PAINEWEBBER MANAGED MUNICIPAL TRUST /NY/, 485BPOS, 1999-08-27

PAINEWEBBER MANAGED MUNICIPAL TRUST /NY/
485BPOS, 1999-08-27

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<PAGE>

As filed with the Securities and Exchange Commission on August 27, 1999

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. 35 [X]

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

Amendment No. 34 [X]

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:
[ ] Immediately upon filing pursuant to Rule 485(b)

[X] On August 31, 1999 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)

If appropriate, check following box:

[X] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

This post-effective amendment designates August 31, 1999 as the new effective
date for post-effective amendment no. 34, which was filed June 30, 1999 with an
automatice effective date of August 29, 1999.

Title of Securities Being Registered: Shares of Beneficial Interest.

<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

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

PROSPECTUS

AUGUST 31, 1999

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

This prospectus offers shares of these money market funds primarily to
participants in the PaineWebber Resource Management Account'r' (RMA'r') Program,
the PaineWebber Business Services Account'sm' (BSA'sm') Program and certain
PaineWebber advisory programs.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the funds' shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Funds

Contents
THE FUNDS

<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
What every investor 3 Money Market Portfolio
should know about 6 U.S. Government Portfolio
the funds 9 Tax-Free Fund
12 California Municipal Money Fund
15 New Jersey Municipal Money Fund
18 New York Municipal Money Fund
21 More About Risks and
Investment Strategies
YOUR INVESTMENT

- ---------------------------------------------------------------------------------------------------
Information for 23 Managing Your Fund Account
managing your fund -- Buying Shares
account -- Selling Shares
-- Pricing and Valuation
ADDITIONAL INFORMATION

- ---------------------------------------------------------------------------------------------------
Additional important 26 Management
information about 27 Dividends and Taxes
the funds 28 Financial Highlights

- ---------------------------------------------------------------------------------------------------
Where to learn more Back Cover
about the funds
</TABLE>

----------------------------------
The funds are not complete or
balanced investment programs.
----------------------------------

===============
- --------------------------------------------------------------------------------
2

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Money Market Portfolio

Money Market Portfolio
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

Maximum current income consistent with liquidity and conservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in a diversified portfolio of high quality money
market instruments of governmental and private issuers.

Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. The fund invests in foreign money market instruments only if they are
denominated in U.S. dollars.

PaineWebber Incorporated, the fund's investment adviser, has appointed Mitchell
Hutchins Asset Management Inc. to serve as the fund's sub-adviser. Mitchell
Hutchins selects money market instruments for the fund based on its assessment
of relative values and changes in market and economic conditions.

PRINCIPAL RISKS

An investment in the fund is not a bank deposit and is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. While the fund seeks to maintain the value of your investment at $1.00
per share, it is possible to lose money by investing in the fund.

Money market instruments generally have a low risk of loss, but they are not
risk-free. The fund is subject to credit risk, which is the risk that issuers
may fail, or become less able, to make payments when due. The fund also is
subject to interest rate risk. When short-term interest rates rise, the value of
the fund's investments generally will fall, and its yield will tend to lag
behind prevailing rates.

More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:

Credit Risk

Interest Rate Risk

Foreign Securities Risk

Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).

===============
- --------------------------------------------------------------------------------
3

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Money Market Portfolio

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.

The bar chart shows how the fund's performance has varied from year to year. The
table that follows the bar chart shows the average annual returns over several
time periods for the fund's shares.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

TOTAL RETURN
PERCENTAGES
-----------
9.01% 8.01% 5.90% 3.56% 2.84% 3.78% 5.54% 5.02% 5.15% 5.09%

CALENDAR YEAR
-------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Total return January 1 to June 30, 1999 -- 2.22%
Best quarter during years shown: 2nd quarter, 1989 -- 2.33%
Worst quarter during years shown: 2nd quarter, 1993 -- 0.69%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<S> <C>
One Year................................................ 5.09%
Five Years.............................................. 4.92%
Ten Years............................................... 5.38%
</TABLE>

===============
- --------------------------------------------------------------------------------
4

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Money Market Portfolio

EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------

FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)

<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)............................................. None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)............................................. None
Maximum Account Fee*
PaineWebber RMA Program................................... $ 85
PaineWebber BSA Program................................... $125
</TABLE>

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

* Additional fees may apply for optional RMA/BSA services, such as a Bank One
Line of Credit for MasterCard'r' transactions.

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from fund assets)
Management Fees............................................. 0.50%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses.............................................. 0.09%
Total Annual Fund Operating Expenses........................ 0.59%
----
----
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.

This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$60 $189 $329 $738
</TABLE>

===============
- --------------------------------------------------------------------------------
5

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA U.S. Government Portfolio

U.S. Government Portfolio
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

Maximum current income consistent with liquidity and conservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in a diversified portfolio of high quality, U.S.
government money market instruments.

Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. The fund invests in money market instruments that are backed by the full
faith and credit of the United States and in repurchase agreements relating to
those U.S. government obligations.

PRINCIPAL RISKS

More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:

Credit Risk

Interest Rate Risk

Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).

===============
- --------------------------------------------------------------------------------
6

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA U.S. Government Portfolio

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.

The bar chart shows how the fund's performance has varied from year to year. The
table that follows the bar chart shows the average annual returns over several
time periods for the fund's shares.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

TOTAL RETURN

PERCENTAGES
-----------
8.49% 7.62% 5.57% 3.41% 2.64% 3.52% 5.24% 4.86% 5.01% 4.85%

CALENDAR YEAR
-------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Total return January 1 to June 30, 1999 -- 2.07%
Best quarter during years shown: 2nd quarter, 1989 -- 2.18%
Worst quarter during years shown: 4th quarter, 1993 -- 0.65%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<S> <C>
One Year................................................ 4.85%
Five Years.............................................. 4.69%
Ten Years............................................... 5.11%
</TABLE>

===============
- --------------------------------------------------------------------------------
7

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA U.S. Government Portfolio

EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------

FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)

<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)............................................. None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)............................................. None
Maximum Account Fee*
PaineWebber RMA Program................................... $85
PaineWebber BSA Program................................... $125
</TABLE>

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

* Additional fees may apply for optional RMA/BSA services, such as a Bank One
Line of Credit for MasterCard'r' transactions.

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from fund assets)
Management Fees............................................. 0.42%
Distribution and/or Service (12b-1) Fees.................... 0.13%*
Other Expenses.............................................. 0.05%
Total Annual Fund Operating Expenses........................ 0.60%
</TABLE>

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

* The current rate is 0.125% but has been rounded to 0.13% for purposes of the
table.

EXAMPLE

This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$61 $192 $335 $750
</TABLE>

===============
- --------------------------------------------------------------------------------
8

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Tax-Free Fund

Tax-Free Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

Maximum current income exempt from federal income tax consistent with liquidity
and conservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in a diversified portfolio of high quality,
municipal money market instruments.

Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. The fund invests in money market instruments that are exempt from federal
income tax. While the fund normally does not do so, it may invest up to 20% of
its total assets in securities that are subject to the federal alternative
minimum tax.

PRINCIPAL RISKS

More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:

Credit Risk

Interest Rate Risk

Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).

===============
- --------------------------------------------------------------------------------
9

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Tax-Free Fund

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.

The bar chart shows how the fund's performance has varied from year to year. The
table that follows the bar chart shows the average annual returns over several
time periods for the fund's shares.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

TOTAL RETURN

PERCENTAGES
-----------
5.78% 5.38% 4.06% 2.58% 1.86% 2.31% 3.32% 2.92% 3.10% 2.93%

CALENDAR YEAR
-------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Total return January 1 to June 30, 1999 -- 1.24%
Best quarter during years shown: 2nd quarter, 1989 -- 1.52%
Worst quarter during years shown: 1st quarter, 1994 -- 0.44%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<S> <C>
One Year................................................ 2.93%
Five Years.............................................. 2.92%
Ten Years............................................... 3.42%
</TABLE>

===============
- --------------------------------------------------------------------------------
10

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Tax-Free Fund

EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------

FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)

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

* Additional fees may apply for optional RMA/BSA services, such as a Bank One
Line of Credit for MasterCard'r' transactions.

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Management Fees............................................. 0.43%
Distribution and/or Service (12b-1) Fees.................... 0.13%*
Other Expenses.............................................. 0.03%
-----
Total Annual Fund Operating Expenses........................ 0.59%
-----
-----
</TABLE>

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

* The current rate is 0.125% but has been rounded to 0.13% for purposes of the
table.

EXAMPLE

This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$60 $189 $329 $738
</TABLE>

===============
- --------------------------------------------------------------------------------
11

<PAGE>

- --------------------------------------------------------------------------------
==============================

PaineWebber RMA California Municipal Money Fund

California Municipal Money Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

Maximum current income exempt from federal income tax and California personal
income tax consistent with liquidity and conservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in a diversified portfolio of high quality money
market instruments that are exempt from both federal income tax and California
personal income tax.

Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. While the fund normally does not do so, it may invest without limit in
instruments that are subject to the federal alternative minimum tax.

PRINCIPAL RISKS

More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:

Credit Risk

Interest Rate Risk

Single State Concentration Risk

Related Securities Concentration Risk

Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).

===============
- --------------------------------------------------------------------------------
12

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA California Municipal Money Fund

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.

The bar chart shows how the fund's performance has varied from year to year. The
table that follows the bar chart shows the average annual returns over several
time periods for the fund's shares.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

TOTAL RETURN

PERCENTAGES
-----------
5.57% 5.04% 3.74% 2.34% 1.77% 2.20% 3.14% 2.80% 2.93% 2.58%

CALENDAR YEAR
-------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Total return January 1 to June 30, 1999 -- 1.10%
Best quarter during years shown: 2nd quarter, 1989 -- 1.46%
Worst quarter during years shown: 1st quarter, 1994 -- 0.42%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<S> <C>
One Year................................................ 2.58%
Five Years.............................................. 2.73%
Ten Years............................................... 3.21%
</TABLE>

===============
- --------------------------------------------------------------------------------
13

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA California Municipal Money Fund

EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------

FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)

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

* Additional fees may apply for optional RMA/BSA services, such as a Bank One
Line of Credit for MasterCard'r' transactions.

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from fund assets)
Management Fees............................................. 0.47%
Distribution and/or Service (12b-1) Fees.................... 0.13%*
Other Expenses.............................................. 0.07%
Total Annual Fund Operating Expenses........................ 0.67%
----
----
</TABLE>

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

* The current rate is 0.125% but has been rounded to 0.13% for purposes of the
table.

EXAMPLE

This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$68 $214 $373 $835
</TABLE>

===============
- --------------------------------------------------------------------------------
14

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA New Jersey Municipal Money Fund

New Jersey Municipal Money Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

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.

PRINCIPAL INVESTMENT STRATEGIES

Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. The fund may invest without limit in instruments that are subject to the
federal alternative minimum tax.

PRINCIPAL RISKS

Money market instruments generally have a low risk of loss, but they are not
risk-free. The fund is subject to credit risk, which is that the risk issuers
may fail, or become less able, to make payments when due. The fund also is
subject to interest rate risk. When short-term interest rates rise, the value of
the fund's investments generally will fall, and its yield will tend to lag
behind prevailing rates.

More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:

Credit Risk

Interest Rate Risk

Single State Concentration Risk

Related Securities Concentration Risk

Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).

===============
- --------------------------------------------------------------------------------
15

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA New Jersey Municipal Money Fund

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.

The bar chart shows how the fund's performance has varied from year to year. The
table that follows the bar chart shows the average annual returns over several
time periods for the fund's shares.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

TOTAL RETURN

PERCENTAGES
-----------
N/A N/A N/A 2.23% 1.62% 1.93% 2.78% 2.54% 2.73% 2.45%

CALENDAR YEAR
-------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Total return January 1 to June 30, 1999 -- 1.06%
Best quarter during years shown: 2nd quarter, 1995 -- 0.76%
Worst quarter during years shown: 1st and 2nd quarter 1993, and 1st quarter,
1994 -- 0.39%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<S> <C>
One Year................................................ 2.45%
Five Years.............................................. 2.49%
Life of Fund (2/01/91).................................. 2.54%
</TABLE>

===============
- --------------------------------------------------------------------------------
16

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA New Jersey Municipal Money Fund

EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------

FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)

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

* Additional fees may apply for optional RMA/BSA services, such as a Bank One
Line of Credit for MasterCard'r' transactions.

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from fund assets)
Management Fees............................................. 0.50%
Distribution and/or Service (12b-1) Fees.................... 0.12%
Other Expenses.............................................. 0.27%
-----
Total Annual Fund Operating Expenses........................ 0.89%
-----
-----
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$91 $284 $493 $1,096
</TABLE>

===============
- --------------------------------------------------------------------------------
17

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA New York Municipal Money Fund

New York Municipal Money Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

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.

PRINCIPAL INVESTMENT STRATEGIES

The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in a diversified portfolio of high quality money
market instruments that are exempt from federal income tax and from both New
York State and New York City personal income taxes.

Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. While the fund normally does not do so, it may invest without limit in
instruments that are subject to the federal alternative minimum tax.

PRINCIPAL RISKS

More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:

Credit Risk

Interest Rate Risk

Single State Concentration Risk

Related Securities Concentration Risk

Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).

===============
- --------------------------------------------------------------------------------
18

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA New York Municipal Money Fund

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.

The bar chart shows how the fund's performance has varied from year to year. The
table that follows the bar chart shows the average annual returns over several
time periods for the fund's shares.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

TOTAL RETURN

PERCENTAGES
-----------
5.70% 4.98% 3.71% 2.26% 1.67% 2.14% 3.12% 2.76% 2.98% 2.76%

CALENDAR YEAR
-------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Total return January 1 to June 30, 1999 -- 1.17%
Best quarter during years shown: 2nd quarter, 1989 -- 1.47%
Worst quarter during years shown: 1st quarter, 1993 and 1st quarter,
1994 -- 0.39%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<S> <C>
One Year................................................ 2.76%
Five Years.............................................. 2.75%
Ten Years............................................... 3.20%
</TABLE>

===============
- --------------------------------------------------------------------------------
19

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA New York Municipal Money Fund

EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------

FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)

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

* Additional fees may apply for optional RMA/BSA services, such as a Bank One
Line of Credit for MasterCard'r' transactions.

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Management Fees............................................. 0.49%
Distribution and/or Service (12b-1) Fees.................... 0.13%*
Other Expenses.............................................. 0.03%
Total Annual Fund Operating Expenses........................ 0.65%
</TABLE>

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

* The current rate is 0.125% but has been rounded to 0.13% for purposes of the
table.

EXAMPLE

This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$66 $208 $362 $810
</TABLE>

===============
- --------------------------------------------------------------------------------
20

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Funds

MORE ABOUT RISKS
AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

PRINCIPAL RISKS

The main risks of investing in one or more of the funds are described below. Not
all of these risks apply to each fund. You can find a list of the main risks
that apply to a particular fund by looking under the 'Investment Objective,
Strategies and Risks' heading for that fund.

Other risks of investing in a fund, along with further detail about some of the
risks described below, are discussed in the funds' Statement of Additional
Information ('SAI'). Information on how you can obtain the SAI is on the back
cover of this prospectus.

Credit Risk. Credit risk is the risk that the issuer of a money market
instrument will not make principal or interest payments when they are due. Even
if an issuer does not default on a payment, a money market instrument's value
may decline if the market believes that the issuer has become less able, or less
willing, to make payments on time. Even the highest quality money market
instruments are subject to some credit risk.

Foreign Securities Risk. Foreign securities involve risks that normally are not
associated with securities of U.S. issuers. These include risks relating to
political, social and economic developments abroad and differences between U.S.
and foreign regulatory requirements and market practices.

Interest Rate Risk. The value of money market instruments generally can be
expected to fall when short-term interest rates rise and to rise when short-term
interest rates fall. Interest rate risk is the risk that interest rates will
rise, so that the value of a fund's investments will fall. Also, a fund's yield
will tend to lag behind changes in prevailing short-term interest rates. This
means that a fund's income will tend to rise more slowly than increases in
short-term interest rates. Similarly, when short-term interest rates are
falling, a fund's income will tend to fall more slowly.

Related Securities Concentration Risk. Each of the California, New Jersey and
New York municipal money market funds may invest more than 25% of its total
assets in municipal money market instruments that are issued to finance similar
projects, such as those relating to education, health care, transportation or
utilities. Economic, business or political developments or changes that affect
one municipal security may affect municipal securities in the same sector. As a
result, these funds are subject to greater risk than funds that do not follow
this practice.

Single State Concentration Risk. The performance of a fund that invests
primarily in the municipal money market instruments of a single state will be
more severely affected by unfavorable political or economic conditions within
that state than a more geographically diversified fund. As a result, an
investment in the fund could be more volatile and involve greater risk than an
investment in a more geographically diversified fund. The particular risks of
investments in California, New Jersey and New York municipal money market
instruments are discussed in the SAI.

===============
- --------------------------------------------------------------------------------
21

<PAGE>

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==============================
PaineWebber RMA Funds

In addition, a single state municipal money market fund is permitted to invest
more than 5% of its total assets in the securities of a single issuer with
respect to 25% of its total assets. When a fund holds a large position in the
securities of a single issuer, changes in the financial condition or in the
market's assessment of that issuer can cause larger changes in the value of the
funds' total investments and its income than if the fund held only a smaller
position.

