<PAGE>
As filed with the Securities and Exchange Commission on August 28, 1998
1933 Act Registration No. 2-89016
1940 Act Registration No. 811-3946
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
-----
Pre-Effective Amendment No. [ ]
---
Post-Effective Amendment No. 33 [ X ]
---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
-----
Amendment No. 32
---
PAINEWEBBER MANAGED MUNICIPAL TRUST
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212)713-2000
DIANNE E. O'DONNELL, ESQ.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, ESQ.
BENJAMIN J. HASKIN, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: Effective Date of this Post-
Effective Amendment.
It is proposed that this filing will become effective:
[ x ] Immediately upon filing pursuant to Rule 485(b)
----
[ ] On pursuant to Rule 485(b)
---- ---------------------
[ ] 60 days after filing pursuant to Rule 485(a)(1)
----
[ ] On pursuant to Rule 485(a)(1)
---- ---------------------
[ ] 75 days after filing pursuant to Rule 485(a)(2)
----
[ ] On pursuant to Rule 485(a)(2)
---- ---------------------
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE>
PAINEWEBBER MANAGED MUNICIPAL TRUST
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER MANAGED MUNICIPAL TRUST
PaineWebber RMA California Municipal Money Fund
PaineWebber RMA New York Municipal Money Fund
Form N-lA Cross Reference Sheet
Part A Item No.and Caption Prospectus Caption
-------------------------- ------------------
1. Cover Page Cover Page
2. Synopsis Highlights
3. Condensed Financial Financial Highlights; Performance
Information Information
4. General Description of Highlights; Investment Objectives and
Registrant Policies; General Information; Other
Investment Policies and Risk Factors
5. Management of the Fund Management; General Information
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Cover Page; Dividends and Taxes;
Securities General Information
7. Purchase of Securities Being Purchases; Valuation of Shares;
Offered Management
8. Redemption or Repurchase Redemptions
9. Pending Legal Proceedings Not Applicable
Statement of Addition Information
Part B Item No. and Caption Caption
--------------------------- ---------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Other Information
History
13. Investment Objective and Investment Policies and Restrictions
Policies
14. Management of the Fund Directors/Trustees and Officers;
Principal Holders of Securities
15. Control Persons and Principal Directors/Trustees and Officers;
Holders of Securities Principal Holders of Securities
<PAGE>
Statement of Addition Information
Part B Item No.and Caption Caption
-------------------------- ---------------------------------
16. Investment Advisory and Other Investment Advisory, Administration
Services and Distribution Arrangements; Other
Information
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Other Information
Securities
19. Purchase, Redemption and Additional Information Regarding
Pricing of Securities Being Redemptions; Valuation of Shares
Offered
20. Tax Status Taxes
21. Underwriters Investment Advisory, Administration
and Distribution Arrangements
22. Calculation of Performance Calculation of Yield
Data
23. Financial Statements Financial Statements
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
This Prospectus concisely sets forth information that a prospective investor
should know about the Funds before investing. Please 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 "commision"). The Statement of Additional
Information can be obtained without charge, and further inquiries can be made,
by contacting the Funds, your PaineWebber Investment Executive or PaineWebber's
correspondent firms, or by calling toll-free 1-800-762-1000. In addition, the
SEC 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 SEC.
- ------------------------------------------
PAINEWEBBER RMA
MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
TAX-FREE FUND
CALIFORNIA MUNICIPAL
MONEY FUND
NEW JERSEY MUNICIPAL
MONEY FUND
NEW YORK MUNICIPAL
MONEY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
- -----------------------------------
PaineWebber RMA Money Fund, Inc. (of which Money Market Portfolio and U.S.
Government Portfolio are series) and PaineWebber RMA Tax-Free Fund, Inc. are
Maryland corporations (each a "Corporation"). PaineWebber Managed Municipal
Trust (of which California Municipal Money Fund and New York Municipal Money
Fund are series) and PaineWebber Municipal Money Market Series (of which New
Jersey Municipal Money Fund is a series) are Massachusetts business trusts (each
a "Trust").
AN INVESTMENT IN A FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH EACH 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.
CALIFORNIA MUNICIPAL MONEY FUND, NEW JERSEY MUNICIPAL MONEY FUND AND NEW YORK
MUNICIPAL MONEY FUND EACH MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN
THE SECURITIES OF A SINGLE ISSUER. THEREFORE, AN INVESTMENT IN THESE FUNDS MAY
BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.
- ------------------------------------------
PROFESSIONALLY MANAGED MONEY
MARKET FUNDS SEEKING:
/ / MAXIMUM CURRENT INCOME
/ / HIGH LIQUIDITY
/ / CONSERVATION OF CAPITAL
/ / INCOME FREE FROM FEDERAL INCOME TAX FOR TAX-FREE FUND
/ / CALIFORNIA DOUBLE TAX-FREE INCOME FOR CALIFORNIA MUNICIPAL MONEY FUND
/ / NEW JERSEY DOUBLE TAX-FREE INCOME FOR NEW JERSEY MUNICIPAL MONEY FUND
/ / NEW YORK STATE DOUBLE TAX-FREE INCOME OR NEW YORK CITY TRIPLE TAX-FREE
INCOME FOR NEW YORK MUNICIPAL MONEY FUND
- --------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED AUGUST 29, 1998
<PAGE>
HIGHLIGHTS
See elsewhere in the Prospectus for more information on the topics discussed
in these highlights.
<TABLE>
<S> <C>
The Funds: Professionally managed money market funds (each a "Fund") offered
primarily to participants in the PaineWebber Resource Management
Account ("RMA")-Registered Trademark- program. The Funds also are
offered to participants in the PaineWebber Business Services
Account ("BSA")-Registered Trademark- program.
Investment Objectives PaineWebber RMA Money Market Portfolio ("Money Market
and Policies: Portfolio")--A diversified money market fund seeking maximum
current income consistent with liquidity and conservation of
capital; invests in high quality money market instruments.
PaineWebber RMA U.S. Government Portfolio ("U.S. Government
Portfolio")--A diversified money market fund seeking maximum
current income consistent with liquidity and conservation of
capital; invests in short-term U.S. government securities.
PaineWebber RMA Tax-Free Fund, Inc. ("Tax-Free Fund")--A
diversified money market fund seeking maximum current income
exempt from federal income tax consistent with liquidity and
conservation of capital; invests in high quality municipal money
market instruments.
PaineWebber RMA California Municipal Money Fund ("California
Municipal Money Fund")--A non-diversified money market fund
seeking maximum current income exempt from federal income tax and
California personal income tax, consistent with liquidity and
conservation of capital; invests in high quality California
Municipal Securities (as defined below).
PaineWebber RMA New Jersey Municipal Money Fund ("New Jersey
Municipal Money Fund")--A non-diversified money market fund
seeking the maximization of current income exempt from federal
income tax and New Jersey personal income tax to the extent
consistent with the preservation of capital and the maintenance of
liquidity; invests in high quality New Jersey Municipal Securities
(as defined below).
PaineWebber RMA New York Municipal Money Fund ("New York Municipal
Money Fund")--A non-diversified money market fund seeking maximum
current income exempt from federal income tax and New York State
and New York City personal income taxes, consistent with liquidity
and conservation of capital; invests in high quality New York
Municipal Securities (as defined below).
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Net Assets at Money Market Portfolio--$11.1 billion.
July 31, 1998: U.S. Government Portfolio--$1.2 billion.
Tax-Free Fund--$2.4 billion.
California Municipal Money Fund--$558.9 million.
New Jersey Municipal Money Fund--$48.7 million.
New York Municipal Money Fund--$376.3 million.
Distributor and
Investment Adviser: PaineWebber Incorporated ("PaineWebber"). See "Management."
Sub-Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins").
Purchases: Shares are available exclusively through PaineWebber and its
correspondent firms. See "Purchases."
Redemptions: Shares may be redeemed through PaineWebber or its correspondent
firms. See "Redemptions."
Yield: Based on current money market rates; quoted in the financial
section of most newspapers.
Dividends: Declared daily and paid monthly. See "Dividends and Taxes."
Reinvestment: All dividends are automatically paid in Fund shares.
Public Offering Price: Net asset value, which each Fund seeks to maintain at $1.00 per
share.
</TABLE>
WHO SHOULD INVEST. Each Fund has its own suitability considerations and
risk factors, as summarized below and described in detail under "Investment
Objectives and Policies." The Funds are designed for investors seeking liquidity
and current income. The Funds provide a convenient means for investors to earn
current income at money market rates with minimal risk of fluctuation of
principal.
Shares of the Funds are offered primarily to clients of PaineWebber and its
correspondent firms who are participants in the RMA and BSA programs. Shares of
the Funds may be offered to PaineWebber clients with other types of accounts
under certain limited circumstances.
Tax-Free Fund, California Municipal Money Fund, New Jersey Municipal Money
Fund and New York Municipal Money Fund (referred to collectively in this
Prospectus as the "Municipal Funds") are not suitable for tax-exempt
institutions or qualified retirement plans, because those investors cannot take
advantage of the tax-exempt character of these Funds' dividends.
MONEY MARKET PORTFOLIO AND U.S. GOVERNMENT PORTFOLIO are designed for
investors seeking liquidity and current income. They provide a convenient means
for investors to earn current income at money market rates with minimal risk of
fluctuation of principal.
TAX-FREE FUND is designed for investors seeking liquidity and current income
that is exempt from federal income tax. It provides a convenient means for
investors to earn current tax-free income at money market rates with minimal
risk of fluctuation of principal.
3
<PAGE>
CALIFORNIA MUNICIPAL MONEY FUND is designed for investors seeking liquidity
and current income that is exempt from federal income tax and California
personal income tax. The Fund provides a convenient means for California
investors to earn current tax-free income at money market rates with minimal
risk of fluctuation of principal.
NEW JERSEY MUNICIPAL MONEY FUND is designed for investors seeking liquidity
and current income that is exempt from federal income tax and New Jersey
personal income tax. The Fund provides a convenient means for New Jersey
investors to earn current tax-free income at money market rates with minimal
risk of fluctuation of principal.
NEW YORK MUNICIPAL MONEY FUND is designed for investors seeking liquidity
and current income that is exempt from federal income tax and New York State and
New York City personal income taxes. The Fund provides a convenient means for
New York investors to earn current tax-free income at money market rates with
minimal risk of fluctuation of principal.
RISK FACTORS. There can be no assurance that any Fund will achieve its
investment objective. While the types of money market instruments in which each
Fund invests generally are considered to have low risk of loss of principal or
interest, these securities are not completely risk free. In addition, during
periods when interest rates are declining or rising, a Fund's yield will tend to
lag behind prevailing short-term interest rates. The Money Market 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. See "Investment Objectives and Policies" for more information about
this risk factor and those described below.
THE CONCENTRATION OF THE INVESTMENTS OF CALIFORNIA MUNICIPAL MONEY FUND, NEW
JERSEY MUNICIPAL MONEY FUND AND NEW YORK MUNICIPAL MONEY FUND IN SECURITIES
ISSUED BY A SINGLE STATE OR ENTITIES WITHIN THAT STATE MAY SUBJECT THOSE FUNDS
TO GREATER RISKS THAN A MONEY MARKET FUND THAT HAS A BROADER RANGE OF
INVESTMENTS. Investors should be aware that each of the states of California,
New Jersey and New York (the "States") experienced economic recessions during
the late 1980's and/or early 1990's, and the credit ratings assigned to the
general obligation bonds of each State were reduced by at least one rating
agency since 1990. In particular, the State of New York and many of its agencies
and local governments have been experiencing, and continue to experience,
significant financial difficulties. There can be no assurance that one or more
of the States will not experience financial difficulties in the future, which
may lead to reductions in the credit standings of such States and possibly of
certain local governments (including New York City).
The status of California Municipal Money Fund, New Jersey Municipal Money
Fund and New York Municipal Money Fund as "non-diversified" investment companies
and the ability of each Municipal Fund to invest more than 25% of its total
assets in securities the interest on which is paid from similar types of
projects may further increase the risk of an investment in those Funds.
4
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS. The following tables are intended to
assist investors in understanding the expenses associated with investing in each
Fund.
SHAREHOLDER TRANSACTION EXPENSES
FOR ALL FUNDS
<TABLE>
<S> <C>
Sales charge on purchases of shares.................................... None
Sales charge on reinvested dividends................................... None
Redemption fee or deferred sales charge................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
NEW
CALIFORNIA JERSEY NEW YORK
MONEY U.S. MUNICIPAL MUNICIPAL MUNICIPAL
MARKET GOVERNMENT TAX- MONEY MONEY MONEY
PORTFOLIO PORTFOLIO FREE FUND FUND FUND FUND
-------- ---------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Management fees............... 0.50% 0.43% 0.44% 0.47% 0.50% 0.50%
12b-1 fees.................... None 0.13 0.13 0.13 0.12 0.13
Other expenses................ 0.10 0.04 0.04 0.08 0.23 0.05
-------- ----- --------- ----- --------- --------
Total Operating Expenses...... 0.60% 0.60% 0.61% 0.68% 0.85% 0.68%
-------- ----- --------- ----- --------- --------
-------- ----- --------- ----- --------- --------
</TABLE>
- ---------
* See "Management" for additional information. The fees and expenses shown are
based on those actually incurred for each Fund's most recent fiscal year
ended June 30, 1998, except that the 12b-1 fees for U.S. Government
Portfolio, Tax-Free Fund, Fund California Municipal Money Fund and New York
Municipal Money Fund are shown at the current contract rate of 0.125%
(rounded to 0.13% for the Table above). PaineWebber currently charges an
annual $85 account charge for the RMA program including the Gold
MasterCard-Registered Trademark- without the Bank One Line of Credit. The
fee for clients who choose the Line of Credit for their Gold MasterCard is
$125. The annual account charge for the BSA program, including the
MasterCard BusinessCard-Registered Trademark- is $125 ($165 with a
MasterCard Line of Credit). The account charges are not included in the
table because certain non-RMA and non-BSA participants are permitted to
purchase shares of the Funds.
5
<PAGE>
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would pay directly or indirectly the following expenses on a
$1,000 investment in each Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio.................. $ 6 $19 $33 $ 75
U.S. Government Portfolio............... $ 6 $19 $33 $ 75
Tax-Free Fund........................... $ 6 $20 $34 $ 76
California Municipal Money Fund......... $ 7 $22 $38 $ 85
New Jersey Municipal Money Fund......... $ 9 $27 $47 $105
New York Municipal Money Fund........... $ 7 $22 $38 $ 85
</TABLE>
This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown. The above tables and the assumption in the Example of a 5%
annual return are required by regulations of the SEC applicable to all mutual
funds; the assumed 5% annual return is not a prediction of, and does not
represent, any Fund's projected or actual performance.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND EACH FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The actual expenses of each Fund will depend upon, among other things,
the level of average net assets and the extent to which each Fund incurs
variable expenses, such as transfer agency costs.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide selected per share data and ratios for one share of
each Fund for each of the periods shown. This information is supplemented by the
financial statements, accompanying notes and the report of Ernst & Young LLP,
independent auditors, which appear in each 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 tables appearing below insofar as it relates to
each of the five years in the period ended June 30, 1998 (except with respect to
New Jersey Municipal Money Fund, for which the relevant periods are the fiscal
years ended June 30, 1998 and June 30, 1997, the eight months ended June 30,
1996 and the fiscal year ended October 31, 1995) have been audited by Ernst &
Young LLP, independent auditors. Each Fund's Annual Report to Shareholders may
be obtained without charge by calling 1-800-762-1000. The information appearing
below for the periods ended prior to these dates also has been audited by Ernst
& Young LLP or, in the case of New Jersey Municipal Money Fund, by other
auditors whose reports thereon also were unqualified.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $1.00 $1.00 $1.00 $1.00 $1.00
------------- ----------- ----------- ----------- -----------
Net investment income................... 0.051 0.049 0.051 0.049 0.030
Dividends from net investment income.... (0.051) (0.049) (0.051) (0.049) (0.030)
------------- ----------- ----------- ----------- -----------
Net asset value, end of year............ $1.00 $1.00 $1.00 $1.00 $1.00
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
Total investment return (1)............. 5.21% 5.04% 5.25% 5.00% 2.95%
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year (000's)......... $11,135,226 $8,673,055 $7,522,612 $5,398,146 $4,337,009
Expenses to average net assets.......... 0.60% 0.59% 0.60%(2) 0.59% 0.59%
Net investment income to average net
assets................................ 5.09% 4.94% 5.14%(2) 4.91% 2.98%
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $1.00 $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- ----------- -----------
Net investment income................... 0.029 0.046 0.069 0.081 0.084
Dividends from net investment income.... (0.029) (0.046) (0.069) (0.081) (0.084)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year............ $1.00 $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total investment return (1)............. 2.98% 4.56% 6.88% 8.10% 8.40%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year (000's)......... $4,031,398 $4,054,344 $4,208,467 $3,765,953 $2,637,820
Expenses to average net assets.......... 0.59% 0.59% 0.61% 0.58% 0.59%
Net investment income to average net
assets................................ 2.95% 4.57% 6.89% 8.07% 8.48%
</TABLE>
- ------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each year reported.
(2) These ratios include non-recurring acquisition expenses of 0.01%.
7
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT PORTFOLIO
---------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $1.00 $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- --------- ---------
Net investment income................... 0.049 0.048 0.049 0.046 0.027
Dividends from net investment income.... (0.049) (0.048) (0.049) (0.046) (0.027)
----------- ----------- ----------- --------- ---------
Net asset value, end of year............ $1.00 $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Total investment return (1)............. 5.05% 4.88% 5.04% 4.67% 2.74%
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)......... $1,179,575 $1,083,866 $1,137,510 $815,781 $854,928
Expenses to average net assets.......... 0.57% 0.62% 0.65%(2) 0.63% 0.62%
Net investment income to average net
assets................................ 4.93% 4.78% 4.91%(2) 4.55% 2.75%
<CAPTION>
U.S. GOVERNMENT PORTFOLIO
---------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- ---------
Net investment income................... 0.028 0.044 0.066 0.077 0.078
Dividends from net investment income.... (0.028) (0.044) (0.066) (0.077) (0.078)
--------- --------- --------- --------- ---------
Net asset value, end of year............ $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total investment return (1)............. 2.83% 4.36% 6.59% 7.70% 7.80%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)......... $880,834 $838,023 $937,943 $488,577 $327,437
Expenses to average net assets.......... 0.61% 0.62% 0.64% 0.68% 0.60%
Net investment income to average net
assets................................ 2.80% 4.37% 6.46% 7.67% 7.77%
</TABLE>
- -------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each year reported.
(2) These ratios include non-recurring acquisition expenses of 0.02%.
<TABLE>
<CAPTION>
TAX-FREE FUND
----------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year.................................. $1.00 $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- ----------- -----------
Net investment income................... 0.031 0.029 0.030 0.030 0.019
Dividends from net investment income.... (0.031) (0.029) (0.030) (0.030) (0.019)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year............ $1.00 $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total investment return (1)............. 3.10% 2.98% 3.09% 3.03% 1.88%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)......... $2,271,969 $2,065,920 $2,013,448 $1,562,040 $1,427,724
Expenses to average net assets.......... 0.58% 0.61% 0.61%(2) 0.63% 0.64%
Net investment income to average net
assets................................ 3.06% 2.94% 3.02%(2) 3.00% 1.90%
<CAPTION>
TAX-FREE FUND
-------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year.................................. $1.00 $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- ----------- -----------
Net investment income................... 0.021 0.033 0.047 0.053 0.056
Dividends from net investment income.... (0.021) (0.033) (0.047) (0.053) (0.056)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year............ $1.00 $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total investment return (1)............. 2.07% 3.30% 4.74% 5.30% 5.60%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)......... $1,248,702 $1,183,719 $1,190,073 $1,097,787 $912,865
Expenses to average net assets.......... 0.65% 0.62% 0.67% 0.67% 0.60%
Net investment income to average net
assets................................ 2.06% 3.30% 4.66% 5.33% 5.49%
</TABLE>
- -------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year 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 year reported.
(2) These ratios include non-recurring acquisition expenses of 0.01%.
8
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL MONEY FUND
---------------------------------------------------------------------------------
FOR THE YEARS ENDED FOR THE SEVEN
JUNE 30, MONTHS
------------------------------------------------------------------ ENDED
1998 1997 1996 1995 1994 1993 JUNE 30, 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................................... 0.028 0.028 0.029 0.029 0.018 0.019 0.016
Dividends from net investment income....... (0.028) (0.028) (0.029) (0.029) (0.018) (0.019) (0.016)
-------- -------- -------- ---------- ---------- -------- -------------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ---------- ---------- -------- -------------
-------- -------- -------- ---------- ---------- -------- -------------
Total investment
return (1)............................... 2.87% 2.87% 2.89% 2.91% 1.78% 1.88% 1.61%
-------- -------- -------- ---------- ---------- -------- -------------
-------- -------- -------- ---------- ---------- -------- -------------
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (000's).......... $566,957 $492,915 $473,726 $ 330,937 $ 295,183 $290,367 $259,183
Expenses to average net assets............. 0.65% 0.62% 0.70%(2) 0.69% 0.69% 0.72% 0.69%*
Net investment income to average net
assets................................... 2.83% 2.83% 2.82%(2) 2.87% 1.79% 1.86% 2.75%*
<CAPTION>
CALIFORNIA MUNICIPAL MONEY FUND
---------------------------------------------
FOR THE PERIOD
NOVEMBER 7,
FOR THE YEARS ENDED 1988+
NOVEMBER 30, TO
---------------------------- NOVEMBER 30,
1991 1990 1989 1988
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ---------------
Net investment
income................................... 0.038 0.050 0.056 0.004
Dividends from net investment income....... (0.038) (0.050) (0.056) (0.004)
-------- -------- -------- ---------------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ---------------
-------- -------- -------- ---------------
Total investment
return (1)............................... 3.81% 4.95% 5.56% 0.35%
-------- -------- -------- ---------------
-------- -------- -------- ---------------
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (000's).......... $261,902 $300,516 $234,605 $53,745
Expenses to average net assets............. 0.75% 0.70% 0.67%** 0.67%*
Net investment income to average net
assets................................... 3.83% 4.96% 5.52%** 5.24%*
</TABLE>
- -------------
* Annualized
** For the year ended November 30, 1989, PaineWebber waived fees and/or
reimbursed the Fund for a portion of its operating expenses. If such fee
waivers and/or expense reimbursements had not been made, the annualized
ratio of expenses to average net assets and the annualized ratio of net
investment income to average net assets would have been 0.73% and 5.46%,
respectively.
+ Commencement of operations
(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 return for periods of less
than one year has not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
9
<PAGE>
<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL MONEY FUND
------------------------------------------------------------------------------------------------------
FOR THE YEARS
ENDED FOR THE EIGHT FOR THE YEARS FOR THE PERIOD
JUNE 30, MONTHS ENDED OCTOBER 31, FEBRUARY 1, 1991+
------------------- ENDED ------------------------------------------- TO
1998 1997 JUNE 30, 1996 1995(2) 1994 1993 1992 OCTOBER 31, 1991
-------- -------- -------------- ---------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ---------- -------- -------- -------- -------
Net investment income.... 0.026 0.026 0.017 0.027 0.018 0.016 0.025 0.032
Dividends from net
investment income...... (0.026) (0.026) (0.017) (0.027) (0.018) (0.016) (0.025) (0.032)
-------- -------- ------- ---------- -------- -------- -------- -------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ---------- -------- -------- -------- -------
-------- -------- ------- ---------- -------- -------- -------- -------
Total investment return
(1).................... 2.67% 2.65% 1.71% 2.75% 1.76% 1.65% 2.49% 3.19%
-------- -------- ------- ---------- -------- -------- -------- -------
-------- -------- ------- ---------- -------- -------- -------- -------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)................ $ 48,279 $52,324 $ 42,233 $ 36,206 $ 31,981 $ 36,473 $ 27,625 $41,504
Expenses to average net
assets**............... 0.85% 0.81% 0.95%* 0.93% 0.85% 0.93% 0.86% 0.27%*
Net investment income to
average net assets**... 2.64% 2.63% 2.56%* 2.73% 1.74% 1.63% 2.51% 4.20%*
</TABLE>
- -------------
* Annualized
+ Commencement of operations
(1) Total investment return is calculated assuming a $1,000 investment 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.
(2) Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to PaineWebber on January 30, 1995.
** For the period February 1, 1991 to October 31, 1991, the predecessor adviser
waived and/or reimbursed the Fund for a portion of its operating expenses.
If such fee waivers and/or expense reimbursements had not been made, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income to average net assets would have been 0.83% and
3.64%, respectively.
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL MONEY FUND
-------------------------------------------------------------------------------------
FOR THE
FOR THE YEARS ENDED SEVEN
JUNE 30, MONTHS 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.... 0.029 0.028 0.029 0.028 0.017 0.018 0.016
Dividends from net
investment income...... (0.029) (0.028) (0.029) (0.028) (0.017) (0.018) (0.016)
-------- -------- -------- -------- -------- -------- ------------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- -------- ------------
Total investment
return (1)............. 2.97% 2.85% 2.91% 2.81% 1.70% 1.82% 1.62%
-------- -------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- -------- ------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)................ $339,391 $274,338 $255,177 $192,799 $165,111 $116,604 $129,687
Expenses to average net
assets:
Before waiver from
adviser............ 0.65% 0.77% 0.74%(2) 0.71% 0.75% 0.79% 0.73%*
After waiver from
adviser............ 0.65% 0.67% 0.72%(2) 0.68% 0.68% 0.68% 0.68%*
Net investment income to
average net assets:
Before waiver from
adviser............ 2.92% 2.71% 2.80%(2) 2.78% 1.67% 1.70% 2.54%*
After waiver from
adviser............ 2.92% 2.81% 2.82%(2) 2.81% 1.74% 1.81% 2.59%*
<CAPTION>
NEW YORK MUNICIPAL MONEY FUND
------------------------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
NOVEMBER 30, NOVEMBER 10, 1988+
-------------------------------- TO
1991 1990 1989 NOVEMBER 30, 1988
-------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ----------
Net investment income.... 0.037 0.049 0.055 0.003
Dividends from net
investment income...... (0.037) (0.049) (0.055) (0.003)
-------- -------- -------- ----------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ----------
-------- -------- -------- ----------
Total investment
return (1)............. 3.74% 4.92% 5.51% 0.29%
-------- -------- -------- ----------
-------- -------- -------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)................ $121,347 $113,885 $ 78,497 $24,237
Expenses to average net
assets:
Before waiver from
adviser............ 0.89% 0.85% 0.89% 1.09%*
After waiver from
adviser............ 0.68% 0.64% 0.37% 0.27%*
Net investment income to
average net assets:
Before waiver from
adviser............ 3.52% 4.67% 5.04% 4.07%*
After waiver from
adviser............ 3.73% 4.88% 5.56% 4.89%*
</TABLE>
- -------------
* Annualized
+ Commencement of operations
(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.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of both Money Market Portfolio and U.S. Government
Portfolio is to provide maximum current income consistent with liquidity and
conservation of capital. Each Fund seeks to meet this objective by following
different investment policies. Tax-Free Fund's investment objective is to
provide maximum current income exempt from federal income tax consistent with
liquidity and conservation of capital. California Municipal Money Fund's
investment objective is to provide maximum current income exempt from federal
income tax and California personal income tax consistent with liquidity and
conservation of capital. New Jersey Municipal Money Fund's objective is the
maximization of current income exempt from federal income tax and New Jersey
personal income tax for residents of the State of New Jersey, consistent with
the preservation of capital and the maintenance of liquidity. New York Municipal
Money Fund's investment objective is to provide maximum current income exempt
from federal income tax and New York State and New York City personal income
taxes consistent with liquidity and conservation of capital.
Each Fund maintains a dollar-weighted average portfolio maturity of 90 days
or less, and purchases only those obligations that Mitchell Hutchins determines,
pursuant to procedures adopted by the applicable Corporation's board of
directors or Trust's board of trustees (each a "board"), present minimal credit
risks. In managing each Fund's portfolio, Mitchell Hutchins may employ a number
of professional money management techniques, including varying the composition
and the weighted average maturity of each Fund's portfolio based upon its
assessment of the relative values of various money market instruments and future
interest rate patterns, in order to respond to changing economic and money
market conditions and to shifts in fiscal and monetary policy. Mitchell Hutchins
may also seek to improve a Fund's yield by purchasing or selling securities to
take advantage of yield disparities among similar or dissimilar money market
instruments that regularly occur in the money markets.
Money Market Portfolio and Tax-Free Fund each 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).
MONEY MARKET PORTFOLIO
Money Market Portfolio 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 U.S. government securities in which Money Market Portfolio may invest
include direct obligations of the U.S. Treasury (such as Treasury bills, notes
and bonds) and obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including securities that are supported by the full faith and
credit of the United States (such as Government National Mortgage Association
certificates ("GNMAs")), securities supported primarily or solely by the
creditworthiness of the issuer (such as securities of the Resolution Funding
Corporation and the Tennessee Valley Authority) and securities that are
supported primarily or solely by specific pools of assets and the
creditworthiness of a U.S. government-related issuer (such as mortgage-backed
securities issued by Fannie Mae, also known as
11
<PAGE>
the Federal National Mortgage Association, and Freddie Mac, also known as the
Federal Home Loan Mortgage Corporation).
Money Market Portfolio 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 Money Market Portfolio consist only of
obligations that 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. 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.
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio invests in U.S. government securities having or
deemed to have remaining maturities of 13 months or less and repurchase
agreements secured by U.S. government securities. Under investment guidelines
adopted by its board, the Fund currently invests only in securities, such as
U.S. Treasury bills, Treasury notes and GNMAs, that are backed by the full faith
and credit of the United States and repurchase agreements secured by such
securities. These guidelines may be modified by the Corporation's board without
shareholder approval. U.S. government securities in which the Fund would
otherwise be authorized to invest include obligations supported primarily or
solely by the creditworthiness of the issuer.
TAX-FREE FUND
Tax-Free Fund invests substantially all of its assets in high quality money
market instruments having or deemed to have remaining maturities of 13 months or
less issued by states, municipalities, public authorities and other issuers, the
interest from which is exempt from federal income tax ("Municipal Securities").
The Fund purchases only those Municipal Securities that are First Tier
Securities. These Municipal Securities include municipal notes, municipal
commercial paper, municipal bonds, floating and variable rate municipal
obligations and participation interests in municipal bonds and floating and
variable rate obligations. Municipal bonds include industrial development bonds
("IDBs"), private activity bonds ("PABs"), moral obligation bonds, municipal
lease obligations and certificates of participation therein and put bonds. The
interest on most PABs is an item of tax preference for purposes of the federal
alternative minimum tax ("AMT"). Under normal market conditions, the Fund
intends to invest in Municipal Securities that pay interest that is not an item
of tax preference for purposes of the AMT ("AMT exempt interest"), but may
invest up to 20% of its total assets in such securities if, in Mitchell
Hutchins' judgment, market conditions warrant. The principal Municipal
Securities in which the Fund invests are described in the Appendix to this
Prospectus.
12
<PAGE>
CALIFORNIA MUNICIPAL MONEY FUND
Except for temporary purposes, California Municipal Money Fund invests at
least 80% and seeks to invest 100% of its net assets in Municipal Securities
issued by the State of California, its municipalities and public authorities and
other issuers if such obligations pay interest that is exempt from federal
income tax as well as California personal income tax ("California Municipal
Securities").
California Municipal Money Fund invests in high quality California Municipal
Securities having or deemed to have remaining maturities of 13 months or less.
These instruments include the types of Municipal Securities identified above for
the Tax-Free Fund and further described in the Appendix to this Prospectus.
Under normal market conditions, the Fund intends to invest in California
Municipal Securities that pay AMT exempt interest, but may invest without limit
in securities that pay interest that is subject to the AMT if, in Mitchell
Hutchins' judgment, market conditions warrant. The California Municipal
Securities purchased by the Fund consist only of First Tier Securities.
NEW JERSEY MUNICIPAL MONEY FUND
Except for temporary purposes, New Jersey Municipal Money Fund invests at
least 65% of its total assets, and seeks to invest 100% of its net assets, in
Municipal Securities issued by the State of New Jersey, its municipalities and
public authorities if such obligations pay interest that is exempt from federal
income tax as well as New Jersey personal income tax ("New Jersey Municipal
Securities"). Except for temporary purposes, the Fund invests at least 80% of
its net assets in Municipal Securities.
New Jersey Municipal Money Fund invests in high quality New Jersey Municipal
Securities having or deemed to have remaining maturities of 13 months or less.
These instruments include the types of Municipal Securities identified above for
Tax-Free Fund and further described in the Appendix to this Prospectus. Under
normal market conditions, the Fund may invest in securities that pay interest
that is subject to the AMT. The New Jersey Municipal Securities purchased by the
Fund consist only of First Tier Securities.
NEW YORK MUNICIPAL MONEY FUND
Except for temporary purposes, New York Municipal Money Fund invests at
least 80% and seeks to invest 100% of its net assets in Municipal Securities
issued by the State of New York, its municipalities and public authorities and
other issuers if such obligations pay interest that is exempt from federal
income tax as well as New York State and New York City personal income taxes
("New York Municipal Securities").
New York Municipal Money Fund invests in high quality New York Municipal
Securities having or deemed to have remaining maturities of 13 months or less.
These instruments include the types of Municipal Securities identified above for
the Tax-Free Fund and further described in the Appendix to this Prospectus.
Under normal market conditions, the Fund intends to invest in New York Municipal
Securities that pay AMT exempt interest, but may invest without limit in
securities that pay interest that is subject to the AMT if, in Mitchell
Hutchins' judgment, market conditions warrant. The New York Municipal Securities
purchased by the Fund consist only of First Tier Securities.
OTHER INVESTMENT POLICIES AND
RISK FACTORS
U.S. GOVERNMENT SECURITIES. Money Market Portfolio and U.S. Government
Portfolio may invest in separately traded principal and interest components of
securities issued or guaranteed by
13
<PAGE>
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. The staff of the SEC currently takes
the position that interests in "stripped" U.S. government securities that are
not part of the STRIPS program are not U.S. government securities.
VARIABLE AND FLOATING RATE SECURITIES. The Funds may purchase variable and
floating rate securities with remaining maturities in excess of 13 months issued
by U.S. government agencies or instrumentalities or guaranteed by the U.S.
government (Money Market and U.S. Government Portfolios). In addition, Money
Market Portfolio may purchase variable and floating rate securities of other
issuers, and the Municipal Funds may purchase such securities of municipal
issuers, including tender option bonds. Tender option bonds are long-term
municipal securities sold by a bank or other financial institution subject to a
demand feature that gives the purchaser the right to tender them to the bank or
other financial institution at par plus accrued interest at designated times.
The Funds will only purchase these other types of variable and floating rate
securities 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 Funds' investments in these securities must comply with conditions
established by the SEC under which they may be considered to have remaining
maturities of 13 months or less. Certain of these obligations carry a demand
feature that gives a 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 a Fund and affect its share price.
VARIABLE AMOUNT MASTER DEMAND NOTES. Securities purchased by Money Market
Portfolio may include variable amount master demand notes, which are unsecured
redeemable obligations that permit investment of varying amounts at fluctuating
interest rates under a direct agreement between the Fund and the issuer. The
principal amount of these notes may be increased from time to time by the
parties (subject to specified maximums) or decreased by the Fund or the issuer.
These notes are payable on demand and may or may not be rated.
REPURCHASE AGREEMENTS. Money Market Portfolio and U.S. Government Portfolio
each may enter into repurchase agreements with respect to any security in which
that Fund is authorized to invest, except that securities subject to repurchase
agreements may have maturities in excess of 13 months. Each Municipal Fund may
enter into repurchase agreements with respect to U.S. government securities,
commercial paper, bank certificates of deposit and bankers' acceptances.
Repurchase agreements are transactions in which a Fund purchases obligations
from a bank or securities dealer (or its affiliate) 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. Each 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
14
<PAGE>
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 securities and delays and costs to a Fund if the other party to the
repurchase agreement becomes insolvent. 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, a Fund may suffer delays, costs and possible
losses in connection with the disposition of collateral. The Funds intend to
enter into repurchase agreements only with counterparties in transactions
believed by Mitchell Hutchins to present minimal credit risks in accordance with
guidelines established by the applicable boards. The Municipal Funds do not
intend to enter into repurchase agreements except as a temporary measure and
under unusual circumstances.
PURCHASE AND SALE TRANSACTIONS. Each Fund may enter into simultaneous
purchase and sale transactions. The counterparty in a simultaneous purchase and
sale transaction with a Fund agrees to buy from the Fund the same or a similar
security to the security it is selling to the Fund 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 a 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.
FOREIGN SECURITIES. Money Market Portfolio may invest in U.S.
dollar-denominated securities of foreign issuers, including debt securities of
foreign banks, corporations, governments and similar entitites. 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 Money Market Portfolio. 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 Funds invest 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 Funds'
yields will tend to lag behind prevailing short-term market rates. This means
that in periods of declining interest rates, the Funds' yields will tend to be
somewhat higher than prevailing short-term market rates, and in periods of
rising interest rates the opposite
15
<PAGE>
generally will be true. Also, when interest rates are falling, net cash inflows
from the continuous sale of a Fund's shares are likely to be invested in
portfolio instruments producing lower yields than the balance of that Fund's
portfolio, thereby reducing its yield. In periods of rising interest rates, the
opposite can be true. There can be no assurance that the Funds will achieve
their investment objectives.
YEAR 2000 RISKS. Like other mutual funds, financial and business
organizations around the world, the Funds 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 Funds' 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 Funds'
other major service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds.
LENDING OF PORTFOLIO SECURITIES. Each Fund may lend its securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. Lending securities enables a Fund to earn additional income
but could result in a loss or delay in recovering these securities. Because the
income earned through securities lending is taxable, the Municipal Funds do not
expect to engage in securities lending except under unusual circumstances.
WHEN-ISSUED SECURITIES. The Funds may also purchase securities on a
"when-issued" basis, that is, for delivery beyond the normal settlement date at
a stated price and yield. A Fund generally would not pay for such securities or
start earning interest on them until they are received. However, when a Fund
purchases securities on a when-issued basis, it immediately assumes the risks of
ownership, including the risk of price fluctuation. Failure by the issuer to
deliver a security purchased on a when-issued basis may result in a loss or
missed opportunity to make an alternative investment. Each Municipal Fund
expects that commitments to purchase when-issued securities normally will not
exceed 25% of its assets (20% in the case of New Jersey Municipal Money Fund).
SPECIAL RISK CONSIDERATIONS--
CALIFORNIA MUNICIPAL MONEY FUND, NEW JERSEY MUNICIPAL MONEY FUND AND NEW YORK
MUNICIPAL MONEY FUND
Each of these Funds concentrates its investments in securities issued by a
single State or entities within that State. In addition, each of these Funds may
invest more than 25% of the value of its total assets in Municipal Securities
that are related in such a way that an economic, business or political
development or change affecting one such security would also affect the other
securities, such as securities the interest on which is paid from revenues of
similar types of projects. These Funds may be subject to greater risk than other
money market funds that do not follow these practices.
These Funds are "non-diversified," as that term is defined in the 1940 Act,
but each intends to continue to qualify as a "regulated investment company" for
federal income tax purposes. See "Dividends and Taxes." This means, in general,
that more than 5% of each Fund's total assets may be invested in securities of
one issuer, but only if, at the close of each quarter of the Fund's taxable
year, the aggregate amount of such holdings does not exceed 50% of the value of
its total assets and no more than 25% of the value of its total assets is
invested in the securities of a single issuer. Each Fund will invest no more
than 10%
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of its net assets in illiquid securities, including repurchase agreements with
maturities in excess of seven days. In order to facilitate portfolio liquidity
in unusual market conditions, a Municipal Fund may acquire standby commitments
from municipal bond dealers who would agree to purchase the Municipal Securities
that are the subject of the commitments. Rule 2a-7 of the 1940 Act, however,
generally requires that the securities of a single issuer may not exceed 5% of a
Fund's total assets with respect to at least 75% of its assets. Nonetheless,
each Fund may be subject to greater risk with respect to its portfolio
securities than a "diversified" money market fund, because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuation in that Fund's yield or affect that Fund's ability to maintain a
constant net asset value per share.
As noted above, Municipal Funds purchase First Tier Securities. References
in the discussion that follows to the credit ratings assigned to certain State
obligations are intended to assist an investor in understanding a State's
perceived general economic health as of the date of this prospectus. The
standards that must be met in order for a given security to be considered for
purchase by a Municipal Fund are independent criteria.
RISKS OF CALIFORNIA MUNICIPAL SECURITIES. California Municipal Money Fund's
investment concentration in California Municipal Securities involves greater
risks than if it selected its investments from a broader geographic region. The
Fund's yield and ability to maintain a constant net asset value per share can be
affected by political and economic developments within the State of California
and by the financial condition of California, its public authorities and
political subdivisions. Following a severe recession from 1990-1993 which
resulted in broad-based revenue shortfalls for the State and many local
governments, California has been in a sustained economic recovery since 1994
which is outpacing the national economy. Although State tax revenues have grown
strongly and created budget surpluses in recent years, many local governments
continue to operate under financial constraints. During the recession, State
assistance to local governments was reduced, and has not been fully restored.
California's long-term credit rating was reduced in the early 1990's, but was
raised in 1996 by Fitch Investors Service, L.P. ("Fitch") and Standard & Poor's,
a division of The McGraw-Hill Companies, Inc. ("S&P" or "Standard & Poor's").
California's general obligation bonds were rated "A+" by Standard & Poor's, "A1"
by Moody's Investors Service, Inc. ("Moody's") and "AA-" by Fitch in August
1998.
In the past, California voters have passed amendments to the California
Constitution and other measures that limit the taxing and spending authority of
California governmental entities and future voter initiatives could result in
adverse consequences affecting California Municipal Securities. These factors,
among others (including the outcome of related pending litigation), could reduce
the credit standing of certain issuers of California Municipal Securities. A
more detailed discussion of the risks of investing in California Municipal
Securities is included in the Statement of Additional Information.
RISKS OF NEW JERSEY MUNICIPAL SECURITIES. New Jersey Municipal Money Fund's
investment concentration in New Jersey Municipal Securities involves greater
risks than if it selected its investments from a broader geographic region. The
Fund's yield and ability to maintain a constant net asset value per share can be
affected by political and economic developments within the State of New Jersey
and by the financial condition of New Jersey, its public authorities and
political subdivisions. Although New Jersey enjoyed a period of economic growth
with unemployment levels below the national average during the mid-1980s, New
Jersey's economy slowed down well before
17
<PAGE>
the onset of the national recession, which, according to the National Bureau of
Economic Research, began in July 1990. Reflecting the economic downturn, New
Jersey's unemployment rate rose from a low of 3.6% in the first quarter of 1989
to a recessionary peak of 8.5% during 1992. Since then, the State's unemployment
rate fell to 6.2% during 1996 and 5.5% for the six month period from January
through June 1997. As a result of New Jersey's fiscal weakness, in July 1991 S&P
lowered its rating of the State's AAA general obligation debt to AA+.
Moody's and Fitch each had rated New Jersey general obligation bonds Aa(1)
and AA+, respectively as. A more detailed discussion of the risks of investing
in New Jersey Municipal Securities is included in the Statement of Additional
Information.
