<PAGE>
As filed with the Securities and Exchange Commission on June 26, 1997.
1933 Act: Registration No. 33-2524
1940 Act: Registration No. 811-4448
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 32 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 25
(Check appropriate box or boxes.)
PAINEWEBBER MASTER SERIES, INC.
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.; Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ X ] On July 1, 1997 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485 (a)(i)
[ ] On ________________ pursuant to Rule 485 (a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] On ________________ pursuant to Rule 485(a)(ii)
Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 and filed the notice required by such Rule for the most
recent fiscal year of the series designated PaineWebber Money Market Fund on
April 21, 1997.
<PAGE>
PAINEWEBBER MASTER SERIES, INC.
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
PAINEWEBBER MONEY MARKET FUND - Class A, B and C Shares
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER MASTER SERIES, INC.
Class A, B, and C Shares of:
PaineWebber Money Market Fund
Form N-1A Cross Reference Sheet
Part A Item No and Caption Prospectus Caption
-------------------------- ------------------
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Prospectus Summary, Investment
Registrant Objective and Policies;
General Information
5. Management of the Fund Management; General Information
6. Capital Stock and Other Cover Page; Conversion of Class B
Securities Shares; Dividends and
Taxes; General Information
7. Purchase of Securities Being Investing in the Fund Offered
8. Redemption or Repurchase Investing in the Fund
9. Pending Legal Proceedings Not Applicable
Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Other Information
13. Investment Objective and Investment Policies and Policies
Restrictions; Portfolio Transactions
14. Management of the Fund Directors and Officers; Principal
Holders of Securities
15. Control Persons and Principal Directors and Officers; Principal
Holders of SecuritiesHolders of
Securities
16. Investment Advisory and Other Investment Advisory and Services
Distribution Arrangements
17. Brokerage Allocation Portfolio Transactions
<PAGE>
Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------
18. Capital Stock and Other Conversion of Class B Shares;
Securities Other Information
19. Purchase, Redemption and Pricing Additional Exchange and Redemption
of Securities Being Offered Information; Reduced Sales Charges;
Valuation of Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and
Distribution Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
<PAGE>
The Fund is a series of PaineWebber PAINEWEBBER
Master Series, Inc. This Prospectus MONEY MARKET FUND
concisely sets forth information about 1285 AVENUE OF THE AMERICAS
the Fund a prospective investor should NEW YORK, NEW YORK 10019
know before investing. Please retain
this Prospectus for future reference.
A Statement of Additional Information
dated July 1, 1997 (which is incorpo-
rated by reference herein) has been
filed with the Securities and Exchange
Commission. The Statement of
Additional Information can be obtained
without charge, and further inquiries
can be made, by contacting the Fund,
your PaineWebber investment executive
or PaineWebber's correspondent firms
or by calling toll-free
1-800-647-1568.
- -------------------------------------- --------------------------------------
A PROFESSIONALLY MANAGED MUTUAL / / MAXIMUM CURRENT INCOME
FUND SEEKING MAXIMUM CURRENT CONSISTENT WITH LIQUIDITY AND
INCOME CONSISTENT WITH LIQUIDITY AND CONSERVATION OF CAPITAL
CONSERVATION OF CAPITAL. THE FUND / / PROFESSIONAL MANAGEMENT
INVESTS IN HIGH QUALITY MONEY / / DAILY DIVIDENDS
MARKET INSTRUMENTS. / / EXCHANGE PRIVILEGES
An investment in the Fund is neither
insured nor guaranteed by the U.S.
government. While the Fund seeks to
maintain a stable net asset value of
$1.00 per share, there is no assurance
that it will be able to do so.
- -------------------------------------- --------------------------------------
July 1, 1997 A PaineWebber Mutual Fund
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR
HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
(This page has been left blank intentionally.)
2
<PAGE>
INVESTORS SHOULD RELY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUND AND ITS DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PROVIDE
INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS IS NOT AN OFFER TO
SELL SHARES OF THE FUND IN ANY JURISDICTION WHERE THE FUND OR ITS DISTRIBUTOR
MAY NOT LAWFULLY SELL THOSE SHARES.
--------------
PAINEWEBBER MONEY MARKET FUND
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed
in this summary.
<TABLE>
<S> <C>
The Fund: PaineWebber Money Market Fund ("Fund") is a diversified series of
PaineWebber Master Series, Inc., an open-end management investment
company organized as a Maryland corporation ("Corporation").
Investment Objective Maximum current income consistent with liquidity and conservation of
and Policies: capital; invests in high quality money market instruments.
Assets at May 31, Over $39.4 million.
1997:
Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an
asset management subsidiary of PaineWebber Incorporated
("PaineWebber"), manages over $43 billion in assets. See
"Management."
Investing in the Fund: Class A, Class B and Class C shares of the Fund may be obtained only
through an exchange of shares of the corresponding class of most
other PaineWebber mutual funds. Exchanges may be made through
PaineWebber or PFPC Inc., the Fund's transfer agent ("Transfer
Agent"). See "Investing in the Fund." (Investors who are clients of
PaineWebber or its correspondent firms are referred to as
"PaineWebber clients.")
Exchanges: Shares may be exchanged for shares of the corresponding class of
most PaineWebber mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber; other
shareholders must redeem through the Transfer Agent.
Dividends: Declared daily and paid monthly. See "Dividends and Taxes."
Reinvestment: All dividends are paid in Fund shares of the same class at net asset
value unless the shareholder has requested cash.
Net Asset Value: The Fund seeks to maintain its net asset value at $1.00 per share.
</TABLE>
3
<PAGE>
WHO SHOULD INVEST. The Fund invests primarily in various types of high
quality money market instruments. Accordingly, the Fund is designed for
investors in other PaineWebber mutual funds whose investment objectives or needs
have changed so that they presently seek current income and preservation of
capital for all or a portion of their investment.
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective. In periods of declining interest rates, the Fund's yield
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates, the Fund's yield generally will be somewhat lower. See
"Investment Objective and Policies."
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in
Class A, B and C shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a
% of public offering price)..................... None(1) None(1) None(1)
Sales charge on reinvested dividends.............. None None None
Maximum contingent deferred sales charge (as a %
of public offering price at the time of
investment or net asset value at the time of
redemption, whichever is less).................. None(2) 5%(3) 1%(4)
</TABLE>
ANNUAL FUND OPERATING EXPENSES (5)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management fees................................... 0.50% 0.50% 0.50%
12b-1 fees (6).................................... 0.25 0.75 0.75
Other expenses.................................... 0.67 0.65 0.74
------- ------- -------
Total operating expenses.......................... 1.42% 1.90% 1.99%
------- ------- -------
------- ------- -------
</TABLE>
- ---------
(1) Shares of the Fund may be acquired solely through an exchange of shares
of the corresponding class of another PaineWebber mutual fund. No initial sales
charge is imposed when Class A shares of the Fund are acquired through an
exchange. See "Investing in the Fund."
(2) Class A shares of the Fund may be subject to a contingent deferred
sales charge ("CDSC") of 1% upon redemption if the original shares that were
purchased and subsequently exchanged (directly or through a series of exchanges)
to obtain Class A shares of the Fund were subject to a 1% CDSC upon redemption
and less than one year has elapsed since the original shares were purchased.
(3) Redemptions of Class B shares of the Fund that were acquired through an
exchange of Class B shares of PaineWebber Low Duration U.S. Government Income
Fund will be subject to a maximum CDSC of 3%, provided that the exchanged shares
would have been subject to the lower schedule had they been redeemed rather than
exchanged for Class B shares of the Fund. The maximum 3% CDSC applies to
redemptions during the first year after purchase of the exchanged shares; the
charge declines by 1% following each of the first, third and fourth years after
purchase, reaching zero after four years. Redemptions of Class B shares of the
Fund that were acquired through an exchange of Class B shares of any other
PaineWebber mutual fund will be subject to a maximum CDSC of 5%. The maximum 5%
CDSC applies to
4
<PAGE>
redemptions during the first year after purchase of the exchanged; the charge
generally declines by 1% annually thereafter, reaching zero after six years. The
holding period of Class B shares acquired through an exchange with another
PaineWebber mutual fund will be calculated from the date that the Class B shares
were initially acquired in the other fund. See "Redemptions."
(4) Redemptions of Class C shares of the Fund that were acquired through an
exchange of Class C shares of another PaineWebber mutual fund and are held less
than one year from the date of original purchase will be subject to the same
CDSC that would have been imposed on the Class C shares of the other PaineWebber
mutual fund. The maximum CDSC applicable to Class C shares sold within one year
of the purchase date is 1% (0.75% for funds that invest predominantly in debt
securities) of net asset value of the shares at the time of purchase or sale,
whichever is less.
(5) See "Management" for additional information. All expenses are those
actually incurred for the fiscal year ended February 28, 1997.
(6) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
12b-1 service fees................................ 0.25% 0.25% 0.25%
12b-1 distribution fees........................... 0.00 0.50 0.50
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class C shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Class A shares.................................... $ 14 $ 45 $ 78 $ 170
Class B shares:
Assuming a complete redemption at end of period
(1)(2)........................................ $ 69 $ 90 $ 123 $ 198
Assuming no redemption (2)...................... $ 19 $ 60 $ 103 $ 198
Class C shares:
Assuming a complete redemption at end of period
(1)........................................... $ 30 $ 62 $ 107 $ 232
Assuming no redemption.......................... $ 20 $ 62 $ 107 $ 232
</TABLE>
- ---------
(1) Assumes deduction at the time of redemption of the maximum applicable
CDSC.
(2) Ten-year figures assume conversion of Class B shares to Class A shares
at end of sixth year.
This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown. The above tables and the assumption in the Example of a 5%
annual return are required by regulations of the Securities and Exchange
Commission ("SEC") applicable to all mutual funds; the assumed 5% annual return
is not a prediction of, and does not represent, the projected or actual
performance of any class of Fund shares.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each class of Fund shares will depend upon,
among other things, the level of average net assets and the extent to which the
Fund incurs variable expenses, such as transfer agency costs.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide investors with data and ratios for one Class A,
Class B and Class C share of the Fund for each of the periods shown. This
information is supplemented by the financial statements, accompanying notes and
the report of Price Waterhouse LLP, independent accountants, which appear in the
Fund's Annual Report to Shareholders for the fiscal year ended February 28,
1997, and are incorporated by
reference into the Statement of Additional Information. The financial statements
and notes, as well as the information in the tables below, insofar as it relates
to the five years in the period ended February 28, 1997, have been audited by
Price Waterhouse LLP. The Annual Report to Shareholders may be obtained without
charge by calling 1-800-647-1568.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
FOR THE YEARS ENDED
---------------------------------------------------- FOR THE PERIOD
JULY 1, 1991+
FEBRUARY 28 OR 29, TO FEBRUARY 29,
---------------------------------------------------- ---------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- ---------------
<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......... 0.040 0.046 0.037 0.016 0.022 0.026
Dividends from net investment
income....................... (0.040) (0.046) (0.037) (0.016) (0.022) (0.026)
-------- -------- -------- -------- -------- -------
Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Total investment return (1)... 4.11% 4.69% 3.95% 1.64% 2.25% 2.47%
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Ratios/Supplemental data:
Net assets, end of period
(000's)...................... $ 11,808 $ 23,735 $ 21,042 $ 14,204 $ 11,716 $ 3,806
Expenses to average net
assets....................... 1.42% 1.31% 1.06% 1.72% 1.74% 1.90%*
Net investment income to
average net assets........... 4.09% 4.68% 3.85% 1.70% 2.18% 3.61%*
</TABLE>
- ------------
* Annualized.
+ Commencement of issuance of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
payable dates, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges; results for each class
would be lower if sales charges were included. Total investment return for
periods of less than one year has not been annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED FEBRUARY 28 OR 29,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income......... 0.035 0.041 0.032 0.011 0.016 0.039 0.068 0.076 0.068 0.055
Dividends from net investment
income....................... (0.035) (0.041) (0.032) (0.011) (0.016) (0.039) (0.068) (0.076) (0.068) (0.055)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total investment return (1)... 3.60% 4.18% 3.41% 1.12% 1.73% 4.16% 6.98% 8.18% 6.75% 5.57%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ratios/Supplemental data:
Net assets, end of period
(000's)...................... $ 18,389 $ 26,592 $ 39,123 $ 9,819 $ 15,280 $ 29,341 $ 50,842 $ 50,392 $ 50,320 $ 44,744
Expenses to average net
assets....................... 1.90% 1.79% 1.55% 2.25% 2.28% 2.06% 1.40% 1.48% 1.25% 1.25%
Net investment income to
average net assets........... 3.55% 4.17% 3.46% 1.16% 1.69% 4.07% 6.82% 7.77% 6.88% 5.89%
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS--(CONCLUDED)
<TABLE>
<CAPTION>
CLASS C**
-----------------------------------------------------------
FOR THE YEARS ENDED
----------------------------------------- FOR THE PERIOD
JULY 14, 1992+
FEBRUARY 28 OR 29, TO FEBRUARY 28,
----------------------------------------- ---------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
Net investment income..................................... 0.034 0.041 0.033 0.012 0.009
Dividends from net investment income...................... (0.034) (0.041) (0.033) (0.012) (0.009)
-------- -------- -------- -------- -------
Net asset value, end of period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Total investment return (1)............................... 3.50% 4.14% 3.44% 1.19% 0.81%
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Ratios/Supplemental data:
Net assets, end of period (000's)......................... $ 5,504 $ 5,754 $ 16,137 $ 9,430 $ 2,220
Expenses to average net assets............................ 1.99% 1.79% 1.55% 2.14% 2.14%*
Net investment income to average net assets............... 3.47% 4.27% 3.35% 1.36% 1.67%*
</TABLE>
- ------------
* Annualized.
