) costs of any liability, uncollectable items of deposit
and other insurance or fidelity bonds, (9) any costs, expenses or losses arising
out of a liability of or claim for damages or other relief asserted against a
Corporation or Trust, or a Fund for violation of any law, (10) legal, accounting
and auditing expenses, including legal fees of special counsel for those board
members who are not interested persons of a Corporation or Trust, (11) charges
of custodians, transfer agents and other agents, (12) expenses of setting in
type and printing prospectuses and supplements thereto, reports and statements
to shareholders and proxy material for existing shareholders, (13) costs of
mailing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials to existing
shareholders, (14) any extraordinary expenses (including fees and disbursements
of counsel, costs of actions, suits or proceedings to which a Corporation or
Trust is a party and the expenses a Corporation or Trust may incur as a result
of its legal obligation to provide indemnification to its officers, board
members, agents and shareholders) incurred by a Fund, (15) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations, (16) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the board and any committees thereof,
(17) the cost of investment company literature and other publications provided
to the board members and officers, and (18) costs of mailing, stationery and
communications equipment.

Under the PaineWebber and Mitchell Hutchins Contracts (collectively,
"Contracts"), PaineWebber or Mitchell Hutchins will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund in connection
with the performance of the Contracts, 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 Contracts are terminable with respect to each Fund at any time without
penalty by vote of the applicable board or by vote of the holders of a majority
of the outstanding voting securities of that Fund on 60 days' written notice to
PaineWebber or Mitchell Hutchins, as the case may be. The PaineWebber Contracts
are also terminable without penalty by PaineWebber on 60 days' written notice to
the appropriate

40
<PAGE>
Corporation or Trust, and the Mitchell Hutchins Contracts are terminable without
penalty by PaineWebber or Mitchell Hutchins on 60 days' written notice to the
other party. The Contracts terminate automatically upon their assignment, and
each Mitchell Hutchins Contract also terminates automatically upon the
assignment of the applicable PaineWebber Contract.

The following table shows the approximate net assets as of July 31, 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
INVESTMENT CATEGORY ASSETS
- ------------------------------------------------------------- ---------
($ MIL)
<S> <C>
Domestic (excluding Money Market)............................ $ 6,173.1
Global....................................................... 3,383.3
Equity/Balanced.............................................. 4,610.9
Fixed Income (excluding Money Market)........................ 4,945.5
Taxable Fixed Income....................................... 3,359.5
Tax-Free Fixed Income...................................... 1,586.0
Money Market Funds........................................... 25,274.8
</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 the PaineWebber mutual funds and
other Mitchell Hutchins advisory clients.

DISTRIBUTION ARRANGEMENTS. PaineWebber acts as distributor of shares of the
Funds under separate distribution contracts with each Corporation or Trust
("Distribution Contracts") which require PaineWebber to use its best efforts,
consistent with its other business, to sell shares of the Funds. Shares of the
Funds are offered continuously. Payments by U.S. Government Portfolio, Tax-Free
Fund, California Municipal Money Fund, New Jersey Municipal Money Fund and New
York Municipal Money Fund to compensate or reimburse PaineWebber for certain
expenses incurred in connection with its activities in providing certain
shareholder and account maintenance services (and, for New Jersey Municipal
Money Fund, distributing its shares) are authorized under the Distribution
Contracts and made in accordance with related plans of distribution ("Plans")
adopted by each Corporation or Trust with respect to those Funds in the manner
prescribed by Rule 12b-1 under the 1940 Act. No such payments have been
authorized for Money Market Portfolio.

Among other things, each Plan provides that (1) PaineWebber will submit to
the board at least quarterly, and the board members will review, reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, (2) the Plan will continue in effect only so long as it
is approved at least annually, and any material amendment thereto is approved,
by the board, including those board members who are not "interested persons" of
the Corporation or Trust and who have no direct or indirect financial interest
in the operation of the Plan or any agreement related to the Plan, acting

41
<PAGE>
in person at a meeting called for that purpose, (3) payments by a Fund under the
Plan shall not be materially increased without the affirmative vote of the
holders of a majority of the affected Fund's outstanding shares and (4) while
the Plan remains in effect, the selection and nomination of board members who
are not "interested persons" of the Corporation or Trust shall be committed to
the discretion of the board members who are not "interested persons" of the
Corporation or Trust.

Under the applicable Plan, U.S. Government Portfolio, Tax-Free Fund,
California Municipal Money Fund and New York Municipal Money Fund each is
authorized to pay PaineWebber a service fee, computed daily and paid monthly, at
the annual rate of up to 0.15% of its average daily net assets. Each of these
Funds currently pays service fees to PaineWebber at the annual rate of 0.08% of
average daily net assets. Any increase from the current annual rate would
require prior approval of the board. Under the applicable Plan, New Jersey
Municipal Money Fund reimburses PaineWebber for certain service and distribution
expenses at an annual rate of up to 0.12% of its average daily net assets.

During their fiscal years ended June 30, 1997, U.S. Government Portfolio,
Tax-Free Fund, California Municipal Money Fund and New York Municipal Money Fund
paid or accrued to PaineWebber service fees of $922,763, $1,706,584, $420,687
and $231,528, respectively. For the same periods, PaineWebber estimates that it
incurred expenses of $795,000, $1,488,000, $374,000 and $222,000, respectively,
in servicing Fund shareholders. PaineWebber estimates that these expenses were
incurred for each of these Funds, respectively, as follows: (a) allocated costs
related to shareholder servicing--$34,000, $34,000, $34,000 and $34,000; and (b)
service fees to Investment Executives--$761,000, $1,454,000, $340,000 and
$188,000.

During the fiscal year ended June 30, 1997, New Jersey Municipal Money Fund
paid or accrued to PaineWebber service fees of $57,556. For the same period,
PaineWebber estimates that it incurred expenses of $65,000 in distributing
shares of this Fund and servicing Fund shareholders. PaineWebber estimates that
these expenses were incurred for New Jersey Municipal Money Fund as follows: (a)
advertising and promotion--$19,839; (b) printing--$161; and (c) service fees to
Investment Executives--$45,000.

