PAINEWEBBER MANAGED MUNICIPAL TRUST /NY/, 485BPOS, 2000-08-30

PAINEWEBBER MANAGED MUNICIPAL TRUST /NY/
485BPOS, 2000-08-30

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<PAGE>

As filed with the Securities and Exchange Commission on August 30, 2000

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. 36 [X]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 35 [X]

PAINEWEBBER MANAGED MUNICIPAL TRUST
(Exact name of registrant as specified in charter)

51 West 52nd Street
New York, New York 10019-6114
(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.

Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.

Second 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, 2000 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1)
[ ] On pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On pursuant to Rule 485(a)(2)

Title of Securities Being Registered: Shares of Beneficial Interest.

<PAGE>

PaineWebber 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, 2000

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

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 (BSA) 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>

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------------------------
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>

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------------------------
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. Mitchell
Hutchins considers safety of principal and liquidity in selecting securities for
the fund and thus may not buy securities that pay the highest yield.

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, you may lose money by investing in the fund. Money market instruments
generally have a low risk of loss, but they are not risk-free. The principal
risks presented by the fund are:

Credit Risk -- Issuers of money market instruments may fail to make payments
when due, or they may become less willing or less able to do so.

Interest Rate Risk -- The value of the fund's investments generally will fall
when short term interest rates rise, and its yield will tend to lag behind
prevailing rates.

Foreign Investing Risk -- The value of the fund's investments in foreign
securities may fall due to adverse political, social and economic developments
abroad. However, because the fund's foreign investments must be denominated in
U.S. dollars, it generally is not subject to the risk of changes in currency
valuations.

More information about risks of an investment in the fund is provided below in
'More About Risks and Investment Strategies.'

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

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
------------- ------------
<S> <C>
1990 8.01%
1991 5.90%
1992 3.56%
1993 2.84%
1994 3.78%
1995 5.54%
1996 5.02%
1997 5.15%
1998 5.09%
1999 4.72%
</TABLE>

Total return January 1 to June 30, 2000 -- 2.78%
Best quarter during years shown: 2nd quarter, 1990 -- 1.97%
Worst quarter during years shown: 2nd quarter, 1993 -- 0.69%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999

<TABLE>
<S> <C>
One Year................................................ 4.72%
Five Years.............................................. 5.10%
Ten Years............................................... 4.95%
</TABLE>

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--------------------------------------------------------------------------------
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 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, please refer to the
Account Information Booklet and your MasterCard'r' Cardholder Agreement.

<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 sell 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>

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--------------------------------------------------------------------------------
5

<PAGE>

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------------------------
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 and in related repurchase agreements.

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 U.S. government money market instruments that are
backed by the full faith and credit of the United States; these money market
instruments pay income that is generally exempt from state and local income tax.

The fund may invest a significant percentage of its assets in repurchase
agreements. Income from repurchase agreements may not be exempt from state and
local income taxation. Repurchase agreements often offer a higher yield than
investments directly in government securities. In deciding whether an investment
in a repurchase agreement is more attractive than a direct investment in
government securities, the fund considers the possible loss of this tax
advantage.

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 you may lose money by investing in the fund. Money market instruments
generally have a low risk of loss, but they are not risk-free. The principal
risks presented by the fund are:

Credit Risk -- Issuers of money market instruments may fail to make payments
when due, or they may become less willing or less able to do so.

Interest Rate Risk -- The value of the fund's investments generally will fall
when short term interest rates rise, and its yield will tend to lag behind
prevailing rates.

More information about risks of an investment in the fund is provided below in
'More About Risks and Investment Strategies.'

------------
--------------------------------------------------------------------------------
6

<PAGE>

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

PaineWebber RMA U.S. Government Portfolio

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

RISK/RETURN BAR CHART AND TABLE

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

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
------------- ------------
<S> <C>
1990 7.62%
1991 5.57%
1992 3.41%
1993 2.64%
1994 3.52%
1995 5.24%
1996 4.86%
1997 5.01%
1998 4.85%
1999 4.35%
</TABLE>

Total return January 1 to June 30, 2000 -- 2.59%
Best quarter during years shown: 3rd quarter, 1990 -- 1.87%
Worst quarter during years shown: 4th quarter, 1993 -- 0.65%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999

<TABLE>
<S> <C>
One Year................................................ 4.35%
Five Years.............................................. 4.86%
Ten Years............................................... 4.70%
</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 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, please refer to the
Account Information Booklet and your MasterCard'r' Cardholder Agreement.

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.41%
Distribution and/or Service (12b-1) Fees.................... 0.13%*
Other Expenses.............................................. 0.05%
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>

------------
--------------------------------------------------------------------------------
8

<PAGE>

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

Credit Risk -- Issuers of money market instruments may fail to make payments
when due, or they may become less willing or less able to do so.

Interest Rate Risk -- The value of the fund's investments generally will fall
when short term interest rates rise, and its yield will tend to lag behind
prevailing rates.

More information about risks of an investment in the fund is provided below in
'More About Risks and Investment Strategies.'

------------
--------------------------------------------------------------------------------
9

<PAGE>

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

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

RISK/RETURN BAR CHART AND TABLE

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

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
------------- ------------
<S> <C>
1990 5.38%
1991 4.06%
1992 2.58%
1993 1.86%
1994 2.31%
1995 3.32%
1996 2.92%
1997 3.10%
1998 2.93%
1999 2.67%
</TABLE>

Total return January 1 to June 30, 2000 -- 1.67%
Best quarter during years shown: 4th quarter, 1990 -- 1.34%
Worst quarter during years shown: 1st quarter, 1994 -- 0.44%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999

<TABLE>
<S> <C>
One Year................................................ 2.67%
Five Years.............................................. 2.99%
Ten Years............................................... 3.11%
</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, please refer to the
Account Information Booklet and your MasterCard'r' Cardholder Agreement.

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.............................................. 0.04%
-----
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>

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

Credit Risk -- Issuers of money market instruments may fail to make payments
when due, or they may become less willing or less able to do so.

Interest Rate Risk -- The value of the fund's investments generally will fall
when short term interest rates rise, and its yield will tend to lag behind
prevailing rates.

Single State Concentration Risk -- Because the fund invests substantially all
its assets in California municipal money market instruments, its performance
will be more severely affected by unfavorable political or economic conditions
in California than a more geographically diverse fund.

Related Securities Concentration Risk -- Because the fund may invest more than
25% of its total assets in municipal money market instruments that are issued
to finance similar projects, certain economic, business or political
developments or changes that affect one municipal security also may affect
other municipal securities in the same sector.

More information about risks of an investment in the fund is provided below in
'More About Risks and Investment Strategies.'

------------
--------------------------------------------------------------------------------
12

<PAGE>

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

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

RISK/RETURN BAR CHART AND TABLE

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

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
------------- ------------
<S> <C>
1990 5.04%
1991 3.74%
1992 2.34%
1993 1.77%
1994 2.20%
1995 3.14%
1996 2.80%
1997 2.93%
1998 2.58%
1999 2.34%
</TABLE>

Total return January 1 to June 30, 2000 -- 1.36%
Best quarter during years shown: 2nd quarter, 1990 -- 1.27%
Worst quarter during years shown: 1st quarter, 1994 -- 0.42%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999

<TABLE>
<S> <C>
One Year................................................ 2.34%
Five Years.............................................. 2.76%
Ten Years............................................... 2.88%
</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, please refer to the
Account Information Booklet and your MasterCard'r' Cardholder Agreement.

<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.............................................. 0.05%
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>

------------
--------------------------------------------------------------------------------
14

<PAGE>

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

Credit Risk -- Issuers of money market instruments may fail to make payments
when due, or they may become less willing or less able to do so.

Interest Rate Risk -- The value of the fund's investments generally will fall
when short term interest rates rise, and its yield will tend to lag behind
prevailing rates.

Single State Concentration Risk -- Because the fund invests substantially all
its assets in New Jersey municipal money market instruments, its performance
will be more severely affected by unfavorable political or economic conditions
in New Jersey than a more geographically diverse fund.

More information about risks of an investment in the fund is provided below in
'More About Risks and Investment Strategies.'

------------
--------------------------------------------------------------------------------
15

<PAGE>

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

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

RISK/RETURN BAR CHART AND TABLE

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 (1992 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS.)

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
------------- ------------
<S> <C>
1990
1991
1992 2.23%
1993 1.62%
1994 1.93%
1995 2.78%
1996 2.54%
1997 2.73%
1998 2.45%
1999 2.27%
</TABLE>

Total return January 1 to June 30, 2000 -- 1.49%
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, 1999

<TABLE>
<S> <C>
One Year................................................ 2.27%
Five Years.............................................. 2.56%
Life of Fund (2/01/91).................................. 2.51%
</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, please refer to the
Account Information Booklet and your MasterCard'r' Cardholder Agreement.

<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.............................................. 0.16%
-----
Total Annual Fund Operating Expenses........................ 0.78%
-----
-----
</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>
$80 $249 $433 $966
</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

Credit Risk -- Issuers of money market instruments may fail to make payments
when due, or they may become less willing or less able to do so.

Interest Rate Risk -- The value of the fund's investments generally will fall
when short term interest rates rise, and its yield will tend to lag behind
prevailing rates.

Single State Concentration Risk -- Because the fund invests substantially all
its assets in New York municipal money market instruments, its performance
will be more severely affected by unfavorable political or economic conditions
in New York than a more geographically diverse fund.

More information about risks of an investment in the fund is provided below in
'More About Risks and Investment Strategies.'

------------
--------------------------------------------------------------------------------
18

<PAGE>

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

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

RISK/RETURN BAR CHART AND TABLE

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

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
------------- ------------
<S> <C>
1990 4.98%
1991 3.71%
1992 2.26%
1993 1.67%
1994 2.14%
1995 3.12%
1996 2.76%
1997 2.98%
1998 2.76%
1999 2.53%
</TABLE>

Total return January 1 to June 30, 2000 -- 1.56%
Best quarter during years shown: 1st quarter, 1990 -- 1.24%
Worst quarter during years shown: 1st quarter, 1993, 1st quarter, 1994 -- 0.39%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999

<TABLE>
<S> <C>
One Year................................................ 2.53%
Five Years.............................................. 2.83%
Ten Years............................................... 2.89%
</TABLE>

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--------------------------------------------------------------------------------
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, please refer to the
Account Information Booklet and your MasterCard'r' Cardholder Agreement.

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

<TABLE>
<S> <C>
Management Fees............................................. 0.48%
Distribution and/or Service (12b-1) Fees.................... 0.13%*
Other Expenses.............................................. 0.06%
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>

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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.

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 generally will tend to fall more slowly.

Foreign Investing Risk. Foreign investing involves risks relating to political,
social and economic developments abroad to a greater extent than investing in
the securities of U.S. issuers. In addition, there are differences between U.S.
and foreign regulatory requirements and market practices.

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.

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21

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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 a smaller
position.

ADDITIONAL RISKS

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.

Structured Security Risk. The funds may purchase securities representing
interests in underlying assets, but structured to provide certain advantages
inherent in those assets (e.g., enhanced liquidity, yields linked to short-term
interest rates). If those securities behaved in a way that Mitchell Hutchins did
not anticipate, or if the security structures encountered unexpected
difficulties, a fund could suffer a loss. Structured securities represent a
growing portion of the municipal securities markets.

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 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.

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PaineWebber RMA Funds

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 (BSA) 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
$1.00 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 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

------------
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23

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

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.

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.

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PaineWebber RMA Funds

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 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.

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PaineWebber RMA Funds

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 is
located at 1285 Avenue of the Americas, New York, New York, 10019-6028, and
Mitchell Hutchins is located at 51 West 52nd Street, New York, New York
10019-6114. Mitchell Hutchins is a wholly owned asset management subsidiary of
PaineWebber, which is wholly owned by Paine Webber Group Inc. ('PW Group'), a
publicly owned financial services holding company. On July 31, 2000, PaineWebber
or Mitchell Hutchins was the adviser or sub-adviser of 31 investment companies
with 75 separate portfolios and aggregate assets of approximately $53.3 billion.

On July 12, 2000, PW Group and UBS AG ('UBS') announced that they had entered
into an agreement and plan of merger under which PW Group will merger into a
wholly owned subsidiary of UBS. If all required approvals are obtained and the
required conditions are satisfied, PW Group and UBS expect to complete the
transaction in the fourth quarter of 2000. UBS, with headquarters in Zurich,
Switzerland, is an internationally diversified organization with operations in
many areas of the financial services industry.

ADVISORY FEES

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

<TABLE>
<S> <C>
Money Market Portfolio............ 0.50%
U.S. Government Portfolio......... 0.41%
Tax-Free Fund..................... 0.43%
California Municipal Money Fund... 0.47%
New Jersey Municipal Money Fund... 0.50%
New York Municipal Money Fund..... 0.48%
</TABLE>

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<PAGE>

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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. These funds expect that their
dividends will be taxed 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 annually 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.

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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).

