<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 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. 6 [x]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 8 [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
[x] on September 1, 1995 pursuant to paragraph (b) of Rule
485
[ ] 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% .10% .10% .10% .10%
Total Other
Expenses
(after
reimbursements)... .10% .35% .10% .35% .10% .35%
Total Fund Operating
Expenses (after
reimbursements)**... .35% .60% .35% .60% .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..................................... $4 $11 $20 $44
Financial Intermediary shares............................ $6 $19 $33 $75
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 administrator 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 experienced total operating expenses equal to .22% 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 Money
Market Fund's, Government Securities Fund's and Treasury Securities Fund's total
operating expenses would have been .37%, .47% and .84%, respectively, of their
average net assets for Institutional shares and would have been .62%, .72% and
1.09%, 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 Money Market
Fund's, Government Securities Fund and Treasury Securities Fund at the end of
one, three, five and ten years would have been $4, $12, $21 and $47; $5, $15,
$26 and $59; and $9, $27, $47 and $104, respectively, for Institutional shares
and would have been $6, $20, $35 and $77; $7, $23, $40 and $89; and $11, $35,
$60 and $133, 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.
The Funds are offered to participants in the PaineWebber Resource
Management Account ('RMA')'r' program. The Funds are also offered to
participants in the PaineWebber Business Services Account ('BSA')'sm' program.
PaineWebber currently charges an annual $85 account charge for the RMA program
and $125 for the BSA program. The account charges are not included in the table
because certain non-RMA and non-BSA participants are permitted to purchase
shares of the Funds.
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. Shares of each Fund are available through the RMA and BSA programs. Shares may be
of Shares redeemed by wire, telephone or mail. 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>
[THIS PAGE INTENTIONALLY LEFT BLANK]
7
<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 is included in the Annual Report to Shareholders.
<TABLE>
<CAPTION>
MONEY MARKET FUND
--------------------------------------------------------------------------------------------
FINANCIAL
INTERMEDIARY
INSTITUTIONAL SHARES SHARES
----------------------------------------------- ------------------------------------------
FOR THE PERIOD
JUNE 3, FOR THE PERIOD
FOR THE YEARS ENDED APRIL 30, 1991`D' MARCH 17, 1994`D'
------------------------------ TO FOR THE YEAR ENDED TO
1995 1994 1993 APRIL 30, 1992 APRIL 30, 1995 APRIL 30, 1994
-------- -------- -------- -------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------------- ------- -------
Net investment
income............... 0.048 0.030 0.031 0.044 0.027 0.004
Net realized losses
from investment
transactions......... (0.008) -- -- -- -- --
Dividends from net
investment income.... (0.048) (0.030) (0.031) (0.044) (0.027) (0.004)
-------- -------- -------- -------------- ------- -------
Contribution to capital
from predecessor
adviser.............. 0.008 -- -- -- -- --
-------- -------- -------- -------------- ------- -------
Net asset value:
End of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------------- ------- -------
-------- -------- -------- -------------- ------- -------
Total investment
return(1).............. 4.91% 3.03% 3.16% 4.52% 3.10% 0.37%
-------- -------- -------- -------------- ------- -------
-------- -------- -------- -------------- ------- -------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $220,844 $254,281 $385,618 $335,868 -- $ 9,000
Ratio of expenses to
average net assets
after
waivers/reimbursement
from adviser......... 0.35% 0.33% 0.34% 0.30%* 0.60%* 0.58%*
Ratio of expenses to
average net assets
before
waivers/reimbursement
from adviser......... 0.37% 0.33% 0.36% 0.41%* 0.62%* 0.58%*
Ratio of net investment
income to average net
assets............... 4.66% 2.96% 3.11% 4.65%* 4.15%* 2.93%*
</TABLE>
------------
`D' Commencement of operations
* Annualized
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value of $1.00 per share, and a sale at net asset
value on the last date of each period reported. Total return information for
periods less than one year have not been annualized.
8
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
--------------------------------------------------------------
FINANCIAL
INTERMEDIARY
INSTITUTIONAL SHARES SHARES
---------------------------------------------- --------------
FOR THE PERIOD FOR THE PERIOD
JUNE 3, JULY 12,
FOR THE YEARS ENDED APRIL 30, 1991`D' 1994`D'
------------------------------ TO TO
1995 1994 1993 APRIL 30, 1992 APRIL 30, 1995
-------- -------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------------- --------------
Net investment
income............... 0.048 0.029 0.031 0.044 0.032
Net realized losses
from investment
transactions......... (0.008) -- -- -- --
Dividends from net
investment income.... (0.047) (0.029) (0.031) (0.044) (0.032)
-------- -------- -------- -------------- --------------
Contribution to capital
from predecessor
adviser.............. 0.007 -- -- -- --
-------- -------- -------- -------------- --------------
Net asset value:
End of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------------- --------------
-------- -------- -------- -------------- --------------
Total investment
return(1).............. 4.61% 2.97% 3.13% 4.46% 3.31%
-------- -------- -------- -------------- --------------
-------- -------- -------- -------------- --------------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $ 54,903 $ 84,209 $102,611 $144,853 --
Ratio of expenses to
average net assets
after
waivers/reimbursement
from adviser......... 0.35% 0.35% 0.34% 0.30%* 0.60%*
Ratio of expenses to
average net assets
before
waivers/reimbursement
from adviser......... 0.47% 0.37% 0.36% 0.41%* 0.72%*
Ratio of net investment
income to average net
assets............... 4.63% 2.93% 3.09% 4.52%* 4.46%*
</TABLE>
<TABLE>
<CAPTION>
TREASURY SECURITIES FUND
--------------------------------------------------------
INSTITUTIONAL SHARES
--------------------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED APRIL 30, DECEMBER 6, 1991`D'
------------------------------ TO
1995 1994 1993 APRIL 30, 1992
-------- -------- -------- ------------------------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Net investment
income............... 0.049 0.028 0.029 0.016
Net realized losses
from investment
transactions......... (0.002) -- -- --
Dividends from net
investment income.... (0.047) (0.028) (0.029) (0.016)
-------- -------- -------- --------
Contribution to capital
from predecessor
adviser.............. -- -- -- --
-------- -------- -------- --------
Net asset value:
End of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
Total investment
return(1).............. 4.75% 2.87% 2.89% 1.62%
-------- -------- -------- --------
-------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $ 23,762 $ 38,602 $ 8,064 $ 15,003
Ratio of expenses to
average net assets
after
waivers/reimbursement
from adviser......... 0.22% 0.18% 0.33% 0.06%*
Ratio of expenses to
average net assets
before
waivers/reimbursement
from adviser......... 0.84% 0.76% 1.10% 2.05%*
Ratio of net investment
income to average net
assets............... 4.89% 3.08% 2.88% 3.89%*
</TABLE>
<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.................................. 5.74% 5.35% 5.77% 5.55% 5.67% 5.27%
Effective Yield................................ 5.90% 5.49% 5.93% 5.70% 5.83% 5.41%
Average Portfolio Maturity..................... 31 days 28 days 41 days 36 days 32 days 30 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 $1.5 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 $1.5 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 are either (1)
rated in the highest short-term rating category by at least two
nationally recognized statistical rating organizations ('NRSROs'),
(2) rated in the highest short-term rating category by a single NRSRO
if only that NRSRO has assigned the obligations a short-term rating
or (3) unrated, but determined by Mitchell Hutchins to be of
comparable quality.
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 either (1) rated in the highest short-term rating category
by at least two NRSROs, (2) rated in the highest short-term rating category by a
single NRSRO if only that NRSRO has assigned the obligations a short-term rating
or (3) unrated, but 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 either (1) rated in the
highest short-term rating category by at least two NRSROs, (2) rated in the
highest short-term rating category by a single NRSRO if only that NRSRO has
assigned the obligations a short-term rating or (3) unrated, but determined by
Mitchell Hutchins to be of comparable 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.
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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 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.
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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. 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 ('Business Day'), except that net asset value is not
computed 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 for the
observance of New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 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
The purchase price for shares of the Funds is the net asset value per share next
determined after receipt by the Funds of a purchase order in proper form.
Purchase orders received before 12:00 noon, Eastern time, for which payment has
been received by PaineWebber will be executed at that time and the shareholder
will receive the dividend declared on that day. Purchase orders received after
12:00 noon, Eastern time, and purchase orders received earlier in the same day
for which payment has not been received by 12:00 noon, Eastern time, will be
executed at 12:00 noon, Eastern time, the following day if payment has been
received by PaineWebber by that time, and the shareholder will receive the
dividend declared on the following day.
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 reserves 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.
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 PaineWebber; 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 PaineWebber each reserves the right to reject any
purchase order for any reason.
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Shares of each Fund are available through the RMA and BSA programs.
Balances of $1 or more are invested daily. The Trust and PaineWebber reserve the
right to reject any purchase order and to suspend the offering of Fund shares
for a period of time.
On any Business Day, a Fund will accept purchase orders and credit shares
to investors' accounts as follows.
PURCHASES WITH FUNDS HELD AT PAINEWEBBER. All deposits to RMA and BSA
participants' brokerage accounts and any free credit cash balances that may
arise in such brokerage accounts will be automatically invested in shares of
their Fund, provided that federal funds are available for the investment.
Federal funds normally are available for cash balances arising from the sale of
securities held in a brokage account on the Business Day following settlement,
but in some cases can take longer.
PURCHASES BY WIRE. RMA and BSA participants may also purchase shares of
their Fund by instructing their banks to transfer federal funds by wire to their
RMA or BSA account. Wire transfers should be directed to: Bank of New York, ABA
021000018, PaineWebber Inc., A/C 890-0114-088, OBI=FBO [Account Name]/[Brokerage
Account Number]. The wire must include the investor's name and RMA or BSA
brokerage account number. RMA or BSA participants wishing to transfer federal
funds into their accounts should contact their PaineWebber investment executives
or correspondent firms to determine the appropriate wire instructions.
