<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1995
SECURITIES ACT FILE NO. 33-39029
INVESTMENT COMPANY ACT FILE NO. 811-06281
________________________________________________________________________________
________________________________________________________________________________
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. 5 [x]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 7 [x]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
LIQUID INSTITUTIONAL RESERVES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
1285 AVENUE OF THE AMERICAS 10019
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 713-2000
DIANNE E. O'DONNELL
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
JON S. RAND, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4669
It is proposed that this filing will become effective (check appropriate
box)
[ ] Immediately upon filing pursuant to paragraph (b) of
Rule 485
[ ] on pursuant to paragraph (b) of
Rule 485
[x] 60 days after filing pursuant to paragraph (a)(1) of
Rule 485
[ ] on pursuant to paragraph (a)(1)
of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of
Rule 485
[ ] on pursuant to paragraph (a)(2)
of Rule 485
------------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON JUNE 28, 1995.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
LIQUID INSTITUTIONAL RESERVES
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADING
- -------- ------------------------------------------------------
<S> <C> <C>
1. Cover Page............................................ Cover Page
2. Synopsis.............................................. Fee Table
3. Condensed Financial Information....................... Financial Highlights
4. General Description of Registrant..................... Cover Page; Investment Objective and Policies;
Description of Shares
5. Management of the Fund................................ Fee Table; Investment Objective and Policies;
Management of the Trust; Purchase and Redemption of
Shares
6. Capital Stock and Other Securities.................... Purchase and Redemption of Shares; Dividends,
Distributions and Taxes; Description of Shares
7. Purchase of Securities Being Offered.................. Purchase and Redemption of Shares; Management of the
Trust
8. Redemption or Repurchase.............................. Purchase and Redemption of Shares
9. Legal Proceedings..................................... Not applicable
</TABLE>
<TABLE>
<CAPTION>
PART B HEADING IN STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
- -------- ------------------------------------------------------
<S> <C> <C>
10. Cover Page............................................ Cover Page
11. Table of Contents..................................... Contents
12. General Information and History....................... Not applicable
13. Investment Objectives and Policies.................... Investment Objective and Policies
14. Management of the Fund................................ Management of the Trust
15. Control Persons and Principal Holders of Securities... Management of the Trust; Principal Shareholders; See
Prospectus -- 'Description of Shares'
16. Investment Advisory and Other Services................ Purchase and Redemption of Shares; Management of the
Trust
17. Brokerage Allocation and Other Practices.............. Investment Objective and Policies
18. Capital Stock and Other Securities.................... Purchase and Redemption of Shares; Description of
Shares
19. Purchase, Redemption and Pricing of Securities Being
Offered............................................. Purchase and Redemption of Shares; Management of the
Trust
20. Tax Status............................................ Dividends, Distributions and Taxes
21. Underwriters.......................................... Management of the Trust
22. Calculation of Performance Data....................... Yield Information; See Prospectus -- Yield
23. Financial Statements.................................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
Prospectus September 1, 1995
- --------------------------------------------------------------------------------
Liquid Institutional Reserves
Money Market Fund
Government Securities Fund
Treasury Securities Fund
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (800) 647-1568
Liquid Institutional Reserves (the 'Trust') is a no-load, open-end investment
company offering shares in three separate, diversified, money market funds (the
'Funds'). Each Fund seeks high current income to the extent consistent with the
preservation of capital and the maintenance of liquidity through investments in
high quality, short term, U.S. dollar denominated money market instruments.
The Money Market Fund invests in a broad array of obligations of U.S. and
foreign issuers and repurchase agreements.
The Government Securities Fund invests in certain securities issued or
guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities, the interest income from which
is generally exempt from state income taxation.
The Treasury Securities Fund invests exclusively in securities issued by
the U.S. Treasury, which are supported by the full faith and credit of the
United States.
An investment in a Fund is not insured or guaranteed by the U.S. Government.
Each Fund attempts to maintain a stable net asset value of $1.00 per share,
although there can be no assurance that it will be able to do so at all times.
Each Fund offers investors the choice of investing in two separate classes of
shares representing equal, pro rata interests in its investment
portfolio -- 'Institutional' shares and 'Financial Intermediary' shares.
Institutional shares in each of the Funds are available for purchase by
institutional investors. Financial Intermediary shares in each of the Funds are
available for purchase by banks and other financial intermediaries for the
benefit of their customers and bear all fees payable by the Funds to financial
intermediaries for certain services they provide to the beneficial owners of
these shares.
This Prospectus briefly sets forth certain information about the Trust that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Trust, contained in a Statement of Additional Information dated the same date as
this Prospectus, has been filed with the Securities and Exchange Commission (the
'SEC') and is available to investors without charge by calling the telephone
number set forth above. The Statement of Additional Information is incorporated
in its entirety by reference into this Prospectus. Shareholder inquiries may be
directed to the Trust at the above address.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE
Each Fund offers two separate classes of shares -- Institutional shares and
Financial Intermediary shares. Shares of each class represent equal, pro rata
interests in the Fund and accrue daily dividends in the same manner except that
Financial Intermediary shares bear fees payable by the Fund to financial
intermediaries for services they provide to the beneficial owners of these
shares. In addition, financial intermediaries may directly charge beneficial
owners of Financial Intermediary shares with fees relating to their investments,
which are required to be disclosed to those owners by the intermediaries. See
'Management of the Trust -- Financial Intermediaries' and 'Purchase and
Redemption of Shares -- Other Matters.' Shares of the Funds are sold without
imposition of any sales charge, deferred sales charge or any other transaction
fee.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING GOVERNMENT
EXPENSES FOR SECURITIES FUND MONEY MARKET FUND TREASURY SECURITIES FUND
THE FISCAL YEAR ENDED ----------------------------- ----------------------------- -----------------------------
APRIL 30, 1995 FINANCIAL FINANCIAL FINANCIAL
(as a percentage of INSTITUTIONAL INTERMEDIARY INSTITUTIONAL INTERMEDIARY INSTITUTIONAL INTERMEDIARY
average net assets)** SHARES SHARES* SHARES SHARES* SHARES SHARES*
- ------------------------ --------------- ------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .25% .25% .25% .25% .25% .25%
Other Expenses (after
reimbursements)
Shareholder
Servicing Fees.... 0% .25% 0% .25% 0% .25%
Miscellaneous....... .10% .10% .08% .08% .10% .10%
---- ---- ---- ---- ---- ----
Total Other
Expenses
(after
reimbursements)**... .10% .35% .08% .33% .10% .35%
---- ---- ---- ---- ---- ----
Total Fund Operating
Expenses (after
reimbursements)**... .35% .60% .33% .58% .35% .60%
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE** 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (i) a 5% annual return, (ii) total annual
operating expenses as shown in the fee table set out above
and (iii) redemption at the end of each time period with
respect to the following shares:
Government Securities Fund
Institutional shares..................................... $ 4 $ 11 $20 $ 44
Financial Intermediary shares............................ $ 6 $ 19 $33 $ 75
Money Market Fund
Institutional shares..................................... $ $ $ $
Financial Intermediary shares............................ $ $ $ $
Treasury Securities Fund
Institutional shares..................................... $ 4 $ 11 $20 $ 44
Financial Intermediary shares............................ $ 6 $ 19 $33 $ 75
</TABLE>
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly but should not be considered a representation of
past or future expenses or rate of return. With respect to the Financial
Intermediary shares, each Fund's 'other expenses' are based on estimates for the
Trust's current fiscal year. Expenses associated with distributing the Funds'
shares are borne by the Trust's distributor out of its own resources and are not
borne directly or indirectly by shareholders. For more complete descriptions of
the various costs and expenses, see 'Management of the Trust' in this Prospectus
and 'Investment Advisory and Other Services' in the Statement of Additional
Information.
*At the date of this Prospectus, no Financial Intermediary shares are
outstanding.
[**Expense table and the example reflect an agreement by the Trust's
investment adviser and adminstrator to reduce or otherwise limit the expenses of
each Fund, on an annualized basis, to .35% and .60% of each Fund's average daily
net assets in respect of Institutional shares and Financial Intermediary shares,
respectively. The information in the fee table set forth above has been restated
because, during the fiscal year ended April 30, 1995, the Treasury Securities
Fund
2
<PAGE>
- --------------------------------------------------------------------------------
actually paid management fees in the amount of % of its average net assets as
a result of voluntary fee waivers by the Trust's manager. In the absence of the
agreement described in the first sentence of this note, the Government
Securities Fund's and Treasury Securities Fund's total operating expenses would
have been % and %, respectively, of their average net assets for
Institutional shares and would have been % and %, respectively, of their
average net assets in respect of Financial Intermediary shares. Without this
agreement, under the assumptions set forth in the example above, the expenses on
a $1,000 investment in the Government Securities Fund and Treasury Securities
Fund at the end of one, three, five and ten years would have been $ , $ , $
and $ and $ , $ , $ and $ , respectively, for Institutional shares and would
have been $ , $ , $ and $ and $ , $ , $ and $ , respectively, for
Financial Intermediary shares. Management of the Trust does not anticipate that
it will waive its fees or reimburse expenses in the current fiscal year, except
to the extent necessary to comply with its total expense limitation agreement
described in the first sentence of this note.]
3
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
- -------------------
The Trust The Trust is a no-load, open-end investment company.
- ------------------------------------------------------------------------------------------------------------------
- -------------------
The Funds Each Fund seeks high current income to the extent consistent with the preservation of capital
and the maintenance of liquidity through investments in a diversified portfolio of high
quality, short term, U.S. dollar denominated money market instruments.
The Money Market Fund invests in securities issued or guaranteed as to principal and interest
by the U.S. Government, its agencies, authorities and instrumentalities, high quality
obligations of U.S. and foreign banks, high quality commercial paper and other high quality
obligations of U.S. and foreign companies and foreign governments and repurchase agreements.
The Government Securities Fund invests in securities issued or guaranteed as to principal and
interest by the U.S. Government and its agencies, authorities and instrumentalities, the
interest income from which is generally exempt from state income taxation.
The Treasury Securities Fund invests exclusively in securities issued by the U.S. Treasury,
which are supported by the full faith and credit of the United States.
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Benefits of Mutual funds, such as the Trust, are flexible investment tools that are increasingly
Investing popular -- for very sound reasons. The Trust offers investors the following important benefits:
in the Funds Funds Designed For Institutions
The Funds are designed primarily for institutions as an economical and convenient means for
the investment of short term funds that they hold for their own account or hold or manage for
others. These institutions include corporations, banks, trust companies, investment bankers
and brokers, insurance companies, investment counsellors, pension funds, employee benefit
plans, law firms, trusts, estates and educational, religious and charitable organizations. See
'Purchase and Redemption of Shares' and 'Management of the Trust -- Financial Intermediaries.'
Professional Management
By pooling the funds of many investors, each Fund enables shareholders to obtain the benefits
of full-time professional management and a degree of diversification of investment that is
beyond the means of most investors. The Funds' investment adviser reviews the fundamental
characteristics of far more securities than can a typical investor and may employ portfolio
management techniques that frequently are not used by many institutional investors.
Additionally, the larger denominations of securities in which the Funds invest may result in
better overall prices for the investments. See 'Investment Objective and Policies.'
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Transaction Savings
By investing in a Fund, a shareholder is able to acquire ownership in a diversified portfolio
of securities without paying the higher transaction costs associated with a series of small
securities purchases.
Convenience
Fund shareholders are relieved of the administrative and recordkeeping burdens and
coordination of maturities normally associated with direct ownership of securities. Owners of
Financial Intermediary shares receive various services from financial intermediaries through
which they acquire and hold their shares. See 'Purchase and Redemption of Shares' and 'Manage-
ment of the Trust -- Financial Intermediaries.'
Quality
All securities in which each Fund invests are determined to be of high quality by a
nationally recognized rating organization, or determined to be of comparable quality by the
Trust's investment adviser acting under the supervision of the Board of Trustees if not so
rated, and also are determined to present minimal credit risks. Any purchase of unrated
securities or securities that are rated only by a single rating agency must be approved or
ratified by the Trustees. See 'Investment Objective and Policies -- Certain Investment
Policies -- Portfolio Quality and Maturity.'
Liquidity
The Funds' convenient purchase and redemption procedures provide shareholders with ready
access to their money and reduce the delays frequently involved in the direct purchase and
sale of securities. See 'Purchase and Redemption of Shares.'
Exchange Privilege
Shareholders of a Fund may exchange all or part of their shares for shares of the same class
of either of the other Funds in the Trust. See 'Purchase and Redemption of Shares -- Exchange
Privilege.'
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Shares Each Fund proposes to offer investors the choice of investing in two separate classes of shares
representing pro rata interests in its investment portfolio.
Institutional shares in each Fund are available for purchase by institutional investors.
Financial Intermediary shares in each Fund are available for purchase by banks and other
financial intermediaries for the benefit of their customers and bear all fees payable by the
Funds to financial intermediaries for certain services they provide to the beneficial owners
of those shares. See 'Purchase and Redemption of Shares,' 'Management of the
Trust -- Financial Intermediaries' and 'Description of Shares.'
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Purchase and The minimum initial investment in the Funds is $250,000 and there is no subsequent investment
Redemption minimum. [Purchases may be effected by calling 800-543-3373 (800-KIDDER3), through the Trust's
of Shares computer investment implementation system or through the Automatic Clearing House ('ACH')
system. Settlement of purchases and redemptions is effected by wire transfer of Federal funds
or upon conversion to Federal funds of a purchase payment effected by check or draft. The
Trust's distributor imposes no fee in connection with wire transfers.] See 'Purchase and
Redemption of Shares.'
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Management PaineWebber Incorporated ('PaineWebber') serves as investment adviser and administrator of each
Services Fund and receives a fee, accrued daily and paid monthly, at the annual rate of .25% of each
Fund's average daily net assets. PaineWebber has undertaken to maintain each Fund's total
annual operating expenses at a level not exceeding .35% and .60% of the Fund's average daily
net assets annually for Institutional shares and Financial Intermediary shares, respectively.
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins') serves as each Fund's sub-adviser
and sub-administrator and receives from PaineWebber (not the Fund) 20% of the fee received by
PaineWebber from the Fund. See 'Management of the Trust.'