** Formerly Class D.
+ Commencement of issuance of shares.
(1)Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
payable dates, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges; results for each class
would be lower if sales charges were included. Total investment return for
periods of less than one year has not been annualized.
8
<PAGE>
INVESTMENT OBJECTIVE
AND POLICIES
The Fund's investment objective is to provide maximum current income
consistent with liquidity and conservation of capital. The Fund's investments
include (1) U.S. Treasury bills and other obligations issued or guaranteed as to
interest and principal by the U.S. government, its agencies or
instrumentalities; such obligations may or may not be backed by the full faith
and credit of the United States; (2) obligations of U.S. and foreign banks,
including certificates of deposit, bankers' acceptances, time deposits and
similar obligations; issuing banks must have total assets at the time of
purchase in excess of $1.5 billion; (3) time deposits of savings associations
having total assets in excess of $1.5 billion at the time of purchase; (4)
commercial paper of U.S. and foreign companies, governments and similar
entities, including variable amount master demand notes and other short-term
obligations; and (5) repurchase agreements relating to any of the foregoing.
The Fund may invest in non-negotiable time deposits of U.S. banks, savings
associations and similar depository institutions having total assets in excess
of $1.5 billion at the time of purchase only if the time deposits have
maturities of seven days or less. The Fund may also make interest-bearing
savings deposits in U.S. commercial banks and savings associations having total
assets of $1.5 billion or less, in principal amounts at each such bank not
greater than are insured by the Federal Deposit Insurance Corporation, provided
that the aggregate amount of such deposits (plus interest earned) does not
exceed 5% of the Fund's net asset value. The Fund may also purchase
participation interests in any of the securities in which it is permitted to
invest. Participation interests are pro rata interests in securities held by
others. The Fund invests in securities having, or deemed to have, a remaining
maturity of up to 13 months and maintains a dollar-weighted average portfolio
maturity of 90 days or less.
The commercial paper and other short-term obligations purchased by the Fund
consist only of obligations that Mitchell Hutchins determines, pursuant to
procedures adopted by the Corporation's board of directors (sometimes referred
to as the "board"), present minimal credit risks and are either (1) rated in one
of the two highest short-term ratings categories by at least two nationally
recognized statistical rating organizations ("NRSROs"), (2) rated in one of the
two highest short-term ratings categories by a single NRSRO if only that NRSRO
has assigned the obligations a short-term rating or (3) unrated, but determined
by Mitchell Hutchins to be of comparable quality ("Eligible Securities").
Eligible Securities that (1) have not been rated in the highest short-term
ratings category by at least two NRSROs (or by one NRSRO if only one NRSRO has
assigned the obligation a short-term rating) or (2) if the obligations are
unrated, determined by Mitchell Hutchins to be of comparable quality are known
as "Second Tier Securities." The Fund may not invest more than 5% of its total
assets in Second Tier Securities. The Fund also may not invest more than the
greater of 1% of its total assets or $1 million in Second Tier Securities of a
single issuer. Although the Fund may invest in Second Tier Securities of U.S.
companies, the Fund does not purchase commercial paper of foreign companies,
governments and similar entities falling into this category. Furthermore, the
Fund generally may invest no more than 5% of its total assets in the securities
of a single issuer (other than securities issued by the U.S. government, its
agencies or instrumentalities).
In managing the Fund's portfolio, Mitchell Hutchins may employ a number of
professional money management techniques, including varying the composition and
the weighted average maturity of the portfolio based upon its assessment of the
relative values of various money market instruments and future interest rate
patterns, in order to respond to changing economic and money
9
<PAGE>
market conditions and to shifts in fiscal and monetary policy. Mitchell Hutchins
may also seek to improve the Fund's yield by purchasing or selling securities to
take advantage of yield disparities among similar or dissimilar money market
instruments that regularly occur in the money markets.
In periods of declining interest rates the Fund's yield will tend to be
somewhat higher than prevailing market rates, and in periods of rising interest
rates the opposite generally will be true. Also, when interest rates are
falling, net cash inflows from the continuous sale of Fund shares are likely to
be invested in portfolio instruments producing lower yields than the balance of
the Fund's portfolio, thereby reducing its yield. In periods of rising interest
rates, the opposite can be true. There can be no assurance that the Fund will
achieve its investment objective.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the
Fund may invest include direct obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) and obligations issued or guaranteed by U.S.
government agencies and instrumentalities, including securities that are
supported by the full faith and credit of the United States (such as Government
National Mortgage Association certificates ("GNMAs")), securities supported
primarily or solely by the creditworthiness of the issuer (such as securities of
the Resolution Funding Corporation and the Tennessee Valley Authority) and
securities that are supported primarily or solely by specific pools of assets
and the creditworthiness of a U.S. government-related issuer (such as
mortgage-backed securities issued by Fannie Mae, also known as the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation).
The Fund may also acquire custodial receipts that evidence ownership of
future interest payments, principal payments or both that have been "stripped"
from certain U.S. Treasury notes or bonds. These custodial receipts are known by
various names, including "Treasury Investment Growth Receipts" ("TIGRs") and
"Certificates of Accrual on Treasury Securities" ("CATS"). The Fund may also
invest in separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. The principal and interest components
of selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury.
VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase variable and
floating rate securities with remaining maturities in excess of 13 months issued
by U.S. government agencies or instrumentalities or guaranteed by the U.S.
government. In addition, the Fund may purchase variable and floating rate
securities of other issuers with remaining maturities in excess of 13 months if
the securities are subject to a demand feature exercisable within 13 months or
less. The yield on these securities is adjusted in relation to changes in
specific rates, such as the prime rate, and different securities may have
different adjustment rates. The Fund's investment in these securities must
comply with conditions established by the SEC under which they may be considered
to have remaining maturities of 13 months or less. Certain of these obligations
carry a demand feature that gives the Fund the right to tender them back to the
issuer or a remarketing agent and receive the principal amount of the security
prior to maturity. The demand feature may be backed by letters of credit or
other liquidity support arrangements provided by banks or other financial
institutions, whose credit standing affects the credit quality of the
obligation. Changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price.
10
<PAGE>
VARIABLE AMOUNT MASTER DEMAND NOTES. Securities purchased by the Fund may
include variable amount master demand notes, which are unsecured redeemable
obligations that permit investment of varying amounts at fluctuating interest
rates under a direct agreement between the Fund and the issuer. The principal
amount of these notes may be increased from time to time by the parties (subject
to specified maximums) or decreased by the Fund or the issuer. These notes are
payable on demand and are typically unrated.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer 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 securities.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, including possible decline in the market value of the
underlying securities and delays and costs to the Fund if the other party to the
repurchase agreement becomes insolvent, the Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins to present minimum credit risks in accordance with guidelines
established by the board.
FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated
securities of foreign issuers, including debt securities of foreign
corporations, governments and similar entities. Such investments may consist of
obligations of foreign and domestic branches of foreign banks and foreign
branches of domestic banks. Such investments may involve risks that are
different from investments in U.S. issuers. These risks may include future
unfavorable political and economic developments, possible withholding taxes,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions that might affect the payment of principal or interest
on the securities held by the Fund. Additionally, there may be less publicly
available information about foreign issuers, as these issuers may not be subject
to the same regulatory requirements as domestic issuers.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of the Fund's total assets taken at market value. Lending securities enables the
Fund to earn additional income, but could result in a loss or delay in
recovering these securities.
OTHER INFORMATION. The Fund may borrow money for temporary purposes, but
not in excess of 10% of its total assets, including reverse repurchase
agreements involving up to 5% of its total assets. The Fund may not invest more
than 10% of its net assets in illiquid securities, including repurchase
agreements with maturities in excess of seven days. The Fund's investment
objective of seeking maximum current income consistent with liquidity and
conservation of capital may not be changed without the affirmative vote of its
shareholders. Certain investment limitations, as described in the Statement of
Additional Information, also may not be changed without shareholder approval.
All other investment policies may be changed by the board without shareholder
approval.
INVESTING IN THE FUND
Shares of the Fund are available only through an exchange of shares of the
corresponding class of other PaineWebber mutual funds. No initial sales charge
is imposed on the Fund shares being acquired, and no CDSC is imposed on the
shares of the other PaineWebber mutual fund being disposed of, through an
exchange. However, CDSCs may apply to redemptions of Fund shares acquired
through an exchange. See "Redemptions." Exchanges may be subject to minimum
investment
11
<PAGE>
requirements of the fund into which exchanges are made.
The other PaineWebber mutual funds with which Fund shares may be exchanged
include the following:
PAINEWEBBER BOND FUNDS
- HIGH INCOME FUND
- INVESTMENT GRADE INCOME FUND
- LOW DURATION U.S. GOVERNMENT INCOME FUND
- STRATEGIC INCOME FUND
- U.S. GOVERNMENT INCOME FUND
PAINEWEBBER TAX-FREE BOND FUNDS
- CALIFORNIA TAX-FREE INCOME FUND
- MUNICIPAL HIGH INCOME FUND
- NATIONAL TAX-FREE INCOME FUND
- NEW YORK TAX-FREE INCOME FUND
PAINEWEBBER ASSET ALLOCATION FUNDS
- BALANCED FUND
- TACTICAL ALLOCATION FUND
PAINEWEBBER STOCK FUNDS
- CAPITAL APPRECIATION FUND
- FINANCIAL SERVICES GROWTH FUND
- GROWTH FUND
- GROWTH AND INCOME FUND
- SMALL CAP FUND
- UTILITY INCOME FUND
PAINEWEBBER GLOBAL FUNDS
- ASIA PACIFIC GROWTH FUND
- EMERGING MARKETS EQUITY FUND
- GLOBAL EQUITY FUND
- GLOBAL INCOME FUND
PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms. Shareholders who are not
PaineWebber clients must place exchange orders in writing with the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. All exchanges will be effected based on the relative net asset
values per share next determined after the exchange order is received at
PaineWebber's New York City offices or by the Transfer Agent. See "Valuation of
Shares." Exchanges may be made on any Business Day. A "Business Day" is each
day, Monday through Friday, on which the New York Stock Exchange ("NYSE") is
open.
This exchange privilege may be modified or terminated at any time, upon at
least 60 days' notice when such notice is required by SEC rules. See the
Statement of Additional Information for further details. This exchange privilege
is available only in those jurisdictions where the sale of the PaineWebber
mutual fund shares to be acquired may be legally made. Before making any
exchange, shareholders should contact their PaineWebber investment executives or
correspondent firms or the Transfer Agent to obtain more information and
prospectuses of the PaineWebber mutual funds to be acquired through the
exchange.
REDEMPTIONS
Fund shares may be redeemed (sold) at their net asset value (subject to any
applicable CDSC), and redemption proceeds will be paid after receipt of a
redemption request, as described below. PaineWebber clients may redeem shares
through PaineWebber or its correspondent firms; all other shareholders must
redeem through the Transfer Agent. If a redeeming shareholder owns shares of
more than one class, the shares will be redeemed in the following order unless
the shareholder specifically requests otherwise: Class A shares, then Class C
shares, and finally Class B shares.
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES. Class A shares held less
than one year are subject to a CDSC if the Class A shares of the PaineWebber
mutual fund initially purchased and subsequently exchanged for Class A shares of
the Fund were purchased without an initial sales charge due to the sales charge
waiver for purchases of $1 million or more. This CDSC is equal to 1% of the
lower of (a) the
12
<PAGE>
public offering price of the shares at the time of initial purchase or (b) the
net asset value of the shares at the time of redemption. For these purposes, the
public offering price of Fund shares is the public offering price of the Class A
shares of the other PaineWebber mutual fund when initially purchased and the
holding period of Class A shares of the Fund is calculated from the date the
Class A shares of the other PaineWebber mutual fund were initially purchased.
Class A shares will be considered to represent, as applicable, dividend and
capital gain distribution reinvestments in such other funds. Redemption order
will be determined as described for Class B shares (see "Contingent Deferred
Sales Charge--Class B Shares"). Class A shares acquired through reinvestment of
dividends and capital gain distributions are not subject to this CDSC. The CDSC
is waived for exchanges and for most redemptions in connection with the
systematic withdrawal plan. The amount of any CDSC will be paid to Mitchell
Hutchins.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A CDSC is imposed upon
most redemptions of Class B shares. The amount of the CDSC will be calculated by
multiplying the percentage indicated below by the lower of (a) the net asset
value of the shares at the time of initial purchase or (b) the net asset value
of the shares at the time of redemption. Class B shares held six years or longer
(four years or longer for Fund shares acquired in certain exchanges for Class B
shares of PaineWebber Low Duration U.S. Government Income Fund) and Class B
shares acquired through reinvestment of dividends or capital gain distributions
are not subject to the CDSC.
