<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on July 3, 1996
1933 Act Registration No. 33-39029
1940 Act Registration No. 811-06281
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 8 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 9
(Check appropriate box or boxes.)
LIQUID INSTITUTIONAL RESERVES
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, ESQ.
SUSAN M. CASEY, ESQ.
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone (202) 778-9000
It is proposed that this filing will become effective:
Immediately upon filing pursuant to Rule 485(b)
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On _______________ pursuant to Rule 485(b)
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X 60 days after filing pursuant to Rule 485(a)(i)
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On _______________ pursuant to Rule 485(a)(i)
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75 days after filing pursuant to Rule 485(a)(ii)
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On _______________ pursuant to Rule 485(a)(ii)
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Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The notice required by such rule for the Registrant's
fiscal year ended April 30, 1996 was filed on June 27, 1996.
<PAGE>
<PAGE>
LIQUID INSTITUTIONAL RESERVES
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
<PAGE>
Liquid Institutional Reserves
Form N-lA Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
<S> <C> <C>
1. Cover Page............................................ Cover Page
2. Synopsis.............................................. Expense Table
3. Condensed Financial Information....................... Financial Highlights; Performance Information
4. General Description of Registrant..................... Investment Objectives and Policies; Highlights;
Description of Shares
5. Management of the Fund................................ Expense Table; Investment Objectives and
Policies;
Management; Purchases; Redemptions
6. Capital Stock and Other Securities.................... Purchases; Redemptions; Dividends,
Distributions and Taxes; Description of Shares
7. Purchase of Securities Being Offered.................. Purchases; Redemptions; Management;
Financial Intermediaries
8. Redemption or Repurchase.............................. Purchases; Redemptions; Financial
Intermediaries
9. Pending Legal Proceedings............................. Not Applicable
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
-------------- -----------------------
<S> <C> <C>
10. Cover Page............................................ Cover Page
11. Table of Contents..................................... Table of Contents
12. General Information and History....................... Not Applicable
13. Investment Objectives and Policies.................... Investment Objective and Policies
14. Management of the Fund................................ Trustees and Officers
15. Control Persons and Principal Holders of Trustees and Officers; Beneficial Ownership of
Securities............................................ Greater Than 5% of Fund Shares
16. Investment Advisory and Other Services................ Investment Advisory, Administration and
Distribution Arrangements
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities.................... Additional Information Regarding Redemptions
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
19. Purchase, Redemption and Pricing of Additional Information Regarding
Securities Being Offered.............................. Redemptions; Valuation of Shares
20. Tax Status............................................ Taxes
21. Underwriters.......................................... Investment Advisory, Administration and
Distribution Arrangements; Trustees and
Officers
22. Calculation of Performance Data....................... Calculation of Yield
23. Financial Statements.................................. Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
<PAGE>
LIQUID INSTITUTIONAL RESERVES
MONEY MARKET FUND
GOVERNMENT SECURITIES FUND
TREASURY SECURITIES FUND
1285 AVENUES OF THE AMERICAS NEW YORK, NEW YORK 10019
Professionally managed money market funds seeking:
High Current Income
High Liquidity
Preservation of Capital
The Money Market Fund, Government Securities Fund and Treasury Securities Fund
(the 'Funds') are series of Liquid Institutional Reserves, a Massachusetts
business trust ('Trust'). Each Fund offers two separate classes of
shares -- 'Institutional' shares and 'Financial Intermediary' shares.
Institutional shares are available for purchase by institutional investors.
Financial Intermediary shares are available for purchase by banks and other
financial intermediaries for the benefit of their customers.
This Prospectus concisely sets forth information about the Funds a prospective
investor should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated September 1, 1996 (which
is incorporated by reference herein) has been filed with the Securities and
Exchange Commission ('SEC'). The Statement of Additional Information can be
obtained without charge, and further inquiries can be made, by contacting the
Funds, your PaineWebber investment executive or PaineWebber's correspondent
firms, or by calling toll free 1-800-762-1000.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. WHILE EACH FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS DATED SEPTEMBER 1, 1996
<PAGE>
<PAGE>
HIGHLIGHTS
See the body of the Prospectus for more information on the topics discussed
in these highlights.
<TABLE>
<S> <C>
The Funds: Professionally managed money market funds (each a 'Fund'). 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. The Funds are offered to participants in the PaineWebber Resource Management
Account ('RMA')'r' program. The Funds also are offered to participants in the
PaineWebber Business Services Account ('BSA')'r' program.
Each Fund offers investors the choice of investing in two separate classes of
shares.
Institutional shares are available for purchase by institutional investors.
Financial Intermediary shares are available for purchase by banks and other
financial intermediaries for the benefit of their customers. Financial Intermediary
Shares bear all fees payable by the Funds to financial intermediaries for certain
services they provide to the beneficial owners of those shares. See 'Purchases,'
'Redemptions,' 'Financial Intermediaries' and 'Valuation of Shares.'
Investment Objectives and Money Market Fund -- A diversified money market fund seeking high current income to
Policies: 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; invests in high grade
money market instruments.
Government Securities Fund -- A diversified money market fund seeking high current
income consistent with the preservation of capital and maintenance of liquidity
through investments in a diversified portfolio of high quality, short-term, U.S.
dollar-denominated money market instruments; invests in short-term U.S. government
securities, the interest income from which is generally exempt from state income
taxation.
Treasury Securities Fund -- A diversified money market fund seeking high current
income consistent with preservation of capital and maintenance of liquidity, through
investments in a diversified portfolio of high quality, short-term, U.S.
dollar-denominated money market instruments; invests exclusively in securities
issued by the U.S. Treasury, which are supported by the full faith and credit of the
United States.
Total Net Assets at Money Market Fund -- $428.7 million.
May 31, 1996: Government Securities Fund -- $47.1 million.
Treasury Securities Fund -- $24.8 million.
Distributor and Investment PaineWebber Incorporated ('PaineWebber'). See 'Management.'
