<PAGE>
THE FUND IS A SERIES OF PAINEWEBBER RMA MONEY FUND, INC. THIS PROSPECTUS
CONCISELY SETS FORTH INFORMATION ABOUT THE FUND A PROSPECTIVE INVESTOR SHOULD
KNOW BEFORE INVESTING. PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. A
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 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.
PAINEWEBBER
RETIREMENT MONEY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
- ------------------------------------------------------
- ------------------------------------------------------
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. WHILE THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
A PROFESSIONALLY MANAGED MONEY MARKET FUND OFFERED TO INDIVIDUAL RETIREMENT
ACCOUNTS AND OTHER QUALIFIED RETIREMENT PLANS SEEKING:
/X/ CURRENT INCOME
/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 elsewhere in 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 quality money market instruments.
Net Assets: Over $3.5 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 qualified
retirement plans, including pension and profit-sharing plans, whether
established by corporations, partnerships or self-employed individuals and
individual retirement accounts ("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
2
<PAGE>
market rates, and in periods of rising interest rates, the Fund's yield
generally will be somewhat lower. See "Investment Objective and Policies."
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in the
Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales charge on purchases of shares................................................. None
Sales charge on reinvested dividends................................................ None
Redemption fee or deferred sales charge............................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C> <C>
Management fees............................................................... 0.41%
12b-1 fees.................................................................... 0.08%
Other expenses................................................................ 0.21%
---------
Total operating expenses...................................................... 0.70%
---------
---------
</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>
<S> <C> <C> <C>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- ------------- --------------- ------------- -------------
$ 7 $ 22 $ 39 $ 87
</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, the Fund's projected or actual performance.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
THE ACTUAL EXPENSES OF THE FUND WILL DEPEND UPON, AMONG OTHER THINGS, THE LEVEL
OF AVERAGE NET ASSETS AND THE EXTENT TO WHICH THE FUND INCURS VARIABLE EXPENSES,
SUCH AS TRANSFER AGENCY COSTS.
3
<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 fiscal years in the
period ended June 30, 1996, have been audited by Ernst & Young LLP whose
unqualified report appears in the Annual Report to Share-holders. 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>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
JULY 2, 1988
(COMMENCEMENT
FOR THE YEARS ENDED JUNE 30, OF OPERATIONS)
---------------------------------------------------------------------------------- TO JUNE 30,
1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
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................ 0.050 0.047 0.028 0.027 0.044 0.068 0.079 0.081
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Dividends from net
investment income..... (0.050) (0.047) (0.028) (0.027) (0.044) (0.068) (0.079) (0.081)
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Net asset value, end
of period........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Total investment
return(1)............. 5.13% 4.83% 2.75% 2.78% 4.40% 6.80% 7.90% 8.10%
Ratios/Supplemental Data:
Net assets, end of
period (000's)........ $3,500,508 $2,966,199 $2,450,235 $2,280,840 $2,163,935 $2,122,973 $1,812,092 $1,340,550
Expenses to average
net assets.......... 0.70% 0.78% 0.77% 0.79% 0.79% 0.79% 0.85% 0.91%*
Net investment income
to average net
assets................ 5.01% 4.75% 2.77% 2.76% 4.39% 6.69% 7.84% 8.13%*
</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 and other
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. Total investment
returns for periods of less than one year have not been annualized.
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 quality
money market instruments having or deemed to have 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
4
<PAGE>
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. government
agencies and instrumentalities. The Fund may invest in U.S. government
securities that are supported by the full faith and credit of the U.S.
government (such as 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 custodial receipts that evidence ownership of
future interest payments, principal payments or both that have been "stripped"
from certain U.S. Treasury notes or bonds. 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. The staff of the SEC currently takes the
position that interests in "stripped" U.S. government securities that are not
part of the STRIPS program are not U.S. government securities.