REDEMPTIONS OF FUND SHARES ACQUIRED THROUGH AN EXCHANGE FOR SHARES OF
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND.
<TABLE>
<CAPTION>
CDSC AS A
REDEMPTION PERCENTAGE OF
DURING NET ASSET VALUE
- ---------------------------------------- ---------------
<S> <C>
1st Year Since Purchase................. 3%
2nd Year Since Purchase................. 2
3rd Year Since Purchase................. 2
4th Year Since Purchase................. 1
5th Year Since Purchase................. None
</TABLE>
The schedule above will apply only if the exchanged shares would have been
subject to the same lower schedule had they been redeemed rather than exchanged
for Class B shares of the Fund.
REDEMPTIONS OF FUND SHARES ACQUIRED THROUGH AN EXCHANGE FOR SHARES OF ANY
OTHER PAINEWEBBER MUTUAL FUND.
<TABLE>
<CAPTION>
CDSC AS A
REDEMPTION PERCENTAGE OF
DURING NET ASSET VALUE
- ---------------------------------------- ---------------
<S> <C>
1st Year Since Purchase................. 5%
2nd Year Since Purchase................. 4
3rd Year Since Purchase................. 3
4th Year Since Purchase................. 2
5th Year Since Purchase................. 2
6th Year Since Purchase................. 1
7th Year Since Purchase................. None
</TABLE>
In determining the applicability and rate of any CDSC, it will be assumed
that a redemption is made first of Class B shares representing the reinvestment
of dividends and capital gain distributions and then of other shares held by the
shareholder for the longest period of time. The holding period of Class B shares
acquired through an exchange with another PaineWebber mutual fund will be
calculated from the date that the Class B shares were initially acquired in one
of the other funds, and Class B shares being redeemed will be considered to
represent, as applicable, dividend and capital gain distribution reinvestments
in such other funds. This will result in any CDSC being imposed at the lowest
possible rate. The amount of CDSC will be paid to Mitchell Hutchins.
SALES CHARGE WAIVERS--CLASS B SHARES. The CDSC will be waived for exchanges,
as described above, and for most redemptions in connection with the Fund's
systematic withdrawal plan. In addition, the CDSC will be waived for a total or
partial redemption if made within one year of the death of the shareholder. The
CDSC waiver is available where the decedent is either the sole shareholder or
owns the shares with his or her
13
<PAGE>
spouse as a joint tenant with right of survivorship. This waiver applies only to
redemption of shares held at the time of death. The CDSC will also be waived in
connection with a lump-sum or other distribution in the case of an individual
retirement account ("IRA"), a self-employed individual retirement plan
(so-called "Keogh Plan") or a custodial account under Section 403(b) of the
Internal Revenue Code following attainment of age 59 1/2; a total or partial
redemption resulting from a distribution following retirement in the case of a
tax-qualified retirement plan; and any redemption resulting from a tax-free
return of an excess contribution to an IRA.
CDSC waivers will be granted subject to confirmation (by PaineWebber in the
case of shareholders who are PaineWebber clients or by the Transfer Agent in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. Class C shares held less
than one year are subject to the same CDSC that would have been imposed on the
Class C shares of the PaineWebber mutual fund initially purchased and
subsequently exchanged for Class C shares of the Fund. This CDSC will be either
1% or 0.75% of the lower of (a) the net asset value of the shares at the time of
initial purchase or (b) the net asset value of the shares at the time of
redemption. For these purposes, the net asset value of Fund shares is the net
asset value of the Class C shares of the other PaineWebber mutual fund when
initially purchased, and the holding period of Class C shares of the Fund is
calculated from the date the Class C shares of the other PaineWebber mutual fund
were initially purchased. Class C shares will be considered to represent, as
applicable, dividend and capital gain distribution reinvestments in such other
funds. Redemption order will be determined as described for Class B shares (see
"Contingent Deferred Sales Charge-- Class B Shares"). Class C shares acquired
through reinvestment of dividends and capital gain distributions are not subject
to this CDSC. The CDSC is waived for exchanges and for most redemptions in
connection with the systematic withdrawal plan. The amount of any CDSC will be
paid to Mitchell Hutchins.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients
may submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder based upon the shares' net asset value next determined after receipt
of the request by PaineWebber's New York City offices. Within three Business
Days after receipt of the request, repurchase proceeds (less any applicable
CDSC) will be paid by check or credited to the shareholder's brokerage account
at the election of the shareholder. PaineWebber investment executives and
correspondent firms are responsible for promptly forwarding redemption requests
to PaineWebber's New York City offices.
PaineWebber reserves the right not to honor any redemption request, in which
case it promptly will forward the request to the Transfer Agent for treatment as
described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients must redeem their shares through the Transfer Agent by mail;
other shareholders also may redeem Fund shares through the Transfer Agent.
Shareholders should mail redemption requests directly to the Transfer Agent:
PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware
19899. A redemption request will be executed at the net asset value next
determined after it is received in "good order," and redemption proceeds will be
paid within seven days of receipt of the request. "Good order" means that the
request must be accompanied by
14
<PAGE>
the following: (1) a letter of instruction or a stock assignment specifying the
number of shares or amount of investment to be redeemed (or that all shares
credited to a Fund account be redeemed), signed by all registered owners of the
shares in the exact names in which they are registered, (2) a guarantee of the
signature of each registered owner by an eligible institution acceptable to the
Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, and (3) other supporting
legal documents for estates, trusts, guardianships, custodianships, partnerships
and corporations. Shareholders are responsible for ensuring that a request for
redemption is received in "good order."
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder may have redemption
proceeds of $1 million or more wired to the shareholder's PaineWebber brokerage
account or a commercial bank account designated by the shareholder. Questions
about this option, or redemption requirements generally, should be referred to
the shareholder's PaineWebber investment executive or correspondent firm, or to
the Transfer Agent if the shares are not held in a PaineWebber brokerage
account.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $500 net asset value. If the Fund elects to do
so, it will notify the shareholder and provide the shareholder the opportunity
to increase the amount invested to $500 or more within 60 days of the notice.
The Fund will not redeem accounts that fall below $500 solely as a result of a
reduction in net asset value per share.
TRANSFER OF ACCOUNTS. If a shareholder holding Fund shares in a PaineWebber
brokerage account transfers his brokerage account to another firm, the Fund
shares normally will be transferred to an account with the Transfer Agent.
However, if the other firm has entered into a selected dealer agreement with
Mitchell Hutchins relating to the Fund, the shareholder may be able to hold Fund
shares in an account with the other firm.
CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A shares
approximately six years after the date of issuance, together with a pro rata
portion of all Class B shares representing dividends and other distributions
paid in additional Class B shares. The Class B shares so converted will no
longer be subject to the higher expenses borne by Class B shares. The conversion
will be effected at the relative net asset values per share of the two classes
(normally $1.00) on the first Business Day of the month in which the sixth
anniversary of the issuance of the Class B shares occurs. See "Valuation of
Shares." If a shareholder effects one or more exchanges among Class B shares of
the PaineWebber mutual funds during the six-year period, the holding periods for
the shares so exchanged will be counted toward the six-year period.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund declares dividends daily from its net investment income
and pays them monthly. Shares begin earning dividends on the day after the
exchange is effected and continue to receive dividends declared through the date
of redemption. The Fund distributes its net short-term capital gain annually but
may make more frequent distributions of such gain if necessary to maintain its
net asset value per share at $1.00 or to avoid income or excise taxes. The Fund
does not expect to realize net long-term capital gain and thus does not
anticipate payment of any long-term capital gain distributions. Dividends paid
on all classes of shares are calculated at the same time and in the same manner.
Dividends on Class B and Class C shares are expected to be lower than those
15
<PAGE>
on Class A shares because of the higher expenses resulting from the distribution
fees borne by the Class B and Class C shares. Dividends on each class also might
be affected differently by the allocation of other class-specific expenses.
Dividends are paid in additional Fund shares of the same class unless the
shareholder has requested cash payments. Shareholders who wish to receive
dividends in cash, either mailed to the shareholder by check or credited to the
shareholder's PaineWebber account, should contact their PaineWebber investment
executives or correspondent firms.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income and net short-term capital gain,
if any) that is distributed to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or in additional Fund shares) are taxable to its shareholders as ordinary
income to the extent of its earnings and profits. Shareholders not subject to
tax on their income will not be required to pay tax on amounts distributed to
them.
The Fund notifies its shareholders following the end of each calendar year
of the amount of dividends paid that year.
The Fund is required to withhold 31% of all dividends payable to any
individuals and certain other noncorporate shareholders who do not provide the
Fund with a correct taxpayer identification number. Withholding at that rate
also is required from dividends payable to such shareholders who otherwise are
subject to backup withholding.
No gain or loss will be recognized to a shareholder as a result of a
conversion of Class B shares into Class A shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be other
federal, state or local tax considerations applicable to a particular investor.
Prospective shareholders are urged to consult their tax advisers.
VALUATION OF SHARES
The Fund uses its best efforts to maintain its net asset value at $1.00 per
share. Net asset value per share is determined by dividing the Fund's net assets
by the total number of Fund shares outstanding. The Fund's net assets are equal
to the value of the Fund's investments and its other assets less its
liabilities. Net asset value is determined separately for each class as of the
close of regular trading on the NYSE (currently 4:00 p.m., Eastern time) each
Business Day.
The Fund values its portfolio securities using the amortized cost method of
valuation, under which market value is approximated by amortizing the difference
between the acquisition cost and value at maturity of an instrument on a
straight-line basis over its remaining life. All cash, receivables and current
payables are carried at their face value. Other assets, if any, are valued at
fair value as determined in good faith by or under the direction of the board.
MANAGEMENT
The board, as part of its overall management responsibility, oversees
various organizations responsible for the Fund's day-to-day management. Mitchell
Hutchins, the Fund's investment adviser and administrator, makes and implements
all investment decisions and supervises all aspects of the Fund's operations.
Mitchell Hutchins
16
<PAGE>
receives a monthly fee for these services at the annual rate of 0.50% of the
Fund's average daily net assets.
The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. In accordance with procedures adopted by the board, the Fund may pay fees
to PaineWebber for its services as lending agent in its portfolio securities
lending program.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019, and is an asset management subsidiary of PaineWebber, which is
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. As of May 31, 1997, Mitchell Hutchins was adviser or subadviser
of 30 investment companies with 65 separate portfolios and aggregate assets of
over $43 billion.
Mitchell Hutchins investment personnel may engage in securities transactions
for their own accounts pursuant to a code of ethics that establishes procedures
for personal investing and restricts certain transactions.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of Fund
shares and has appointed PaineWebber as the exclusive dealer for the sale of
Fund shares. Under separate plans of distribution pertaining to the Class A
shares, the Class B shares and the Class C shares ("Class A Plan," "Class B
Plan" and "Class C Plan," collectively, "Plans"), the Fund pays Mitchell
Hutchins:
- Monthly service fees at the annual rate of 0.25% of the average daily net
assets of each class of shares.
- Monthly distribution fees at the annual rate of 0.50% of the average daily
net assets of Class B and Class C shares.
Under the Plans, Mitchell Hutchins uses the service fees primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of
the aggregate investment amounts maintained in the Fund by PaineWebber clients.
PaineWebber passes on a portion of these fees to its investment executives to
compensate them for shareholder servicing that they perform and retains the
remainder to offset its own expenses in servicing and maintaining shareholder
accounts. These expenses may include costs of the PaineWebber branch office in
which the investment executive is based, such as rent, communications equipment,
employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to offset the Fund's marketing costs attributable to those classes, such
as preparation of sales literature, advertising and printing and distributing
prospectuses and other shareholder materials to prospective investors. Mitchell
Hutchins also may use the distribution fees to pay additional compensation to
PaineWebber and other costs allocated to Mitchell Hutchins' and PaineWebber's
distribution activities, including employee salaries, bonuses and other overhead
expenses. These expenses may include the branch office costs noted above.
Because shares of the Fund may be acquired only through an exchange of shares of
other PaineWebber mutual funds, Mitchell Hutchins does not pay commissions to
PaineWebber for selling Fund shares.
Mitchell Hutchins receives the proceeds of the CDSCs paid upon certain
redemptions and may use these proceeds for any of the expenses described above.
See "Redemptions."
During the period they are in effect, the Plans and related distribution
contracts pertaining to each class of shares ("Distribution Contracts") obligate
the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its
17
<PAGE>
service and distribution activities, not as reimbursement for specific expenses
incurred. Therefore, even if Mitchell Hutchins' expenses exceed its service or
distribution fees, the Fund will not be obligated to pay more than those fees.
