<PAGE>
<TABLE>
<C> <S>
THE FUND IS A SERIES OF PAINEWEBBER RMA MONEY PAINEWEBBER
FUND, INC. THIS PROSPECTUS CONCISELY SETS RETIREMENT MONEY FUND
FORTH INFORMATION ABOUT THE FUND A PROSPECTIVE 1285 AVENUE OF THE AMERICAS
INVESTOR SHOULD KNOW BEFORE INVESTING. PLEASE NEW YORK, NEW YORK 10019
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. A
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST
29, 1998 (WHICH IS INCORPORATED BY REFERENCE
HEREIN) HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC" OR "COMMISSION"). 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. IN ADDITION, THE COMMISSION
MAINTAINS A WEBSITE (HTTP://WWW.SEC.GOV) THAT
CONTAINS THE STATEMENT OF ADDITIONAL INFORMATION,
MATERIAL INCORPORATED BY REFERENCE AND OTHER
INFORMATION REGARDING REGISTRANTS THAT FILE
ELECTRONICALLY WITH THE COMMISSION.
- ------------------------------------------- -------------------------------------------
A PROFESSIONALLY MANAGED MONEY MARKET FUND OFFERED
TO INDIVIDUAL RETIREMENT ACCOUNTS AND QUALIFIED
RETIREMENT PLANS SEEKING:
/ / CURRENT INCOME
/ / HIGH LIQUIDITY
/ / CONSERVATION OF CAPITAL
AN INVESTMENT IN THE FUND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE
TO LOSE MONEY BY INVESTING IN THE FUND.
- --------------------------------------- ---------------------------------------
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL
OFFENSE. AUGUST 29, 1998
</TABLE>
- --------------------------------------------------------------------------------
<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 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 $4.1 billion at July 31, 1998.
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: Generally 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 (all collectively referred to as "Retirement
Plans"). The Fund provides a convenient means for Retirement Plans to earn
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. While the types of money market instruments in which the
Fund invests generally are considered to have low risk of loss of principal or
interest, these securities are not completely risk free. In addition, the Fund
may invest in U.S. dollar-denominated securities of foreign issuers, which may
present a greater degree of risk than investments in securities of domestic
issuers. During periods when interest rates are declining or rising, the Fund's
yield will tend to lag behind prevailing short-term interest rates. See
"Investment Objective and Policies."
2
<PAGE>
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................................................. 0.40%
12b-1 fees...................................................... 0.13%
Other expenses.................................................. 0.27%
-----
Total operating expenses........................................ 0.80%
-----
-----
</TABLE>
- ------------
* See "Management" for additional information. The fees and expenses shown are
those actually incurred for the fiscal year ended June 30, 1998, except that
the 12b-1 fees are shown at the current contract rate of 0.125% (rounded to
0.13% in the above table).
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would pay directly or indirectly the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
--------- ------------ ---------- ----------
<S> <C> <C> <C>
$ 8 $ 26 $ 44 $ 99
</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 each of the periods shown. This information is supplemented by the
financial statements, accompanying notes and the report of Ernst & Young LLP,
independent auditors, which appear in the Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 1998, and are incorporated by reference into
the Statement of Additional Information. The financial statements and notes,
as well as the information in the table appearing below insofar as it relates to
each of the five years in the period ended June 30, 1998, have been audited by
Ernst & Young LLP, independent auditors. The Annual Report to Shareholders may
be obtained without charge by calling 1-800-647-1568. The information appearing
below for the fiscal periods ended prior to June 30, 1993 also have been audited
by Ernst & Young LLP, whose reports thereon were unqualified.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period...... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net investment income...... 0.049 0.048 0.050 0.047 0.028 0.027 0.044
Dividends from net
investment income........ (0.049) (0.048) (0.050) (0.047) (0.028) (0.027) (0.044)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of
period................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total investment
return(1)................ 5.03% 4.89% 5.13% 4.83% 2.75% 2.78% 4.40%
Ratios/Supplemental Data:
Net assets, end of
period (000's)........... $4,191,018 $3,922,753 $3,500,508 $2,966,199 $2,450,235 $2,280,840 $2,163,935
Expenses to average net
assets................... 0.78% 0.75% 0.70% 0.78% 0.77% 0.79% 0.79%
Net investment income to
average net assets....... 4.91% 4.79% 5.01% 4.75% 2.77% 2.76% 4.39%
<CAPTION>
FOR THE PERIOD
JULY 2, 1988
(COMMENCEMENT
OF OPERATIONS)
1991 1990 TO JUNE 30, 1989
------------ ------------ ----------------
<S> <C> <C> <C>
Net asset value,
beginning of period...... $1.00 $1.00 $1.00
------------ ------------ ----------------
Net investment income...... 0.068 0.079 0.081
Dividends from net
investment income........ (0.068) (0.079) (0.081)
------------ ------------ ----------------
Net asset value, end of
period................... $1.00 $1.00 $1.00
------------ ------------ ----------------
------------ ------------ ----------------
Total investment
return(1)................ 6.80% 7.90% 8.10%
Ratios/Supplemental Data:
Net assets, end of
period (000's)........... $2,122,973 $1,812,092 $1,340,550
Expenses to average net
assets................... 0.79% 0.85% 0.91%*
Net investment income to
average net assets....... 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 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.
