As filed with the Securities and Exchange Commission on August 29, 1995
1933 Act Registration No. 2-78309
1940 Act Registration No. 811-3503
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_ X_]
Pre-Effective Amendment No. ____ [__]
Post-Effective Amendment No. _26_ [_X_]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_X_]
Amendment No. 27
---
PAINEWEBBER RMA MONEY FUND, INC.
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
(Registrant's telephone number, including area code): (212) 713-2000
GREGORY K. TODD, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
Kirkpatrick & Lockhart LLP
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone: (202) 778-9000
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ X ] On August 29, 1995 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] On ________________ pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] On ________________ pursuant to Rule 485(a)(ii)
Registrant has filed a declaration pursuant to Rule 24f-2 under
the Investment Company Act of 1940 and filed the notice required by such
Rule for its most recent fiscal year on August 25, 1995.
<PAGE>
PaineWebber RMA Money Fund, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and
documents:
Cover Sheet
Contents of Registration Statement
PaineWebber Retirement Money Fund
---------------------------------
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Money Market Portfolio and
U.S. Government Portfolio
--------------------------
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PaineWebber RMA Money Fund, Inc.
(PaineWebber Retirement Money Fund)
Form N-1A Cross Reference Sheet
Part A Item No. and Caption Prospectus Caption
--------------------------- ------------------
1. Cover Page......... Cover Page
2. Synopsis........... Highlights
3. Condensed Financial Financial Highlights; Performance
Information........ Information
4. General Description of Highlights; Investment Objective
Registrant...... and Policies; General Information
5. Management of the Management; General Information
Fund.............
6. Capital Stock and Other Cover Page; Dividends and Taxes;
Securities... General Information
7. Purchase of Securities Being Purchases; Valuation of Shares;
Offered...... Management
8. Redemption or Redemptions; Retirement Plan
Repurchase......... Distributions
9. Pending Legal Not Applicable
Proceedings........
Statement of Additional
Part B Item No. Caption Information and Caption
----------------------- -----------------------
10. Cover Page......... Cover Page
11. Table of Contents.. Table of Contents
12. General Information and Not Applicable
History........
13. Investment Objective and Investment Policies and
Policies....... Restrictions
<PAGE>
Statement of Additional
Part B Item No. and Caption Information Caption
--------------------------- -----------------------
14. Management of the Directors and Officers
Fund................
15. Control Persons and Principal Directors and Officers
Holders of
Securities..........
16. Investment Advisory and Other Investment Advisory,
Services.. Administration and Distribution
Arrangements; Other Information
17. Brokerage Allocation and Other Portfolio Transactions
Practices.
18. Capital Stock and Other Not Applicable
Securities....
19. Purchase, Redemption and Additional Information Regarding
Pricing of Securities Being Redemptions; Valuation of Shares
Offered.............
20. Tax Status.......... Taxes
21. Underwriters........ Investment Advisory,
Administration and Distribution
Arrangements
22. Calculation of Performance Calculation of Yield
Data....
23. Financial Statements.......... Financial Statements
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PaineWebber RMA Money Fund, Inc.
(Money Market Portfolio and U.S. Government Portfolio)
Form N-1A Cross Reference Sheet
Part A Item No. and Caption Prospectus Caption
--------------------------- ------------------
1. Cover Page......... Cover Page
2. Synopsis........... Highlights
3. Condensed Financial Financial Highlights;
Information........ Performance Information
4. General Description of Highlights; Investment
Registrant...... Objectives and Policies;
General Information
5. Management of the Fund.. Management; General
Information
6. Capital Stock and Other Cover Page; Dividends and
Securities... Taxes; General Information
7. Purchase of Securities Purchases; Valuation of
Being Offered...... Shares; Management
8. Redemption or Redemptions
Repurchase.........
9. Pending Legal Not Applicable
Proceedings........
Statement of Additional
Part B Item No. and Caption Information Caption
--------------------------- -------------------------
10. Cover Page......... Cover Page
11. Table of Contents.. Table of Contents
12. General Information and Not Applicable
History........
13. Investment Objective and Investment Policies and
Policies....... Restrictions
<PAGE>
Statement of Additional
Part B Item No. Caption Information and Caption
---------------------- -----------------------
14. Management of the Directors/Trustees and
Fund................ Officers
15. Control Persons and Directors/Trustees and
Principal Holders of Officers
Securities..........
16. Investment Advisory and Investment Advisory,
Other Services....... Administration and
Distribution Arrangements;
Other Information
17. Brokerage Allocation and Portfolio Transactions
other Practices.....
18. Capital Stock and Other Not Applicable
Securities.........
19. Purchase, Redemption and Additional Information
Pricing of Securities Regarding Redemptions;
Being Offered...... Valuation of Shares
20. Tax Status.......... Taxes
21. Underwriters........ Investment Advisory,
Administration and
Distribution Arrangements
22. Calculation of Calculation of Yield
Performance Data....
23. Financial Financial Statements
Statements..........
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
The Fund is a series of PaineWebber RMA Money Fund, Inc. This Prospectus con-
cisely sets forth information about the Fund a prospective investor should
know before investing. Please retain this Prospectus for future reference. A
Statement of Additional Information dated August 29, 1995 (which is incorpo-
rated by reference herein) has been filed with the Securities and Exchange
Commission ("SEC"). The Statement of Additional Information can be obtained
without charge, and further inquiries can be made, by contacting the Fund,
your PaineWebber investment executive or PaineWebber's correspondent firms or
by calling toll-free 1-800-647-1568.
- -------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOV-
ERNMENT. WHILE THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PAINEWEBBER
RETIREMENT MONEY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
- -------------------------------------------------------------------------------
A professionally managed money market fund offered to individual retirement
accounts and other qualified retirement plans seeking:
. Current Income
. High Liquidity
. Conservation of Capital
- -------------------------------------------------------------------------------
AUGUST 29, 1995
<PAGE>
PAINEWEBBER RETIREMENT MONEY FUND
HIGHLIGHTS
See the body of the Prospectus for more information on the topics discussed
in these highlights.
The Fund: PaineWebber Retirement Money Fund ("Fund") is a
professionally managed, diversified money market fund
offered exclusively to individual retirement accounts and
other qualified retirement plans. The Fund is a series of
a Maryland corporation ("Corporation").
Investment
Objective and Current income consistent with liquidity and conservation
Policies: of capital; invests primarily in high-grade money market
instruments.
Total Net Assets:
Over $3.0 billion at July 31, 1995.
Distributor and
Investment PaineWebber Incorporated ("PaineWebber"). See
Adviser: "Management."
Sub-Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins").
Purchases: Shares of common stock are available exclusively through
PaineWebber and its correspondent firms. See "Purchases."
Redemptions: Shares may be redeemed through PaineWebber or its
correspondent firms. See "Redemptions."
Yield: Based on current money market rates; quoted in the
financial section of most newspapers.
Dividends: Declared daily and paid monthly. See "Dividends and
Taxes."
Reinvestment: All dividends are automatically paid in Fund shares.
Minimum Purchase: $25 minimum for first purchase; no minimum for subsequent
purchases.
Check Writing: Available to plan owners eligible for distributions; $250
minimum per check.
Public Offering Net asset value, which the Fund seeks to maintain at
Price: $1.00 per share.
WHO SHOULD INVEST. The Fund is designed for investors seeking safety, liquid-
ity and current income. Shares of the Fund are offered to individual retirement
accounts and other qualified retirement plans, including pension and profit-
sharing plans, whether established by corporations, partnerships or self-em-
ployed individuals ("Retirement Plans"). The Fund provides a convenient means
for Retirement Plans to enjoy current income at money market rates with minimal
risk of fluctuation of principal.
RISK FACTORS. There can be no assurance that the Fund will achieve its in-
vestment objective. In periods of declining interest rates, the Fund's yield
will tend to be somewhat higher than prevailing
2
<PAGE>
market rates, and in periods of rising interest rates, the Fund's yield gener-
ally will be somewhat lower. See "Investment Objective and Policies."
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to as-
sist investors in understanding the expenses associated with investing in the
Fund.
SHAREHOLDER TRANSACTION EXPENSES
<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>
<S> <C> <C>
Management fees.................................................. 0.43%
12b-1 fees....................................................... 0.08%
Other expenses................................................... 0.27%
----
Total operating expenses......................................... 0.78%
====
</TABLE>
- --------
* See "Management" for additional information. The fees and expenses shown
are those actually incurred for the fiscal year ended June 30, 1995.
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would pay directly or indirectly the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C>
$8 $25 $43 $97
</TABLE>
This Example assumes that all dividends are reinvested and that the percent-
age amounts listed under Annual Fund Operating Expenses remain the same in the
years shown. The above tables and the assumption in the Example of a 5% annual
return are required by regulations of the SEC applicable to all mutual funds;
the assumed 5% annual return is not a prediction of, and does not represent,
the Fund's projected or actual performance.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses of the Fund will depend upon, among other things, the level
of average net assets and the extent to which the Fund incurs variable ex-
penses, such as transfer agency costs.
3
<PAGE>
Financial Highlights
The table below provides selected per share data and ratios for one share of
the Fund for the periods shown. This information is supplemented by the finan-
cial statements and accompanying notes appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1995, which are incorporated by
reference into the Statement of Additional Information. The financial state-
ments and notes, as well as the information in the table below insofar as it
relates to each of the five years in the period ended June 30, 1995, have been
audited by Ernst & Young LLP, independent auditors, whose unqualified report
thereon is included in the Annual Report to Shareholders and may be obtained
without charge. The information appearing below for the fiscal periods ended
prior to June 30, 1991 also has been audited by Ernst & Young LLP, whose report
thereon was unqualified.
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 2, 1988
FOR THE YEARS ENDED JUNE 30, (COMMENCEMENT
---------------------------------------------------------------------- OF OPERATIONS)
1995 1994 1993 1992 1991 1990 TO JUNE 30, 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------------
<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... 0.047 0.028 0.027 0.044 0.068 0.079 0.081
---------- ---------- ---------- ---------- ---------- ---------- ----------
Dividends from net
investment income...... (0.047) (0.028) (0.027) (0.044) (0.068) (0.079) (0.081)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ==========
Total Investment
Return+................ 4.83% 2.75% 2.78% 4.40% 6.80% 7.90% 8.10%
========== ========== ========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of
Period (000's)......... $2,966,199 $2,450,235 $2,280,840 $2,163,935 $2,122,973 $1,812,092 $1,340,550
Ratio of Expenses to
Average Net Assets..... 0.78% 0.77% 0.79% 0.79% 0.79% 0.85% 0.91%*
Ratio of Net Investment
Income to Average Net
Assets................. 4.75% 2.77% 2.76% 4.39% 6.69% 7.84% 8.13%*
</TABLE>
- --------
* Annualized
+ Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net asset
value on the payable date, and a sale at net asset value on the last day of
each period reported. Total investment return information for periods less
than one year has not been annualized.
Investment Objective and Policies
The Fund's investment objective is to provide current income consistent with
liquidity and conservation of capital. The Fund invests in high-grade money
market instruments with remaining maturities of 13 months or less. These in-
struments include U.S. government securities, obligations of U.S. banks, com-
mercial paper and other short-term corporate obligations, corporate bonds and
notes, variable and floating rate securities and participation interests or re-
purchase agreements involving any of the foregoing securities. Participation
interests are pro rata interests in securities held by others. The Fund main-
tains a dollar-weighted average portfolio maturity of 90 days or less.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the Fund
may invest include direct obligations of the U.S. Treasury (such as Treasury
bills, notes and bonds) and obligations issued by U.S. government agencies and
instrumentalities. The Fund may invest in U.S. government securities that are
supported by the full faith and credit of the U.S. government (such as Govern-
ment National Mortgage Association certif-
4
<PAGE>
icates), 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. govern-
ment-related issuer (such as mortgage-backed securities issued by the Federal
National Mortgage Association).
The Fund may also acquire securities issued or guaranteed as to principal and
interest by the U.S. government in the form of custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds. Such notes and bonds are held in custody by a
bank on behalf of the owners of such notes or bonds. These custodial receipts
are known by various names, including "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"). The
Fund also may invest in separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. The principal and inter-
est components of selected securities are traded independently under the Sepa-
rate Trading of Registered Interest and Principal of Securities ("STRIPS") pro-
gram. Under the STRIPS program, the principal and interest components are indi-
vidually numbered and separately issued by the U.S. Treasury at the request of
depository financial institutions, which then trade the component parts inde-
pendently.
OTHER INVESTMENTS. The Fund may invest in obligations (including certificates
of deposit, bankers' acceptances and similar obligations) of banks, including
foreign branches of domestic banks and foreign and domestic branches of foreign
banks, having total assets in excess of $1.5 billion at the time of purchase.
The Fund may also invest in interest-bearing savings deposits in U.S. commer-
cial and savings banks having total assets of $1.5 billion or less, provided
that the principal amounts at each such bank are fully insured by the Federal
Deposit Insurance Corporation and the aggregate amount of such deposits (plus
interest earned) does not exceed 5% of the value of the Fund's assets.
The commercial paper and other short-term corporate obligations purchased by
the Fund consist only of obligations that Mitchell Hutchins determines, pursu-
ant to procedures adopted by the Corporation's board of directors, present min-
imal credit risks and are either (1) rated in the highest short-term rating
category by at least two nationally recognized statistical rating organizations
("NRSROs"), (2) rated in the highest short-term rating category by a single
NRSRO if only that NRSRO has assigned the obligations a short-term rating or
(3) unrated, but determined by Mitchell Hutchins to be of comparable quality
("First Tier Securities"). 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).
INVESTMENT CONSIDERATIONS. In managing the Fund's portfolio, Mitchell
Hutchins may employ a number of professional money management techniques, in-
cluding varying the composition and the average weighted maturity of the 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 mone-
tary policy. Mitchell Hutchins also may seek to improve the Fund's yield by
purchasing or selling securities to take advantage of yield disparities among
similar or dissimilar money market instruments that regularly occur in the mon-
ey market.
In periods of declining interest rates, the Fund's yield will tend to be
somewhat higher than prevailing market rates, and in periods of rising interest
rates the opposite will be true. Also, when interest rates are falling, net
cash inflows from the continuous sale of Fund shares are likely to be invested
in portfolio instruments producing lower yields than the balance of the Fund's
portfolio,
5
<PAGE>
thereby reducing the Fund's yield. In periods of rising interest rates, the op-
posite can be true. There can be no assurance that the Fund will achieve its
investment objective.
VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase variable and
floating rate securities with remaining maturities in excess of 13 months is-
sued by U.S. government agencies or instrumentalities or guaranteed by the U.S.
government, or (if subject to a demand feature exercisable within 13 months or
less) issued by U.S. companies. The yield of these securities is adjusted in
relation to changes in specific rates, such as the prime rate, and different
securities may have different adjustment rates. The Fund's investment in these
securities must comply with conditions established by the SEC under which they
may be considered to have remaining maturities of 13 months or less. Certain of
these obligations carry a demand feature that gives the Fund the right to ten-
der them back to the issuer or a remarketing agent and receive the principal
amount of the security prior to maturity. The demand feature may or may not be
backed by a letter of credit or other credit support arrangement provided by a
bank or other financial institution, the credit quality of which affects the
credit quality of the obligation.
Variable rate securities 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 issuer and
the Fund. The principal amount of these notes may be increased from time to
time by the parties (subject to specified maximums) or decreased by the Fund or
the issuer. These notes are payable on demand and are typically unrated.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and si-
multaneously commits to resell the securities to that bank or dealer at an
agreed-upon date and 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 secu-
rities, including possible decline in the market value of the underlying secu-
rities and delays and costs to the Fund if the other party to the repurchase
agreement becomes insolvent, the Fund intends to enter into repurchase agree-
ments only with banks and dealers in transactions believed by Mitchell Hutchins
to present minimal credit risks in accordance with guidelines established by
the Corporation's board of directors.
FOREIGN BANK OBLIGATIONS. The Fund may invest in dollar denominated obliga-
tions of domestic and foreign branches of foreign banks and foreign branches of
domestic banks. These investments may involve special risks, arising both from
political and economic developments abroad and differences between foreign and
U.S. regulatory systems. These risks include possible withholding taxes, sei-
zure of foreign deposits, currency controls, interest limitations or other gov-
ernment restrictions that might affect payment of principal or interest on se-
curities held by the Fund. Additionally, there may be less public information
available about foreign banks and their branches and legal remedies for de-
faults or disputes may have to be pursued in foreign courts, whose procedures
may differ substantially from those of U.S. courts.
OTHER INFORMATION. The Fund may borrow money for temporary purposes, but not
in excess of 10% of its total assets, which may include reverse repurchase
agreements with respect to up to 5% of its total assets. The Fund may not in-
vest more than 10% of its net assets in illiquid securities, including repur-
chase agreements with maturities in excess of seven days.
The Fund's investment objective may not be changed without the approval of
the Fund's shareholders. Certain investment limitations, as described in the
Statement of Additional Information, also may not be changed without sharehold-
er approval. All other investment policies may be
6
<PAGE>
changed by the Corporation's board of directors without shareholder approval.
Purchases
GENERAL. Fund shares are offered to Retirement Plans through brokerage ac-
counts established for such Retirement Plans at PaineWebber or its correspon-
dent firms. The minimum initial investment is $25. There is no minimum subse-
quent purchase requirement, provided that the Fund account value after any such
subsequent purchase is at least $25. The Fund and PaineWebber reserve the right
to reject any purchase order and to suspend the offering of Fund shares for a
period of time.
An order to purchase Fund shares will be executed on the Business Day on
which federal funds become available to the Fund, at the Fund's next-determined
net asset value per share. A "Business Day" is any day on which the Boston of-
fices of the Fund's custodian, State Street Bank and Trust Company ("Custodi-
an"), and the New York City offices of PaineWebber and PaineWebber's bank are
all open for business. "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.
On any Business Day, the Fund will accept purchase orders and credit shares
to investors' accounts as follows.
PURCHASES WITH FUNDS HELD AT PAINEWEBBER. All deposits to Retirement Plan
brokerage accounts and any free credit cash balances that may arise in such
brokerage accounts will be automatically invested in Fund shares each Business
Day that federal funds are available for the investment, unless the account
holder specifically instructs its PaineWebber investment executive or corre-
spondent firm not to purchase Fund shares with such sums. Federal funds normal-
ly are available for cash balances arising from the sale of securities held in
a Retirement Plan brokerage account on the Business Day following settlement,
but in some cases can take longer.
PURCHASES BY CHECK. Investors may purchase Fund shares by depositing into
their Retirement Plan checks drawn on a U.S. bank. The Retirement Plan's bro-
kerage account number should be included on the check.
As noted above, Fund shares will be purchased when federal funds are avail-
able. Federal funds are deemed available to the Fund two Business Days after
deposit of a personal check and one Business Day after deposit of a cashier's
or certified check. PaineWebber may benefit from the temporary use of the pro-
ceeds of personal checks to the extent those checks are converted to federal
funds in fewer than two Business Days.
PURCHASES BY WIRE. Investors may also purchase Fund shares instructing their
banks to transfer federal funds by wire to their Retirement Plans. Wire trans-
fers 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 the Retirement Plan brokerage account
number. Investors wishing to transfer federal funds into their accounts should
contact their PaineWebber investment executives or correspondent firms to de-
termine the appropriate wire instructions.
To the extent that the amounts transferred by wire create a cash balance in a
Retirement Plan brokerage account, that cash balance will automatically be in-
vested in the Fund, as described above under "Purchases with Funds Held at
PaineWebber."
If PaineWebber receives a notice from an investor's bank of a wire transfer
of federal funds for a purchase of Fund shares by 12:00 noon, eastern time, on
a Business Day, the purchase will be executed on that Business Day. All other
wire purchase orders will be executed at 12:00 noon, eastern time,
7
<PAGE>
on the next Business Day. PaineWebber and/or an investor's bank may impose a
service charge for wire purchases.
ELIGIBLE PLANS. PaineWebber offers a variety of Retirement Plans including
Individual Retirement Accounts (standard and rollover), Simplified Employee
Pension Plans, Cash or Deferred Arrangement/Simplified Employee Pension Plans,
Profit Sharing Plans, 401(k) Plans, Money Purchase Plans, Defined Benefit Plans
and Target Benefit Plans. Other Retirement Plans also may be held in custody at
PaineWebber or its correspondent firms. For further information regarding any
of such Retirement Plans, investors should contact their PaineWebber investment
executives or correspondent firms.
Although the amount that may be contributed to a Retirement Plan in any one
year is subject to certain limitations, assets already held by a Retirement
Plan may be invested in the Fund without regard to such limitations.
Shares of the Fund may not be purchased by any Retirement Plan for which ei-
ther PaineWebber, Mitchell Hutchins or PW Trust Company is a fiduciary (within
the meaning of the Employee Retirement Income Security Act or the Internal Rev-
enue Code) in any capacity other than solely by reason of the sponsorship of a
master or prototype plan adopted by such Plan or the provision of nondiscre-
tionary trust services to such Plan. Thus, if PaineWebber, Mitchell Hutchins or
PW Trust Company serves as investment manager or renders investment advice to a
Retirement Plan, that Plan may not purchase Fund shares.
Redemptions
Shareholders may redeem any number of shares by submitting a redemption re-
quest to PaineWebber. Shareholders should contact their PaineWebber investment
executives or correspondent firms to effect such redemptions. Fund shares will
be redeemed at the net asset value per share next determined after receipt by
the Fund's 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. In addition, unless shareholders otherwise notify their
PaineWebber investment executives or correspondent firms, any securities pur-
chase or other debit in their Retirement Plan brokerage accounts will be paid
for automatically on the settlement date by redeeming Fund shares held in such
accounts.
No adverse tax consequences result from a redemption of Fund shares if the
redemption proceeds remain in the Retirement Plan brokerage account.
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 Retirement Plan
brokerage accounts for dividends earned on those shares to the day of redemp-
tion. The redemption price may be more or less than the purchase price, depend-
ing on the market value of the Fund's portfolio; however, the Fund anticipates
that its net asset value per share will normally be $1.00 per share. See "Valu-
ation of Shares."
Because the Fund incurs certain fixed costs in maintaining shareholder ac-
counts, the Fund reserves the right to redeem all Fund shares in any sharehold-
er account of less than $25 net asset value. If the Fund elects to do so, it
will notify the shareholder and provide the shareholder with an opportunity to
increase the amount invested to $25 or more within 60 days of the notice. This
notice may appear on the shareholder's account statement. If a shareholder re-
quests redemption of shares that were purchased recently, the Fund may delay
the payment of redemption proceeds 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.
8
<PAGE>
Retirement Plan Distributions
Distributions from a Retirement Plan, except those representing returns of
non-deductible contributions thereto, generally are taxable income to the par-
ticipant. Distributions from a Retirement Plan to a participant prior to the
time the participant reaches age 59 1/2 or becomes permanently disabled may
subject the participant to an additional 10% penalty tax. Shareholders should
consult their tax advisers concerning the timing and consequences of distribu-
tions from a Retirement Plan.
CHECK REDEMPTIONS. Shareholders eligible for distributions from their Retire-
ment Plan may redeem Fund shares by drawing a check, a supply of which may be
obtained through PaineWebber, for $250 or more against their Fund accounts.
With respect to Retirement Plans that permit participants to direct the invest-
ment of their Plan account balances, only those Plan participants who are ei-
ther 59 1/2 years of age or older, permanently disabled or otherwise eligible
for distributions are eligible for the check redemption service; with respect
to other Retirement Plans, the Plan fiduciary having investment responsibility
is eligible for the service. When a check is presented to the Transfer Agent
for payment, the Transfer Agent will cause the Fund to redeem sufficient shares
to cover the amount of the check. The shareholder will continue to receive div-
idends on those shares until the check is presented to the Transfer Agent for
payment. The date on which the Transfer Agent processes the check, not the date
written on the check, determines the year in which the distribution is reported
to the Internal Revenue Service. Shareholders who must take annual distribu-
tions by December 31 should allow sufficient time for processing.
Checks can be made payable to the order of any person in any amount not less
than $250; however, these checks may not be used to purchase securities in
transactions with PaineWebber. Shareholders will receive copies of their can-
celled checks. If a shareholder has insufficient shares to cover a check, the
check will be returned to the payee marked "nonsufficient funds." Checks writ-
ten in amounts less than $250 also will be returned. Shareholders should not
attempt, by writing checks, to redeem all assets held in their Retirement Plan
brokerage accounts, transfer such accounts, correct excess contributions to a
Retirement Plan or withdraw amounts classified as voluntary contributions to a
Retirement Plan. All check redemptions will be reported to the Internal Revenue
Service as taxable distributions; therefore, any of these actions could have
adverse tax consequences. Charges may be imposed for specially imprinted
checks, copies of cancelled checks, stop payment orders, checks returned
"nonsufficient funds" and checks returned because they are written for less
than $250. Charges not paid by the shareholder may be paid by the automatic re-
demption of an appropriate number of Fund shares. PaineWebber reserves the
right to modify or terminate the check redemption service at any time or to im-
pose a service charge in connection with it.