Adviser:
Sub-Adviser: Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'). See 'Management'
Purchases: Shares are available exclusively through PaineWebber and its correspondent firms.
See 'Purchases.'
Redemptions: Shares may be redeemed through PaineWebber or its correspondent firms. See
'Redemptions.'
Dividends: Declared daily and paid monthly. See 'Dividends and Taxes.'
Reinvestment: All dividends are automatically paid in Fund shares.
Minimum Initial Purchase: $1,000,000; no minimum subsequent investments.
Public Offering Price: Net asset value, which each Fund seeks to maintain at $1.00 per share.
</TABLE>
2
<PAGE>
<PAGE>
WHO SHOULD INVEST. Each Fund has its own suitability considerations and
risk factors, as summarized below and described in detail under 'Investment
Objectives and Policies.' 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 'Purchases' and 'Management.'
Shares of the Funds are offered to clients of PaineWebber and its
correspondent firms who are participants in the RMA and BSA programs. Shares of
the Funds may be offered to PaineWebber clients with other types of accounts
under certain limited circumstances.
RISK FACTORS. There can be no assurance that any Fund will achieve its
investment objective. In periods of declining interest rates, a Fund's yield
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates, a Fund's yield generally will be somewhat lower. 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. See 'Investment Objective and Policies' for more
information about these and other risk factors.
3
<PAGE>
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS. The following tables are intended to assist
investors in understanding the expenses associated with investing in each Fund.
SHAREHOLDER TRANSACTION EXPENSES
FOR ALL FUNDS
<TABLE>
<CAPTION>
<S> <C>
Sales charge on purchases of shares........................................................ None
Sales charge on reinvested dividends....................................................... None
Redemption fee or deferred sales charge.................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
GOVERNMENT
SECURITIES FUND MONEY MARKET FUND
-------------------------------------- --------------------------------------
FINANCIAL FINANCIAL
INSTITUTIONAL INTERMEDIARY INSTITUTIONAL INTERMEDIARY
SHARES SHARES** SHARES SHARES**
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Management Fee (after
fee waivers).......... .20% .20% .20% .20%
Shareholder Servicing
Fees.................. 0% .25% 0% .25%
Other Expenses (after
reimbursements)....... % % % %
------- ------- ------- -------
Total Operating Expenses
(after fee waivers and
reimbursements)**..... % % % %
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
TREASURY SECURITIES FUND
----------------------------------
FINANCIAL
INSTITUTIONAL INTERMEDIARY
SHARES SHARES**
-------------- -----------------
<S> <C> <C>
Management Fee (after
fee waivers).......... .20% .20%
Shareholder Servicing
Fees.................. 0% .25%
Other Expenses (after
reimbursements)....... % %
------- -------
Total Operating Expenses
(after fee waivers and
reimbursements)**..... % %
------- -------
------- -------
</TABLE>
EXAMPLE OF EFFECT OF FUND EXPENSES*
An investor would pay directly or indirectly the following expenses on a
$1,000 investment in each Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Securities Fund
Institutional shares.................................................. $ $ $ $
Financial Intermediary shares......................................... $ $ $ $
Money Market Fund
Institutional shares.................................................. $ $ $ $
Financial Intermediary shares......................................... $ $ $ $
Treasury Securities Fund
Institutional shares.................................................. $ $ $ $
Financial Intermediary shares......................................... $ $ $ $
</TABLE>
This Example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown. The above tables and the assumption in the Example of a 5%
annual return are required by regulations of the SEC applicable to all mutual
funds; the assumed 5% annual return is not a prediction of, and does not
represent, any Fund's projected or actual performance.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND EACH FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses of each Fund will depend upon, among other things, the level
of average net assets and the extent to which each Fund incurs variable
expenses, such as transfer agency costs.
(footnotes on next page)
4
<PAGE>
<PAGE>
(footnotes from previous page)
* Information in the expense table and the example has been restated to
reflect an agreement by PaineWebber and Mitchell Hutchins to waive .05% of the
management fee and to reduce or otherwise limit the expenses of each Fund, on an
annualized basis, to .30% and .55% of each Fund's average daily net assets for
Institutional shares and Financial Intermediary shares, respectively. In the
absence of this agreement, Money Market Fund's, Government Securities Fund's and
Treasury Securities Fund's total operating expenses would have been %, %
and % of their average net assets, respectively, for Institutional shares and
would have been %, % and % (estimated) of their average net assets,
respectively, for Financial Intermediary shares. Without this agreement, under
the assumptions set forth in the example above, the expenses on a $1,000
investment in Money Market Fund, Government Securities Fund and Treasury
Securities Fund at the end of one, three, five and ten years would have been $ ,
$ , $ and $ ; $ , $ , $ and $ ; and $ , $ , $ and $ , respectively,
for Institutional shares and would have been $ , $ , $ and $ ; $ , $ , $
and $ ; and $ , $ , $ and $ (estimated), respectively, for Financial
Intermediary shares. PaineWebber and Mitchell Hutchins do not anticipate that
they will waive the fees or reimburse expenses in the current fiscal year,
except to the extent necessary to comply with the fee waiver and total expense
limitation agreement.
** For Financial Intermediary shares, 'Other Expenses' are estimated based
on estimates for the Trust's current fiscal year. At the date of this
Prospectus, no Financial Intermediary shares are outstanding.
The Funds are offered to participants in the PaineWebber RMA'r' program.
The account charges for these programs are not included in the table because
certain non-RMA and non-BSA participants are permitted to purchase shares of the
Funds.
5
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide selected per share data and ratios for one share
of each class of shares of each Fund for each of the periods shown. No Financial
Intermediary Shares were outstanding during the fiscal year ended April 30,
1996. This information is supplemented by the financial statements and
accompanying notes appearing in each Fund's Annual Report to Shareholders for
the fiscal years ended April 30, 1996, which are incorporated by reference into
the Statement of Additional Information and which may be obtained without charge
by calling 1-800-647-1568. The financial statements and notes, as well as the
information in the tables appearing below insofar as it relates to the fiscal
year ended April 30, 1996, have been audited by Ernst & Young LLP, independent
auditors, whose report thereon is incorporated by reference into the Funds'
Statement of Additional Information. The financial information for the prior
years was audited by another independent accounting firm, whose reports thereon
were unqualified.
