PAINEWEBBER RMA MONEY FUND INC, 485APOS, 1996-07-01

PAINEWEBBER RMA MONEY FUND INC
485APOS, 1996-07-01

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As filed with the Securities and Exchange Commission on July 1, 1996

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. 27 [ X ]
---- -----

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
-----

Amendment No. 28
----

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

DIANNE E. O'DONNELL, 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.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor

Washington, D.C. 20036-1800
Telephone: (202) 778-9000

It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ ] On pursuant to Rule 485(b)
----------------
[ X ] 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
Information........ Financial Highlights;
Performance Information

4. General Description
of Registrant...... Highlights; Investment
Objective and Policies;
General Information

5. Management of the
Fund............. Management; General Information

6. Capital Stock and
Other Securities... Cover Page; Dividends and
Taxes; General Information

7. Purchase of Securities
Being Offered...... Purchases; Valuation of
Shares; Management

8. Redemption or
Repurchase......... Redemptions; Retirement
Plan Distributions

9. Pending Legal
Proceedings........ Not Applicable

Part B Item No. Statement of Additional
Caption Information Caption
------- -------------------

10. Cover Page......... Cover Page

11. Table of Contents.. Table of Contents

12. General Information
and History........ Not Applicable

13. Investment Objective
and Policies....... Investment Policies and
Restrictions

<PAGE>

Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------

14. Management of the
Fund................ Directors and Officers

15. Control Persons and
Principal Holders of
Securities.......... Directors and Officers

16. Investment Advisory
and Other Services.. Investment Advisory,
Administration and Distribution
Arrangements; Other Information

17. Brokerage Allocation
and Other Practices. Portfolio Transactions

18. Capital Stock and
Other Securities.... Not Applicable

19. Purchase, Redemption
and Pricing of
Securities Being
Offered............. Additional Information
Regarding Redemptions;
Valuation of Shares

20. Tax Status.......... Taxes

21. Underwriters........ Investment Advisory,
Administration and Distribution
Arrangements

22. Calculation of
Performance Data.... Calculation of Yield

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
Information........ Financial Highlights;
Performance Information

4. General Description
of Registrant...... Highlights; Investment
Objectives and Policies;
General Information;
Other Investment Policies
and Risk Factors

5. Management of the
Fund............... Management; General Information

6. Capital Stock and
Other Securities... Cover Page; Dividends and
Taxes; General Information

7. Purchase of Securities
Being Offered...... Purchases; Valuation of
Shares; Management

8. Redemption or
Repurchase......... Redemptions

9. Pending Legal
Proceedings........ Not Applicable

Part B Item No. Statement of Additional
and Caption Information Caption
--------------- --------------------

10. Cover Page......... Cover Page

11. Table of Contents.. Table of Contents

12. General Information
and History........ Not Applicable

13. Investment Objective
and Policies....... Investment Policies and
Restrictions

<PAGE>

Part B Item No. Statement of Additional
and Caption Information Caption
--------------- ------------------------

14. Management of the
Fund................ Directors/Trustees and Officers

15. Control Persons and
Principal Holders of
Securities.......... Directors/Trustees and Officers

16. Investment Advisory
and Other Services.. Investment Advisory,
Administration and Distribution
Arrangements; Other Information

17. Brokerage Allocation
and other Practices. Portfolio Transactions

18. Capital Stock and
Other Securities.... Not Applicable

19. Purchase, Redemption
and Pricing of
Securities Being
Offered............. Additional Information
Regarding Redemptions;
Valuation of Shares

20. Tax Status.......... Taxes

21. Underwriters........ Investment Advisory,
Administration and Distribution
Arrangements

22. Calculation of
Performance Data.... Calculation of Yield

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>

This Prospectus concisely sets forth PAINEWEBBER RMA
information about the Funds a prospective
investor should know before investing. Please MONEY MARKET PORTFOLIO
retain this Prospectus for future reference. A
Statement of Additional Information dated U.S. GOVERNMENT PORTFOLIO
August 29, 1996 (which is incorporated by TAX-FREE FUND
reference herein) has been filed with the
Securities and Exchange Commission SEC"). The CALIFORNIA MUNICIPAL
Statement of Additional Information can be MONEY FUND
obtained without charge, and further inquiries
can be made, by contacting the Funds, your CONNECTICUT MUNICIPAL
PaineWebber Investment Executive or MONEY FUND
PaineWebber's correspondent firms, or by
calling toll-free 1-800-762-1000. NEW JERSEY MUNICIPAL
MONEY FUND

NEW YORK MUNICIPAL
MONEY FUND

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

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

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.
AND PAINEWEBBER RMA TAX-FREE FUND, INC. ARE
MARYLAND CORPORATIONS (EACH A "CORPORATION"). /X/ MAXIMUM CURRENT INCOME
CALIFORNIA MUNICIPAL MONEY FUND AND NEW YORK
MUNICIPAL MONEY FUND ARE SERIES OF PAINEWEBBER /X/ HIGH LIQUIDITY
MANAGED MUNICIPAL TRUST, A MASSACHUSETTS
/X/ CONSERVATION OF CAPITAL
INCOME TAX BUSINESS TRUST, AND CONNECTICUT
MUNICIPAL MONEY FUND AND NEW JERSEY MUNICIPAL /X/ INCOME FREE FROM FEDERAL
MONEY FUND ARE SERIES OF PAINEWEBBER MUNICIPAL INCOME TAX FOR TAX-FREE
MONEY MARKET SERIES, ALSO A MASSACHUSETTS FUND
BUSINESS TRUST (EACH A "TRUST").
/X/ CALIFORNIA DOUBLE TAX-
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR FREE INCOME FOR
MONEY GUARANTEED BY THE U.S. GOVERNMENT. WHILE CALIFORNIA MUNICIPAL
EACH FUND SEEKS TO MAINTAIN A STABLE NET ASSET MONEY FUND
VALUE OF $1.00 PER SHARE, THERE CAN BE NO
ASSURANCE THAT IT WILL BE ABLE TO DO SO. /X/ CONNECTICUT DOUBLE TAX-
FREE INCOME FOR
CALIFORNIA MUNICIPAL MONEY FUND, CONNECTICUT CONNECTICUT MUNICIPAL
FUND MUNICIPAL MONEY FUND, NEW JERSEY MONEY FUND
MUNICIPAL MONEY FUND, AND NEW YORK MUNICIPAL
MONEY FUND EACH MAY INVEST A SIGNIFICANT /X/ NEW JERSEY DOUBLE TAX-
PERCENTAGE OF ITS ASSETS IN THE SECURITIES OF FREE INCOME FOR NEW
A SINGLE ISSUER. AN INVESTMENT IN THESE FUNDS JERSEY MUNICIPAL MONEY
MAY THEREFORE BE RISKIER THAN AN INVESTMENT IN FUND
OTHER TYPES OF MONEY MARKET FUNDS.
/X/ NEW YORK STATE DOUBLE
TAX-FREE INCOME
OR NEW YORK CITY TRIPLE
TAX-FREE INCOME FOR NEW
YORK MUNICIPAL MONEY
FUND
- -------------------------------------------- ---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION 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.
PROSPECTUS DATED
AUGUST 29, 1996.

<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")(R) 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 Connecticut Municipal Money Fund ("Connecticut
Municipal Money Fund")--A non-diversified money market fund
seeking the maximization of current income exempt from federal
income tax and Connecticut personal income tax to the extent
consistent with the preservation of capital and the maintenance of
liquidity; invests primarily in debt securities of the State of
Connecticut, its political subdivisions, authorities and
corporations.
PaineWebber RMA New Jersey Municipal Money Fund ("New Jersey
Municipal Money Fund")--A non-diversified money market fund
seeking the maximization of current income exempt from federal
income tax and New Jersey personal income tax to the extent
consistent with the preservation of capital and the maintenance of
</TABLE>

2
<PAGE>

<TABLE>
<S> <C>
liquidity; invests primarily in debt securities of the State of
New Jersey, its political subdivisions, authorities and
corporations.
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.
Net Assets at Money Market Portfolio--$ billion.
July 31, 1996: U.S. Government Portfolio--$ billion.
Tax-Free Fund--$ billion.
California Municipal Money Fund--$ million.
Connecticut Municipal Money Fund--$ million.
New Jersey Municipal Money Fund--$ million.
New York Municipal Money Fund--$ million.
Distributor and PaineWebber Incorporated ("PaineWebber"). See "Management."
Investment Adviser:
Sub-Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins").
Purchases: Shares are available exclusively through PaineWebber and its
correspondent firms. See "Purchases."
Redemptions: Shares may be redeemed through PaineWebber or its correspondent
firms. See "Redemptions."
Yield: Based on current money market rates; quoted in the financial
section of most newspapers.
Dividends: Declared daily and paid monthly. See "Dividends and Taxes."
Reinvestment: All dividends are automatically paid in Fund shares.
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, Connecticut Municipal Money
Fund, New Jersey Municipal Money Fund and New York Municipal Money Fund
(referred to collectively in this Prospectus as the "Municipal Funds") are not
suitable for tax-exempt institutions or qualified

3
<PAGE>
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.

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

NEW JERSEY MUNICIPAL MONEY FUND is designed for investors seeking liquidity
and current income that is exempt from federal income tax and New Jersey
personal income tax. The Fund provides a convenient means for New Jersey
investors to 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.

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, New
York Municipal Money Fund, Connecticut Municipal Money Fund and New Jersey
Municipal Money Fund in securities issued by a single state or entities within
that state may subject those Funds to greater risks than a money market fund
that has a broader range of investments. 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 ability of each Municipal Fund to invest more than 25% of its total
assets in securities the interest on which is paid from similar types of
projects, may further increase the risk of an investment in those Funds.

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

SHAREHOLDER TRANSACTION EXPENSES
FOR ALL FUNDS

<TABLE>
<S> <C>
Sales charge on purchases of shares.................................... None
Sales charge on reinvested dividends................................... None
Redemption fee or deferred sales charge................................ None
</TABLE>

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

<TABLE>
<CAPTION>
CALIFORNIA CONNECTICUT NEW JERSEY NEW YORK
MONEY U.S. MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MARKET GOVERNMENT TAX- MONEY MONEY MONEY MONEY
PORTFOLIO PORTFOLIO FREE FUND FUND FUND FUND FUND
--------- ---------- --------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees..........
12b-1 fees...............
Other expenses...........
--------- --- --- --- --- --- ---
Total Operating
Expenses.................
--------- --- --- --- --- --- ---
--------- --- --- --- --- --- ---
</TABLE>

- ---------

* See "Management" for additional information. The fees and expenses shown are
those actually incurred for each Fund's most recent fiscal year 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.

5
<PAGE>
EXAMPLE OF EFFECT OF FUND EXPENSES

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio..................................... $ $ $ $
U.S. Government Portfolio.................................. $ $ $ $
Tax-Free Fund.............................................. $ $ $ $
California Municipal Money Fund............................ $ $ $ $
New York Municipal Money Fund.............................. $ $ $ $
Connecticut Municipal Money Fund........................... $ $ $ $
New Jersey Municipal Money Fund............................ $ $ $ $
</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 SEC applicable to all mutual
funds; the assumed 5% annual return is not a prediction of, and does not
represent, any Fund's projected or actual performance.

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

6
<PAGE>
FINANCIAL HIGHLIGHTS

The tables below provide selected per share data and ratios for one share of
each Fund for each of the periods shown. This information is supplemented by the
financial statements and accompanying notes appearing in each Fund's Annual
Report to Shareholders for the fiscal year or period ended June 30, 1996, which
are incorporated by reference into the Statement of Additional Information and
which may be obtained without charge by calling 1-800-647-1568. The financial
statements and notes, as well as the information in the tables appearing below
insofar as it relates to each of the five fiscal years in the period ended June
30, 1996 (in the case of Tax-Free Fund, Money Market Portfolio and U.S.
Government Portfolio), the six fiscal periods ended June 30, 1996 (in the case
of California Municipal Money Fund and New York Municipal Money Fund) and the
two fiscal periods ended June 30, 1996 (in the case of Connecticut Municipal
Money Fund and New Jersey 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 these dates also
have been audited by Ernst & Young LLP, whose reports thereon were unqualified.
The financial statements and notes, as well as the information in the tables
appearing below for the fiscal year ended October 31, 1995 or in the case of
Connecticut Municipal Money Fund and New Jersey Municipal Money Fund, by other
auditors whose reports thereon were unqualified.

<TABLE><CAPTION>
TAX-FREE FUND
----------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- -------- -------- --------
<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
---------- ---------- ---------- ---------- ---------- ---------- -------- -------- --------
Net investment
income................. 0.030 0.019 0.021 0.033 0.047 0.053 0.056 0.042
Dividends from net
investment income..... (0.030) (0.019) (0.021) (0.033) (0.047) (0.053) (0.056) (0.042)
---------- ---------- ---------- ---------- ---------- ---------- -------- -------- --------
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).................... 3.03% 1.88% 2.07% 3.30% 4.74% 5.30% 5.60% 4.20%
---------- ---------- ---------- ---------- ---------- ---------- -------- -------- --------
---------- ---------- ---------- ---------- ---------- ---------- -------- -------- --------
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
Ratio of expenses to
average net assets.... 0.63% 0.64% 0.65% 0.62% 0.67% 0.67% 0.60% 0.61%
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%

<CAPTION>
1987
--------
<S> <C>
Net asset value,
beginning of
period................ $1.00
--------
Net investment
income................. 0.037
Dividends from net
investment income..... (0.037)
--------
Net asset value, end of
period................. $1.00
--------
--------
Total Investment Return
(1).................... 3.70%
--------
--------
RATIOS/SUPPLEMENTAL DAT
Net assets, end of
period (000's)......... $942,668
Ratio of expenses to
average net assets.... 0.62%
Ratio of net investment
income to average net
assets................. 3.70%
</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>
MONEY MARKET PORTFOLIO
----------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<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
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment
income............. 0.049 0.030 0.029 0.046 0.069 0.081 0.084 0.064
Dividends from net
investment
income............. (0.049) (0.030) (0.029) (0.046) (0.069) (0.081) (0.084) (0.064)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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)......... 5.00% 2.95% 2.98% 4.56% 6.88% 8.10% 8.40% 6.40%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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
Ratio of expenses
to average net
assets............. 0.59% 0.59% 0.59% 0.59% 0.61% 0.58% 0.59% 0.76%
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%

1987
----------
<S> <C>
Net asset value,
beginning of
period............. $1.00
----------
Net investment
income............. 0.055
Dividends from net
investment
income............. (0.055)
----------
Net asset value,
end of period..... $1.00
----------
----------
Total Investment
Return (1)......... 5.50%
----------
----------
RATIOS/SUPPLEMENTAL
Net assets, end of
period (000's).... $2,163,807
Ratio of expenses
to average net
assets............. 0.79%
Ratio of net
investment income
to average net
assets............. 5.54%
</TABLE>