4
<PAGE>
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 (1) U.S. government securities, (2) obligations
of U.S. and foreign banks, (3) commercial paper and other short-term obligations
of U.S. and foreign companies, governments and similar entities, including
variable and floating rate securities and participation interests, and (4)
repurchase agreements involving any of the foregoing. The Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less.
The Fund may invest in obligations (including certificates of deposit,
bankers' acceptances, time deposits and similar obligations) of U.S. and foreign
banks having total assets at the time of purchase in excess of $1.5 billion. The
Fund may invest in non-negotiable time deposits of U.S. banks, savings
associations and similar depository institutions having total assets in excess
of $1.5 billion at the time of purchase only if the time deposits have
maturities of seven days or less.
The securities purchased by the Fund consist only of obligations that
Mitchell Hutchins determines, pursuant to procedures adopted by the
Corporation's board of directors (sometimes referred to as the "board"), present
minimal credit risks and are "First Tier Securities" as defined in Rule 2a-7
under the Investment Company Act of 1940 ("1940 Act"). As so defined, First Tier
Securities include securities that are rated in the highest short-term rating
category by at least two nationally recognized statistical rating organizations
("NRSROs"), or by one NRSRO if only one NRSRO has assigned the obligation a
short-term rating. The Fund also may rely on the short-term rating and credit
quality of a guarantee of a security (including bond insurance, letters of
credit or unconditional demand features) or the issuer of the guarantee to
determine whether the security is eligible for purchase. First Tier Securities
also include unrated securities if Mitchell Hutchins has determined the
obligations to be of comparable quality to rated securities that so qualify. The
Fund may also purchase participation interests in any of the securities in which
it is permitted to invest. Participation interests are pro rata interests in
securities held by others. The Fund generally may invest no more than 5% of its
total assets in the securities of a single issuer (other than securities issued
by the U.S. government, its agencies or instrumentalities).
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 weighted average maturity of the
portfolio based upon its assessment of the relative values of various money
market instruments and future interest rate patterns, in order to respond to
changing economic and money market conditions and to shifts in fiscal and
monetary policy. Mitchell Hutchins may also seek to improve 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
markets.
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 or guaranteed by U.S.
government agencies and instrumentalities, including securities that are
supported by the full faith and credit of the United States (such as Government
National Mortgage Association certificates ("GNMAs")), securities supported
primarily or solely by the creditworthiness of the issuer (such as securities of
the Resolution Funding Corporation and the
5
<PAGE>
Tennessee Valley Authority) and securities that are supported primarily or
solely by specific pools of assets and the creditworthiness of a U.S.
government-related issuer (such as mortgage-backed securities issued by Fannie
Mae, also known as the Federal National Mortgage Association, and Freddie Mac,
also known as the Federal Home Loan Mortgage Corporation).
The Fund may also invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury, which are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program. Under the STRIPS program, the
principal and interest components are individually numbered and separately
issued by the U.S. Treasury.