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------------------------------------------------------------
FINANCIAL
INSTITUTIONAL SHARES INTERMEDIARY
------------------------------------------------------ SHARES
FOR THE PERIOD ------------------------------------------
FOR THE YEARS ENDED JUNE 3, FOR THE PERIOD
APRIL 30, 1991`D' MARCH 17, 1994`D'
------------------------------------- TO FOR THE YEAR ENDED TO
1996 1995 1994 1993 APRIL 30, 1992 APRIL 30, 1995 APRIL 30, 1994
------- ------- ------- ------- -------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
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 has not been annualized.
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------
FINANCIAL
INTERMEDIARY
INSTITUTIONAL SHARES SHARES
------------------------------------------------------ --------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEARS ENDED JUNE 3, JULY 12,
APRIL 30, 1991`D' 1994`D'
-------------------------------------- TO TO
1996 1995 1994 1993 APRIL 30, 1992 APRIL 30, 1995
------- ------- ------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------- ------- -------
0.048 0.029 0.031 0.044 0.032
(0.008) -- -- -- --
(0.047) (0.029) (0.031) (0.044) (0.032)
------- ------- ------- ------- ------- -------
0.007 -- -- -- --
------- ------- ------- -------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
4.61% 2.97% 3.13% 4.46% 3.31%
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
$54,903 $84,209 $102,611 $144,853 --
0.35% 0.35% 0.34% 0.30%* 0.60%*
0.47% 0.37% 0.36% 0.41%* 0.72%*
4.63% 2.93% 3.09% 4.52%* 4.46%*
<CAPTION>
TREASURY SECURITIES FUND
-----------------------------------------------------------------
INSTITUTIONAL SHARES
---------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
APRIL 30, DECEMBER 6, 1991`D'
--------------------------------------- TO
1996 1995 1994 1993 APRIL 30, 1992
---------- ------- ------- ------- ------------------------
<S> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ------- ------- ------- -------
0.049 0.028 0.029 0.016
(0.002) -- -- --
(0.047) (0.028) (0.029) (0.016)
---------- ------- ------- ------- -------
-- -- -- --
---------- ------- ------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ------- ------- ------- -------
---------- ------- ------- ------- -------
4.75% 2.87% 2.89% 1.62%
---------- ------- ------- ------- -------
---------- ------- ------- ------- -------
$23,762 $38,602 $8,064 $15,003
0.22% 0.18% 0.33% 0.06%*
0.84% 0.76% 1.10% 2.05%*
4.89% 3.08% 2.88% 3.89%*
</TABLE>
7
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<PAGE>
INVESTMENT OBJECTIVES 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. Each Fund seeks to
meet this objective by following different investment policies.
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. In managing each Fund's portfolio,
Mitchell Hutchins may employ a number of professional money management
techniques, including varying the composition and the average weighted maturity
of each Fund's portfolio based upon its assessment of the relative values of
various money market instruments and future interest rate patterns, in order to
respond to changing economic and money market conditions and to shifts in fiscal
and monetary policy. Mitchell Hutchins may also seek to improve a Fund's yield
by purchasing or selling securities to take advantage of yield disparities among
similar or dissimilar money market instruments that regularly occur in the money
market.
There can be no assurance that the Funds will achieve their investment
objectives. In periods of declining interest rates, the Funds' yields will tend
to be somewhat higher than prevailing market rates, and in periods of rising
interest rates the opposite will be true. Also, when interest rates are falling,
net cash inflows from the continuous sale of a Fund's shares are likely to be
invested in portfolio instruments producing lower yields than the balance of
that Fund's portfolio, thereby reducing its yield. In periods of rising interest
rates, the opposite can be true.
MONEY MARKET FUND
Money Market Fund invests in high quality, short-term, U.S.
dollar-denominated money market instruments. These instruments include U.S.
government securities, obligations of U.S. banks, commercial paper and other
short-term corporate obligations, corporate bonds and notes, variable and
floating rate securities and loan participation interests or repurchase
agreements involving any of the foregoing securities. Participation interests
are pro rata interests in securities held by others.
The U.S. government securities in which the Money Market Fund may invest
include direct obligations of the U.S. Treasury (such as Treasury bills, notes
and bonds) and obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including securities that are supported by the full faith and
credit of the United States (such as Government National Mortgage Association
certificates ('GNMAs')), securities supported primarily or solely by the
creditworthiness of the issuer (such as securities of the Resolution Funding
Corporation and the Tennessee Valley Authority) and securities that are
supported primarily or solely by specific pools of assets and the
creditworthiness of a U.S. government-related issuer (such as mortgage-backed
securities issued by the Federal National Mortgage Association).
Money Market Fund may invest in obligations (including certificates of
deposit, time deposits, loan participation interests, commercial paper, bankers'
acceptances and similar obligations) of U.S. banks, including foreign branches
of domestic banks, domestic branches of foreign banks and foreign branches of
foreign banks, having total assets in excess of $1.5 billion at the time of
purchase and in time deposits of savings associations and similar associations
having total assets of $1.5 billion at the time of purchase. The Fund invests
only in time deposits maturing in seven days or less.
The commercial paper and other short-term corporate obligations purchased
by the Money Market Fund consist only of obligations that Mitchell Hutchins
determines, pursuant to procedures adopted by the Trust's board of trustees,
present minimal credit risks and 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 ('First Tier Securities'). The Money Market Fund generally may invest no
more than 5% of its total assets in the securities of a single issuer (other
than securities issued by the U.S. government, its agencies or
instrumentalities).
8
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<PAGE>
TREASURY SECURITIES FUND
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. The Fund may acquire any of these securities on a forward commitment or
when-issued basis. The Fund will not enter into repurchase agreements.