To the extent that the amounts transferred by wire create a cash balance in
an investor's account, that cash balance will be automatically invested in the
investor's Fund.
If PaineWebber receives a notice from an investor's bank of a wire transfer
of federal funds by 12:00 noon, Eastern time, on a Business Day, the automatic
investment will be executed on that Business Day. Otherwise, the automatic
investment will be executed at 12:00 noon, Eastern time, on the next Business
Day. PaineWebber and/or an investor's bank may impose a service charge for wire
transfers.
REDEMPTIONS
Shareholders may redeem any number of shares from their Fund accounts by wire,
by telephone or by mail. Shares will be redeemed at the net asset value per
share next determined after receipt by the Funds' transfer agent ('Transfer
Agent') of instructions from PaineWebber to redeem. PaineWebber delivers such
instructions to the Transfer Agent prior to the determination of net asset value
at 12:00 noon, Eastern time, on any Business Day.
The price at which a redemption request is executed is the net asset value
per share next determined after proper redemption instructions are received.
Payment for redemption orders, if any, that are received before 12:00 noon,
Eastern time, normally is made on the same Business Day. Shares redeemed in this
manner will not be entitled to the dividend declared on the day of redemption.
Payment for redemption orders, that are received at or after 12:00 noon, Eastern
time, will be made on the next Business Day following the redemption. Shares
redeemed in this manner are entitled to the dividend declared on the day of
redemption.
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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 or at a PaineWebber branch
office. 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.
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.
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 PaineWebber in
accordance with its customer agreements.
Investors desiring to engage in purchase, sale or exchange transactions by
telephone as described above should contact their PaineWebber investment
executives to complete the required documentation. Neither the Trust nor
PaineWebber 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.
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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
41 investment companies with an aggregate of 87 separate portfolios and
aggregate assets of approximately $28.9 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 .22% of its average daily net
assets. 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 .35%, .35% and .22%,
respectively, of their average net assets. With respect to the Financial
Intermediary shares of the Money Market Fund and Government Securities Fund, for
the fiscal period ended April 30, 1995, total expenses represented .60% and
.60%, 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.
Mitchell Hutchins investment personnel may engage in securities
transactions for their own accounts pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
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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 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.
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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.
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
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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.
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.
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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 8
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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 19
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Dividends, Distributions and Taxes 22
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Description of Shares 23
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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
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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
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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
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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
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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
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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
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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
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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 13
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 13 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.
*Frank P. L. Minard, 49, Trustee. Chairman of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins Institutional Investors Inc. and a director of
PaineWebber. Prior to 1993, managing director of Oppenheimer Capital in New York
and Director of Oppenheimer Capital Ltd. in London. Mr. Minard is a director or
trustee of 27 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.
Margo N. Alexander, 48, President. President, chief executive officer and a
director of Mitchell Hutchins. Prior to January 1995, an executive vice
president of PaineWebber. Ms. Alexander is also a trustee of one other
investment company and president of 38 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Teresa M. Boyle, 36, Vice President. First vice president and
manager -- advisory administration of Mitchell Hutchins. Prior to November 1993,
compliance manager of Hyperion Capital Management, Inc., an investment advisory
firm. Prior to April 1993, a vice president and manager -- legal administration
of Mitchell Hutchins. Ms. Boyle is also a vice president of 38 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Scott H. Griff, 29, Vice President and Assistant Secretary. Vice president
and attorney of Mitchell Hutchins. Prior to January 1995, an associate at the
law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff is also a vice
president and assistant secretary of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
C. William Maher, 34, Vice President and Assistant Treasurer. Mr. Maher is
a first vice president and the senior manager of the Fund Administration
Division of Mitchell Hutchins. Mr. Maher is
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also a vice president and assistant treasurer of 38 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, Director of Fixed Income Investments of IBM Corporation. Mr.
McCauley is also a vice president of six other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Susan P. Messina, 35, Vice President. Senior vice president and portfolio
manager for Mitchell Hutchins. Ms. Messina is also a vice president of three
other investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran, 38, Vice President and Assistant Treasurer. Vice president of
Mitchell Hutchins. Ms. Moran is also a vice president and assistant treasurer of
38 other investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dianne E. O'Donnell, 43, 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 secretary of 38 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,
partner in the law firm of Arnold & Porter. Ms. Schonfeld is also a vice
president and assistant secretary of 38 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Paul H. Schubert, 32, Vice President and Assistant Treasurer. First vice
president of Mitchell Hutchins. From August 1992 to August 1994, a vice
president at BlackRock Financial Management L.P. Prior to August 1992, an audit
manager with Ernst & Young LLP. Mr. Schubert is also a vice president and
assistant treasurer of 38 other investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Martha J. Slezak, 33, Vice President and Assistant Treasurer. Vice
president of Mitchell Hutchins. From September 1991 to April 1992, a fundraising
director for a U.S. Senate campaign. Prior to September 1991, a tax manager with
Arthur Andersen & Co. LLP. Ms. Slezak is also a vice president and assistant
treasurer of 38 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Julian F. Sluyters, 35 Vice President and Treasurer. 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 38 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Gregory K. Todd, 38, Vice President and Assistant Secretary. First vice
president and associate general counsel of Mitchell Hutchins. Prior to 1993, a
partner with the law firm of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant secretary of 38 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,
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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 $1,000 and $375 for each Trustees' meeting attended, and
reimburses the Trustee for out-of-pocket expenses associated with attendance at
Trustees' meetings. The 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 $2,500 None None $80,700
William W. Hewitt, Jr. $2,500 None None $74,425
Thomas R. Jordan $2,500 None None $83,125
Carl W. Schafer $2,750 None None $84,575
</TABLE>
------------
* 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
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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 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 $163,000,
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 $0, respectively, and voluntarily paid
expenses of $8,081, $21,554 and $79,088, 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 $3,715 to KPAM or PaineWebber. However, KPAM or PaineWebber
voluntarily paid $2,590 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 $583,956,
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 $0, respectively, and voluntarily paid expenses of $36,168, $3,470 and
$44,583, 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,
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the Money Market Fund in respect of its Financial Intermediary shares paid fees
of $1,644 and $12,028 to KPAM or PaineWebber. However, during the fiscal year
ended April 30, 1995, KPAM or PaineWebber voluntarily paid expenses of $916. 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 $57,716 to KPAM
or PaineWebber. However, during these periods, KPAM or PaineWebber voluntarily
waived its fees in the amounts of $1,638, $40,467 and $6,926, respectively, and
voluntarily paid expenses of $76,822, $68,730 and $138,518, 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, 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.
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber, PaineWebber/Kidder, Peabody ('PW/KP') and
Mitchell Hutchins/Kidder, Peabody ('MH/KP') mutual funds and other Mitchell
Hutchins' advisory accounts by all Mitchell Hutchins' directors, officers and
employees, establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber, PW/KP and MH/KP mutual
funds and other Mitchell Hutchins advisory clients.
DISTRIBUTOR
PaineWebber is the distributor of the Funds' shares and is acting on a best
efforts basis.
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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
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, will serve as
independent auditors for the Trust. In that capacity, Ernst & Young LLP will
audit 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 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
$12,028, 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 $3,715 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.
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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.
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:
17
<PAGE>
--------------------------------------------------------------------------------
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
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
18
<PAGE>
--------------------------------------------------------------------------------
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.
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
19
<PAGE>
--------------------------------------------------------------------------------
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 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 ('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 18
--------------------------------------------------------
Yield Information 19
--------------------------------------------------------
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:
Financial Highlights for the period ended April 30, 1992 and the
years ended April 30, 1993, April 30, 1994 and April 30, 1995.
Included through incorporation by reference in Part B and filed with
the Annual Report to Shareholders with the Securities and Exchange
Commission on or about June 38, 1995 [File No. 811-06281], and filed
herewith as an attachment:
Schedule of Investments of the Money Market Fund as of April 30,
1995.
Schedule of Investments of the Government Securities Fund as of
April 30, 1995.
Schedule of Investments of the Treasury Securities as of April
30, 1995.
Statements of Assets and Liabilities as of April 30, 1995.
Statements of Operations for the year ended April 30, 1995.
Statements of Changes in Net Assets for the years ended April 30,
1994 and April 30, 1995.
Financial Highlights for the period ended April 30, 1992 and the
years ended April 30, 1993, April 30, 1994 and April 30, 1995.
Report of Deloitte & Touche LLP, Independent Auditors, dated June
9, 1995.
(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(a) -- Form of Investment Advisory and Administration Agreement
5(b) -- Form of Sub-Advisory and Sub-Administration Agreement
6 -- Form of Distribution Agreement
7 -- Inapplicable
8 -- Form of Custody Agreement`D'
9(a) -- Form of Transfer Agency Agreement
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
18 -- Power of Attorney
</TABLE>
------------
`D' To be supplied by amendment.
(1) Incorporated by reference to Registrant's Registration Statement filed on
February 15, 1991.
(footnotes continued on next page)
C-1
<PAGE>
(footnotes continued from previous page)
(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.
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
<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) 115 390 48
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.
C-2
<PAGE>
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:
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>
Margo N. Alexander President Director and Executive Vice
1285 Avenue of the Americas President
New York, NY 10019
Frank P.L. Minard 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 certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
to the Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and 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 23rd day of August, 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/ MARGO N. ALEXANDER* President (Chief Executive Officer) August 23, 1995
...............................................