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.

<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<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.............................. 0.052 0.046 0.051 0.049 0.051
Dividends from net investment income............... (0.052) (0.046) (0.051) (0.049) (0.051)
----------- ----------- ----------- ---------- ----------
Net asset value, end of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Total investment return(1)......................... 5.29% 4.76% 5.21% 5.04% 5.25%
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of year (000's).................... $15,821,189 $13,446,140 $11,135,226 $8,673,055 $7,522,612
Expenses to average net assets..................... 0.59% 0.59% 0.60% 0.59% 0.60%(2)
Net investment income to average net assets........ 5.19% 4.64% 5.09% 4.94% 5.14%(2)
</TABLE>

---------

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each year reported.

(2) These ratios include non-recurring acquisition expenses of 0.01%.

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PaineWebber RMA Funds

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

<TABLE>
<CAPTION>
U.S. GOVERNMENT PORTFOLIO
--------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<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................................. 0.048 0.044 0.049 0.048 0.049
Dividends from net investment income.................. (0.048) (0.044) (0.049) (0.048) (0.049)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return(1)............................ 4.88% 4.45% 5.05% 4.88% 5.04%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of year (000's)....................... $1,670,845 $1,354,594 $1,179,575 $1,083,866 $1,137,510
Expenses to average net assets........................ 0.59% 0.60% 0.57% 0.62% 0.65%(2)
Net investment income to average net assets........... 4.81% 4.35% 4.93% 4.78% 4.91%(2)
</TABLE>

---------

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

<TABLE>
<CAPTION>
TAX-FREE FUND
------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Net investment income.............................. 0.031 0.026 0.031 0.029 0.030
Dividends from net investment income............... (0.031) (0.026) (0.031) (0.029) (0.030)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return(1)......................... 3.10% 2.67% 3.10% 2.98% 3.09%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of year (000's).................... $2,593,878 $2,424,938 $2,271,969 $2,065,920 $2,013,448
Expenses to average net assets..................... 0.60% 0.59% 0.58% 0.61% 0.61%(2)
Net investment income to average net assets........ 3.06% 2.63% 3.06% 2.94% 3.02%(2)
</TABLE>

---------

(2) These ratios include non-recurring acquisition expenses of 0.01%.

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PaineWebber RMA Funds

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

<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL MONEY FUND
--------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<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 0.023 0.028 0.028 0.029
Dividends from net investment income........................ (0.026) (0.023) (0.028) (0.028) (0.029)
-------- -------- -------- -------- --------
Net asset value, end of year................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return(1).................................. 2.59% 2.31% 2.87% 2.87% 2.89%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of year (000's)............................. $626,424 $575,296 $566,957 $492,915 $473,726
Expenses to average net assets.............................. 0.65% 0.67% 0.65% 0.62% 0.70%(2)
Net investment income to average net assets................. 2.56% 2.28% 2.83% 2.83% 2.82%(2)
</TABLE>

---------

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

<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL MONEY FUND
------------------------------------------------------------------------------
FOR THE EIGHT FOR THE YEAR
MONTHS ENDED ENDED
FOR THE YEARS ENDED JUNE 30, JUNE 30, OCTOBER 31
----------------------------------------------- ------------- ------------
2000 1999 1998 1997 1996 1995(2)
---- ---- ---- ---- ---- -------
<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...................... 0.027 0.022 0.026 0.026 0.017 0.027
Dividends from net investment income....... (0.027) (0.022) (0.026) (0.026) (0.017) (0.027)
-------- ------- ------- ------- ------- -------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- -------
-------- ------- ------- ------- ------- -------
Total investment return(1)................. 2.72% 2.21% 2.67% 2.65% 1.71% 2.75%
-------- ------- ------- ------- ------- -------
-------- ------- ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's).......... $ 93,276 $62,972 $48,279 $52,324 $42,233 $36,206
Expenses to average net assets............. 0.78% 0.89% 0.85% 0.81% 0.95%* 0.93
Net investment income to average net
assets.................................... 2.73% 2.18% 2.64% 2.63% 2.56%* 2.73%
</TABLE>

---------

* Annualized

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

(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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PaineWebber RMA Funds

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

<TABLE>
<CAPTION>
NEW YORK MUNICIPAL MONEY FUND
------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Net investment income............................... 0.029 0.025 0.029 0.028 0.029
Dividends from net investment income................ (0.029) (0.025) (0.029) (0.028) (0.029)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return(1).......................... 2.93% 2.50% 2.97% 2.85% 2.91%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of year (000's)..................... $ 437,253 $ 372,880 $ 339,391 $ 274,338 $ 255,177
Expenses to average net assets before waiver from
adviser............................................ 0.67% 0.65% 0.65% 0.77% 0.74%(2)
Expenses to average net assets after waiver from
adviser............................................ 0.67% 0.65% 0.65% 0.67% 0.72%(2)
Net investment income to average net assets before
waiver from adviser................................ 2.90% 2.46% 2.92% 2.71% 2.80%(2)
Net investment income to average net assets after
waiver from adviser................................ 2.90% 2.46% 2.92% 2.81% 2.82%(2)
</TABLE>

---------

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

------------
--------------------------------------------------------------------------------
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 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 may obtain information about the operations of the SEC's Public
Reference Room by calling the SEC at 1-202-942-8090. You may get copies of
reports and other information about a fund:

For a fee, by electronic request at [email protected] or by writing the SEC's
Public Reference Section, Washington, D.C. 20549-0102; or

Free from the EDGAR Database on 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

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, 2000

<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

51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114

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 without charge by calling toll-free 1-800-762-1000.

This SAI is not a prospectus and should be read only in conjunction
with the Funds' current Prospectus, dated August 31, 2000. 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,
2000.

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;
Principal Holders and Management Ownership of Securities............... 33
Investment Advisory, Administration and Distribution Arrangements......... 42
Portfolio Transactions.................................................... 46
Additional Purchase and Redemption Information............................ 47
Valuation of Shares....................................................... 48
Performance Information................................................... 48
Taxes..................................................................... 51
Other Information......................................................... 58
Financial Statements...................................................... 59
Appendix A................................................................ 60
Appendix B................................................................ 62
</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
its 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"). Each fund maintains a dollar-weighted average
portfolio maturity of 90 days or less.

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 calendar 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),
except that the fund may invest up to 25% of its total assets in First Tier
Securities (defined below) of a single issuer for a period of up to three
business days. 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 from banks or through reverse repurchase agreements for temporary
purposes, but not in excess of 10% of its total assets. The costs associated
with borrowing may reduce the fund's net income. The fund 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 on 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 AMT exempt interest -- that is, interest that is not an item
of tax preference for purposes of the federal alternative minimum tax ("AMT").
The fund, however, may invest up to 20% of its total assets in securities that
pay interest that is subject to the AMT 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 from banks or through reverse
repurchase agreements for temporary purposes, but not in excess of 10% of its
total assets. The costs associated with borrowing may reduce the fund's net
income. The fund 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 personal
income tax consistent with liquidity and conservation of capital. Except for
temporary purposes, 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 from banks or through reverse repurchase
agreements for temporary purposes, but not in excess of 10% of its total assets.
The costs associated with borrowing may reduce the fund's net income. The fund
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 for residents of the State of New Jersey, consistent with
the preservation of capital and the maintenance of liquidity. Except for
temporary purposes, the fund invests at least 65% of its total assets, and seeks
to invest 100% of its net assets, in municipal securities issued by the State of
New Jersey, its municipalities and public authorities 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.

<PAGE>

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

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 from banks or through reverse repurchase
agreements for temporary purposes, but not in excess of 15% of its net assets.
The costs associated with borrowing may reduce the fund's net income. The fund
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. Except for temporary purposes, 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. First Tier Securities include U.S.
government securities and securities of other registered investment companies
that are money market funds. Other First Tier Securities are either (1) rated in
the highest short-term rating category by at least two rating agencies, (2)
rated in the

<PAGE>

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 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. These U.S. government
securities may 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 the
Securities and Exchange Commission ("SEC"). Descriptions of certain types of
short-term obligations are provided below.

ASSET-BACKED SECURITIES. The funds may invest in securities that are
comprised of financial assets that have been securitized through the use of
trusts or special purpose corporations or other entities. For taxable money
market funds, these assets may include motor vehicle and other 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. Certain municipal securities are also structured as
asset-backed securities. 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
variable and floating rate securities of municipal issuers, including tender
option bonds. The yields on these

<PAGE>

securities are adjusted in relation to changes in specific rates, such as the
prime rate, and different securities may have different adjustment rates.
Certain 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. A fund's investments in variable and floating rate
securities must comply with conditions established by the SEC under which they
may be considered to have remaining maturities of 13 months or less. The funds
will purchase variable and floating rate securities of non-U.S. government
issuers that have remaining maturities of more than 13 months only if the
securities are subject to a demand feature exercisable within 13 months or less.
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 (subject to any applicable advance notice provisions) 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. A fund may
not be able to readily liquidate its investments in illiquid securities and may
have to sell other investments if necessary to raise cash to meet its
obligations. The lack of a liquid secondary market for illiquid securities may
make it more difficult for a fund to assign a value to those securities for
purposes of valuing its portfolio and calculating its net asset value.

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

<PAGE>

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.

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 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, which establishes a "safe harbor" from the registration
requirements of the Securities 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 them 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.

In making determinations as to the liquidity of municipal lease
obligations, Mitchell Hutchins will distinguish between direct investments in
municipal lease obligations (or participations therein) and investments in
securities that may be supported by municipal lease obligations or certificates
of participation therein. Since these municipal lease obligation-backed
securities are based on a well-established means of securitization, Mitchell
Hutchins does not believe that investing in such securities presents the same
liquidity issues as direct investments in municipal lease obligations.

Mitchell Hutchins also monitors each fund's overall holdings of
illiquid securities. If a fund's holdings of illiquid securities exceed its
limitation on investments in illiquid securities for any reason (such as a
particular security becoming illiquid, changes in the relative market values of
liquid and illiquid portfolio securities or shareholder redemptions), Mitchell
Hutchins will consider what action would be in the best interests of a fund and
its shareholders. Such action may include engaging in an orderly disposition of
securities to reduce the fund's holdings of illiquid securities. However, a fund
is not required to dispose of illiquid securities under these circumstances.

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.

<PAGE>

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 in transactions with counterparties
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 or securities
dealers or their affiliates. While a reverse repurchase agreement is
outstanding, a fund will maintain, in a segregated account with its custodian,
cash or liquid securities, marked to market daily, in an amount at least equal
to its obligations under the reverse repurchase agreement. See "The Funds'
Investments, Related Risks and Limitations -- 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, the buyer or trustee or receiver may
receive an extension of time to determine whether to enforce a 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 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, Related Risks
and Limitations -- Segregated Accounts." A fund's when-issued and delayed
delivery purchase commitments could cause its net asset value per share to be
more volatile. 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 normally 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 limitations under the
Investment Company Act. Among other things, these limitations currently restrict
a fund's aggregate investments in other investment companies to no more than 10%
of its total assets. A fund's investments in certain private investment vehicles
are not subject to this restriction. 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.

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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, including other investment
companies. A fund also may reinvest cash collateral in private investment
vehicles similar to money market funds, including one managed by Mitchell
Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. 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.

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 each 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 75% 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

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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
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 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 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 financial institutions. These interests carry a
demand feature permitting the holder to tender them back to the financial
institution, which demand feature generally is backed by an irrevocable letter
of credit or guarantee of the financial institution. The credit standing of such
financial institution affects the credit quality of the participation interests.

A participation interest gives a fund an undivided interest in a
municipal bond owned by a financial institution. The fund has the right to sell
the instruments back to the financial institution. 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 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 financial institutions issuing letters of credit or guarantees
supporting such participation interests on the basis of published financial
information, reports of rating services and financial institution 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 third party 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

<PAGE>

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 or to a third party.

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 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, plus accrued interest. 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 securities. 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

<PAGE>

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.

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 over 34 million represents about
12-1/2% of the total United States population and grew by 26% in the 1980s, more
than double the national rate. Population growth slowed to less than 1% annually
in 1994 and 1995, but rose to almost 2% in the final years of the 1990's. 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 and once more represents net positive growth.

Total personal income in the State, at an estimated $964 billion in
1999, accounts for almost 13% 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. Recovery did not
begin in California until 1994, later than the rest of the nation, but since
that time California's economy has outpaced the national average. By the end of
1999, unemployment in the State was at its lowest level in three decades.
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 hurt the
manufacturing and agricultural sectors, were offset by increased exports to
Latin American and other nations, and a greater strength in services, computer
software and construction. With economic conditions in many Asian countries
recovering in 1999, that year had the strongest economic growth in the State for
the entire decade. Current forecasts predict continued strong growth of the
State's economy in 2000, with slower growth predicted in 2001 and beyond. Any
delay or reversal of the recovery may create new shortfalls in State revenues.