OTHER INVESTMENTS. The Fund may invest in obligations (including
certificates of deposit, bankers' acceptances, and similar obligations) of
banks, including foreign branches of domestic banks and foreign and domestic
branches of foreign banks, having total assets in excess of $1.5 billion at the
time of purchase. The Fund may invest in non-negotiable time deposits of U.S.
banks, savings associations and similar depository institutions having total
assets in excess of $1.5 billion at the time of purchase only if the time
deposits have maturities of seven days or less. The Fund may also invest in
interest-bearing savings deposits in U.S. banks and savings associations 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 accrued interest) does not
exceed 5% of the Fund's assets.
The commercial paper and other short-term corporate obligations purchased
by the Fund consist only of obligations that Mitchell Hutchins determines,
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
5
<PAGE>
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 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 be backed by a letter
of credit or other liquidity support arrangement provided by a bank or other
financial institution, whose credit standing affects the credit quality of the
obligation. Changes in the credit quality of those institu-
tions could cause losses to the Fund and affect its share price.
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 or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
Because repurchase agreements carry certain risks not associated with direct
invest-
6
<PAGE>
ments 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
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 from
banks, or, with respect to up to 5% of its net assets, through reverse
repurchase agreements, but aggregate borrowings may not exceed 10% 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. Cash balances of $1 or more in a Retirement Plan Sweep Account (including
proceeds from securities sold) are invested daily, 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.
7
<PAGE>
To the extent that amounts transferred by check or wire or from funds held
at PaineWeb-ber into a Retirement Plan Sweep Account cre-ate a free credit cash
balance, that cash balance will be automatically invested in Fund shares, as
described above, when federal funds are availa-ble for the investment, unless
the account holder specifically instructs its PaineWebber Invest-ment Executive
or correspondent firm not to purchase Fund shares with such amounts.
On any Business Day, the Fund will accept purchase orders and credit shares
to investors' accounts as follows.
PURCHASES WITH FUNDS HELD AT PAINEWEBBER. Investors may invest in Fund
shares with funds held in their Retirement Plan Sweep Account, including funds
from the sale of secur-ities, as described above under "General." Federal funds
normally are available for cash balances arising from the sale of securities
held in a Retirement Plan Sweep Account on the Business Day following
settlement, but in some cases can take longer.
PURCHASES BY CHECK. Investors may purchase Fund shares by depositing into
their Retirement Plan Sweep Account 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 Plan Sweep
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 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.
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
these 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.
8
<PAGE>
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.
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 Sweep 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 Sweep 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 Sweep
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
9
<PAGE>
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 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
Sweep 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
hav-
10
<PAGE>
ing 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 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 a participant withdraws the proceeds from the Retirement Plan
account. Generally, with-drawals from the Retirement Plan 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.
11
<PAGE>
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, 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 0.41% 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 0.70%. 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 31 registered
investment companies with 64 separate portfolios and aggregate assets in excess
of $30 billion.
Mitchell Hutchins personnel may engage in securities transactions for their
own accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
DISTRIBUTION ARRANGEMENTS. PaineWebber is the distributor of 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
12
<PAGE>
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 PaineWebber's sole responsibility and not obligations of the Fund.
PERFORMANCE INFORMATION
From time to time the Fund may advertise its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
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
13
<PAGE>
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. To avoid sending duplicate
copies of materials to households, the Fund may mail only one copy of each
annual and semi-annual report to shareholders having the same last name and
address on the Fund's records. However, each shareholder may call 201-902-8312
to ask that copies of those materi-als be sent personally to that shareholder.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is custodian of 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.
14
<PAGE>
TABLE OF CONTENTS
Highlights ............................................................. 2
Financial Highlights ................................................... 4
Investment Objective and Policies ...................................... 4
Purchases .............................................................. 7
Redemptions ............................................................ 9
Retirement Plan Distributions .......................................... 9
Valuation of Shares ................................................... 11
Dividends and Taxes ................................................... 11
Management ............................................................ 12
Performance Information ............................................... 13
General Information ................................................... 13
- ------------------------------------------------------------
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
OFFERING MAY NOT LAWFULLY BE MADE.