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Distributor PaineWebber serves as the distributor of the Funds' shares.
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Dividends Substantially all of each Fund's net investment income is declared daily as a dividend and
distributed to shareholders monthly. See 'Dividends, Distributions and Taxes.'
- ------------------------------------------------------------------------------------------------------------------
- -------------------
Risk Factors The Money Market Fund may invest in U.S. dollar denominated securities of foreign issuers,
which may present a greater degree of risk than investments in securities of domestic issuers.
The Fund may also enter into repurchase agreements. In the event of the bankruptcy of the other
party to a repurchase agreement or its failure to honor its obligations thereunder, the Fund
could suffer losses, including loss of interest on or principal of the security and costs
associated with delay and enforcement of its rights under the repurchase agreement. See
'Investment Objective and Policies -- Certain Securities, Investment Techniques and Associated
Risk Factors.'
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial information for shares of the Funds has been represented in the
table below for each of the periods shown. This information is supplemented by
the financial statements and accompanying notes appearing in the Funds' Annual
Report to Shareholders for the fiscal year ended April 30, 1995, which are
incorporated by reference into the Statement of Additional Information. The
financial statements and notes, as well as the information in the table
appearing below, have been audited by Deloitte & Touche LLP, independent
auditors, whose report thereof in included in the Annual Report to Shareholders.
<TABLE>
<CAPTION>
MONEY MARKET FUND
----------------------------------------------------------
INSTITUTIONAL SHARES
----------------------------------------------------------
YEAR ENDED APRIL 30,
PERIOD ENDED --------------------------------
APRIL 30, 1992`D' 1993 1994 1995
---------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................... 0.0443 0.0312 0.0300
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................... (0.0443) (0.0312) (0.0300)
-------- -------- -------- --------
Net asset value, end of year............ $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- --------
-------- -------- -------- --------
Total return............................ 4.97%* 3.16% 3.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands)............................ $335,868 $385,618 $254,281
RATIOS TO AVERAGE NET ASSETS:
Expenses, less reimbursement from
manager............................... 0.30%* 0.34% 0.33%
Expenses, before reimbursement from
manager............................... 0.41%* 0.36% 0.33%
Net investment income................... 4.65%* 3.11% 2.96%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUND
----------------------------------------------------------------
FINANCIAL INTERMEDIARY SHARES
----------------------------------------------------------------
PERIOD ENDED YEAR ENDED
APRIL 30, 1994`D'`D' APRIL 30, 1995
------------------------------ ------------------------------
<S> <C> <C>
Net asset value, beginning of year...... $ 1.0000
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................... 0.0038
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................... (0.0038)
-------- --------
Net asset value, end of year............ $ 1.0000
-------- --------
-------- --------
Total return............................ 3.00%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands)............................ $ 9,000
RATIOS TO AVERAGE NET ASSETS:
Expenses, less reimbursement from
manager............................... 0.58%*
Expenses, before reimbursement from
manager............................... 0.58%*
Net investment income................... 2.93%*
</TABLE>
- ------------
`D' From June 3, 1991 (Commencement of Operations) to April 30, 1992.
`D'`D' From March 17, 1994 (Commencement of Class Operations) to April 30,
1994.
`D'`D'`D' From December 6, 1991 (Commencement of Operations) to April 30, 1992.
`D'`D'`D'`D' From July 12, 1994 (Commencement of Class Operations) to April 30,
1995.
* Annualized.
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
---------------------------------------------------------- FINANCIAL INTERMEDIARY SHARES
YEAR ENDED APRIL 30, ------------------
PERIOD ENDED -------------------------------- PERIOD ENDED
APRIL 30, 1992`D' 1993 1994 1995 APRIL 30, 1995`D'`D'`D'`D'
---------------------- -------- -------- -------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ 0.0437 0.0309 0.0294
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income............ (0.0437) (0.0309) (0.0294)
-------- -------- -------- -------- --------
Net asset value, end
of year........... $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total return........ 4.90%* 3.13% 2.97%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (in
thousands)........ $144,853 $102,611 $ 84,209
RATIOS TO AVERAGE
NET ASSETS:
Expenses, less
reimbursement from
manager........... 0.30%* 0.34% 0.35%
Expenses, before
reimbursement from
manager........... 0.41%* 0.36% 0.37%
Net investment
income............ 4.52%* 3.09% 2.93%
</TABLE>
- ------------
`D' From June 3, 1991 (Commencement of Operations) to April 30, 1992.
`D'`D' From March 17, 1994 (Commencement of Class Operations) to April 30,
1994.
`D'`D'`D' From December 6, 1991 (Commencement of Operations) to April 30, 1992.
`D'`D'`D'`D' From July 12, 1994 (Commencement of Class Operations) to April 30,
1995.
* Annualized.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY SECURITIES FUND
----------------------------------------------------------------------------------
INSTITUTIONAL SHARES
----------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
PERIOD ENDED --------------------------------
APRIL 30, 1992`D'`D'`D' 1993 1994 1995
---------------------------------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value,
beginning of
year.............. $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ 0.0161 0.0285 0.0284
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income............ (0.0161) (0.0285) (0.0284)
-------- -------- -------- --------
Net asset value, end
of year........... $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- --------
-------- -------- -------- --------
Total return........ 4.05%* 2.89% 2.87%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (in
thousands)........ $ 15,003 $ 8,064 $ 38,602
RATIOS TO AVERAGE
NET ASSETS:
Expenses, less
reimbursement from
manager........... 0.06 0.33% 0.18%
Expenses, before
reimbursement from
manager........... 2.05%* 1.10% 0.76%
Net investment
income............ 3.89%* 2.88% 3.08%
</TABLE>
- ------------
`D' From June 3, 1991 (Commencement of Operations) to April 30, 1992.
`D'`D' From March 17, 1994 (Commencement of Class Operations) to April 30,
1994.
`D'`D'`D' From December 6, 1991 (Commencement of Operations) to April 30, 1992.
`D'`D'`D'`D' From July 12, 1994 (Commencement of Class Operations) to April 30,
1995.
* Annualized.
9
<PAGE>
- --------------------------------------------------------------------------------
YIELD
The chart below shows the current and effective yields, calculated in accordance
with rules of the SEC, and the average portfolio maturity for the seven-day
periods ended April 30, 1995 and August 1, 1995.
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES*
----------------------------------------------------------------------------
GOVERNMENT SECURITIES MONEY MARKET TREASURY SECURITIES
FUND FUND FUND
------------------------ ------------------------ ------------------------
4/30/95 8/1/95 4/30/95 8/1/95 4/30/95 8/1/95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current Yield.................................. % % % % % %
Effective Yield................................ % % % % % %
Average Portfolio Maturity..................... days days days days days days
</TABLE>
- ------------
* As of the date of this Prospectus, no Financial Intermediary shares are
outstanding. Accordingly, yield and average portfolio maturity information
for the Financial Intermediary shares are not being reported for the
seven-day periods ended April 30, 1995 and August 1, 1995.
From time to time, each Fund advertises its current yields and effective
yields for its classes of shares. The current yield of a Fund refers to the
income generated by an investment in the Fund over a seven-day period, which
period will be stated in the advertisement. This income is then annualized; that
is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The effective yield is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the current yield
because of the compounding effect of this assumed reinvestment.
Investors should note that the investment results of a Fund are based on
historical performance and will fluctuate over time. Any presentation of a
Fund's current yields or effective yields for any prior period should not be
considered a representation of what an investment may earn or what a Fund's
current yields or effective yields may be in any future period.
Current yield and effective yield are calculated separately for
Institutional shares and Financial Intermediary shares. Since holders of
Financial Intermediary shares bear all service fees for the services rendered by
financial intermediaries, the net yield on Financial Intermediary shares can be
expected at any given time to be approximately .25% lower than the net yield on
Institutional shares and any additional fees directly assessed by financial
intermediaries will have the effect of further reducing the net yield realized
by a beneficial owner of Financial Intermediary shares.
Performance data for the Funds in reports and promotional literature may be
compared to: (i) other mutual funds tracked by IBC/Donoghue's Money Fund Report
and Lipper Analytical Services, widely used independent research firms that rank
mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications or persons that rank mutual
funds on the basis of overall performance or other criteria; (ii) unmanaged
indices so that investors may compare the Funds' results with those of a group
of unmanaged securities widely regarded by investors as representative of the
securities markets in general; and (iii) the Consumer Price Index, an inflation
measure. Promotional and advertising literature also may refer to discussions of
the Funds and comparative mutual fund data and ratings reported in independent
periodicals.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each Fund is to earn high current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity through investments in a diversified portfolio of high quality, short
term, U.S. dollar denominated money market instruments.
MONEY MARKET FUND
The Money Market Fund pursues its objective by investing in the following
instruments:
Securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, authorities or instrumentalities
('U.S. Government securities').
High quality obligations issued or guaranteed by U.S. banks having
more than $1 billion in total assets at the time of purchase,
including certificates of deposit, fixed time deposits, loan
participation interests, commercial paper and bankers' acceptances.
High quality U.S. dollar denominated obligations, including fixed
time deposits, issued or guaranteed by foreign banks, U.S. branches
of foreign banks (Yankee obligations), foreign branches of foreign
banks and foreign branches or subsidiaries of U.S. banks (Eurodollar
obligations) having more than $1 billion in total assets at the time
of purchase. These bank obligations may be general obligations of the
parent bank or may be limited to the issuing branch by the terms of
the specific obligation or by government regulation.
Commercial paper, including variable amount master demand notes,
issued or guaranteed by U.S. or foreign corporations, commercial
banks or other entities, that at the time of purchase is rated at
least A-1 by Standard & Poor's Ratings Group ('S&P'), P-1 by Moody's
Investors Service, Inc. ('Moody's') or F-1 by Fitch Investors
Services, Inc. ('Fitch').
Unrated notes, paper or other instruments that are determined to be
of comparable high quality.
Other high quality, short term obligations, including loan
participation interests, issued or guaranteed by U.S. or foreign
corporations or other entities.
High quality obligations of the International Bank for Reconstruction
and Development and other supranational entities.
High quality obligations, limited to commercial paper and other short
term notes, issued or guaranteed by the governments of the United
Kingdom, France, Germany, Belgium, the Netherlands, Italy,
Switzerland, Denmark, Norway, Austria, Finland, Spain, Ireland,
Sweden, Australia, New Zealand, Japan and Canada.
High quality asset-backed securities, including interests in pools of
assets such as motor vehicle installment purchase obligations and
credit card receivables.
Repurchase agreements.
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The Fund may acquire any of these securities on a forward commitment or
when-issued basis. The shares of the Fund are not insured or guaranteed by the
U.S. Government.
TREASURY SECURITIES FUND
The Treasury Securities Fund pursues its objective by limiting its investments
to securities issued by the U.S. Treasury. The Fund may acquire any of these
securities on a forward commitment or when-issued basis. The Fund will not enter
into repurchase agreements. The shares of the Fund are not insured or guaranteed
by the U.S. Government.
GOVERNMENT SECURITIES FUND
The Government Securities Fund pursues its objective by investing in U.S.
Government securities, the interest income from which is generally exempt from
state income taxation. The Fund intends to emphasize investments in securities
eligible for this exemption in the maximum number of states. Securities
generally eligible for this exemption include those issued by the U.S. Treasury
and those issued by certain agencies, authorities or instrumentalities of the
U.S. Government, including the Federal Home Loan Bank, Federal Farm Credit Banks
Funding Corp. and the Student Loan Marketing Association. Each investor should
consult its own tax advisor to determine whether distributions from the Fund
derived from interest on these obligations are exempt from state income taxation
in the investor's own state. The Fund intends to invest all of its assets in
securities with these characteristics. Under extraordinary circumstances,
however, such as when securities with those characteristics are unavailable, the
Fund may temporarily hold cash or invest in other U.S. Government securities,
such as those issued by the Government National Mortgage Association, the
Federal Home Loan Mortgage Corporation and the Small Business Administration.
The Fund may acquire any of the above securities on a forward commitment or
when-issued basis. The Fund will not enter into repurchase agreements. The
shares of the Fund are not insured or guaranteed by the U.S. Government.
CERTAIN SECURITIES, INVESTMENT TECHNIQUES AND ASSOCIATED RISK FACTORS
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government securities.
Some U.S. Government securities, such as U.S. Treasury bills, notes and bonds,
which differ only in their interest rates, maturities and times of issuance, are
supported by the full faith and credit of the United States. Others are
supported either by (i) the right of the issuer to borrow from the U.S.
Treasury, such as securities of the Federal Home Loan Banks, (ii) the
discretionary authority of the U.S. Government to purchase the agency's
obligations, such as securities of the Federal National Mortgage Association, or
(iii) only the credit of the issuer, such as securities of the Student Loan
Marketing Association. No assurance can be given that the U.S. Government will
provide financial support in the future to U.S. Government agencies, authorities
or instrumentalities that are not supported by the full faith and credit of the
United States.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities include (i) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or any of its agencies, authorities or
instrumentalities and (ii) participations in loans made to foreign
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governments or other entities that are so guaranteed. The secondary market for
certain of these participations is limited and, therefore, may be regarded as
illiquid.
U.S. Government securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. Government securities are debt obligations that are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue and compound over the
period until maturity or the particular interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. Government securities do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government securities
that make regular payments of interest. The Fund will accrue income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations. Zero coupon U.S. Government securities include STRIPS
and CUBES, which are issued by the U.S. Treasury as component parts of Treasury
Bonds and represent scheduled interest and principal payments on the bonds.
CUSTODIAL RECEIPTS. The Money Market Fund may acquire U.S. Government
securities in the form of custodial receipts or certificates, such as CATS,
TIGRs and FICO Strips, underwritten by securities dealers or banks that evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. The underwriters of these certificates or receipts purchase a
U.S. Government security and deposit the security in an irrevocable trust or
custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the U.S. Government security. Custodial
receipts evidencing specific coupon or principal payments have the same general
attributes as zero coupon U.S. Government securities, described above, but are
not considered by the Trust to be U.S. Government securities. Although typically
under the terms of a custodial receipt the Fund is authorized to assert its
rights directly against the issuer of the underlying obligation, the Fund may be
required to assert through the custodian bank such rights as may exist against
the underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer. In addition, in the event that
the trust or custodial account in which the underlying security has been
deposited is determined to be an association taxable as a corporation, instead
of a non-taxable entity, the yield on the underlying security would be reduced
in respect of any taxes paid.