<PAGE>

Constitutional Limitations on Taxes, Other Charges and Appropriations

Limitation on Property Taxes. Certain California Municipal Obligations
may be obligations of issuers which rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and commonly
known as "Proposition 13." Briefly, Article XIIIA limits to 1% of full cash
value of the rate of ad valorem property taxes on real property and generally
restricts the reassessment of property to 2% per year, except under new
construction or change of ownership (subject to a number of exemptions). Taxing
entities may, however, raise ad valorem taxes above the 1% limit to pay debt
service on voter-approved bonded indebtedness.

Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, but it was upheld by the U.S. Supreme Court
in 1992.

Article XIIIA prohibits local governments from raising revenues through
ad valorem taxes above the 1% limit; it also requires voters of any governmental
unit to give two-thirds approval to levy any "special tax." Court decisions,
however, allowed a non-voter approved levy of "general taxes" which were not
dedicated to a specific use.

Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.

Article XIIIC requires that all new or increased local taxes be
submitted to the electorate before they become effective. Taxes for general
governmental purposes require a majority vote and taxes for specific purposes
require a two-thirds vote. Further, any general purpose tax which was imposed,
extended or increased without voter approval after December 31, 1994 must be
approved by a majority vote within two years.

Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment, imposed
by a [local government] upon a 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.

<PAGE>

Appropriations Limits. The State and its local governments are subject
to an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.

Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.

The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.

"Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50% of any excess, with the other 50% paid to schools and community colleges.
With more liberal annual adjustment factors since 1988, and depressed revenues
in the early 1990's because of the recession, few governments have been
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. For the last ten years, appropriations subject to limitation have
been under the State's limit. However, because of extraordinary revenue receipts
in fiscal year 1999-2000, the State appropriations were estimated to be close to
the limit. The State Department of Finance estimates the State will be $6
billion below its appropriation limit in fiscal year 2000-01.

Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID
of the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California municipal obligations or on the ability of the
State or local governments to pay debt service on such California municipal
obligations. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of these Articles or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Further initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or local
issuers to repay their obligations.

Obligations of the State of California

Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. As of July 1,
2000, the State had outstanding approximately $21.3 billion of long-term general
obligation bonds, plus $500 million of general obligation commercial paper which
will be refunded by long-term bonds in the future, and $6.7 billion of
lease-purchase debt supported by the State General Fund. The State also had
about $17.3 billion of authorized and unissued long-term general obligation
bonds and lease-purchase debt. In FY 1998-99, debt service on general obligation
bonds and lease purchase debt was approximately 4.4% of General Fund revenues.

<PAGE>

Recent Financial Results

The principal sources of General Fund revenues in 1998-1999 were the
California personal income tax (53 percent of total revenues), the sales tax (32
percent), bank and corporation taxes (10 percent), and the gross premium tax on
insurance (2 percent). An estimated 20% of personal income tax receipts (10% of
total General Fund) is derived from capital gains realizations and stock option
income. While these sources have been extraordinarily strong in the past few
years, they are particularly volatile; any sustained drop in stock market levels
could have a significant impact on these revenues.

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.

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).

Recent Budgets. The State suffered a severe economic recession from
1990-94 during which the State experienced substantial revenue shortfalls and
accumulated a budget deficit of about $2.8 billion. With the economic recovery
which began in 1994, the State's financial condition improved markedly in the
years from fiscal year 1995-96 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 economy grew strongly during the second half of the 1990's, 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, $1.6
billion in 1998-99 and $8.2 billion in 1999-2000) 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. In 1998-99 and
1999-2000, significant new spending programs were also enacted, particularly for
education. 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 $7.2 billion at June 30, 2000.

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 $6,700 per pupil in FY 2000-01. 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 and additional increases in 2000-01.

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 was reduced by 25
percent, which was increased to a

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35% reduction effective January 1, 2000. With substantial new revenues in the
last fiscal year, the Legislature increased the VLF cut to 67.5% starting
January 1, 2001 (although the additional reduction for calendar years 2001 and
2002 will be in the form of a rebate). Under pre-existing law, VLF funds are
automatically transferred to cities and counties, so the new legislation
provided for the General Fund to make up the reductions. The full 67.5% percent
VLF cut will be offset by about $2.6 billion in General Fund money in FY
2000-01, and $3.6 billion annually for fiscal year 20001-02 and 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.

FY 1999-2000 Budget. The 1999-00 Budget Act was signed on June 29,
1999. 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.

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.

By the spring of 2000, as the fiscal year 2000-01 budget was being
enacted, the Administration released updated revenue and expenditure projections
for 1999-2000 and 2000-01. These reports showed that the State's economy
remained very strong; 1999 had the greatest growth since the end of the
recession in 1994. This growth, together with the strong stock market, resulted
in extraordinary growth in revenues, particular personal income taxes. The
Administration revised its revenue estimates for 1999-2000 upward to $71.2
billion, an increase of $8.2 billion above the original Budget Act estimate.
Expenditures were projected to increase to about $67.2 billion. The
Administration's projected balance in the SFEU at June 30, 2000 increased from
about $880 million at the time of the original Budget Act to over $7.2 billion.
Much of this balance will be spent in fiscal year 2000-01. As noted above under
"Constitutional Limitations on Taxes, Other Charges and Appropriations," the
extraordinary and rapid growth of State revenues placed the State just $300
million under its Constitutional appropriations limit in fiscal year 1999-2000.

Although, as noted, the Administration projected a budget reserve in
the SFEU of about $7.2 billion on June 30, 2000, the General Fund fund balance
on that date also reflects $700 million 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 1999-2000 Budget Act contained a $350 million
appropriation from the General Fund toward this settlement.

Fiscal Year 2000-01 Budget. As noted above, the continuation of strong
economic growth in the State resulted in substantial additional resources for
General Fund expenditures for fiscal year 2000-01. The Administration estimated
over $12 billion additional revenue for the second half of fiscal year 1999-2000
and full year 2000-01, compared to initial estimates made in January 2000. The
2000-01 Budget Act (the "2000 Budget Act") was signed on June 30, 2000. The
spending plan assumes General Fund revenues and transfers of $73.9 billion, and
appropriates $78.8 billion (the difference coming from the SFEU surplus
generated in fiscal year 1999-2000). To avoid pressures on future budgets, the
Administration devoted about $7.0 billion of the new spending on one-time
expenditures and investments.

The Administration estimated that the SFEU would have a balance of
$1.781 billion at June 30, 2001. The Governor also held back $500 million as a
set-aside for litigation costs; if this amount is not fully spent during fiscal
year 2000-01, the balance would be added to the SFEU. Because of the State's
strong cash position, the Administration announced the State would not undertake
any short-term cash flow borrowing in 2000-01.

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The largest program in the 2000 Budget Act is aid to K-12 school
districts, which increased by $3.0 billion above 1999-2000 levels. There was
also a large increase in funding for the public higher education systems, and
for health and welfare programs. New investments were made for capital outlay,
including $2.0 billion General Fund support for transportation projects, to
supplement gasoline taxes normally used for those purposes, part of a five-year
$6.9 billion transportation package. A total of about $1.5 billion was devoted
to tax relief, including the additional VLF reduction described above under
"Recent Budgets." The Legislature also enacted a one-time tax relief package for
senior citizen homeowners and renters was valued at about $150 million, a
personal income tax credit for credentialed teachers ($218 million) and a
refundable tax credit for child care expenses ($195 million). The 2000 Budget
Act included a $200 million unrestricted grant to cities and counties, as well
as about $200 million in funding to support various local law enforcement
programs.

Although the State's strong economy is producing record revenues to the
State government, the State's budget continues to be marked by mandated spending
on education, a large prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending growth
also put pressure on local governments. There can be no assurances that, if
economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.

Bond Rating

The ratings on California's long-term general obligation bonds were
reduced in the early 1990's from "AAA" levels which had existed prior to the
recession. After 1996, the three major rating agencies raised their ratings of
California's general obligation bonds, which as of July, 2000 were assigned
ratings of "AA-" 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.

Obligations of Other Issuers

Other Issuers of California Municipal Obligations. There are a number
of State agencies, instrumentalities and political subdivisions of the State
that issue Municipal Obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.

State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise

<PAGE>

revenues. Total local assistance from the State's General Fund was budgeted at
approximately 75% of General Fund expenditures in recent years, including the
effect of implementing reductions in certain aid programs. To reduce State
General Fund support for school districts, the 1992-93 and 1993-94 Budget Acts
caused local governments to transfer $3.9 billion of property tax revenues to
school districts, representing loss of the post-Proposition 13 "bailout" aid.
Local governments have in return received greater revenues and greater
flexibility to operate health and welfare programs.

In 1997, a new program provided for the State to substantially take
over funding for local trial courts (saving cities and counties some $400
million annually). For the last several years, the State has also provided $100
million annually to support local law enforcement costs. In 2000-01, the State
provided $200 million in unrestricted grants to cities and counties.

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 Obligations which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.

California Long Term Lease Obligations. Based on a series of court
decisions, certain long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered
"indebtedness" requiring voter approval. Such leases, however, are subject to
"abatement" in the event the facility being leased is unavailable for beneficial
use and occupancy by the municipality during the term of the lease. Abatement is
not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due. Although
litigation is brought from time to time which challenges the constitutionality
of such lease arrangements, the California Supreme Court issued a ruling in
August, 1998 which reconfirmed the legality of these financing methods.

Other Considerations

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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 Obligations
in which the Fund may invest, future allocations of state revenues to local
governments or the abilities of state or local governments to pay the interest
on, or repay the principal of, such California Municipal Obligations.

Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and Southern
California in 1994 experienced major earthquakes causing billions of dollars in
damages. The federal government provided more than $13 billion in aid for both
earthquakes, and neither event has had 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 (the "State"), 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 interest income of New Jersey Fund, or result in the default of
existing obligations, including obligations which may be held by the Fund. The
following section provides only a brief summary of the complex factors affecting
the financial situation in New Jersey and is based on information obtained from
New Jersey, certain of its Authorities and certain other localities, as publicly
available on the date of this Statement of Additional Information. The
information contained in such publicly available documents has not been
independently verified. It should be noted that the creditworthiness of
obligations issued by local issuers may be unrelated to the creditworthiness of
New Jersey, and that there is no obligation on the part of New Jersey to make
payment on such local obligations in the event of default in the absence of a
specific guarantee or pledge provided by New Jersey.

Economic Factors

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New Jersey is the ninth largest state in population and the fifth
smallest in land area. 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 8,143,000 in 1999. Historically, New
Jersey's average per capita income has been well above the national average, and
in 1998 the State ranked second among the states in per capita personal income
($33,953).

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.

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 3.80 million in 1998. The New Jersey Dept. of Labor reports that
employment growth continued in 1999 to an estimated 3.87 million.

The annual average jobless rate has fallen from 8.5 percent in 1992, to
5.1 percent in 1997, to 4.6% in 1998, reaching an estimated 4.5% in 1999. In
June 2000, the State's unemployment rate of 3.7% was the lowest monthly rate
since the 3.6% level in February 1989. In July of 2000, the unemployment rate
increased slightly to 3.7%.

The New Jersey Department of Labor reports that on a seasonally
adjusted basis, private nonfarm employment climbed from 3.26 million in January
1999 to 3.32 million in December 1999.

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 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 145,000 in July
2000, its highest level since July 1990.

In the manufacturing sector, employment losses have continued during
the past twelve years. Total manufacturing employment in New Jersey was 672,200
in 1987, 530,400 in 1992, and 463,500 in 1999, a reduction of 31%.

Total employment in New Jersey has changed from 3.824 million in 1988,
to 3.690 million in 1992, to 4.014 million in 1999. 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, 2000 and ending June 30, 2000.

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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 are
accounted for in the General Fund. Revenues received from taxes, most Federal
revenue and certain miscellaneous revenue items are recorded in the General
Fund. The Appropriation Acts provide 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 2000 and Fiscal Year 2001 reflect the
amounts contained in the Governor's Fiscal Year 2001 Budget Message delivered on
January 24, 2000. General Fund balances for Fiscal Years 2000 and 2001 are
projected to be $206.2 million and $130.8 million. Total Undesignated Fund
balances for Fiscal Years 2000 and 2001 are projected to be $1,176.2 million and
$850.4 million.

Fiscal Years 2000 and 2001 State Revenue Estimates

The January estimate of $19.8 billion in total fiscal 2000 revenue is
$503 million more than when the Governor certified revenues in June 1999.
Revenues for fiscal 2001 are expected to increase more modestly as the national
economy slows to more sustainable long-run growth levels.

The three largest taxes, Gross Income, Sales and Use, and Corporation
Business, account for 71% of total revenues and are expected to yield $14
billion.

Sales and Use Tax. The revised estimate forecasts Sales and Use tax
collections for Fiscal Year 2000 as $5.6 billion, a 10.3% rate of growth rather
than the 5.5% rate originally expected. This reflects a stronger than expected
level of consumer and business purchases in the last half of 1999 and the
successful transition to the year 2000 without any major Y2K disruptions.