RISKS OF NEW YORK MUNICIPAL SECURITIES. New York Municipal Money Fund's
investment concentration in New York Municipal Securities involves greater risks
than if it selected its investments from a broader geographic region. The Fund's
yield and ability to maintain a constant net asset value per share can be
affected by political and economic developments within the State of New York and
by the financial condition of the State, its public authorities and political
subdivisions, particularly the City of New York (the "City"). The State reduced
its accumulated General Fund deficits and experienced operating surpluses in
fiscal year ("FY") 1991-92 through 1993-94, an operating deficit of $1.426
billion for FY 1994-95 and a modest General Fund surplus for FY 1995-96. The
State ended its FY 1996-97 and FY 1997-98 with a General Fund cash surplus of
approximately $1.42 billion and $2.04 billion, respectively. Although the FY
1998-99 budget projects a cash balance in the General Fund, the economic and
financial condition of the State may be affected by various financial, social,
economic and political factors. Because of the uncertainty and unpredictability
of changes in these factors, their impact cannot be fully included in the
assumptions underlying the State's projections. In addition, recent changes to
federal entitlement programs and uncertainties stemming from such changes may
materially adversely impact the State's ability to achieve a balanced budget in
future fiscal years. The City (which is constrained in its fiscal flexibility by
an already heavy local tax burden, urgent social needs and its extensive and
deteriorating infrastructure) and most suburban county governments have
experienced serious fiscal problems related to the recessionary performance of
the regional economy, which has caused substantial, broad-based and recurring
revenue shortfalls. Both the State of New York's credit rating and the City's
credit rating have been, and could be further, reduced; and their ability to
provide assistance to public authorities and political subdivisions has been,
and could be further, impaired. New York's general obligation bonds were rated A
by Moody's, A by S&P and A+ by Fitch as of August 1998. A more detailed
discussion of the risks of investing in New York Municipal Securities is
included in the Statement of Additional Information.
OTHER INFORMATION
When Mitchell Hutchins believes that there is an insufficient supply of the
type of Municipal Securities in which a Municipal Fund primarily invests, or
during other unusual market conditions, that Municipal Fund temporarily may
invest all or any portion of its net assets in other types of Municipal
Securities. In addition, when Mitchell Hutchins believes that there is an
insufficient supply of any type of Municipal Securities or that other
circumstances warrant a defensive posture, each Municipal Fund may hold cash and
may invest all or any portion of its net assets in taxable money market
instruments, including repurchase agreements. To the extent that a Fund holds
cash, such cash would not earn income and would reduce the Fund's yield.
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<PAGE>
Each Fund may borrow money for temporary purposes, but not in excess of 10%
of its total assets (15% of net assets in the case of New Jersey Municipal Money
Fund). Borrowings by Money Market Portfolio and U.S. Government Portfolio may
include reverse repurchase agreements involving up to 5% of each Fund's net
assets.
Each Fund may invest up to 10% of its total assets in the securities of
other money market funds with similar investment policies. To the extent a Fund
invests in other money market funds, its shareholders incur duplicative fees and
expenses, including investment advisory fees. Future federal, state and local
laws may adversely affect the tax-exempt status of interest on Municipal
Securities held by one of the Municipal Funds or of the exempt-interest
dividends paid by the Municipal Funds, extend the time for payment of principal
or interest or otherwise constrain enforcement of such obligations. Opinions
relating to the validity of Municipal Securities and the tax-exempt status of
interest thereon are rendered by the issuer's bond counsel at the time of
issuance; Mitchell Hutchins will rely on such opinions without independent
verification.
New forms of money market instruments continue to be developed. The Funds
may invest in such instruments to the extent consistent with their investment
objectives.
A Fund's investment objective may not be changed without the approval of its
shareholders. California Municipal Money Fund's investment policy of investing
at least 80% of its net assets in California Municipal Securities and the
similar investment policy of New York Municipal Money Fund and New Jersey
Municipal Money Fund relating to investments in New York Municipal Securities
and New Jersey Municipal Securities, respectively, may not be changed without
approval of the appropriate Fund's shareholders. Certain other investment
limitations, as described in the Statement of Additional Information, also may
not be changed without shareholder approval. All other investment policies may
be changed by the applicable board without shareholder approval.
PURCHASES
THE RMA AND BSA PROGRAMS. Shares of each Fund are available primarily
through the RMA and BSA programs. RMA and BSA participants are asked to select
one of the Funds as their designated portfolio ("Primary Sweep Money Fund").
Investors will have all free credit cash balances of over $1 (including proceeds
from securities sold) in the account invested in the Primary Sweep Money Fund.
Each Fund and PaineWebber reserve the right to reject any purchase order and to
suspend the offering of Fund shares for a period of time.
Investors who choose one Fund as their Primary Sweep Money Fund may also
purchase shares of another Fund by contacting their PaineWebber Investment
Executive or correspondent firms. Minimum purchase and maintenance requirements,
however, may apply to purchases of shares of a Fund other than the investor's
Primary Sweep Money Fund.
Certain features available to RMA and BSA participants are summarized in the
Appendices to the Statement of Additional Information. The RMA and BSA programs
are more fully described in separate materials your Investment Executive can
provide you. The availability of Fund shares to customers of PaineWebber's
correspondent firms varies depending on the arrangements between PaineWebber and
such firms.
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An order to purchase shares of a Fund will be executed on the Business Day
on which federal funds become available to the Fund, at the Fund's next
determined net asset value per share. "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. A "Business Day" is any day on
which the Boston offices of the Fund's custodian, State Street Bank and Trust
Company, and the New York City offices of PaineWebber and PaineWebber's bank are
all open for business.
RMA and BSA participants may change their Primary Sweep Money Fund at any
time by notifying their PaineWebber Investment Executives or correspondent
firms. However, RMA and BSA participants may not have more than one Primary
Sweep Money Fund at a time.
On any Business Day, a Fund will accept purchase orders and credit shares to
investors' accounts as follows.
PURCHASES IN GENERAL. To the extent that amounts transferred by check,
electronic funds transfer credit or wire or from funds held at PaineWebber into
an investor's brokerage account create a free credit cash balance, that cash
balance will be automatically invested in the investor's Primary Sweep Money
Fund, as described above under "The RMA and BSA Programs," when federal funds
are available for the investment. Fund shares will not be purchased until all
Debits and Charges (each as defined below) in a shareholder's RMA or BSA
brokerage account are satisfied. See "Redemptions-- Automatic Redemptions." RMA
or BSA participants wishing to invest amounts transferred in one of the other
Funds should so instruct their PaineWebber Investment Executives or
correspondent firms. All other shareholders should consult their PaineWebber
Investment Executives or correspondent firms for information on how to purchase
Fund shares.
PURCHASES WITH FUNDS HELD AT PAINEWEBBER. Investors may invest in Fund
shares with funds held in their brokerage account, including funds from the sale
of securities, as described above under "Purchases in General." Federal funds
normally are available for cash balances arising from the sale of securities
held in a brokerage account on the Business Day following settlement, but in
some cases can take longer.
PURCHASES BY CHECK OR ELECTRONIC FUNDS TRANSFER CREDIT. RMA and BSA
participants may purchase Fund shares by depositing into their account checks
drawn on a U.S. bank. The RMA or BSA participant's brokerage account number
should be included on the check.
As noted above, shares of the participant's Primary Sweep Money Fund will be
purchased when federal funds are available. Federal funds are deemed available
to a Fund two Business Days after deposit of a personal check and/or an
Electronic Funds Transfer credit initiated by PaineWebber and one Business Day
after deposit of a cashier's or certified check. PaineWebber may benefit from
the temporary use of the proceeds of personal checks and Electronic Funds
Transfer credits to the extent those funds are converted to federal funds in
fewer than two Business Days.
PURCHASES BY WIRE. RMA and BSA participants may also purchase shares of
their Primary Sweep Money Fund or another Fund by instructing their banks to
transfer federal funds by wire to their RMA or BSA account. Wire transfers
should be directed to: The Bank of New York, ABA 021000018, PaineWebber Inc.,
A/C
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890-0114-088, OBI=FBO [Account Name]/[Brokerage Account Number]. The wire must
include the investor's name and RMA or BSA brokerage account number. RMA or BSA
participants wishing to transfer federal funds into their accounts should
contact their PaineWebber Investment Executives or correspondent firms to
determine the appropriate wire instructions.
If PaineWebber receives a notice from an investor's bank of a wire transfer
of federal funds by 12:00 noon, Eastern time, on a Business Day, the automatic
investment will be executed on that Business Day. Otherwise, the automatic
investment will be executed at 12:00 noon, Eastern time, on the next Business
Day. PaineWebber and/or an investor's bank may impose a service charge for wire
transfers.
REDEMPTIONS
Shareholders may redeem (sell) any number of shares from their Fund accounts
by wire, by telephone or by mail. Shares will be redeemed at the net asset value
per share next determined after receipt by the Funds' transfer agent ("Transfer
Agent") of instructions from PaineWebber to redeem. PaineWebber delivers such
instructions to the Transfer Agent prior to the determination of net asset value
at 12:00 noon, Eastern time, on any Business Day.
AUTOMATIC REDEMPTIONS. Under the RMA and BSA programs, PaineWebber will
redeem Fund shares automatically to satisfy outstanding "Debits" and "Charges."
"Debits" are amounts due PaineWebber on settlement date for securities purchases
and other debits in the investor's RMA or BSA brokerage account, including
margin loans, any federal funds wires arranged by PaineWebber and fees for such
wires and PaineWebber checks and fees for such checks. "Charges" are RMA or BSA
checks, MasterCard purchases, cash advances, Bill Payment Service checks and
Automated Clearing House transfers, including Electronic Funds Transfer Debits.
Shares are redeemed to cover Debits on the day the Debit is generated. Shares
are redeemed to cover RMA or BSA checks and MasterCard cash advances on the day
they are paid. Shares are redeemed to cover MasterCard purchases at the end of
the MasterCard monthly billing period. Shares are also redeemed to cover
interest due on and credit extended and outstanding under the Bank One Line of
Credit at the end of the MasterCard monthly billing period. Securities purchases
are automatically paid for on settlement date.
ORDER OF REDEMPTION. If a shareholder owns shares of more than one Fund,
shares of the Primary Sweep Money Fund are always redeemed first; thereafter,
shares held in the other Funds will be redeemed, if necessary, in the following
order: first, Money Market Portfolio; second, U.S. Government Portfolio; third,
Tax-Free Fund; and fourth, New York Municipal Money Fund, California Municipal
Money Fund or New Jersey Municipal Money Fund.
ADDITIONAL INFORMATION ON REDEMPTIONS. Shareholders with questions about
redemption requirements should consult their PaineWebber Investment Executives
or correspondent firms. Shareholders who redeem all their shares will receive
cash credits to their RMA or BSA brokerage accounts for dividends earned on
those shares to (but not including) the day of redemption. The redemption price
may be more or less than the purchase price, depending on the market value of
the Fund's portfolio; however, each Fund anticipates that its net asset value
per share will normally be $1.00 per share. See "Valuation of Shares."
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<PAGE>
Because each Fund incurs certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to establish minimum initial purchase
requirements and to redeem Fund shares in any shareholder account of less than
$500 net asset value. If a Fund elects to do so, it will notify the shareholder
and provide the shareholder with an opportunity to increase the amount invested
to $500 or more within 60 days of the notice. This notice may appear on the
shareholder's account statement. If a shareholder requests redemption of shares
that were purchased recently, a Fund may delay payment until it is assured that
it has received good payment for the purchase of the shares. In the case of
purchases by check, this can take up to 15 days.
PaineWebber has the right to terminate an RMA or BSA brokerage account for
any reason. In such event, all Fund shares held in the shareholder's RMA or BSA
brokerage account will be redeemed and the proceeds sent to the shareholder
within three Business Days.
VALUATION OF SHARES
Each Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Each Fund's net asset value per share is determined by dividing the 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. Each Fund's net asset
value is computed once each Business Day at 12:00 noon, Eastern time.
Each Fund values its portfolio securities using the amortized cost method of
valuation, under which market value is approximated by amortizing the difference
between the acquisition cost and value at maturity of an instrument on a
straight-line basis over its remaining life. All cash, receivables and current
payables are carried at their face value. Other assets are valued at fair value
as determined in good faith by or under the direction of the applicable board.
DIVIDENDS AND TAXES
DIVIDENDS. Each Business Day, each Fund declares as dividends all of its
net investment income. Shares begin earning dividends on the day 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. Any amounts from
accretion of market discounts on Municipal Securities, which are taxable to each
Municipal Fund's shareholders, are included in the daily dividends.
Each 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 Funds do not
expect to realize net long-term capital gain and thus do not anticipate payment
of any long-term capital gain distributions.
FEDERAL TAX. Each Fund intends to continue to qualify for treatment as a
regulated investment company ("RIC") under the Internal Revenue Code so that it
will be relieved of federal income tax on that part of its investment company
taxable income (consisting generally of taxable net investment income and net
short-term capital gain, if any) that it distributes to its shareholders.
Dividends paid by Money Market Portfolio and U.S. Government Portfolio
generally are taxable to their shareholders as ordinary income, notwithstanding
that such dividends are paid in
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<PAGE>
additional Fund shares. Shareholders not subject to tax on their income,
however, generally are not required to pay tax on amounts distributed to them.
Distributions by a Municipal Fund that it designates as "exempt-interest
dividends" generally may be excluded from gross income by a shareholder.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of a Municipal Fund is not deductible.
Each Fund notifies its shareholders following the end of each calendar year
of the tax status of all distributions paid (or deemed paid) during that year.
The notice sent by each Municipal Fund specifies the amount of exempt-interest
dividends (and the portion thereof, if any, that is not AMT exempt interest) and
the amount of any taxable dividends.
Each Fund is required to withhold 31% of all taxable dividends payable to
any individuals and certain other non-corporate shareholders who (1) do not
provide the Fund or PaineWebber with a correct taxpayer identification number or
(2) otherwise are subject to backup withholding.
CALIFORNIA TAXES. If California Municipal Money Fund qualifies as a RIC
under the Internal Revenue Code and at least 50% of the value of its total
assets consists of qualifying California Municipal Securities, exempt-interest
dividends derived from interest on qualifying California Municipal Securities
will be exempt from California personal income tax ("California exempt-interest
dividends"), but not California franchise tax. Dividends derived from interest
on other Municipal Securities, taxable income and net capital gains are taxable
under California law at ordinary income rates. Interest on indebtedness incurred
by a shareholder to purchase or carry shares of the Fund is not deductible for
purposes of California personal income tax. California exempt-interest dividends
may affect the calculation of certain adjustments to alternative minimum taxable
income for shareholders that are corporations. Shareholders receive notification
annually stating the portion of the Fund's exempt-interest dividends
attributable to issuers in California and other states. The Fund itself will not
be subject to California franchise or corporate income tax on interest income
distributed to its shareholders.
NEW YORK STATE AND CITY TAXES. If New York Municipal Money Fund qualifies
as a RIC under the Internal Revenue Code and at the end of each quarter of its
taxable year at least 50% of its assets is invested in qualifying New York
Municipal Securities, exempt-interest dividends paid by the Fund that are
derived from interest on qualifying New York Municipal Securities will be exempt
from New York State and City personal income taxes, but not corporate franchise
taxes. Dividends derived from interest on other Municipal Securities, taxable
income and net capital gains are not exempt from New York State and City
personal income taxes. Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Fund is not deductible for purposes of New York
State or City personal income taxes. Shareholders receive notification annually
stating the portion of the Fund's exempt-interest dividends attributable to
issuers in New York State and City and other states.
NEW JERSEY TAXES. New Jersey Municipal Money Fund anticipates that
substantially all dividends paid by it will not be subject to New Jersey
personal income tax. Distributions paid by a "qualified investment fund" will
not be subject to the New Jersey personal income tax to the extent the
distributions are attributable to income received as interest or gain from New
Jersey Municipal Securities, direct U.S. government obligations or certain other
specified obligations.
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To be classified as a qualified investment fund, at least 80% of the Fund's
investments must consist of such obligations. Distributions by a qualified
investment fund that are attributable to most other sources will be subject to
the New Jersey personal income tax. If the Fund continues to be classified as a
qualified investment fund, any gain on the redemption of its shares will not be
subject to the New Jersey personal income tax. To the extent a shareholder of
the Fund is obligated to pay state or local taxes outside of New Jersey,
dividends earned by such shareholder may represent taxable income.
New Jersey Municipal Money Fund shares are not subject to property taxation
by New Jersey or its political subdivisions.
ADDITIONAL INFORMATION. The foregoing is only a summary of some of the
important federal, state and local income tax considerations generally affecting
the Funds and their shareholders; see the Statement of Additional Information
for a further discussion. There may be other federal, state and local tax
considerations applicable to a particular investor. Prospective shareholders are
urged to consult their tax advisers.
MANAGEMENT
Each board, as part of its overall management responsibility, oversees
various organizations responsible for its Fund's day-to-day management.
PaineWebber, the Funds' investment adviser and administrator, provides a
continuous investment program for each Fund and supervises all aspects of its
operations. As sub-adviser to the Funds, Mitchell Hutchins makes and implements
investment decisions and, as sub-administrator, is responsible for the
day-to-day administration of the Funds.
PaineWebber receives a monthly fee for these services. For the fiscal year
ended June 30, 1998, the effective advisory and administration fees paid to
PaineWebber as a percentage of a Fund's average daily net assets were as
follows:
<TABLE>
<S> <C>
Money Market Portfolio 0.50%
U.S. Government Portfolio 0.43%
Tax-Free Fund 0.44%
California Municipal Money Fund 0.47%
New Jersey Municipal Money Fund 0.50%
New York Municipal Money Fund 0.40%
</TABLE>
PaineWebber (not the Funds) pays Mitchell Hutchins a fee for its sub-advisory
and sub-administration services at an annual rate of 20% of the fee received by
PaineWebber from each Fund for advisory and administrative services.
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
PaineWebber Group Inc., a publicly owned financial services holding company. At
July 31, 1998, PaineWebber or Mitchell Hutchins was investment adviser or
sub-adviser to 32 registered investment companies with 69 separate portfolios
and aggregate assets in excess of $40.5 billion.
In accordance with procedures adopted by the Funds' boards, each 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.
DISTRIBUTION ARRANGEMENTS. PaineWebber is the distributor of each Fund's
shares and each Fund (other than Money Market Portfolio) has a separate plan of
distribution ("Plan"). Under their Plans, U.S. Government Portfolio, Tax-Free
Fund, California Municipal Money Fund and New York Municipal Money Fund each is
authorized to pay PaineWebber a 12b-1 service fee at the annual rate of up to
0.15% of the Fund's
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<PAGE>
average daily net assets. Each of these Funds 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 applicable board.
Under each Plan, PaineWebber uses the 12b-1 service fee to pay PaineWebber
Investment Executives and correspondent firms for shareholder servicing,
currently at the annual rate of 0.02% 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, each Plan and a related distribution
contract ("Distribution Contract") obligates the affected Fund to pay the 12b-1
service fee to PaineWebber as compensation for its service activities and not as
reimbursement for specific expenses incurred. Thus, even if PaineWebber's
expenses exceed the 12b-1 fee, the Fund will not be obliged to pay more than the
fee, and if PaineWebber's expenses are less than the fee, it will retain its
full fee and realize a profit. Each Fund will pay the 12b-1 fee to PaineWebber
until either the Plan or the Distribution Contract is terminated or not renewed
for that Fund. In that event, PaineWebber's service expenses in excess of fees
received or accrued through the termination date will be PaineWebber's sole
responsibility and not obligations of the Fund.
Under a separate Plan, New Jersey Municipal Money Fund is authorized to
reimburse PaineWebber its expenses for distribution of that Fund's shares at the
annual rate of up to 0.12% of its average daily net assets. The expenses which
may be reimbursed include compensation to Investment Executives and other
employees of PaineWebber, printing of prospectuses and reports for other than
existing shareholders, and the preparation, printing and distribution of sales
literature and advertising materials. It is not anticipated that items
reimbursable under this Plan will generally include any profit to PaineWebber.
The Fund is not authorized to reimburse PaineWebber for expenses incurred more
than 12 months prior to the date of such reimbursement. PaineWebber anticipates
that there will be no carryover of expenses from one year to the next. The
expenses to be reimbursed are for activities primarily intended to result in the
sale of the Fund's shares and the maintenance of Fund accounts and account
balances, and there will be no reimbursement for the expenses relative to
PaineWebber's overhead. PaineWebber currently intends to pay its Investment
Executives at the annual rate of approximately 0.02% of the Fund's average daily
net assets held in accounts serviced by such Investment Executives and to use
the balance received under the Fund's Plan for other activities.
PERFORMANCE INFORMATION
From time to time each Fund may advertise its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a Fund is the income on an
investment in that Fund over a specified seven-day period. This income is then
"annualized" (that is, assumed to be earned each week over a 52-week period) and
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but when annualized the income earned is assumed to be reinvested.
The "effective yield" will be higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The Municipal Funds may also advertise "tax-equivalent yield" and
"tax-equivalent effective yield." "Tax-equivalent yield" shows the taxable yield
that would produce the same income after a stated rate of taxes as the
respective Fund's tax-exempt yield (yield excluding taxable income), with
adjustments for the portion, if any,
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<PAGE>
of a Fund's yield that is not tax-exempt. "Tax-equivalent effective yield" shows
the taxable effective yield that would produce the same income after a stated
rate of taxes as the respective Fund's tax-exempt effective yield (effective
yield excluding taxable income), with adjustments for the portion, if any, of a
Fund's yield that is not tax-exempt.
Each Fund may also advertise other performance data, which may consist of
the annual or cumulative return (including realized net short-term capital gain,
if any) earned on a hypothetical investment in the Fund since it began
operations or for shorter periods. This return data may or may not assume
reinvestment of dividends (compounding).
The performance of shareholder accounts with small balances will differ from
the quoted performance because daily income for each shareholder account is
rounded to the nearest whole penny. Accordingly, very small shareholder accounts
(at current interest rates, approximately $36 or less in the case of the Money
Market Portfolio and U.S. Government Portfolio, and approximately $60 or less in
the case of Municipal Funds) that generate less than $0.005 per day of income
will earn no dividends.
GENERAL INFORMATION
Money Market and U.S. Government Portfolios are diversified series of
PaineWebber RMA Money Fund, Inc. ("Money Fund Corporation"). Both Tax-Free Fund
and Money Fund Corporation were incorporated in Maryland on July 2, 1982, and
each is registered with the SEC as an open-end, management investment company.
Money Fund Corporation has an authorized capitalization of 60 billion shares of
$0.001 par value common stock, 30 billion and 10 billion of which are designated
as shares of Money Market Portfolio and U.S. Government Portfolio, respectively.
The remaining shares are classified as shares of Money Fund Corporation's third
series. Tax-Free Fund, a diversified investment company, has an authorized
capitalization of 20 billion shares of $0.001 par value common stock.
California Municipal Money Fund and New York Municipal Money Fund are
non-diversified series of PaineWebber Managed Municipal Trust ("Managed
Municipal Trust"). The Trust is registered as an open-end management investment
company and was organized as a business trust under the laws of the Commonwealth
of Massachusetts by Declaration of Trust dated November 21, 1986. The Trust's
board has authority to issue an unlimited number of shares of beneficial
interest of separate series, par value $0.001 per share.
New Jersey Municipal Money Fund is a non-diversified series of PaineWebber
Municipal Money Market Series. The Trust is registered as an open-end management
investment company and was organized as a business trust under the laws of the
Commonwealth of Massachusetts by Declaration of Trust dated September 14, 1990.
The Trust's board has authority to issue an unlimited number of shares of
beneficial interest, par value $0.001 per share.
Although each Fund is offering only its own shares, it is possible that a
Fund might become liable for a misstatement in the Prospectus about another
Fund. Each board has considered this factor in approving the use of a single,
combined Prospectus.
The Corporations and the Trusts do not hold annual shareholder meetings.
There normally will be no meetings of shareholders to elect board members unless
fewer than a majority of the board members holding office have been elected by
shareholders.
The directors are required to call a meeting of shareholders of a
Corporation when requested in writing to do so by the shareholders of record
holding at least 25% of the Corporation's outstanding shares.
Shareholders of record of no less than two-thirds of the outstanding shares
of the applicable
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Trust may remove a trustee by vote cast in person or by proxy at a meeting
called for that purpose. The trustees are required to call a meeting of
shareholders of the applicable Trust for the purposes of voting upon the
question of removal of any trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the applicable Trust's
outstanding shares.
Each share of a Fund has equal voting, dividend and liquidation rights. The
shares of each series of Money Fund Corporation and Managed Municipal Trust will
be voted separately except when an aggregate vote of all series is required by
the 1940 Act.
Shareholders of a 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 a Corporation or
Trust may elect all of its board members.
CERTIFICATES. To avoid additional operating expense and for investor
convenience, stock certificates are not issued. Ownership of shares of each Fund
is recorded on a stock register by the Transfer Agent, and shareholders have the
same rights of ownership with respect to such shares as if certificates had been
issued.
REPORTS, CONFIRMATIONS AND STATEMENTS. Shareholders of each Fund receive
its audited annual and unaudited semiannual financial statements. All purchases
and redemptions of Fund shares are confirmed to shareholders at least quarterly.
To avoid sending duplicate copies of materials to households, a 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 1-800-762-1000 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 each Fund's
assets. PFPC Inc. ("PFPC"), a subsidiary of PNC Bank, N.A., 400 Bellevue
Parkway, Wilmington, Delaware 19809, is each Fund's transfer and dividend
disbursing agent.
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APPENDIX
MUNICIPAL SECURITIES
The following description of the principal Municipal Securities in which,
where applicable, Tax-Free Fund, California Municipal Money Fund, New Jersey
Municipal Money Fund and New York Municipal Money Fund may invest supplements
that provided elsewhere in the Prospectus.
MUNICIPAL BONDS. Municipal bonds are debt obligations issued to obtain
funds for various public purposes, the interest on which is exempt from federal
income tax in the opinion of bond counsel. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit and taxing
power for the payment of principal and interest. Revenue bonds are payable only
from the revenue derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as from the user of the facility being financed. The term
"municipal bonds" also includes "moral obligation" issues, which are normally
issued by special purpose authorities. In the case of such issues, an express or
implied "moral obligation" of a related governmental unit is pledged to the
payment of the debt service, but is usually subject to annual budget
appropriations. The term "municipal bonds" also includes municipal lease
obligations, such as leases, installment purchase contracts and conditional
sales contracts, and certificates of participation therein. Municipal lease
obligations are issued by local and state governments and authorities to
purchase land or various types of equipment or facilities and may be subject to
annual budget appropriations. The Funds generally invest in municipal lease
obligations through certificates of participation. The term "municipal bonds"
also includes custodial receipts that represent an ownership interest in one or
more municipal bonds.
INDUSTRIAL DEVELOPMENT BONDS AND PRIVATE ACTIVITY BONDS. IDBs and PABs are
issued by or on behalf of public authorities to finance various privately
operated facilities, such as airport or pollution control facilities. PABs
generally are such bonds issued after August 15, 1986. These obligations are
included within the term "municipal bonds" if the interest paid thereon is
exempt from federal income tax in the opinion of the bond issuer's counsel. IDBs
and PABs are in most cases revenue bonds and thus are not payable from the
unrestricted revenues of the issuer. The credit quality of IDBs and PABs is
usually directly related to the credit standing of the user of the facilities
being financed. Each Fund is authorized to invest more than 25% of its assets in
IDBs and PABs.
PARTICIPATION INTERESTS. Participation interests are interests in municipal
bonds, including IDBs and PABs, and floating and variable rate obligations that
are owned by banks or other financial institutions. These interests carry a
demand feature permitting the holder to tender them back to the bank or other
financial institution. The demand feature generally is backed by a letter of
credit, guarantee or liquidity support arrangement from a bank or other
financial institution, whose credit standing affects the credit quality of the
participation interest.
PUT BONDS. A put bond is a municipal bond that gives the holder the
unconditional right to sell the bond back to the issuer or a third party at a
specified price and exercise date, which is typically well in advance of the
bond's maturity date.
TAX-EXEMPT COMMERCIAL PAPER AND SHORT-TERM MUNICIPAL NOTES. Tax-exempt
commercial paper and short-term municipal notes include tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of short-
term loans. Such notes are issued with a short-term maturity in anticipation of
the receipt of tax funds, the proceeds of bond placements or other revenues.
A-1
<PAGE>
TABLE OF CONTENTS
Highlights ............................................................. 2
Financial Highlights ................................................... 7
Investment Objectives and Policies .................................... 11
Purchases ............................................................. 19
Redemptions ........................................................... 21
Valuation of Shares ................................................... 22
Dividends and Taxes ................................................... 22
Management ............................................................ 24
Performance Information ............................................... 25
General Information ................................................... 26
Appendix ............................................................. A-1
FOR INFORMATION ON THE RMA PROGRAM OR THE RMA FUNDS, CALL PAINEWEBBER
TOLL-FREE AT 1-800-RMA-1000.
FOR INFORMATION ON THE BSA PROGRAM, CALL PAINEWEBBER TOLL-FREE AT
1-800-762-1000.
--------------------------------------------------------------------
INVESTORS SHOULD RELY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. EACH 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 A FUND IN ANY JURISDICTION WHERE THE FUND
OR ITS DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.
[LOGO]
-C-1998 PaineWebber Incorporated
[LOGO]
Prospectus
---------------------------------
RMA MONEY MARKET PORTFOLIO
RMA U.S. GOVERNMENT
PORTFOLIO
RMA TAX-FREE FUND
RMA CALIFORNIA MUNICIPAL
MONEY FUND
RMA NEW JERSEY MUNICIPAL
MONEY FUND
RMA NEW YORK MUNICIPAL
MONEY FUND
August 29, 1998
<PAGE>
PAINEWEBBER RMA
MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
TAX-FREE FUND
CALIFORNIA MUNICIPAL MONEY FUND
NEW JERSEY MUNICIPAL MONEY FUND
NEW YORK MUNICIPAL MONEY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
1-800-762-1000
STATEMENT OF ADDITIONAL INFORMATION
The six funds named above (each a "Fund") are professionally managed money
market funds, each with its own investment objective and policies as described
in the Funds' Prospectus. PaineWebber RMA Money Market Portfolio ("Money Market
Portfolio") and PaineWebber RMA U.S. Government Portfolio ("U.S. Government
Portfolio") are series of PaineWebber RMA Money Fund, Inc. ("Money Fund"). Money
Fund and PaineWebber RMA Tax-Free Fund, Inc. ("Tax-Free Fund") are Maryland
corporations (each a "Corporation"). PaineWebber RMA California Municipal Money
Fund ("California Municipal Money Fund") and PaineWebber RMA New York Municipal
Money Fund ("New York Municipal Money Fund") are series of PaineWebber Managed
Municipal Trust ("Managed Municipal Trust"). PaineWebber RMA New Jersey
Municipal Money Fund ("New Jersey Municipal Money Fund") is a series of
PaineWebber Municipal Money Market Series ("Municipal Money Market Series").
Managed Municipal Trust and Municipal Money Market Series are Massachusetts
business trusts (each a "Trust"). Tax-Free Fund, California Municipal Money
Fund, New Jersey Municipal Money Fund and New York Municipal Money Fund may be
referred to collectively as the "Municipal Funds." The investment adviser,
administrator and distributor of each Fund is PaineWebber Incorporated
("PaineWebber"); the sub-adviser and sub-administrator of each Fund is Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset
management subsidiary of PaineWebber. This Statement of Additional Information
is not a prospectus and should be read only in conjunction with the Funds'
current Prospectus, dated August 29, 1998. A copy of the Prospectus may be
obtained by contacting any PaineWebber Investment Executive or correspondent
firm or by calling 1-800-762-1000. This Statement of Additional Information is
dated August 29, 1998.
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INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.
YIELDS AND RATINGS OF MONEY MARKET INSTRUMENTS; FIRST TIER SECURITIES. The
yields on the money market instruments in which the Funds invest (such as U.S.
government securities, commercial paper, bank obligations and municipal
securities) are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of nationally recognized
statistical rating organizations ("NRSROs") represent their opinions as to the
quality of the obligations they undertake to rate. Ratings, however, are general
and are not absolute standards of quality. Consequently, obligations with the
same rating, maturity and interest rate may have different market prices.
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced. If a security in a Fund's portfolio ceases to be a "First
Tier" security, as defined below, or Mitchell Hutchins becomes aware that a
security has received a rating below the second highest rating by any NRSRO,
Mitchell Hutchins, and in certain cases the applicable Corporation's board of
directors or the applicable Trust's board of trustees (each a "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.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from federal income tax, California personal
income tax, New Jersey personal income tax, and New York State and New York City
personal income taxes (and also, when available, from the federal alternative
minimum tax) are rendered by bond counsel to the respective issuing authorities
at the time of issuance. Neither the Municipal Funds nor Mitchell Hutchins will
review the proceedings relating to the issuance of municipal securities or the
basis for such opinions. An issuer's obligations under its municipal securities
are subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors (such as the federal bankruptcy laws) and
federal, state and local laws that may be enacted that adversely affect the
tax-exempt status of interest on the municipal securities held by a Fund or of
the exempt-interest dividends received by a Fund's shareholders, extend the time
for payment of principal or interest, or both, or impose other constraints upon
enforcement of such obligations. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of principal of and interest on their municipal
securities may be materially and adversely affected.
VARIABLE AND FLOATING RATE DEMAND INSTRUMENTS. Each Fund may invest in
variable and floating rate securities with demand features. A demand feature
gives a Fund the right to sell the securities back to a specified party, usually
a remarketing agent, on a specified date, at a price equal to their amortized
cost
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<PAGE>
plus accrued interest. A demand feature is often backed by a letter of credit,
guarantee or other liquidity support arrangement from a bank or other financial
institution that may be drawn upon demand, after specified notice, for all or
any part of the exercise price of the demand feature. Generally, a Fund intends
to exercise demand features (1) upon a default under the terms of the underlying
security, (2) to maintain the Fund's portfolio in accordance with its investment
objective and policies or applicable legal or regulatory requirements or (3) as
needed to provide liquidity to the Fund in order to meet redemption requests.
The ability of a bank or other financial institution to fulfill its obligations
under a letter of credit, guarantee or other liquidity arrangement might be
affected by possible financial difficulties of its borrowers, adverse interest
rate or economic conditions, regulatory limitations or other factors. The
interest rate on floating rate or variable rate 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.
Tender option bonds are long-term municipal securities sold by a bank or
other financial institution subject to a demand feature that gives the purchaser
the right to sell them to the bank or other financial institution at par plus
accrued interest at designated times (the "tender option"). The Funds may invest
in bonds with tender options that may be exercisable at intervals ranging from
daily to 397 days, and the interest rate on the bonds is typically reset at the
end of the applicable interval in an attempt to cause the bonds to have a market
value that approximates their par value. The tender option may not be
exercisable in the event of a default on, or significant downgrading of, the
underlying municipal securities, and may be subject to other conditions.
Therefore, a Fund's ability to exercise the tender option will be affected by
the credit standing of both the bank or other financial institution involved and
the issuer of the underlying securities.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
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. A 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 securities and the price that was paid by a Fund upon
acquisition is accrued as interest and included in its net investment income.
REVERSE REPURCHASE AGREEMENTS. Money Market and U.S. Government Portfolios
may each enter into reverse repurchase agreements with banks and securities
dealers up to an aggregate value of not more than 5% of its net assets. Such
agreements involve the sale of securities held by a Fund subject to the Fund's
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, a
3
<PAGE>
Fund's custodian segregates assets to cover the Fund's obligations under the
reverse repurchase agreement. See "Investment Policies and
Restrictions--Segregated Accounts."
ILLIQUID SECURITIES. No Fund will invest more than 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, repurchase agreements maturing in
more than seven days, restricted securities and municipal lease obligations
(including certificates of participation) other than those Mitchell Hutchins has
determined to be liquid pursuant to guidelines established by the applicable
board. To the extent a 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
("1933 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, a 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, a 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
a Fund, however, could affect adversely the marketability of such portfolio
securities, and a Fund might be unable to dispose of such securities promptly or
at favorable prices.
The boards have delegated the function of making day-to-day determinations
of liquidity to Mitchell Hutchins, pursuant to guidelines approved by each
board. Mitchell Hutchins takes into account a number of factors in reaching
liquidity decisions, including (1) the frequency of trades for the security, (2)
the number of dealers that make quotes for the security, (3) the number of
dealers that have undertaken to make a market in the security, (4) the number of
other potential purchasers and (5) the nature of the security and how trading is
effected (E.G., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities held by the Funds and reports periodically on such
decisions to the applicable board.
4
<PAGE>
In making liquidity determinations with respect to municipal lease
obligations, Mitchell Hutchins takes into account a number of additional factors
relating specifically to the credit quality of the obligations, including, where
appropriate, (1) whether the underlying lease can be cancelled, (2) what
assurance there is that the assets underlying the lease can be sold, (3) the
strength of the lessee's general credit (E.G., its administrative, economic and
financial characteristics), (4) the likelihood that the municipality will
discontinue appropriating funding for the property because the property is no
longer deemed essential to the operations of the municipality (E.G., the
potential for an "event of nonappropriation") and (5) the legal recourse in the
event of a failure to appropriate. In making liquidity determinations, Mitchell
Hutchins will distinguish between direct investments in municipal lease
obligations (or participations therein) and investments in securities that may
be supported by municipal lease obligations or certificates of participation
therein. Because these municipal lease obligation-backed securities are based on
a well-established means of securitization, Mitchell Hutchins does not believe
that investing in such securities presents the same liquidity issues as direct
investments in municipal lease obligations.
LENDING OF PORTFOLIO SECURITIES. Each 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. A 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. Each Fund will retain authority to terminate any of its loans at any
time. A 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. A Fund will receive amounts equivalent
to any interest or other distributions on the securities loaned. A 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 the Fund's interest.
Pursuant to procedures adopted by the boards governing each Fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for each Fund. The boards also have authorized the payment of fees
(including fees calculated as a percentage of invested cash collateral) to
PaineWebber for these services. Each board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Funds 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 a Fund's net asset
value. When a Fund commits to purchase securities on a when-issued or delayed
delivery basis, its custodian segregates assets to cover the amount of the
commitment. See "Investment Policies and Restrictions--Segregated Accounts."
5
<PAGE>
SEGREGATED ACCOUNTS. When a Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis or reverse
repurchase agreements, the Fund will maintain with an approved custodian in a
segregated account cash or liquid securities, marked to market daily, in an
amount at least equal to the Fund's obligation or commitment under such
transactions.
CERTAIN POLICIES OF THE MUNICIPAL FUNDS
MUNICIPAL SECURITIES. The types of municipal securities identified in the
Prospectus may include obligations of issuers whose revenues are primarily
derived from mortgage loans on housing projects for moderate- to low-income
families. The Municipal Funds also may purchase mortgage subsidy bonds with a
remaining maturity of less than 13 months that are issued to subsidize mortgages
on single family homes and "moral obligation" bonds with a remaining maturity of
less than 13 months that are normally issued by special purpose public
authorities. In some cases the repayment of such bonds depends upon annual
legislative appropriations; in other cases repayment is a legal obligation of
the issuer, and if the issuer is unable to meet its obligations, repayment
becomes a moral commitment of a related government unit (subject, however, to
such appropriations).
PUT BONDS. The Municipal Funds may each invest in put bonds that have a
fixed rate of interest and a final maturity beyond the date on which the put may
be exercised. If the put is a "one time only" put, the Fund ordinarily will
either sell the bond or put the bond, depending upon the more favorable price.
If the bond has a series of puts after the first put, the bond will be held as
long as, in the judgment of Mitchell Hutchins, it is in the best interest of the
Fund to do so. There is no assurance that an issuer of a put bond acquired by
the Fund will be able to repurchase the bond on the exercise date, if the Fund
chooses to exercise its right to put the bond back to the issuer.
STAND-BY COMMITMENTS. A Municipal Fund may acquire stand-by commitments
under unusual market conditions to facilitate portfolio liquidity. Pursuant to a
stand-by commitment, a municipal bond dealer agrees to purchase the securities
that are the subject of the commitment at an amount equal to (1) the acquisition
cost (excluding any accrued interest paid on acquisition), less any amortized
market premium and plus any accrued market or original issue discount, plus (2)
all interest accrued on the securities since the last interest payment date or
the date the securities were purchased, whichever is later.
A Fund will enter into stand-by commitments only with those banks or other
dealers that, in the opinion of Mitchell Hutchins, present minimal credit risk.
A Fund's right to exercise stand-by commitments will be unconditional and
unqualified. Stand-by commitments will not be transferable by a Fund, although a
Fund may sell the underlying securities to a third party at any time. A Fund may
pay for stand-by commitments either separately in cash or by paying a higher
price for the securities that are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
acquisition of a stand-by commitment will not ordinarily affect the valuation or
maturity of the underlying municipal securities. Stand-by commitments acquired
by a Fund will be valued at zero in determining net asset value. Whether a Fund
paid directly or indirectly for a stand-by commitment, its cost will be treated
as unrealized depreciation and will be amortized over the period the commitment
is held by the Fund.
6
<PAGE>
PARTICIPATION INTERESTS. The Municipal Funds may invest in participation
interests in municipal bonds, including industrial development bonds ("IDBs"),
private activity bonds ("PABs") and floating and variable rate securities. A
participation interest gives a Fund an undivided interest in a municipal bond
owned by a bank or other financial institution. A Fund has the right to sell the
instrument back to the financial institution. As discussed above under "Variable
and Floating Rate Demand Instruments," to the extent that payment of an
obligation is backed by a letter of credit, guarantee or liquidity support
arrangement from a bank or other financial institution, such payment may be
subject to the financial institution's ability to satisfy that commitment.
Mitchell Hutchins will monitor the pricing, quality and liquidity of the
participation interests held by each Municipal Fund, and the credit standing of
financial institutions issuing letters of credit, guarantees or liquidity
support arrangements supporting such participation interests, on the basis of
published financial information, reports of rating services and bank analytical
services. Under normal market conditions, New Jersey Municipal Money Fund will
not invest more than 25% of its total assets in participation interests or other
securities issued by or purchased from banks or other financial institutions.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved significantly since 1994, with ratings increases since 1996. The
ratings of certain related debt of other issuers for which California has an
outstanding lease purchase, guarantee or other contractual obligation (such as
for state-insured hospital bonds) are generally linked directly to California's
rating. Should the financial condition of California deteriorate again, its
credit ratings could be reduced, and the market value and marketability of all
outstanding notes and bonds issued by California, its public authorities or
local governments could be adversely affected.
ECONOMIC FACTORS
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of almost 33 million represents
over 12% of the total United States population and grew by 26% in the 1980s,
more than double the national rate. Population growth slowed to less than 1%
annually in 1994 and 1995, but rose to 1.8% in 1996. During the early 1990's,
net population growth in the State was due to births and foreign immigration,
but in recent years, in-migration from the other states has increased.
Total personal income in the State, at an estimated $865 billion in 1997,
accounts for almost 13% of all personal income in the nation. Total employment
is over 14 million, the majority of which is in the service, trade and
manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Employment levels
stabilized by late 1993 and pre-recession job levels were reached in 1996.
Unemployment, while remaining higher than the national average, has come down
from its 10% recession peak to 5.6% in summer, 1998. Economic indicators show a
steady and strong recovery underway in California since the start of 1994
particularly in high technology manufacturing and services, including computer
software, electronic
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manufacturing and motion picture/television production, and other services,
entertainment and tourism, and both residential and commercial construction. The
Asian economic crisis beginning in mid-1997 will reduce exports to that region,
although this has been offset by increased exports to Latin America and other
areas. Overall, the Asian crisis is expected to have a moderate dampening effect
on the State's economy, but the economy is still expected to outpace the nation
in 1998 and 1999. Any delay or reversal of the recovery may create new
shortfalls in State revenues.
CONSTITUTIONAL LIMITATIONS ON TAXES, OTHER CHARGES AND APPROPRIATIONS
LIMITATION ON PROPERTY TAXES. Certain California Municipal Obligations may
be obligations of issuers which rely in whole or in part, directly or
indirectly, on AD VALOREM property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and commonly
known as "Proposition 13." Briefly, Article XIIIA limits to 1% of full cash
value of the rate of AD VALOREM property taxes on real property and generally
restricts the reassessment of property to 2% per year, except under new
construction or change of ownership (subject to a number of exemptions). Taxing
entities may, however, raise AD VALOREM taxes above the 1% limit to pay debt
service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% AD VALOREM tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of March
1, 1975, if acquired earlier), subject to certain adjustments. This system has
resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13, but it was upheld by the U.S. Supreme Court in 1992.