SUPRANATIONAL ENTITIES. The Money Market Fund may invest in debt securities
issued by supranational organizations such as the International Bank for
Reconstruction and Development (commonly referred to as the World Bank), which
was chartered to finance development projects in developing member countries;
the European Community, which is a 12-nation organization engaged in cooperative
economic activities; the European Coal and Steel Community, which is an economic
union of various European nations' steel and coal industries; and the Asian
Development Bank, which is an international development bank established to lend
funds,
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promote investment and provide technical assistance to member nations in the
Asian and Pacific regions.
FOREIGN SECURITIES. The Money Market Fund may invest in U.S. dollar
denominated securities of foreign issuers, including debt securities of foreign
corporations, securities issued by foreign governments and certificates of
deposit, bankers' acceptances, fixed time deposits and other obligations issued
by major foreign banks, foreign branches or subsidiaries of U.S. banks
(Eurodollar obligations), U.S. branches of foreign banks (Yankee obligations)
and foreign branches of foreign banks. Investment in foreign securities and bank
obligations may present a greater degree of risk than investment in domestic
securities because of less publicly available financial and other information,
less securities regulation, potential imposition of foreign withholding and
other taxes, war, expropriation or other adverse governmental actions. Foreign
banks and their foreign branches are not regulated by U.S. banking authorities
and generally are not bound by the accounting, auditing and financial reporting
standards applicable to U.S. banks. In addition, the Fund may experience greater
difficulty in obtaining and enforcing a judgment against a foreign issuer than
against a domestic issuer.
COMMERCIAL PAPER. The Money Market Fund may invest without limitation in
fixed or variable rate commercial paper, including variable amount master demand
notes, issued by U.S. or foreign corporations. Commercial paper when purchased
by the Fund must be rated at least P-1 by Moody's, A-1 by S&P or F-1 by Fitch
or, if not rated, must be determined by Mitchell Hutchins acting under the
supervision of the Board of Trustees to be of comparable high quality. Any
purchase of commercial paper that is unrated or rated only by a single rating
agency must be approved or ratified by the Board of Trustees. Any commercial
paper issued by a foreign corporation and purchased by the Fund must not be
subject to foreign withholding tax at the time of purchase.
Variable amount master demand notes are unsecured instruments that permit
the indebtedness to vary and provide for periodic adjustments in the interest
rate. Because variable amount master demand notes are direct lending
arrangements between the Fund and the issuer, they are not normally traded.
Although no active secondary market may exist for these notes, the Fund will
purchase only those notes under which it may demand and receive payment of
principal and accrued interest daily or may resell the note to a third party.
While the notes are not typically rated by statistical rating agencies, issuers
of variable amount master demand notes must satisfy Mitchell Hutchins that the
same criteria are met as are set forth above for issuers of commercial paper. In
the event an issuer of a variable rate master demand note defaulted on its
payment obligation, the Fund might be unable to dispose of the note because of
the absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default.
OTHER CORPORATE DEBT OBLIGATIONS. The Money Market Fund may invest in
bonds, notes and debentures issued by U.S. corporations that at the time of
purchase meet the Fund's maturity requirements and are rated at least Aa by
Moody's or AA by S&P or, if not rated, are determined by Mitchell Hutchins to be
of comparable high quality. Any purchase of an obligation that is unrated or
rated only by a single rating agency must be approved or ratified by the Board
of Trustees.
REPURCHASE AGREEMENTS. The Money Market Fund may enter into repurchase
agreements with selected broker-dealers, banks or other financial institutions.
A repurchase agreement is an agreement under which the Fund purchases securities
and the seller agrees to repurchase the
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securities at a particular time and a specified price. This price will exceed
the original purchase price, the difference being income to the Fund, and will
be unrelated to the interest rate on the purchased security. The Trust's
custodian will maintain custody of the purchased securities for the duration of
the agreement. The value of the purchased securities, including accrued
interest, will at all times be equal to not less than 102% of the value of the
repurchase agreement. In the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, the Fund could suffer losses,
including loss of interest on or principal of the security and costs associated
with delay and enforcement of its rights under the repurchase agreement.
LOAN PARTICIPATIONS. The Money Market Fund may invest in loan
participations. A loan participation is an interest in a loan to a U.S.
corporation that is administered and sold by an intermediary bank. The borrower
of the underlying loan will be deemed to be the issuer of the participation
interest except to the extent the Fund derives its rights from the intermediary
bank that sold the loan participation. Loan participations are illiquid
securities and, accordingly, the Fund's investments in them, together with all
other illiquid securities, will not exceed 10% of the Fund's net assets.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Fund may purchase
when-issued securities and enter into contracts to purchase or sell securities
for a fixed price at a future date beyond customary settlement time. A
purchasing Fund is required to hold and maintain in a segregated account with
the Trust's custodian until the settlement date cash, U.S. Government securities
or other high quality, liquid debt obligations in an amount sufficient to meet
the purchase price. Alternatively, the Fund may enter into offsetting contracts
for the forward sale of other securities that it owns. Securities purchased or
sold on a when-issued or forward commitment basis involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date or
if the value of the security to be sold increases prior to the settlement date.
Although a Fund generally would purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
the Fund may dispose of a when-issued security or forward commitment prior to
settlement if Mitchell Hutchins deems it appropriate to do so. The Fund will not
accrue income prior to the delivery or issuance of securities purchased on a
when-issued or forward commitment basis.
LENDING OF PORTFOLIO SECURITIES. The Money Market Fund may seek to increase
its income by lending portfolio securities. Under present regulatory policies,
these loans may be made to institutions, such as broker-dealers, and are
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities maintained on a current basis in an amount at least
equal to the market value of the securities loaned. If Mitchell Hutchins
determines to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Fund. As with other extensions of credit, there are risks of delay in
recovering, or even loss of rights in, the collateral should the borrower of the
securities fail financially.
CERTAIN INVESTMENT POLICIES
INVESTMENT RESTRICTIONS. The Trust on behalf of each Fund has adopted
certain investment restrictions that are enumerated in detail in the Statement
of Additional Information. Among other restrictions, each Fund may not, with
respect to 75% of its total assets taken at market value, invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
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Government securities and, with respect to the Money Market Fund, repurchase
agreements collateralized by U.S. Government securities) or acquire more than
10% of any class of the outstanding voting securities of any one issuer. In
addition, each Fund may not invest more than 25% of its total assets in
securities of issuers in any one industry, provided that there is no 25%
limitation in respect of, and the Money Market Fund reserves freedom of action
to concentrate its investments in, U.S. Government securities, obligations other
than commercial paper issued or guaranteed by U.S. banks and repurchase
agreements and loans of securities collateralized by U.S. Government securities
or these bank obligations. The Trust, on behalf of a Fund, may borrow money as a
temporary measure from banks in an aggregate amount not exceeding one-third of
the value of the Fund's total assets. A Fund may not purchase securities while
borrowings exceed 5% of the value of the Fund's assets.
The investment restrictions listed above, as well as the Funds' investment
objective, are fundamental policies and accordingly may not be changed with
respect to any Fund without the approval of a majority of the outstanding shares
of that Fund, as defined in the Investment Company Act of 1940, as amended (the
'Act'). Unless otherwise specifically stated, however, the investment policies
and practices of each Fund are not fundamental and may be changed by the Board
of Trustees.
Notwithstanding the restrictions listed above, to the extent required by
the rules of the SEC, the Money Market Fund will not invest more than 5% of its
assets in the obligations of any one issuer. A Fund will not invest more than
10% of the value of its net assets in securities that are illiquid, including
time deposits and repurchase agreements maturing in more than seven days and
that cannot be liquidated prior to maturity, as well as securities that are
illiquid by virtue of the absence of a readily available market. Securities that
have legal or contractual restrictions on resale but have a readily available
market are not deemed illiquid for this purpose.
PORTFOLIO QUALITY AND MATURITY. Each Fund maintains a dollar-weighted
average portfolio maturity of 90 days or less. All securities in which each Fund
invests have remaining maturities of 397 days or less on the date of purchase,
are denominated in U.S. dollars and have been determined to be of high quality
by nationally recognized statistical rating organizations or determined to be of
comparable quality if not so rated. A description of these ratings is provided
in the Appendix to the Statement of Additional Information. Mitchell Hutchins,
acting under the supervision of and procedures adopted by the Board of Trustees,
will determine that unrated securities purchased by a Fund are of high quality
and will determine that all securities purchased by a Fund present minimal
credit risks and any purchase of unrated securities or securities that are rated
only by a single rating agency will be approved or ratified by the Board of
Trustees. Mitchell Hutchins will, under the supervision of the Board of
Trustees, cause a Fund to dispose of any security as soon as practicable if the
security is no longer of high quality, unless the Board of Trustees determines
that this action would not be in the best interest of the Fund. High quality,
short term instruments may result in a lower yield than instruments with a lower
quality or a longer term.
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PURCHASE AND REDEMPTION OF SHARES
NET ASSET VALUE
The net asset value of each Fund is determined daily at 12:00 noon, Eastern
time, Monday through Friday, except that net asset value is not computed on a
day in which no orders to purchase, sell, exchange or redeem any Fund shares
have been received, any day on which there is not sufficient trading in a Fund's
portfolio securities that the Fund's net asset value per share might be
materially affected by changes in the value of such portfolio securities or on
days on which the New York Stock Exchange is not open for trading. The New York
Stock Exchange currently is scheduled to be closed on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday when one of those
holidays falls on a Saturday or on the subsequent Monday when one of those
holidays falls on a Sunday. Net asset value per share of each Fund is calculated
by adding the value of all securities and other assets of the Fund, subtracting
the liabilities of the Fund and dividing the remainder by the number of
outstanding shares of the Fund. Each Fund's portfolio securities are valued at
their amortized cost which does not take into account unrealized securities
gains or losses. This method involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any premium
paid or discount received. Each Fund attempts to maintain a constant net asset
value of $1.00 per share but there can be no assurance that it will be able to
do so on a continuing basis.
PURCHASE PROCEDURES
PaineWebber, 1285 Avenue of the Americas, New York, New York 10019, is the
distributor of the Trust's shares. Shares must be purchased and maintained
through a brokerage account with Kidder, Peabody, for which there is no
maintenance fee. Shares of the Funds also may be purchased and maintained
through the Kidder, Peabody Premium Account asset management system. Purchase
orders must be transmitted by telephone (800-543-3373 or 800-KIDDER3), through
the Trust's computer investment implementation system or through the ACH system.
Payment for purchase orders also may be made by check or draft, as described
below. Investors interested in establishing a Kidder, Peabody brokerage account,
participating in the Kidder, Peabody Premium Account asset management system,
utilizing the Trust's computer investment implementation system or through the
ACH system or obtaining compatible computer hardware or software should contact
any Kidder, Peabody Investment Executive or call the Trust at 800-543-3373
(800-KIDDER3) for further information. Shareholder inquiries regarding the Trust
may be made in the same manner.
Each Fund proposes to offer investors the choice of investing in two
separate classes of shares representing pro rata interests in its investment
portfolio -- Institutional shares and Financial Intermediary shares.
Institutional shares in each Fund are available for purchase by institutional
investors, although the Trust and Kidder, Peabody reserve the right to waive
this requirement. Financial Intermediary shares in each Fund are available for
purchase by banks and other financial intermediaries for the benefit of their
customers and bear all fees payable by the Fund to financial intermediaries for
certain services they provide to the beneficial owners of these shares.
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Shares are sold at the net asset value per share next determined after
receipt of a purchase order by Kidder, Peabody. Orders received before 1:00
p.m., New York time, for which payment has been received by Kidder, Peabody will
be executed at that time and the shareholder will receive the dividend declared
on that day. Orders received after 1:00 p.m., New York time, and orders received
earlier in the same day for which payment has not been received by 1:00 p.m.,
New York time, will be executed at 4:00 p.m., New York time, if payment has been
received by Kidder, Peabody by that time and the shareholder will receive the
dividend declared on the following day. Orders received at other times and
orders for which payment has not been received by 4:00 p.m., New York time, will
not be accepted and notice thereof will be given to the investor placing the
order.
In order to maximize earnings, each Fund attempts to be invested as
completely as practicable and is normally required to make settlement in Federal
funds for securities purchased. Accordingly, payment for Fund shares is not
effective until received in or converted to Federal funds immediately available
to the Trust. The minimum initial investment in any Fund or combination of Funds
is $250,000, which may be waived at the discretion of Kidder, Peabody; however,
financial intermediaries purchasing shares for the accounts of their customers
may set a higher minimum for their customers. There is no minimum subsequent
investment. The Trust and Kidder, Peabody each reserves the right to reject any
purchase order for any reason.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Kidder, Peabody by telephone, through
the Trust's computer investment implementation system or through the ACH system
in the manner described under 'Purchase Procedures.' Shares are redeemed at the
net asset value per share next determined after Kidder, Peabody's receipt of the
redemption order. Payment for redeemed shares for which a redemption order is
received by Kidder, Peabody before 1:00 p.m., New York time, is normally made in
Federal funds wired to the redeeming shareholder on the same business day.
Shares redeemed in this manner are not entitled to the dividend declared on the
day of redemption. Payment for redemption orders that are received between 1:00
p.m., New York time, and 4:00 p.m., New York time, normally is wired in Federal
funds on the next business day following the redemption. Shares redeemed in this
manner are entitled to the dividend declared on the day of redemption. Kidder,
Peabody effects all wire transfers free of charge. In times of drastic economic
or market changes, the telephone redemption feature may be difficult to
implement.
EXCHANGES
Shares of each Fund may be exchanged for shares of the same class of any other
Fund at net asset value next determined by telephone (800-543-3373 or
800-KIDDER3) or through the Trust's computer investment implementation system.