The Fiscal Year 2001 estimate of $6.0 billion, is a 7.5% increase from
the revised Fiscal Year 2000 estimate. This reflects an expectation of continued
growth, but a moderation of the underlying economic forces compared to Fiscal
Year 2000. Spending in the two key consumer sectors of housing and autos is
expected to decline slightly from high 1999 levels and then remain fairly stable
for the next two years.

Gross Income Tax. The January revised estimate forecasts Gross Income
Tax collections for Fiscal Year 2000 of $7.0 billion, an increase of $215
million over the June 1999 certified revenue estimate. Stronger than anticipated
income and employment growth in 1999 account for part of the change.

The Fiscal Year 2001 estimate of $7.6 billion is a 7.7% increase from
the Fiscal Year 2000 estimate. This assumes continuation of the strong growth in
New Jersey personal income forecasted to grow at 5.8% in 1999, 6.1% in 2000, and
5.2% in 2001. Growth in wage income, which was 7.9% in 1998 and is projected to
be 7.4% in 1999, is expected to ease back to 6.1% in 200 and 4.7% in 2001.
Capital gains income that had been growing at annual rates of 25-40% between
1995 and 1999 is expected to grow at 5% in 2000 and 9% in 2001. The tax base,
which is New Jersey Gross Income, is anticipated to grow 5.9% in 2000 after
exceptionally strong growth of 11.6% in 1998 and 8.4% in 1999, fueled in part by
the strong performance of the financial markets.

Corporation Business Tax. The Corporate Business Tax is revised down by
$44 million to $1.4 billion. Anticipated fiscal 2000 growth of 0.1% compared to
fiscal 1999 is low in part because of adjustments for one-time revenues in
fiscal 1999 and the provision of $50 million in expected refunds associated with
a new program for the transfers of unused tax credits.

The Fiscal Year 2001 estimate of $1.5 billion, is a 6.4% increase from
the Fiscal Year 2000 estimate. This increase assumes that the growth of U.S.
Corporation before-tax profits, which is a rough proxy for New Jersey business
profitability, while still positive, will be lower than in 1999. Profit growth
is anticipated to continue in the low single digits through the year 2002. Gross
payments for fiscal 2001 are expected to grow at 4% compared to the

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current 5.4%.

General Considerations. Estimated receipts from State taxes and
revenues, including the three principal taxes set forth above, are forecasts
based on the best information available at the time of such forecasts. Changes
in economic activity in the State and the nation, consumption of durable goods,
corporate financial performance and other factors that are difficult to predict
may result in actual collections being more or less than forecasted.

Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised her plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent. Under the State Constitution, no general appropriations law or other law
appropriating money for any State purpose may be enacted if the amount of money
appropriated therein, together with all other prior appropriations made for the
same fiscal year, exceeds the total amount of revenue on hand and anticipated to
be available for such fiscal year, as certified by the Governor.

SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES

The financial condition of the State of New York ("New York State" or
the "State"), its public authorities and public benefit corporations (the
"Authorities") and its local governments, particularly The City of New York (the
"City"), could affect the market values and marketability of, and therefore the
net asset value per share and the interest income of a fund, or result in the
default of existing obligations, including obligations which may be held by the
fund. The following section provides only a brief summary of the complex factors
affecting the financial situation in New York and is based on information
obtained from New York State, certain of its Authorities, the City and certain
other localities as publicly available on the date of this 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 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 1990 the City experienced strong
increases in retail sales. However, from 1991 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 2000. Much of the increase can be traced to the
performance of the securities industry, but the City's economy also produced

<PAGE>

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 a downturn.

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 and post-recession period, the economy of the
State and that of the rest of the Northeast was more heavily damaged than that
of the rest of the nation and has been slower to recover. However, the situation
has been improving in the recent years. In 1999, the employment growth rate of
the State surpassed the national growth rate for the first time in 13 years.
Although the State unemployment rate has been higher than the national rate
since 1991, the gap between them has narrowed in recent years.

The forecast of the State's economy shows continued expansion
throughout 2000. Most major sectors recorded significant employment gains for
the first half of 2000, with the services sector accounting for most of the
increase. Much of this increase occurred in business services. The employment
growth rate in 2000 exceeds the national employment growth rate and is expected
to be 2.1 percent, which, although lower than 1999's 2.6 percent, represents
another strong year for the New York labor market which has historically lagged
behind national employment trends. The unemployment rate is expected to be 4.9
percent in 2000, down from 5.1 percent in 1999.

Personal income is expected to rise 6.5 percent in 2000, with an 8.2
percent increase in wages. Two major factors are working to produce this
impressive growth in wages. One is the overall tightness in the labor market,
and the other is strong growth in financial sector bonus payments.

Given the importance of the securities industry in the New York State
economy, a significant change in stock market performance during the forecast
horizon could result in financial sector profits and bonuses that are
significantly different from those embodied in the forecast. Any actions by the
Federal Reserve Board to moderate inflation by increasing interest rates more
than anticipated may have an adverse impact in New York given the sensitivity of
financial markets to interest rate shifts and the prominence of these markets in
the New York economy. In addition, there is a possibility that
greater-than-anticipated mergers, downsizing, and relocation of firms caused by
deregulation and global competition may have a significant adverse effect on
employment growth.

On May 10, 2000, the State issued the 2000-01 Financial Plan, with an
update released on July 31, 2000 (the "Financial Plan"). The Financial Plan
forecasts General Fund receipts and transfers from other funds for the 2000-01
fiscal year to total $39.72 billion. In 2000-01, General Fund disbursements,
including transfers to support capital projects, debt service and other funds,
are estimated at $39.29 billion, an increase of more than $2 billion over the
1999-2000 fiscal year. Projected spending under the 2000-01 enacted budget is
$992 million above the Governor's Executive Budget recommendations.

The 2000-01 Financial Plan projects a closing balance in the General
Fund of $1.34 billion. This closing balance is comprised of $305 million in
reserves for collective bargaining and other purposes, $547 million in the Tax
Stabilization Reserve Fund (for use in case of unanticipated deficits), $150
million in the Contingency Reserve Fund (which helps offset litigation risks),
and $338 million in the Community Projects Fund (which finances legislative
initiatives). The closing fund balance does not include additional reserves of
$1.2 billion in the School Tax Relief (STAR) Special Revenue Fund (for future
STAR payments) and $250 million in the Debt Reduction Reserve Fund (for 2001-02
debt reduction).

Several developments arising from negotiations on the budget will
affect State finances in subsequent years. First, a portion of Legislative
additions to the 2000-01 Executive Budget will recur at higher spending levels
in 2001-02 and beyond, including increased funding for school aid, tuition
assistance, and prescription drug coverage for the elderly. Second, the
Legislature enacted the Debt Reform Act of 2000 (Debt Reform Act). The

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Debt Reform Act, which applies to new State-supported debt issued on or after
April 1, 2000, imposes caps on new debt outstanding and new debt service costs,
restricts the use of debt to capital purposes only, and restricts the maximum
term of State debt issuances to no more than 30 years. Finally, the State
adopted an additional tax relief package that will reduce tax receipts by $1.2
billion when fully effective; this package includes the elimination or reduction
of gross receipts taxes on energy ($330 million), the expansion of the "Power
for Jobs" energy tax credit program ($125 million), a college tuition deduction
or credit taken against personal income taxes ($200 million), and reduction of
the marriage penalty for taxpayers who file jointly ($200 million).

Special Considerations. Despite recent budgetary surpluses recorded by
the State, actions affecting the level of receipts and disbursements, the
relative strength of the State and regional economy, and actions by the federal
government could impact projected budget gaps for the State. These gaps would
result from a disparity between recurring revenues and the costs of increasing
the level of support for State programs. To address a potential imbalance in any
given fiscal year, the State would be required to take actions to increase
receipts and/or reduce disbursements as it enacts the budget for that year, and,
under the State Constitution, the Governor is required to propose a balanced
budget each year. There can be no assurance, however, that the Legislature will
enact the Governor's proposals or that the State's actions will be sufficient to
preserve budgetary balance in a given fiscal year or to align recurring receipts
and disbursements in future fiscal years.

Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the 2000-01 Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and events that are not
subject to the State's control. The 2000-01 Financial Plan is based upon
forecasts of national and State economic activity developed through both
internal analysis and review of national and State economic forecasts prepared
by commercial forecasting services and other public and private forecasters.
Many uncertainties exist in forecasts of both the national and 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. 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.

An additional risk to the State Financial Plan arises from the
potential impact of certain litigation and of federal disallowances now pending
against the State, which could adversely affect the State's projections of
receipts and disbursements. The State Financial Plan assumes no significant
litigation or federal disallowance or other federal actions that could affect
State finances, but has significant reserves in the event of such an action.

Revenue Base. The State's principal revenue sources are economically
sensitive, and include the personal income tax, user taxes and fees and business
taxes. Total General Fund receipts and transfers from other funds in 2000-01 are
projected to be $39.72 billion, an increase of $2.32 billion from the $37.40
billion recorded in 1999-2000. This total includes $36.35 billion in tax
receipts, $1.34 billion in miscellaneous receipts, and $2.03 billion in
transfers from other funds. The transfer of $3.4 billion in net resources
through the tax refund reserve account from 1999-2000 to the 2000-01 fiscal
period has the effect of exaggerating the growth in State receipts from year to
year by depressing reported 1999-2000 figures and inflating 2000-01 projections.

The Personal Income Tax is imposed on the income of individuals,
estates and trusts and is based, with certain modifications, on federal
definitions of income and deductions. Net General Fund personal income tax
collections are projected to reach $24.33 billion in 2000-01, well over half of
all General Fund receipts and nearly $4 billion above the reported 1999-2000
collection total. Much of this increase is associated with the $3.4 billion net
impact of the transfer of the surplus from 1999-2000 to the current year as
partially offset by the diversion of an additional $1.99 billion in income tax
receipts to the STAR Fund. The STAR program was created in 1998 as a
State-funded local property tax relief program funded through the use of
personal income tax receipts. Adjusted for these transactions, the growth in net
income tax receipts is roughly $1.3 billion, an increase of nearly 5 percent.
This growth is largely a function of two factors: (i) the 9 percent growth in
income tax liability projected for tax year

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2000; and (ii) the impact of the 1999 tax year settlement recorded early in this
fiscal year. The most significant statutory changes made this fiscal year
provide for: an increase, phased in over two years, in the earned income tax
credit from 25 percent to 30 percent of the federal credit; a three-year
phased-in reduction of the marriage penalty; a four-year phased-in deduction or
credit for college tuition; and enhancement of the child and dependent care
credit effective January 1, 2000.

User taxes and fees are comprised of three-quarters of the State's four
percent sales and use tax, cigarette, tobacco products, alcoholic beverage, and
auto rental taxes, and a portion of the motor fuel excise levies. This category
also includes receipts from the motor vehicle fees and alcoholic beverage
license fees. Dedicated transportation funds outside of the General Fund receive
a portion of the motor fuel tax and motor vehicle registration fees and all of
the highway use taxes and fees. Receipts from user taxes and fees are projected
to total $7.02 billion, a decrease of $583 million below reported collections in
1999-2000.

The sales tax and cigarette tax components of this category account for
virtually all of the 2000-01 decline. Growth in base sales tax yield, after
adjusting for tax law changes and other factors, is projected at 4.5 percent.
The projected decrease in sales tax cash receipts of 3.4 percent reflects, in
large part, the impact of the permanent exemption for clothing and footwear
items costing under $110. Cigarette tax and tobacco products tax receipts are
projected to decline by $146 million primarily due to reduced taxable
consumption associated with the increase in the cigarette tax of 55 cents per
pack imposed on March 1, 2000. The decline in the motor fuel taxes and motor
vehicle fees in the General Fund largely reflect the increased dedication of
these revenue sources to the Dedicated Highway and Bridge Trust Fund and the
Dedicated Mass Transportation Trust Fund. Alcoholic beverage taxes are expected
to decline modestly, consistent with historical trends. Alcoholic beverage
license fees are projected to increase significantly as 2000-01 is the final
year in the transition to the new license renewal schedule. A modest increase in
auto rental tax receipts over 1999-2000 levels is projected.

Business taxes include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as gross
receipts-based taxes on utilities and gallonage-based petroleum business taxes.

Total business tax collections in 2000-01 are now projected to be $4.23
billion, $332 million below results for the prior fiscal year. The category
includes receipts from: (1) franchise tax levies imposed on general business
corporations, banks, and insurance companies; (2) gross receipts taxes on energy
and telecommunication service providers; and (3) a tax imposed at various rates
on petroleum businesses.

The year-over-year decline in projected receipts in business tax
collections is largely attributable to statutory changes. These include the
first year impact of a scheduled bank and insurance franchise tax rate
reduction, a reduction in the cap on tax liability for non-life insurers, and
the expansion of the economic development zone (renamed Empire Zones, effective
May 19, 2000) and zone equivalent areas tax credits. Ongoing tax reductions
include the second year of the corporation franchise rate reduction, the gross
receipts tax rate cut from 3.25 percent to 2.5 percent, the continuation of the
"Power for Jobs" program, and the use of tax credits for investments in
certified capital companies.

