<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 Paine
Webber 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, 1997. A copy of
the Prospectus may be obtained by contacting any PaineWebber Investment
Executive or correspondent firm or by calling toll-free 1-800-647-1568. This
Statement of Additional Information is dated August 29, 1997.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
YIELDS AND RATINGS OF MONEY MARKET INSTRUMENTS; FIRST TIER SECURITIES. The
yields on the money market instruments in which the Fund invests (such as U.S.
government securities, commercial paper and bank obligations) are dependent on a
variety of factors, including general money market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer, the
size of the offering, the maturity of the obligation and the ratings of the
issue. The ratings of nationally recognized statistical rating organizations
("NRSROs") represent their opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices.
As noted in the Prospectus, the Fund may only purchase securities that are
"First Tier Securities." To qualify as a First Tier Security, a security must
either be (1) rated in the highest short-term rating category by at least two
NRSROs, (2) rated in the highest short-term rating category by a single NRSRO if
only that NRSRO has assigned the obligation a short-term rating, (3) issued by
an issuer that has received such a short-term rating with respect to a security
that is comparable in terms of priority and security or (4) unrated, but
determined by Mitchell Hutchins to be of comparable quality. Subsequent to its
purchase by the Fund, an issue may cease to be rated or its rating may be
reduced. If a security in the Fund's portfolio ceases to be a First Tier
Security, or Mitchell Hutchins becomes aware that a security has received a
rating below the second highest rating by any NRSRO, Mitchell Hutchins, and in
certain cases the Corporation's board of directors ("board"), will consider
whether the Fund should continue to hold the obligation. A First Tier Security
rated in the highest short-term rating category by a single NRSRO at the time of
purchase that subsequently receives a rating below the highest rating category
from a different NRSRO will continue to be considered a First Tier Security.
VARIABLE AND FLOATING RATE DEMAND INSTRUMENTS. As noted in the Prospectus,
the Fund may invest in variable and floating rate securities with demand
features. A demand feature gives the Fund the right to sell the securities back
to a specified party, usually a remarketing agent, on a specified date, at a
price equal to their amortized cost plus accrued interest. A demand feature is
often backed by a letter of credit, guarantee or other liquidity support
arrangement from a bank or other financial institution that may be drawn upon
demand, after specified notice, for all or any part of the exercise price of the
demand feature.
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Generally, the Fund intends to exercise demand features (1) upon a default under
the terms of the underlying security, (2) to maintain its portfolio in
accordance with its investment objective and policies or applicable legal or
regulatory requirements or (3) as needed to provide liquidity to the Fund in
order to meet redemption requests. The ability of a bank or other financial
institution to fulfill its obligations under a letter of credit, guarantee or
other liquidity arrangement might be affected by possible financial difficulties
of its borrowers, adverse interest rate or economic conditions, regulatory
limitations or other factors. The interest rate on floating rate or variable
rate securities ordinarily is readjusted on the basis of the prime rate of the
bank that originated the financing or some other index or published rate, such
as the 90-day U.S. Treasury bill rate, or is otherwise reset to reflect market
rates of interest. Generally, these interest rate adjustments cause the market
value of floating rate and variable rate securities to fluctuate less than the
market value of fixed rate obligations.
REPURCHASE AGREEMENTS. 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 or upon
demand is, in effect, secured by such securities. If the value of these
securities is less than the repurchase price plus any agreed upon additional
amount, the other party to the agreement must provide additional collateral so
that at all times the collateral is at least equal to the repurchase price plus
any agreed upon additional amount. The difference between the total amount to be
received upon repurchase of the securities and the price that was paid by the
Fund upon acquisition is accrued as interest and included in the Fund's net
investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities. The Fund intends to enter into repurchase agreements
only with banks and dealers in transactions believed by Mitchell Hutchins to
present minimum credit risks in accordance with guidelines established by the
board. Mitchell Hutchins will review and monitor the creditworthiness of those
institutions under the board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of its net assets. Such agreements involve the sale of securities
held by the Fund subject to its agreement to repurchase the securities at an
agreed upon date or upon demand and at a price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, the Fund's custodian segregates assets to cover the
Fund's obligations under the reverse repurchase agreement. See "Investment
Policies and Restrictions--Segregated Accounts."
ILLIQUID SECURITIES. The Fund 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, repurchase agreements maturing in
more than seven days and restricted securities other than those Mitchell
Hutchins has determined to be liquid pursuant to guidelines established by the
board.