"Allocated costs" include various internal costs allocated by PaineWebber to
its efforts at providing certain shareholder and account maintenance services.
These internal costs encompass office rent, salaries and other overhead expenses
of various PaineWebber departments and areas of operations.

In approving the continuance of the Plan for each Fund, the applicable board
considered all features of the distribution system for the Fund, including (a)
PaineWebber's view that the payment of service fees (and distribution fees for
New Jersey Municipal Money Fund) at the annual rate of 0.06% (0.10% for New
Jersey Municipal Money Fund) of the average daily net assets of the Fund held in
shareholder accounts serviced by Investment Executives and correspondent firms
was attractive to such Investment Executives and correspondent firms and would
result in greater growth of the Fund than might otherwise be the case, (b) the
extent to which Fund shareholders might benefit from economies of scale
resulting from growth in the Fund's assets and shareholder account size and the
potential for continued growth, (c) the services provided to the Fund and its
shareholders by PaineWebber pursuant to the applicable Distribution Contract,
(d) PaineWebber's expenses and costs under the Plan as described above and (e)
the fact that the expense to the Fund of the Plan could be offset if the Plan is
successful by the lower advisory fee rates that may be triggered as assets reach
higher levels.

42
<PAGE>
With respect to each Plan, the applicable board considered the benefits that
would accrue to PaineWebber under the Plan in that PaineWebber would receive
service and advisory fees that are calculated based upon a percentage of the
average net assets of the Fund, which fees would increase if the Plan is
successful and the Fund attains and maintains increased asset levels.

PORTFOLIO TRANSACTIONS

The Funds purchase portfolio securities from dealers and underwriters as
well as from issuers. Securities are usually traded on a net basis with dealers
acting as principal for their own accounts without a stated commission. Prices
paid to dealers in principal transactions generally include a "spread," which is
the difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. When securities are purchased directly
from an issuer, no commissions or discounts are paid. When securities are
purchased in underwritten offerings, they include a fixed amount of compensation
to the underwriter.

The Mitchell Hutchins Contracts authorize Mitchell Hutchins (with the
approval of each Corporation's or Trust's board) to select brokers and dealers
to execute purchases and sales of each Fund's portfolio securities. The
Contracts direct Mitchell Hutchins to use its best efforts to obtain the best
available price and most favorable execution with respect to all transactions
for the Funds. 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 Funds 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 that could be purchased for hard dollars.
Research services furnished by the dealers through which or with which a 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. Information and research received from
dealers will be in addition to, and not in lieu of, the services required to be
performed by Mitchell Hutchins under the Mitchell Hutchins Contracts. During its
past three fiscal years, no Fund has paid any brokerage commissions; therefore,
none has 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 each 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 a 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

43
<PAGE>
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-BROKERS

As of June 30, 1997, Money Market Portfolio owned commercial paper and
short-term corporate obligations issued by the following persons who are regular
broker-dealers for that Fund: Bear Stearns Companies Incorporated
($325,507,992); Goldman Sachs Group LP ($74,964,948); Lehman Brothers Holdings
Incorporated ($24,538,264); Merrill Lynch & Co., Inc. ($211,960,097); and Morgan
Stanley Group Incorporated ($169,675,430).

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

Each 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 a 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 each Fund
seeks to maintain a constant net asset value of $1.00 per share.

If conditions exist that make cash payments undesirable, California
Municipal Money Fund and New York Municipal Money Fund each reserve the right to
honor any request for redemption by making payment in whole or in part in
securities chosen by the Fund and valued in the same way as they would be valued
for purposes of computing the Fund's net asset value. If payment is made in
securities, a shareholder may incur brokerage expenses in converting these
securities into cash. Managed Municipal Trust has elected, however, to be
governed by Rule 18f-1 under the 1940 Act, under which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of either Fund during any 90-day period for one shareholder. This election is
irrevocable unless the SEC permits its withdrawal.

Under normal circumstances, a 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

Each Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Each Fund's net asset value per share is determined by State Street Bank
and Trust Company ("State Street") as of 12:00 noon, Eastern time, on each
Business Day. As defined in the Prospectus, "Business Day" means any day on
which State Street's Boston offices, the New York City offices of PaineWebber
and PaineWebber's bank, The Bank of New 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, Patriot's Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day.

44
<PAGE>
Each Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 ("Rule") under 1940 Act. To use
amortized cost to value its portfolio securities, a 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, a Fund might have to sell portfolio securities
prior to maturity and at a price that might not be desirable.

The board of each Corporation and Trust has established procedures for the
purpose of maintaining a constant net asset value of $1.00 per share, which
include a review of the extent of any deviation of net asset value per share,
based on available market quotations, from the $1.00 amortized cost per share.
If that deviation exceeds 1/2 of 1% for any Fund, its board will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends and utilizing a net asset value per share as
determined by using available market quotations. Each Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less and 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 appropriate 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 relevant board will take
appropriate action.

In determining the approximate market value of portfolio investments, each
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used.

TAXES

FEDERAL TAXES. In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code, each Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income and net short-term capital gain, if any) plus, in the case of
each Municipal Fund, its net interest income excludable from gross income under
section 103(a) of the Internal Revenue Code, and must meet several additional
requirements. With respect to each Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities and certain other
income; (2) through the end of its current taxable year on June 30, 1998, the
Fund must derive less than 30% of its gross income from the sale or other
disposition of securities held for less than three

45
<PAGE>
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 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.

Dividends paid by a Municipal Fund will qualify as "exempt-interest
dividends," and thus will be excludable from gross income by its shareholders,
if it satisfies the additional requirement that, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets consists of
securities the interest on which is excludable from gross income under section
103(a). Each Municipal Fund intends to continue to satisfy this requirement. The
aggregate amount annually designated by a Municipal Fund as exempt-interest
dividends may not exceed its interest for the year that is excludable under
section 103(a) over certain amounts disallowed as deductions. The shareholders'
treatment of dividends from the Municipal Funds under local and state income tax
laws may differ from the treatment thereof under the Internal Revenue Code.