Legislation enacted this fiscal year affecting receipts in this
category include: a phased reduction in the gross receipts tax, an expansion of
the "Power for Jobs" program, expansion of the tax credit for investments in
certified capital companies, establishment of the Empire Zones program, reforms
to allocation rules for financial service companies, tax rate reductions for
small businesses and S-corporations, a new tax credit for investments in "green
buildings," and a new tax credit for investment in low and moderate-income
housing.

Other taxes include the estate and gift tax, the real property gains
tax and pari-mutuel taxes. Other tax receipts are now projected to total $766
million, $341 million below 1999-2000 levels. The primary factors accounting for
this decline are legislation enacted previously that repealed both the real
property gains tax and the gift tax, and significantly reduced estate tax rates,
and the incremental effects of tax reductions in the pari-mutuel tax.

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

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miscellaneous receipts are expected to reach $1.34 billion, down $309 million
from the prior year amount. This reflects the absence in 2000-01 of
non-recurring receipts received in 1999-2000 and the phase-out of the medical
provider assessments, completed in January 2000. The State Comptroller has
restated medical provider assessments in the General Fund, which has the effect
of increasing reported miscellaneous receipts and spending in grants to local
governments by $120 million in 1997-98 and $82 million in 1998-99.

Transfers from other funds to the General Fund consist primarily of tax
revenues in excess of debt service requirements, including the one percent sales
tax used to support payments to Local Government Assistance Corporation (LGAC).
Transfers from other funds are expected to total $2.03 billion, or $108 million
less than total receipts from this category during 1999-2000. Total transfers of
sales taxes in excess of LGAC debt service requirements are expected to decrease
by $74 million consistent with the sales tax projections described above, while
transfers from all other funds are expected to decrease by $34 million.

State Debt. The State's 2000-01 borrowing plan projects issuances of
$367 million in general obligation bonds, including $45 million for purposes of
redeeming the remaining outstanding BANs. The State does not anticipate issuing
new BANs during the 2000-01 fiscal year. The State is expected to issue up to
$276 million in COPs to finance equipment purchases (including costs of
issuance, reserve funds, and other costs) during the 2000-01 fiscal year. Of
this amount, it is anticipated that approximately $76 million will be used to
finance agency equipment acquisitions. Approximately $200 million is expected to
finance the purchase of new welfare computer systems designed to improve case
management, fraud detection and child support collection capabilities.

Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.91 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 2000-01.

Nonrecurring Sources. The Division of the Budget estimates that the
2000-01 Financial Plan contains new actions in the enacted budget that provide
non-recurring resources totaling approximately $36 million, excluding use of the
1999-2000 surplus.

Outyear Projections of Receipts and Disbursements. State law requires
the Governor to propose a balanced budget each year. Preliminary analysis by the
Division of Budget indicates that the State will have a 2001-02 budget gap of
approximately $2 billion, which is comparable with gaps projected following
enactment of recent budgets. This estimate includes the projected costs of new
collective bargaining agreements, no assumed operating efficiencies, and the
planned application of approximately $1.2 billion in STAR tax reduction
reserves.

In recent years, the State has closed projected budget gaps which have
ranged from $5 billion to less than $1 billion (as estimated by the Division of
Budget). Sustained growth in the State's economy could contribute to closing
potential budget imbalances over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. Savings from initiatives by State agencies to deliver services more
efficiently, workforce management efforts, and maximization of federal and
non-General Fund spending offsets could also help bring projected disbursements
and receipts into balance.

The Division of the Budget will formally update its projections of
receipts and disbursements for future years as part of the Governor's 2001-02
Executive Budget submission. The revised expectations for these years will
reflect updated estimates of receipts and disbursements as well as new 2001-02
Executive Budget recommendations.

Tobacco Settlement Proceeds and Uses. On November 23, 1998, the
attorneys general for forty-six states (including New York) entered into a
master settlement agreement (MSA) with the nation's largest tobacco
manufacturers. Under the terms of the MSA, the states agreed to release the
manufacturers from all smoking-related claims in exchange for specified payments
and the imposition of restrictions on tobacco advertising and marketing. New
York is projected to receive $25 billion over 25 years under the MSA, with
payments apportioned among the State (51 percent), counties (22 percent), and
New York City (27 percent). The projected payments (but not the apportionment of
the payments) are an estimate and subject to adjustments for, among other
things, the annual

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change in the volume of cigarette shipments and the rate of inflation. From
1999-2000 through 2002-03, the State expects to receive $1.54 billion under the
nationwide settlement with cigarette manufacturers. Counties, including New York
City, are projected to receive settlement payments of $1.47 billion over the
same period.

The 2000-01 Financial Plan utilizes certain resources from HCRA 2000,
the successor legislation to the Health Care Reform Act of 1996. HCRA 2000
continues the negotiated reimbursement system for non-governmental payors, and
provides funding for, among other things, graduate medical education, indigent
care, and the expansion of health insurance coverage for uninsured adults and
children. HCRA 2000 will help finance several health-related programs, including
prescription drug assistance for the elderly, supplemental Medicare insurance,
and other public health services that were previously funded from the General
Fund. Programs under HCRA 2000 will be financed with revenues generated from the
financing mechanisms continued from HCRA 1996, a share of the State's tobacco
settlement and revenues from an increased excise tax on cigarettes.

The State plans to use $1.29 billion in tobacco settlement money over
the next three years to finance health programs under HCRA 2000 ($1.01 billion)
and projected increased costs in Medicaid ($274 million). The remaining $250
million in one-time tobacco payments from 1999-2000 will be deposited to DRRF.

Labor Costs. The State government workforce is mostly unionized,
subject to the Taylor Law which authorizes collective bargaining and prohibits
(but has not, historically, prevented) strikes and work slowdowns. Costs for
employee health benefits have increased substantially, and can be expected to
further increase. The State has completed or is currently negotiating with
various unions to establish new agreements as most of the labor contracts
expired on March 31, 1999. The 2000-01 Financial Plan has reserved sufficient
money for the added costs incurred under collective bargaining agreements, and
reserves are contained in the preliminary outyear projections for 2001-02 to
cover the projected recurring costs of new agreements.

Since January 1995, the State's workforce has been reduced by about 10
percent, and is projected to be approximately 195,000 persons in 2000-01.

Public Assistance. Spending on welfare is projected in the 2000-01
fiscal year at $1.20 billion, a decline of $77 million 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.

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.

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
$5.59 billion in 2000-01.

<PAGE>

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, 1999,
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 $95 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.

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
Queens Counties, as part of an estimated $7 billion financing plan. As of May
31, 2000, LIPA has issued over $7 billion in bonds secured solely by ratepayer
charges. LIPA's debt is not considered either State-supported or State-related
debt.

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. The 2000-01 enacted budget
provides State assistance to the MTA totaling approximately $1.35 billion and
initiates a five-year State transportation plan that includes nearly $2.2
billion in dedicated revenue support for the MTA's capital plan for the 2000
through 2004 calendar years (the "2000-04 Capital Program"). This capital
commitment includes an additional $800 million of newly dedicated State
petroleum business tax revenues, motor vehicle fees and motor fuel taxes not
previously dedicated to the MTA.

State legislation accompanying the 2000-01 adopted State budget
authorized the MTA, Triborough Bridge and Tunnel Authority and Transit Authority
to issue an aggregate of $16.5 billion in bonds to finance a portion of the
$17.1 billion 2000-04 Capital Program. On May 4, 2000, the Capital Program
Review Board (CPRB) approved the 2000-04 Capital Program, which is the fifth
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, bringing the MTA
system into a state of good repair, and making major investments in system
expansion projects.

The 2000-04 Capital Program assumes the issuance of an estimated $8.9
billion in bonds under this

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$16.5 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. In addition, the enacted State budget authorized
the MTA to undertake a major debt restructuring initiate which will enable the
MTA to refund approximately $13.7 billion in bonds, consolidate its credit
sources, and obviate the need for debt service reserves. The authorization for
debt restructuring includes outstanding bonds secured by service contract with
the State.

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 2000-04 Capital
Program, or parts thereof, will not be delayed or reduced. Should funding levels
fall below current projections, the MTA would have to revise its 2000-04 Capital
Program accordingly. If the 2000-04 Capital Program is delayed or reduced,
ridership and fare revenues may decline, which could 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 reimpose a control period upon the occurrence, or
"substantial likelihood and imminence' of the occurrence, of certain events,
including (but not limited to) a City operating budget deficit of more than $100
million or impaired access to the public credit markets.

The City provides services usually undertaken by counties, school
districts or special districts in other large urban areas, including the
provision of social services such as day care, foster care, health care, family
planning, services for the elderly and special employment services for needy
individuals and families who qualify for such assistance. State law requires the
City to allocate a large portion of its total budget to Board of Education
operations, and mandates that the City assume the local share of public
assistance and Medicaid costs. For each of the 1981 through 1999 fiscal years,
the City achieved balanced operating results as reported in accordance with then
applicable generally accepted accounting principles ("GAAP"). The City was
required to close substantial budget gaps between forecasted revenues and
forecasted expenditures 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

<PAGE>

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.

In January of 1999, the City released the Financial Plan for fiscal
years 2000-2003. It projects total revenues in FY 2000 of $35.46 billion, of
which federal categorical grants provide $3.9 billion and State categorical
grants provide $7.0 billion. The City's Financial Plan projects that
expenditures will grow to $38.21 billion in FY 2003. While the Financial Plan
projects revenues and expenditures for the 2000 fiscal year balanced in
accordance with GAAP, it projects budget gaps of $1.44 billion, $1.64 billion
and $1.17 billion in the 2001, 2002 and 2003 fiscal years, respectively.

Although the City has maintained balanced budgets in each of its last
nineteen fiscal years and is projected to achieve balanced operating results for
the 2000 fiscal year, there can be no assurance that the gap closing actions
proposed in the Financial Plan can be successfully implemented or that the City
will maintain a balanced budget in future years without additional State aid,
revenue increases or expenditure reductions. Additional tax increases and
reductions in essential City services could adversely affect the City's economic
base.

The 1999-2003 Financial Plan reflects the goal of boosting local
economic activity by providing a wide array of tax relief. To that end, 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, respectively.

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 1999,
while unrestricted Federal aid has been sharply reduced. The City projects that
local revenues will provide approximately 67.6% of total revenues in FY 2000,
while federal and State aid, including unrestricted aid and categorical grants,
will provide 32.4% 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 $500 million of short term obligations
in fiscal year 1999 to finance the City's projected cash flow needs for the 1999
fiscal year. In previous years, the City's short term obligations have been
$1.075 billion, $2.4 billion, $2.4 billion and $2.2 billion in fiscal years
1998, 1997, 1996 and 1995, 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,
rehabilitate and expand 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 Program 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 of the City. During the 2000 legislative session, the
State enacted legislation that increased the borrowing authority of the TFA by
$4 billion, to $11.5 billion, which the City expects will provide

<PAGE>

sufficient financing capacity to continue its capital program over the next four
fiscal years. Similarly, in 1999, the City created TSASC, Inc., a not-for-profit
corporation, empowered to issue tax-exempt debt backed by tobacco settlement
revenues. TSASC, Inc. is expected to issue approximately $2.8 billion of bonds.

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.

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.

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 for the State's 2000-01 fiscal year.

To help resolve persistent fiscal difficulties in Nassau County the
State enacted legislation creating the Nassau County Interim Finance Authority.
The Authority is empowered to issue bonds, backed solely by diverted Nassau
County sales tax revenues, to achieve short-term budget relief and ensure credit
market access for the County. The Authority may also impose financial plan
requirements on Nassau County. The State has appropriated $30 million in
transitional assistance to the County for State fiscal year 2000-01, and the
Governor has proposed providing up to $75 million in State assistance over the
next four State fiscal years. Allocation of any such assistance is contingent
upon the Authority's approval of Nassau County's financial plan.

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, and in
2000-01 totals $200.4 million. The 2000-01 enacted budget also increased General
Purpose State Aid for local governments by $11 million to $562 million.

While the distribution of General Purpose State Aid for local
governments was originally based on a statutory formula, in recent years both
the total amount appropriated and the shares appropriated to specific localities
have been determined by the Legislature. A State commission established to study
the distribution and amounts of general purpose local government aid failed to
agree on any recommendations for a new formula.

<PAGE>

Counties, cities, towns, villages, school districts and fire districts
have engaged in substantial short-term and long-term borrowings. In 1998, the
total indebtedness of all localities in the State, other than New York City, was
approximately $20.3 billion. A small portion (approximately $80 million) of that
indebtedness represented borrowing to finance budgetary deficits and was issued
pursuant to enabling State legislation. State law requires the Comptroller to
review and make recommendations concerning the budgets of those local government
units (other than New York City) authorized by State law to issue debt to
finance deficits during the period that such deficit financing is outstanding.
Twenty-three localities had outstanding indebtedness for deficit financing at
the close of their fiscal year ending in 1998.