Article XIIIA prohibits local governments from raising revenues through AD
VALOREM taxes above the 1% limit; it also requires voters of any governmental
unit to give two-thirds approval to levy any "special tax." Court decisions,
however, allowed a non-voter approved levy of "general taxes" which were not
dedicated to a specific use.
LIMITATIONS ON OTHER TAXES, FEES AND CHARGES. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be submitted to
the electorate before they become effective. Taxes for general governmental
purposes require a majority vote and taxes for specific purposes require a
two-thirds vote. Further, any general purpose tax which was imposed, extended or
increased without voter approval after December 31, 1994 must be approved by a
majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an AD VALOREM tax, a special tax, or an assessment, imposed
by a [local government] upon a
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parcel or upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and existing property
related fees and charges must conform to requirements prohibiting, among other
things, fees and charges which generate revenues exceeding the funds required to
provide the property related service or are used for unrelated purposes. There
are new notice, hearing and protest procedures for levying or increasing
property related fees and charges, and, except for fees or charges for sewer,
water and refuse collection services (or fees for electrical and gas service,
which are not treated as "property related" for purposes of Article XIIID), no
property related fee or charge may be imposed or increased without majority
approval by the property owners subject to the fee or charge or, at the option
of the local agency, two-thirds voter approval by the electorate residing in the
affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainly the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.
APPROPRIATIONS LIMITS. The State and its local governments are subject to
an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.
"Excess" revenues are measured over a two year cycle. Local governments must
return any excess to taxpayers by rate reductions. The State must refund 50% of
any excess, with the other 50% paid to schools
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and community colleges. With more liberal annual adjustment factors since 1988,
and depressed revenues since 1990 because of the recession, few governments are
currently operating near their spending limits, but this condition may change
over time. Local governments may by voter approval exceed their spending limits
for up to four years. During fiscal year 1986-87, State receipts from proceeds
of taxes exceeded its appropriations limit by $1.1 billion, which was returned
to taxpayers. Since that year, appropriations subject to limitation have been
under the State limit. State appropriations were $6.3 billion under the limit
for fiscal year 1997-98.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID of
the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California Municipal Obligations or on the ability of the
State or local governments to pay debt service on such California Municipal
Obligations. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of these Articles or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Further initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or local
issuers to repay their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. As of August
1, 1998, the State had outstanding approximately $18.7 billion of long-term
general obligation bonds, plus $1.1 billion of general obligation commercial
paper which will be refunded by long-term bonds in the future, and $6.7 billion
of lease-purchase debt supported by the State General Fund. The State also had
about $7.8 billion of authorized and unissued long-term general obligation bonds
and lease-purchase debt. In FY 1997-98, debt service on general obligation bonds
and lease purchase debt was approximately 4.4% of General Fund revenues.
RECENT FINANCIAL RESULTS
The principal sources of General Fund revenues in 1996-1997 were the
California personal income tax (47% of total revenues), the sales tax (34%),
bank and corporation taxes (12%), and the gross premium tax on insurance (2%).
The State maintains a Special Fund for Economic Uncertainties (the "SFEU"),
derived from General Fund revenues, as a reserve to meet cash needs of the
General Fund, but which is required to be replenished as soon as sufficient
revenues are available. Year-end balances in the SFEU are included for financial
reporting purposes in the General Fund balance. Because of the recession and an
accumulated budget deficit, no reserve was budgeted in the SFEU from 1992-93 to
1995-96.
GENERAL. Throughout the 1980's, State spending increased rapidly as the
State population and economy also grew rapidly, including increased spending for
many assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to local
public school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject
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to suspension by a two-thirds vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 35%).
RECENT BUDGETS. As a result of the severe economic recession from 1990-94
and other factors, the State experienced substantial revenue shortfalls, and
greater than anticipated social service costs, in the early 1990's. The State
accumulated and sustained a budget deficit in the budget reserve, the SFEU,
approaching $2.8 billion at its peak at June 30, 1993. The Legislature and
Governor agreed on a number of different steps to respond to the adverse
financial conditions and produce Budget Acts in the Years 1991-92 to 1994-95
(although not all of these actions were taken in each year):
- significant cuts in health and welfare program expenditures;
- transfers of program responsibilities and some funding sources from the
State to local governments, coupled with some reduction in mandates on local
government;
- transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing State funding for schools;
- reduction in growth of support for higher education programs, coupled with
increases in student fees;
- revenue increases (particularly in the 1992-93 Fiscal Year budget), most
of which were for a short duration;
- increased reliance on aid from the federal government to offset the costs
of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal aid
than the State Administration had requested); and
- various one-time adjustments and accounting changes (some of which have
been challenged in court and reversed).
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. The State's cash condition became so serious that from
late spring 1992 until 1995, the State had to rely on issuance of short term
notes which matured in a subsequent fiscal year to finance its ongoing deficit,
and pay current obligations. For a two-month period in the summer of 1992,
pending adoption of the annual Budget Act, the State was forced to issue
registered warrants (IOUs) to some of its suppliers, employees and other
creditors. The last of these deficit notes was repaid in April, 1996.
The State's financial condition improved markedly during the 1995-96,
1996-97 and 1997-98 fiscal years, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The State's cash
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position also improved, and no external deficit borrowing has occurred over the
end of these three fiscal years.
The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97 and $2.1 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid in 1995-96 and
1996-97. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance estimates that the State's budget reserve
(the SFEU) totaled about $400 million as of June 30, 1997 and $1.8 billion at
June 30, 1998.
FY 1997-98 BUDGET. In May 1997, the California Supreme Court ruled that the
State had acted illegally in 1993 and 1994 by using a deferral of payments to
the Public Employees Retirement Fund to help balance earlier budgets. In
response to this court decision, the Governor ordered an immediate repayment to
the Retirement Fund of about $1.235 billion, which was made in late July, 1997,
and substantially "used up" the then-expected additional General Fund revenues
for the fiscal year. The 1997-98 Budget Act provided another year of rapidly
increasing funding for K-14 public education. Support for higher education units
in the State also increased by about 6 percent. Because of the pension payment,
most other State programs were funded at levels consistent with prior years, and
several initiatives had to be dropped. The final results for FY 1997-98 showed
General Fund revenues and transfers of $54.7 billion and expenditures of $53.3
billion.
Part of the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new State
program, called "CalWORKs," became effective January 1, 1998, and emphasizes
programs to bring aid recipients into the workforce. As required by federal law,
new time limits are placed on receipt of welfare aid.
FY 1998-99 BUDGET. The FY 1998-99 Budget Act was signed on August 21, 1998.
In signing the Budget Act, the Governor vetoed $1.360 billion of General Fund
expenditures, and $160 million of Special Fund expenditures, resulting in
spending of $57.3 billion for the General Fund and $14.7 billion for Special
Funds. Of these vetoes, the Governor "set aside" $250 million to be used for
education programs supported by the Governor, but only if additional legislation
is passed before the end of the current session on August 31, 1998. The Budget
Act assumed General Fund revenues and transfers in FY 1998-99 of $57.0 billion.
Assuming the "set aside" monies are subsequently appropriated, the Governor
projects the balance in the SFEU at June 30, 1999 will be about $1.255 billion.
As has been the case in the last several years, spending on K-12 education
increased significantly, by a total of $2.2 billion, with projected per-pupil
spending of $5,695, more than one-third higher than the per-pupil spending
during the last recession year of 1993-94. Funding to support higher education
was also increased significantly (15% for the University of California and 14%
for the California State University system). The Budget included some increases
in health and welfare programs, including the first increase in the monthly
welfare grant since levels were cut during the recession.
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One of the most important elements of the 1998-99 Budget Act was agreement
on substantial tax cuts. The largest of these is a phased-in cut in the Vehicle
License Fee (an annual tax on the value of cars registered in the State, the
"VLF"). Starting in 1999, the VLF is reduced by 25%. Under current law, VLF
funds are automatically transferred to cities and counties, so the new
legislation provides for the General Fund to make up the reductions. If State
General Fund revenues continue to grow above certain targeted levels in future
years, the cut could reach as much as 67.5% by the year 2003. The initial 25%
VLF cut will be offset by about $500 million in General Fund money in FY
1998-99, and $1 billion for future years. Other tax cuts in FY 1998-99 include
an increase in the dependent credit exemption for personal income tax filers,
restoration of a renter's tax credit for taxpayers, and a variety of business
tax relief measures. The total cost of these tax cuts is estimated at $1.4
billion for FY 1998-99.
Although, as noted, the 1998-99 Budget Act projects a budget reserve in the
SFEU of $1.255 billion on June 30, 1999, the General Fund fund balance on that
date also reflects $1.0 billion of "loans" which the General Fund made to local
schools in the recession years, representing cash outlays above the mandatory
minimum funding level. Settlement of litigation over these transactions in July
1996 calls for repayment of these loans over the period ending in 2001-02, about
equally split between outlays from the General Fund and from schools'
entitlements. The 1998-99 Budget Act contained a $300 million appropriation from
the General Fund toward this settlement
Although the State's strong economy is producing record revenues to the
State government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending growth
also put pressure on local governments. There can be no assurances that, if
economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.
BOND RATING
The ratings on California's long-term general obligation bonds were reduced
in the early 1990's from "AAA" levels which had existed prior to the recession.
After 1996, Fitch and Standard & Poor's raised their ratings of California's
general obligation bonds, which as of August 1998 were assigned ratings of "A+"
from Standard & Poor's, "A1" from Moody's and "AA-" from Fitch.
There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.
LEGAL PROCEEDINGS
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require the
State to make significant future expenditures or may substantially impair
revenues. Trial courts have recently entered tentative decisions or injunctions
which would overturn several parts of the State's recent budget compromises. The
matters covered by these
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lawsuits include reductions in welfare payments and the use of certain cigarette
tax funds for health costs. All of these cases are subject to further
proceedings and appeals, and if California eventually loses, the final remedies
may not have to be implemented in one year.
OBLIGATIONS OF OTHER ISSUERS
OTHER ISSUERS OF CALIFORNIA MUNICIPAL OBLIGATIONS. There are a number of
State agencies, instrumentalities and political subdivisions of the State that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately 75%
of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs. However, except for agreement in 1997 on a
new program for the State to substantially take over funding for local trial
courts (saving cities and counties some $400 million annually), there has been
no large-scale reversal of the property tax shift to help local government.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. Los Angeles County, the
largest in the State, was forced to make significant cuts in services and
personnel, particularly in the health care system, in order to balance its
budget in FY1996-96 and FY1996-97. Los Angeles County's debt was downgraded by
Moody's and S&P in the summer of 1995. Orange County, which emerged from Federal
Bankruptcy Court protection in June 1996, has significantly reduced county
services and personnel, and faces strict financial conditions following large
investment fund losses in 1994 which resulted in bankruptcy.
Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were enacted in August,
1997 in order to comply with the federal welfare reform law. Generally, counties
play a large role in the new system, and are given substantial flexibility to
develop and administer programs to bring aid recipients into the workforce.
Counties are also given financial incentives if either at the county or
statewide level, the "Welfare-to-Work" programs exceed minimum targets; counties
are also subject to financial penalties for failure to meet such targets.
Counties
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remain responsible to provide "general assistance" for able-bodied indigents who
are ineligible for other welfare programs. The long-term financial impact of the
new CalWORKs system on local governments is still unknown.
ASSESSMENT BONDS. California Municipal Obligations which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
CALIFORNIA LONG TERM LEASE OBLIGATIONS. Based on a series of court
decisions, certain long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered
"indebtedness" requiring voter approval. Such leases, however, are subject to
"abatement" in the event the facility being leased is unavailable for beneficial
use and occupancy by the municipality during the term of the lease. Abatement is
not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (E.G., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due. Although
litigation is brought from time to time which challenges the constitutionality
of such lease arrangements, the California Supreme Court issued a ruling in
August, 1998 which reconfirmed the legality of these financing methods.
OTHER CONSIDERATIONS
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks related
to the policy of awarding exclusive contracts to certain hospitals.
Limitations on AD VALOREM property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (E.G., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
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Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not possible, at present, to predict the extent to which any such legislation
will be enacted. Nor is it possible, at present, to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Fund could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage
rates; (ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to appropriate
sufficient funds within their respective budget limitations.
SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL SECURITIES
NEW JERSEY MUNICIPAL SECURITIES. The financial condition of the State of
New Jersey, its public authorities (the "Authorities") and it local governments,
could affect the market values and marketability of, and therefore the net asset
value per share and the interest income of New Jersey Municipal Money Fund, or
result in the default of existing obligations, including obligations which may
be held by the Fund. The following section provides only a brief summary of the
complex factors affecting the financial situation in New Jersey and is based on
information obtained from New Jersey, certain of its Authorities and certain
other localities, as publicly available on the date of this Statement of
Additional Information. The information contained in such publicly available
documents has not been independently verified. It should be noted that the
creditworthiness of obligations issued by local issuers may be unrelated to the
creditworthiness of New Jersey, and that there is no obligation on the part of
New Jersey to make payment on such local obligations in the event of default in
the absence of a specific guarantee or pledge provided by New Jersey.
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ECONOMIC FACTORS. New Jersey is the ninth largest state in population and
the fifth smallest in land area. With an average of 1,077 people per square
mile, it is the most densely populated of all the states. The State's economic
base is diversified, consisting of a variety of manufacturing, construction and
service industries, supplemented by rural areas with selective commercial
agriculture. The extensive facilities of the Port Authority of New York and New
Jersey, the Delaware River Port Authority and the South Jersey Port Corporation
across the Delaware River from Philadelphia augment the air, land and water
transportation complex which has influenced much of the State's economy. The
State's central location in the northeastern corridor, the transportation and
port facilities and proximity to New York City make the State an attractive
location for corporate headquarters and international business offices.
According to the United States Bureau of the Census, the population of New
Jersey was 7,170,000 in 1970, 7,365,000 in 1980, 7,730,000 in 1990 and 7,988,000
in 1996. Historically, New Jersey's average per capita income has been well
above the national average, and in 1996 the State ranked second among the states
in per capita personal income ($31,053).
While New Jersey's economy continued to expand during the late 1980s, the
level of growth slowed considerably after 1987. By the beginning of the national
recession in July 1990 (according to the National Bureau of Economic Research),
construction activity had already been declining in New Jersey for nearly two
years, growth had tapered off markedly in the service sectors and the long-term
downward trend of factory employment had accelerated, partly because of a
leveling off of industrial demand nationally. The onset of recession caused an
acceleration of New Jersey's job losses in construction and manufacturing, as
well as an employment downturn in such previously growing sectors as wholesale
trade, retail trade, finance, utilities and trucking and warehousing. The net
effect was a decline in the State's total nonfarm wage and salary employment
from a peak of 3,689,800 in 1989 to a low of 3,457,900 in 1992. This loss has
been followed by an employment gain of 255,600 from May 1992 to June 1997, a
recovery of 97.5% of the jobs lost during the recession. In July 1991, S&P
lowered the State's general obligation bond rating from AAA to AA+.
Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6% during the first quarter of 1989 to a recessionary peak of 8.5%
during 1992. Since then, the unemployment rate fell to 6.2% during 1996 and 5.5%
for the six month period from January 1997 through June 1997.
For the recovery period as a whole, May 1992 to June 1997, service-producing
employment in New Jersey has expanded by 283,500 jobs. Hiring has been reported
by food stores, wholesale distributors, trucking and warehousing firms, security
and commodity brokers, business and engineering/management service firms,
hotels/hotel-casinos, social service agencies and health care providers other
than hospitals. Employment growth was particularly strong in business services
and its personnel supply component with increases of 17,300 and 7,500,
respectively, in the 12-month period ending June 1997.
In the manufacturing sector, employment losses slowed between 1992 and 1994.
After an average annual job loss of 33,500 from 1989 through 1992, New Jersey's
factory job losses fell to 13,300 during 1993 and 7,300 during 1994. During 1995
and 1996, however, manufacturing job losses increased slightly to 10,100 and
13,900 respectively, reflecting a slowdown in national manufacturing production
activity. While experiencing growth in the number of production workers in 1994,
the number declined in 1995 at the
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same time that managerial and office staff were also reduced as part of
nationwide downsizing. Through August 1996, layoffs of white collar workers and
corporate downsizing appear to be abating.
Conditions have slowly improved in the construction industry, where
employment has risen by 18,600 since its low in May 1992. Between 1992 and 1996,
this sector's hiring rebound was driven primarily by increased homebuilding and
nonresidential projects. During 1996 and the first five months of 1997, public
works projects and homebuilding became the growth segments while nonresidential
construction lessened but remained positive.
STATE FINANCES. The State operates on a fiscal year beginning July 1 and
ending June 30. For example, "Fiscal Year 1999" refers to the State's fiscal
year beginning July 1, 1998 and ending June 30, 1999.
The General Fund is the fund into which all State revenues not otherwise
restricted by statute are deposited and from which appropriations are made. The
largest part of the total financial operations of the State is accounted for in
the General Fund. Revenues received from taxes and unrestricted by statute, most
federal revenue and certain miscellaneous revenue items are recorded in the
General Fund. The appropriations act provides the basic framework for the
operation of the General Fund. Undesignated Fund Balances are available for
appropriation in succeeding fiscal years. There have been positive Undesignated
Fund Balances in the General Fund at the end of each year since the State
Constitution was adopted in 1947. The estimates for Fiscal Year 1998 and Fiscal
Year 1999 reflect the amounts contained in the Governor's Fiscal Year 1999
Budget Message delivered on February 10, 1998.
In Fiscal Years 1996 and 1997, the actual General Fund balances were $442.0
million and $280.5 million, respectively, and total Undesignated Fund Balances
were $882.2 million and $1,106.4 million. For Fiscal Years 1998 and 1999 General
Fund balances are estimated to be $268.7 million and $144.0 million,
respectively, and total Undesignated Fund Balances are estimated to be $1,021.3
million and $6750.0 million.
FISCAL YEARS 1998 AND 1999 STATE REVENUE ESTIMATES--SALES AND USE TAX. The
revised estimate forecasts Sales and Use tax collections for Fiscal Year 1998 as
$4,720.0 million, a 6.9% increase from the Fiscal Year 1997 revenue. The Fiscal
Year 1999 estimate of $4,928.0 million is a 4.4% increase from the Fiscal Year
1998 estimate.
GROSS INCOME TAX. The revised estimate forecasts Gross Income Tax
collections for Fiscal Year 1998 of $5,340.0 million, a 10.7% increase from
Fiscal year 1997 revenue. The Fiscal Year 1999 estimate of $5,860.0 million, is
a 9.7% increase from the Fiscal Year 1998 estimate. Included in the Fiscal Year
1998 estimate and the Fiscal Year 1999 estimate is the enactment of a property
tax deduction to be phased in over a three-year period, permitting a deduction
by resident taxpayers against gross income tax of a percentage of their property
taxes.
CORPORATION BUSINESS TAX. The revised estimate forecasts Corporation
Business Tax collection for Fiscal Year 1998 as $1,315.1 million, a 2.2%
decrease from Fiscal Year 1997 revenue. The Fiscal Year 1999 estimate of
$1,431.0 million, is an 8.8% increase from the Fiscal year 1998 estimate.
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GENERAL CONSIDERATIONS. Estimated receipts from State taxes and revenues,
including the three principal taxes set forth above, are forecasts based on the
best information available at the time of such forecasts. Changes in economic
activity in the State and the nation, consumption of durable goods, corporate
financial performance and other factors that are difficult to predict may result
in actual collections being more or less than forecasted.
Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised her plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent. Under the State Constitution, no general appropriations law or other law
appropriating money for any State purpose may be enacted if the amount of money
appropriated therein, together with all other prior appropriations made for the
same fiscal year, exceeds the total amount of revenue on hand and anticipated to
be available for such fiscal year, as certified by the Governor.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
The financial condition of the State of New York ("New York State" or the
"State"), its public authorities and public benefit corporations (the
"Authorities") and its local governments, particularly the City of New York (the
"City"), could affect the market values and marketability of, and therefore the
net asset value per share and the interest income of a Fund, or result in the
default of existing obligations, including obligations which may be held by the
Fund. The following section provides only a brief summary of the complex factors
affecting the financial situation in New York and is based on information
obtained from New York State, certain of its Authorities, the City and certain
other localities as publicly available on the date of this Annual Information
Statement. The information contained in such publicly available documents has
not been independently verified. It should be noted that the creditworthiness of
obligations issued by local issuers may be unrelated to the creditworthiness of
New York State, and that there is no obligation on the part of New York State to
make payment on such local obligations in the event of default in the absence of
a specific guarantee or pledge provided by New York State.
ECONOMIC FACTORS. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse, with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
Both the State and the City experienced substantial revenue increases in the
mid-1980s attributable directly (corporate income and financial corporations
taxes) and, indirectly (personal income and a variety of other taxes) to growth
in new jobs, rising profits and capital appreciation derived from the finance
sector of the City's economy. Economic activity in the City has experienced
periods of growth and recession and
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can be expected to experience periods of growth and recession in the future. In
recent years, the City has experienced increases in employment. Real per capita
personal income (i.e, per capita personal income adjusted for the effects of
inflation and the differential in living costs) has generally experienced fewer
fluctuations than employment in the City. Although the City periodically
experienced declines in real per capita personal income between 1969 and 1981,
real per capita personal income in the City has generally increased from the
mid-1980s until the present. In nearly all of the years between 1969 and 1988
the City experienced strong increases in retail sales. However, from 1989 to
1993, the City experienced a weak period of retail sales. Since 1994, the City
has returned to a period of growth in retail sales. Overall, the City's economic
improvement accelerated significantly, in fiscal year 1997. Much of the increase
can be traced to the performance of the securities industry, but the City's
economy also produced gains in the retail trade sector, the hotel and tourism
industry, and business services, with private sector employment higher than
previously forecasted. The City's current Financial Plan assumes that, after
strong growth in 1997-1998, moderate economic growth will exist through calendar
year 2002, with moderating job growth and wage increases. However, there can be
no assurance that the economic projections assumed in the Financial Plan will
occur or that the tax revenues projected in the Financial Plan to be received
will be received in the amounts anticipated.
During the calendar years 1984 through 1991, the State's rate of economic
expansion was somewhat slower than that of the nation as a whole. In the
1990-1991 national recession, the economy of the Northeast region in general and
the State in particular was more heavily damaged than that of the rest of the
nation and has been slower to recover.
Although the national economy began to expand in 1991, the State economy
remained in recession until 1993, when employment growth resumed. Currently the
State economy continues to expand, but growth remains somewhat slower than in
the nation. Although the State has added over 400,000 jobs since late 1992,
employment growth has been hindered during recent years by significant cutbacks
in the computer and instrument manufacturing, utility, defense and banking
industries. Government downsizing has also moderated these job gains. Personal
income increased substantially in 1992 and 1993. The State's economy entered
into the fourth year of a slow recovery in 1996. Most of the growth occurred in
the trade, construction and service industries, with business, social services
and health sectors accounting for most of the service industry growth.
The State has released information regarding the national and state economic
activity in its Annual Information Statement of the State of New York dated June
26, 1998 ("Annual Information Statement" and updated August 3, 1998 ("Update to
the Annual Information Statement"). At the State level, the Annual Information
Statement projects continued expansion during the 1998 calendar year, with
employment growth gradually slowing as the year progresses. The financial and
business service sectors are expected to continue to do well, while employment
in the manufacturing and government sectors will post only small, if any
declines. On an average annual basis, the employment growth rate in the State is
expected to be higher than in 1997 and the unemployment rate is expected to drop
further to 6.1 percent. Personal income is expected to record moderate gains in
1998. Wage growth in 1998 is expected to be slower than in the previous year as
the recent robust growth in bonus payments moderates.
Personal income tax collections for 1998-99 are projected to reach $21.41
billion, or $3.67 billion above the reported 1997-98 collection total. Total
business tax collections in 1998-99 are now projected to be $4.95 billion, $100
million less than received in the prior fiscal year. Receipts from user taxes
and fees
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are projected to total $7.14 billion, an increase of $107 million from reported
collections in the prior year. Other tax receipts are projected to total $1.02
billion--$75 million below last year's amount. Total miscellaneous receipts are
projected to reach $1.40 billion, down almost $200 million from the prior year.
Transfers from other funds are expected to total $1.8 billion, or $222 million
less than total receipts from this category during 1997-98.
General Fund disbursements in 1998-99, including transfers to support
capital projects, debt service and other funds are estimated at $36.78 billion.
This represents an increase of $2.43 billion or 7.1 percent from 1997-98. Nearly
one-half of the growth is for educational purposes, reflecting increased support
for public schools, special education programs and the State and City university
systems. The remaining increase is primarily for Medicaid, mental hygiene, and
other health and social welfare programs, including children and family
services. The 1998-99 Financial Plan also includes funds for the current
negotiated salary increases for State employees, as well as increased transfers
for debt service. Grants to local governments is the largest category of General
Fund disbursements and includes financial assistance to local governments and
not-for-profit corporations, as well as entitlement benefits to individuals. The
1998-99 Financial Plan projects spending of $25.14 billion in this category, an
increase of $1.88 billion or 8.1 percent over the prior year. The largest annual
increases are for educational programs, Medicaid, other health and social
welfare programs, and community projects grants. The 1998-99 budget provides
$9.65 billion in support of public schools. The year-to-year increase of $769
million is comprised of partial funding for a 1998-99 school year increase of
$847 million as well as the remainder of the 1997-98 school year increase that
occurs in State fiscal year 1998-99. Spending for all other educational
programs, which includes the State and City university systems, the Tuition
Assistance Program, and handicapped programs, is estimated at $3.00 billion, an
increase of $270 million over 1997-98 levels. Medicaid costs are estimated at
$5.60 billion, an increase of $144 million from the prior year.
The 1998-99 Financial Plan projects a closing fund balance in the General
Fund of $1.67 billion. This fund balance is composed of a reserve of $1.01
billion available for future needs, a $400 million balance in the Tax
Stabilization Reserve Fund ("TSRF"), a $158 million in the Community Projects
Fund ("CPF"), and a balance of $100 million in the Contingency Reserve Fund
("CRF") after a projected deposit of $32 million in 1998-99.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. These factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State and its agencies and instrumentalities,
but also by entities, such as the federal government, that are not under the
control of the State. Because of the uncertainty and unpredictability of these
factors, their impact cannot, as a practical matter, be included in the
assumptions underlying the State's projections at this time. As a result, there
can be no assurance that the State economy will not experience results in the
current fiscal year that are worse than predicted, with corresponding material
and adverse effects on the State's projections of receipts and disbursements.
The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, the condition of the financial sector,
federal fiscal and monetary policies, the level of interest
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rates, and the condition of the world economy, which could have an adverse
effect on the State's projections of receipts and disbursements.
THE STATE. Owing to the factors mentioned above and other factors, the State
may, in future years, face substantial potential budget gaps resulting from a
significant disparity between tax revenues projected from a lower recurring
receipts base and the future costs of maintaining State programs at current
levels.
Total General Fund receipts in 1998-99 are projected to be $37.81 billion,
an increase of $3.26 billion from the $34.55 billion recorded in 1997-98. This
total included $34.36 billion in tax receipts, $1.40 billion in miscellaneous
receipts, and $1.80 billion in transfers from other funds. However, many complex
political, social and economic forces influence the State's economy and
finances, which may in turn affect the State's Financial Plan. These forces may
affect the State unpredictably from fiscal year to fiscal year and are
influenced by governments, institutions, and organizations that are not subject
to the State's control. The State Financial Plan is also necessarily based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections.
An additional risk to the State Financial Plan arises from the potential
impact of certain litigation and of federal disallowances now pending against
the State, which could adversely affect the State's projections of receipts and
disbursements. The State Financial Plan assumes no significant litigation or
federal disallowance or other federal actions that could affect State finances,
but has significant reserves in the event of such an action.
REVENUE BASE. The State's principal revenue sources are economically
sensitive, and include the personal income tax, user taxes and fees and business
taxes. The 1998-99 Financial Plan projects General Fund receipts (including
transfers from other funds) of $37.56 billion, an increase of over 3 billion
from the $34.55 billion recorded in 1997-98. This total includes $34.36 billion
in tax receipts, $1.40 billion in miscellaneous receipts, and $1.80 billion in
transfers from other funds.
The transfer of a portion of the surplus recorded in 1997-98 to 1998-99
exaggerates the "real" growth in State receipts from year to year by depressing
reported 1997-98 figures and inflating 1998-99 projections. Conversely, the
incremental cost of tax reductions newly effective in 1998-99 and the impact of
statutes earmarking certain tax receipts to other funds work to depress apparent
growth below the underlying growth in receipts attributable to expansion of the
State's economy. On an adjusted basis, State tax revenues in the 1998-99 fiscal
year are projected to grow at approximately 7.5 percent, following an adjusted
growth of roughly nine percent in the 1997-98 fiscal year. On an adjusted basis,
State tax revenues in the 1998-99 fiscal year are projected to grow at
approximately 7.5 percent, following an adjusted growth of roughly nine percent
in the 1997-98 fiscal year.
The PERSONAL INCOME TAX is imposed on the income of individuals, estates and
trusts and is based on federal definitions of income and deductions with certain
modifications. This tax continues to account for over half of the State's
General Fund receipts base. Net personal income tax collections are projected to
reach $21.41 billion, nearly $3.67 billion above the reported 1997-98 collection
total. Since 1997 represented the completion of the 20 percent income tax
reduction program enacted in 1995, growth from 1997 to 1998 will be unaffected
by major income tax reductions. Adding to the projected annual growth is
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the net impact of the transfer of the surplus from 1997-98 to the current year
which affects reported collections by over $2.4 billion on a year-over-year
basis, as partially offset by the diversion of slightly over $700 million in
income tax receipts to the STAR fund to finance the initial year of the school
tax reduction program. The STAR program was enacted in 1997 to increase the
State share of school funding and reduce residential school taxes. Adjusted for
these transactions, the growth in net income tax receipts is roughly $1.7
billion, an increase of over 9 percent. This growth is largely a function of
over 8 percent growth in income tax liability projected for 1998 as well as the
impact of the 1997 tax year settlement on 1998-99 net collections.
USER TAXES AND FEES comprised of three quarters of the State four percent
sales and use tax (the balance, one percent, flows to support Government
Assistance Corporation ("LGAC") debt service requirements), cigarette, alcoholic
beverage container, and auto rental taxes, and a portion of the motor fuel
excise levies. Also included in this category are receipts from the motor
vehicle registration fees and alcoholic beverage license fees. A portion of the
motor fuel tax and motor vehicle registration fees and all of the highway use
tax are earmarked for dedicated transportation funds.
Receipts from user taxes and fees receipts are projected to total $7.14
billion, an increase of $107 million from reported collections in the prior
year. The sales tax component of this category accounts for all of the 1998-99
growth, as receipts from all other sources decline $100 million. The growth in
yield of the sales tax in 1998-99, after adjusting for tax law and other
changes, is projected at 4.7 percent. The yields of most of the excise taxes in
this category show a long-term declining trend, particularly cigarette and
alcoholic beverage taxes. These General Fund declines are exacerbated in 1998-99
by revenue losses from scheduled and newly enacted tax reductions, and by an
increase in earmarking of motor vehicle registration fees to the Dedicated
Highway and Bridge Trust Fund.
BUSINESS TAXES include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as gross receipt
taxes on utilities and galling-based petroleum business taxes. Beginning in
1994, a 15 percent surcharge on these levies began to be phased out and, for
most taxpayers, there is no surcharge liability for taxable periods ending in
1997 and thereafter.
Total business tax collections in 1998-99 are now projected to be $4.95
billion, $100 million less than received in the prior fiscal year. The category
includes receipts from the largely income-based levies on general business
corporations, banks and insurance companies, gross receipts taxes on energy and
telecommunication service providers and a per-gallon imposition on petroleum
business. The year-over-year decline in projected receipts in this category is
largely attributable to statutory changes between the two years. These include
the first year of utility-tax rate cuts and the Power for Jobs tax reduction
program for energy providers, and the scheduled additional diversion of General
Fund petroleum business and utility tax receipts to other funds. In addition,
profit growth is also expected to slow in 1998.
OTHER TAXES include estate, gift and real estate transfer taxes, a tax on
gains from the sale or transfer of certain real estate (this tax was repealed in
1996), a pari-mutuel tax and other minor levies. They are now projected to total
$1.02 billion--$75 million below last year's amount. Two factors account for a
significant part of the expected decline in collections from this category.
First, the effects of the elimination of the real property gains tax
collections; second, a decline in estate tax receipts, following the explosive
growth recorded in 1997-98, when receipts expanded by over 16 percent.
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MISCELLANEOUS RECEIPTS include investment income, abandoned property
receipts, medical provider assessments, minor federal grants, receipts from
public authorities, and certain other license and fee revenues. Total
miscellaneous receipts are projected to reach $1.40 billion, down almost $200
million from the prior year, reflecting the loss of non-recurring receipts in
1997-98 and the growing effects of the phase-out of the medical provider
assessments.
TRANSFERS FROM OTHER FUNDS to the General Fund consist primarily of tax
revenues in excess of debt service requirements, particularly the one percent
sales tax used to support payments to LGAC. Transfers from other funds are
expected to total $1.8 billion, or $222 million less than total receipts from
this category during 1997-98. Total transfers of sales taxes in excess of LGAC
debt service requirements are expected to increase by approximately $51 million,
while transfers from all other funds are expected to fall by $273 million,
primarily reflecting the absence, in 1998-99, of a one-time transfer of nearly
$200 million for retroactive reimbursement of certain social services claims
from the federal government.
STATE DEBT. General Fund disbursements in 1998-99, including transfers to
support capital projects, debt service and other funds are estimated at $36.78
billion. This represents an increase of $2.43 billion or 7.1 percent from
1997-98. Nearly one-half of the growth is for educational purposes, reflecting
increased support for public schools, special education programs and the State
and City university systems. The remaining increase is primarily for Medicaid,
mental hygiene and other health and social welfare programs, including children
and family services. The 1998-99 Financial Plan also includes funds for the
current negotiated salary increase for State employees, as well as increased
transfers for debt service.
NONRECURRING SOURCES. The Division of the Budget estimates that the 1998-99
State Financial Plan contains actions that provide nonrecurring resources of
savings totaling approximately $64 million, the largest of which is a
retroactive reimbursement of federal welfare claims.
OUTYEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS. State law requires the
Governor to propose a balanced budget each year. In recent years, the State has
closed projected budget gaps of $5.0 billion (1995-96), $3.9 billion (1996-97),
$2.3 billion (1997-98), and less than $1 billion (1998-99). The State, as part
of the 1998-99 Executive Budget projections submitted to the Legislature in
February 1998, projected a 1999-00 General Fund budget gap of approximately $1.7
billion and a 2000-01 gap of $3.7 billion. As a result of changes made in the
1998-99 enacted budget, the 1999-00 gap is now expected to be roughly $1.3
billion, or about $400 million less than previously projected, after application
of reserves created as part of the 1998-99 budget process. Such reserves would
not be available against subsequent year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1999-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
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The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The STAR program, which dedicates a portion of
personal income tax receipts to fund school tax reductions, has a significant
impact on General Fund receipts. STAR is projected to reduce personal income tax
revenues available to the General Fund by an estimated $1.3 billion in 2000-01.
Measured from the 1998-99 base, scheduled reductions to estate and gift, sales
and other taxes, reflecting tax cuts enacted in 1997-98 and 1998-99, will lower
General Fund taxes and fees by an estimated $1.8 billion in 2000-01.
Disbursement projections for the outyears currently assume additional outlaws
for school aid, Medicaid, welfare reform, mental health community reinvestment,
and other multi-year spending commitments in law.
LABOR COSTS. The State government workforce is mostly unionized, subject to
the Taylor-Law which authorizes collective bargaining and prohibits (but has
not, historically, prevented) strikes and work slowdowns. Costs for employee
health benefits have increased substantially, and can be expected to further
increase. The State has a substantial unfunded liability for future pension
benefits, and has utilized changes in its pension fund investment return
assumptions to reduce current contribution requirements. If such investment
earnings assumptions are not sustained by actual results, additional State
contributions will be required in future years to meet the State's contractual
obligations. The State's change in actuarial method from the aggregate cost
method to a modified projected unit credit in FY1990-91 created a substantial
surplus that was amortized and applied to offset the State's contribution
through FY1993-94. This change in actuarial method was ruled unconstitutional by
the State's highest court and the State returned to the aggregate cost method in
FY1994-95 using a four year phase in. Employer contributions, including the
State's, are expected to increase over the next five to ten years. Since January
1995, the State's workforce has been reduced by about 10 percent, and is
projected to remain at its current level of approximately 191,000 persons in
1998-99 year. The State is currently preparing for negotiations with various
unions to establish new agreements since most of the existing contracts will
expire on March 31, 1999.
On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. This federal
legislation fundamentally changed the programmatic and fiscal responsibilities
for administration of welfare programs at the federal, state and local levels.
The law abolished the federal Aid to Families with Dependent Children program
(AFDC), and created a new Temporary Assistance to Needy Families with Dependent
Children program (TANF) funded with a fixed federal block grant to states. The
law also imposed (with certain exceptions) a five era durational limit on TANF
recipients, required that virtually all recipients be engaged in work or
community service activities within two years of receipt benefits, and limited
assistance provided to certain immigrants and other classes of individuals.
States are required to meet work activity participation targets for their TANF
caseload; these requirements are phased in over time. States that fail to meet
these federally mandated job participation rates, or that fail to conform with
certain other federal standards, face potential sanctions in the form of a
reduced federal block grant.
Proposed legislation that includes both provisions necessary to implement
the State's TANF plan to conform with federal law and implement the Governor's
welfare reform proposal is still pending before the Legislature. There can be no
assurances of timely enactment of certain conforming provisions required
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under the federal law. Further delay increases the risk that the States could
incur fiscal penalties for failure to comply with federal law.
MEDICAID. New York participates in the federal Medicaid program under a
state plan approved by the Health Care Financing Administration. The federal
government provides a substantial portion of eligible program costs, with the
remainder shared by the State and its counties (including the City). Basic
program eligibility and benefits are determined by federal guidelines, but the
State provides a number of optional benefits and expanded eligibility. Program
costs have increased substantially in recent years, and account for a rising
share of the State budget. Federal law requires that the State adopt
reimbursement rates for hospitals and nursing homes that are reasonable and
adequate to meet the costs that must be incurred by efficiently and economically
operated facilities in providing patient care, a standard that has led to past
litigation by hospitals and nursing homes seeking higher reimbursement from the
State. General Fund payments for Medicaid are projected to be $5.60 billion, an
increase of $144 million from the prior year. After adjusting 1997-98 for the
$116 million prepayment of an additional Medicaid cycle, Medicaid spending is
projected to increase $260 million of 4.9 percent. Disbursements for all other
health and social welfare programs are projected to total $3.63 billion, an
increase of $131 million from 1997-98. This includes an increase in support for
children and families and local public health programs, offset by a decline in
welfare spending of $75 million that reflects continuing State and local efforts
to reduce welfare fraud, declining caseloads, and the impact of State and
federal welfare reform legislation.
YEAR 2000 COMPLIANCE. New York State is currently addressing "Year 2000"
data processing compliance issues. The Year 2000 compliance issues ("Y2K")
arises because most computer software programs allocate two digits to the data
field for "year" on the assumption that the first two digits will be "19". Such
programs will thus interpret the year 2000 as the year 1900 absent
reprogramming. Y2K could impact both the ability to enter data into computer
programs and the ability of such programs to correctly process data.
In 1996, the State created the Office for Technology (OFT) to help address
statewide technology issues, including the Year 2000 issue. OFT has estimated
that investments of at least $140 million will be required to bring
approximately 350 State mission-critical and high-priority computer systems not
otherwise scheduled for replacement into Year 2000 compliance, and the State is
planning to spend $100 million in the 1998-99 fiscal year for this purpose.
Mission-critical computer applications are those which impact the health, safety
and welfare of the State and its citizens, and for which failure to be in Y2K
compliance could have a material and adverse impact upon State operations.
High-priority computer applications are those that are critical for a State
agency to fulfill its mission and deliver services, but for which there are
manual alternatives. Work has been completed on roughly 20 percent of these
systems. All remaining unfinished mission-critical and high-priority systems
have at least 40 percent or more of the work completed. Contingency planning is
underway for those systems which may be non-compliant prior to failure dates.
The enacted budget also continues funding for major systems scheduled for
replacement, including the State payroll, civil service, tax and finance and
welfare management systems, for which Year 2000 compliance is included as a part
of the project.
OFT is monitoring compliance on a quarterly basis and is providing
assistance and assigning resources to accelerate compliance for mission critical
systems, with most compliance testing expected to be completed by mid-1999.
There can be no guarantee, however, that all of the State's mission-critical and
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<PAGE>
high-priority computer systems will be Year 2000 compliant and that there will
not be an adverse impact upon State operations or State finances as a result.
THE STATE AUTHORITIES. The fiscal stability of the State is related in part
to the fiscal stability of its public authorities. Public authorities are not
subject to the constitutional restrictions on the incurrence of debt which apply
to the State itself and may issue bonds and notes within the amounts and
restrictions set forth in legislative authorization. The State's access to the
public credit markets could be impaired and the market price of its outstanding
debt may be materially and adversely affected if any of its public authorities
were to default on their respective obligations, particularly those using the
financing techniques referred to as State-supported or State-related debt.
The State has numerous public authorities with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, charges for public
power, electric and gas utility services, rentals charged for housing units, and
charges for occupancy at medical care facilities. In addition, State legislation
authorizes several financing techniques for public authorities. Also there are
statutory arrangements providing for State local assistance payments otherwise
payable to localities to be made under certain circumstances to public
authorities. Although the State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
public authorities under these arrangements, the affected localities may seek
additional State assistance if local assistance payments are diverted. Some
authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs. The MTA receives the bulk of this
money in order to provide transit and commuter services.
Beginning in 1998, the Long Island Power Authority (LIPA) assumed
responsibility for the provision of electric utility services previously
provided by Long Island Lighting Company for Nassau, Suffolk and a portion of
Queen Counties, as part of an estimated $7 billion financing plan.
METROPOLITAN TRANSPORTATION AUTHORITY. Since 1980, the State has enacted
several taxes including a surcharge on the profits of banks, insurance
corporations and general business corporations doing business in the 12 county
Metropolitan Transportation Region served by the MTA and a special one quarter
of 1 percent regional sales and use tax that provide revenues for mass transit
purposes, including assistance to the MTA. Since 1987 State law has required
that the proceeds of a one-quarter of 1 percent mortgage recording tax paid on
certain mortgages in the Metropolitan Transportation Region be deposited in a
special MTA fund for operating or capital expenses. In 1993, the State dedicated
a portion of certain additional State petroleum business tax receipts to fund
operating or capital assistance to the MTA. For the 1998-99 fiscal year, State
assistance to the MTA is projected to total approximately $1.3 billion, an
increase of $133 million over the 1997-98 fiscal year.
State legislation accompanying the 1996-97 adopted State budget authorized
the MTA, Triborough Bridge and Tunnel Authority and Transit Authority to issue
an aggregate of $6.5 billion in bonds to finance a portion of the $12.17 billion
MTA capital plan for the 1995 through 1999 calendar years (the "1995-99 Capital
Program"). In July 1997, the Capital Program Review Board (CPRB) approved the
1995-99 Capital Program (subsequently amended in August 1997), which supersedes
the overlapping portion of the MTA's 1992-96 Capital Program. The 1995-99
Capital Program is the fourth capital plan since the
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<PAGE>
Legislature authorized procedures for the adoption, approval and amendment of
MTA capital programs and is designed to upgrade the performance of the MTA's
transportation systems by investing in new rolling stock, maintaining
replacement schedules for existing assets and bringing the MTA system into a
state of good repair. The 1995-99 Capital Program assumes the issuance of an
estimated $5.2 billion in bonds under this $6.5 billion aggregate bonding
authority. The remainder of the plan is projected to financed through assistance
from the State, the federal government, and the City of New York, and from
various other revenues generated from actions taken the MTA.