GOVERNMENT SECURITIES FUND
Government Securities Fund invests 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. 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.
Each investor should consult its own tax advisor to determine whether
distributions from the Fund derived from interest on its obligations are exempt
from state income taxation in the investor's own state.
OTHER INVESTMENT POLICIES AND RISK FACTORS
U.S. GOVERNMENT SECURITIES -- CUSTODIAL RECEIPTS. Money Market Fund may
acquire securities issued or guaranteed as to principal and interest by the U.S.
government in the form of custodial receipts that evidence ownership of future
interest payments, principal payments or both on certain U.S. Treasury notes or
bonds. Such notes and bonds are held in custody by a bank on behalf of the
owners of such notes or bonds. These custodial receipts are known by various
names, including 'Treasury Investment Growth Receipts' ('TIGRs') and
'Certificates of Accrual on Treasury Securities' ('CATS'). The Funds may also
invest in separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. The principal and interest components
of selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ('STRIPS') program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently. The
staff of the SEC currently takes the position that 'stripped' U.S. government
securities that are not issued through the U.S. Treasury STRIPS program are not
U.S. government securities.
VARIABLE AMOUNT MASTER DEMAND NOTES. Securities purchased by the Money
Market Fund may include variable amount master demand notes, which are unsecured
redeemable obligations that permit investment of varying amounts at fluctuating
interest rates under a direct agreement between the Fund and the issuer. The
principal amount of these notes may be increased from time to time by the
parties (subject to specified maximums) or decreased by the Fund or the issuer.
These notes are payable on demand and are typically unrated.
REPURCHASE AGREEMENTS. Money Market Fund may enter into repurchase
agreements with U.S. banks and dealers with respect to any security in which
that Fund is authorized to invest. The Money Market Fund may enter into
repurchase agreements with such institutions with respect to U.S. government
securities, commercial paper, bank certificates of deposit and bankers'
acceptances. Repurchase agreements are transactions in which the Fund purchases
securities from a bank or recognized securities dealer and simultaneously
commits to resell the securities to that bank or dealer at an agreed-upon date
and price reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities. Although repurchase agreements carry
certain risks not associated with direct investments in securities, including
possible decline in the market value of the underlying securities and delays and
costs to the Fund if the other party to the repurchase agreement becomes
insolvent, the Fund intends to enter into repurchase agreements only with banks
and dealers in transactions believed by
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Mitchell Hutchins to present minimal credit risks in accordance with guidelines
established by the Trust's board of trustees.
FOREIGN SECURITIES. Money Market Fund may invest in U.S. dollar-denominated
securities of foreign issuers, including debt securities of foreign corporations
and foreign governments, obligations of foreign banks, and obligations of
domestic branches of foreign banks, foreign branches of domestic banks and
foreign branches of foreign banks. Such investments may involve risks that are
different from investments in U.S. issuers. These risks may include future
unfavorable political and economic developments, possible withholding taxes,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions that might affect the payment of principal or interest
on the securities held by the Fund. Additionally, there may be less publicly
available information about foreign issuers.
LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend up to
33 1/3% of the total value of its portfolio securities to broker-dealers or
institutional investors that Mitchell Hutchins deems qualified. Lending
securities enables a Fund to earn additional income, but could result in a loss
or delay in recovering securities.
BORROWING. Each Fund may borrow money from banks for temporary purposes 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.
OTHER INVESTMENT POLICIES. Each Fund may purchase securities on a
'when-issued' or forward commitment basis, that is, for delivery beyond the
normal settlement date at a stated price and yield. A Fund generally would not
pay for such securities or start earning interest on them until they are
received. However, when a Fund purchases securities on a when-issued basis, it
immediately assumes the risks of ownership, including the risk of price
fluctuation. Failure by the issuer to deliver a security purchased on a
when-issued basis may result in a loss or missed opportunity to make an
alternative investment.
No Fund will invest more than 10% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of seven days.
A Fund's investment objective may not be changed without the approval of
its shareholders. Certain other investment limitations, as described in the
Statement of Additional Information, also may not be changed without shareholder
approval. All other investment policies may be changed by the Trust's board of
trustees without shareholder approval.
PURCHASES
Each Fund offers investors the choice of investing in two separate classes
of shares -- Institutional shares and Financial Intermediary shares.
Institutional shares in each Fund are available for purchase by institutional
investors, which may be waived at the discretion of PaineWebber. 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.
The minimum initial investment in any Fund or combination of Funds is
$1,000,000, 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 Funds and PaineWebber reserve the right to reject any purchase order
and to suspend the offering of Fund shares for a period of time.
An order to purchase shares of a Fund will be executed on the Business Day
on which federal funds become available to the Fund, at the Fund's
next-determined net asset value per share. A 'Business Day' is any day on which
the Boston offices of the Fund's custodian, State Street Bank and Trust Company
('Custodian'), and the New York City offices of PaineWebber and PaineWebber's
bank are all open for business. 'Federal funds' are funds deposited by a
commercial bank in an account at a Federal Reserve Bank that can be transferred
to a similar account of another bank in one day and thus may be made immediately
available to a Fund through its Custodian.
The purchase price for shares of the Funds is the net asset value per share
next determined. Purchase orders received before 12:00 noon, Eastern time, for
which payment has been received by PaineWebber will be executed at
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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 in Federal funds has not been
received by 12:00 noon, Eastern time, will be executed at 12:00 noon, Eastern
time, the following day if payment in Federal funds has been received by
PaineWebber by that time, and the shareholder will receive the dividend declared
on the following day.
THE RMA AND BSA PROGRAMS. Shares of each Fund are available primarily
through the RMA and BSA programs. RMA and BSA participants are asked to select
one of the Funds as their designated portfolio ('Primary Sweep Money Fund').
Investors will have all free credit cash balances (including proceeds from
securities sold) in the account invested in the Primary Sweep Money Fund.