Shareholders who are interested in the check redemption service should con-
tact their PaineWebber investment executives or correspondent firms.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders eligible for distributions from
their Retirement Plan may have PaineWebber redeem a portion of their Fund
shares monthly, quarterly or semi-annually under the Fund's systematic with-
drawal plan ("SWP"). Minimum monthly, quarterly and semi-annual withdrawal
amounts are $100, $300 and $600, respectively. The SWP is not available to
shareholders who have elected to have income taxes withheld from their Retire-
ment Plan distributions. The proceeds of redemptions under the SWP will be
mailed directly to the shareholder or deposited into a non-Retirement Plan ac-
count held at PaineWebber. A shareholder's participation in the SWP will be
suspended if the shareholder's Fund balance is below the minimum withdrawal
amount designated by the shareholder (for example, monthly withdrawals will be
suspended for a shareholder
9
<PAGE>
whose Fund balance is below $100). With respect to Retirement Plans that permit
participants to direct the investment of their Retirement Plan account bal-
ances, only those participants who are either 59 1/2 years of age or older,
permanently disabled or otherwise eligible for distributions are eligible to
participate in the SWP; with respect to other Retirement Plans, the Retirement
Plan fiduciary having investment responsibility is eligible for the SWP. Share-
holders who are interested in the SWP should contact their PaineWebber invest-
ment executives or correspondent firms for more information and an application.
PaineWebber reserves the right to modify or terminate the SWP at any time or to
impose a service charge in connection with it.
Valuation of Shares
The Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Net asset value per share is determined by dividing the Fund's net as-
sets by the number of Fund shares outstanding. The Fund's net assets are equal
to the value of its investments and other assets minus its liabilities. The
Fund's net asset value is determined once each Business Day at 12:00 noon,
eastern time.
The Fund values its portfolio securities using the amortized cost method of
valuation, under which market value is approximated by amortizing the differ-
ence 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 Corporation's
board of directors.
Dividends and Taxes
DIVIDENDS. Each Business Day, the Fund declares as dividends all of its net
investment income. Shares begin earning dividends on the day of purchase; divi-
dends are accrued to shareholder accounts daily and are automatically paid in
additional Fund shares monthly. Shares do not earn dividends on the day of re-
demption. Net investment income includes accrued interest and earned discount
(including both original issue and market discounts), less amortization of mar-
ket premium and accrued expenses. The Fund distributes its net short-term capi-
tal gain, if any, annually but may make more frequent distributions of such
gain if necessary to maintain its net asset value per share at $1.00 or to
avoid income or excise taxes. The Fund does not expect to realize any net long-
term capital gain and thus does not anticipate payment of any long-term capital
gain distributions.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income and net short-term capital gain,
if any) that is distributed to its shareholders.
Dividends received by a Retirement Plan ordinarily will not be subject to
taxation until the proceeds are distributed from the Retirement Plan account.
Generally, distributions from the account will be taxable as ordinary income
and, if made prior to the time the participant reaches age 59 1/2 or becomes
permanently disabled, will be subject to an additional tax equal to 10% of the
amount distributed. If the distributions from a Retirement Plan (other than a
governmental or church plan) for any taxable year following the year in which
the participant reaches age 70 1/2 are less than the "minimum required distri-
bution" for that taxable year, an excise tax equal to 50% of the deficiency may
be imposed. Moreover, certain contributions to a Retirement Plan in excess of
the amounts permitted by law may be subject to an excise tax.
The Fund notifies its shareholders following the end of each calendar year of
the amount of all dividends paid that year.
The foregoing is only a summary of some of the important federal tax consid-
erations generally
10
<PAGE>
affecting the Fund and its shareholders; see the Statement of Additional Infor-
mation for a further discussion. There may be other federal, state or local tax
considerations applicable to a particular investor. Prospective shareholders
are urged to consult their tax advisers.
Management
The Corporation's board of directors, as part of its overall management re-
sponsibility, oversees various organizations responsible for the Fund's day-to-
day management. PaineWebber, the Fund's investment adviser and administrator,
provides a continuous investment program for the Fund and supervises all as-
pects of its operations. As sub-adviser to the Fund, Mitchell Hutchins makes
and implements investment decisions and, as sub-administrator, is responsible
for the day-to-day administration of the Fund.
PaineWebber receives a monthly fee for these services and, for the fiscal
year ended June 30, 1995, the Fund's effective advisory and administration fee
paid to PaineWebber was equal to 0.43% of the Fund's average daily net assets.
PaineWebber (not the Fund) 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 the Fund for advisory and administrative services.
The Fund pays PaineWebber an annual fee of $4.00 per active Fund account,
plus certain out-of-pocket expenses, for certain services not performed by the
Transfer Agent. The Fund also incurs other expenses. For the fiscal year ended
June 30, 1995, the Fund's ratio of expenses as a percentage of average net as-
sets was 0.78%. The Fund's expense ratio may be higher than those of other
PaineWebber money market funds due to the relatively small size of the accounts
in the Fund.
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 Paine Webber Group Inc., a pub-
licly owned financial services holding company. At July 31, 1995, PaineWebber
or Mitchell Hutchins was investment adviser of 41 registered investment compa-
nies with 87 separate portfolios and aggregate assets in excess of $28.9 bil-
lion.
Mitchell Hutchins investment 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 Fund shares. Un-
der a plan of distribution ("Plan"), the Fund 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. The Fund currently pays PaineWebber a 12b-1 service fee at
the annual rate of 0.08% of the Fund's average daily net assets, and any in-
crease in this annual rate would require prior approval by the Corporation's
board of directors.
Under the Plan, PaineWebber uses the 12b-1 service fee to pay PaineWebber in-
vestment executives and correspondent firms for shareholder servicing, current-
ly 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 main-
taining 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, the Plan and a related distribution
contract ("Distribution Contract") obligate the Fund to pay the 12b-1 service
fee to PaineWebber as compensation for its service activities and not as reim-
bursement for specific expenses incurred. Thus, even if PaineWebber's expenses
exceed its 12b-1 service 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
11
<PAGE>
retain its full fee and realize a profit. The Fund will pay the 12b-1 service
fee to PaineWebber until either the Plan or the Distribution Contract is termi-
nated or not renewed. In that event, PaineWebber's 12b-1 service expenses in
excess of 12b-1 service fees received or accrued through the termination date
will be PaineWebber's sole responsibility and not obligations of the Fund.
Performance Information
From time to time the Fund may advertise its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to in-
dicate future performance. The "yield" of the Fund is the income on an invest-
ment in the Fund over a specified seven-day period. This income is then
"annualized" (that is, assumed to be earned each week over a 52-week period)
and shown as a percentage of the investment. The "effective yield" is calculat-
ed similarly but, when annualized, the income earned is assumed to be reinvest-
ed. The "effective yield" will be higher than the "yield" because of the com-
pounding effect of this assumed reinvestment.
The Fund may also advertise other performance data, which may consist of the
annual or cumulative return (including realized net short-term capital gain, if
any) earned on a hypothetical investment in the Fund since it began operations
on July 2, 1988, 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 ac-
counts (approximately $33 or less at current interest rates) that generate less
than 1/2c per day of income will earn no dividends.
General Information
The Corporation's name is "PaineWebber RMA Money Fund, Inc." The Corporation
was incorporated in Maryland on July 2, 1982 and is registered with the SEC as
an open-end management investment company. The Corporation has an authorized
capi-talization of 30 billion shares of $0.001 par value common stock; 10
billion of these shares are designated as shares of the Fund and the remaining
shares are classified as shares of the two other series of the Corporation.
The Corporation does not hold annual shareholder meetings. There normally
will be no meetings of shareholders to elect directors unless fewer than a ma-
jority of the directors holding office have been elected by shareholders. The
directors are required to call a meeting of shareholders when requested in
writing to do so by the shareholders of record holding at least 25% of the Cor-
poration's outstanding shares. Each share of the Fund has equal voting, divi-
dend and liquidation rights. The shares of each series of the Corporation will
be voted separately except when an aggregate vote of all series is required by
the Investment Company Act of 1940.
CERTIFICATES. To avoid additional operating expenses and for investor conve-
nience, share certificates are not issued. Ownership of Fund shares 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 is-
sued.
REPORTS. Shareholders receive audited annu- al and unaudited semi-annual fi-
nancial statements of the Fund. All purchases and redemptions of Fund shares
are confirmed to shareholders at least quarterly.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heri-
tage Drive, North Quincy, Massachusetts 02171, is custodian of the Fund's as-
sets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose princi-
pal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809, is
the Fund's transfer and dividend disbursing agent.
12
<PAGE>
- -------------------------------------------------------------------------------
Table of Contents
------------------------------------------------------------------------
2
Highlights
------------------------------------------------------------------------
4
Financial Highlights
------------------------------------------------------------------------
4
Investment Objective and Policies
------------------------------------------------------------------------
7
Purchases
------------------------------------------------------------------------
8
Redemptions
------------------------------------------------------------------------
9
Retirement Plan Distributions
------------------------------------------------------------------------
10
Valuation of Shares
------------------------------------------------------------------------
10
Dividends and Taxes
------------------------------------------------------------------------
11
Management
------------------------------------------------------------------------
12
Performance Information
------------------------------------------------------------------------
12
General Information
------------------------------------------------------------------------
- ------------------------------
No person has been
authorized to give any
information or to make any
representations not
contained in this
Prospectus in connection
with the offering made by
this Prospectus and, if
given or made, such
information or
representations must not be
relied upon as having been
authorized by the Fund or
its distributor. This
Prospectus does not
constitute an offering by
the Fund or by the
distributor in any
jurisdiction in which such
offering may not lawfully
be made.
PAINEWEBBER
RETIREMENT MONEY FUND
Prospectus
August 29, 1995
(ART)
PAINEWEBBER
(C) 1995 PaineWebber Incorporated
[LOGO] Recycled Paper
<PAGE>
PAINEWEBBER RETIREMENT MONEY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
----------------
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Retirement Money Fund ("Fund") is a diversified series of
PaineWebber RMA Money Fund, Inc. ("Corporation"), a professionally managed
money market fund. The Fund seeks to provide investors with current income
consistent with liquidity and conservation of capital. The Fund's investment
adviser, administrator and distributor is PaineWebber Incorporated
("PaineWebber"); its sub-adviser and sub-administrator 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 Fund's current Prospectus, dated
August 29, 1995. A copy of the Prospectus may be obtained by contacting any
PaineWebber investment executive or correspondent firm. This Statement of
Additional Information is dated August 29,1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
YIELDS AND RATINGS OF MONEY MARKET INVESTMENTS. The yields on the money
market instruments in which the Fund invests (such as commercial paper and bank
obligations) are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of nationally
recognized statistical rating organizations ("NRSROs") represent their opinions
as to the quality of the obligations they undertake to rate. Ratings, however,
are general and are not absolute standards of quality. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices. Subsequent to its purchase by the Fund, an issue may cease to be
rated or its rating may be reduced. In the event that a security in the Fund's
portfolio ceases to be a "First Tier Security," as defined in the Prospectus,
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 Corporation's board of directors 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.
REPURCHASE AGREEMENTS. As stated in the Prospectus, the Fund may enter into
repurchase agreements with respect to any security in which it is authorized to
invest, except that securities subject to repurchase agreements may have
maturities in excess of 13 months. The Fund maintains custody of the underlying
<PAGE>
securities prior to their repurchase; thus, the obligation of the bank or
securities dealer to pay the repurchase price on the date agreed to is, in
effect, secured by such securities. If the value of these securities is less
than the repurchase price, plus any agreed-upon additional amount, the other
party to the agreement must provide additional collateral so that at all times
the collateral is at least equal to the repurchase price, plus any agreed-upon
additional amount. The difference between the total amount to be received upon
repurchase of the securities and the price that was paid by the Fund upon
acquisition is accrued as interest and included in the Fund's net investment
income. Repurchase agreements carry certain risks not associated with direct
investments in securities, The Fund intends to enter into repurchase agreements
only with banks and dealers believed by Mitchell Hutchins to present minimum
credit risks in accordance with guidelines established by the Corporation's
board of directors. Mitchell Hutchins will review and monitor the
creditworthiness of those institutions under the board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of its assets. Such agreements involve the sale of securities held
by the Fund subject to its agreement to repurchase the securities at an agreed-
upon date and price reflecting a market rate of interest. Such agreements are
considered to be borrowings and may be entered into only for temporary or
emergency purposes. While a reverse repurchase agreement is outstanding, the
Fund will maintain with its custodian in a segregated account cash, U.S.
government securities or other liquid, high-grade debt obligations, marked to
market daily, in an amount at least equal to the Fund's obligations under the
reverse repurchase agreement.
ILLIQUID SECURITIES. The Fund will not invest more than 10% of its net assets
in illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, restricted securities other than
those Mitchell Hutchins has determined to be liquid pursuant to guidelines
established by the Corporation's board of directors and repurchase agreements
maturing in more than seven days. Commercial paper issues in which the Fund may
invest include securities issued by major corporations without registration
under the Securities Act of 1933 ("1933 Act") in reliance on the exemption from
such registration afforded by Section 3(a)(3) thereof and commercial paper
issued in reliance on the so-called "private placement" exemption from
registration afforded by Section 4(2) of the 1933 Act ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the federal securities
laws in that any resale must similarly be made in an exempt transaction.
Section 4(2) paper is normally resold to other institutional investors through
or with the assistance of investment dealers who make a market in Section 4(2)
paper, thus providing liquidity.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 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
2
<PAGE>
securities have developed as a result of Rule 144A, providing both readily
ascertainable values for restricted securities and the ability to liquidate an
investment to satisfy share redemption orders. Such markets include automated
systems for trading, clearance and settlement of unregistered securities, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc. An insufficient number of qualified institutional buyers
interested in purchasing certain restricted securities held by the Fund,
however, could affect adversely the marketability of such portfolio securities
and the Fund might be unable to dispose of such securities promptly or at
favorable prices.
The board of directors has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4)
the number of other potential purchasers and (5) the nature of the security and
how trading is effected (e.g., the time needed to sell the security, how offers
are solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board.
FLOATING RATE AND VARIABLE RATE DEMAND INSTRUMENTS. As noted in the
Prospectus, the Fund may invest in floating rate and variable rate securities
with demand features. A demand feature gives the Fund the right to sell the
securities back to a specified party, usually a remarketing agent, on a
specified date, at a price equal to their par value. A demand feature is often
backed by a letter of credit or guarantee from a bank which permits the
remarketing agent to draw on the letter of credit on demand, after specified
notice, for all or any part of the exercise price of the demand feature.
Generally, the Fund intends to exercise demand features only (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 (3) as
needed to provide liquidity to the Fund in order to meet redemption requests.
The ability of a bank to fulfill its obligations under a letter of credit or
guarantee 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
obligations 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. 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.
INVESTMENT LIMITATIONS. The Fund may not (1) borrow money, except from banks
for temporary purposes and except for reverse repurchase agreements and then in
an aggregate amount not in excess of 10% of the asset value of the Fund at the
time of such borrowing; (2) mortgage, pledge or hypothecate any assets except
in connection with any such borrowing, and in such case the aggregate amount
may not exceed the lesser of the dollar amount borrowed or 5% of the asset
value of the Fund at the time of such borrowing, and provided that no such
borrowing will be made except to facilitate the orderly sale of portfolio
securities to accommodate abnormally heavy redemption requests if they should
occur; (3) make loans, except that the Fund may purchase or hold debt
instruments, including repurchase agreements, in accordance with its investment
policies and restrictions; (4) purchase or sell real estate, except that the
Fund may purchase commercial paper issued by companies, including real estate
investment trusts, which invest in real estate or interests therein; (5)
purchase securities on margin, make short sales of securities or maintain short
positions;
3
<PAGE>
(6) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to be
an underwriter under the federal securities laws; (7) purchase or sell
commodities or commodity contracts or invest in oil, gas or mineral exploration
or development programs, except that the Fund may invest in securities issued
by companies that engage in such activities; (8) acquire voting securities of
any issuer or acquire securities of other investment companies, except in
connection with a merger, consolidation or acquisition; (9) purchase securities
of any one issuer, other than the U.S. government and its agencies and
instrumentalities, if immediately after such purchase more than 5% of the
Fund's total asset value would be invested in such issuer, except that up to
25% of the Fund's asset value may be invested without regard to such 5%
limitation; or (10) purchase securities if immediately after such purchase more
than 25% of the value of the Fund's total assets would be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in U.S. Treasury bills, other obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
certificates of deposit and banker's acceptances, and provided further that
neither all finance companies as a group nor all utility companies as a group
are considered a single industry for purposes of this policy. As to utility
companies, gas, electric, water and telephone companies will be considered
separate industries. As to finance companies, the following categories will be
considered separate industries: (a) captive automotive finance, (b) captive
equipment finance, (c) retail finance, (d) consumer loan and (e) diversified
finance.
Investment limitation (9) above permits the Fund to invest up to 25% of its
total assets without regard to the 5% limitation on investment in securities of
a single issuer (other than U.S. government securities). However, Rule 2a-7
under the Investment Company Act of 1940 ("1940 Act") generally requires that
the Fund apply the 5% limitation to 100% of its total assets. Rule 2a-7
provides certain exceptions to the 5% limitation, including provisions that the
Fund may under limited circumstances invest more than 5% of its total assets in
securities of a single issuer for up to three business days, and invest more
than 5% of its total assets in unconditional puts of a single issuer, together
with all other securities issued or guaranteed by that issuer.
The foregoing investment limitations cannot be changed with respect to the
Fund without the affirmative vote of the lesser of (1) 67% or more of the
shares present at a meeting of shareholders duly called, if the holders of more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (2) more than 50% of the outstanding shares of the Fund. 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 foregoing limitations. The following investment
restrictions may be changed by the vote of the Corporation's board of directors
without shareholder approval: (1) the Fund's investments in warrants, valued at
the lower of cost or market, may not exceed 5% of the value of its net assets,
which amount may include warrants that are not listed on the New York Stock
Exchange, Inc. ("NYSE") or American Stock Exchange, Inc. provided that such
warrants, valued at the lower of cost or market, do not exceed 2% of the Fund's
net assets, and (2) for purposes of limitation (10) above, the certificates of
deposit and banker's acceptances with respect to which there is no limitation
on the Fund's investment are only those issued by domestic branches of U.S.
banks.
The Fund will continue to interpret fundamental investment limitation (4) to
prohibit investment in real estate limited partnerships.
4
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Corporation, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ---------------------- -------------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Director and Mr. Bewkes is a director of Paine Webber
Jr.**; 68 Chairman of Group Inc. ("PW Group") (holding company
the Board of PaineWebber and Mitchell Hutchins) and
of Directors a consultant to PW Group. Prior to 1988,
he was chairman of the board, president
and chief executive officer of American
Bakeries Company. Mr. Bewkes is also a
director of Interstate Bakeries Corpora-
tion and NaPro BioTherapeutics, Inc. and
a director or trustee of 26 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Meyer Feldberg; 53 Director Mr. Feldberg is Dean and Professor of Man-
Columbia University agement of the Graduate School of Busi-
101 Uris Hall ness, Columbia University. Prior to 1989,
New York, New York 10027 he was president of the Illinois Insti-
tute of Technology. Dean Feldberg is also
a director of AMSCO International Inc.,
Federated Department Stores, Inc. and
Inco Homes Corporation, and New World
Communications Group Incorporated and he
is a director or trustee of 18 other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
George W. Gowen; 65 Director Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, New York 10017 May 1994, he was a partner in the law
firm of Freyer, Ross & Gowen. Mr. Gowen
is also a director of Columbia Real Es-
tate Investments, Inc. and a director or
trustee of 16 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ---------------------- -------------------- --------------------
<S> <C> <C>
Frederic V. Malek; 58 Director Mr. Malek is Chairman of Thayer Capital
901 15th Street, N.W. Partners (investment bank) and a co-
Suite 300 chairman and director of CB Commercial
Washington, D.C. 20005 Group Inc. (real estate). From January
1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990 to
1992, he was vice chairman, and from 1989
to 1990, he was president of Northwest
Airlines Inc., 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, restau-
rants, 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., Automatic Data Processing,
Inc., Avis, Inc., FPL Group, Inc., ICF
International, Manor Care, Inc. and Na-
tional Education Corporation and a direc-
tor or trustee of 16 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Frank P.L. Minard**; 50 Director Mr. Minard is chairman and a director of
Mitchell Hutchins, chairman of the board
of Mitchell Hutchins Institutional In-
vestors Inc. and a director of
PaineWebber. Prior to 1993, Mr. Minard
was managing director of Oppenheimer Cap-
ital in New York and Director of Oppen-
heimer Capital Ltd. in London. Mr. Minard
is also a director or trustee of 27 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS; AGE* WITH THE CORPORATION OTHER DIRECTORSHIPS
- ---------------------- -------------------- --------------------
<S> <C> <C>
Judith Davidson Moyers; Director Mrs. Moyers is president of Public Affairs
60 Television, Inc., an educational consul-
Public Affairs Televi- tant and a home economist. Mrs. Moyers is
sion also a director of Columbia Real Estate
356 W. 58th Street Investments, Inc. and Ogden Corporation
New York, New York 10019 and a director or trustee of 16 other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Thomas F. Murray; 84 Director Mr. Murray is a real estate and financial
400 Park Avenue consultant. Mr. Murray is also a director
New York, New York 10022 and chairman of American Continental
Properties, Inc., a trustee of Prudential
Realty Trust and a director or trustee of
16 other investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Margo N. Alexander; 48 President Ms. Alexander is president, chief execu-
tive officer and a director of Mitchell
Hutchins. Prior to January 1995, Ms. Al-
exander was an executive vice president
of PaineWebber. Ms. Alexander is also a
trustee of two, and president of 38,
other investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president and
manager--advisory administration of
Mitchell Hutchins. Prior to November
1993, she was compliance manager of Hype-
rion Capital Management, Inc., an invest-
ment advisory firm. Prior to April 1993,
Ms. Boyle was a vice president and manag-
er--legal administration of Mitchell
Hutchins. Ms. Boyle is also a vice presi-
dent of 38 other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ---------------------- -------------------- --------------------
<S> <C> <C>
Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and attorney
Assistant Secretary of Mitchell Hutchins. Prior to December
1993, she was an associate at the law
firm of Seward & Kissel. Ms. Cohen is
also a vice president and assistant sec-
retary of 26 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ellen R. Harris; 49 Vice President Ms. Harris is a managing director of
Mitchell Hutchins. Ms. Harris is also a
vice president of 19 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president and
Assistant Treasurer the senior manager of the Fund Adminis-
tration Division of Mitchell Hutchins.
Mr. Maher is also a vice president and
assistant treasurer of 38 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of Mitchell
Assistant Treasurer Hutchins. Ms. Moran is also a vice presi-
dent and assistant treasurer of 38 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a senior vice president
Secretary and deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is also a vice
president and secretary of 38 other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ---------------------- -------------------- --------------------
<S> <C> <C>
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director and
44 general counsel of Mitchell Hutchins.
From April 1990 to May 1994, she was a
partner in the law firm of Arnold & Por-
ter. Prior to April 1990, she was a part-
ner in the law firm of Shereff, Friedman,
Hoffman & Goodman. Ms. Schonfeld is also
a vice president of 38 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a first vice president of
Assistant Treasurer Mitchell Hutchins. From August 1992 to
August 1994, he was a vice president at
BlackRock Financial Management, Inc.
Prior to August 1992, he was an audit
manager with Ernst & Young LLP. Mr. Schu-
bert is also a vice president and assis-
tant treasurer of 38 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice president
Treasurer and the director of the mutual fund fi-
nance division of Mitchell Hutchins.
Prior to 1991, he was an audit senior
manager with Ernst & Young LLP. Mr.
Sluyters is also a vice president and
treasurer of 38 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president and as-
Assistant Secretary sociate general counsel of Mitchell
Hutchins. Prior to 1993, he was a partner
in the law firm of Shereff, Friedman,
Hoffman & Goodman. Mr. Todd is also a
vice president and assistant secretary of
38 other 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.
** Messrs. Bewkes and Minard are "interested persons" of the Corporation as
defined in the 1940 Act by virtue of their positions with PW Group, PaineWebber
and/or Mitchell Hutchins.