There can be no assurance that all the necessary governmental actions for
the 1995-99 Capital Program or future capital programs will be taken, that
funding sources currently identified will not be decreased or eliminated, or
that the 1995-99 Capital Program, or parts thereof, will not be delayed or
reduced. Should funding levels fall below current projections, the MTA would
have to revise its 1995-99 Capital Program accordingly. If the 1995-99 Capital
Program is delayed or reduced, ridership and fare revenues may decline, which
could, among other things, impair the MTA's ability to meet its operating
expenses without additional assistance.
THE CITY. The fiscal health of the State may also be affected by the fiscal
health of New York City (City), which continues to receive significant financial
assistance from the State. State aid contributes to the City's ability to
balance its budget and meet its cash requirements. The State may also be
affected by the ability of the City and certain entities issuing debt for the
benefit of the City to market their securities successfully in the public credit
markets.
The City has achieved balanced operating results for each of its fiscal
years since 1981 as measured by the GAAP standards in force at that time.
However, in the early 1970s, the City incurred substantial operating deficits,
and its financial controls, accounting practices and disclosure policies were
widely criticized. In response to the City's fiscal crisis in 1975, the State
took action to assist the City in returning to fiscal stability. Among these
actions, the State established the Municipal Assistance Corporation For The City
of New York ("MAC") to provide financing assistance for the City; the New York
State Financial Control Board (the Control Board) to oversee the City's
financial affairs, and the Office of the State Deputy Comptroller for the City
of New York (OSDC) to assist the Control Board in exercising its powers and
responsibilities. A "control period" existed from 1975 to 1986, during which the
City was subject to certain statutorily-prescribed fiscal controls. The Control
Board terminated the control period in 1986 when certain statutory conditions
were met. State law requires the Control Board to reimpose a control period upon
the occurrence, or "substantial likelihood and imminence" of the occurrence, of
certain events, including (but not limited to) a City operating budget deficit
of more than $100 million or impaired access to the public credit markets.
The City provides services usually undertaken by counties, school districts
or special districts in other large urban areas, including the provision of
social services such as day care, foster care, health care, family planning,
services for the elderly and special employment services for needy individuals
and families who qualify for such assistance. State law requires the City to
allocate a large portion of its total budget to Board of Education operations,
and mandates that the City assume the local share of public assistance and
Medicaid costs. For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable generally accepted accounting principles ("GAAP"). The City was
required to close substantial budget gaps in recent years in order to maintain
balanced operating results. There can be no assurance that the City will
continue to maintain a balanced budget as
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<PAGE>
required by State law without additional tax or other revenue increases or
additional reductions in City services or entitlement programs, which could
adversely affect the City's economic base.
Pursuant to the New York State Financial Emergency Act for The City of New
York (the "Financial Emergency Act" or the "Act"), the City prepares a four year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and outlines
proposed gap closing programs for years with projected budget gaps. The City's
projections set forth in the 1999-2002 Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumption could significantly affect the City's ability to
balance its budget and to meet its annual cash flow and financing requirements.
Such assumptions and contingencies include the timing and pace of a regional and
local economic recovery, increases in tax revenues, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives which may require in certain cases the cooperation of the
City's municipal unions, the ability of New York City Health and Hospitals
Corporation and the Board of Education to take actions to offset reduced
revenues, the ability to complete revenue generating transactions, provision of
State and federal aid and mandate relief, and the impact on City revenues of
proposals for federal and State welfare reform. No assurance can be given that
the assumptions used by the City in the 1999-2002 Financial Plan will be
realized. Due to the uncertainty existing on the federal and state levels, the
ultimate adoption of the State budget for FY 1997-98 may result in substantial
reductions in projected expenditures for social spending programs. Cost
containment assumptions contained in the 1997-2000 Financial Plan and the City
FY 1997-98 Budget may therefore be significantly adversely affected upon the
final adoption of the State budget for FY 1997-98. Furthermore, actions taken in
recent fiscal years to avert deficits may have reduced the City's flexibility in
responding to future budgetary imbalances, and have deferred certain
expenditures to later fiscal year.
The 1999-2002 Financial Plan projects revenues and expenditures for the 1999
fiscal year balanced in accordance with GAAP, and projects gaps of $1.5 billion,
$2.1 billion and $1.6 billion for the 2000, 2001 and 2002 fiscal years,
respectively.
On April 24, 1998 the City released the Financial Plan for the 1999 through
2002 fiscal years, which relates to the City and certain entities which receive
funds from the City, and which is based on the Executive Budget and Budget
Message for the City's 1999 fiscal year (the "Executive Budget"). The Executive
Budget and Financial Plan project revenues and expenditures for the 1999 fiscal
year balanced in accordance with GAAP, and project gaps of $1.5 billion, $2.1
billion and $1.6 billion for the 2000, 2001 and 2002 fiscal years, respectively.
Changes since the June Financial Plan include: (i) an increase in projected
tax revenues of $1.3 billion, $1.1 billion, $955 million, $897 million and $1.7
billion in the 1998 through 2002 fiscal years, respectively; (ii) a reduction in
assumed State aid of $283 million in the 1998 fiscal year and of between $134
million and $142 million in each of the 1999 through 2002 fiscal years,
reflecting the adopted budget for the State's 1998 fiscal year; (iii) a delay in
the assumed collection of $350 million of projected rent payments for the City's
airports in the 1999 fiscal year to fiscal years 2000 through 2002; (iv) a
reduction in projected debt service expenditures totaling $197 million, $361
million, $204 million and $226 million in the 1998 through 2001 fiscal years,
respectively; (v) an increase in the Board of Education (the "BOE") spending of
$266 million, $26 million, $58 million and $193 million in the 1999 through 2002
fiscal years, respectively; (vi) an increase in expenditures for the City's
proposed drug initiatives totaling $68 million in the 1998
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<PAGE>
fiscal year and of between $167 million and $193 million in each of the 1999
through 2002 fiscal years; (vii) other agency net spending initiatives totaling
$112 million, $443 million, $281 million, $273 million and $677 million in
fiscal years 1998 through 2002, respectively; and (viii) reduced pension costs
of $116 million, $168 million and $404 million in fiscal years 2000 through
2002, respectively. The Financial Plan also sets forth gap closing actions for
the 1998 through 2002 fiscal years, which include: (i) additional agency actions
totaling $176 million, $595 million, $516 million, $494 million and $552 million
in fiscal years 1998 through 2002, respectively, and (ii) assumed additional
Federal and State aid of $100 million in each of fiscal years 1999 through 2002.
The 1998 Modification and the 1999-2002 Financial Plan include a proposed
discretionary transfer in the 1998 fiscal year of approximately $2.0 billion to
pay debt service due in the 1999 fiscal year, and a proposed discretionary
transfer in the 1999 fiscal year of $416 million to pay debt service due in
fiscal year 2000, included in the Budget Stabilization Plan for the 1998 and
1999 fiscal years, respectively. In addition, the Financial Plan reflects
proposed tax reduction programs totaling $237 million, $537 million, $657
million and $666 million in fiscal years 1999 through 2002, respectively,
including the elimination of the City sales tax on all clothing as of December
1, 1999, a City funded acceleration of the State funded personal income tax
reduction for the 1999 through 2001 fiscal years, the extension of current tax
reductions for owners of cooperative and condominium apartments starting in
fiscal year 2000 and a personal income tax credit for child care and for
residential holders of Subchapter S corporations, which are subject to State
legislative approval, and reduction of the commercial rent tax commencing in
fiscal year 2000.
Although the City has maintained balanced budgets in each of its last
sixteen fiscal years and is projected to achieve balanced operating results for
the 1998 fiscal year, there can be no assurance that the gap closing actions
proposed in the Financial Plan can be successfully implemented or that the City
will maintain a balanced budget in future years without additional State aid,
revenue increases or expenditure reductions. Additional tax increases and
reductions in essential City services could adversely affect the City's economic
base.
The City derives its revenues from a variety of local taxes, user charges
and miscellaneous revenues, as well as from Federal and State unrestricted and
categorical grants. State aid as a percentage of the City's revenues has
remained relatively constant over the period from 1980 to 1997, while
unrestricted Federal aid has been sharply reduced. The City projects that local
revenues will provide approximately 66.9% of total revenues in the 1998 fiscal
year while Federal aid, including categorical grants, will provide 13.2%, and
State aid, including unrestricted aid and categorical grants, will provide
19.7%.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short term obligations within their fiscal
year of issuance. The City has issued $1.075 billion of short term obligations
in fiscal year 1998 to finance the City's projected cash flow needs for the 1998
fiscal year. The City issued $2.4 billion of short term obligations in fiscal
year 1997. Seasonal financing requirements for the 1996 fiscal year increased to
$2.4 billion from $2.2 billion and $1.75 billion in the 1995 and 1994 fiscal
years, respectively. The delay in the adoption of the State's budget in certain
past fiscal years has required the city to issue short term notes in amounts
exceeding those expected early in such fiscal years.
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<PAGE>
The City makes substantial capital expenditures to reconstruct and
rehabilitate the city's infrastructure and physical assets, including City mass
transit facilities, sewers, streets, bridges and tunnels, and to make capital
investments that will improve productivity in City operations.
The City utilizes a three tiered capital planning process consisting of the
Ten Year Capital Strategy, the Four Year Capital Plan and the current year
Capital Budget. The Ten Year Capital Strategy is a long term planning tool
designed to reflect fundamental allocation choices and basic policy objectives.
The Four Year Capital Program translates mid-range policy goals into specific
projects. The Capital Budget defines specific projects and the timing of their
initiation, design, construction and completion.
This City's projection of its capital financing need pursuant to the Mayor's
Declaration of Need and Proposed Transitional Capital Plan of June 30, 1997
indicates additional projected debt and contract liabilities of approximately $3
billion for fiscal year 1998. To provide for the City's capital program, State
legislation was enacted which created the Finance Authority, the debt of which
is not subject to the general debt limit. Without the Finance Authority or other
legislative relief, new contractual commitments for the City's general
obligation financed capital program would have been virtually brought to a halt
during the Financial Plan period beginning early in the 1998 fiscal year. By
utilizing projected Finance Authority borrowing and including the Finance
Authority's projected borrowing as part of the total debt incurring power set
forth in the following table, the City's total debt incurring power has been
increased. Even with the increase, the City may reach the limit of its capacity
to enter into new contractual commitments in fiscal year 2000.
OTHER LOCALITIES. Certain localities outside New York City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The cities of Yonkers and Troy
continue to operate under State-ordered control agencies. The potential impact
on the State of any future requests by localities for additional oversight or
financial assistance is not included in the projections of the State's receipts
and disbursements for the State's 1998-99 fiscal year.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and twenty-eight municipalities received more than $32
million in targeted unrestricted aid in the 1997-98 budget. Both of these
emergency aid packages were largely continued through the 1998-99 budget. The
State also dispersed an additional $21 million among all cities, towns and
villages after enacting a 3.9 percent increase in General Purpose State Aid in
1997-98 and continued this increase in 1998-99.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short term
and long term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that
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such deficit financing is outstanding. Twenty-one localities had outstanding
indebtedness for deficit financing at the close of their fiscal year ending in
1996.
INVESTMENT LIMITATIONS
FUNDAMENTAL LIMITATIONS. The following investment limitations cannot be
changed with respect to a Fund without the affirmative vote of the lesser of (1)
more than 50% of the outstanding shares of the Fund or (2) 67% or more of the
shares present at a shareholders' meeting if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy. If a percentage
restriction is adhered to at the time of an investment or transaction, a later
increase or decrease in percentage resulting from changing values of portfolio
securities or amount of total assets will not be considered a violation of any
of the following limitations.
Each Fund will not:
(1) purchase any security if, as a result of that purchase, 25% or more
of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry,
except that this limitation does not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities
or to municipal securities or to certificates of deposit and bankers'
acceptances of domestic branches of U.S. banks.
The following interpretations apply to, but are not a part of, this
fundamental limitation (a): With respect to this limitation, 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.
(2) issue senior securities or borrow money, except as permitted under
the Investment Company Act of 1940 ("1940 Act") and then not in
excess of 33 1/3% of the Fund's total assets (including the amount of
the senior securities issued but reduced by any liabilities not
constituting senior securities) at the time of the issuance or
borrowing, except that the Fund may borrow up to an additional 5% of
its total assets (not including the amount borrowed) for temporary or
emergency purposes.
(3) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures, other debt
securities or instruments or participations or other interests
therein and investments in government obligations, commercial paper,
certificates of deposit, bankers' acceptances or similar instruments
will not be considered the making of a loan.
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.
(4) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter
under the federal securities laws in connection with its disposition
of portfolio securities.
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<PAGE>
(5) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject to
this limitation, and except that the Fund may exercise rights under
agreements relating to such securities, including the right to
enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an
orderly manner.
(6) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts
or derivative instruments.
Money Market Portfolio, U.S. Government Portfolio and Tax-Free Fund will
not:
(7) purchase securities of any one issuer if, as a result, more than 5%
of the Fund's total assets would be invested in securities of that
issuer or the Fund would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Fund's
total assets may be invested without regard to this limitation, and
except that this limitation does not apply to securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities
or to securities issued by other investment companies.
With respect to Money Market Portfolio and U.S. Government Portfolio, the
following interpretation applies to, but is not a part of, fundamental
limitation (7): Mortgage- and asset-backed securities will not be considered to
have been issued by the same issuer by reason of the securities having the same
sponsor, and mortgage- and asset-backed securities issued by a finance or other
special purpose subsidiary that are not guaranteed by the parent company will be
considered to be issued by a separate issuer from the parent company.
With respect to Tax-Free Fund, the following interpretation applies to, but
is not a part of, fundamental limitation (7): Each state, territory and
possession of the United States (including the District of Columbia and Puerto
Rico), each political subdivision, agency, instrumentality and authority
thereof, and each multi-state agency of which a state is a member is a separate
"issuer." When the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from the government creating the
subdivision and the security is backed only by the assets and revenues of the
subdivision, such subdivision would be deemed to be the sole issuer. Similarly,
in the case of an IDB or PAB, if that bond is backed only by the assets and
revenues of the non-governmental user, then that non-governmental user would be
deemed to be the sole issuer. However, if the creating government or another
entity guarantees a security, then to the extent that the value of all
securities issued or guaranteed by that government or entity and owned by the
Fund exceeds 10% of the Fund's total assets, the guarantee would be considered a
separate security and would be treated as issued by that government or entity.
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<PAGE>
NON-FUNDAMENTAL INVESTMENT LIMITATIONS. The following investment
restrictions are not fundamental and may be changed by each board without
shareholder approval.
Each 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.
(5) invest more than 10% of its net assets in illiquid securities.
DIRECTORS/TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The directors and trustees (each also referred to as "board members") and
executive officers of the Corporations and the Trusts, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ------------------------------------ --------------------- ------------------------------------------------------
<S> <C> <C>
Margo N. Alexander**; 51 Director/Trustee and Mrs. Alexander is president, chief executive officer
President 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
companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Richard Q. Armstrong; 63 Director/Trustee Mr. Armstrong is chairman and principal of RQA
78 West Brother Drive Enterprises (management consulting firm) (since
Greenwich, CT 06830 April 1991 and principal occupation since March
1995). 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
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ------------------------------------ --------------------- ------------------------------------------------------
<S> <C> <C>
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.**; 71 Director/Trustee and Mr. Bewkes is a director of Paine Webber Group Inc.
Chairman of the ("PW Group") (holding company of PaineWebber and
Boards of Mitchell Hutchins). Prior to December 1995, he was a
Directors/Trustees 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/Trustee Mr. Burt is chairman of IEP Advisors, Inc.
1275 Pennsylvania Avenue, N.W. (international investments and consulting firm)
Washington, D.C. 20004 (since March 1994) and 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 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/Trustee Ms. Farrell is a managing director, senior investment
strategist, and member of the Investment Policy
Committee of PaineWebber. Ms. Farrell joined
PaineWebber in 1982. She is
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ------------------------------------ --------------------- ------------------------------------------------------
<S> <C> <C>
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/Trustee Mr. Feldberg is Dean and Professor of Management of
Columbia University the Graduate School of Business, Columbia
101 Uris Hall University. Prior to 1989, he was president of the
New York, New York 10027 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/Trustee Mr. Gowen is a partner in the law firm of Dunnington,
666 Third Avenue Bartholow & Miller. Prior to May 1994, he was a
New York, New York 10017 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/Trustee Mr. Malek is chairman of Thayer Capital Partners
1455 Pennsylvania Ave, N.W. (merchant bank). From January 1992 to November 1992,
Suite 350 he was campaign manager of Bush-Quayle '92. From
Washington, D.C. 20004 1990 to 1992, he was vice chairman and, from 1989 to
1990, he was president of Northwest Airlines Inc.,
NWA Inc. (holding company of Northwest Airlines
Inc.) and Wings Holdings Inc. (holding company of
NWA Inc.). Prior to 1989, he was employed by the
Marriott Corporation (hotels, restaurants, airline
catering and contract feeding), where he most
recently was an executive vice president and
president of Marriott Hotels and Resorts. Mr. Malek
is also a director of American Management Systems,
Inc. (management consulting and computer-related
services), Automatic Data Processing, Inc., CB
Commercial Group, Inc. (real estate services),
Choice Hotels International (hotel and hotel
franchising), FPL Group, Inc. (electric
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ------------------------------------ --------------------- ------------------------------------------------------
<S> <C> <C>
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/Trustee Mr. Schafer is president of the Atlantic Foundation
66 Witherspoon Street #1100 (charitable foundation supporting mainly
Princeton, NJ 08542 oceanographic 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, Mr. Schafer 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 (Money Ms. Brown is a vice president and a portfolio manager
Fund) of Mitchell Hutchins. She has been a portfolio
manager since March 1995 and has been with Mitchell
Hutchins since December 1992. Prior to joining
Mitchell Hutchins Ms. Brown was with Visual Impact
Advertising. Ms. Brown is vice president of one
investment company for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
John J. Lee; 30 Vice President and Mr. Lee is a vice president and a manager of the
Assistant Treasurer 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
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ------------------------------------ --------------------- ------------------------------------------------------
<S> <C> <C>
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 manager of the
Assistant Treasurer 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 and deputy
Secretary 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.
Susan P. Ryan; 38 Vice President (Money Ms. Ryan is a senior vice president and a portfolio
Fund) 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 and the
Treasurer 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.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS OTHER DIRECTORSHIPS
- ------------------------------------ --------------------- ------------------------------------------------------
<S> <C> <C>
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; 37 Vice President and Mr. Taglialatela is a vice president and a manager of
Assistant Treasurer 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.
Debbie Vermann; 39 Vice President Ms. Vermann is a vice president and a portfolio
(Tax-Free Fund, manager of Mitchell Hutchins. Ms. Vermann is a vice
Managed Municipal president of three investment companies for which
Trust, and Municipal Mitchell Hutchins or PaineWebber serves as
Money Market Series) investment adviser.
Keith A. Weller; 37 Vice President and Mr. Weller is a first vice president and associate
Assistant Secretary 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 each
Fund as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber and/or PW Group.
Each Corporation or Trust pays board members who are not "interested
persons" of the Corporation or Trust $1,000 annually for each series 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). Money
Fund, Tax-Free Fund, Managed Municipal Trust and Municipal Money Market Series
presently pay such directors and trustees $3,000, $1,000, $2,000 and $1,000
annually, respectively, 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. Board members
are reimbursed for any expenses incurred in attending meetings. Board members
and officers of the Corporations/Trusts own in the aggregate less than 1% of the
shares of each Fund. Because PaineWebber and Mitchell Hutchins perform
substantially all of the services necessary for the operation of the
Corporations/Trusts and the Funds, the Corporations and Trusts require no
employees. No officer, director or employee of Mitchell Hutchins or PaineWebber
presently receives any compensation from the Corporations and Trusts for acting
as a board member or officer.
39
<PAGE>
The table below includes certain information relating to the compensation of
the current board members of the Corporations/Trusts who held office with one of
the Funds or with other PaineWebber funds during the fiscal year ended June 30,
1998.
COMPENSATION TABLE+
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION FROM COMPENSATION
--------------------------------------------------------- FROM THE
MUNICIPAL CORPORATIONS/TRUSTS
MONEY TAX-FREE MANAGED MONEY MARKET AND THE
NAME OF PERSONS, POSITION FUND* FUND* MUNICIPAL TRUST* SERIES* FUND COMPLEX**
- ------------------------------------------ ----------- ----------- ---------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Richard Q. Armstrong
Director/Trustee........................ $ 6,150 $ 2,050 $ 4,100 $ 2,050 $ 94,885
Richard R. Burt
Director/Trustee........................ 5,700 1,900 3,800 1,900 87,085
Meyer Feldberg,
Director/Trustee........................ 6,150 2,050 4,100 2,050 117,853
George W. Gowen,
Director/Trustee........................ 7,389 2,463 4,926 2,463 101,567
Frederic V. Malek,
Director/Trustee........................ 6,150 2,050 4,100 2,050 95,845
Carl W. Schafer
Director/Trustee........................ 6,150 2,050 4,100 2,050 94,885
</TABLE>
- ------------
+ Only independent board members are compensated by the Corporations or Trusts
and identified above; board members who are "interested persons" as defined
by the 1940 Act do not receive compensation.
* Represents fees paid to each board member during the fiscal years ended June
30, 1998.
** Represents total compensation paid to each board member during the calendar
year ended December 31, 1997; no fund within the fund complex has a bonus,
pension, profit sharing, or retirement plan.
As of July 31, 1998, the Funds had no shareholders who owned of record 5% or
more of a Fund's shares, and no Fund is aware of any shareholder who is the
beneficial owner of 5% or more of its shares.
40
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. PaineWebber acts as
the Funds' investment adviser and administrator pursuant to separate contracts
dated March 23, 1989 with Money Fund, March 1, 1989 with Tax-Free Fund,
September 10, 1990 with Managed Municipal Trust and April 13, 1995 with
Municipal Money Market Series ("PaineWebber Contracts"). Under the PaineWebber
Contracts, each Fund pays PaineWebber an annual fee, computed daily and paid
monthly, according to the following schedule:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- --------------------------------------------------------------------------------- ---------
<S> <C>
MONEY MARKET PORTFOLIO:
All............................................................................ 0.50%
U.S. GOVERNMENT PORTFOLIO:
Up to $300 million............................................................. 0.50%
In excess of $300 million up to $750 million................................... 0.44%
Over $750 million.............................................................. 0.36%
TAX-FREE FUND:
Up to $1 billion............................................................... 0.50%
In excess of $1 billion up to $1.5 billion..................................... 0.44%
Over $1.5 billion.............................................................. 0.36%
CALIFORNIA MUNICIPAL MONEY FUND AND NEW YORK MUNICIPAL MONEY FUND:
Up to $300 million............................................................. 0.50%
In excess of $300 million up to $750 million................................... 0.44%
Over $750 million.............................................................. 0.36%
NEW JERSEY MUNICIPAL MONEY FUND:
All............................................................................ 0.50%
</TABLE>
For the periods indicated, the Funds paid (or accrued) to PaineWebber the
following fees.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED JUNE 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Money Market Portfolio.................. $50,859,070 $40,972,909 $32,952,818
U.S. Government Portfolio............... 5,010,616 4,931,890 4,457,510
Tax-Free Fund........................... 10,111,111 9,479,630 9,012,871
California Municipal Money Fund......... 2,667,404 2,493,144 2,050,593
New York Municipal Money Fund........... 1,673,724 1,446,166 1,263,305
($5,113) ($292,698) ($46,118)
waived waived waived
</TABLE>
41
<PAGE>
For the periods indicated, New Jersey Municipal Money Fund paid (or accrued)
to PaineWebber and/ or Kidder Peabody Asset Management, Inc., the Fund's
predecessor manager and investment adviser, the following fees:
<TABLE>
<CAPTION>
FOR THE FISCAL
FOR THE FISCAL YEAR FOR THE FISCAL YEAR FOR THE EIGHT MONTHS YEAR ENDED
ENDED JUNE 30, 1998 ENDED JUNE 30, 1997 ENDED JUNE 30, 1996 OCTOBER 31, 1995
------------------- ------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
New Jersey Municipal Money Fund..... $294,352 $239,816 $138,224 $167,865
</TABLE>
During its fiscal year ended June 30, 1998, no Fund paid fees to PaineWebber
for its services as lending agent because no Fund engaged in any securities
lending activities during that period. Prior to August 1, 1997, PaineWebber
provided certain services to each Fund not otherwise provided by its transfer
agent. Pursuant to agreements between PaineWebber and each of the Funds relating
to these services, each Fund paid (or accrued) to PaineWebber the following
fees:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED JUNE 30,
--------------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ------------ ------------
Money Market Portfolio.................................................... $ 156,077 $ 1,736,778 $ 1,391,745
U.S. Government Portfolio................................................. 12,249 148,113 144,758
Tax-Free Fund............................................................. 20,345 247,472 242,449
California Municipal Money Fund........................................... 4,546 54,029 50,117
New York Municipal Money Fund............................................. 3,402 39,481 36,019
</TABLE>
These agreements were reviewed annually by the appropriate boards. Effective
August 1, 1997, PaineWebber provides transfer agency related services to each
Fund pursuant to a delegation of authority from PFPC Inc. and is compensated for
these services by PFPC Inc., not the Funds.
Under separate contracts with PaineWebber dated March 23, 1989 with respect
to Money Fund, March 1, 1989 with respect to Tax-Free Fund, September 10, 1990
with respect to Managed Municipal Trust and April 13, 1995 with respect to
Municipal Money Market Series ("Mitchell Hutchins Contracts"), Mitchell Hutchins
serves as each Fund's sub-adviser and sub-administrator. Under the Mitchell
Hutchins Contracts, PaineWebber (not the Funds) pays Mitchell Hutchins fees,
computed daily and paid monthly, at an annual rate of 20% of the fee paid by
each Fund to PaineWebber under the PaineWebber Contracts.
For the periods indicated, PaineWebber paid (or accrued) to Mitchell
Hutchins the following fees.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Money Market Portfolio..................................................... $ 10,171,814 $ 8,194,582 $ 6,590,564
U.S. Government Portfolio.................................................. 1,002,123 986,378 891,502
Tax-Free Fund.............................................................. 2,022,222 1,895,926 1,802,574
California Municipal Money Fund............................................ 533,481 498,629 410,119
New York Municipal Money Fund.............................................. 333,722 347,773 252,661
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
FISCAL YEAR FISCAL YEAR FOR THE FISCAL YEAR
ENDED ENDED EIGHT MONTHS ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 OCTOBER 31, 1995
---------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C>
New Jersey Municipal Money Fund...... $ 58,870 $ 47,963 $ 27,645 $ 18,580
</TABLE>
Under the terms of the PaineWebber Contracts, each Fund bears all expenses
incurred in its operation that are not specifically assumed by PaineWebber.
General expenses of a Corporation or Trust not readily identifiable as belonging
to a specific Fund or to any other series of the Corporation or Trust are
allocated among series by or under the direction of the Corporation's or Trust's
board in such manner as the board deems fair and equitable. Expenses borne by
the Funds include the following (or each Fund's share of the following): (1) the
cost (including brokerage commissions and other transaction costs, if any) of
securities purchased or sold by the Funds and any losses incurred in connection
therewith, (2) fees payable to and expenses incurred on behalf of the Funds by
PaineWebber, (3) organizational expenses, (4) filing fees and expenses relating
to the registration and qualification of the shares of the Funds under federal
and state securities laws and maintaining such registrations and qualifications,
(5) fees and salaries payable to the board members and officers who are not
interested persons of a Corporation or a Trust, or of PaineWebber, (6) all
expenses incurred in connection with the board members' services, including
travel expenses, (7) taxes (including any income or franchise taxes) and
governmental fees, (8) costs of any liability, uncollectable items of deposit
and other insurance or fidelity bonds, (9) any costs, expenses or losses arising
out of a liability of or claim for damages or other relief asserted against a
Corporation or Trust, or a Fund for violation of any law, (10) legal, accounting
and auditing expenses, including legal fees of special counsel for those board
members who are not interested persons of a Corporation or Trust, (11) charges
of custodians, transfer agents and other agents, (12) expenses of setting in
type and printing prospectuses and supplements thereto, reports and statements
to shareholders and proxy material for existing shareholders, (13) costs of
mailing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials to existing
shareholders, (14) any extraordinary expenses (including fees and disbursements
of counsel, costs of actions, suits or proceedings to which a Corporation or
Trust is a party and the expenses a Corporation or Trust may incur as a result
of its legal obligation to provide indemnification to its officers, board
members, agents and shareholders) incurred by a Fund, (15) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations, (16) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the board and any committees thereof,
(17) the cost of investment company literature and other publications provided
to the board members and officers, and (18) costs of mailing, stationery and
communications equipment.
Under the PaineWebber and Mitchell Hutchins Contracts (collectively,
"Contracts"), PaineWebber or Mitchell Hutchins will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund in connection
with the performance of the Contracts, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of PaineWebber or
Mitchell Hutchins in the performance of its duties or from reckless disregard of
its duties and obligations thereunder.
The Contracts are terminable with respect to each Fund at any time without
penalty by vote of the applicable board or by vote of the holders of a majority
of the outstanding voting securities of that Fund on 60 days' written notice to
PaineWebber or Mitchell Hutchins, as the case may be. The PaineWebber Contracts
are also terminable without penalty by PaineWebber on 60 days' written notice to
the appropriate
43
<PAGE>
Corporation or Trust, and the Mitchell Hutchins Contracts are terminable without
penalty by PaineWebber or Mitchell Hutchins on 60 days' written notice to the
other party. The Contracts terminate automatically upon their assignment, and
each Mitchell Hutchins Contract also terminates automatically upon the
assignment of the applicable PaineWebber Contract.
The following table shows the approximate net assets as of July 31, 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 code of ethics puts restrictions on the timing of
personal investing in relation to trades by the PaineWebber mutual funds and
other Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. PaineWebber acts as distributor of shares of the
Funds under separate distribution contracts with each Corporation or Trust
("Distribution Contracts") which require PaineWebber to use its best efforts,
consistent with its other business, to sell shares of the Funds. Shares of the
Funds are offered continuously. Payments by U.S. Government Portfolio, Tax-Free
Fund, California Municipal Money Fund, New Jersey Municipal Money Fund and New
York Municipal Money Fund to compensate or reimburse PaineWebber for certain
expenses incurred in connection with its activities in providing certain
shareholder and account maintenance services (and, for New Jersey Municipal
Money Fund, distributing its shares) are authorized under the Distribution
Contracts and made in accordance with related plans of distribution ("Plans")
adopted by each Corporation or Trust with respect to those Funds in the manner
prescribed by Rule 12b-1 under the 1940 Act. No such payments have been
authorized for Money Market Portfolio.
Among other things, each Plan provides that (1) PaineWebber will submit to
the board at least quarterly, and the board members 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 board members who are not "interested persons" of
the Corporation or Trust and who have no direct or indirect financial interest
in the operation of the Plan or any agreement related to the Plan, acting
44
<PAGE>
in person at a meeting called for that purpose, (3) payments by a Fund under the
Plan shall not be materially increased without the affirmative vote of the
holders of a majority of the affected Fund's outstanding shares and (4) while
the Plan remains in effect, the selection and nomination of board members who
are not "interested persons" of the Corporation or Trust shall be committed to
the discretion of the board members who are not "interested persons" of the
Corporation or Trust.
Under the applicable Plan, U.S. Government Portfolio, Tax-Free Fund,
California Municipal Money Fund and New York Municipal Money Fund each is
authorized to pay PaineWebber a service fee, computed daily and paid monthly, at
the annual rate of up to 0.15% of its average daily net assets. Each of these
Funds currently pays service fees to PaineWebber at the annual rate of .125% of
average daily net assets. Any increase from the current annual rate would
require prior approval of the board. Under the applicable Plan, New Jersey
Municipal Money Fund reimburses PaineWebber for certain service and distribution
expenses at an annual rate of up to 0.12% of its average daily net assets.
During their fiscal years ended June 30, 1998, U.S. Government Portfolio,
Tax-Free Fund, California Municipal Money Fund and New York Municipal Money Fund
paid or accrued to PaineWebber service fees of $1,151,934, $2,249,750, $553,196
and $332,649, respectively. For the same periods, PaineWebber estimates that it
incurred expenses of $485,000, $793,000, $314,000 and $250,000, respectively, in
servicing Fund shareholders. PaineWebber estimates that these expenses were
incurred for each of these Funds, respectively, as follows: (a) allocated costs
related to shareholder servicing--$161,000, $161,000, $163,000 and $162,000; and
(b) service fees to Investment Executives--$324,000, $632,000, $151,000 and
$88,000.
During the fiscal year ended June 30, 1998, New Jersey Municipal Money Fund
paid or accrued to PaineWebber 12b-1 fees of $70,645. For the same period,
PaineWebber estimates that it incurred expenses of $145,000 in distributing
shares of this Fund and servicing Fund shareholders. PaineWebber estimates that
these expenses were incurred for New Jersey Municipal Money Fund as follows: (a)
advertising and promotion--$27,500; (b) printing--$87; and (c) service fees to
Investment Executives--$16,000.
"Allocated costs" include various internal costs allocated by PaineWebber to
its efforts at providing certain shareholder and account maintenance services.
These internal costs encompass office rent, salaries and other overhead expenses
of various PaineWebber departments and areas of operations.
In approving the continuance of the Plan for each Fund, the applicable board
considered all features of the distribution system for the Fund, including (a)
PaineWebber's view that the payment of service fees (and distribution fees for
New Jersey Municipal Money Fund) at the annual rate of 0.02% (0.02% for New
Jersey Municipal Money Fund) of the average daily net assets of the Fund held in
shareholder accounts serviced by Investment Executives and correspondent firms
was attractive to such Investment Executives and correspondent firms and would
result in greater growth of the Fund than might otherwise be the case, (b) the
extent to which Fund shareholders might benefit from economies of scale
resulting from growth in the Fund's assets and shareholder account size and the
potential for continued growth, (c) the services provided to the Fund and its
shareholders by PaineWebber pursuant to the applicable Distribution Contract,
(d) PaineWebber's expenses and costs under the Plan as described above and (e)
the fact that the expense to the Fund of the Plan could be offset if the Plan is
successful by the lower advisory fee rates that may be triggered as assets reach
higher levels.
With respect to each Plan, the applicable board 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.
45
<PAGE>
PORTFOLIO TRANSACTIONS
The Funds purchase portfolio securities from dealers and underwriters as
well as from issuers. Securities are usually traded on a net basis with dealers
acting as principal for their own accounts without a stated commission. Prices
paid to dealers in principal transactions generally include a "spread," which is
the difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. When securities are purchased directly
from an issuer, no commissions or discounts are paid. When securities are
purchased in underwritten offerings, they include a fixed amount of compensation
to the underwriter.
The Mitchell Hutchins Contracts authorize Mitchell Hutchins (with the
approval of each Corporation's or Trust's board) to select brokers and dealers
to execute purchases and sales of each Fund's portfolio securities. The
Contracts direct Mitchell Hutchins to use its best efforts to obtain the best
available price and most favorable execution with respect to all transactions
for the Funds. To the extent that the execution and price offered by more than
one dealer are comparable, Mitchell Hutchins may, in its discretion, effect
transactions in portfolio securities with dealers who provide the Funds with
research, analysis, advice and similar services. Although Mitchell Hutchins may
receive certain research or execution services in connection with these
transactions, Mitchell Hutchins will not purchase securities at a higher price
or sell securities at a lower price than would otherwise be paid 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 a 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 received from
dealers will be in addition to, and not in lieu of, the services required to be
performed by Mitchell Hutchins under the Mitchell Hutchins Contracts. During its
past three fiscal years, no Fund has paid any brokerage commissions; therefore,
none has 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 each Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for a Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
46
<PAGE>
HOLDINGS OF REGULAR BROKER-BROKERS
As of June 30, 1998, Money Market Portfolio owned commercial paper and
short-term corporate obligations issued by the following persons who are regular
broker-dealers for that Fund: Bear Stearns Companies Incorporated $303,311,447;
Goldman Sachs Group LP $98,173,665; Lehman Brothers Holdings Incorporated
$507,944,575; Merrill Lynch & Co., Inc. $338,658,217; and Morgan Stanley, Dean
Witter & Discover Company $267,579,733.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
Each Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange ("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 a Fund to dispose of securities owned by it or to determine
fairly the market value of its assets or (3) as the SEC may otherwise permit.
The redemption price may be more or less than the shareholder's cost, depending
on the market value of the Fund's portfolio at the time, although each Fund
seeks to maintain a constant net asset value of $1.00 per share.
If conditions exist that make cash payments undesirable, California
Municipal Money Fund and New York Municipal Money Fund each reserve the right to
honor any request for redemption by making payment in whole or in part in
securities chosen by the Fund and valued in the same way as they would be valued
for purposes of computing the Fund's net asset value. If payment is made in
securities, a shareholder may incur brokerage expenses in converting these
securities into cash. Managed Municipal Trust has elected, however, to be
governed by Rule 18f-1 under the 1940 Act, under which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of either Fund during any 90-day period for one shareholder. This election is
irrevocable unless the SEC permits its withdrawal.
Under normal circumstances, a Fund will redeem shares when so requested by a
shareholder's broker-dealer other than PaineWebber by telegram or telephone to
PaineWebber. Such a redemption order will be executed at the net asset value
next determined after the order is received by PaineWebber. Redemptions of Fund
shares effected through a broker-dealer other than PaineWebber may be subject to
a service charge by that broker-dealer.
VALUATION OF SHARES
Each Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Each Fund's net asset value per share is determined by 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, the New York City offices of PaineWebber
and PaineWebber's bank, The Bank of New York, are all open for business. One or
more of these institutions will be closed on the observance of the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Patriot's Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day.
Each Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 ("Rule") under 1940 Act. To use
amortized cost to value its portfolio securities, a 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
47
<PAGE>
approximation of market value, whereby the difference between acquisition cost
and value at maturity of the instrument 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, a
Fund might have to sell portfolio securities prior to maturity and at a price
that might not be desirable.
Each 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 any Fund, its board will promptly consider whether any action
should be initiated to eliminate or reduce material dilution or other unfair
results to shareholders. Such action may include redeeming shares in kind,
selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. Each 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
appropriate 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 relevant board will take appropriate action.
In determining the approximate market value of portfolio investments, each
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used.
TAXES
FEDERAL TAXES. To continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code, each Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income and net short-term capital gain, if any) plus, in the case of
each Municipal Fund, its net interest income excludable from gross income under
section 103(a) of the Internal Revenue Code, and must meet several additional
requirements. With respect to each Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities and certain other
income; (2) 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.
48
<PAGE>
Dividends paid by a Municipal Fund will qualify as "exempt-interest
dividends," and thus will be excludable from gross income by its shareholders,
if it satisfies the additional requirement that, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets consists of
securities the interest on which is excludable from gross income under section
103(a). Each Municipal Fund intends to continue to satisfy this requirement. The
aggregate amount annually designated by a Municipal Fund as exempt-interest
dividends may not exceed its interest for the year that is excludable under
section 103(a) over certain amounts disallowed as deductions. The shareholders'
treatment of dividends from the Municipal Funds under state and local income tax
laws may differ from the treatment thereof under the Internal Revenue Code.
Tax-exempt interest attributable to certain PABs (including, in the case of
a Municipal Fund receiving interest on such bonds, a proportionate part of the
exempt-interest dividends paid by that Fund) is subject to the federal
alternative minimum tax. Exempt-interest dividends received by a corporate
shareholder also may be indirectly subject to that tax without regard to whether
a Municipal Fund's tax-exempt interest was attributable to those bonds. PABs are
issued by or on behalf of public authorities to finance various privately
operated facilities and are described in the Prospectus.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by IDBs or PABs should consult their
tax advisers before purchasing shares of a Municipal Fund because, for users of
certain of these facilities, the interest on those bonds is not exempt from
federal income tax. For these purposes, the term "substantial user" is defined
generally to include a "non-exempt person" who regularly uses in trade or
business a part of a facility financed from the proceeds of IDBs or PABs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as a Municipal Fund) plus 50% of their
benefits exceeds certain base amounts. Exempt-interest dividends from the
Municipal Funds still are tax-exempt to the extent described above and in the
Prospectus; they are only included in the calculation of whether a recipient's
income exceeds the established amounts.
If a Municipal Fund invests in any instruments that generate taxable income,
under the circumstances described in the Prospectus and in the discussion of
municipal market discount bonds below, the portion of any Fund dividend
attributable to the interest earned thereon will be taxable to that Fund's
shareholders as ordinary income to the extent of its earnings and profits and
only the remaining portion will qualify as an exempt-interest dividend. The
respective portions will be determined by the "actual earned" method, under
which the portion of any dividend that qualifies as an exempt-interest dividend
may vary, depending on the relative proportions of tax-exempt and taxable
interest earned during the dividend period. Moreover, if a Municipal Fund
realizes capital gain as a result of market transactions, any distribution of
that gain will be taxable to its shareholders.
Each Municipal Fund may invest in municipal bonds that are purchased,
generally not on their original issue, with market discount (that is, at a price
less than the principal amount of the bond or, in the case of a bond that was
issued with original issue discount, a price less than the amount of the issue
price plus accrued original issue discount) ("municipal market discount bonds").
If a bond's market discount is less than the product of (1) 0.25% of the
redemption price at maturity times (2) the number of complete years to maturity
after the taxpayer acquired the bond, then no market discount is considered to
exist. Gain on the disposition of a municipal market discount bond (other than a
bond with a fixed maturity date
49
<PAGE>
within one year from its issuance) generally is treated as ordinary (taxable)
income, rather than capital gain, to the extent of the bond's accrued market
discount at the time of disposition. Market discount on such a bond generally is
accrued ratably, on a daily basis, over the period from the acquisition date to
the date of maturity. In lieu of treating the disposition gain as above, a
Municipal Fund may elect to include market discount in its gross income
currently, for each taxable year to which it is attributable.
Dividends from investment company taxable income paid to a shareholder who,
as to the United States, is a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation or foreign partnership
("foreign shareholder") generally are subject to a 30% withholding tax, unless
the applicable tax rate is reduced by a treaty between the United States and the
shareholder's country of residence. Withholding does not apply to a dividend
paid to a foreign shareholder that is "effectively connected with the
[shareholder's] conduct of a trade or business within the United States," in
which case the withholding requirements applicable to domestic taxpayers apply.
Exempt-interest dividends paid by the Municipal Funds are not subject to
withholding.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all its
ordinary (I.E., taxable) income for that year and any capital gain net income
for the one-year period ending October 31 of that year, plus certain other
amounts.
CALIFORNIA TAXES. In any year in which California Municipal Money Fund
qualifies as a RIC under the Internal Revenue Code and 50% or more of its assets
at the close of each quarter of its taxable year are invested in obligations the
interest on which is exempt from personal income taxation by the State of
California, the Fund will be qualified under California law to pay
"exempt-interest" dividends which will be exempt from the California personal
income tax.
Individual shareholders of California Municipal Money Fund who reside in
California will not be subject to California personal income tax on
distributions received from the Fund to the extent such distributions are
attributable to interest on tax-exempt obligations issued by the State of
California or a California local government (or interest earned on tax-exempt
obligations of U.S. possessions or territories), provided that the Fund
satisfies the requirement of California law that at least 50% of its assets at
the close of each quarter of its taxable year be invested in obligations the
interest on which is exempt from personal income taxation by the State of
California. Income distributions from the Fund that are attributable to sources
other than those described in the preceding sentence will generally be taxable
to such shareholders as ordinary income. However, distributions from the Fund,
if any, that are derived from interest on obligations of the U.S. government may
also be designated by the Fund and treated by its shareholders as exempt from
California personal income tax, provided that the foregoing 50% requirement is
satisfied. In addition, distributions to such shareholders other than
exempt-interest dividends will be includable in income subject to the California
alternative minimum tax.