In times of drastic economic or market changes, the telephone exchange privilege
may be difficult to implement. The exchange privilege may be modified or
terminated in accordance with the rules of the SEC. The exchange privilege is
available to shareholders resident in any state in which the Fund shares being
acquired legally may be sold.
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PURCHASES AND REDEMPTIONS THROUGH THE AUTOMATIC CLEARING HOUSE SYSTEM
Shares of a Fund may be purchased and redeemed through a program designed by
Kidder, Peabody to help businesses manage their cash flow and earn money market
rates of return through investment in the Fund. This program utilizes the ACH
system to transfer monies electronically between the corporate investor's local
bank and the Trust. The purchase of shares of the Fund through this program may
be arranged by completing a Kidder, Peabody ACH application, which can be
obtained by calling 800-543-3373 (800-KIDDER3) and returning it to Kidder,
Peabody. After the application is received, an announcement card will be sent to
the corporation supplying it with an account number and advising it that after
15 days from the printed date on the card the corporation may begin using the
ACH system for purchasing or redeeming Fund shares.
After the waiting period, an authorized representative of the corporation
may call the Trust (800-543-3373 or 800-KIDDER3), identify the corporation by
name and account number and advise the operator how much cash the corporation
wishes to invest in the Fund from its local corporate checking account or redeem
from the Fund and transfer to its checking account. Funds will automatically be
transferred to or from the Fund via the ACH system on the second business day
(or any other business day thereafter selected by the investor) after
instructions are received by the Trust.
PURCHASES BY CHECK OR FEDERAL RESERVE DRAFT
Purchase orders for which remittance is to be made by check or Federal Reserve
Draft must be submitted directly by mail to Liquid Institutional Reserves, Two
Broadway, Seventh Floor, New York, New York 10004-2256, Attn: Services Asset
Management Department, together with payment for the purchase price of such
shares and, in the case of a new account, a completed account application. These
orders will become effective on the day the remittance is converted into Federal
funds and shares will be purchased at the net asset value next determined after
such conversion. Checks and Federal Reserve Drafts should be made payable to
Liquid Institutional Reserves -- [name of Fund]. Money transmitted by check
normally will be converted into Federal funds within two business days following
receipt. Certified checks are not necessary, but checks are accepted subject to
collection at full face value in U.S. funds and must be drawn on a U.S. bank. In
the event that the purchase price for shares is paid by Federal funds in the
form of a Federal Reserve Draft, Federal funds will be available to the Fund on
the next business day and the investor's order will be effected on that day.
During the period of time prior to the conversion into Federal funds, an
investor's money will not be invested and, therefore, will not be earning
dividends.
OTHER MATTERS
The Trust does not issue certificates representing shares, but PFPC Inc., as the
Trust's transfer agent, maintains a complete record of transactions and shares
held in each shareholder's account.
The Trust may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend or postpone the recording of the
transfer of its shares) for such periods as permitted under the Act. The Trust
also may redeem shares involuntarily under
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certain special circumstances described in the Statement of Additional
Information under 'Purchase and Redemption of Shares.'
Fund shares are sold and redeemed without charge by the Fund, although
financial intermediaries purchasing or holding shares for their customer
accounts may charge customers for cash management and other services provided in
connection with their accounts including, for instance, account maintenance
fees, compensating balance requirements or fees based on account transactions,
assets or income. Further, the dividends payable to beneficial owners of
Financial Intermediary shares will be reduced in respect of fees paid by a Fund
to financial intermediaries through which those shares are purchased and held.
See 'Management of the Trust -- Financial Intermediaries.' A customer should
consider the terms of his or her account with a financial intermediary before
purchasing shares. A financial intermediary purchasing or redeeming shares on
behalf of its customers is responsible for transmitting orders to Kidder,
Peabody in accordance with its customer agreements.
Investors desiring to engage in purchase, sale or exchange transactions by
telephone as described above should contact their Kidder, Peabody Investment
Executives to complete the required documentation. Neither the Trust nor Kidder,
Peabody will be liable for following instructions communicated by telephone that
it reasonably believes to be genuine. The Trust employs certain procedures
designed to confirm that instructions communicated by telephone are genuine.
Upon receiving transfer instructions by telephone, it is the practice of the
Trust to compare the transfer instructions received by telephone to the written
instructions of the shareholder on the shareholder's account opening form. In
the event that the transfer instructions received by the Trust by telephone vary
from the instructions on the shareholder's account opening form, the Trust will
require written instructions that are accompanied by a signature of the
registered shareholder that matches the signature on file with the Trust.
Failure to employ these procedures may cause the Funds to be liable for any
losses due to unauthorized or fraudulent instructions.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The day-to-day operations of the Trust are conducted through
or under the direction of its officers. The Statement of Additional Information
contains general background information regarding each Trustee and officer of
the Trust.
INVESTMENT ADVISER AND ADMINISTRATOR
At a special meeting of shareholders that took place on April 13, 1995,
shareholders approved a new investment advisory and administration agreement
with PaineWebber and a new sub-advisory and sub-administration agreement with
Mitchell Hutchins. PaineWebber and Mitchell Hutchins are located at 1285 Avenue
of the Americas, New York, New York 10019. Mitchell Hutchins is a wholly owned
subsidiary of PaineWebber, which in turn is wholly owned by Paine Webber Group
Inc., a publicly owned financial services holding company. As of July 31, 1995,
PaineWebber or Mitchell Hutchins served as investment adviser or sub-adviser to
[42]
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investment companies with an aggregate of [77] separate portfolios and aggregate
assets of approximately [$26] billion.
The Funds pay the same fee for investment advisory and administration
services to PaineWebber as previously paid to Kidder Peabody Asset Management,
Inc. ('KPAM'), the Fund's predecessor investment adviser and administrator.
PaineWebber (not the Funds) pay Mitchell Hutchins a fee for sub-advisory and
sub-administration services at the annual rate of 20% of the fee received by
PaineWebber from the Funds. PaineWebber and Mitchell Hutchins continue to manage
the Funds in accordance with the Funds' investment objectives, policies and
restrictions.
As compensation for PaineWebber's services, each Fund has agreed to pay
PaineWebber a fee, accrued daily and paid monthly, at the annual rate of .25% of
each Fund's average daily net assets. PaineWebber has undertaken to maintain
each Fund's total annual operating expenses at a level not exceeding .35% and
.60% of the Fund's average daily net assets annually for Institutional shares
and Financial Intermediary shares, respectively. After PaineWebber's waiver of a
portion of the fees due it from the Treasury Securities Fund, the Fund paid fees
for the fiscal year ended April 30, 1995 of % of its average daily net assets
with respect to Financial Intermediary shares. With respect to each Fund's
Institutional shares, for the fiscal year ended April 30, 1995, the Government
Securities Fund's, Money Market Fund's and Treasury Securities Fund's total
expenses represented %, % and %, respectively, of their average net
assets. With respect to the Financial Intermediary shares of the Money Market
Fund and the Government Securities Fund, for the fiscal period ended April 30,
1995, total expenses represented % and %, respectively, of their average
daily net assets.
Although investment decisions for each Fund are made independently from
those of the other accounts managed by Mitchell Hutchins, investments of the
type each Fund may make may also be made by those other accounts. When a Fund
and one or more other accounts managed by Mitchell Hutchins are prepared to
invest in, or desire to dispose of, the same security, available investments or
opportunities for sales are allocated in a manner believed by Mitchell Hutchins
to be equitable to each. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund.
CUSTODIAN AND TRANSFER, DIVIDEND AND RECORDKEEPING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as the Trust's custodian. PFPC Inc., a subsidiary of
PNC Bank, National Association, whose principal address is 400 Bellevue Parkway,
Wilmington, Delaware 19809, serves as the Trust's transfer dividend and
recordkeeping agent.
FINANCIAL INTERMEDIARIES
Financial intermediaries, such as banks and savings and loan associations, may
purchase Financial Intermediary shares for the accounts of their customers.
Financial Intermediary shares are identical in all respects to Institutional
shares except that beneficial owners of Financial Intermediary shares receive
certain services directly from financial intermediaries, bear the service fees
described below and enjoy certain exclusive voting rights on matters relating to
these
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services and fees. The Trust will enter into a service agreement with each
financial intermediary that purchases Financial Intermediary shares requiring it
to provide support services to its customers who are the beneficial owners of
Financial Intermediary shares in consideration of the Trust's payment of .25%,
on an annualized basis, of the average daily net asset value of the Financial
Intermediary shares held by the financial intermediary for the benefit of its
customers. These services, which are described in greater detail in the
Statement of Additional Information under 'Management of the Trust -- Financial
Intermediaries,' include: aggregating and processing purchase and redemption
requests from customers and placing net purchase and redemption orders with
PaineWebber; providing customers with a service that invests the assets of their
accounts in Financial Intermediary shares; processing dividend payments on
behalf of customers; providing information periodically to customers showing
their positions in Financial Intermediary shares; arranging for bank wires;
responding to customer inquiries relating to the services performed by the
financial intermediary; providing sub-accounting with respect to Financial
Intermediary shares beneficially owned by customers or the information necessary
for sub-accounting; forwarding shareholder communications from a Fund to
customers, if required by law; and such other similar services as the Trust may
reasonably request from time to time to the extent the financial intermediary is
permitted to do so under federal and state statutes, rules and regulations.
Under the terms of the service agreements, financial intermediaries are required
to provide to their customers a schedule of any additional fees that they may
charge customers in connection with their investments in Financial Intermediary
shares. Financial Intermediary shares are available for purchase only by
financial intermediaries that have entered into service agreements with the
Trust in connection with their investment. Financial intermediaries providing
services to beneficial owners of Financial Intermediary shares in certain states
may be required to be registered as dealers under the laws of those states.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of banks serving as financial intermediaries in
connection with the provision of support services to their customers, the Trust
might be required to alter or discontinue its arrangements with financial
intermediaries and change its method of operations with respect to Financial
Intermediary shares. It is not anticipated, however, that any change in the
Trust's method of operations would affect its net asset values per share or
result in a financial loss to any shareholder.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Substantially all of each Fund's net investment income (i.e., its income other
than its net realized long term and short term capital gains) are declared daily
as a dividend and paid to shareholders shortly before the end of each month.
Each Fund declares and distributes at least annually, after the close of its
fiscal year, substantially all of its net realized short term and long term
capital gains, if any. Dividends and capital gains distributions are made in
additional shares of the same class and Fund or, at the election of
shareholders, in cash, as the case may be, prior to the last business day of
each month. The election to reinvest dividends and distributions or receive
them in cash may be changed at any time upon written notice to PaineWebber.
Although realized gains and losses on the assets of each Fund are reflected
in the net asset value of each Fund, they are not expected to be of an amount
that would affect a Fund's net asset value of $1.00 per share.
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TAXES
Each Fund is treated as a separate entity for federal income tax purposes, has
qualified for the fiscal year ended April 30, 1995 to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
'Code'), and has elected or intends to elect this treatment for each year. If a
Fund (i) qualifies as a regulated investment company and (ii) distributes to its
shareholders at least 90% of its net investment income (including, for this
purpose, its net realized short term capital gains), then the Fund will not be
liable for federal income taxes to the extent that its net investment income and
its net realized long term and short term capital gains are distributed to its
shareholders. The Trust anticipates that each Fund will distribute to its
shareholders at least 90% of its net investment income (including, for this
purpose, its net realized short term capital gains) in each of its fiscal years.
Further, the Code imposes a 4% non-deductible excise tax on a Fund to the extent
that a Fund does not distribute by the end of each calendar year certain
undistributed amounts of net investment income and net realized long term and
short term capital gains. Each Fund anticipates that it will pay any dividends
and make any distributions that are necessary in order to avoid the application
of this excise tax.
Dividends of net investment income and distributions of net realized short
term capital gains, as a general rule, will be taxable to shareholders as
ordinary income whether received in cash or reinvested in additional shares. The
Trust does not expect the Funds to realize any long term capital gains and thus
does not contemplate that the Funds will pay dividends taxable to shareholders
as long term capital gains. The Funds' dividends and distributions will not
qualify for the dividends-received deduction for corporations. Some states, if
certain asset and diversification requirements are satisfied, permit
shareholders to treat their portions of a Fund's dividends that are attributable
to interest on U.S. Treasury securities and certain U.S. Government securities
as income that is exempt from state and local income taxes. Dividends
attributable to repurchase agreement earnings are, as a general rule, subject to
state and local taxation.
It is anticipated that the Money Market Fund's portfolio will be managed so
as to avoid application of foreign withholding taxes. To the extent the Fund
invests in foreign securities, it may be subject to foreign withholding taxes on
income earned on these securities and may be unable to pass through to its
shareholders foreign tax credits and deductions with respect to these taxes.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. These statements, among other things, tell
shareholders of the portions of their dividends that are attributable to U.S.
Treasury securities and specific types of U.S. Government securities. Each
shareholder also receives, if appropriate, various written notices after the
close of the Fund's prior tax year as to the federal income tax status of the
shareholder's dividends and distributions that were received from the Fund
during the Fund's prior taxable year. Shareholders should consult their own tax
advisors to assess the consequences of investing in a Fund under state and local
laws generally and to determine whether dividends paid by a Fund that represent
interest derived from U.S. Treasury and other U.S. Government securities are
exempt from any applicable state or local taxes.
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DESCRIPTION OF SHARES
The Trust was formed as a business trust under the laws of the Commonwealth of
Massachusetts on February 14, 1991. The Declaration of Trust authorizes the
Board of Trustees to create separate series of an unlimited number of shares of
beneficial interest, par value $.001 per share. The Declaration of Trust further
authorizes the Trustees to classify or reclassify any series of shares into one
or more classes. The Trustees have authorized the issuance of Institutional
shares and Financial Intermediary shares of each of the three Funds.
When issued, shares are fully paid and non-assessable. Shares are freely
transferable and have no pre-emptive, subscription or conversion rights. Each
Institutional share and Financial Intermediary share of a Fund represents an
equal, proportionate interest in the assets belonging to that Fund. Thus, in the
event of liquidation, shareholders are entitled to share pro rata in the net
assets of the applicable Fund available for distribution to shareholders. Except
as described in this Prospectus, the two classes of shares are identical.
Certain aspects of the shares may be altered, upon notice to shareholders, if it
is deemed necessary in order to satisfy certain tax regulatory requirements.