9
<PAGE>
The Corporation pays directors who are not "interested persons" of the
Corporation $4,000 annually and $250 per meeting of the board or any committee
thereof. Directors are reimbursed for any expenses incurred in attending
meetings. Directors and officers of the Corporation own in the aggregate less
than 1% of the shares of the Fund. Since PaineWebber and Mitchell Hutchins
perform substantially all of the services necessary for the operation of the
Corporation and the Fund, the Corporation requires no employees. No officer,
director or employee of PaineWebber or Mitchell Hutchins presently receives any
compensation from the Corporation for acting as a director or officer. The
table below includes certain information relating to the compensation of the
Corporation's directors who held office during the fiscal year ended June 30,
1995.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS TOTAL
AGGREGATE ACCRUED AS ESTIMATED COMPENSATION
COMPENSATION PART OF THE ANNUAL FROM THE
NAME OF PERSONS, FROM THE CORPORATION'S BENEFITS UPON CORPORATION AND THE
POSITION CORPORATION* EXPENSES RETIREMENT FUND COMPLEX**
---------------- ------------ ------------- ------------- -------------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Director and Chairman
of the Board of
Directors.............. -- -- -- --
Meyer Feldberg,
Director............... $4,750 -- -- $86,050
George W. Gowen,
Director............... 4,750 -- -- 71,425
Frederic V. Malek,
Director............... 4,750 -- -- 77,875
Frank P.L. Minard,
Director............... -- -- -- --
Judith Davidson Moyers,
Director............... 4,500 -- -- 71,125
Thomas F. Murray,
Director............... 4,250 -- -- 71,925
</TABLE>
- --------
* Represents fees paid to each director during the fiscal year ended June 30,
1995.
** Represents total compensation paid to each director during the calendar year
ended December 31, 1994.
10
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. PaineWebber acts as the
Fund's investment adviser and administrator pursuant to a contract with the
Corporation dated March 23, 1989 ("Advisory Contract"). Under the Advisory
Contract, the Fund pays PaineWebber an annual fee, computed daily and paid
monthly, according to the following schedule:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
------------------------ ------
<S> <C>
Up to $1 billion.................................................... 0.50%
In excess of $1 billion up to $1.5 billion.......................... 0.44%
Over $1.5 billion................................................... 0.36%
</TABLE>
For the fiscal years ended June 30, 1995, June 30, 1994 and June 30, 1993,
the Fund paid (or accrued) to PaineWebber fees totalling $10,973,704,
$10,458,600 and $9,804,456, respectively, under the Advisory Contract.
Under a service agreement pursuant to which PaineWebber provides certain
services to the Fund not otherwise provided by the Fund's transfer agent, which
agreement is reviewed by the Corporation's board of directors annually, during
the fiscal years ended June 30, 1995, June 30, 1994 and June 30, 1993, the Fund
paid (or accrued) to PaineWebber $2,388,513, $2,023,867 and $1,974,865,
respectively, in fees and reimbursements of expenses.
Under a contract with PaineWebber dated March 23, 1989 ("Mitchell Hutchins
Contract"), Mitchell Hutchins serves as the Fund's sub-adviser and sub-
administrator. Under the Mitchell Hutchins Contract, PaineWebber (not the Fund)
pays Mitchell Hutchins a fee, computed daily and paid monthly, at an annual
rate of 20% of the fee paid by the Fund to PaineWebber under the Advisory
Contract. For the fiscal years ended June 30, 1995, June 30, 1994 and June 30,
1993, PaineWebber paid (or accrued) to Mitchell Hutchins fees of $2,194,741,
$2,091,720 and $1,960,891, respectively.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by PaineWebber.
General expenses of the Corporation not readily identifiable as belonging to
the Fund or to the Corporation's other series are allocated among series by or
under the direction of the board of directors in such manner as the board deems
fair and equitable. Expenses borne by the Fund include the following (or the
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
Fund and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by PaineWebber; (3) organizational
expenses; (4) filing fees and expenses relating to the registration and
qualification of Fund shares under federal and state securities laws and
maintaining such registrations and qualifications; (5) fees and salaries
payable to the directors and officers who are not interested persons of the
Corporation or PaineWebber; (6) all expenses incurred in connection with the
directors' services, including travel expenses; (7) taxes (including any income
or franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds; (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Corporation or the Fund for violation of any
law; (10) legal, accounting and auditing expenses, including legal fees of
special counsel for those directors who are not interested persons of the
Corporation; (11) charges of custodians, transfer agents
11
<PAGE>
and other agents; (12) expenses of setting in type and printing prospectuses
and statements of additional information and supplements thereto, reports and
statements to shareholders and proxy material for existing shareholders and
costs of mailing such materials to existing shareholders; (13) any
extraordinary expenses (including fees and disbursements of counsel) incurred
by the Fund; (14) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; (15) 50% of the
cost of printing and mailing PaineWebber monthly statements; (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 directors and officers; and (18) costs of
mailing, stationery and communications equipment.
As required by state regulation, PaineWebber will reimburse the Fund if and
to the extent that the aggregate operating expenses of the Fund exceed
applicable limits for the fiscal year. Currently, the most restrictive such
limit applicable to the Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, distribution fees, taxes,
interest and extraordinary items, are excluded from this limitation. For the
fiscal years ended June 30, 1995, June 30, 1994 and June 30, 1993, no
reimbursement pursuant to such limitations was required.
Under the Advisory and Mitchell Hutchins Contracts (collectively,
"Contracts"), PaineWebber and Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Contracts, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of PaineWebber
or Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder.
The Contracts are terminable with respect to the Fund at any time without
penalty by vote of the Corporation's board of directors or by vote of the
holders of a majority of the Fund's outstanding voting securities on 60 days'
written notice to PaineWebber or Mitchell Hutchins, as the case may be. The
Advisory Contract is also terminable without penalty by PaineWebber on 60 days'
written notice to the Corporation, and the Mitchell Hutchins Contract is
terminable without penalty by PaineWebber or Mitchell Hutchins on 60 days'
written notice to the other party. The Contracts terminate automatically upon
their assignment, and the Mitchell Hutchins Contract also automatically
terminates upon the assignment of the Advisory Contract.
The following table shows the approximate net assets as of July 31, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT CATEGORY NET ASSETS
------------------- ----------
($ MIL)
<S> <C>
Domestic (excluding Money Market)............................... $ 5,622.2
Global.......................................................... 3,187.0
Equity/Balanced................................................. 2,799.2
Fixed Income (excluding Money Market)........................... 6,010.0
Taxable Fixed Income........................................... 4,257.1
Tax-Free Fixed Income.......................................... 1,752.9
Money Market Funds.............................................. 20,064.7
</TABLE>
12
<PAGE>
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, PaineWebber/Kidder, Peabody and Mitchell
Hutchins/Kidder, Peabody mutual funds (collectively "PW 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 PW Funds and other
Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. PaineWebber acts as the distributor of Fund shares
under a distribution contract with the Corporation dated July 7, 1993
("Distribution Contract") which requires PaineWebber to use its best efforts,
consistent with its other business, to sell shares of the Fund. Shares of the
Fund are offered continuously. Payments by the Fund to compensate PaineWebber
for certain expenses incurred in connection with its activities in providing
certain shareholder and account maintenance services are authorized under the
Distribution Contract and made in accordance with a plan of distribution
adopted by the Corporation in the manner prescribed by Rule 12b-1 under the
1940 Act ("Plan").
Among other things, the Plan provides that (1) PaineWebber will submit to the
Corporation's board of directors at least quarterly, and the directors 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 of directors, including those directors who
are not "interested persons" of the Corporation and who have no direct or
indirect financial interest in the operation of the Plan or any agreement
related to the Plan, acting in person at a meeting called for that purpose, (3)
payments by the Fund under the Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the Fund's outstanding
shares and (4) while the Plan remains in effect, the selection and nomination
of directors who are not "interested persons" of the Corporation shall be
committed to the discretion of the directors who are not "interested persons"
of the Corporation.
The Plan authorizes the Fund to pay PaineWebber a service fee, computed daily
and paid monthly, at an annual rate of up to 0.15% of its average daily net
assets. The Fund currently pays service fees to PaineWebber at the annual rate
of 0.08% of average net assets, and any increase from the 0.08% annual rate
would require prior approval of the board of directors.
During the fiscal year ended June 30, 1995, the Fund paid or accrued to
PaineWebber service fees of $2,038,602. For the same period, PaineWebber
estimates that it incurred expenses of $2,160,456, in distributing shares of
the Fund and servicing Fund shareholders. PaineWebber estimates that these
expenses were incurred as follows: (a) advertising, promotion and allocated
costs--$631,000; (b) printing--$506; and (c) service fees to investment
executives--$1,528,950.
"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, the directors of the Corporation
considered all features of the distribution system for the Fund, including (a)
PaineWebber's view that the payment of service fees at the
13
<PAGE>
annual rate of 0.06% 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 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 are triggered as assets reach
higher levels.
The Corporation's directors also 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 Mitchell Hutchins Contract authorizes Mitchell Hutchins (with the
approval of the Corporation's board) to select brokers and dealers to execute
purchases and sales of the Fund's portfolio securities. The Contract directs
Mitchell Hutchins to use its best efforts to obtain the best available price
and most favorable execution with respect to all transactions for the Fund. To
the extent that the execution and price offered by more than one dealer are
comparable, Mitchell Hutchins may, in its discretion, effect transactions in
portfolio securities with dealers who provide the Fund with research, analysis,
advice and similar services. Although Mitchell Hutchins may receive certain
research or execution services in connection with these transactions, Mitchell
Hutchins will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid had no services been provided by the
executing dealer. Moreover, Mitchell Hutchins will not enter into any explicit
soft dollar arrangements relating to principal transactions and will not
receive in principal transactions the types of services which could be
purchased for hard dollars. Research services furnished by the dealers with
which the Fund effects securities transactions may be used by Mitchell Hutchins
in advising other funds or accounts they advise 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 services 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 Contract. During its past three fiscal years, the
Fund has not paid any brokerage commissions, nor has it allocated any
transactions to dealers for research, analysis, advice and similar services.
Mitchell Hutchins may engage in agency transactions in OTC 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.
The Fund purchases portfolio securities from dealers and underwriters as well
as from issuers. Securities are usually traded on a net basis with dealers
acting as principal for their own accounts without a stated
14
<PAGE>
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.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s)
as to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or
upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
Mitchell Hutchins may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from the Fund prior to their maturity at their original cost
plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that the Fund's anticipated need for liquidity
makes such actions desirable. Any such repurchase prior to maturity reduces the
possibility that the Fund would incur a capital loss in liquidating commercial
paper for which there is no established market, especially if interest rates
have risen since acquisition of the particular commercial paper.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the 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, which makes it not reasonably practicable for the Fund to dispose
of securities owned by it or to determine fairly the market value of its assets
or (3) as the SEC may otherwise permit. The redemption price may be more or
less than the shareholder's cost, depending on the market value of the Fund's
portfolio at the time, although the Fund seeks to maintain a constant net asset
value of $1.00 per share.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of 12:00 noon, eastern
time, on each Business Day. As defined in the Prospectus, "Business Day" means
any day on which State Street Bank and Trust Company's Boston offices,
PaineWebber's New York City offices and the New York offices of 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,
Veteran's Day, Thanksgiving Day and Christmas Day.
15
<PAGE>
The Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 under the 1940 Act. To use amortized
cost to value its portfolio securities, the Fund must adhere to certain
conditions under that Rule relating to the Fund's investments, some of which
are discussed in the Prospectus. Amortized cost is an approximation of market
value, whereby the difference between acquisition cost and value at maturity is
amortized on a straight-line basis over the remaining life of the instrument.
The effect of changes in the market value of a security as a result of
fluctuating interest rates is not taken into account and thus the amortized
cost method of valuation may result in the value of a security being higher or
lower than its actual market value. In the event that a large number of
redemptions take place at a time when interest rates have increased, the Fund
might have to sell portfolio securities prior to maturity and at a price that
might not be desirable.
The Corporation's board of directors 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.
Should that deviation exceed 1/2 of 1% for the Fund, the directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends and utilizing a net asset value per
share as determined by using available market quotations. The Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less and
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 the
directors determine present minimal credit risks as advised by Mitchell
Hutchins, and will comply with certain reporting and recordkeeping procedures.
There is no assurance that constant net asset per share value will be
maintained. In the event amortized cost ceases to represent fair value, the
board will take appropriate action.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried at their face value. Other assets, if any, are valued at fair value as
determined in good faith by or under the direction of the board of directors.
TAXES
In order to continue to qualify for treatment as a regulated investment
company under the Internal Revenue Code, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-
term capital gain, if any) and must meet several additional requirements. Among
these requirements are the following: (1) the Fund must derive at least 90% of
its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities and certain other income; (2) the Fund must derive less than 30% of
its gross income each taxable year from the sale or other disposition of
securities held for less than three months; (3) at the close of each quarter of
the Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government
16
<PAGE>
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.
CALCULATION OF YIELD
The Fund computes its yield and effective yield quotations using standardized
methods required by the SEC. The Fund from time to time advertises (1) its
current yield based on a recently ended seven-day period, computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting
deductions from that shareholder account, dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7), with the
resulting yield figure carried to at least the nearest hundredth of one
percent, and (2) its effective yield based on the same seven-day period by
compounding the base period return by adding 1, raising the sum to a power
equal to (365/7), and subtracting 1 from the result, according to the following
formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] - 1
Yield may fluctuate daily and does not provide a basis for determining future
yields. Because the yield of the Fund fluctuates, it cannot be compared with
yields on savings accounts or other investment alternatives that provide an
agreed-to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce
the yield.
The Fund's yield and effective yield for the seven-day period ended June 30,
1995, were 5.35% and 5.50%, respectively.
OTHER INFORMATION. The Fund's performance data quoted in advertising and
other promotional materials ("Performance Advertisements") represent past
performance and are not intended to predict or indicate future results. The
return on an investment in the Fund will fluctuate. In Performance
Advertisements, the Fund may compare its yield with data published by Lipper
Analytical Services, Inc. for money funds ("Lipper"), CDA Investment
Technologies, Inc. ("CDA"), IBC/Donoghue's Money Market Fund Report
("Donoghue"), Wiesenberger Investment Companies Service ("Wiesenberger") or
Investment Company Data Inc. ("ICD"), or with the performance of recognized
stock and other indexes, including (but not limited to) the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, the Merrill
Lynch Municipal Bond Indices, the Morgan Stanley Capital International World
Index, the Lehman Brothers Treasury Bond Index, the Lehman Brothers
Government/Corporate Bond Index, the Salomon Brothers World Government Bond
Index and changes in the Consumer Price Index as published by the U.S.
Department of Commerce. The Fund also may refer in such materials to mutual
fund performance rankings and other data, such as comparative asset, expense
and fee levels, published by Lipper, CDA, Donoghue, Wiesenberger or ICD.
Performance Advertisements also may refer to discussions of the
17
<PAGE>
Fund and comparative mutual fund data and ratings reported in independent
periodicals, including (but not limited to) THE WALL STREET JOURNAL, MONEY
Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW
YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS.
Comparisons in Performance Advertisements may be in graphic form.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends on a Fund investment are reinvested by being paid in
additional Fund shares, any future income of the Fund would increase the value,
not only of the original Fund investment, but also of the additional Fund
shares received through reinvestment. As a result, the value of the Fund
investment would increase more quickly than if dividends had been paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit ("CDs") as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index. In
comparing the Fund's performance to CD performance, investors should keep in
mind that bank CDs are insured in whole or in part by an agency of the U.S.
government and offer fixed principal and fixed or variable rates of interest,
and that bank CD yields may vary depending on the financial institution
offering the CD and prevailing interest rates. Fund shares are not insured or
guaranteed by the U.S. government and returns thereon will fluctuate. While the
Fund seeks to maintain a stable net asset value of $1.00 per share, there can
be no assurance that it will be able to do so.
OTHER INFORMATION
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 M Street, N.W.,
Washington, D.C. 20036, counsel to the Fund, has passed upon the legality of
the shares offered by the Prospectus. Kirkpatrick & Lockhart LLP also acts as
counsel to PaineWebber and Mitchell Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as the Fund's independent auditors.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended June 30,
1995 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and the report of
independent auditors appearing therein are incorporated herein by this
reference.
18
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions....................................... 1
Directors and Officers..................................................... 5
Investment Advisory, Administration and Distribution Arrangements.......... 11
Portfolio Transactions..................................................... 14
Additional Information Regarding Redemptions............................... 15
Valuation of Shares........................................................ 15
Taxes...................................................................... 16
Calculation of Yield....................................................... 17
Other Information.......................................................... 18
Financial Statements....................................................... 18
</TABLE>
PAINEWEBBER
RETIREMENT MONEY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 29, 1995
- --------------------------------------------------------------------------------
LOGO
(C)1995 PaineWebber Incorporated
[LOGO] Recycled Paper
<PAGE>
<TABLE>
<S> <C>
This Prospectus concisely sets forth information PAINEWEBBER RMA
about the Funds a prospective investor should know
before investing. Please retain this Prospectus for MONEY MARKET PORTFOLIO
future reference. A Statement of Additional Information
dated August 29, 1995 (which is incorporated by reference U.S. GOVERNMENT PORTFOLIO
herein) has been filed with the Securities and Exchange
Commission. The Statement of Additional Information can TAX-FREE FUND
be obtained without charge, and further inquiries can be
made, by contacting the Funds, your PaineWebber investment CALIFORNIA MUNICIPAL
executive or PaineWebber's correspondent firms, or by MONEY FUND
calling toll-free 1-800-762-1000.
NEW YORK MUNICIPAL
MONEY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
- ---------------------------------------------------------- ------------------------------
THE MONEY MARKET PORTFOLIO AND U.S. GOVERNMENT PROFESSIONALLY MANAGED MONEY
PORTFOLIO ARE SERIES OF PAINEWEBBER RMA MONEY MARKET FUNDS SEEKING:
FUND, INC. PAINEWEBBER RMA MONEY FUND, INC. /X/ MAXIMUM CURRENT INCOME
AND PAINEWEBBER RMA TAX-FREE FUND, INC. ARE
MARYLAND CORPORATIONS (EACH A "CORPORATION"). /X/ HIGH LIQUIDITY
PAINEWEBBER RMA CALIFORNIA MUNICIPAL MONEY
FUND AND PAINEWEBBER RMA NEW YORK MUNICIPAL /X/ CONSERVATION OF CAPITAL
MONEY FUND ARE SERIES OF PAINEWEBBER MANAGED
MUNICIPAL TRUST, A MASSACHUSETTS BUSINESS TRUST /X/ INCOME FREE FROM FEDERAL INCOME TAX
("TRUST"). FOR THE RMA TAX-FREE FUND
/X/ CALIFORNIA DOUBLE TAX-FREE INCOME FOR
THE RMA CALIFORNIA MUNICIPAL MONEY
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR FUND
GUARANTEED BY THE U.S. GOVERNMENT. WHILE EACH
FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF /X/ NEW YORK STATE DOUBLE TAX-FREE
$1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT INCOME OR NEW YORK CITY TRIPLE TAX-
WILL BE ABLE TO DO SO. FREE INCOME FOR THE RMA NEW YORK
MUNICIPAL MONEY FUND
- ---------------------------------------------------------- ------------------------------
THESE SECURITIES HAVE NOT
BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION
NOR HAS ANY SUCH COMMISSION
PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE. AUGUST 29, 1995
</TABLE>
<PAGE>
HIGHLIGHTS
See the body of 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")(R) program. The Funds also are offered to
participants in the PaineWebber Business Services Account
("BSA")SM 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-grade 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-grade 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-grade municipal money
market instruments.
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-grade municipal money
market instruments.
Total Net Assets at Money Market Portfolio--$5.7 billion.
July 31, 1995: U.S. Government Portfolio--$884.8 million.
Tax-Free Fund--$1.7 billion.
California Municipal Money Fund--$323.6 million.
New York Municipal Money Fund--$219.7 million.
Distributor and PaineWebber Incorporated ("PaineWebber"). See "Management."
Investment Adviser:
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
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.
Minimum Purchase: No minimum.
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 enjoy
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 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 enjoy 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 enjoy current tax-free income at money market rates with minimal
risk of fluctuation of principal.
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 enjoy 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 enjoy current tax-free income at money market rates with
minimal risk of fluctuation of principal.
3
<PAGE>
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 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 and
New York Municipal Money Fund in California Municipal Securities (defined below)
and New York Municipal Securities (defined below), respectively, may subject
those Funds to greater risks than an investment company that has a broader range
of investments. The States of California and New York and many of their agencies
and local governments have been experiencing, and continue to experience,
significant financial difficulties and the credit standings of those States and
of certain local governments (including New York City) have been, and could be
further, reduced.
The status of California Municipal Money Fund and New York Municipal Money
Fund as "non-diversified" investment companies and the ability of each of the
Municipal Funds 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.
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
<TABLE>
<CAPTION>
CALIFORNIA NEW YORK
MONEY MARKET U.S. GOVERNMENT TAX- MUNICIPAL MONEY MUNICIPAL MONEY
PORTFOLIO PORTFOLIO FREE FUND FUND FUND
------------ --------------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Sales charge on
purchases of shares... None None None None None
Sales charge on
reinvested dividends.... None None None None None
Redemption fee or
deferred sales charge... None None None None None
</TABLE>
4
<PAGE>
ANNUAL FUND OPERATING EXPENSES*
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CALIFORNIA NEW YORK
MONEY MARKET U.S. GOVERNMENT TAX- MUNICIPAL MONEY MUNICIPAL MONEY
PORTFOLIO PORTFOLIO FREE FUND FUND FUND
------------ --------------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management fees......... 0.50% 0.45% 0.48% 0.50% 0.50%
12b-1 service fees...... None 0.08% 0.08% 0.08% 0.08%
Other expenses.......... 0.09% 0.10% 0.07% 0.11% 0.13%
----- --- --- --- ---
Total Operating
Expenses................ 0.59% 0.63% 0.63% 0.69% 0.71%
----- ---- ---- ---- ----
----- ---- ---- ---- ----
</TABLE>
- ---------
* See "Management" for additional information. The fees and expenses shown are
those actually incurred for the fiscal year ended June 30, 1995 and, in the
case of New York Municipal Money Fund, "Management Fees" and "Total
Operating Expenses" are those which would have been incurred by that Fund
had PaineWebber not waived a portion of its fees during the fiscal year.
PaineWebber currently charges an annual $85 account charge for the RMA
program including the Gold MasterCard 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 Business Card, 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.
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 $ 79
Tax-Free Fund.............................................. $6 $20 $35 $ 79
California Municipal Money Fund............................ $7 $22 $38 $ 86
New York Municipal Money Fund.............................. $7 $23 $40 $ 88
</TABLE>
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 Securities and Exchange
Commission ("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.
5
<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 and accompanying notes appearing in each Fund's Annual
Report to Shareholders for the fiscal year ended June 30, 1995, which 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 the each of the five fiscal years in
the period ended June 30, 1995 (in the case of Tax-Free Fund, Money Market
Portfolio and U.S. Government Portfolio) and the six fiscal periods ended June
30, 1995 (in the case of California Municipal Money Fund and New York Municipal
Money Fund) have been audited by Ernst & Young LLP, independent auditors, whose
unqualified reports thereon are incorporated by reference into the Funds'
Statement of Additional Information. The information appearing below for the
years ended prior to June 30, 1991 or November 30, 1990, as applicable, also
have been audited by Ernst & Young LLP, whose reports thereon were unqualified.
<TABLE>
<CAPTION>
TAX-FREE FUND
------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <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 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
Net investment
income................ 0.030 0.019 0.021 0.033 0.047 0.053 0.056 0.042 0.037
Dividends from net
investment income.... (0.030) (0.019) (0.021) (0.033) (0.047) (0.053) (0.056) (0.042) (0.037)
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
Net asset value, end
of period............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
Total Investment
Return (1)............ 3.03% 1.88% 2.07% 3.30% 4.74% 5.30% 5.60% 4.20% 3.70%
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000's)........ $1,562,040 $1,427,724 $1,248,702 $1,183,719 $1,190,073 $1,097,787 $912,865 $941,169 $942,668
Ratio of expenses to
average net assets... 0.63% 0.64% 0.65% 0.62% 0.67% 0.67% 0.60% 0.61% 0.62%
Ratio of net
investment income to
average net assets.... 3.00% 1.90% 2.06% 3.30% 4.66% 5.33% 5.49% 4.20% 3.70%
<CAPTION>
1986
--------
<S> <C>
Net asset value,
beginning of
period................ $1.00
--------
Net investment
income................ 0.044
Dividends from net
investment income.... (0.044)
--------
Net asset value, end
of period............. $1.00
--------
--------
Total Investment
Return (1)............ 4.40%
--------
--------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's)........ $885,308
Ratio of expenses to
average net assets... 0.60%
Ratio of net
investment income to
average net assets.... 4.43%
</TABLE>
- ---------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable date, and a sale at net asset value on the last
day of each period reported.