Shareholders of California Municipal Money Fund who are subject to the
California corporate franchise tax will be required to include distributions of
investment income and capital gains in their taxable income for purposes of that
tax. In addition, such distributions may be includable in income subject to the
alternative minimum tax.
Shares of California Municipal Money Fund will not be subject to the
California property tax.
The foregoing is a general, abbreviated summary of certain of the provisions
of the tax laws of the State of California presently in effect as they directly
govern the taxation of shareholders of California
50
<PAGE>
Municipal Money Fund. These provisions are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult with their own tax
advisers for more detailed information concerning California tax matters.
NEW YORK TAXES. Individual shareholders of New York Municipal Money Fund
will not be required to include in their gross income for New York State and
City purposes any portion of distributions received from the Fund that are
directly attributable (i) to interest earned on tax-exempt obligations issued by
New York State or any political subdivisions thereof (including the City) or
(ii) interest earned on obligations of U.S. possessions or territories that is
exempt from state taxation pursuant to federal law, provided that the Fund
qualifies as a RIC and satisfies the requirement that at least 50% of its assets
at the close of each quarter of its taxable year constitute obligations the
interest on which is tax-exempt for federal income tax purposes. Distributions
from the Fund that are attributable to sources other than those described in the
preceding sentence (including interest on obligations of other states and their
political subdivisions) will generally be taxable to individual shareholders as
ordinary income. However, distributions by the Fund, if any, that are derived
from interest earned on obligations of the U.S. government may also be
designated by the Fund and treated by its shareholders as exempt from personal
income taxation for New York State and City purposes, provided that at least 50%
of the value of its total assets at the close of each quarter of its taxable
year is invested in such obligations.
Shareholders of New York Municipal Money Fund that are subject to the New
York State corporation franchise tax or the City general corporation tax will be
required to include exempt-interest dividends paid by the Fund in their "entire
net income" for purposes of such taxes and will be required to include their
shares of the Fund in their investment capital for purposes of such taxes.
Shareholders of New York Municipal Money Fund will not be subject to the
unincorporated business tax imposed by the City solely by reason of their
ownership of shares in the Fund. If a shareholder is subject to unincorporated
business taxation by the City, income and gains distributed by the Fund will be
subject to such taxation except to the extent such distributions are directly
attributable to interest earned on tax-exempt obligations issued by New York
State or any political subdivision thereof (including the City).
Shares of New York Municipal Money Fund will not be subject to property
taxes imposed by New York State or the City.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of New York Municipal Money Fund generally will not be deductible for New
York State personal income tax purposes.
Interest income of New York Municipal Money Fund that is distributed to its
shareholders will generally not be taxable to the Fund for purposes of the New
York State corporation franchise tax or the City general corporation tax.
The foregoing is a general, abbreviated summary of certain of the provisions
of the tax laws of New York State and the City presently in effect as they
directly govern the taxation of shareholders of New York Municipal Money Fund.
These provisions are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning New York State and City tax matters.
51
<PAGE>
NEW JERSEY TAXES. New Jersey Municipal Money Fund anticipates that
substantially all dividends paid by it will not be subject to the New Jersey
gross income tax. In accordance with the provisions of New Jersey law as
currently in effect, distributions paid by a "qualified investment fund" will
not be subject to the New Jersey gross income tax to the extent the
distributions are attributable to income received as interest or gain from New
Jersey Municipal Securities or direct U.S. government obligations or certain
other specified obligations. To be classified as a qualified investment fund, at
least 80% of the Fund's investments must consist of such obligations.
Distributions by a qualified investment fund that are attributable to most other
sources will be subject to the New Jersey gross income tax. If the Fund
continues to qualify as a qualified investment fund, any gain on the redemption
of its shares will not be subject to the New Jersey gross income tax. To the
extent a shareholder of the Fund is obligated to pay state or local taxes
outside of New Jersey, dividends earned by such shareholder may represent
taxable income.
The shares of New Jersey Municipal Money Fund are not subject to property
taxation by New Jersey or its political subdivisions.
The foregoing is a general, abbreviated summary of certain of the applicable
provisions of New Jersey tax law presently in effect. These provisions are
subject to change by legislative, judicial or administrative action and any such
change may be either prospective or retroactive with respect to Fund
transactions. Shareholders are urged to consult with their own tax advisers for
more detailed information concerning New Jersey State tax matters.
TAX-FREE INCOME VS. TAXABLE INCOME--TAX-FREE FUND. Table I below
illustrates approximate equivalent taxable and tax-free yields at the 1998
federal individual income tax rates in effect on the date of this Statement of
Additional Information. For example, a couple with taxable income of $90,000 in
1998, or a single individual with taxable income of $55,000 in 1998, whose
investments earn a 4% tax-free yield, would have to earn a 5.56% taxable yield
to receive the same benefit.
TABLE I. 1998 FEDERAL TAXABLE VS. TAX-FREE YIELDS*
<TABLE>
<CAPTION>
TAXABLE INCOME (000'S) A TAX-FREE YIELD OF
- ----------------------------- -----------------------------------------------
SINGLE JOINT FEDERAL TAX 3.00% 4.00% 5.00% 6.00% 7.00%
RETURN RETURN BRACKET ------- ------- ------- ------- -------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
- ------------- ------------- ------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0-- 25.4 $ 0-- 42.4 15.00% 3.53% 4.71% 5.88% 7.06% 8.24 %
25.4-- 61.4 42.4--102.3 28.00 4.17 5.56 6.94 8.33 9.72
61.4--128.1 102.3--156.0 31.00 4.35 5.80 7.25 8.70 10.14
128.1--278.5 156.0--278.5 36.00 4.69 6.25 7.81 9.38 10.94
Over 278.5 Over 278.5 39.60 4.97 6.62 8.28 9.93 11.59
</TABLE>
- ---------
* The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. The Fund invests primarily in
obligations the interest on which is exempt from federal income tax;
however, some of the Fund's investments may generate taxable income.
Effective tax rates shown are those in effect on the date of this Statement
of Additional Information; such rates might change after that date. Certain
simplifying assumptions have been made. Any particular taxpayer's rate may
differ. The effective rates reflect the highest tax bracket within each
range of income listed. The figures set forth above do not reflect the
federal alternative minimum tax, limitations on federal or state itemized
deductions and personal exemptions or any state or local taxes payable on
Fund distributions.
52
<PAGE>
TAX-FREE INCOME VS. TAXABLE INCOME--CALIFORNIA MUNICIPAL MONEY FUND. Table
II below illustrates approximate equivalent taxable and tax-free yields at the
1998 federal individual and 1997 California personal gross income tax rates in
effect on the date of this Statement of Additional Information. For example, a
California couple with taxable income of $90,000 in 1998, or a single California
individual with taxable income of $55,000 in 1998, whose investments earn a 6%
tax-free yield, would have to earn a 9.19% taxable yield to receive the same
benefit.
TABLE II. 1998 FEDERAL AND 1997 CALIFORNIA TAXABLE VS. TAX-FREE YIELDS*
<TABLE>
<CAPTION>
EFFECTIVE A TAX-FREE YIELD OF
TAXABLE INCOME (000'S) CALIFORNIA ----------------------------------------------------
----------------------------- AND
SINGLE JOINT FEDERAL TAX 3.00% 4.00% 5.00% 6.00%
RETURN RETURN BRACKET ------- ------- ------- -------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
------------- ------------- ------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 18.8-- 25.4 $ 37.5-- 42.4 20.10% 3.75% 5.01% 6.26% 7.51 %
25.4-- 26.1 42.4-- 52.1 32.32 4.43 5.91 7.39 8.87
26.1-- 32.9 52.1-- 65.8 33.76 4.53 6.04 7.55 9.06
32.9-- 61.4 65.8--102.3 34.70 4.59 6.13 7.66 9.19
61.4--128.1 102.3--156.0 37.42 4.79 6.39 7.99 9.59
128.1--278.5 156.0--278.5 41.95 5.17 6.89 8.61 10.34
Over 278.5 Over 278.5 45.22 5.48 7.30 9.13 10.95
</TABLE>
- ------------
* The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. The Fund invests primarily in
obligations the interest on which is exempt from federal income tax and
California personal income tax; however, some of the Fund's investments may
generate taxable income. Effective tax rates shown are those in effect on
the date of this Statement of Additional Information; such rates might
change after that date. Certain simplifying assumptions have been made. Any
particular taxpayer's rate may differ. The effective rates reflect the
highest tax bracket within each range of income listed. However, a
California, taxpayer within the lowest income ranges shown may fall within a
lower effective tax bracket. The figures set forth above do not reflect the
federal alternative minimum tax, limitations on federal or state itemized
deductions and personal exemptions or any state or local taxes payable on
Fund distributions (other than California personal income taxes).
The rates shown reflect federal rates for 1998 and California rates for 1997 in
effect as of the date hereof. Inflation adjusted income brackets for 1998 for
California are not yet available, and the California rates thus are still
subject to change with retroactive effect for 1998.
TAX-FREE INCOME VS. TAXABLE INCOME--NEW YORK MUNICIPAL MONEY FUND. Table
III below illustrates approximate equivalent taxable and tax-free yields at the
federal individual, and New York State and New York City personal, income tax
rates in effect on the date of this Statement of Additional Information. For
example, a New York City couple with taxable income of $90,000 in 1998, or a
single individual with taxable income of $55,000 in 1998 who lives in New York
City, whose investments earn a 4% tax-free yield, would have to earn a 6.23%
taxable yield to receive the same benefit. A couple who lives in New York State
outside of New York City with taxable income of $90,000 in 1998, or a single
individual who lives in New York State outside of New York City with taxable
income of $55,000 in 1998, would have to earn a 5.96% taxable yield to realize a
benefit equal to a 4% tax-free yield.
53
<PAGE>
TABLE III. 1998 FEDERAL AND NEW YORK TAXABLE VS. TAX-FREE YIELDS*
<TABLE>
<CAPTION>
TAXABLE INCOME (000'S) COMBINED A TAX-FREE YIELD OF
----------------------------- FEDERAL/ ----------------------------------------------------
SINGLE JOINT NYS/NYC 4.00% 5.00% 6.00%
RETURN RETURN TAX BRACKET 3.00% ------- ------- -------
-------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
------------- ------------- ------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0-- 25.4 $ 0-- 42.4 24.10% 3.95% 5.27% 6.59% 7.91%
25.4-- 61.4 42.4--102.3 35.75 4.67 6.23 7.78 9.34
61.4--128.1 102.3--156.0 38.42 4.87 6.50 8.12 9.74
128.1--278.5 156.0--278.5 42.89 5.25 7.00 8.75 10.50
Over 278.5 Over 278.5 46.10 5.57 7.42 9.28 11.13
<CAPTION>
TAXABLE INCOME (000'S) COMBINED A TAX-FREE YIELD OF
----------------------------- FEDERAL/ ----------------------------------------------------
SINGLE JOINT NYS/ 4.00% 5.00% 6.00%
RETURN RETURN TAX BRACKET 3.00% ------- ------- -------
-------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
------------- ------------- ------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0-- 25.4 $ 0-- 42.4 20.82% 3.79% 5.05% 6.31% 7.58%
25.4-- 61.4 42.4--102.3 32.93 4.47 5.96 7.46 8.95
61.4--128.1 102.3--156.0 35.73 4.67 6.22 7.78 9.34
128.1--278.5 156.0--278.5 40.38 5.03 6.71 8.39 10.06
Over 278.5 Over 278.5 43.74 5.33 7.11 8.89 10.66
</TABLE>
- ------------
* The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. The Fund invests primarily in
obligations the interest on which is exempt from federal income tax and New
York State and New York City personal income taxes; however, some of the
Fund's investments may generate taxable income. Effective tax rates shown
are those in effect on the date of this Statement of Additional Information;
such rates might change after that date. Certain simplifying assumptions
have been made. Any particular taxpayer's rate may differ. The effective
rates reflect the highest tax bracket within each range of income listed.
However, a New York taxpayer within the lowest income ranges shown may fall
within a lower effective tax bracket. The figures set forth above do not
reflect the federal alternative minimum tax, limitations on federal or state
itemized deductions and personal exemptions or any state or local taxes
payable on Fund distributions (other than New York State and New York City
personal income taxes).
TAX-FREE INCOME VS. TAXABLE INCOME--NEW JERSEY MUNICIPAL MONEY FUND. Table
IV below illustrates approximate equivalent taxable and tax-free yields at the
federal individual and New Jersey gross income tax rates in effect on the date
of this Statement of Additional Information. For example, a New Jersey couple
with taxable income of $90,000 in 1998, or a single New Jersey individual with
taxable income of $55,000 in 1998, whose investments earn a 4% tax-free yield,
would have to earn a 5.88% taxable yield to receive the same benefit.
54
<PAGE>
TABLE IV. 1998 FEDERAL AND NEW JERSEY TAXABLE VS. TAX-FREE YIELDS*
<TABLE>
<CAPTION>
EFFECTIVE A TAX-FREE YIELD OF
TAXABLE INCOME (000'S) NEW JERSEY ----------------------------------------------------
----------------------------- AND
SINGLE JOINT FEDERAL TAX 3.00% 4.00% 5.00% 6.00%
RETURN RETURN BRACKET ------- ------- ------- -------
IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY:
------------- ------------- ------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0-- 25.4 $ 0-- 42.4 16.49% 3.59% 4.79% 5.99% 7.18%
25.4-- 35.0 42.4-- 50.0 29.26 4.24 5.65 7.07 8.48
50.0-- 70.0 29.76 4.27 5.70 7.12 8.54
35.0-- 40.0 70.0-- 80.0 30.52 4.32 5.76 7.20 8.64
40.0-- 61.4 80.0--102.3 31.98 4.41 5.88 7.35 8.82
61.4-- 75.0 102.3--150.0 34.81 4.60 6.14 7.67 9.20
75.0--128.1 150.0--156.0 35.40 4.64 6.19 7.74 9.29
128.1--278.5 156.0--278.5 40.08 5.01 6.68 8.34 10.01
Over 278.5 Over 278.5 43.45 5.31 7.07 8.84 10.61
</TABLE>
- ------------
* The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. The Fund invests primarily in
obligations the interest on which is exempt from federal income tax and New
Jersey gross income tax; however, some of the Fund's investments may
generate taxable income. Effective tax rates shown are those in effect on
the date of this Statement of Additional Information; such rates might
change after that date. Certain simplifying assumptions have been made. Any
particular taxpayer's rate may differ. The effective rates reflect the
highest tax bracket within each range of income listed. However, a New
Jersey taxpayer within the lowest income ranges shown may fall within a
lower effective tax bracket. The figures set forth above do not reflect the
federal alternative minimum tax, limitations on federal or state itemized
deductions and personal exemptions or any state or local taxes payable on
Fund distributions (other than New Jersey personal income taxes).
CALCULATION OF YIELD
Each Fund computes its yield and effective yield quotations using
standardized methods required by the SEC. Each Fund from time to time advertises
(1) its current yield based on a recently ended seven-day period, computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from that
shareholder account, dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent; and (2) its effective
yield based on the same seven-day period by compounding the base period return
by adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from
the result, according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) ] - 1
55
<PAGE>
Each Municipal Fund from time to time also advertises its tax-equivalent
yield and tax-equivalent effective yield, also based on a recently ended
seven-day period. These quotations are calculated by dividing that portion of
the Fund's yield (or effective yield, as the case may be) that is tax-exempt by
1 minus a stated income tax rate and adding the product to that portion, if any,
of the Fund's yield that is not tax-exempt, according to the following formula:
E
TAX-EQUIVALENT YIELD = ( ----- ) + t
1 - p
E = Tax exempt yield
p = stated income tax rate
t = taxable yield
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each Fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.
The following yields are for the seven-day period ended June 30, 1998:
<TABLE>
<CAPTION>
EFFECTIVE
YIELD YIELD
--------- -----------
<S> <C> <C>
Money Market Portfolio............................................... 5.05 5.18
U.S. Government Portfolio............................................ 4.81 4.93
Tax-Free Fund........................................................ 2.99 3.03
California Municipal Money Fund...................................... 2.69 2.73
New Jersey Municipal Money Fund...................................... 2.56 2.60
New York Municipal Money Fund........................................ 2.82 2.86
</TABLE>
The following tax equivalent yields are based, in each case, on the maximum
individual tax rates:
<TABLE>
<CAPTION>
TAX-EQUIVALENT TAX-EQUIVALENT
YIELD EFFECTIVE YIELD
--------------- ---------------
<S> <C> <C>
Tax-Free Fund (assuming a federal tax rate of 39.6%)............................... 4.95% 5.02%
California Municipal Money Fund (assuming a combined federal and California State
tax rate of 45.22%).............................................................. 4.91% 4.98%
New Jersey Municipal Money Fund (assuming a combined federal and New Jersey State
tax rate of 43.45%).............................................................. 4.53% 4.60%
New York Municipal Money Fund (assuming a combined federal, New York State and New
York City tax rate of 46.43%).................................................... 5.26% 5.34%
New York Municipal Money Fund (assuming an effective combined federal and New York
State tax rate of 43.74%)........................................................ 5.01% 5.08%
</TABLE>
56
<PAGE>
OTHER INFORMATION. The Funds' performance data quoted in advertising and
other promotional materials ("Performance Advertisements") represent past
performance and are not intended to predict or indicate future results. The
return on an investment in each Fund will fluctuate. In Performance
Advertisements, the Funds may compare their taxable or tax-free yields 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"),
Investment Company Data Inc. ("ICD") or Morningstar Mutual Funds
("Morningstar"), 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 World Index, the Lehman Brothers Treasury Bond Index, the Lehman
Brothers Government-Corporate Bond Index, the Salomon Brothers Government Bond
Index and the Consumer Price Index as published by the U.S. Department of
Commerce. The Funds also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Donoghue, Wiesenberger, ICD or Morningstar.
Performance Advertisements also may refer to discussions of the Funds 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.
Each Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends on a Fund investment are reinvested by being paid in
additional Fund shares, any future income of the Fund would increase the value,
not only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of a Fund investment would
increase more quickly than if dividends had been paid in cash.
Each Fund may also compare its performance with the performances of bank
certificates of deposit ("CDs") as measured by the CDA 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 a Fund's performance to CD performance, investors should keep in mind
that bank CDs are insured in whole or in part by an agency of the U.S.
government and offer fixed principal and fixed or variable rates of interest and
that bank CD yields may vary depending on the financial institution offering the
CD and prevailing interest rates. Advertisements and other promotional materials
for the Funds or for the PaineWebber Resource Management Account
("RMA")-Registered Trademark- and Business Services Account ("BSA")-SM- programs
may compare features of the RMA and BSA programs to those offered by bank
checking accounts and other bank accounts. Bank accounts are insured in whole or
in part by an agency of the U.S. government and may offer a fixed rate of
return. Fund shares are not insured or guaranteed by the U.S. government, and
returns thereon will fluctuate. While each Fund seeks to maintain a stable net
asset value of $1.00 per share, there can be no assurance that it will be able
to do so.
OTHER INFORMATION
Each Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the
57
<PAGE>
obligations of a Trust. However, each Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each note, bond, contract, instrument, certificate or
undertaking made or issued by the trustees or by any officers or officer by or
on behalf of that Trust, a Fund, the trustees or any of them in connection with
the Trust. Each Declaration of Trust provides for indemnification from a Fund's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which a Fund itself would be unable to meet its obligations, a possibility
which PaineWebber believes is remote and not material. Upon payment of any
liability incurred by a shareholder, the shareholder paying such liability will
be entitled to reimbursement from the general assets of the Fund. The trustees
intend to conduct the operations of each Fund in such a way as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the Fund.
Prior to February 28, 1996, Municipal Money Market Series was known as
PaineWebber/Kidder, Peabody Municipal Money Market Series. Prior to January 30,
1995, PaineWebber/Kidder, Peabody Municipal Money Market Series was known as
Kidder, Peabody Municipal Money Market Series. Prior to December 15, 1995, New
Jersey Municipal Money Fund was known as New Jersey Series.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036, serves as counsel to the Funds.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters. The law firm of Orrick, Herrington &
Sutcliffe LLP, 400 Sansome Street, San Francisco, CA 94111, serves as counsel to
California Municipal Money Fund with respect to California law. The law firm of
Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York
10103-0001, serves as counsel to New York Municipal Money Fund with respect to
New York law and New Jersey Municipal Money Fund with respect to New Jersey law.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Funds.
FINANCIAL STATEMENTS
The Annual Reports to Shareholders for the Funds' fiscal years ended June
30, 1998 are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and reports of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.
58
<PAGE>
APPENDIX A
SERVICES AVAILABLE THROUGH THE RMA PROGRAM TO RMA ACCOUNTHOLDERS
Shares of the Funds are available primarily to investors who are
Participants in the Resource Management Account (RMA) program offered by
PaineWebber and its correspondent firms. The following is a summary of some of
the services available to RMA Participants. For more complete information,
investors should refer to separate materials their Investment Executives can
provide them.
THE PAINEWEBBER RMA PREMIER STATEMENT. RMA Participants receive a monthly
Premier account statement, which provides consolidated information to assist
with portfolio management decisions and personal financial planning. The Premier
account statement summarizes securities transactions, cash transactions, cash
advances and checks (if applicable) and provides cost basis information and
calculations of unrealized and realized gains and losses on most investments. A
"Summary of Accounts" statement and a menu of customized statement options is
available to make the monthly reporting even more comprehensive.
PRELIMINARY AND YEAR-END SUMMARIES. RMA Participants receive preliminary
and year-end summary account statements that provide a comprehensive overview of
tax-related activity in the account during the year to help investors with tax
planning.
CHOICE OF MONEY MARKET FUNDS AND AUTOMATIC SWEEP OF UNINVESTED CASH. As
described more fully in the Prospectus under the heading "Purchases--The RMA and
BSA Programs," RMA Participants select a money market fund as a primary fund
into which uninvested cash is automatically swept on a daily basis from a
variety of taxable and tax-free money funds. By automatically investing cash
balances into a money market fund, this sweep feature minimizes the extent to
which an investor's assets remain idle while held in the account pending
investment.
CHECK WRITING. RMA Participants have ready access to the assets held in
their RMA account through the check writing feature. There are no minimum check
amounts or per check charges. The RMA checks also include an expense coding
system that enables the investor to track types of expenses for tax and
financial planning.
DIRECT DEPOSIT. Regular payments from an employer, pension, social security
or other sources may be eligible for electronic deposit into RMA Participants'
accounts.
ELECTRONIC FUNDS TRANSFER/BILL PAYMENT SERVICE. RMA Participants can
electronically transfer money between their RMA and other financial
institutions, transfer funds to and from other PaineWebber accounts and pay
bills. A Bill Payment Service is available for an additional charge.
GOLD MASTERCARD-REGISTERED TRADEMARK-. RMA Participants can receive with a
complementary Gold MasterCard debit card that makes account assets easily
accessible. The Gold MasterCard is accepted by, merchants both in the U.S. and
abroad, and can be used to obtain cash advances at thousands of automated teller
machines. Through MasterCard's enhanced MasterAssist-Registered Trademark- and
MasterPurchase-Registered Trademark- programs, investors can obtain other
benefits, including rental car insurance, emergency medical and travel
assistance, legal services and purchase protection.
A-1
<PAGE>
EXTENDED ACCOUNT PROTECTION. Securities held in an RMA Account by
PaineWebber or one of its correspondent firms are protected for up to the net
equity through private insurance in the event of the liquidation or failure of
the firm. This protection is in addition to the $500,000 in protection provided
to accountholders by the Securities Investor Protection Corporation ("SIPC").
Neither the SIPC protection nor the additional account protection insurance
applies to shares of the Funds because such shares are registered directly in
the name of the shareholder, and not in the name of PaineWebber or one of its
correspondent firms.
RESOURCE ACCUMULATION PLAN-SM-. The Resource Accumulation Plan is an
automatic mutual fund investment program that provides RMA participants the
ability to purchase shares of mutual funds on a regular, periodic basis. The
minimum purchase in the program is $100 per investment; however, initial minimum
purchase requirements of the designated mutual fund(s) must be met before an
investor can participate in this program. The participant must receive a
prospectus, which contains more complete information (including charges and
expenses), for each fund before the application form to participate in the
Resource Accumulation Plan is submitted.
FINANCIAL SERVICES CENTER AND RESOURCELINE-REGISTERED TRADEMARK-. RMA
Participants have day round the clock access to information concerning their
RMA. This service is available by calling (800) RMA-1000. RMA representatives
are available at the Financial Services Center from 7:30 a.m. to 8:00 p.m.
(Eastern time) weekdays, and from 8:00 a.m. to 4:00 p.m. (Eastern time)
weekends, to answer inquiries from Participants regarding their accounts, and
ResourceLine, an automated voice response system, provides 24 hour account
information.
MARGIN. RMA Participants may choose to have a margin feature as part of
their RMA account.
A-2
<PAGE>
APPENDIX B
SERVICES AVAILABLE THROUGH THE BSA PROGRAM FOR BSA ACCOUNTHOLDERS
Shares of the Funds are available to investors who are Participants in the
Business Services Account ("BSA")-Registered Trademark- program. The following
is a summary of some of the services that are available to BSA Participants. For
more complete information, investors should refer to separate materials their
Investment Executives can provide them.
PREMIER BUSINESS SERVICES ACCOUNT STATEMENT--BSA Participants receive a
monthly Premier statement, which provides consolidated information to assist
with portfolio management decisions and business finances. The Premier statement
summarizes securities transactions, card transactions, cash advances and checks
in chronological order with running cash and money fund balances. The "Portfolio
Management" feature provides cost basis information where available as well as
calculated gains and losses on most investments. A menu of customized statement
options is now available to make the monthly reporting more comprehensive.
PRELIMINARY AND YEAR-END SUMMARIES STATEMENT--BSA Participants receive
preliminary and year-end summary information statements that provide a
comprehensive overview of tax-related activity in the account during the year to
help investors plan.
CHOICE OF MONEY MARKET FUNDS AND AUTOMATIC SWEEP OF UNINVESTED CASH--As
described more fully in the Prospectus under the heading "Purchases--The RMA and
BSA Programs," BSA Participants select a money market fund as a primary fund
into which uninvested cash is automatically swept on a daily basis from a
variety of taxable and tax-free money funds. By automatically investing cash
balances into a money market fund, this sweep feature minimizes the extent to
which an investor's assets remain idle while held in the account pending
investment.
CHECK WRITING--BSA Participants have ready access to the assets held in
their BSA account through the check writing feature. There are no minimum check
amounts. Participants can order from a number of business check styles to suit
their check writing needs. The BSA checks also include an expense code system
that enables investors to track business expense types for tax and financial
planning.
MASTERCARD BUSINESSCARD-REGISTERED TRADEMARK---BSA Participants can elect to
receive a complementary MasterCard BusinessCard debit card for easy access to
account assets. The MasterCard BusinessCard is accepted worldwide, and can be
used to obtain cash at thousands of automated teller machines. Through
MasterCard's enhanced MasterAssist-Registered Trademark- and
MasterPurchase-Registered Trademark- programs, investors can obtain other
benefits including full value primary rental car insurance, emergency medical
and travel assistance, legal services and purchase protection.
MARGIN--BSA Participants may choose to have a margin feature as part of
their BSA account.
EXTENDED ACCOUNT PROTECTION--Securities held in a BSA Account by PaineWebber
or one of its correspondent firms are protected for up to the net equity through
private insurance in the event of the liquidation or failure of the firm. This
protection is in addition to the $500,000 in protection provided to
accountholders by the Securities Investor Protection Corporation ("SIPC").
Neither the SIPC protection nor the additional account protection insurance
applies to shares of the Funds because such shares are registered directly in
the name of the shareholder, and not in the name of PaineWebber or one of its
correspondent firms.
B-1
<PAGE>
FINANCIAL SERVICES CENTER AND RESOURCELINE-REGISTERED TRADEMARK---BSA
Participants can call the Financial Services Center at (800) BSA-0140 from 7:30
a.m. to 8:00 p.m. (Eastern time) weekdays, and from 8:00 a.m. to 4:00 p.m.
(Eastern time) weekends, and speak to a PaineWebber representative to make any
inquiries about their accounts. The automated ResourceLine voice response system
provides basic account information through a touch-tone phone and is available
24 hours a day by calling (800) 762-1000.
ELECTRONIC FUNDS TRANSFER/PAYMENT SERVICE--BSA Participants have the option
to initiate transfers of funds to and from their accounts, pay bills and process
their payroll through an electronic fund transfer service. Unlimited transfers
to the BSA from other financial institutions and 20 free transfers/payments out
of the BSA are permitted monthly with nominal fees thereafter. Participants send
regular or variable payments simply by calling an 800 number.
CARD RECEIVABLES PROCESSING--BSA account holders that transact business with
their clients using credit cards and debit cards, can have these receipts
automatically deposited into their BSA where their funds will be swept into
their primary sweep Fund thereby continuously earning dividends. Working through
your current merchant processor, or a PaineWebber referral, this service is a
simple way to enhance earnings on your business's cash flow.
LETTERS OF CREDIT--BSA Participants can have Standby Letters of Credit
issued on their behalf through PaineWebber at competitive rates and backed by
securities in their account.
B-2
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in 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 Funds or their distributor. The
Prospectus and this Statement of Additional Information do not constitute an
offering by the Funds or by the distributor in any jurisdiction in which such
offering may not lawfully be made.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Investment Policies and Restrictions........... 2
Directors/Trustees and Officers; Principal
Holders of Securities........................ 34
Investment Advisory, Administration and
Distribution Arrangements.................... 41
Portfolio Transactions......................... 46
Additional Information Regarding Redemptions... 47
Valuation of Shares............................ 47
Taxes.......................................... 48
Calculation of Yield........................... 55
Other Information.............................. 57
Financial Statements........................... 58
Appendix A..................................... A-1
Appendix B..................................... B-1
</TABLE>
PAINEWEBBER RMA
MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
TAX-FREE FUND
CALIFORNIA MUNICIPAL
MONEY FUND
NEW JERSEY MUNICIPAL
MONEY FUND
NEW YORK MUNICIPAL
MONEY FUND
- -----------------------------------
Statement of Additional Information
August 29, 1998
- -----------------------------------
- -C-1998 PaineWebber Incorporated
[RECYCLED LOGO]
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
(1) Declaration of Trust (filed herewith)
(2) By-Laws (filed herewith)
(3) Instruments defining the rights of holders of the Registrant's
shares of beneficial interest (1)
(4) (a) Investment Advisory Contract (filed herewith)
(b) Sub-Advisory and Sub-Administration Contract (filed herewith)
(5) Distribution Contract (filed herewith)
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (filed herewith)
(8) Transfer Agency Agreement and Service Contract (filed herewith)
(9) Opinion and consent of counsel (filed herewith)
(1) Other opinions, appraisals, rulings and consents:
(a) Auditor's Consent (filed herewith)
(b) Consent of special counsel to the Registrant with respect to New
York law for PaineWebber RMA New York Municipal Money Fund (filed
herewith)
(c) Consent of special counsel to the Registrant with respect to
California law for PaineWebber RMA California Municipal Money
Fund (filed herewith)
(11) Financial Statements omitted from prospectus - none
(12) Letter of investment intent (filed herewith)
(13) Plan pursuant to Rule 12b-1 (filed herewith)
(14) and
(27) Financial Data Schedule (filed herewith)
(15) Plan pursuant to Rule 18f-3 (not applicable)
___________
(1) Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Restated Declaration of Trust and from Articles II, VII
and X of Registrant's Restated By-Laws.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 25. INDEMNIFICATION
Section 2 of "Indemnification" in Article X of the Declaration of
Trust provides that the appropriate series of the Registrant will indemnify its
trustees and officers to the fullest extent permitted by law against claims and
expenses asserted against or incurred by them by virtue of being or having been
a trustee or officer; provided that no such person shall be indemnified where
there has been an adjudication or other determination, as described in
Article X, that such person is liable to the Registrant or its shareholders by
reason of willful misfeasance, bad faith,
C-1
<PAGE>
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office or did not act in good faith in the reasonable belief that his
or her action was in the best interest of the Registrant. Section 2 of
"Indemnification" in Article X also provides that the Registrant may maintain
insurance policies covering such rights of indemnification.
Additionally, "Limitation of Liability" in Article X of the Declaration of
Trust provides that the trustees or officers of the Registrant shall not be
personally liable to any person extending credit to, contracting with or having
a claim against the Trust or a particular series thereof; and that, provided
they have exercised reasonable care and have acted under the reasonable belief
that their actions are in the best interest of the Registrant, the trustees and
officers shall not be liable for neglect or wrongdoing by them or any officer,
agent, employee or investment adviser of the Registrant.
Section 2 of Article XI of the Declaration of Trust additionally provides
that, subject to the provisions of Section 1 of Article XI and to Article X,
trustees shall not be liable for errors of judgment or mistakes of fact or law,
or for any act or omission in accordance with advice of counsel or other
experts, or failing to follow such advice, with respect to the meaning and
operation of the Declaration of Trust.
Article IX of the By-Laws provides that the Registrant may purchase and
maintain insurance on behalf of any person who is or was a trustee, officer or
employee of the Trust, or is or was serving at the request of the Trust as a
trustee, officer or employee of a corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity or arising out of his or her status
as such, whether or not the Registrant would have the power to indemnify him or
her against such liability, provided that the Registrant may not acquire
insurance protecting any trustee or officer against liability to the Registrant
or its shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his or her office.
Section 9 of the Investment Advisory and Administration Contract between
PaineWebber and the Registrant provides that PaineWebber shall not be liable for
any error of judgment or mistake of law or for any loss suffered by any series
("Fund") or the Registrant in connection with the matters to which the Contract
relates, except for a loss resulting from the willful misfeasance, bad faith, or
gross negligence of PaineWebber in the performance of its duties or from its
reckless disregard of its obligations and duties under the Contract. Section 10
of the Contract provides that the trustees shall not be liable for any
obligations of the Registrant under the Contract and that PaineWebber shall look
only to the assets and property of the Registrant in settlement of such right or
claim and not to the assets and property of the trustees.
Section 9 of the Sub-Advisory and Sub-Administration Contract between
PaineWebber and Mitchell Hutchins contains provisions similar to Section 9 of
the Investment Advisory and Administration Contract between the Registrant and
PaineWebber, with respect to PaineWebber.
Section 9 of the Distribution Contract between the Registrant and
PaineWebber provides that the Registrant will indemnify PaineWebber, its
officers, directors and controlling persons against all liabilities arising from
any alleged untrue statement of material fact in the Registration Statement or
from any alleged omission to state in the Registration Statement a material fact
required to be stated in it or necessary to make the statements in it, in light
of the circumstances under which they were made, not misleading, except insofar
as liability arises from untrue statements or omissions made in reliance upon
and in conformity with information furnished by PaineWebber to the Registrant
for use in the Registration Statement; and provided that this indemnity
agreement shall not protect any such persons against liabilities arising by
reason of their bad faith, gross negligence or willful misfeasance and shall not
inure to the benefit of any such persons unless a court of competent
jurisdiction or controlling precedent determines that such result is not against
public policy as expressed in the Securities Act of 1933. Section 9 also
provides that PaineWebber agrees to indemnify, defend and hold the Registrant,
its officers and trustees free and harmless of any claims arising out of any
alleged untrue statement or any alleged omission of material fact contained in
information furnished by PaineWebber for use in the Registration Statement or
arising out of an agreement between PaineWebber and any retail dealer, or
arising out of supplementary literature or advertising used by PaineWebber in
connection with the Contract.
C-2
<PAGE>
Section 10 of the Distribution Contract contains provisions similar to that
of Section 10 of the Investment Advisory and Administration Contract, with
respect to PaineWebber, as appropriate.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
I. PaineWebber, a Delaware corporation, is a registered investment
adviser and is wholly owned by Paine Webber Group Inc. PaineWebber is primarily
engaged in the financial services business. Information as to the officers and
directors of PaineWebber is included in its Form ADV filed with the Securities
and Exchange Commission (registration number 801-7163) and is incorporated
herein by reference.
II. Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
Delaware corporation, is a registered investment adviser and is a wholly owned
subsidiary of PaineWebber. Mitchell Hutchins is primarily engaged in the
investment advisory business. Information as to the officers and directors of
Mitchell Hutchins is included in its Form ADV filed with the Securities and
Exchange Commission (registration number 801-13219) and is incorporated herein
by reference.
Item 27. PRINCIPAL UNDERWRITERS
(a) PaineWebber serves as principal underwriter and/or investment adviser
for the following other investment companies:
LIQUID INSTITUTIONAL RESERVES
MITCHELL HUTCHINS INSTITUTIONAL SERIES
PAINEWEBBER CASHFUND, INC.
PAINEWEBBER MUNICIPAL MONEY MARKET SERIES
PAINEWEBBER RMA MONEY FUND, INC.
PAINEWEBBER RMA TAX-FREE FUND, INC.
(b) PaineWebber is the principal underwriter for the Registrant. The
directors and officers of PaineWebber, their principal business
addresses, and their positions and offices with PaineWebber are
identified in its Form ADV filed with the Securities and Exchange
Commission (registration number 801-7163), and such information is
hereby incorporated herein by reference. The information set forth
below is furnished for those directors and officers of PaineWebber who
also serve as trustees or officers of the Registrant. Unless
otherwise indicated, the principal address of each person is 1285
Avenue of the Americas, New York, New York 10019.
C-3
<PAGE>
Position and Offices With
Name Position With Registrant Underwriter
---- ------------------------ -------------------------
Margo N. Alexander Trustee and President Executive Vice President
(Chief Executive and Director
Officer)
Mary C. Farrell Trustee Managing Director, Senior
Investment Strategist and
Member of the Investment
Policy Committee
(c) None.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
The books and other documents required by paragraphs (b)(4), (c) and (d) of
Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Mitchell Hutchins Asset Management Inc., 1285 Avenue of
the Americas, New York, New York 10019. All other accounts, books and documents
required by Rule 31a-1 are maintained in the physical possession of Registrant's
transfer agent and custodian.
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS
Not applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 27th day of August, 1998.
PAINEWEBBER MANAGED MUNICIPAL TRUST
By: /s/ Dianne E. O'Donnell
------------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Margo N. Alexander President and Trustee August 27, 1998
- -------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman August 27, 1998
- -------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee August 27, 1998
- --------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee August 27, 1998
- --------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee August 27, 1998
- --------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee August 27, 1998
- --------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee August 27, 1998
- --------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee August 27, 1998
- --------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee August 27, 1998
- --------------------------
Carl W. Schafer *
/s/ Paul H. Schubert Vice President and August 27, 1998
- -------------------------- Treasurer (Chief Financial
Paul H. Schubert and Accounting Officer)
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 30 to the registration statement of PaineWebber Managed Municipal
Trust, SEC File 2-89016, filed June 27, 1996.
<PAGE>
PAINEWEBBER MANAGED MUNICIPAL TRUST
EXHIBIT INDEX
Exhibit
Number
------
(1) Declaration of Trust (filed herewith)
(2) By-Laws (filed herewith)
(3) Instruments defining the rights of holders of the Registrant's shares
of beneficial interest (1)
(4) (a) Investment Advisory Contract (filed herewith)
(b) Sub-Advisory and Sub-Administration Contract (filed herewith)
(5) Distribution Contract (filed herewith)
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (filed herewith)
(8) Transfer Agency Agreement and Service Contract (filed herewith)
(9) Opinion and consent of counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents:
(a) Auditor's Consent (filed herewith)
(b) Consent of special counsel to the Registrant with respect to New
York law for PaineWebber RMA New York Municipal Money Fund
(filed herewith)
(c) Consent of special counsel to the Registrant with respect to
California law for PaineWebber RMA California Municipal Money
Fund (filed herewith)
(11) Financial Statements omitted from prospectus - none
(12) Letter of investment intent (filed herewith)
(13) Plan pursuant to Rule 12b-1 (filed herewith)
(14) and
(27) Financial Data Schedule (filed herewith)
(15) Plan pursuant to Rule 18f-3 (not applicable)
- --------------
(1) Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Restated Declaration of Trust and from Articles II, VII and X of
Registrant's Restated By-Laws.
<PAGE>
Exhibit No. 1
PAINEWEBBER MANAGED MUNICIPAL TRUST
AMENDED AND RESTATED DECLARATION OF TRUST
DECLARATION OF TRUST, made at Boston, Massachusetts, this 21st day of November,
1986 and amended and restated this 19th day of November, 1997 by the Trustees:
WHEREAS, the Trustees desire to establish a trust fund for the investment
and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed in trust under
this Declaration of Trust as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
NAME
Section 1. This Trust shall be known as "PaineWebber Managed Municipal
Trust." The resident agent for the Trust in Massachusetts shall be CT
Corporation System, whose address is 2 Oliver Street, Boston, Massachusetts, or
such other person as the Trustees may from time to time designate.
DEFINITIONS
Section 2. Wherever used herein, unless otherwise required by the context
or specifically provided:
(a) The Terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Majority Shareholder Vote" (the 67% or 50% requirement of the third
sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable) and
"Principal Underwriter" shall have the meanings given them in the 1940 Act, as
amended from time to time;
(b) The "Trust" refers to PaineWebber Managed Municipal Trust and
reference to the Trust, when applicable to one or more Series of the Trust,
shall refer to any such Series;
(c) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 3;
(d) "Shareholder" means a record owner of Shares of the Trust;
(e) The "Trustees" means the person who has signed this Declaration of
Trust so long as he shall continue in office in accordance with the terms
hereof, and all other persons who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance
<PAGE>
with the provisions of Article IV hereof, and reference herein to a Trustee or
the Trustees shall refer to such person or persons in his capacity or their
capacities as trustees hereunder.
(f) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest of each Series or Class thereof shall be
divided from time to time and includes fractions of shares as well as whole
shares (all of the transferable units of a Series or of a single Class may be
referred to as "Shares" as the context may require);
(g) The "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time;
(h) "Series" refers to series of Shares of the Trust established in
accordance with the provisions of Article III;
(i) "Class" refers to the class of Shares of a Series of the Trust
established in accordance with the Provisions of Article III.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source of
managed investment in securities.
ARTICLE III
BENEFICIAL INTEREST
SHARES OF BENEFICIAL INTEREST
Section 1. The beneficial interest in the Trust shall be divided into such
transferable Shares of one or more separate and distinct Series or Classes
thereof as the Trustees shall from time to time create and establish. The
number of Shares is unlimited and each Share shall have a par value of $0.001
per Share and upon issuance in accordance with the terms hereof shall be fully
paid and nonassessable. The Trustees shall have full power and authority, in
their sole discretion and without obtaining any prior authorization or vote of
the Shareholders of the Trust, to create and establish (and to change in any
manner) Shares with such preferences, terms of conversion, voting powers, rights
and privileges as the Trustees may from time to time determine, to divide or
combine the Shares into a greater or lesser number, to classify or reclassify
any unissued Shares into one or more Series or Classes of Shares, to abolish any
one or more Series or Classes of Shares, and to take such other action with
respect to the Shares as the Trustees may deem desirable. The Trustees, in
their discretion without a vote of the Shareholders, may divide the Shares of
any Series into Classes. In such event, each Class of a Series shall represent
interests in the assets of that Series and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
expenses allocated to a Class of a Series may be borne solely by such Class as
shall be determined by the Trustees and a Class of a Series may have exclusive
voting rights with respect to matters affecting only that Class. Without
limiting the authority of the Trustees set forth in this Section 1 to establish
and designate any further Series or Classes, the Trustees have
2
<PAGE>
established and designated the Series of Shares and Classes listed in Schedule A
attached hereto and made a part hereof.