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. In addition, the Fund may purchase variable and floating rate
securities of other issuers with remaining maturities in excess of 13 months if
the securities are subject to a demand feature exercisable within 13 months or
less. The yields on these securities are adjusted in relation to changes in
specific rates, such as the prime rate, and different securities may have
different adjustment rates. The 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 letters of credit or
other liquidity support arrangements provided by banks or other financial
institutions, whose credit standing affects the credit quality of the
obligation. Changes in the credit quality of these institutions could cause
losses to 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 Fund and the
issuer. The principal amount of these notes may be increased from time to time
by the parties (subject to specified maximums) or decreased by the Fund or the
issuer. These notes are payable on demand and may or may not be rated.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases obligations from a bank or securities dealer or its affiliates
and simultaneously commits to resell the obligations to that counterparty 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 obligations.
The Fund maintains custody of the underlying obligations prior to their
repurchase, either through its regular custodian or through a special
"tri-party" custodian or sub-custodian that maintains separate accounts for both
the Fund and its counterparty. Thus, the obligation of the counterparty to pay
the repurchase price on the date agreed to or upon demand is, in effect, secured
by such obligations. Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible decline in the market
value of the underlying obligations. Repurchase agreements involving obligations
other than U.S. government securities (such as commercial paper and corporate
bonds) may be subject to special risks and may not have the benefit of certain
protections in the event of the counterparty's insolvency. If the seller or
guarantor becomes insolvent, the Fund may suffer delays, costs and possible
losses in connection with the disposition of collateral. The Fund intends to
enter into repurchase agreements only with
6
<PAGE>
counterparties in transactions believed by Mitchell Hutchins to present minimal
credit risks in accordance with guidelines established by the board.
PURCHASE AND SALE TRANSACTIONS. The Fund may enter into simultaneous
purchase and sale transactions. Upon entering into the transaction, the other
party agrees to buy from the Fund the same or a security similar to that it is
selling, at a mutually agreed upon time and price, thereby determining the yield
during the term of the transaction. In purchase and sale transactions, the Fund
earns interest on the underlying security during the period it is held by the
Fund and may also experience a gain or loss upon the resale of the security. If
the other party were to default on its obligation, and the security were sold
for a lesser amount, the Fund would realize a loss.
FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated
securities of foreign issuers, including debt securities of foreign banks,
corporations, governments and similar entities. Such investments may consist of
obligations of foreign and domestic branches of foreign banks and foreign
branches of domestic banks. Such investments may involve risks that are
different from investments in U.S. issuers. These risks may include future
unfavorable political and economic developments, possible withholding taxes,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions that might affect the payment of principal or interest
on the securities held by the Fund. Additionally, there may be less publicly
available information about foreign issuers, as these issuers may not be subject
to the same regulatory requirements as domestic issuers.
MONEY MARKET INSTRUMENTS. While the types of money market instruments in
which the Fund invests generally are considered to have low risk of loss of
principal or interest, they are not completely risk free. An issuer or guarantor
may be unable or unwilling to pay interest or repay principal on its obligations
for many reasons, including adverse changes in its own financial condition or in
economic conditions generally.
During periods when interest rates are declining or rising, the Fund's yield
will tend to lag behind prevailing short-term market rates. This means that in
periods of declining interest rates, the Fund's yield will tend to be somewhat
higher than prevailing short-term market rates, and in periods of rising
interest rates the opposite generally will be true. Also, when interest rates
are falling, net cash inflows from the continuous sale of Fund shares are likely
to be invested in portfolio instruments producing lower yields than the balance
of the Fund's portfolio, thereby reducing its yield. In periods of rising
interest rates, the opposite can be true. There can be no assurance that the
Fund will achieve its investment objective.
YEAR 2000 RISK. Like other mutual funds, financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by Mitchell Hutchins, other service providers and entities
with computer systems that are linked to the Fund's records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Issue." Mitchell Hutchins is
taking steps that it believes are reasonably designed to address the Year 2000
Issue with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets taken at market value. Lending securities enables the Fund
to earn additional income but could result in a loss or delay in recovering
these securities.