Tax-exempt interest attributable to certain PABs (including, in the case of
a Municipal Fund receiving interest on such bonds, a proportionate part of the
exempt-interest dividends paid by that Fund) is subject to the alternative
minimum tax. Exempt-interest dividends received by a corporate shareholder also
may be indirectly subject to that tax without regard to whether a Municipal
Fund's tax-exempt interest was attributable to such bonds. PABs are issued by or
on behalf of public authorities to finance various privately operated facilities
and are described in the Prospectus.

Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by IDBs or PABs should consult their
tax advisers before purchasing shares of a Municipal Fund because, for users of
certain of these facilities, the interest on such bonds is not exempt from
federal income tax. For these purposes, the term "substantial user" is defined
generally to include a "non-exempt person" who regularly uses in trade or
business a part of a facility financed from the proceeds of IDBs or PABs.

Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as a Municipal Fund) plus 50% of their
benefits exceeds certain base amounts. Exempt-interest dividends from the
Municipal Funds still are tax-exempt to the extent described above and in the
Prospectus; they are only included in the calculation of whether a recipient's
income exceeds the established amounts.

If a Municipal Fund invests in any instruments that generate taxable income,
under the circumstances described in the Prospectus and in the discussion of
municipal market discount bonds below, the portion of any Fund dividend
attributable to the interest earned thereon will be taxable to that Fund's
shareholders as ordinary income to the extent of its earnings and profits and
only the remaining portion will qualify as an exempt-interest dividend. The
respective portions will be determined by the "actual earned" method, under
which the portion of any dividend that qualifies as an exempt-interest dividend
may vary, depending on the relative proportions of tax-exempt and taxable
interest earned during the dividend period. Moreover, if a Municipal Fund
realizes capital gain as a result of market transactions, any distribution of
that gain will be taxable to its shareholders.

46
<PAGE>
Each Municipal Fund may invest in municipal bonds that are purchased,
generally not on their original issue, with market discount (that is, at a price
less than the principal amount of the bond or, in the case of a bond that was
issued with original issue discount, a price less than the amount of the issue
price plus accrued original issue discount) ("municipal market discount bonds").
If a bond's market discount is less than the product of (1) 0.25% of the
redemption price at maturity times (2) the number of complete years to maturity
after the taxpayer acquired the bond, then no market discount is considered to
exist. Gain on the disposition of a municipal market discount bond (other than a
bond with a fixed maturity date within one year from its issuance) generally is
treated as ordinary (taxable) income, rather than capital gain, to the extent of
the bond's accrued market discount at the time of disposition. Market discount
on such a bond generally is accrued ratably, on a daily basis, over the period
from the acquisition date to the date of maturity. In lieu of treating the
disposition gain as above, a Municipal Fund may elect to include market discount
in its gross income currently, for each taxable year to which it is
attributable.

Dividends from investment company taxable income paid to a shareholder who,
as to the United States, is a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation or foreign partnership
("foreign shareholder") generally are subject to a 30% withholding tax, unless
the applicable tax rate is reduced by a treaty between the United States and the
shareholder's country of residence. Withholding does not apply to a dividend
paid to a foreign shareholder that is "effectively connected with the
[shareholder's] conduct of a trade or business within the United States," in
which case the withholding requirements applicable to domestic taxpayers apply.
Exempt-interest dividends paid by the Municipal Funds are not subject to
withholding.

Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all its
ordinary (I.E., taxable) income for that year and any capital gain net income
for the one-year period ending October 31 of that year, plus certain other
amounts.

CALIFORNIA TAXES. In any year in which California Municipal Money Fund
qualifies as a RIC under the Internal Revenue Code and 50% or more of its assets
at the close of each quarter of its taxable year are invested in obligations the
interest on which is exempt from personal income taxation by the State of
California under the laws or the Constitution of California or the United
States, the Fund will be qualified under California law to pay "exempt-interest"
dividends which will be exempt from the California personal income tax.

Individual shareholders of California Municipal Money Fund who reside in
California will not be subject to California personal income tax on
distributions received from the Fund to the extent such distributions are
attributable to interest on tax-exempt obligations issued by the State of
California or a California local government (or interest earned on tax-exempt
obligations of U.S. possessions or territories), provided that the Fund
satisfies the requirement of California law that at least 50% of its assets at
the close of each quarter of its taxable year be invested in obligations the
interest on which is exempt from personal income taxation by the State of
California. Income distributions from the Fund that are attributable to sources
other than those described in the preceding sentence will generally be taxable
to such shareholders as ordinary income. However, distributions from the Fund,
if any, that are derived from interest on obligations of the U.S. government may
also be designated by the Fund and treated by its shareholders as exempt from
California personal income tax, provided that the foregoing 50% requirement is
satisfied. In addition, distributions to such shareholders other than
exempt-interest dividends will be includable in income subject to the California
alternative minimum tax.

47
<PAGE>
Shareholders of California Municipal Money Fund who are subject to the
California corporate franchise tax will be required to include distributions of
investment income and capital gains in their taxable income for purposes of that
tax. In addition, such distributions may be includable in income subject to the
alternative minimum tax.

Shares of California Municipal Money Fund will not be subject to the
California property tax.

The foregoing is a general, abbreviated summary of certain of the provisions
of the tax laws of the State of California presently in effect as they directly
govern the taxation of shareholders of California Municipal Money Fund. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning California tax matters.

NEW YORK TAXES. Individual shareholders of New York Municipal Money Fund
will not be required to include in their gross income for New York State and
City purposes any portion of distributions received from the Fund that are
directly attributable (i) to interest earned on tax-exempt obligations issued by
New York State or any political subdivisions thereof (including the City) or
(ii) interest earned on obligations of U.S. possessions or territories that is
exempt from state taxation pursuant to federal law, provided that the Fund
qualifies as a RIC and satisfies the requirement that at least 50% of its assets
at the close of each quarter of its taxable year constitute obligations the
interest on which is tax-exempt for federal income tax purposes. Distributions
from the Fund that are attributable to sources other than those described in the
preceding sentence (including interest on obligations of other states and their
political subdivisions) will generally be taxable to individual shareholders as
ordinary income. However, distributions by the Fund, if any, that are derived
from interest earned on obligations of the U.S. government may also be
designated by the Fund and treated by its shareholders as exempt from personal
income taxation for New York State and City purposes, provided that at least 50%
of the value of its total assets at the close of each quarter of its taxable
year is invested in such obligations.