MARGO N. ALEXANDER
/s/ JULIAN F. SLUYTERS Vice President and Treasurer (Chief August 23, 1995
............................................... Financial and Accounting Officer)
JULIAN F. SLUYTERS
/s/ DAVID J. BEAUBIEN** Trustee August 23, 1995
...............................................
DAVID J. BEAUBIEN
/s/ WILLIAM W. HEWITT, JR.** Trustee August 23, 1995
...............................................
WILLIAM W. HEWITT, JR.
/s/ THOMAS R. JORDAN** Trustee August 23, 1995
...............................................
THOMAS R. JORDAN
/s/ FRANK P.L. MINARD*** Trustee August 23, 1995
...............................................
FRANK P.L. MINARD
/s/ CARL W. SCHAFER** Trustee August 23, 1995
...............................................
CARL W. SCHAFER
</TABLE>
------------
* Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated July 21, 1995 and filed herewith.
** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated March 8, 1995.
*** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated May 18, 1995.
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as ............... 'D'
The service mark symbol shall be expressed as ......... 'sm'
The registered trademark symbol shall be expressed as .. 'r'
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------ ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C>
5(a) -- Form of Investment Advisory and Administration Agreement ..................................
5(b) -- Form of Sub-Advisory and Sub-Administration Agreement .....................................
6 -- Form of Distribution Agreement ............................................................
9(a) -- Form of Transfer Agency Agreement .........................................................
(11) -- Independent Auditors' Consent..............................................................
(17) -- Financial Data Schedules...................................................................
(18) -- Power of Attorney..........................................................................
</TABLE>
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
January , 1995
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Liquid Institutional Reserves, a Massachusetts business trust
(the 'Fund') consisting of the series set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, a 'Series'), herewith confirms
its agreement with you ('Mitchell Hutchins') as follows:
The Fund desires to employ its capital by investing and
reinvesting the same in investments of the type and in accordance with the
limitations specified in its Declaration of Trust and in its Prospectus
(including the Statement of Additional Information and any documents from time
to time incorporated by reference, the 'Prospectus') as from time to time in
effect, copies of which have been or will be submitted to Mitchell Hutchins, and
in such manner and to such extent as may from time to time be approved by the
Trustees of the Fund. The Fund desires to employ Mitchell Hutchins to act as its
investment adviser and administrator.
In this connection it is understood that Mitchell Hutchins may
from time to time employ or associate with itself such person or persons as
Mitchell Hutchins may believe to be particularly fitted to assist it in the
performance of this Agreement, it being understood that the compensation of such
person or persons shall be paid by Mitchell Hutchins and that no obligation may
be incurred on the Fund's behalf in any such respect.
Subject to the supervision and approval of the Trustees of the
Fund, Mitchell Hutchins will provide investment management of each Series'
portfolio in accordance with such Series investment objective and policies as
stated in the Fund's most recent Prospectus delivered to Mitchell Hutchins, upon
which Mitchell Hutchins shall be entitled to rely. In connection therewith,
Mitchell Hutchins will provide investment research and supervision of each
Series' investments and conduct a continuous program of investment, evaluation
and, if appropriate, sale and reinvestment of the Funds assets. Mitchell
Hutchins will furnish to the Fund such statistical information with respect to
the
<PAGE>
investments which the Fund may hold or contemplate purchasing as the Fund may
reasonably request. The Fund wishes to be kept in touch with important
developments materially affecting each Series' portfolio and shall expect
Mitchell Hutchins, on its own initiative, to furnish to the Fund from time to
time such information as Mitchell Hutchins may believe appropriate for this
purpose.
Mitchell Hutchins shall determine the securities to be
purchased or sold by the Fund and will place purchase and sale orders pursuant
to its determinations with or through such persons, brokers or dealers
(including PaineWebber Incorporated) as will be consistent with the Funds
brokerage policy set forth in the Prospectus. Unless otherwise set forth in the
Prospectus or directed by the Trustees, in the allocation of each Series'
portfolio transactions, Mitchell Hutchins shall give primary consideration to
securing the most favorable price and efficient execution. In so doing, Mitchell
Hutchins may consider the financial responsibility, research and investment
information and other services provided by brokers or dealers who may effect or
be a party to any such transaction or other transactions to which other clients
of Mitchell Hutchins may be a party. The Fund recognizes that it is desirable
that Mitchell Hutchins have access to supplemental investment and market
research and security and economic analyses provided by brokers and that such
brokers may execute brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, to the extent permitted
by applicable law and regulations, Mitchell Hutchins is authorized to pay higher
brokerage commissions for the purchase and sale of securities for the Fund to
brokers who provide such research and analyses, subject to review by the Fund's
Trustees from time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such brokers may be
useful to Mitchell Hutchins in connection with its services to other clients.
On occasions when Mitchell Hutchins deems the purchase or sale
of a security to be in the best interest of the Fund, or one or more Series, as
well as other clients, Mitchell Hutchins, to the extent permitted by applicable
laws and regulations, may aggregate the securities to be so sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by
Mitchell Hutchins in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other clients.
- 2 -
<PAGE>
Mitchell Hutchins shall, at its own expense, maintain such
staff and employ or retain such personnel and consult with such other persons as
it shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of Mitchell Hutchins shall
be deemed to include persons employed or otherwise retained by Mitchell Hutchins
to furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance an Mitchell Hutchins may
desire. Mitchell Hutchins shall, as agent for the Fund, maintain the Funds'
records and books of account (other than those maintained by the Funds transfer
agent, registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor,
Mitchell Hutchins shall surrender to the Fund such of the books and records so
requested.
Mitchell Hutchins shall bear the cost of rendering the
investment management, supervisory and administrative services to be performed
by it under this Agreement, and shall, at its own expense, pay the compensation
of the officers and employees, if any, of the Fund who are employees of Mitchell
Hutchins, and provide such office space, facilities and equipment and such
clerical help and accounting, data processing, bookkeeping, internal auditing
and legal services (other than outside counsel to the Fund and/or its directors)
as the Fund shall reasonably require in the conduct of its business. Mitchell
Hutchins shall also bear the cost of telephone service, heat, light, power and
other utilities provided to the Fund. Other expenses to be incurred in the
operation of the Fund including charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing stock certificates, if any; registration costs of
the Fund and its shares under federal and state securities laws; the cost and
expense of printing, including typesetting, and distributing prospectuses of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders and trustees meetings and of preparing, printing and mailing proxy
statements and reports to shareholders; fees and travel expenses of trustees or
members of any advisory board or committee who are not employees of Mitchell
Hutchins or any corporate affiliate of Mitchell Hutchins; all expenses incident
to any dividend, withdrawal or redemption options; charges and expenses of any
outside service used for pricing of each Series' portfolio securities and
calculating net asset value; fees and expenses of legal counsel, including
counsel to the Trustees who are not interested persons of the Fund or of
Mitchell Hutchins, and independent auditors; membership dues of industry
associations; interest on Fund borrowings; postage; insurance premiums on
property or personnel (including officers and Trustees) of the
- 3 -
<PAGE>
Fund which inure to their benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
indemnification relating thereto); and all other costs of the Fund's operations
will be borne by the Fund.
In consideration of services rendered pursuant to this
Agreement, the Fund will pay Mitchell Hutchins on the first business day of each
month a fee at the annual rate set forth opposite each Series' name on Exhibit A
hereto, based upon the value of each Series' average daily net assets for the
previous month. Net asset value shall be computed at least once each business
day. As to each Series, the fee for the period from the date the initial
registration statement in respect of such Series ia declared effective by the
Securities and Exchange Commission to the end of the month during which such
initial registration shall have been declared effective by the Securities and
Exchange Commission shall be prorated according to the proportion which such
period bears to the full monthly period and, upon any termination of this
Agreement before the end of any month, such fee for such part of a month shall
be prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to Mitchell Hutchins, the
value of each Series' net assets shall be computed in the manner specified in
the Fund's Declaration of Trust for the computation of the value of such net
assets.
If, in any fiscal year, any Series' total operating expenses,
exclusive of taxes, interest, brokerage fees, distribution expenses and
extraordinary expenses (to the extent permitted by applicable state securities
laws and regulations), exceed the lowest applicable annual expense limitation
established pursuant to statute or regulation of any jurisdictions in which
shares of such Series are offered for sale, Mitchell Hutchins will reimburse the
Series for the amount of such excess. Such expense reimbursement will be
estimated, reconciled and paid on a monthly basis.
The Fund understands that Mitchell Hutchins now acts and will
continue to act as investment adviser to various fiduciary or other managed
accounts, and the Fund has no objection to Mitchell Hutchins' so acting. In
addition, it is understood that the persons employed by Mitchell Hutchins to
assist in the performance of its duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of Mitchell Hutchins or any affiliate of Mitchell Hutchins to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
- 4 -
<PAGE>
The Fund understands that from time to time hereafter Mitchell
Hutchins may act as investment adviser to one or more other investment
companies, and the Fund has no objection to Mitchell Hutchins' so acting,
provided that when two or more companies managed by Mitchell Hutchins have
available funds for investment, such funds will be allocated in accordance with
a formula believed to be equitable to each investment company. It is recognized
that in some cases this procedure may adversely affect the size of the position
obtainable for one or more Series.
Mitchell Hutchins shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this 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 this Agreement. Any person, even though also an officer,
partner, employee, or agent of Mitchell Hutchins, who may be or become an
officer, Trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund, to be rendering such
services to, or acting solely for, the Fund and not as an officer, partner,
employee, or agent or one under the control or direction of Mitchell Hutchins
even though paid by it.