Holders of each Fund's Institutional shares and Financial Intermediary
shares will vote in the aggregate and not by class on all matters except where
otherwise required by law and except that only Financial Intermediary shares
will be entitled to vote on matters submitted to a vote of shareholders
pertaining to the Trust's arrangements with financial intermediaries. Further,
shareholders of the Trust will vote in the aggregate and not by Fund except as
otherwise required by law or when the Board of Trustees determines that the
matter to be voted upon affects only the interests of the shareholders of a
particular Fund. Shareholders of the Trust are entitled to one vote for each
full share held and fractional votes for fractional shares held, irrespective of
class or Fund. Voting rights are not cumulative and, accordingly, the holders of
more than 50% of the aggregate shares of the Trust may elect all of the
Trustees. The Trust does not intend to hold annual shareholder meetings,
although special meetings may be called for purposes such as electing or
removing Trustees or such other purposes as are described above. Financial
intermediaries holding shares for their own accounts have undertaken to vote the
shares in the same proportions as the vote of shares held for their customers.
24
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No person has been authorized to give any information or to make any
representation not contained in this Prospectus or in the Trust's
Statement of Additional Information incorporated herein by reference
in connection with the offering made by this Prospectus and, if
given or made, such information or representations must not be
relied upon as having been authorized by the Trust or its
distributor in any jurisdiction in which such offering may not
lawfully be made.
<TABLE>
<S> <C>
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Table of Contents
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Fee Table 2
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Highlights 4
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Financial Highlights 7
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Yield 10
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Investment Objective and Policies 11
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Purchase and Redemption of Shares 17
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Management of the Trust 20
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Dividends, Distributions and Taxes 22
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Description of Shares 24
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</TABLE>
Liquid
Institutional
Reserves
Prospectus
September 1, 1995
Money Market Fund
Government Securities Fund
Treasury Securities Fund
Institutional Shares
Financial Intermediary Shares
<PAGE>
Statement of Additional Information September 1, 1995
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Liquid Institutional Reserves
Money Market Fund
Government Securities Fund
Treasury Securities Fund
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (800) 647-1568
Liquid Institutional Reserves (the 'Trust') is a no-load, open-end investment
company offering shares in three separate, diversified, money market funds (the
'Funds'). Each Fund seeks high current income to the extent consistent with the
preservation of capital and the maintenance of liquidity through investments in
high quality, short term, U.S. dollar denominated money market instruments.
- --------------------------------------------------------------------------------
The Trust's Prospectus dated the same date as this Statement of Additional
Information, which provides the basic information investors should know before
investing, may be obtained without charge by calling the telephone number listed
above. This Statement of Additional Information, which is not a Prospectus, is
intended to provide additional information regarding the activities and
operations of the Trust and should be read in conjunction with the Prospectus.
Capitalized terms not otherwise defined in this Statement of Additional
Information have the meanings accorded to them in the Prospectus.
<PAGE>
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INVESTMENT OBJECTIVE AND POLICIES
The following discussion elaborates on the description of each Fund's investment
policies and practices contained in the Prospectus.
CUSTODIAL RECEIPTS
The Money Market Fund may acquire custodial receipts that evidence ownership of
future interest payments, principal payments or both on certain U.S. Government
notes or bonds. These notes and bonds are held in custody by a bank on behalf of
the owners. These custodial receipts are known by various names, including
'Treasury Receipts,' 'Treasury Investors Growth Receipts' ('TIGRs'), and
'Certificates of Accrual on Treasury Securities' ('CATS'). Although custodial
receipts are not considered U.S. Government securities by the Trust, they are
indirectly issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities.
CORPORATE AND BANK OBLIGATIONS
Commercial paper represents short term, unsecured promissory notes issued in
bearer form by banks or bank holding companies, corporations and finance
companies. The commercial paper purchased by the Money Market Fund consists of
direct U.S. dollar denominated obligations of domestic or foreign issuers.
Bank obligations in which the Money Market Fund may invest include
certificates of deposit, bankers' acceptances and fixed time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, that are 'accepted' by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor but may be subject to early withdrawal penalties that vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for these deposits.
REPURCHASE AGREEMENTS
The Money Market Fund may enter into repurchase agreements with selected
broker-dealers, banks or other financial institutions. A repurchase agreement is
an arrangement under which the purchaser (i.e., the Fund) purchases a U.S.
Government or other high quality short term debt obligation (the 'Obligation')
and the seller agrees, at the time of sale, to repurchase the Obligation at a
specified time and price. Custody of the Obligation will be maintained by the
Trust's custodian. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
For purposes of the Investment Company Act of 1940, as amended (the 'Act'),
a repurchase agreement is deemed to be a loan from the Fund to the seller of the
Obligation. It is not clear whether a court would consider the Obligation
purchased by the Fund subject to a repurchase
2
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agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the Obligation. This delay may involve a
loss of interest or a decline in the price of the Obligation. If a court
characterizes the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at risk of losing some or
all of the principal and interest involved in the transaction. As with any
unsecured debt instrument purchased for the Fund, the Trust's investment
sub-adviser, Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'),
seeks to minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case, the seller of the Obligation. The
Board of Trustees has reviewed and approved certain sellers that it believes to
be creditworthy and has authorized the Fund to enter into repurchase agreements
exclusively with these sellers.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security. However, if the
market value of the Obligation subject to the repurchase agreement becomes less
than the repurchase price (including accrued interest), the Trust will direct
the seller of the Obligation to deliver additional securities so that the market
value of all securities subject to the repurchase agreement equals or exceeds
the repurchase price.
Certain repurchase agreements that provide for settlement in more than
seven days can be liquidated before the nominal fixed term on notice of seven
days or less. These repurchase agreements will be regarded as liquid
instruments.
FOREIGN SECURITIES
The Money Market Fund may invest in foreign securities and in certificates of
deposit, bankers' acceptances, and fixed time deposits and other obligations
issued by major foreign banks, foreign branches of U.S. banks and foreign
branches of foreign banks. Under current Securities and Exchange Commission
('SEC') rules relating to the use of the amortized cost method of portfolio
securities valuation, the Money Market Fund is restricted to purchasing U.S.
dollar denominated securities but is not otherwise precluded from purchasing
securities of foreign issuers. Investments in foreign securities and bank
obligations may involve considerations different from investments in domestic
securities, which are described in the Prospectus.
ASSET-BACKED AND RECEIVABLE-BACKED SECURITIES
The Money Market Fund may invest in asset-backed and receivable-backed
securities. Several types of asset-backed and receivable-backed securities have
been offered to investors, including 'Certificates for Automobile Receivables'
('CARs'sm'') and interests in pools of credit card receivables. CARs'sm'
represent undivided fractional interests in a trust, the assets of which consist
of a pool of motor vehicle retail installment sales contracts and security
interests in the vehicles securing the contracts. Payments of principal and
interest on CARs'sm' are passed through monthly to certificate holders and are
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARs'sm' may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the trust may be prevented
3
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from realizing the full amount due on a sales contract because of state law
requirements and restrictions relating to foreclosure sales of vehicles and the
availability of deficiency judgments following such sales, because of
depreciation, damage or loss of a vehicle, because of the application of federal
and state bankruptcy and insolvency laws or other factors. As a result,
certificate holders may experience delays in payment if the letter of credit is
exhausted. Consistent with the Fund's investment objective and policies and,
subject to the review and approval of the Trust's Board of Trustees, the Fund
also may invest in other types of asset-backed and receivable-backed securities.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Fund may purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis. These transactions involve a
commitment by the Fund to purchase or sell securities at a future date. The
price of the underlying securities, usually expressed in terms of yield, and the
date when the securities will be delivered and paid for (i.e., the settlement
date) are fixed at the time the transaction is negotiated. When-issued purchases
and forward commitment transactions are negotiated directly with the other party
and these commitments are not traded on securities exchanges.
A Fund generally will purchase securities on a when-issued basis or
purchase or sell on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities. If
deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or negotiate a commitment after entering into it. The Fund also may
sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. The Fund may realize a capital
gain or loss in connection with these transactions. For purposes of determining
the Fund's average dollar weighted maturity, the maturity of when-issued or
forward commitment securities will be calculated from the commitment date.
When a Fund purchases securities on a when-issued or forward commitment
basis, the Trust's custodian will maintain in a segregated account securities
having a value, determined daily, at least equal to the amount of the Fund's
purchase commitments. In the case of a forward commitment to sell portfolio
securities, the custodian will hold the portfolio securities in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Fund will maintain sufficient assets at all times to cover its
obligations under when-issued purchases and forward commitments.
LENDING OF PORTFOLIO SECURITIES
The Money Market Fund may seek to increase its income by lending portfolio
securities. Under present regulatory policies, these loans may be made to
institutions, such as broker-dealers, and would be required to be secured
continuously by collateral in cash, cash equivalents or high quality U.S.
Government securities maintained on a current basis at an amount at least equal
to the market value of the securities loaned. The Fund would have the right to
call a loan and obtain the securities loaned at any time on five days' notice.
For the duration of a loan, the Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and also would receive the income from
4
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investment of the collateral. The Fund would not have the right to vote any
securities having voting rights during the existence of the loan, but the Fund
could call the loan in anticipation of an important vote to be taken among
holders of the securities or of the giving or withholding of their consent on a
material matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovering,
or even loss of rights in, the collateral should the borrower of the securities
fail financially. The loans, however, would be made only to firms deemed by
Mitchell Hutchins to be of good standing, and when, in the judgment of Mitchell
Hutchins, the income that can be earned currently from securities loans of this
type justifies the attendant risks. If Mitchell Hutchins determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of the value of the total assets of the Fund.
PARTICIPATION INTERESTS
The Money Market Fund may purchase participation interests in loans with
remaining maturities of 397 days or less. These loans must be made to issuers in
whose obligations the Fund may invest. Any participation purchased by the Fund
must be issued by a bank in the United States with assets exceeding $1 billion.
Because the issuing bank does not guarantee the participations in any way, they
are subject to the credit risks generally associated with the underlying
corporate borrower. In addition, because it may be necessary under the terms of
the loan participation for the Fund to assert through the issuing bank such
rights as may exist against the underlying corporate borrower, in the event the
underlying corporate borrower fails to pay principal and interest when due, the
Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation,
such as commercial paper, of the borrower. Moreover, under the terms of the loan
participation, the Fund may be regarded as a creditor of the issuing bank,
rather than of the underlying corporate borrower, so that the Fund may also be
subject to the risk that the issuing bank may become insolvent. Further, in the
event of the bankruptcy or insolvency of the corporate borrower, the loan
participation may be subject to certain defenses that can be asserted by the
borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these loan participations is limited and any participation
interest may be regarded as illiquid.
In the event that Mitchell Hutchins does not believe that price quotations
currently obtainable from banks, dealers, or pricing services consistently
represent the market values of participation interests, Mitchell Hutchins will,
following guidelines established by the Board of Trustees, value the
participation interests held by the Fund at fair value, which approximates
market value. In valuing a participation interest, Mitchell Hutchins will
consider the following factors, among others: (i) the characteristics of the
participation interest, including the cost, size, interest rate, period until
next interest rate reset, maturity and base lending rate of the participation
interest, the terms and conditions of the loan and any related agreements and
the position of the loan in the borrower's debt structure; (ii) the nature,
adequacy and value of the collateral, including the Trust's rights, remedies and
interests with respect to the collateral; (iii) the creditworthiness of the
borrower based on an evaluation of its financial condition, financial statements
and information about the borrower's business, cash flows, capital structure and
future prospects; (iv) the market for the participation interest, including
price quotations for and trading in the participation interest and similar
participation interests or instruments and the market environment and investor
5
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attitudes toward the participation interest or participation interests
generally; (v) the quality and creditworthiness of any intermediary
participants; and (vi) general economic or market conditions.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may not invest more than 10% of its net assets in illiquid securities,
including repurchase agreements that have an effective maturity of longer than
seven days and securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the 'Securities Act'),
securities that are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities that have not been
registered under the Securities Act often are referred to as private placements
or restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays in resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund also might have to register
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be resold
readily or on an issuer's ability to honor a demand for repayment. The existence
of contractual or legal restrictions on resale to the general public or to
certain institutions may not be indicative of the liquidity of the investments.
The SEC has adopted Rule 144A under the Securities Act, which allows for a
broader institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A establishes a 'safe
harbor' from the registration requirements of the Securities Act for resales of
certain securities to qualified institutional buyers. Mitchell Hutchins
anticipates that the market for certain restricted securities, such as
institutional commercial paper, will expand further as a result of this new
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
Mitchell Hutchins will monitor the liquidity of restricted securities under
the supervision of the Board of Trustees. In reaching liquidity decisions,
Mitchell Hutchins will consider, inter alia, the following factors: (i) the
frequency of trades and quotes for the security; (ii) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (iii) dealer undertakings to make a market in the security; and (iv)
the nature of the security and of the
6
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marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
INVESTMENT RESTRICTIONS
The following restrictions may not be changed with respect to any Fund without
the approval of the majority of outstanding voting securities of the Fund
(which, under the Act and the rules thereunder and as used in the Prospectus and
this Statement of Additional Information, means the lesser of (i) 67% of the
shares of the Fund present at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (ii) more
than 50% of the outstanding shares of the Fund). Investment restrictions that
involve a maximum percentage of securities or assets shall not be considered to
be violated unless an excess over the percentage occurs immediately after and is
caused by an acquisition or encumbrance of securities or assets of, or
borrowings by or on behalf of, a Fund, with the exception of borrowings
permitted by Investment Restriction (4). In applying the following restrictions,
the Trust will not treat a guarantee as a security issued by the guarantor if
the value of all securities issued or guaranteed by the guarantor and owned by a
Fund does not exceed 10% of the Fund's total assets.
The Trust may not, on behalf of any Fund:
(1) Purchase for the Fund the securities of any one issuer, other than
U.S. Government securities, if immediately after the purchase more than 5%
of the value of the Fund's total assets would be invested in the issuer,
except that (a) up to 25% of the value of its total assets may be invested
without regard to this 5% limitation and (b) this 5% limitation shall not
apply to repurchase agreements collateralized by U.S. Government
securities.