Shareholders of New York Municipal Money Fund that are subject to the New
York State corporation franchise tax or the City general corporation tax will be
required to include exempt-interest dividends paid by the Fund in their "entire
net income" for purposes of such taxes and will be required to include their
shares of the Fund in their investment capital for purposes of such taxes.

Shareholders of New York Municipal Money Fund will not be subject to the
unincorporated business tax imposed by the City solely by reason of their
ownership of shares in the Fund. If a shareholder is subject to unincorporated
business taxation by the City, income and gains distributed by the Fund will be
subject to such taxation except to the extent such distributions are directly
attributable to interest earned on tax-exempt obligations issued by New York
State or any political subdivision thereof (including the City).

Shares of New York Municipal Money Fund will not be subject to property
taxes imposed by New York State or the City.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of New York Municipal Money Fund generally will not be deductible for New
York State personal income tax purposes.

Interest income of New York Municipal Money Fund that is distributed to its
shareholders will generally not be taxable to the Fund for purposes of the New
York State corporation franchise tax or the City general corporation tax.

48
<PAGE>
The foregoing is a general, abbreviated summary of certain of the provisions
of the tax laws of New York State and the City presently in effect as they
directly govern the taxation of shareholders of New York Municipal Money Fund.
These provisions are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning New York State and City tax matters.

NEW JERSEY TAXES. New Jersey Municipal Money Fund anticipates that
substantially all dividends paid by it will not be subject to the New Jersey
gross income tax. In accordance with the provisions of New Jersey law as
currently in effect, distributions paid by a "qualified investment fund" will
not be subject to the New Jersey gross income tax to the extent the
distributions are attributable to income received as interest or gain from New
Jersey Municipal Securities or direct U.S. government obligations or certain
other specified obligations. To be classified as a qualified investment fund, at
least 80% of the Fund's investments must consist of such obligations.
Distributions by a qualified investment fund that are attributable to most other
sources will be subject to the New Jersey gross income tax. If the Fund
continues to qualify as a qualified investment fund, any gain on the redemption
of its shares will not be subject to the New Jersey gross income tax. To the
extent a shareholder of the Fund is obligated to pay state or local taxes
outside of New Jersey, dividends earned by such shareholder may represent
taxable income.

The shares of New Jersey Municipal Money Fund are not subject to property
taxation by New Jersey or its political subdivisions.

The foregoing is a general, abbreviated summary of certain of the applicable
provisions of New Jersey tax law presently in effect. These provisions are
subject to change by legislative, judicial or administrative action and any such
change may be either prospective or retroactive with respect to Fund
transactions. Shareholders are urged to consult with their own tax advisers for
more detailed information concerning New Jersey State tax matters.

TAX-FREE INCOME VS. TAXABLE INCOME--TAX-FREE FUND. Table I below
illustrates approximate equivalent taxable and tax-free yields at the 1997
federal individual income tax rates in effect on the date of this Statement of
Additional Information. For example, a couple with taxable income of $90,000 in
1997, or a single individual with taxable income of $55,000 in 1997, whose
investments earn a 4% tax-free yield, would have to earn a 5.56% taxable yield
to receive the same benefit.

TABLE I. 1997 FEDERAL TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
TAXABLE INCOME (000'S) A TAX-FREE YIELD OF
- -------------------------- --------------------------------------
SINGLE JOINT FEDERAL TAX 3.00% 4.00% 5.00% 6.00% 7.00%
RETURN RETURN BRACKET ------ ------ ------ ------ ------
IS EQUAL TO A TAXABLE YIELD OF
APPROXIMATELY:
- ------------ ------------ ------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 24.7 $ 0-- 41.2 15.00% 3.53% 4.71% 5.88% 7.06% 8.24%
24.7-- 59.8 41.2-- 99.6 28.00 4.17 5.56 6.94 8.33 9.72
59.8--124.7 99.6--151.8 31.00 4.35 5.80 7.25 8.70 10.14
124.7--271.1 151.8--271.1 36.00 4.69 6.25 7.81 9.38 10.94
Over 271.1 Over 271.1 39.60 4.97 6.62 8.28 9.93 11.59
</TABLE>

- ---------

* The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. The Fund invests primarily in
obligations the interest on which is exempt from federal income tax;
however, some of the Fund's investments may generate taxable income.
Effective tax rates shown are those in effect on the date of this Statement
of Additional Information; such rates might change after

49
<PAGE>
that date. Certain simplifying assumptions have been made. Any particular
taxpayer's rate may differ. The effective rates reflect the highest tax
bracket within each range of income listed. The figures set forth above do
not reflect the federal alternative minimum tax, limitations on federal or
state itemized deductions and personal exemptions or any state or local
taxes payable on Fund distributions.

TAX-FREE INCOME VS. TAXABLE INCOME--CALIFORNIA MUNICIPAL MONEY FUND. Table
II below illustrates approximate equivalent taxable and tax-free yields at the
1997 federal individual and 1996 California personal gross income tax rates in
effect on the date of this Statement of Additional Information. For example, a
California couple with taxable income of $90,000 in 1997, or a single California
individual with taxable income of $55,000 in 1997, whose investments earn a 6%
tax-free yield, would have to earn a 9.19% taxable yield to receive the same
benefit.