7
<PAGE>
WHEN-ISSUED SECURITIES The Fund may purchase securities on a "when-issued"
basis, that is, for delivery beyond the normal settlement date at a stated price
and yield. The Fund generally would not pay for such securities or start earning
interest on them until they are received. However, when the Fund purchases
securities on a when-issued basis, it immediately assumes the risks of
ownership, including the risk of price fluctuation. Failure by the issuer to
deliver a security purchased on a when-issued basis may result in a loss or
missed opportunity to make an alternative investment.
OTHER INFORMATION. The Fund may borrow money for temporary purposes, but
not in excess of 10% of its total assets, including reverse repurchase
agreements involving up to 5% of its net assets. The Fund may invest up to 10%
of its total assets in the securities of other money market funds. To the extent
the Fund invests in other money market funds, its shareholders incur duplicative
fees and expenses, including investment advisory fees.
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.
New forms of money market instruments continue to be developed. The Fund may
invest in such instruments to the extent consistent with its investment
objective.
The Fund's investment objective may not be changed without the approval of
its 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 board 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.
To the extent that amounts transferred by check or wire or from funds held
at PaineWebber into a Retirement Plan Sweep Account create a free credit cash
balance, that cash balance will be automatically invested in Fund shares, as
described above, when federal funds are available for the investment, unless the
account holder specifically instructs its PaineWebber Investment Executive or
correspondent firm not to purchase Fund shares with such 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 securities, as
8
<PAGE>
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), savings investment match
plans for employees ("SIMPLE IRAs"), 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.
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 (sell) 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
9
<PAGE>
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 generally may redeem Fund shares by drawing a check, a supply of
which may be obtained through PaineWebber, for $250 or more against their Fund
accounts. With respect to Retirement Plans that permit participants to direct
the investment of their Plan account balances, only those Plan participants who
are 59 1/2 years of age or older 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
10
<PAGE>
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, additional
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 semiannual 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 59 1/2 years of age or older
are eligible to participate in the SWP; with respect to other Retirement Plans,
the Retirement Plan fiduciary having investment responsibility is eligible for
the SWP. Shareholders who are interested in the SWP should contact their
PaineWebber Investment Executives or correspondent firms for more information
and an application. PaineWebber reserves the right to modify or terminate the
SWP at any time or to impose a service charge in connection with it.
VALUATION OF SHARES
The Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Net asset value per share is determined by dividing the value of the
securities plus any cash or other assets held by the Fund less all its
liabilities by the number of Fund shares outstanding. The Fund's net asset value
is computed 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 board.
DIVIDENDS AND TAXES
DIVIDENDS. Each Business Day, the Fund declares as dividends all of its net
investment
11
<PAGE>
income. Shares begin earning dividends on the day they are purchased; dividends
are accrued to shareholder accounts daily and are automatically paid in
additional Fund shares monthly. Shares do not earn dividends on the day they are
redeemed. Net investment income includes accrued interest and earned discount
(including both original issue and market discounts), less amortization of
premium and accrued expenses.
The Fund distributes any net short-term capital gain annually but may make
more frequent distributions of such gain if necessary to maintain its net asset
value per share at $1.00 or to avoid income or excise taxes. The Fund does not
expect to realize 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 it distributes to its shareholders.
Dividends received by a Retirement Plan ordinarily will not be subject to
taxation until the participant withdraws the proceeds from the Retirement Plan.
Generally, withdrawals from a Retirement Plan will be taxable as ordinary
income; and withdrawals 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 (unless they are used to pay certain
higher education expenses and certain acquisition costs of first time home
buyers). If the distributions from a Retirement Plan (other than a governmental
or church plan) for any taxable year following the year in which the participant
reaches age 70 1/2 are less than the "minimum required distribution" for that
taxable year, an excise tax equal to 50% of the deficiency may be imposed.
Moreover, certain contributions to a Retirement Plan in excess of the amounts
permitted by law may be subject to an excise tax.
The Fund notifies its shareholders following the end of each calendar year
of the amount of all dividends paid that year.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be other
federal, state or local tax considerations applicable to a particular investor.
Prospective shareholders are urged to consult their tax advisers.