<TABLE>
<CAPTION>
U.S. GOVERNMENT PORTFOLIO
----------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<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
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment
income............. 0.046 0.027 0.028 0.044 0.066 0.077 0.078 0.059
Dividends from net
investment
income............. (0.046) (0.027) (0.028) (0.044) (0.066) (0.077) (0.078) (0.059)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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)......... 4.67% 2.74% 2.83% 4.36% 6.59% 7.70% 7.80% 5.90%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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
Ratio of expenses
to average net
assets............. 0.63% 0.62% 0.61% 0.62% 0.64% 0.68% 0.60% 0.74%
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%

1987
----------
<S> <C>
Net asset value,
beginning of
period............. $1.00
----------
Net investment
income............. 0.053
Dividends from net
investment
income............. (0.053)
----------
Net asset value,
end of period..... $1.00
----------
----------
Total Investment
Return (1)......... 5.30%
----------
----------
RATIOS/SUPPLEMENTAL
Net assets, end of
period (000's).... $241,148
Ratio of expenses
to average net
assets............. 0.75%
Ratio of net
investment income
to average net
assets............. 5.31%
</TABLE>

8
<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
1996 1995 1994 1993 JUNE 30, 1992 1991 1990 1989 NOVEMBER 30, 1988
-------- -------- -------- -------- ------------- -------- -------- -------- -----------------
<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
-------- -------- -------- -------- ------ -------- -------- -------- ------
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
1996 1995 1994 1993 1992 1991 1990 1989 NOVEMBER 30, 1988
-------- -------- -------- -------- ------------ -------- -------- ------- -----------------
<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
-------- -------- -------- -------- ------ -------- -------- -------
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>

9
<PAGE>

<TABLE>
<CAPTION>
CONNECTICUT MUNICIPAL MONEY FUND
------------------------------------------------------------------------------------
FOR THE YEARS FOR THE PERIOD
FOR THE PERIOD ENDED OCTOBER 31, NOVEMBER 6, 1990+
ENDED ------------------------------------------- TO
JUNE 30, 1996 1995 1994 1993 1992 OCTOBER 31, 1991
-------------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- ------- ------

Net investment income.............. 0.026 0.017 0.015 0.022 0.040

Dividends from net investment
income............................. (0.026) (0.017) (0.015) (0.022) (0.040)
------ ------- ------- ------- ------- ------

Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- ------- ------

Total investment return (1)........ 2.62% 1.74% 1.49% 2.25% 4.04%
------ ------- ------- ------- ------- ------
------ ------- ------- ------- ------- ------
RATIOS/SUPPLEMENTAL DATA:

Net assets, end of period
(000's)............................ $22,209 $25,763 $27,937 $28,063 $40,078

Ratio of expenses to average net
assets**........................... 1.01% 0.90% 0.97% 0.86% 0.36%*

Ratio of net investment income to
average net assets**.............. 2.63% 1.71% 1.47% 2.28% 3.96%*
</TABLE>

- ------------
* Annualized
+ Commencement of operations
(1) Total investment return is calculated assuming a $1,000 investment in fund
shares 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 less than one year have not been annualized.
** For the period November 6, 1990 to October 31, 1991, the predecessor adviser
waived and/or reimbursed the Fund for a portion of its operating expenses.
If such fee waivers and/or expense reimbursements had not been made, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income to average net assets would have been 0.82% and
3.50%, respectively.

<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL MONEY FUND
---------------------------------------------------------------------------------------
FOR THE YEARS FOR THE PERIOD
FOR THE PERIOD ENDED OCTOBER 31, FEBRUARY 1, 1991+
ENDED ------------------------------------------- TO
JUNE 30, 1996 1995 1994 1993 1992 OCTOBER 31, 1991
-------------- ------- ------- ------- ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- ------- ------

Net investment income............... 0.027 0.018 0.016 0.025 0.032

Dividends from net investment
income.............................. (0.027) (0.018) (0.016) (0.025) (0.032)
------ ------- ------- ------- ------- ------

Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- ------- ------
------ ------- ------- ------- ------- ------

Total investment return (1)......... 2.75% 1.76% 1.65% 2.49% 3.19%
------ ------- ------- ------- ------- ------
------ ------- ------- ------- ------- ------
RATIOS/SUPPLEMENTAL DATA:

Net assets, end of period (000's)... $36,206 $31,981 $36,473 $27,625 $ 41,504

Ratio of expenses to average net
assets**............................ 0.93% 0.85% 0.93% 0.86% 0.27%*

Ratio of net investment income to
average net assets**............... 2.73% 1.74% 1.63% 2.51% 4.20%*
</TABLE>

- ------------
* Annualized
+ Commencement of operations
(1) Total investment return is calculated assuming a $1,000 investment in fund
shares 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 less than one year have not been annualized.
** For the period February 1, 1991 to October 31, 1991, the predecessor adviser
waived and/or reimbursed the Fund for a portion of its operating expenses.
If such fee waivers and/or expense reimbursements had not been made, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income to average net assets would have been 0.83% and
3.64%, respectively.

10
<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. The Con-necticut Municipal Money
Fund's objective is the maximization of current income exempt from federal
income tax and Connecticut personal income tax for residents of the state of
Connecticut, consistent with the preservation of capital and the maintenance of
liquidity. The New Jersey Municipal Money Fund's objective is the maximization
of current income exempt from federal income tax and New Jersey personal income
tax for residents of the state of New Jersey, consistent with the preservation
of capital and the maintenance of liquidity.

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

11
<PAGE>
("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).

The Money Market Portfolio may invest in obligations (including certificates
of deposit, bankers' acceptances, time deposits 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 and in time deposits of savings associations and simi-
lar associations having total assets in excess of $1.5 billion at the time of
purchase. The Fund may 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
Fund invests only in time deposits maturing in seven days or less.

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. 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

12
<PAGE>
("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
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 invests
at least 80% and seeks to invest 100% of its net assets in Municipal Securities
issued by the State of California, its municipalities and public authorities and
other issuers if such obligations pay interest that is exempt from federal
income tax as well as California personal income tax ("California Municipal
Securities").

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

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.

CONNECTICUT MUNICIPAL MONEY FUND

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

The Connecticut Municipal Money Fund invests in high-grade Connecticut
Municipal
13

<PAGE>

Securities with remaining maturities of 13 months or less. These instruments
include the types of Municipal Securities identified above for Tax-Free Fund
and further described in the Appendix to this Prospectus. Under normal market
conditions, the Fund intends to invest in Connecticut 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's judgment,
market conditions warrant. The Connecticut Municipal Securities purchased by
the Fund consist only of First Tier Securities.

NEW JERSEY MUNICIPAL MONEY FUND

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

The New Jersey Municipal Money Fund invests in high-grade New Jersey
Municipal Securities with remaining maturities of 13 months or less. These
instruments include the types of Municipal Securities identified above for
Tax-Free Fund and further described in the Appendix to this Prospectus. Under
normal market conditions, the Fund intends to invest in New Jersey 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's judgment, market conditions warrant. The New Jersey Munic-
ipal 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
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)

14
<PAGE>

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. Changes in the credit quality of these institutions could cause
losses to the Funds and affect their share price.

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 (each a "board"). The Municipal Funds do not intend to enter into
repurchase agreements except as a temporary measure and under unusual
circumstances.

LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend up to 33
1/3% of the total value of its portfolio securities to broker-
dealers or institutional investors that Mitchell Hutchins deems qualified.
Lending securities enables a Fund to earn additional income, but could result in
a loss or delay in recovering securities. Because the income earned through
securities lending is taxable, the Municipal Funds do not expect to engage in
securities lend-
ing except under unusual circumstances.

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

These Funds may each invest more than 5% of its total assets in the
securities of a single issuer, although only with respect to up to 25% of its
total assets, and each Fund concentrates

15
<PAGE>

its investments in securities issued by a single state or entities within that
state. In addition, these Funds may each invest more than 25% of the value of
its total assets in Municipal Securities that are related in such a way that an
economic, business or political development or change affecting one such
security would also affect the other securities, such as securities the interest
on which is paid from revenues of similar types of projects. These Funds may be
subject to greater risk than other funds that do not follow these practices.

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 suffered a severe eco-
nomic recession between 1990-1993, which resulted in broad-based revenue
shortfalls for the State and many local governments. California's fiscal
condition has improved as its economy has been in a sustained recovery since
1994. During the recession, the State substantially reduced local assistance,
and further reductions could adversely affect the financial conditions of
cities, counties, and other government agencies facing constraints in their own
revenue collections. California's long-term credit rating has been reduced in
the past several years.

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 CONNECTICUT MUNICIPAL MONEY FUND. Connecticut's economy relies in
part on activities that may be adversely affected by cyc-
lical change and recent declines in defense spending have had an impact on
unemployment levels. Although the State recorded General Fund surpluses in its
1986 and 1987 fiscal years, Connecticut reported deficits from its General Fund
operations for the fiscal years 1988 through 1991. Together with the deficit
carried forward from the State's 1990 fiscal year, the total General Fund
deficit for the 1991 fiscal year was $965.7 million. The total deficit was
funded by the issuance of General Obligation Economic Recovery Notes. The State
Comptroller's annual reports for the fiscal years ended June 30, 1993, 1994 and
1995 reflected General Fund operating surpluses of $113.5 million, $19.7 million
and $80.5 million, respectively. In February 1996, the Comptroller estimated a
General Fund deficit of $22.1 million for the fiscal year end. To the extent
there is a deficit, it may be funded by a transfer from the $80.5 million Budget
Reserve Fund. As a result of recurring budgetary problems in the early 1990s,
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"),
downgraded the State's general obligation bonds from AA+ to AA in April 1990
and, in September 1991, to AA-. Moody's Investors Service, Inc. ("Moody's")
and Fitch Investors Service, L.P. ("Fitch") rate Connecticut's bonds Aa and
AA+, respectively.

RISKS OF NEW JERSEY MUNICIPAL MONEY FUND. Although New Jersey enjoyed a
period of economic growth with unemployment levels

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below the national average during the mid-1980s, New Jersey's economy slowed
down well before the onset of the national recession, which, according to the
National Bureau of Economic Research, began in July 1990. Reflecting the
economic downturn, New Jersey's unemployment rate rose from a low of 3.6% in
the first quarter of 1989 to a recessionary peak of 8.4% during 1992. Since
then, the State's unemployment rate fell to 6.4% during the first ten months of
1995. As a result of New Jersey's recent fiscal weakness, in July 1991, S&P
lowered its rating of the State's AAA general obligation debt to AA+.

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 operating surpluses in fiscal year ("FY") 1991-92 through 1993-94,
it experienced an operating deficit of $1.426 billion for FY 1994-95. The State
continues to experience substantial financial difficulties related to the recent
recession, resulting in, among other things, reductions in General Fund
receipts. Currently the 1995-96 State Financial Plan shows a cash balance in the
General Fund, and projects a moderate operating surplus, but prolonged
interruptions in the State's receipt of federal grants could create adverse
developments. Similarly, although the Governor's proposed FY 1996-97 budget
projects a cash balance in the General Fund, it anticipates closing an
approximate $3.9 billion budget gap to arrive at such balance. Approximately $2
billion of such savings are expected to derive from Federal policy changes. The
likelihood that a balanced budget for FY 1996-97 will be achieved depends in
part on a Federal budget resolution as well as the implementation of numerous
and substantial corrective measures assumed in the Governor's proposed budget.
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.

When Mitchell Hutchins believes that there is an insufficient supply of the
type of Municipal Securities in which a Municipal Fund primarily invests, or
during other unusual market conditions, that Municipal Fund temporarily may
invest all or any portion of its net assets in other types of Municipal
Securities. In addition, when Mitchell Hutchins believes that there is an
insufficient supply of any type of Municipal Securities or that other circum-
stances warrant a defensive posture, each Municipal Fund may hold cash and may
invest all or any portion of its net assets in taxable money market instruments,
including repurchase agreements. To the extent that a Fund

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<PAGE>

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 (except that each of Connecticut Municipal Money Fund and
New Jersey Municipal Money Fund may borrow up to 15% of its net 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 net
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 (20% in the case of Connecticut Municipal Money Fund and New Jersey
Municipal Money Fund).

No Fund will invest more than 10% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of seven days.

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, Con-
necticut Municipal Money Fund and New Jersey Municipal Money Fund relating to
investments in New York Municipal Securities, Connecticut Municipal Securities
and New Jersey Municipal Securities, respectively, may not be changed without
approval of the appropriate Fund's shareholders. Certain other investment
limitations, as described in the Statement of Additional Information, also may
not be changed without shareholder approval. All other investment policies may
be changed by the applicable Corporation's board of directors or the applicable
Trust's board of trustees without shareholder approval.

PURCHASES

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

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<PAGE>

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.

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.

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<PAGE>

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.

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 and fees for such
wires and PaineWebber 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,

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<PAGE>
Tax-Free Fund; and fourth, New York Municipal Money Fund, California Municipal
Money Fund, Connecticut Municipal Money Fund or New Jersey Municipal Money Fund.

ADDITIONAL INFORMATION ON REDEMPTIONS. Shareholders with questions about
redemption requirements should consult their PaineWebber Investment Executives
or correspondent firms. Shareholders who redeem all their shares will receive
cash credits to their RMA or BSA brokerage accounts for dividends earned on
those shares to (but not including) the day of redemption. The redemption price
may be more or less than the purchase price, depending on the market value of
the Fund's portfolio; however, each Fund anticipates that its net asset value
per share will normally be $1.00 per share. See "Valuation of Shares."

Because each Fund incurs certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to establish minimum initial purchase
requirements and to redeem Fund shares in any shareholder account of less than
$500 net asset value. If a Fund elects to do so, it will notify the shareholder
and provide the shareholder with an opportunity to increase the amount invested
to $500 or more within 60 days of the notice. This notice may appear on the
shareholder's account statement. If a shareholder requests redemption of shares
that were purchased recently, a Fund may delay payment until it is assured that
it has received good payment for the purchase of the shares. In the case of
purchases by check, this can take up to 15 days.

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

VALUATION OF SHARES

Each Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Each Fund's net asset value per share is determined by dividing the
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 applicable 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,

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<PAGE>
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 indebtedness incurred by a
shareholder to purchase or carry shares of a Municipal Fund is not deductible.

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

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

CALIFORNIA TAXES. If 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,

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<PAGE>
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.