TABLE II. 1997 FEDERAL AND 1996 CALIFORNIA TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
EFFECTIVE A TAX-FREE YIELD OF
TAXABLE INCOME (000'S) CALIFORNIA ---------------------------------------------
-------------------------- AND
SINGLE JOINT FEDERAL TAX 3.00% 4.00% 5.00% 6.00%
RETURN RETURN BRACKET ------ ------ ------ ------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
------------ ------------ ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$18.4-- 24.7 $36.7-- 41.2 20.10% 3.75% 5.01% 6.26% 7.51%
24.7-- 25.5 41.2-- 51.0 32.32 4.43 5.91 7.39 8.87
25.5-- 32.2 51.0-- 64.4 33.76 4.53 6.04 7.55 9.06
32.2-- 59.8 64.4-- 99.6 34.70 4.59 6.13 7.66 9.19
59.8--124.7 99.6--151.8 37.42 4.79 6.39 7.99 9.59
124.7--271.1 151.8--271.1 41.95 5.17 6.89 8.61 10.34
Over 271.1 Over 271.1 45.22 5.48 7.30 9.13 10.95
</TABLE>

- ------------

* The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. The Fund invests primarily in
obligations the interest on which is exempt from federal income tax and
California personal income tax; however, some of the Fund's investments may
generate taxable income. Effective tax rates shown are those in effect on
the date of this Statement of Additional Information; such rates might
change after that date. Certain simplifying assumptions have been made. Any
particular taxpayer's rate may differ. The effective rates reflect the
highest tax bracket within each range of income listed. However, a
California, taxpayer within the lowest income ranges shown may fall within a
lower effective tax bracket. The figures set forth above do not reflect the
federal alternative minimum tax, limitations on federal or state itemized
deductions and personal exemptions or any state or local taxes payable on
Fund distributions (other than California personal income taxes).

The rates shown reflect federal rates for 1997 and California rates for 1996 in
effect as of the date hereof. Inflation adjusted income brackets for 1997 for
California are not yet available, and the California rates thus are still
subject to change with retroactive effect for 1997.

TAX-FREE INCOME VS. TAXABLE INCOME--NEW YORK MUNICIPAL MONEY FUND. Table
III below illustrates approximate equivalent taxable and tax-free yields at the
1997 federal individual, and New York State and New York City personal, income
tax rates in effect on the date of this Statement of Additional Information. For
example, a New York City couple with taxable income of $90,000 in 1997, or a
single individual with taxable income of $55,000 in 1997 who lives in New York
City, whose investments earn a 4% tax-free yield, would have to earn a 6.26%
taxable yield to receive the same benefit. A couple who lives

50
<PAGE>
in New York State outside of New York City with taxable income of $90,000 in
1997, or a single individual who lives in New York State outside of New York
City with taxable income of $55,000 in 1997, would have to earn a 5.96% taxable
yield to realize a benefit equal to a 4% tax-free yield.

TABLE III. 1997 FEDERAL AND NEW YORK TAXABLE VS. TAX-FREE YIELDS*
<TABLE>
<CAPTION>
TAXABLE INCOME (000'S) COMBINED A TAX-FREE YIELD OF
-------------------------- FEDERAL/ ---------------------------------------------
SINGLE JOINT NYS/NYC 4.00% 5.00% 6.00%
RETURN RETURN TAX BRACKET 3.00% ------ ------ ------
------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
------------ ------------ ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0-- 24.7 $ 0-- 41.2 24.55% 3.98% 5.30% 6.63% 7.95 %
24.7-- 59.8 41.2-- 99.6 36.10 4.70 6.26 7.83 9.40
59.8--124.7 99.6--151.8 38.80 4.90 6.54 8.17 9.80
124.7--271.1 151.8--271.1 43.24 5.29 7.05 8.81 10.57
Over 271.1 Over 271.1 46.43 5.60 7.47 9.33 11.20

TAXABLE INCOME (000'S) COMBINED A TAX-FREE YIELD OF
-------------------------- FEDERAL/ ---------------------------------------------
SINGLE JOINT NYS/ 4.00% 5.00% 6.00%
RETURN RETURN TAX BRACKET 3.00% ------ ------ ------
------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
------------ ------------ ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0-- 24.7 $ 0-- 41.2 20.82% 3.78% 5.05% 6.31% 7.58 %
24.7-- 59.8 41.2-- 99.6 32.93 4.47 5.96 7.46 8.95
59.8--124.7 99.6--151.8 35.73 4.67 6.22 7.78 9.34
124.7--271.1 151.8--271.1 40.38 5.03 6.71 8.39 10.06
Over 271.1 Over 271.1 43.74 5.33 7.11 8.89 10.66
</TABLE>

- ------------

* The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. The Fund invests primarily in
obligations the interest on which is exempt from federal income tax and New
York State and New York City personal income taxes; however, some of the
Fund's investments may generate taxable income. Effective tax rates shown
are those in effect on the date of this Statement of Additional Information;
such rates might change after that date. Certain simplifying assumptions
have been made. Any particular taxpayer's rate may differ. The effective
rates reflect the highest tax bracket within each range of income listed.
However, a New York taxpayer within the lowest income ranges shown may fall
within a lower effective tax bracket. The figures set forth above do not
reflect the federal alternative minimum tax, limitations on federal or state
itemized deductions and personal exemptions or any state or local taxes
payable on Fund distributions (other than New York State and New York City
personal income taxes).

TAX-FREE INCOME VS. TAXABLE INCOME--NEW JERSEY MUNICIPAL MONEY FUND. Table
IV below illustrates approximate equivalent taxable and tax-free yields at the
1997 federal individual and New Jersey gross income tax rates in effect on the
date of this Statement of Additional Information. For example, a New Jersey
couple with taxable income of $90,000 in 1997, or a single New Jersey individual
with taxable income of $55,000 in 1997, whose investments earn a 4% tax-free
yield, would have to earn a 5.88% taxable yield to receive the same benefit.