[LOGO]
-C-1996 PaineWebber Incorporated
[LOGO]
Prospectus
---------------------------------
RETIREMENT
MONEY
FUND
AUGUST 29, 1996
<PAGE>
PAINEWEBBER RETIREMENT MONEY FUND
1285 Avenue of the Americas
New York, New York 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Retirement Money Fund ("Fund") is a diversified series of
PaineWebber RMA Money Fund, Inc. ("Corporation"), a professionally managed money
market fund. The Fund seeks to provide investors with current income consistent
with liquidity and conservation of capital. The Fund's investment adviser,
administrator and distributor is PaineWebber Incorporated ("PaineWebber"); its
sub-adviser and sub-administrator is Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber. This Statement
of Additional Information is not a prospectus and should be read only in
conjunction with the Fund's current Prospectus, dated August 29, 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 net assets. Such agreements involve the sale of securities
held by the Fund subject to its agreement to repurchase the securities at an
agreed-upon date 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 or liquid
securities, marked to market daily, in an amount at least equal to the Fund's
obligations under the reverse repurchase agreement.
ILLIQUID SECURITIES. The Fund may 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.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933 ("1933 Act"), including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for
trading, clearance and settlement of unregistered securities, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. An
insufficient number of qualified institutional buyers interested in purchasing
certain restricted securities held by the Fund, however, could affect adversely
the marketability of such portfolio securities, and the Fund might be unable to
dispose of such securities promptly or at favorable prices.
The board of directors has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers
2
<PAGE>
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, guarantee or
other liquidity support arrangement from a bank or other financial institution
that may be drawn upon 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 applicable legal or regulatory requirements
or (3) as needed to provide liquidity to the Fund in order to meet redemption
requests. The ability of a bank or other financial institution to fulfill its
obligations under a letter of credit, guarantee or other liquidity arrangement
might be affected by possible financial difficulties of its borrowers, adverse
interest rate or economic conditions, regulatory limitations or other factors.
The interest rate on floating rate or variable rate 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, or is otherwise reset to reflect market rates of interest.
Generally, these interest rate adjustments cause the market value of floating
rate and variable rate securities to fluctuate less than the market value of
fixed rate obligations.
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 rights to
dividends, interest or other distributions, when regaining such rights is
considered to be in the Fund's interest.
INVESTMENT LIMITATIONS.
FUNDAMENTAL LIMITATIONS. The following 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
3
<PAGE>
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.
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.
4
<PAGE>
(6) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject to
this limitation, and except that the Fund may exercise rights under
agreements relating to such securities, including the right to
enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated
in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts
or derivative instruments.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. 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:
(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.
(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 portfolio securities while borrowings in excess of 5% of
its total assets are outstanding.
(8) 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:
<TABLE>
<S> <C> <C>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ----------------------------------- --------------------------- ---------------------------------------------
Margo N. Alexander**; 49 Director and President Mrs. Alexander is president, chief executive
officer and a director of Mitchell Hutchins
(since January 1995) and an executive vice
president and director of PaineWebber. Mrs.
Alexander is president and a director or
trustee of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Richard Q. Armstrong; 61 Director Mr. Armstrong is chairman and principal of
78 West Brother Drive RQA Enterprises (management consulting firm)
Greenwich, CT 06830 (since April 1991 and principal occupation
since March 1995). Mr. Armstrong is also a
director of Hi Lo Automotive, Inc. He was
chairman of the board, chief executive
officer and co-owner of Adirondack Beverages
(producer and distributor of soft drinks and
sparkling/still waters) (October 1993-March
1995). Mr. Armstrong 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 of Mr. Bewkes is a director of Paine Webber
the Board of Directors Group Inc. ("PW Group") (holding company of
PaineWebber and Mitchell Hutchins). Prior to
December 1995, he was a consultant to PW
Group. Prior to 1988, he was chairman
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ----------------------------------- --------------------------- ---------------------------------------------
of the board, president and chief executive
officer of American Bakeries Company. Mr.