ADDITIONAL RISKS

Year 2000 Risk. The fund could be adversely affected by problems relating to the
inability of computer systems used by Mitchell Hutchins and the fund's other
service providers to recognize the year 2000. While year 2000-related computer
problems could have a negative effect on the fund, Mitchell Hutchins is working
to avoid these problems with respect to its own computer systems and to obtain
assurances from other service providers that they are taking similar steps.

Similarly, the issuers whose money market instruments are bought by the fund and
the trading systems used by the fund could be adversely affected by this issue.
The ability of an issuer or trading system to respond successfully to the issue
requires both technological sophistication and diligence, and there can be no
assurance that any steps taken will be sufficient to avoid an adverse impact on
the fund.

Political Risk. Political or regulatory developments could adversely affect the
tax-exempt status of interest paid on municipal securities or the tax-exempt
status of a municipal money market fund's dividends. These developments could
also cause the value of a fund's municipal money market instruments to fall.

ADDITIONAL INVESTMENT STRATEGIES

Like all money market funds, the funds are subject to maturity, quality and
diversification requirements designed to help them maintain a stable price of
$1.00 per share. The funds' investment strategies are designed to comply with
these requirements.

The California, New Jersey and New York municipal money market funds are
organized as 'non-diversified' funds. Normally, this would mean that they would
not be subject to certain limitations on investments of more than 5% of total
assets in the securities of a single issuer. However, because these funds are
single state money market funds, they are subject to special regulations that
impose substantially the same limitations as normally apply to 'diversified'
mutual funds. The other funds are subject to even more stringent diversification
requirements, which apply to money market funds that are not single state funds.

Mitchell Hutchins may use a number of professional money management techniques
to respond to changing economic and money market conditions and to shifts in
fiscal and monetary policies. These techniques include varying a fund's
composition and weighted average maturity based upon its assessment of the
relative values of various money market instruments and future interest rate
patterns. Mitchell Hutchins also may buy or sell money market instruments to
take advantage of yield differences.

Defensive Positions for Municipal Money Market Funds. During adverse market
conditions or when Mitchell Hutchins believes there is an insufficient supply of
the municipal securities in which a fund primarily invests, Tax-Free Fund and
the California, New Jersey and New York municipal money market funds each may
temporarily invest

===============
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22

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Funds

in other types of municipal securities or may invest in money market instruments
that pay taxable interest. These investments may not be consistent with
achieving a fund's investment objectives during the relatively short periods
that they are held.

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

MANAGING YOUR FUND ACCOUNT

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

BUYING SHARES

You must be a PaineWebber client or a client of a PaineWebber correspondent firm
to purchase fund shares. Shares of the funds are available primarily through the
PaineWebber Resource Management Account'r' (RMA'r') Program, the PaineWebber
Business Services Account'sm' (BSA'sm') Program and certain PaineWebber advisory
programs.

Certain features available to RMA and BSA participants are summarized in the
Appendices to the SAI. The RMA and BSA programs are more fully described in
separate materials your Financial Advisor can provide you. Not all correspondent
firms have arrangements with PaineWebber to make fund shares available to their
customers.

PaineWebber asks participants in these programs to select one of the funds as
their primary sweep money fund. You may have only one primary sweep money fund
at any time, but you may change your primary sweep money fund or purchase shares
of another fund by contacting your Financial Advisor.

Your order to purchase a fund's shares will be effective on the business day on
which federal funds become available to the fund. 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 can be
made immediately available to the fund. A business day is any day that the
Boston offices of the fund's custodian and the New York City offices of
PaineWebber and its bank are open for business.

Each fund (other than Money Market Portfolio) has adopted a plan under rule
12b-1 under which the fund pays fees for services provided to its shareholders
at the annual rate of 0.125% of its average net assets (0.12% for New Jersey
Municipal Money Fund).

The funds and PaineWebber reserve the right to reject a purchase order or
suspend the offering of fund shares.

BUYING SHARES AUTOMATICALLY

All free cash credit balances (that is, immediately available funds) of over $1
in your PaineWebber RMA or BSA brokerage account (including proceeds from
securities you have sold) are automatically invested in your primary sweep money
fund on a daily basis for settlement the next business day, when federal funds
normally are available. For cash balances arising from the sale of securities in
your brokerage account, federal funds availability can sometimes take longer.

Fund shares will be purchased only after all debits and charges to your RMA or
BSA

===============
- --------------------------------------------------------------------------------
23

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Funds

brokerage account are satisfied. See 'Selling Shares Automatically' below.

BUYING SHARES BY CHECK OR ELECTRONIC FUNDS TRANSFER CREDIT

RMA and BSA participants may purchase shares of their primary sweep money fund
or another fund by placing an order with their PaineWebber Financial Advisor and
providing a check from a U.S. bank. You should include your PaineWebber account
number on the check.

Federal funds are deemed available to a fund two business days after the deposit
of a personal check 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 if they are converted to
federal funds in less than two business days.

BUYING SHARES BY WIRE

You may purchase fund shares by placing an order through your Financial Advisor
and instructing your bank to transfer federal funds by wire to:

The Bank of New York
ABA 021-000018
A/C 890-0114-088, OBI=FBO
[Account Name]/[Brokerage Account Number.]

The wire must include your name and RMA or BSA brokerage account number.

If PaineWebber receives a notice from your bank of wire transfer of federal
funds for a purchase of fund shares by 12:00 noon, Eastern time, PaineWebber
will execute the purchase on that day. Otherwise, PaineWebber will execute the
order on the next business day. PaineWebber and/or your bank may impose a
service charge for wire transfers.

MINIMUM INVESTMENTS

The funds have no minimum for initial investments or to add to an account, but
reserve the right to establish minimum investment requirements at any time.

SELLING SHARES

You may sell your shares by contacting your Financial Advisor in person or by
telephone or mail. You may also use the checkwriting service to sell your
shares. Your fund shares will be sold automatically to settle any outstanding
securities purchases, charges or debits to your PaineWebber brokerage account,
unless you instruct your Financial Advisor otherwise.

If you own shares of more than one fund, shares of your primary sweep money fund
are always sold first for automatic sales or if you do not specify which fund's
shares are to be sold. Shares in the other funds will be sold, if necessary, in
the following order: first, Money Market Portfolio; second, U.S. Government
Portfolio; third, Tax-Free Fund; and fourth, California Municipal Money Fund,
New Jersey Municipal Money Fund or New York Municipal Money Fund.

If you sell all your shares in a fund, you will receive cash credits to your RMA
or BSA brokerage account for dividends earned on those shares prior to the sale
date.

SELLING SHARES AUTOMATICALLY

Under the RMA, BSA and advisory programs, PaineWebber sells fund shares
automatically to satisfy outstanding debits and charges in your brokerage
account.

===============
- --------------------------------------------------------------------------------
24

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Funds

Debits include amounts due PaineWebber on settlement date for securities
purchases, margin loans, PaineWebber checks, federal funds wires arranged by
PaineWebber and related fees.

Charges include RMA and BSA checks, MasterCard purchases, cash advances, Bill
Payment Service payments and Automated Clearing House transfers, including
Electronic Funds Transfer Debits.

Shares are sold to cover debits on the day the debit is generated. Shares are
sold automatically to cover RMA and BSA checks and MasterCard cash advances on
the day they are paid.

Shares are sold automatically to cover MasterCard purchases at the end of the
MasterCard monthly billing period. Shares also are sold at the end of the
MasterCard monthly billing period to cover interest due on and credit extended
and outstanding under the Bank One Line of Credit. Shares are sold to pay for
securities purchases on settlement date.

SELLING BY MAIL

If you send an order to sell your shares by mail to PaineWebber or its
correspondent firms, your request must include:

Your name and address;

The fund's name;

Your account number;

The dollar amount or number of shares you want to sell; and

A guarantee of each registered owner's signature. A signature guarantee may be
obtained from a financial institution, broker, dealer or clearing agency that
is a participant in one of the medallion programs recognized by the Securities
Transfer Agents Association. These are: Securities Transfer Agents Medallion
Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York
Stock Exchange Medallion Signature Program (MSP). The funds and their transfer
agent will not accept signature guarantees that are not a part of these
programs.

Sales by mail may also need to include additional supporting documents for sales
by estates, trusts, guardianships, custodianships, partnerships and
corporations.

ADDITIONAL INFORMATION

It costs the fund money to maintain shareholder accounts. Therefore, each fund
reserves the right to repurchase all shares in any account that has a net asset
value of less than $500. If a fund elects to do this with your account, it will
notify you that you can increase the amount invested to $500 or more within 60
days. This notice may appear on your account statement.

If you want to sell shares that you purchased recently, a fund may delay payment
to assure that it has received good payment. If you purchased shares by check,
this can take up to 15 days.

PaineWebber has the right to terminate your RMA or BSA brokerage account for any
reason. In that case, PaineWebber will sell all of the fund shares held in the
RMA or BSA brokerage account and will send you the proceeds within three
business days.

PRICING AND VALUATION

The price of fund shares is based on net asset value. The net asset value is the
total value of a fund divided by the total number of shares outstanding. In
determining net asset value, each fund values its securities at their amortized
cost. This method uses a constant amortization to maturity of the difference
between the cost of the instrument to the fund and the amount due at

===============
- --------------------------------------------------------------------------------
25

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Funds

maturity. Each fund's net asset value per share is expected to be $1.00,
although this value is not guaranteed.

Each fund calculates net asset value once each business day at 12:00 noon,
Eastern time. Your price for buying or selling shares will be the net asset
value that is next calculated after the fund accepts your order. Your Financial
Advisor is responsible for making sure that your order is promptly sent to the
fund when shares are purchased other than through the automatic program
described above.

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

MANAGEMENT

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

INVESTMENT ADVISER AND SUB-ADVISER

PaineWebber is the investment adviser and administrator of each fund. Mitchell
Hutchins is each fund's sub-adviser and sub-administrator. 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 wholly owned by Paine Webber Group Inc., a publicly owned
financial services holding company. On July 31, 1999, PaineWebber or Mitchell
Hutchins was the adviser or sub-adviser of 33 investment companies with 75
separate portfolios and aggregate assets of approximately $48.0 billion.

ADVISORY FEES

The funds paid advisory and administration fees to PaineWebber for the most
recent fiscal year ended June 30, 1999 at the following annual rates based on
average daily net assets:

<TABLE>
<S> <C>
Money Market Portfolio............ 0.50%
U.S. Government Portfolio......... 0.42%
Tax-Free Fund..................... 0.43%
California Municipal Money Fund... 0.47%
New Jersey Municipal Money Fund... 0.50%
New York Municipal Money Fund..... 0.49%
</TABLE>

===============
- --------------------------------------------------------------------------------
26

<PAGE>

- --------------------------------------------------------------------------------
==============================
PaineWebber RMA Funds

DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------

DIVIDENDS

The funds declare dividends daily and pay them monthly. The funds distribute any
net short-term capital gain annually, but may make more frequent distributions
if necessary to maintain their share prices at $1.00 per share.

Shares earn dividends on the day they are purchased but not on the day they are
sold.

You will receive dividends in additional shares of a fund unless you elect to
receive them in cash. Contact your Financial Advisor at PaineWebber or one of
its correspondent firms if you prefer to receive dividends in cash.

TAXES

The dividends that you receive from Money Market Portfolio and U.S. Government
Portfolio generally are subject to federal income tax regardless of whether you
receive them in additional fund shares or in cash. The funds expect that their
dividends will be taxed primarily as ordinary income. If you hold fund shares
through a tax-exempt account or plan, such as an IRA or 401(k) plan, dividends
on your shares generally will not be subject to tax.

The dividends that you receive from Tax-Free Fund, California Municipal Money
Fund, New York Municipal Money Fund and New Jersey Municipal Money Fund
generally are not subject to federal income tax.

In addition, California Municipal Money Fund seeks to pay dividends that are
exempt from California personal income tax, New Jersey Municipal Money Fund
seeks to pay dividends that are exempt from New Jersey personal income tax and
New York Municipal Money Fund seeks to pay dividends that are exempt from New
York State and New York City personal income taxes.

Each fund will tell you how you should treat its dividends for tax purposes. You
will not recognize any gain on the sale of your shares in a fund so long as the
fund maintains a share price of $1.00.

Each fund is required to withhold 31% of all taxable dividends payable to any
individuals and certain other noncorporate shareholders who

have not provided the fund or PaineWebber with

a correct taxpayer identification number on Form W-9 (for U.S. citizens
and resident aliens), or

a properly completed claim for exemption on Form W-8 (for nonresident
aliens and other foreign entities), or

are otherwise subject to backup withholding.

===============
- --------------------------------------------------------------------------------
27

<PAGE>

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==============================
PaineWebber RMA Funds

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following financial highlights tables are intended to help you understand
the funds' financial performance for the past 5 years. Certain information
reflects financial results for a single fund share. In the tables, 'total
investment return' represents the rate that an investor would have earned on an
investment in a fund (assuming reinvestment of all dividends).

Except as indicated below, the information in the financial highlights has been
audited by Ernst & Young LLP, independent auditors, whose report, along with the
funds' financial statements, are included in the funds' annual report to
shareholders. You may obtain the funds' annual report without charge by calling
1-800-762-1000. For New Jersey Municipal Money Fund, the information appearing
below for the fiscal year ended October 31, 1994 was audited by other auditors,
whose report thereon also was unqualified.

<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<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............................. 0.46 0.051 0.049 0.051 0.049
Dividends from net investment income.............. (0.46) (0.051) (0.049) (0.051) (0.049)
----------- ----------- ---------- ---------- ----------
Net asset value, end of year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
Total investment return(1)........................ 4.76% 5.21% 5.04% 5.25% 5.00%
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of year (000's)................... $13,446,140 $11,135,226 $8,673,055 $7,522,612 $5,398,146
Expenses to average net assets.................... 0.59% 0.60% 0.59% 0.60%(2) 0.59%
Net investment income to average net assets....... 4.64% 5.09% 4.94% 5.14%(2) 4.91%
</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%.

===============
- --------------------------------------------------------------------------------
28

<PAGE>

- --------------------------------------------------------------------------------
==============================

PaineWebber RMA Funds

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
U.S. GOVERNMENT PORTFOLIO
-----------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<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............................... 0.044 0.049 0.048 0.049 0.046
Dividends from net investment income................ (0.044) (0.049) (0.048) (0.049) (0.046)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return(1).......................... 4.45% 5.05% 4.88% 5.04% 4.67%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of year (000's)..................... $1,354,594 $1,179,575 $1,083,866 $1,137,510 $ 815,781
Expenses to average net assets...................... 0.60% 0.57% 0.62% 0.65%(2) 0.63%
Net investment income to average net assets......... 4.35% 4.93% 4.78% 4.91%(2) 4.55%
</TABLE>

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

(2) These ratios include non-recurring acquisition expenses of 0.02%.

<TABLE>
<CAPTION>
TAX-FREE FUND
------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<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.............................. 0.026 0.031 0.029 0.030 0.030
Dividends from net investment income............... (0.026) (0.031) (0.029) (0.030) (0.030)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return(1)......................... 2.67% 3.10% 2.98% 3.09% 3.03%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of year (000's).................... $2,424,938 $2,271,969 $2,065,920 $2,013,448 $1,562,040
Expenses to average net assets..................... 0.59% 0.58% 0.61% 0.61%(2) 0.63%
Net investment income to average net assets........ 2.63% 3.06% 2.94% 3.02%(2) 3.00%
</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%.

===============
- --------------------------------------------------------------------------------
29

<PAGE>

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==============================

PaineWebber RMA Funds

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
California Municipal Money Fund
--------------------------------------------------------
For the Years Ended June 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<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....................................... 0.023 0.028 0.028 0.029 0.029
Dividends from net investment income........................ (0.023) (0.028) (0.028) (0.029) (0.029)
-------- -------- -------- -------- --------
Net asset value, end of year................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return(1).................................. 2.31% 2.87% 2.87% 2.89% 2.91%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of year (000's)............................. $575,296 $566,957 $492,915 $473,726 $330,937
Expenses to average net assets.............................. 0.67% 0.65% 0.62% 0.70%(2) 0.69%
Net investment income to average net assets................. 2.28% 2.83% 2.83% 2.82%(2) 2.87%
</TABLE>

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

(2) These ratios include non-recurring acquisition expenses of 0.03%.

<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL MONEY FUND
---------------------------------------------------------------------
FOR THE EIGHT FOR THE YEARS
MONTHS ENDED ENDED
FOR THE YEARS ENDED JUNE 30, JUNE 30, OCTOBER 31,
--------------------------------- ------------- -----------------
1999 1998 1997 1996 1995(2) 1994
---- ---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net investment income............................. 0.022 0.026 0.026 0.017 0.027 0.018
Dividends from net investment income.............. (0.022) (0.026) (0.026) (0.017) (0.027) (0.018)
------- ------- ------- ------- ------- -------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(1)........................ 2.21% 2.67% 2.65% 1.71% 2.75% 1.76%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's)................. $62,972 $48,279 $52,324 $42,233 $36,206 $31,981
Expenses to average net assets.................... 0.89% 0.85% 0.81% 0.95%* 0.93% 0.85%
Net investment income to average net assets....... 2.18% 2.64% 2.63% 2.56%* 2.73% 1.74%
</TABLE>

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

* Annualized.