ESTABLISHMENT OF SERIES OR CLASS
Section 2. The establishment of any Series or Class in addition to those
set forth in Section 1 shall be effective upon the adoption of a resolution by a
majority of the then Trustees setting forth such establishment and designation
and the relative rights and preferences of the Shares of such Series or Class
thereof. At any time that there are no Shares outstanding of any particular
Series previously established and designated, the Trustees may by a majority
vote abolish that Series and the establishment and designation thereof. At any
time that there are no shares outstanding of any particular Class of a Series,
the Trustees may by a majority vote abolish that Class and the establishment and
designation thereof. The Trustees by a majority vote may change the name of any
Series or Class.
OWNERSHIP OF SHARES
Section 3. The ownership of Shares shall be recorded in the books of the
Trust. The Trustees may make such rules as they consider appropriate for the
transfer of Shares and similar matters. The record books of the Trust shall be
conclusive as to who are the holders of Shares and as to the number of Shares
held from time to time by each Shareholder.
INVESTMENT IN THE TRUST
Section 4. The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize. Such
investments may be in the form of cash or securities in which the appropriate
Series is authorized to invest, valued as provided in Article IX, Section 3.
After the date of the initial contribution of capital, the number of Shares to
represent the initial contribution may in the Trustees' discretion be considered
as outstanding and the amount received by the Trustees on account of the
contribution shall be treated as an asset of the Trust or a Series thereof, as
appropriate. Subsequent investments in the Trust shall be credited to each
Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received; provided, however, that
the Trustees may, in their sole discretion, (a) impose a sales charge upon
investments in the Trust or Series and (b) issue fractional Shares. The
Trustees shall have the right to refuse to accept investments in the Trust or
any Series at any time without any cause or reason therefor whatsoever.
ASSETS AND LIABILITIES OF SERIES
Section 5. All consideration received by the Trust for the issue or sale
of Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be
referred to as "assets belonging to" that Series. In addition, any assets,
income, earnings, profits, and proceeds thereof, funds, or
3
<PAGE>
payments which are not readily identifiable as belonging to any particular
Series shall be allocated by the Trustees between and among one or more of the
Series in such manner as they, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes, and shall be referred to as assets
belonging to that Series. The assets belonging to a particular Series shall be
so recorded upon the books of the Trust, and shall be held by the Trustees in
Trust for the benefit of the holders of Shares of that Series. The assets
belonging to each particular Series shall be charged with the liabilities of
that Series and all expenses, costs, charges and reserves attributable to that
Series except that liabilities and expenses allocated solely to a particular
Class shall be borne by that Class. Any general liabilities, expenses, costs,
charges or reserves of the Trust or Series which are not readily identifiable as
belonging to any particular Series or Class shall be allocated and charged by
the Trustees between or among any one or more of the Series or Classes in such
manner as the Trustees in their sole discretion deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes. Any creditor of any Series may look only to
the assets of that Series to satisfy such creditor's debt. See Article X,
Section 1.
NO PREEMPTIVE RIGHTS
Section 6. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust or
the Trustees.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Section 7. Shares shall be deemed to be personal property giving only the
rights provided in this Declaration of Trust. Every Shareholder by virtue of
having become a Shareholder shall be held expressly to have assented and agreed
to the terms of this Declaration of Trust and to have become a party hereto.
The death of a Shareholder during the continuance of the Trust shall not operate
to terminate the Trust nor entitle the representative of any deceased
Shareholder to an accounting or to take any action in court or elsewhere against
the Trust or the Trustees, but only to the rights of said decedent under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust property or right to call for a partition
or division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders partners. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay by way of
subscription for any Shares or otherwise.
ARTICLE IV
THE TRUSTEES
MANAGEMENT OF THE TRUST
Section 1. The business and affairs of the Trust shall be managed by the
Trustees, and they shall have all powers necessary and desirable to carry out
that responsibility. A Trustee shall not be required to be a Shareholder of the
Trust.
4
<PAGE>
ELECTION OF TRUSTEES AND APPOINTMENT OF INITIAL TRUSTEE
Section 2. On a date fixed by the Trustees, the Shareholders shall elect
the Trustees. Until such election, the Trustees shall be the initial Trustee
and such other persons as may be hereafter appointed pursuant to Section 4 of
this Article IV. The initial Trustee shall be Dianne E. O'Donnell.
TERM OF OFFICE OF TRUSTEES
Section 3. The Trustees shall hold office during the lifetime of this
Trust, and until its termination as hereinafter provided; except (a) that any
Trustee may resign his trust by written instrument signed by him and delivered
to the other Trustees or to any officer of the Trust, which shall take effect
upon such delivery or upon such later date as is specified therein; (b) that any
Trustee may be removed with or without cause at any time by written instrument,
signed by at least two-thirds of the number of Trustees prior to such removal,
specifying the date when such removal shall become effective; (c) that any
Trustee who requests in writing to be retired or who has become incapacitated by
illness or injury may be retired by written instrument signed by a majority of
other Trustees, specifying the date of his retirement; and (d) that any Trustee
may be removed at any Special Meeting of the Trust by a vote of at least two-
thirds of the outstanding Shares.
RESIGNATION AND APPOINTMENT OF TRUSTEES
Section 4. In case of the declination, death, resignation, retirement,
removal, incapacity, or inability of any of the Trustees, or in case a vacancy
shall exist by reason of an increase in number or for any other reason, the
remaining Trustees shall fill such vacancy by appointment of such other person
as they in their discretion shall see fit consistent with the limitations under
the 1940 Act. Such appointment shall be evidenced by a written instrument
signed by a majority of the Trustees in office or by a recording in the records
of the Trust, whereupon the appointment shall take effect. An appointment of a
Trustee may be made by the Trustees then in office as aforesaid in anticipation
of a vacancy to occur by reason of retirement, resignation or increase in number
of Trustees effective at a later date, provided that said appointment shall
become effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted this trust, the trust estate shall vest in the new
Trustee or Trustees, together with the continuing Trustees, without any further
act or conveyance, and he shall be deemed a Trustee hereunder. The power of
appointment is subject to the provisions of Section 16(a) of the 1940 Act.
TEMPORARY ABSENCE OF TRUSTEE
Section 5. Any Trustee may, by power of attorney, delegate his power for a
period not exceeding six months at any one time to any other Trustee or
Trustees, provided that in no case shall less than two Trustees personally
exercise the other powers hereunder except as herein otherwise expressly
provided.
5
<PAGE>
NUMBER OF TRUSTEES
Section 6. The number of Trustees shall initially be one (1) and
thereafter shall be such number as shall be fixed from time to time by a written
instrument signed by a majority of the Trustees (or by an officer of the Trust
pursuant to a vote of the majority of such Trustees); provided, however, that
the number of Trustees serving hereunder at any time shall in no event be less
than one (1) nor more than fifteen (15).
Whenever a vacancy in the Board of Trustees shall occur, until such vacancy
is filled, or while any Trustee is absent from his state of domicile (unless
said Trustee has made arrangements to be informed about, and to participate in,
the affairs of the Trust during such absence), or is physically or mentally
incapacitated by reason of disease or otherwise, the other Trustees shall have
all the powers hereunder and the certificate of the other Trustees of such
vacancy, absence or incapacity, shall be conclusive.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
Section 7. The death, declination, resignation, retirement, removal,
incapacity, or inability of the Trustee, or any one of them, shall not operate
to annul the Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust.
OWNERSHIP OF ASSETS OF THE TRUST
Section 8. The assets of the Trust shall be held separate and apart from
any assets now or hereafter held in any capacity other than as Trustee hereunder
by the Trustees or any successor Trustees. All of the assets of the Trust shall
at all times be considered as vested in the Trustees.
ARTICLE V
POWERS OF THE TRUSTEES
POWERS
Section 1. The Trustees in all instances shall act as principals, and are
and shall be free from the control of the Shareholders. The Trustees shall have
full power and authority to do any and all acts and to make and execute any and
all contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The Trustees shall not in any way
be bound or limited by present or future laws or customs in regard to trust
investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purposes of this Trust. Subject to any applicable limitation in
this Declaration of Trust or the By-Laws of the Trust, the Trustees shall have
power and authority, without limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
present or future law or custom in regard to investments by trustees, and to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all of the assets of the Trust; to purchase and sell (or write) options
on securities, currencies, indices, futures contracts and other financial
instruments and enter into
6
<PAGE>
closing transactions in connection therewith; to enter into all types of
commodities contracts, including without limitation the purchase and sale of
futures contracts and forward contracts on securities, indices, currencies, and
other financial instruments; to engage in forward commitment, "when issued" and
delayed delivery transactions; to enter into repurchase agreements and reverse
repurchase agreements; and to employ all kinds of hedging techniques and
investment management strategies.
(b) To adopt By-Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve the right to the Shareholders.
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate.
(d) To employ as custodian of any assets of the Trust subject to any
conditions set forth in this Declaration of Trust or in the By-Laws, if any, a
bank, trust company, or other entity permitted by the Commission to serve as
such.
(e) To retain a transfer agent and Shareholder servicing agent, or both.
(f) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both.
(g) To set record dates in the manner hereinafter provided for.
(h) To delegate such authority as they consider desirable to any officers
of the Trust and to any agent, independent contractor, custodian or underwriter.
(i) To sell or exchange any or all of the assets of the Trust, subject to
the provisions of Article XI, Section 4(b) hereof.
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper.
(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities.
(l) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form; or either in its own
name or in the name of a custodian or a nominee or nominees, subject in either
case to proper safeguards according to the usual practice of Massachusetts trust
companies or investment companies.
(m) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article III and to establish separate Classes
thereof.
7
<PAGE>
(n) To allocate assets, liabilities and expenses of the Trust to a
particular Series and liabilities and expenses to a particular Class thereof or
to apportion the same between or among two or more Series or Classes, provided
that any liabilities or expenses incurred by a particular Series or Class shall
be payable solely out of the assets belonging to that Series or Class as
provided for in Article III.
(o) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust.
(p) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes.
(q) To make distributions of income and of capital gains to Shareholders
in the manner hereinafter provided for.
(r) To borrow money.
(s) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder.
No one dealing with the Trustees shall be under any obligation to make any
inquiry concerning the authority of the Trustees, or to see to the application
of any payments made or property transferred to the Trustees or upon their
order.
TRUSTEES AND OFFICERS AS SHAREHOLDERS
Section 2. Any Trustee, officer, other agent or independent contractor of
the Trust may acquire, own and dispose of Shares to the same extent as if he
were not a Trustee, officer, agent or independent contractor; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
By-Laws.
ACTION BY THE TRUSTEES
Section 3. The Trustees shall act by majority vote at a meeting duly
called or by unanimous written consent without a meeting or by telephone consent
provided a quorum of Trustees participate in any such telephonic meeting, unless
the 1940 Act requires that a particular action be taken only at a meeting in
person of the Trustees. At any meeting of the Trustees, a majority of the
Trustees shall constitute a quorum. Meetings of the Trustees may be called
orally or in writing by the Chairman of the Trustees or by any two other
Trustees. Notice of the time, date and place of all meetings of the Trustees
shall be given by the party calling the meeting to each Trustee by telephone or
telegram sent to his home or business address at least twenty-four hours in
advance of the meeting or by written notice mailed to his home or business
address at least seventy-two hours
8
<PAGE>
in advance of the meeting. Notice need not be given to any Trustee who attends
the meeting without objecting to the lack of notice or who executes a written
waiver of notice with respect to the meeting either before or after such
meeting. Subject to the requirements of the 1940 Act, the Trustees by majority
vote may delegate to any one of their number their authority to approve
particular matters or take particular actions on behalf of the Trust.
CHAIRMAN OF THE TRUSTEES
Section 4. The Trustees may appoint one of their number to be Chairman of
the Board of Trustees. The Chairman shall preside at all meetings of the
Trustees, shall be responsible for the execution of policies established by the
Trustees and the administration of the Trust, and may be the chief executive,
financial and/or accounting officer of the Trust.
ARTICLE VI
EXPENSES OF THE TRUST
TRUSTEE REIMBURSEMENT
Section 1. Subject to the provisions of Article III, Section 5, the
Trustees shall be reimbursed from the Trust estate or the assets belonging to
the appropriate Series for their expenses and disbursements, including, without
limitation, fees and expenses of Trustees who are not Interested Persons of the
Trust, interest expense, taxes, fees and commissions of every kind, expenses of
pricing Trust portfolio securities, expenses of issue, repurchase and redemption
of Shares including expenses attributable to a program of periodic repurchases
or redemptions, expenses of distributing its Shares and providing services to
Shareholders, expenses of registering and qualifying the Trust and its Shares
under Federal and State laws and regulations, charges of investment advisers,
administrators, custodians, transfer agents, and registrars, expenses of
preparing and setting in type prospectuses and statements of additional
information, expenses of printing and distributing prospectuses and statements
of additional information sent to existing Shareholders, auditing and legal
expenses, reports to Shareholders, expenses of meetings of Shareholders and
proxy solicitations therefor, insurance expense, association membership dues and
for such non-recurring items as may arise, including litigation to which the
Trust is a party (except those losses and expenses the indemnification of which
is not permitted under Article X hereof), and for all losses and liabilities by
them incurred in administering the Trust; and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have a lien on the
assets belonging to the appropriate Series prior to any rights or interests of
the Shareholders thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
9
<PAGE>
ARTICLE VII
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER AND TRANSFER AGENT
INVESTMENT ADVISER
Section 1. Subject to a Majority Shareholder Vote, the Trustees may in
their discretion from time to time enter into an investment advisory or
management contract(s) with respect to the Trust or any Series thereof whereby
the other party(ies) to such contract(s) shall undertake to furnish the Trustees
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions, as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration of Trust, the Trustees may
authorize the investment adviser(s) (subject to such general or specific
instruments as the Trustees may from time to time adopt) to effect purchases,
sales or exchanges of portfolio securities and other investment instruments of
the Trust on behalf of the Trustees or may authorize any officer, agent, or
Trustee to effect such purchases, sales or exchanges pursuant to recommendations
of the investment adviser (and all without further action by the Trustees). Any
such purchases, sales and exchanges shall be deemed to have been authorized by
all of the Trustees.
The Trustees may, subject to applicable requirements of the 1940 Act,
including those relating to Shareholder approval, authorize the investment
adviser to employ one or more sub-advisers from time to time to perform such of
the acts and services of the investment adviser, and upon such terms and
conditions, as may be agreed upon between the investment adviser and sub-
adviser.
PRINCIPAL UNDERWRITER
Section 2. The Trustees may in their discretion from time to time enter
into one or more contract(s) providing for the sale of the Shares, whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the By-
Laws, if any, and such further terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article VII,
or of the By-Laws, if any; and such contract may also provide for the repurchase
or sale of Shares by such other party as principal or as agent of the Trust.
The Trustees may in their discretion adopt a plan or plans of distribution and
enter into any related agreements whereby the Trust finances directly or
indirectly any activity that is primarily intended to result in sales of Shares.
Such plan or plans of distribution and any related agreements may contain such
terms and conditions as the Trustees may in their discretion determine subject
to the requirements of Section 12 of the 1940 Act, Rule 12b-1 thereunder and any
other applicable rules and regulations.
TRANSFER AGENT
Section 3. The Trustees may in their discretion from time to time enter
into a transfer agency and Shareholder service contract whereby the other party
shall undertake to furnish the Trustees and Trust with transfer agency and
shareholder services. The contract shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the
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provisions of this Declaration of Trust or of the By-Laws, if any. Such
services may be provided by one or more entities, including one or more agents
of such other party.
PARTIES TO CONTRACT
Section 4. Any contract of the character described in Sections 1, 2 and 3
of this Article VII or that relates to the provision of custodian services to
the Trust may be entered into with any corporation, firm, partnership, trust or
association, although one more of the Trustees or officers of the Trust may be
an officer, director, trustee, shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was reasonable and fair and not inconsistent with the
provisions of this Article VII or the By-Laws, if any. The same person
(including a firm, corporation, partnership, trust, or association) may be the
other party to contracts entered into pursuant to Sections 1, 2 and 3 above or
with respect to the provision of custodian services to the Trust, and any
individual may be financially interested in or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 4.
PROVISIONS AND AMENDMENTS
Section 5. Any contract entered into pursuant to Sections 1 and 2 of this
Article VII shall be consistent with and subject to the applicable requirements
of Sections 12 and 15 of the 1940 Act and the rules and orders thereunder
(including any amendments thereto or other applicable Act of Congress hereafter
enacted) with respect to its continuance in effect, its termination, and the
method of authorization and approval of such contract or renewal thereof.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
Section 1. The Shareholders shall have power to vote (i) for the election
of Trustees as provided in Article IV, Section 2, (ii) for the removal of
Trustees as provided in Article IV, Section 3(d), (iii) with respect to any
investment advisory or management contract as provided in Article VII, Section
1, (iv) with respect to any termination or reorganization of the Trust as
provided in Article XI, Section 4, (v) with respect to the amendment of this
Declaration of Trust to the extent and as provided in Article XI, Section 7,
(vi) to the same extent as the shareholders of a Massachusetts business
corporation, as to whether or not a court action, proceeding or claim should be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, provided, however, that a Shareholder of a particular
Series shall not be entitled to bring any derivative or class action on behalf
of any other Series of the Trust, and provided further that, within a Series, a
Shareholder of a particular Class shall not be entitled to bring any derivative
or class action on behalf of any other Class except with respect to matters
sharing a common fact pattern with said Shareholder's own Class; and (vii) with
respect to such additional matters relating
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to the Trust as may be required or authorized by law, by this Declaration of
Trust, or the By-Laws of the Trust, if any, or any registration of the Trust
with the Commission or any State, or as the Trustees may consider desirable. On
any matter submitted to a vote of the Shareholders, all Shares shall be voted by
individual Series, except (i) when required by the 1940 Act, Shares shall be
voted in the aggregate and not by individual Series; and (ii) when the Trustees
have determined that the matter affects only the interests of one or more
Classes, then only the Shareholders of such Class or Classes shall be entitled
to vote thereon. Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Declaration of Trust
or any By-Laws of the Trust to be taken by Shareholders.
MEETINGS
Section 2. The first Shareholders' meeting shall be held as specified in
Section 2 of Article IV at the principal office of the Trust or such other place
as the Trustees may designate. Special meetings of the Shareholders or any
Series or Class thereof may be called by the Trustees and shall be called by the
Trustees upon the written request of Shareholders owning at least one-tenth of
the outstanding Shares entitled to vote. Whenever ten or more Shareholders
meeting the qualifications set forth in Section 16(c) of the 1940 Act, as the
same may be amended from time to time, seek the opportunity of furnishing
materials to the other Shareholders with a view to obtaining signatures on such
a request for a meeting, the Trustees shall comply with the provisions of said
Section 16(c) and any rules or orders thereunder with respect to providing such
Shareholders access to the list of the Shareholders of record of the Trust or
the mailing of such materials to such Shareholders of record. Shareholders
shall be entitled to at least fifteen days' notice of any meeting.
QUORUM AND REQUIRED VOTE
Section 3. A majority of Shares entitled to vote in person or by proxy
shall be a quorum for the transaction of business at a Shareholders' meeting,
except that where any provision of law or of this Declaration of Trust permits
or requires that holders of any Series or Class thereof shall vote as a Series
or Class, then a majority of the aggregate number of Shares of that Series or
Class thereof entitled to vote shall be necessary to constitute a quorum for the
transaction of business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws, a majority of the Shares
voted in person or by proxy shall decide any questions and a plurality shall
elect a Trustee, provided that where any provision of law or of this Declaration
of Trust permits or requires that the holders of any Series or Class shall vote
as a Series or Class, then a majority of the Shares of that Series or Class
voted on the matter shall decide that matter insofar as that Series or Class is
concerned.
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ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
DISTRIBUTIONS
Section 1.
(a) The Trustees may from time to time declare and pay dividends and other
distributions. The amount of such dividends and the payment of them shall be
wholly in the discretion of the Trustees.
(b) The Trustees shall have power, to the fullest extent permitted by the
laws of the Commonwealth of Massachusetts, at any time to declare and cause to
be paid dividends on Shares of a particular Series, from the assets belonging to
that Series, which dividends and other distributions, at the election of the
Trustees, may be paid daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, and may be payable in Shares of that Series or Class thereof, as
appropriate, at the election of each Shareholder of that Series or Class. All
dividends and distributions on Shares of a particular Series shall be
distributed pro rata to the holders of that Series in proportion to the number
of Shares of that Series held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that such
dividends and distributions shall appropriately reflect expenses allocated to a
particular Class of such Series.
(c) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a "stock dividend" pro rata
among the Shareholders of a particular Series or of a Class thereof as of the
record date of that Series (fixed as provided in Section 3 of Article XI
hereof).
REDEMPTIONS
Section 2. In case any holder of record of Shares of a particular Series
or Class desires to dispose of his Shares, he may deposit at the office of the
transfer agent or other authorized agent of that Series a written request or
such other form of request as the Trustees may from time to time authorize,
requesting that the Series purchase the Shares in accordance with this Section
2; and the Shareholder so requesting shall be entitled to require the Series to
purchase, and the Series or the principal underwriter of the Series shall
purchase his said Shares, but only at the Net Asset Value of the Series or Class
held by the Shareholder (as described in Section 3 hereof) minus any applicable
sales charge or redemption or repurchase fee. The Series shall make payment for
any such Shares to be redeemed, as aforesaid, in cash or property from the
assets of that Series and payment for such Shares shall be made by the Series or
the principal underwriter of the Series to the Shareholder of record within
seven (7) days after the date upon which the request is effective; provided,
however, that if Shares being redeemed have been purchased by check, the Trust
may postpone payment until the Trust has assurance that good payment has been
collected for the purchase of the Shares. The Trust may require Shareholders to
pay a sales charge to the Trust, the underwriter or any other person designated
by the Trustees upon redemption or repurchase of Shares of any Series or Class
thereof, in such amount as shall be determined from time to time by the
Trustees. The amount of
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such sales charge may but need not vary depending on various factors, including
without limitation the holding period of the redeemed or repurchased Shares.
The Trustees may also charge a redemption or repurchase fee in such amount as
may be determined from time to time by the Trustees.
DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO ASSETS
Section 3. The term "Net Asset Value" of any Series shall mean that amount
by which the assets of that Series exceed its liabilities, all as determined by
or under the direction of the Trustees. Net Asset Value per Share shall be
determined separately for each Series of Shares and shall be determined on such
days and at such times as the Trustees may determine. Such determination may be
made on a Series-by-Series or Class-by-Class basis, as appropriate, and shall
include any expenses allocated to a specific Series or Class. The determination
shall be made with respect to securities for which market quotations are readily
available at the market value of such securities; and with respect to other
securities and assets, at the fair value as determined in good faith by the
Trustees, provided, however, that the Trustees, without Shareholder approval,
may alter the method of appraising portfolio securities insofar as permitted
under the 1940 Act and the rules, regulations and interpretations thereof
promulgated or issued by the Commission or insofar as permitted by any order of
the Commission applicable to the Series. The Trustees may delegate any of their
powers and duties under this Section 3 with respect to appraisal of assets and
liabilities. At any time the Trustees may cause the Net Asset Value per Share
last determined to be determined again in a similar manner and may fix the time
when such redetermined values shall become effective.
SUSPENSION OF THE RIGHT OF REDEMPTION
Section 4. Notwithstanding Section 2 hereof, the Trustees may declare a
suspension of the right of redemption or postpone the date of payment as
permitted under the 1940 Act. Such suspension shall take effect at such time as
the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share existing after the termination of the
suspension.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATION OF LIABILITY
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular Series shall look only to the assets of
the Trust or such Series, as the case may be, for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, nor any
other Series shall be personally liable therefor.
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Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust, any Series, or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his capacity as Trustees or Trustee and neither such
Trustees or Trustee nor the Shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that the
same was executed or made by them on behalf of the Trust or by them as Trustees
or Trustee or as officers or officer and not individually and that the
obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust or the particular Series in question, as the case may be, but the
omission thereof shall not operate to bind any Trustees or Trustee or officers
or officer or Shareholders or Shareholder individually.
Section 2. Provided they have exercised reasonable care and have acted
under the reasonable belief that their actions are in the best interest of the
Trust, the Trustees and officers of the Trust shall not be responsible for or
liable in any event for neglect or wrongdoing of them or any officer, agent,
employee, investment adviser or independent contractor of the Trust, but nothing
contained in this Declaration of Trust shall protect any Trustee or officer
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
INDEMNIFICATION
Section 3.
(a) Subject to the exceptions and limitations contained in Section 3(b)
below:
(i) every person who is, or has been a Trustee or officer of the
Trust (hereinafter referred to as "Covered Person") shall be indemnified by the
appropriate Series to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
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(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office,
(A) by the court or other body approving the settlement;
(B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based
upon a review of readily available facts (as opposed to a full trial-
type inquiry); or
(C) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type
inquiry);
provided, however, that any Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled to by contract or otherwise under
law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 3 may be paid by the applicable Series from time
to time prior to final disposition thereof upon receipt of an undertaking by or
on behalf of such Covered Person that such amount will be paid over by him to
the applicable Series if it is ultimately determined that he is not entitled to
indemnification under this Section 3; provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance payments
or (c) either a majority of the Trustees who are neither interested persons of
the Trust nor parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available facts
(as opposed to a trial-type inquiry or full investigation), that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section 3.
SHAREHOLDERS
Section 4. In case any Shareholder or former Shareholder of any Series of
the Trust shall be held to be personally liable solely by reason of his being or
having been a Shareholder and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The
Series shall, upon request by the Shareholder, assume the defense
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of any claim made against the Shareholder for any act or obligation of the
Series and satisfy any judgment thereon.
ARTICLE XI
MISCELLANEOUS
TRUST NOT A PARTNERSHIP
Section 1. It is hereby expressly declared that a trust and not a
partnership is created hereby. No Trustee hereunder shall have any power to
bind personally either the Trust's officers or any Shareholder.
TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
Section 2. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances then
prevailing, shall be binding upon everyone interested. Subject to the
provisions of Article X, the Trustees shall not be liable for errors of judgment
or mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust,
and subject to the provisions of Article X, shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is obtained.
ESTABLISHMENT OF RECORD DATES
Section 3. The Trustees may close the stock transfer books of the Trust
for a period not exceeding sixty (60) days preceding the date of any meeting of
Shareholders, or the date for the payment of any dividends, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect; or in lieu of closing the stock transfer books as
aforesaid, the Trustees may fix in advance a date, not exceeding ninety (90)
days preceding the date of any meeting of Shareholders, or the date for payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or to receive payment of such dividend, or to receive
such allotment or rights, or to exercise such rights in respect of any such
change, conversion or exchange of Shares, and in such case such Shareholders and
only such Shareholders as shall be Shareholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any Shares on
the books of the Trust after any such record date fixed or aforesaid.
TERMINATION OF TRUST
Section 4.
(a) This Trust shall continue without limitation of time but subject to
the provisions of sub-section (b) of this Section 4.
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(b) Subject to a Majority Shareholder Vote of each Series affected by the
matter or, if applicable, to a Majority Shareholder Vote of the Trust, the
Trustees may
(i) sell, convey, merge and transfer all or substantially all of the
assets of the Trust or any affected Series to another Series or to a trust,
partnership, association or corporation organized under the laws of any state
which is an investment company as defined in the 1940 Act, for adequate
consideration which may include the assumption of all outstanding obligations,
taxes and other liabilities, accrued or contingent, of the Trust or any affected
Series, and which may include shares of beneficial interest or stock of such
Series, trust, partnership, association or corporation; or
(ii) at any time sell and convert into money all or substantially all
of the assets of the Trust or any affected Series.
Upon making provision for the payment of all known liabilities of the Trust
or any affected Series in either (i) or (ii), by such assumption or otherwise,
the Trustees shall distribute the remaining proceeds or assets (as the case may
be) ratably among the holders of the Shares of the Trust or any affected Series
then outstanding; however, the payment to any particular Class within such
Series may be reduced by any fees, expenses or charges allocated to that Class.
Nothing in this Declaration of Trust shall preclude the Trustees from
distributing such remaining proceeds or assets so that holders of the Shares of
a particular Class of the Trust or any affected Series receive as their ratable
distribution shares solely of an analogous class, as determined by the Trustees,
of such trust, partnership, association or corporation.
The Trustees may take any of the actions specified in clauses (i) and (ii)
above without obtaining a Majority Shareholder Vote of any Series or the Trust
if a majority of the Trustees makes a determination that the continuation of a
Series or the Trust is not in the best interests of such Series, the Trust or
their respective Shareholders as a result of factors or events adversely
affecting the ability of such Series or the Trust to conduct its business and
operations in an economically viable manner. Such factors and events may
include the inability of a Series or the Trust to maintain its assets at an
appropriate size, changes in laws or regulations governing the Series or Trust
or affecting assets of the type in which such Series or the Trust invests or
economic developments or trends having a significant adverse impact on the
business or operations of such Series or the Trust.
(c) Upon completion of the distribution of the remaining proceeds or the
remaining assets as provided in sub-section (b), the Trust or any affected
Series shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder with respect thereto and the right,
title and interest of all parties therein shall be canceled and discharged.
FILING OF COPIES, REFERENCES, HEADINGS
Section 5. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trustees with the Secretary of the Commonwealth of Massachusetts
and the Boston City Clerk, as well as any other governmental office where such
filing may from time to time be required. Anyone dealing with the Trust may
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rely on a certificate by an officer or Trustee of the Trust as to whether or not
any such amendments to this Declaration of Trust have been made and as to any
matters in connection with the Trust hereunder, and with the same effect as if
it were the original, may rely on a copy certified by an officer or Trustee of
the Trust to be a copy of this instrument or of any such amendments. In this
instrument or in any such amendments, references to this instrument, and all
expressions like "herein," "hereof" and "hereunder," shall be deemed to refer to
this instrument as amended from time to time. The masculine gender shall
include the feminine and neuter genders. Headings are placed herein for
convenience of reference only, and in case of any conflict, the text of this
instrument, rather than the headings, shall control. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
APPLICABLE LAW
Section 6. The Trust set forth in this instrument is made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and,
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
AMENDMENTS
Section 7. All rights granted to the Shareholders under this Declaration
of Trust are granted subject to the reservation of the right to amend this
Declaration of Trust as herein provided, except that no amendment shall repeal
the limitations on personal liability of any Shareholder or Trustee or repeal
the prohibition of assessment upon the Shareholders without the express consent
of each Shareholder or Trustee involved. Subject to the foregoing, the
provisions of this Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does not
adversely affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the 1940 Act, by an instrument in
writing signed by a majority of the then Trustees (or by an officer of the Trust
pursuant to the vote of a majority of such Trustees). Except as provided in the
first sentence of this Section 7, any amendment to this Declaration of Trust
that adversely affects the rights of Shareholders may be adopted at any time by
an instrument signed in writing by a majority of the then Trustees (or by an
officer of the Trust pursuant to the vote of a majority of such Trustees) when
authorized to do so by Majority Shareholder Vote; provided, however, that an
amendment that shall affect the Shareholders of one or more Series (or of one or
more Classes), but not the Shareholders of all outstanding Series (or Classes),
shall be authorized by a Majority Shareholder Vote of each Series (or Class, as
the case may be) affected, and no vote of a Series (or Class) not affected shall
be required. Subject to the foregoing, any such amendment shall be effective as
provided in the instrument containing the terms of such amendment or, if there
is no provision therein with respect to effectiveness, upon the execution of
such instrument and of a certificate (which may be a part of such instrument)
executed by a Trustee or officer to the effect that such amendment has been duly
adopted. Copies of the amendment to this Declaration of Trust shall be filed as
specified in Section 5 of this Article XI. A restated Declaration of Trust,
integrating into a single instrument all of the provisions of the Declaration of
Trust which are then in effect and operative, may be executed from time to time
by a majority of the Trustees and shall be effective upon filing as specified in
such Section 5.
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FISCAL YEAR
Section 8. The fiscal year of the Trust shall be determined by the
Trustees in accordance with the By-Laws, provided, however, that the Trustees
may, without Shareholder approval, change the fiscal year of the Trust.
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SCHEDULE A
SERIES OF THE TRUST
PaineWebber RMA California Municipal Money Fund
PaineWebber RMA New York Municipal Money Fund
[The next page of this Declaration of Trust is page 22]
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IN WITNESS WHEREOF, the undersigned, being the all the Trustees of the
Trust, have executed this Amended and Restated Declaration of Trust as of the
day and year first above written.
/s/ Margo N. Alexander /s/ Meyer Feldberg
----------------------------- -----------------------------
Margo N. Alexander Meyer Feldberg
/s/ E. Garrett Bewkes, Jr. /s/ George W. Gowen
----------------------------- -----------------------------
Garrett Bewkes, Jr. George W. Gowen
/s/ Richard Q. Armstrong /s/ Frederic V. Malek
----------------------------- -----------------------------
Richard Q. Armstrong Frederic V. Malek
/s/ Richard R. Burt /s/ Carl W. Schafer
----------------------------- -----------------------------
Richard R. Burt Carl W. Schafer
/s/ Mary C. Farrell
-----------------------------
Mary C. Farrell
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PaineWebber Managed Municipal Trust
ATTACHMENT 1
1. The principal place of business of PaineWebber Managed Municipal Trust
("Trust") is:
1285 Avenue of the Americas
New York, New York 10019
2. The Trustees of the Trust and their business addresses* are:
Margo N. Alexander
Richard Q. Armstrong
78 West Brother Drive
Greenwich, CT 06830
E. Garrett Bewkes, Jr.
Richard R. Burt
1101 Connecticut Avenue, N.W.
Washington, D. C. 20036
Mary C. Farrell
Meyer Feldberg
Columbia University
101 Uris Hall
New York, New York 10027
George W. Gowen
666 Third Avenue
New York, New York 10017
Frederic V. Malek
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D. C. 20004
Carl W. Schafer
P. O. Box 1164
Princeton, N. J. 08542
* Unless otherwise indicated, the business address of each Trustee is
1285 Avenue of the Americas, New York, New York 10019
<PAGE>
Exhibit No. 2
PAINEWEBBER MANAGED MUNICIPAL TRUST
A Massachusetts Business Trust
RESTATED BY-LAWS
November 19, 1997
<PAGE>
BY-LAWS OF PAINEWEBBER MANAGED MUNICIPAL TRUST
ARTICLE I
DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL
Section 1.01. DECLARATION OF TRUST: These By-Laws shall be subject to the
Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of PaineWebber Managed Municipal Trust, the Massachusetts business
trust established by the Declaration of Trust (the "Trust").
Section 1.02. PRINCIPAL OFFICE OF THE TRUST: RESIDENT AGENT: The
principal office of the Trust shall be located in the City of New York, New
York. Its resident agent in Massachusetts shall be CT Corporation System, 2
Oliver Street, Boston, Massachusetts, or such other person as the Trustees may
from time to time designate. The Trust may establish and maintain such other
offices and places of business as the Trustees may, from time to time,
determine.
Section 1.03. SEAL: The seal of the Trust shall be circular in form and
shall bear the name of the Trust. The form of the seal shall be subject to
alteration by the Trustees and the seal may be used by causing it or a facsimile
to be impressed or affixed or printed or otherwise reproduced. Any officer or
Trustee of the Trust shall have authority to affix the seal of the Trust to any
document, instrument or other paper executed and delivered by or on behalf of
the Trust; however, unless otherwise required by the Trustees, the seal shall
not be necessary to be placed on and its absence shall not impair the validity
of any document, instrument, or other paper executed by or on behalf of the
Trust.
ARTICLE II
SHAREHOLDERS
Section 2.01. SHAREHOLDER MEETINGS: Meetings of the shareholders may be
called at any time by the Trustees or, if the Trustees shall fail to call any
meeting for a period of 30 days after written request of Shareholders owning at
least one-tenth of the outstanding shares entitled to vote, then such
Shareholders may call such meeting. Each call of a meeting shall state the
place, date, hour and purposes of the meeting.
Section 2.02. PLACE OF MEETINGS: All meetings of the Shareholders shall
be held at the principal office of the Trust, except that the Trustees may
designate a different place of meeting within the United States.
Section 2.03. NOTICE OF MEETING: The secretary or an assistant secretary
or such other officer as may be designated by the Trustees shall cause notice of
the place, date and hour, and purpose or purposes for which the meeting is
called, to be mailed, not less than fifteen days before the date of the meeting,
to each Shareholder entitled to vote at such meeting, at his address as it
appears on the records of the Trust at the time of such mailing. Notice of any
Shareholders' meeting need not be given to any Shareholder if a written waiver
of notice, executed before or after
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such meeting, is filed with the records of such meeting, or to any Shareholder
who shall attend such meeting in person or by proxy. Notice of adjournment of a
Shareholders' meeting to another time or place need not be given, if such time
and place are announced at the meeting.
Section 2.04. BALLOTS: The vote upon any question shall be by ballot
whenever requested by any person entitled to vote, but, unless such a request is
made, voting may be conducted in any way approved by the meeting.
Section 2.05. VOTING; PROXIES: Shareholders entitled to vote may vote
either in person or by proxy, provided that such proxy to act is authorized to
act by (1) a written instrument, dated not more than eleven months before the
meeting and executed either by the Shareholder or by his or her duly authorized
attorney in fact (who may be so authorized by a writing or by any non-written
means permitted by the laws of the Commonwealth of Massachusetts) or (2) such
electronic, telephonic, computerized or other alternative means as may be
approved by a resolution adopted by the Trustees. Proxies shall be delivered to
the secretary of the Trust or other person responsible for recording the
proceedings before being voted. A proxy with respect to shares held in the name
of two or more persons shall be valid if executed by one of them unless at or
prior to exercise of such proxy the Trust receives a specific written notice to
the contrary from any one of them. Unless otherwise specifically limited by
their terms, proxies shall entitle the holder thereof to vote at any adjournment
of a meeting. A proxy purporting to be exercised by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger. At all
meetings of the Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the chairman of the
meeting.
Section 2.06. ACTION WITHOUT A MEETING: Any action to be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of meetings of Shareholders of the Trust. Such consent
shall be treated for all purposes as a vote at a meeting.
ARTICLE III
TRUSTEES
Section 3.01. REGULAR MEETINGS: Regular meetings of the Trustees may be
held without further call or notice at such places and at such times as the
Trustees may from time to time determine, provided that notice of the first
regular meeting following any such determination shall be given to absent
Trustees. A regular meeting of the Trustees may be held without further call or
notice immediately after and at the same place as any meeting of the
Shareholders.
Section 3.02. SPECIAL MEETINGS: Special meetings of the Trustees may be
held at any time and at any place designated in the call of the meeting, when
called by the chairman of the Trustees or by two or more Trustees, provided that
notice thereof shall being given to each Trustee as set forth in the Declaration
of Trust.
Section 3.03. COMMITTEES: The Trustees, by vote of a majority of the
Trustees then in office, may elect from their number an executive committee or
other committees and may delegate
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thereto some or all of their powers except those which by law, by the
Declaration of Trust, or by these By-Laws may not be delegated. Except as the
Trustees may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Trustees or in
such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-Laws for the Trustees themselves. All members
of such committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect. Any such committee may act by meeting in person, by
unanimous written consent, or by telephonic meeting provided a quorum of members
participates in any such telephonic meeting.
Section 3.04. OTHER COMMITTEES: The Trustees may appoint other
committees, each consisting of one or more persons, who need not be Trustees.
Each such committee shall have such powers perform such duties and abide by such
procedures as may be determined from time to time by the Trustees, but shall not
exercise any power which may lawfully be exercised only by the Trustees or a
committee of Trustees.
Section 3.05. COMPENSATION: Each Trustee and each committee member may
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
ARTICLE IV
OFFICERS
Section 4.01. GENERAL: The officers of the Trust shall be a president, a
treasurer, a secretary and such other officers, if any, as the Trustees from
time to time may in their discretion elect or appoint. The Trust may also have
such agents, if any, as the Trustees from time to time may in their discretion
appoint. Any officer may be but need not be a Trustee or shareholder. Any two
or more offices may be held by the same person.
Section 4.02. ELECTION AND TERM OF OFFICE: The president, the treasurer
and the secretary shall be elected annually by the Trustees at their first
meeting in each calendar year or at such later meeting in such year as the
Trustees shall determine ("Annual Meeting"). Other officers or agents, if any,
may be elected or appointed by the Trustees at said meeting or at any other
time. The president, treasurer and secretary shall hold office until the next
Annual Meeting and until their respective successors are chosen and qualified,
or in each case until he dies, resigns, is removed or become disqualified. Each
other officer shall hold office and each agent shall retain his authority at the
pleasure of the Trustees.
Section 4.03. POWERS: Subject to the other provisions of these By-Laws,
each officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to his office as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
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Section 4.04. CHAIRMAN OF THE BOARD: The chairman of the Board of
Trustees, if one is so appointed, shall be chosen from among the Trustees and
may hold office only so long as he continues to be a Trustee. Unless the
Trustees otherwise provide, the chairman, if any is so appointed, shall preside
at all meetings of the Shareholders and of the Trustees at which he is present;
may be EX OFFICIO a member of all committees established by the Trustees; and
shall have such other duties and powers as specified herein and as may be
assigned to him by the Trustees.
Section 4.05. PRESIDENT: The president shall be the chief executive
officer of the Trust and, subject to the supervision of the Trustees, shall have
general charge of the business, affairs and property of the Trust and general
supervision over its officers, employees and agents. He shall exercise such
other powers and perform such other duties as from time to time may be assigned
to him by the Trustees.
Section 4.06. VICE PRESIDENTS: The Trustees may from time to time
designate and elect one or more vice presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the Trustees
or the president. At the request or in the absence or disability of the
president, the vice president (or, if there are two or more vice presidents,
then the senior of the vice presidents present and able to act) may perform all
the duties of the president and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the president.
Section 4.07. TREASURER AND ASSISTANT TREASURERS: The treasurer shall be
the principal financial and accounting officer of the Trust and shall have
general charge of the finances and books of account of the Trust. Except as
otherwise provided by the Trustees, he shall have general supervision of the
funds and property of the Trust and of the performance by the custodian of its
duties with respect thereto. He shall render to the Trustees, whenever directed
by the Trustees, an account of the financial condition of the Trust and of all
his transactions as treasurer; and as soon as possible after the close of each
financial year he shall make and submit to the Trustees a like report for such
financial year. He shall perform all the acts incidental to the office of
treasurer, subject to the control of the Trustees.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the Trustees may assign, and, in the absence of the treasurer, (or,
if there are two or more assistant treasurers, then the senior of the assistant
treasurers present and able to act) may perform all the duties of the treasurer,
subject to the control of the Trustees.
Section 4.08. SECRETARY AND ASSISTANT SECRETARIES: The secretary shall
attend to the giving and serving of all notices of the Trust and shall record
all proceedings of the meetings of the Shareholders and Trustees in books to be
kept for that purpose. He shall keep in safe custody the seal of the Trust, and
shall have charge of the records of the Trust, all of which shall at all
reasonable times be open to inspection by the Trustees. He shall perform such
other duties as appertain to his office or as may be required by the Trustees.
Any assistant secretary may perform such duties of the secretary as the
secretary or the Trustees may assign, and, in the absence of the secretary, (or,
if there are two or more assistant secretaries. then the senior of the assistant
secretaries present and able to act) may perform all the duties of the
secretary.
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Section 4.09. SUBORDINATE OFFICERS: The Trustees from time to time may
appoint such other officers or agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one or more officers or agents the power to appoint any
such subordinate officers or agents and to prescribe their respective rights,
terms of office, authorities and duties.