Bewkes is also a director of Interstate
Bakeries Corporation and NaPro
Biotherapeutics, Inc. Mr. Bewkes is a
director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard R. Burt; 49 Director Mr. Burt is chairman of International Equity
1101 Connecticut Avenue, N.W. Partners (international investments and
Washington, D.C. 20036 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
$treet Week with Louis Rukeyser. She also
serves on the Board of Overseers of New York
University's Stern School of Business. Ms.
Farrell is a director or trustee of 29
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Meyer Feldberg; 54 Director Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to 1989,
New York, New York 10027 he was president of the Illinois Institute of
Technology. Dean
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ----------------------------------- --------------------------- ---------------------------------------------
Feldberg is also a director of AMSCO
International Inc. (medical instruments and
supplies), Federated Department Stores, Inc.
and New World Communications Group
Incorporated. Dean Feldberg is a director or
trustee of 29 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
George W. Gowen; 66 Director Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, New York 10017 1994, he was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate Investments,
Inc. Mr. Gowen is a director or trustee of 29
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Frederic V. Malek; 59 Director Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Avenue, Partners (investment bank) and a co-chairman
N.W. and director of CB Commercial Group Inc.
Suite 350 (real estate). From January 1992 to November
Washington, D.C. 20004 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
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ----------------------------------- --------------------------- ---------------------------------------------
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Carl W. Schafer, 60 Director Mr. Schafer is president of the Atlantic
P.O. Box 1164 Foundation (charitable foundation supporting
Princeton, NJ 08542 mainly oceanographic exploration and
research). He is a director of Roadway
Express, Inc. (trucking), The Guardian Group
of Mutual Funds, Evans Systems, Inc. (motor
fuels, convenience store and diversified
company), Hidden Lake Gold Mines Ltd.,
Electronic Clearing House, Inc. (financial
transactions processing), Wainoco Oil
Corporation and Nutraceutix, Inc.
(biotechnology company). Prior to January
1993, he was chairman of the Investment
Advisory Committee of the Howard Hughes
Medical Institute. Mr. Schafer is a director
or trustee of 29 investment companies for
which Mitchell Hutchins or PaineWebber serves
as investment adviser.
John R. Torell III; 57 Director Mr. Torell is chairman of Torell Management,
767 Fifth Avenue Inc. (financial advisory firm), chairman of
Suite 4605 Telesphere Corporation (electronic provider
New York, NY 10153 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
former president of Manufacturers Hanover
Corp. (bank) (prior to 1988). Mr. Torell is 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.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------------- --------------------------- ------------------------------------------
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 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
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 president and
Assistant Treasurer the senior manager of the mutual funds
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 19
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------------- --------------------------- ------------------------------------------
Susan Messina; 36 Vice President Ms. Messina is a senior vice president of
Mitchell Hutchins. Ms. Messina 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; 39 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 of BlackRock Financial
Management, Inc. 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.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- -------------------------------------- --------------------------- ------------------------------------------
Julian F. Sluyters; 36 Vice President and Mr. Sluyters is a senior vice president
Treasurer and the director of the mutual fund
finance division of Mitchell Hutchins.
Prior to 1991, he was an audit senior
manager with Ernst & Young LLP. Mr.
Sluyters is a vice president and treasurer
of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Keith A. Weller; 35 Vice President and Mr. Weller is a first vice president and
Assistant Secretary 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 meeting of a board committee (other than committee
meetings held on the same dates as a board meeting). The Corporation presently
has three series and thus pays each such director $3,000 annually, plus any
additional amounts due for board or committee meetings. Messrs. Feldberg and
Torell serve as chairmen of the audit and contract review committees of
individual funds within the PaineWebber fund complex and receive additional
annual compensation, aggregating $15,000 each, from the relevant funds.
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.