(2) Purchase securities if the purchase would cause more than 25% in
the aggregate of the market value of the total assets of the Fund to be
invested in the securities of one or more issuers having their principal
business activity in the same industry, provided that there is no
limitation with respect to, and each Fund reserves freedom of action, when
otherwise consistent with its investment policies, to concentrate its
investments in U.S. Government securities, obligations (other than
commercial paper) issued or guaranteed by U.S. banks and repurchase
agreements and securities loans collateralized by U.S. Government
securities or such bank obligations.
(3) Make loans, except through (a) the purchase of debt obligations in
accordance with the Fund's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions and (c) loans of securities.
(4) Borrow money, except as a temporary or emergency measure, and then
only from banks in amounts not exceeding one-third of the value of the
Fund's total assets. No purchases of securities will be made if borrowings
exceed 5% of the value of the Fund's assets.
(5) Mortgage, pledge or hypothecate any assets except to secure
permitted borrowings.
(6) Purchase real estate (excluding securities secured by real estate
or interests therein), securities issued by real estate investment trusts
or limited partnerships, commodities, commodity contracts or oil, gas or
other mineral leases or exploration or development programs.
(7) Invest in companies for the purpose of exercising control of
management.
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(8) Act as an underwriter of securities (except as the Trust may be
deemed to be an underwriter under the Securities Act in connection with the
purchase and sale of portfolio instruments in accordance with the Fund's
investment objective and management policies), purchase securities on
margin (except for delayed delivery or when-issued transactions or such
short term credits as are necessary for the clearance of transactions),
make short sales of securities, maintain a short position or invest in or
write puts, calls, or combinations thereof (except that the Trust may, on
behalf of a Fund, acquire puts in connection with the acquisition of a debt
instrument).
(9) Purchase the securities of any issuer, other than U.S. Government
securities, if the purchase would cause more than 10% of the voting
securities of the issuer to be held by the Fund, except that up to 25% of
the value of the Fund's total assets may be invested without regard to this
10% limitation.
(10) Purchase warrants.
Notwithstanding restriction (1) above, to the extent required by the rules
of the SEC, the Money Market Fund will not invest more than 5% of its assets in
the obligations of any one issuer.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Board of Trustees, Mitchell Hutchins is
responsible for, makes decisions with respect to, and places orders for, all
purchases and sales of portfolio securities for each Fund. Mitchell Hutchins
purchases portfolio securities for the Fund either directly from the issuer or
from dealers that specialize in money market instruments. These purchases are
usually without the payment of brokerage commissions. In making portfolio
investments, Mitchell Hutchins seeks to obtain the best net price and the most
favorable execution of orders. 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 that
provide the Trust with research advice or other services.
Mitchell Hutchins may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of the securities from the Money Market Fund prior to their maturity at their
original cost plus interest, interest sometimes being adjusted to reflect the
actual maturity of the securities, if Mitchell Hutchins believes that the Fund's
anticipated need for liquidity makes this action desirable. Certain dealers, but
not issuers, have charged and may in the future charge a higher price for
commercial paper where they undertake to repurchase prior to maturity. The
payment of a higher price in order to obtain this kind of undertaking reduces
the yield that might otherwise be received by the Fund on the commercial paper.
Mitchell Hutchins is authorized to pay a higher price for commercial paper where
it secures such an undertaking if Mitchell Hutchins believes that the prepayment
privilege is desirable to assure the Fund's liquidity and such an undertaking
cannot otherwise be obtained.
Investment decisions for the Funds are made independently from those for
other investment companies and accounts advised by Mitchell Hutchins, which may
invest in the same securities as the Funds. When purchases or sales of the same
security are made at substantially the same time on behalf of those other
investment companies and accounts, transactions are averaged as to price and
available investments are allocated as to amount in a manner that Mitchell
Hutchins believes to be equitable to each company or account, including the
Funds. In some instances, this investment
8
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procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained for a Fund. To the extent permitted by law, Mitchell
Hutchins may aggregate the securities to be sold or purchased for a Fund with
those to be sold or purchased for those other companies or accounts in order to
obtain best execution.
The Fund will not engage in principal transactions with, acquire portfolio
securities issued by or enter into repurchase agreements with, Mitchell Hutchins
or any affiliated person thereof, as defined in the Act, except to the extent
permitted by the SEC.
The Trust does not intend to seek profits through short-term trading. The
Funds' annual portfolio turnover will be relatively high, but the Funds'
portfolio turnover is not expected to have a material effect on their net
income. Each Fund's portfolio turnover rate is expected to be zero for
regulatory reporting purposes.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE AND REDEMPTION
Information on how to purchase and redeem Fund shares is included in the
Prospectus.
Under the Act, the Trust may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the New York
Stock Exchange is closed, other than customary weekend and holiday closings,
during which trading on that exchange is restricted or during which (as
determined by the SEC by rule or regulation) an emergency exists as a result of
which disposal or valuation of portfolio securities is not reasonably
practicable or for such other periods as the SEC may permit. The Trust may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions. In addition, the Trust may redeem
shares involuntarily in certain other instances if the Board of Trustees
determines that failure to redeem may have material adverse consequences to the
Trust's shareholders in general. The Trust is obligated to redeem shares solely
in cash up to $250,000 or 1% of a Fund's net asset value, whichever is less, for
any one shareholder within a 90-day period. Any redemption beyond this amount
also will be in cash unless the Board of Trustees determines that conditions
exist that make payment of redemption proceeds wholly in cash unwise or
undesirable. In such a case, the Trust may make payment wholly or partly in
securities or other property (known as 'redemption in kind'), valued in the same
way as the Trust determines net asset value. See 'Net Asset Value' below for an
example of when such a redemption or form of payment might be appropriate.
Redemption in kind is not as liquid as a cash redemption. Shareholders who
receive a redemption in kind may incur transaction costs if they sell the
securities or property and may receive less than the redemption value of the
securities or property upon sale, particularly where the securities are sold
prior to maturity.
NET ASSET VALUE
Each Fund's net asset value per share is calculated by dividing the total value
of the assets belonging to the Fund, less the value of any liabilities charged
to the Fund, by the total number of Fund shares outstanding (irrespective of
class). Assets belonging to the Fund consist of the consideration received upon
the issuance of Fund shares together with all income, earnings, profits and
proceeds derived from the investment thereof, including any proceeds from the
sale of investments, any funds or payments derived from any reinvestment of
those proceeds and a
9
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portion of any general assets of the Trust not belonging to a particular Fund.
Assets belonging to the Fund are charged with the direct liabilities of the Fund
and with a share of the general liabilities of the Trust allocated on a daily
basis in proportion to the relative net assets of the Funds. Determinations made
in good faith and in accordance with generally accepted accounting principles by
the Board of Trustees as to the allocation of any assets or liabilities to the
Fund are conclusive.
In computing the net asset value of its shares for purposes of sales and
redemptions, the Trust uses the amortized cost method of valuation. Under this
method, the Trust values each Fund's portfolio securities at cost on the date of
purchase and thereafter assumes a constant proportionate amortization of any
discount or premium until maturity of the security. As a result, the value of a
portfolio security for purposes of determining net asset value normally does not
change in response to fluctuating interest rates. While the amortized cost
method provides certainty in portfolio valuation, it may result in valuations of
a Fund's portfolio securities that are higher or lower than the market value of
the securities.
In connection with its use of amortized cost valuation, each Fund limits
the dollar weighted average maturity of its portfolio to not more than 90 days
and does not purchase any instrument with a remaining maturity of more than 397
days. The Board of Trustees also has established procedures, pursuant to a rule
promulgated by the SEC, that are intended to stabilize each Fund's net asset
value per share for purposes of sales and redemptions at $1.00. These procedures
include the determination at such intervals as the Board deems appropriate of
the extent, if any, to which the Fund's net asset value per share calculated by
using available market quotations deviates from $1.00 per share. In the event
this deviation exceeds 1/2 of 1%, the Board will promptly consider what action,
if any, should be initiated. If the Board believes that the amount of any
deviation from the Fund's $1.00 amortized cost price per share may result in
material dilution or other unfair results to investors or existing shareholders,
it will take such steps as it considers appropriate to eliminate or reduce to
the extent reasonably practicable any dilution or unfair results. These steps
may include redeeming shares in kind, selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the Fund's average
portfolio maturity, reducing or withholding dividends or utilizing a net asset
value per share determined by using available market quotations.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Trustees and officers of the Trust, together with information as to their
principal business occupations during the last five years, are shown below. Each
Trustee who is an 'interested person' of the Trust, as defined in the Act, is
indicated by an asterisk.
David J. Beaubien, 60, Trustee. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring instruments. Director of IEC,
Inc., manufacturer of electronic assemblies, Belfort Instruments, Inc.,
manufacturer of environmental instruments, and Oriel Corp., manufacturer of
optical instruments. Prior to January 1991, Senior Vice President of EG&G, Inc.,
a company that makes and provides a variety of scientific and technically
oriented products and services. Mr. Beaubien is a director or trustee of 12
other investment companies for which Mitchell Hutchins or PaineWebber
Incorporated ('PaineWebber') serves as investment adviser.
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William W. Hewitt, Jr., 66, Trustee. Trustee of The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Bond Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The
Guardian Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian
U.S. Government Trust. Mr. Hewitt is a director or trustee of 12 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Thomas R. Jordan, 66, Trustee. Principal of The Dilenschneider Group, Inc.,
a corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm. Mr. Jordan is a director or trustee
of 12 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Carl W. Schafer, 59, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd. and Hidden Lake Gold
Mines Ltd., gold mining companies, Electronic Clearing House, Inc., a financial
transactions processing company, Wainoco Oil Corporation and BioTechniques
Laboratories, Inc., an agricultural biotechnology company. Prior to January
1993, chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Mr.
Schafer is a director or trustee of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
*Frank P. L. Minard, 49, Trustee and President. Mr. Minard is chairman of
Mitchell Hutchins, chairman of the board of Mitchell Hutchins Institutional
Investors Inc. and a director of PaineWebber. Prior to 1993, Mr. Minard was
managing director of Oppenheimer Capital in New York and Director of Oppenheimer
Capital Ltd. in London. Mr. Minard is a director or trustee of 26 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle, 36, Vice President. Ms. Boyle is a first vice president
and manager -- advisory administration of Mitchell Hutchins. Prior to November
1993, she was compliance manager of Hyperion Capital Management, Inc., an
investment advisory firm. Prior to April 1993, Ms. Boyle was a vice president
and manager -- legal administration of Mitchell Hutchins. Ms. Boyle is also a
vice president of 39 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Dennis L. McCauley, 48, 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 also a vice president of 8 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Ann E. Moran, 37, Vice President and Assistant Treasurer. Ms. Moran is a
vice president of Mitchell Hutchins. Ms. Moran is also a vice president and
assistant treasurer of 39 other investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Dianne E. O'Donnell, 42, Vice President and Secretary. Ms. O'Donnell is a
senior vice president and deputy general counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president and
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secretary of 39 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Victoria E. Schonfeld, 44, Vice President. Ms. Schonfeld is a managing
director and general counsel of Mitchell Hutchins. From April 1990 to May 1994
she was a partner in the law firm of Arnold & Porter. Ms. Schonfeld is also a
vice president and assistant secretary of 39 other investment companies for
which Mitchell Hutchins or PaineWebber serves as investment adviser.
Paul H. Schubert, 31, Vice President and Assistant Treasurer. Mr. Schubert
is a vice president of Mitchell Hutchins. From August 1992 to August 1994, he
was a vice president at BlackRock Financial Management L.P. Prior to August
1992, he was an audit manager with Ernst & Young LLP. Mr. Schubert is also a
vice president and assistant treasurer of 39 other investment companies for
which Mitchell Hutchins or PaineWebber serves as investment adviser.
Martha J. Slezak, 33, Vice President and Assistant Treasurer. Ms. Slezak is
a vice president of Mitchell Hutchins. From September 1991 to April 1992, she
was a fundraising director for a U.S. Senate campaign. Prior to September 1991,
she was a tax manager with Arthur Andersen & Co. LLP. Ms. Slezak is also a vice
president and assistant treasurer of 39 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Julian F. Sluyters, 34 Vice President and Treasurer. Mr. Sluyters is a
senior vice president and the director of the mutual fund finance division of
Mitchell Hutchins. Prior to 1991, he was an audit senior manager with Ernst &
Young LLP. Mr. Sluyters is also a vice president and treasurer of 39 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd, 38, Vice President and Assistant Secretary. Mr. Todd is a
first vice president and associate general counsel of Mitchell Hutchins. Prior
to 1993, he was a partner with the law firm of Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice president and assistant secretary of 39 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Certain of the Trustees and officers of the Trust are directors and/or
trustees and officers of other mutual funds managed by PaineWebber or Mitchell
Hutchins. The address of each of the non-interested Trustees is: Mr. Beaubien,
Montague Industrial Park, 101 Industrial Road, Box 746, Turners Falls,
Massachusetts 01376; Mr. Hewitt, P.O. Box 2359, Princeton, New Jersey
08543-2359; Mr. Jordan, 200 Park Avenue, New York, New York 10166; and Mr.
Schafer, P.O. Box 1164, Princeton, New Jersey 08542. The address of Mr. Minard
and each of the officers is 1285 Avenue of the Americas, New York, New York
10019.
By virtue of the responsibilities assumed by PaineWebber under the
Investment Advisory and Administration Agreement (the 'Agreement'), the Trust
requires no executive employees other than its officers, none of whom devotes
full time to the affairs of the Trust. See 'Investment Management and Other
Services -- Investment Adviser and Administrator.' Trustees and officers, as a
group, owned less than 1% of the Fund's outstanding shares as of August 1, 1995.