Balances of $1 or more are invested daily. Each Fund and PaineWebber reserve the
right to reject any purchase order and to suspend the offering of Fund shares
for a period of time.
Investors who choose one Fund as their Primary Sweep Money Fund may also
purchase shares of another Fund by contacting their PaineWebber Investment
Executives or correspondent firms. Minimum purchase and maintenance
requirements, however, may apply to purchases of shares of a Fund other than the
investor's Primary Sweep Money Fund.
Certain features available to RMA and BSA participants are summarized in
the Appendices to the Statement of Additional Information. The RMA program is
more fully described in the brochure, 'Facts about Your PaineWebber Resource
Management Account' and the BSA program is more fully described in the brochure,
'Facts about Your Business Services Account.' The availability of Fund shares to
customers of PaineWebber's correspondent firms varies depending on the
arrangements between PaineWebber and such firms.
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 Primary Sweep Money Fund, as described above under 'The RMA and BSA
Programs,' 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 brokerage account on the Business Day following settlement,
but in some cases can take longer.
[PURCHASES BY CHECK OR ELECTRONIC FUNDS TRANSFER CREDIT. RMA and BSA
participants may purchase Fund shares by depositing into their account checks
drawn on a U.S. bank. The RMA or BSA participant's brokerage account number
should be included on the check.
As noted above, shares of the participant's Primary Sweep Money Fund will
be purchased when federal funds are available. RMA or BSA participants wishing
to invest amounts deposited in their accounts by check in one of the other Funds
should so instruct their PaineWebber Investment Executives or correspondent
firms. Federal funds are deemed available to a Fund two Business Days after
deposit of a personal check and/or an Electronic Funds Transfer credit and one
Business Day after deposit of a cashier's or certified check. PaineWebber may
benefit from the temporary use of the proceeds of personal checks and Electronic
Funds Transfer credits to the extent those funds are converted to federal funds
in fewer than two Business Days.]
PURCHASES BY WIRE. RMA and BSA participants may also purchase shares of
their Primary Sweep Money Fund or another Fund by instructing their banks to
transfer federal funds by wire to their RMA or BSA account. Wire transfers
should be directed to: The 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 Primary Sweep Money Fund, [as described above under 'Purchases with
Funds Held at PaineWebber.' RMA or BSA participants wishing to invest amounts
transferred by wire in one of the other Funds should so instruct their
PaineWebber Investment Executives or correspondent firms.]
If PaineWebber receives a notice from an investor's bank of a wire transfer
of federal funds
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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 that are received before 12:00 noon, Eastern time,
normally is made on the same Business Day. 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.
ADDITIONAL INFORMATION ON REDEMPTIONS. Shareholders with questions about
redemption requirements should consult their PaineWebber Investment Executives
or correspondent firms. Shareholders who redeem all their shares will receive
cash credits to their RMA or BSA brokerage accounts for dividends earned on
those shares to (but not including) the day of redemption.
PaineWebber has the right to terminate an RMA or BSA brokerage account for
any reason. In such event, all Fund shares held in the shareholder's RMA or BSA
brokerage account will be redeemed and the proceeds sent to the shareholder
within three Business Days.
ADDITIONAL INFORMATION ON FINANCIAL INTERMEDIARY SHARES. Fund shares are
sold and redeemed without charge by the Fund. Financial intermediaries
purchasing or holding Financial Intermediary 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. The dividends payable to beneficial owners of Financial
Intermediary shares will be reduced by the amount of fees paid by a Fund to
financial intermediaries through which those shares are purchased and held. See
'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.
VALUATION OF SHARES
Each Fund uses its best efforts to maintain its net asset value at $1.00
per share. Each Fund's net asset value per share is determined by dividing the
Fund's net assets by the number of Fund shares outstanding. A Fund's net assets
are equal to the value of its investments and other assets minus its
liabilities. Each Fund's net asset value is determined once each Business Day at
12:00 noon, Eastern time.
Each Fund values its portfolio securities using the amortized cost method
of valuation, under which market value is approximated by amortizing the
difference between the acquisition cost and value at maturity of an instrument
on a straight-line basis over its remaining life. All cash, receivables and
current payables are carried at their face value. Other assets are valued at
fair value as determined in good faith by or under the direction of the board of
trustees of the Trust.
DIVIDENDS AND TAXES
DIVIDENDS. Each Business Day, each Fund declares as dividends all of its
net investment income. Shares begin earning dividends on the day of purchase;
dividends are accrued to shareholder accounts daily and are automatically paid
in additional Fund shares monthly. Shares do not earn dividends on the day of
redemption.
Each Fund distributes its net short-term capital gain, if any, annually but
may make more frequent distributions of such gain if necessary to maintain its
net asset value per share at $1.00 or to avoid income or excise taxes. The Funds
do not expect to realize net long-term capital gain and thus do not anticipate
payment of any long-term capital gain distributions.
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FEDERAL TAX. Each Fund intends to continue to qualify for treatment as a
regulated investment company ('RIC') under the Internal Revenue Code so that it
will be relieved of federal income tax on that part of its investment company
taxable income (consisting generally of taxable net investment income and net
short-term capital gain, if any) that is distributed to its shareholders.
Dividends paid by the Funds generally are taxable to their shareholders as
ordinary income, notwithstanding that such dividends are paid in additional Fund
shares. Shareholders not subject to tax on their income, however, generally are
not required to pay tax on amounts distributed to them. The Funds' dividends and
distributions will not qualify for the dividends-received deduction for
corporations.
Some states 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, if the Fund meets certain asset and diversification requirements.
Dividends attributable to earnings on repurchase agreements and securities loan
are, as a general rule, subject to state and local taxation.
Each Fund notifies its shareholders following the end of each calendar year
of the tax status of all distributions paid (or deemed paid) during that year.
The notice sent by each Fund specifies the portions of their dividends that are
attributable to U.S. Treasury securities and specific types of U.S. government
securities.