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, Nassau County, 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.

Other Issuers of New York Municipal Obligations. There are a number of
State agencies, instrumentalities and political subdivisions of the State that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State. For example, the
repayment of securities secured by real property may be affected by New York
laws with respect to foreclosure rights of creditors. Securities backed by the
revenues of a particular multi-family rental project or other project are
subject to the feasibility of such project. Securities backed by health care and
hospital revenues may be affected by changes in regulations governing cost
reimbursements to health care providers under the federal and State laws, the
expansion of the role of managed care companies, and competition and
consolidation occurring in the health care industry.

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. With regard to the borrowings limitation in
fundamental limitation (2), each fund will comply with the applicable
restrictions of Section 18 of the Investment Company Act.

Each fund will not:

(1) purchase any security if, as a result of that purchase, 25% or
more of the fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except that
this limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities or to
certificates of deposit and bankers' acceptances of domestic branches of U.S.
banks.

The following interpretations apply to, but are not a part of, this
fundamental limitation: 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

<PAGE>

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 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.

California Municipal Money Fund's investment policy of investing at
least 80% of its net assets in California municipal securities and the similar
investment policy of New York Municipal Money Fund relating to

<PAGE>

investments in New York municipal securities may not be changed without approval
of the appropriate fund's shareholders. New Jersey Municipal Money Fund's
investment policy of investing at least 65% of its total assets in New Jersey
municipal securities may not be changed without approval of its shareholders.

NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are
not fundamental and may be changed by each board without shareholder approval.
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 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;
PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP 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.

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:

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS; AGE CORPORATIONS/TRUSTS BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
<S> <C> <C>
Margo N. Alexander*'D'; 53 Director/Trustee and Mrs. Alexander is Chairman (since March
President 1999), chief executive officer and a director
of Mitchell Hutchins (since January 1995),
and an executive vice president and a
director of PaineWebber (since March 1984).
Mrs. Alexander is president and a director or
trustee of 30 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.

Richard Q. Armstrong; 66 Director/Trustee Mr. Armstrong is chairman and principal of
R.Q.A. Enterprises R.Q.A. Enterprises (management consulting
One Old Church Road-Unit #6 firm) (since April 1991 and principal
Greenwich, CT 06830 occupation since March 1995). Mr. Armstrong
was chairman of the board, chief executive
officer and co-owner of Adirondack Beverages
(producer and distributor of soft drinks and
sparkling/still waters) (October 1993-March
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 29 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.

E. Garrett Bewkes, Jr.**'D'; 73 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
1996, he was a consultant to PW Group. He
serves as a consultant to PaineWebber (since
May 1999). 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 40 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>
Richard R. Burt; 53 Director/Trustee Mr. Burt is chairman of IEP Advisors, LLP
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), six investment companies in the
Deutsche Bank family of funds, nine
investment companies in the Flag Investors
family of funds, The Central European Fund,
Inc. and The Germany Fund, Inc., vice
chairman of Anchor Gaming (provides
technology to gaming and wagering industry)
(since July 1999) and chairman of Weirton
Steel Corp. (makes and finishes steel
products) (since April 1996). He was the
chief negotiator in the Strategic Arms
Reduction Talks with the former Soviet Union
(1989-1991) and the U.S. Ambassador to the
Federal Republic of Germany (1985-1989). Mr.
Burt is a director or trustee of 29
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Mary C. Farrell**'D'; 50 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
$treet Week with Louis Rukeyser. She also
serves on the Board of Overseers of New York
University's Stern School of Business. Ms.
Farrell is a director or trustee of 28
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>

<PAGE>

George W. Gowen; 70 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 37 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; 63 Director/Trustee Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Ave., N.W. Partners (merchant bank) and chairman of
Suite 350 Thayer Hotel Investors II and Lodging
Washington, D.C. 20004 Opportunities Fund (hotel investment
partnerships). From January 1992 to November
1992, he was campaign manager of Bush-Quayle
`92. From 1990 to 1992, he was vice chairman
and, from 1989 to 1990, he was president of
Northwest Airlines Inc. 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 Aegis
Communications, Inc. (tele-services),
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), SAGA Systems, Inc. (software company)
and Northwest Airlines Inc. Mr. Malek is a
director or trustee of 29 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>
Carl W. Schafer; 64 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 Labor Ready,
Inc. (temporary employment), Roadway Express,
Inc. (trucking), The Guardian Group of Mutual
Funds, the Harding, Loevner Funds, E.I.I.
Realty Trust (investment company), 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 29 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.

Brian M. Storms*'D'; 45 Director/Trustee Mr. Storms is president and chief operating
officer of Mitchell Hutchins (since March
1999). Mr. Storms 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 29 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.

Thomas Disbrow***; 34 Vice President and Mr. Disbrow is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
department of Mitchell Hutchins. Prior to
November 1999, he was a vice president of
Zweig/Glaser Advisers. Mr. Disbrow is a vice
president and assistant treasurer of 30
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Elbridge T. Gerry III*; 43 Vice President Mr. Gerry is a managing director and a
(Managed Municipal Trust) portfolio manager of Mitchell Hutchins. Prior
to January 1996, he was with J.P. Morgan
Private Banking where he was responsible for
managing municipal assets, including several
municipal bond funds. Mr. Gerry is a vice
president of six 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>
John J. Lee***; 32 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 30 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.

Kevin J. Mahoney***; 34 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 30 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.

Dennis McCauley*; 53 Vice President Mr. McCauley is a managing director and chief
investment officer--fixed income of Mitchell
Hutchins. Mr. McCauley is a vice president of
20 investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Kevin P. McIntyre*; 33 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 two
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Ann E. Moran***; 43 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 30
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>
Dianne E. O'Donnell**; 48 Vice President and Ms. O'Donnell is a senior vice president and
Secretary deputy general counsel of Mitchell Hutchins.
Ms. O'Donnell is a vice president and
secretary of 30 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.

Susan P. Ryan*; 40 Vice President Ms. Ryan is a senior vice president and a
(Money Fund) portfolio manager of Mitchell Hutchins. Ms.
Ryan is a vice president of six investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.

Paul H. Schubert***; 37 Vice President and Mr. Schubert is a senior vice president and
Treasurer the director of the mutual fund finance
department of Mitchell Hutchins. Mr. Schubert
is a vice president and treasurer of 30
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Barney A. Taglialatela***; 39 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance department
of Mitchell Hutchins. Mr. Taglialatela is a
vice president and assistant treasurer of 30
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Debbie Vermann*; 41 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 four
Money Market Series) investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Keith A. Weller**; 39 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Mr. Weller is a vice president and
assistant secretary of 29 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.

</TABLE>

<PAGE>

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

* This person's business address is 51 West 52nd Street, New York, New York
10019-6114.

** This person's business address is 1285 Avenue of the Americas, New York, New
York 10019-6028

*** This person's business address is Newport Center III, 499 Washington Blvd.,
14th Floor, Jersey City, New Jersey 07310-1998.

'D' 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 attending 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 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 periods indicated:

COMPENSATION TABLE'D'

<TABLE>
<CAPTION>
Aggregate Compensation From
-------------------------------------------
Municipal Total
Managed Money Compensation
Money Tax-Free Municipal Market from the
Name of Persons, Position Fund* Fund* Trust* Series* Fund Complex**
----- ----- ------ ------- --------------
<S> <C> <C> <C> <C> <C>
Richard Q. Armstrong
Director/Trustee ........... $5,340 $ $3,560 $1,780 $104,650
1,780

Richard R. Burt
Director/Trustee ........... 5,340 1,780 3,560 1,780 102,850

Meyer Feldberg,
Director/Trustee ........... 5,340 1,780 3,560 1,780 143,650

George W. Gowen,
Director/Trustee ........... 6,495 2,165 4,330 2,165 138,400

Frederic V. Malek,
Director/Trustee ........... 5,340 1,780 3,560 1,780 104,650

Carl W. Schafer
Director/Trustee ... ....... 5,250 1,750 3,500 1,780 104,650
</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.

* Represents fees paid to each board member during the fiscal years ended June
30, 2000.

** Represents total compensation paid to each board member during the calendar
year ended December 31, 1999 by 31 investment companies (34 in the case of
Messrs. Feldberg and Gowen) for which Mitchell

<PAGE>

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 and Management Ownership of Securities. As of July
31, 2000 the following funds records show the following shareholders as owning
5% or more of the funds.

<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned as of
Name and Address* July 31, 2000
<S> <C>
New Jersey Municipal Money Fund
Estate of Rita Cohenc 5.88%
Deborah Shah, Jennifer Cohen, Justin Cohen, Mal Barasch Exec

Raymond Mackay 9.37%

U.S. Government Portfolio
Frank Wilkens 5.95%
</TABLE>

----------

* Each shareholder listed above may be contacted c/o Mitchell Hutchins Asset
Management Inc., 51 West 52nd Street, New York, NY 10019-6114.

As of July 31, 2000, directors/trustees and officers owned in the
aggregate less than 1% of the outstanding shares of each fund.

INVESTMENT ADVISORY, ADMINISTRATION
AND DISTRIBUTION ARRANGEMENTS

Investment Advisory and Administration Arrangements. PaineWebber acts
as the funds' investment adviser and administrator pursuant to separate
contracts with RMA Money Fund, RMA Tax-Free Fund, Managed Municipal Trust and
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%
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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,
--------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Money Market Portfolio ..................... $76,257,056 $63,667,860 $50,859,070
U.S. Government Portfolio .................. 6,373,194 5,807,770 5,010,616
Tax-Free Fund .............................. 11,477,703 10,937,156 10,111,111
California Municipal Money Fund............. 3,006,607 2,901,051 2,667,404
New Jersey Municipal Money Fund............. 468,952 325,942 294,352
New York Municipal Money Fund .............. 2,080,465 1,999,790 1,673,724
($5,113
waived)
</TABLE>

Under the terms of the PaineWebber Contracts, each fund bears all
expenses incurred in its operation that are not specifically assumed by
PaineWebber. General expenses of a Corporation or Trust not readily identifiable
as belonging to a specific fund or to any other series of the Corporation or
Trust are allocated among series by or under the direction of the Corporation's
or Trust's board in such manner as the board deems fair and equitable. Expenses
borne by the funds include the following (or each fund's share of the
following): (1) the cost (including brokerage commissions and other transaction
costs, if any) of securities purchased or sold by the funds and any losses
incurred in connection therewith, (2) fees payable to and expenses incurred on
behalf of the funds by PaineWebber, (3) organizational expenses, (4) filing fees
and expenses relating to the registration and qualification of the shares of the
funds under federal and state securities laws and maintaining such registrations
and qualifications, (5) fees and salaries payable to the board members and
officers who are not interested persons of a Corporation or a Trust, or of
PaineWebber, (6) all expenses incurred in connection with the board members'
services, including travel expenses, (7) taxes (including any income or
franchise taxes) and governmental fees, (8) costs of any liability,
uncollectable items of deposit and other insurance or fidelity bonds, (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against a Corporation or Trust, or a fund for violation of
any law, (10) legal, accounting and auditing expenses, including legal fees of
special counsel for those board members who are not interested persons of a
Corporation or Trust, (11) charges of custodians, transfer agents and other
agents, (12) expenses of setting in type and printing prospectuses and
supplements thereto, reports and statements to shareholders and proxy material
for existing shareholders, (13) costs of mailing prospectuses and supplements
thereto, statements of additional information and supplements thereto, reports
and proxy materials to existing shareholders, (14) any extraordinary expenses
(including fees and disbursements of counsel, costs of actions, suits or
proceedings to which a Corporation or Trust is a party and the expenses a
Corporation or Trust may incur as a result of its legal obligation to provide
indemnification to its officers, board members, agents and shareholders)
incurred by a fund, (15) fees, voluntary assessments and other expenses incurred
in connection with membership in investment company organizations, (16) costs of
mailing and tabulating proxies and costs of 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

<PAGE>

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.

Under separate contracts with PaineWebber with respect to Money Fund,
Tax-Free Fund, Managed Municipal Trust and Municipal Money Market Series
("Mitchell Hutchins Contracts"), Mitchell Hutchins serves as each fund's
sub-adviser and sub-administrator. Under the Mitchell Hutchins Contracts,
PaineWebber (not the funds) pays Mitchell Hutchins fees, computed daily and paid
monthly, at an annual rate of 20% of the fee paid by each fund to PaineWebber
under the PaineWebber Contracts.

For the periods indicated, PaineWebber paid (or accrued) to Mitchell
Hutchins the following fees.