As to each Series, this Agreement shall become effective as of
the date the Series commences its investment operations and shall continue until
the second anniversary of that date, and shall continue thereafter so long as
such continuance is specifically approved at least annually by (i) the Trustees
of the Fund or (ii) by a vote of a majority of such Series' outstanding voting
securities; (as defined in the Investment Company Act of 1940 (the 'Act'),
provided 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 any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. As to each Series, this Agreement is
terminable without penalty, on not more than 60 nor less than 30 days' notice,
by the Trustees of the Fund or by vote or holders of a majority of such Series'
shares or by Mitchell Hutchins. This Agreement will also terminate
automatically, as to the relevant Series, in the event of its assignment (as
defined in said Act).
No Trustee, shareholder, officer, employee or agent of the
Fund shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Fund, but the Fund estate only shall be
liable.
- 5 -
<PAGE>
If the foregoing is in accordance with your understanding,
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
LIQUID INSTITUTIONAL RESERVES
By: Dianne E. O'Donnell
--------------------------------
Accepted:
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By: FRANK P. L. MINARD
--------------------------------
- 6 -
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Annual Fees as a
Percentage of
Average Daily
Name of Series Net Assets Reapproval Date Reapproval Day
---------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Treasury
Securities Fund .25%
Government
Securities Fund .25%
Money Market Fund .25%
</TABLE>
- 7 -
<PAGE>
EXHIBIT B
[FORM OF NEW SUB-ADVISORY AGREEMENT WITH MITCHELL HUTCHINS]
SUB-ADVISORY AND SUB-ADMINISTRATION AGREEMENT
Contract made as of , 1995, between PAINEWEBBER INCORPORATED
('PaineWebber'), a Delaware corporation registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended ('1934 Act') and as an investment
adviser under the Investment Advisers Act of 1940, as amended ('Advisers Act'),
and MITCHELL HUTCHINS ASSET MANAGEMENT INC. ('Mitchell Hutchins'), a Delaware
corporation registered as a broker-dealer under the 1934 Act and as an
investment adviser under the Advisers Act.
WHEREAS PaineWebber has entered into an Investment Advisory and
Administration Contract dated [date] ('Advisory Contract') with [Name of Fund]
('Fund'), an open-end investment company registered under the Investment Company
Act of 1940, as amended ('1940 Act'), [which offers for public sale distinct
series of shares of [common stock/beneficial interest] ('Series'),(1) each
corresponding to a distinct portfolio]; and
WHEREAS under the Advisory Contract PaineWebber has agreed to provide
certain investment advisory and administrative services to the Series as now
exist and as hereafter may be established; and
WHEREAS the Advisory Contract authorizes PaineWebber to delegate certain of
its duties as investment adviser and administrator under the Advisory Contract
to a sub-adviser or sub-administrator; and
WHEREAS PaineWebber wishes to retain Mitchell Hutchins as sub-adviser and
sub-administrator to provide certain investment advisory and administrative
services to PaineWebber and each Series of the Fund as listed in Schedule A to
this agreement, as such schedule may be revised from time to time, and Mitchell
Hutchins is willing to render such services as described herein upon the terms
set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. PaineWebber hereby appoints Mitchell Hutchins as its
sub-adviser and sub-administrator with respect to each Series and Mitchell
Hutchins accepts such appointment and agrees that it will furnish the
services set forth in Paragraph 2.
2. Services and Duties of Mitchell Hutchins.
(a) Subject to the supervision of the [Board of Directors/Trustees]
('Board') and PaineWebber, Mitchell Hutchins will provide a continuous
investment program for each Series, including investment research and
management with respect to all securities, investments and cash equivalents
held in the portfolio of each Series. Mitchell Hutchins will determine from
time to time what investments will be purchased, retained or sold by each
Series. Mitchell Hutchins will be responsible for placing purchase and sale
orders for investments and for other related transactions. Mitchell
Hutchins will provide services under this agreement in accordance with the
Series' investment objective, policies and restrictions as stated in the
Series' Prospectuses.
(b) Mitchell Hutchins agrees that, in placing orders with brokers, it
will attempt to obtain the best net result in terms of price and execution;
provided that, on behalf of any Series, Mitchell Hutchins may, in its
discretion, effect securities transactions with brokers and dealers who
provide the Series with research, analysis, advice and similar services,
and Mitchell Hutchins may pay to those brokers and dealers, in return for
brokerage and research services and analysis, a higher commission than may
be charged by other brokers and dealers, subject to Mitchell Hutchins'
determining in good faith that such commission is reasonable in terms
either of the particular transaction or of the overall responsibility of
Mitchell Hutchins and its affiliates to such Series and its other clients
and that the total commissions paid by such Series will be reasonable in
relation to the benefits to such Series over the long term. In no instance
will portfolio securities be purchased
------------
(1) In the event a Fund has only one portfolio, bracketed language will be
deleted and the term 'Series' will be replaced with the word 'Fund' as
appropriate.
B-1
<PAGE>
from or sold to PaineWebber, Mitchell Hutchins or any affiliated person
thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder, or any applicable exemptive orders.
Whenever Mitchell Hutchins simultaneously places orders to purchase or sell
the same security on behalf of a Series and one or more other accounts
advised by Mitchell Hutchins, such orders will be allocated as to price and
amount among all such accounts in a manner believed to be equitable to each
account. The Fund recognizes that in some cases this procedure may
adversely affect the results obtained for a Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series and will
furnish the Board with such periodic and special reports as PaineWebber or
the Board reasonably may request. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, Mitchell Hutchins hereby agrees that all
records which it maintains for the Fund are the property of the Fund,
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940
Act any records which it maintains for the Fund and which are required to
be maintained by Rule 31a-1 under the 1940 Act, and further agrees to
surrender promptly to the Fund any records which it maintains for the Fund
upon request by the Fund.
(d) Mitchell Hutchins will oversee the computation of the net asset
value and net income of each Series as described in the currently effective
registration statement of the Fund under the Securities Act of 1933, as
amended, and 1940 Act and any supplements thereto ('Registration
Statement') or as more frequently requested by the Board.
(e) Mitchell Hutchins will assist in administering the affairs of the
Fund and each Series, subject to the supervision of the Board and
PaineWebber, and further subject to the following understandings:
(i) Mitchell Hutchins will supervise all aspects of the operation
of the Fund and each Series except as hereinafter set forth; provided,
however, that nothing herein contained shall be deemed to relieve or
deprive the Board of its responsibility for and control of the conduct
of affairs of the Fund and each Series.
(ii) Mitchell Hutchins will provide the Fund and each Series with
such administrative and clerical personnel (including officers of the
Fund) as are reasonably deemed necessary or advisable by the Board and
PaineWebber and Mitchell Hutchins will pay the salaries of all such
personnel.
(iii) Mitchell Hutchins will provide the Fund and each Series with
such administrative and clerical services as are reasonably deemed
necessary or advisable by the Board and PaineWebber, including the
maintenance of certain of the books and records of the Fund and each
Series.
(iv) Mitchell Hutchins will arrange, but not pay for, the periodic
preparation, updating, filing and dissemination (as applicable) of the
Fund's Registration Statement, proxy material, tax returns and reports
to shareholders of each Series, the Securities and Exchange Commission
and other appropriate federal or state regulatory authorities.
(v) Mitchell Hutchins will provide the Fund and each Series with,
or obtain for, adequate office space and all necessary office equipment
and services, including telephone service, heat, utilities, stationery
supplies and similar items.
3. Duties Retained by PaineWebber. PaineWebber will continue to
provide to the Board and each Series the services described in subparagraph
3(e) of the Advisory Contract.
4. Further Duties. In all matters relating to the performance of this
Contract, Mitchell Hutchins will act in conformity with the Fund's
[Articles of Incorporation/Declaration of Trust], By-Laws and Registration
Statement of the Fund and with the written instructions and directions of
the Board and PaineWebber, and will comply with the requirements of the
1940 Act, the Investment Advisers Act of 1940 ('Advisers Act'), the rules
thereunder, and all other applicable federal and state laws and
regulations.
5. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive, and Mitchell Hutchins shall be
free to furnish similar services to others so long
B-2
<PAGE>
as its services under this Contract are not impaired thereby. Nothing in
this Contract shall limit or restrict the right of any director, officer or
employee of Mitchell Hutchins, who may also be a trustee, officer or
employee of the Fund, to engage in any other business or to devote his or
her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
6. Expenses. During the term of this Contract, Mitchell Hutchins will
pay all expenses incurred by it in connection with its services under this
Contract.
7. Compensation. For the services provided and the expenses assumed by
Mitchell Hutchins pursuant to this Contract with respect to each Series,
PaineWebber will pay to Mitchell Hutchins a fee equal to 20% of the fee
received by PaineWebber from the Fund pursuant to the Advisory Contract
with respect to such Series, such compensation to be paid monthly.
8. Limitation of Liability. Mitchell Hutchins and its delegates will
not be liable for any error of judgment or mistake of law or for any loss
suffered by PaineWebber or the Fund or the shareholders of any Series in
connection with the performance of this Contract, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Contract. Any person, even though also an
officer, director, employee, or agent of Mitchell Hutchins, who may be or
become an officer, director, employee or agent of the Fund shall be deemed,
when rendering services to any Series of the Fund or acting with respect to
any business of such Series or the Fund, to be rendering such services to
or acting solely for the Series or the Fund and not as an officer,
director, employee, or agent or one under the control or direction of
Mitchell Hutchins even though paid by it.