Each Fund is required to withhold 31% of all taxable dividends payable to
any individuals and certain other noncorporate shareholders who (1) do not
provide the Fund with a correct taxpayer identification number or (2) otherwise
are subject to backup withholding.
ADDITIONAL INFORMATION. The foregoing is only a summary of some of the
important federal, state and local income tax considerations generally affecting
the Funds and their shareholders; see the Statement of Additional Information
for a further discussion. There may be other federal, state and local tax
considerations applicable to a particular investor. Prospective shareholders are
urged to consult their tax advisers.
MANAGEMENT
The Trust's board of trustees, as part of their overall management
responsibility, oversee various organizations responsible for the Funds' day-
to-day management. PaineWebber, the Funds' investment adviser and administrator,
provides a continuous investment program for each Fund and supervises all
aspects of its operations. As sub-adviser to the Funds, Mitchell Hutchins makes
and implements investment decisions and, as sub-administrator, is responsible
for the day-to-day administration of the Funds.
PaineWebber receives a monthly fee for these services. For the fiscal year
ended April 30, 1996, the effective advisory and administration fees paid to
PaineWebber by each Fund were equal to 0.25% of each Fund's average daily net
assets. PaineWebber has undertaken to waive .05% of its fee and to maintain each
Fund's total annual operating expenses at a level not exceeding .30% and .55% 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 with respect to each Fund's Institutional shares, for the
fiscal year ended April 30, 1996, Government Securities Fund's, Money Market
Fund's and Treasury Securities Fund's total expenses represented . %, . % and
. %, respectively, of their average net assets. No Financial Intermediary
shares of the Funds were outstanding during that period. PaineWebber (not the
Funds) pays Mitchell Hutchins a fee for its sub-advisory and sub-administration
services, at an annual rate of 50% of the fee received by PaineWebber from each
Fund for advisory and administrative services.
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 is in turn wholly owned by Paine Webber Group
Inc., a publicly owned financial services holding company. At May 31, 1996,
PaineWebber or Mitchell Hutchins was investment adviser or sub-adviser to 31
registered investment companies with 65 separate portfolios and aggregate assets
in excess of $30.4 billion.
Mitchell Hutchins investment personnel may engage in securities
transactions for their own accounts pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
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PaineWebber is the distributor of each Fund's shares.
FINANCIAL INTERMEDIARIES
Financial intermediaries, such as banks and savings and loan associations,
may purchase Financial Intermediary shares for the accounts of their customers.
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.
PERFORMANCE INFORMATION
From time to time each Fund may advertise its 'yield' and 'effective
yield.' Both yield figures are based on historical earnings and are not intended
to indicate future performance. The 'yield' of a Fund is the income on an
investment in that Fund over a specified seven-day period. This income is then
'annualized' (that is, assumed to be earned each week over a 52-week period) and
shown as a percentage of the investment. The 'effective yield' is calculated
similarly, but when annualized the income earned is assumed to be reinvested.
The 'effective yield' will be higher than the 'yield' because of the compounding
effect of this assumed reinvestment.
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. 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.
Each Fund may also advertise other performance data, which may consist of
the annual or cumulative return (including realized net short-term capital gain,
if any) earned on a hypothetical investment in the Fund since it began
operations or for shorter periods. This return data may or may not assume
reinvestment of dividends (compounding).
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GENERAL INFORMATION
The Trust is registered as an open-end management investment company and
was organized as a business trust under the laws of the Commonwealth of
Massachusetts by Declaration of Trust dated February 14, 1991. The Trust's board
of trustees has authority to issue an unlimited number of shares of beneficial
interest of separate series, par value $0.001 per share. The trustees have
authorized the issuance of Institutional shares and Financial Intermediary
shares of each of the three Funds.
Financial Intermediary shares of each Fund are identical in all respects,
represent equal, pro rata interests in the Fund's investment portfolio and,
except that beneficial owners of Financial Intermediary shares receive certain
services directly from financial intermediaries, bear certain service fees and
enjoy certain exclusive voting rights on matters relating to these services and
fees.
The Trust does not hold annual shareholder meetings. There normally will be
no meetings of shareholders to elect directors or trustees unless fewer than a
majority of the directors or trustees holding office have been elected by
shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares
of the applica-ble Trust may remove a trustee by vote cast in person or by proxy
at a meeting called for that purpose. The trustees are required to call a
meeting of shareholders of the applicable Trust for the purposes of voting upon
the question of removal of any trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the applicable Trust's
outstanding shares.
Shares are freely transferable and have no pre-emptive, subscription or
conversion rights. The shares of each Fund will be voted separately except when
an aggregate vote of all series is required by the Investment Company Act of
1940. Financial intermediaries holding shares for their own accounts must
undertake to vote the shares in the same proportions as the vote of shares held
for their customers.
CERTIFICATES. To avoid additional operating expenses and for investor
convenience, stock certificates are not issued. Ownership of shares of each Fund
is recorded on a stock register by the Transfer Agent, and shareholders have the
same rights of ownership with respect to such shares as if certificates had been
issued.
REPORTS. Shareholders receive audited annual and unaudited semi-annual
financial statements of the Funds. All purchases and redemptions of Fund shares
are reported to shareholders on monthly account statements.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is custodian of the Trust's
assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is the Trust's transfer and dividend disbursing agent.
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LIQUID INSTITUTIONAL RESERVES
PROSPECTUS
SEPTEMBER 1, 1996
MONEY MARKET FUND
GOVERNMENT SECURITIES FUND
TREASURY SECURITIES FUND
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Table of Contents
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<TABLE>
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2 Highlights
6 Financial Highlights
8 Investment Objectives and Policies
10 Purchases
12 Redemptions
12 Valuation of Shares
12 Dividends and Taxes
13 Management
14 Financial Intermediaries
14 Performance Information
14 General Information
</TABLE>
'c'1996 PaineWebber Incorporated
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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
STATEMENT OF ADDITIONAL INFORMATION
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 funds (each a 'Fund') are professionally managed money
market funds. The investment adviser, administrator and distributor of each Fund
is PaineWebber Incorporated ('PaineWebber'); the sub-adviser and
sub-administrator of each Fund is Mitchell Hutchins Asset Management Inc.