MANAGEMENT
The board, 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, 1998, the Fund's effective advisory and administration fee
paid to PaineWebber was equal to 0.40% 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 also incurs other expenses. For the fiscal year ended June 30,
1998, the Fund's ratio of expenses as a percentage of average net assets was
0.78%. The Fund's expense ratio may be higher
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<PAGE>
than those of other PaineWebber money market funds due in part to the relatively
small size of the accounts in the Fund.
In accordance with procedures adopted by the board, the Fund may pay fees to
PaineWebber for its services as lending agent in its portfolio securities
lending program. 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.
PaineWebber and Mitchell Hutchins are located at 1285 Avenue of the
Americas, New York, New York 10019. Mitchell Hutchins is a wholly owned asset
management subsidiary of PaineWebber, which is in turn wholly owned by Paine
Webber Group Inc., a publicly owned financial services holding company. At July
31, 1998, PaineWebber or Mitchell Hutchins was investment adviser of 32
registered investment companies with 69 separate portfolios and aggregate assets
in excess of $40.5 billion.
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 0.125% of its average daily net assets. Any increase in this
annual rate requires prior approval by the board.
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 0.02% of the Fund's average daily net assets
held in accounts serviced by such Investment Executives and correspondent firms.
The fee is also used to offset PaineWebber's other expenses in servicing and
maintaining shareholder accounts. These expenses may include the costs of the
PaineWebber branch office in which the Investment Executive is based, such as
rent, communications equipment, employee salaries and other overhead costs.
During the period they are in effect, the Plan and a related distribution
contract ("Distribution Contract") obligate the Fund to pay the 12b-1 service
fee to PaineWebber as compensation for its service activities and not as
reimbursement for specific expenses incurred. Thus, even if PaineWebber's
expenses exceed its 12b-1 service fee, the Fund will not be obliged to pay more
than the fee and, if PaineWebber's expenses are less than the fee, it will
retain its full fee and realize a profit. The Fund will pay the 12b-1 service
fee to PaineWebber until either the Plan or the Distribution Contract is
terminated or not renewed. In that event, PaineWebber's 12b-1 service expenses
in excess of 12b-1 service fees received or accrued through the termination date
will be 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
13
<PAGE>
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 $37 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 60 billion shares of $0.001 par value common stock; 20 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.
Shareholders of the Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative,
and as a result, the holders of more than 50% of the shares of the Corporation
may elect all of its directors.
The Corporation does not hold annual shareholder meetings. There normally
will be no meetings of shareholders to elect directors unless fewer than a
majority of the directors holding office have been elected by shareholders. The
directors are required to call a meeting of shareholders when requested in
writing to do so by the shareholders of record holding at least 25% of the
Corporation's outstanding shares. Each share of the Fund has equal voting,
dividend and liquidation rights. The shares of each series of the Corporation
will be voted separately except when an aggregate vote of all series is required
by the Investment Company Act of 1940 or under Maryland law.
CERTIFICATES. To avoid additional operating expenses and for investor
convenience, share certificates are not issued. Ownership of Fund shares is
recorded on a stock register by the Transfer Agent, and shareholders have the
same rights of ownership with respect to such shares as if certificates had been
issued.
REPORTS. Shareholders receive audited annual and unaudited semiannual
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 semiannual 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 materials be sent personally to that shareholder.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is custodian of the Fund's
assets. PFPC Inc. ("PFPC"), a subsidiary of PNC Bank, N.A., 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 ................................ 5
Purchases ........................................................ 8
Redemptions ...................................................... 9
Retirement Plan Distributions ................................... 10
Valuation of Shares ............................................. 11
Dividends and Taxes ............................................. 11
Management ...................................................... 12
Performance Information ......................................... 13
General Information ............................................. 14
------------------------------------------------------------------
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED
TO IN THIS PROSPECTUS. THE FUND AND ITS DISTRIBUTOR HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INVESTORS WITH INFORMATION THAT IS
DIFFERENT. THE PROSPECTUS IS NOT AN OFFER TO SELL SHARES OF THE FUND
IN ANY JURISDICTION WHERE THE FUND OR ITS DISTRIBUTOR MAY NOT
LAWFULLY SELL THOSE SHARES.