51
<PAGE>
TABLE IV. 1997 FEDERAL AND NEW JERSEY TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
EFFECTIVE A TAX-FREE YIELD OF
TAXABLE INCOME (000'S) NEW JERSEY ---------------------------------------------
-------------------------- AND
SINGLE JOINT FEDERAL TAX 3.00% 4.00% 5.00% 6.00%
RETURN RETURN BRACKET ------ ------ ------ ------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
------------ ------------ ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0-- 24.7 $ 0-- 41.2 16.49% 3.59% 4.79% 5.99% 7.18 %
24.7-- 35.0 41.2-- 50.0 29.26 4.24 5.65 7.07 8.48
50.0-- 70.0 29.76 4.27 5.69 7.12 8.54
35.0-- 40.0 70.0-- 80.0 30.52 4.32 5.76 7.20 8.64
40.0-- 59.8 80.0-- 99.6 31.98 4.41 5.88 7.35 8.82
59.8-- 75.0 99.6--151.8 34.81 4.60 6.14 7.67 9.20
75.0--124.7 35.40 4.64 6.19 7.74 9.29
124.7--271.1 151.8--271.1 40.08 5.01 6.68 8.34 10.01
Over 271.1 Over 271.1 43.45 5.30 7.07 8.84 10.61
</TABLE>

- ------------

* The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. The Fund invests primarily in
obligations the interest on which is exempt from federal income tax and New
Jersey gross income tax; however, some of the Fund's investments may
generate taxable income. Effective tax rates shown are those in effect on
the date of this Statement of Additional Information; such rates might
change after that date. Certain simplifying assumptions have been made. Any
particular taxpayer's rate may differ. The effective rates reflect the
highest tax bracket within each range of income listed. However, a New
Jersey taxpayer within the lowest income ranges shown may fall within a
lower effective tax bracket. The figures set forth above do not reflect the
federal alternative minimum tax, limitations on federal or state itemized
deductions and personal exemptions or any state or local taxes payable on
Fund distributions (other than New Jersey personal income taxes).

CALCULATION OF YIELD

Each Fund computes its yield and effective yield quotations using
standardized methods required by the SEC. Each Fund from time to time advertises
(1) its current yield based on a recently ended seven-day period, computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from that
shareholder account, dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent; and (2) 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

Each Municipal Fund from time to time also advertises its tax-equivalent
yield and tax-equivalent effective yield, also based on a recently ended
seven-day period. These quotations are calculated by

52
<PAGE>
dividing that portion of the Fund's yield (or effective yield, as the case may
be) that is tax-exempt by 1 minus a stated income tax rate and adding the
product to that portion, if any, of the Fund's yield that is not tax-exempt,
according to the following formula:

E
TAX-EQUIVALENT YIELD = ( ----- ) + t
1 - p

E = Tax exempt yield
p = stated income tax rate
t = taxable yield

Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each Fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.

The following yields are for the seven-day period ended June 30, 1997:

<TABLE>
<CAPTION>
EFFECTIVE
YIELD YIELD
--------- -----------
<S> <C> <C>
Money Market Portfolio............................................... 5.03% 5.16%
U.S. Government Portfolio............................................ 4.93% 5.05%
Tax-Free Fund........................................................ 3.42% 3.48%
California Municipal Money Fund...................................... 3.19% 3.24%
New Jersey Municipal Money Fund...................................... 3.17% 3.22%
New York Municipal Money Fund........................................ 3.25% 3.30%
</TABLE>

The following tax equivalent yields are based, in each case, on the maximum
individual tax rates:

<TABLE>
<CAPTION>
TAX-EQUIVALENT TAX-EQUIVALENT
YIELD EFFECTIVE YIELD
--------------- ---------------
<S> <C> <C>
Tax-Free Fund (assuming a federal tax rate of 39.6%)............................... 5.66% 5.76%
California Municipal Money Fund (assuming a combined federal and California State
tax rate of 45.22%).............................................................. 5.82% 5.91%
New Jersey Municipal Money Fund (assuming a combined federal and New Jersey State
tax rate of 43.45%).............................................................. 5.61% 5.69%
New York Municipal Money Fund (assuming a combined federal, New York State and New
York City tax rate of 46.43%).................................................... 6.07% 6.16%
New York Municipal Money Fund (assuming an effective combined federal and New York
State tax rate of 43.74%)........................................................ 5.73% 5.81%
</TABLE>

OTHER INFORMATION. The Funds' performance data quoted in advertising and
other promotional materials ("Performance Advertisements") represent past
performance and are not intended to predict or indicate future results. The
return on an investment in each Fund will fluctuate. In Performance
Advertisements, the Funds may compare their taxable or tax-free yields with data
published by Lipper

53
<PAGE>
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 Merrill Lynch Municipal Bond Indices, the Morgan Stanley
Capital World Index, the Lehman Brothers Treasury Bond Index, the Lehman
Brothers Government-Corporate Bond Index, the Salomon Brothers Government Bond
Index and the Consumer Price Index as published by the U.S. Department of
Commerce. The Funds also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Donoghue, Wiesenberger, ICD or Morningstar.
Performance Advertisements also may refer to discussions of the Funds and
comparative mutual fund data and ratings reported in independent periodicals,
including THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE
WASHINGTON POST and THE KIPLINGER LETTERS.

Each 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 a Fund investment would
increase more quickly than if dividends had been paid in cash.

Each Fund may also compare its performance with the performances 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 Trademark- Money Markets. In
comparing a Fund's performance to CD performance, investors should keep in mind
that bank CDs are insured in whole or in part by an agency of the U.S.
government and offer fixed principal and fixed or variable rates of interest and
that bank CD yields may vary depending on the financial institution offering the
CD and prevailing interest rates. Advertisements and other promotional materials
for the Funds or for the PaineWebber Resource Management Account
("RMA")-Registered Trademark- and Business Services Account ("BSA")-SM- programs
may compare features of the RMA and BSA programs to those offered by bank
checking accounts and other bank accounts. Bank accounts are insured in whole or
in part by an agency of the U.S. government and may offer a fixed rate of
return. Fund shares are not insured or guaranteed by the U.S. government, and
returns thereon will fluctuate. While each 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

Each Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a Trust.
However, each Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each note, bond, contract, instrument, certificate or undertaking made or issued
by the trustees or by any officers or officer by or on behalf of that Trust, a
Fund, the trustees or any of them in connection with the Trust. Each Declaration
of Trust provides for indemnification from a Fund's property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which a Fund itself would
be unable

54
<PAGE>
to meet its obligations, a possibility which PaineWebber believes is remote and
not material. Upon payment of any liability incurred by a shareholder, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The trustees intend to conduct the operations of
each Fund in such a way as to avoid, as far as possible, ultimate liability of
the shareholders for liabilities of the Fund.