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
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placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment in
order to satisfy share redemption orders. Such markets include automated systems
for the trading, clearance and settlement of unregistered securities, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc. An insufficient number of qualified institutional buyers interested in
purchasing certain restricted securities held by the Fund, however, could affect
adversely the marketability of such portfolio securities, and the Fund might be
unable to dispose of such securities promptly or at favorable prices.
The board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins, pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (E.G., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities held by the Fund and reports periodically on such
decisions to the board.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
the Fund may purchase securities on a "when-issued" or "delayed delivery" basis.
A security purchased on a when-issued or delayed delivery basis is recorded as
an asset on the commitment date and is subject to changes in market value,
generally based upon changes in the level of interest rates. Thus, fluctuation
in the value of the security from the time of the commitment date will affect
the Fund's net asset value. When the Fund commits to purchase securities on a
when-issued or delayed delivery basis, its custodian segregates assets to cover
the amount of the commitment. See "Investment Policies and
Restrictions--Segregated Accounts."
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis or reverse
repurchase agreements, the Fund will maintain with an approved custodian in a
segregated account cash or liquid securities, marked to market daily, in an
amount at least equal to the Fund's obligation or commitment under such
transactions.
LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, the Fund
is authorized to lend up to 33 1/3% of its total assets to broker-dealers or
institutional investors that Mitchell Hutchins deems qualified, but only when
the borrower maintains acceptable collateral with the Fund's custodian, marked
to market daily, in an amount at least equal to the market value of the
securities loaned, plus accrued interest. Acceptable collateral is limited to
cash, U.S. government securities and irrevocable letters of credit that
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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 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 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 interest or other distributions,
when regaining such rights is considered to be in its interest.
Pursuant to procedures adopted by the board governing the Fund's securities
lending program, the board has approved retention of PaineWebber to serve as
lending agent for the Fund. The board also has authorized the payment of fees
(including fees calculated as a percentage of invested cash collateral) to
PaineWebber for these services. The board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
INVESTMENT LIMITATIONS OF THE FUND.
FUNDAMENTAL LIMITATIONS. The following fundamental investment
limitations cannot be changed without the affirmative vote of the lesser of (1)
more than 50% of the outstanding shares of the Fund or (2) 67% or more of the
shares present at a shareholders' meeting if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy. If a percentage
restriction is adhered to at the time of an investment or transaction, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the following limitations.
The Fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5%
of the Fund's total assets would be invested in securities of that
issuer or the Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25%
of the Fund's total assets may be invested without regard to this
limitation, and except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment
companies.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed 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.
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The following interpretation applies to, but is not a part of, this
fundamental restriction: With respect to this limitation, domestic
and foreign banking will be considered to be different industries.
(3) issue senior securities or borrow money, except as permitted under
the Investment Company Act of 1940 ("1940 Act") and then not in
excess of 33 1/3% of the Fund's total assets (including the amount
of the senior securities issued but reduced by any liabilities not
constituting senior securities) at the time of the issuance or
borrowing, except that the Fund may borrow up to an additional 5% of
its total assets (not including the amount borrowed) for temporary
or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures, other debt
securities or instruments, or participations or other interests
therein and investments in government obligations, commercial paper,
certificates of deposit, bankers' acceptances or similar instruments
will not be considered the making of a loan.
(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities.
(6) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject to
this limitation, and except that the Fund may exercise rights under
agreements relating to such securities, including the right to
enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated
in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts
or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are not
fundamental and may be changed by the board without shareholder approval.
The Fund will not:
(1) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions and except that
the Fund may make margin deposits in connection with its use of
financial options and futures, forward and spot currency contracts,
swap transactions and other financial contracts or derivative
instruments.
(2) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short "against the box" and (b)
maintain short positions in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments.
(3) purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and except that this limitation
does not apply to securities received or acquired as
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dividends, through offers of exchange, or as a result of
reorganization, consolidation, or merger.
(4) purchase portfolio securities while borrowings in excess of 5% of
its total assets are outstanding.
DIRECTORS AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The directors and executive officers of the Corporation, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
Margo N. Alexander**; 50 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 28 investment companies for which
Mitchell Hutchins or PaineWebber serves
as investment adviser.