[LOGO]
-C-1998 PaineWebber Incorporated
[LOGO]
Prospectus
---------------------------------
RETIREMENT
MONEY
FUND
AUGUST 29, 1998
<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 asset management 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, 1998. 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,
1998.
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.
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, as defined in Rule 2a-7 under the Investment Company Act
of 1940 ("1940 Act"), 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 is a security that is either (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 priority and security,
(4) subject to a guarantee rated in the highest short-term rating category or
issued by a guarantor that has received the highest short-term rating for a
comparable debt obligation or (5) unrated, but determined by Mitchell Hutchins
to be of comparable quality. 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 may continue to be considered a First Tier security.
VARIABLE AND FLOATING RATE DEMAND INSTRUMENTS. 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
<PAGE>
support arrangement from a bank or other financial institution that may be drawn
upon demand, after specified notice, for all or any part of the exercise price
of the demand feature. Generally, 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 Fund may also
exercise a demand feature if Mitchell Hutchins deems it prudent to do so. 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. Repurchase agreements are transactions in which the
Fund purchases securities or other obligations and simultaneously commits to
resell them to the counterparty 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 obligations. The Fund maintains custody of the
underlying obligations prior to their repurchase, either through its regular
custodian or through a special "tri-party" custodian or sub-custodian that
maintains separate accounts for both the Fund and its counterparty. Thus the
obligation of the counterparty to pay the repurchase price on the date agreed to
or upon demand is, in effect, secured by such obligations. If their value
becomes less than the repurchase price, plus any agreed upon additional amount,
the counterparty 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 obligations and the price that was paid by the Fund upon
acquisition is accrued as interest and included in the Fund's net investment
income.
PURCHASE AND SALE TRANSACTIONS. The counterparty in a simultaneous purchase
and sale transaction with the Fund agrees to buy from the Fund the same or a
similar security at a mutually agreed-upon time and price. The difference
between the purchase cost and sale proceeds (which includes the accrued interest
on the security) determines the yield during the term of the transaction. The
Fund does not have the right to require the counterparty to provide additional
collateral if the market value of the securities purchased by the Fund falls
below the price at which the securities are to be sold to the counterparty. In
addition, in purchase and sale transactions, full legal title to the securities
sold to the Fund is transferred to the Fund. If the counterparty defaults, the
Fund's return on the transaction is determined by the difference between the
market value of the security bought by the Fund and the amount paid by the Fund,
plus related accrued interest. The Fund would have rights against a defaulting
counterparty for breach of contract with respect to any losses that result from
those market fluctuations.
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
2
<PAGE>
obligations under the reverse repurchase agreement. See "Investment Policies and
Restrictions--Segregated Accounts."
ILLIQUID SECURITIES. The Fund will not invest more than 10% of its net
assets in illiquid securities. The term "illiquid securities" for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, repurchase agreements maturing in
more than seven days, simultaneous purchase and sale contracts with terms in
excess of seven days and restricted securities other than those Mitchell
Hutchins has determined to be liquid pursuant to guidelines established by the
board. To the extent the Fund invests in illiquid securities, it may not be able
to readily liquidate such investments and may have to sell other investments if
necessary to raise cash to meet its obligations.
Restricted securities are not registered under the Securities Act of 1933
("1993 Act") and may be sold only in privately negotiated or other exempted
transactions or after a 1933 Act registration statement has become effective.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
However, not all restricted securities are illiquid. A large institutional
market has developed for many U.S. and foreign securities that are not
registered under the 1933 Act. 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.
Institutional markets for restricted securities have developed as a result
of Rule 144A, which establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers 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 of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible 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.
3
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. 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. 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, at
least equal to the market value of the securities loaned, plus accrued interest.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. The Fund may reinvest cash collateral in money market
instruments or other short-term liquid investments. 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 of its loans at any
time. The Fund may pay reasonable fees in connection with a loan and may pay the
borrower or placing broker a negotiated portion of the interest earned on the
reinvestment of cash held as collateral. The Fund will receive 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, 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, PaineWebber has been retained 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.
4
<PAGE>
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 interpretations apply to, but are not a part of, this
fundamental restriction: (a) domestic and foreign banking will be
considered to be different industries; and (b) asset-backed
securities will be grouped in industries based upon their underlying
assets and not treated as constituting a single, separate industry.