CONNECTICUT TAXES. Dividends paid by the Connecticut Municipal Money Fund
that qualify as exempt-interest dividends for federal income tax purposes are
not subject to the Connecticut income tax imposed on individuals, trusts and
estates, to the extent that such dividends are derived from income received by
the Fund as interest from Connecticut Municipal Securities, or as interest from
obligations with respect to which Connecticut is prohibited by federal law from
taxing. Dividends derived from other sources are subject to Connecticut income
tax, except that dividends qualifying as capital gains dividends for federal
income tax purposes are not subject to Connecticut income tax to the extent
derived from Connecticut Municipal Securities. In the case of a shareholder
subject to the Connecticut income tax and required to pay AMT, the portion of
exempt-interest dividends paid by the Fund that is derived from income received
by the Fund as interest from Connecticut Municipal Securities or obligations the
interest with respect to which Connecticut is prohibited by federal law from
taxing is not subject to the net Connecticut minimum tax, even though treated
as a preference item for purposes of the AMT.

Dividends qualifying as exempt-interest dividends for federal income tax
purposes that are distributed by the Fund to entities taxed as corporations
under the Connecticut corporation business tax are not exempt from the tax.

Connecticut Municipal Money Fund's shares are not subject to property
taxation by the State of Connecticut or its political subdivisions.

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

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

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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 each Trust's board of trustees, as
part of their 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, 1996, 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 %, %, %, %, and %, respectively, of the Fund's
average daily net assets. For the fiscal year ended October 31, 1996, the
effective advisory and administration fees paid to PaineWebber by the
Connecticut Municipal Money Fund and the New Jersey Municipal Money Fund were
equal to % and %, 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, except Connecticut Municipal Money Fund and New Jersey Municipal
Money 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, 1996, 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 %,
%, %, % and %, 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. %. For the fiscal period ended June
30, 1996, the annualized ratio of expenses as a percentage of average net assets
of the Connecticut Municipal Money Fund and New Jersey Municipal Money Fund were
% and %, respectively.

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, 1996,
PaineWebber or Mitchell Hutchins was investment adviser or sub-adviser to
registered investment companies with separate portfolios and aggregate assets
in excess of $30.3 billion.

Mitchell Hutchins investment personnel may engage in securities transactions
for their own accounts pursuant to a code of ethics that

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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. 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 in servicing and
maintaining shareholder accounts. These expenses may include the costs of the
PaineWebber branch office in which the Investment Executive is based, such as
rent, communications equipment, employee salaries and other overhead costs.

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

Under a separate Plan, the Connecticut Municipal Money Fund and New Jersey
Municipal Money Fund are authorized to reimburse PaineWebber its expenses for
distribution of each Fund's shares at the annual rate of up to 0.12% of each
Fund's average daily net assets. The expenses which may be reimbursed include
compensation to investment executives and other employees of PaineWebber,
printing of prospectuses and reports for other than existing shareholders, and
the preparation, printing and distribution of sales literature and advertising
materials. It is not anticipated that items reimbursable under this Plan will
generally include any profit to PaineWebber. The Fund is not authorized to
reimburse PaineWebber for expenses incurred more than 12 months prior to the
date of such reimbursement. PaineWebber anticipates that there will be no
carryover of expenses from one year to the next. The expenses to be reimbursed
are for activities primarily intended to result in the sale of each Fund's
shares and the maintenance of Fund accounts and account balances, and there will
be no reimbursement for the expenses relative to PaineWebber's overhead.
PaineWebber currently intends that approximately 0.10% per annum of each Fund's
daily net assets will be paid to its investment executives proportionately in
respect of Fund share balances maintained by their respective clients and the
balance on other activities.

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PERFORMANCE INFORMATION

From time to time each Fund may advertise its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a Fund is the income on an
investment in that Fund over a specified seven-day period. This income is then
"annualized" (that is, assumed to be earned each week over a 52-week period) and
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but when annualized the income earned is assumed to be reinvested.
The "effective yield" will be higher than the "yield" because of the compounding
effect of this assumed reinvestment.

The Municipal Funds may also advertise "tax-equivalent yield" and
"tax-equivalent effective yield." "Tax-equivalent yield" shows the taxable yield
that would produce the same income after a stated rate of taxes as the
respective Fund's tax-exempt yield (yield excluding taxable income).
"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 diversified 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 the SEC as an open-end, 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, as a
diversified investment company, has an authorized capitalization of 20 billion
shares of $0.001 par value common stock.

California Municipal Money Fund and New York Municipal Money Fund are
non-diversified series of PaineWebber Managed Municipal Trust. The Trust is
registered as an open-end management investment company and was organized as a
business trust under the laws of the Commonwealth of Massachusetts by
Declaration of Trust dated November 21, 1986. The Trust's board has authority to
issue an unlimited number of shares of beneficial interest of separate series,
par value $0.001 per share.

Connecticut Municipal Money Fund and New Jersey Municipal Money Fund are
non-diversified series of PaineWebber Municipal

26
<PAGE>
Money Market Series. The Trust is registered as an open-end management
investment company and was organized as a Massachusetts business trust on
September 14, 1990. The Trust's board has authority to issue an unlimited number
of full and fractional shares of beneficial interest, $.001 par value 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 each Corporation and Trust has considered this factor in
approving the use of a single, combined Prospectus.

The Corporations and the Trusts do not hold annual shareholder meetings.
There normally will be no meetings of shareholders to elect directors or
trustees unless fewer than a majority of the directors or 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 applicable Trust may remove a trustee by vote cast in person or by proxy
at a meeting called for that purpose. The trustees are required to call a
meeting of shareholders of the applicable Trust for the purposes of voting upon
the question of removal of any trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the applicable Trust's
outstanding shares.

Each share of a Fund has equal voting, dividend and liquidation rights. The
shares of each series of the Money Fund Corporation and the Trusts 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 reported to shareholders on monthly account statements.

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.

27
<PAGE>
APPENDIX
MUNICIPAL SECURITIES

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

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

INDUSTRIAL DEVELOPMENT BONDS AND PRIVATE ACTIVITY BONDS. 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>
<S> <C>
- ---------------------------------------------
Table of Contents PAINEWEBBER RMA MONEY MARKET PORTFOLIO
- ---------------------------------------------
2 Highlights PAINEWEBBER RMA U.S. GOVERNMENT PORTFOLIO
------------------------------------
7 Financial Highlights PAINEWEBBER RMA TAX-FREE FUND
------------------------------------
11 Investment Objectives and Policies PAINEWEBBER RMA CALIFORNIA MUNICIPAL MONEY FUND
------------------------------------
18 Purchases PAINEWEBBER RMA CONNECTICUT MUNICIPAL MONEY FUND
------------------------------------
20 Redemptions PAINEWEBBER RMA NEW JERSEY MUNICIPAL MONEY FUND
------------------------------------
21 Valuation of Shares
------------------------------------
21 Dividends and Taxes
------------------------------------
24 Management
------------------------------------
26 Performance Information
------------------------------------
27 General Information
------------------------------------
A-1 Appendix
------------------------------------
</TABLE>
For information on the RMA program
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

<PAGE>

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

STATEMENT OF ADDITIONAL INFORMATION

The seven 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, ("Managed Municipal Trust") and PaineWebber
RMA Connecticut Municipal Money Fund ("Connecticut Municipal Money Fund") and
PaineWebber RMA New Jersey Fund ("New Jersey Municipal Money Fund"), are series
of PaineWebber Municipal Money Market Series ("Municipal Money Market Series").
Managed Municipal Trust and Municipal Money Market Series are Massachusetts
business trusts (each a "Trust"). The Tax-Free Fund, California Municipal Money
Fund, Connecticut Municipal Money Fund, New Jersey Municipal Money Fund and New
York Municipal Money Fund may be referred to collectively as the "Municipal
Funds." The investment adviser, administrator and distributor of each Fund is
PaineWebber Incorporated ("PaineWebber"); the sub-adviser and sub-administrator
of each Fund is Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned subsidiary of PaineWebber. This Statement of Additional Information
is not a prospectus and should be read only in conjunction with the Funds'
current Prospectus, dated August 29, 1996. 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, 1996.

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<PAGE>
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 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 or the
applicable Corporation's board of directors or the Trust's board of trustees
(each a "board"), will consider whether the Fund should continue to hold the
obligation. A First Tier Security rated in the highest short-term rating
category by a single NRSRO at the time of purchase that subsequently receives a
rating below the highest rating category from a different NRSRO will continue to
be considered a First Tier Security.

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

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

2
<PAGE>
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.

Repurchase agreements carry certain risks not associated with direct
investments in securities. Each Fund intends to enter into repurchase agreements
only with banks and dealers in transactions believed by Mitchell Hutchins to
present minimal credit risks in accordance with guidelines established by the
applicable board. Mitchell Hutchins will review and monitor the creditworthiness
of those institutions under the board's general supervision.

REVERSE REPURCHASE AGREEMENTS. 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 net
assets. Such agreements involve the sale of securities held by a Fund subject to
its agreement to repurchase the securities at an agreed-upon date 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
board. 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.

3
<PAGE>
registration. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.

Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment in
order to satisfy share redemption orders. Such markets include automated systems
for the trading, clearance and settlement of unregistered securities, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc. An insufficient number of qualified institutional buyers interested in
purchasing certain restricted securities held by the 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

4
<PAGE>
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 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.

LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, each Fund
is authorized to lend up to 33 1/3% of its portfolio securities to
broker-dealers or institutional investors that Mitchell Hutchins deems
qualified, but only when the borrower maintains acceptable collateral with the
Fund's custodian, marked to market daily, in an amount at least equal to the
market value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant fees and circumstances,
including the creditworthiness of the borrower. Each Fund will retain authority
to terminate any loan at any time. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or money market instruments held as collateral to
the borrower or placing broker. A Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. A Fund will retain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in a Fund's
interest.

5
<PAGE>
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."

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.

6
<PAGE>

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. Under normal market
conditions, neither the Connecticut Municipal Money Fund or New Jersey Municipal
Money Fund will invest more than 25% of its total assets in participation
interests or other securities issued by or purchased from banks.

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,
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

7
<PAGE>
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.

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 FY1990-91 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"

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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, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing State funding for schools;

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

. revenue increases (particularly in the budget for FY1991-92) 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

. 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 FY1993-94, 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 FY1992-93 (following two years of excess expenditures over
revenues), the General Fund had positive operating results in FY1993-94 and
FY1994-95, 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 FY1992-93 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

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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
FY1995-96 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 will be a positive balance of less than $30 million in the
budget reserve, the SFEU, at June 30, 1996, providing no margin for adverse
results during the year.

The Department of Finance projects cash flow borrowings in FY1995-96 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. 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, as part of a process (the "Budget Adjustment
Law") enacted to assure repayment of $4 billion of revenue anticipation warrants
which had a 21-month term when issued in July, 1994. 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
across-the-board budget cuts starting in December, 1995. With the anticipated
full payment of the $4 billion revenue anticipation warrants on April 25, 1996,
the Department sees no further need for borrowing over the end of the fiscal
year.

The principal features of the 1995-96 Budget Act, in addition to those noted
above, are additional cuts 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.

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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 projects. The County and some of these entities have, and others may in
the future, default in payment of their obligations. Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's ("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-

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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 on 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.

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

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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.

LOCAL GOVERNMENTS. 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 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 FY1995-96. 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
operating under protection of the federal Bankruptcy Court (see above), has
substantially reduced services and personnel in order to live within much
reduced means.

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.

SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL SECURITIES

ECONOMIC FACTORS. Connecticut's economy is diverse, with manufacturing
services and trade accounting for approximately 70% of total non-agricultural
employment. The State's manufacturing industry is diversified, but from 1970 to
1993 manufacturing employment declined to 18.5%, while non-manufacturing-related
employment increased to 81.5%. The non-manufacturing sector is comprised of
service industries. The four industries in terms of employment are: trade;
finance,

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insurance and real estate; business and personal services; and government, which
collectively comprise about 90% of employment in the non-manufacturing sector.

Connecticut has a high level of personal income. According to Bureau of
Economic Analysis figures, personal income of State residents for calendar year
1994 was $95.1 billion, a 3.3% increase over the previous year. As of January
1995, the rate of unemployment (on a seasonably adjusted basis) in the State was
5.2%. According to projections made by the U.S. Department of Commerce through
the year 2005, Connecticut is expected to continue to rank first in the nation
in state per capita income throughout the projected period.

NOTE DEBT. While the State's General Fund ended fiscal 1985, 1986 and 1987
with operating surpluses of approximately $365.5 million, $250.1 million and
$365.2 million, respectively, the State recorded operating deficits of $115.6
million, $28 million, $259.5 million and $808.5 million for fiscal 1988, 1989,
1990 and 1991, respectively. Together with the deficit carried forward from
fiscal 1989-90, the total deficit for the fiscal year 1990-91 was $965.7
million. The total deficit amount was funded by the issuance of General
Obligation Economic Recovery Notes. The Comptroller's annual report for the
fiscal year ended June 30, 1992 reflected a General Fund operating surplus of
$110.2 million, which surplus was used to retire $110.1 million of the State's
Economic Recovery Notes. The Comptroller's annual reports for fiscal years ended
June 30, 1993, 1994 and 1995 reflected General Fund operating surpluses of
$113.5 million, $19.7 million and $80.5 million, respectively. The
unappropriated surplus in the General Fund is deemed to be appropriated for debt
service for the following fiscal year.

Since 1988, the Comptroller's annual report has reported results on the
basis of both the modified cash basis required by State law and the modified
accrual basis used for GAAP financial reporting. The Comptroller's monthly
report for the period ended September 30, 1995 stated that on a GAAP basis the
cumulative deficit was $576.9 million for fiscal 1995. The modified cash basis
of accounting used for statutory financial reporting and the modified accrual
basis used for GAAP financial reporting are different and, as a result, often
produce varying financial results, primarily because of differences in the
recognition of revenues and expenditures.

STATE FINANCES. The budget adopted for fiscal 1995-96 anticipates General
Fund revenues of $8.837 billion and projected General Fund expenditures of
$8.836 billion, resulting in a projected surplus of $0.2 million. For fiscal
1996-1997, the adopted budget anticipates General Fund revenues of $9.158
billion and General Fund expenditures of $9.157 billion, resulting in a
projected surplus of $0.2 million.

The adopted budget reflects implementation of significant tax changes aimed
at increasing overall disposable income and encouraging economic expansion in
the State. A phase down in the personal income tax rate was enacted. To improve
the business climate in the State and stimulate long-term job growth,
legislation was also enacted which will reduce Connecticut's corporate tax rate
from its current rate of 11.25% to 7.5% by January 1, 2000. The adopted budget
also reflects significant reductions in expenditures from current service
levels.

As part of the adopted budget, approximately $241 million of the original
$965.7 million in Economic Recovery Notes issued to fund the cumulative deficit
of fiscal 1990-91 will be retired in

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fiscal years 1996-97 through 1988-99, rather than in fiscal 1995-96. Of the
original $965.7 million issued, $725 million will be retired on schedule and the
Economic Recovery Notes will be paid in full by the expiration of the current
Governor's term.