6
<PAGE>
<TABLE><CAPTION>
MONEY MARKET PORTFOLIO
----------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <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 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment
income............ 0.049 0.030 0.029 0.046 0.069 0.081 0.084 0.064 0.055
Dividends from net
investment
income............ (0.049) (0.030) (0.029) (0.046) (0.069) (0.081) (0.084) (0.064) (0.055)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of period..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Investment
Return (1)........ 5.00% 2.95% 2.98% 4.56% 6.88% 8.10% 8.40% 6.40% 5.50%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's).... $5,398,146 $4,337,009 $4,031,398 $4,054,344 $4,208,467 $3,765,953 $2,637,820 $2,509,372 $2,163,807
Ratio of expenses
to average net
assets............ 0.59% 0.59% 0.59% 0.59% 0.61% 0.58% 0.59% 0.76% 0.79%
Ratio of net
investment income
to average net
assets............ 4.91% 2.98% 2.95% 4.57% 6.89% 8.07% 8.48% 6.37% 5.54%
<CAPTION>
1986
----------
<S> <C>
Net asset value,
beginning of
period............ $1.00
----------
Net investment
income............ 0.069
Dividends from net
investment
income............ (0.069)
----------
Net asset value,
end of period..... $1.00
----------
----------
Total Investment
Return (1)........ 6.90%
----------
----------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's).... $1,740,660
Ratio of expenses
to average net
assets............ 0.78%
Ratio of net
investment income
to average net
assets............ 6.90%
</TABLE>
- ---------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable date, and a sale at net asset value on the last
day of each period reported.
<TABLE><CAPTION>
U.S. GOVERNMENT PORTFOLIO
----------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <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 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment
income............ 0.046 0.027 0.028 0.044 0.066 0.077 0.078 0.059 0.053
Dividends from net
investment
income............ (0.046) (0.027) (0.028) (0.044) (0.066) (0.077) (0.078) (0.059) (0.053)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of period..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Investment
Return (1)........ 4.67% 2.74% 2.83% 4.36% 6.59% 7.70% 7.80% 5.90% 5.30%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's).... $815,781 $854,928 $880,834 $838,023 $937,943 $488,577 $327,437 $316,349 $241,148
Ratio of expenses
to average net
assets............ 0.63% 0.62% 0.61% 0.62% 0.64% 0.68% 0.60% 0.74% 0.75%
Ratio of net
investment income
to average net
assets............ 4.55% 2.75% 2.80% 4.37% 6.46% 7.67% 7.77% 5.92% 5.31%
<CAPTION>
1986
----------
<S> <C>
Net asset value,
beginning of
period............ $1.00
----------
Net investment
income............ 0.066
Dividends from net
investment
income............ (0.066)
----------
Net asset value,
end of period..... $1.00
----------
----------
Total Investment
Return (1)........ 6.60%
----------
----------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's).... $204,660
Ratio of expenses
to average net
assets............ 0.82%
Ratio of net
investment income
to average net
assets............ 6.56%
</TABLE>
- ---------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable date, and a sale at net asset value on the last
day of each period reported.
7
<PAGE>
<TABLE><CAPTION>
CALIFORNIA MUNICIPAL MONEY FUND
--------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED FOR THE SEVEN FOR THE YEARS ENDED NOVEMBER 7, 1988
JUNE 30, MONTHS NOVEMBER 30, (COMMENCEMENT
----------------------------- ENDED ---------------------------- OF OPERATIONS) TO
1995 1994 1993 JUNE 30, 1992 1991 1990 1989 NOVEMBER 30, 1988
-------- -------- -------- ------------- -------- -------- -------- -----------------
<S> <C> <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 $1.00
-------- -------- -------- ------ -------- -------- -------- ------
Net investment income......... 0.029 0.018 0.019 0.016 0.038 0.050 0.056 0.004
Dividends from net investment
income....................... (0.029) (0.018) (0.019) (0.016) (0.038) (0.050) (0.056) (0.004)
-------- -------- -------- ------ -------- -------- -------- ------
Net asset value, end of
period....................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- ------ -------- -------- -------- ------
-------- -------- -------- ------ -------- -------- -------- ------
Total Investment Return (1)... 2.91% 1.78% 1.88% 1.61% 3.81% 4.95% 5.56% 0.35%
-------- -------- -------- ------ -------- -------- -------- ------
-------- -------- -------- ------ -------- -------- -------- ------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)...................... $330,937 $295,183 $290,367 $259,183 $261,902 $300,516 $234,605 $53,745
Ratio of expenses to average
net assets**................. 0.69% 0.69% 0.72% 0.69%* 0.75% 0.70% 0.67% 0.67%*
Ratio of net investment income
to average net assets**...... 2.87% 1.79% 1.86% 2.75%* 3.83% 4.96% 5.52% 5.24%*
</TABLE>
- ---------
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable date, 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.
** For the year ended November 30, 1989, PaineWebber waived fees 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 0.73% and 5.46%
respectively.
<TABLE><CAPTION>
NEW YORK MUNICIPAL MONEY FUND
------------------------------------------------------------------------
FOR THE FOR THE PERIOD
FOR THE YEARS ENDED SEVEN FOR THE YEARS ENDED NOVEMBER 10, 1988
JUNE 30, MONTHS ENDED NOVEMBER 30, (COMMENCEMENT
----------------------------- JUNE 30, --------------------------- OF OPERATIONS) TO
1995 1994 1993 1992 1991 1990 1989 NOVEMBER 30, 1988
-------- -------- -------- ------------ -------- -------- ------- -----------------
<S> <C> <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 $1.00
-------- -------- -------- ------ -------- -------- ------- ------
Net investment income......... 0.028 0.017 0.018 0.016 0.037 0.049 0.055 0.003
Dividends from net investment
income....................... (0.028) (0.017) (0.018) (0.016) (0.037) (0.049) (0.055) (0.003)
-------- -------- -------- ------ -------- -------- ------- ------
Net asset value, end of
period....................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- ------ -------- -------- ------- ------
-------- -------- -------- ------ -------- -------- ------- ------
Total investment return (1)... 2.80% 1.70% 1.82% 1.62% 3.74% 4.92% 5.51% 0.29%
-------- -------- -------- ------ -------- -------- ------- ------
-------- -------- -------- ------ -------- -------- ------- ------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)..................... $192,799 $165,111 $116,604 $129,687 $121,347 $113,885 $78,497 $24,237
Ratio of expenses to average
net assets:
Before waiver from
adviser................... 0.71% 0.75% 0.79% 0.73%* 0.89% 0.85% 0.89% 1.09%*
After waiver from
adviser................... 0.68% 0.68% 0.68% 0.68%* 0.68% 0.64% 0.37% 0.27%*
Ratio of net investment
income to average net
assets:
Before waiver from
adviser................... 2.79% 1.67% 1.70% 2.54%* 3.52% 4.67% 5.04% 4.07%*
After waiver from
adviser................... 2.81% 1.74% 1.81% 2.59%* 3.73% 4.88% 5.56% 4.89%*
</TABLE>
- ---------
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates, and a sale at net asset value on the last
day of each period reported. Total investment returns for periods of less
than one year have not been annualized.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of both the Money Market Portfolio and the 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. The Tax-Free Fund's investment
objective is to provide maximum current income exempt from federal income tax
consistent with liquidity and conservation of capital. The 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. The 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. In managing each Fund's portfolio, Mitchell Hutchins may employ a
number of professional money management techniques, including varying the
composition and the average weighted 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 market.
There can be no assurance that the Funds will achieve their investment
objectives. In periods of declining interest rates, the Funds' yields will tend
to be somewhat higher than prevailing market rates, and in periods of rising
interest rates the opposite 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.
MONEY MARKET PORTFOLIO
The Money Market Portfolio invests in high-grade money market instruments
with remaining maturities of 13 months or less. These instruments include U.S.
government securities, obligations of U.S. banks, commercial paper and other
short-term corporate obligations, corporate bonds and notes, variable and
floating rate securities and participation interests or repurchase agreements
involving any of the foregoing securities. Participation interests are pro rata
interests in securities held by others.
The U.S. government securities in which the 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")), 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 the Federal National Mortgage Association).
9
<PAGE>
The Money Market Portfolio may invest in obligations (including certificates
of deposit, bankers' acceptances and similar obligations) of U.S. banks,
including foreign branches of domestic banks and domestic branches of foreign
banks, having total assets in excess of $1.5 billion at the time of purchase.
The Fund may also invest in interest-bearing savings deposits in U.S. commercial
and savings banks having total assets of $1.5 billion or less, provided that the
principal amounts at each such bank are fully insured by the Federal Deposit
Insurance Corporation and the aggregate amount of such deposits (plus interest
earned) does not exceed 5% of the value of the Fund's assets.
The commercial paper and other short-term corporate obligations purchased by
the Money Market Portfolio consist only of obligations that Mitchell Hutchins
determines, pursuant to procedures adopted by the Corporation's board of
directors, present minimal credit risks and are either (1) rated in the highest
short-term rating category by at least two nationally recognized statistical
rating organizations ("NRSROs"), (2) rated in the highest short-term rating
category by a single NRSRO if only that NRSRO has assigned the obligations a
short-term rating or (3) unrated, but determined by Mitchell Hutchins to be of
comparable quality ("First Tier Securities"). The Money Market Portfolio
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
The U.S. Government Portfolio invests in U.S. government securities with
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 of directors, the U.S. Government Portfolio 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 directors without shareholder approval, but there is no present
intention to do so. 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
The Tax-Free Fund invests substantially all of its assets in money market
instruments with 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 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
10
<PAGE>
obligations in which the Fund invests are described in the Appendix to this
Prospectus.
CALIFORNIA MUNICIPAL MONEY FUND
Except for temporary purposes, the California Municipal Money Fund will
invest at least 80% and will seek 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").
The California Municipal Money Fund invests in high-grade California
Municipal Securities with 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 YORK MUNICIPAL MONEY FUND
Except for temporary purposes, the New York Municipal Money Fund will invest
at least 80% and will seek 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").
The New York Municipal Money Fund invests in high-grade New York Municipal
Securities with 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. The Money Market and U.S. Government Portfolios may
also acquire securities issued or guaranteed as to principal and interest by the
U.S. government in the form of custodial receipts that evidence ownership of
future interest payments, principal payments or both on certain U.S. Treasury
notes or bonds. Such notes and bonds are held in custody by a bank on behalf of
the owners of such 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. The principal and interest components
of selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
11
<PAGE>
financial institutions, which then trade the component parts independently. The
staff of the SEC currently takes the position that "stripped" U.S. government
securities that are not issued through the U.S. Treasury 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), or (if subject to a
demand feature exercisable within 13 months or less) issued by U.S. companies
(Money Market Portfolio) or municipal issuers (Municipal Funds). The yield on
these securities is 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. Certain of these obligations carry a demand
feature that gives the Fund the right to tender them back to the issuer or a
remarketing agent and receive the principal amount of the security prior to
maturity. The demand feature may or may not be backed by letters of credit or
other credit support arrangements provided by banks or other financial
institutions, the credit standing of which affects the credit quality of the
obligation.
Securities purchased by the 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 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. The Money Market Portfolio and the U.S. Government
Portfolio each may enter into repurchase agreements with U.S. banks and dealers
with respect to any security in which that Fund is authorized to invest. 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 and 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 the 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 Corporation's board of directors or Trust's board
of trustees. The Municipal Funds do not intend to enter into repurchase
agreements except as a temporary measure and under unusual circumstances.
SPECIAL RISK CONSIDERATIONS--
CALIFORNIA MUNICIPAL MONEY FUND AND
NEW YORK MUNICIPAL MONEY FUND.
The California Municipal Money Fund and the New York Municipal Money Fund
each may invest more than 25% of the value of its total assets in Municipal
Securities that are
12
<PAGE>
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
projects. The Funds may be subject to greater risk than other funds that do not
follow this practice.
These Funds are "non-diversified," as that term is defined in the Investment
Company Act of 1940 ("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.
RISKS OF CALIFORNIA MUNICIPAL SECURITIES. The 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 ("California") and by the financial condition of California, its
public authorities and political subdivisions. California has been experiencing
substantial financial difficulties related to the weak performance of the
once-booming California economy, which has caused substantial, broad-based
revenue shortfalls between 1990 and 1993. California's long-term credit rating
has been, and could be further, reduced and its ability to provide assistance to
its public authorities and political subdivisions has been, and could be
further, impaired. Cutbacks in state aid could adversely affect the financial
condition of cities, counties and education districts previously subject to
severe fiscal constraints and facing a fall in their own tax collections.
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 YORK MUNICIPAL SECURITIES. The 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
(the "State") and by the financial condition of the State, its public
authorities and political subdivisions, particularly the City of New York (the
"City"). Although the State reduced its accumulated General Fund deficits and
experienced
13
<PAGE>
operating surpluses in Fiscal Year ("FY") FY1991-92 through 1993-94, it
continues to experience substantial financial difficulties related to the recent
recession, resulting in, among other things, reductions in General Fund
receipts. An estimated budget gap of approximately $4.7 billion is projected for
FY1995-96, unless numerous and substantial corrective measures are successfully
implemented. 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. 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. During unusual market conditions, including when,
in the opinion of Mitchell Hutchins there are insufficient suitable Municipal
Securities available, each of the Municipal Funds temporarily may invest more
than 20% of its net assets in other Municipal Securities. For this purpose,
"suitable Municipal Securities" means, in the case of the Tax-Free Fund,
Municipal Securities that pay AMT exempt interest, in the case of California
Municipal Money Fund, California Municipal Securities and, in the case of New
York Municipal Money Fund, New York Municipal Securities. "Other Municipal
Securities" means, in the case of the Tax-Free Fund, Municipal Securities that
pay interest subject to the AMT and, in the case of California Municipal Money
Fund and New York Municipal Money Fund, Municipal Securities other than
California Municipal Securities and New York Municipal Securities, respectively.
Under normal circumstances, each Municipal Fund must invest at least 80% of
its net assets in securities that pay interest which is exempt from federal
income tax. However, when Mitchell Hutchins believes unusual circumstances
warrant a defensive posture, including when, in the opinion of Mitchell
Hutchins, neither suitable Municipal Securities nor other Municipal Securities
are available, each Municipal Fund may hold cash and may invest any portion or
all of its net assets in taxable money market instruments, including repurchase
agreements. To the extent 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. Borrowings by the Money Market Portfolio and U.S.
Government Portfolio may include reverse repurchase agreements involving up to
5% of each Fund's assets. The Municipal Funds may purchase Municipal 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 Municipal 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 Fund expects that commitments to purchase
when-issued securities normally will not exceed 25% of its assets. No Fund will
invest more than 10% of its net assets in illiquid securities, including
repurchase
14
<PAGE>
agreements with maturities in excess of seven days.
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. The 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 the New York Municipal Money Fund relating to
investments in New York Municipal Securities 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 Corporation's board of directors or the Trust's board of trustees
without shareholder approval.
PURCHASES
THE RMA AND BSA PROGRAMS. Shares of each Fund are available 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 (including proceeds from securities sold) in the
account invested in the Primary Sweep Money Fund. Balances of $1 or more are
invested daily. 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
executives 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 program is more
fully described in the brochure, "Facts about Your PaineWebber Resource
Management Account" and the BSA program is more fully described in the brochure,
"Facts about Your Business Services Account". 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. A "Business Day" is any day on which
the Boston offices of the Fund's custodian, State Street Bank and Trust Company
("Custodian"), and the New York City offices of PaineWebber and PaineWebber's
bank, are all open for business. "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 a Fund through its Custodian.
15
<PAGE>
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 WITH FUNDS HELD AT PAINEWEBBER. All deposits to RMA and BSA
participants' brokerage accounts and any free credit cash balances that may
arise in such brokerage accounts will be automatically invested in shares of
their Primary Sweep Money Fund, as described above under "The RMA and BSA
Programs," provided that federal funds are available for the investment. 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. RMA or BSA participants wishing to
invest amounts deposited in their accounts by check in one of the other Funds
should so instruct their PaineWebber investment executives or correspondent
firms. Federal funds are deemed available to a Fund two Business Days after
deposit of a personal check and/or an Electronic Funds Transfer credit 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.
To the extent that the amounts transferred by wire create a cash balance in
an investor's account, that cash balance will be automatically invested in the
investor's Primary Sweep Money Fund, as described above under "Purchases with
Funds Held at PaineWebber." RMA or BSA participants wishing to invest amounts
transferred by wire in one of the other Funds should so instruct their
PaineWebber investment executives or correspondent firms.
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.
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REDEMPTIONS
Shareholders may redeem 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 ($5,000 and over)
and fees for such wires and PaineWebber (not RMA or BSA) checks and fees for
such checks. "Charges" are RMA or BSA checks, Gold and Business 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 Gold and Business MasterCard cash advances on the day they
are paid. Shares are redeemed to cover Gold and Business MasterCard purchases at
the end of the MasterCard monthly billing period. 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. Fund shares will not be
purchased until all Debits and Charges in a shareholder's RMA or BSA brokerage
account are satisfied.
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 or California 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.
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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
Fund's net assets by the number of Fund shares outstanding. A Fund's net assets
are equal to the value of its investments and other assets minus its
liabilities. Each Fund's net asset value is determined 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 directors
of the applicable Corporation or the board of trustees of the 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 of purchase;
dividends are accrued to shareholder accounts daily and are automatically paid
in additional Fund shares monthly. Shares do not earn dividends on the day of
redemption. Net investment income includes accrued interest and earned discount
(including original issue discount and, except for Municipal Securities acquired
by the Municipal Funds prior to May 1, 1993, market discount), less amortization
of market premium and accrued expenses. Daily dividends declared by each
Municipal Fund do not include any net investment income attributable to the
accretion of market discount on Municipal Securities. Any such amounts, which
are taxable to each Fund's shareholders, are distributed annually, unless more
frequent distributions are necessary to maintain a Fund's net asset value per
share at $1.00 or to avoid income or excise taxes.
Each Fund distributes its net short-term capital gain, if any, 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 the Money Market Portfolio and the 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
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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 noncorporate 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 the 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 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 gain 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.
NEW YORK STATE AND NEW YORK CITY TAXES. If the New York Municipal Money Fund
qualifies as a RIC under the Internal Revenue Code and at the end of each
quarter of the Fund's taxable year at least 50% of its assets are invested in
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 New York City personal income taxes, but not
corporate franchise taxes. Dividends derived from interest on other Municipal
Securities, taxable income and net capital gain are not exempt from New York
State and New York City 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 New York City personal income tax. Shareholders
receive notification annually stating the portion of the Fund's exempt-interest
dividends attributable to issuers in New York State, New York City and other
states.
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 Corporation's board of directors, and the Trust's board of trustees, as
part of their
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overall management responsibility, oversee various organizations responsible for
the Funds' 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, 1995, the effective advisory and administration fees paid to
PaineWebber by the Money Market Portfolio, the U.S. Government Portfolio, the
Tax-Free Fund, California Municipal Money Fund and New York Municipal Money Fund
were equal to 0.50%, 0.45%, 0.48%, 0.50%, and 0.50%, respectively, of the Fund's
average daily net assets. 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.
Each Fund pays PaineWebber an annual fee of $4.00 per active Fund account,
plus certain out-of-pocket expenses, for certain services not performed by the
Transfer Agent. Each Fund also incurs other expenses. For the fiscal year ended
June 30, 1995, the ratio of expenses as a percentage of average net assets of
the Money Market Portfolio, the U.S. Government Portfolio, the Tax-Free Fund,
California Municipal Money Fund and New York Municipal Money Fund were 0.59%,
0.63%, 0.63%, 0.69% and 0.68%, respectively. PaineWebber waived a portion of its
advisory and administration fees for New York Municipal Money Fund. If such
waivers had not been made, the Fund's ratio of expenses stated as a percentage
of average net assets would have been 0.71%.
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 Paine Webber Group
Inc., a publicly owned financial services holding company. At July 31, 1995,
PaineWebber or Mitchell Hutchins was investment adviser or sub-adviser to 41
registered investment companies with 87 separate portfolios and aggregate assets
in excess of $28.9 billion.
Mitchell Hutchins investment 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. Under separate plans of distribution ("Plans"), the 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, and any increase in this annual rate would
require prior approval by the applicable Corporation's board of directors or
Trust's board of trustees.
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
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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 service 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 service
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 service fees received or accrued through the termination
date will be PaineWebber's sole responsibility and not obligations of the Fund.
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 taxexempt yield (yield excluding taxable income).
"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).
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 $33 or less in the case of the Money
Market Portfolio and the U.S. Government Portfolio, and approximately $53 or
less in the case of the Municipal Funds) that generate less than 1/2 per day of
income will earn no dividends.
GENERAL INFORMATION
The Money Market and U.S. Government Portfolios are series of PaineWebber
RMA Money Fund, Inc. ("Money Fund Corporation"). Both the Tax-Free Fund and the
Money Fund Corporation were incorporated in Maryland on July 2, 1982 and each is
registered with
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the SEC as an open-end, diversified management investment company. The 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 the Money Market Portfolio and the U.S. Government Portfolio,
respectively. The remaining shares are classified as shares of the Money Fund
Corporation's third series. The Tax-Free Fund has an authorized capitalization
of 20 billion shares of $0.001 par value common stock.
The California Municipal Money Fund and the New York Municipal Money Fund
are series of PaineWebber 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 of trustees has authority to issue an
unlimited number of shares of beneficial interest of separate series, 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. The board of directors of each Corporation and the board of trustees of
the Trust has considered this factor in approving the use of a single, combined
Prospectus.
The Corporations and the Trust do not hold annual shareholder meetings.
There normally will be no meetings of shareholders to elect directors or
trustees unless fewer than a majority of the directors/trustees 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 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 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 Trust's outstanding shares.
Each share of a Fund has equal voting, dividend and liquidation rights. The
shares of each series of the Money Fund Corporation and the Trust will be voted
separately except when an aggregate vote of all series is required by the
Investment Company Act of 1940.
CERTIFICATES. To avoid additional operating expenses 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. Shareholders receive audited annual and unaudited semi-annual
financial statements of the Funds. All purchases and redemptions of Fund shares
are confirmed to shareholders at least quarterly.
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., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is each Fund's transfer and dividend disbursing agent.
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APPENDIX
MUNICIPAL SECURITIES
The following description of the Municipal Securities in which Tax-Free
Fund, California 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. Industrial
development bonds ("IDBs") and private activity bonds ("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. These interests carry a demand feature permitting the holder
to tender them back to the bank, which demand feature generally is backed by an
irrevocable letter of credit or guarantee of the bank. The credit standing of
such bank 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
- --------------------------------------------
2 Highlights
-----------------------------------
6 Financial Highlights
-----------------------------------
9 Investment Objectives and Policies
-----------------------------------
15 Purchases
-----------------------------------
17 Redemptions
-----------------------------------
18 Valuation of Shares
-----------------------------------
18 Dividends and Taxes
-----------------------------------
19 Management
-----------------------------------
21 Performance Information
-----------------------------------
21 General Information
-----------------------------------
A-1 Appendix
-----------------------------------
For information on the RMA program [ARTWORK]
or the RMA Funds, call PaineWebber
toll-free at 1-800-762-1000.
For information on the BSA program,
call
PaineWebber toll-free at
1-800-BSA-0140.
- ------------------------------------------
No person has been authorized to give any information or to make any
representations not contained in this Prospectus 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. This Prospectus does not
constitute an offering by the Funds or by the Distributor in any
jurisdiction in which such offering may not lawfully be made.
Recycled Paper
(C)1995 PaineWebber Incorporated
<PAGE>
PAINEWEBBER RMA
MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
TAX-FREE FUND
CALIFORNIA 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 five 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"). The
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 series of
PaineWebber Managed Municipal Trust, a Massachusetts business trust ("Trust").
The Tax-Free Fund, California 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, 1995. 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,
1995.
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 INVESTMENTS. The yields on the money
market instruments in which the Funds invest (such as 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
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undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. Subsequent to its purchase by a
Fund, an issue may cease to be rated or its rating may be reduced. In the event
that a security in a Fund's portfolio ceases to be a "First Tier Security," as
defined in the Prospectus, 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 Trust's board of trustees, 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 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.