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates, and a sale at net asset value on the last
day of each period reported. Total investment returns for periods of less
than one year have not been annualized.

(2) Investment advisory functions for the Fund were transferred from Kidder,
Peabody Asset Management, Inc. to PaineWebber on January 30, 1995.

===============
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30

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==============================

PaineWebber RMA Funds

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
NEW YORK MUNICIPAL MONEY FUND
------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<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............................... 0.025 0.029 0.028 0.029 0.028
Dividends from net investment income................ (0.025) (0.029) (0.028) (0.029) (0.028)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return(1).......................... 2.50% 2.97% 2.85% 2.91% 2.81%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of year (000's)..................... $ 372,880 $ 339,391 $ 274,338 $ 255,177 $ 192,799
Expenses to average net assets before waiver from
adviser........................................... 0.65% 0.65% 0.77% 0.74%(2) 0.71%
Expenses to average net assets after waiver from
adviser........................................... 0.65% 0.65% 0.67% 0.72%(2) 0.68%
Net investment income to average net assets before
waiver from adviser............................... 2.46% 2.92% 2.71% 2.80%(2) 2.78%
Net investment income to average net assets after
waiver from adviser............................... 2.46% 2.92% 2.81% 2.82%(2) 2.81%
</TABLE>

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

(2) These ratios include non-recurring acquisition expenses of 0.04%.

===============
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31

<PAGE>

If you want more information about a fund, the following documents are available
free upon request:

ANNUAL/SEMI-ANNUAL REPORTS

Additional information about a fund's investments is available in the fund's
annual and semi-annual reports to shareholders.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI provides more detailed information about the funds and is incorporated
by reference into this prospectus.

You may discuss your questions about a fund by contacting your PaineWebber
Financial Advisor. You may obtain free copies of annual and semi-annual reports
and the SAI by contacting the fund directly at 1-800-762-1000.

You may review and copy information about a fund, including shareholder reports
and the SAI, at the Public Reference Room of the Securities and Exchange
Commission. You can get text-only copies of reports and other information about
a fund and information about the operations of the SEC's Public Reference Room:

For a fee, by writing to or calling the
SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330

Free, from the SEC's Internet website at:
http://www.sec.gov

PaineWebber RMA Money Fund, Inc.
-- Money Market Portfolio
-- U.S. Government Portfolio
Investment Company Act File No. 811-3503

PaineWebber RMA Tax-Free Fund, Inc.
Investment Company Act File No. 811-3504

PaineWebber Managed Municipal Trust
-- RMA California Municipal Money Fund
-- RMA New York Municipal Money Fund
Investment Company Act File No. 811-3946

PaineWebber Municipal Money Market Series
-- RMA New Jersey Municipal Money Fund
Investment Company Act File No. 811-6173

'c' 1999 PaineWebber Incorporated

PAINEWEBBER RMA
Prospectus

===================================

MONEY MARKET PORTFOLIO

U.S. GOVERNMENT PORTFOLIO

TAX-FREE FUND

CALIFORNIA MUNICIPAL MONEY FUND

NEW JERSEY MUNICIPAL MONEY FUND

NEW YORK MUNICIPAL MONEY FUND

August 31, 1999

<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

STATEMENT OF ADDITIONAL INFORMATION

The six funds named above are professionally managed money market
funds. PaineWebber RMA Money Market Portfolio and PaineWebber RMA U.S.
Government Portfolio are diversified series of PaineWebber RMA Money Fund, Inc.,
and PaineWebber RMA Tax-Free Fund, Inc. also is a diversified fund. PaineWebber
RMA California Municipal Money Fund and PaineWebber RMA New York Municipal Money
Fund are non-diversified series of PaineWebber Managed Municipal Trust;
PaineWebber RMA New Jersey Municipal Money Fund is a non-diversified series of
PaineWebber Municipal Money Market Series.

The funds' investment adviser, administrator and distributor is
PaineWebber Incorporated ("PaineWebber"); their sub-adviser and
sub-administrator is Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned asset management subsidiary of PaineWebber.

Portions of the funds' Annual Reports to Shareholders are incorporated
by reference into this Statement of Additional Information ("SAI"). The Annual
Reports accompany this SAI. You may obtain an additional copy of a fund's Annual
Report by calling toll-free 1-800-726-1000.

This SAI is not a prospectus and should be read only in conjunction
with the Funds' current Prospectus, dated August 31, 1999. A copy of the
Prospectus may be obtained by contacting any PaineWebber Financial Advisor or
correspondent firm or by calling 1-800-762-1000. This SAI is dated August 31,
1999.

TABLE OF CONTENTS

<TABLE>
<CAPTION> PAGE
----

<S> <C>
The Funds and Their Investment Policies.............................. 2
The Funds' Investments, Related Risks and Limitations................ 4
Organization of the Funds, Directors/Trustees and Officers
and Principal Holders of Securities............................. 34
Investment Advisory, Administration and Distribution Arrangements.... 43
Portfolio Transactions............................................... 47
Additional Information Regarding Redemptions......................... 48
Valuation of Shares.................................................. 49
Performance Information.............................................. 50
Taxes................................................................ 53
Other Information.................................................... 59
Financial Statements................................................. 60
Appendix A........................................................... 61
Appendix B........................................................... 63
</TABLE>

<PAGE>

THE FUNDS AND THEIR INVESTMENT POLICIES

Each fund's investment objective may not be changed without shareholder
approval. Except where noted, the other investment policies of a fund may be
changed by its board without shareholder approval. As with other mutual funds,
there is no assurance that a fund will achieve its investment objective.

Each fund is a money market fund that invests in high quality money
market instruments that have, or are deemed to have, remaining maturities of 13
months or less. Money market instruments are short-term debt-obligations and
similar securities. They also include longer term bonds that have variable
interest rates or other special features that give them the financial
characteristics of short-term debt. Each fund may purchase only those
obligations that Mitchell Hutchins determines, pursuant to procedures adopted by
the board, present minimal credit risks and are "First Tier Securities" as
defined in Rule 2a-7 under the Investment Company Act of 1940, as amended
("Investment Company Act").

MONEY MARKET PORTFOLIO

Money Market Portfolio's investment objective is to provide maximum
current income consistent with liquidity and conservation of capital. The fund's
investments include (1) U.S. and foreign government securities, (2) obligations
of U.S. and foreign banks, (3) commercial paper and other short-term obligations
of U.S. and foreign corporations, partnerships, trusts and similar entities, (4)
repurchase agreements and (5) investment company securities.

The fund may invest in obligations (including certificates of deposit,
bankers' acceptances, time deposits and similar obligations) of U.S. and foreign
banks only if the institution has total assets at the time of purchase in excess
of $1.5 billion. The fund's investments in non-negotiable time deposits of these
institutions will be considered illiquid if they have maturities greater than
seven days.

The fund generally may invest no more than 5% of its total assets in
the securities of a single issuer (other than U.S. government securities). The
fund may purchase only U.S. dollar-denominated obligations of foreign issuers.

The fund may invest up to 10% of its net assets in illiquid securities.
The fund may purchase securities on a when-issued or delayed delivery basis. The
fund may lend its portfolio securities to qualified broker-dealers or
institutional investors in an amount up to 33 1/3% of its total assets. The fund
may borrow up to 10% of its total assets for temporary purposes, including
reverse repurchase agreements. It may invest in the securities of other
investment companies.

U.S. GOVERNMENT PORTFOLIO

U.S. Government Portfolio's investment objective is to provide maximum
current income consistent with liquidity and the conservation of capital. The
fund invests in U.S. government securities. Under investment guidelines adopted
by its board, the fund currently invests only in securities, such as U.S.
Treasury bills and notes and Ginnie Mae (formerly, Government National Mortgage
Association) certificates, that are backed by the full faith and credit of the
United States, in repurchase agreements secured by such securities and in the
securities of other investment companies that invest only in these instruments.

<PAGE>

TAX-FREE FUND

Tax Free Fund's investment objective is to provide maximum current
income exempt from federal income tax consistent with liquidity and conservation
of capital. The fund invests substantially all of its assets in money market
instruments issued by states, municipalities, public authorities and other
issuers, the interest from which is exempt from federal income tax ("municipal
securities"). The fund also may purchase participation interests in municipal
securities. Participation interests are pro rata interests in securities held by
others.

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 federal alternative minimum tax ("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 fund generally may invest no more than 5% of its total assets in
the securities of a single issuer. The fund may invest up to 10% of its net
assets in illiquid securities. The fund may purchase securities on a when-issued
or delayed delivery basis. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may borrow up to 10% of its total assets for
temporary purposes, including reverse repurchase agreements. It may invest in
the securities of other investment companies.

CALIFORNIA MUNICIPAL MONEY FUND

California Municipal Money Fund's investment objective is to provide
maximum current income exempt from federal income tax and California's personal
income tax consistent with liquidity and conservation of capital. The fund
invests at least 80% and seeks to invest 100% of its net assets in municipal
securities issued by the State of California, its municipalities and public
authorities and other issuers if such obligations pay interest that is exempt
from federal income tax as well as California personal income tax ("California
municipal securities"). The fund also may purchase participation interests in
California municipal securities. Participation interests are pro rata interests
in securities held by others.

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.

As a single state money market fund, the fund may invest more than 5%
of its total assets in the securities of a single issuer with respect to 25% of
its total assets. The fund may invest up to 10% of its net assets in illiquid
securities. The fund may purchase securities on a when-issued or delayed
delivery basis. The fund may lend its portfolio securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of its
total assets. The fund may borrow up to 10% of its total assets for temporary
purposes, including reverse repurchase agreements. It may invest in the
securities of other investment companies.

NEW JERSEY MUNICIPAL MONEY FUND

New Jersey Municipal Money Fund's investment objective is the
maximization of current income exempt from federal income tax and New Jersey
personal income tax consistent with the preservation of capital and the
maintenance of liquidity. The fund invests at least 65% and seeks to invest 100%
of its net assets in municipal securities issued by the State of New Jersey, its
municipalities and public authorities and other issuers if such obligations pay
interest that is exempt from federal income tax as well as New Jersey personal
income tax ("New Jersey municipal securities"). The fund also may purchase
participation interests in New Jersey municipal securities. Participation
interests are pro rata interests in securities held by others. Under normal
market conditions, the 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.

The fund may invest without limit in New Jersey securities that pay
interest that is subject to the AMT.

<PAGE>

As a single state money market fund, the fund may invest more than 5%
of its total assets in the securities of a single issuer with respect to 25% of
its total assets. The fund may invest up to 10% of its net assets in illiquid
securities. The fund may purchase securities on a when-issued or delayed
delivery basis. The fund may lend its portfolio securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of its
total assets. The fund may borrow up to 15% of its total assets for temporary
purposes, including reverse repurchase agreements. It may invest in the
securities of other investment companies.

NEW YORK MUNICIPAL MONEY FUND

New York Municipal Money Fund's investment objective is to provide
maximum current income exempt from federal income tax and New York State and New
York City personal income taxes consistent with liquidity and conservation of
capital. The fund invests at least 80% and seeks to invest 100% of its net
assets in municipal securities issued by the State of New York, its
municipalities and public authorities and other issuers if such obligations pay
interest that is exempt from federal income tax as well as New York State and
New York City personal income taxes ("New York municipal securities"). The fund
also may purchase participation interests in New York municipal securities.
Participation interests are pro rata interests in securities held by others.

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 FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS

The following supplements the information contained in the Prospectus
and above concerning each fund's investments, related risks and limitations.
Except as otherwise indicated in the Prospectus or SAI, each fund has
established no policy limitations on its ability to use the investments or
techniques discussed in these documents. New forms of money market instruments
continue to be developed. The funds may invest in these instruments to the
extent consistent with their investment objectives.

YIELDS AND CREDIT RATINGS OF MONEY MARKET INSTRUMENTS; FIRST TIER
SECURITIES. The yields on the money market instruments in which each fund
invests (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 assigned by
nationally recognized statistical rating organizations ("rating agencies")
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 or Mitchell Hutchins becomes aware that a security has
received a rating below the second highest rating by any rating agency, Mitchell
Hutchins and, in certain cases, a fund's board, will consider whether the fund
should continue to hold the obligation. A First Tier Security is either (1)
rated in the highest short-term rating category by at least two rating agencies,
(2) rated in the highest short-term rating category by a single rating agency if
only that rating agency 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

<PAGE>

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 category at the time of purchase that
subsequently receives a rating below the highest rating category from a
different rating agency 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 and (when available) from
the federal alternative minimum tax, California personal income tax, New Jersey
personal income tax and New York State and New York City personal income taxes
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
these opinions. An issuer's obligations under its municipal securities are
subject to the 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 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.

U.S. GOVERNMENT SECURITIES include direct obligations of the U.S.
Treasury (such as Treasury bills, notes or bonds) and obligations issued or
guaranteed as to principal and interest (but not as to market value) by the U.S.
government, its agencies or its instrumentalities. U.S. government securities
include mortgage-backed securities issued or guaranteed by government agencies
or government-sponsored enterprises. Other U.S. government securities may be
backed by the full faith and credit of the U.S. government or supported
primarily or solely by the creditworthiness of the government-related issuer or,
in the case of mortgage-backed securities, by pools of assets.

Money Market Portfolio and U.S. Government Portfolio may invest in
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury, which are traded independently under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS programs, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury.

COMMERCIAL PAPER AND OTHER SHORT-TERM OBLIGATIONS. Money Market
Portfolio may purchase commercial paper, which includes short-term obligations
issued by corporations, partnerships, trusts or other entities to finance
short-term credit needs. The fund also may purchase other types of
non-convertible debt obligations subject to maturity constraints imposed by Rule
2a-7 under the Investment Company Act. Descriptions of certain types of
short-term obligations are provided below.

ASSET-BACKED SECURITIES. Money Market Portfolio may invest in
securities that are comprised of financial assets. These assets may include a
motor vehicle and other types of installment sales contracts, home equity loans,
leases of various types of real and personal property and receivables from
revolving credit (credit card) agreements or other types of financial assets.
Such assets are securitized through the use of trusts or special purpose
corporations or other entities. Payments or distributions of principal and
interest may be guaranteed up to a certain amount and for a certain time period
by a letter of credit or pool insurance policy issued by a financial institution
unaffiliated with the issuer, or other credit enhancements may be present. See
"The Funds' Investments, Related Risks and Limitations -- Credit and Liquidity
Enhancements."

VARIABLE AND FLOATING RATE SECURITIES AND DEMAND INSTRUMENTS. Money
Market Portfolio and U.S. Government Portfolio may purchase variable and
floating rate securities with remaining maturities in excess of 13 months issued
by U.S. government agencies or instrumentalities or guaranteed by the U.S.
government. In addition, 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. Each fund's
investment in these securities must comply with conditions established by the
Securities and Exchange Commission ("SEC") under which they may be considered to
have remaining maturities of 13 months or less. The 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. Certain

<PAGE>

of these obligations carry a demand feature that gives a fund the right to
tender them back to a specified party, usually the issuer or a remarketing
agent, prior to maturity. See "The Funds' Investments, Related Risks and
Limitations -- Credit and Liquidity Enhancements."

Generally, a fund may exercise demand features (1) upon a default under
the terms of the underlying security, (2) to maintain its portfolio in
accordance with its investment objective and policies or applicable legal or
regulatory requirements or (3) as needed to provide liquidity to a 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 securities.

VARIABLE AMOUNT MASTER DEMAND NOTES. Money Market Portfolio may invest
in 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 an 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.

INVESTING IN FOREIGN SECURITIES. Money Market Portfolio's investments
in U.S. dollar-denominated securities of foreign issuers 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 fund's investments. Additionally, there may be less publicly available
information about foreign issuers because they may not be subject to the same
regulatory requirements as domestic issuers.

CREDIT AND LIQUIDITY ENHANCEMENTS. A fund may invest in securities that
have credit or liquidity enhancements or may purchase these types of
enhancements in the secondary market. Such enhancements may be structured as
demand features that permit the fund to sell the instrument at designated times
and prices. These credit and liquidity enhancements may be backed by letters of
credit or other instruments provided by banks or other financial institutions
whose credit standing affects the credit quality of the underlying obligation.
Changes in the credit quality of these financial institutions could cause losses
to a fund and affect its share price. The credit and liquidity enhancements may
have conditions that limit the ability of a fund to use them when the fund
wishes to do so.

ILLIQUID SECURITIES. The term "illiquid securities" means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which a 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
are liquid pursuant to guidelines established by each fund's board. To the
extent the funds invest in illiquid securities, they may not be able readily to
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, as amended ("Securities Act") and may be sold only in privately negotiated
or other exempted transactions or after a registration statement under the
Securities Act 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 a 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 Securities Act. Institutional investors generally will
not seek

<PAGE>

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 also have developed as
a result of Rule 144A under the Securities Act, which establishes a "safe
harbor" from the registration requirements of that Act for resales of certain
securities to qualified institutional buyers. 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 the fund might be unable to
dispose of such securities promptly or at favorable prices.