Section 4.10. REMUNERATION: The salaries or other compensation of the
officers of the Trust shall be fixed from time to time by resolution of the
Trustees, except that the Trustees may by resolution delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
Section 4.09 hereof.
Section 4.11. SURETY BONDS: The Trustees may require any officer or agent
of the Trust to execute a bond (including, without limitation, any bond required
by the Investment Company Act of 1940, as amended, ("1940 Act") and the rules
and regulations of the Securities and Exchange Commission ("Commission")) to the
Trust in such sum and with such surety or sureties as the Trustees may
determine, conditioned upon the faithful performance of his duties to the Trust
including responsibility for negligence and for the accounting of any of the
Trust's property, funds or securities that may come into his hands.
Section 4.12. RESIGNATION: Any officer may resign his office at any time
by delivering a written resignation to the Trustees, the president, the
secretary, or any assistant secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 4.13. REMOVAL: Any officer may be removed from office whenever in
the judgment of the Trustees the best interest of the Trust will be served
thereby, by the vote of a majority of the Trustees given at a regular meeting or
any special meeting of the Trustees called for such purpose. In addition, any
officer or agent appointed in accordance with the provision of Section 4.09
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees.
Section 4.14. VACANCIES AND NEWLY CREATED OFFICES: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Trustees at any regular or special meeting
of the Trustees or, in the case of any office created pursuant to Section 4.09
hereof, by any officer upon whom such power shall have been conferred by the
Trustees.
ARTICLE V
CUSTODIAN
Section 5.01. EMPLOYMENT OF CUSTODIAN: The Trustees shall at all times
employ one or more banks or trust companies organized under the laws of the U.S.
or one of the states thereof provided that each such bank or trust company has
capital, surplus and undivided profits of at least two million dollars
($2,000,000) as custodian with authority as the Trust's agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in these By-Laws:
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(1) to hold the securities owned by the Trust and deliver the same upon
written order, or oral order if confirmed in writing, or order
delivered by such electromechanical or electronic devices as are
agreed to by the Trust and the custodian, if such procedures have been
authorized in writing by the Trust;
(2) to receive and give receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct; and
(3) to disburse such moneys upon orders or vouchers;
and the Trust may also enjoy such custodian as its agent:
(1) to keep the books and accounts of the Trust and furnish clerical and
accounting services; and
(2) to compute, if authorized to do so by the Trustees, the Net Asset
Value of any Series or Class (which terms are defined in the
Declaration of Trust) in accordance with the provisions of the
Declaration of Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a vote of a majority of the outstanding
shares of the Trust entitled to vote, the custodian shall deliver and pay over
all property of the Trust held by it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least two million dollars ($2,000,000) or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act.
Section 5.02. USE OF CENTRAL SECURITIES HANDLING SYSTEM: Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to deposit any or all of the securities owned by the Trust
(1) in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, pursuant to which system
all securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust; or (2) with such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act.
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ARTICLE VI
EXECUTION OF PAPERS
Section 6.01. GENERAL: Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other manner, all
deeds, leases, transfers, contracts, bonds, notes, checks, drafts, and other
obligations made, accepted, or endorsed by the Trust shall be executed by the
president, any vice president, or the treasurer, or by whomever else shall be
designated for that purpose by the Trustees, and need not bear the seal of the
Trust.
ARTICLE VII
SHARES OF BENEFICIAL INTEREST
Section 7.01. SHARE CERTIFICATES: No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
authorize. In the event that the Trustees authorize the issuance of Share
certificates, subject to the provisions of Section 7.03, each Shareholder shall
be entitled to a certificate stating the number of shares owned by him, in such
form as shall be prescribed from time to time by the Trustees. Such certificate
shall be signed by the president or a vice president and by the treasurer,
assistant treasurer, secretary or assistant secretary. Such signatures may be
facsimiles if the certificate is signed by a transfer or shareholder services
agent or by a registrar, other than a Trustee, officer or employee of the Trust.
In case any officer who has signed or whose facsimile signature has been placed
on such certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the Trust with the same effect as if he were such
officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees, the transfer
agent or shareholder services agent may either issue receipts therefor or may
keep accounts upon the books of the Trust for the record holders of such shares,
who shall in either case be deemed, for all purposes hereunder, to be the
holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
Section 7.02. LOSS OF CERTIFICATES: In the case of the alleged loss or
destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
Section 7.03. DISCONTINUANCE OF ISSUANCE OF CERTIFICATES: The Trustees
may at any time discontinue the issuance of Share certificates and may, by
written notice to each Shareholder, require the surrender of Share certificates
to the Trust for cancellation. Such surrender and cancellation shall not affect
the ownership of Shares in the Trust.
Section 7.04. EQUITABLE INTEREST NOT RECOGNIZED: The Trust shall be
entitled to treat the holder of record of any Share or Shares of the Trust as
the holder in fact thereof, and shall not be bound to recognize any equitable or
other claim of interest in such Share or Shares on the part of any other person
except as may be otherwise expressly provided by law.
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Section 7.05. TRANSFER OF SHARES: The Shares of the Trust shall be
transferable only by transfer recorded on the books of the Trust, in person or
by attorney.
ARTICLE VIII
FISCAL YEAR; ACCOUNTANT
Section 8.01. FISCAL YEAR: The fiscal year of the Trust shall end on such
date in each year as the Trustees shall from time to time determine.
Section 8.02. ACCOUNTANT:
(a) The Trust shall employ an independent public accountant or firm of
independent public accountants as its accountant to examine the accounts of the
Trust and to sign and certify the financial statements of the Trust. The
accountant's certificates and reports shall be addressed both to the Trustees
and to the Shareholders of the Trust.
(b) Any vacancy occurring due to the death or resignation of the
accountant may be filled by a majority vote of the Trustees who are not
interested persons of the Trust.
ARTICLE IX
INSURANCE
Section 9.01. INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES: The Trust
may purchase and maintain insurance on behalf of any person who is or was a
Trustee, officer or employee of the Trust, or is or was serving at the request
of the Trust as a Trustee, officer or employee of a corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the Trust would have the power to indemnify him against
such liability.
The Trust may not acquire or obtain a contract for insurance that protects
or purports to protect any Trustee or officer of the Trust against any liability
to the Trust or its Shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
ARTICLE X
AMENDMENTS; REPORTS; MISCELLANEOUS
Section 10.1. AMENDMENTS: These By-Laws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at any meeting of
the Trustees, or by one or more writings signed by such majority.
Section 10.2. REPORTS: The Trustees shall at least semiannually submit to
the Shareholders a written report of the transactions of the Trust, including
financial statements that shall at least annually be certified by independent
public accountants.
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Section 10.3. GENDER: As used in these By-Laws, the masculine gender
shall include the feminine and neuter genders.
Section 10.3. HEADINGS: Headings are placed in these bylaws for
convenience of reference only and in case of any conflict, the text of these
By-Laws rather than the headings shall control.
Section 10.4. INSPECTION OF BOOKS: The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders, and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees.
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Exhibit No. 4(a)
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of September 10, 1990, between PAINEWEBBER MANAGED
MUNICIPAL TRUST, a Massachusetts business trust ("Trust"), and PAINEWEBBER
INCORPORATED ("PaineWebber"), a Delaware corporation registered as a broker-
dealer under the Securities Exchange Act of 1934, as amended ("1934 Act"), and
as an investment adviser under the Investment Advisers Act of 1940, as amended.
WHEREAS the Trust is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company, and offers
for public sale distinct series of shares of beneficial interest, each
corresponding to a distinct portfolio; and
WHEREAS the Trust's Board of Trustees ("Board") has established the
PaineWebber RMA California Municipal Money Fund and the PaineWebber RMA New York
Municipal Money Fund as series of shares of beneficial interest of the Trust
("Series"); and
WHEREAS the Trust desires to retain PaineWebber as investment adviser and
administrator to furnish certain administrative, investment advisory and
portfolio management services to the Series, and PaineWebber is willing to
furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints PaineWebber as investment
adviser and administrator for each Series for the period and on the terms set
forth in this Contract. PaineWebber accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES AS INVESTMENT ADVISER.
(a) Subject to the supervision of the Board, PaineWebber will provide a
continuous investment program for each Series, including investment research and
management with respect to all securities and investments and cash equivalents
in each Series. PaineWebber will determine from time to time what securities and
other investments will be purchased, retained or sold by each Series.
(b) PaineWebber agrees that in placing orders with brokers and dealers, it
will attempt to obtain the best net result in terms of price and execution;
provided that, on behalf of each Series, PaineWebber may, in its discretion,
purchase and sell portfolio securities to and from brokers and dealers who
provide the Series with research, analysis, advice and similar services, and
PaineWebber may pay to those brokers and dealers, in return for research and
analysis, a higher commission or spread than may be charged by other brokers and
dealers, subject to PaineWebber's determining in good faith that such commission
or spread is reasonable in terms either of the particular transaction or of the
overall responsibility of PaineWebber to such Series
<PAGE>
and its other clients and that the total commissions or spreads paid by such
Series will be reasonable in relation to the benefits to such Series over the
long term. In no instance will portfolio securities be purchased from or sold
to PaineWebber, or any affiliated person thereof, except in accordance with the
federal securities laws and the rules and regulations thereunder. Whenever
PaineWebber simultaneously places orders to purchase or sell the same security
on behalf of a Series and one or more other accounts advised by PaineWebber,
such orders will be allocated as to price and amount among all such accounts in
a manner believed to be equitable to each account. The Trust recognizes that in
some cases this procedure may adversely affect the results obtained for a
Series.
(c) PaineWebber will oversee the maintenance of all books and records with
respect to the securities transactions of each Series, and will furnish the
Board with such periodic and special reports as the Board reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
PaineWebber hereby agrees that all records which it maintains for the Trust are
the property of the Trust, agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any records which it maintains for the Trust and which
are required to be maintained by Rule 31a-1 under the 1940 Act, and further
agrees to surrender promptly to the Trust any records which it maintains for the
Trust upon request by the Trust.
(d) PaineWebber will oversee the computation of the net asset value and
the net income of each Series as described in the currently effective
registration statement of the Trust under the Securities Act of 1933, as
amended, and the 1940 Act and any supplements thereto ("Registration Statement")
or as more frequently requested by the Board.
3. DUTIES AS ADMINISTRATOR. PaineWebber will administer the affairs of
each Series subject to the supervision of the Board and the following
understandings:
(a) PaineWebber will supervise all aspects of the operations of each
Series, including the oversight of transfer agency, custodial and accounting
services, except as hereinafter set forth; provided, however, that nothing
herein contained shall be deemed to relieve or deprive the Board of its
responsibility for and control of the conduct of the affairs of each Series.
(b) PaineWebber will provide each Series with such corporate,
administrative and clerical personnel (including officers of the Trust) and
services as are reasonably deemed necessary or advisable by the Board, including
the maintenance of certain books and records of each Series.
(c) PaineWebber will arrange, but not pay, for the periodic preparation,
updating, filing and dissemination (as applicable) of the Trust's Registration
Statement relating to the Series, proxy material, tax returns and required
reports with or to each Series' shareholders, the Securities and Exchange
Commission and other appropriate federal or state regulatory authorities.
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(d) PaineWebber will provide each Series with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, heat, utilities, stationery supplies and similar items.
(e) PaineWebber will provide the Board on a regular basis with economic
and investment analyses and reports and make available to the Board upon request
any economic, statistical and investment services normally available to
institutional or other customers of PaineWebber.
(f) PaineWebber will hold itself available to receive orders for the
purchase of shares of each Series ("Shares") and will accept or reject such
orders on behalf of the Series in accordance with the Trust's Registration
Statement, and will transmit such orders as are so accepted to the appropriate
transfer agent as promptly as practicable; provided, however, that PaineWebber
is not obligated to sell any certain number of shares.
(g) PaineWebber will make itself available to receive requests for
redemption from holders of Shares and will transmit such redemption requests to
the Trust's transfer agent as promptly as possible.
4. FURTHER DUTIES. In all matters relating to the performance of this
Contract, PaineWebber will act in conformity with the Declaration of Trust, By-
Laws and Registration Statement of the Trust and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations.
5. DELEGATION OF PAINEWEBBER'S DUTIES AS INVESTMENT ADVISER AND
ADMINISTRATOR. With respect to either or both Series, PaineWebber may enter
into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with
a sub-adviser or sub-administrator in which PaineWebber delegates to such sub-
adviser or sub-administrator the performance of any or all of the services
specified in Paragraphs 2 and 3 of this Contract, provided that each Sub-
Advisory or Sub-Administration Contract imposes on the sub-adviser or sub-
administrator bound thereby all the duties and conditions to which PaineWebber
is subject with respect to the delegated services under Paragraphs 2, 3 and 4 of
this Contract, and further provided that each Sub-Advisory or Sub-Administration
Contract meets all requirements of the 1940 Act and rules thereunder.
6. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of PaineWebber, who may also be a
trustee, officer or employee of the Trust, to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar nature or a dissimilar nature.
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7. EXPENSES.
(a) During the term of this Contract, each Series will bear all expenses,
not specifically assumed by PaineWebber, incurred in its operations and the
offering of its shares.
(b) Expenses borne by each Series will include but not be limited to the
following (or each Series' proportionate share of the following): (i) the cost
(including brokerage commissions and other transaction costs) of securities
purchased or sold by the Series and any losses incurred in connection therewith;
(ii) fees payable to and expenses incurred on behalf of the Series by
PaineWebber under this Contract; (iii) expenses of organizing the Trust and any
Series; (iv) filing fees and expenses relating to the registration and
qualification of the Series' shares and the Trust under federal and/or state
securities laws and maintaining such registrations and qualifications; (v) fees
and salaries payable to the Trust's Trustees who are not interested persons of
the Trust or PaineWebber; (vi) all expenses incurred in connection with the
Trustees' services, including travel expenses; (vii) taxes (including any income
or franchise taxes) and governmental fees; (viii) costs of any liability,
uncollectible items of deposit and other insurance and fidelity bonds; (ix) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Series for violation of any law; (x) legal,
accounting and auditing expenses, including legal fees of special counsel for
those Trustees of the Trust who are not interested persons of the Trust; (xi)
charges of custodians, transfer agents and other agents; (xii) costs of
preparing share certificates; (xiii) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders;
(xiv) costs of mailing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials to
existing shareholders; (xv) any extraordinary expenses (including fees and
disbursements of counsel, costs of actions, suits or proceedings to which the
Trust is a party and the expenses the Trust may incur as a result of its legal
obligation to provide indemnification to its officers, Trustees, agents and
shareholders) incurred by the Trust or Series; (xvi) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations; (xvii) costs of mailing and tabulating proxies and costs of
meetings of shareholders, the Board and any committees thereof; (xviii) the cost
of investment company literature and other publications provided by the Trust to
its Trustees and officers; and (xix) costs of mailing, stationery and
communications equipment.
(c) The Trust or Series may pay directly any expense incurred by it in its
normal operations and, if any such payment is consented to by PaineWebber and
acknowledged as otherwise payable by PaineWebber pursuant to this Contract, the
Series may reduce the fee payable to PaineWebber pursuant to Paragraph 8 hereof
by such amount. To the extent that such deductions exceed the fee payable to
PaineWebber on any monthly payment date, such excess shall be carried forward
and deducted in the same manner from the fee payable on succeeding monthly
payment dates.
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(d) PaineWebber will assume the cost of any compensation for services
provided to the Trust received by the officers of the Trust and by those
Trustees who are interested persons of the Trust.
(e) The payment or assumption by PaineWebber of any expense of the Trust
or a Series that PaineWebber is not required by this Contract to pay or assume
shall not obligate PaineWebber to pay or assume the same or any similar expense
of the Trust or a Series on any subsequent occasion.
8. COMPENSATION.
(a) For the services provided and the expenses assumed pursuant to this
Contract, with respect to the Series identified below, the Trust will pay to
PaineWebber a fee from the assets of the appropriate Series, such fee to be
computed daily and paid monthly at the annual rate of such Series' average daily
net assets set forth below:
(i) PaineWebber RMA California Municipal Money Fund:
Up to $300 million of average daily net assets ...... 0.50%
In excess of $300 million up to $750 million ........ 0.44%
Over $750 million ................................... 0.36%
(ii) PaineWebber RMA New York Municipal Money Fund:
Up to $300 million of average daily net assets ...... 0.50%
In excess of $300 million up to $750 million ........ 0.44%
Over $750 million ................................... 0.36%
(b) The fee shall be computed daily and paid monthly to PaineWebber on or
before the last business day of the next succeeding calendar month.
(c) If this Contract becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
9. LIMITATION OF LIABILITY OF PAINEWEBBER. PaineWebber shall not be
liable for any error of judgment or mistake of law or for any loss suffered by a
Series or the Trust in connection with the matters to which this Contract
relates except a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations or duties under this Contract. Any person,
even though also an officer, director, employee, or agent of PaineWebber, who
may be or become an officer, trustee, employee or agent of the Trust shall be
deemed, when rendering services to a Series or the Trust
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or acting with respect to any business of such Series or the Trust, to be
rendering such service to or acting solely for the Series or the Trust, and not
as an officer, director, employee, or agent or one under the control or
direction of PaineWebber even though paid by it.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE TRUST.
The Trustees of the Trust and the shareholders of a Series shall not be liable
for any obligations of the Series or the Trust under this Contract, and
PaineWebber agrees that, in asserting any rights or claims under this Contract,
it shall look only to the assets and property of the Trust or the Series in
settlement of such right or claim, and not to such Trustees or shareholders.
11. DURATION AND TERMINATION.
(a) This Contract will become effective upon the date hereabove written
provided that, with respect to a Series, this Contract shall not take effect
unless it has first been approved (i) by a vote of a majority of those Trustees
of the Trust who are not parties to this Contract or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by vote of a majority of that Series' outstanding voting
securities.
(b) Unless sooner terminated as provided herein, this Contract will
continue in effect for two years from the above written date. Thereafter, if
not terminated, this Contract will continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of those Trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to a Series by vote of a majority of the
outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to either or both Series,
this Contract may be terminated at any time, without the payment of any penalty,
by vote of the Board or by a vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to PaineWebber or by
PaineWebber at any time, without the payment of any penalty, on sixty days'
written notice to the Trust. Termination of this Contract with respect to one
Series shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to the other Series. This Contract will
automatically terminate in the event of its assignment.
12. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Contract as to a
Series shall be effective until approved by vote of a majority of such Series'
outstanding voting securities.
13. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act, provided, however, that
Paragraph 10 above will be construed in accordance with the laws of the
Commonwealth of Massachusetts. To the extent
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that the applicable laws of the State of Delaware or the Commonwealth of
Massachusetts conflict with the applicable provisions of the 1940 Act, the
latter shall control.
14. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person,"
"assignment", "broker," "dealer," "investment adviser," "national securities
exchange," "net assets," "prospectus," "sale," "sell" and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the Securities and Exchange Commission by any rule,
regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Contract is made less restrictive by a rule,
regulation or order of the Securities and Exchange Commission, whether of
special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
Attest: PAINEWEBBER MANAGED MUNICIPAL TRUST
/s/ Teresa M. Boyle /s/ Dianne E. O'Donnell
- ------------------------ -----------------------------------
Attest: PAINEWEBBER INCORPORATED
/s/ Teresa M. Boyle By: /s/ Steven M. Joenk
- ------------------------ --------------------------------
7
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Exhibit No. 4(b)
SUB-ADVISORY AND SUB-ADMINISTRATION CONTRACT
Contract made as of September 10, 1990, between PAINEWEBBER INCORPORATED
("PaineWebber"), a Delaware corporation registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended ("1934 Act") and as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act"),
and MITCHELL HUTCHINS ASSET MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware
corporation registered as a broker/dealer under the 1934 Act and as an
investment adviser under the Advisers Act.
WHEREAS PaineWebber has entered into an Investment Advisory and
Administration Contract dated September 10, 1990 ("Advisory Contract") with
PaineWebber Managed Municipal Trust ("Trust"), an open-end management investment
company registered under the Investment Company Act of 1940, as amended ("1940
Act"), which offers for public sale distinct series of shares of beneficial
interest, each corresponding to a distinct portfolio; and
WHEREAS the Trust's Board of Trustees ("Board") has established the
PaineWebber RMA California Municipal Money Fund and the PaineWebber RMA New York
Municipal Money Fund as series of shares of beneficial interest of the Trust
("Series"); and
WHEREAS under the Advisory Contract PaineWebber has agreed to provide
certain investment advisory and administrative services to the Series; and
WHEREAS the Advisory Contract authorizes PaineWebber to delegate certain of
its duties as investment adviser and administrator under the Advisory Contract
to a sub-adviser or sub-administrator; and
WHEREAS PaineWebber wishes to retain Mitchell Hutchins as sub-adviser and
sub-administrator to provide certain investment advisory and administrative
services to PaineWebber and each Series, and Mitchell Hutchins is willing to
render such services as described herein upon the terms set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, it is agreed between the parties as follows:
1. APPOINTMENT. PaineWebber hereby appoints Mitchell Hutchins as its
sub-adviser and sub-administrator with respect to each Series and Mitchell
Hutchins accepts such appointment and agrees that it will furnish the services
set forth in paragraph 2 below.
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Subject to the supervision of the Board and PaineWebber, Mitchell
Hutchins will provide a continuous investment program for each Series including
investment research and management with respect to all securities, investments
and cash equivalents held in the portfolio of each Series. Mitchell Hutchins
will determine from time to time what securities and other investments will be
purchased, retained or sold by each Series.
<PAGE>
(b) Mitchell Hutchins agrees that in placing orders with brokers and
dealers, it will attempt to obtain the best net result in terms of price and
execution; provided that, on behalf of each Series, Mitchell Hutchins may, in
its discretion, purchase and sell portfolio securities to and from brokers and
dealers who provide the Series with research, analysis, advice and similar
services, and Mitchell Hutchins may pay to those brokers and dealers, in return
for research and analysis, a higher commission or spread than may be charged by
other brokers and dealers, subject to Mitchell Hutchins' determining in good
faith that such commission or spread is reasonable in terms either of the
particular transaction or of the overall responsibility of Mitchell Hutchins to
such Series and its other clients and that the total commissions or spreads paid
by such Series will be reasonable in relation to the benefits to such Series
over the long term. In no instance will portfolio securities be purchased from
or sold to PaineWebber, Mitchell Hutchins or any affiliated person thereof,
except in accordance with the federal securities laws and the rules and
regulations thereunder. Whenever Mitchell Hutchins simultaneously places orders
to purchase or sell the same security on behalf of a Series and one or more
other accounts advised by Mitchell Hutchins, such orders will be allocated as to
price and amount among all such accounts in a manner believed to be equitable to
each account. The Trust recognizes that in some cases this procedure may
adversely affect the results obtained for a Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series and will
furnish the Board with such periodic and special reports as PaineWebber or the
Board reasonably may request. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Mitchell Hutchins hereby agrees that all records which it
maintains for the Trust are the property of the Trust, agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act any records which it
maintains for the Trust and which are required to be maintained by Rule 31a-1
under the 1940 Act, and further agrees to surrender promptly to the Trust any
records which it maintains for the Trust upon request by the Trust.
(d) Mitchell Hutchins will oversee the computation of the net asset value
and net income of each Series as described in the currently effective
registration statement of the Trust under the Securities Act of 1933, as
amended, and the 1940 Act and any supplements thereto ("Registration Statement")
or as more frequently requested by PaineWebber or the Board.
(e) Mitchell Hutchins will assist in administering the affairs of each
Series, subject to the supervision of the Board and PaineWebber, and further
subject to the following understandings:
(i) Mitchell Hutchins will supervise all aspects of the operation of
each Series except as hereinafter set forth; provided, however, that nothing
herein contained shall be deemed to relieve or deprive the Board of its
responsibility for and control of the conduct of affairs of the Trust and each
Series.
(ii) Mitchell Hutchins will provide the Series with such
administrative and clerical personnel (including officers of the Trust) as are
reasonably deemed necessary or
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advisable by the Board and PaineWebber and Mitchell Hutchins will pay the
salaries of all such personnel.
(iii) Mitchell Hutchins will provide each Series with such
administrative and clerical services as are reasonably deemed necessary or
advisable by the Board and PaineWebber, including the maintenance of certain of
the books and records of each Series.
(iv) Mitchell Hutchins will arrange, but not pay for, the periodic
preparation, updating, filing and dissemination (as applicable) of the Trust's
Registration Statement relating to the Series, proxy material, tax returns and
reports to shareholders of each Series, the Securities and Exchange Commission
and other appropriate federal or state regulatory authorities.
(v) Mitchell Hutchins will provide each Series with, or obtain for
it, adequate office space and all necessary office equipment and services,
including telephone service, heat, utilities, stationery supplies and similar
items.
3. DUTIES RETAINED BY PAINEWEBBER. PaineWebber will continue to provide
to the Board and each Series the services described in subparagraphs 3(e), (f)
and (g) of the Advisory Contract.
4. FURTHER DUTIES. In all matters relating to the performance of this
Contract, Mitchell Hutchins will act in conformity with the Declaration of
Trust, By-Laws and Registration Statement of the Trust and with the instructions
and directions of the Board and PaineWebber, and will comply with the
requirements of the 1940 Act, the rules thereunder, and all other applicable
federal and state laws and regulations.
5. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed to be exclusive, and Mitchell Hutchins shall be
free to to furnish similar services to others so long as its services under this
Contract are not impaired thereby. Nothing in this Contract shall limit or
restrict the right of any director, officer or employee of Mitchell Hutchins,
who may also be a trustee, officer or employee of the Trust, to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar nature
or a dissimilar nature.
6. EXPENSES. During the term of this Contract, Mitchell Hutchins will
pay all expenses incurred by it in connection with its services under this
Contract.
7. COMPENSATION. For the services provided and expenses assumed by
Mitchell Hutchins pursuant to this Contract with respect to each Series,
PaineWebber will pay to Mitchell Hutchins a fee equal to 20% of the fee received
by PaineWebber from the Trust pursuant to the Advisory Contract with respect to
such Series, such compensation to be paid monthly.
8. LIMITATION OF LIABILITY OF MITCHELL HUTCHINS. Mitchell Hutchins will
not be liable for any error of judgment or mistake of law or for any loss
suffered by PaineWebber or the Trust or the shareholders of any Series in
connection with the performance of this Contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
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performance of its duties or from reckless disregard by it of its obligations or
duties under this Contract. Any person, even though also an officer, director,
employee, or agent of Mitchell Hutchins, who may be or become an officer,
trustee, employee or agent of the Trust shall be deemed, when rendering services
to a Series or the Trust or acting with respect to any business of such Series
or the Trust, to be rendering such services to or acting solely for the Series
and not as an officer, director, employee, or agent or one under the control or
direction of Mitchell Hutchins even though paid by it.
10. DURATION AND TERMINATION.
(a) This Contract will become effective upon the date hereabove written
provided that, with respect to a Series, this Contract shall not take effect
unless it has first been approved (i) by a vote of a majority of those trustees
of the Trust who are not parties to this Contract or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by vote of a majority of that Series' outstanding voting
securities.
(b) Unless sooner terminated as provided herein, this Contract will
continue in effect for two years from the above written date. Thereafter, if
not terminated, this Contract will continue automatically for successive periods
of 12 months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to a Series by vote of a majority of the
outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to either or both Series,
this Contract may be terminated by either party hereto at any time, without the
payment of any penalty, on sixty days' written notice to the other party; this
Contract also may be terminated at any time, without the payment of any penalty,
by vote of the Board or by vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to Mitchell Hutchins and
PaineWebber. Termination of this Contract with respect to one Series shall in
no way affect the continued validity of this Contract or the performance
thereunder with respect to the other Series. This Contract will automatically
terminate in the event of its assignment and will automatically terminate upon
termination of the Advisory Contract.
10. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Contract as to a
Series shall be effective until approved by vote of a majority of such Series'
outstanding voting securities.
11. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
12. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect
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their construction or effect. If any provision of this Contract shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Contract shall not be affected thereby. This Contract shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors. As used in this Contract, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Attest: PAINEWEBBER INCORPORATED
/s/ Teresa M. Boyle By: /s/ Steven M. Joenk
------------------------ ----------------------------------------
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ Teresa M. Boyle By: /s/ Joyce N. Fensterstock
------------------------ ----------------------------------------
5
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Exhibit No. 5
PAINEWEBBER MANAGED MUNICIPAL TRUST
DISTRIBUTION CONTRACT
CONTRACT made as of July 7, 1993, between PAINEWEBBER MANAGED MUNICIPAL
TRUST, a Massachusetts business trust ("Fund"), and PAINEWEBBER INCORPORATED, a
Delaware corporation ("PaineWebber").
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company and currently
has two distinct series of shares of beneficial interest ("Series"), which
correspond to distinct portfolios and have been designated as the PaineWebber
RMA California Municipal Money Fund and PaineWebber RMA New York Municipal Money
Fund; and
WHEREAS the Fund desires to retain PaineWebber as principal distributor in
connection with the offering and sale of the shares of beneficial interest
("Shares") of the above-referenced Series and of such other Series as may
hereafter be designated by the Fund's board of trustees ("Board"); and
WHEREAS PaineWebber is willing to act as principal distributor for each such
Series on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints PaineWebber as its exclusive
agent to be the principal distributor to sell and to arrange for the sale of the
Shares on the terms and for the period set forth in this Contract. PaineWebber
hereby accepts such appointment and agrees to act hereunder.
2. SERVICES AND DUTIES OF PAINEWEBBER
(a) PaineWebber agrees to sell the Shares on a best efforts basis
from time to time during the term of this Contract as agent for the Fund and
upon the terms described in the Registration Statement. As used in this
Contract, the term "Registration Statement" shall mean the currently effective
registration statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
(b) Upon the later of the date of this Contract or the initial
offering of the Shares to the public by a Series, PaineWebber will hold itself
available to receive purchase orders, satisfactory to PaineWebber for Shares of
that Series and will accept such orders on behalf of the Fund as of the time of
receipt of such orders and promptly transmit such orders as are accepted to the
Fund's transfer agent. Purchase orders shall be deemed effective at the time
and in the manner set forth in the Registration Statement.
<PAGE>
(c) PaineWebber in its discretion may enter into agreements to sell
Shares to such registered and qualified retail dealers, including but not
limited to Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), as it
may select. In making agreements with such dealers, Mitchell Hutchins shall act
only as principal and not as agent for the Fund.
(d) The offering price of the Shares of each Series shall be the net
asset value per Share as next determined by the Fund following receipt of an
order at PaineWebber's principal office. The Fund shall promptly furnish
PaineWebber with a statement of each computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Shares.
(f) To facilitate redemption of Shares by shareholders directly or
through dealers, PaineWebber is authorized but not required on behalf of the
Fund to repurchase Shares presented to it by shareholders and dealers at the
price determined in accordance with, and in the manner set forth in, the
Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Series and any other services now or
hereafter deemed to be appropriate subjects for the payments of "service fees"
under Section 26(d) of the National Association of Securities Dealers, Inc.
("NASD") Rules of Fair Practice (collectively, "service activities"). "Service
activities" do not include the transfer-agency-related and other services for
which PaineWebber receives compensation under the Service Contract between
PaineWebber and the Fund.
(h) PaineWebber shall have the right to use any list of shareholders
of the Fund or any other list of investors which it obtains in connection with
its provision of services under this Contract; provided, however, that
PaineWebber shall not sell or knowingly provide such list or lists to any
unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO
DELEGATE DUTIES AS DISTRIBUTOR. With respect to any or all Series, PaineWebber
may enter into an exclusive dealer agreement with Mitchell Hutchins or any other
registered and qualified dealer with respect to sales of the Shares or the
provision of service activities. In a separate contract or as part of any such
exclusive dealer agreement, PaineWebber also may delegate to Mitchell Hutchins
or another registered and qualified dealer ("sub-distributor") any or all of its
duties specified in this Contract, provided that such separate contract or
exclusive dealer agreement imposes on the sub-distributor bound thereby all
applicable duties and conditions to which PaineWebber is subject under this
Contract, and further provided that such separate contract or exclusive dealer
agreement meets all requirements of the 1940 Act and rules thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so
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long as its services under this Contract are not impaired thereby. Nothing in
this Contract shall limit or restrict the right of any director, officer or
employee of PaineWebber, who may also be a trustee, officer or employee of the
Fund, to engage in any other business or to devote his or her time and attention
in part to the management or other aspects of any other business, whether of a
similar or a dissimilar nature.
5. COMPENSATION.
(a) No compensation will be paid under this Contract by the Fund to
PaineWebber except with respect to the service activities as defined in
paragraph 2(g) above.
(b) As compensation for its service activities under this Contract,
PaineWebber shall receive from the Fund a fee at the rate and under the terms
and conditions of the Plan of Distribution pursuant to Rule 12b-l under the 1940
Act ("Plan") adopted by the Fund with respect to the Series, as such Plan is
amended from time to time, and subject to any further limitations on such fee as
the Board may impose.
(c) PaineWebber may reallow any or all of the fee which it is paid
under this Contract to such dealers as PaineWebber may from time to time
determine.
6. DUTIES OF THE FUND.
(a) The Fund reserves the right at any time to withdraw offering
Shares of any or all Series by written notice to PaineWebber at its principal
office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Shares to be issued unless so requested by
shareholders. If such request is transmitted by PaineWebber, the Fund will
cause certificates evidencing Shares to be issued in such names and
denominations as PaineWebber shall from time to time direct.
(c) The Fund shall keep PaineWebber fully informed of its affairs and
shall make available to PaineWebber copies of all information, financial
statements, and other papers which PaineWebber may reasonably request for use in
connection with the distribution of Shares, including, without limitation,
certified copies of any financial statements prepared for the Fund by its
independent public accountant and such reasonable number of copies of the most
current prospectus, statement of additional information, and annual and interim
reports of any Series as PaineWebber may request, and the Fund shall cooperate
fully in the efforts of PaineWebber to sell and arrange for the sale of the
Shares of the Series and in the performance of PaineWebber under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register
Shares of each Series under the 1933 Act
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to the end that there will be available for sale such number of Shares as
PaineWebber may be expected to sell. The Fund agrees to file, from time to
time, such amendments, reports, and other documents as may be necessary in order
that there will be no untrue statement of a material fact in the Registration
Statement, nor any omission of a material fact which omission would make the
statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares of each Series for sale under
the securities laws of such states or other jurisdictions as PaineWebber and the
Fund may approve, and, if necessary or appropriate in connection therewith, to
qualify and maintain the qualification of the Fund as a broker or dealer in such
jurisdictions; provided that the Fund shall not be required to amend its
Articles of Incorporation or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Shares in any jurisdiction from the terms set forth in its
Registration Statement, to qualify as a foreign corporation in any jurisdiction,
or to consent to service of process in any jurisdiction other than with respect
to claims arising out of the offering of the Shares. PaineWebber shall furnish
such information and other material relating to its affairs and activities as
may be required by the Fund in connection with such qualifications.
7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of
registering the Shares with the Securities and Exchange Commission and state and
other regulatory bodies, and shall assume expenses related to communications
with shareholders of each Series, including (i) fees and disbursements of its
counsel and independent public accountant; (ii) the preparation, filing and
printing of registration statements and/or prospectuses or statements of
additional information required under the federal securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses, statements
of additional information and proxy materials to shareholders; and (iv) the
qualifications of Shares for sale and of the Fund as a broker or dealer under
the securities laws of such jurisdictions as shall be selected by the Fund and
PaineWebber pursuant to Paragraph 6(e) hereof, and the costs and expenses
payable to each such jurisdiction for continuing qualification therein.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing and distributing any materials not prepared
by the Fund and other materials used by PaineWebber in connection with the sale
of Shares under this Contract, including the additional cost of printing copies
of prospectuses, statements of additional information, and annual and interim
shareholder reports other than copies thereof required for distribution to
existing shareholders or for filing with any federal or state securities
authorities; (ii) any expenses of advertising incurred by PaineWebber in
connection with such offering; (iii) the expenses of registration or
qualification of PaineWebber as a broker or dealer under federal or state laws
and the expenses of continuing such registration or qualification; and (iv) all
compensation paid to PaineWebber employees and others for selling Shares, and
all expenses of PaineWebber, its employees and others who engage in or support
the sale of Shares as may be incurred in connection with their sales efforts.
4
<PAGE>
9. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold PaineWebber, its
officers and directors, and any person who controls PaineWebber within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which PaineWebber, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by PaineWebber to the Fund for use in the
Registration Statement; provided, however, that this indemnity agreement shall
not inure to the benefit of any person who is also an officer or trustee of the
Fund or who controls the Fund within the meaning of Section 15 of the 1933 Act,
unless a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect PaineWebber
against any liability to the Fund or to the shareholders of any Series to which
PaineWebber would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations under this Contract. The Fund shall not
be liable to PaineWebber under this indemnity agreement with respect to any
claim made against PaineWebber or any person indemnified unless PaineWebber or
other such person shall have notified the Fund in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon PaineWebber
or such other person (or after PaineWebber or the person shall have received
notice of service on any designated agent). However, failure to notify the Fund
of any claim shall not relieve the Fund from any liability which it may have to
PaineWebber or any person against whom such action IS brought otherwise than on
account of this indemnity agreement. The Fund shall be entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any claims subject to this indemnity agreement. If
the Fund elects to assume the defense of any such claim, the defense shall be
conducted by counsel chosen by the Fund and satisfactory to indemnified
defendants in the suit whose approval shall not be unreasonably withheld. In
the event that the Fund elects to assume the defense of any suit and retain
counsel, the indemnified defendants shall bear the fees and expenses of any
additional counsel retained by them. If the Fund does not elect to assume the
defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Fund agrees to notify PaineWebber promptly of the commencement
of any litigation or proceedings against it or any of its officers or trustees
in connection with the issuance or sale of any of its Shares.
5
<PAGE>
(b) PaineWebber shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Contract relates (including any loss arising out of the
receipt by PaineWebber of inadequate consideration in connection with an order
to purchase Shares whether in the form of fraudulent check, draft or wire; a
check returned for insufficient funds; or any other inadequate consideration
(hereinafter "Check Loss")), except a loss resulting from the willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Contract; PROVIDED, HOWEVER. that the Fund shall not be liable for Check Loss
resulting from willful misfeasance, bad faith or negligence on the part of
PaineWebber.
(c) PaineWebber agrees to indemnify, defend, and hold the Fund, its
officers and trustees and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Fund, its trustees or officers, or
any such controlling person may incur under the 1933 Act or under common law or
otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by PaineWebber to
the Fund for use in the Registration Statement, arising out of or based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement necessary to make such
information not misleading, or arising out of any agreement between PaineWebber
and any retail dealer, or arising out of any supplemental sales literature or
advertising used by PaineWebber in connection with its duties under this
Contract. PaineWebber shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if PaineWebber elects to assume the defense, the defense
shall be conducted by counsel chosen by PaineWebber and satisfactory to the
indemnified defendants whose approval shall not be unreasonably withheld. In
the event that PaineWebber elects to assume the defense of any suit and retain
counsel, the defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them. If PaineWebber does not elect to assume
the defense of any suit, it will reimburse the indemnified defendants in the
suit for the reasonable fees and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE FUND.
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and
PaineWebber agrees that, in asserting any rights or claims under this Contract,
it shall look only to the assets and property of the Fund or the particular
Series in settlement of such right or claims, and not to such trustees or
shareholders.
11. SERVICES PROVIDED TO THE FUND BY EMPLOYEES OF PAINEWEBBER. Any
person, even though also an officer, director, employee or agent of PaineWebber
who may be or become an officer, trustee, employee or agent of the Fund, shall
be deemed, when rendering services to the Fund or acting in any business of the
Fund, to be rendering such services to or acting solely for
6
<PAGE>
the Fund and not as an officer, director, employee or agent or one under the
control or direction of PaineWebber even though paid by PaineWebber.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Shares of such Series
on sixty days' written notice to PaineWebber or by PaineWebber at any time,
without the payment of any penalty, on sixty days' written notice to the Fund or
such Series. This Contract will automatically terminate in the event of its
assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act provided, however, that
Section 10 above will be construed in accordance with the laws of the
Commonwealth of Massachusetts. To the extent that the applicable laws of the
State of Delaware or the Commonwealth of Massachusetts conflict with the
applicable provisions of the 1940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
7
<PAGE>
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
Attest: PAINEWEBBER MANAGED MUNICIPAL TRUST
/s/ Gregory K. Todd By: /s/ Jack W. Murphy
- ------------------------- -------------------------------
Attest: PAINEWEBBER INCORPORATED
/s/ Dianne E. O'Donnell By: /s/ Steven M. Joenk
- ------------------------- --------------------------------
8
<PAGE>
Exhibit No. 7
CUSTODIAN AGREEMENT
Between
PAINEWEBBER TAX-EXEMPT INCOME FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held By It . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Holding Securities.. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities.. . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities.. . . . . . . . . . . . . . . . . . . . . 6
2.4 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Payments for Shares. . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Investment and Availability of Federal Funds.. . . . . . . . . . . . 7
2.7 Collection of Income.. . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Payment of Fund Moneys.. . . . . . . . . . . . . . . . . . . . . . . 9
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.11
2.10 Payments for Repurchases or Redemptions of Shares of the Fund. . . .11
2.11 Appointment of Agents. . . . . . . . . . . . . . . . . . . . . . . .12
2.12 Deposit of Fund Assets in Securities System. . . . . . . . . . . . .12
2.13 Segregated Account.. . . . . . . . . . . . . . . . . . . . . . . . .14
2.14 Ownership Certificates for Tax Purposes. . . . . . . . . . . . . . .15
2.15 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2.16 Communications Relating to Fund Portfolio Securities.. . . . . . . .16
2.17 Proper Instructions. . . . . . . . . . . . . . . . . . . . . . . . .16
2.18 Actions Permitted Without Express Authority. . . . . . . . . . . . .17
2.19 Evidence of Authority. . . . . . . . . . . . . . . . . . . . . . . .17
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.. . . . . . . . . . . . . .18
4. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
5. Opinion of Fund's Independent Certified Public Accountants. . . . . . . .19
6. Reports to Fund by Independent Certified Public Accountants . . . . . . .19
7. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . . .20
8. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . . .20
9. Effective Period, Termination and Amendment . . . . . . . . . . . . . . .21
<PAGE>
10. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . .22
11. Interpretive and Additional Provisions. . . . . . . . . . . . . . . . . .23
12. Additional Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
13. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . . . . .24
14. Prior Contracts; Assignment . . . . . . . . . . . . . . . . . . . . . . .24
15. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
17. Limitation of Liability of the Trustees and Shareholders. . . . . . . . .25
<PAGE>
CUSTODIAN CONTRACT
This Contract between Paine Webber Tax-Exempt Income Fund, a Massachusetts
business trust organized and existing under the laws of Massachusetts, having
its principal place of business at 1285 Avenue of the Americas, New York, New
York 10019, hereinafter called the "Fund", and State Street Bank and Trust
Company, a Massachusetts company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares of beneficial interest each
share representing interests in a portfolio of securities and other assets of
the Fund; and
NOW THEREFOR: in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets
pursuant to the provisions of the Declaration of Trust. The Fund agrees to
deliver to the Custodian all securities and cash owned by it, and all payments
of income, payments of principal or capital distributions received by it with
respect to all securities owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest ("Shares") of the Fund as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Fund held or received
by the Fund and not delivered to the Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Section 2.17),
the Custodian shall from time to time employ one or more sub-custodians, but
only in accordance with an applicable vote by the Trustees of the Fund, and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any sub-
custodian so employed than any such sub-custodian has to the Custodian.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, including all securities
owned by the Fund, other than securities which are maintained pursuant to
Section 2.12 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System".