REPURCHASE AGREEMENTS. As stated in the Prospectus, the 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. The Municipal Funds each may enter into repurchase agreements with U.S.
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 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.
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<PAGE>
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 Corporation's board of directors or the Trust's board of trustees.
Mitchell Hutchins will review and monitor the creditworthiness of those
institutions under the board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The 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 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 and price
reflecting a market rate of interest. Such agreements are considered to be
borrowings and may be entered into only for temporary or emergency purposes.
While a reverse repurchase agreement is outstanding, the Fund's custodian
segregates assets to cover the Fund's obligations under the reverse repurchase
agreement. See "Investment Policies and Restrictions--Segregated Accounts."
ILLIQUID SECURITIES. No Fund will invest more than 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, repurchase agreements maturing in
more than seven days, and restricted securities 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
Corporation's board of directors or the Trust's board of trustees. Commercial
paper issues in which the Money Market Portfolio may invest include securities
issued by major corporations without registration under the Securities Act of
1933 ("1933 Act") in reliance on the exemption from such registration afforded
by Section 3(a)(3) thereof and commercial paper issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is restricted as
to disposition under the federal securities laws in that any resale must
similarly be made in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors through or with the assistance of
investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 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
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values for restricted securities and the ability to liquidate an investment in
order to satisfy share redemption orders. Such markets include automated systems
for the trading, clearance and settlement of unregistered securities, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc. An insufficient number of qualified institutional buyers interested in
purchasing certain restricted securities held by the Money Market Portfolio,
however, could affect adversely the marketability of such portfolio securities
and the Fund might be unable to dispose of such securities promptly or at
favorable prices.
The 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
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. Since these municipal lease obligation-backed securities are based on a
well-established means of securitization, Mitchell Hutchins does not believe
that investing in such securities presents the same liquidity issues as direct
investments in municipal lease obligations.
OBLIGATIONS OF FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS. The Money
Market Portfolio may invest in obligations of domestic branches of foreign banks
and foreign branches of domestic banks. Such investments may involve risks that
are different from investments in obligations of domestic branches of domestic
banks. These risks may include unfavorable political and economic developments,
withholding taxes, seizure of foreign deposits, currency controls, interest
limitations or other governmental restrictions that might affect the payment of
principal or interest on the securities held by the Money Market Portfolio.
Additionally, there may be less publicly available information about foreign
banks and their branches, as these institutions may not be subject to the same
regulatory requirements as domestic banks.
FLOATING RATE AND VARIABLE RATE DEMAND INSTRUMENTS. As noted in the
Prospectus, each Fund may invest in floating rate and variable rate securities
with demand features. A demand feature gives a
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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 par value. A
demand feature is often backed by a letter of credit or guarantee from a bank,
which permits the remarketing agent to draw on the letter of credit on 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 only (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 (3) as
needed to provide liquidity to the Fund in order to meet redemption requests.
The ability of a bank to fulfill its obligations under a letter of credit or
guarantee 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. 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.
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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
the Municipal Funds may purchase municipal securities on a "when-issued" or
"delayed delivery" basis. A security purchased on a when-issued or delayed
delivery basis is recorded as an asset on the commitment date and is subject to
changes in market value, generally based upon changes in the level of interest
rates. Thus, fluctuation in the value of the security from the time of the
commitment date will affect the Fund's net asset value. When 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."
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STAND-BY COMMITMENTS. 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. Although the Municipal Funds do not currently
intend to acquire stand-by commitments with respect to municipal securities held
in its portfolio, a Fund may acquire such commitments under unusual market
conditions to facilitate portfolio liquidity.
A Fund would 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 would be unconditional and
unqualified. A stand-by commitment would not be transferable by a Fund, although
the Fund could 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 would not ordinarily
affect the valuation or maturity of the underlying municipal securities.
Stand-by commitments acquired by a Fund would be valued at zero in determining
net asset value. Whether a Fund paid directly or indirectly for a stand-by
commitment, its cost would be treated as unrealized depreciation and would be
amortized over the period the commitment is held by the Fund.
PARTICIPATION INTERESTS. The Municipal Funds also 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. A Fund has the right to sell the instrument back
to the bank. As discussed above under "Floating Rate and Variable Rate Demand
Instruments," to the extent that payment of an obligation is backed by a bank's
letter of credit or guarantee, such payment may be subject to the bank'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 banks issuing letters of credit or guarantees supporting
such participation interests on the basis of published financial information,
reports of rating services and bank analytical services.
SEGREGATED ACCOUNTS. When a Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis or reverse
repurchase agreements, the Fund will maintain with an approved custodian in a
segregated account cash, U.S. government securities or other liquid high-grade
debt securities, marked to market daily, in an amount at least equal to the
Fund's obligation or commitment under such transactions.
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,
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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.
The State of California has experienced significant financial difficulties
because of the 1990-93 recession, which have reduced its credit standing. 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 further, the
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 over 32 million
represents over 12% of the total United States population. While the State's
substantial population growth during the 1980s stimulated local economic growth
and diversification, it also increased demands on State services. Total personal
income in the State, at an estimated $683 billion in 1993, accounts for almost
13% of all personal income in the nation.
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 growth occurred in 1994 and is expected in 1995, but pre-recession job
levels are not expected to be reached for several more years. Unemployment,
while remaining higher than the national average, has come down about 3% in
1994. Economic indicators show a steady recovery underway in California since
the start of 1994. However, any delay or reversal of the recovery will
exacerbate shortfalls in State revenue.
STATE DEBT. 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. Total
outstanding general obligation bonds and lease purchase debt of the State
increased from $9.4 billion at June 30, 1988 to $24.6 billion at June 30, 1995.
State agencies and authorities had approximately $19.0 billion of revenue bonds
and notes outstanding at June 30, 1995; for which the State General Fund has no
liability.
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STATE FINANCES. 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
Article XIIIA of the California Constitution (commonly known as "Proposition
13") and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative commonly known as (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%).
Since the start of fiscal year ("FY") 1990-91, the State has faced adverse
economic fiscal and budget conditions. The 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 continue in future years with the expected
need to increase capital and operating costs of the correctional system in
response to a "Three Strikes" law enacted in 1994 which mandates life
imprisonment for certain felony offenders.
Recent Budgets. As a result of these factors, among others, from the late
1980's until 1992-93, the State had a period of nearly chronic budget imbalance,
with expenditures exceeding revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the budget reserve, the Special
Fund for Economic Uncertainties ("SFEU") approaching $2.8 billion at its peak at
June 30, 1993. Starting in the 1990-91 Fiscal Year and for each year thereafter,
each budget required multibillion dollar actions to bring projected revenues and
expenditures into balance and to close large "budget gaps" which were
identified. The Legislature and Governor eventually agreed on a number of
different steps to produce Budget Acts in the years 1991-92 to 1994-95,
including:
. significant cuts in health and welfare program expenditures;
. transfers of program responsibilities and funding 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, countries, 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 1991-92 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 has requested); and
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. various one-time adjustments and accounting changes.
Despite these budget actions, the effects of the recession led to large,
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final retirement
of the deficit into 1995-96.
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. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures over
revenues), the General Fund had positive operating results in FY 1993-94 and
1994-95, which have reduced the accumulated budget deficit to around $600
million as of June 30, 1995.
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. When the Legislature and the Governor failed to adopt a
budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the
State to carry out its normal annual cash flow borrowing to replenish its cash
reserves, the State Controller was forced to issue registered warrants ("IOUs")
to pay a variety of obligations representing prior years' or continuing
appropriations, and mandates from court orders. Available funds were used to
make constitutionally-mandated payments, such as debt service on bonds and
warrants. Between July 1 and September 4, 1992 the State Controller issued a
total of approximately $3.8 billion of registered warrants. After that date, all
remaining outstanding registered warrants (about $2.9 billion) were called for
redemption from proceeds of the issuance of 1992 Interim Notes after the budget
was adopted.
The State's cash condition became so serious in late spring of 1992 that the
State Controller was required to issue revenue anticipation warrants maturing in
the following fiscal year in order to pay the State's continuing obligations.
The State was forced to rely increasingly on external debt markets to meet its
cash needs, as a succession of notes and warrants (both forms of short-term cash
flow financing) were issued in the period from June 1992 to July 1994, often
needed to pay previously-maturing notes or warrants. These borrowings were used
also in part to spread out the repayment of the accumulated budget deficit over
the end of a fiscal year.
Current Budget. For the first time in four years, the State entered the
1995-96 fiscal year with strengthening revenues based on an improving economy.
The major feature of the Governor's proposed Budget, a 15% phased cut in
personal income and business taxes, was rejected by the Legislature.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34 days
after the start of the fiscal year. The Budget Act projects General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase from the prior
year. Expenditures are budgeted at $43.4 billion, a 4 percent increase. The
Department of finance projects that, after repaying the last of the carryover
budget deficit, there
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will be a positive balance of less than $30 million in the budget reserve, the
Special Fund for Economic Uncertainties, at June 30, 1996, providing no margin
for adverse results during the year.
The Department of Finance projects cash flow borrowings in the 1995-96
Fiscal Year will be the smallest in many years, comprising about $2 billion of
notes to be issued in April, 1996, and maturing by June 30, 1996. With full
payment of $4 billion of revenue anticipation warrants on April 25, 1996, the
Department sees no further need for borrowing over the end of the fiscal year.
The Department projects that available internal cash resources to pay State
obligations will be almost $2 billion at June 30, 1996. This "cushion" will be
re-examined by the State Controller on October 15, 1995, in the third step in
the Budget Adjustment Law process. If the Controller believes the available
internal cash resources on June 30, 1996 will, in fact, be zero or less, her
report would start a process which could lead to automatic budget cuts starting
in December, 1995.
The principal features of the 1995-96 Budget Act, in addition to those noted
above, are additional cost in health and welfare expenditures (some of which are
subject to approvals or waivers by the federal government); assumed further
federal aid for illegal immigrant costs; and an increase in per-pupil funding
for public schools and community colleges, the first such significant increase
in four years.
There can be no assurance that the State will not face budget gaps in future
years, resulting from a disparity between tax revenues projected from a lower
revenue base and the spending required to maintain State programs at current
levels. To achieve a balanced budget, the enactment of legislation will be
required to enlarge the State's revenue base or to curtail current program
expenditures. Certain major budgetary considerations affecting the State are
outlined below.
REVENUE BASE. The recession seriously affected State tax revenue, which
basically mirror general economic conditions. The principal sources of General
Fund revenues are economically sensitive, and include the California personal
income tax (44% of total FY1993-94 revenues), the sales tax (35%), bank and
corporation taxes (12%), and the gross premium tax on insurance (3%). Personal
income tax receipts are generated disproportionately by relatively few taxpayers
(the top 4% of taxpayers paid 49% of the total tax in 1990), and capital gains
are a significant component of such collections. Auto sales and building
materials are significant components of retail sales tax collections. Tax rates,
increased in 1991, are relatively high, and may impose political and economic
constraints on the ability of the State to further increase its taxes. By
statute, certain recent increases in the rates of income taxes will expire, on
December 31, 1995. In November 1993, the voters approved a constitutional
amendment to permanently extend 0.5 percent of the sales tax for local law
enforcement and thus not available as General Fund revenues.
Orange County. On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the "Pools"), filed for
protection under Chapter 9 of the federal Bankruptcy Code, after reports that
the Pools had suffered significant market losses in their investments causing a
liquidity crisis for the Pools and the County. More than 200 other public
entities, most, but not all located in the County, were also depositors in the
Pools. The County has estimated the Pools' loss at about $1.7 billion, or 23% of
its initial deposits of around $7.5 billion. Some of the entities which kept
monies in the Pools, including the County, are facing financial difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital
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projects. The County and some of these entities have, and others may in the
future, default in payment of their obligations. Moody's and S&P have suspended,
reduced to below investment grade levels or placed on "Credit Watch" various
securities of the County and the entities participating in the Pools. On May 2,
1995, the Bankruptcy Court approved a settlement agreement by which the
non-County participation in the Pools received immediate cash payments equal to
77% of their investment. Certain County obligations, which have since been
converted to cash, were issued to most participants in the amount of 3% of their
investment (except that school districts received additional distributions equal
to 13% of their investment) in return for waiving any further claims against the
County. The remaining amounts will be payable to the County from future sources
of revenue or legal claims. A few agencies (representing less than 10% of the
participations) declined to receive the additional payments above the 77% cash
payout and have retained their rights to pursue claims against the County.
County voters on June 27, 1995 rejected a proposition to impose an additional
0.5% sales tax to help pay the County's obligations. Subsequently, holders of
about $800 million of the County's short-term notes coming due during the summer
of 1995 agreed to a one-year extension of the maturity of these notes, avoiding
an immediate default. Moody's and S&P have, however, indicated they will
consider these notes in default since they were not paid when originally due.
The County must still develop a longer-term financial plan which will allow the
County to pay all its future obligations or further defaults may occur.
The State of California has no present obligation with respect to any
obligations or securities of the County or any of the other participating
entities. However, the State may be obligated to intervene to ensure that school
districts have sufficient funds to operate, or to maintain certain county-
administered State programs. As of late August, no school districts became
insolvent as a result of the bankruptcy of the County and no other State
obligation has been asserted.
BUDGETARY FLEXIBILITY. Article XIIIB of the California Constitution, adopted
by voter initiative, established an "Appropriations Limit" for the State and
local governments; excess State revenues are to be divided equally between
transfers to K-14 districts and refunds to taxpayers. A taxpayer refund has not
been required since FY1986-87.
Proposition 98 established a minimum expenditure base for State aid to K-14
districts, currently requiring allocation of over 34% of General Fund revenues
to such districts.
For many years starting in the early 1980s, the State maintained the SFEU as
a budget reserve in case of unexpected changes in revenues or expenditures
during a fiscal year. Since the start of the recession in 1990, the SFEU has
been in a negative balance, as the State accumulated sizable budget deficits.
The Budget Act for FY1995-96 projects elimination of the accumulated budget
deficits, with a small positive balance (about $28 million) in the SFEU on June
30, 1996.
LABOR COSTS. The State government workforce is mostly unionized, subject to
the law which authorizes collective bargaining and prohibits strikes and work
slowdowns. All of the State's collective bargaining agreements expired June 30,
1995. The State has a substantial unfunded liability for future pension
benefits, and has utilized changes in its pension fund policies to reduce
current contribution requirements. If the investment assumptions used in
determining required State contributions are not sustained by actual results,
additional State contributions would be required in future years.
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PUBLIC ASSISTANCE. California has the largest number of persons receiving
public assistance (Aid to Families with Dependent Children ("AFDC") and General
Relief) of any state. AFDC costs are shared among the federal government, the
State and its counties by statutory formula. Caseloads tend to rise
significantly during economic downturns, but are also significantly affected by
changing demographic and social trends which may impede the reduction of
caseloads during an economic recovery.
MEDI-CAL. California participates in the federal Medicaid program under a
state plan approved by the Health Care Financing Administration. The federal
government provides certain of the eligible program costs, with the remainder
shared by the State and its counties. Basic program eligibility and benefits are
determined by federal guidelines, but the State currently provides a number of
optional benefits and expanded eligibility. Program costs have increased
substantially in recent years, and account for a large share of the State
budget. Federal law requires 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.
LITIGATION. 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.
STATE ASSISTANCE TO LOCALITIES. Property tax revenues received by local
governments declined more than 50% following voter approval of Proposition 13 in
1978. 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. In response to the State's current fiscal difficulties, the State has
reduced its financial assistance to counties and cities, and adopted measures to
transfer certain governmental functions to its counties, accompanied by new
funding sources. The FY1993-94 Budget Act eliminated the remaining Proposition
13 assistance to all local government entities other than K-14 education
districts. Such actions have compounded the serious fiscal constraints already
experienced by many local governments, several of which have been compelled to
seek special assistance from the State.
CONSTITUTIONAL, LEGISLATIVE AND OTHER FACTORS. Certain California
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives are introduced and/or
implemented from time to time which may result in adverse fiscal or economic
effects.
The fiscal condition of local governments in California (58 counties, 480
cities and thousands of education, utility and other special districts) has been
constrained since the enactment of "Proposition 13" in 1978, which reduced and
limited the future growth of property taxes, and limited the ability of local
governments to impose other taxes. Counties, in particular, have had fewer
options to raise revenues than many other local government entities, and have
been required to maintain many basic public services.
In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recent recession, the
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Legislature has eliminated the remnants of this post-Proposition 13 aid,
although it has also provided additional funding sources (such as sales taxes)
and reduced mandates for local services. Nonetheless, many counties, in
particular, continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties have also been affected.
Los Angeles County, the largest in the State, has reported severe fiscal
problems, leading to a nominal $1.2 billion deficit in its $12 billion budget
for the 1995-96 Fiscal Year. To balance the budget, the county has imposed
severe cuts in services, particularly for health care, but further cuts may be
required if anticipated State legislation and federal Medicare waivers are not
implemented by October 1, 1995. Both Moody's and S&P have reduced Los Angeles
County's debt ratings in August 1995 (to "A" and "A-", respectively), and it
remains on S&P Credit Watch with negative implications. Orange County, which is
presently operaitng under protection of the federal Bankruptcy Court (see
above), has substantially reduced services and personnel in order to live within
much reduced means.
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 the New York 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
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. 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.
New York State and the City are each experiencing serious financial
difficulties and have each experienced recent declines in their credit
standings. S&P and Moody's have each assigned ratings for New York State's
general obligation bonds that are among the three lowest of those states with
rated general obligation bonds. The ratings of certain related debt of other
issuers for which New York State has an outstanding moral obligation, lease
purchase, guarantee or other contractual obligation are generally linked
directly to the State's rating. Standard & Poor's Ratings Group ("S&P") and
Moody's Investors Services, Inc. have each assigned ratings for the City's
obligations that are among the four lowest of those cities with rated general
obligation bonds. Should the financial condition of New York State, its
Authorities or its local governments deteriorate, their respective credit
ratings could be further reduced, and the market value and marketability of
their outstanding notes and bonds could be adversely affected, and their
respective access to the public credit markets jeopardized.
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ECONOMIC FACTORS. New York State 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 years 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 the third year of a slow recovery in
1995. Most of the growth occurred in the trade, construction and service
industries, with business, social services and health sectors accounting for
most of the service industry growth. The State's economy is expected to continue
to expand modestly during 1995 and 1996, according to assumptions contained in
the State financial plan for FY 1995-96. Employment is currently projected to
grow slightly during 1995, although the rate of increase is expected to be below
the rate experienced in 1994, due to cutbacks in governmental spending and
employment at all levels, as well as continued corporate downsizing.
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Notwithstanding the State budget for FY 1995-96 which enacts significant tax
and program reductions, the State can expect to confront structural deficits in
future years. The 1995-96 State financial plan includes actions that will have
an effect on the budget outlook for FY 1996-97 and beyond. In part, the 1995-96
State financial plan reflects actions which provide nonrecurring measures
(sometimes referred to as "one-shots") variously estimated to provide $900
million to $1.0 billion of savings. Additionally, the three-year plan to reduce
State personal income taxes, as discussed below briefly, will decrease State tax
receipts by an estimated $1.7 billion in FY 1996-97. Similarly, other actions
taken to reduce disbursements in the State's FY1995-96, such as reductions in
the State workforce and Medicaid and welfare expenditures, are expected to
provide greater reductions in future fiscal years. The net impact of these and
other factors is expected to produce a potential imbalance in receipts and
disbursements for State's FY1996-97 and future fiscal years.
Further, there can be no assurance, that the State economy will not
experience worse-than-predicted results in FY1995-96 with corresponding material
and adverse effects on the State's projections of receipts and disbursements.
The State Financial Plan is based upon forecasts of national and State economic
activity. 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, as private sector job losses since
1989 have offset all the prior employment gains of the 1980s. Declines in both
employment and earnings in the finance sector contributed to declines in retail
sales and real estate values. In addition, a number of widely publicized
bankruptcies among highly leveraged retailing and brokerage companies occurred.
The effects of the recession have extended to banking, insurance, business
services (such as law, accounting and advertising), publishing and
communications. Factors which may inhibit the City's economic recovery include
(i) credit restraints imposed by the weak financial condition of several major
money center banks located in the City; (ii) increases in combined State and
local tax burdens, if uncompetitive tax rates are imposed; (iii) perceived
declines in the quality of life attributable to service reductions and the
deterioration of the City's infrastructure; (iv) additional employment losses in
the City's banking sector or corporate headquarters complex due to further
corporate relocations or restructurings or (v) increased expenditures for public
assistance and health care. The City's future economic condition will also
likely be affected by its competitive position as a world financial center
(compared to London, Tokyo, Frankfurt and competing regional U.S. centers).
Investors should note that the budget for the City for FY1995-96 addresses a
projected $2.7 billion budget gap. Most of the budget-gap closing initiatives
may be implemented only with the cooperation of the City's municipal unions, or
the State or Federal Governments. No assurance can be given that such
initiatives will be successfully undertaken.
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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-Schenectedy 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.
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
economies, 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 State has been experiencing and continues to experience substantial
financial difficulties with General Fund (the principal operating account)
deficits incurred during FY1989-90 through FY1991-92. The State's accumulated
General Fund deficit (on a GAAP basis) grew 91% from FY1986-87 to FY1990-91, and
reached a then-record $6.265 billion (audited) by March 31, 1991. An accumulated
General Fund deficit at March 31, 1992 was restated (on a GAAP basis) to be
$4.616 billion and at March 31, 1993 was restated to be $2.551 billion. The
State ended its FY1993-94 with a negative General Fund balance of $1.637
billion. This represented an improvement over prior fiscal years, primarily due
to an improving national and State economy resulting in higher-than-expected
receipts from personal income tax and various business taxes and the relative
success of the New York Local Government Assistance Corporation ("LGAC"). The
General Fund showed an operating surplus of $914 million (on a GAAP basis). The
State's FY1994-95 budget was adopted on June 8, 1994, more than two months after
the beginning of the State's fiscal year and has made all of the required
quarterly revisions as of the date hereof. The State ended its FY 1994-95 with
the General Fund in balance. Actual receipts reported fell short of original
projections by approximately $1.2 billion, primarily in the categories of
personal income and business taxes. These shortfalls were offset by better than
expected performance in the remaining taxes, principally the user taxes and
fees, which exceeded projections by $210 million. Disbursements were also
reduced from original projections by approximately $848 million.
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On June 7, 1995, the New York State legislature passed the final legislation
regarding the State's FY1995-96 budget. The 1995-96 State financial plan was
formulated on June 20, 1995. Both the enacted budget bills and the State
financial plan for FY1995-96 include reductions in the actual level of spending
from that which occurred in FY1994-95 and project reductions in Medicaid and
State Authority operating costs. The FY1995-96 budget also projects an
approximate increase of 3% in all governmental funds over the amounts received
in FY1994-95 and includes the phase-in of a three-year reduction in the State's
personal income tax. There are risks and uncertainties concerning whether or not
certain spending and tax cuts will be upheld if challenged in the courts. For
example, the State Comptroller is challenging in court the proposed use of
certain pension reserves. If such suit is successful, approximately $110 million
would become unavailable as a source of contribution to the balanced State
budget. Finding an additional $110 million in reductions or from other sources
may prove difficult. Additionally, even if all spending and tax cuts contained
in the State budget are successfully implemented, resulting in a balanced budget
for FY1995-96, there can be no assurance that the State will not face budget
gaps in future years, resulting from a disparity between tax revenues projected
from a lower recurring-receipts base and the spending required to maintain State
programs at current levels. Furthermore, the State is a party to numerous
lawsuits in which an adverse decision could require extraordinary expenditures.
Certain major budgetary considerations affecting the State are outlined below.
REVENUE BASE. The State's principal revenue sources are economically
sensitive, and include the personal income tax (53% of FY1994-95 General Fund
tax receipts and approximately 52% of estimated FY1995-96 General Fund tax
receipts), user taxes and fees (20% of both FY1994-95 and estimated FY1995-96
General Fund tax receipts) and business taxes (15% and 14%, respectively, of
FY1994-95 and estimated FY1995-96 General Fund tax receipts). Uncertainties in
taxpayer behavior as a result of actual and proposed changes in Federal tax law
also may have an adverse impact on State tax receipts. One-fourth of the 4%
State sales tax has been dedicated to pay debt service of LGAC, and has
correspondingly reduced General Fund receipts. To the extent those moneys are
not necessary for payment to LGAC, they are transferred from the LGAC Tax Fund
to the General Fund and reported as a transfer from other funds rather than as
sales and use tax receipts. During fiscal years 1991-92, 1992-93, 1993-94 and
1994-95, moneys were so transferred. Capital gains are a significant component
of income tax collections. Auto sales and building materials are significant
components of retail sales tax collections. Tax rates are relatively high and
may impose political and economic constraints on the ability of the State to
further increase its taxes. In 1995, the State enacted a tax-reduction program
designed to reduce, by 20 percent over three years, receipts from the personal
income tax. The tax had remained 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 $515 million in FY1995-96, $1.7
billion in FY1996-97 produce further significant reductions in FY1997-98. In
addition to such reductions in overall tax rates, the tax-reduction program also
includes other modifications to the tax laws which will have the effect of
lowering the amount of tax revenues to be received by the State. In the absence
of countervailing economic growth or expenditure cuts, the tax cuts could make
the achievement of a balanced State budget more difficult in future years.