Each board has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins pursuant to guidelines approved
by the board. Mitchell Hutchins takes into account a number of factors in
reaching liquidity decisions, which may include (1) the frequency of trades for
the security, (2) the number of dealers that make quotes, or are expected to
make quotes, for the security, (3) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how bids are solicited and
the mechanics of transfer) and (4) the existence of demand features or similar
liquidity enhancements. Mitchell Hutchins monitors the liquidity of
restricted securities in each fund's portfolio and reports periodically on such
decisions to the applicable board.

REPURCHASE AGREEMENTS. Money Market Portfolio and U.S. Government
Portfolio each may enter into repurchase agreements with respect to any security
in which it is authorized to invest, except that securities subject to
repurchase agreements may have maturities in excess of 13 months. 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
securities or other obligations from a bank or securities dealer (or its
affiliate) 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.
Securities or other obligations subject to repurchase agreements may have
maturities in excess of 13 months. 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.

Repurchase agreements carry certain risks not associated with direct
investments in securities, including a possible decline in the market value of
the underlying obligations. If their value becomes less than the repurchase
price, plus any agreed-upon additional amount, the counterparty must provide
additional collateral so that at all times the collateral is at least equal to
the repurchase price plus any agreed-upon additional amount. The difference
between the total amount to be received upon repurchase of the obligations and
the price that was paid by a fund upon acquisition is accrued as interest and
included in its net investment income. 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. Each fund intends to
enter into repurchase agreements only with counterparties in transactions
believed by Mitchell Hutchins to present minimum credit risks.

REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve
the sale of securities held by a fund subject to its agreement to repurchase the
securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest. Reverse repurchase agreements are subject to a fund's
limitation on borrowings and may be entered into only with banks and securities
dealers. While a reverse repurchase agreement is outstanding, a fund will
maintain, in a segregated account with its custodian, cash or liquid securities,
marked to

<PAGE>

market daily, in an amount at least equal to its obligations under the reverse
repurchase agreement. See "The Funds' Investments and Related Risks-- Segregated
Accounts."

Reverse repurchase agreements involve the risk that the buyer of the
securities sold by a fund might be unable to deliver them when the fund seeks to
repurchase. If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, such buyer or trustee or receiver may
receive an extension of time to determine whether to enforce that fund's
obligation to repurchase the securities, and a fund's use of the proceeds of the
reverse repurchase agreement may effectively be restricted pending such
decision.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each fund may purchase
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery, i.e., for issuance or delivery to or by the fund later than
the normal settlement date for such securities 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 undertakes a when-issued or
delayed delivery obligation, it immediately assumes the risks of ownership,
including the risks of price fluctuation. Failure of the issuer to deliver a
security purchased by a fund on a when-issued or delayed delivery basis may
result in a fund's incurring a loss or missing an opportunity to make an
alternative investment.

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 "The Funds' Investments and Related
Risks--Segregated Accounts." Each fund may sell the right to acquire the
security prior to delivery if Mitchell Hutchins deems it advantageous to do so,
which may result in a gain or loss to the fund. Each Municipal Fund expects that
commitments to purchase when-issued or delayed delivery securities will not
exceed 25% of its assets (20% in the case of New Jersey Municipal Money Fund).

INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each fund may invest in
securities of other money market funds, subject to Investment Company Act
limitations, which at present restrict these investments in the aggregate to no
more than 10% of the fund's total assets. The shares of other money market funds
are subject to the management fees and other expenses of those funds. At the
same time, a fund would continue to pay its own management fees and expenses
with respect to all its investments, including shares of other money market
funds. Each fund may invest in the securities of other money market funds when
Mitchell Hutchins believes that (1) the amounts to be invested are too small or
are available too late in the day to be effectively invested in other money
market instruments, (2) shares of other money market funds otherwise would
provide a better return than direct investment in other money market instruments
or (3) such investments would enhance the fund's liquidity.

LENDING OF PORTFOLIO SECURITIES. Each fund is authorized to lend its
portfolio securities to broker-dealers or institutional investors that Mitchell
Hutchins deems qualified. Lending securities enables a fund to earn additional
income, but could result in a loss or delay in recovering these securities. The
borrower of a fund's portfolio securities must maintain acceptable collateral
with the fund's custodian in an amount, marked to market daily, at least equal
to the market value of the securities loaned, plus accrued interest and
dividends. Acceptable collateral is limited to cash, U.S. government securities
and irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. Each fund may reinvest any cash collateral in money market
investments 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. Each 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. Each fund will receive amounts
equivalent to any interest, dividends or other distributions on the securities
loaned. Each 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 a fund's interest.

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Pursuant to procedures adopted by the board of each fund governing a
fund's securities lending program, PaineWebber has been retained to serve as
lending agent for a fund. The board of each fund also has authorized the payment
of fees (including fees calculated as a percentage of invested cash collateral)
to PaineWebber for these services. The board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
PaineWebber also has been approved as a borrower under the fund's securities
lending program.

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, it 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 a fund's obligation or commitment under such
transactions

CERTAIN POLICIES OF THE MUNICIPAL FUNDS

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."

NON-DIVERSIFIED STATUS OF SINGLE STATE MUNICIPAL FUNDS. California
Municipal Money Fund, New Jersey Municipal Money Fund and New York Municipal
Money Fund are "non-diversified funds," as that term is defined in the
Investment Company Act. In general, a non-diversified fund is not subject to
certain limitations on its ability to invest more than 5% of its total assets in
securities of a single issuer with respect to 50% of its assets. Rule 2a-7 under
the Investment Company Act, however, imposes more stringent diversification
requirements on money market funds. For single state municipal money market
funds, Rule 2a-7 generally requires that the securities of a single issuer may
not exceed 5% of the fund's total assets with respect to at least 75% of its
assets. Nonetheless, a single state municipal money fund may be subject to
greater risk than a money market fund that is more "diversified" because changes
in the financial condition of a single issuer may cause greater fluctuations in
its yield or on its ability to maintain a constant net asset value per share.

TYPES OF MUNICIPAL SECURITIES. Each municipal fund may invest in a
variety of municipal securities, as described below:

Municipal Bonds. Municipal bonds are debt obligations that are issued
by states, municipalities, public authorities or other issuers and that pay
interest that is exempt from federal income tax in the opinion of issuer's
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 revenues 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 government unit is pledged to the payment of the debt
service, but is usually subject to annual budget appropriations. Custodial
receipts that represent an ownership interest in one or more municipal bonds
also are considered to be municipal bonds. Various types of municipal bonds are
described in the following sections.

Municipal Lease Obligations. Municipal bonds include municipal lease
obligations, such as leases, installment purchase contracts and conditional
sales contracts, and certificates of participation therein. Municipal lease
obligations are issued by state and local 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.

Although municipal lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, they ordinarily are backed by the municipality's covenant to budget
for, appropriate and make the payments due under the lease obligation. The
leases underlying certain municipal lease obligations, however, provide that
lease payments are subject to partial or full abatement if, because of material

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damage or destruction of the leased property, there is substantial interference
with the lessee's use or occupancy of such property. This "abatement risk" may
be reduced by the existence of insurance covering the leased property, the
maintenance by the lessee of reserve funds or the provision of credit
enhancements such as letters of credit.

Certain municipal lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Some municipal lease obligations of this type
are insured as to timely payment of principal and interest, even in the event of
a failure by the municipality to appropriate sufficient funds to make payments
under the lease. However, in the case of an uninsured municipal lease
obligation, a fund's ability to recover under the lease in the event of a
non-appropriation or default will be limited solely to the repossession of
leased property without recourse to the general credit of the lessee, and
disposition of the property in the event of foreclosure might prove difficult.

Industrial Development Bonds ("IDBs") and Private Activity Bonds
("PABs"). IDBs and PABs are are issued by or on behalf of public authorities to
finance various privately operated facilities, such as airport or pollution
control facilities. These obligations are considered 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. IDBs issued after August 15, 1986 generally
are considered PABs, and to the extent a fund invests in such PABs, shareholders
generally will be required to include a portion of their exempt-interest
dividends from that fund in calculating their liability for the AMT. See "Taxes"
below. Each municipal fund may invest more than 25% of its net assets in IDBs
and PABs.

Participation Interests. Participation interests are interests in
municipal bonds, including IDBs, PABs and floating and variable rate
obligations, that are owned by banks. These interests carry a demand feature
permitting the holder to tender them back to the bank, which demand feature
generally is backed by an irrevocable letter of credit or guarantee of the bank.
The credit standing of such bank affects the credit quality of the participation
interests.

A participation interest gives a fund an undivided interest in a
municipal bond owned by a bank. The fund has the right to sell the instruments
back to the bank. As discussed above under "The Funds' Investments, Related
Risks and Limitations -- Credit and Liquidity Enhancements," 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 a fund, and the credit standing of banks issuing
letters of credit or guarantees supporting such participation interests on the
basis of published financial information reports of rating services and bank
analytical services.

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 remarketing agent
at a specified price and exercise date, which is typically well in advance of
the bond's maturity date. The obligation to purchase the bond on the exercise
date may be supported by a letter of credit or other credit support arrangement
from a bank, insurance company or other financial institution, the credit
standing of which affects the credit quality of the obligation.

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 the issuer of a put bond acquired by a fund
will be able to repurchase the bond upon the exercise date, if the fund chooses
to exercise its right to put the bond back to the issuer.

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 sell them to the bank or other
financial institution at par plus accrued interest at designated times (the
"tender option"). The municipal funds may

<PAGE>

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.

Tax-Exempt Commercial Paper and Short-Term Municipal Notes. Municipal
bonds include tax-exempt commercial paper and short-term municipal notes, such
as 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 and other revenues.

Mortgage Subsidy Bonds. The 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).

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.

TEMPORARY AND DEFENSIVE INVESTMENTS. 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 may temporarily 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 a municipal fund holds cash, such cash would not earn income and would
reduce the fund's yield.

SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES

The following information provides only a brief summary of the complex
factors affecting the financial situation in California (the "State") and is
derived from sources that are generally available to investors and is believed
to be accurate. It is based in part on information obtained from various State
and local agencies in California. It should be noted that the creditworthiness
of obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and there is
no obligation on the part of the State to make payment on local government
obligations in the event of default or financial difficulty.

<PAGE>

General

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 34 million represents
over 12 percent of the total United States population and grew by 26 percent in
the 1980s, more than double the national rate. Population growth slowed to less
than 1 percent annually in 1994 and 1995, but rose to 1.8 percent in 1996 and
1.6 percent in 1997. 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 $902 billion in
1998, accounts for almost 13 percent of all personal income in the nation. Total
employment is over 15 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 percent recession peak to under 6 percent in early 1999. 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 manufacturing and motion
picture/television production, and other services, entertainment and tourism,
and both residential and commercial construction. International economic
problems starting in 1997 had some moderating impact on California's economy,
but negative impacts, such as a sharp drop in exports to Asia which have hurt
the manufacturing and agricultural sectors, have apparently been offset by
increased exports to Latin American and other nations, and a greater strength in
services, computer software and construction. Current forecasts predict
continued strong growth of the State's economy in 1999, with a slowdown in the
rate of growth predicted in 2000 and beyond. 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 Securities
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 percent of full
cash value of the rate of ad valorem property taxes on real property and
generally restricts the reassessment of property to 2 percent 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
percent limit to pay debt service on voter-approved bonded indebtedness.

Under Article XIIIA, the basic 1 percent 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.

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Article XIIIA prohibits local governments from raising revenues through
ad valorem taxes above the 1 percent 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 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,

<PAGE>

(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
percent of any excess, with the other 50 percent paid to schools 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 $6.8 billion under the limit for
fiscal year 1998-99.

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 Securities or on the ability of the State
or local governments to pay debt service on such California Municipal
Securities. 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 May 1,
1999, the State had outstanding approximately $19.7 billion of long-term general
obligation bonds, plus $246 million of general obligation commercial paper which
will be refunded by long-term bonds in the future, and $6.6 billion of
lease-purchase debt supported by the State General Fund. The State also had
about $15.3 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 percent of General Fund
revenues.

Recent Financial Results

The principal sources of General Fund revenues in 1997-1998 were the
California personal income tax (51 percent of total revenues), the sales tax (32
percent), bank and corporation taxes (11 percent), and the gross premium tax on
insurance (2 percent). 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.

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 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 percent).

<PAGE>

Recent Budgets. As a result of the severe economic recession from
1990-94 and other factors, during this period the State experienced substantial
revenue shortfalls, and greater than anticipated social service costs. 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 responded to these deficits by enacting a series of fiscal steps
between FY1991-92 and FY1994-95, including significant cuts in health and
welfare and other program expenditures, tax increases, transfers of program
responsibilities and some funding sources from the State to local governments,
and transfer of about $3.6 billion in annual local property tax revenues
primarily from cities and counties to local school districts, thereby reducing
State funding for schools.

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. The last of these deficit notes was repaid
in April, 1996.

The State's financial condition improved markedly in the years from
FY1995-96 onward, 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 position also improved, and
no external deficit borrowing has occurred over the fiscal year since FY
1994-95.

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, $2.1 billion in 1997-98, and $1.0 billion
in 1998-99) 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 $1.8 billion at June 30,
1998 and $1.9 billion at June 30, 1999.

The growth in General Fund revenues since the end of the recession
resulted in significant increases in State funding for local school districts
under Proposition 98. From the recession level of about $4,300 per pupil, annual
State funding has increased to over $6,000 per pupil in FY 1999-2000. A
significant amount of the new moneys have been directed to specific educational
reforms, including reduction of class sizes in many grade levels. The improved
budget condition also allowed annual increases in support for higher education
in the State, permitting increased enrollment and reduction of student fees.

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. Generally, health
and welfare costs have been contained even during the recent period of economic
recovery, with the first real increases (after inflation) in welfare support
levels occurring in 1999-2000.

FY 1998-99 Budget. The FY 1998-99 Budget Act was signed on August 21,
1998. After giving effect to line-item vetoes made by the Governor, the Budget
plan resulted in spending of about $57.3 billion for the General Fund and $14.7
billion for Special Funds. The Budget Act assumed General Fund revenues and
transfers in FY 1998-99 of $57.0 billion. After enactment of the Budget Act, the
Legislature passed a number of additional fiscal bills. Taking these into
account, the Administration projected in September, 1998 that the balance in the
SFEU at June 30, 1999 would be about $1.2 billion.

One of the most important elements of the 1998-99 Budget Act was
agreement on substantial tax cuts. The largest of these was a phased-in cut in
the Vehicle License Fee (an annual tax on the value of cars registered in the
State, the "VLF"). Starting on January 1, 1999, the VLF has been reduced by 25
percent. Under pre-existing law, VLF funds are automatically transferred to
cities and counties, so the new legislation provided for the General Fund

<PAGE>

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
percent by the year 2003. The initial 25 percent VLF cut will be offset by about
$500 million in General Fund money in FY 1998-99, and $1 billion annually for
future years. Other tax cuts in FY 1998-99 included 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 was estimated at $1.4 billion for FY 1998-99.

The Administration released new projections for the balance of FY
1998-99 on May 14, 1999 as part of the May Revision of the Governor's Proposed
Budget for 1999-2000 (the "May Revision"). The May Revision revealed that the
State's economy was much stronger in late 1998 and into 1999 than the
Administration had thought when it made its first FY 1999-2000 Budget Proposal
in January 1999. As a result, the May Revision updated 1998-99 General Fund
revenues to be $57.9 billion, almost $1 billion above the original FY 1998-99
estimates, and over $1.6 billion above the Administration's January estimate.
Most of the increase is from personal income taxes, reflecting stronger wage
employment than previously estimated, and extraordinary growth in capital gain
realizations resulting from the stock market's rise. The May Revision projected
the SFEU will have a balance of almost $1.9 billion at June 30, 1999.

Although, as noted, the Administration projected a budget reserve in
the SFEU of about $1.9 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

FY 1999-2000 Budget. The newly elected Governor, Gray Davis, released
his proposed FY 1999-00 Budget in January 1999. It projected somewhat lower
General Fund revenues than in earlier projections, due to slower economic growth
which was expected in late 1998, but totaling an estimated $60.3 billion. The
May Revision has sharply increased the revenue estimates, by over $2.7 billion,
to a total of almost $63.0 billion, which would represent a 9 percent increase
above FY 1998-99. Again, the greatest increase is expected in personal income
taxes (about 10 percent year-over-year increase), with more moderate increases
in sales taxes (6 percent) and corporate taxes (3 percent).

The 1999-00 Budget Act was signed on June 29, 1999, only the second
time in the decade the budget was in place at the start of the fiscal year.
After the Governor used his line-item veto power to reduce expenditures by about
$581 million, the final spending plan called for about $63.7 billion of General
Fund expenditures, $16.1 billion of Special Fund expenditures, and $1.5 billion
in bond funded expenditures. The Governor's final budget actions left the SFEU
with an estimated balance of $881 million at June 30, 2000, but the Governor
also reduced spending to set aside $300 million for future appropriation for
either employee pay raises or potential litigation costs. If not fully used,
these "set-aside" funds would increase the SFEU year-end balance.