Richard Q. Armstrong; 62 Director Mr. Armstrong is chairman and principal
78 West Brother Drive of RQA Enterprises (management
Greenwich, CT 06830 consulting firm) (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). He was a partner of
The New England Consulting Group
(management consulting firm) (December
1992-September 1993). He was managing
director of LVMH U.S. Corporation (U.S.
subsidiary of the French luxury goods
conglomerate, Louis Vuitton Moet
Hennessey Corporation) (1987-1991) and
chairman of its wine and spirits
subsidiary, Schieffelin & Somerset
Company (1987-1991). Mr. Armstrong is a
director or trustee of 27 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
E. Garrett Bewkes, Jr.**; Director and Chairman Mr. Bewkes is a director of Paine Webber
70 of the Board of Group Inc. ("PW Group") (holding company
Directors of PaineWebber and Mitchell Hutchins).
Prior to December 1995, he was a
consultant to PW Group. Prior to 1988,
he was chairman of the
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
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 28
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
<S> <C> <C>
Richard R. Burt; 50 Director Mr. Burt is chairman of International
1101 Connecticut Avenue, Equity Partners (international
N.W. investments and consulting firm) (since
Washington, D.C. 20036 March 1994) and a partner of McKinsey &
Company (management consulting firm)
(since 1991). He is also a director of
American Publishing Company and
Archer-Daniels-Midland Co. (agricultural
commodities). He was the chief
negotiator in the Strategic Arms
Reduction Talks with the former Soviet
Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of
Germany (1985-1989). Mr. Burt is a
director or trustee of 27 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Mary C. Farrell**; 47 Director 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 appears
as a regular panelist on Wall $treet
Week with Louis Rukeyser. She also
serves on the Board of Overseers of New
York University's Stern School of
Business. Ms. Farrell is a director or
trustee of 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg; 55 Director Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, New York 10027 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg
is also a director of K-III
Communications Corporation, Federated
Department Stores, Inc. and Revlon, Inc.
Dean Feldberg is a director or
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
trustee of 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
<S> <C> <C>
George W. Gowen; 67 Director Mr. Gowen is a partner in the law firm
666 Third Avenue of Dunnington, Bartholow & Miller. Prior
New York, New York 10017 to May 1994, he was a partner in the law
firm of Fryer, Ross & Gowen. Mr. Gowen
is a director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a
director or trustee of 27 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Frederic V. Malek; 60 Director Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Avenue, Partners (merchant bank). From January
N.W. 1992 to November 1992, he was campaign
Suite 350 manager of Bush-Quayle '92. From 1990 to
Washington, D.C. 20004 1992, he was vice chairman and, from
1989 to 1990, he was president of
Northwest Airlines Inc., NWA Inc.
(holding company of Northwest Airlines
Inc.) and Wings Holdings Inc. (holding
company of NWA Inc.). Prior to 1989, he
was employed by the Marriott Corporation
(hotels, restaurants, airline catering
and contract feeding), where he most
recently was an executive vice president
and president of Marriott Hotels and
Resorts. Mr. Malek is also a director of
American Management Systems, Inc.
(management consulting and computer
related services), Automatic Data
Processing, Inc., CB Commercial Group,
Inc. (real estate services), Choice
Hotels International (hotel and hotel
franchising), FPL Group, Inc. (electric
services), Integra, Inc. (bio-medical),
Manor Care, Inc. (health care), National
Education Corporation and Northwest
Airlines Inc. Mr. Malek is a director or
trustee of 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Carl W. Schafer; 61 Director Mr. Schafer is president of the Atlantic
P.O. Box 1164 Foundation (charitable foundation
Princeton, NJ 08542 supporting mainly oceanographic
exploration and research). He is a
director of Roadway Express, Inc.
(trucking), The Guardian Group of Mutual
Funds, Evans Systems, Inc. (motor
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
fuels, convenience store and diversified
company), Electronic Clearing House,
Inc. (financial transactions
processing), Wainoco Oil Corporation and
Nutraceutix, Inc. (biotechnology
company). Prior to January 1993, he was
chairman of the Investment Advisory
Committee of the Howard Hughes Medical
Institute. Mr. Schafer is a director or
trustee of 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
<S> <C> <C>
Kimberly Brown; 30 Vice President Ms. Brown is a 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. Ms.
Brown is vice president of one
investment company for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dennis McCauley; 50 Vice President Mr. McCauley is a managing director and
chief investment officer--fixed income
of Mitchell Hutchins. Prior to December
1994, he was director of fixed income
investments of IBM Corporation. Mr.