No officer, director or employee of PaineWebber or Mitchell Hutchins or of any
affiliate receives any compensation from the Trust for serving as an officer or
Trustee of the Fund. The Trust pays each Trustee who is not an officer, director
or employee of PaineWebber or Mitchell Hutchins or any of its affiliates an
annual retainer of $2,500 and $750 for each Trustees' meeting attended, and
reimburses the Trustee for out-of-pocket expenses associated with attendance at
Trustees' meetings. The
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Chairman of the Trustees' audit committee receives an annual fee of $250. No
officer, director or employee of Mitchell Hutchins, or any of its affiliates,
receives any compensation from the Trust for serving as an officer or Trustee of
the Trust. The amount of compensation paid by the Trust to each Trustee for the
fiscal year ended April 30, 1995, and the aggregate amount of compensation paid
to each such Trustee for the year ended December 31, 1994 by all funds in the
former Kidder Family of Funds for which such person is a Board member were as
follows:
<TABLE>
<CAPTION>
(5)
(3) TOTAL COMPENSATION
(2) PENSION OR (4) FROM TRUST AND 12
(1) AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL OTHER INVESTMENT
NAME OF BOARD COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPANIES IN THE
MEMBER TRUST* TRUST'S EXPENSES RETIREMENT FUND COMPLEX**
- ------------------------------ ----------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
David J. Beaubien $ None None $ 80,700
William W. Hewitt, Jr. $ None None $ 74,425
Thomas R. Jordan $ None None $ 83,125
Carl W. Schafer $ None None $ 84,575
</TABLE>
- ------------
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to approximately $ for all Trustees as a group.
** Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER AND ADMINISTRATOR
PaineWebber, the Funds' investment adviser and administrator, and Mitchell
Hutchins, the Funds' sub-adviser and sub-administrator, are located at 1285
Avenue of the Americas, New York, New York 10019.
Subject to the supervision and direction of the Trust's Board of Trustees
and of PaineWebber, Mitchell Hutchins manages each Fund's portfolio in
accordance with the stated policies of the Fund. Mitchell Hutchins makes
investment decisions for the Fund and places the purchase and sale orders for
portfolio transactions. Mitchell Hutchins employs a professional staff of
portfolio managers that draw upon a variety of sources for research information
for the Fund. In addition, Mitchell Hutchins pays the salaries of all officers
and employees who are employed by both it and the Trust, maintains office
facilities, furnishes statistical and research data, clerical help and
accounting, data processing, bookkeeping, internal auditing and legal services
and certain other services required by the Trust, prepares reports to
shareholders and filings with the SEC and state Blue Sky authorities, and
generally assists in all aspects of the Trust's operations. Mitchell Hutchins
bears all expenses in connection with the performance of its services.
Expenses incurred in the operation of the Trust are borne by the Trust,
including but not limited to taxes, interest, brokerage fees and commissions, if
any, fees of Trustees who are not officers, directors or employees of
PaineWebber or Mitchell Hutchins, SEC fees and related expenses, state Blue Sky
qualification fees, charges of the custodian and transfer, dividend and
recordkeeping agent, charges and expenses of any outside service used for
pricing of the Funds' portfolio securities and calculating net asset value,
certain insurance premiums, outside auditing
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and legal expenses and costs of maintenance of Trust existence, shareholder
services, printing of prospectuses and statements of additional information for
regulatory purposes or for distribution to shareholders, shareholders' reports
and Trust meetings.
The Investment Advisory and Administration Agreement remains in effect as
to each Fund from year to year, provided its continuance is approved at least
annually by (i) the Board of Trustees or (ii) the vote of a majority of the
outstanding voting securities of the Fund, provided further that in either event
the continuance is also approved by a majority of the Trustees who are not
'interested persons,' as defined in the Act, of the Trust, PaineWebber or
Mitchell Hutchins, by vote cast in person at a meeting called for the purpose of
voting on this approval. With respect to each Fund, the Investment Advisory and
Administration Agreement was approved by shareholders in accordance with the
terms of the Act on April 13, 1995. With respect to each Fund, the Investment
Advisory and Administration Agreement is terminable without penalty, on 60 days'
written notice, by the Board of Trustees of the Trust, by vote of the holders of
a majority of such Fund's outstanding voting securities, as defined in the Act,
or by PaineWebber. The Investment Advisory and Administration Agreement will
terminate automatically, as to the relevant Fund, in the event of its
assignment, as defined in the Act and the rules thereunder.
As compensation for PaineWebber's services rendered to the Trust, each Fund
pays a fee, computed daily and paid monthly, at an annual rate of .25% of such
Fund's average daily net assets. For the fiscal years ended April 30, 1993,
April 30, 1994 and April 30, 1995, the Government Securities Fund in respect of
its Institutional shares incurred fees of $342,099, $283,281 and $ ,
respectively, to Kidder Peabody Asset Management, Inc. ('KPAM'), the Fund's
predecessor investment adviser and administrator, or PaineWebber. However,
during these periods, KPAM or PaineWebber voluntarily waived a portion of its
fees in the amounts of $17,557, $0 and $ , respectively, and voluntarily
paid expenses of $8,081, $21,554 and $ , respectively. For the fiscal
period from July 12, 1994 (commencement of operations) through April 30, 1995,
the Government Securities Fund in respect of its Financial Intermediary shares
incurred fees of $ to KPAM or PaineWebber. However, KPAM or PaineWebber
voluntarily waived $ of its fee and voluntarily paid $ of expenses.
For the fiscal years ended April 30, 1993, April 30, 1994 and April 30, 1995,
the Money Market Fund in respect of its Institutional shares incurred fees of
$937,992, $798,786 and $ , respectively, to KPAM or PaineWebber. However,
during these periods, KPAM or PaineWebber voluntarily waived a portion of its
fees in the amounts of $44,626, $0 and $ , respectively, and voluntarily
paid expenses of $36,168, $3,470 and $ , respectively. For the fiscal
period from March 17, 1994 (commencement of operations) through April 30, 1994
and for the fiscal year ended April 30, 1995, the Money Market Fund in respect
of its Financial Intermediary shares paid fees of $1,644 and $ to KPAM or
PaineWebber. For the fiscal years ended April 30, 1993, April 30, 1994 and April
30, 1995, the Treasury Securities Fund incurred fees of $25,578, $47,804 and
$ to KPAM or PaineWebber. However, during these periods, KPAM or
PaineWebber voluntarily waived its fees in the amounts of $1,638, $40,467 and
$ , respectively, and voluntarily paid expenses of $76,822, $68,730 and
$ , respectively. During these periods described above, there were no
Financial Intermediary shares of the Treasury Securities Fund outstanding.
PaineWebber has agreed that if in any fiscal year the aggregate expenses of
a Fund (including fees pursuant to the Investment Advisory and Administration
Agreement but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions,
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extraordinary expenses) exceed the expense limitation of any state having
jurisdiction over the Trust, PaineWebber will reimburse the Trust for such
excess expense. This expense reimbursement obligation is limited to the amount
of PaineWebber's fees. Any expense reimbursement will be estimated, reconciled
and paid on a monthly basis. The most stringent state expense limitation
applicable to the Trust currently requires reimbursement of expenses in any year
that expenses exceed 2 1/2% of the first $30 million of the average daily value
of a Fund's net assets, 2% of the next $70 million of the average daily value of
the Fund's net assets and 1 1/2% of the remaining average daily value of the
Fund's net assets. During the fiscal period ended April 30, 1995, each Fund's
expenses did not exceed such limitations.
PaineWebber shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Trust in connection with the matters to which
the Investment Advisory and Administration Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under the Investment Advisory and Administration
Agreement.
DISTRIBUTOR
PaineWebber is the distributor of the Funds' shares and is acting on a best
efforts basis.
CUSTODIAN AND TRANSFER, DIVIDEND AND RECORDKEEPING AGENT
State Street Bank and Trust Company ('State Street'), One Heritage Drive, North
Quincy, Massachusetts 02171, has been retained to serve as custodian. PFPC Inc.,
a subsidiary of PNC Bank, National Association, whose principal address is 400
Bellevue Parkway, Wilmington, Delaware 19809, has been retained as transfer,
dividend and recordkeeping agent. As custodian, State Street maintains custody
of the Trust's portfolio securities. As transfer agent, PFPC Inc. maintains the
Trust's official record of shareholders, as dividend agent, it is responsible
for crediting dividends to shareholders' accounts and, as recordkeeping agent,
it maintains certain accounting and financial records of the Trust.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281,
serves as independent auditors for the Trust. In that capacity, Deloitte &
Touche LLP audits the Trust's annual financial statements.
COUNSEL
Messrs. Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, serve as counsel to the Trust.
FINANCIAL INTERMEDIARIES
The Trust will enter into an agreement with each financial intermediary that
purchases Financial Intermediary shares requiring it to provide support services
to its customers who beneficially own Financial Intermediary shares in
consideration of the Trust's payment of .25% (on an annualized basis) of the
average daily net asset value of the Financial Intermediary shares held by the
financial intermediary for the benefit of its customers. These services include:
(i) aggregating and processing
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purchase and redemption requests from customers and placing net purchase and
redemption orders with Kidder, Peabody; (ii) providing customers with a service
that invests the assets of their accounts in Financial Intermediary shares;
(iii) processing dividend payments from the Trust on behalf of customers; (iv)
providing information periodically to customers showing their positions in
Financial Intermediary shares; (v) arranging for bank wires; (vi) responding to
customer inquiries relating to the services performed by the financial
intermediary; (vii) providing sub-accounting with respect to Financial
Intermediary shares beneficially owned by customers or the information necessary
for sub-accounting; (viii) forwarding shareholder communications from the Trust
(such as proxies, shareholder reports and dividend, distribution and tax
notices) to customers, if required by law; and (ix) other similar services if
requested by the Trust. For the fiscal period from March 17, 1994 (the date on
which Financial Intermediary shares were first outstanding) through April 30,
1994 and for the fiscal year ended April 30, 1995, the Trust paid $1,694 and
$ , respectively, with respect to the Financial Intermediary shares of the
Money Market Fund to financial intermediaries. For the fiscal period from July
12, 1994 (the date on which Financial Intermediary shares were first
outstanding) through April 30, 1995, the Trust paid $ with respect to the
Financial Intermediary shares of the Government Securities Fund to financial
intermediaries. [The Trust has not yet made payments to financial intermediaries
with respect to the Financial Intermediary shares of the Treasury Securities
Fund.]
The Trust's agreements with financial intermediaries are governed by an
Amended and Restated Shareholder Services Plan (the 'Plan') adopted by the Board
of Trustees in connection with the offering of Financial Intermediary shares.
Pursuant to the Plan, the Board of Trustees review, at least quarterly, a
written report of the amounts expended under the Trust's agreements with
financial intermediaries and the purposes for which the expenditures were made.
In addition, the Trust's arrangements with financial intermediaries must be
approved annually by a majority of the Trustees, including a majority of the
Trustees who are not 'interested persons' of the Trust as defined in the Act and
have no direct or indirect financial interest in these arrangements (the
'Disinterested Trustees').
The Board of Trustees may approve the Trust's arrangements with financial
intermediaries if, based on information provided by the Trust's service
contractors, there is a reasonable likelihood that the arrangements will benefit
the Trust and its shareholders by affording the Trust greater flexibility in
connection with the servicing of the accounts of the beneficial owners of its
shares in an efficient manner. Any material amendment to the Funds' arrangements
with financial intermediaries must be approved by a majority of the Board of
Trustees including a majority of the Disinterested Trustees. So long as the
Trust's arrangements with Financial Intermediaries are in effect, the selection
and nomination of the members of the Board of Trustees who are not 'interested
persons' of the Trust, as defined in the Act, will be committed to the
discretion of those non-interested Trustees.
Conflict of interest restrictions may apply to a financial intermediary's
receipt of compensation paid by a Fund in connection with the investment of
fiduciary funds in Financial Intermediary shares. Financial intermediaries,
including banks regulated by the Comptroller of the Currency and investment
advisers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult their legal advisors before
investing fiduciary funds in Financial Intermediary shares. See also 'Management
of the Trust -- Financial Intermediaries' in the Trust's prospectus.
16
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
With respect to the Government Securities Fund, to the knowledge of the Trust,
the following persons owned of record 5% or more of the Fund's Institutional
shares of beneficial interest on July 31, 1995:
With respect to the Money Market Fund, to the knowledge of the Trust, the
following persons owned of record 5% or more of the Fund's Institutional shares
of beneficial interest on July 31, 1995:
With respect to the Treasury Securities Fund, to the knowledge of the
Trust, the following persons owned of record 5% or more of the Fund's
Institutional shares of beneficial interest on July 31, 1995:
The Trust is not aware as to whether or to what extent shares owned of
record also are owned beneficially.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund is treated as a separate entity for federal income tax purposes, has
qualified for the fiscal year ended April 30, 1995 to be treated as a 'regulated
investment company' under the Internal Revenue Code of 1986, as amended, and has
elected or intends to elect this treatment for each year. Provided that a Fund
distributes at least 90% of its net investment income and net realized short
17
<PAGE>
- --------------------------------------------------------------------------------
term capital gains, a Fund, if it qualifies as a regulated investment company,
will not be liable for federal income taxes to the extent its net investment
income and its net long term and short term realized capital gains, if any, are
distributed to its shareholders.
Although each Fund expects to be relieved of all or substantially all
federal income taxes, depending on the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of a Fund's income that is treated as earned
in any such state or locality could be subject to state and local tax. Any taxes
paid by a Fund would reduce the amount of income and gains available for
distribution to shareholders.
While each of the Funds does not expect to realize any net long term
capital gains, any such net realized gains will be distributed as described in
the Prospectus. These distributions ('capital gain dividends') will be taxable
to shareholders as long term capital gains, regardless of how long a shareholder
has held Fund shares, and will be designated as capital gain dividends in a
written notice mailed by the Trust to shareholders after the close of the Fund's
taxable year.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that the
shareholder has provided a correct taxpayer identification number and that the
shareholder is not subject to withholding, then the shareholder may be subject
to a 31% 'backup withholding' tax with respect to (i) dividends and
distributions and (ii) the proceeds of any redemptions of Fund shares. An
individual's taxpayer identification number is his or her social security
number. The 31% 'backup withholding' tax is not an additional tax and may be
credited against a taxpayer's regular federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisers
with specific reference to their own tax situations, including their state and
local tax liabilities.