The final Budget Act generally provided increased funding for a wide
range of programs. Education spending under Proposition 98 received the largest
increase (over $2.3 billion above 1998-99), with other significant increases for
higher education, health and welfare, natural resources and capital outlay. The
budget provides several hundred million dollars in direct new aid to cities and
counties. A proposal is being drafted to place a constitutional amendment on the
ballot in 2000 to provide more extensive, permanent fiscal relief for local
government.

The final spending plan includes several targeted tax cuts for
businesses, totaling under $100 million in 1999-00. The plan also includes a
one-time, one-year additional cut of 10 percent in the Vehicle License Fee for
calendar year 2000. This cut will cost the General Fund about $500 million in
each of 1999-00 and 2000-01 to make up lost funds for local governments. Under
the 1998 law, the VLF cut to 35 percent would become permanent in the year 2001
if General Fund revenues reach a certain specified level in 2000-01.

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

<PAGE>

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, the three major rating agencies raised their ratings of
California's general obligation bonds, which as of July 1, 1999 were assigned
ratings of "A+" from Standard & Poor's, "Aa3" 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 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.

Year 2000 Preparations

The State and local governments, along with all other public and
private institutions in the nation, face a major challenge to ensure that their
computer systems, including microchips embedded into existing machinery, will
not fail prior to or at the January 1, 2000 date which may not be recognized
properly by software utilizing only two digits to identify a year. The new State
Administration has placed a very high priority on "Year 2000" remediation and
contingency planning. The State has a Department of Information Technology
("DOIT") which coordinates activities, provides technical assistance to State
agencies and local governments, and reports on the status of remediation efforts
by over 100 State departments and agencies.

DOIT has reported that, as of early 1999, 372 of 564 "mission critical"
systems in State government had been remediated (although final testing was
still going on in some cases). Of the balance, 54 were being retired and 138
were in process. DOIT does not report on all State agencies. In addition to
hardware and software changes, agencies are preparing business contingency plans
in case of computer problems at 1/1/2000, and are actively coordinating with
outside agencies, vendors, contractors and others with whom computer data is
shared. The State Treasurer and State Controller, responsible for State fiscal
controls and debt service payments, have reported they were fully remediated by
December 31, 1998 and are spending the 1999 year in testing and confirmation of
their systems.

The State has expended and plans to spend many hundreds of millions of
dollars on Year 2000 projects of all sorts, and has set aside several tens of
millions of dollars in contingency funds to support late-coming needs. There is
no survey of local government costs, or the overall status of their activities.
It is likely that larger government agencies are better prepared at this time
than smaller ones. Both the State and local governments are preparing emergency
plans for Year 2000 computer difficulties similar to their normal planning for
natural emergencies, such as floods or earthquakes.

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Obligations of Other Issuers

Other Issuers of California Municipal Securities. There are a number of
State agencies, instrumentalities and political subdivisions of the State that
issue Municipal Securities, 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 percent 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
percent 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 FY1995-96 and FY1996-97. 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 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 Securities 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

<PAGE>

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.

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 Securities
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 Securities.

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

The financial condition of the State of New Jersey, its public
authorities (the "Authorities") and its local governments, could affect the
market values and marketability of, and therefore the net asset value per share
and the

<PAGE>

interest income of New Jersey Tax Free Income 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 SAI. 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.

Economic Factors

New Jersey is the ninth largest state in population and the fifth
smallest in land area. With an average of 1,075 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 and the Department of Labor, the population
of New Jersey was 7,170,000 in 1970, 7,365,000 in 1980, 7,730,000 in 1990 and
8,053,000 in 1997. Historically, New Jersey's average per capita income has been
well above the national average, and in 1997 the State ranked second among the
states in per capita personal income ($32,233).

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,
according to the U.S. Dept. of Labor, from a peak of 3.69 million in 1989 to a
low of 3.46 million in 1992. This low has been followed by an employment gain,
reaching 3.72 million at year-end 1997. The New Jersey Department of Labor
reports that employment growth continued at 2.1 percent in 1998, to 3.82
million.

The annual average jobless rate has fallen from 8.5 percent in 1992, to
6.2 percent in 1996, to 5.1 percent in 1997, reaching 4.8 percent in 1998. In
November 1998, the State's unemployment level of 184,000 and its unemployment
rate of 4.5 percent were the lowest since the first calendar quarter of 1990.

The New Jersey Department of Labor reports that from January 1998 to
January 1999, on a seasonally adjusted basis, private nonfarm employment climbed
to 3.26 million, an increase of 58,200 or 1.8 percent. Nongovernment services
employment increased to 2.64 million, an increase of 64,400 or 2.5 percent.
Manufacturing declined to 474,600, a reduction of 10,000 or slightly less than
one percent.

The U.S. Department of Labor reports that non-manufacturing employment
has increased 4.1 percent over the ten-year period 1987-97 and comprises 88.5
percent of employment in New Jersey at year-end 1997. Total non-manufacturing
employment, including contract construction, was 3.576 million in 1987, 3.458
million in 1992, and 3.724 million in 1997.

Conditions have slowly improved in the construction industry, where
employment has risen by 21,100 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 early 1997, public works projects and
homebuilding

<PAGE>

became the growth segments while nonresidential construction lessened but
remained positive. Construction employment, after falling from 163,400 in 1987
to 110,200 in 1992, has recovered to a level of 131,300 in 1997.

In the manufacturing sector, employment losses have continued during
the past ten years. Total manufacturing employment in New Jersey was 672,200 in
1987, 530,400 in 1992, and 482,100 in 1997, a ten-year reduction of 28 percent.
Manufacturing employment comprised 11.5 percent of employment in 1997.
Manufacturing durable goods employment is down 38 percent over the ten years,
while non-durable goods employment is down 20 percent.

Total employment in New Jersey has changed from 4.248 million in 1987,
to 3.988 million in 1992, to 4.207 million in 1997. Looking forward, the New
Jersey Department of Labor projects that the State's non-farm employment growth
will occur almost exclusively in the service industries, such as transportation,
communications, utilities, wholesale and retail trade, financial services,
insurance, real estate and public education. The State projects continuing slow
decline in manufactured goods employment.

State Finances

The State operates on a fiscal year beginning July 1 and ending June
30. For example, "Fiscal Year 2000" refers to the State's fiscal year beginning
July 1, 1999 and ending June 30, 2000.

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 1999 and
Fiscal Year 2000 reflect the amounts contained in the Governor's Fiscal Year
2000 Budget Message delivered on January 25, 1999.

Actual General Fund balances in Fiscal Years 1997 and 1998 were $280.5
million and $228.3 million, respectively, and for Fiscal Years 1999 and 2000,
they are projected to be $311.3 million and $112.9 million. Total Undesignated
Fund balances in Fiscal Years 1997 and 1998 were $1,107.9 million and $1,257.3
million, respectively, and for Fiscal Years 1999 and 2000 they are projected to
be $1,051.5 million and $750.1 million.

In July 1991, S&P lowered the State's general obligation bond rating
from AAA to AA.

The State sold $2.75 billion in taxable bonds in 1997 to balance the
budget and finance an underfunded pension fund. The source of revenue for these
bonds depends on annual State appropriations.

Fiscal Years 1999 and 2000 State Revenue Estimates

The January 1999 estimate of total fiscal year 1999 revenue is $18
billion. The three largest taxes, Gross Income, Sales and Use, and Corporation
Business, account for 70 percent of total revenues.

Sales and Use Tax. The revised estimate forecasts Sales and Use tax
collections for Fiscal Year 1999 as $5.02 billion, a 6.25 percent increase from
the Fiscal Year 1998 revenue. The Fiscal Year 2000 estimate of $5.26 billion, is
a 4.8 percent increase from the Fiscal Year 1999 estimate.

Gross Income Tax. The revised estimate forecasts Gross Income Tax
collections for Fiscal Year 1999 of $6.1 billion, a 5.5 percent increase from
Fiscal Year 1998. The Fiscal Year 2000 estimate of $6.5 billion is a 6.8 percent
increase from the Fiscal Year 1999 estimate. Included in the Fiscal Year 1999
estimate and the Fiscal Year 2000 estimate is the second year 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.

<PAGE>

Corporation Business Tax. The revised estimate forecasts Corporation
Business Tax collection for Fiscal Year 1999 as $1.5 billion, a 20 percent
increase from Fiscal Year 1998 revenue. The Fiscal Year 2000 estimate of $1.6
billion, is a 5.3 percent increase from the Fiscal Year 1999 estimate.

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.

Year 2000 Compliance

The State of New Jersey is currently addressing Year 2000 ("Y2K") data
processing compliance issues. As of January, 1999, the Office of Information
Technology reports that approximately 75 percent of centrally maintained State
systems are complete; departmental systems are in varying stages of remediation,
and all systems are expected to be completed and tested prior to the beginning
of the year 2000.

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 SAI. 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 and late 1990s attributable directly (corporate income and
financial corporations taxes) and indirectly (personal income and a

<PAGE>

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 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 continued strongly into fiscal year 1999. 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 1998-1999, moderate economic growth will exist through calendar year 2003,
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. Additionally, the securities industry is
more important to the New York economy than the national economy, potentially
amplifying the impact of downturn. In 1997, the finance, insurance and real
estate sector accounted for 19.5 percent of nonfarm labor and proprietors'
income statewide, compared to 8.5 percent nationwide.

During the calendar years 1987 through 1998, 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. The total employment growth rate in
the State has been below the national average since 1987.

The national economy has maintained a robust rate of growth during the
past six quarters as the expansion, which is well into its ninth year,
continues. The national expansion, if it continues through February 2000, will
be the longest on record. Since early 1992, approximately 19 million jobs have
been added nationally. Output growth has averaged 3.2 percent over this period,
essentially the same as the 3.3 percent average annual growth during the
post-World War II period. The State economy has also continued to expand, with
over 600,000 jobs added since late 1992. Employment growth has been slower than
in the nation during this period, although the State's relative performance has
improved in the last two years. Growth in average wages in New York has
generally outperformed the nation, while growth in personal income per capita
has kept pace with the nation.

The seasonally adjusted unemployment rate in New York was 5.6 percent
in 1998 (compared to 6.4 percent one year earlier). From 1997 to 1998, the
number of nonfarm jobs increased by 160,900 or 2.0 percent, and the number of
private sector jobs increased by 142,900 or 2.1 percent.

The State has released information regarding the national and state
economic activity in its Interim Annual Information Statement of the State of
New York, dated July 29, 1999 (the "Annual Information Statement'). At the State
level, the Annual Information Statement projects continued expansion during the
1999 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 are
expected to post only small, if any, declines. On an average annual basis, the
employment growth rate in the State is expected to decline slightly from 1998.
Personal income is expected to record moderate gains in 1999. Wage growth in
1999 is expected to be slower than in the previous year as the recent robust
growth in bonus payments moderates.

Fiscal Year 1999-2000

The State has not yet adopted a budget for the 1999-2000 fiscal year,
which began on April 1, 1999.

On January 27, 1999, the State issued its proposed 1999-2000 Financial
Plan in conjunction with the release of the Governor's Executive Budget. On
February 12, 1999, the State issued a revised cash-basis Financial

<PAGE>

Plan for the 1999-2000 fiscal year that reflected the Governor's amendments to
his 1999-2000 Executive Budget. The proposed 1999-2000 Financial Plan (as
amended) projects total General Fund receipts and transfers from other funds of
$38.81 billion, and projects total disbursements and transfers to other funds of
$37.14 billion. The State's projected closing General Fund balance is $2.47
billion. The closing balance is comprised of $1.79 billion that the Governor is
proposing to set aside as a tax reduction reserve, $473 million in the Tax
Stabilization Reserve Fund, $100 million in the Contingency Reserve Fund (an
amount that subsequently increased to $107 million as a result of a deposit at
the end of the 1998-99 fiscal year), and $100 million in a reserve for possible
collective bargaining costs in 1999-2000.

On March 10, 1999, the Legislature and the Governor conducted a
consensus economic and revenue forecasting process as required under law. As
part of the consensus revenue forecasting process, the Division of the Budget
updated the economic forecast upon which receipts estimates are based.

As a result of these revisions to the national and State economic
forecasts, the Division of the Budget revised its estimate of receipts for
1999-2000 to include an additional $150 million in receipts. A complete revision
to the State's economic forecast and receipts estimate will accompany the
enacted budget and the 1999-2000 State Financial Plan. The State expects to
produce and issue an Annual Information Statement upon enactment of a budget for
the 1999-2000 fiscal year.

Personal income tax collections for 1999-2000 are projected to reach
$22.88 billion, or $2.80 billion above the reported 1998-99 collection total.
This increase is due in part to refund reserve transactions which serve to shift
receipts of $1.79 billion into 1999-2000 from the year earlier. Collections also
benefit from the estimated increase in income tax liability of 13.5 percent in
1998 and 5.3 percent in 1999. The large increases in liability in recent years
have been supported by the continued surge in taxable capital gains
realizations, activity related at least partially to changes in federal tax
treatment of such income. The State expects the growth in capital gains income
to plateau in 1999. Growth in 1999-2000 personal income tax receipts is
partially offset by the diversion of such receipts into the School Tax Relief
Fund, which finances the STAR tax reduction program. For 1999-2000, $1.22
billion is expected to be deposited into this fund, an increase of $638 billion.

Business tax receipts are expected to total $4.56 billion in 1999-2000,
$299 million below the 1998-99 estimated result, caused by tax reductions
already scheduled in law and slower growth in the underlying tax base. Receipts
from user taxes and fees are projected to total $7.17 billion, a decrease of $17
million from the current year, reflecting the incremental effects of
already-enacted tax reductions and the diversion of $30 million of additional
motor vehicle registration fees to the Dedicated Highway and Bridge Trust Fund.
Other tax receipts are projected to total $980 million, $148 million below
1998-99. Total miscellaneous receipts are projected to reach $1.28 billion, down
almost $228 million from 1998-99.

General Fund disbursements in 1999-2000, including transfers to support
capital projects, debt service and other funds are estimated at $37.14 billion.
This represents an increase of $655 million from 1998-99. Grants to local
governments constitute approximately 67 percent of all General Fund spending,
and include financial assistance to local governments and not-for-profit
corporations, as well as entitlement benefits to individuals. The 1999-2000
Financial Plan projects spending of $24.84 billion in this category, an increase
of $15 million over the prior year.

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.

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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 rates, and the
condition of the world economy, which could have an adverse effect on the
State's projections of receipts and disbursements.

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. 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 States 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.

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.

Fiscal Year 1998-99

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 General Fund receipts (including transfers from other funds) for
fiscal year 1998-99 totaled of $36.74 billion, an increase of almost $1.2
billion from the $34.55 billion recorded in 1997-98.

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.

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 reached
$20.08 billion, nearly $2.3 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 was unaffected by major income
tax reductions. Adding to the projected annual growth is 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 (the School Tax Relief Program) 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.

User taxes and fees are comprised of three quarters of the State four
percent sales and use tax (the balance, one percent, flows to support Local
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.

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Receipts from user taxes and fees receipts are projected to total $7.24
billion, an increase of $19 million from reported collections in the prior year.
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 declines are exacerbated 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.

Total business tax collections in 1998-99 are $4.86 billion, $190
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.

Other taxes include estate, gift and real estate transfer taxes, a
pari-mutuel tax and other minor levies. They totaled $1.14 billion -- $44
million above last year's amount.

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 $1.51 billion, down almost $100
million from the prior year.

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 totaled
$1.9 billion, or $100 million less than total receipts from this category during
1997-98. Total transfers of sales taxes in excess of LGAC debt service
requirements increased by approximately $71 million, while transfers from all
other funds fell by $271 million, primarily reflecting the absence, in
1998-1999, of a one-time transfer of nearly $200 million for retroactive
reimbursement of certain social services claims from the federal government.

State Debt. The State's 1999-2000 borrowing plan projects issuances of
$235 million in general obligation bonds (including $140 million for purposes of
redeeming outstanding BANs) and $140 million in general obligation commercial
paper. The State is expected to issue $366 million in Certificates of
Participation to finance equipment purchases during 1999-2000 fiscal year.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.63 billion, including costs of issuance in
1999-2000.

Outyear Projections of Receipts and Disbursements. The 1999-2000
Executive Budget projects General Fund disbursements of $38.19 billion in
2000-01 and $39.97 billion in 2001-02.

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) and $2.3 billion (1997-98). The State, as a
part of the 1999-2000 Executive Budget projections, projects a 1999-2000 General
Fund budget gap of approximately $1.14 billion in 2000-01 and $2.07 billion in
2001-02. The budget gaps are projected after making the use of $593 million in
2000-01 and $1.2 billion in 2001-02 from the 1998-99 tax reduction reserve.

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. The State does not expect that past rates of growth will be sustained.
The State's projections in 1999-2000 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 The State expects that
the 1999-2000 Financial Plan will achieve savings from initiatives by State
agencies to deliver services more efficiently, unspecified annual spending
efficiencies, workforce management efforts, maximization of federal and
non-General Fund spending offsets, and other actions necessary to bring
projected disbursements and receipts into balance.

<PAGE>

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.