STATE DEBT. New York has the heaviest debt burden of any state (with nearly
$5.2 billion of general obligation, $4.7 billion of LGAC debt and $18 billion of
lease-purchase or other contractual
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debt outstanding as of March 31, 1995), and debt service costs absorb a large
share of the State's budget. As of March 31, 1995, the State is also obligated
with respect to nearly $7.0 billion for statutory moral obligations for nine of
its Authorities and for guarantees of $358 million of other Authority debt.
Historically, the State has had one of the largest seasonal financing
requirements of any municipal issuer, and was required each spring to borrow
substantial sums from public credit markets to finance its accumulated General
Fund deficit and its scheduled payments of aid to local governments and school
districts. To help reduce such seasonal financing needs, the State created LGAC
as a financing vehicle to finance the State's local assistance payments by
issuing long-term debt, payable over 30 years from a portion of the State sales
tax, as discussed above. The State budget for FY1995-96 and the 1995-96 State
financial plan each proposed to utilize the remainder of authorized but yet
unissued LGAC bonds. As of June 1995, LGAC had issued bonds and notes to provide
net proceeds of $4.7 billion, thus completing the LGAC program. The impact of
LGAC's borrowing is that the State is able to meet its cash flow needs in the
first quarter of FY1995-96 without relying on short-term seasonal borrowings.
Neither the 1995-96 State financial plan nor the 1994-95 State financial plan
included a spring borrowing, the first time in 35 years that there was no
short-term borrowing. Investors should note that the enabling legislation for
LGAC contains a covenant restricting the amount of any future State spring
borrowing, which may reduce the State's fiscal flexibility in future years.
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. The 1995-96 State financial plan contains
actions of a non-recurring nature including mergers of certain authorities,
payments from the sale of certain State assets and payments associated with the
resolution of certain court cases, totalling approximately $335 million.
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 FY1990-91 created a substantial
surplus that was amortized and applied to offset the State's contribution
through FY1993-94. This change in actuarial method was ruled unconstitutional by
the
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State's highest court and the State returned to the aggregate cost method in
FY1994-95 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. New York has the second largest number of persons
receiving public assistance (AFDC and Home Relief) of any state. AFDC costs are
shared among the federal government, the State and its counties (including the
City) by statutory formula. Caseloads tend to rise significantly during economic
downturns, but have fallen only in the later stages of past economic recoveries.
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 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
budget adopted for FY1995-96 includes reductions in spending for Medicaid.
Cutbacks in State spending for Medicaid may adversely affect the financial
condition of hospitals and health care institutions that are the obligors of
bonds that may be held by the Portfolio.
THE STATE AUTHORITIES. The State's Authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself, and may issue bonds and notes within the amounts of, and as otherwise
restricted by, their legislative authorization. The New York State Public
Authorities Control Board approves the issuance of debt and major contracts by
10 of the Authorities. As of September 30, 1994, there were 18 Authorities that
had outstanding debt of $100 million or more, the aggregate debt of which
(including refunding bonds and moral obligation, lease-purchase, contractual
obligation or State-guaranteed debt) then totaled approximately $70.3 billion.
As of March 31, 1995, aggregate public authority debt outstanding as
State-supported debt was $27.9 billion and State-related debt was $36.1 billion.
In recent years the State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain Authorities for
operating and other expenses and, (from 1976 to 1987) in fulfillment of its
commitments on moral obligation indebtedness or otherwise, for debt service. The
State budgeted operating assistance of approximately $1.3 billion for the
Metropolitan Transportation Authority ("MTA") during FY1994-95 and estimates
total State assistance in FY1995-96 to be approximately $1.1 billion. This
assistance is expected to continue to be required (and may increase) in future
years. Failure by the State to appropriate necessary amounts or to take other
action to permit the Authorities to meet their obligations could adversely
affect the ability of the State and the Authorities to obtain financing in the
public credit markets and the market price of the State's outstanding bonds and
notes.
The MTA, whose credit rating was recently reduced, oversees the operation of
the City's subway and bus lines by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). MTA subsidiaries operate certain
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commuter rail and bus lines in the New York metropolitan area. An affiliated
agency, the Triborough Bridge and Tunnel Authority ("TBTA"), operates certain
intrastate toll bridges and tunnels. To maintain its facilities and equipment,
which deteriorated significantly in the late 1970s due to deferred maintenance,
the MTA prepares a five year capital program subject to approval by the MTA
Capital Program Review Board. In April 1993, the State legislature authorized
the funding of a portion of a five year $9.56 billion capital plan for the MTA
for 1992 through 1996. MTA's five year capital program for 1992-96 was approved
by the State Capital Program Review Board in December 1993. There can be no
assurance that all governmental actions for the 1992-96 Capital Program will be
taken, that funding sources currently identified will not be decreased or
eliminated, or that the Capital Program will not be delayed or reduced. If the
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could impair the MTA's ability to meet its operating expenses without
additional State assistance. In addition, because fares are not sufficient to
finance its mass transit operations, the MTA has depended and will continue to
depend for operating support upon a system of State, local government and TBTA
support, and, to the extent available, Federal assistance (including loans,
grants and operating subsidies). No assurance can be given that any such
assistance will continue at any particular level or in any fixed relationship to
the operating costs and capital needs of the MTA.
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 the City assume the local share of public assistance and Medicaid
costs. While the City has had GAAP operating surpluses in recent fiscal years,
the City has experienced growing financial difficulties, primarily related to
the impact of the recent recession on the local economy (reducing revenues from
most major taxes and increasing public assistance and Medicaid caseloads),
rising health care costs for City employees and for Medicaid and rising
inflation and interest rates. In response, the City implemented gap-closing
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programs, which initially relied primarily on actions of a non-recurring nature,
but included substantial property tax rate increases and a personal income tax
surcharge imposed in FY1991 and selected service cutbacks. Reductions in State
aid, larger than budgeted labor settlements and increased police expenditures
added to the adverse budgetary impact of the local recession, confronting the
City with a potential $3.5 billion imbalance during FY1992 budget negotiations.
This initial budget gap was closed by adoption of a budget providing for various
tax increases and significant service reductions. Aid to nonprofit cultural
institutions in the City was significantly reduced (as was State aid to such
institutions), including certain institutions that are obligors of bonds that
may be held by the Portfolio.
The City's budget for FY1994 identified measures to close a $300 million
budget gap, which was the result of shortfalls in federal and State aid from
previously projected levels. The City achieved balanced operating results as
reported in accordance with GAAP for FY1994. For FY1995, the City adopted a
budget which halted the trend in recent years of substantial increases in
City-funded spending from one year to the next. The City budget adopted for
FY1996 reduces City-funded spending for the second consecutive year.
Pursuant to State law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and includes the City's
capital, revenue and expense projections and outlines proposed budget
gap-closing programs for those years with projected budget gaps. The mayor is
responsible for preparing the City's four-year financial plan, including the
City's current financial plan for the 1996 through 1999 fiscal years (the
"1996-1999 Financial Plan"). The City's projections set forth in the 1996-1999
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 interest rates, the impact on real estate tax revenues of the real estate
market, wage increases for City employees consistent with those assumed in the
1996-1999 Financial Plan, 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 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 1996-1999 Financial Plan will be realized. 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 City's original budget for FY1995 reflected proposed actions to
eliminate a $2.3 billion budget gap. The City submitted on July 21, 1995 a
fourth quarter modification to the City's financial plan for FY1995 which
projects a balanced budget in accordance with GAAP for the City's FY1995. On
July 11, 1995, the City submitted the 1996-1999 Financial Plan, which is based
on the City's expense and capital budgets for the City's FY1996 adopted on June
14, 1995 (the "1996 City Budget"). The 1996 City Budget sets forth proposed
actions by the City for FY1996 to close a substantial projected budget gap
(approximately $3.1 billion) resulting from lower than projected tax
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receipts and other revenues and greater than projected expenditures. Proposed
actions in the 1996-1999 Financial Plan for the City's FY1996 include a
reduction of approximately $400 million primarily affecting public assistance
and Medicaid payments by the City, expenditure reductions in agencies totalling
approximately $1.2 billion and transitional labor savings of approximately $600
million. These and other proposed actions were contained in the 1996-1999
Financial Plan as well as the 1996 City Budget. The 1996 City Budget is subject
to the ability of the City to implement the reductions in expenditures, personal
services and personnel, which are substantial and may be difficult to implement.
For example, the City Comptroller has announced his intention to block one of
the key items contained in the 1996 City Budget, the sale of the City's water
system for approximately $2.3 billion. In addition, certain proposals may be
offset by various State and federal legislation which could mandate levels of
City funding inconsistent with the 1996 City Budget and the 1996-1999 Financial
Plan. In addition, the 1996-1999 Financial Plan anticipates the receipt of
substantial amounts of Federal aid. Certain proposed State and federal actions
are subject to legislative, the governor's and the president's approvals as
applicable. Both federal and State actions are uncertain; certain legislative
proposals contemplate significant reductions in federal spending, including
proposed federal welfare reform which could result in caps on, or block grants
of, federal programs. Further, no assurance can be given that either such
actions will in fact be taken or that the projected savings will result even if
such actions are taken.
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 projects that local revenues will provide approximately 68.0%
of total revenues in FY1996 while federal aid, including categorical grants,
will provide 11.7% in FY1996 and State aid, including unrestricted aid and
categorical grants, will provide 20.3% in FY1996. As a proportion of total
revenues, State aid has remained relatively constant over the period from 1980
to 1990, while federal aid was sharply reduced (having provided nearly 20% of
total fiscal year 1980 revenues). The largest source of the City's revenues is
the real estate tax (approximately 22% of total revenues projected for FY1996,
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 FY1996 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 FY1988, in large measure to
rehabilitate its extensive, aging physical plant. The
22
<PAGE>
City's seasonal borrowing needs increased significantly during FY1990 and
FY1991, largely due to delayed State aid payments, and totalled $2.25 billion in
FY1992, $1.40 billion in FY1993, $1.75 billion in FY1994 and $2.2 billion in
FY1995. Current projections forecast a need of $2.4 billion of seasonal
financing for FY1996. The City's current capital financing program reflects
major reductions (approximately $2.13 billion) in the size of the capital
program to be implemented cumulatively through FY1999 which is intended to
reduce future debt service requirements. Such reductions may adversely affect
the condition of the City's aging and deteriorating infrastructure and physical
assets, such as sewers, streets, bridges and tunnels, and mass transit
facilities. Further, the City's capital financing program currently contemplates
receipt of proceeds of approximately $1 billion resulting from the sale of the
City's water and sewer system to the Water Board, and proposes to utilize a
substantial portion of such proceeds for capital project improvements. It is not
certain that such proceeds will become available for capital improvements,
because, as discussed above, the City Comptroller has stated his opposition to
such proposed transfer of the water system.
In November 1993, the voters approved a proposed charter whereby Staten
Island would secede from the City. Staten Island is one of five
counties/boroughs, comprising 4% of the City's population and 19% of its land
area. State law provides a complex mechanism for such secession.
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 FY1995-96 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. In the
recent past, the State provided substantial financial assistance to its
political subdivisions, totalling approximately 68% of General Fund
disbursements in the State's FY1992-93, 69% for FY1993-94, 70% for FY1994-95 and
estimated to account for 69% of General Fund disbursements in the State's
1995-96 fiscal year, primarily for aid to elementary, secondary and higher
education and Medicaid and income maintenance and local transportation programs.
The Legislature enacted substantial reductions from previously budgeted levels
of State aid since December 1990. To the extent the State is constrained by its
financial condition, State assistance to localities may be further reduced,
compounding the serious fiscal constraints already experienced by many local
governments. Localities also face anticipated and potential problems resulting
from pending litigation (including challenges to local property tax
assessments), judicial decisions and socio-economic trends.
The total indebtedness of all localities in the State, other than the City,
was approximately $17.7 billion as of the localities' fiscal years ending during
1993 (the date of the latest available data). A small portion (approximately
$105 million) of this indebtedness represented borrowing to finance budgetary
deficits issued pursuant to enabling State legislation (requiring budgetary
review by the State Comptroller). Subsequently, certain counties and other local
governments have encountered significant financial difficulties, including the
counties of Nassau, Suffolk, Monroe and Westchester and the City of Buffalo. The
State has imposed financial control on the City from 1977 to 1986 and on the
City of Yonkers since 1984 under an appointed control board in response to
fiscal crises encountered by such municipalities. The Legislature imposed
certain limited fiscal restraints on Nassau and Suffolk counties, and authorized
their issuance of deficit bonds to finance over several years their respective
1992 operating deficits.
23
<PAGE>
INVESTMENT LIMITATIONS--MONEY MARKET PORTFOLIO, U.S. GOVERNMENT PORTFOLIO AND
TAX-FREE FUND
Each Fund may not (1) borrow money, except from banks for temporary purposes
and except for reverse repurchase agreements if otherwise permitted and then in
an aggregate amount not in excess of 10% of the asset value of the Fund at the
time of such borrowing; (2) mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in such case the aggregate amount may not
be in excess of the lesser of the dollar amounts borrowed or 5% of the value of
the assets of the Fund at the time of such borrowing, and provided that no such
borrowing will be made except to facilitate the orderly sale of portfolio
securities to accommodate abnormally heavy redemption requests if they should
occur; (3) make loans, except that the Fund may purchase or hold debt
instruments, including repurchase agreements, in accordance with its investment
policies and restrictions; (4) purchase or sell real estate (however, the Money
Market Portfolio may purchase commercial paper issued by companies, including
real estate investment trusts, which invest in real estate or interests
therein); (5) purchase securities on margin, make short sales of securities or
maintain a short position; (6) act as underwriter of securities except to the
extent that, in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the federal securities laws; (7) purchase
or sell commodities or commodity contracts, or invest in oil, gas or mineral
exploration or development programs; (8) acquire voting securities of any issuer
or acquire securities of other investment companies, except in connection with a
merger, consolidation or acquisition; or (9) purchase securities of any one
issuer, other than the U.S. government and its agencies and instrumentalities,
if immediately after such purchase more than 5% of the Fund's total asset value
would be invested in such issuer, except that up to 25% of the Fund's total
asset value may be invested without regard to such 5% limitation.
For purposes of limitation (9) with respect to the Tax-Free Fund, 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
nongovernmental user, then such nongovernmental user would be deemed to be the
sole issuer. However, if in either case the creating government or some other
agency guarantees a security, such a guarantee would be considered a separate
security and would be treated as an issue of such government or other agency.
In addition, the Money Market Portfolio may not purchase securities if
immediately after such purchase more than 25% of the value of its total assets
would be invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that there is no
limitation with respect to investments in U.S. Treasury bills, other obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
certificates of deposit and bankers' acceptances of domestic branches of U.S.
banks. As to utility companies, gas, electric, water and telephone companies
will be considered separate industries. As to finance companies, the following
categories will be considered separate industries: (a) captive automotive
finance, (b) captive equipment finance, (c) retail finance, (d) consumer loan
and (e) diversified finance. Investment limitation (9) above permits a Fund to
invest up to 25% of its total assets without regard to the 5% limitation on
investment in securities of a single issuer (other than U.S. government
securities). However, Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act") generally requires that
24
<PAGE>
the Money Market Portfolio and the U.S. Government Portfolio apply the 5%
limitation to 100% of their respective total assets. Rule 2a-7 provides certain
exceptions to the 5% limitation, including provisions that a Fund under limited
circumstances may invest more than 5% of its total assets in securities of a
single issuer for up to three business days, and invest more than 5% of its
total assets in unconditional puts of a single issuer, together with all other
securities issued or guaranteed by that issuer.
The foregoing fundamental 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 foregoing limitations.
Each Fund will continue to interpret fundamental investment limitation (4)
to prohibit investment in real estate limited partnerships.
INVESTMENT LIMITATIONS--CALIFORNIA MUNICIPAL MONEY FUND AND NEW YORK MUNICIPAL
MONEY FUND
Each Fund may not (1) issue senior securities or borrow money, except from
banks for temporary purposes, provided that the aggregate amount borrowed does
not exceed 10% of the total asset value of the Fund at the time of such
borrowing and further provided that the Fund will not purchase securities while
borrowings in excess of 5% of its total assets are outstanding; (2) underwrite
securities of other issuers, except to the extent that, in connection with the
purchase of municipal securities directly from an issuer thereof in accordance
with the Fund's investment objective, policies and limitations or the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter; (3) mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and not in excess of the lesser of the dollar
amount borrowed or 5% of the value of the total assets of the Fund at the time
of such borrowing; (4) make loans, except repurchase agreements, provided that
for purposes of this restriction the acquisition of publicly distributed debt
obligations shall not be deemed to be the making of a loan; (5) purchase or sell
real estate, except that the Fund may invest in municipal securities secured by
real estate or interests therein (the Fund reserves the freedom of action to
hold and to sell any real estate acquired as a result of ownership of
securities); (6) purchase securities on margin, make short sales of securities
or maintain a short position; (7) purchase or sell commodities or commodity
contracts, or invest in oil, gas or mineral exploration or development programs;
(8) purchase voting securities of any issuer or acquire securities of other
investment companies, except in connection with a merger, consolidation or
acquisition; or (9) purchase any security if, as a result, 25% or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry, except that
this limitation does not apply to California municipal securities in the case of
California Municipal Money Fund or New York municipal securities in the case of
New York Municipal Money Fund or to other municipal securities or securities
issued or guaranteed by the U.S. government, its agencies and instrumentalities.
25
<PAGE>
For purposes of limitation (9), 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 nongovernmental user, then such
nongovernmental user would be deemed to be the sole issuer. However, if in
either case the creating government or some other agency guarantees a security,
such a guarantee would be considered a separate security and would be treated as
an issue of such government or other agency.
The foregoing fundamental investment limitations may not be changed without
the affirmative vote of the lesser of (1) 67% or more of the Fund shares present
at a meeting of shareholders, if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy, or (2) more than 50% of the
outstanding shares of the Fund. If a percentage restriction is adhered to at the
time of an investment or transaction, later changes in percentage resulting from
changing values of portfolio securities or the amount of total assets will not
be considered a violation of any of the foregoing limitations.
The following investment restrictions may be changed by the Trust's board of
trustees without shareholder approval: each Fund will not (1) invest more than
10% of its net assets in illiquid securities, a term which 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; (2) purchase or retain the securities of any issuer if, to the knowledge
of the Fund's management, the officers and trustees of the Trust and the
officers and directors of PaineWebber and Mitchell Hutchins (each owning
beneficially more than 0.5% of the outstanding securities of the issuer) own in
the aggregate more than 5% of the securities of the issuer; (3) purchase any
security if as a result the Fund would have more than 5% of its total assets
invested in securities of companies that together with any predecessors have
been in continuous operation for less than three years; and (4) invest in oil,
gas and mineral leases.
Each Fund will continue to interpret fundamental investment limitation (5)
to prohibit investment in real estate limited partnerships.
26
<PAGE>
DIRECTORS/TRUSTEES AND OFFICERS
The directors and executive officers of the Corporations and the Trust,
their ages, business addresses and principal occupations during the past five
years are:
<TABLE><CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 68 Director/Trustee and Mr. Bewkes is a director of Paine Webber
Chairman of the Group Inc. ("PW Group") (holding company
Boards of of PaineWebber and Mitchell Hutchins)
Directors/Trustees and a consultant to PW Group. Prior to
1988, he was chairman of the board,
president and chief executive officer of
American Bakeries Company. Mr. Bewkes is
also a director of Interstate Bakeries
Corporation and NaPro BioTherapeutics,
Inc. and a director or trustee of 26
other investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Meyer Feldberg; 53 Director/Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, New York 1989, he was president of the Illinois
10027 Institute of Technology. Dean Feldberg
is also a director of AMSCO
International Inc., Federated Department
Stores Inc., Inco Homes Corporation and
New World Communications Group
Incorporated and a director or trustee
of 18 other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen; 65 Director/Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, New York May 1994, he was a partner in the law
10017 firm of Fryer, Ross & Gowen. Mr. Gowen
is also a director of Columbia Real
Estate Investments, Inc. and a director
or trustee of 16 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
27
<PAGE>
<TABLE><CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
Frederic V. Malek; 58 Director/Trustee Mr. Malek is chairman of Thayer Capital
901 15th Street, N.W. Partners (investment bank) and a co-
Suite 300 chairman and director of CB Commercial
Washington, D.C. 20005 Group Inc. (real estate). From January
1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990 to
1992, he was vice chairman and, from
1989 to 1990, he was president of
Northwest Airlines Inc., 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.,
Automatic Data Processing, Inc., Avis,
Inc., FPL Group, Inc., ICF
International, Manor Care, Inc. and
National Education Corporation and a
director or trustee of 16 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Frank P.L. Minard**; 50 Director/Trustee Mr. Minard is chairman and a director of
Mitchell Hutchins, chairman of the board
of Mitchell Hutchins Institutional
Investors Inc. and a director of
PaineWebber. Prior to 1993, Mr. Minard
was managing director of Oppenheimer
Capital in New York and Director of
Oppenheimer Capital Ltd. in London. Mr.
Minard is also a director or trustee of
27 other investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
</TABLE>
28
<PAGE>
<TABLE><CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
Judith Davidson Moyers; 60 Director/Trustee Mrs. Moyers is president of Public Affairs
Public Affairs Television Television, Inc., an educational
356 W. 58th Street consultant and a home economist. Mrs.
New York, New York Moyers is also a director of Columbia
10019 Real Estate Investments, Inc. and Ogden
Corporation and a director or trustee of
16 other investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Thomas F. Murray; 84 Director/Trustee Mr. Murray is a real estate and financial
400 Park Avenue consultant. Mr. Murray is also a
New York, New York director and chairman of American
10022 Continental Properties, Inc., a trustee
of Prudential Realty Trust and a
director or trustee of 16 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Margo N. Alexander; 48 President Ms. Alexander is president, chief
executive officer and a director of
Mitchell Hutchins. Prior to January
1995, Ms. Alexander was an executive
vice president of PaineWebber. Ms.
Alexander is also a trustee of two, and
president of 38, other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president and
manager--advisory administration of
Mitchell Hutchins. Prior to November
1993, she was compliance manager of
Hyperion Capital Management, Inc., an
investment advisory firm. Prior to April
1993, Ms. Boyle was a vice president and
manager--legal administration of
Mitchell Hutchins. Ms. Boyle is also a
vice president of 38 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
29
<PAGE>
<TABLE><CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and attorney
Assistant Secretary of Mitchell Hutchins. Prior to December
1993, she was an associate at the law
firm of Seward & Kissel. Ms. Cohen is
also a vice president and assistant
secretary of 26 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ellen R. Harris; 49 Vice President Ms. Harris is a managing director and
chief investment officer--domestic of
Mitchell Hutchins. Ms. Harris is also a
vice president of 19 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president and
Assistant Treasurer the senior manager of the Fund
Administration Division of Mitchell
Hutchins. Mr. Maher is also a vice
president and assistant treasurer of 38
other investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of Mitchell
Assistant Treasurer Hutchins. Ms. Moran is also a vice
president and assistant treasurer of 38
other investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a senior vice president
Secretary and deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is also a vice
president and secretary of 38 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
30
<PAGE>
<TABLE><CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
Victoria E. Schonfeld; 44 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins.
From April 1990 to May 1994, she was a
partner in the law firm of Arnold &
Porter. Prior to April 1990, she was a
partner in the law firm of Shereff,
Friedman, Hoffman & Goodman. Ms.
Schonfeld is also a vice president of 38
other investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is first a vice president of
Assistant Treasurer Mitchell Hutchins. From August 1992 to
August 1994, he was a vice president at
BlackRock Financial Management, Inc.
Prior to August 1992, he was an audit
manager with Ernst & Young LLP. Mr.
Schubert is also a vice president and
assistant treasurer of 38 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory W. Serbe; 50 Vice President of Mr. Serbe is a managing director of
Tax-Free Fund and Mitchell Hutchins responsible for
the Trust tax-exempt and money market investments.