9. Duration and Termination.
(a) This Contract will become effective upon the date first above
written, provided that, with respect to any Series, this Contract shall not
take effect unless it has first been approved (i) by a vote of a majority
of those [directors/trustees] of the Fund who are not parties to this
Contract or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by vote
of a majority of that Series' outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Contract will
continue in effect for two years from the above written date. Thereafter,
if not terminated, this Contract will continue automatically for successive
periods of twelve months each, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of
those [directors/trustees] of the Fund who are not parties to this Contract
or interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by the Board or, with
respect to any given Series, by vote of a majority of the outstanding
voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated by any party hereto at any time, without the
payment of any penalty, on sixty days' written notice to the other party;
this Contract also may be terminated at any time, without the payment of
any penalty, by vote of the Board or by a vote of a majority of the
outstanding voting securities of such Series on sixty days' written notice
to Mitchell Hutchins and PaineWebber. Termination of this Contract with
respect to any given Series shall in no way affect the continued validity
of this Contract or the performance thereunder with respect to any other
Series. This Contract will terminate automatically in the event of its
assignment or upon termination of the Advisory Contract.
10. Amendment of this Agreement. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no amendment of this
Contract as to any given Series shall be effective until approved by vote
of a majority of such Series' outstanding voting securities.
11. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Delaware without giving effect to the conflicts of
laws principles thereof and the 1940 Act [provided, however, that Section
12 will be construed in accordance with the laws of the
B-3
<PAGE>
Commonwealth of Massachusetts.] To the extent that the applicable laws of
the State of Delaware [or the Commonwealth of Massachusetts] conflict with
the applicable provisions of the 1940 Act, the latter shall control.
[12. Limitation of Liability of the Trustees and Shareholders of the
Trust. No Trustee, shareholder, officer, employee or agent of any Series
shall be liable for any obligations of any Series or the Trust under this
Contract, and Mitchell Hutchins agrees that, in asserting any rights or
claims under this Contract, it shall look only to the assets and property
of the Trust in settlement of such right or claim, and not to such Trustee,
shareholder, officer, employee or agent. The Trust represents that a copy
of its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and the Boston City Clerk.]
13. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Contract shall
not be affected thereby. This Contract shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
As used in this Contract, the terms 'majority of the outstanding voting
securities,' 'affiliated person,' 'interested person,' 'assignment,'
'broker,' 'investment adviser,' 'net assets,' 'sale,' 'sell' and 'security'
shall have the same meaning as such terms have in the 1940 Act, subject to
such exemption as may be granted by the SEC by any rule, regulation or
order. Where the effect of a requirement of the federal securities laws
reflected in any provision of this Agreement is affected by a rule,
regulation or order of the SEC, whether of special or general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
<TABLE>
<CAPTION>
PAINEWEBBER INCORPORATED
<S> <C>
Attest:
................................... By .......................................................................
Title ....................................................................
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
................................... By .......................................................................
Title ....................................................................
</TABLE>
B-4
LIQUID INSTITUTIONAL RESERVES
DISTRIBUTION CONTRACT
CONTRACT made as of January 30, 1995, between LIQUID INSTITUTIONAL
RESERVES, a Massachusetts business trust ('Fund'), and PAINEWEBBER INCORPORATED,
a Delaware corporation ('PaineWebber').
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ('l940 Act'), as an open-end management investment company and
has distinct series of shares of beneficial interest, which correspond to
distinct portfolios, as set forth on Exhibit A hereto, as such Exhibit may be
revised from time to time ('Series'); and
WHEREAS the Fund's board of trustees ('Board') has established an
unlimited number of shares of beneficial interest of the Series as institutional
and financial intermediary shares ('Shares'); and
WHEREAS, the Fund desires to retain PaineWebber as principal
distributor in connection with the offering and sale of the Shares of the Series
and of such other Series as may hereafter be designated by the Board; and
WHEREAS PaineWebber is willing to act as principal distributor for each
such Series on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints PaineWebber as its exclusive
agent to be the principal distributor to sell and to arrange for the sale of the
Shares on the terms and for the period set forth in this Contract. PaineWebber
hereby accepts such appointment and agrees to act hereunder. It is understood,
however, that this appointment does not preclude sales of the Shares directly
through the Fund's transfer agent in the manner set forth in the Registration
Statement. As used in this Contract, the term 'Registration Statement' shall
mean the currently effective registration statement of the Fund, and any
supplements thereto, under the Securities Act of 1933, as amended ('1933 Act'),
and the 1940 Act.
<PAGE>
2. Services and Duties of PaineWebber.
(a) PaineWebber agrees to solicit orders for the sale of
Shares of the Fund and to undertake advertising and promotion it believes
reasonable in connection with such solicitation as agent for the Fund and upon
the terms described in the Contract.
(b) Upon the later of the date of this Contract or the initial
offering of the Shares to the public by a Series, PaineWebber will hold itself
available to receive purchase orders, satisfactory to PaineWebber, for Shares of
that Series and will accept such orders on behalf of the Fund as of the time of
receipt of such orders and promptly transmit such orders as are accepted to the
Fund's transfer agent. Purchase orders shall be deemed effective at the time and
in the manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may enter into agreements to
sell Shares to such registered and qualified retail dealers, including but not
limited to Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), as it
may select. In making agreements with such dealers, Mitchell Hutchins shall act
only as principal and not as agent for the Fund.
(d) The offering price of the Shares shall be the net asset
value per Share as next determined by the Fund following receipt of an order at
PaineWebber's principal office. The Fund shall promptly furnish PaineWebber with
a statement of each computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain
number of Shares.
(f) To facilitate redemption of Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of the Fund to repurchase Shares presented to it by shareholders and
dealers at the price determined in accordance with, and in the manner set forth
in, the Registration Statement.
(g) PaineWebber shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that PaineWebber shall not sell or knowingly provide such list or lists
to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to
Delegate Duties as Distributor. With respect to the Shares of any or all Series,
PaineWebber may enter into an exclusive dealer agreement with Mitchell Hutchins
or any other registered and qualified dealer with respect to sales of the
- 2 -
<PAGE>
Shares. In a separate contract or as part of any such exclusive dealer
agreement, PaineWebber also may delegate to Mitchell Hutchins or another
registered and qualified dealer ('sub- distributor') any or all of its duties
specified in this Contract, provided that such separate contract or exclusive
dealer agreement imposes on the sub-distributor bound thereby all applicable
duties and conditions to which PaineWebber is subject under this Contract, and
further provided that such separate contract or exclusive dealer agreement meets
all requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of PaineWebber, who may also be a
trustee, officer or employee of the Fund, to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar or a dissimilar nature.
5. Compensation and Reimbursement of Distribution Expenses. The Fund
shall have no obligation to compensate or reimburse PaineWebber for any services
performed by it hereunder.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw
offering Shares of any or all Series by written notice to PaineWebber at its
principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Shares to be issued unless so requested by
shareholders. If such request is transmitted by PaineWebber, the Fund will cause
certificates evidencing Shares to be issued in such names and denominations as
PaineWebber shall from time to time direct.
(c) The Fund shall keep PaineWebber fully informed of its
affairs and shall make available to PaineWebber copies of all information,
financial statements, and other papers which PaineWebber may reasonably request
for use in connection with the distribution of Shares, including, without
limitation, certified copies of any financial statements prepared for the Fund
by its independent public accountant and such reasonable number of copies of the
most current prospectus, statement of additional information, and annual and
interim reports of any Series as PaineWebber may request, and the Fund shall
cooperate fully in the efforts of PaineWebber to sell and arrange for the sale
of
- 3 -
<PAGE>
the Shares of the Series and in the performance of PaineWebber under this
Contract.
(d) The Fund shall take, from time to time, all necessary
action, including payment of the related filing fee, as may be necessary to
register the Shares under the 1933 Act to the end that there will be available
for sale such number of Shares as PaineWebber may be expected to sell. The Fund
agrees to file, from time to time, such amendments, reports, and other documents
as may be necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, nor any omission of a material fact
which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Shares of each Series for
sale under the securities laws of such states or other jurisdictions as
PaineWebber and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to execute a general consent to the service of process in any state.
PaineWebber shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Shares with the Securities and Exchange Commission and state and
other regulatory bodies, and shall assume expenses related to communications
with shareholders of each Series, including (i) fees and disbursements of its
counsel and independent public accountant; (ii) the preparation, filing and
printing of registration statements and/or prospectuses or statements of
additional information required under the federal securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses, statements
of addi- tional information and proxy materials to shareholders; and (iv) the
qualifications of Shares for sale and of the Fund as a broker or dealer under
the securities laws of such jurisdictions as shall be selected by the Fund and
PaineWebber pursuant to Paragraph 6(e) hereof, and the costs and expenses
payable to each such jurisdiction for continuing qualification therein.
8. Expenses of PaineWebber. PaineWebber shall bear all costs and
expenses of (i) preparing, printing and distributing any materials not prepared
by the Fund and other materials used by PaineWebber in connection with the sale
of Shares under this Contract, including the additional cost of printing copies
of prospectuses, statements of additional information, and annual and interim
shareholder reports other than copies thereof required for distribution to
existing shareholders or for filing with any federal or state securities
authorities; (ii) any
- 4 -
<PAGE>
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a broker or dealer under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's employees and others for selling Shares, and all expenses of
PaineWebber, its employees and others who engage in or support the sale of
Shares as may be incurred in connection with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold PaineWebber,
its officers and trustees, and any person who controls PaineWebber within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which PaineWebber, its officers, trustees
or any such controlling person may incur under the 1933 Act, or under common law
or otherwise, arising out of or based upon any untrue statement, or alleged
untrue statement, of a material fact contained in the Registration Statement or
any related prospectus ('Prospectus') or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
the Registration Statement or Prospectus or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by PaineWebber to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any person who is also an officer or
trustee of the Fund or who controls the Fund within the meaning of Section 15 of
the 1933 Act, unless a court of competent jurisdiction shall determine, or it
shall have been determined by controlling precedent, that such result would not
be against public policy as expressed in the 1933 Act; and further provided,
that in no event shall anything contained herein be so construed as to protect
PaineWebber against any liability to the Fund or to the shareholders of any
Series to which PaineWebber would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations under this Contract. The
Fund shall not be liable to PaineWebber under this indemnity agreement with
respect to any claim made against PaineWebber or any person indemnified unless
PaineWebber or other such person shall have notified the Fund in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall
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<PAGE>
have been served upon PaineWebber or such other person (or after PaineWebber or
the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to PaineWebber or any person against whom such
action is brought otherwise than on account of this indemnity agreement. The
Fund shall be entitled to participate at its own expense in the defense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to the indemnified defendants in the suit. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify PaineWebber promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Shares.