Year 2000 Compliance

New York State is currently addressing Year 2000 ("Y2K") data
processing compliance issues. As of June 1999, the State had completed 87
percent of overall compliance efforts on the high-priority systems; 236 systems
are now Year 2000 compliant; and over 98 percent of the overall compliance
effort for its mission-critical systems. The State has procured independent
validation and verification services from a qualified vendor to perform an
automated review of Code that has been fixed and a testing review process for
all mission-critical systems which is scheduled to be completed by September,
1999.

While the State is taking what it believes to be appropriate action to
address Year 2000 compliance, there can be no guarantee that all of the State's
systems and equipment will be Year 2000 compliant and that there will not be an
adverse impact upon State operations or finances as a result. Since Year 2000
compliance by outside parties is beyond the State's control to remediate, the
failure of outside parties to achieve Year 2000 compliance could have an adverse
impact on State operations or finances as well.

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. Many of the labor contracts
expired in the spring of 1999.

The State and the United University Professionals (UUP) union have
reached a tentative agreement on a new four-year labor contract. The State is
continuing negotiations with other unions representing State employees, the
largest of which is the Civil Service Employees Association (CSEA). CSEA
previously failed to ratify a tentative agreement on a new four-year contract
earlier in 1999. While the 1999-2000 Executive Budget has reserved $100 million
for possible collective bargaining agreements, no similar reserves are contained
in the current out year projections to cover the recurring costs of any new
agreements. The outyear gaps outlines above are likely to increase as a result
of new collective bargaining agreements and legislative action on the 1999-2000
Executive Budget.

The New York State and Local Retirement Systems (the Systems) provide
coverage for public employees of the State and its localities (except employees
of New York City and teachers, who are covered by separate plans). Net assets
available for benefits of the systems have increased to $112.7 billion million
in March, 1999. Under the funding method used by the Systems, the net assets,
plus future actuarially determined contributions, are expected to be sufficient
to pay for the anticipated benefits of current members, retirees and
beneficiaries.

Between 1994-95 and 1996-97, the State's workforce was reduced by about
20,000 positions, with levels stabilized in the last two fiscal years. The
workforce is projected to remain at approximately 191,000 persons in 1999-2000.

Public Assistance

Spending on welfare is projected in the 1999-2000 fiscal year at $1.49
billion, a decline of 2.7 percent from the prior year. Since 1994-95, State
spending on welfare has fallen by more than 25 percent, driven by significant
welfare changes initiated at the Federal and State levels and a large, steady
decline in the number of people receiving benefits. The State does not forecast
further significant reductions in this spending category.

<PAGE>

Federal law enacted in 1996 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 imposes (with certain exceptions) a
five-year durational limit on TANF recipients, requires that virtually all
recipients be engaged in work or community service activities within two years
of receiving benefits, and limits assistance provided to certain immigrants and
other classes of individuals.

Local assistance spending by the State for Children and Families
Services is projected at $864 million in 1999-2000, a reduction of 4.7 percent
from the year earlier. The decline in General Fund spending is offset by higher
spending on child care and child welfare services from federal TANF funds.

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. Medicaid is the second largest program, after grants to local
governments, in the General Fund. Payments for Medicaid are projected to be
$5.50 billion in 1999-2000, a decrease of $87 million, or 1.6 percent, from the
prior year.

The State Authorities

The fiscal stability of the State is related in part to the fiscal
stability of its public authorities. Public authorities refer to public benefit
corporations, created pursuant to State law, other than local 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. As of December 31, 1998, there were 17 public authorities
with outstanding debt of $100 million or more, and the aggregate outstanding
debt, including refunding bonds, of all State public authorities was $94
billion, only a portion of which constitutes 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.

<PAGE>

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 1999-2000 fiscal year, State assistance to the MTA is projected
to total approximately $1.43 billion, an increase of $55 million over the
1998-99 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
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 be financed through
assistance from the State, the federal government, and the City of New York, and
from various other revenues generated from actions taken by the MTA. The MTA is
expected to submit a proposed capital plan for 2000 through 2004 by October 1,
1999.

There can be no assurance that all the necessary governmental actions
for future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 and 2000-04
Capital Programs, 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 and 2000-04 Capital Programs accordingly. If the 1995-99 and 2000-04
Capital Programs are 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 of New York

The fiscal health of the State may also be affected by the fiscal
health of New York City (the "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 imposed conditions. State law requires
the Control Board to

<PAGE>

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. 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
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 1999-2003 Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly effect the City's
ability to balance its budget and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the timing and pace of
a regional and local economic recovery, increases in 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 1999-2003 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 1999-2000 may result in substantial
reductions in projected expenditures for social spending programs. Cost
containment assumptions contained in the 1999-2003 Financial Plan and the City
FY 1999-2000 Budget may therefore be significantly adversely affected upon the
final adoption of the State budget for FY 1999-2000. Furthermore, actions taken
in recent fiscal years to avert deficits may have reduced the City's flexibility
in responding to future budgetary imbalances, and have deferred certain
expenditures to later fiscal years.

On January 29, 1999, the City released the Financial Plan for fiscal
years 2000-2003. It projects total revenues in FY 1999 of $35.60 billion, of
which federal categorical grants provide $4.2 billion and State categorical
grants provide $6.7 billion. The City's Financial Plan projects that
expenditures will grow to $38.94 billion in FY 2003. While the Financial Plan
projects revenues and expenditures for the 1999 fiscal year balanced in
accordance with GAAP, it projects budget gaps of $738 million, $1.91 billion,
$2.04 billion and $1.54 billion in the 2000, 2001, 2002 and 2003 fiscal years,
respectively.

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.

On May 27, 1999, Governor George E. Pataki signed into law the
legislation eliminating the New York City commuter tax, which is imposed on
wages earned by all New York State non-city residents. The legislation signed by
the Governor repeals the commuter tax beginning July 1, 1999. This tax cut is
estimated to cost the City approximately $250-$360 million annually. The
elimination of the commuter tax is currently in litigation.

The 1999-2003 Financial Plan includes a proposed discretionary transfer
in the 1999 fiscal year of approximately $1.57 billion to pay debt service due
in fiscal year 2000, included in the Budget Stabilization Plan for

<PAGE>

the 1999 fiscal years. In addition, the Financial Plan reflects actual and
proposed tax reduction programs totaling $338 million, $410 million, $461
million and $473 million in fiscal years 2000 through 2003.

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 reports that
local revenues provided approximately 58.3% of total revenues in FY 1997-98 of
$34.9 billion, while federal and State aid, including unrestricted aid and
categorical grants, provided 33.5% in the same year.

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 issued $1.075 billion of short term
obligations in fiscal year 1998 to finance the City's projected cash flow needs
for that year. In previous years, the City's short term obligations have been
$2.4 billion, $2.4 billion, $2.2 billion, and $1.75 billion in fiscal years
1997, 1996, 1995 and 1994, 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.

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.

The City is nearing the constitutionally-permissible limit on its
general obligation debt. Under the State constitution, the City may not contract
indebtedness in an amount greater than 10 percent of the average full value of
taxable real estate in the City for the most recent five years. To provide for
the City's capital program, State legislation was enacted in 1997 which created
the Transitional Finance Authority ("TFA"), the debt of which is not subject to
the general debt limit. Without TFA 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 TFA borrowing and
including TFA's projected borrowing as part of the total debt incurring power,
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. As of July 1,
1998, the City's outstanding general obligation debt totaled $27.1 billion., and
as of July 1, 1998, the City's net general obligation debt limit was $28.9
billion. As of July 1, 1998, the remaining City and TFA debt incurring power
totaled $3.9 billion. Despite this additional financing mechanism, the City
projected that, if no further action was taken, it would reach its debt limit in
City fiscal year 1999-2000. Issuance of tobacco settlement bonds may accelerate
income of $2.5 billion, but the City estimates that it would still reach its
Constitutional indebtedness limit in fiscal year 2002.

In June, 1997, the constitutionality of TFA was challenged in court,
but the challenge was dismissed at the trial level, appellate level, and before
the New York Court of Appeals in 1998. Future developments concerning the City
or entities issuing debt for the benefit of the City, and public discussion of
such developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also effect the market for their outstanding securities.

In addition to general obligation debt, the City has other long-term
obligations, including capital leases and bond transactions of public benefit
corporations that are components of the City or whose debt is guaranteed by the
City.

<PAGE>

The City is the largest municipal debt issuer in the nation, and has
more than doubled its debt load since the end of FY 1988, in large measure to
rehabilitate its extensive, aging physical plant. The City's Financial Plan
projects $22.3 billion of long-term borrowings for the period of FY 1999 through
FY 2003 to support the City's current capital plan. The City's Preliminary
Ten-Year Capital Strategy dated January 1999 has identified $48 billion in
additional capital expenditures over the next ten years. Additionally, a report
of the City Comptroller indicates the Preliminary Ten-Year Capital Strategy
significantly underestimates the actual capital needs of the City for
reconstructing and rehabilitating the City's infrastructure and physical assets.

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 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.

The State has provided extraordinary financial assistance to select
municipalities, primarily cities, since the 1996-97 fiscal year. Funding has
essentially been continued or increased in each subsequent fiscal year. Such
funding in 1998-99 totaled $108 million. In 1997-98, the State increased General
Purpose State Aid for local governments by $27 million to $550 million, and
continued funding at this new level in 1998-99.

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
such deficit financing is outstanding. Twenty-two localities had outstanding
indebtedness for deficit financing at the close of their fiscal year ending in
1997.

Municipalities and school districts have engaged in substantial short
term and long term borrowings. In 1997, the total indebtedness of all localities
in the State other than New York City was approximately $21.0 billion.

Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no control.
Such changes may adversely affect the financial condition of certain local
governments. For example, the federal government may reduce (or in some cases
eliminate) federal funding of some local programs which, in turn, may require
local governments to fund these expenditures from their own resources. It is
also possible that the State, New York City, or any of their respective public
authorities may suffer serious financial difficulties that could jeopardize
local access to the public credit markets, which may adversely affect the
marketability of notes and bonds issued by localities within the State.
Localities may also face unanticipated problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Other large-scale
potential problems, such as declining urban populations, increasing
expenditures, and the loss of skilled manufacturing jobs, may also adversely
affect localities and necessitate State assistance.

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

<PAGE>

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: With respect to this limitation, (a) domestic and
foreign banking will be considered to be different industries: and (b)
asset-backed securities will be grouped in industries based upon their
underlying assets and not treated as constituting a single, separate industry.

(2) issue senior securities or borrow money, except as permitted under
the Investment Company 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 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.

(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

<PAGE>

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.

NON-FUNDAMENTAL 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 Investment Company 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.

ORGANIZATION OF THE FUNDS; DIRECTORS/TRUSTEES AND OFFICERS
AND PRINCIPAL HOLDERS OF SECURITIES

PaineWebber RMA Money Fund, Inc. and PaineWebber RMA Tax-Free Fund,
Inc. (each a "Corporation") were organized on July 2, 1982 as Maryland
corporations. Money Fund has three operating series and has authority to issue
60 billion shares of common stock, par value $0.001 per share (30 billion shares
are designated as shares of Money Market Portfolio and 10 billion are designated
as shares of U.S. Government Portfolio). Tax-Free Fund has authority to issue 20
billion shares of common stock, par value $0.001 per share. PaineWebber Managed
Municipal Trust and PaineWebber Municipal Money Market Series (each a "Trust")
were formed on November 21, 1986 and September 14, 1990, respectively, as
business trusts under the laws of the Commonwealth of Massachusetts. Managed
Municipal Trust has two operating series and Municipal Money Market Series has
one. Each Trust is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.001 per share, of existing or future series.

<PAGE>

Each Corporation or Trust is governed by a board of directors or
trustees (sometimes referred to as "board members"), which oversees the business
operations of the applicable fund. Each board is authorized to establish
additional series. The board members and executive officers of the Corporations
and the Trusts, their ages, business addresses and principal occupations during
the past five years are:

Richard Q. Armstrong; 64 Director/Trustee Mr. Armstrong is chairman and principal of
R.Q.A. Enterprises RQA Enterprises (management consulting firm)
One Old Church Road-Unit #6 (since April 1991 and principal occupation
Greenwich, CT 06830 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
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,
PaineWebber or one of their affiliates
serves as investment adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- -------------------- ----------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 72 Director/Trustee and Mr. Bewkes is a director of Paine Webber
Chairman of the Board of Group Inc. ("PW Group") (holding company of
Directors/Trustees PaineWebber and Mitchell Hutchins). Prior to
December 1995, he was a consultant to PW
Group. Prior to 1988, he was chairman of the
board, president and chief executive officer
of American Bakeries Company. Mr. Bewkes is
a director of Interstate Bakeries Corporation.
Mr. Bewkes is a director or trustee of 35
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Richard R. Burt; 52 Director/Trustee Mr. Burt is chairman of IEP Advisors, Inc.
1275 Pennsylvania Avenue, N.W. (international investments and consulting
Washington, D.C. 20004 firm) (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. (gold
mining), Powerhouse Technologies Inc.
(provides technology to gaming and wagering
industry) and Wierton Steel Corp. (makes and
finishes steel products). 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, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- -------------------- ----------------------------------------
<S> <C> <C>
Mary C. Farrell**; 49 Director/Trustee Ms. Farrell is a managing director, senior
investment strategist, and member of the
Investment Policy Committee of PaineWebber.
Ms. Farrell joined PaineWebber in 1982. She
is a member of the Financial Women's
Association and Women's Economic Roundtable,
and appears as a regular panelist on Wall
Street Week with Louis Rukeyser. She also
serves on the Board of Overseers of New York
University's Stern School of Business. Ms.
Farrell is a director or trustee of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Meyer Feldberg; 57 Director/Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, New York 10027 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg is
also a director of Primedia, Inc.
(publishing), Federated Department Stores
Inc. (operator of department stores) and
Revlon, Inc. (cosmetics). Dean Feldberg is
a director or trustee of 34 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

George W. Gowen; 69 Director/Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, New York 10017 1994, he was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is a director
or trustee of 34 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- -------------------- ----------------------------------------
<S> <C> <C>
Frederic V. Malek; 62 Director/Trustee Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Ave., N.W. Partners (merchant bank). From January 1992
Suite 350 to November 1992, he was campaign manager of
Washington, D.C. 20004 Bush-Quayle `92. From 1990 to 1992, he was
vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc. and NWA
Inc. (holding company of Northwest Airlines
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. (computing services), CB Richard Ellis,
Inc. (real estate services), FPL Group, Inc.
(electric services), Global Vacation Group
(packaged vacations), HCR/Manor Care, Inc.
(health care) and Northwest Airlines Inc.
Mr. Malek is a director or trustee of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Carl W. Schafer; 63 Director/Trustee Mr. Schafer is president of the Atlantic
66 Witherspoon Street #1100 Foundation (charitable foundation supporting
Princeton, NJ 08542 mainly 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, he was chairman of the
Investment Advisory Committee of the Howard
Hughes Medical Institute. Mr. Schafer is a
director or trustee of 31 investment companies
for which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- -------------------- ----------------------------------------
<S> <C> <C>
Brian M. Storms;** 44 Director/Trustee Mr. Storms is president and chief operating
officer of Mitchell Hutchins (since March
1999). Prior to March 1999, he was president of
Prudential Investments (1996-1999). Prior to
joining Prudential, he was a managing director
at Fidelity Investments. Mr. Storms is a director
or trustee of 31 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment adviser.

John J. Lee; 31 Vice President and Mr. Lee is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of
Mitchell Hutchins. Prior to September 1997
he was an audit manager in the financial
services practice of Ernst & Young LLP. Mr.
Lee is a vice president and assistant
treasurer of 32 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.

Kevin J. Mahoney; 33 Vice President and Mr. Mahoney is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
department of Mitchell Hutchins. From August
1996 through March 1999, he was the manager
of the mutual fund internal control group of
Salomon Smith Barney. Prior to August 1996,
he was an associate and assistant treasurer
of BlackRock Financial Management L.P. Mr.
Mahoney is a vice president and assistant
treasurer of 32 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.

Dennis McCauley; 52 Vice President Mr. McCauley is a managing director and
chief investment officer--fixed income of
Mitchell Hutchins. Prior to December 1994,
he was director of fixed income investments
of IBM Corporation. Mr. McCauley is a vice
president of 22 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- -------------------- ----------------------------------------
<S> <C> <C>
Kevin P. McIntyre; 32 Vice President Mr. McIntyre is a vice president and a
(Municipal Money Market portfolio manager of Mitchell Hutchins. Mr.
Series) McIntyre is a vice president of one
investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Ann E. Moran; 42 Vice President and Ms. Moran is a vice president and a manager
Assistant Treasurer of the mutual fund finance department of
Mitchell Hutchins. Ms. Moran is a vice
president and assistant treasurer of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Dianne E. O'Donnell; 47 Vice President and Secretary Ms. O'Donnell is a senior vice president and
deputy general counsel of Mitchell Hutchins.
Ms. O'Donnell is a vice president and
secretary of 31 investment companies and
vice president and assistant secretary of
one investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Emil Polito; 38 Vice President Mr. Polito is a senior vice president and
director of operations and control for
Mitchell Hutchins. Mr. Polito is vice
president of 32 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.