12
<PAGE>
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>
<S> <C> <C>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM THE
FROM THE CORPORATION AND THE
NAME OF PERSONS, POSITION CORPORATION* FUND COMPLEX**
- ---------------------------------------------------------------------------- ------------- -------------------
Richard Q. Armstrong,
Director.................................................................. $ -- $ 9,000
Richard R. Burt
Director.................................................................. -- 7,750
Meyer Feldberg,
Director.................................................................. 7,250 106,375
George W. Gowen,
Director.................................................................. 7,250 99,750
Frederic V. Malek,
Director.................................................................. 7,250 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; no fund within the complex has a bonus, pension,
profit sharing 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>
<S> <C>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ----------------------------------------------------------------------------------- -----------
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 $14,023,396,
$10,973,704 and $10,458,600, respectively, under the Advisory Contract.
13
<PAGE>
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 $2,559,302, $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 $2,804,679,
$2,194,741 and $2,091,720, respectively.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by PaineWebber.
General expenses of the Corporation not readily identifiable as belonging to the
Fund or to the Corporation's other series are allocated among series by or under
the direction of the board of directors in such manner as the board deems fair
and equitable. Expenses borne by the Fund include the following (or the Fund's
share of the following): (1) the cost (including brokerage commissions and other
transaction costs, if any) of securities purchased or sold by the Fund and any
losses incurred in connection therewith; (2) fees payable to and expenses
incurred on behalf of the Fund by PaineWebber; (3) organizational expenses; (4)
filing fees and expenses relating to the registration and qualification of Fund
shares under federal and state securities laws and maintaining such
registrations and qualifications; (5) fees and salaries payable to the directors
and officers who are not interested persons of the Corporation or PaineWebber;
(6) all expenses incurred in connection with the directors' services, including
travel expenses; (7) taxes (including any income or franchise taxes) and
governmental fees; (8) costs of any liability, uncollectible items of deposit
and other insurance or fidelity bonds; (9) any costs, expenses or losses arising
out of a liability of or claim for damages or other relief asserted against the
Corporation or the Fund for violation of any law; (10) legal, accounting and
auditing expenses, including legal fees of special counsel for those directors
who are not interested persons of the Corporation; (11) charges of custodians,
transfer agents 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 $100 million.
Certain expenses, such as brokerage commissions, distribution fees, taxes,
interest
14
<PAGE>
and extraordinary items, are excluded from this limitation. For the fiscal years
ended June 30, 1996, June 30, 1995 and June 30, 1994, no reimbursement pursuant
to such limitations was required.
Under the Advisory and Mitchell Hutchins Contracts (collectively,
"Contracts"), PaineWebber and Mitchell Hutchins will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the Contracts, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of PaineWebber or
Mitchell Hutchins in the performance of its duties or from reckless disregard of
its duties and obligations thereunder.
The Contracts are terminable with respect to the Fund at any time without
penalty by vote of the Corporation's board of directors or by vote of the
holders of a majority of the Fund's outstanding voting securities on 60 days'
written notice to PaineWebber or Mitchell Hutchins, as the case may be. The
Advisory Contract is also terminable without penalty by PaineWebber on 60 days'
written notice to the Corporation, and the Mitchell Hutchins Contract is
terminable without penalty by PaineWebber or Mitchell Hutchins on 60 days'
written notice to the other party. The Contracts terminate automatically upon
their assignment, and the Mitchell Hutchins Contract also automatically
terminates upon the assignment of the Advisory Contract.
The following table shows the approximate net assets as of July 31, 1996,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<S> <C>
INVESTMENT CATEGORY NET ASSETS
- ------------------------------------------------------------------------------ -----------
($ MIL)
Domestic (excluding Money Market)............................................. $ 5,413.8
Global........................................................................ 2,766.8
Equity/Balanced............................................................... 2,927.3
Fixed Income (excluding Money Market)......................................... 5,253.3
Taxable Fixed Income..................................................... 3,620.8
Tax-Free Fixed Income.................................................... 1,632.5
Money Market Funds............................................................ 21,914.2
</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 mutual funds and other
Mitchell Hutchins advisory clients.