Prior to February 28, 1996, Municipal Money Market Series was known as
PaineWebber/Kidder, Peabody Municipal Money Market Series. Prior to January 30,
1995, PaineWebber/Kidder, Peabody Municipal Money Market Series was known as
Kidder, Peabody Municipal Money Market Series. Prior to December 15, 1995, New
Jersey Municipal Money Fund was known as New Jersey Series.

COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036, serves as counsel to the Funds.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters. The law firm of Orrick, Herrington &
Sutcliffe LLP, 400 Sansome Street, San Francisco, CA 94111, serves as counsel to
California Municipal Money Fund with respect to California law. The law firm of
Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York
10103-0001, serves as counsel to New York Municipal Money Fund with respect to
New York law and New Jersey Municipal Money Fund with respect to New Jersey law.

AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Funds.

FINANCIAL STATEMENTS

The Annual Reports to Shareholders for the Funds' fiscal years ended June
30, 1997 are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and reports of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.

55
<PAGE>
APPENDIX A
SERVICES AVAILABLE THROUGH THE RMA PROGRAM TO RMA ACCOUNTHOLDERS

Shares of the Funds are available primarily to investors who are
Participants in the Resource Management Account (RMA) program offered by
PaineWebber and its correspondent firms. The following is a summary of some of
the services available to RMA Participants. For more complete information,
investors should refer to separate materials their Investment Executives can
provide them.

THE PAINEWEBBER RMA PREMIER STATEMENT. RMA Participants receive a monthly
Premier account statement, which provides consolidated information to assist
with portfolio management decisions and personal financial planning. The Premier
account statement summarizes securities transactions, charges, cash advances and
checks (if applicable) and provides cost basis information and calculations of
unrealized and realized gains and losses on most investments. A "Summary of
Accounts" statement and a menu of customized statement options is now available
to make the monthly reporting even more comprehensive.

PRELIMINARY AND YEAR-END SUMMARY STATEMENT. RMA Participants receive
preliminary summary information and year-end summary account statements that
provide a comprehensive overview of tax-related activity in the account during
the year to help investors with tax planning.

CHOICE OF MONEY MARKET FUNDS AND AUTOMATIC SWEEP OF UNINVESTED CASH. As
described more fully in the Prospectus under the heading "Purchases--The RMA and
BSA Programs," RMA Participants select a money market fund as a primary fund
into which uninvested cash is automatically swept on a daily basis from a
variety of taxable and tax-free money funds. By automatically investing cash
balances into a money market fund, this sweep feature minimizes the extent to
which an investor's assets remain idle while held in the account pending
investment.

CHECK WRITING. RMA Participants have ready access to the assets held in
their RMA account through the check writing feature. There are no minimum check
amounts or per check charges. The RMA checks also include an expense coding
system that enables the investor to track types of expenses for tax and
financial planning.

DIRECT DEPOSIT. Regular payments from an employer, pension, social security
or other sources may be eligible for electronic deposit into RMA Participants'
accounts.

ELECTRONIC FUNDS TRANSFER/BILL PAYMENT SERVICE. RMA Participants can
electronically transfer money between their RMA and other financial
institutions, transfer funds to and from other PaineWebber accounts and pay
bills. Unlimited transfers from other financial accounts and ten free transfers
to other financial accounts are permitted monthly, with a nominal charge per
transaction thereafter. A Bill Payment Service is available for an additional
charge.

GOLD MASTERCARD-REGISTERED TRADEMARK-. RMA Participants are provided with a
Gold MasterCard that makes account assets easily accessible. The Gold MasterCard
is accepted by businesses, stores and services both in the U.S. and abroad, and
can be used to obtain cash advances at thousands of automated teller machines in
the U.S. For an additional annual fee, investors can also obtain a line of
credit from Bank One that can be accessed through their Gold MasterCard. Through
MasterCard's enhanced MasterAssist-Registered Trademark- and
MasterPurchase-Registered Trademark- programs, investors can obtain other
benefits, including rental car insurance, emergency medical and travel
assistance, legal services and purchase protection.

A-1
<PAGE>
EXTENDED ACCOUNT PROTECTION. Assets of RMA Participants that are held in an
RMA Account by PaineWebber or one of its correspondent firms are protected for
up to $99.5 million through private insurance in the event of the liquidation or
failure of the firm. This protection is in addition to the $500,000 in
protection provided to accountholders by the Securities Investor Protection
Corporation ("SIPC"). Neither the SIPC protection nor the additional account
protection insurance applies to shares of the Funds because such shares are
registered directly in the name of the shareholder, and not in the name of
PaineWebber or one of its correspondent firms.

THE PAINEWEBBER PROTECTOR. The PaineWebber Protector is a popular
convalescent care insurance program. Participants can elect to own $50,000 to
$200,000 of convalescent care benefits. This feature is not available to
PaineWebber's correspondent firms.

RESOURCE ACCUMULATION PLAN-SM-. The Resource Accumulation Plan is an
automatic mutual fund investment program that provides RMA participants the
ability to purchase shares of mutual funds on a regular, periodic basis. The
minimum purchase in the program is $100 per investment; however, initial minimum
purchase requirements of the designated mutual fund(s) must be met before an
investor can participate in this program. The participant must receive a
prospectus, which contains more complete information (including charges and
expenses), for each fund before the application form to participate in the
Resource Accumulation Plan is submitted.

RMA AUTHORIZATION LIMIT. RMA Participants' Authorization Limit is the
combined amount of any uninvested cash balances in the account, money fund
balances and, if applicable, margin. The Authorization Limit is reduced each
time a debit is generated in their securities account, a security is purchased,
an RMA check is paid, cash advances are obtained from MasterCard or when an
electronic transfer/payment is made. The Authorization Limit is increased when
funds are deposited into their securities account.

FINANCIAL SERVICES CENTER AND RESOURCELINE-REGISTERED TRADEMARK-. RMA
Participants have day and night access to information concerning their RMA
account. This service is available by calling (800) RMA-1000. RMA
representatives are available at the Financial Services Center from 7:30 a.m. to
8:00 p.m. (Eastern time) weekdays, and from 8:00 a.m. to 4:00 p.m. (Eastern
time) weekends, to answer inquiries from Participants regarding their accounts,
and ResourceLine, an automated voice response system, provides 24 hour account
information.