(b) The Fund's indemnification agreement contained in this
Section 9 will remain operative and in full force and effect regardless of any
investigation made by or on behalf of PaineWebber, its officers and trustees, or
any controlling person, and will survive the delivery of any shares of the Fund.
(c) PaineWebber agrees to indemnify, defend, and hold the
Fund, its officers and trustees and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
PaineWebber to the Fund for use in the Registration Statement, or arising out of
or based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement necessary
to make such information not misleading. PaineWebber shall have the right to
control the defense of any action contemplated by this Section 9(c), with
counsel of its own choosing, satisfactory to the Fund, unless the action is not
based solely upon an alleged misstatement or omission on PaineWebber's part. In
such event, the Fund, its officers or trustees or controlling persons will each
have the right to participate in the defense or preparation of the defense
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<PAGE>
of the action. In the event that PaineWebber elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If PaineWebber does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
(d) PaineWebber shall not be liable to the Fund under this
indemnity agreement with respect to any claim made against the Fund or any
person indemnified unless the Fund or other such person shall have notified
PaineWebber in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Fund or such other person (or after the
Fund shall have received notice of service on any designated agent). PaineWebber
will not be obligated to indemnify any entity or person against any liability to
which the Fund, its officers and trustees, or any controlling person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in performance of, or reckless disregard of, the obligations and
duties set forth in this Agreement.
10. Limitation of Liability of the Trustees and Shareholders of the
Fund. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
PaineWebber agrees that, in asserting any rights or claims under this Contract,
it shall look only to the assets and property of the Fund or the particular
Series in settlement of such right or claims, and not to such trustees or
shareholders. The Fund represents that a copy of the Declaration of Trust is on
file with the Secretary of the Commonwealth of Massachusetts and with the Boston
City Clerk.
11. Services Provided to the Fund by Employees of PaineWebber. Any
person, even though also an officer, trustee, employee or agent of PaineWebber,
who may be or become an officer, trustee, employee or agent of the Fund, shall
be deemed, when rendering services to the Fund or acting in any business of the
Fund, to be rendering such services to or acting solely for the Fund and not as
an officer, trustee, employee or agent or one under the control or direction of
PaineWebber even though paid by PaineWebber.
12. Duration and Termination.
(a) This Contract shall become effective upon the date
hereabove written, provided that, with respect to any Series, this Contract
shall not take effect unless such action has first been approved by vote of a
majority of the Board and by vote of a majority of those trustees of the Fund
who are not interested
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<PAGE>
persons of the Fund, and have no direct or indirect financial interest in the
operation of the Plan relating to the Series or in any agreements related
thereto (all such trustees collectively being referred to herein as the
'Independent Trustees') cast in person at a meeting called for the purpose of
voting on such action.
(b) Unless sooner terminated as provided herein, this Contract
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Contract shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or by vote of a majority of the outstanding
voting securities of the Shares of each affected Series.
(c) Notwithstanding the foregoing, with respect to any Series,
this Contract may be terminated at any time, without the payment of any penalty,
by vote of the Board, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding voting securities of the Shares of such
Series on sixty days' written notice to PaineWebber or by PaineWebber at any
time, without the payment of any penalty, on sixty days' written notice to the
Fund or such Series. This Contract will automatically terminate in the event of
its assignment.
(d) Termination of this Contract with respect to any given
Series shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
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<PAGE>
16. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms 'majority of the outstanding voting securities,' 'interested person'
and 'assignment' shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: LIQUID INSTITUTIONAL RESERVES
Ilene Shore By: Dianne E. O'Donnell
--------------------------- ----------------------------
ATTEST: PAINEWEBBER INCORPORATED
Ilene Shore By: Thomas Eggers
---------------------------- ----------------------------
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<PAGE>
EXHIBIT A
NAME OF SERIES
Money Market Fund
Government Securities Fund
Treasury Securities Fund
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<PAGE>
TRANSFER AGENCY SERVICES AND SHAREHOLDER SERVICES AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of January 30, 1995, to be effective as of
such date as is agreed to in writing by the parties, by and between LIQUID
INSTITUTIONAL RESERVES (the 'Fund'), a Massachusetts business trust and PFPC
INC. ('PFPC'), a Delaware corporation, which is an indirect wholly-owned
subsidiary of PNC Bank Corp.
The Fund is registered as an open-end management series investment
company under the Investment Company Act of 1940, as amended ('1940 Act'). The
Fund wishes to retain PFPC to serve as the transfer agent, registrar, dividend
disbursing agent and shareholder servicing agent for such series listed in
Appendix C to this agreement, as amended from time to time (the 'Series'), and
PFPC wishes to furnish such services.
In consideration of the promises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
(a) 'Authorized Person'. The term 'Authorized Person' shall mean any
officer of the Fund and any other person who is duly authorized by the Fund's
Governing Board to give Oral and Written Instructions on behalf of the Fund.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix or any amendment thereto as may be received by PFPC from time
to time. If PFPC provides more than one service hereunder, the Fund's
designation of Authorized Persons may vary by service.
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(b) 'Governing Board'. The term 'Governing Board' shall mean the
Fund's Board of Directors if the Fund is a corporation or the Fund's Board of
Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(c) 'Oral Instructions'. The term 'Oral Instructions' shall mean
oral instructions received by PFPC from an Authorized Person by telephone or in
person.
(d) 'SEC'. The term 'SEC' shall mean the Securities and Exchange
Commission.
(e) 'Securities Laws'. The term 'Securities Laws' shall mean the
1933 Act, the 1934 Act and the 1940 Act. The terms the '1933 Act' shall mean the
Securities Act of 1933, as amended, and the '1934 Act' shall mean the Securities
Exchange Act of 1934, as amended.
(f) 'Shares'. The term 'Shares' shall mean the shares of beneficial
interest of any Series or class of the Fund.
(g) 'Written Instructions'. The term 'Written Instructions' shall
mean written instructions signed by one Authorized Person and received by PFPC.
The instructions may be delivered by hand, mail, tested telegram, cable, telex
or facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent to
each of its Series, in accordance with the terms set forth in this Agreement,
and PFPC accepts such appointment and agrees to furnish such services.
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3. Delivery of Documents. The Fund has provided or, where applicable,
will provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the
Fund's Governing Board, approving the appointment of PFPC to provide services to
each Series and approving this agreement;
(b) A copy of the Fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A under the 1933 Act and 1940 Act as filed
with the SEC;
(c) A copy of the Fund's investment advisory and administration
agreement or agreements;
(d) A copy of the Fund's distribution agreement or agreements;
(e) Copies of any shareholder servicing agreements made in respect
of the Fund; and
(f) Copies of any and all amendments or supplements to the
foregoing.
4. Compliance with Government Rules and Regulations. PFPC undertakes to
comply with all applicable requirements of the Securities Laws, and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to all duties to be performed by PFPC hereunder. Except as specifically
set forth herein, PFPC assumes no responsibility for such compliance by the
Fund.
5. Instructions. Unless otherwise provided in this Agreement, PFPC shall
act only upon Oral and Written Instructions. PFPC shall be entitled to rely upon
any Oral and Written
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Instruction it receives from an Authorized Person pursuant to this Agreement.
PFPC may assume that any Oral or Written Instruction received hereunder is not
in any way inconsistent with the provisions of organizational documents or of
any vote, resolution or proceeding of the Fund's Governing Board or of the
Fund's shareholders, unless and until it receives Written Instructions to the
contrary.
The Fund agrees to forward to PFPC Written Instructions confirming Oral
Instructions so that PFPC receives the Written Instructions by the close of
business on the next business day after such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such instructions provided that
PFPC's actions comply with the other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any action it
should or should not take, PFPC will request directions or advice, including
Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question
of law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel
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<PAGE>
of its own choosing (who may be counsel for the Fund, the Fund's investment
adviser or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PFPC receives from the Fund
and the advice it receives from counsel, PFPC may rely upon and follow the
advice of counsel. In the event PFPC so relies on the advice of counsel, PFPC
remains liable for any action or omission on the part of PFPC which constitutes
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities provided for in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel in accordance with this
Agreement and which PFPC believes, in good faith, to be consistent with those
directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed to impose an obligation
upon PFPC (i) to seek such directions, advice or Oral or Written Instructions,
or (ii) to act in accordance with such directions, advice or Oral or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action. Nothing
in this subsection shall excuse PFPC when an action or omission on the part of
PFPC constitutes willful misfeasance, bad
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<PAGE>
faith, negligence or reckless disregard of PFPC of any duties, obligations or
responsibilities provided for in this Agreement.