Mr. Serbe is also a vice president of 5
other investment companies for which
Mitchell Hutchins serves as investment
adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice president
Treasurer and the director of the mutual fund
finance division of Mitchell Hutchins.
Prior to 1991, he was an audit senior
manager with Ernst & Young LLP. Mr.
Sluyters is also a vice president and
treasurer of 38 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
31
<PAGE>
<TABLE><CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to 1993, he was a
partner in the law firm of Shereff,
Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant
secretary of 38 other 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.
** Messrs. Bewkes and Minard are "interested persons" of each Corporation and
the Trust as defined in the 1940 Act by virtue of their positions with PW
Group, PaineWebber and/or Mitchell Hutchins.
Each Corporation pays directors who are not "interested persons" of the
Corporation $4,000 annually and $250 per meeting of the board or any committee
thereof. The Trust pays trustees who are not "interested persons" of the Trust
$3,000 annually and $250 per meeting of the board or any committee thereof.
Directors/trustees are reimbursed for any expenses incurred in attending
meetings. Directors/trustees and officers of the Corporations/Trust own in the
aggregate less than 1% of the shares of each Fund. Since PaineWebber and
Mitchell Hutchins perform substantially all of the services necessary for the
operation of the Corporations/Trust and the Funds, the Corporations and Trust
require no employees. No officer, director or employee of Mitchell Hutchins or
PaineWebber presently receives any compensation from the Corporations and Trust
for acting as a director/trustee or officer. The table below includes certain
information relating to the compensation of the directors/trustees of the
Corporations/Trust who held office during the fiscal year ended June 30, 1995.
32
<PAGE>
<TABLE><CAPTION>
TOTAL
AGGREGATE COMPENSATION FROM COMPENSATION
----------------------------------------------- FROM THE
RMA RMA CORPORATIONS/TRUST
MONEY TAX-FREE MANAGED AND THE
NAME OF PERSONS, POSITION FUND, INC.(1) FUND, INC. MUNICIPAL TRUST(2) FUND COMPLEX**
- ---------------------------------------------- ------------- ---------- ------------------ --------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Director/Trustee and Chairman of the Board of
Directors/Trustees............................ -- -- -- --
Meyer Feldberg,
Director/Trustee............................. $ 4,750 $4,500 $3,750 $86,050
George W. Gowen,
Director/Trustee............................. 4,750 4,500 3,750 71,425
Frederic V. Malek,
Director/Trustee............................. 4,750 4,500 3,750 77,875
Frank P.L. Minard,
Director/Trustee............................. -- -- -- --
Judith Davidson Moyers,
Director/Trustee............................. 4,500 4,250 3,500 71,125
Thomas F. Murray,
Director/Trustee............................. 4,250 4,000 3,250 71,925
</TABLE>
- ---------
* Represents fees paid to each director/trustee during the fiscal year ended
June 30, 1995.
** Represents total compensation paid to each director during the calendar year
ended December 31, 1994.
(1) Consists of PaineWebber RMA Money Market Portfolio, RMA U.S. Government
Portfolio and Retirement Money Fund.
(2) Consists of PaineWebber RMA California Municipal Money Fund and RMA New York
Municipal Money Fund.
Note: There were no pension or retirement benefits accrued as part of any Fund's
expenses and no estimated annual benefits upon retirement paid to
directors/trustees for the fiscal year ended June 30, 1995.
33
<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 the Money Fund, March 1, 1989 with the Tax-Free Fund and
September 10, 1990 with the Trust ("PaineWebber Contracts"). Under the
PaineWebber Contracts, each Fund pays PaineWebber an annual fee, computed daily
and paid monthly, according to the following schedule:
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- --------------------------------------------------------------- ------
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%
For the periods indicated, the Funds paid (or accrued) to PaineWebber the
following fees.
FOR THE FISCAL YEAR ENDED JUNE 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Money Market Portfolio........ $23,493,781 $21,677,334 $20,758,802
U.S. Government Portfolio..... 3,746,439 4,027,163 3,868,525
Tax-Free Fund................. 7,340,127 6,818,920 6,153,679
FOR THE FISCAL YEAR ENDED JUNE 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
California Municipal Money
Fund.......................... $ 1,587,620 $ 1,518,394 $ 1,378,638
New York Municipal Money
Fund.......................... 923,010 752,803 680,682
($ 50,014) ($ 100,644) ($ 153,555)
waived waived waived
34
<PAGE>
Under service agreements pursuant to which PaineWebber provides certain
services to each Fund not otherwise provided by the transfer agent, which
agreements are reviewed by each Corporation's or Trust's board of directors or
trustees annually, the Funds paid (or accrued) to PaineWebber the following
fees.
FOR THE FISCAL YEAR ENDED JUNE 30,
------------------------------------
1995 1994 1993
---------- ---------- --------
Money Market Portfolio............ $1,168,942 $1,106,377 $985,071
U.S. Government Portfolio......... 122,640 124,114 122,834
Tax-Free Fund..................... 217,437 199,135 173,151
FOR THE FISCAL YEAR ENDED JUNE 30,
------------------------------------
1995 1994 1993
---------- ---------- --------
California Municipal Money Fund... $ 43,682 $ 41,733 $ 38,771
New York Municipal Money Fund..... 30,749 27,333 17,146
($ 4,516)
waived
Under separate contracts with PaineWebber dated March 23, 1989 with respect
to the Money Fund, March 1, 1989 with respect to the Tax-Free Fund and September
10, 1990 with respect to the Trust ("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.
FOR THE FISCAL YEAR ENDED JUNE 30,
------------------------------------
1995 1994 1993
---------- ---------- ----------
Money Market Portfolio.............. $4,698,756 $4,335,467 $4,151,760
U.S. Government Portfolio........... 749,288 805,433 773,705
Tax-Free Fund....................... 1,468,025 1,363,784 1,230,736
FOR THE FISCAL YEAR ENDED JUNE 30,
------------------------------------
1995 1994 1993
---------- ---------- ----------
California Municipal Money Fund..... $ 317,524 $ 303,679 $ 275,728
New York Municipal Money Fund....... 184,602 150,561 105,425
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
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<PAGE>
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 directors, trustees and officers who are
not interested persons of the Corporation or the Trust, or of PaineWebber, (6)
all expenses incurred in connection with the directors'/trustees' 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 the Corporation or Trust, or the Fund for violation of any law, (10)
legal, accounting and auditing expenses, including legal fees of special counsel
for those directors or trustees who are not interested persons of the
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 the Corporation or Trust is a party and the expenses the
Corporation or Trust may incur as a result of its legal obligation to provide
indemnification to its officers, trustees/directors, agents and shareholders)
incurred by the 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 directors and officers, and
(18) costs of mailing, stationery and communications equipment.
As required by state regulation, PaineWebber will reimburse a Fund if and to
the extent that the aggregate operating expenses of the Fund exceed applicable
limits for the fiscal year. Currently, the most restrictive such limit
applicable to each Fund is 2.5% of the first $30 million of the Fund's average
daily net assets, 2.0% of the next $70 million of its average daily net assets
and 1.5% of its average daily net assets in excess of $100 million. Certain
expenses, such as brokerage commissions, distribution fees, taxes, interest and
extraordinary items, are excluded from this limitation. No reimbursement
pursuant to such limitation was required for the 1995, 1994 or 1993 fiscal years
for any of the Funds.
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.
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<PAGE>
The Contracts are terminable with respect to each Fund at any time without
penalty by vote of the applicable Corporation's or Trust's board of
directors/trustees 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 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, 1995,
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.
INVESTMENT CATEGORY NET ASSETS
- ---------------------------------------------------------- ----------
($ MIL)
Domestic (excluding Money Market)......................... $ 5,622.2
Global.................................................... 3,187.0
Equity/Balanced........................................... 2,799.2
Fixed Income (excluding Money Market)..................... 6,010.0
Taxable Fixed Income.................................... 4,257.1
Tax-Free Fixed Income................................... 1,752.9
Money Market Funds........................................ 20,064.7
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, PaineWebber/ Kidder, Peabody and Mitchell
Hutchins/Kidder, Peabody mutual funds (collectively, "PW 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 PW
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 dated
July 7, 1993 ("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 the U.S. Government
Portfolio, Tax-Free Fund, California Municipal Money Fund and New York Municipal
Money Fund to compensate PaineWebber for certain expenses incurred in connection
with its activities in providing certain shareholder and account maintenance
services 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 the Money Market
Portfolio.
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<PAGE>
Among other things, each Plan provides that (1) PaineWebber will submit to
the Corporation's board of directors or Trust's board of trustees at least
quarterly, and the directors/trustees 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 of
directors/trustees, including those directors/trustees 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 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
directors/trustees who are not "interested persons" of the Corporation or Trust
shall be committed to the discretion of the directors/trustees who are not
"interested persons" of the Corporation or Trust.
The Plans provide that the 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 net assets, and any increase from the 0.08% annual rate would require
prior approval of the board of directors or trustees.
During the fiscal year ended June 30, 1995, 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 $659,208, $1,231,236, $255,931
and $147,682, respectively. For the same period, PaineWebber estimates that it
incurred expenses of $717,296, $1,231,546, $338,610 and $236,187, respectively,
in distributing shares of these Funds and servicing Fund shareholders.
PaineWebber estimates that these expenses were incurred for each of these Funds,
respectively, as follows: (a) advertising, promotion and allocated
costs--$221,000, $305,000, $146,000 and $125,000; (b) printing--$1,890, $3,119,
$662 and $425; and (c) service fees to investment executives-- $494,406,
$923,427, $191,948 and $110,762.
"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 the Funds, the directors of
each Corporation and the trustees of the Trust considered all features of the
distribution system for the applicable Fund, including (a) PaineWebber's view
that the payment of service fees at the annual rate of 0.06% 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
38
<PAGE>
to the Fund of the Plan could be offset if the Plan is successful by the lower
advisory fee rates that are triggered as assets reach higher levels.
With respect to each Plan, the applicable Corporation's directors or Trust's
trustees 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 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 the Funds' 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 had no services
been provided by the executing dealer. Moreover, Mitchell Hutchins will not
enter into any explicit soft dollar arrangements relating to principal
transactions and will not receive in principal transactions the types of
services which could be purchased for hard dollars. Research services furnished
by the dealers with which a Fund effects securities transactions may be used by
Mitchell Hutchins in advising other funds or accounts they advise 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, none
of the Funds has paid any brokerage commissions, nor has any Fund allocated any
transactions to dealers for research, analysis, advice and similar services.
Mitchell Hutchins may engage in agency transactions in OTC 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.
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
39
<PAGE>
or discounts are paid. When securities are purchased in underwritten offerings,
they include a fixed amount of compensation to the underwriter.
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 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.
Mitchell Hutchins may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from the Fund prior to their maturity at their original cost
plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that the Fund's anticipated need for liquidity makes
such actions desirable. Any such repurchase prior to maturity reduces the
possibility that the Fund would incur a capital loss in liquidating commercial
paper for which there is no established market, especially if interest rates
have risen since acquisition of the particular commercial paper.
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, Inc. ("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, which 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. The 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.
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<PAGE>
VALUATION OF SHARES
Each Fund's net asset value per share is determined as of 12:00 noon,
eastern time, on each Business Day. As defined in the Prospectus, "Business Day"
means any day on which State Street Bank and Trust Company's Boston offices,
PaineWebber's New York City offices and the New York City offices of
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.
Each Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 ("Rule") under the 1940 Act. To use
amortized cost to value its portfolio securities, a Fund must adhere to certain
conditions under that Rule relating to the Fund's investments, some of which are
discussed in the Prospectus. Amortized cost is an approximation of market value
of an instrument, whereby the difference between its acquisition cost and value
at maturity is amortized on a straight-line basis over the remaining life of the
instrument. The effect of changes in the market value of a security as a result
of fluctuating interest rates is not taken into account and thus the amortized
cost method of valuation may result in the value of a security being higher or
lower than its actual market value. In the event that 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 directors of each Corporation and board of trustees of the
Trust have established procedures ("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. Should that deviation
exceed 1/2 of 1% for any Fund, the board of directors/trustees will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends and utilizing a net asset value per share as
determined by using available market quotations. Each Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less and will not
purchase any instrument with a remaining maturity greater than 13 months (as
calculated under the Rule), will limit portfolio investments, including
repurchase agreements, to those U.S. dollar-denominated instruments that are of
eligible quality under the Rule and that Mitchell Hutchins, acting pursuant to
the Procedures, determine 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. In the event amortized
cost ceases to represent fair value per share, the board will take appropriate
action.
In determining the approximate market value of portfolio investments, each
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried at their face value. Other
41
<PAGE>
assets, if any, are valued at fair value as determined in good faith by or under
the direction of the board of directors/trustees.
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) the Fund must derive less than 30% of its gross income each taxable
year from the sale or other disposition of securities held for less than three
months; (3) at the close of each quarter of the Fund's taxable year, at least
50% of the value of its total assets must be represented by cash and cash items,
U.S. government securities and other securities, with these 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 that Fund 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 the Fund's 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
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<PAGE>
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 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 that Fund's 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.
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 purchased by
a Municipal Fund after April 30, 1993 (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.
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<PAGE>
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 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 the assets
of the Fund 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 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 under the laws or Constitution of
California or the laws of the United States. Distributions from the Fund which
are attributable to sources other than those described in the preceding sentence
will generally be taxable to such shareholders as ordinary income. However,
distributions by 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 are includable in income
subject to the California alternative minimum tax.
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 requirements that at least 50% of its
assets at the close of each quarter of the taxable year constitute obligations
which
44
<PAGE>
are tax-exempt for federal income tax purposes. Distributions from the Fund
which 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 the Fund generally will not be deductible for New York State personal
income tax purposes.
Interest income of the Fund which is distributed to the 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.
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.
TAX-FREE INCOME VS. TAXABLE INCOME--TAX-FREE FUND. Table I below illustrates
approximate equivalent taxable and tax-free yields at the 1995 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
1995, or a single individual with taxable income of $55,000 in 1995, whose
investments earn a 4% tax-free yield, would have to earn approximately a 5.8%
taxable yield to receive the same benefit.
45
<PAGE>
TABLE I. 1995 FEDERAL TAXABLE VS. TAX-FREE YIELDS*
<TABLE><CAPTION>
TAXABLE INCOME (000'S) A TAX-FREE YIELD OF
- --------------------------------- ---------------------------------------------
SINGLE JOINT FEDERAL TAX 4.00% 5.00% 6.00% 7.00% 8.00%
RETURN RETURN BRACKET ----- ----- ----- ----- -----
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
- -------------- -------------- ----------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 22.10 $ 0-- 36.90 15.0% 4.7% 5.9% 7.1% 8.2% 9.4%
22.10-- 53.50 36.90-- 89.15 28.0 5.6 6.9 8.3 9.7 11.1
53.50--115.00 89.15--140.00 31.0 5.8 7.3 8.7 10.1 11.6
115.00--250.00 140.00--250.00 36.0 6.3 7.8 9.4 10.9 12.5
Over 250.00 Over 250.00 39.6 6.6 8.3 9.9 11.6 13.3
</TABLE>
- ---------
* See note following Table III.
TAX-FREE INCOME VS. TAXABLE INCOME--CALIFORNIA MUNICIPAL MONEY FUND. Table
II below illustrates approximate equivalent taxable and tax-free yields at the
1995 federal individual and 1994 California personal income tax rates currently
in effect on the date of this Statement of Additional Information. For example,
a California couple with taxable income of $90,000, or a single California
individual with taxable income of $55,000, whose investments earn a 6% tax-free
yield, would have to earn approximately a 9.6% taxable yield to receive the same
benefit.
TABLE II. 1995 FEDERAL AND 1994 CALIFORNIA TAXABLE VS. TAX-FREE YIELDS*
<TABLE><CAPTION>
EFFECTIVE
TAXABLE INCOME (000'S) CALIFORNIA A TAX-FREE YIELD OF
- ------------------------------- AND ---------------------------------------------
SINGLE JOINT FEDERAL TAX 4.00% 5.00% 6.00% 7.00% 8.00%
RETURN RETURN BRACKET ----- ----- ----- ----- -----
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
- ------------- ------------- ----------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 22.10 $ 0-- 36.90 20.1% 5.0% 6.3% 7.5% 8.8% 10.0%
22.10-- 24.50 36.90-- 49.00 32.3 5.9 7.4 8.9 10.3 11.8
24.50-- 31.00 49.00-- 62.00 33.8 6.0 7.6 9.1 10.6 12.1
31.00-- 53.50 62.00-- 89.20 34.7 6.1 7.7 9.2 10.7 12.3
53.50--107.50 89.20--140.00 37.4 6.4 8.0 9.6 11.2 12.8
107.50--115.00 -- 37.9 6.4 8.1 9.7 11.3 12.9
-- 140.00--214.90 42.0 6.9 8.6 10.3 12.1 13.8
115.00--214.90 214.90--250.00 42.4 6.9 8.7 10.4 12.2 13.9
214.90--250.00 -- 43.0 7.0 8.8 10.5 12.3 14.0
-- 250.00--429.90 45.6 7.4 9.2 11.0 12.9 14.7
Over 250.00 Over 429.90 46.2 7.4 9.3 11.2 13.0 14.9
</TABLE>
- ------------
* See note following Table III.
TAX-FREE INCOME VS. TAXABLE INCOME-NEW YORK MUNICIPAL MONEY FUND. Table III
below illustrates approximate equivalent taxable and tax-free yields at the 1995
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 1994, whose
investments earn a 4% tax-free yield, would have to earn approximately a 6.6%
taxable
46
<PAGE>
yield to receive the same benefit. A couple who lives in New York State outside
of New York City with taxable income of $90,000 in 1995 would have to earn
approximately a 6.3% taxable yield to realize a benefit equal to a 4% tax-free
yield.
Single taxpayers may also take advantage of high tax-free income. For
example, a single individual with taxable income of $55,000 in 1995 who lives in
New York City and whose investments earn a 4% tax-free yield, would have to earn
approximately a 6.6% taxable yield to receive the same benefit. A single
individual who lives in New York State outside of New York City with taxable
income of $55,000 in 1995, would have to earn approximately a 6.3% taxable yield
to realize a benefit equal to a 4% tax-free yield.
TABLE III. 1995 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% 7.00% 8.00%
RETURN RETURN TAX BRACKET ----- ----- ----- ----- -----
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
- ------------- ------------- ----------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0--22.10 $ 0--36.90 25.2% 5.4% 6.7% 8.0% 9.4% 10.7%
22.10--53.50 36.90--89.15 36.6 6.3 7.9 9.5 11.1 12.6
53.50--115.00 89.15--140.00 39.3 6.6 8.2 9.9 11.5 13.2
115.00--250.00 140.00--250.00 43.7 7.1 8.9 10.7 12.4 14.2
Over 250.00 Over 250.00 46.9 7.5 9.4 11.3 13.2 15.1
<CAPTION>
TAXABLE INCOME (000'S) COMBINED A TAX-FREE YIELD OF
- ------------------------------- FEDERAL/ ---------------------------------------------
SINGLE JOINT NYS/ 4.00% 5.00% 6.00% 7.00% 8.00%
RETURN RETURN TAX BRACKET ----- ----- ----- ----- -----
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
- ------------- ------------- ----------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0--22.10 $ 0--36.90 21.5% 5.1% 6.4% 7.6% 8.9% 10.2%
22.10--53.50 36.90--89.15 33.5 6.0 7.5 9.0 10.5 12.0
53.50--115.00 89.15--140.00 36.2 6.3 7.8 9.4 11.0 12.6
115.00--250.00 140.00--250.00 40.9 6.8 8.5 10.2 11.8 13.5
Over 250.00 Over 250.00 44.2 7.2 9.0 10.8 12.5 14.3
</TABLE>
- ------------
* Single rate assumes no dependents; joint rate assumes two dependents. The
yields listed are for illustration only and are not necessarily representative
of a Fund's yield. Each Fund invests primarily in obligations the interest on
which is exempt from federal income tax and, in the case of California
Municipal Money Fund, from California personal income tax and, in the case of
New York Municipal Money Fund, from New York State and New York City personal
income taxes; however, some of a 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.
The effective rates reflect the highest tax bracket within each range of
income listed. However, a California or 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 California,
New York State and New York City personal income taxes in the case of Tables
II and III, respectively).
47
<PAGE>
CALCULATION OF YIELD
Each Fund computes its yield and effective yield quotations using
standardized methods required by the SEC. The Fund from time to time advertises
(1) its current yield based on a recently ended seven-day period, computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from that
shareholder account, dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent, and (2) its effective
yield based on the same seven-day period by compounding the base period return
by adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from
the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7] - 1
Each of the Municipal Funds from time to time also advertises its
tax-equivalent yield and tax-equivalent effective yield, also based on a
recently ended seven-day period. These quotations are calculated by dividing
that portion of the Fund's yield (or effective yield, as the case may be) that
is tax-exempt by 1 minus a stated income tax rate and adding the product to that
portion, if any, of the Fund's yield that is not tax-exempt, according to the
following formula:
E
TAX-EQUIVALENT YIELD = ( 1 - p ) + t
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.
48
<PAGE>
The following yields are for the seven-day period ended June 30, 1995:
EFFECTIVE
YIELD YIELD
----- ---------
Money Market Portfolio............................... 5.51% 5.66%
U.S. Government Portfolio............................ 5.32% 5.46%
Tax-Free Fund........................................ 3.25% 3.30%
California Municipal Money Fund...................... 3.28% 3.33%
New York Municipal Money Fund........................ 3.39% 3.44%
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%)............ 5.38% 5.46%
California Municipal Money Fund (assuming a combined federal and
California State tax rate of 46.2%)............................. 6.10% 6.19%
New York Municipal Money Fund (assuming a combined federal, New
York State and New York City tax rate of 46.9%)................. 6.38% 6.48%
New York Municipal Money Fund (assuming an effective combined
federal and New York State tax rate of 44.2%)................... 6.08% 6.18%
</TABLE>
OTHER INFORMATION. The Fund's performance data quoted in advertising and
other promotional materials ("Performance Advertisements") represent past
performance and are not intended to predict or indicate future results. The
return on an investment in each Fund will fluctuate. In Performance
Advertisements, the Funds may compare their taxable or tax-free yield with data
published by Lipper Analytical Services, Inc. for money funds ("Lipper"), CDA
Investment Technologies, Inc. ("CDA"), IBC/Donoghue's Money Market Fund Report
("Donoghue"), Wiesenberger Investment Companies Service ("Wiesenberger") or
Investment Company Data Inc. ("ICD"), or with the performance of recognized
stock and other indexes, including (but not limited to) the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, the Merrill
Lynch Municipal Bond Indices, the Morgan Stanley Capital International World
Index, the Lehman Brothers Treasury Bond Index, the Lehman Brothers
Government/Corporate Bond Index, the Salomon Brothers Government Bond Index and
changes in the Consumer Price Index as published by the U.S. Department of
Commerce. The Funds also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Donoghue, Wiesenberger or ICD. Performance
Advertisements also may refer to discussions of the Funds and comparative mutual
fund data and ratings reported in independent periodicals, including (but not
limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE
WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in Performance
Advertisements may be in graphic form.
Each Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends on a Fund investment are
49
<PAGE>
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 Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index. 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")(R) 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
The 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 the Trust.
However, the 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 the Trust, a
Fund, the trustees or any of them in connection with the Trust. The 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 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.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 M Street, N.W.,
Washington, D.C. 20036, counsel to the Funds, has passed upon the legality of
the shares offered by the Prospectus. Kirkpatrick & Lockhart LLP also acts as
counsel to PaineWebber and Mitchell Hutchins in connection with other matters.
The law firm of Orrick, Herrington & Sutcliffe, 400 Sansome Street, San
Francisco, CA94111, serves as counsel to California Municipal Money Fund with
respect to California law. The law firm of Orrick, Herrington & Sutcliffe, 599
Lexington Avenue, New York,
50
<PAGE>
New York 10022, serves as counsel to New York Municipal Money Fund with respect
to New York law.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Funds.
FINANCIAL STATEMENTS
The Funds' Annual Reports to Shareholders for the fiscal year ended June 30,
1995 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 herein by this
reference.
51
<PAGE>
APPENDIX A
SERVICES AVAILABLE THROUGH THE RMA PROGRAM TO RMA ACCOUNTHOLDERS
Shares of the Funds are available to investors who are Participants in the
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 their RMA account agreement and
the brochure entitled "Facts About Your PaineWebber Resource Management
Account."
THE PAINEWEBBER 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.