On the other hand, if Mitchell Hutchins' expenses are less than such fees, it
will retain its full fees and realize a profit. The Fund will pay the service
and distribution fees to Mitchell Hutchins until either the applicable Plan or
Distribution Contract is terminated or not renewed. In that event, Mitchell
Hutchins' expenses in excess of service and distribution fees received or
accrued through the termination date will be Mitchell Hutchins' sole
responsibility and not obligations of the Fund. In their annual consideration of
the continuation of each Plan, the directors will review the Plan and Mitchell
Hutchins' corresponding expenses for each class separately from the Plans and
expenses for the other two classes.
PERFORMANCE INFORMATION
From time to time the Fund may advertise its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of the Fund is the income on an
investment in the Fund over a specified seven-day period. This income is then
"annualized" (that is, assumed to be earned each week over a 52-week period) and
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but when annualized the income earned is assumed to be reinvested.
The "effective yield" will be higher than the "yield" because of the compounding
effect of this assumed reinvestment.
GENERAL INFORMATION
ORGANIZATION. PaineWebber Master Series, Inc. is registered with the SEC as
a diversified, open-end management investment company and was incorporated in
Maryland on October 29, 1985. The Fund commenced operations on September 26,
1986. The Corporation has authority to issue 10 billion shares of common stock
of separate series, par value $.001 per share; one billion of these shares are
classified as shares of the Fund, and the remaining shares are classified as
shares of the Corporation's other series.
The outstanding shares of common stock of the Fund are divided into three
Classes, designated Class A shares, Class B shares and Class C shares. Each
class represents interests in the same assets of the Fund. The classes differ as
follows: (1) each class of shares has exclusive voting rights on matters
pertaining to its plan of distribution; (2) Class B shares bear ongoing
distribution fees, are subject to a CDSC upon most redemptions and will
automatically convert to Class A shares approximately six years after issuance;
(3) Class C shares may be subject to a CDSC if redeemed within one year of
purchase, bear ongoing distribution expenses and do not convert into another
class; and (4) each class may bear differing amounts of certain class-specific
expenses. The different sales charges and other expenses applicable to the
different classes of Fund shares may affect the performance of those classes.
The Corporation does not hold annual shareholder meetings. There normally
will be no meetings of shareholders to elect directors unless fewer than a
majority of the directors holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of the outstanding shares of
the Corporation may remove a director by votes cast in person or by proxy at a
meeting called for that purpose. The directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when so requested in writing by the shareholders of record holding at
least 10% of the Corporation's outstanding shares.
Each share of the Fund is entitled to participate equally in dividends and
other distributions
18
<PAGE>
and the proceeds of any liquidation except that, due to the differing expenses
borne by the three classes, dividends are likely to be lower for the Class B and
Class C shares than for the Class A shares. Shareholders of the Fund are
entitled to one vote for each full share held and fractional votes for
fractional shares held. Voting rights are not cumulative and, as a result, the
holders of more than 50% of the shares of the Corporation may elect all of its
directors. The shares of the Fund will be voted together, except that only the
shareholders of a particular class of the Fund may vote on matters affecting
only that class, such as the terms of a Plan as it relates to a class. The
shares of each series of the Corporation will be voted separately, except when
an aggregate vote of all the securities is required by law.
CERTIFICATES. To avoid additional operating costs and for investor
convenience, the Fund does not issue share certificates. Ownership of Fund
shares is recorded on a stock register by the Transfer Agent and shareholders
have the same rights of ownership with respect to such shares as if certificates
had been issued.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is custodian of the Fund's
assets. PFPC Inc., a subsidiary of PNC Bank, N.A., 400 Bellevue Parkway,
Wilmington, Delaware 19809, is the Fund's transfer and dividend disbursing
agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of
purchases and redemptions of Fund shares. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semiannual financial
statements of the Fund.
19
<PAGE>
Shares of the Fund can be exchanged for shares of the following PaineWebber
Mutual Funds:
PAINEWEBBER BOND FUNDS
- - High Income Fund
- - Investment Grade Income Fund
- - Low Duration U.S. Government Income Fund
- - Strategic Income Fund
- - U.S. Government Income Fund
PAINEWEBBER TAX-FREE BOND FUNDS
- - California Tax-Free Income Fund
- - Municipal High Income Fund
- - National Tax-Free Income Fund
- - New York Tax-Free Income Fund
PAINEWEBBER ASSET ALLOCATION FUNDS
- - Balanced Fund
- - Tactical Allocation Fund
PAINEWEBBER STOCK FUNDS
- - Capital Appreciation Fund
- - Financial Services Growth Fund
- - Growth Fund
- - Growth and Income Fund
- - Small Cap Fund
- - Utility Income Fund
PAINEWEBBER GLOBAL FUNDS
- - Asia Pacific Growth Fund
- - Emerging Markets Equity Fund
- - Global Equity Fund
- - Global Income Fund
--------------
A prospectus containing more complete information for any of the above funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Read the prospectus carefully before investing.
- -C-1997 PaineWebber Incorporated
PAINEWEBBER
MONEY
MARKET
/ / FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Financial Highlights...................................................... 6
Investment Objective and Policies......................................... 9
Investing in the Fund..................................................... 11
Redemptions............................................................... 12
Conversion of Class B Shares.............................................. 15
Dividends and Taxes....................................................... 15
Valuation of Shares....................................................... 16
Management................................................................ 16
Performance Information................................................... 18
General Information....................................................... 18
</TABLE>
PROSPECTUS
July 1, 1997
<PAGE>
PAINEWEBBER MONEY MARKET FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Money Market Fund ("Fund") is a diversified series of
PaineWebber Master Series, Inc. ("Corporation"), a professionally managed mutual
fund. The Fund's investment adviser, administrator and distributor is Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary
of PaineWebber Incorporated ("PaineWebber"). As distributor for the Fund,
Mitchell Hutchins has appointed PaineWebber to serve as the exclusive dealer for
the sale of Fund shares. This Statement of Additional Information is not a
prospectus and should be read only in conjunction with the Fund's current
Prospectus, dated July 1, 1997. A copy of the Prospectus may be obtained by
calling any PaineWebber investment executive or correspondent firm or by calling
toll-free 1-800-647-1568. This Statement of Additional Information is dated July
1, 1997.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
YIELDS AND RATINGS OF MONEY MARKET INSTRUMENTS. The yields on the money
market instruments in which the Fund invests (such as U.S. government
securities, commercial paper and bank obligations) are dependent on a variety of
factors, including general money market conditions, conditions in the particular
market for the obligation, the financial condition of the issuer, the size of
the offering, the maturity of the obligation and the ratings of the issue. The
ratings of nationally recognized statistical rating organizations ("NRSROs")
represent their opinions as to the quality of the obligations they undertake to
rate. Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices. Subsequent to its purchase by the Fund, an issue
may cease to be rated or its rating may be reduced. In the event that a security
in the Fund's portfolio ceases to be a "First Tier" security, as defined below,
or Mitchell Hutchins becomes aware that a security has received a rating below
the second highest rating by any NRSRO, Mitchell Hutchins, and in certain cases
the Corporation's board of directors ("board"), will consider whether the Fund
should continue to hold the obligation. A "First Tier" security is a security
that is either (1) rated in the highest short-term rating category by at least
two NRSROs, (2) rated in the highest short-term rating category by a single
NRSRO if only that NRSRO has assigned the obligation a short-term rating, (3)
was issued by an issuer that has received such a short-term rating with respect
to a security that is comparable in priority and security, or (4) unrated, but
determined by Mitchell Hutchins to be of comparable quality. A First Tier
security rated in the highest short-term rating category by a single NRSRO at
the time of purchase that subsequently receives a rating below the highest
rating category from a different NRSRO will continue to be considered a First
Tier security.
VARIABLE AND FLOATING RATE DEMAND INSTRUMENTS. As noted in the Prospectus,
the Fund may invest in variable and floating rate securities with demand
features. A demand feature gives the Fund the right to sell the securities back
to a specified party, usually a remarketing agent, on a specified date, at a
price equal to their amortized cost value plus accrued interest. A demand
feature is often backed by a letter of credit, guarantee or other liquidity
support arrangement from a bank or other financial institution, that may be
<PAGE>
drawn upon demand, after specified notice, for all or any part of the exercise
price of the demand feature. Generally, the Fund intends to exercise demand
features (1) upon a default under the terms of the underlying security, (2) to
maintain the Fund's portfolio in accordance with its investment objective and
policies or applicable legal or regulatory requirements or (3) as needed to
provide liquidity to the Fund in order to meet redemption requests. The ability
of a bank or other financial institution to fulfill its obligations under a
letter of credit, guarantee or other liquidity arrangement might be affected by
possible financial difficulties of its borrowers, adverse interest rate or
economic conditions, regulatory limitations or other factors. The interest rate
on floating rate or variable rate securities ordinarily is readjusted on the
basis of the prime rate of the bank that originated the financing or some other
index or published rate, such as the 90-day U.S. Treasury bill rate, or is
otherwise reset to reflect market rates of interest. Generally, these interest
rate adjustments cause the market value of floating rate and variable rate
securities to fluctuate less than the market value of fixed rate obligations.
REPURCHASE AGREEMENTS. As stated in the Prospectus, the Fund may enter into
repurchase agreements with respect to any security in which it is authorized to
invest, except that securities subject to repurchase agreements may have
maturities in excess of 13 months. The Fund maintains custody of the underlying
securities prior to their repurchase; thus, the obligation of the bank or
securities dealer to pay the repurchase price on the date agreed to or upon
demand is, in effect, secured by such securities. If the value of these
securities is less than the repurchase price, plus any agreed-upon additional
amount, the other party to the agreement must provide additional collateral so
that at all times the collateral is at least equal to the repurchase price plus
any agreed-upon additional amount. The difference between the total amount to be
received upon repurchase of the securities and the price that was paid by the
Fund upon acquisition is accrued as interest and included in the Fund's net
investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities. The Fund intends to enter into repurchase agreements
only with banks and dealers in transactions believed by Mitchell Hutchins to
present minimal credit risks in accordance with guidelines established by the
board. Mitchell Hutchins will review and monitor the creditworthiness of those
institutions under the board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of its total assets. Such agreements involve the sale of securities
held by the Fund subject to the Fund's agreement to repurchase the securities at
an agreed-upon date or upon demand and at a price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, the Fund's custodian segregates assets to cover the
Fund's obligations under the reverse repurchase agreement.
ILLIQUID SECURITIES. The Fund will not invest more than 10% of its net
assets in illiquid securities. The term "illiquid securities" for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, repurchase agreements maturing in
more than seven days and restricted securities other than those Mitchell
Hutchins has determined to be liquid pursuant to guidelines established by the
board.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933 ("1933 Act"), including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes.
2
<PAGE>
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment in
order to satisfy share redemption orders. Such markets include automated systems
for the trading, clearance and settlement of unregistered securities, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc. An insufficient number of qualified institutional buyers interested in
purchasing certain restricted securities held by the Fund, however, could affect
adversely the marketability of such portfolio securities, and the Fund might be
unable to dispose of such securities promptly or at favorable prices.
The board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins, pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities held by the Fund and reports periodically on such
decisions to the board.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a "when-issued" or "delayed delivery" basis. A security purchased
on a when-issued or delayed delivery basis is recorded as an asset on the
commitment date and is subject to changes in market value, generally based upon
changes in the level of interest rates. Thus, fluctuation in the value of the
security from the time of the commitment date will affect the Fund's net asset
value. When the Fund commits to purchase securities on a when-issued or delayed
delivery basis, its custodian segregates assets to cover the amount of the
commitment. See "Investment Policies and Restrictions--Segregated Accounts."
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis, the Fund will
maintain with an approved custodian in a segregated account cash or liquid
securities, marked to market daily, in an amount at least equal to the Fund's
obligation or commitment under such transactions.
LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, the Fund
is authorized to lend up to 33 1/3% of its total assets to broker-dealers or
institutional investors that Mitchell Hutchins deems qualified, but only when
the borrower maintains acceptable collateral with the Fund's custodian, marked
to market daily, in an amount at least equal to the market value of the
securities loaned, plus accrued interest 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. 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
3
<PAGE>
the borrower. The Fund will retain authority to terminate any loan at any time.
The Fund may pay reasonable fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will retain record ownership of loaned securities to
exercise beneficial rights, such as voting and subscription rights and rights to
dividends, interest or other distributions, when regaining such rights is
considered to be in the Fund's interest.
Pursuant to procedures adopted by the board governing the Fund's securities
lending program, the board has approved retention of PaineWebber to serve as
lending agent for the Fund. The board also has authorized the payment of fees
(including fees calculated as a percentage of invested cash collateral) to
PaineWebber for these services. The board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
INVESTMENT LIMITATIONS OF THE FUND
FUNDAMENTAL LIMITATIONS. The following fundamental investment limitations
cannot be changed without the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the Fund or (2) 67% or more of the Fund's
shares present at a shareholders' meeting if more than 50% of the outstanding
Fund shares are represented at the meeting in person or by proxy. If a
percentage restriction is adhered to at the time of an investment or
transaction, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of total assets will not be
considered a violation of any of the following limitations.
The Fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5% of the
Fund's total assets would be invested in securities of that issuer or the
Fund would own or hold more than 10% of the outstanding voting securities of
that issuer, except that up to 25% of the Fund's total assets may be
invested without regard to this limitation, and except that this limitation
does not apply to securities issued or guaranteed by the U.S. government,
its agencies and instrumentalities or to securities issued by other
investment companies.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage-and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the
securities having the same sponsor, and mortgage- and asset-backed
securities issued by a finance or other special purpose subsidiary that are
not guaranteed by the parent company will be considered to be issued by a
separate issuer from the parent company.
(2) purchase any security if, as a result of that purchase, 25% or more of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry, except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities or
to certificates of deposit and bankers' acceptances of domestic branches of
U.S. banks.
The following interpretation applies to, but is not a part of, this
fundamental restriction: With respect to this limitation, domestic and
foreign banking will be considered to be different industries.
(3) issue senior securities or borrow money, except as permitted under the
Investment Company Act of 1940 ("1940 Act") and then not in excess of
33 1/3% of the Fund's total assets (including the amount of
4
<PAGE>
the senior securities issued but reduced by any liabilities not constituting
senior securities) at the time of the issuance or borrowing, except that the
Fund may borrow up to an additional 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances
or similar instruments will not be considered the making of a loan.
(5) engage in the business of underwriting securities of other issuers, except
to the extent that the Fund might be considered an underwriter under the
federal securities laws in connection with its disposition of portfolio
securities.
(6) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by
interests in real estate are not subject to this limitation, and except that
the Fund may exercise rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be
liquidated in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result of owning
securities or other instruments, but the Fund may purchase, sell or enter
into financial options and futures, forward and spot currency contracts,
swap transactions and other financial contracts or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are not
fundamental and may be changed by the vote of the board without shareholder
approval.
The Fund will not:
(1) purchase securities on margin, except for short-term credit necessary for
clearance of portfolio transactions and except that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments.
(2) engage in short sales of securities or maintain a short position, except
that the Fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments.
(3) purchase securities of other investment companies, except to the extent
permitted by the 1940 Act and except that this limitation does not apply to
securities received or acquired as dividends, through offers of exchange, or
as a result of reorganization, consolidation, or merger.
(4) purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding.
5
<PAGE>
DIRECTORS AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The directors and executive officers of the Corporation, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------------------ -------------------- ---------------------------------------------------
<S> <C> <C>
Margo N. Alexander**; 50 Director and Mrs. Alexander is president, chief executive
President officer and a director of Mitchell Hutchins
(since January 1995) and an executive vice
president and director of PaineWebber. Mrs.
Alexander is president and a director or trustee
of 29 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Richard Q. Armstrong; 61 Director Mr. Armstrong is chairman and principal of RQA
78 West Brother Drive Enterprises (management consulting firm) (since
Greenwich, CT 06830 April 1991 and principal occupation since March
1995). Mr. Armstrong is also a director of HiLo
Automotive, Inc. He was chairman of the board,
chief executive officer and co-owner of
Adirondack Beverages (producer and distributor of
soft drinks and sparkling/still waters) (October
1993-March 1995). Mr. Armstrong was a partner of
The New England Consulting Group (management
consulting firm) (December 1992-September 1993).
He was managing director of LVMH U.S. Corpora-
tion (U.S. subsidiary of the French luxury goods
conglomerate, Luis 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 28 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
E. Garrett Bewkes, Jr.**; 70 Director and Mr. Bewkes is a director of Paine Webber Group Inc.
Chairman of the ("PW Group") (holding company of PaineWebber and
Board Mitchell Hutchins). Prior to December 1995 he was
a consultant to PW Group. Prior to 1988, he was
chairman of the board, president and chief execu-
tive officer of American Bakeries Company.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------------------ -------------------- ---------------------------------------------------
<S> <C> <C>
Mr. Bewkes is a director of Interstate Bakeries
Corporation and NaPro BioTherapeutics, Inc. Mr.
Bewkes is a director or trustee of 29 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard R. Burt; 50 Director Mr. Burt is chairman of International Equity
1101 Connecticut Avenue, N.W. Partners (international investments and con-
Washington, D.C. 20036 sulting firm) (since March 1994) and a partner of
McKinsey & Company (management consulting firm)
(since 1991). He is also a director of American
Publishing Company and Archer-Daniels Midland Co.
(agricultural commodities). He was the chief
negotiator in the Strategic Arms Reduction Talks
with the former Soviet Union (1989-1991) and the
U.S. Ambassador to the Federal Republic of
Germany (1985-1989). Mr. Burt is a director or
trustee of 28 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Mary C. Farrell**; 47 Director Ms. Farrell is a managing director, senior
investment strategist and member of
the Investment Policy Committee of PaineWebber.
Ms. Farrell joined PaineWebber in 1982. She is a
member of the Financial Women's Association and
Women's Economic Roundtable, and is employed 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 or PaineWebber serves as investment
adviser.
Meyer Feldberg; 55 Director Mr. Feldberg is Dean and Professor of Management of
Columbia University the Graduate School of Business, Columbia
101 Uris Hall University. Prior to 1989, he was president of
New York, New York 10027 the Illinois Institute of Technology. Mr.
Feldberg is a director of
K-III Communications Corporation, Federated
Department Stores, Inc. and Revlon,
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------------------ -------------------- ---------------------------------------------------
<S> <C> <C>
Inc.. Mr. Feldberg is a director or trustee of 28
investment companies for which Mitchell Hutchins
or PaineWebber serves as an investment adviser.
George W. Gowen; 67 Director 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 of Columbia
Real Estate Investments, Inc. Mr. Gowen is a
director or trustee of 28 investment companies
for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Frederic V. Malek; 60 Director Mr. Malek is chairman of Thayer Merchant Capital
1455 Pennsylvania Ave. N.W. Partners (merchant bank). From January 1992 to
Suite 350 November 1992, he was campaign manager of
Washington, D.C. 20004 Bush-Quayle '92. From 1990 to 1992, he was vice
chairman and, from 1989 to 1990, he was president
of Northwest Airlines Inc., NWA Inc. (holding
company of Northwest Airlines Inc.) and Wings
Holdings Inc. (holding company of NWA Inc.).
Prior to 1989, he was employed by the Marriott
Corporation (hotels, restaurants, airline
catering and contract feeding), where he most
recently was an executive vice president and
president of Marriott Hotels and Resorts. Mr.
Malek is also a director of American Management
Systems, Inc. (management consulting and
computer-related services), Automatic Data
Processing, Inc., CB Commercial Group, Inc. (real
estate services), Choice Hotels International
(hotel and hotel franchising), FPL Group, Inc.
(electric services), Integra, Inc. (bio-medical),
Manor Care, Inc. (healthcare), National Education
Corporation and Northwest Airlines Inc. Mr. Malek
is a director or trustee of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Carl W. Schafer; 61 Director Mr. Schafer is president of the Atlantic Foun-
P. O. Box 1164 dation (charitable foundation supporting mainly
Princeton, New Jersey 08542 oceanographic exploration and
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------------------ -------------------- ---------------------------------------------------
<S> <C> <C>
research). He is a director of Roadway Express,
Inc. (trucking), The Guardian Group of Mutual
Funds, Evans Systems, Inc. (motor fuels,
convenience store and diversified company),
Electronic Clearing House, Inc. (financial
transactions processing), Wainoco Oil Corporation
and Nutraceutix Inc. (biotechnology company).
Prior to January 1993, Mr. Schafer was chairman
of the Investment Advisory Committee of the
Howard Hughes Medical Institute. Mr. Schafer is a
director or trustee of 28 investment companies
for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
T. Kirkham Barneby; 50 Vice President Mr. Barneby is a managing director and chief
investment officer--quantitative investments of
Mitchell Hutchins. Prior to September 1994, he
was a senior vice president at Vantage Global
Management. Prior to June 1993, he was a senior
vice president at Mitchell Hutchins. Mr. Barneby
is a vice president of five investment companies
for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dennis McCauley; 50 Vice President Mr. McCauley is a managing director and chief
investment officer--fixed income of Mitchell
Hutchins. Prior to December 1994, he was director
of fixed income investments of IBM Corporation.
Mr. McCauley is a vice president of 19 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president of Mitchell Hutchins
Assistant Treasurer and a manager of the mutual fund finance
division. Ms. Moran is a vice president and
assistant treasurer of 29 investment companies
for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice president and deputy
Secretary general counsel of Mitchell Hutchins. Ms.
O'Donnell is a vice president
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------------------ -------------------- ---------------------------------------------------
<S> <C> <C>
and secretary of 28 investment companies, and
vice president and assistant secretary of one
investment company, for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Emil Polito; 36 Vice President Mr. Polito is a senior vice president and director
of operations and control for Mitchell Hutchins.
From March 1991 to September 1993 he was director
of the Mutual Funds Sales Support and Service
Center for Mitchell Hutchins and PaineWebber. Mr.
Polito is vice president of 29 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Susan Ryan; 37 Vice President Ms. Ryan is a senior vice president and portfolio
manager of Mitchell Hutchins. Ms. Ryan has been
with Mitchell Hutchins since 1982. Ms. Ryan is a
vice president of five investment companies for
which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing director and general
counsel of Mitchell Hutchins. Prior to May 1994,
she was a partner in the law firm of Arnold &
Porter. Ms. Schonfeld is a vice president of 29
investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Paul H. Schubert; 34 Vice President and Mr. Schubert is a first vice president and the
Treasurer director of the mutual fund finance division of
Mitchell Hutchins. From August 1992 to August
1994, he was a vice president of BlackRock
Financial Management L.P. Prior to August 1992,
he was an audit manager with Ernst & Young LLP.
Mr. Schubert is a vice president and treasurer of
29 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Nirmal Singh; 39 Vice President Mr. Singh is a senior vice president and a port-
folio manager of Mitchell Hutchins. Prior to
September 1993, he was a member of the
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------------------ -------------------- ---------------------------------------------------
<S> <C> <C>
portfolio management team at Merrill Lynch Asset
Management, Inc. Mr. Singh is a vice president of
five investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Barney A. Taglialatela; 36 Vice President and Mr. Taglialatela is a vice president and a manger
Assistant Treasurer of the mutual fund finance division of Mitchell
Hutchins. Prior to February 1995, he was a
manager of the mutual fund finance division of
Kidder Peabody Asset Management, Inc. Mr.
Taglialatela is a vice president and assistant
treasurer of 28 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Mark A. Tincher; 41 Vice President Mr. Tincher is a managing director and
chief investment officer--equities of Mitchell
Hutchins. Prior to March 1995, he was a vice
president and directed the U.S. funds management
and equity research areas of Chase Manhattan
Private Bank. Mr. Tincher is a vice president of
13 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Craig M. Varrelman; 38 Vice President Mr. Varrelman is a first vice president and a
portfolio manager of Mitchell Hutchins. Mr.
Varrelman is a vice president of five investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Keith A. Weller; 35 Vice President and Mr. Weller is a first vice president and associate
Assistant Secretary general counsel of Mitchell Hutchins. Prior to
May 1995, he was an attorney in private practice.
Mr. Weller is a vice president and assistant
secretary of 28 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Ian W. Williams; 39 Vice President and Mr. Williams is a vice president and a manger of
Assistant Treasurer the mutual fund finance division of Mitchell
Hutchins. Prior to June 1992, he was an audit
senior accountant with Price
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH THE CORPORATION OTHER DIRECTORSHIPS
- ------------------------------------ -------------------- ---------------------------------------------------
<S> <C> <C>
Waterhouse LLP. Mr. Williams is a vice president
and assistant treasurer of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
- ---------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, N.Y. 10019.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of the
Corporation as defined in the 1940 Act by virtue of their positions with PW
Group, PaineWebber and/or Mitchell Hutchins.
The Corporation pays directors who are not interested persons of the
Corporation $1,000 annually for the Fund and $1,500 annually for the
Corporation's other series and $150 for each meeting of a board committee (other
than committee meetings held on the same day as a board meeting). The
Corporation thus pays each such director $2,500 annually, plus any additional
amounts due for board or committee meetings. Each chairman of the audit and
contract review committees of individual funds within the PaineWebber complex
receives additional compensation aggregating $15,000 annually from the relevant
funds. All directors are reimbursed for any expenses incurred in attending
meetings. Directors and officers of the Corporation own in the aggregate less
than 1% of the shares of the Fund. Because PaineWebber and Mitchell Hutchins
perform substantially all of the services necessary for the operation of the
Corporation and the Fund, the Corporation requires no employees. No officer,
director or employee of PaineWebber or Mitchell Hutchins presently receives any
compensation from the Corporation for acting as director or officer.
12
<PAGE>
The table below includes certain information relating to the compensation of
the Corporation's current directors who held office with the Corporation or
other PaineWebber funds during the fiscal year ended February 28, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM THE
COMPENSATION CORPORATION
FROM THE AND THE
NAME OF PERSON, POSITION CORPORATION* COMPLEX+
- -------------------------------------------------- -------------- --------------
<S> <C> <C>
Richard Q. Armstrong, Director.................... $ 2,769 $ 59,873
Richard R. Burt, Director......................... 2,469 51,173
Meyer Feldberg, Director.......................... 5,014 96,181
George W. Gowen, Director......................... 5,014 92,431
Frederic V. Malek, Director....................... 5,014 92,431
Carl W. Schafer, Director......................... 2,769 62,307
</TABLE>
- ---------
Only independent members of the board are compensated by the Corporation and
identified above; directors who are "interested persons," as defined by the
1940 Act, do not receive compensation.
* Represents fees paid to each director during the fiscal year ended February
28, 1997; the Corporation does not have a pension or retirement plan.