<TABLE>
<CAPTION>
For the Fiscal Years Ended June 30,
--------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Money Market Portfolio ................. $15,251,411 $12,733,572 $10,171,814
U.S. Government Portfolio .............. 1,274,639 1,161,554 1,002,123
Tax-Free Fund .......................... 2,295,541 2,187,431 2,022,222
California Municipal Money Fund ........ 601,321 580,210 533,481
New Jersey Municipal Money Fund ........ 93,790 65,188 58,870
New York Municipal Money Fund .......... 416,093 399,958 333,722
</TABLE>

Securities Lending. During the fiscal years ended June 30, 2000, 1999
and 1998, funds paid (or accrued) no fees to PaineWebber for its services as
securities lending agent because the Funds did not engage in any securities
lending activities.

Transfer-Agency Related Services. 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. 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 during
the one month period ended July 31, 1998:

<PAGE>

1998
----
<S> <C>
Money Market Portfolio............................................ $156,077
U.S. Government Portfolio......................................... 12,249
Tax-Free Fund..................................................... 20,345
California Municipal Money Fund................................... 4,546
New York Municipal Money Fund..................................... 3,402
</TABLE>

Net Assets. The following table shows the approximate net assets as of
July 31, 2000, 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.

Net Assets
Investment Category ($ Mil)
------------------- ----------
<S> <C>
Domestic (excluding Money Market).................................. 9,156.5
Global............................................................. . 4,703.4
Equity/Balanced.................................................... 9,585.7
Fixed Income (excluding Money Market).............................. 4,274.2
Taxable Fixed Income...................................... 2,859.4
Tax-Free Fixed Income..................................... 1,414.8
Money Market Funds................................................. 39,450.0
</TABLE>

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. PaineWebber is located at 1285 Avenue of the
Americas, New York, New York 10019-6028. 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 in the manner prescribed by Rule
12b-1 under the Investment Company Act ("Plan"), each fund (other than Money
Market Portfolio) pays PaineWebber a service fee, computed daily and payable
monthly. Under its Plan, New Jersey Municipal Money Fund pays service fees to
PaineWebber at the annual rate of 0.12% of its average daily net assets. Each
other fund currently pays service fees to PaineWebber at the annual rate of
0.125% of its average daily net assets, although its Plan authorizes it to pay
service fees to PaineWebber at an annual rate of up to 0.15%. Any increase from
the 0.125% annual rate would require prior approval of the applicable board.

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

<PAGE>

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.

The funds paid (or accrued) the following service fees to PaineWebber
under the Plans during the fiscal year ended June 30, 2000:

<TABLE>
<S> <C>
U.S. Government Portfolio..................................... $1,942,079
Tax-Free Fund................................................. 3,360,315
California Municipal Money Fund............................... 803,013
New Jersey Municipal Money Fund............................... 112,549
New York Municipal Money Fund................................. 539,907
</TABLE>

PaineWebber estimates that it incurred the following shareholder
service-related expenses with respect to each fund during the fiscal year ended
June 30, 2000:

<TABLE>
<CAPTION>
Service Fees paid to RMA
PaineWebber Service Allocated
Financial Advisors Center Costs
-------------------- ---------- ----------
<S> <C> <C> <C>
U.S. Government Portfolio............................... $310,929 $137,750 $144,250
Tax-Free Fund........................................... 538,007 137,750 246,250
California Municipal Money Fund......................... 128,482 137,750 85,500
New Jersey Municipal Money Fund......................... 18,758 137,750 26,500
New York Municipal Money Fund........................... 86,386 137,750 65,000
</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

<PAGE>

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.

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.

During the fiscal years ended June 30, 2000, 1999 and 1998, the funds
paid no brokerage commissions. Therefore, the funds have not allocated any
brokerage transactions for research, analysis, advice and similar services.

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 in a manner 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.

Holdings of Regular Broker-Dealers

As of June 30, 2000, 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 $ 397,425,264
Goldman Sachs Group Incorporated Commercial paper 526,573,258
Merrill Lynch & Company Incorporated Commercial paper 49,063,583
Merrill Lynch & Company Incorporated Short-term obligations 299,986,582
Morgan Stanley Dean Witter & Company Commercial paper 194,416,042
Morgan Stanley Dean Witter & Company Short-term obligations 128,702,546
</TABLE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Additional Purchase Information. Each fund may, subject to approval by
its board, accept securities in which the fund is authorized to invest as
consideration for the issuance of its shares, provided that the value of

<PAGE>

the securities is at least equal to the net asset value of the fund's shares at
the time the transaction occurs. A fund may accept or reject any such securities
in its discretion.

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.

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 the 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 ("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

<PAGE>

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.

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:

<TABLE>
<S> <C>
P(1 + T)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.
</TABLE>

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 may also advertise other performance data, which may consist
of the annual or cumulative return (including short-term capital gain, if any)
earned on a hypothetical investment in the fund since it began operations or for
shorter periods. This return data may or may not assume reinvestment of
dividends (compounding).

The 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.

<TABLE>
<CAPTION>
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) (2/1/91) (11/10/88)
--------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended June 30, 2000:
Standardized Return......... 5.29% 4.88% 3.10% 2.60% 2.72% 2.93%
Five Years ended June 30, 2000:
Standardized Return......... 5.11% 4.86% 2.99% 2.71% 2.57% 2.83%
Ten Years ended June 30, 2000
or (if less) life of fund:
Standardized Return......... 4.83% 4.58% 3.01% 2.77% 2.54% 2.79%
</TABLE>

<PAGE>

YIELD. Each fund computes its yield and effective yield quotations
using standardized methods required by the SEC. Each fund from time to time
advertises (1) its current yield based on a recently ended seven-day period,
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from that shareholder account, dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return and then multiplying the base period return by (365/7), with the
resulting yield figure carried to at least the nearest hundredth of one percent;
and (2) its effective yield based on the same seven-day period by compounding
the base period return by adding 1, raising the sum to a power equal to (365/7),
and subtracting 1 from the result, according to the following formula:

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:

( E )
TAX EQUIVALENT YIELD = (-----) + 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, 2000:

<TABLE>
<CAPTION>
EFFECTIVE
YIELD YIELD
----- -----
<S> <C> <C>
Money Market............................... 6.02% 6.20%
U.S. Government Portfolio.................. 5.61% 5.77%
Tax-Free Fund.............................. 3.93% 4.00%
California Municipal Money Fund............ 3.46% 3.52%
New Jersey Municipal Money Fund............ 3.52% 3.58%
New York Municipal Money Fund.............. 3.34% 3.40%
</TABLE>

The following tax equivalent yields are based, in each case, on the
maximum individual tax rates and are also for the seven-day period ended June
30, 2000:

<TABLE>
<CAPTION>
TAX EQUIVALENT TAX EQUIVALENT
YIELD EFFECTIVE YIELD
----- ---------------
<S> <C> <C>
Tax-Free Fund (assuming a federal tax rate of 39.6%)......... 6.50% 6.63%

California Municipal Money Fund (assuming a combined federal
</TABLE>

<PAGE>

<TABLE>

<S> <C> <C>
and California State tax rate of 45.22%)................ 6.32% 6.43%

New Jersey Municipal Money Fund (assuming a combined federal
and New Jersey State tax rate of 43.45%.................. 6.23% 6.34%

New York Municipal Money Fund (assuming a combined federal,
New York State and New York City tax rate of 46.05%..... 6.19% 6.30%

New York Municipal Money Fund (assuming an effective
combined federal and New York State tax rate of 43.74%). 5.94% 6.04%
</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 Smith Barney 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'r'. 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.

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

<PAGE>

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. If a fund failed to qualify for
treatment as a RIC for any taxable year, (1) it would be taxed as an ordinary
corporation on the full amount of its taxable income for that year without being
able to deduct the distributions it makes to its shareholders and (2) the
shareholders would treat all those distributions, including distributions that
otherwise would be "exempt-interest dividends" described in the following
paragraph, as dividends (that is, ordinary income) to the extent of the fund's
earnings and profits. In addition, the fund could be required to recognize
unrealized gains, pay substantial taxes and interest and make substantial
distributions before requalifying for RIC treatment.

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 those bonds, a proportionate part
of the exempt-interest dividends paid by that fund) is an item of tax preference
for purposes of the federal alternative minimum tax ("AMT"). Exempt-interest
dividends received by a corporate shareholder also may be indirectly subject to
the AMT 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 its
shareholders as ordinary income to the extent of its earnings and profits and
only the remaining portion will qualify as an exempt-interest dividend. The
respective portions will be determined by the "actual earned" method, under
which the portion of any dividend that qualifies as an exempt-interest dividend
may vary, depending on the relative proportions of tax-exempt and taxable
interest earned during the dividend period. Moreover, if a municipal fund
realizes capital gain as a result of market transactions, any distribution of
that gain will be taxable to its shareholders.

Each municipal fund may invest in municipal bonds that are purchased,
generally not on their original issue, with market discount (that is, at a price
less than the principal amount of the bond or, in the case of a bond that was
issued with original issue discount, a price less than the amount of the issue
price plus accrued original issue

<PAGE>

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 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

<PAGE>

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.

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

<PAGE>

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 2000
federal individual income tax rates in effect on the date of this SAI. For
example, a couple with taxable income of $90,000 in 2000, or a single individual
with taxable income of $55,000 in 2000, whose investments earn a 3% tax-free
yield, would have to earn a 4.17% taxable yield to receive the same benefit.

TABLE I. 2000 FEDERAL TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
TAXABLE INCOME (000'S) A TAX-FREE YIELD OF
----------------------------------- -----------------------------------------------
FEDERAL 3.00% 4.00% 5.00% 6.00%
SINGLE JOINT TAX ----- ----- ----- -----
RETURN RETURN BRACKET IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0 - 26.3 $ 0 - 43.9 15.00% 3.53% 4.71% 5.88% 7.06%
26.3 - 63.6 43.9 - 106.0 28.00 4.17 5.56 6.94 8.33
63.6 - 132.6 106.0 - 161.5 31.00 4.35 5.80 7.25 8.70
132.6 - 288.4 161.5 - 288.4 36.00 4.69 6.25 7.81 9.38
Over 288.4 Over 288.4 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 2000 federal individual and 2000'D' California personal income tax rates in
effect on the date of this SAI. For example, a California couple with taxable
income of $90,000 in 2000, or a single California individual with taxable income
of $55,000 in 2000, whose investments earn a 3% tax-free yield, would have to
earn a 4.59% taxable yield to receive the same benefit.

TABLE II. 2000 FEDERAL AND 1999 CALIFORNIA TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
TAXABLE INCOME (000'S) EFFECTIVE A TAX-FREE YIELD OF
--------------------------------------- CALIFORNIA ---------------------------------------------------
AND
FEDERAL 3.00% 4.00% 5.00% 6.00%
SINGLE JOINT TAX ----- ----- ----- -----
RETURN RETURN BRACKET IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 19.7 - 26.3 $ 39.4 - 43.9 20.10% 3.75% 5.01% 6.26% 7.51%
26.3 - 27.3 43.9 - 54.7 32.32 4.43 5.91 7.39 8.87
27.3 - 34.5 54.7 - 69.1 33.76 4.53 6.04 7.55 9.06
34.5 - 63.6 69.1 - 106.0 34.70 4.54 6.13 7.66 9.19
63.6 - 132.6 106.0 - 161.5 37.42 4.79 6.39 7.99 9.59
132.6 - 288.4 161.5 - 288.4 41.95 5.17 6.89 8.61 10.34
Over 288.4 Over 288.4 45.92 5.48 7.30 9.13 10.95
</TABLE>

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

* The yields listed are for illustration only and are not necessarily
representative of the fund's yield. The fund invests primarily in
obligations the interest on which is exempt from federal income tax and
California personal income tax; however, some of the fund's investments may
generate taxable income. Effective tax rates shown are those in effect on
the date of this 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).

'D' The rates shown reflect federal rates for 2000 and California rates for
1999 in effect as of the date hereof. Inflation adjusted income brackets
for 2000 for California are not yet available, and the California rates
thus are still subject to change with retroactive effect for 2000.

<PAGE>

TAX-FREE INCOME VS. TAXABLE INCOME--NEW JERSEY MUNICIPAL MONEY FUND.
Table III 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 2000, or a single New Jersey individual with taxable income of
$55,000 in 2000, whose investments earn a 3% tax-free yield, would have to earn
a 4.41% taxable yield to receive the same benefit.