PRELIMINARY AND YEAR-END SUMMARY STATEMENT. RMA Participants receive
preliminary (nine month) 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 one of five money market funds as a
primary fund into which uninvested cash is automatically swept on a daily
(balances of $500 or more) or weekly (balances under $500) basis. 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. Ten free transfers to/from financial accounts are permitted monthly, with
a nominal charge per transaction thereafter. A Bill Payment Service is available
for an additional charge.
GOLD MASTERCARD(R). 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
A-1
<PAGE>
MasterAssist(R) and MasterPurchase(R) programs, investors can obtain other
benefits, including rental car insurance, emergency medical and travel
assistance, legal services and purchase protection.
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 $50 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.
RMA RESOURCE ACCUMULATION PLANSM. The RMA 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, the Securities Credit Line (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.
RMA SERVICE CENTER AND RESOURCELINE(R). RMA Participants have day and night
access to information concerning their RMA account. This service is available by
calling (800) 762-1000. RMA representatives are available at the Financial
Services Center at (800) 762-1000 from 8:30 a.m. to 6:00 p.m. (EST) to answer
inquiries from Participants regarding their accounts.
SECURITIES CREDIT LINE. RMA Participants may choose to have a Securities
Credit Line (margin) 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") 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 their BSA Account Agreement and the
brochure entitled "Facts About Your Business Services Account."
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.
PRELIMINARY AND YEAR-END SUMMARY STATEMENT--BSA Participants receive
preliminary (nine month) 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 one of five money market funds as a
primary fund into which uninvested cash is automatically swept on a daily
(balances of $500 or more) or weekly (balances under $500) basis. 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. BSA Participants may clear up to 100 checks each month without
incurring per check charges. 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 the investors to track business expense types
for tax and financial planning.
MASTERCARD BUSINESSCARD(R)--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(R) and MasterPurchase(R) programs,
investors can obtain other benefits including full value primary rental car
insurance, emergency medical and travel assistance, legal services and purchase
protection.
SECURITIES CREDIT LINE.--BSA Participants may choose to have a Securities
Credit Line (margin) 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 $50 million through private insurance in the event of the liquidation or
failure of the firm. This protection is in addition to the
B-1
<PAGE>
$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.
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, the Securities Credit Line (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 their securities
account.
FINANCIAL SERVICES CENTER AND RESOURCELINE(R)--BSA Participants can call the
Financial Services Center at (800)BSA-0140 from 8:30 A.M. to 6:00 P.M. E.S.T.
and speak to a PaineWebber representative to resolve any inquiries about their
accounts. The automated ResourceLine provides basic account information through
a touchtone phone and is available night and day by calling (800) BSA-0140.
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. Twenty free
transfers/payments are permitted monthly with nominal fees thereafter.
Participants can set up payees to receive regular or one time 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 PAINEWEBBER RMA
information or to make any representations
not contained in the Prospectus or in this MONEY MARKET PORTFOLIO
Statement of Additional Information in U.S. GOVERNMENT PORTFOLIO
connection with the offering made by the TAX-FREE FUND
Prospectus and, if given or made, such CALIFORNIA MUNICIPAL
information or representations must not be MONEY FUND
relied upon as having been authorized by NEW YORK MUNICIPAL
the Funds or their distributor. The MONEY FUND
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
PAGE
----
Investment Policies and ------------------------------------
Restrictions.......................... 1 Statement of Additional Information
27 August 29, 1995
Directors/Trustees and Officers.......
Investment Advisory, Administration
and Distribution Arrangements....... 34
Portfolio Transactions................ 39
Additional Information Regarding
Redemptions......................... 40
Valuation of Shares................... 41
Taxes................................. 42
Calculation of Yield.................. 48
Other Information..................... 50
Financial Statements.................. 51
Appendix A............................ A-1
Appendix B............................ B-1 ------------------------------------
(C)1995 PaineWebber Incorporated
[LOGO] Recycled
Paper
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements
PaineWebber Retirement Money Fund
---------------------------------
Included in Part A of this Registration Statement
-------------------------------------------------
Financial Highlights of the Fund for each of the six years in
the period ended June 30, 1995 and for the period July 2, 1988
(commencement of operations) to June 30, 1989
Included in Part B of this Registration Statement through
incorporation by reference from the Annual Report to
Shareholders filed with the Securities and Exchange Commission
through EDGAR on August 29, 1995, Accession No.
0000950130-95-001745:
---------------------------------------------------------------
Statement of Net Assets at June 30, 1995
Statement of Operations for the year ended June 30, 1995
Statement of Changes in Net Assets for each of the two years in
the period ended June 30, 1995
Notes to Financial Statements
Financial Highlights of the Fund for each of the five years in
the period ended June 30, 1995
Report of Ernst & Young LLP, Independent Auditors, dated August
17, 1995
Money Market Portfolio and U.S. Government Portfolio
----------------------------------------------------
Included in Part A of this Registration Statement
-------------------------------------------------
Financial Highlights of each Portfolio for each of the ten
years in the period ended June 30, 1995.
Included in Part B of this Registration Statement through
incorporation by reference from the Annual Report to
Shareholders filed with the Securities and Exchange Commission
through EDGAR on August 29, 1995, Accession No. 950112-95-2277,
RMA Money Fund File No. 811-03503:
--------------------------------------------------------------
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<PAGE>
Statement of Net Assets at June 30, 1995
Statement of Operations for the year ended June 30, 1995
Statement of Changes in Net Assets for each of the two years in
the period ended June 30, 1995
Notes to Financial Statements
Financial Highlights of the Fund for each of the five years in
the period ended June 30, 1995
Report of Ernst & Young LLP, Independent Auditors, dated August
17, 1995
(b) Exhibits:
(1) (a) Amended and Restated Articles of Incorporation 2/
(b) Articles Supplementary effective February 9,
1988 4/
(c) Articles of Amendment effective August 4, 1989 7/
(2) (a) By-Laws 8/
(b) Amendment dated September 28, 1994 to By-Laws
(filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the
Registrant's shares of common stock 10/
(5) (a) Investment Advisory and Administration
Contract 6/
(b) Sub-Advisory and Sub-Administration
Contract 6/
(6) Distribution Contract 11/
(7) Bonus, profit sharing or pension plans - none
(8) (a) Custodian Contract with respect to Money Market
Portfolio and U.S. Government Portfolio 3/
(b) Custodian Contract with respect to PaineWebber
Retirement Money Fund 5/
(9) (a) Transfer Agency Agreement 9/
(b) Service Contract 6/
(10) (a) Opinion and consent of counsel regarding Money
Market Portfolio and U.S. Government Portfolio 1/
(b) Opinion and consent of counsel regarding
PaineWebber Retirement Money Fund 4/
(11) Other opinions, appraisals, rulings and consents:
Auditor's Consent (filed herewith)
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<PAGE>
(12) Financial statements omitted from Part B - none
(13) Letter of investment intent 3/
(14) Prototype Retirement Plan - none
(15) Plan pursuant to Rule 12b-1 11/
(16) Schedule for computation of each performance quotation
provided in the Registration Statement 9/
(17) and (27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 (not applicable)
C-3
<PAGE>
--------------------
1/ Incorporated by reference from Pre-Effective Amendment No. 1 to
registration statement, SEC File No. 2-78309, filed September
20, 1982.
2/ Incorporated by reference from Pre-Effective Amendment No. 2 to
registration statement, SEC File No. 2-78309, filed October 4,
1982.
3/ Incorporated by reference from Post-Effective Amendment No. 1
to registration statement, SEC File No. 2-78309, filed February
8, 1983.
4/ Incorporated by reference from Post-Effective Amendment No. 12
to registration statement, SEC File No. 2-78309, filed February
12, 1988.
5/ Incorporated by reference from Post-Effective Amendment No. 13
to registration statement, SEC File No. 2-78309, filed
August 29, 1988.
6/ Incorporated by reference from Post-Effective Amendment No. 15
to registration statement, SEC File No. 2-78309, filed
June 5, 1989.
7/ Incorporated by reference from Post-Effective Amendment No. 17
to registration statement, SEC File No. 2-78309, filed
August 29, 1989.
8/ Incorporated by reference from Post-Effective Amendment No. 18
to registration statement, SEC File No. 2-78309, filed August
29, 1990.
9/ Incorporated by reference from Post-Effective Amendment No. 19
to registration statement, SEC File No. 2-78309, filed August
29, 1991.
10/ Incorporated by reference from Articles Fifth, Sixth, Seventh,
Ninth, Tenth, Twelfth and Fourteenth of the Registrant's
Articles of Incorporation, as amended February 9, 1988 and
August 4, 1989 and from Articles II, III, VIII, X, XI, XII and
XIII of the Registrant's By-Laws, as amended September 28,
1994.
11/ Incorporated by reference from Post Effective Amendment No.28
to the registration statement, SEC File No. 2-89016, filed
August 29, 1994.
C-4
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of August 18, 1995
-------------- ------------------------
Shares of Capital Stock,
($.001 par value)
PaineWebber Retirement
Money Fund 393,349
Money Market Portfolio 198,594
U.S. Government Portfolio 19,046
Item 27. Indemnification
---------------
Article Fourteenth of the Articles of Incorporation provides
that the directors and officers of the Registrant shall not be liable to
the Registrant or to any of its stockholders for monetary damages.
Article Fourteenth also provides that no amendment, alteration or repeal
of the contents contained in the preceding sentence or the adoption,
alteration or amendment of any other provision of the Articles or By-Laws
inconsistent with Article Fourteenth shall adversely affect any limitation
of liability of any director or officer of the Registrant with respect to
any act or failure to act which occurred prior to such amendment,
alteration, repeal or adoption.
Section 10.01 of Article X of the Bylaws provides that the
Registrant shall indemnify its present and past directors, officers,
employees and agents, and any persons who are serving or have served at
the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, or enterprise,
to the fullest extent permitted by law.
Section 10.02 of Article X of the Bylaws further provides that
the Registrant may purchase and maintain insurance on behalf of any person
who is or was a director, officer or employee of the Registrant, or is or
was serving at the request of the Registrant as a director, officer or
employee of a corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or out of his or her
status as such whether or not the Registrant would have the power to
indemnify him or her against such liability.
Section 9 of the Investment Advisory and Administration
Contract provides that PaineWebber shall not be liable for any error of
C-5
<PAGE>
judgment or mistake of law or for any loss suffered by Registrant in
connection with the matters to which the Contract relates except for a
loss resulting from willful misfeasance, bad faith or gross negligence of
PaineWebber in the performance of its duties or from its reckless
disregard of its obligations and duties under the Contract. Section 9
further provides that any person, even though also an officer, partner,
employee or agent of PaineWebber, who may be or become an officer,
director, employee or agent of Registrant shall be deemed, when rendering
services to the Registrant or acting with respect to any business of the
Registrant, to be rendering such service to or acting solely for the
Registrant and not as an officer, partner, employee, or agent or one under
the control or direction of PaineWebber even though paid by it.
Section 8 of the Sub-Advisory and Sub-Administration Contract
provides that Mitchell Hutchins will not be liable for any error of
judgment or mistake of law or for any loss suffered by PaineWebber or the
Registrant or its shareholders in connection with the performance of those
Contracts, except a loss resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties under the Contracts.
Section 9 of the Distribution Contract provides that the
Registrant will indemnify PaineWebber and its officers, directors or
controlling persons against all liabilities arising from any alleged
untrue statement of material fact in the Registration Statement or from
alleged omission to state in the Registration Statement a material fact
required to be stated in it or necessary to make the statements in it, in
light of the circumstances under which they were made, not misleading,
except insofar as liability arises from untrue statements or omissions
made in reliance upon and in conformity with information furnished by
PaineWebber to the Registrant for use in the Registration Statement; and
provided that this indemnity agreement shall not protect any such persons
against liabilities arising by reason of their bad faith, gross negligence
or willful misfeasance; and shall not inure to the benefit of any such
persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in
the Securities Act of 1933. Section 9 of the Distribution Contract also
provides that PaineWebber agrees to indemnify, defend and hold the
Registrant, its officers and directors free and harmless of any claims
arising out of any alleged untrue statement or any alleged omission of
material fact contained in information furnished by PaineWebber for use in
the Registration Statement or arising out of an agreement between
PaineWebber and any retail dealer, or arising out of supplementary
literature or advertising used by PaineWebber in connection with the
Contract.
Section 7 of the Service Contract provides that PaineWebber
shall be indemnified and held harmless by the Registrant against all
liabilities, except those arising out of bad faith, gross negligence,
willful misfeasance or reckless disregard of its duties under the
Contract.
C-6
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act"), as amended, may be provided to directors,
officers and controlling persons of the Registrant, pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding
or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
I. PaineWebber Incorporated ("PaineWebber"), a Delaware
corporation, is a registered investment adviser and is wholly owned by
Paine Webber Group Inc. PaineWebber is primarily engaged in the financial
services business. Information as to the officers and directors of
PaineWebber is included in its Form ADV filed on March 31, 1995, with the
Securities and Exchange Commission (registration number 801-7163) and is
incorporated herein by reference.
II. Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a Delaware corporation, is a registered investment adviser and
is wholly owned by PaineWebber. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to
the officers and directors of Mitchell Hutchins is included in its Form
ADV filed on February 22, 1995, with the Securities and Exchange
Commission (registration number 801-13219) and is incorporated herein by
reference.
Item 29. Principal Underwriters
----------------------
(a) PaineWebber serves as principal underwriter and/or
investment adviser for the following investment companies:
PAINEWEBBER RMA MONEY FUND, INC.
PAINEWEBBER CASHFUND, INC.
PAINEWEBBER MANAGED MUNICIPAL TRUST
PAINEWEBBER RMA TAX-FREE FUND, INC.
PAINEWEBBER/KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
PAINEWEBBER/KIDDER, PEABODY CASH RESERVE FUND, INC.
PAINEWEBBER/KIDDER, PEABODY GOVERNMENT MONEY FUND, INC.
PAINEWEBBER/KIDDER, PEABODY LIQUID INSTITUTIONAL RESERVES
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<PAGE>
PAINEWEBBER/KIDDER, PEABODY MUNICIPAL MONEY MARKET SERIES
PAINEWEBBER/KIDDER, PEABODY PREMIUM ACCOUNT FUND
PAINEWEBBER/KIDDER, PEABODY TAX EXEMPT MONEY FUND, INC.
(b) PaineWebber is the principal underwriter of the
Registrant. The directors and officers of PaineWebber, their principal
business addresses, and their positions and offices with PaineWebber are
identified in its Form ADV filed March 31, 1995, with the Securities and
Exchange Commission (registration number 801-7163), and such information
is hereby incorporated herein by reference. The information set forth
below is furnished for those directors and officers of PaineWebber who
also serve as directors or officers of the Registrant:
Name and
Position and
Principal Business Position With Offices With
Address Registrant Underwriter
------------------ ------------- -------------
Frank P.L. Minard Director Director
1285 Avenue of
the Americas
New York, New York 10019
(c) None.
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4),
(c) and (d) of Rule 31a-1 under the Investment Company Act of 1940 are
maintained in the physical possession of Registrant's Portfolio Manager,
Mitchell Hutchins Asset Management Inc., 1285 Avenue of the Americas, New
York, New York 10019. All other accounts, books and documents required by
Rule 31a-1 are maintained for each Portfolio in the physical possession of
such Portfolio's transfer agent and custodian.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Not applicable.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, PaineWebber RMA Money
Fund, Inc., certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment No. 26 to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in this City of New York and
State of New York, on the 25th day of August, 1995.
PAINEWEBBER RMA MONEY FUND, INC.
/s/ Gregory K. Todd
By:_______________________________
Gregory K. Todd
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander President August 25, 1995
------------------------------ (Chief Executive Officer)
Margo N. Alexander*
/s/ E. Garrett Bewkes, Jr. Director and Chairman August 25, 1995
---------------------------- of the Board of Directors
E. Garrett Bewkes, Jr.**
/s/ Meyer Feldberg Director August 25, 1995
----------------------------
Meyer Feldberg***
/s/ George W. Gowen Director August 25, 1995
----------------------------
George W. Gowen****
/s/ Frederic V. Malek Director August 25, 1995
----------------------------
Frederic V. Malek****
/s/ Frank P.L. Minard Director August 25, 1995
----------------------------
Frank P. L. Minard**
/s/ Judith Davidson Moyers Director August 25, 1995
----------------------------
Judith Davidson Moyers****
/s/ Thomas F. Murray Director August 25, 1995
----------------------------
Thomas F. Murray****
/s/ Julian F. Sluyters Vice President and August 25, 1995
---------------------------- Treasurer (Principal Financial
Julian F. Sluyters and Accounting Officer)
</TABLE>
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to power of
attorney dated May 8, 1995 and incorporated by reference from Post
Effective Amendment No. 34 to the registration statement of PaineWebber
America Fund, SEC File No. 78626, filed May 10, 1995.
** Signatures affixed by Elinor W. Gammon pursuant to powers of
attorney dated January 3, 1994 and November 20, 1993, respectively, and
incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement of PaineWebber Master Series, Inc., SEC File No.
33-2524, filed February 28, 1994.
*** Signature affixed by Elinor W. Gammon pursuant to power of
attorney dated October 26, 1992 and incorporated by referenced from Post-
Effective Amendment No. 21 to the registration statement of PaineWebber
RMA Tax-Free Fund, Inc., SEC File No. 2-78310, filed October 29, 1992.
**** Signature affixed by Elinor W. Gammon pursuant to power of
attorney dated March 27, 1990 and incorporated by reference from Post-
Effective Amendment No. 10 to the registration statement of PaineWebber
Master Series, Inc., SEC File 33-2524, filed May 2, 1990.
<PAGE>
PAINEWEBBER RMA MONEY FUND, INC.
-------------------------------
EXHIBIT INDEX
-------------
Exhibit Numbers
------- -------
(1) (a) Amended and Restated Articles of Incorporation 2/
(b) Articles Supplementary effective February 9, 1988 4/
(c) Articles of Amendment effective August 4, 1989 7/
(2) (a) By-Laws, as amended November 27, 1989 8/
(b) Amendment dated September 28, 1994 to By-Laws (filed
herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the
Registrant's shares of common stock 10/
(5) (a) Investment Advisory and Administration
Contract 6/
(b) Sub-Advisory and Sub-Administration Contract 6/
(6) Distribution Contract 11/
(7) Bonus, profit sharing or pension plans - none
(8) (a) Custodian Contract with respect to Money Market Portfolio
and U.S. Government Portfolio 3/
(b) Custodian Contract with respect to PaineWebber Retirement
Money Fund 5/
(9) (a) Transfer Agency Agreement 9/
(b) Service Contract 6/
(10) (a) Opinion and consent of counsel regarding Money Market
Portfolio and U.S. Government Portfolio 1/
(b) Opinion and consent of counsel regarding PaineWebber
Retirement Money Fund 4/
(11) Other opinions, appraisals, rulings and consents:
Auditor's Consent (filed herewith)
(12) Financial statements omitted from Part B - none
(13) Letter of investment intent 3/
(14) Prototype Retirement Plan - none
(15) Plan pursuant to Rule 12b-1 11/
(16) Schedule for computation of each performance quotation provided
in the Registration Statement 9/
(17) and (27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 (not applicable)
--------------------
1/ Incorporated by reference from Pre-Effective Amendment No. 1 to
registration statement, SEC File No. 2-78309, filed September 20,
1982.
2/ Incorporated by reference from Pre-Effective Amendment No. 2 to
registration statement, SEC File No. 2-78309, filed October 4,
1982.
3/ Incorporated by reference from Post-Effective Amendment No. 1 to
registration statement, SEC File No. 2-78309, filed February 8,
1983.
<PAGE>
4/ Incorporated by reference from Post-Effective Amendment No. 12 to
registration statement, SEC File No. 2-78309, filed February 12,
1988.
5/ Incorporated by reference from Post-Effective Amendment No. 13 to
registration statement, SEC File No. 2-78309, filed August 29,
1988.
6/ Incorporated by reference from Post-Effective Amendment No. 15 to
registration statement, SEC File No. 2-78309, filed June 5, 1989.
7/ Incorporated by reference from Post-Effective Amendment No. 17
to registration statement, SEC File No. 2-78309, filed August 29,
1989.
8/ Incorporated by reference from Post-Effective Amendment No. 18 to
registration statement, SEC File No. 2-78309, filed August 29,
1990.
9/ Incorporated by reference from Post-Effective Amendment No. 19 to
registration statement, SEC File No. 2-78309, filed August 29,
1991.
10/ Incorporated by reference from Articles Fifth, Sixth, Seventh,
Ninth, Tenth, Twelfth and Fourteenth of the Registrant's Articles
of Incorporation, as amended February 9, 1988 and August 4, 1989
and from Articles II, VII and X of Registrant's By-Laws, as
amended September 28, 1994.
11/ Incorporated by reference from Post-Effective Amendment No. 28 to
the registration statement, SEC File No. 2-89016, filed August
29, 1994.
Exhibit 2(b)
AMENDMENT TO BY-LAWS
PAINEWEBBER RMA MONEY FUND, INC.
CERTIFICATE OF VICE PRESIDENT AND ASSISTANT SECRETARY
I, Gregory K. Todd, Vice President and Assistant Secretary of
PaineWebber RMA Money Fund, Inc. ("Fund"), hereby certify that, at a duly
convened meeting of the Board of Directors of the Fund held on September 28,
1994, the Directors adopted the following resolution:
RESOLVED, that the following language replace the second and third
sentences and revises the first sentence of Section 2.07 of the Fund's by-laws:
The right to vote by proxy
shall exist only if the proxy is
authorized to act by (1) a written
instrument, dated not more than eleven
months prior to the meeting and executed
either by the stockholder or by his or
her duly authorized attorney in fact
(who may be so authorized by a writing
or by any non-written means permitted by
the laws of the State of Maryland) or
(2) such electronic, telephonic,
computerized or other alternative means
as may be approved by a resolution
adopted by the Directors.
Dated: August 24, 1995
By: /s/ Gregory K. Todd
-------------------
Gregory K. Todd
Vice President and Assistant Secretary
PaineWebber RMA Money Fund, Inc.
New York, New York (ss)
Subscribed and sworn before me this 24th day of August, 1995.
/s/ Karyn Freeman
- -----------------
Notary Public
KARYN FREEMAN
Notary Public, State of New York
No. 01FR5026274
Qualified in New York County
Commission Expires April 18, 1996
EXHIBIT 11(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Propectuses and "Auditors" in the Statements of
Additional Information and to the incorporation by reference of our
report dated August 17, 1995, in this Registration Statement (Form
N-1A No. 2-78309) of PaineWebber RMA Money Fund, Inc. (comprising the
PaineWebber Retirement Money Fund, U.S. Government and Money Market
Portfolios.)
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
August 29, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> RMA - MONEY MARKET PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 5,393,807
<INVESTMENTS-AT-VALUE> 5,393,807
<RECEIVABLES> 14,427
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 459
<TOTAL-ASSETS> 5,408,695
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,549
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,401,571
<SHARES-COMMON-STOCK> 5,393,807
<SHARES-COMMON-PRIOR> 4,322,004
<ACCUMULATED-NII-CURRENT> 167
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,593)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,398,146
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 258,389
<OTHER-INCOME> 0
<EXPENSES-NET> 27,561
<NET-INVESTMENT-INCOME> 230,828
<REALIZED-GAINS-CURRENT> (1,081)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 229,748
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (230,828)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,630,575
<NUMBER-OF-SHARES-REDEEMED> (26,793,531)
<SHARES-REINVESTED> 225,173
<NET-CHANGE-IN-ASSETS> 1,061,137
<ACCUMULATED-NII-PRIOR> 167
<ACCUMULATED-GAINS-PRIOR> (2,512)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23,495
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 4,698,756
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.49)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> RMA - U.S. GOVERNMENT PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 816,628
<INVESTMENTS-AT-VALUE> 816,628
<RECEIVABLES> 745
<ASSETS-OTHER> 75
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 817,449
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,668
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 815,865
<SHARES-COMMON-STOCK> 815,865
<SHARES-COMMON-PRIOR> 766,978
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (84)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 815,781
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 42,668
<OTHER-INCOME> 0
<EXPENSES-NET> 5,158
<NET-INVESTMENT-INCOME> 37,510
<REALIZED-GAINS-CURRENT> 79
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 37,589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (37,510)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,573,104
<NUMBER-OF-SHARES-REDEEMED> (4,649,073)
<SHARES-REINVESTED> 36,743
<NET-CHANGE-IN-ASSETS> (39,147)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (163)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,746
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (5,158)
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<NAME> RMA - RETIREMENT MONEY PORTFOLIO
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