+ Represents total compensation paid to each director during the calendar year
ended December 31, 1996.
PRINCIPAL HOLDERS OF SECURITIES
The Fund's records as of May 31, 1997 did not indicate that any shareholder
owned more than 5% of any class of the Fund's shares.
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. Mitchell Hutchins acts
as the investment adviser and administrator of the Fund pursuant to a contract
with the Corporation dated August 4, 1988 ("Advisory Contract"). Under the
Advisory Contract, the Fund pays Mitchell Hutchins a fee, computed daily and
paid monthly, at the annual rate of 0.50% of the Fund's average daily net
assets.
During the fiscal years ended February 28, 1997, February 29, 1996 and
February 28, 1995, the Fund paid (or accrued) to Mitchell Hutchins investment
advisory and administrative fees of $215,423, $312,991, and $536,405,
respectively.
Under a service agreement that is reviewed annually by the board,
PaineWebber provides certain services to the Fund not otherwise provided by the
Fund's transfer agent. Pursuant to the service agreement, during the fiscal
years ended February 28, 1997, February 29, 1996 and February 28, 1995, the Fund
paid or accrued to PaineWebber $13,300, $17,432, and $21,549, respectively.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Corporation not readily identifiable as
belonging to the Fund or to the Corporation's other series are allocated among
series by or under the direction of the board in such manner as the board deems
to be fair and equitable. Expenses borne by the Fund include the following (or
the Fund's share of the following): (1) the cost (including any
13
<PAGE>
brokerage commissions) of securities purchased or sold by the Fund and any
losses incurred in connection therewith; (2) fees payable to and expenses
incurred on behalf of the Fund by Mitchell Hutchins; (3) organizational
expenses; (4) filing fees and expenses relating to the registration and
qualification of the Fund's shares and the Corporation under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to directors who are not interested persons of the
Corporation or Mitchell Hutchins; (6) all expenses incurred in connection with
the directors' services, including travel expenses; (7) taxes (including any
income or franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds; (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Corporation or the Fund for violation of any
law; (10) legal, accounting and auditing expenses, including legal fees of
special counsel for the independent directors; (11) charges of custodians,
transfer agents and other agents; (12) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders, and
costs of mailing such materials to existing shareholders; (13) any extraordinary
expenses (including fees and disbursements of counsel) incurred by the
Corporation or the Fund; (14) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (15)
costs of mailing and tabulating proxies and costs of meetings of shareholders,
the board and any committees thereof; (16) the cost of investment company
literature and other publications provided to directors and officers; and (17)
costs of mailing, stationery and communications equipment.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Advisory Contract terminates
automatically upon assignment and is terminable with respect to the Fund at any
time without penalty by the board or by vote of the holders of a majority of the
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to the Fund.
The following table shows the approximate net assets as of May 31, 1997,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS ($
INVESTMENT CATEGORY MIL)
- -------------------------------------------------- -----------------
<S> <C>
Domestic (excluding Money Market)................. $ 5,757.7
Global............................................ 3,109.4
Equity/Balanced................................... 3,943.5
Fixed Income (excluding Money Market)............. 4,923.6
Taxable Fixed Income.......................... 3,379.7
Tax-Free Fixed Income......................... 1,543.9
Money Market Funds................................ 23,869.9
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber funds and other Mitchell Hutchins' advisory
accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the
14
<PAGE>
code of ethics puts restrictions on the timing of personal investing in relation
to trades by PaineWebber funds and other Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class C shares of the Fund under separate distribution
contracts with the Corporation (collectively, "Distribution Contracts") that
require Mitchell Hutchins to use its best efforts, consistent with its other
businesses, to sell shares of the Fund. Shares of the Fund are offered
continuously. Under separate exclusive dealer agreements between Mitchell
Hutchins and PaineWebber relating to the Class A, Class B and Class C shares of
the Fund (collectively, "Exclusive Dealer Agreements"), PaineWebber and its
correspondent firms sell the Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares of the Fund adopted by the Corporation in the manner prescribed
under Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan" and "Class C
Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins a service fee,
accrued daily and payable monthly, at the annual rate of 0.25% of the average
daily net assets of each Class of shares. Under the Class B and Class C Plans,
the Fund pays Mitchell Hutchins distribution fees, accrued daily and payable
monthly, at the annual rate of 0.50% of the average daily net assets of the
Class B shares and the Class C shares.
Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the board at least quarterly, and the board will review, reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, (2) the Plan will continue in effect only so long as it
is approved at least annually, and any material amendment thereto is approved,
by the board, including those directors who are not "interested persons" of the
Corporation and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related to the Plan, acting in person at
a meeting called for that purpose, (3) payments by the Fund under the Plan shall
not be materially increased without the affirmative vote of the holders of a
majority of the outstanding shares of the relevant Class and (4) while the Plan
remains in effect, the selection and nomination of directors who are not
"interested persons" of the Corporation shall be committed to the discretion of
the directors who are not "interested persons" of the Corporation.
In reporting amounts expended under the Plans to the directors, Mitchell
Hutchins will allocate expenses attributable to the sale of each class of Fund
shares to such class based on the ratio of sales of shares of such class to the
sales of all three classes of shares. The fees paid by one class of Fund shares
will not be used to subsidize the sale of any other class of Fund shares.
For the fiscal year ended February 28, 1997, the Fund paid (or accrued) fees
to Mitchell Hutchins under the Plans as follows: Class A--$38,451, Class
B--$169,463 and Class C--$38,313.
Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Fund for the fiscal year ended February 28, 1997:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------- ---------- ----------
<S> <C> <C> <C>
Marketing and advertising......................... $ 20,722 $ 30,449 $ 6,882
Amortization of commissions....................... N/A 81,220 11,247
Printing of prospectuses and statements of
additional information for other than current
shareholders.................................... 341 492 114
Branch network costs allocated and interest
expense......................................... 29,631 50,574 9,970
Service fees paid to PaineWebber investment
executives...................................... 14,305 21,025 4,775
</TABLE>
15
<PAGE>
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins in its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network costs
allocated and interest expense" consist of an allocated portion of the expenses
of various PaineWebber departments involved in the distribution of the Fund's
shares, including the PaineWebber retail branch system.
In approving the Class A Plan, the board considered all the features of the
distribution system, including (1) the benefit to the Fund and its shareholders
of the Fund being available as an exchange vehicle for the Class A shares of
other PaineWebber mutual funds such that Class A Fund shares could be exchanged
with Class A shares of other PaineWebber mutual funds without an initial sales
charge being incurred, (2) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued growth,
(3) the services provided to the Fund and its shareholders by Mitchell Hutchins,
(4) the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (5) Mitchell Hutchins' shareholder
service-related expenses and costs.
In approving the Class B Plan, the board considered all the features of the
distribution system, including (1) the conditions under which contingent
deferred sales charges would be imposed and the amount of such charges, (2) the
benefit to the Fund and its shareholders of the Fund being available as an
exchange vehicle for shares of the corresponding class of other PaineWebber
mutual funds such that Class B Fund shares could be exchanged with shares of the
corresponding class of other PaineWebber mutual funds without a contingent
deferred sales charge being incurred; (3) the advantages to the shareholders of
economies of scale resulting from growth in the Fund's assets and potential
continued growth, (4) the services provided to the Fund and its shareholders by
Mitchell Hutchins, (5) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins and (6) Mitchell Hutchins'
shareholder service and distribution-related expenses and costs.
In approving the Class C Plan, the board considered all the features of the
distribution system, including (1) the benefit to the Fund and its shareholders
of the Fund being available as an exchange vehicle for shares of the
corresponding class of other PaineWebber mutual funds, (2) the advantage to
investors in paying for distribution on an ongoing basis, (3) Mitchell Hutchins'
belief that the ability of PaineWebber investment executives and correspondent
firms to receive sales compensation for their sales of Class C shares on an
ongoing basis, along with continuing service fees, while their customers invest
their entire purchase payments immediately in Class C shares and do not face
contingent deferred sales charges for shares held more than one year, would
prove attractive to the investment executives and correspondent firms, resulting
in greater growth to the Fund than might otherwise be the case, (4) the
advantages to the shareholders of economies of scale resulting from growth in
the Fund's assets and potential continued growth, (5) the services provided to
the Fund and its shareholders by Mitchell Hutchins, (6) the services provided by
PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins
and (7) Mitchell Hutchins' shareholder service and distribution-related expenses
and costs. The directors also recognized that Mitchell Hutchins' willingness to
compensate PaineWebber and its investment executives, without the concomitant
receipt by Mitchell Hutchins of initial sales charges or contingent deferred
sales charges upon redemption of shares held more than one year, was conditioned
upon its expectation of being compensated under the Class C Plan.
With respect to each Plan, the board considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, distribution fees and contingent
deferred sales charges. The board also considered the benefits that would accrue
to Mitchell Hutchins under each Plan in that Mitchell Hutchins would receive
service, distribution and
16
<PAGE>
advisory fees which are calculated based upon a percentage of the average net
assets of the Fund, which fees would increase if the Plan were successful and
the Fund attained and maintained significant asset levels.
For the fiscal year ended February 28, 1997, Mitchell Hutchins earned and
retained the following contingent deferred sales charges paid upon certain
redemptions of Class A, Class B and Class C shares:
<TABLE>
<S> <C>
Class A......................................... $ 104,992
Class B......................................... $ 116,341
Class C......................................... $ 2,995
</TABLE>
PORTFOLIO TRANSACTIONS
The Advisory Contract authorizes Mitchell Hutchins (with the approval of the
board) to select brokers and dealers to execute purchases and sales of the
Fund's portfolio securities. It directs Mitchell Hutchins to use its best
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the Fund. To the extent that the execution and
price offered by more than one dealer are comparable, Mitchell Hutchins may, in
its discretion, effect transactions in portfolio securities with dealers who
provide the Fund with research, analysis, advice and similar services. The Fund
will not purchase portfolio securities at a higher price or sell such securities
at a lower price in connection with transactions effected with a dealer, acting
as principal, who furnishes research services to Mitchell Hutchins than would be
the case if no weight were given by Mitchell Hutchins to the dealer's furnishing
of such 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 those
transactions, Mitchell Hutchins will not purchase securities at a higher price
or sell securities at a lower price than would otherwise be paid if no weight
was attributed to the services provided by the executing dealer. Moreover,
Mitchell Hutchins will not enter into any explicit soft dollar arrangements
relating to principal transactions and will not receive in principal
transactions the types of services that could be purchased for hard dollars.
Mitchell Hutchins may engage in agency transactions in over-the-counter ("OTC")
equity and debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide research
or execution services. These procedures include Mitchell Hutchins receiving
multiple quotes from dealers before executing the transactions on an agency
basis. Research services furnished by the dealers through which or with which
the Fund effects securities transactions may be used by Mitchell Hutchins in
advising other funds or accounts and, conversely, research services furnished to
Mitchell Hutchins by dealers in connection with other funds or accounts that
Mitchell Hutchins advises may be used by Mitchell Hutchins in advising the Fund.
Since its inception, the Fund has not paid any brokerage commissions, nor has it
allocated any transactions to dealers for research, analysis, advice and similar
services. Information and research received from such dealers will be in
addition to, and not in lieu of, the services required to be performed by
Mitchell Hutchins under the Advisory Contract.
The Fund purchases portfolio securities from dealers and underwriters as
well as from issuers. Securities are usually traded on a net basis with dealers
acting as principal for their own accounts without a stated commission. Prices
paid to dealers in principal transactions generally include a "spread," which is
the difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. When securities are purchased directly
from an issuer, no commissions or discounts are paid.
17
<PAGE>
When securities are purchased in underwritten offerings, they include a fixed
amount of compensation to the underwriter.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
HOLDINGS OF REGULAR BROKER-DEALERS. As of February 28, 1997, the Fund held
a repurchase agreement issued by Daiwa Securities America Incorporated
($482,000), which is a regular broker-dealer for the Fund.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION;
REDUCED SALES CHARGES
As discussed in the Prospectus, eligible shares of the Fund may be exchanged
only for shares of the corresponding Class of most other PaineWebber mutual
funds.
Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce an exchange fee and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended under the circumstances described below or the Fund temporarily
delays or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the Fund's investment objective, policies and
restrictions.
If conditions exist which make cash payments undesirable, the Fund reserves
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. Any such
redemption in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. The Corporation has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
one shareholder. This election is irrevocable unless the Securities and Exchange
Commission ("SEC") permits its withdrawal. The Fund may suspend redemption
privileges or postpone the date of payment during any period (1) when the New
York Stock Exchange ("NYSE") is closed or trading on the NYSE is restricted as
determined by the SEC, (2) when an emergency exists, as defined by the SEC,
which makes it not reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the 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.
WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
18
<PAGE>
decedent is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only to
redemptions of shares held at the time of death.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares,
based on the relative net asset values per share of the two classes, as of the
close of business on the first Business Day (as defined below) of the month in
which the sixth anniversary of the initial issuance of such Class B shares
occurs. For these purposes, the date of initial issuance shall mean (1) the date
on which such Class B shares were issued, or (2) for Class B shares obtained
through an exchange, or a series of exchanges, the date on which the original
Class B shares were issued. For purposes of conversion to Class A shares, Class
B shares purchased through the reinvestment of dividends and other distributions
paid in respect of Class B shares are held in a separate sub-account. Each time
any Class B shares in the shareholder's regular account (other than those in the
sub-account) convert to Class A shares, a pro rata portion of the Class B shares
in the sub-account will also convert to Class A shares. The portion is
determined by the ratio that the shareholder's Class B shares converting to
Class A shares bears to the shareholder's total Class B shares not acquired
through dividends and other distributions.
The availability of the conversion feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares would not be converted and would continue to be
subject to the higher ongoing expenses of the Class B shares beyond six years
from the date of purchase. Mitchell Hutchins has no reason to believe that these
conditions for the availability of the conversion feature will not continue to
be met.
VALUATION OF SHARES
The Fund determines its net asset value per share separately for each Class
as of the close of regular trading (currently 4:00 p.m., Eastern time) on the
NYSE on each Monday through Friday when the NYSE is open. Currently, the NYSE is
closed on the observance of the following holidays: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
The Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 ("Rule") under the 1940 Act. To use
amortized cost to value its portfolio securities, the Fund must adhere to
certain conditions under that Rule relating to the Fund's investments, some of
which are discussed in the Prospectus. Amortized cost is an approximation of
market value of an instrument, whereby the difference between its acquisition
cost and value at maturity is amortized on a straight-line basis over the
remaining life of the instrument. The effect of changes in the market value of a
security as a result of fluctuating interest rates is not taken into account and
thus the amortized cost method of valuation may result in the value of a
security being higher or lower than its actual market value. In the event that a
large number of redemptions take place at a time when interest rates have
increased, the Fund may have to sell portfolio securities prior to maturity and
at a price that might not be desirable.
The board has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share, which include a review of the
extent of any deviation of net asset value per share, based on available market
quotations, from the $1.00 amortized cost per share. Should that deviation
exceed 1/2 of 1%, the directors will promptly consider whether any action should
be initiated to eliminate or reduce
19
<PAGE>
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends and utilizing a net asset value per
share as determined by using available market quotations. The Fund will maintain
a dollar-weighted average portfolio maturity of 90 days or less and will not
purchase any instrument having, or deemed to have, a remaining maturity greater
than 13 months, will limit portfolio investments, including repurchase
agreements, to those U.S. dollar-denominated instruments that are of high
quality and that the directors determine present minimal credit risks as advised
by Mitchell Hutchins, and will comply with certain reporting and recordkeeping
procedures. There is no assurance that constant net asset value will be
maintained. In the event amortized cost ceases to represent fair value per
share, the board will take appropriate action.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried at their face value. Other assets, if any, are valued at fair value as
determined in good faith by or under the direction of the board.
CALCULATION OF YIELD
The Fund computes its yield and effective yield quotations for each class of
shares using standardized methods required by the SEC. The Fund from time to
time advertises for each class of shares (1) the 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 of such class 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) the effective
yield based on the same seven-day period by compounding the base period return
and by adding 1, raising the sum to a power equal to (365/7) and subtracting 1
from the result, according to the following formula:
<TABLE>
<S> <C> <C> <C>
EFFECTIVE = [(BASE PERIOD RETURN + 1) 365/7 ] - 1
YIELD
</TABLE>
For the seven days ended February 28, 1997, the yield of the Fund's Class A
shares was 4.24%, of the Class B shares was 3.74% and of the Class C shares was
3.66%. The effective yield of the Fund's Class A shares was 4.33%, of the Class
B shares was 3.81% and of the Class C shares was 3.73%.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each class of shares of the Fund fluctuates,
it cannot be compared with yields on savings accounts or other investment
alternatives that provide an agreed-to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, the average
maturity of the portfolio securities and whether there are any special account
charges which may reduce the yield.
OTHER INFORMATION. The Fund's performance data quoted in advertising and
other promotional materials ("Performance Advertisements") represent past
performance and are not intended to indicate future results. The return on an
investment in the Fund will fluctuate. In Performance Advertisements, the
20
<PAGE>
Fund may compare its yield with data published by Lipper Analytical Services,
Inc. for money funds ("Lipper"), CDA Investment Technologies, Inc. ("CDA"),
IBC/Donoghue's Money Market Fund Report ("Donoghue"), Wiesenberger Investment
Companies Service ("Wiesenberger"), Investment Company Data Inc. ("ICD") or
Morningstar Mutual Funds ("Morningstar"), or with the performance of recognized
stock and other indexes, including (but not limited to) the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, the Morgan
Stanley Capital World Index, the Lehman Brothers 20+ Year Treasury Bond Index,
the Lehman Brothers Government/Corporate Bond Index, the Salomon Brothers
Non-U.S. World Government Bond Index and the Consumer Price Index as published
by the U.S. Department of Commerce. The Fund also may refer in such materials to
mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Donoghue, Wiesenberger, ICD or
Morningstar. Performance Advertisements also may refer to discussions of the
Fund and comparative mutual fund data and ratings reported in independent
periodicals, including THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS
WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO
TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in
Performance Advertisements may be in graphic form.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Fund investment are reinvested by
being paid in additional Fund shares, any future income or capital appreciation
of the Fund would increase the value, not only of the original Fund investment,
but also of the additional Fund shares received through reinvestment. As a
result, the value of the Fund investment would increase more quickly than if
dividends or other distributions had been paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote-C- Money Markets. In comparing the Fund's
performance to CD performance, investors should keep in mind that bank CDs are
insured in whole or in part by an agency of the U.S. government and offer fixed
principal and fixed or variable rates of interest, and that bank CD yields may
vary depending on the financial institution offering the CD and prevailing
interest rates. Fund shares are not insured or guaranteed by the U.S.
government, its returns will fluctuate, and while the Fund attempts to maintain
a stable net asset value of $1.00 per share, there is no assurance that it will
be able to do so.
TAXES
In order to continue to qualify for treatment as a regulated investment
company under the Internal Revenue Code, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-term
capital gain, if any) and must meet several additional requirements. Among these
requirements are the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of securities and
certain other income; (2) the Fund must derive less than 30% of its gross income
each taxable year from the sale or other disposition of securities held for less
than three months; (3) at the close of each quarter of the Fund's taxable year,
at least 50% of the value of its total assets must be represented by cash and
cash items, U.S. government securities and other securities, with these other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's total assets; and (4) at the close of
21
<PAGE>
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.
The 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 of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
OTHER INFORMATION
CLASS-SPECIFIC EXPENSES. The Fund might determine to allocate certain of
its expenses (in addition to distribution fees) to the specific classes of its
shares to which those expenses are attributable. For example, Class B shares
bear higher transfer agency fees per shareholder account than those borne by
Class A or Class C shares. The higher fee is imposed due to the higher costs
incurred by the transfer agent in tracking shares subject to a multi-year
contingent deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the applicable
charge. Moreover, the tracking and calculations required by the automatic
conversion feature of the Class B shares will cause the transfer agent to incur
additional costs. Although the transfer agency fee will differ on a per account
basis as stated above, the specific extent to which the transfer agency fees
will differ between the classes as a percentage of net assets is not certain,
because the fee as a percentage of net assets will be affected by the number of
shareholder accounts in each class and the relative amounts of net assets in
each class.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Corporation.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the Americas,
New York, N.Y. 10036, serves as the Corporation's independent accountants.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended February
28, 1997 is a separate document supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent accountants appearing therein are incorporated by reference in this
Statement of Additional Information.
22
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Investment Policies and Restrictions............. 1
Directors and Officers; Principal Holders of
Securities..................................... 6
Investment Advisory, Administration and
Distribution Arrangements...................... 13
Portfolio Transactions........................... 17
Additional Exchange and Redemption Information;
Reduced Sales Charges.......................... 18
Conversion of Class B Shares..................... 19
Valuation of Shares.............................. 19
Calculation of Yield............................. 20
Taxes............................................ 21
Other Information................................ 22
Financial Statements............................. 22
</TABLE>
- -C- 1997 PaineWebber Incorporated
PAINEWEBBER
MONEY MARKET FUND
------------------------
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1997
---------------------------------
[LOGO]
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: (filed herewith)
PAINEWEBBER MONEY MARKET FUND
Included in part A of this Registration Statement:
Financial Highlights for one Class A share of the Fund for each of
the five years in the period ended February 28, 1997 and for the
period July 1, 1991 (commencement of offering) through February 29,
1992.
Financial Highlights for one Class B share of the Fund for each of the
ten years in the period ended February 28, 1997.
Financial Highlights for one Class C share of the Fund for each of
the four years in the period ended February 28, 1997 and for the
period July 14, 1992 (commencement of offering) through February 28,
1993.
Included in part B of this Registration Statement through incorporation by
reference from the Annual Report to Shareholders filed with the Securities and
Exchange Commission through EDGAR on May 9, 1997, (Accession No. : 00009304-13-
97-000263).
Statement of Net Assets at February 28, 1997.
Statement of Operations for the year ended February 28, 1997.
Statement of Changes in Net Assets for each of the two years in the
period ended February 28, 1997.
Notes to Financial Statements.
Financial Highlights for one Class A share of the Fund for each of the
five years in the period ended February 28, 1997.
Financial Highlights for one Class B share of the Fund for each of the
five years in the period ended February 28, 1997.
Financial Highlights for one Class C share of the Fund for each of the
four years in the period ended February 28, 1997 and for the period
July 14, 1992 (commencement of offering) through February 28, 1993.
Report of Independent Accountants dated April 11, 1997.
(b) Exhibits:
(1) (a) Amended and Restated Articles of Incorporation
effective July 1, 1991 5/
(b) Articles of Amendment effective July 24, 1995 13/
(c) Articles of Amendment effective November 9, 1995 13/
(d) Articles Supplementary effective November 20, 1995 13/
(e) Articles Supplementary effective June 26, 1996 13/
(2) (a) Amended By-Laws 1/
(b) Certificate of Amendment dated September 24, 1994 to
By-Laws 11/
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the
Registrant's common stock 12/
(5) Investment Advisory and Administration Contract 2/
(6) (a) Distribution Contract with respect to Class A
shares 10/
(b) Distribution Contract with respect to Class B
shares 10/
(c) Distribution Contract with respect to Class C
shares 13/
(d) Distribution Contract with respect to Class Y
shares 13/
(e) Exclusive Dealer Agreement with respect to Class A
shares 10/
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<PAGE>
(f) Exclusive Dealer Agreement with respect to Class B
shares 10/
(g) Exclusive Dealer Agreement with respect to Class C
shares 13/
(h) Exclusive Dealer Agreement with respect to Class Y
shares 13/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 3/
(9) (a) Transfer Agency Agreement 4/
(b) Service Contract 3/
(10) (a) Opinion and consent of Kirkpatrick & Lockhart LLP,
counsel to the Registrant with respect to Class A and
Class B Shares 5/
(b) Opinion and consent of Kirkpatrick & Lockhart LLP,
counsel to the Registrant with respect to Class C
Shares 7/
(c) Opinion and consent of Kirkpatrick & Lockhart LLP,
counsel to the Registrant with respect to Class Y
Shares of PaineWebber Balanced Fund 13/
(11) Other opinions, appraisals, rulings and consents:
Accountant's Consent (filed herewith)
(12) Financial statements omitted from prospectus - none
(13) Letter of investment intent 1/
(14) Prototype Retirement Plan 6/
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class A Shares 7/
(b) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class B Shares 7/
(c) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class C Shares 8/
(16) (a) Schedule for Computation of Performance Quotations with
respect to Class B Shares 5/
(b) Schedule for Computation of Performance Quotations with
respect to Class A Shares 7/
(c) Schedule for Computation of Performance Quotations with
respect to Class C Shares 9/
(17) and
(27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 14/
1/ Incorporated by reference from Pre-Effective Amendment No. 2 to the
registration statement, SEC File No. 33-2524, filed March 11, 1986.
2/ Incorporated by reference from Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 33-2524, filed April 28, 1989.
3/ Incorporated by reference from Post-Effective Amendment No. 11 to the
registration statement, SEC File No. 33-2524, filed June 29, 1990.
4/ Incorporated by reference from Post-Effective Amendment No. 13 to the
registration statement, SEC File No. 33-2524, filed May 3, 1991.
5/ Incorporated by reference from Post-Effective Amendment No. 14 to the
registration statement, SEC File No. 33-2524, filed June 27, 1991.
6/ Incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement of PaineWebber Managed Investments Trust, SEC File
No. 2-91362, filed April 1, 1992.
7/ Incorporated by reference from Post-Effective Amendment No. 16 to the
registration statement, SEC File No. 33-2524, filed May 1, 1992.