15
<PAGE>
DISTRIBUTION ARRANGEMENTS. PaineWebber acts as the distributor of Fund
shares under a distribution contract with the Corporation dated July 7, 1993
("Distribution Contract"), which requires PaineWebber to use its best efforts,
consistent with its other business, to sell shares of the Fund. Shares of the
Fund are offered continuously. Payments by the Fund to compensate PaineWebber
for certain expenses incurred in connection with its activities in providing
certain shareholder and account maintenance services are authorized under the
Distribution Contract and made in accordance with a plan of distribution adopted
by the Corporation in the manner prescribed by Rule 12b-1 under the 1940 Act
("Plan").
Among other things, the Plan provides that (1) PaineWebber will submit to
the Corporation's board of directors at least quarterly, and the directors will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect only
so long as it is approved at least annually, and any material amendment thereto
is approved, by the board of directors, including those directors who are not
"interested persons" of the Corporation and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan, acting in person at a meeting called for that purpose, (3) payments by the
Fund under the Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the Fund's outstanding shares and (4) while
the Plan remains in effect, the selection and nomination of directors who are
not "interested persons" of the Corporation shall be committed to the discretion
of the directors who are not "interested persons" of the Corporation.
The Plan authorizes the Fund to pay PaineWebber a service fee, computed
daily and paid monthly, at an annual rate of up to 0.15% of its average daily
net assets. The Fund currently pays service fees to PaineWebber at the annual
rate of 0.08% of average net assets, and any increase from the 0.08% annual rate
would require prior approval of the board of directors.
During the fiscal year ended June 30, 1996, the Fund paid or accrued to
PaineWebber service fees of $2,716,309. For the same period, PaineWebber
estimates that it incurred expenses of $2,780,232, 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--$738,490; (b) printing--$4,510; and (c) service fees to investment
executives--$2,037,232.
"Allocated costs" include various internal costs allocated by PaineWebber
to its efforts at providing certain shareholder and account maintenance
services. These internal costs encompass office rent, salaries and other
overhead expenses of various PaineWebber departments and areas of operations.
In approving the continuance of the Plan, the directors of the Corporation
considered all features of the distribution system for the Fund, including (a)
PaineWebber's view that the payment of service fees at the 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
16
<PAGE>
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 Fund purchases only securities that have remaining maturities of 13
months or less, except for securities subject to repurchase agreements and
except for variable rate and floating rate securities with remaining maturities
of more than 13 months that comply with conditions established by the Securities
and Exchange Commission ("SEC") under which they may be considered to have
remaining maturities of 13 months or less.
The Fund purchases portfolio securities from dealers and underwriters as
well as from issuers. Securities are usually traded on a net basis with dealers
acting as principal for their own accounts without a stated commission. Prices
paid to dealers in principal transactions generally include a "spread," which is
the difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. When securities are purchased directly
from an issuer, no commissions or discounts are paid. When securities are
purchased in underwritten offerings, they include a fixed amount of compensation
to the underwriter.
The Mitchell Hutchins Contract authorizes Mitchell Hutchins (with the
approval of the Corporation's board) to select brokers and dealers to execute
purchases and sales of the Fund's portfolio securities. The Contract directs
Mitchell Hutchins to use its best efforts to obtain the best available price and
most favorable execution with respect to all transactions for the Fund. To the
extent that the execution and price offered by more than one dealer are
comparable, Mitchell Hutchins may, in its discretion, effect transactions in
portfolio securities with dealers who provide the Fund with research, analysis,
advice and similar services. Although Mitchell Hutchins may receive certain
research or execution services in connection with these transactions, Mitchell
Hutchins will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid had no services been provided by the
executing dealer. Moreover, Mitchell Hutchins will not enter into any explicit
soft dollar arrangements relating to principal transactions and will not receive
in principal transactions the types of services that 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 it advises 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.