The State finances its operations primarily through the General Fund. All
tax and most non-tax revenues of the State, except for motor fuels taxes and
other transportation-related taxes, fees and revenues, are paid into, and
substantially all expenditures pursuant to legislative appropriations are made
out of, the General Fund. The State derives over 70% of its revenues from taxes.
Miscellaneous fees, receipts, transfers and Federal grants account for most of
the other State revenue. The Sales and Use Taxes, the corporation business tax
and the recently enacted broad based personal income tax are the major revenue
raising taxes.

On November 3, 1992, Connecticut voters approved a constitutional amendment
which requires a balanced budget for each year and imposes a cap on the growth
of expenditures. The General Assembly is required by the constitutional
amendment to adopt by three-fifths vote certain spending cap definitions. The
statutory spending cap limits the growth of expenditures to either (1) the
rolling five-year average annual growth in personal income or (2) the increase
in the consumer price index for urban consumers during the preceding 12-month
period, whichever is greater. Expenditures for the payment of bonds, notes and
other evidences of indebtedness are excluded from the constitutional and
statutory definitions of general budget expenditures.

The State has no constitutional limit on its power to issue obligations or
incur indebtedness other than that it may only borrow for public purposes. There
are no reported court decisions relating to State bonded indebtedness other than
two cases validating the legislative determination of the public purpose for
improving employment opportunities and related activities. The State
Constitution has never contained provisions requiring submission of the
questions of incurring indebtedness to a public referendum. Therefore, the
authorization and issuance of State debt, including the purpose, amount and
nature thereof, the method and manner of the incurrence of such debt, the
maturity and terms of repayment thereof, and other related matters are
statutory.

The State has established a program of temporary note issuance to cover
periodic cash flow requirements. The maximum volume of cash flow borrowing is
determined based upon the State's actual cash needs on a daily basis. In
September 1995, the State established a commercial paper program which replaces
all previous programs. Under this program, the State may issue and have
outstanding at any time up to $400 million of general obligation temporary notes
during a two-year period concluding in September 1997.

The General Assembly has empowered, pursuant to bond acts in effect, the
State bond Commission to authorize general obligation bonds in the amount of
$9.069 billion. As of September 15, 1995, the State Bond Commission had
authorized $7,716 billion in such bonds and the balance of $1.445 billion was
available for authorization.

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LOCAL GOVERNMENT. General obligations bonds issued by Connecticut
municipalities are payable primarily from ad valorem taxes on property subject
to taxation by the municipality. Certain Connecticut municipalities have
experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. The most notable of these was the City of
Bridgeport.

NEW JERSEY MUNICIPAL SECURITIES

ECONOMIC FACTORS. New Jersey's economic base if diversified, consisting of a
variety of manufacturing, construction and service industries, supplemented by
rural areas with selective commercial agriculture. New Jersey's principal
manufacturing industries produce chemicals, pharmaceuticals, electrical
equipment and instruments, machinery, food products, and printing. Other
economic activities include services, wholesale and retail trade, insurance,
tourism, petroleum refining and truck farming.

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

Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6% during the first quarter of 1989 to a recessionary peak of 8.4%
during 1992. Since then, the unemployment rate fell to 6.4% during the first ten
months of 1995. Despite an increase reported in December 1995, the annualized
unemployment rate remained 6.4% for the fourth quarter of 1995.

STATE FINANCES. The revised estimate as shown in the Governor's Fiscal Year
1997 Budget Message forecasts Sales and Use Tax collections for Fiscal Year 1996
as $4.310 billion, a 4.3% increase from Fiscal Year 1995 revenue. The Fiscal
Year 1997 estimate of $4.403 billion is a 2.2% increase from the Fiscal Year
1996 estimate.

The revised estimate as shown in the Governor's Fiscal Year 1997 Budget
Message forecasts Gross Income Tax collections for Fiscal Year as $4.547
billion, a 0.2% increase from Fiscal Year 1995 revenue. Included in the Fiscal
Year 1995 revenue is a 5% reduction of personal income tax rates effective
January 1, 1994 and a further 10% reduction of personal income tax rates
effective January 1, 1995 (on joint income under $80,000). The estimate for
Fiscal Year 1997 as shown in the Governor's Fiscal Year 1997 Budget Message of
$4.610 billion is a 1.4% increase from the Fiscal Year 1996 estimate. Included
in the Fiscal Year 1996 forecast is the 10% reduction of personal income tax
rates effective January 1, 1995 and a further 15% reduction of personal income
tax rates effective January 1, 1996 (on joint income under $80,000).

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The revised estimate as shown in the Governor's Fiscal Year 1997 Budget
Message forecasts Corporation Business Tax collection for fiscal year 1996 as
$1.198 million, a 10.4% increase from Fiscal Year 1995 revenue. Included in the
Corporation Business Tax forecast is a reduction in the Corporation Business Tax
rate from 9.375% to 9.0% of net New Jersey income. The Fiscal Year 1997 forecast
as shown in the Governor's Fiscal Year 1997 Budget Message of $1.210 billion
represents a 1.0% increase from the Fiscal Year 1996 estimate.

The revised estimate as shown in the Governor's Fiscal Year 1997 Budget
Message forecasts Other Miscellaneous Taxes Fees and Revenues collections for
Fiscal Year 1996 as $1.514 billion, a decrease from Fiscal Year 1995 revnue.

The Fiscal Year 1996 revised estimates anticipate that the Legislature will
enact a tax amnesty program. It is esimated that a 90-day amnesty will yield $70
million.

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

The State appropriated approximately $15.439 billion and $16.109 billion for
fiscal 1995 and 1996, respectively. Of the $16.109 billion appropriated in
Fiscal Year 1996 from the General Fund, the Property Tax Relief Fund, the Casino
Control Fund, the Casino Revenue Fund and the Gubernatorial Elections Fund,
$6.447 billion (40.0%) is appropriated for State aid to local governments,
$3.746 billion (23.3%) is appropriated for grants-in-aid (payments to
individuals or public or private agencies for benefits to which a receipient is
entitled by law or for the provison of services on behalf of the State), $5.253
billion (32.5%) for Direct State Services, $466.3 million (2.9%) for debt
service on State general obligation bonds and $217.1 million (1.3%) for capital
construction.

Should tax revenues be less than the amount anticipated in the Budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. The appropriations for Fiscal Year 1996 and
for Fiscal Year 1997 reflect the amounts contained in the Governor's Fiscal Year
1997 Budget Message.

The State has made appropriations for principal and interest payments for
general obligation bonds for fiscal years 1993 through 1996 in the amounts of
$444.3 million, $119.9 million, $103.6 million and $466.3 million, respectively.
The Governor's Fiscal Year 1997 Budget Message for Fiscal Year 1997 includes an
appropriation in the amount of $463.1 million for principal and interest
payments for general obligation bonds.

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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. S&P and Moody's 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.

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

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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 FY1995-96. 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.

Notwithstanding the State budget for FY1995-96 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 FY1996-97 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 FY1996-97. 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's 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,

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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.

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-

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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 FY1994-95 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.

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

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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 and 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 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

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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 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 Fund.

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

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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 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.

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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
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

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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 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

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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 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's 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 FY1995-96, primarily

27
<PAGE>
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.

INVESTMENT LIMITATIONS

The following 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 following limitations.

Each Fund will not:

(1) purchase any security if, as a result of that purchase, 25% or more
of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry,
except that this limitation does not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities
or to municipal securities or to certificates of deposit and bankers'
acceptances of domestic branches of U.S. banks;

The following interpretation applies to, but is not a part of, this
fundamental restriction (1): With respect to this limitation, domestic and
foreign banking will be considered to be different industries.

(2) issue senior securities or borrow money, except as permitted under
the Investment Company Act of 1940 ("1940 Act") and then not in
excess of 33 1/3% of the Fund's total assets (including the amount of
the senior securities issued but reduced by any liabilities not
constituting senior securities) at the time of the issuance or
borrowing, except that the Fund may borrow up to an additional 5% of
its total assets (not including the amount borrowed) for temporary or
emergency purposes;

28
<PAGE>

(3) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures, other debt
securities or instruments or participations or other interests
therein and investments in government obligations, commercial paper,
certificates of deposit, bankers' acceptances or similar instruments
will not be considered the making of a loan;

(4) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter
under the federal securities laws in connection with its disposition
of portfolio securities;

(5) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject to
this limitation, and except that the Fund may exercise rights under
agreements relating to such securities, including the right to
enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an
orderly manner; and

(6) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts
or derivative instruments.

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

(7) purchase securities of any one issuer if, as a result, more than 5%
of the Fund's total assets would be invested in securities of that
issuer or the Fund would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Fund's
total assets may be invested without regard to this limitation, and
except that this limitation does not apply to securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities
or to securities issued by other investment companies;

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

With respect to Tax-Free Fund, the following interpretation applies to, but
is not a part of, fundamental restriction (7): Each state (including the
District of Columbia and Puerto Rico), territory and possession of the United
States, each political subdivision, agency, instrumentality and authority
thereof, and each multi-state agency of which a state is a member is a separate
"issuer." When the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from the government creating the
subdivision and the security is backed only by the assets and revenues of the
subdivision, such subdivision would be deemed to be the sole issuer. Similarly,
in the case of an Industrial Development Bond or Private Activity Bond, if that
bond is backed only by the

29
<PAGE>

assets and revenues of the non-governmental user, then that non-governmental
user would be deemed to be the sole issuer. However, if the creating government
or another entity guarantees a security, then to the extent that the value of
all securities issued or guaranteed by that government or entity and owned by
the Fund exceeds 10% of the Fund's total assets, the guarantee would be
considered a separate security and would be treated as issued by that government
or entity.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The following investment
restrictions may be changed by each board without shareholder approval.

Each Fund will not:

(1) mortgage, pledge or hypothecate any assets except in connection with
permitted borrowings or the issuance of senior securities;

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

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

(4) invest in oil, gas or mineral exploration or development programs or
leases, except that investments in securities of issuers that invest
in such programs or leases and investments in asset-backed
securities supported by receivables generated from such programs or
leases are not subject to this prohibition; and

(5) purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and except that this limitation
does not apply to securities received or acquired as dividends,
through offers of exchange, or as a result of reorganization,
consolidation, or merger.

(6) invest in real estate limited partnerships

(7) purchase securities while borrowings in excess of 5% of its total
assets are outstanding.

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

(9) purchase or retain the securities of any issuer if the officers,
directors or trustees of the Corporation or 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;

(10) 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.

Connecticut Municipal Money Fund and New Jersey Municipal Money Fund will
not:

(11) invest in companies for the purpose of exercising control or
management.

30
<PAGE>
DIRECTORS/TRUSTEES AND OFFICERS

The directors, trustees and executive officers of the Corporations and the
Trust, their ages, business addresses and principal occupations during the past
five years are:

31
<PAGE>

<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 Prior to December 1995, he was a
consultant to PW Group. Prior to 1988,
he was chairman of the board, president
and chief executive officer of American
Bakeries Company. Mr. Bewkes is a
director of Interstate Bakeries
Corporation and NaPro Bio-Therapeutics,
Inc. Mr. Bewkes is a director or trustee
of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Richard Burt; 49............. Director/Trustee Mr. Burt is chairman of International
1101 Connecticut Avenue, N.W. Equity Partners (international investments
Washington, D.C. 20036 and consulting firm) (since March 1994)
and a partner of McKinsey & Company
(management consulting firm) (since
1991). He was the chief negotiator in
the Strategic Arms Reduction Talks with
the former Soviet Union (1989-1991) and
the U.S. Ambassador to the Federal
Republic of Germany (1985-1989). Mr.
Burt is also a director of American
Publishing Company and a director or
trustee of 29 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Mary C. Farrell**; 46........ Director/Trustee Ms. Farrell is a managing director, senior
investment strategist, and member of the
Investment Policy Committee of
PaineWebber. Ms. Farrell joined
PaineWebber in 1982. She is a member of
the Financial Women's Association and
Women's Economic Roundtable, and is
employed as a regular panelist on Wall
Street Week with Louis Rukeyser. She
also serves on the Board of Overseers of
New York University's Stern School of
Business. Ms. Farrell is a director or
trustee of 29 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

32
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
Meyer Feldberg; 54........... 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., (medical instruments
and supplies) Federated Department
Stores Inc., Inco Homes Corporation and
New World Communications Group
Incorporated. Dean Feldberg is a
director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
George W. Gowen; 66.......... 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 a director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a
director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

33
<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.
(management consulting and computer-
related services). Automatic Data
Processing, Inc., Avis, Inc. (passenger
car rental). FPL Group, Inc. (electric
services). National Education
Corporation and Northwest Airlines Inc.
Mr. Malek is a director or trustee of 29
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
Carl W. Schafer; 60.......... Director/Trustee Mr. Schafer is president of the Atlantic
P.O. Box 1164 Foundation (charitable foundation
Princeton, NJ 08542 supporting mainly oceanographic
exploration and research). He also is a
director of Roadway Express, Inc.
(trucking). The Guardian Group of Mutual
Funds, Evans Systems, Inc. (a major
fuels, convenience store and diversified
company), Hidden Lake Gold Mines Ltd.
(gold mining), Electronic Clearing
House, Inc. (financial transactions
processing), Wainoco Oil Corporation and
Nutraceutix, Inc. (biotechnology). Prior
to January 1993, he was chairman of the
Investment Advisory Committee of the
Howard Hughes Medical Institute. Mr.
Schafer is a director or trustee of 29
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
John R. Torell III; 56....... Director/Trustee Mr. Torell is chairman of Torell
767 Fifth Avenue Management, Inc. (financial advisory
Suite 4605 firm), chairman of Telesphere
New York, NY 10153 Corporation (electronic provider of
financial information) and a partner of
Zilkha & Company (merchant bank and
private investment company). He is the
former chairman and chief executive
officer of Fortune Bancorp (1990-1991
and 1990-1994, respectively), the former
chairman, president and chief executive
officer of CalFed, Inc. (savings
association) (1988 to 1989) and the
former president of Manufacturers
Hanover Corp. (bank) (prior to 1988).
Mr. Torell is also a director of
American Home Products Corp., New Colt
Inc. (armament manufacturer) and Volt
Information Services Inc. and a director
or trustee of 29 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Cynthia Bow; [37]............ Vice President Ms. Bow is a vice president and a
(Managed Municipal portfolio manager of Mitchell Hutchins.
Trust) Ms. Bow has been with Mitchell Hutchins
since 1982. Ms. Bow is a vice president
of two investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
</TABLE>