YIELD INFORMATION
The 'current yields' and 'effective yields' are calculated separately for
Institutional shares and Financial Intermediary shares of each Fund. The
seven-day current yield for each class of shares of each Fund is calculated by
determining the net change in the value of a hypothetical preexisting account in
the Fund having a balance of one share of the class involved at the beginning of
the period, dividing the net change by the value of the account at the beginning
of the period to obtain the base period return, and multiplying the base period
return by 365/7. The net change in the value of an account in the Fund includes
the value of additional shares purchased with dividends from the original share
and dividends declared on the original share and any such additional shares, net
of all fees charged to all shareholder accounts in proportion to the length of
the base period and the Fund's average account size, but does not include gains
and losses or unrealized appreciation and depreciation. In addition, an
effective annualized yield quotation may be computed on a compounded basis with
respect to each class of shares by adding 1 to the base period return for the
class involved (calculated as described above), raising the sum to a power equal
to 365/7 and subtracting 1 from the result. Similarly, based on the calculations
described above, 30-day (or one-month) yields and effective yields may also be
calculated.
18
<PAGE>
- --------------------------------------------------------------------------------
Yields fluctuate and any quotation of yield should not be considered as
representative of the future performance of a Fund. Since yields fluctuate,
yield data cannot necessarily be used to compare an investment in a Fund's
shares with bank deposits, savings accounts and similar investment alternatives
that often provide an agreed or guaranteed fixed yield for a stated period of
time. Shareholders should remember that performance and yield are generally
functions of the kind and quality of the investments held in a portfolio,
portfolio maturity, operating expenses, and market conditions. Any fees charged
by financial intermediaries with respect to investing customer accounts in
Financial Intermediary shares of a Fund will not be included in yield
calculations; these fees, if charged, would reduce the actual yield from that
quoted.
DESCRIPTION OF SHARES
The Trust does not currently intend to hold annual meetings of shareholders
except as required by the Act or other applicable law. These laws under certain
circumstances provide shareholders with the right to call for a meeting of
shareholders to consider the removal of one or more Trustees. To the extent
required by law, the Trust will assist in shareholder communication in these
matters.
As stated in the Prospectus, holders of Institutional shares and Financial
Intermediary shares will vote in the aggregate and not by class on all matters,
except where otherwise required by law and except that only Financial
Intermediary shares will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Trust's arrangements with Financial
Intermediaries. See 'Management of the Fund -- Financial Intermediaries.'
Further, shareholders of a Fund and of the other Funds will vote in the
aggregate and not by Fund except as otherwise required by law or when the Board
of Trustees determines that the matter to be voted upon affects only the
interests of the shareholders of a particular Fund. Rule 18f-2 under the Act
provides that any matter required to be submitted by the provisions of that Act
or applicable state law, or otherwise, to the holders of the outstanding
securities of an investment company such as the Trust shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each Fund affected by the matter. Rule 18f-2 further
provides that a Fund shall be deemed to be affected by a matter unless it is
clear that the interests of each Fund in the matter are identical or that the
matter does not affect any interest of the Fund. Under that Rule, the approval
of an investment advisory agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to a Fund only if approved
by the holders of a majority of the outstanding voting securities of the Fund.
That Rule, however, also provides that the ratification of the selection of
independent accountants, the approval of principal underwriting contracts and
the election of Trustees are not subject to the separate voting requirements and
may be effectively acted upon by shareholders of the investment company voting
without regard to the Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is an entity of the type commonly known as a 'Massachusetts business
trust,' which is the form in which many mutual funds are organized. Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. Notice of this
disclaimer will normally be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification by the relevant Fund for any loss
19
<PAGE>
- --------------------------------------------------------------------------------
suffered by a shareholder as a result of an obligation of the Fund. The
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Trust and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which a Fund is unable to meet its obligations. The Trustees
believe that, in view of the above, the risk of personal liability of
shareholders is not material.
ADDITIONAL INFORMATION ABOUT THE TRUST
The Prospectus and this Statement of Additional Information do not contain all
the information set forth in the Registration Statement and the exhibits
relating thereto, which the Trust has filed with the SEC under the Securities
Act and the Act, to which reference is hereby made.
FINANCIAL STATEMENTS
The Funds' Annual Report to Shareholders for the fiscal year ended April 30,
1995 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.
20
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX:
DESCRIPTION OF RATINGS
Set forth below are descriptions of the ratings of Moody's Investors Service,
Inc. ('Moody's'), Standard & Poor's Ratings Group ('S&P') and Fitch Investors
Services, Inc. ('Fitch'), which represent their opinions as to the quality of
the securities that they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and are not absolute standards of
quality.
DESCRIPTION OF S&P CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa -- Bonds that are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt-edge.' Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, these changes as can be visualized are most unlikely to impair the
fundamentally strong position of these issues.
Aa -- Bonds that are Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long term risks appear somewhat larger than in Aaa securities. Moody's applies
the numerical modifiers 1, 2 and 3 to each generic rating classification from Aa
through B. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category, the modifier 2 indicates a mid-range ranking and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short term promissory
obligations.
DESCRIPTION OF FITCH'S SHORT TERM RATINGS:
Fitch employs the rating F-1+ to indicate issues regarded as having the
strongest degree of assurance for timely payment. The rating F-1 reflects an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Various of the rating agencies utilize rankings within categories indicated
by a + or - . The Trust in accordance with industry practice, recognize such
rankings within categories as gradations, viewing for example S&P's rating of
A-1+ and A-1 - as being in S&P's highest rating category.
21
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------
Table of Contents
- --------------------------------------------------------
Investment Objective and Policies 2
- --------------------------------------------------------
Purchase and Redemption of Shares 9
- --------------------------------------------------------
Management of the Trust 10
- --------------------------------------------------------
Investment Advisory and Other Services 13
- --------------------------------------------------------
Principal Shareholders 17
- --------------------------------------------------------
Dividends, Distributions and Taxes 17
- --------------------------------------------------------
Yield Information 18
- --------------------------------------------------------
Description of Shares 19
- --------------------------------------------------------
Additional Information About the Trust 20
- --------------------------------------------------------
Financial Statements 20
- --------------------------------------------------------
Appendix: Description of Ratings 21
- --------------------------------------------------------
</TABLE>
Liquid
Institutional
Reserves
Statement of
Additional
Information
September 1, 1995
Money Market Fund
Government Securities Fund
Treasury Securities Fund
Institutional Shares
Financial Intermediary Shares
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
To be completed by a subsequent amendment before this present
post-effective amendment becomes effective.
Included in Part B:
To be completed by a subsequent amendment before this present
post-effective amendment becomes effective.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1(a) -- Declaration of Trust(1)
1(b) -- Amended and Restated Declaration of Trust(2)
2 -- Amended and Restated By-Laws(2)
3 -- Inapplicable
4 -- Inapplicable
5 -- Form of Investment Advisory and Administration Agreement`D'
6 -- Form of Distribution Agreement`D'
7 -- Inapplicable
8 -- Form of Custody Agreement`D'
9(a) -- Form of Agency Agreement`D'
9(b) -- Amended and Restated Shareholder Services Plan(3)
9(c) -- Shareholder Service Agreement(3)
10 -- Opinion of Willkie Farr & Gallagher, including consent(4)
11 -- Independent Auditors' Consent
12 -- Inapplicable
13 -- Form of Purchase Agreement(4)
14 -- Inapplicable
15 -- Inapplicable
16 -- Schedule for computation of current and effective yields.(5)
17 -- Financial Data Schedules`D'
18 -- Powers of Attorney
</TABLE>
- ------------
`D' To be supplied by amendment.
(1) Incorporated by reference to Registrant's Registration Statement filed on
February 15, 1991.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement filed on April 26, 1991.
(3) Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement filed on August 30, 1993.
(4) Incorporated by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement filed on May 23, 1991.
(5) Incorporated by reference to Post-Effective Amendment No. 2 to Registrant's
Registration Statement filed on August 28, 1992.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
See 'Principal Shareholders' in Part B of this Registration Statement.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
[To be completed by amendment.]
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF JULY 31, 1995
---------------------------------------------------
GOVERNMENT MONEY TREASURY
TITLE OF CLASS SECURITIES FUND MARKET FUND SECURITIES FUND
- ------------------------------------ --------------- ------------- ---------------
<S> <C> <C> <C>
Shares representing beneficial
interests, par value $.001 per
share (Institutional Shares) [ ] [ ] [ ]
Shares representing beneficial
interests, par value $.001 per
share (Financial Intermediary
Shares) 0 0 0
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Article IV of Registrant's Amended and Restated
Declaration of Trust filed as Exhibit 1(b) to this Registration Statement.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the 'Securities Act'), may be permitted for Trustees,
officers and controlling persons of Registrant pursuant to provisions of
Registrant's Declaration of Trust, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer, or controlling person of Registrant in
the successful defense on any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, 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 Securities Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to 'Management of the Trust' in the Prospectus forming
Part A, and 'Investment Advisory and Other Services' in the Statement of
Additional Information forming Part B, of this Registration Statement.
I. PaineWebber Incorporated ('PaineWebber'), a Delaware corporation, is a
registered investment adviser and is wholly owned by Paine Webber Group Inc.
PaineWebber is primarily engaged in the financial services business. Information
as to the officers and directors of PaineWebber is included in its Form ADV
filed on March 31, 1995, with the Securities and Exchange Commission
(registration number 801-7163) and is incorporated herein by reference.
II. Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a
Delaware corporation, is a registered investment adviser and is wholly owned by
PaineWebber. Mitchell Hutchins is primarily engaged in the investment advisory
business. Information as to the officers and directors of Mitchell
Hutchins is included in its Form ADV filed on April 3, 1995, with the Securities
and Exchange Commission (registration number 801-13219) and is incorporated
herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) PaineWebber serves as principal underwriter and/or investment adviser
for the following other investment companies:
C-2
<PAGE>
PaineWebber CashFund, Inc.
PaineWebber Managed Municipal Trust
PaineWebber RMA Money Fund, Inc.
PaineWebber RMA Tax-Free Fund, Inc.
PaineWebber/Kidder, Peabody California Tax Exempt Money Fund
PaineWebber/Kidder, Peabody Cash Reserve Fund, Inc.
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
PaineWebber/Kidder, Peabody Municipal Money Market
Series -- Connecticut Series
PaineWebber/Kidder, Peabody Municipal Money Market Series -- New
Jersey Series
PaineWebber/Kidder, Peabody Municipal Money Market Series -- New York
Series
PaineWebber/Kidder, Peabody Premium Account Fund
PaineWebber/Kidder, Peabody Tax Exempt Money Fund, Inc.
(b) PaineWebber is the principal underwriter of the Registrant. The
directors and officers of PaineWebber, their principal business addresses, and
their positions and offices with PaineWebber are identified in its Form ADV
filed March 31, 1995, with the Securities and Exchange Commission (registration
number 801-7163), and such information is hereby incorporated herein by
reference. The information set forth below is furnished for those directors and
officers of PaineWebber who also serve as directors or officers of the
Registrant:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS POSITION WITH REGISTRANT WITH UNDERWRITER
- ----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Frank P.L. Minard Chairman, President and Trustee Director
1285 Avenue of the Americas
New York, NY 10019
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
will be maintained at the offices of PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809, State Street Bank and Trust Company, One Heritage
Drive, North Quincy, Massachusetts 02171, and the Trust, 1285 Avenue of the
Americas, New York, New York 10019.
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
Inapplicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant, LIQUID
INSTITUTIONAL RESERVES, has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, State of New York on the 28th day of
June, 1995.
LIQUID INSTITUTIONAL RESERVES
By /S/ DIANNE E. O'DONNELL
...................................
DIANNE E. O'DONNELL,
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to the Registrant's Registration Statement on Form
N-1A has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ FRANK P.L. MINARD* Chairman, Trustee and President June 28, 1995
.................................................. (Chief Executive Officer)
FRANK P.L. MINARD
/s/ JULIAN F. SLUYTERS Vice President and Treasurer (Chief June 28, 1995
.................................................. Financial and Accounting Officer)
JULIAN F. SLUYTERS
/s/ DAVID J. BEAUBIEN** Trustee June 28, 1995
..................................................
DAVID J. BEAUBIEN
/s/ WILLIAM W. HEWITT, JR.*** Trustee June 28, 1995
..................................................
WILLIAM W. HEWITT, JR.
/s/ THOMAS R. JORDAN**** Trustee June 28, 1995
..................................................
THOMAS R. JORDAN
/s/ CARL W. SCHAFER***** Trustee June 28, 1995
..................................................
CARL W. SCHAFER
</TABLE>
- ------------
* Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated May 18, 1995 and filed herewith.
** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995 and filed herewith.
*** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995 and filed herewith.
**** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995 and filed herewith.
***** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995 and filed herewith.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C>
(18) -- Powers of Attorney...............................................................................
</TABLE>
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as.............. 'D'
The service mark symbol shall be expressed as........ 'sm'
<PAGE>
POWER OF ATTORNEY
I, Frank P.L. Minard, President and Trustee of PaineWebber/Kidder, Peabody
California Tax Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account
Fund, PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
President and Trustee for each of the Funds, any and all amendments to each of
the particular registration statements of the Funds, and all instruments
necessary or desirable in connection therewith, filed with the Securities and
Exchange Commission, hereby ratifying and confirming my signature as it may be
signed by said attorneys to any and all amendments to said registration
statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ FRANK P.L. MINARD President and Trustee May 18, 1995
........................................
FRANK P.L. MINARD
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, David J. Beaubien, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ DAVID J. BEAUBIEN Trustee March 8, 1995
........................................
DAVID J. BEAUBIEN
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, William W. Hewitt, Jr., Trustee of PaineWebber/Kidder, Peabody
California Tax Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account
Fund, PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ WILLIAM W. HEWITT, JR. Trustee March 8, 1995
........................................
WILLIAM W. HEWITT, JR.
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, Thomas R. Jordan, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ THOMAS R. JORDAN Trustee March 8, 1995
........................................
THOMAS R. JORDAN
</TABLE>
<PAGE>
POWER OF ATTORNEY
I, Carl W. Schafer, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
Trustee for each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, and all instruments necessary or desirable
in connection therewith, filed with the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be signed by said
attorneys to any and all amendments to said registration statements.
Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ CARL W. SCHAFER Trustee March 8, 1995
........................................
CARL W. SCHAFER
</TABLE>