TABLE III. 2000 FEDERAL AND NEW JERSEY TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
TAXABLE INCOME (000'S) EFFECTIVE A TAX-FREE YIELD OF
--------------------------------------- NEW JERSEY -----------------------------------------------
AND
FEDERAL 3.00% 4.00% 5.00% 6.00%
SINGLE JOINT TAX ----- ----- ----- -----
RETURN RETURN BRACKET IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 20.0 - 26.3 $ 20.0 - 43.9 16.49% 3.59% 4.79% 5.99% 7.18%
26.3 - 35.0 43.9 - 50.0 29.26 4.24 5.65 7.07 8.48
50.0 - 70.0 29.76 4.27 5.70 7.12 8.54
35.0 - 40.0 70.0 - 80.0 30.52 4.32 5.76 7.20 8.64
40.0 - 63.6 80.0 - 106.0 31.98 4.41 5.88 7.35 8.82
63.6 - 75.0 106.0 - 150.0 34.81 4.60 6.14 7.67 9.20
75.0 - 132.6 150.0 - 161.5 35.42 4.64 6.19 7.74 9.29
132.6 - 288.4 161.5 - 288.4 40.08 5.01 6.68 8.34 10.01
Over 288.4 Over 288.4 43.45 5.30 7.07 8.34 10.61
</TABLE>

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

* The yields listed are for illustration only and are not necessarily
representative of the fund's yield. The fund invests primarily in
obligations the interest on which is exempt from federal income tax and New
Jersey gross income tax; however, some of the fund's investments may
generate taxable income. Effective tax rates shown are those in effect on
the date of this 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 IV 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 2000, or a single individual with taxable
income of $55,000 in 2000 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 2000, or a single individual who lives in New York
State outside of New York City with taxable income of $55,000 in 2000, would
have to earn a 4.47% taxable yield to realize a benefit equal to a 3% tax-free
yield.

TABLE IV. 2000 FEDERAL AND NEW YORK TAXABLE VS. TAX-FREE YIELDS*

TAXABLE INCOME (000'S) COMBINED A TAX-FREE YIELD OF
------------------------------------- FEDERAL/ ---------------------------------------------------
NYS/NYC 3.00% 4.00% 5.00% 6.00%
SINGLE JOINT TAX ----- ------- ----- -----
RETURN RETURN BRACKET IS EQUAL TO A TAXABLE YIELD OF APPROXIMATELY
--------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
$ 0 - 26.3 $ 0 - 43.9 23.99% 3.95% 5.26% 6.58% 7.89%
26.3 - 63.6 43.9 - 106.0 35.65 4.66 6.22 7.77 9.32
63.6 - 132.6 106.0 - 161.5 38.33 4.86 6.49 8.11 9.73
132.6 - 288.4 161.5 - 288.4 42.80 5.24 6.99 8.74 10.49
Over 288.4 Over 288.4 6.02 5.56 7.41 9.26 11.12

</TABLE>

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

<S> <C> <C> <C> <C> <C> <C>
$ 0 - 26.3 $ 0 - 43.9 20.82% 3.79% 5.05% 6.31% 7.58%
26.3 - 63.6 43.9 - 106.0 32.93 4.47 5.96 7.46 8.95
63.6 - 132.6 106.0 - 161.5 35.73 4.67 6.22 7.78 9.34
132.6 - 288.4 161.5 - 288.4 40.38 5.03 6.71 8.39 10.06
Over 288.4 Over 288.4 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,

<PAGE>

certificate or undertaking made or issued by the trustees or by any officers or
officer by or on behalf of that Trust, a Fund, the trustees or any of them in
connection with the Trust. Each Declaration of Trust provides for
indemnification from a fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of the fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which a fund itself would be unable to
meet its obligations, a possibility which PaineWebber believes is remote and not
material. Upon payment of any liability incurred by a shareholder, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the fund. The trustees intend to conduct the operations of
each fund in such a way as to avoid, as far as possible, ultimate liability of
the shareholders for liabilities of the fund.

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 shareholders of record of
not less than 10% of the outstanding shares of a Trust or at least 25% of the
outstanding shares of a Corporation.

CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State
Street Bank and Trust Company, located at 1776 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 Report to Shareholders for their last fiscal year
ended June 30, 2000 is a separate document supplied with this SAI, and the
financial statements, accompanying notes and report 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 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 Financial Advisor 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 "Managing Your Fund
Account -- Buying Shares," 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.

PAINEWEBBER EDGE. RMA participants have free access to PaineWebber's
proprietary online services - the PaineWebber EDGE. Delivered over the Internet
in a secured area of PaineWebber's web site, the PaineWebber EDGE provides
convenient, around-the-clock access to vital, customized account and market
information.

PLATINUM MASTERCARD'r'. RMA Participants receive a complimentary
Platinum MasterCard debit card that makes account assets easily accessible. The
Platinum 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
("ATM"). Through MasterCard's enhanced services programs, investors can obtain
other benefits, including rental car insurance, emergency medical and travel
assistance, legal services and purchase protection.

RMA offers the MasterCard Special Services Concierge Service free of
charge to RMA clients. These services help make travel amenities, entertaining
and gift giving easier with a call to 1-877-828-5203.

EXTENDED ACCOUNT PROTECTION. The net equity securities balance in an
RMA Account is protected through private insurance in the event of the
liquidation of PaineWebber. 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 funds that are registered with the

<PAGE>

funds' transfer agent in the name of the shareholder, rather than being held in
the shareholder's RMA account and registered in the name of PaineWebber or one
of its correspondent firms.

PAINEWEBBER REWARDS. RMA participants can choose to participate in the
PaineWebber Rewards program for an additional fee of $50.00. Rewards points
accumulate and are redeemable for merchandise, airline tickets, travel and
shopping and dining certificates.

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.

PAINEWEBBER SERVICE GROUP AND RESOURCELINE'r'. RMA participants can
call the PaineWebber Service Group and speak with a representative by calling
(800) RMA-1000. ResourceLine, a toll-free interactive voice response telephone
system, provides account information 24 hours a day, seven days a week.

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 ("BSA") 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 Financial
Advisors 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 "Managing Your Fund
Account -- Buying Shares," 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
complimentary 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 ("ATM"). Through
MasterCard's enhanced services programs, investors can obtain other benefits
including full value primary rental car insurance, emergency medical and travel
assistance, legal services and purchase protection.

BSA clients receive MasterCard Special Services Concierge Service free
of charge. These services help make travel amenities, entertaining, and gift
giving easier with a call to 1-877-828-5203.

MARGIN. BSA Participants may choose to have a margin feature as part of
their BSA.

EXTENDED ACCOUNT PROTECTION. The net equity securities balance in a BSA
is protected through private insurance in the event of the liquidation of
PaineWebber. 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 funds that are registered with the funds'
transfer agent in the name of the shareholder, rather than being held in the
shareholder's BSA and registered in the name of PaineWebber or one of its
correspondent firms.

PAINEWEBBER REWARDS. BSA participants can choose to participate in the
PaineWebber Rewards program for an additional fee of $50.00 (The fee is waived
for PaineWebber Vantage and PaineWebber Insight One accounts). Rewards points
accumulate and are redeemable for merchandise, airline tickets, travel and
shopping and dining certificates.

<PAGE>

PAINEWEBBER SERVICE GROUP AND RESOURCELINE'r'. BSA participants can
call the PaineWebber Services Group (800) BSA-0140 24 hours a day, seven days a
week and speak to a PaineWebber representative to make any inquiries about their
accounts. The ResourceLine Interactive voice response telephone system provides
basic account information through a touch-tone telephone and is also available
24 hours a day, seven days a week.

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.

PAINEWEBBER EDGE. BSA participants have free access to PaineWebber's
proprietary online services, the PaineWebber EDGE. Delivered over the Internet
in a secured area of PaineWebber's web site, the PaineWebber EDGE provides
convenient, around-the-clock access to vital, customized account and market
information.

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 Business Services Account (BSA), and
ResourceLine are registered service marks of PaineWebber Incorporated. Resource
Accumulation Plan is a service mark of PaineWebber Incorporated. Platinum
MasterCard and MasterCard BusinessCard are registered trademarks of MasterCard
International 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, 2000

<PAGE>

PART C. OTHER INFORMATION

Item 23. Exhibits

<TABLE>
<S> <C>
(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 3/

(14) and

(27) Financial Data Schedule (not applicable)

(15) Plan pursuant to Rule 18f-3 (not applicable)

(16) Code of Ethics for Registrant and Mitchell Hutchins Asset
Management Inc. 4/ PaineWebber Incorporated, Registrant's
investment adviser and principal distributor, is not required
to have a code of ethics with respect to the Registrant
because Registrant consists solely of money market funds.
</TABLE>

-----------

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.

3/ Incorporated by reference from Post-Effective Amendment No. 35 to the
registration statement, SEC File No. 2-89016, filed August 27, 1999.

4/ Incorporated by reference from Post-Effective Amendment No. 29 to the
registration statement of PaineWebber Mutual Fund Trust, SEC File No.
2-98149, filed June 27, 2000.

C-1

<PAGE>

Item 24. Persons Controlled by or under Common Control with Registrant

None.

Item 25. Indemnification

Section 2 of "Indemnification" in Article X of the Declaration of Trust
provides that the appropriate series of the Registrant will indemnify its
trustees and officers to the fullest extent permitted by law against claims and
expenses asserted against or incurred by them by virtue of being or having been
a trustee or officer; provided that no such person shall be indemnified where
there has been an adjudication or other determination, as described in Article
X, that such person is liable to the Registrant or its shareholders by reason of
willful misfeasance, bad faith, 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
("Advisory 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 Advisory 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 Advisory Contract. Section 10 of the
Advisory Contract provides that the trustees shall not be liable for any
obligations of the Registrant under the Advisory 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 Advisory 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

C-2

<PAGE>

Registrant for use in the Registration Statement; and provided that this
indemnity agreement shall not protect any such persons against liabilities
arising by reason of their bad faith, gross negligence or willful misfeasance
and shall not inure to the benefit of any such persons unless a court of
competent jurisdiction or controlling precedent determines that such result is
not against public policy as expressed in the Securities Act of 1933. Section 9
also provides that PaineWebber agrees to indemnify, defend and hold the
Registrant, its officers and trustees free and harmless of any claims arising
out of any alleged untrue statement or any alleged omission of material fact
contained in information furnished by PaineWebber for use in the Registration
Statement or arising out of an agreement between PaineWebber and any retail
dealer, or arising out of supplementary literature or advertising used by
PaineWebber in connection with the Distribution 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, a Delaware corporation, is a registered
investment adviser and is a wholly owned subsidiary of PaineWebber, which is, in
turn, a wholly owned subsidiary of Paine Webber Group Inc. 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.

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 a Director
(Chief Executive Officer) Director

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

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

* This person's address is 51 West 52nd Street, New York, New York 10019-6114.

** This person's address is 1285 Avenue of the Americas, New York, New York
10019-6028.

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 at 1285 Avenue of the Americas, New
York, New York 10019 and 51 West 52nd Street, New York, New York 10019-6114. 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 29th day of August, 2000.

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> <C>
/s/ Margo N. Alexander
_____________________________________ President and Trustee August 29, 2000
Margo N. Alexander * (Chief Executive Officer)

/s/ E. Garrett Bewkes, Jr.
_____________________________________ Trustee and Chairman August 29, 2000
E. Garrett Bewkes, Jr. * of the Board of Trustees

/s/ Richard Q. Armstrong
_____________________________________ Trustee August 29, 2000
Richard Q. Armstrong *

/s/ Richard R. Burt
_____________________________________ Trustee August 29, 2000
Richard R. Burt *

/s/ Mary C. Farrell
_____________________________________ Trustee August 29, 2000
Mary C. Farrell *

/s/ Meyer Feldberg
_____________________________________ Trustee August 29, 2000
Meyer Feldberg *

/s/ George W. Gowen
_____________________________________ Trustee August 29, 2000
George W. Gowen *

/s/ Frederic V. Malek
_____________________________________ Trustee August 29, 2000
Frederic V. Malek *

/s/ Carl W. Schafer
_____________________________________ Trustee August 29, 2000
Carl W. Schafer *

/s/ Brian M. Storms
_____________________________________ Trustee August 29, 2000
Brian M. Storms **

/s/ Paul H. Schubert
_____________________________________ Vice President and Treasurer (Chief August 29, 2000
Paul H. Schubert Financial and Accounting Officer)

</TABLE>

<PAGE>

SIGNATURES (CONTINUED)

* Signature affixed by Elinor W. Gammon pursuant to powers of attorney
dated May 21, 1996 and incorporated by reference from Post-Effective
Amendment No. 30 to the registration statement of PaineWebber Managed
Municipal Trust, SEC File 2-89016, filed June 27, 1996.

** 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

<TABLE>
<CAPTION>
Exhibit
Number
--------

<S> <C>
(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 3/

(14) and

(27) Financial Data Schedule (not applicable)

(15) Plan pursuant to Rule 18f-3 (not applicable)

(16) Code of Ethics for Registrant and Mitchell Hutchins Asset
Management Inc. 4/

PaineWebber Incorporated, Registrant's investment adviser and
principal distributor, is not required to have a code of
ethics with respect to the Registrant because Registrant
consists solely of money market funds.

</TABLE>

-----------

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.

3/ Incorporated by reference from Post-Effective Amendment No. 35 to the
registration statement, SEC File No. 2-89016, filed August 27, 1999.

<PAGE>

4/ Incorporated by reference from Post-Effective Amendment No. 29 to the
registration statement of PaineWebber Mutual Fund Trust, SEC File No.
2-98149, filed June 27, 2000.

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'