MARGIN. RMA Participants may choose to have a margin feature as part of
their RMA account.

A-2
<PAGE>
APPENDIX B
SERVICES AVAILABLE THROUGH THE BSA PROGRAM FOR BSA ACCOUNTHOLDERS

Shares of the Funds are available to investors who are Participants in the
Business Services Account ("BSA")-Registered Trademark- program. The following
is a summary of some of the services that are available to BSA Participants. For
more complete information, investors should refer to separate materials their
Investment Executives can provide them.

PREMIER BUSINESS SERVICES ACCOUNT STATEMENT--BSA Participants receive the
monthly Premier Business Services Account statement, which provides consolidated
information to assist with portfolio management decisions and business finances.
The Premier Business Services Account statement summarizes securities
transactions, charges, cash advances and checks in chronological order with
running cash and money fund balances. When applicable, the expiration and
beneficiary of outstanding letters of credit are printed. The "Portfolio
Management" feature provides cost basis information where available as well as
calculated gains and losses on most investments. A menu of customized statement
options is now available to make the monthly reporting more comprehensive.

PRELIMINARY AND YEAR-END SUMMARY STATEMENT--BSA Participants receive
preliminary summary information and year-end summary account statements that
provide a comprehensive overview of tax-related activity in the account during
the year to help investors plan.

CHOICE OF MONEY MARKET FUNDS AND AUTOMATIC SWEEP OF UNINVESTED CASH--As
described more fully in the Prospectus under the heading "Purchases--The RMA and
BSA Programs," BSA Participants select a money market fund as a primary fund
into which uninvested cash is automatically swept on a daily basis from a
variety of taxable and tax-free money funds. By automatically investing cash
balances into a money market fund, this sweep feature minimizes the extent to
which an investor's assets remain idle while held in the account pending
investment.

CHECK WRITING--BSA Participants have ready access to the assets held in
their BSA account through the check writing feature. There are no minimum check
amounts. Participants can order from a number of business check styles to suit
their check writing needs. The BSA checks also include an expense code system
that enables investors to track business expense types for tax and financial
planning.

MASTERCARD BUSINESSCARD-REGISTERED TRADEMARK---BSA Participants can elect to
receive a MasterCard BusinessCard for easy access to account assets. The
MasterCard BusinessCard is accepted by businesses, stores and services
worldwide, and can be used to obtain cash at thousands of automated teller
machines in the U.S. Through MasterCard's enhanced
MasterAssist-Registered Trademark- and MasterPurchase-Registered Trademark-
programs, investors can obtain other benefits including full value primary
rental car insurance, emergency medical and travel assistance, legal services
and purchase protection.

MARGIN--BSA Participants may choose to have a margin feature as part of
their BSA account.

EXTENDED ACCOUNT PROTECTION--Assets of BSA Participants that are held in a
BSA Account by PaineWebber or one of its correspondent firms are protected for
up to $99.5 million through private insurance in the event of the liquidation or
failure of the firm. This protection is in addition to the $500,000 in
protection provided to accountholders by the Securities Investor Protection
Corporation ("SIPC"). Neither the SIPC protection nor the additional account
protection insurance applies to shares of the Funds

B-1
<PAGE>
because such shares are registered directly in the name of the shareholder, and
not in the name of PaineWebber or one of its correspondent firms.

BSA AUTHORIZATION LIMIT--BSA Participants' Authorization Limit is the
combined amount of any uninvested cash balances in the account, money fund
balances and, if applicable, margin. The Authorization Limit is reduced each
time a debit is generated in their securities account, a security is purchased,
a BSA check is paid, cash advances are obtained from MasterCard or when an
electronic transfer/payment is made. The Authorization Limit is increased when
funds are deposited into the securities account.

FINANCIAL SERVICES CENTER AND RESOURCELINE-REGISTERED TRADEMARK---BSA
Participants can call the Financial Services Center at (800) BSA-0140 from 7:30
a.m. to 8:00 p.m. (Eastern time) weekdays, and from 8:00 a.m. to 4:00 p.m.
(Eastern time) weekends, and speak to a PaineWebber representative to make any
inquiries about their accounts. The automated ResourceLine provides basic
account information through a touch-tone phone and is available night and day by
calling (800) 762-1000.

ELECTRONIC FUNDS TRANSFER/PAYMENT SERVICE--BSA Participants have the option
to initiate transfers of funds to and from their accounts, pay bills and process
their payroll through an electronic fund transfer service. Unlimited transfers
to the BSA from other financial institutions and 20 free transfers/payments out
of the BSA are permitted monthly with nominal fees thereafter. Participants can
set up payees to receive regular or variable payments simply by calling an 800
number.

DIRECT DEPOSIT--Regular payments from customers, receivables and other
sources may be eligible for electronic deposit into BSA Participants' accounts.
This feature permits the investor's money to be invested sooner and eliminates
excess paperwork.

LETTERS OF CREDIT--BSA Participants can have Standby Letters of Credit
issued on their behalf through PaineWebber at competitive rates and backed by
securities in their account.

B-2
<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 Funds or their distributor. The
Prospectus and this Statement of Additional Information do not constitute an
offering by the Funds 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........... 2
Directors/Trustees and Officers; Principal
Holders of Securities........................ 31
Investment Advisory, Administration and
Distribution Arrangements.................... 38
Portfolio Transactions......................... 43
Additional Information Regarding Redemptions... 44
Valuation of Shares............................ 44
Taxes.......................................... 45
Calculation of Yield........................... 52
Other Information.............................. 54
Financial Statements........................... 55
Appendix A..................................... A-1
Appendix B..................................... B-1
</TABLE>

PAINEWEBBER RMA

MONEY MARKET PORTFOLIO

U.S. GOVERNMENT PORTFOLIO

TAX-FREE FUND

CALIFORNIA MUNICIPAL
MONEY FUND
NEW JERSEY MUNICIPAL
MONEY FUND
NEW YORK MUNICIPAL
MONEY FUND

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Statement of Additional Information
August 29, 1997

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- -C-1997 PaineWebber Incorporated

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