Susan P. Ryan; 39 Vice President Ms. Ryan is a senior vice president and a
(Money 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,
PaineWebber or one of their affiliates
serves as investment adviser.

Victoria E. Schonfeld; 48 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins (since
May 1994) and a senior vice president of
PaineWebber (since July 1995). Ms.
Schonfeld is a vice president of 31
investment companies and a vice president
and secretary of one investment company for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS*; AGE CORPORATIONS/TRUSTS BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- -------------------- ----------------------------------------
<S> <C> <C>
Paul H. Schubert; 36 Vice President and Treasurer Mr. Schubert is a senior vice president and
director of the mutual fund finance
department of Mitchell Hutchins. Mr. Schubert
is a vice president and treasurer of 32
investment companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.

Barney A. Taglialatela; 38 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance department
of Mitchell Hutchins. Prior to February 1995,
he was a manager of the mutual fund finance
division of Kidder Peabody Asset Management, Inc.
Mr. Taglialatela is a vice president and
assistant treasurer of 32 investment companies
for which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment adviser.

Debbie Vermann; 40 Vice President Ms. Vermann is a vice president and a
(Tax-Free Fund, Managed portfolio manager of Mitchell Hutchins. Ms.
Municipal Trust, Municipal Vermann is a vice president of three
Money Market Series) investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Keith A. Weller; 38 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr. Weller is
a vice president and assistant secretary of
31 investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates 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, Ms. Farrell and Mr. Storms are "interested
persons" of each fund as defined in the Investment Company 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 an
additional up to $150 per series for each board meeting and each separate
meeting of a board committee. Money Fund, Tax-Free Fund, Managed Municipal Trust
and Municipal Money Market Series presently pay such board members $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

<PAGE>

necessary for the operation of the Corporations/Trusts and the funds, the
Corporations/Trusts require no employees. No officer, director or employee of
Mitchell Hutchins or PaineWebber presently receives any compensation from the
Corporations/Trusts for acting as a board member or officer.

The table below includes certain information relating to the
compensation of the current board members who held office with the
Corporations/Trusts during the fiscal year ended June 30, 1999 and the
compensation of those board members from all PaineWebber funds during the 1998
calendar year.

COMPENSATION TABLE'D'

<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM
------------------------------------------------------------------
MUNICIPAL TOTAL
MANAGED MONEY COMPENSATION
MONEY TAX-FREE MUNICIPAL MARKET FROM THE
NAME OF PERSONS, FUND* FUND* TRUST* SERIES* FUND COMPLEX**
------ ----- ------ ------ --------------
POSITION
<S> <C> <C> <C> <C> <C>
Richard Q. Armstrong
Director/Trustee................... $5,430 $1,810 $3,620 $1,810 $ 101,372
------ ------ ------ ------
Richard R. Burt
Director/Trustee................... 5,340 1,780 3,560 1,780 101,372
------ ------ ------ ------

Meyer Feldberg,
Director/Trustee................... 5,430 1,810 3,620 1,810 116,222
------ ------ ------ ------

George W. Gowen,
Director/Trustee................... 6,273 2,091 4,182 2,091 108,272
------ ------ ------ ------

Frederic V. Malek,
Director/Trustee................... 5,430 1,810 3,620 1,810 101,372
------ ------ ------ ------

Carl W. Schafer
Director/Trustee................... 5,430 1,810 3,620 1,810 101,372
------ ------ ------ ------
</TABLE>

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

'D' Only independent board members are compensated by the PaineWebber funds and
identified above; board members who are "interested persons" as defined by
the 1940 Act do not receive compensation from the funds.

* Represents fees paid to each board member during the fiscal years ended
June 30, 1999.

** Represents total compensation paid to each board member during the calendar
year ended December 31, 1998 by 31 investment companies (33 in the case of
Messrs. Feldberg and Gowen) for which Mitchell Hutchins, PaineWebber or one of
their affiliates served as investment adviser. No fund within the fund complex
has a bonus, pension, profit sharing, or retirement plan.

PRINCIPAL HOLDERS OF SECURITIES

PaineWebber Incorporated (Proprietary M/F), 1000 Harbor Blvd,
Weekhawken, NJ 07087-6727 is shown as the record owner of 3,886,669,224.090
shares of Money Market Portfolio as of July 31, 1999 (representing 5.8% of total
outstanding shares on that date). None of the persons on whose behalf these
shares were held was known by the fund to own beneficially 5% or more of those
shares. As of July 31, 1999, the other funds' records showed no shareholders
owning 5% or more of a fund's shares and no fund is aware of any person who owns
beneficially 5% or more of its shares.

<PAGE>

INVESTMENT ADVISORY, ADMINISTRATION
AND DISTRIBUTION ARRANGEMENTS

PaineWebber acts as the funds' investment adviser and administrator
pursuant to separate contracts dated March 23, 1989 with RMA Money Fund, March
1, 1989 with RMA 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,
----------------------------------------------------
1999 1998 1997
---- ---- ----

<S> <C> <C> <C>
Money Market Portfolio............... $ 63,667,860 $ 50,859,070 $ 40,972,909
U.S. Government Portfolio............ 5,807,770 5,010,616 4,931,890
Tax-Free Fund........................ 10,937,156 10,111,111 9,479,630
California Municipal Money Fund...... 2,901,051 2,667,404 2,493,144
New Jersey Municipal Money Fund...... 325,942 294,352 239,816
New York Municipal Money Fund........ 1,999,790 1,673,724 1,446,166
($5,113 ($292,698
waived) waived)

</TABLE>

<PAGE>

During its fiscal year ended June 30, 1999, 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 the funds (other than New Jersey Municipal Money Fund)
relating to these services, the funds paid (or accrued) to PaineWebber the
following fees:

FOR THE FISCAL YEARS ENDED JUNE 30,
----------------------------------------
1998 1997
---- ----

<S> <C> <C>
Money Market Portfolio................... $156,077 $1,736,778

U.S. Government Portfolio................ 12,249 148,113

Tax-Free Fund............................ 20,345 247,472

California Municipal Money Fund.......... 4,546 54,029

New York Municipal Money Fund............ 3,402 39,481

</TABLE>

Subsequent to July 31, 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.

FOR THE FISCAL YEARS ENDED JUNE 30,
-----------------------------------------------------------------------
1999 1998 1997
---- ---- ----

<S> <C> <C> <C>
Money Market Portfolio................. $ 12,733,572 $ 10,171,814 $ 8,194,582
U.S. Government Portfolio.............. 1,161,554 1,002,123 986,378
Tax-Free Fund.......................... 2,187,431 2,022,222 1,895,926
California Municipal Money Fund........ 580,210 533,481 498,629
New Jersey Municipal Money Fund........ 65,188 58,870 47,963
New York Municipal Money Fund.......... 399,958 333,722 347,773

</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,

<PAGE>

(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
shareholders meetings, 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 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,
1999, 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 ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- -------

<S> <C>
Domestic (excluding Money Market)......................... $ 8,159.6
Global.................................................... 4,524.1
Equity/Balanced........................................... 7,791.1
Fixed Income (excluding Money Market)..................... 4,892.6
Taxable Fixed Income............................. 3,363.8
Tax-Free Fixed Income............................ 1,528.8
Money Market Funds........................................ 35,370.8

</TABLE>

Mitchell Hutchins personnel may invest in securities for their own
accounts pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber 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.

<PAGE>

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 each fund (other than Money Market
Portfolio) to compensate PaineWebber for certain expenses incurred in connection
with its activities in providing certain shareholder and account maintenance
services are authorized under the Distribution 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.

Under plans of distribution adopted for each of these funds in the
manner prescribed by Rule 12b-1 under the Investment Company Act ("Plan"), the
fund pays PaineWebber a service fee, accrued daily and payable monthly, for
providing certain shareholder and account maintenance services. Each fund's Plan
(other than the Plan for New Jersey Municipal Money Fund) authorizes it to pay
PaineWebber a service fee, computed daily and paid monthly, at an annual rate of
up to 0.15% of its average daily net assets. Each of these funds currently pays
service fees to PaineWebber at the annual rate of 0.125% of average net assets.
Any increase from the 0.125% annual rate would require prior approval of the
board. Under its Plan, New Jersey Municipal Money Fund pays service fees to
PaineWebber at the annual rate of 0.12% of average net assets.

PaineWebber uses the 12b-1 service fees to pay PaineWebber Financial
Advisors and correspondent firms for shareholder servicing. 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 Financial Advisor is based, such as rent, communications equipment,
employee salaries and other overhead costs.

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 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 0.125% 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 pays service fees to PaineWebber at an annual rate of 0.12%
of its average daily net assets.

The funds paid (or accrued) the following service fees to PaineWebber
under the Plans during the fiscal year ended June 30, 1999:

<TABLE>
<S> <C>
U.S. Government Portfolio................. $ 279,320
Tax-Free Fund............................. 3,172,622
California Municipal Money Fund........... 773,026
New Jersey Municipal Money Fund........... 78,224
New York Municipal Money Fund............. 516,986

</TABLE>

<PAGE>

PaineWebber estimates that it incurred the following shareholder
service-related expenses with respect to each fund during the fiscal year ended
June 30, 1999:

SERVICE FEES PAID TO RMA
PAINEWEBBER SERVICE ALLOCATED
FINANCIAL ADVISORS CENTER COSTS
------------------ ------ -----

<S> <C> <C> <C>
U.S. Government Portfolio..................... $ 279,320 $ 93,500 $ 230,961
Tax-Free Fund................................. 507,619 93,500 353,122
California Municipal Money Fund............... 123,684 93,500 142,607
New Jersey Municipal Money Fund............... 13,003 93,500 49,157
New York Municipal Money Fund................. 82,718 93,500 116,702

</TABLE>

"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 a fund, the applicable
board considered all features of the distribution system for the fund, including
(1) PaineWebber's view that the payment of service fees at the annual rate of
0.02% of the average daily net assets of the fund held in shareholder accounts
serviced by PaineWebber Financial advisors and correspondent firms was
attractive to such Financial Advisors and correspondent firms and would result
in greater growth of the fund than might otherwise be the case, (2) 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, (3) the services provided to the fund and its shareholders by
PaineWebber pursuant to the applicable Distribution Contract, (4) PaineWebber's
expenses and costs under the Plan as described above and (5) the fact that the
expense of the Plan to funds with breakpoints in their advisory and
administration fees could be offset if the Plan is successful by the lower 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.

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. 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.

For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions, it
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. Mitchell Hutchins may engage in agency
transactions in over-the-counter securities in return for research and execution
services. These transactions are entered into only pursuant to procedures that
are designed to ensure 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.

<PAGE>

Research services and information received from brokers or dealers are
supplemental to Mitchell Hutchins' own research efforts and, when utilized, are
subject to internal analysis before being incorporated into its investment
processes. Information and research services furnished by brokers or dealers
through which or with which the funds effect securities transactions may be used
by Mitchell Hutchins in advising other funds or accounts and, conversely,
research services furnished to Mitchell Hutchins by brokers or dealers in
connection with other funds or accounts that its advises may be used in advising
the funds.

Investment decisions for a 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 accounts. In those
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between that fund and the other account(s) as
to amount according to a formula deemed equitable to the fund and the other
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as a fund is concerned, or upon
its ability to complete its entire order, in other cases it is believed that
simultaneous transactions and the ability to participate in volume transactions
will benefit the fund.

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.

HOLDINGS OF REGULAR BROKER-DEALERS

As of June 30, 1999, Money Market Portfolio owned commercial paper and
other short-term obligations issued by the following persons who are regular
broker-dealers for the fund:

<TABLE>
<CAPTION>
ISSUER TYPE OF SECURITY VALUE
------ ---------------- -----

<S> <C> <C>
Bear Stearns Companies Incorporated commercial paper/short-term corporate $ 144,786,800
obligation
Goldman Sachs Group L.P. commercial paper 129,602,254
Lehman Brothers short-term corporate obligation 25,006,450
Merrill Lynch & Company Incorporated commercial paper/short-term corporate 319,339,570
obligation
Morgan Stanley, Dean Witter & Company commercial paper/short-term corporate 294,618,236
obligation

</TABLE>

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 is closed or
trading on the New York Stock Exchange 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 attempts to maintain a constant net asset value of $1.00 per share.

<PAGE>

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 a 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 and 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 SAI. Amortized cost is an
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 having, or deemed to have, a remaining maturity
of more than 397 days, will limit portfolio investments, including repurchase
agreements, to those U.S. dollar-denominated instruments that are of high
quality and that Mitchell Hutchins, acting pursuant to the procedures,
determines 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. Other assets, if any, are valued at fair value as
determined in good faith by or under the direction of the applicable board.

<PAGE>

PERFORMANCE INFORMATION

The funds' performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return will fluctuate.

TOTAL RETURN CALCULATIONS. Average annual total return quotes
("Standardized Return") used in each fund's Performance Advertisements are
calculated according to the following formula:

P(1 + T)'pp'n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares
T = average annual total return of shares
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at
the beginning of that period.

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. All dividends are assumed to have been reinvested at net asset value.

The funds also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The funds calculate Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in fund shares
and assuming the reinvestment of all dividends. The rate of return is determined
by subtracting the initial value of the investment from the ending value and by
dividing the remainder by the initial value.

The following tables show performance information for the funds' shares
outstanding for the periods indicated. All returns for periods of more than one
year are expressed as an average annual return.

U.S. CALIFORNIA NEW JERSEY NEW YORK
MONEY GOVERN- MUNICIPAL MUNICIPAL MUNICIPAL
MARKET MENT TAX-FREE MONEY MONEY MONEY
PORTFOLIO PORTFOLIO FUND FUND FUND FUND
(INCEPTION DATE) (10/4/82) (10/4/82) (10/4/82) (11/7/88) (2/10/91) (11/10/88)
- ---------------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended June 30, 1999:
Standardized Return......... 4.76% 4.45% 2.67% 2.31% 2.21% 2.50%
Five Years ended June 30, 1999:
Standardized Return......... 5.05% 4.82% 2.97% 2.77% 2.54% 2.81%
Ten Years ended
June 30, 1999 or (if less)
life of fund:
Standardized Return......... 5.13% 4.88% 3.24% 3.03% 1.26% 3.03%
</TABLE>

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

<PAGE>

same seven-day period by compounding the base period return by
adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from
the result, according to the following formula:

EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)'pp'365/7] - 1

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:

TAX EQUIVALENT YIELD = (E) +t
---
1-p

E = tax-exempt yield of a class of shares

p = stated income tax rate

t = taxable yield of a Class of shares

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, 1999:

EFFECTIVE
YIELD YIELD
----- -----
<S> <C> <C>
Money Market Portfolio............................. 4.47% 4.56%
U.S. Government Portfolio.......................... 4.13% 4.21%
Tax-Free Fund...................................... 2.84% 2.88%
California Municipal Money Fund.................... 2.63% 2.66%
New Jersey Municipal Money Fund.................... 2.42% 2.45%
New York Municipal Money Fund...................... 2.74% 2.78%
</TABLE>

<PAGE>

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

TAX EQUIVALENT TAX EQUIVALENT
YIELD EFFECTIVE YIELD
----- ---------------
<S> <C> <C>
Tax-Free Fund (assuming a federal tax rate of 39.6%)...................... 4.70% 4.77%
California Municipal Money Fund (assuming a combined federal and
California State tax rate of 45.22%).................................. 4.80% 4.86%
New Jersey Municipal Money Fund (assuming a combined federal and New
Jersey State tax rate of 43.45%)...................................... 4.28% 4.33%
New York Municipal Money Fund (assuming a combined federal, New York
State and New York City tax rate of 46.05%............................ 5.08% 5.15%
New York Municipal Money Fund (assuming an effective combined federal
and New York State tax rate of 43.74%................................. 4.87% 4.94%
</TABLE>

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 standardized or non-standardized
return and 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'r' ("RMA") and Business Services Account'sm' ("BSA") 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.

<PAGE>

TAXES

QUALIFICATION AS A REGULATED INVESTMENT COMPANY. 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.

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.

<PAGE>

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 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 Municipal Money
Fund. These provisions are subject to change by legislative or administrative
action, and any such change may be

<PAGE>

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 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.

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 New York Municipal
Money Fund to the extent such distributions are directly attributable to
interest earned on tax-exempt obligations issued by New York State or any
political subdivisions thereof (including New York City) or interest earned on
obligations of U.S. possessions or territories to the extent interest on such
obligations is exempt from state taxation pursuant to federal law, provided that
New York Municipal Money Fund qualifies as a RIC under the Internal Revenue Code
and satisfies certain requirements, among others, that at least 50% of its
assets at the close of each quarter of its taxable year constitute obligations
which are tax-exempt for federal income tax purposes. Distributions from New
York Municipal Money Fund which are attributable to sources other than those
described in the preceding sentence (including interest on obligations of other
states and their political subdivisions) will generally be taxable to such
individual shareholders as ordinary income.