17
<PAGE>
Mitchell Hutchins may engage in agency transactions in over-the-counter
equity and debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide research
or execution services. These procedures include Mitchell Hutchins receiving
multiple quotes from dealers before executing the transactions on an agency
basis.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
As of June 30, 1996, the Fund owned commercial paper and short-term
corporate obligations issued by the following persons who are regular
broker-dealers for the Fund: Bear Stearns Companies Incorporated--$160,894,928;
Goldman Sachs Group LP--$9,999,711; Merrill Lynch & Company
Incorporated--$94,590,938; Morgan Stanley Group Incorporated--$137,631,235 and
Nomura Holding America Incorporated--$32,300,000.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange ("NYSE") is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, 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 by State Street Bank and
Trust Company ("State Street") as of 12:00 noon, Eastern time, on each Business
Day. As defined in the Prospectus, "Business Day" means any day on which State
Street's Boston offices, 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, Patriots' Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
18
<PAGE>
The Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 under the 1940 Act. To use amortized
cost to value its portfolio securities, the Fund must adhere to certain
conditions under that Rule relating to the Fund's investments, some of which are
discussed in the Prospectus. Amortized cost is an approximation of market value,
whereby the difference between acquisition cost and value at maturity is
amortized on a straight-line basis over the remaining life of the instrument.
The effect of changes in the market value of a security as a result of
fluctuating interest rates is not taken into account and thus the amortized cost
method of valuation may result in the value of a security being higher or lower
than its actual market value. In the event that a large number of redemptions
take place at a time when interest rates have increased, the Fund might have to
sell portfolio securities prior to maturity and at a price that might not be
desirable.
The Corporation's board of directors has established procedures for the
purpose of maintaining a constant net asset value of $1.00 per share, which
include a review of the extent of any deviation of net asset value per share,
based on available market quotations, from the $1.00 amortized cost per share.
Should that deviation exceed 1/2 of 1% for the Fund, the directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends and utilizing a net asset value per share as
determined by using available market quotations. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less except as
otherwise indicated herein and will not purchase any instrument with a remaining
maturity greater than 13 months, will limit portfolio investments, including
repurchase agreements, to those U.S. dollar-denominated instruments that are of
high quality and that the directors determine present minimal credit risks as
advised by Mitchell Hutchins, and will comply with certain reporting and
recordkeeping procedures. There is no assurance that constant net asset per
share value will be maintained. In the event amortized cost ceases to represent
fair value, the board will take appropriate action.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used.
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
19
<PAGE>
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
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 4.68% and 4.79%, 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
20
<PAGE>
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 Certificate of Deposit
Index and the Bank Rate Monitor National Index and the averages of yields of CDs
of major banks published by Banxquotes(R) Money Markets. In comparing the Fund's
performance to CD performance, investors should keep in mind that bank CDs are
insured in whole or in part by an agency of the U.S. government and offer fixed
principal and fixed or variable rates of interest, and that bank CD yields may
vary depending on the financial institution offering the CD and prevailing
interest rates. Fund shares are not insured or guaranteed by the U.S. government
and returns 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, serves as counsel to the Fund. Kirkpatrick
& Lockhart LLP also acts as counsel to PaineWebber and Mitchell Hutchins in
connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as the Fund's independent auditors.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended 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.
21
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Investment Policies and Restrictions.......... 1
Directors and Officers........................ 6
Investment Advisory, Administration and
Distribution Arrangements..................... 13
Portfolio Transactions........................ 17
Additional Information Regarding
Redemptions................................... 18
Valuation of Shares........................... 18
Taxes......................................... 19
Calculation of Yield.......................... 20
Other Information............................. 21
Financial Statements.......................... 21
</TABLE>
- -C-1996 PaineWebber Incorporated
PAINEWEBBER
RETIREMENT MONEY FUND
- ---------------------------------------------------------
Statement of Additional Information
August 29, 1996
- ---------------------------------------------------------