7. Records and Visits. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, including (a) all those records required to be prepared and maintained by
the Fund under the 1940 Act, by other applicable Securities Laws, rules and
regulations and by state laws and (b) such books and records as are necessary
for PFPC to perform all of the services it agrees to provide in this Agreement
and the appendices attached hereto, including but not limited to the books and
records necessary to effect the conversion of Class B Shares, the calculation of
any contingent deferred sales charges and the calculation of front-end sales
charges. The books and records pertaining to the Fund which are in the
possession, or under the control, of PFPC shall be the property of the Fund. The
Fund or the Fund's Authorized Persons shall have access to such books and
records at all times during PFPC's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
PFPC to the Fund or to an Authorized Person of the Fund. Upon reasonable notice
by the Fund, PFPC shall make available during regular business hours its
facilities and premises employed in connection with its performance of this
Agreement for reasonable visits by the Fund, any agent or person designated by
the Fund or any regulatory agency having authority over the Fund.
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8. Confidentiality. PFPC agrees on its own behalf and that of its
employees to keep confidential all records of the Fund and information relating
to the Fund and its shareholders (past, present and future), its investment
adviser and its principal underwriter, unless the release of such records or
information is otherwise consented to, in writing, by the Fund prior to its
release. The Fund agrees that such consent shall not be unreasonably withheld,
and may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. Cooperation with Accountants. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for periodic backup of computer files and data with respect to the
Fund and emergency use of electronic data processing equipment. In the event of
equipment failures, PFPC shall, at no additional expense to the Fund, take all
reasonable steps to minimize service interruptions. PFPC shall have no liability
with respect to the loss of data or service interruptions caused by equipment
failures, provided such loss or
7
<PAGE>
interruption is not caused by the negligence of PFPC and provided further that
PFPC has complied with the provisions of this Paragraph 10.
11. Compensation. As compensation for services rendered by PFPC during
the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be
agreed to, from time to time, in writing by the Fund and PFPC.
12. Indemnification.
(a) The Fund agrees to indemnify and hold harmless PFPC and its
nominees from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Laws,
and any state and foreign securities and blue sky laws, and amendments thereto),
and expenses, including, without limitation, reasonable attorneys' fees and
disbursements arising directly or indirectly from any action or omission to act
which PFPC (i) at the request of or on the direction of or in reliance on the
advice of the Fund or (ii) upon Oral or Written Instructions. Neither PFPC, nor
any of its nominees, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its nominees' own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
(b) PFPC agrees to indemnify and hold harmless the Fund from all
taxes, charges, expenses, assessments, claims and liabilities arising from
PFPC's obligations pursuant to this
8
<PAGE>
Agreement (including, without limitation, liabilities arising under the
Securities Laws, and any state and foreign securities and blue sky laws, and
amendments thereto) and expenses, including, without limitation, reasonable
attorneys' fees and disbursements, arising directly or indirectly out of PFPC's
or its nominee's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
13. Insurance. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement, the contracts of insurance shall take precedence, and
no provision of this Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Fund, PFPC or other insured party
9
<PAGE>
which would otherwise be a covered claim in the absence of any provision of this
Agreement.
14. Security. PFPC represents and warrants that, to the best of its
knowledge, the various procedures and systems which PFPC has implemented with
regard to the safeguarding from loss or damage attributable to fire, theft or
any other cause (including provision for twenty-four hours a day restricted
access) of the Fund's blank checks, certificates, records and other data and
PFPC's equipment, facilities and other property used in the performance of its
obligations hereunder are adequate, and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Fund shall have access to review these systems and
procedures.
15. Responsibility of PFPC. PFPC shall be under no duty to take any
action on behalf of the Fund except as specifically set forth herein or as may
be specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise due care and diligence in the performance of its duties hereunder, to
act in good faith and to use its best efforts in performing services provided
for under this Agreement. PFPC shall be liable only for any damages arising out
of or in connection with PFPC's performance of or omission or failure to perform
its duties under this Agreement to the extent such damages arise out of PFPC's
negligence, reckless disregard of its duties, bad faith or willful misfeasance.
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<PAGE>
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC, in connection with its duties under this
Agreement, shall not be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or authority or lack thereof of
any Oral or Written Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PFPC reasonably
believes to be genuine; or (b) subject to the provisions of Paragraph 10, delays
or errors or loss of data occurring by reason of circumstances beyond PFPC's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, flood or catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power supply.
16. Description of Services. PFPC shall perform the duties of the
transfer agent, registrar, dividend disbursing agent and shareholder servicing
agent of the Fund and its specified Series.
(a) Purchase of Shares. PFPC shall issue and credit an account of an
investor in the manner described in each Series prospectus once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account; and
(iii) Confirmation of receipt or crediting of funds for such
order from the Series' custodian.
(b) Redemption of Shares. PFPC shall redeem a Series' Shares only if
that function is properly authorized by the Fund's
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organizational documents or resolution of the Fund's Governing Board. Shares
shall be redeemed and payment therefor shall be made in accordance with each
Series' prospectus when the shareholder tenders his or her Shares in proper form
and directs the method of redemption.
(c) Dividends and Distributions. Upon receipt of a resolution of the
Fund's Governing Board authorizing the declaration and payment of dividends and
distributions, PFPC shall issue dividends and distributions declared by the Fund
in Shares, or, upon shareholder election, pay such dividends and distributions
in cash if provided for in each Series' prospectus. Such issuance or payment, as
well as payments upon redemption as described above, shall be made after
deduction and payment of the required amount of funds to be withheld in
accordance with any applicable tax law or other laws, rules or regulations. PFPC
shall mail to each Series' shareholders such tax forms and other information, or
permissible substitute notice, relating to dividends and distributions paid by
the Fund as are required to be filed and mailed by applicable law, rule or
regulation.
PFPC shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends above a
stipulated amount paid by the Fund to its shareholders as required by tax or
other law, rule or regulation.
(d) PFPC will provide the services listed on Appendix A and Appendix
B on an ongoing basis. Performance of certain of these services, with
accompanying responsibilities and liabilities,
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may be delegated and assigned to PaineWebber Incorporated or Mitchell Hutchins
Asset Management Inc. or to an affiliated person of either.
17. Duration and Termination.
(a) This Agreement shall continue until January 30, 1997 and shall
automatically be renewed thereafter on a year-to-year basis and with respect to
the year-to-year renewal, provided that the Fund's Governing Board approves such
renewal; and provided further that this Agreement may be terminated by either
party for cause.
(b) With respect to the Fund, cause includes, but is not limited to:
(i) PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute 'cause' under this Paragraph, PFPC must receive written notice from
the Fund specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii) issuance of an administrative
or court order against PFPC with regard to the material violation or alleged
material violation of
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the Securities Laws or other applicable laws related to its business of
performing transfer agency services.
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement. (d) Any notice of termination for cause in
conformity with subparagraphs (a), (b) and (c) of this Paragraph by the Fund
shall be effective thirty (30) days from the date of such notice. Any notice of
termination for cause by PFPC shall be effective 90 days from the date of such
notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Fund designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Fund,
transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including a certified list of the
shareholders of each Series of the Fund with name, address, and if provided
taxpayer identification or Social Security number, and a complete record of the
account of each shareholder. To the extent that PFPC incurs expenses related to
a transfer of responsibilities to a successor, other than expenses involved in
PFPC's providing the Fund's books and records to the successor, PFPC shall be
entitled to be reimbursed for such expenses, including any out-of-pocket
expenses reasonably incurred by PFPC in connection with the transfer.
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(f) Any termination effected pursuant to this Paragraph shall not
affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate
with respect to the Fund and any Series thereof upon the liquidation, merger or
other dissolution of the Fund or Series or upon the Fund's ceasing to be
registered investment company.
19. Registration as a Transfer Agent. PFPC represents that it is
currently registered with the appropriate federal agency for the registration of
transfer agents, or is otherwise permitted to lawfully conduct its activities
without such registration and that it will remain so registered for the duration
of this Agreement. PFPC agrees that it will promptly notify the Fund in the
event of any material change in its status as a registered transfer agent.
Should PFPC fail to be registered with the SEC as a transfer agent at any time
during this Agreement, and such failure to register does not permit PFPC to
lawfully conduct its activities, the Fund may terminate this Agreement upon five
days written notice to PFPC.
20. Notices. All notices and other communications, other than Oral or
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to PFPC at
PFPC's address, 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the
Fund, at 1285 Avenue of the Americas, 15th Floor, New York, N.Y. 10005; or (c)
if to neither of the foregoing, at such other address as shall have been
notified to the sender of any such notice or other
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communication. If the notice is sent by confirming telegram, cable telex or
facsimile sending device during regular business hours, it shall be deemed to
have been given immediately. If sent during a time other than regular business
hours, such notice shall be deemed to have been given at the opening of the next
business day. If notice is sent by first-class mail, it shall be deemed to have
been given three business days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day it is delivered. All
postage, cable, telegram, telex and facsimile sending device charges arising
from the sending of a notice hereunder shall be paid by the sender.
21. Amendments. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
22. Additional Series. In the event that the Fund establishes one or
more investment Series in addition to and with respect to which it desires to
have PFPC render services as transfer agent, registrar, dividend disbursing
agent and shareholder servicing agent under the terms set forth in this
Agreement, it shall so notify PFPC in writing, and PFPC shall agree in writing
to provide such services, and such investment Series shall become a Series
hereunder, subject to such additional terms, fees and conditions as are agreed
to by the parties.
23. Assignment and Delegation.
(a) PFPC may, at its owns expense, assign its rights and delegate
its duties hereunder to any wholly-owned direct or
16
<PAGE>
indirect subsidiary of PNC Bank, National Association or PNC Bank Corp.,
provided that (i) PFPC gives the Fund thirty (30) days' prior written notice;
(ii) the delegate agrees with PFPC to comply with all relevant provisions of the
Securities Laws; and (iii) PFPC and such delegate promptly provide such
information as the Fund may request and respond to such questions as the Fund
may ask relating to the delegation, including, without limitation, the
capabilities of the delegate. The assignment and delegation of any of PFPC's
duties under this subparagraph (a) shall not relieve PFPC of any of its
responsibilities or liabilities under this Agreement.