35
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
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 a vice
president of 30 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Kimberly Brown; 28........... Vice President (RMA Ms. Brown is an assistant vice president
Money Fund) and a portfolio manager of Mitchell
Hutchins. She has been a portfolio
manager since March 1995 and has been
with Mitchell Hutchins since December
1992. Prior to joining Mitchell
Hutchins, Ms. Brown was with Visual
Impact Advertising.
C. William Maher; 35......... Vice President and Mr. Maher is a first vice president and
Assistant Treasurer senior manager of the mutual fund finance
division of Mitchell Hutchins. Mr. Maher
is a vice president and assistant
treasurer of 30 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dennis McCauley; 49.......... Vice President Mr. McCauley is a managing director and
chief investment officer--fixed income
of Mitchell Hutchins. Prior to December
1994, he was director of fixed income
investments of IBM Corporation. Mr.
McCauley is a vice president of 18
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Susan P. Messina*; 35........ Vice President (RMA Ms. Messina is a senior vice president and
Money Fund) portfolio manager for Mitchell Hutchins.
Ms. Messina is a vice president of five
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

36
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUST OTHER DIRECTORSHIPS
- ----------------------------- -------------------- ------------------------------------------
<S> <C> <C>
Ann E. Moran; 38............. Vice President and Ms. Moran is a vice president of Mitchell
Assistant Treasurer Hutchins. Ms. Moran is a vice president
and assistant treasurer of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 44...... Vice President and Ms. O'Donnell is a senior vice president
Secretary and deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice
president and secretary of 29 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; 45.... Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins.
Prior to May 1994, she was a partner in
the law firm of Arnold & Porter. Ms.
Schonfeld is a vice president of 30
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 33......... Vice President and Mr. Schubert is a first vice president and
Assistant Treasurer a senior manager of the mutual fund
finance division of Mitchell Hutchins.
From August 1992 to August 1994, he was
a vice president at BlackRock Financial
Management, L.P. Prior to August 1992,
he was an audit manager with Ernst &
Young LLP. Mr. Schubert is a vice
president and assistant treasurer of 30
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
finance division of Mitchell Hutchins.
Prior to December 1991, he was an audit
senior manager with Ernst & Young LLP.
Mr. Sluyters is a vice president and
treasurer of 30 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Debbie Vermann 37............ Vice President Ms. Vermann is a vice president and a
(Tax-Free Fund, portfolio manager of Mitchell Hutchins.
Managed Municipal Ms. Vermann is a vice president of two
Trust, and Municipal investment companies for which Mitchell
Money Market Series) Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

37
<PAGE>

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

* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.

** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of each
Corporation and the Trust as defined in the 1940 Act by virtue of their
positions with Mitchell Hutchins, PaineWebber and/or PW Group.

Each Corporation or Trust pays directors/trustees who are not "interested
persons" of the Corporation or Trust $1,000 annually for each series and $150
per meeting of the board and each separate meeting of a board committee. Money
Fund, Tax-Free Fund, Managed Municipal Trust and Municipal Money Market Series
presently have, respectively, three, one, two and two series and thus pay such
directors and trustees $3,000, $1,000, $2,000 and $2000, respectively, annually
plus any additional amounts due for board or committee meetings. Certain
committee chairs receive additional annual compensation aggregating $15,000
annually from all the funds within the PaineWebber fund complex.
Directors/trustees are reimbursed for any expenses incurred in attending
meetings. Directors/trustees and officers of the Corporations/Trusts 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/Trusts and the Funds, the Corporations and Trusts
require no employees. No officer, director or employee of Mitchell Hutchins or
PaineWebber presently receives any compensation from the Corporations and Trusts
for acting as a director/trustee or officer.

The table below includes certain information relating to the compensation of
the directors/trustees of the Corporations/Trusts who held office during the
fiscal year ended June 30, 1996.

38
<PAGE>

<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION FROM COMPENSATION
----------------------------------------------- FROM THE
RMA RMA MUNICIPAL CORPORATIONS/TRUST
MONEY TAX-FREE MANAGED MONEY MARKET AND THE
NAME OF PERSONS, POSITION FUND, INC.(1) FUND, INC. MUNICIPAL TRUST(2) SERIES FUND COMPLEX**
- -------------------------------- ------------- ---------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Richard Q. Armstrong
Director/Trustee............... [ ] [ ] [ ] [ ] [ ]
Richard Burt
Director/Trustee............... [ ] [ ] [ ] [ ] [ ]
Meyer Feldberg,
Director/Trustee............... [ ] [ ] [ ] [ ] [ ]
George W. Gowen,
Director/Trustee............... [ ] [ ] [ ] [ ] [ ]
Frederic V. Malek,
Director/Trustee............... [ ] [ ] [ ] [ ] [ ]
Carl W. Schafer
Director/Trustee............... [ ] [ ] [ ] [ ] [ ]
John R. Torell III
Director/Trustee............... [ ] [ ] [ ] [ ] [ ]
</TABLE>

- ---------

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

* Represents fees paid to each director/trustee during the fiscal year ended
June 30, 1996 (for the twelve months ended June 30, 1996 for Municipal Money
Market Series).

** Represents total compensation paid to each director/trustee during the
calendar year ended December 31, 1995; the Corporations and Trusts do not
have pension or retirement plans.

39
<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,
September 10, 1990 with Managed Municipal Trust and April 13, 1995 with
Municipal Money Market Series ("PaineWebber Contracts"). Under the PaineWebber
Contracts, each Fund pays PaineWebber an annual fee, computed daily and paid
monthly, according to the following schedule:

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%
CONNECTICUT MUNICIPAL MONEY FUND AND NEW JERSEY MUNICIPAL MONEY FUND:
All.......................................................... 0.50%

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

FOR THE FISCAL YEAR ENDED JUNE 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
[S] [C] [C] [C]
Money Market Portfolio........ $23,493,781 $21,677,334
U.S. Government Portfolio..... 3,746,439 4,027,163
Tax-Free Fund................. 7,340,127 6,818,920
California Municipal Money
Fund.......................... $ 1,587,620 $ 1,518,394
New York Municipal Money
Fund.......................... 923,010 752,803
($ 50,014) ($ 100,644)
waived waived

40
<PAGE>

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

<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,
FOR THE EIGHT MONTHS --------------------------------
ENDED JUNE 1996 1995 1994 1993
-------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Connecticut Municipal Money Fund........ $ $120,651 $151,858 $312,881
New Jersey Municipal Money Fund......... $ $167,865 $207,338 $349,798
</TABLE>

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.

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 30,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Money Market Portfolio................................ $1,168,942 $1,106,377
U.S. Government Portfolio............................. 122,640 124,114
Tax-Free Fund......................................... 217,437 199,135
California Municipal Money Fund....................... 43,682 41,733
New York Municipal Money Fund......................... 30,749 27,333
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
OCTOBER 31,
FOR THE EIGHT MONTHS --------------------------------
ENDED JUNE 30, 1996 19951 19942 19932
-------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Connecticut Municipal Money Fund........ $ 0 $ $ $
New Jersey Municipal Money Fund......... 0
</TABLE>

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, September
10, 1990 with respect to the Trust ("Mitchell Hutchins Contracts") and April
1995 with respect to Connecticut Municipal Money Fund and New Jersey Municipal
Money Fund, Mitchell Hutchins serves as each Fund's sub-adviser and
sub-administrator. Under the Mitchell Hutchins Contracts, PaineWebber (not the
Funds) pays Mitchell Hutchins fees, computed daily and paid monthly, at an
annual rate of 20% of the fee paid by each Fund to PaineWebber under the
PaineWebber Contracts.

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

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 30,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Money Market Portfolio................................... $4,698,756 $4,335,467
U.S. Government Portfolio................................ 749,288 805,433
Tax-Free Fund............................................ 1,468,025 1,363,784
California Municipal Money Fund.......................... 317,524 303,679
New York Municipal Money Fund............................ 184,602 150,561
</TABLE>

41
<PAGE>

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
OCTOBER 31,
FOR THE FISCAL PERIOD --------------------------------
ENDED JUNE 30, 1996 1995 1994 1993
--------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Connecticut Municipal Money Fund......... $ $ 13,354 $ -- $
New Jersey Municipal Money Fund.......... $ $ 18,580 $ -- $ --
</TABLE>

Under the terms of the PaineWebber Contracts, each Fund bears all expenses
incurred in its operation that are not specifically assumed by PaineWebber.
General expenses of a Corporation or Trust not readily identifiable as belonging
to a specific Fund or to any other series of the Corporation or Trust are
allocated among series by or under the direction of the Corporation's or Trust's
board in such manner as the board deems fair and equitable. Expenses borne by
the Funds include the following (or each Fund's share of the following): (1) the
cost (including brokerage commissions and other transaction costs, if any) of
securities purchased or sold by the Funds and any losses incurred in connection
therewith, (2) fees payable to and expenses incurred on behalf of the Funds by
PaineWebber, (3) organizational expenses, (4) filing fees and expenses relating
to the registration and qualification of the shares of the Funds under federal
and state securities laws and maintaining such registrations and qualifications,
(5) fees and salaries payable to the 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

42
<PAGE>

reimbursement pursuant to such limitation was required for the last three 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.

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, 1996,
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)......................... $
Global....................................................
Equity/Balanced...........................................
Fixed Income (excluding Money Market).....................
Taxable Fixed Income....................................
Tax-Free Fixed Income...................................
Money Market Funds........................................

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 and other Mitchell Hutchins' advisory accounts
by all Mitchell Hutchins' directors, officers and employees, establishes
procedures for personal investing and restricts certain transactions. For
example, employee accounts generally must be maintained at PaineWebber, personal
trades in most securities require pre-clearance and short-term trading and
participation in initial public offerings generally are prohibited. In addition,
the code of ethics puts restrictions on the timing of personal investing in
relation to trades by the PaineWebber mutual funds and other Mitchell Hutchins
advisory clients.

DISTRIBUTION ARRANGEMENTS. PaineWebber acts as distributor of shares of the
Funds under separate distribution contracts with each Corporation or Trust
("Distribution Contracts") which

43
<PAGE>

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, Connecticut Municipal Money Fund, New Jersey Municipal Money Fund
and New York Municipal Money Fund to compensate or reimburse PaineWebber for
certain expenses incurred in connection with its activities in providing certain
shareholder and account maintenance services 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.

Among other things, each Plan provides that (1) PaineWebber will submit to
the board 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, 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 each Fund except Money Market Portfolio 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 except that Connecticut Municipal Money Fund and New Jersey
Municipal Money Fund reimburses PaineWebber for certain service expenses at an
annual rate of up to 0.12% of its average daily net assets. Any increase from
the current annual rate would require prior approval of the board.

During the fiscal year ended June 30, 1996, 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 $ , $ , $ and
$ , respectively. For the same period, PaineWebber estimates that it
incurred expenses of $ , $ , $ and $ , 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--$ , $ , $ and $ ; (b) printing--$ , $ ,
$ and $ ; and (c) service fees to investment executives-- $ ,
$ , $ and $ .

During the fiscal period ended June 30, 1996 and the fiscal year ended
October 31, 1995, Connecticut Municipal Money Fund paid or accrued to
PaineWebber or Kidder, Peabody & Co. Incorporated, the Fund's predecessor
distributor, service fees of $ and $28,957, respectively. PaineWebber
estimates that these expenses were incurred for Connecticut Municipal during the
fiscal

44
<PAGE>

period ended June 30, 1996, and the fiscal year ended October 31, 1995,
respectively, as follows: (a) advertising, promotion and allocated
costs--$ and $23,686; (b) printing--$ and $927; and (c) service
fees to investment executives--$ and $14,478. During the fiscal period
ended June 30, 1996, and the fiscal year ended October 31, 1995, New Jersey
Municipal Money Fund paid or accrued to PaineWebber or Kidder, Peabody & Co.
Incorporated, each Fund's predecessor distributor, service fees of $ and
$40,287, respectively. PaineWebber estimates that these expenses were incurred
for New Jersey Municipal Money Fund during the fiscal period ended June 30, 1996
and the fiscal year ended October 31, 1995, respectively, as follows: (a)
advertising, promotion and allocated costs--$ and $32,852; (b)
printing--$ and $1,392; and (c) service fees to investment
executives--$ and $20,145.

"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 each 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 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

<PAGE>

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 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

46
<PAGE>
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, Connecticut Municipal Money Fund, New Jersey Municipal
Money Fund, and New York Municipal Money Fund each reserve the right to honor
any request for redemption by making payment in whole or in part in securities
chosen by the Fund and valued in the same way as they would be valued for
purposes of computing the Fund's net asset value. If payment is made in
securities, a shareholder may incur brokerage expenses in converting these
securities into cash. Managed Municipal Trust has elected, however, to be
governed by Rule 18f-1 under the 1940 Act, under which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of either Fund during any 90-day period for one shareholder. This election is
irrevocable unless the SEC permits its withdrawal.

47
<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 each Corporation and Trust has 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 assets, if any, are valued at fair value as
determined in good faith by or under the direction of the board of
directors/trustees.

48
<PAGE>
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 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

49
<PAGE>
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.

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

50
<PAGE>
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 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

51
<PAGE>
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.

[NEW JERSEY TAXES]. [Insert]

[CONNECTICUT TAXES]. [Insert]

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.

TABLE I. 1995 FEDERAL TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
TAXABLE INCOME (000'S) A TAX-FREE YIELD OF
- --------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4.00% 5.00% 6.00% 7.00% 8.00%
SINGLE JOINT FEDERAL TAX ----- ----- ----- ----- -----
RETURN RETURN BRACKET IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
- ------- ------- ----------- -----------------------------------------------
</TABLE>

52
<PAGE>
$ 0-- 22.10 $ 0-- 36.90 15.0%
22.10-- 53.50 36.90-- 89.15 28.0
53.50--115.00 89.15--140.00 31.0
115.00--250.00 140.00--250.00 36.0
Over 250.00 Over 250.00 39.6

- ---------

* 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
1996 federal individual and 1995 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. 1996 FEDERAL AND 1995 CALIFORNIA TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
EFFECTIVE A TAX-FREE YIELD OF
TAXABLE INCOME (000'S) CALIFORNIA ---------------------------------------------
- ------------------------------- AND 4.00% 5.00% 6.00% 7.00% 8.00%
SINGLE JOINT FEDERAL TAX ----- ----- ----- ----- -----
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
22.10-- 24.50 36.90-- 49.00
24.50-- 31.00 49.00-- 62.00
31.00-- 53.50 62.00-- 89.20
53.50--107.50 89.20--140.00
107.50--115.00 --
-- 140.00--214.90
115.00--214.90 214.90--250.00
214.90--250.00 --
-- 250.00--429.90
Over 250.00 Over 429.90
</TABLE>

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

* See note following Table V.