8/ Incorporated by reference from Post-Effective Amendment No. 18 to the
registration statement, SEC File No. 33-2524, filed April 30, 1993.
9/ Incorporated by reference from Post-Effective Amendment No. 19 to the
registration statement, SEC File No. 33-2524, filed July 1, 1993.
10/ Incorporated by reference from Post-Effective Amendment No. 21 to the
registration statement, SEC File No. 33-2524, filed July 1, 1994.
11/ Incorporated by reference from Post-Effective Amendment No. 24 to the
registration statement, SEC File No. 33-2524, filed June 27, 1995.
C-2
<PAGE>
12/ Incorporated by reference from Articles Sixth, Seventh, Eighth,
Eleventh and Twelfth of the Registrant's Articles of Incorporation and
from Articles II, VIII, X, XI and XII of the Registrant's By-Laws, as
amended September 28, 1994.
13/ Incorporated by reference from Post-Effective Amendment No. 28 to the
registration statement, SEC File No. 33-2524, filed July 1, 1996.
14/ Incorporated by reference from Post-Effective Amendment No. 30 to the
registration statement, SEC File No. 33-2524, filed September 20,
1996.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record Shareholders
Title of Class as of May 30 , 1997
-------------- --------------------
Shares of common stock
($.001 par value)
PaineWebber Balanced Fund
- Class A shares 11,829
- Class B shares 2,021
- Class C Shares 552
- Class Y Shares 0
PaineWebber Money Market Fund
- Class A shares 1,490
- Class B shares 1,662
- Class C shares 351
Item 27. INDEMNIFICATION
Article Eleventh of the Amended and Restated Articles of Incorporation provides
that the directors and officers of the Registrant shall not be liable to the
Registrant or to any of its stockholders for monetary damages to the maximum
extent permitted by applicable law. Article Eleventh also provides that any
repeal or modification of Article Eleventh or adoption, or modification of any
other provision of the Articles or By-Laws inconsistent with Article Eleventh
shall not adversely affect any limitation of liability of any director or
officer of the Registrant with respect to any act or failure to act which
occurred prior to such repeal, modification or adoption.
Article Eleventh of the Amended and Restated Articles of Incorporation and
Section 10.01 of Article X of the By-Laws provide that the Registrant shall
indemnify and advance expenses to its present and past directors, officers,
employees and agents, and any persons who are serving or have served at the
request of the Registrant as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or enterprise, to the fullest
extent permitted by law.
Section 10.02 of Article X of the By-Laws further provides that the Registrant
may purchase and maintain insurance on behalf of any person who is or was a
director, officer or employee of the Registrant, or is or was serving at the
request of the Registrant as a director, officer or employee of a corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or 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.
C-3
<PAGE>
Section 9 of the Investment Advisory and Administration Contract provides that
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
Registrant in connection with the matters to which the Contract relates except
for a loss resulting from willful misfeasance, bad faith or gross negligence of
Mitchell Hutchins in the performance of its duties or from its reckless
disregard of its obligations and duties under the Contract. Section 9 further
provides that any person, even though also an officer, partner, employee or
agent of Mitchell Hutchins, who may be or become an officer, director, employee
or agent of Registrant shall be deemed, when rendering services to the
Registrant or acting with respect to any business of the Registrant, to be
rendering such service to or acting solely for the Registrant and not as an
officer, partner, employee, or agent or one under the control or direction of
Mitchell Hutchins even though paid by it.
Section 9 of each Distribution Contract provides that the Registrant will
indemnify Mitchell Hutchins and its officers, directors or controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from 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 Mitchell Hutchins to the Registrant for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Registrant, its
officers and directors 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 Mitchell Hutchins for use in the Registration Statement
or arising out of an agreement between Mitchell Hutchins and any retail dealer,
or arising out of supplementary literature or advertising used by Mitchell
Hutchins in connection with each Distribution Contract.
Section 9 of each Exclusive Dealer Agreement contains provisions similar to
Section 9 of each Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
Section 7 of the Service Contract provides that PaineWebber shall be indemnified
and held harmless by the Registrant against all liabilities, except those
arising out of bad faith, gross negligence, willful misfeasance or reckless
disregard of its duties under the Service Contract.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be provided to directors, 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 director, 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 director, 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
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, as filed with the
Securities and Exchange Commission (registration number 801-13219) and is
incorporated herein by reference.
Item 29. PRINCIPAL UNDERWRITERS
a) Mitchell Hutchins serves as principal underwriter and/or
investment adviser for the following investment companies:
ALL-AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
INSURED MUNICIPAL INCOME FUND INC.
C-4
<PAGE>
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
2002 TARGET TERM TRUST INC.
b) Mitchell Hutchins is the principal underwriter for the
Registrant. PaineWebber acts as exclusive dealer for the shares
of the Registrant. The directors and officers of Mitchell
Hutchins, their principal business addresses, and their positions
and offices with Mitchell Hutchins are identified in its Form
ADV, as filed with the Securities and Exchange Commission
(registration number 801-13219). The directors and officers of
PaineWebber, their principal business addresses, and their
positions and offices with PaineWebber are identified in its Form
ADV, as filed with the Securities and Exchange Commission
(registration number 801-7163). The foregoing information is
hereby incorporated herein by reference. The information set
forth below is furnished for those directors and officers of
Mitchell Hutchins or PaineWebber who also serve as directors or
officers of the Registrant. Unless otherwise indicated, the
principal business address of each person named is 1285 Avenue
of the Americas, New York, New York 10019.
Position With Position and Offices
Name Registrant With Underwriter or
---- ---------- -------------------
Exclusive Dealer
Margo N. Alexander Director and President President, Chief
Executive Officer and a
Director of Mitchell
Hutchins; Executive Vice
President and a Director
of PaineWebber
Mary C. Farrell Director Managing Director,
Senior Investment
Strategist and Member of
the Investment Policy
Committee of PaineWebber
T. Kirkham Barneby Vice President Managing Director and
Chief Investment Officer
- Quantitative
Investments of Mitchell
Hutchins
Dennis McCauley Vice President Managing Director and
Chief Investment Officer
- Fixed Income of
Mitchell Hutchins
Ann E. Moran Vice President and Vice President of
Assistant Treasurer Mitchell Hutchins
Dianne E. O'Donnell Vice President and Senior Vice President
Secretary and Deputy General
Counsel of Mitchell
Hutchins
C-5
<PAGE>
Emil Polito Vice President Senior Vice President
and Director of
Operations and Control
for Mitchell Hutchins
Susan P. Ryan Vice President Senior Vice President
and a Portfolio Manager
of Mitchell Hutchins
Victoria E. Schonfeld Vice President Managing Director and
General Counsel of
Mitchell Hutchins
Paul H. Schubert Vice President and First Vice President and
Treasurer Director of the Mutual
Fund Finance Division of
Mitchell Hutchins
Nirmal Singh Vice President First Vice President and
a Portfolio Manager at
Mitchell Hutchins
Barney A. Taglialatela Vice President and Vice President and a
Assistant Treasurer Manager of the Mutual
Fund Finance Division of
Mitchell Hutchins
Mark A. Tincher Vice President Managing Director and
Chief Investment Officer
- Equities of Mitchell
Hutchins
Craig Varrelman Vice President First Vice President and
a Portfolio Manager of
Mitchell Hutchins
Keith A. Weller Vice President and First Vice President and
Assistant Secretary Associate General
Counsel of Mitchell
Hutchins
Ian W. Williams Vice President and Vice President and a
Assistant Treasurer Manager of the Mutual
Fund Finance Division of
Mitchell Hutchins
C) None
Item 30. 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, 1285 Avenue of the Americas, New York, New York
10019. All other accounts, books and documents required by Rule 31a-1 are
maintained in the physical possession of Registrant's transfer agent and
custodian.
Item 31. MANAGEMENT SERVICES
Not applicable.
C-6
<PAGE>
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
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<PAGE>
PAINEWEBBER MASTER SERIES, INC.
EXHIBIT INDEX
Exhibit
(1) (a) Amended and Restated Articles of Incorporation effective July 1,
1991 5/
(b) Articles of Amendment effective July 24, 1995 13/
(c) Articles of Amendment effective November 9, 1995 13/
(d) Articles Supplementary effective November 20, 1995 13/
(e) Articles Supplementary effective June 26, 1996 13/
(2) (a) Amended By-Laws 1/
(b) Certificate of Amendment dated September 24, 1994 to By-Laws 11/
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the Registrant's common
stock 12/
(5) Investment Advisory and Administration Contract 2/
(6) (a) Distribution Contract with respect to Class A shares 10/
(b) Distribution Contract with respect to Class B shares 10/
(c) Distribution Contract with respect to Class C shares 13/
(d) Distribution Contract with respect to Class Y shares 13/
(e) Exclusive Dealer Agreement with respect to Class A shares 10/
(f) Exclusive Dealer Agreement with respect to Class B shares 10/
(g) Exclusive Dealer Agreement with respect to Class C shares 13/
(h) Exclusive Dealer Agreement with respect to Class Y shares 13/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 3/
(9) (a) Transfer Agency Agreement 4/
(b) Service Contract 3/
(10) (a) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant with respect to Class A and Class B Shares 5/
(b) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant with respect to Class C Shares 7/
(c) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant with respect to Class Y Shares of PaineWebber Balanced
Fund 13/
(11) Other opinions, appraisals, rulings and consents: Accountant's Consent
(filed herewith)
(12) Financial statements omitted from prospectus - none
(13) Letter of investment intent 1/
(14) Prototype Retirement Plan 6/
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
A Shares 7/
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
B Shares 7/
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
C Shares 8/
(16) (a) Schedule for Computation of Performance Quotations with respect
to Class B Shares 5/
(b) Schedule for Computation of Performance Quotations with respect
to Class A Shares 7/
(c) Schedule for Computation of Performance Quotations with respect
to Class C Shares 9/
(17) and
(27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 14/
1/ Incorporated by reference from Pre-Effective Amendment No. 2 to the
registration statement, SEC File No. 33-2524, filed March 11, 1986.
2/ Incorporated by reference from Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 33-2524, filed April 28, 1989.
3/ Incorporated by reference from Post-Effective Amendment No. 11 to the
registration statement, SEC File No. 33-2524, filed June 29, 1990.
4/ Incorporated by reference from Post-Effective Amendment No. 13 to the
registration statement, SEC File No. 33-2524, filed May 3, 1991.
5/ Incorporated by reference from Post-Effective Amendment No. 14 to the
registration statement, SEC File No. 33-2524, filed June 27, 1991.
<PAGE>
6/ Incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement of PaineWebber Managed Investments Trust, SEC File
No. 2-91362, filed April 1, 1992.
7/ Incorporated by reference from Post-Effective Amendment No. 16 to the
registration statement, SEC File No. 33-2524, filed May 1, 1992.
8/ Incorporated by reference from Post-Effective Amendment No. 18 to the
registration statement, SEC File No. 33-2524, filed April 30, 1993.
9/ Incorporated by reference from Post-Effective Amendment No. 19 to the
registration statement, SEC File No. 33-2524, filed July 1, 1993.
10/ Incorporated by reference from Post-Effective Amendment No. 21 to the
registration statement, SEC File No. 33-2524, filed July 1, 1994.
11/ Incorporated by reference from Post-Effective Amendment No. 24 to the
registration statement, SEC File No. 33-2524, filed June 27, 1995.
12/ Incorporated by reference from Articles Sixth, Seventh, Eighth, Eleventh
and Twelfth of the Registrant's Articles of Incorporation and from Articles
II, VIII, X, XI and XII of the Registrant's By-Laws, as amended September
28, 1994.
13/ Incorporated by reference from Post-Effective Amendment No. 28 to the
registration statement, SEC File No. 33-2524, filed July 1, 1996.
14/ Incorporated by reference from Post-Effective Amendment No. 30 to the
registration statement, SEC File No. 33-2524, filed September 20, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 24th day of June, 1997.
PAINEWEBBER MASTER SERIES, INC.
By: /s/ Dianne E. O'Donnell
---------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Margo N. Alexander President and Director June 24, 1997
-------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Director and Chairman June 24, 1997
-------------------------- of the Board of Directors
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Director June 24, 1997
--------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Director June 24, 1997
--------------------------
Richard R. Burt *
/s/ Mary C. Farrell Director June 24, 1997
--------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Director June 24, 1997
--------------------------
Meyer Feldberg *
/s/ George W. Gowen Director June 24, 1997
--------------------------
George W. Gowen *
/s/ Frederic V. Malek Director June 24, 1997
--------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Director June 24, 1997
--------------------------
Carl W. Schafer *
/s/ Paul H. Schubert Vice President and June 24, 1997
-------------------------- Treasurer (Chief Financial
Paul H. Schubert and Accounting Officer)
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 25 to the registration statement of PaineWebber RMA Tax-Free Fund,
Inc., SEC File 2-78310, filed June 27, 1996.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 32 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated April 11, 1997, relating to the financial
highlights appearing in the February 28, 1997 Annual Report to Shareholders of
PaineWebber Money Market Fund, which are also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectus and under the heading "Other
Information - Independent Accountants" in the Statement of Additional
Information.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
June 25, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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