McCauley is a vice president of 18
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president and a
Assistant Treasurer manager of the mutual fund finance
division of Mitchell Hutchins. Ms. Moran
is a vice president and assistant
treasurer of 28 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dianne E. O'Donnell; 45 Vice President and Ms. O'Donnell is a senior vice president
Secretary and deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice
president and secretary of 27 investment
companies and vice president and
assistant secretary of one investment
company for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
Emil Polito; 36 Vice President Mr. Polito is a senior vice president
and director of operations and control
for Mitchell Hutchins. From March 1991
to September 1993 he was director of the
mutual funds sales support and service
center for Mitchell Hutchins and
PaineWebber. Mr. Polito is vice
president of 28 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Susan Ryan; 37 Vice President Ms. Ryan is a senior vice president of
Mitchell Hutchins. Ms. Ryan has been
with Mitchell Hutchins since 1982. Ms.
Ryan is a vice president of five
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins.
Prior to May 1994, she was a partner in
the law firm of Arnold & Porter. Ms.
Schonfeld is a vice president of 27
investment companies and vice president
and secretary of one investment company
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Paul H. Schubert; 34 Vice President and Mr. Schubert is a first vice president
Treasurer and the director of the mutual fund
finance division of Mitchell Hutchins.
From August 1992 to August 1994, he was
a vice president of BlackRock Financial
Management, L.P. Prior to August 1992,
he was an audit manager with Ernst &
Young LLP. Mr. Schubert is a vice
president and treasurer of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Barney A. Taglialatela; Vice President and Mr. Taglialatela is a vice president and
36 Assistant Treasurer a manager of the mutual fund finance
division of Mitchell Hutchins. Prior to
February 1995, he was a manager of the
mutual fund finance division of Kidder
Peabody Asset Management, Inc. Mr.
Taglialatela is a vice president and
assistant treasurer of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
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<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
Keith A. Weller; 36 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 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ian W. Williams; 40 Vice President and Mr. Williams is a vice president and a
Assistant Treasurer manager of the mutual fund finance
division of Mitchell Hutchins. Prior to
June 1992, he was an audit senior
accountant with Price Waterhouse LLP.
Mr. Williams is a vice president and
assistant treasurer of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
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* 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 for each
board meeting and each meeting of a board committee (other than committee
meetings held on the same day as a board meeting). The Corporation presently has
three series and thus pays each director $3,000 annually, plus any additional
amounts due for board or committee meetings. Each chairman of the audit and
contract review committees of individual funds within the PaineWebber fund
complex receives additional compensation aggregating $15,000 annually from the
relevant funds. All 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 Fund's shares. Because 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.
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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.
COMPENSATION TABLE+
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM THE
FROM THE CORPORATION AND THE
NAME OF PERSON, POSITION CORPORATION* FUND COMPLEX**
- ------------------------------------------------------------------------------ ------------- -------------------
<S> <C> <C>
Richard Q. Armstrong, Director................................................ $ 4,553 $ 59,873
Richard R. Burt, Director..................................................... 4,103 51,173
Meyer Feldberg, Director...................................................... 5,992 96,181
George W. Gowen, Director..................................................... 5,992 92,431
Frederic V. Malek, Director................................................... 5,992 92,431
Carl W. Schafer, Director..................................................... 4,553 62,307
</TABLE>
- ------------
+ Only independent members of the board of directors are compensated by the
Fund and identified above; directors who are "interested persons," as defined
by the 1940 Act, do not receive compensation.
* Represents fees paid to each director during the fiscal year ended June 30,
1997.
** Represents total compensation paid to each director during the calendar year
ended December 31, 1996; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.
PRINCIPAL HOLDERS OF SECURITIES
The Fund's records as of July 31, 1997, did not indicate that any
shareholder owned more than 5% of the Fund's shares. The Corporation is not
aware of any shareholder who is the beneficial owner of 5% or more of the Fund's
shares.
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. PaineWebber acts as
the Fund's investment adviser and administrator pursuant to a contract with the
Corporation dated March 23, 1989 ("Advisory Contract"). Under the Advisory
Contract, the Fund pays PaineWebber an annual fee, computed daily and paid
monthly, according to the following schedule:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------------------------------------------------------------------- -----------
<S> <C>
Up to $1 billion..................................................................... 0.50%
In excess of $1 billion up to $1.5 billion........................................... 0.44%
Over $1.5 billion.................................................................... 0.36%
</TABLE>
For the fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1995,
the Fund paid (or accrued) to PaineWebber fees totalling $15,211,682,
$14,023,396 and $10,973,704, respectively, under the Advisory Contract.
12
<PAGE>
During the fiscal year ended June 30, 1997, the Fund did not pay fees to
PaineWebber for its services as lending agent because the Fund did not engage in
any securities lending activities. Prior to August 1, 1997, PaineWebber provided
certain services to the Fund not otherwise provided by its transfer agent.