TAX-FREE INCOME VS. TAXABLE INCOME-NEW YORK MUNICIPAL MONEY FUND. Table III
below illustrates approximate equivalent taxable and tax-free yields at the 1996
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 1995, whose
investments earn a 4% tax-free yield, would have to earn approximately a 6.6%
taxable 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 1996 would have to
earn approximately a 6.3% taxable yield to realize a benefit equal to a 4%
tax-free yield.

53
<PAGE>

Single taxpayers may also take advantage of high tax-free income. For
example, a single individual with taxable income of $55,000 in 1996 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 1996, would have to earn approximately a 6.3% taxable yield
to realize a benefit equal to a 4% tax-free yield.

TABLE III. 1996 FEDERAL AND NEW YORK TAXABLE VS. TAX-FREE YIELDS*

A TAX-FREE YIELD OF
TAXABLE INCOME (000'S) COMBINED ---------------------------------------------
- ------------------------------- FEDERAL/ 4.00% 5.00% 6.00% 7.00% 8.00%
SINGLE JOINT NYS/NYC ----- ----- ----- ----- -----
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%
22.10--53.50 36.90--89.15 36.6
53.50--115.00 89.15--140.00 39.3
115.00--250.00 140.00--250.00 43.7
Over 250.00 Over 250.00 46.9

TABLE IV. 1996 FEDERAL AND NEW JERSEY TAXABLE VS. TAX-FREE YIELDS*

[Table to be inserted]

54
<PAGE>

TABLE V. 1996 FEDERAL AND CONNECTICUT TAXABLE VS. TAX-FREE YIELDS*

[Table to be inserted]

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

* 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).

55
<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 = ( ---------- ) + t
1 - p

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

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

56
<PAGE>

The following yields are for the seven-day period ended June 30, 1996:

<TABLE>
<CAPTION>
EFFECTIVE
YIELD YIELD
----- ---------
<S> <C> <C>
Money Market Portfolio............................... % %
U.S. Government Portfolio............................ % %
Tax-Free Fund........................................ % %
California Municipal Money Fund...................... % %
Connecticut Municipal Money Fund..................... % %
New Jersey Municipal Money Fund...................... % %
New York Municipal Money Fund........................ % %
</TABLE>

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

<TABLE>
<CAPTION>
TAX-EQUIVALENT TAX-EQUIVALENT
YIELD EFFECTIVE YIELD
-------------- ---------------
<S> <C> <C>
Tax-Free Fund (assuming a federal tax rate of 39.6%)............ % %
California Municipal Money Fund (assuming a combined federal and
California State tax rate of 46.2%)............................. % %
Connecticut Municipal Money Fund (assuming a combined federal
and Connecticut State tax rate of %)......................... % %
New Jersey Municipal Money Fund (assuming a combined federal and
New Jersey State tax rate of %).............................. % %
New York Municipal Money Fund (assuming a combined federal, New
York State and New York City tax rate of 46.9%)................. % %
New York Municipal Money Fund (assuming an effective combined
federal and New York State tax rate of 44.2%)................... % %
</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,

57
<PAGE>
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 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

[Each Trusts 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, each Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each note, bond, contract, instrument, certificate or undertaking made or issued
by the trustees or by any officers or officer by or on behalf of that Trust, a
Fund, the trustees or any of them in connection with the Trust. 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 Massachusetts
Avenue, N.W., Washington, D.C. 20036, counsel to the Funds, has passed upon the
legality of the shares offered by

58
<PAGE>
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, 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 Annual Reports to Shareholders for the fiscal year ended June 30, 1995
for Money Market Portfolio, U.S. Government Portfolio, California Municipal
Money Fund, and New York Municipal Money Fund and the Annual Report to
Shareholders for the eight months ended April 30, 1996 for Connecticut Municipal
Money Fund and New Jersey Municipal Money Fund 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.

59
<PAGE>
APPENDIX A
SERVICES AVAILABLE THROUGH THE RMA PROGRAM TO RMA ACCOUNTHOLDERS

Shares of the Funds are available primarily to investors who are
Participants in the 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. A "Summary of
Accounts" statement and a menu of customized statement options are now available
to make the monthly reporting even more comprehensive.

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 a money market fund as a primary fund
into which uninvested cash is automatically swept on a daily basis from a
variety of taxable and tax-free money funds. By automatically investing cash
balances into a money market fund, this sweep feature minimizes the extent to
which an investor's assets remain idle while held in the account pending
investment.

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

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

ELECTRONIC FUNDS TRANSFER/BILL PAYMENT SERVICE. RMA Participants can
electronically transfer money between their RMA and other financial
institutions, transfer funds to and from other PaineWebber accounts and pay
bills. Unlimited transfers from financial accounts and ten free transfers to
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

A-1
<PAGE>
machines in the U.S. For an additional annual fee, investors can also obtain a
line of credit from Bank One that can be accessed through their Gold MasterCard.
Through MasterCard's enhanced MasterAssist(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.

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

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. A "Summary of Accounts"
statement and a menu of customized statement options are now available to make
the monthly reporting more comprehensive.

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 a money market fund as a primary fund
into which uninvested cash is automatically swept on a daily basis from a
variety of taxable and tax-free money funds. By automatically investing cash
balances into a money market fund, this sweep feature minimizes the extent to
which an investor's assets remain idle while held in the account pending
investment.

CHECK WRITING--BSA Participants have ready access to the assets held in
their BSA account through the check writing feature. There are no minimum check
amounts. 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.

B-1
<PAGE>
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 $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 8:00 P.M. E.T. and
speak to a PaineWebber representative to make 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. Unlimited transfers
to the BSA and twenty free transfers/payments out of the BSA 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 information or to make any
representations not contained in this PaineWebber RMA
Prospectus in connection with the
offering made by the Prospectus and, if Money Market Portfolio
given or made, such information or U.S. Government Portfolio
representations must not be relied upon Tax-Free Fund
as having been authorized by the Funds California Municipal
or their Distributor. This Prospectus Money Fund
does not constitute an offering by the Connecticut Municipal
Funds or by the Distributor in any Money Fund
jurisdiction in which such offering may New Jersey Municipal
not lawfully be made. Money Fund
New York Muncipal
Money Fund

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

TABLE OF CONTENTS

Page
----
Statement of Additional Information...... 1 -----------------------------------
Directors/Trustees and Officers.......... 31 Statement of Additional Information
Investment Advisory, Administration
and Distribution Arrangements ......... 40 August 29, 1996
Portfolio Transactions................... 45
Additional Information Regarding
Redemptions............................ 47
Valuation of Shares...................... 48
Taxes.................................... 49
Calculation of Yield..................... 56
Other Information........................ 58
Financial Statements..................... 59
Appendix A............................... A-1 ----------------------------------
Appendix B............................... B-1

Recycled
Paper

<PAGE>

THE FUND IS A SERIES OF PAINEWEBBER PAINEWEBBER
RMA MONEY FUND, INC. THIS PROSPECTUS RETIREMENT MONEY FUND
CONCISELY SETS FORTH INFORMATION 1285 AVENUE OF THE AMERICAS
ABOUT THE FUND A PROSPECTIVE INVESTOR NEW YORK, NEW YORK 10019
SHOULD KNOW BEFORE INVESTING. PLEASE
RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE. A STATEMENT OF ADDITIONAL
INFORMATION DATED AUGUST 29, 1996
(WHICH IS INCORPORATED BY REFERENCE
HEREIN) HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
("SEC"). THE STATEMENT OF ADDITIONAL
INFORMATION CAN BE OBTAINED WITHOUT
CHARGE, AND FURTHER INQUIRIES CAN BE
MADE, BY CONTACTING THE FUND, YOUR
PAINEWEBBER INVESTMENT EXECUTIVE OR
PAINEWEBBER'S CORRESPONDENT FIRMS OR
BY CALLING TOLL-FREE 1-800-647-1568.

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

AN INVESTMENT IN THE FUND IS NEITHER A PROFESSIONALLY MANAGED MONEY MARKET
INSURED NOR GUARANTEED BY THE U.S. FUND OFFERED TO INDIVIDUAL RETIREMENT
GOVERNMENT. WHILE THE FUND SEEKS TO ACCOUNTS AND OTHER QUALIFIED
MAINTAIN A STABLE NET ASSET VALUE OF RETIREMENT PLANS SEEKING:
$1.00 PER SHARE, THERE CAN BE NO
ASSURANCE THAT IT WILL BE ABLE TO DO /X/ CURRENT INCOME
SO.
/X/ HIGH LIQUIDITY

/X/ CONSERVATION OF CAPITAL

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

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, 1996

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

<PAGE>
PAINEWEBBER RETIREMENT MONEY FUND
HIGHLIGHTS

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

<TABLE>
<S> <C>
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 Policies: Current income consistent with liquidity and conservation of
capital; invests primarily in high-grade money market instruments.
Net Assets: Over $ billion at July 31, 1996.
Distributor and
Investment Adviser: PaineWebber Incorporated ("PaineWebber"). See "Management."
Sub-Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins").
Purchases: Shares of common stock are available exclusively through PaineWebber
and its correspondent firms. See "Purchases."
Redemptions: Shares may be redeemed through PaineWebber or its correspondent
firms. See "Redemptions."
Yield: Based on current money market rates; quoted in the financial section
of most newspapers.
Dividends: Declared daily and paid monthly. See "Dividends and Taxes."
Reinvestment: All dividends are automatically paid in Fund shares.
Minimum Purchase: $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 Price: Net asset value, which the Fund seeks to maintain at $1.00 per
share.
</TABLE>

WHO SHOULD INVEST. The Fund is designed for investors seeking safety,
liquidity 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-employed 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
investment objective. In periods of declining interest rates, the Fund's yield
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates, the Fund's yield generally will be somewhat lower. See
"Investment Objective and Policies."

EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in the
Fund.

2
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES

<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)

Management fees...............................................%
12b-1 fees....................................................%
Other expenses................................................%
----
Total operating expenses......................................%
----
----
</TABLE>

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

* See "Management" for additional information. The fees and expenses shown are
those actually incurred for the fiscal year ended June 30, 1996.

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>
$ $ $ $
</TABLE>

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
THE ACTUAL EXPENSES OF THE FUND WILL DEPEND UPON, AMONG OTHER THINGS, THE LEVEL
OF AVERAGE NET ASSETS AND THE EXTENT TO WHICH THE FUND INCURS VARIABLE EXPENSES,
SUCH AS TRANSFER AGENCY COSTS.

3
<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
financial statements and accompanying notes appearing in the Fund's Annual
Report to Shareholders for the fiscal year ended June 30, 1996, and the report
of Ernst & Young LLP, independent auditors, appearing therein. Both are
incorporated by reference into the Statement of Additional Information and the
Annual Report to shareholders may be obtained without charge by calling
1-800-647-1568. The financial statements 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, 1996, have been audited by Ernst & Young LLP. The information
appearing below for the fiscal periods ended prior to June 30, 1992 also has
been audited by Ernst & Young LLP, whose report thereon was unqualified.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
<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
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Investment
Income................. 0.047 0.028 0.027 0.044 0.068 0.079
---------- ---------- ---------- ---------- ---------- ---------- ----------
Dividends from net
investment income..... (0.047) (0.028) (0.027) (0.044) (0.068) (0.079)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of
Period................. $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%

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
Ratio of Expenses to
Average Net Assets.... 0.78% 0.77% 0.79% 0.79% 0.79% 0.85%
Ratio of Net Investment
Income to
Average Net Assets.... 4.75% 2.77% 2.76% 4.39% 6.69% 7.84%

<CAPTION>
FOR THE
PERIOD
JULY 2, 1988
(COMMENCEMENT
OF
OPERATIONS)
TO JUNE 30,
1989
-------------
<S> <<C>
Net Asset Value,
Beginning of Period... $1.00
-------------
Net Investment
Income................. 0.081
-------------
Dividends from net
investment income..... (0.081)
-------------
Net Asset Value, End of
Period................. $1.00
-------------
-------------
Total Investment
Return+................ 8.10%
RATIOS/SUPPLEMENTAL DAT
Net Assets, End of
Period (000's)......... $1,340,550
Ratio of Expenses to
Average Net Assets.... 0.91%*
Ratio of Net Investment
Income to
Average Net Assets.... 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
instruments include U.S. government securities, obligations of U.S. and foreign
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
Fund maintains 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.
govern-

4
<PAGE>
ment 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 Government National Mortgage Association certificates),
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).

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 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 financial institutions, which then trade
the component parts independently.

OTHER INVESTMENTS. The Fund may invest in obligations (including
certificates of deposit, bankers' acceptances, time deposits 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 and in time deposits of savings associa-
tions and similar associations 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 Fund invests only in time deposits maturing in seven days or
less.

The commercial paper and other short-term corporate obligations purchased by
the Fund 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 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,
including varying the composition and the average weighted maturity of the
Fund's portfolio based upon its assessment

5
<PAGE>
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 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 money 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, thereby reducing the Fund's yield. In periods of rising interest
rates, the opposite can be true. There can be no assurance that the Fund will
achieve its investment objective.

VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase variable and
floating rate securities with remaining maturities in excess of 13 months issued
by U.S. government agencies or instrumentalities or guaranteed by the U.S.
government, 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 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 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
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 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 Corporation's board of directors.

LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to lend up to
33 1/3% of the total value of its portfolio securities to broker-dealers
or institutional investors that Mitchell Hutchins deems qualified. Lending
securities enables the

6
<PAGE>

Fund to earn additional income, but could result in a loss or delay in
recovering securities.

FOREIGN BANK OBLIGATIONS. The Fund may invest in U.S. dollar denominated
obligations 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, seizure of foreign deposits, currency controls, interest limitations or
other government restrictions that might affect payment of principal or interest
on securities held by the Fund. Additionally, there may be less public
information available about foreign banks and their branches, and legal remedies
for defaults 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 invest
more than 10% of its net assets in illiquid securities, including repurchase
agreements with maturities in excess of seven days.

The Fund's investment objective may not be changed without the approval of
the Fund's shareholders. Certain investment limitations, as described in the
Statement of Additional Information, also may not be changed without shareholder
approval. All other investment policies may be changed by the Corporation's
board of directors without shareholder approval.

PURCHASES

GENERAL. Fund shares are offered to Retirement Plans through brokerage
accounts established as Retirement Plan Sweep Accounts for such Retirement Plans
at PaineWebber or its correspondent firms. The minimum initial investment is
$25. Balances of $1 or more are invested daily down to the penny, 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
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 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
correspondent firm not to purchase Fund shares with such sums. Federal funds
normally are available for cash balances arising from the sale of securities
held in a Retirement Plan brokerage account on the Business Day

7
<PAGE>
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
brokerage account number should be included on the check.