(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.
The following interpretation applies to, but is not a part of, this
fundamental restriction: The Fund's investments in master notes,
funding agreements and similar instruments will not be considered to
be 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.
5
<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 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 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**; 51 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 (since March
1984). Mrs. Alexander is president and a
director or trustee of 32 investment
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Richard Q. Armstrong; 63 Director Mr. Armstrong is chairman and principal
R.Q.A. Enterprises of RQA Enterprises (management
One Old Church Road consulting firm) (since April 1991 and
Unit #6 principal occupation since March 1995).
Greenwich, CT 06830 Mr. Armstrong 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 31 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
71 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 board, president
and chief executive officer of American
Bakeries Company. Mr. Bewkes is a
director of Interstate Bakeries
Corporation. Mr. Bewkes is a director or
trustee of 32 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Richard R. Burt; 51 Director Mr. Burt is chairman of IEP Advisors,
1275 Pennsylvania Avenue, Inc. (international investments and
N.W. consulting firm) (since March 1994) and
Washington, D.C. 20004 a partner of McKinsey & Company
(management consulting firm) (since
1991). He is also a director of Archer-
Daniels-Midland Co. (agricultural
commodities), Hollinger International
Co. (publishing), Homestake Mining
Corp., Powerhouse Technologies Inc. and
Wierton Steel Corp. He was the chief
negotiator in the Strategic Arms
Reduction Talks with the
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
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 31 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Mary C. Farrell**; 48 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 31 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg; 56 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 Primedia Inc.,
Federated Department Stores, Inc. and
Revlon, Inc. Dean Feldberg is a director
or trustee of 33 investment companies
for which Mitchell Hutchins, PaineWebber
or their affiliate serves as investment
adviser.
George W. Gowen; 68 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 or trustee of 31
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Frederic V. Malek; 61 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.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
(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), Manor Care, Inc. (health
care) and Northwest Airlines Inc. Mr.
Malek is a director or trustee of 31
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Carl W. Schafer; 62 Director Mr. Schafer is president of the Atlantic
66 Witherspoon Street Foundation (charitable foundation
#1100 supporting mainly oceanographic
Princeton, NJ 08542 exploration and research). He is a
director of Base Ten Systems, Inc.
(software) Roadway Express, Inc.
(trucking), The Guardian Group of Mutual
Funds, the Harding, Loevner Funds, Evans
Systems, Inc. (motor fuels, convenience
store and diversified company),
Electronic Clearing House, Inc.
(financial transactions processing),
Frontier 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 31 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Kimberly Brown; 31 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. Ms. Brown
is vice president of one investment
company for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
John J. Lee; 30 Vice President and Mr. Lee is a vice president and a
Assistant Treasurer manager of the mutual fund finance
department of Mitchell Hutchins. Prior
to September 1997, he was an audit
manager in the financial services
practice of Ernst & Young LLP. Mr. Lee
is a vice president and assistant
treasurer of 32 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dennis McCauley; 51 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 22
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran; 41 Vice President and Ms. Moran is a vice president and a
Assistant Treasurer manager of the mutual fund finance
department of Mitchell Hutchins. Ms.
Moran is a vice president and assistant
treasurer of 32 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dianne E. O'Donnell; 46 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 31 investment
companies and vice president and
assistant secretary of one investment
company for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Emil Polito; 37 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 32 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
Susan Ryan; 38 Vice President Ms. Ryan is a senior vice president and
a portfolio manager of Mitchell Hutchins
and 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; 47 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 31
investment companies and vice president
and secretary of one investment company
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Paul H. Schubert; 35 Vice President and Mr. Schubert is a senior vice president
Treasurer and the director of the mutual fund
finance department of Mitchell Hutchins.
From August 1992 to August 1994, he was
a vice president of BlackRock Financial
Management, L.P. Mr. Schubert is a vice
president and treasurer of 32 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
37 Assistant Treasurer a manager of the mutual fund finance
department 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 32 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Keith A. Weller; 37 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 31 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.
11
<PAGE>
The Corporation pays directors who are not "interested persons" of the
Corporation $1,000 annually for each series of the Corporation and $150 per
series for each separate 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.