Pursuant to an agreement between PaineWebber and the Fund relating to these
services, during the fiscal years ended June 30, 1997, June 30, 1996 and June
30, 1995, the Fund paid (or accrued) to PaineWebber $2,692,218, $2,559,302 and
$2,388,513, respectively. This agreement was reviewed annually by the board.
Effective August 1, 1997, PaineWebber provides transfer agency related services
to the Fund pursuant to a delegation of authority from PFPC Inc. and is
compensated for those services by PFPC Inc., not the Fund.
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, 1997, June 30, 1996 and June 30,
1995, PaineWebber paid (or accrued) to Mitchell Hutchins fees of $3,042,336,
$2,804,679 and $2,194,741, 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.
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
13
<PAGE>
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 board 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, 1997,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT CATEGORY NET ASSETS
- --------------------------------------------------------------------------------- ----------
<S> <C>
($ MIL)
Domestic (excluding Money Market)................................................ $ 6,173.1
Global........................................................................... 3,383.3
Equity/Balanced.................................................................. 4,610.9
Fixed Income (excluding Money Market)............................................ 4,945.5
Taxable Fixed Income......................................................... 3,359.5
Tax-Free Fixed Income........................................................ 1,586.0
Money Market Funds............................................................... 25,274.8
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds and other Mitchell Hutchins'
advisory accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance, and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber mutual funds and other
Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. PaineWebber acts as the distributor of Fund
shares under a distribution contract with the Corporation dated July 7, 1993
("Distribution Contract"), which requires PaineWebber to use its best efforts,
consistent with its other business, to sell shares of the Fund. Shares of the
Fund are offered continuously. Payments by the Fund to compensate PaineWebber
for certain expenses incurred in connection with its activities in providing
certain shareholder and account maintenance services are authorized under the
Distribution Contract and made in accordance with a plan of distribution adopted
by the Corporation in the manner prescribed by Rule 12b-1 under the 1940 Act
("Plan").
Among other things, the Plan provides that (1) PaineWebber will submit to
the board 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,
including those directors who are not "interested persons" of the Corporation
and who have no direct or indirect financial
14
<PAGE>
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 Paine Webber 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.
During the fiscal year ended June 30, 1997, the Fund paid or accrued to
PaineWebber service fees of $2,980,373. For the same period, PaineWebber
estimates that it incurred expenses of $2,677,000, in servicing Fund
shareholders. PaineWebber estimates that these expenses were incurred as
follows: (a) allocated costs related to shareholder servicing--$278,000; and (b)
service fees to investment executives--$2,399,000.
"Allocated costs" include various internal costs allocated by PaineWebber to
its efforts at providing certain shareholder and account maintenance services.
These internal costs encompass office rent, salaries and other overhead expenses
of various PaineWebber departments and areas of operations.
In approving the continuance of the Plan, the board considered all features
of the distribution system for the Fund, including (a) PaineWebber's view that
the payment of service fees at the annual rate of 0.06% of the average daily net
assets of the Fund held in shareholder accounts serviced by Investment
Executives and correspondent firms was attractive to such Investment Executives
and correspondent firms and would result in greater growth of the Fund than
might otherwise be the case, (b) the extent to which Fund shareholders might
benefit from economies of scale resulting from growth in the Fund's assets and
shareholder account size and the potential for continued growth, (c) the
services provided to the Fund and its shareholders by PaineWebber pursuant to
the Distribution Contract, (d) PaineWebber's expenses and costs under the Plan
as described above and (e) the fact that the expense to the Fund of the Plan
could be offset if the Plan is successful by the lower advisory fee rates that
are triggered as assets reach higher levels.
The board 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 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.
15
<PAGE>
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 if no weight was attributed to the
services provided by the executing dealer. Moreover, Mitchell Hutchins will not
enter into any explicit soft dollar arrangements relating to principal
transactions and will not receive in principal transactions the types of
services that could be purchased for hard dollars. Research services furnished
by the dealers through which or with which the Fund effects securities
transactions may be used by Mitchell Hutchins in advising other funds or
accounts and, conversely, research services furnished to Mitchell Hutchins in
connection with other funds or accounts that Mitchell Hutchins advises may be
used in advising the Fund. 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;
therefore, it has not allocated any brokerage transactions for research,
analysis, advice and similar services.