As noted above, Fund shares will be purchased when federal funds are
available. Federal funds are deemed available to the Fund two Business Days
after deposit of a personal check and one Business Day after deposit of a
cashier's or certified check. PaineWebber may benefit from the temporary use of
the proceeds of personal checks to the extent those checks are converted to
federal funds in fewer than two Business Days.

PURCHASES BY WIRE. Investors may also purchase Fund shares by instructing
their banks to transfer federal funds by wire to their Retirement Plans. 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 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 determine 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
invested 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, 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
either PaineWebber, Mitchell Hutchins or PW Trust Company is a fiduciary (within
the meaning of the Employee Retirement Income Security Act or the Internal
Revenue 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
nondiscretionary 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 because of
current legal restrictions relating to potential conflicts of interest.

8
<PAGE>
REDEMPTIONS

Shareholders may redeem any number of shares by submitting a redemption
request 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
purchase 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
redemption. The redemption price may be more or less than the purchase price,
depending 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 "Valuation of Shares."

Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $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 requests 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.

RETIREMENT PLAN DISTRIBUTIONS

Distributions from a Retirement Plan, except those representing returns of
non-deductible contributions thereto, generally are taxable income to the
participant. 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
distributions from a Retirement Plan.

CHECK REDEMPTIONS. Shareholders eligible for distributions from their
Retirement 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
investment of their Plan account balances, only those Plan participants who are
either 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

9
<PAGE>
will continue to receive dividends 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 distributions 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
cancelled checks. If a shareholder has insufficient shares to cover a check, the
check will be returned to the payee marked "nonsufficient funds." Checks written
in amounts less than $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 redemption of an
appropriate number of Fund shares. PaineWebber reserves the right to modify or
terminate the check redemption service at any time or to impose a service charge
in connection with it.

Shareholders who are interested in the check redemption service should
contact 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 withdrawal 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 Retirement Plan distributions.
The proceeds of redemptions under the SWP will be mailed directly to the
shareholder or deposited into a non-Retirement Plan account 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 whose Fund balance is below $100). With respect to Retirement Plans
that permit participants to direct the investment of their Retirement Plan
account balances, 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. Shareholders who are interested in the SWP should contact their PaineWebber
Investment 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 assets
by the number of Fund shares outstanding. The Fund's net assets are equal to

10
<PAGE>

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 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 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;
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 both original issue and market discounts), less amortization of
market premium and accrued expenses. The 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 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
distribution" 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
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be other
federal, state or local tax considerations applicable to a particular investor.
Prospective shareholders are urged to consult their tax advisers.

MANAGEMENT

The Corporation's board of directors, as part of its overall management
responsibility, 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 aspects of its operations. As sub-adviser to the Fund,

11
<PAGE>
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, 1996, the Fund's effective advisory and administration fee
paid to PaineWebber was equal to % 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, 1996, the Fund's ratio of expenses as a percentage of average net
assets was %. 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 publicly owned financial services holding company. At July 31, 1996,
PaineWebber or Mitchell Hutchins was investment adviser of registered
investment companies with separate portfolios and aggregate assets in excess
of $ 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 Fund shares.
Under 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 increase 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
Investment Executives and correspondent firms for shareholder servicing,
currently at the annual rate of 0.06% of the Fund's average daily net assets
held in accounts serviced by such Investment Executives and correspondent firms.
The fee is also used to offset PaineWebber's other expenses in servicing and
maintaining shareholder accounts. These expenses may include the costs of the
PaineWebber branch office in which the Investment Executive is based, such as
rent, communications equipment, employee salaries and other overhead costs.

During the period they are in effect, 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
reimbursement 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
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
terminated 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
PaineWeb-

12
<PAGE>
ber'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
indicate future performance. The "yield" of the Fund is the income on an
investment in the Fund over a specified seven-day period. This income is then
"annualized" (that is, assumed to be earned each week over a 52-week period) and
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned is assumed to be reinvested.
The "effective yield" will be higher than the "yield" because of the compounding
effect of this assumed reinvestment.

The Fund may also advertise other performance data, which may consist of the
annual or cumulative return (including realized net short-term capital gain, if
any) earned on a hypothetical investment in the Fund since it began operations
on 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 accounts
(approximately $33 or less at current interest rates) that generate less than
1/2 cent 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
capitalization 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
majority of the directors holding office have been elected by shareholders. The
directors are required to call a meeting of shareholders when requested in
writing to do so by the shareholders of record holding at least 25% of the
Corporation's outstanding shares. Each share of the Fund has equal voting,
dividend 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 or under Maryland law.

CERTIFICATES. To avoid additional operating expenses and for investor
convenience, 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
issued.

REPORTS. Shareholders receive audited annual and unaudited semi-annual
financial 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
Heritage Drive, North Quincy, Massachusetts 02171, is custodian of the Fund's
assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is the Fund's transfer and dividend disbursing agent.

13
<PAGE>
PAINEWEBBER

- --------------------------------------------
Table of Contents
RETIREMENT MONEY FUND

PROSPECTUS

AUGUST 29, 1996
------------------------------------
2 Highlights
------------------------------------
4 Financial Highlights
------------------------------------
4 Investment Objective and Policies
------------------------------------
7 Purchases
------------------------------------
9 Redemptions
------------------------------------
9 Retirement Plan Distributions
------------------------------------
10 Valuation of Shares
------------------------------------
11 Dividends and Taxes
------------------------------------
11 Management
------------------------------------
13 Performance Information
------------------------------------
13 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.

Recycled
Paper PAINEWEBBER

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

<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

PAINEWEBBER RETIREMENT MONEY FUND
1285 Avenue of the Americas . New York, New York 10019

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, 1996. 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, 1996.

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 or 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
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

<PAGE>
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.

2
<PAGE>

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 a
security back to a specified party, usually a remarketing agent, on a specified
date, at a price equal to the amortized cost of the security plus accrued
interest. 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.

LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, the Fund is
authorized to lend up to 33 1/3% of its portfolio securities to broker-dealers
or institutional investors that Mitchell Hutchins deems qualified, but only when
the borrower maintains acceptable collateral with the Fund's custodian, marked
to market daily, in an amount at least equal to the market value of the
securities loaned, plus accrued interest and dividends. Acceptable collateral is
limited to cash, U.S. government securities and irrevocable letters of credit
that meet certain guidelines established by Mitchell Hutchins. In determining
whether to lend securities to a particular broker-dealer or institutional
investor, Mitchell Hutchins will consider, and during the period of the loan
will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to terminate
any loan at any time. The Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or money market instruments held as collateral to the
borrower or placing broker. The Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. The Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and

3
<PAGE>

rights to dividends, interest or other distributions, when regaining such rights
is considered to be in the Fund's interest.

INVESTMENT LIMITATIONS. The Fund will not:

(1) purchase securities of any one issuer if, as a result, more than 5% of
the Fund's total assets would be invested in securities of that issuer
or the Fund would own or hold more than 10% of the outstanding voting
securities of that issuer, except that up to 25% of the Fund's total
assets may be invested without regard to this limitation, and except
that this limitation does not apply to securities issued or guaranteed
by the U.S. government, its agencies and instrumentalities or to
securities issued by other investment companies.

The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will not
be considered to have been issued by the same issuer by reason of the
securities having the same sponsor, and mortgage- and asset-backed
securities issued by a finance or other special purpose subsidiary that
are not guaranteed by the parent company will be considered to be issued
by a separate issuer from the parent company.

(2) purchase any security if, as a result of that purchase, 25% or more of
the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities or to
municipal securities or to certificates of deposit and bankers'
acceptances of domestic branches of U.S. banks.

The following interpretation applies to, but is not a part of, this
fundamental restriction: With respect to this limitation, domestic and
foreign banking will be considered to be different industries.

(3) issue senior securities or borrow money, except as permitted under the
Investment Company Act of 1940 ("1940 Act") and then not in excess of 33
1/3% of the Fund's total assets (including the amount of the senior
securities issued but reduced by any liabilities not constituting senior
securities) at the time of the issuance or borrowing, except that the
Fund may borrow up to an additional 5% of its total assets (not
including the amount borrowed) for temporary or emergency purposes.

(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction,
the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and
investments in government obligations, commercial paper, certificates of
deposit bankers' acceptances or similar instruments will not be
considered the making of a loan.

(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter
under the federal securities laws in connection with its disposition of
portfolio securities.

(6) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by
interests in real estate are not subject to this limitation, and except
that the Fund may exercise rights under agreements relating to such
securities, including the

4
<PAGE>

right to enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated in
an orderly manner.

(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase, sell
or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.

The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Fund or (b) 67% or more of the shares present at a shareholders'
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. If a percentage restriction is adhered to at the
time of an investment or transaction, a later increase or decrease in percentage
resulting from changing values of portfolio securities or amount of total assets
will not be considered a violation of any of the foregoing limitations.

The following non-fundamental investment restrictions may be changed by vote
of the Fund's board of directors without shareholder approval:

The Fund will not:

(a) mortgage, pledge or hypothecate any assets except in connection with
permitted borrowings or the issuance of senior securities.

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

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

(d) invest in oil, gas or mineral exploration or development programs or
leases, except that investments in securities of issuers that invest in
such programs or leases and investments in asset-backed securities
supported by receivables generated from such programs or leases are not
subject to this prohibition.

(e) purchase securities of other investment companies, except to the extent
permitted by the 1940 Act and except that this limitation does not apply
to securities received or acquired as dividends, through offers of
exchange, or as a result of reorganization, consolidation, or merger.

(f) invest in real estate limited partnerships.

(g) purchase securities while borrowings in excess of 5% of its total assets
are outstanding.

(h) make investments in warrants if such investments, valued at the lower of
cost or market, 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 the American Stock Exchange, Inc., provided that such
unlisted warrants, valued at the lower of cost or market, do not exceed
2% of the Fund's net assets.

5
<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:

<CAPTION>
Margo N. Alexander**; 49........ Director and President Mrs. Alexander is president,
chief executive officer and a
director of Mitchell Hutchins
(since January 1995) and also an
executive vice president of
PaineWebber. Ms. Alexander is a
president and a director or
trustee of 30 other investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Richard Q. Armstrong; 60........ Director Mr. Armstrong is chairman and
78 West Brother Drive principal of RQA Enterprises
Greenwich, CT 06830 (management consulting firm)
(since April 1991 and principal
occupation since March 1995).
Mr. Armstrong is also a director
of Hi Lo Automotives, Inc. He
was chairman of the board, chief
executive officer and co-owner
of Adirondack Beverages
(producer and distributor of
soft drinks and sparkling/still
waters) (October 1993-March
1995). He was a partner of the
New England Consulting Group
(management consulting firm)
(December 1992-September 1993).
He was managing director of LVMH
U.S. Corporation (U.S.
subsidiary of the French luxury
goods conglomerate, Louis
Vuitton Moet Hennessey
Corporation) (1987-1991) and
chairman of its wine and spirits
subsidiary, Schieffelin &
Somerset Company (1987-1991).
Mr. Armstrong is a director or
trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
E. Garrett Bewkes, Jr.**; 69.... Director and Chairman Mr. Bewkes is a director of
of the Board of Paine Webber Group Inc. ("PW
Directors Group") (holding company of
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------- ---------------------- --------------------------------
<S> <C> <C>
PaineWebber and Mitchell
Hutchins). Prior to December
1995, he was 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 Bio-Therapeutics, Inc.
Mr. Bewkes is a director or
trustee of 30 other investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Richard Burt; 49................ Director Mr. Burt is chairman of
1101 Connecticut Avenue, N.W. International Equity Partners
Washington, D.C. 20036 (international investments and
consulting firm) (since March
1994) and a partner of McKinsey
& Company (management consulting
firm) (since 1991). He is also a
director of American Publishing
Company. He was the chief
negotiator in the Strategic Arms
Reduction Talks with the former
Soviet Union (1989-1991) and the
U.S. Ambassador to the Federal
Republic of Germany (1985-1989).
Mr. Burt is a director or
trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Mary C. Farrell**; 46........... Director Ms. Farrell is a managing
director, senior investment
strategist, and member of the
Investment Policy Committee of
PaineWebber. Ms. Farrell joined
PaineWebber in 1982. She is a
member of the Financial Women's
Association and Women's Economic
Roundtable, and is employed as a
regular panelist on Wall Street
Week with Louis Rukeyser. She
also serves on the Board of
Overseers of New York
University's Stern School of
</TABLE>

7
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Business. Ms. Farrell is a
director or trustee of 29
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg; 54.............. Director Mr. Feldberg is Dean and
Columbia University Professor of Management of the
101 Uris Hall Graduate School of Business,
New York, New York 10027 Columbia University. Prior to
1989, he was president of the
Illinois Institute of
Technology. Dean Feldberg is
also a director of AMSCO
International Inc. (medical
instruments and supplies),
Federated Department Stores,
Inc., Inco Homes Corporation and
New World Communications Group
Incorporated. Mr. Feldberg is a
director or trustee of 29 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen; 66............. Director Mr. Gowen is a partner in the
666 Third Avenue law firm of Dunnington,
New York, New York 10017 Bartholow & Miller. Prior to May
1994, he was a partner in the
law firm of Freyer, Ross &
Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a
director or trustee of 29 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frederic V. Malek; 59........... Director Mr. Malek is Chairman of Thayer
901 15th Street, N.W. Capital Partners (investment
Suite 300 bank) and a co-chairman and
Washington, D.C. 20005 director of CB Commercial 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
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------- ---------------------- --------------------------------
<S> <C> <C>
company of NWA Inc.). Prior to
1989, he was employed by the
Marriott Corporation (hotels,
restaurants, airline catering
and contract feeding), where he
most recently was an executive
vice president and president of
Marriott Hotels and Resorts. Mr.
Malek is also a director of
American Management Systems,
Inc. (management consulting and
computer-related services),
Automatic Data Processing, Inc.,
Avis, Inc. (passenger car
rental), FPL Group, Inc.
(electric services), ICF
International, Manor Care, Inc.,
National Education Corporation
and Northwest Airlines Inc. Mr.
Malek is a director or trustee
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Carl W. Schafer, 60............. Director Mr. Schafer is president of the
P.O. Box 1164 Atlantic Foundation (charitable
Princeton, NJ 08542 foundation supporting mainly
oceanographic exploration and
research). He also is a director
of Roadway Express, Inc.
(trucking). The Guardian Group
of Mutual Funds, Evans Systems,
Inc. (a major fuels, convenience
store and diversified company),
Hidden Lake Gold Mines Ltd.
(gold mining), Electronic
Clearing House, Inc. (financial
transactions processing),
Wainteo Oil Corporation and
Nutraceutix, Inc.
(biotechnology). Prior to
January 1993, Mr. Schafer was
chairman of the Investment
Advisory Committee of the Howard
Hughes Medical Institute. Mr.
Schafer is a director or trustee
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------- ---------------------- --------------------------------
<S> <C> <C>
John R. Torell III; 56.......... Director Mr. Torrell is chairman of
767 Fifth Avenue Torrell Management, Inc.
Suite 4605 (financial advisory firm),
New York, NY 10153 chairman of Telesphere
Corporation (electronic provider
of financial information) and a
partner of Zilkha & Company
(merchant banking and private
investment company). He is the
former chairman and chief
executive officer of Fortune
Bancorp (1990-1991 and 1990-
1994, respectively), the former
chairman, president and chief
executive officer of CalFed,
Inc. (savings association) (1988
to 1989) and the former
president of Manufacturers'
Hanover Corp. (bank) (prior to
1988). Mr. Torell is also a
director of American Home
Products Corp., New Colt Inc.
(armament manufacturer) and Volt
Information Sciences Inc. Mr.
Torell is a director or trustee
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Teresa M. Boyle; 37............. 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
a vice president of 30 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