Shareholders of New York Municipal Money Fund that are subject to the
New York State corporate franchise tax or the New York City general corporation
tax will be required to include exempt-interest dividends paid by New York
Municipal Money Fund in their "entire net income" for purposes of such taxes and
will be required to include their shares of New York Municipal Money 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 taxation imposed by New York City solely by reason
of their ownership of shares in New York Municipal Money Fund. If a shareholder
is subject to the unincorporated business tax, income and gains distributed by
New York Municipal Money Fund will be subject to such tax except, in general, 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 New York City).

Shares of New York Municipal Money Fund will not be subject to property
taxes imposed by New York State or City.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of New York Municipal Money Fund (and certain other expenses relating
thereto) generally will not be deductible for New York State or City personal
income tax purposes.

<PAGE>

Interest income of New York Municipal Money Fund which is distributed
to shareholders will generally not be taxable to New York Municipal Money Fund
for purposes of the New York State corporate franchise tax or City general
corporation tax.

New York Municipal Money Fund is subject to the corporate franchise
(income) tax measured by the entire net income base, the minimum taxable income
base or the fixed dollar minimum, whichever is greater. "Entire net income" of
New York Municipal Money Fund is federal "investment company taxable income"
with certain modifications. In addition, New York Municipal Money Fund generally
is permitted to deduct dividends paid to its shareholders in determining its
federal taxable income.

The foregoing is a general summary of certain provisions of federal,
New York State and City tax laws currently in effect as they directly govern the
taxation of shareholders of New York Municipal Money Fund. Further, these
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to New York Municipal Money
Fund's transactions. Shareholders are advised to consult with their own tax
advisers for more detailed information concerning tax matters.

TAX-FREE INCOME VS. TAXABLE INCOME--TAX-FREE FUND. Table I below
illustrates approximate equivalent taxable and tax-free yields at the 1999
federal individual income tax rates in effect on the date of this SAI. For
example, a couple with taxable income of $90,000 in 1999, or a single individual
with taxable income of $55,000 in 1999, whose investments earn a 3% tax-free
yield, would have to earn a 4.17% taxable yield to receive the same benefit.

<TABLE>
<CAPTION>
TABLE I. 1999 FEDERAL TAXABLE VS. TAX-FREE YIELDS*

TAXABLE INCOME (000'S) A TAX-FREE YIELD OF
- ------------------------------------- -----------------------------------------------
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 - 25.8 0 - 43.1 15.00% 3.53% 4.71% 5.88% 7.06%
25.8 - 62.5 43.1 - 104.1 28.00 4.17 5.56 6.94 8.33
62.5 - 130.3 104.1 - 158.6 31.00 4.35 5.80 7.25 8.70
130.3 - 283.2 158.6 - 283.2 36.00 4.69 6.25 7.81 9.38
Over 283.2 Over 283.2 39.60 4.97 6.62 8.28 9.93
</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 SAI; 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.

<PAGE>

TAX-FREE INCOME VS. TAXABLE INCOME--CALIFORNIA MUNICIPAL MONEY FUND.
Table II below illustrates approximate equivalent taxable and tax-free yields at
the 1999 federal individual and 1998 California personal gross income tax rates
in effect on the date of this SAI. For example, a California couple with taxable
income of $90,000 in 1999, or a single California individual with taxable income
of $55,000 in 1999, whose investments earn a 3% tax-free yield, would have to
earn a 4.59% taxable yield to receive the same benefit.

TABLE II. 1999 FEDERAL AND 1998 CALIFORNIA TAXABLE VS. TAX-FREE YIELDS*

EFFECTIVE
TAXABLE INCOME (000'S) CALIFORNIA A TAX-FREE YIELD OF
- --------------------------------------- AND -----------------------------------------------------
SINGLE JOINT FEDERAL 3.00% 4.00% 5.00% 6.00%
RETURN RETURN TAX ----- ----- ----- -----
BRACKET IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY
- -------------------- ------------------ ------------- -----------------------------------------------------

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

* 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 SAI; 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 1999 and California rates for
1998 in effect as of the date hereof. Inflation adjusted income brackets for
1999 for California are not yet available, and the California rates thus are
still subject to change with retroactive effect for 1999.

<PAGE>

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 SAI. For example, a New Jersey couple with taxable income of
$90,000 in 1999, or a single New Jersey individual with taxable income of
$55,000 in 1999, whose investments earn a 3% tax-free yield, would have to earn
a 4.41% taxable yield to receive the same benefit.

TABLE III. 1999 FEDERAL AND NEW JERSEY TAXABLE VS. TAX-FREE YIELDS*

EFFECTIVE
TAXABLE INCOME (000'S) NEW JERSEY A TAX-FREE YIELD OF
- --------------------------------------- AND -----------------------------------------------------
SINGLE JOINT FEDERAL 3.00% 4.00% 5.00% 6.00%
RETURN RETURN TAX ----- ----- ----- -----
BRACKET IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY
- -------------------- ------------------ ------------- -----------------------------------------------------

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

* 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 SAI; 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).

<PAGE>

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 SAI. For example, a New York City couple
with taxable income of $90,000 in 1999, or a single individual with taxable
income of $55,000 in 1999 who lives in New York City, whose investments earn a
3% tax-free yield, would have to earn a 4.66% 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 1999, or a single individual who lives in New York
State outside of New York City with taxable income of $55,000 in 1999, would
have to earn a 4.47% taxable yield to realize a benefit equal to a 3% tax-free
yield.

TABLE III. 1999 FEDERAL AND NEW YORK TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
COMBINED
TAXABLE INCOME (000'S) FEDERAL/ A TAX-FREE YIELD OF
- ------------------------------------- NYS/NYC ---------------------------------------------------
SINGLE JOINT 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 - 25.8 $ 0 - 43.1 23.98% 3.95% 5.27% 6.58% 7.90%
25.8 - 62.5 43.1 - 104.1 35.65 4.66 6.22 7.77 9.33
62.5 - 130.3 104.1 - 158.6 38.37 4.87 6.49 8.11 9.74
130.3 - 283.2 158.6 - 283.2 42.84 5.25 7.00 8.75 10.50
Over 283.2 Over 283.2 46.05 5.56 7.41 9.27 11.12

<CAPTION>
COMBINED
TAXABLE INCOME (000'S) FEDERAL/ A TAX-FREE YIELD OF
- ------------------------------------- NYS ---------------------------------------------------
SINGLE JOINT 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 - 25.8 $ 0 - 43.1 20.82% 3.79% 5.05% 6.31% 7.58%
25.8 - 62.5 43.1 - 104.1 32.93 4.47 5.96 7.46 8.95
62.5 - 130.3 104.1 - 158.6 35.73 4.67 6.22 7.78 9.34
130.3 - 283.2 158.6 - 283.2 40.38 5.03 6.71 8.39 10.06
Over 283.2 Over 283.2 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 SAI; 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).

OTHER INFORMATION

MASSACHUSETTS BUSINESS TRUSTS. 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 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

<PAGE>

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.

VOTING RIGHTS. Shareholders of each 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 all
the shares of a Corporation or a Trust may elect all its board members. The
shares of each series of PaineWebber RMA Money Fund, Inc. and PaineWebber
Managed Municipal Trust will be voted separately, except when an aggregate vote
of all the series is required by law.

The Corporations and Trusts do not hold annual 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.
Shareholders of record of no less than two-thirds of the outstanding shares of a
Trust may remove a board member through a declaration in writing or by proxy at
a meeting called for that purpose. A meeting will be called to vote on the
removal of a board member at the written request of 10% of the outstanding
shares of a Trust or 25% of the outstanding shares of a Corporation.

CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State
Street Bank and Trust Company, located at One Heritage Drive, North Quincy,
Massachusetts 02171, serves as custodian and recordkeeping agent for each fund.
PFPC Inc., a subsidiary of PNC Bank, N.A., located at 400 Bellevue Parkway,
Wilmington, DE 19809 serves as each fund's transfer and dividend disbursing
agent.

PRIOR NAMES. Prior to February 28, 1996, Municipal Money Market Series
was known as PaineWebber/Kidder, Peabody Municipal Money Market Series and,
prior to January 30, 1995, 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.

COMBINED PROSPECTUS. Although each fund is offering only its own
shares, it is possible that a fund might become liable for a misstatement in the
Prospectus about another fund. The board of each fund has considered this factor
in approving the use of a single, combined Prospectus.

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 funds' Annual Reports to Shareholders for their last fiscal year
ended June 30, 1999 is a separate documents supplied with this SAI, and the
financial statements, accompanying notes and reports of independent auditors
appearing therein are incorporated by reference in this SAI.

<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'r' (RMA'r') 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 Executive 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, card transactions
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 information 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
from a variety of taxable and tax-free money funds into which uninvested cash is
automatically swept on a daily basis. 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 through the check writing feature. There are no minimum check amounts
or per check charges. The RMA checks include an expense coding system that
enables the investor to track types of expenses for tax and financial planning.

DIRECT DEPOSIT. Regular payroll, pension, social security or other
payments 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'r'. RMA Participants can elect to 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'r' and MasterPurchase'r'
programs, investors can obtain other benefits, including rental car insurance,
emergency medical and travel assistance, legal services and purchase protection.

EXTENDED ACCOUNT PROTECTION. 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.

<PAGE>

RESOURCE ACCUMULATION PLAN'sm'. The Resource Accumulation Plan is an
automatic mutual fund investment program that provides participants the ability
to purchase shares of select 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'r'. RMA Participants have
around 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 midnight (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.

<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'sm' ("BSA'sm'") 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, 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
calculations of 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
from a variety of taxable and tax-free money funds into which uninvested cash is
automatically swept on a daily basis. 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 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'r'--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.

EXTENDED ACCOUNT PROTECTION--Securities held in a BSA 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.

FINANCIAL SERVICES CENTER AND RESOURCELINE'r'--BSA Participants can
call the Financial Services Center at (800) BSA-0140 from 7:30 a.m. to midnight
(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

<PAGE>

automated ResourceLine voice response system provides basic account
information through a touch-tone phone and is available 24 hours a day by
calling 1-800-BSA-0140.

ELECTRONIC FUNDS TRANSFER--BSA Participants may initiate transfers of
funds either on a fixed or variable schedule among their BSA and other financial
accounts. There is no charge or limit to incoming transfers, additional fees and
limits may apply to outgoing transfers.

BILL PAYMENT SERVICE--BSA Participants can pay virtually all their
bills for fixed or variable accounts. Additional fees may apply

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.

<PAGE>

You should rely only on the information contained in the Prospectus and this
Statement of Additional Information. The funds and their distributor have not
authorized anyone to provide you with information that is different. The
Prospectus and this Statement of Additional Information are not an offer to sell
shares of the funds in any jurisdiction where the funds or their distributor may
not lawfully sell those shares.

Resource Management Account, RMA and ResourceLine are registered service marks
of PaineWebber Incorporated. Business Services Account, BSA and BSA Resource
Accumulation Plan are service marks of PaineWebber Incorporated. Gold
MasterCard, MasterCard BusinessCard, MasterAssist and MasterPurchase are
registered trademarks of MasterCard International.

'c' 1999 PaineWebber Incorporated

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 31, 1999

<PAGE>

PART C. OTHER INFORMATION

Item 23. Exhibits

(1) Declaration of Trust(1)
(2) By-Laws(1)
(3) Instruments defining the rights of holders of the Registrant's
shares of beneficial interest(2)
(4) (a) Investment Advisory Contract(1)
(b) Sub-Advisory and Sub-Administration Contract(1)
(5) Distribution Contract(1)
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement(1)
(8) Transfer Agency Agreement and Service Contract(1)

(9) Opinion and consent of counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents:
(a) Other opinions, appraisals, rulings and consents:
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(1)

(13) Plan of Distribution pursuant to Rule 12b-1 (filed herewith)

(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3 (not applicable)

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

(1) Incorporated by reference from Post-Effective Amendment No. 34 to the
registration statement, SEC File No. 2-89016, filed August 28, 1998.

(2) 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.

C-1

<PAGE>

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, 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

C-2

<PAGE>

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.

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 LIR MONEY 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>

<TABLE>
<CAPTION>
Name Position With Registrant Position and Offices With Underwriter
---- ------------------------ -------------------------------------
<S> <C> <C>
Margo N. Alexander Trustee and President Executive Vice President and Director
(Chief Executive Officer)

Mary C. Farrell Trustee Managing Director, Senior Investment
Strategist and Member of the
Investment Policy Committee
</TABLE>

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 under Rule 485(b) of 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 26th day of August, 1999.

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:

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----

<S> <C>
/s/ Margo N. Alexander President and Trustee August 26, 1999
- ------------------------------------ (Chief Executive Officer)
Margo N. Alexander *

/s/ E. Garrett Bewkes, Jr. Trustee and Chairman August 26, 1999
- ------------------------------------ of the Board of Trustees
E. Garrett Bewkes, Jr. *

/s/ Richard Q. Armstrong Trustee August 26, 1999
- ------------------------------------
Richard Q. Armstrong *

/s/ Richard R. Burt Trustee August 26, 1999
- ------------------------------------
Richard R. Burt *

/s/ Mary C. Farrell Trustee August 26, 1999
- ------------------------------------
Mary C. Farrell *

/s/ Meyer Feldberg Trustee August 26, 1999
- ------------------------------------
Meyer Feldberg *

/s/ George W. Gowen Trustee August 26, 1999
- ------------------------------------
George W. Gowen *

/s/ Frederic V. Malek Trustee August 26, 1999
- ------------------------------------
Frederic V. Malek *

/s/ Carl W. Schafer Trustee August 26, 1999
- ------------------------------------
Carl W. Schafer *

/s/ Brian M. Storms Trustee August 26, 1999
- ------------------------------------
Brian M. Storms **

/s/ Paul H. Schubert Vice President and Treasurer (Chief August 26, 1999
- ------------------------------------ Financial and Accounting Officer)
Paul H. Schubert

</TABLE>

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

* 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.

** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
May 14, 1999 and incorporated by reference from Post-Effective Amendment
No. 61 to the registration statement of PaineWebber Managed Investments
Trust, SEC File 2-91362, filed June 1, 1999.

<PAGE>

PAINEWEBBER MANAGED MUNICIPAL TRUST

EXHIBIT INDEX

Exhibit
Number
- ------

(1) Declaration of Trust(1)
(2) By-Laws(1)
(3) Instruments defining the rights of holders of the Registrant's shares
of beneficial interest(2)
(4) (a) Investment Advisory Contract(1)
(b) Sub-Advisory and Sub-Administration Contract(1)
(5) Distribution Contract(1)
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement(1)
(8) Transfer Agency Agreement and Service Contract(1)

(9) Opinion and consent of counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents:
(a) Other opinions, appraisals, rulings and consents: 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(1)

(13) Plan of Distribution pursuant to Rule 12b-1 (filed herewith)

(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3 (not applicable)

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

(1) Incorporated by reference from Post-Effective Amendment No. 34 to the
registration statement, SEC File No. 2-89016, filed August 28, 1998.

(2) 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.

STATEMENT OF DIFFERENCES

The copyright symbol shall be expressed as................................. 'c'
The registered trademark symbol shall be expressed as...................... 'r'
The service mark symbol shall be expressed as.............................. 'sm'
The dagger symbol shall be expressed as.................................... 'D'
Characters normally expressed as superscript shall be preceded by.......... 'pp'

<PAGE>

Exhibit No. 9

KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
www.kl.com

August 26, 1999

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 that may
be issued during the time that Post-Effective Amendment No. 35 to the Trust's
Registration Statement on Form N-1A ("PEA") is effective and has not been
superseded by another post-effective amendment. The 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) of the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by investment companies organized as business trusts in that State 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 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

<PAGE>

PaineWebber Managed Municipal Trust
August 26, 1999
Page 2

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
19, 1999 in this Registration Statement (Form N-1A No.2-89016) of PaineWebber
Managed Municipal Trust (consisting of PaineWebber RMA California Municipal
Money Fund and PaineWebber RMA New York Municipal Money Fund).

ERNST & YOUNG LLP

New York, New York
August 26, 1999

<PAGE>

August 29, 1999

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>

August 29, 1999

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

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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 PaineWebber RMA California
Municipal Money Fund and PaineWebber RMA New York Municipal Money Fund; and

WHEREAS, the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act with respect to the above-referenced Series and desires
to replace it with this amended Plan of Distribution ("Plan") 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.

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3. If adopted with respect to a Series after any public offering of its
shares, this Plan shall not take effect with respect to those shares unless it
has first been approved by a vote of a majority of the voting securities of that
Series. This provision does not apply to adoption as an amended Plan of
Distribution where the prior Plan of Distribution either was approved by a vote
of a majority of the voting securities of the applicable Series or such approval
was not required under Rule 12b-1.

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 Board members 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 Board Members"), cast in person at a meeting (or meetings) called
for the purpose of voting on such approval; and until the Board members 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 paragraph 3 (if applicable) and
paragraph 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 2830(b)(9) of the NASD Conduct Rules 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 Board Members, 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

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shall be made unless approved in the manner provided for approval and annual
renewal in paragraph 5 hereof.

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
Board members who are not interested persons of the Fund shall be committed to
the discretion of the Board members 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 Board members 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 Board members 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: September 10, 1998

ATTEST: PAINEWEBBER MANAGED MUNICIPAL TRUST

/s/ Cristina Paradiso By: /s/ Dianne E. O'Donnell
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