Mitchell Hutchins may engage in agency transactions in over-the-counter
equity and debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide research
or execution services. These procedures include Mitchell Hutchins receiving
multiple quotes from dealers before executing the transactions on an agency
basis.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
As of June 30, 1997, 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--$154,629,727;
Goldman Sachs Group LP--$14,983,594; Merrill Lynch & Company Incorporated--
$84,911,871; Morgan Stanley Group Incorporated--$39,772,719 and Lehman Brothers
Holdings Incorporated--$67,584,829.
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
16
<PAGE>
determined by the SEC, (2) when an emergency exists, as defined by the SEC, that
makes it not reasonably practicable for the Fund to dispose of securities owned
by it or to determine fairly the market value of its assets or (3) as the SEC
may otherwise permit. The redemption price may be more or less than the
shareholder's cost, depending on the market value of the Fund's portfolio at the
time, although the Fund attempts to maintain a constant net asset value of $1.00
per share.
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, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day.
The Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 ("Rule") under the 1940 Act. To use
amortized cost to value its portfolio securities, the Fund must adhere to
certain conditions under the Rule relating to the Fund's investments, some of
which are discussed in the Prospectus and this Statement of Additional
Information. Amortized cost is an approximation of market value, whereby the
difference between acquisition cost and value at maturity is amortized on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account, and thus the amortized cost method of valuation
may result in the value of a security being higher or lower than its actual
market value. If a large number of redemptions take place at a time when
interest rates have increased, the Fund might have to sell portfolio securities
prior to maturity and at a price that might not be desirable.
The board has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share, which include a review of the
extent of any deviation of net asset value per share, based on available market
quotations, from the $1.00 amortized cost per share. If that deviation exceeds
1/2 of 1% for the Fund, the board will promptly consider whether any action
should be initiated to eliminate or reduce material dilution or other unfair
results to shareholders. Such action may include redeeming shares in kind,
selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less and except as otherwise indicated herein
will not purchase any instrument with a remaining maturity greater than 13
months, will limit portfolio investments, including repurchase agreements, to
those U.S. dollar-denominated instruments that are of high quality and that
Mitchell Hutchins determines (pursuant to delegated authority from the board)
present minimal credit risks, and will comply with certain reporting and
recordkeeping procedures. There is no assurance that constant net asset value
per share will be maintained. If amortized cost ceases to represent fair value,
the board will take appropriate action.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a
17
<PAGE>
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) through the end of its current taxable year on June
30, 1998, the Fund must derive less than 30% of its gross income from the sale
or other disposition of securities held for less than three months; (3) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. government
securities and other securities, with these other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets; and (4) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. government securities) of any one issuer.
CALCULATION OF YIELD
The Fund computes its yield and effective yield quotations using
standardized methods required by the SEC. The Fund from time to time advertises
(1) its current yield based on a recently ended seven-day period, computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from that
shareholder account, dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent, and (2) its effective
yield based on the same seven-day period by compounding the base period return
by adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from
the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)to the power of 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,
1997, were 4.95% and 5.07%, respectively.
18
<PAGE>
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 the Standard & Poor's 500 Composite Stock
Price Index, the Dow Jones Industrial Average, the Merrill Lynch Municipal Bond
Indices, the Morgan Stanley Capital International World Index, the Lehman
Brothers Treasury Bond Index, the Lehman Brothers Government/Corporate Bond
Index, the Salomon Brothers World Government Bond Index and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The Fund
also may refer in such materials to mutual fund performance rankings and other
data, such as comparative asset, expense and fee levels, published by Lipper,
CDA, Donoghue, Wiesenberger or ICD. Performance Advertisements also may refer to
discussions of the Fund and comparative mutual fund data and ratings reported in
independent periodicals, including 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-Registered Trademark- 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. 20036-1800, serves as counsel to the Fund.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as the Fund's independent auditors.
19
<PAGE>
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended June 30,
1997 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 by reference in this
Statement of Additional Information.
20
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Investment Policies and Restrictions..... 1
Directors and Officers; Principal Holders
of Securities.......................... 6
Investment Advisory, Administration and
Distribution Arrangements.............. 12
Portfolio Transactions................... 15
Additional Information Regarding
Redemptions............................ 16
Valuation of Shares...................... 17
Taxes.................................... 18
Calculation of Yield..................... 18
Other Information........................ 19
Financial Statements..................... 20
</TABLE>
- -C-1997 PaineWebber Incorporated
PAINEWEBBER
RETIREMENT MONEY FUND
-----------------------------
Statement of Additional Information
August 29, 1997
------------------------------------