10
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Kimberly Brown; 28.............. Vice President Ms. Brown is an assistant vice
president and a portfolio
manager of Mitchell Hutchins.
She has been a portfolio manager
since March 1995 and has been
with Mitchell Hutchins since
December 1992. Prior to joining
Mitchell Hutchins, Ms. Brown was
with Visual Impact Advertising.
C. William Maher; 35............ Vice President and Mr. Maher is a first vice
Assistant Treasurer president and the senior manager
of the mutual funds finance
division of Mitchell Hutchins.
Mr. Maher is a vice president
and assistant treasurer of 30
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dennis McCauley; 48............. Vice President Mr. McCauley is a managing
director and chief investment
officer--fixed income of
Mitchell Hutchins. Prior to
December 1994, he was director
of fixed income investments of
IBM Corporation. Mr. McCauley is
a vice president of 19
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Susan Messina; 35............... Vice President Ms. Messina is a senior vice
president of Mitchell Hutchins
and has been with Mitchell
Hutchins since 1982. Ms. Messina
is a vice president of five
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
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
a vice president and assistant
treasurer of 30 other investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Dianne E. O'Donnell; 43......... Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy general
counsel of Mitchell Hutchins.
Ms. O'Donnell is a vice
president and secretary of 30
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; 45....... Vice President Ms. Schonfeld is a managing
director and general counsel of
Mitchell Hutchins. Prior to May
1994, she was a partner in the
law firm of Arnold & Porter. Ms.
Schonfeld is a vice president of
30 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Paul H. Schubert; 33............ Vice President and Mr. Schubert is a first vice
Assistant Treasurer president and a senior manager
of the mutual fund finance
division of Mitchell Hutchins.
From August 1992 to August 1994,
he was a vice president at
BlackRock Financial Management,
L.P. Prior to August 1992, he
was an audit manager with Ernst
& Young LLP. Mr. Schubert is a
vice president and assistant
treasurer of 30 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
Treasurer president 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 a vice president
and treasurer of 30 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

12
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Keith A. Weller; 34 Vice President and Mr. Weller is a first vice
Assistant Secretary president and associate general
counsel of Mitchell Hutchins.
Prior to May 1995, he was an
attorney in private practice.
Mr. Weller is a vice president
and assistant secretary of 29
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

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

* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.

** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of the
Corporation as defined in the 1940 Act by virtue of their positions with
Mitchell Hutchins, PaineWebber and/or PW Group.

The Corporation pays directors who are not "interested persons" of the
Corporation $1,000 annually for each series of the Corporation and $150 per
meeting of the board and each separate meeting of a board committee. The
Corporation presently has five series and thus pays each such director $3,000
annually, plus any additional amounts due for board or committee meetings.
Certain committee chairs receive additional compensation aggregating $15,000
annually from funds within the PaineWebber fund complex. 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 current directors who held office with the Corporation or with
other PaineWebber funds during the Corporation's last fiscal year.

<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM THE
FROM THE CORPORATION AND THE
NAME OF PERSONS, POSITION CORPORATION* FUND COMPLEX**
- ------------------------------------------------------------- ------------ -------------------
<S> <C> <C>
Richard Q. Armstrong,
Director................................................... $ -- $ 9,000
Richard R. Burt
Director................................................... -- 7,750
Meyer Feldberg,
Director................................................... 106,375
George W. Gowen,
Director................................................... 99,750
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM THE
FROM THE CORPORATION AND THE
NAME OF PERSONS, POSITION CORPORATION* FUND COMPLEX**
- ------------------------------------------------------------- ------------ -------------------
<S> <C> <C>
Frederic V. Malek,
Director................................................... 99,750
Carl W. Schafer,
Director................................................... -- 118,175
John R. Torell III,
Director................................................... -- 28,125
</TABLE>

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

Only independent members of the board of directors are compensated by the Fund
and identified above; directors who are "interested persons," as defined in the
1940 Act, do not receive compensation.

* Represents fees paid to each director during the fiscal year ended June 30,
1996.

** Represents total compensation paid to each director during the calendar year
ended December 31, 1995; the Corporation does not have a pension or
retirement plan.

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, 1996, June 30, 1995 and June 30, 1994,
the Fund paid (or accrued) to PaineWebber fees totalling $ , $10,973,704
and $10,458,600, 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, 1996, June 30, 1995 and June 30, 1994, the Fund
paid (or accrued) to PaineWebber $ , $2,388,513 and $2,023,867,
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, 1996, June 30, 1995 and June 30,
1994, PaineWebber paid (or accrued) to Mitchell Hutchins fees of $ ,
$2,194,741 and $2,091,720, respectively.

14
<PAGE>
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 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, 1996, June 30, 1995 and June 30, 1994, 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.

15
<PAGE>
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.

<TABLE>
<CAPTION>
INVESTMENT CATEGORY NET ASSETS
- --------------------------------------------------------------- ----------
<S> <C>
($ MIL)
Domestic (excluding Money Market).............................. $
Global.........................................................
Equity/Balanced................................................
Fixed Income (excluding Money Market)..........................
Taxable Fixed Income.......................................
Tax-Free Fixed Income......................................
Money Market Funds.............................................
</TABLE>

Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds and other Mitchell Hutchins'
advisory accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance, and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber Funds and other Mitchell
Hutchins advisory clients.

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.

16
<PAGE>
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, 1996, the Fund paid or accrued to
PaineWebber service fees of $ . For the same period, PaineWebber
estimates that it incurred expenses of $ , 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-$ ; (b) printing-$ ; and (c) service fees to investment
executives-$ .

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 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

17
<PAGE>
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.

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

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.

18
<PAGE>
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 Securities and Exchange Commission ("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.

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

19
<PAGE>
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 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

20
<PAGE>
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,
1996, were % and %, 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 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

21
<PAGE>
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 Massachusetts
Avenue, 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,
1996 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.

<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PAINEWEBBER
PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION RETIREMENT MONEY FUND
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

Page
---

Investment Policies and
Restrictions......................... 1 -----------------------------------
Directors and Officers............... 6 Statement of Additional Information
Investment Advisory, Administration August 29, 1996
and Distribution Arrangements........14
Portfolio Transactions...............17
Additional Information Regarding
Redemptions..........................19
Valuation of Shares..................19
Taxes................................20
Calculation of Yield.................20
Other Information....................22
Financial Statements.................22
------------------------------------

[LOGO]

Recycled
Paper

<PAGE>

PART C. OTHER INFORMATION
-------------------------

Item 24. Financial Statements and Exhibits
---------------------------------

(a) Financial Statements (to be filed)

PaineWebber Retirement Money Fund
---------------------------------

Included in Part A of this Registration Statement:

Financial Highlights of the Fund for each of the seven
years in the period ended June 30, 1996 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 , 1996, Accession No. :

Statement of Net Assets at June 30, 1996

Statement of Operations for the year ended June 30, 1996

Statement of Changes in Net Assets for each of the two years
in the period ended June 30, 1996

Notes to Financial Statements

Financial Highlights of the Fund for each of the five years
in the period ended June 30, 1996

Report of Ernst & Young LLP, Independent Auditors, dated
August , 1996
---

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, 1996

Statement of Net Assets at June 30, 1996

Statement of Operations for the year ended June 30, 1996

Statement of Changes in Net Assets for each of the two years
in the period ended June 30, 1996

Notes to Financial Statements

Financial Highlights of the Fund for each of the five years

C-1

<PAGE>

in the period ended June 30, 1996

Report of Ernst & Young LLP, Independent Auditors, dated
August , 1996
---

(b) Exhibits:
(1) (a) Amended and Restated Articles of Incorporation2
/
-
(b) Articles Supplementary effective February 9, 19884/
-
(c) Articles of Amendment effective August 4, 19897/
-
(2) (a) By-Laws8/
-
(b) Amendment dated September 28, 1994 to By-Laws12/
--

(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 Contract6/
-
(b) Sub-Advisory and Sub-Administration
Contract6/
-
(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 Portfolio3/
-
(b) Custodian Contract with respect to PaineWebber
Retirement Money Fund5/
-
(9) (a) Transfer Agency Agreement9/
-
(b) Service Contract6/
-
(10) (a) Opinion and consent of counsel regarding Money
Market Portfolio and U.S. Government Portfolio1/
-
(b) Opinion and consent of counsel regarding PaineWebber
Retirement Money Fund4/
-
(11) Other opinions, appraisals, rulings and consents:
(a) Auditor's Consent (to be filed)
(12) Financial statements omitted from Part B - none
(13) Letter of investment intent3/
-
(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 Statement9/
-
(17) and (27) Financial Data Schedule (to be filed)
(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.

C-2

<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, 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 registration statement, SEC File No. 2-89016, filed August
29, 1994.

12/ Incorporated by reference from Post Effective Amendment No.26
--
to registration statement, SEC File No. 2-78309, filed August
29, 1995

C-3

<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 June 5, 1996
-------------- ------------------

Shares of Capital Stock,
($.001 par value)

PaineWebber Retirement
Money Fund 431,357

Money Market Portfolio 266,000

U.S. Government Portfolio 22,604

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.

C-4

<PAGE>

Section 9 of the Investment Advisory and Administration
Contract provides that PaineWebber shall not be liable for any
error of 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.

C-5

<PAGE>

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.

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 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 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 other investment companies:

LIQUID INSTITUTIONAL RESERVES
PAINEWEBBER CASHFUND, INC.
PAINEWEBBER MANAGED MUNICIPAL TRUST
PAINEWEBBER MUNICIPAL MONEY MARKET SERIES
PAINEWEBBER RMA TAX-FREE FUND, INC.

(b) PaineWebber is the principal underwriter of the
Registrant. The directors and officers of PaineWebber, their

C-6

<PAGE>

principal business addresses, and their positions and offices with
PaineWebber are identified in its Form ADV filed 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 Principal Position with Position and Offices
Business Address Registrant with Underwriter
------------------ -------------- ------------------

Margo N. Alexander Director, President Executive Vice
1285 Avenue of the and Chief Executive President and
Americas Officer Director
New York, NY 10019

Mary C. Farrell Director Managing Director,
1285 Avenue of the Senior Investment
Americas Strategist and
New York, NY 10019 Member of the
Investment Policy
Committee
(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 Port-
folio 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-7

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 27th day of June, 1996.

PAINEWEBBER RMA MONEY FUND, INC.

By: /s/ Dianne E. O'Donnell
---------------------------------
Dianne E. O'Donnell
Vice President and 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:

Signature Title Date
--------- ----- ----

/s/ Margo N. Alexander President and Trustee June 27, 1996
---------------------------- (Chief Executive Officer)
Margo N. Alexander *

/s/ E. Garrett Bewkes, Jr. Trustee and Chairman June 27, 1996
---------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *

/s/ Richard Q. Armstrong Trustee June 27, 1996
----------------------------
Richard Q. Armstrong *

/s/ Richard Burt Trustee June 27, 1996
----------------------------
Richard Burt *

/s/ Mary C. Farrell Trustee June 27, 1996
----------------------------
Mary C. Farrell **

/s/ Meyer Feldberg Trustee June 27, 1996
----------------------------
Meyer Feldberg *

/s/ George W. Gowen Trustee June 27, 1996
----------------------------
George W. Gowen *

/s/ Frederick V. Malek Trustee June 27, 1996
----------------------------
Frederic V. Malek *

/s/ Carl W. Schafer Trustee June 27, 1996
----------------------------
Carl W. Schafer **

/s/ John R. Torell III Trustee June 27, 1996
----------------------------
John R. Torell III *

/s/ Julian F. Sluyters Vice President and Treasurer (Chief June 27, 1996
---------------------------- Financial and Accounting Officer)
Julian F. Sluyters

<PAGE>

SIGNATURES (Continued)

* Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 25 to the registration statement of PaineWebber RMA Tax-Free Fund,
Inc. (SEC File No. 2-78310) filed June 27, 1996.

<PAGE>

PAINEWEBBER RMA MONEY FUND, INC.
--------------------------------
EXHIBIT INDEX
-------------

Exhibit
-------
Numbers
-------

(1) (a) Amended and Restated Articles of Incorporation2
/
-
(b) Articles Supplementary effective February 9,
19884/
-
(c) Articles of Amendment effective August 4, 19897/
-
(2) (a) By-Laws, as amended November 27, 19898/
-
(b) Amendment dated September 28, 1994 to By-Laws12/
--
(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
Contract6/
-
(b) Sub-Advisory and Sub-Administration Contract6/
-
(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 Portfolio3/
-
(b) Custodian Contract with respect to PaineWebber
Retirement Money Fund5/
-
(9) (a) Transfer Agency Agreement9/
-
(b) Service Contract6/
-
(10) (a) Opinion and consent of counsel regarding Money
Market Portfolio and U.S. Government Portfolio1/
-
(b) Opinion and consent of counsel regarding
PaineWebber Retirement Money Fund4/
-
(11) Other opinions, appraisals, rulings and consents:
(a) Auditor's Consent (to be filed)
(12) Financial statements omitted from Part B - none
(13) Letter of investment intent3/
-
(14) Prototype Retirement Plan - none
(15) Plan pursuant to Rule 12b-111
/
--
(16) Schedule for computation of each performance quotation
provided in the Registration Statement9/
-
(17) and (27) Financial Data Schedule (to be filed)
(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.

<PAGE>

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, VII and X of Registrant's By-Laws, as amended
September 28, 1994.

11/ Incorporated by reference from Post-Effective Amendment
--
No. 28 to registration statement, SEC File No. 2-89016,
filed August 29, 1994.

12/ Incorporated by reference from Post-Effective Amendment
--
No. 26 to registration statement, SEC File No. 2-
78309, filed August 29, 1995