('Mitchell Hutchins'), a wholly owned subsidiary of PaineWebber. This Statement
of Additional Information is not a prospectus and should be read only in
conjunction with the Funds' current Prospectus, dated September 1, 1996. A copy
of the Prospectus may be obtained by contacting any PaineWebber investment
executive or correspondent firm or by calling 1-800-762-1000. This Statement of
Additional Information is dated September 1, 1996.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.
YIELDS AND RATINGS OF MONEY MARKET INVESTMENTS. The yields on the money
market instruments in which the Funds invest (such as commercial paper, bank
obligations and municipal securities) are dependent on a variety of factors,
including general money market conditions, conditions in the particular market
for the obligation, the financial condition of the issuer, the size of the
offering, the maturity of the obligation and the ratings of the issue. The
ratings of nationally recognized statistical rating organizations ('NRSROs')
represent their opinions as to the quality of the obligations they undertake to
rate. Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices. Subsequent to its purchase by a Fund, an issue may
cease to be rated or its rating may be reduced. In the event that a security in
a Fund's portfolio ceases to be a 'First Tier Security,' as defined in the
Prospectus, or Mitchell Hutchins becomes aware that a security has received a
rating below the second highest rating by any NRSRO, Mitchell Hutchins and in
certain cases the Trust's board of trustees, will consider whether the Fund
should continue to hold the obligation. A First Tier Security rated in the
highest short-term rating category by a single NRSRO at the time of purchase
that subsequently receives a rating below the highest rating category from a
different NRSRO will continue to be considered a First Tier Security.
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.
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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. As stated in the Prospectus, Money Market Fund may
enter into repurchase agreements with respect to any security in which that Fund
is authorized to invest. Money Market Fund may enter into repurchase agreements
with U.S. banks and dealers with respect to any obligation issued or guaranteed
by the U.S. government, its agencies or instrumentalities and also with respect
to commercial paper, bank certificates of deposit and bankers' acceptances.
Money Market Fund maintains custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or securities dealer to pay the
repurchase price on the date agreed to is, in effect, secured by such
securities. If the value of these securities is less than the repurchase price,
plus any agreed-upon additional amount, the other party to the agreement must
provide additional collateral so that at all times the collateral is at least
equal to the repurchase price plus any agreed-upon additional amount. The
difference between the total amount to be received upon repurchase of the
securities and the price that was paid by the Fund upon acquisition is accrued
as interest and included in the Fund's net investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities. Each Fund intends to enter into repurchase agreements
only with banks and dealers in transactions believed by Mitchell Hutchins to
present minimal credit risks in accordance with guidelines established by the
Trust's board of trustees. Mitchell Hutchins will review and monitor the
creditworthiness of those institutions under the board's general supervision.
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' ('CARsSM') and interests in
pools of credit card receivables. CARsSM 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 CARsSM 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 CARsSM 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 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.
ILLIQUID SECURITIES. No Fund will invest more than 10% of its net assets in
illiquid securities. The term 'illiquid securities' for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
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<PAGE>
securities and includes, among other things, repurchase agreements maturing in
more than seven days, and restricted securities and municipal lease obligations
(including certificates of participation) other than those Mitchell Hutchins has
determined to be liquid pursuant to guidelines established by the Trust's board
of trustees. Commercial paper issues in which the Money Market Fund may invest
include securities issued by major corporations without registration under the
Securities Act of 1933 ('1933 Act') in reliance on the exemption from such
registration afforded by Section 3(a)(3) thereof and commercial paper issued in
reliance on the so-called 'private placement' exemption from registration
afforded by Section 4(2) of the 1933 Act ('Section 4(2) paper'). Section 4(2)
paper is restricted as to disposition under the federal securities laws in that
any resale must similarly be made in an exempt transaction. Section 4(2) paper
is normally resold to other institutional investors through or with the
assistance of investment dealers who make a market in Section 4(2) paper, thus
providing liquidity.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a 'safe harbor' from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 44A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment in
order to satisfy share redemption orders. Such markets include automated systems
for the trading, clearance and settlement of unregistered securities, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc. [An insufficient number of qualified institutional buyers interested in
purchasing certain restricted securities held by the Money Market Fund, however,
could affect adversely the marketability of such portfolio securities and the
Fund might be unable to dispose of such securities promptly or at favorable
prices.]
The boards have delegated the function of making day-to-day determinations
of liquidity to Mitchell Hutchins, pursuant to guidelines approved by each
board. Mitchell Hutchins takes into account a number of factors in reaching
liquidity decisions, including (1) the frequency of trades for the security, (2)
the number of dealers that make quotes for the security, (3) the number of
dealers that have undertaken to make a market in the security, (4) the number of
other potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities held by the Funds and reports periodically on such
decisions to the applicable board.
OBLIGATIONS OF FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS. The Money
Market Fund may invest in U.S. dollar-denominated obligations of [major foreign
banks], [foreign] branches of foreign banks and foreign branches of domestic
banks. Such investments may involve risks that are different from investments in
obligations of domestic banks. These risks may include unfavorable political and
economic developments, withholding taxes, seizure of foreign deposits, currency
controls, interest limitations or other governmental restrictions that might
affect the payment of principal or interest on the securities held by the Money
Market Fund. Additionally, there may be less publicly available information
about foreign banks and their branches, as these institutions may not be subject
to the same regulatory requirements as domestic banks.
FLOATING RATE AND VARIABLE RATE DEMAND INSTRUMENTS. As noted in the
Prospectus, Money Market Fund may invest in floating rate and variable rate
securities with demand features. A demand feature gives a Fund the right to sell
the securities back to a specified party, usually a remarketing agent, on a
specified date, at a price equal to their par value. A demand feature is often
backed by a letter of credit or guarantee from a bank, which permits the
remarketing agent to draw on the letter of credit on demand, after specified
notice, for all or any part of the exercise price of the demand feature.