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver securities
owned by the Fund held by the Custodian or in a Securities System account
of the Custodian only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, and only in
the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
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<PAGE>
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof, or its agent, when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.11 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
PROVIDED that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities
-3-
<PAGE>
except as may arise from the Custodian's own negligence or
willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Fund, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is
to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian
-4-
<PAGE>
will not be held liable or responsible for the delivery of
securities owned by the Fund prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, BUT ONLY against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 ("Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares
-5-
<PAGE>
in connection with distributions in kind, as may be described
from time to time in the Fund's currently effective prospectus
and statement of additional information ("prospectus"), in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such securities
shall be made.
2.3 REGISTRATION OF SECURITIES. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, UNLESS the Fund has
authorized in writing the appointment of a nominee to be used in common
with other registered investment companies having the same investment
adviser as the Fund, or in the name or nominee name of any agent appointed
pursuant to Section 2.11 or in the name or nominee name of any sub-
custodian appointed pursuant to Article 1. All securities accepted by the
Custodian on behalf of the Fund under the terms of this Contract shall be
in "street name" or other good delivery form.
-6-
<PAGE>
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the name of the Fund, subject only to draft or order
by the Custodian acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the provisions hereof, all
cash received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held by
the Custodian for the Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other banks
or trust companies as it may in its discretion deem necessary or desirable;
PROVIDED, however, that every such bank or trust company shall be qualified
to act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved by vote of a majority of the
Trustees of the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 PAYMENTS FOR SHARES. The Custodian shall receive from the distributor
for the Fund's Shares or from the Transfer Agent of the Fund and deposit
into the Fund's account such payments as are received for Shares of the
Fund issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund and the Transfer Agent of any
receipt by it of payments for Shares of the Fund.
2.6 INVESTMENT AND AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement
between the Fund and the Custodian, the Custodian shall, upon the receipt
of Proper Instructions,
-7-
<PAGE>
1) invest in such instruments as may be set forth in such
instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and the
Fund; and
2) make federal funds available to the Fund as of specified times
agreed upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares of the Fund
which are deposited into the Fund's account.
2.7 COLLECTION OF INCOME. The Custodian shall collect on a timely basis all
income and other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due the Fund on
securities loaned pursuant to the provisions of Section 2.2 (10) shall be
the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with
such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Fund is properly entitled.
-8-
<PAGE>
2.8 PAYMENT OF FUND MONEYS. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out moneys of the Fund in the following cases only:
1) Upon the purchase of securities, options, futures contracts or
options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as
its agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.12 hereof; or (c) in the
case of repurchase agreements entered into between the Fund and
the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities
(notwithstanding that the written agreement to repurchase will be
received subsequently) or (ii) against delivery of the receipt
evidencing purchase by the Fund of securities owned by the
Custodian along with written
-9-
<PAGE>
evidence of the agreement by the Custodian to repurchase such
securities from the Fund;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the
account of the Fund: interest, taxes, management, accounting,
transfer agent and legal fees, and operating expenses of the Fund
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Trustees or of the Executive Committee of the Fund signed
by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such
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purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
In any and every case where payment for purchase of securities for the
account of the Fund is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund to so pay in advance, the Custodian shall be absolutely liable to
the Fund for such securities to the same extent as if the securities had
been received by the Custodian.
2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND. From such
funds as may be available for the purpose but subject to the limitations of
the Declaration of Trust and any applicable votes of the Trustees of the
Fund pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of
Shares who have delivered to the Transfer Agent a request for redemption or
repurchase of their Shares. In connection with the redemption or
repurchase of Shares of the Fund, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection
with the redemption or repurchase of Shares of the Fund, the Custodian
shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
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<PAGE>
2.11 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
PROVIDED, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.12 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEM. The Custodian may deposit
and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
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2) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall identify
by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account
of the Fund upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the account of
the Fund upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities System of
transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian
and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer to
or from the account of the Fund in the form of a written advice
or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting
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control and procedures for safeguarding securities deposited in
the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 9 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or
damage.
2.13 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by the Custodian pursuant to Section 2.12 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing
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Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market),
or of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii) for
purposes of segregating cash or government securities in connection with
options purchased, sold or written by the Fund or commodity futures
contracts or options thereon purchased or sold by the Fund, (iii) for the
purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, BUT ONLY, in the case of clause
(iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of the Fund held by it and in connection with
transfers of securities.
2.15 PROXIES. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall
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<PAGE>
promptly deliver to the Fund such proxies, all proxy soliciting materials
and all notices relating to such securities.
2.16 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Custodian shall
transmit promptly to the Fund all written information (including, without
limitation, pendency of calls and maturities of securities and expirations
of rights in connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
the securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
2.17 PROPER INSTRUCTIONS. Proper Instructions as used throughout this Article
2 means a writing signed or initialled by one or more person or persons as
the Trustees shall have from time to time authorized. Each such writing
shall set forth the specific transaction or type of transaction involved,
including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if
the Custodian reasonably believes them to have been given by a person
authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in
writing. Upon receipt of a certificate of the Secretary or
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<PAGE>
an Assistant Secretary as to the authorization by the Trustees of the Fund
accompanied by a detailed description of procedures approved by the
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the
Trustees and the Custodian are satisfied that such procedures afford
adequate safeguards for the Fund's assets.
2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its
discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, PROVIDED that all such payments shall be accounted
for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Fund
except as otherwise directed by the Trustees of the Fund.
2.19 EVIDENCE OF AUTHORITY. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been properly
executed by or on behalf of the Fund. The Custodian
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<PAGE>
may receive and accept a certified copy of a vote of the Trustees of the
Fund as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by
the Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
3. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION
OF NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Trustees of the Fund to keep the books of
account of the Fund and/or compute the net asset value per Share of the
outstanding Shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
Share. Unless otherwise directed, the Custodian shall also calculate daily the
net income of the Fund as described in the Fund's currently effective prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per Share and the daily income of the Fund shall be made at the time or times
described from time to time in the Fund's currently effective prospectus.
4. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the
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Investment Company Act of 1940, with particular attention to Section 31 thereof
and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and
any other law or administrative rules or procedures which may be applicable to
the Fund. All such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities owned by the
Fund and held by the Custodian and shall, when requested to do so by the Fund
and for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulations.
5. OPINION OF FUND'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to its activities
hereunder in connection with the preparation of the Fund's Form N-1A, and Form
N-SAR or other annual reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
6. REPORTS TO FUND BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent certified public accountants on
the accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian under this Contract; such
reports, shall be of
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sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
7. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
8. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of
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money or incurring liability of some other form, the Fund, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to the
Custodian in an amount and form satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of Fund
assets to the extent necessary to obtain reimbursement.
9. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; PROVIDED,
however that the Custodian shall not act under Section 2.12 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Trustees of the Fund has approved the initial use of a
particular Securities System and the receipt of an annual certificate of the
Secretary or an Assistant Secretary that the Trustees has reviewed the use by
the Fund of such Securities System, as
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required in each case by Rule 17f-4 under the Investment Company Act of 1940;
PROVIDED FURTHER, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund may
at any time by action of its Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements as
contemplated by this Contract.
10. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Trustees of the Fund,
the Custodian shall, upon termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder and shall transfer to an account of the
successor custodian all of the Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Trustees of the
Fund, deliver at the office of the Custodian and transfer such securities, funds
and other properties in accordance with such vote.
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In the event that no written order designating a successor custodian or
certified copy of a vote of the Trustees shall have been delivered to the
Custodian on or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the Investment Company Act of 1940, doing
business in Boston, Massachusetts, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
the Custodian and all instruments held by the Custodian relative thereto and all
other property held by it under this Contract and to transfer to an account of
such successor custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Trustees to appoint a successor custodian, the Custodian shall be entitled
to fair compensation for its services during such period as the Custodian
retains possession of such securities, funds and other properties and the
provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this
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Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, PROVIDED that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
12. ADDITIONAL FUNDS
13. MASSACHUSETTS LAW TO APPLY
14. PRIOR CONTRACTS; ASSIGNMENT
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets. This Contract may not be assigned by the Custodian except as
expressly provided for in Section 10 hereof, without the prior written consent
of the Fund.
15. HEADINGS
The Headings of the Sections of this Contract are inserted for reference
and convenience only, and shall not affect the construction of this Contract.
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16. NOTICES
All notices and communications, including Proper Instructions
(collectively referred to as "Notice" or "Notices" in this paragraph), hereunder
shall be in writing or by confirming telegram, cable or telex. Notices shall be
addressed (a) if to the Custodian at its address, 225 Franklin Street, Boston,
Massachusetts, 02110, marked for the attention of the Insurance/Broker Dealer
Services Division, (b) if to the Fund, at the address of the Fund, or (c) if to
neither of the foregoing, at such other address as shall have been notified to
the sender of any such Notice.
17. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees, officers or shareholders individually but are binding
only upon the assets and property of the Trust.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of April, 1987.
ATTEST PAINE WEBBER TAX-EXEMPT INCOME FUND
/s/ Abbe P. Stein By /s/ Dianne E. O'Donnell
- --------------------------- --------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ By /s/
- --------------------------- --------------------------------
Assistant Secretary Vice President
<PAGE>
Exhibit No. 8
TRANSFER AGENCY AND RELATED SERVICES AGREEMENT
THIS AGREEMENT is made as of August 1, 1997 by and between PFPC INC., a
Delaware corporation ("PFPC"), and PAINEWEBBER MANAGED MUNICIPAL TRUST, a
Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and related services agent to the Fund's
Portfolios (as hereinafter defined) and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Directors or Trustees ("Board") to
give Oral Instructions and Written Instructions on behalf of the Fund and listed
on the Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
<PAGE>
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from
an Authorized Person.
(f) "PORTFOLIO" means a series or investment portfolio of the Fund
identified on Annex A hereto, as the same may from time to time be amended, if
the Fund consists of more than one series or investment portfolio; however, if
the Fund does not have separate series or investment portfolios, then this term
shall be deemed to refer to the Fund itself.
(g) "SEC" means the Securities and Exchange Commission.
(h) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(i) "SHARES" mean the shares of common stock or beneficial interest
of any series or class of the Fund.
(j) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to serve as transfer
agent, registrar, dividend disbursing agent and related services agent to the
Fund, and should the Fund have separate Portfolios, those Portfolios which are
listed on Annex A hereto, in accordance with the terms set forth in this
Agreement. PFPC accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund (or a particular Portfolio, as
appropriate) has provided or, where applicable, will provide PFPC with the
following:
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<PAGE>
(a) Certified or authenticated copies of the resolutions of the Fund's
Board approving the appointment of PFPC to provide services to the
Fund and approving this Agreement;
(b) A copy of each executed broker-dealer agreement with respect to each
Fund; and
(c) Copies (certified or authenticated if requested by PFPC) of any post-
effective amendment to the Fund's registration statement, advisory
agreement, distribution agreement, shareholder servicing agreement and
all amendments or supplements to the foregoing upon request.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with
all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund or any of
its Portfolios.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and Written
Instructions it receives from an Authorized Person pursuant to this Agreement.
PFPC may assume that any Oral Instruction or Written Instruction received
hereunder is not in any way inconsistent with the provisions of organizational
documents or of any vote, resolution or proceeding of the Fund's Board or of the
Fund's shareholders, unless and until PFPC receives Written Instructions to the
contrary.
(c) The Fund agrees to forward to PFPC Written Instructions confirming
Oral Instructions so that PFPC receives the Written Instructions by the close of
business on the next day after such Oral Instructions are received. The fact
that such confirming Written Instructions
3
<PAGE>
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability to the Fund in
acting upon such Oral Instructions or Written Instructions provided that PFPC's
actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it should or
should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) CONFLICTING ADVICE. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives from the Fund,
and the advice it receives from counsel, PFPC may rely upon and follow the
advice of counsel. In the event PFPC so relies on the advice of counsel, PFPC
remains liable for any action or omission on the part of PFPC which constitutes
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
(d) PROTECTION OF PFPC. PFPC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral Instructions or
Written Instructions it receives from the Fund or from counsel and which PFPC
believes, in good faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section shall
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<PAGE>
be construed so as to impose an obligation upon PFPC (i) to seek such
directions, advice or Oral Instructions or Written Instructions, or (ii) to act
in accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
7. RECORDS; VISITS. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and related services agent to each
Portfolio, including (a) all those records required to be prepared and
maintained by the Fund under the 1940 Act, by other applicable Securities Laws,
rules and regulations and by state laws and (b) such books and records as are
necessary for PFPC to perform all of the services it agrees to provide in this
Agreement and the appendices attached hereto, including but not limited to the
books and records necessary to effect the conversion of Class B shares, the
calculation of any contingent deferred sales charges and the calculation of
front-end sales charges. The books and records pertaining to the Fund, which
are in the possession or under the control of PFPC, shall be the property of the
Fund. The Fund and Authorized Persons shall have access to such books and
records in the possession or under the control of PFPC at all times during
PFPC's normal business hours. Upon the reasonable request of the Fund, copies
of any such books and records in the possession or under the control of PFPC
shall be provided by PFPC to the Fund or to an Authorized Person. Upon
reasonable notice by the Fund, PFPC shall make available during regular business
hours its facilities and premises employed in connection with its performance of
this Agreement for reasonable visits by the
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<PAGE>
Fund, any agent or person designated by the Fund or any regulatory agency having
authority over the Fund.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its shareholders (past, present
and future), its investment adviser and its principal underwriter, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund prior to its release. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to civil
or criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
periodic backup of computer files and data with respect to the Fund and
emergency use of electronic data processing equipment. In the event of
equipment failures, PFPC shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions. PFPC shall have no
liability with respect to the loss of data or service interruptions caused by
equipment failure, provided such loss or interruption is not caused by PFPC's
own willful misfeasance, bad faith, negligence or reckless disregard of its
duties or obligations under this Agreement and provided further that PFPC has
complied with the provisions of this paragraph 10.
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<PAGE>
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be
agreed to from time to time in writing by the Fund and PFPC.
12. INDEMNIFICATION.
(a) The Fund agrees to indemnify and hold harmless PFPC and its affiliates
from all taxes, charges, expenses, assessments, penalties, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements, arising directly or indirectly from (i) any
action or omission to act which PFPC takes (a) at the request or on the
direction of or in reliance on the advice of the Fund or (b) upon Oral
Instructions or Written Instructions or (ii) the acceptance, processing and/or
negotiation of checks or other methods utilized for the purchase of Shares.
Neither PFPC, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of PFPC's or
its affiliates' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement. The Fund's
liability to PFPC for PFPC's acceptance, processing and/or negotiation of checks
or other methods utilized for the purchase of Shares shall be limited to the
extent of the Fund's policy(ies) of insurance that provide for coverage of such
liability, and the Fund's insurance coverage shall take precedence.
(b) PFPC agrees to indemnify and hold harmless the Fund from all taxes,
charges, expenses, assessments, penalties, claims and liabilities arising from
PFPC's obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses,
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<PAGE>
including (without limitation) reasonable attorneys' fees and disbursements
arising directly or indirectly out of PFPC's or its nominee's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
(d) The members of the Board of the Fund, its officers and Shareholders,
or of any Portfolio thereof, shall not be liable for any obligations of the
Fund, or any such Portfolio, under this Agreement, and PFPC agrees that in
asserting any rights or claims under this Agreement, it shall look only to the
assets and property of the Fund or the particular Portfolio in settlement of
such rights or claims and not to such members of the Board, its officers or
Shareholders. PFPC further agrees that it will look only to the assets and
property of a particular Portfolio of the Fund, should the Fund have established
separate series, in asserting any rights or claims under this Agreement with
respect to services rendered with respect to that Portfolio and will not seek to
obtain settlement of such rights or claims from the assets of any other
Portfolio of the Fund.
13. INSURANCE. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of
insurance may provide for coverage of claims for liability or indemnity by the
parties set forth in this Agreement, the contracts of
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<PAGE>
insurance shall take precedence, and no provision of this Agreement shall be
construed to relieve an insurer of any obligation to pay claims to the Fund,
PFPC or other insured party which would otherwise be a covered claim in the
absence of any provision of this Agreement.
14. SECURITY.
(a) PFPC represents and warrants that, to the best of its knowledge, the
various procedures and systems which PFPC has implemented with regard to the
safeguarding from loss or damage attributable to fire, theft or any other cause
(including provision for twenty-four hours a day restricted access) of the
Fund's blank checks, certificates, records and other data and PFPC's equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate, and that it will make such changes therein from time to
time as in its judgment are required for the secure performance of its
obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis, and the Fund shall have reasonable access to review these
systems and procedures.
(b) Y2K Compliance. PFPC further represents and warrants that any and all
electronic data processing systems and programs that it uses or retains in
connection with the provision of services hereunder on or before January 1, 1999
will be year 2000 compliant.
15. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be specifically agreed to by
PFPC in writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts in performing services provided for under this Agreement. PFPC shall be
liable for any damages arising out of PFPC's failure to perform its duties under
9
<PAGE>
this Agreement to the extent such damages arise out of PFPC's willful
misfeasance, bad faith, negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Fund for any consequential,
special or indirect losses or damages which the Fund may incur or suffer by or
as a consequence of PFPC's or its affiliates' performance of the services
provided hereunder, whether or not the likelihood of such losses or damages was
known by PFPC or its affiliates.
(d) Notwithstanding anything in this Agreement to the contrary, the Fund
shall not be liable to PFPC nor its affiliates for any consequential, special or
indirect losses or damages which PFPC or its affiliates may incur or suffer by
or as a consequence of PFPC's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was known by the Fund.
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<PAGE>
16. DESCRIPTION OF SERVICES.
(a) SERVICES PROVIDED ON AN ONGOING BASIS, IF APPLICABLE.
(i) Calculate 12b-1 payments to financial intermediaries, including
brokers, and financial intermediary trail commissions;
(ii) Develop, monitor and maintain, in consultation with the Fund,
all systems necessary to implement and operate the four-tier
distribution system, including Class B conversion feature, as
described in the registration statement and related documents
of the Fund, as they may be amended from time to time;
(iii) Calculate contingent deferred sales charge amounts upon
redemption of Fund shares and deduct such amounts from
redemption proceeds;
(iv) Calculate front-end sales load amounts at time of purchase of
shares;
(v) Determine dates of Class B conversion and effect the same;
(vi) Establish and maintain proper shareholder registrations;
(vii) Review new applications and correspond with shareholders to
complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction with proxy
solicitations;
(x) Prepare and mail to shareholders confirmation of activity;
(xi) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(xii) Send duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the broker-dealer
or directly with PFPC;
(xiii) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the Fund;
(xiv) Provide detailed data for underwriter/broker confirmations;
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<PAGE>
(xv) Prepare and mail required calendar and taxable year-end tax
and statement information (including forms 1099-DIV and 1099-B
and accompanying statements);
(xvi) Notify on a daily basis the investment adviser, accounting
agent, and custodian of fund activity;
(xvii) Perform, itself or through a delegate, all of the services,
whether or not included within the scope of another paragraph
of this Paragraph 16(a), specified on Annex B hereto; and
(xviii) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN
INSTRUCTIONS.
(i) Accept and post daily Fund and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Cancel certificates.
(c) PURCHASE OF SHARES. PFPC shall issue and credit an account of an
investor, in the manner described in the Fund's prospectus, once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account; and
(iii) Confirmation of receipt or crediting of funds for such order
to the Fund's custodian.
(d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that function
is properly authorized by the Fund's organizational documents or resolutions of
the Fund's Board. Shares shall be redeemed and payment therefor shall be made
in accordance with the Fund's or Portfolio's prospectus.
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<PAGE>
(i) BROKER-DEALER ACCOUNTS.
When a broker-dealer notifies PFPC of a redemption desired by
a customer, and the Fund's or Portfolio's custodian (the
"Custodian") has provided PFPC with funds, PFPC shall (a)
transfer by Fedwire or other agreed upon electronic means such
redemption payment to the broker-dealer for the credit to, and
for the benefit of, the customer's account or (b) shall
prepare and send a redemption check to the broker-dealer,
made payable to the broker-dealer on behalf of its customer.
(ii) FUND-ONLY ACCOUNTS.
If Shares (or appropriate instructions) are received in proper
form, at the Fund's request Shares may be redeemed before the
funds are provided to PFPC from the Custodian. If the
recordholder has not directed that redemption proceeds be
wired, when the Custodian provides PFPC with funds, the
redemption check shall be sent to and made payable to the
recordholder, unless:
(a) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed
by the recordholder; or
(b) transfer authorizations are signed by the recordholder
when Shares are held in book-entry form.
(e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of the
Fund's Board authorizing the declaration and payment of dividends and
distributions, PFPC shall issue dividends and distributions declared by the Fund
in Shares, or, upon shareholder election, pay such dividends and distributions
in cash, if provided for in the appropriate Fund's or Portfolio's prospectus.
Such issuance or payment, as well as payments upon redemption as described
above,
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<PAGE>
shall be made after deduction and payment of the required amount of funds to be
withheld in accordance with any applicable tax law or other laws, rules or
regulations. PFPC shall mail to the Fund's shareholders and the IRS and other
appropriate taxing authorities such tax forms, or permissible substitute forms,
and other information relating to dividends and distributions paid by the Fund
(including designations of the portions of distributions of net capital gain
that are 20% rate gain distributions and 28% rate gain distributions pursuant to
IRS Notice 97-64) as are required to be filed and mailed by applicable law, rule
or regulation within the time required thereby. PFPC shall prepare, maintain
and file with the IRS and other appropriate taxing authorities reports relating
to all dividends above a stipulated amount paid by the Fund to its shareholders
as required by tax or other law, rule or regulation.
(f) SHAREHOLDER ACCOUNT SERVICES.
(i) PFPC will arrange, in accordance with the appropriate Fund's
or Portfolio's prospectus, for issuance of Shares obtained
through:
- The transfer of funds from shareholders' accounts at
financial institutions, provided PFPC receives advance Oral
or Written Instruction of such transfer;
- Any pre-authorized check plan; and
- Direct purchases through broker wire orders, checks and
applications.
(ii) PFPC will arrange, in accordance with the appropriate Fund's
or Portfolio's prospectus, for a shareholder's:
- Exchange of Shares for shares of another fund with which the
Fund has exchange privileges;
Automatic redemption from an account where that shareholder
participates in a systematic withdrawal plan; and/or
- Redemption of Shares from an account with a checkwriting
privilege.
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<PAGE>
(g) COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written Instructions,
PFPC shall mail all communications by the Fund to its shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Fund shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax forms (including substitute forms) and accompanying
information containing the information required by paragraph
16(e).
If requested by the Fund, PFPC will receive and tabulate the proxy cards
for the meetings of the Fund's shareholders and supply personnel to serve as
inspectors of election.
(h) RECORDS. PFPC shall maintain those records required by the Securities
Laws and any laws, rules and regulations of governmental authorities having
jurisdiction with respect to the duties to be performed by PFPC hereunder with
respect to shareholder accounts or by transfer agents generally, including
records of the accounts for each shareholder showing the following information:
(i) Name, address and United States Taxpayer Identification or
Social Security number;
(ii) Number and class of Shares held and number and class of Shares
for which certificates, if any, have been issued, including
certificate numbers and denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions paid, their
character (e.g. ordinary income, net capital gain (including
20% rate gain and 28% rate gain), exempt-interest, foreign
tax-credit and dividends received deduction eligible) for
federal income tax purposes and the date and price for all
transactions on a shareholder's account;
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<PAGE>
(iv) Any stop or restraining order placed against a shareholder's
account;
(v) Any correspondence relating to the current maintenance of a
shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the transfer agent to
perform any calculations contemplated or required by this
Agreement.
(i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop notice against
any certificate reported to be lost or stolen and comply with all applicable
federal regulatory requirements for reporting such loss or alleged
misappropriation. The lost or stolen certificate will be canceled and
uncertificated Shares will be issued to a shareholder's account only upon:
(i) The shareholder's pledge of a lost instrument bond or such
other appropriate indemnity bond issued by a surety company
approved by PFPC; and
(ii) Completion of a release and indemnification agreement signed
by the shareholder to protect PFPC and its affiliates.
(j) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any Fund
shareholder to inspect stock records, PFPC will notify the Fund, and the Fund
will issue instructions granting or denying each such request. Unless PFPC has
acted contrary to the Fund's instructions, the Fund agrees and does hereby
release PFPC from any liability for refusal of permission for a particular
shareholder to inspect the Fund's shareholder records.
(k) WITHDRAWAL OF SHARES AND CANCELLATION OF CERTIFICATES. Upon receipt of
Written Instructions, PFPC shall cancel outstanding certificates surrendered by
the Fund to reduce the total amount of outstanding shares by the number of
shares surrendered by the Fund.
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<PAGE>
17. DURATION AND TERMINATION.
(a) This Agreement shall be effective on the date first written above and
shall continue for a period of three (3) years (the "Initial Term"). Upon the
expiration of the Initial Term, this Agreement shall automatically renew for
successive terms of one (1) year ("Renewal Terms") each provided that it may be
terminated by either party during a Renewal Term upon written notice given at
least ninety (90) days prior to termination. During either the Initial Term or
the Renewal Terms, this Agreement may also be terminated on an earlier date by
either party for cause.
(b) With respect to the Fund, cause includes, but is not limited to, (i)
PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute "cause" under this Paragraph, PFPC must receive written notice from
the Fund specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii) issuance of an administrative
or court order against PFPC with regard to the material violation or alleged
material violation of the Securities Laws or other applicable laws related to
its business of performing transfer agency services;
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement.
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<PAGE>
(d) Any notice of termination for cause in conformity with subparagraphs
(a), (b) and (c) of this Paragraph by the Fund shall be effective thirty (30)
days from the date of any such notice. Any notice of termination for cause by
PFPC shall be effective 90 days from the date of such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Fund designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Fund,
transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including, a certified list of the
shareholders of the Fund or any Portfolio thereof with name, address, and if
provided, taxpayer identification or Social Security number, and a complete
record of the account of each shareholder. To the extent that PFPC incurs
expenses related to a transfer of responsibilities to a successor, other than
expenses involved in PFPC's providing the Fund's books and records described in
the preceding sentence to the successors, PFPC shall be entitled to be
reimbursed for such extraordinary expenses, including any out-of-pocket expenses
reasonably incurred by PFPC in connection with the transfer.
(f) Any termination effected pursuant to this Paragraph shall not affect
the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Fund or any Portfolio thereof upon the liquidation, merger, or
other dissolution of the Fund or Portfolio or upon the Fund's ceasing to be a
registered investment company.
18. REGISTRATION AS A TRANSFER AGENT. PFPC represents that it is
currently registered with the appropriate federal agency for the registration of
transfer agents, or is otherwise
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permitted to lawfully conduct its activities without such registration and that
it will remain so registered or able to so conduct such activities for the
duration of this Agreement. PFPC agrees that it will promptly notify the Fund
in the event of any material change in its status as a registered transfer
agent. Should PFPC fail to be registered with the SEC as a transfer agent at
any time during this Agreement, and such failure to register does not permit
PFPC to lawfully conduct its activities, the Fund may, on written notice to
PFPC, terminate this Agreement upon five days written notice to PFPC.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at the address
of the Fund or (c) if to neither of the foregoing, at such other address as
shall have been given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming telegram,
cable, telex or facsimile sending device during regular business hours, it shall
be deemed to have been given immediately; if sent at a time other than regular
business hours, such notice shall be deemed to have been given at the opening of
the next business day. If notice is sent by first-class mail, it shall be
deemed to have been given three days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the day it is
delivered. All postage, cable, telegram, telex and facsimile sending device
charges arising from the sending of a notice hereunder shall be paid by the
sender.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
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21. ADDITIONAL PORTFOLIOS. In the event that the Fund establishes one or
more investment series in addition to and with respect to which it desires to
have PFPC render services as transfer agent, registrar, dividend disbursing
agent and related services agent under the terms set forth in this Agreement, it
shall so notify PFPC in writing, and PFPC shall agree in writing to provide such
services, and such investment series shall become a Portfolio hereunder, subject
to such additional terms, fees and conditions as are agreed to by the parties.
22. DELEGATION; ASSIGNMENT.
(a) PFPC may, at its own expense, assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Fund to comply with all relevant provisions of the Securities
Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such
information as the Fund may request, and respond to such questions as the Fund
may ask, relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee). The assignment and
delegation of any of PFPC's duties under this subparagraph (a) shall not relieve
PFPC of any of its responsibilities or liabilities under this Agreement.
(b) PFPC may delegate to PaineWebber Incorporated its obligation to
perform the services described on Annex B hereto. In addition, PFPC may assign
its rights and delegate its other duties hereunder to PaineWebber Incorporated
or Mitchell Hutchins Asset Management Inc. or an affiliated person of either,
provided that (I) PFPC gives the Fund thirty (30) days' prior written notice;
(ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all
relevant provisions of the Securities Laws; and (iii) PFPC and such delegate (or
assignee)
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<PAGE>
promptly provide such information as the Fund may request, and respond to such
questions as the Fund may ask, relative to the delegation (or assignment),
including (without limitation) the capabilities of the delegate (or assignee).
In assigning its rights and delegating its duties under this paragraph, PFPC may
impose such conditions or limitations as it determines appropriate including the
condition that PFPC be retained as a sub-transfer agent.
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
23. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
25. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to services to be performed and fees payable under this Agreement.
(b) CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
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<PAGE>
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract made
in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ Joseph Gramlich
-------------------------------
Title: Senior Vice President
PAINEWEBBER MANAGED MUNICIPAL TRUST
By: /s/ Dianne E. O'Donnell
-------------------------------
Title: Secretary and Vice President
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ANNEX A
Portfolios
PaineWebber RMA New York Municipal Money Fund
PaineWebber RMA California Municipal Money Fund
23
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AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ---------------- -------------------
- ---------------- -------------------
- ---------------- -------------------
- ---------------- -------------------
- ---------------- -------------------
- ---------------- -------------------
24
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ANNEX B
a. Establish and maintain a dedicated service center with sufficient
facilities, equipment and skilled personnel to address all shareholder
inquiries received by telephone, mail or in-person regarding the Funds and
their accounts
b. Provide timely execution of redemptions, exchanges and non-financial
transactions directed to investment executives and specifically requested
by Fund shareholders
c. Issue checks from proceeds of Fund share redemptions to shareholders as
directed by the shareholders or their agents
d. Process and maintain shareholder account registration information
e. With respect to customer accounts maintained through PaineWebber
Incorporated ("PaineWebber"), review new applications and correspond with
shareholders to complete or correct information
f. Prepare and mail monthly or quarterly consolidated account statements that
reflect PaineWebber Mutual Fund balances and transactions (such
information to be combined with other activity and holdings in investors'
brokerage accounts if this responsibility is delegated to PaineWebber)
g. Establish and maintain a dedicated service center with sufficient
facilities, equipment and skilled personnel to address all branch inquiries
regarding operational issues and performance
h. Capture, process and mail required tax information to shareholders and
report this information to the Internal Revenue Service
i. Provide the capability to margin PaineWebber Mutual Funds held within the
client's brokerage account (if this responsibility is delegated to
PaineWebber)
j. Prepare and provide shareholder registrations for mailing of proxies,
reports and other communications to shareholders
k. Develop, maintain and issue checks from the PaineWebber systematic
withdrawal plan offered within the client's brokerage account (if this
responsibility is delegated to PaineWebber)
l. Maintain duplicate shareholder records and reconcile those records with
those at the transfer agent (if this responsibility is delegated to
PaineWebber)
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m. Process and mail duplicate PaineWebber monthly or quarterly statements to
PaineWebber Investment Executives
n. Establish and maintain shareholder distribution options (i.e., election to
have dividends paid in cash, rather than reinvested in Fund shares)
o. Process and mail purchase, redemption and exchange confirmations to Fund
shareholders and PaineWebber Investment Executives
p. Issue dividend checks to shareholders that select cash distributions to
their brokerage account (if this responsibility is delegated to
PaineWebber)
q. Develop and maintain the automatic investment plan offered within the
client's brokerage account (if this responsibility is delegated to
PaineWebber)
r. Provide bank-to-bank wire transfer capabilities related to transactions in
Fund shares
s. Maintain computerized compliance programs for blue sky and non-resident
alien requirements (only with respect to PaineWebber Cashfund, Inc.)
26
<PAGE>
Exhibit No. 9
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
August 28, 1998
PaineWebber Managed Municipal Trust
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have requested our opinion, as counsel to PaineWebber Managed Municipal
Trust ("Trust"), as to certain matters regarding the issuance of certain Shares
of the Trust. As used in this letter, the term "Shares" means the shares of
beneficial interest of the series of the Trust listed below during the time that
Post-Effective Amendment No. 33 to the Trust's Registration Statement on Form
N-1A ("PEA") is effective and has not been superseded by another post-effective
amendment. These series of the Trust are PaineWebber RMA California Municipal
Money Fund and PaineWebber RMA New York Municipal Money Fund.
As such counsel, we have examined certified or other copies, believed by us
to be genuine, of the Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Trust and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Trust of full
payment for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.
We note, however, that the Trust is an entity of the type commonly known as
a "Massachusetts business trust." Under Massachusetts law, shareholders could,
under certain circumstances, be held personally liable for the obligations of
the Trust. The Declaration of Trust states that creditors of, contractors with
and claimants against the Trust or any series shall look only to the assets of
the Trust for the appropriate series for payment. It also requires that notice
of such disclaimer be given in each note, bond, contract, certificate
undertaking or instrument
<PAGE>
Paine Webber Managed Municipal Trust
August 28, 1998
Page 2
made or issued by the officers or the trustees of the Trust on behalf of the
Trust. The Declaration of Trust further provides: (1) for indemnification from
the assets of the Trust or the appropriate series for all loss and expense of
any shareholder held personally liable for the obligations of the Trust or any
series by virtue of ownership of shares of the Trust or such series; and (2) for
the Trust or appropriate series to assume the defense of any claim against the
shareholder for any act or obligation of the Trust or series. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust or series would be unable to meet
its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the statement of additional
information that is being filed as part of the PEA.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information and to the incorporation by reference of our report dated August
21, 1998 in this Registration Statement (Form N-1A No.2-89016) of PaineWebber
Managed Municipal Trust (consisting of RMA California Municipal Money
Fund and RMA New York Municipal Money Fund).
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
August 26, 1998
<PAGE>
[LETTERHEAD]
August 26, 1998
Mitchell Hutchins
1285 Avenue of the Americas
New York, New York 10019
Re: PaineWebber RMA New York Municipal Money Fund, a series of the
PaineWebber Managed Municipal Trust (the "New York Fund")
--------------------------------------------------------------
We hereby consent to the filing of this consent as an exhibit to the
registration statement on Form N-1A for the New York Fund dated as of the date
hereof (the "Registration Statement") and to the use of our name as counsel to
the New York Fund with respect to New York law in the Registration Statement and
the Prospectus for the New York Fund.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe LLP
Orrick, Herrington & Sutcliffe LLP
<PAGE>
[LETTERHEAD]
August 26, 1998
Mitchell Hutchins
1285 Avenue of the Americas
New York, New York 10019
Re: PaineWebber RMA California Municipal Money Fund, a series of the
PaineWebber Managed Municipal Trust (the "California Fund")
----------------------------------------------------------------
We hereby consent to the filing of this consent as an exhibit to the
registration statement on Form N-1A for the California Fund dated as of the date
hereof (the "Registration Statement") and to the use of our name as counsel to
the California Fund with respect to California law in the Registration Statement
and the Prospectus for the California Fund.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe LLP
Orrick, Herrington & Sutcliffe LLP
<PAGE>
Exhibit No. 12
PAINE
WEBBER
INCORPORATED
140 Broadway, New York, N.Y. 10005 (212) 437-2121
November 21, 1984
PaineWebber Tax-Exempt Income Fund, Inc.
140 Broadway
New York, New York 10005
Gentlemen:
Please be advised that PaineWebber Incorporated herewith tenders $100,000 to
purchase shares of PaineWebber Tax-Exempt Income Fund, Inc. ("Fund") valued at
$100,000 minimum initial capital required by the Investment Company Act of 1940.
We intend to purchase the shares as an investment and have no present intention
of redeeming or selling such shares.
Very truly yours,
/s/ Anne F. Riney
Anne F. Riney
Vice President - Finance
<PAGE>
Exhibit No. 13
PAINEWEBBER MANAGED MUNICIPAL TRUST
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, PaineWebber Managed Municipal Trust ("Fund") is registered under
the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company, and currently offers for public sale two distinct
series of shares of beneficial interest ("Series"), which correspond to distinct
portfolios and have been designated as the PaineWebber RMA California Municipal
Money Fund and PaineWebber RMA New York Municipal Money Fund; and
WHEREAS, the Fund has adopted a Plan of Distribution ("Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to the above-referenced Series and
such other Series as may hereafter be designated by the Fund's board of trustees
("Board"); and
WHEREAS, the Fund has entered into a Distribution Contract ("Contract")
with PaineWebber Incorporated ("PaineWebber") pursuant to which PaineWebber has
agreed to serve as Distributor for each such Series;
NOW, THEREFORE, the Fund hereby adopts this Plan with respect to such
Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Series is authorized to pay to PaineWebber, as compensation
for PaineWebber's service activities with respect to the Series' shareholders
under the Contract, a service fee at the rate of 0.15% on an annualized basis of
the Series' average daily net assets. Such fee shall be calculated and accrued
daily and paid monthly or at such other intervals as the Board shall determine.
B. A Series may pay a service fee to PaineWebber at a lesser rate
than the fee specified in paragraph 1A of this Plan, as agreed upon by the Board
and PaineWebber and as approved in the manner specified in paragraph 4 of this
Plan.
2. As Distributor for each Series, PaineWebber may spend such amounts as
it deems appropriate on any activities or expenses primarily intended to result
in the sale of the Series' shares or the servicing and maintenance of
shareholder accounts, including, but not limited to, compensation to employees
of PaineWebber; compensation to and expenses, including overhead and telephone
and other communication expenses, of PaineWebber, Mitchell Hutchins Asset
Management Inc. and other selected dealers who engage in or support the
distribution of shares or who service shareholder accounts; the printing and
distributing of prospectuses, statements of additional information, and reports
for other than existing shareholders; and the preparation, printing and
distribution of sales literature and advertising materials.
<PAGE>
3. This Plan shall take effect with respect to the Series designated
PaineWebber RMA California Municipal Money Fund and PaineWebber RMA New York
Municipal Money Fund on the date set forth below, provided that it has first
been approved by the Board as set forth in paragraph 4, but shall not take
effect with respect to any other Series unless it first has been approved by a
vote of a majority of the outstanding voting securities of the Series.
4. This Plan shall not take effect with respect to any Series unless it
first has been approved, together with any related agreements, by votes of a
majority of both (a) the Board and (b) those Trustees of the Fund who are not
"interested persons" of the Fund and have no direct or indirect financial
interest in the operation of this Plan or any agreements related thereto
("Independent Trustees"), cast in person at a meeting (or meetings) called for
the purpose of voting on such approval; and until the Trustees who approve the
Plan's taking effect with respect to such Series have reached the conclusion
required by Rule 12b-1(e) under the 1940 Act.
5. If approved as set forth in paragraphs 3 and 4, this Plan shall
continue thereafter in full force and effect with respect to such Series for so
long as such continuance is specifically approved at least annually in the
manner provided for approval of this Plan in paragraph 4.
6. PaineWebber shall provide to the Board and the Board shall review, at
least quarterly, a written report of the amounts expended with respect to each
Series by PaineWebber under this Plan and the Contract and the purposes for
which such expenditures were made. PaineWebber shall submit only information
regarding amounts expended for "service activities," as defined in this
Paragraph 6, to the Board in support of the service fee payable hereunder.
For purposes of this Plan, "service activities" shall mean activities
in connection with the provision by PaineWebber of personal, continuing services
to investors in the shares of the Series and/or the maintenance of shareholder
accounts; provided, however, that if the National Association of Securities
Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of
Section 26(d) of the NASD Rules of Fair Practice that differs from the
definition of "service activities" hereunder, or if the NASD adopts a related
definition intended to define the same concept, the definition of "service
activities" in this Paragraph shall be automatically amended, without further
action of the parties, to conform to such NASD definition. Overhead and other
expenses of PaineWebber related to its "service activities," including telephone
and other communications expenses, may be included in the information regarding
amounts expended for such activities.
7. This Plan may be terminated with respect to any Series at any time by
vote of the Board, by vote of a majority of the Independent Trustees, or by vote
of a majority of the outstanding voting securities of that Series.
8. This Plan may not be amended to increase materially the amount of
service fees provided for in paragraph 1A hereof unless such amendment is
approved by a vote of a majority of the outstanding voting securities of the
affected Series, and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 5
hereof.
2
<PAGE>
9. The amount of the service fees payable by any Series to PaineWebber
under paragraph 1A hereof and the Contract is not related directly to expenses
incurred by PaineWebber on behalf of such Series in serving as its Distributor,
and paragraph 2 hereof and the Contract do not obligate the Series to reimburse
PaineWebber for such expenses. The service fees set forth in paragraph 1A
hereof will be paid by the Series to PaineWebber until either the Plan or the
Contract is terminated or not renewed. If either the Plan or the Contract is
terminated or not renewed with respect to any Series, any expenses for service
activities incurred by PaineWebber on behalf of the Series in excess of payments
of the service fees specified in paragraph 1A hereof and the Contract which
PaineWebber has received or accrued through the termination date are the sole
responsibility and liability of PaineWebber, and are not obligations of the
Series.
10. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Fund shall be committed to the
discretion of the Trustees who are not interested persons of the Fund.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Fund shall preserve copies of this Plan (including any amendments
thereto) and any related agreements and all reports made pursuant to paragraph 6
hereof for a period of not less than six years from the date of this Plan, the
first two years in an easily accessible place.
13. The Trustees of the Fund and the shareholders of each Series shall not
be liable for any obligations of the Fund or any Series under this Plan, and
PaineWebber or any other person, in asserting any rights or claims under this
Plan, shall look only to the assets and property of the fund or such Series in
settlement of such right or claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Fund has executed this Plan of Distribution on the
day and year set forth below in New York, New York.
Date: July 7, 1993
ATTEST: PAINEWEBBER MANAGED MUNICIPAL TRUST
/s/ Gregory K. Todd By: /s/ Jack W. Murphy
- ------------------------ -------------------------------
3
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<PAGE>
<ARTICLE> 6
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<NAME> PAINEWEBBER MANAGED MUNICIPAL TRUST
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<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 585,534
<INVESTMENTS-AT-VALUE> 585,534
<RECEIVABLES> 5,446
<ASSETS-OTHER> 22
<OTHER-ITEMS-ASSETS> 11,507
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,662
<OTHER-INCOME> 0
<EXPENSES-NET> (3,657)
<NET-INVESTMENT-INCOME> 16,005
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<NET-CHANGE-FROM-OPS> 16,028
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<DISTRIBUTIONS-OF-INCOME> (16,005)
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<NUMBER-OF-SHARES-SOLD> 3,141,261
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<SHARES-REINVESTED> 15,642
<NET-CHANGE-IN-ASSETS> 74,042
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<GROSS-ADVISORY-FEES> 2,667
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<GROSS-EXPENSE> 16,005
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<PER-SHARE-NII> 0.028
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<PAGE>
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<NAME> PAINEWEBBER MANAGED MUNICIPAL TRUST
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<NAME> RMA NEW YORK MUNICIPAL MONEY FUND
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 348,155
<INVESTMENTS-AT-VALUE> 348,155
<RECEIVABLES> 6,219
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 114
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<PAYABLE-FOR-SECURITIES> 10,012
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<EXPENSES-NET> (2,217)
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<NET-CHANGE-FROM-OPS> 9,925
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<DISTRIBUTIONS-OF-INCOME> (9,918)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,180,263
<NUMBER-OF-SHARES-REDEEMED> (2,124,848)
<SHARES-REINVESTED> 9,632
<NET-CHANGE-IN-ASSETS> 65,053
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<GROSS-EXPENSE> 2,222
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