(b) PFPC may assign its rights and delegate its duties hereunder to
PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or
affiliated person of either provided that (i) PFPC gives the Fund thirty (30)
days' prior written notice; (ii) the delegate agrees to comply with all relevant
provisions of the Securities Laws; and (iii) PFPC and such delegate promptly
provide such information as the Fund may request and respond to such questions
as the Fund may ask relative to the delegation, including, without limitation,
the capabilities of the delegate. In assigning its rights and delegating its
duties under this paragraph, PFPC may impose such conditions or limitations as
it determines appropriate including the condition that PFPC be retained as a
sub-transfer agent.
(c) In the event that PFPC assigns its rights and delegates its
duties under this section, no amendment of the terms
17
<PAGE>
of this Agreement shall become effective without the written consent of PFPC.
24. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
26. Limitation of Liability. The Trust and PFPC agree that the
obligations of the Trust under this Agreement will not be binding upon any of
the Trustees, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Trust, individually, but are binding only upon
the assets and property of the Trust, as provided in the Declaration of Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust, and signed by an authorized officer of the Trust, acting
as such, and neither the authorization by the Trustees nor the execution and
delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the trust property of the Trust as provided in the Declaration of Trust. No
Series of the Trust will be liable for any claims against any other Series.
27. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more
18
<PAGE>
separate documents their agreement, if any, with respect to services to be
performed and compensation to be paid under this Agreement.
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware Law, except that, to the extent provision of the Securities
Laws govern the subject matter of this Agreement, such Securities Laws will
controlling. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding and inure to the
benefit of the parties hereto and their respective successors and assigns.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PFPC INC.
By:_______________________________
LIQUID INSTITUTIONAL RESERVES
Dianne E. O'Donnell
By:_______________________________
20
<PAGE>
APPENDIX A
Description of Services
(a) Services Provided on an Ongoing Basis by PFPC to the Fund, If
Applicable.
(i) Calculate 12b-1 payments and broker trail commissions;
(ii) Develop, monitor and maintain all systems necessary to
implement and operate the three-tier distribution system,
including Class B conversion feature, as described in the
registration statement and related documents of the Fund, as
they may be amended from time to time;
(iii) Calculate contingent deferred sales charge amounts upon
redemption of Fund Shares and deduct such amounts from
redemption proceeds;
(iv) Calculate front-end sales load amounts at time of purchase of
Shares;
(v) Determine dates of Class B conversion and effect same;
(vi) Establish and maintain proper shareholder registrations, unless
requested by the Fund;
(vii) Review new applications with correspondence to shareholders to
complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction with proxy
solicitations;
(x) Countersign share certificates;
(xi) Prepare and mail to shareholders confirmation of activity;
(xii) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(xiii) Send duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the broker-dealer
or directly with PFPC;
A-1
<PAGE>
(xiv) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the Fund;
(xv) Provide detailed data for underwriter/broker confirmations;
(xvi) Periodic mailing of year-end tax and statement information;
(xvii) Notify on a daily basis the investment advisor, accounting
agent, and custodian of fund activity; and
(xviii) Perform other participating broker-dealer shareholder services
as may be agreed upon from time to time.
(b) Services Provided by PFPC Under Oral or Written Instructions of
the Fund.
(i) Accept and post daily Series and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates.
(c) Shareholder Account Services.
(i) PFPC may arrange, in accordance with the Series' prospectus,
for issuance of Shares obtained through:
o The transfer of funds from shareholders' account at financial
institutions; and
o Any pre-authorized check plan.
(ii) PFPC, if requested, shall arrange for a shareholder's:
o Exchange of Shares for shares of a fund for which the Fund
has exchange privileges;
A-2
<PAGE>
o Systematic withdrawal from an account where that shareholder
participates in a systematic withdrawal plan; and/or
o Redemption of Shares from an account with a checkwriting
privilege.
(d) Communications to Shareholders. Upon timely written instructions,
PFPC shall mail all communications by the Fund to its shareholders,
including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of fund Shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
If requested by the Fund, PFPC will receive and tabulate the proxy cards
for the meetings of the Fund's shareholders and supply personnel to
serve as inspectors of election.
(e) Records. PFPC shall maintain records of the accounts for each
shareholder showing the following information:
(i) Name, address and United States Tax Identification or Social
Security number;
(ii) Number and class of Shares held and number and class of Shares
for which certificates, if any, have been issued, including
certificate numbers and denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions paid and the
date and price for all transactions on a shareholder's account;
(iv) Any stop or restraining order placed against a shareholder's
account;
(v) Any correspondence relating to the current maintenance of a
shareholder's account;
(vi) Information with respect to withholdings; and
A-3
<PAGE>
(vii) Any information required in order for the transfer agent to
perform any calculations contemplated or required by this
Agreement.
(f) Lost or Stolen Certificates. PFPC shall place a stop notice against
any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss
or alleged misappropriation.
A new certificate shall be registered and issued upon:
(i) Shareholder's pledge of a lost instrument bond or such other
and appropriate indemnity bond issued by a surety company
approved by PFPC; and
(ii) Completion of a release and indemnification agreement signed by
the shareholder to protect PFPC.
(g) Shareholder Inspection of Stock Records. Upon requests from Fund
shareholders to inspect stock records, PFPC will notify the Fund and
require instructions granting or denying such request prior to
taking any action. Unless PFPC has acted contrary to the Fund's
instructions, the Fund agrees to release PFPC from any liability for
refusal of permission for a particular shareholder to inspect the
Fund's shareholder records.
A-4
<PAGE>
APPENDIX B
PFPC will perform or arrange for others to perform the following activities,
some or all of which may be delegated and assigned by PFPC to PaineWebber
Incorporated ('PaineWebber') or Mitchell Hutchins Asset Management Inc.
('Mitchell Hutchins') or to an affiliated person of either:
(i) providing, to the extent reasonable, uninterrupted processing
of new accounts, shareholder account changes, sales and
redemption activity, dividend calculations and payments, check
settlements, blue sky reporting, tax reporting, recordkeeping,
communication with all shareholders, resolution of
discrepancies and shareholder inquiries and adjustments,
maintenance of dual system, development and maintenance of
repricing system, and development and maintenance of correction
system;
(ii) develop and maintain all systems for custodian interface and
reporting, and underwriter interface and reporting;
(iii) develop and maintain all systems necessary to implement and
operate the three-tier distribution system, including Class B
conversion features as described in the registration statement
and related documents of the Fund, as they may be amended from
time to time; and
(iv) provide administrative, technical and legal support for the
foregoing services.
In undertaking its activities and responsibilities under this Appendix, PFPC
will not be responsible, except to the extent caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this agreement, for any charges or fees billed, expenses
incurred or penalties, imposed by any party, including the Fund or any current
or prior services providers of the Fund, without the prior written approval by
PFPC.
B-1
<PAGE>
APPENDIX C
Treasury Securities Fund
Government Securities Fund
Kidder, Peabody Money Market Fund
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
Liquid Institutional Reserves
(Consisting of the Money Market Fund, the Government
Securities Fund and the Treasury Securities Fund):
We consent to the use in this Post-Effective Amendment No. 6 to
Registration Statement No. 33-39029 of our report dated June 9, 1995 and to the
reference to us under the caption 'Financial Highlights' appearing in the
Prospectus, which also is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
August 22, 1995
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<NAME> LIQUID INSTITUTIONAL RESERVES MONEY MARKET FUND CLASS A
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<PERIOD-END> APR-30-1995
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<NAME> LIQUID INSTITUTIONAL RESERVES MONEY MARKET FUND CLASS B
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<S> <C>
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> (26,000)
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<NET-CHANGE-IN-ASSETS> 9,000
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 30
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<PER-SHARE-NAV-BEGIN> 1.00
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<NAME> LIQUID INSTITUTIONAL RESERVES GOVERNMENT SECURITIES FUND CLASS A
<MULTIPLIER> 1000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 40,744
<INVESTMENTS-AT-VALUE> 40,744
<RECEIVABLES> 14,216
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<NET-INVESTMENT-INCOME> 3,128
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<DISTRIBUTIONS-OF-GAINS> 0
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<NAME> LIQUID INSTITUTIONAL RESERVES GOVERNMENT SECURITIES FUND CLASS B
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<SERIES>
<NUMBER> 3
<NAME> LIQUID INSTITUIONAL RESERVES TREASURY SECURITIES FUND
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> APR-30-1995
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<ACCUMULATED-NET-GAINS> (67)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 23,762
<DIVIDEND-INCOME> 191
<INTEREST-INCOME> 1,191
<OTHER-INCOME> 1
<EXPENSES-NET> 51
<NET-INVESTMENT-INCOME> 1,140
<REALIZED-GAINS-CURRENT> (67)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,073
<EQUALIZATION> 72
<DISTRIBUTIONS-OF-INCOME> 1,072
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 261,730
<NUMBER-OF-SHARES-REDEEMED> 277,579
<SHARES-REINVESTED> 1,009
<NET-CHANGE-IN-ASSETS> (14,840)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 196
<AVERAGE-NET-ASSETS> 23,332
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
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<RETURNS-OF-CAPITAL> 0
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<PAGE>
POWER OF ATTORNEY
I, Margo N. Alexander, President 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 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/ MARGO N. ALEXANDER President July 21, 1995
........................................
MARGO N. ALEXANDER
</TABLE>