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................................................ $ 6,150 $ 94,885
Richard R. Burt, Director..................................................... 5,700 87,085
Meyer Feldberg, Director...................................................... 6,150 117,853
George W. Gowen, Director..................................................... 7,389 101,567
Frederic V. Malek, Director................................................... 6,150 95,845
Carl W. Schafer, Director..................................................... 6,150 94,885
</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,
1998.
** Represents total compensation paid to each director during the calendar year
ended December 31, 1997; 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, 1998, 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.
12
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. PaineWebber acts as
the Fund's investment adviser and administrator pursuant to a contract with the
Corporation dated March 23, 1989 ("Advisory Contract"). Under the Advisory
Contract, the Fund pays PaineWebber an annual fee, computed daily and paid
monthly, according to the following schedule:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------------------------------------------------------------------- -----------
<S> <C>
Up to $1 billion..................................................................... 0.50%
In excess of $1 billion up to $1.5 billion........................................... 0.44%
Over $1.5 billion.................................................................... 0.36%
</TABLE>
For the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996,
the Fund paid (or accrued) to PaineWebber fees totaling $16,593,019, $15,211,682
and $14,023,396, respectively, under the Advisory Contract.
During the fiscal year ended June 30, 1998, 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, 1998, June 30, 1997 and June
30, 1996, the Fund paid (or accrued) to PaineWebber $251,757, $2,692,218 and
$2,559,302, 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, 1998, June 30, 1997 and June 30,
1996, PaineWebber paid (or accrued) to Mitchell Hutchins fees of $3,318,604,
$3,042,336 and $2,804,67, 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
13
<PAGE>
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
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, 1998,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET
INVESTMENT CATEGORY ASSETS
- ----------------------------------------------------------------- ---------
($ MIL)
<S> <C>
Domestic (excluding Money Market)................................ 7,867.8
Global........................................................... 3,938.0
Equity/Balanced.................................................. 6,516.6
Fixed Income (excluding Money Market)............................ 5,289.2
Taxable Fixed Income......................................... 3,709.5
Tax-Free Fixed Income........................................ 1,579.7
Money Market Funds............................................... 28,787.4
</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
14
<PAGE>
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 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 0.125% of average net assets, and any increase from the 0.125% annual
rate would require prior approval of the board.
During the fiscal year ended June 30, 1998, the Fund paid or accrued to
PaineWebber service fees of $4,006,886. For the same period, PaineWebber
estimates that it incurred expenses of $2,324,331, in servicing Fund
shareholders. PaineWebber estimates that these expenses were incurred as
follows: (a) allocated costs related to shareholder servicing--$283,000; and (b)
service fees to investment executives--$2,041,331.
"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 0.02% 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.
15
<PAGE>
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.
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
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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, 1998, the Fund owned commercial paper and other short-term
obligations issued by the following persons who are regular broker-dealers for
the Fund: Bear Stearns Companies Incorporated--$180,011,395; Goldman Sachs Group
LP--$14,800,050; Merrill Lynch & Company Incorporated-- $26,073,004; Morgan
Stanley, Dean Witter & Company--$124,889,994; Lehman Brothers Holdings
Incorporated--$191,913,118 and Credit Suisse First Boston--$19,831,639.
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, 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
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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 price
different from the price that would have been determined had the matrix or
formula method not been used.
TAXES
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) 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 (3) 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. If the Fund failed to qualify for treatment as a RIC for any taxable
year, it would be taxed as an ordinary corporation on its taxable income for
that year (even if that income was distributed to its shareholders).
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
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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,
1998, were 4.87% and 4.98%, 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 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
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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.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended June 30,
1998 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.
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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.............. 13
Portfolio Transactions................... 16
Additional Information Regarding
Redemptions............................ 17
Valuation of Shares...................... 17
Taxes.................................... 18
Calculation of Yield..................... 18
Other Information........................ 20
Financial Statements..................... 20
</TABLE>
- -C-1998 PaineWebber Incorporated
PAINEWEBBER
RETIREMENT MONEY FUND
-----------------------------
Statement of Additional Information
August 29, 1998
------------------------------------