Generally,
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a Fund intends to exercise demand features only (1) upon a default under the
terms of the underlying security, (2) to maintain the Fund's portfolio in
accordance with its investment objective and policies or (3) as needed to
provide liquidity to the Fund in order to meet redemption requests. The ability
of a bank to fulfill its obligations under a letter of credit or guarantee might
be affected by possible financial difficulties of its borrowers, adverse
interest rate or economic conditions, regulatory limitations or other factors.
The interest rate on floating rate or variable rate securities ordinarily is
readjusted on the basis of the prime rate of the bank that originated the
financing or some other index or published rate, such as the 90-day U.S.
Treasury bill rate. Generally, these interest rate adjustments cause the market
value of floating rate and variable rate securities to fluctuate less than the
market value of fixed rate obligations.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
each of the Funds may purchase securities on a 'when-issued' or 'delayed
delivery' basis. A security purchased on a when-issued or delayed delivery basis
is recorded as an asset on the commitment date and is subject to changes in
market value, generally based upon changes in the level of interest rates. Thus,
fluctuation in the value of the security from the time of the commitment date
will affect the Fund's net asset value. When a Fund commits to purchase
securities on a when-issued or delayed delivery basis, its custodian segregates
assets to cover the amount of the commitment. See 'Investment Policies and
Restrictions -- Segregated Accounts.'
FORWARD COMMITMENTS. Each Fund may 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. Forward commitment transactions are
negotiated directly with the other party and these commitments are not traded on
securities exchanges.
A Fund generally will purchase or sell securities 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 forward commitment securities will be calculated from
the commitment date.
When a Fund purchases securities on a 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
forward commitments.
[STAND-BY COMMITMENTS. Pursuant to a stand-by commitment, a dealer agrees
to purchase the securities that are the subject of the commitment at an amount
equal to (1) the acquisition cost (excluding any accrued interest paid on
acquisition), less any amortized market premium and plus any accrued market or
original issue discount, plus (2) all interest accrued on the securities since
the last interest payment date or the date the securities were purchased,
whichever is later.
A Fund would enter into stand-by commitments only with those banks or other
dealers that, in the opinion of Mitchell Hutchins, present minimal credit risk.
A Fund's right to exercise stand-by commitments would be unconditional and
unqualified. A stand-by commitment would not be transferable by a Fund, although
the Fund could sell the underlying securities to a third party at any time. A
Fund may pay for stand-by commitments either separately in cash or by paying a
higher price for the securities that are acquired subject to such a commitment
(thus reducing the yield to maturity otherwise available for the same
securities). The acquisition of a stand-by commitment would not ordinarily
affect the valuation or maturity of the underlying municipal securities.
Stand-by commitments acquired by a Fund would be valued at zero in determining
net asset value. Whether a Fund paid directly or indirectly for a stand-by
commitment, its cost would be treated as unrealized depreciation and would be
amortized over the period the commitment is held by the Fund.]
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LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, each Fund
is authorized to lend up to 33 1/3% of its portfolio securities to
broker-dealers or institutional investors that Mitchell Hutchins deems
qualified, but only when the borrower maintains acceptable collateral with the
Funds' custodian, marked to market daily, in an amount at least equal to the
market value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. In determining whether to lend securities to a particular
broker-dealer of institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant fees and circumstances,
including the creditworthiness of the borrower. The Funds will retain authority
to terminate any loan at any time. The Funds may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion of
the interest earned on the cash or money market instruments held as collateral
to the borrower or placing broker. The Funds will receive reasonable interest on
the loan or a flat fee from the borrower and amounts equivalent to any
dividends, interest or other distributions on the securities loaned. The Funds
will retain record ownership of loaned securities to exercise beneficial rights,
such as voting and subscription rights and rights to dividends, interest or
other distributions, when exercising such rights is considered to be in the
Funds' interest.
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 $1.5 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
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.
SEGREGATED ACCOUNTS. When a Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis or reverse
repurchase agreements, the Fund will maintain with an approved custodian in a
segregated account cash, U.S. government securities or other liquid high-grade
debt securities, marked
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to market daily, in an amount at least equal to the Fund's obligation or
commitment under such transactions.
INVESTMENT LIMITATIONS. The following fundamental investment limitations
cannot be changed with respect to a Fund without the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Fund or (2) 67% or
more of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. If a
percentage restriction is adhered to at the time of an investment or
transaction, a later increase or decrease in percentage resulting from changing
values of portfolio securities or amount of total assets will not be considered
a violation of any of the following limitations.
Each Fund will not:
(1) purchase securities of any one issuer if, as a result, more than
5% of the Fund's total assets would be invested in securities of
that issuer or the Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to
25% of the Fund's total assets may be invested without regard to
this limitation, and except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities or to securities issued by other
investment companies.
The following interpretation applies to, but is not a part of,
this fundamental restriction: Mortgage- and asset-backed
securities will not be considered to have been issued by the same
issuer by reason of the securities having the same sponsor, and
mortgage- and asset-backed securities issued by a finance or other
special purpose subsidiary that are not guaranteed by the parent
company will be considered to be issued by a separate issuer from
the parent company.
(2) purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of
issuers having their principal business activities in the same
industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to municipal securities or to certificates of
deposit and bankers' acceptances of domestic branches of U.S.
banks.
The following interpretation applies to, but is not a part of,
this fundamental restriction: With respect to this limitation,
domestic and foreign banking will be considered to be different
industries.
(3) issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total
assets (including the amount of the senior securities issued but
reduced by any liabilities not constituting senior securities) at
the time of the issuance or borrowing, except that the Fund may
borrow up to an additional 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes.
(4) make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures, other debt
securities or instruments, or participations or other interest
therein and investments in government obligations, commercial
paper, certificates of deposit, bankers' acceptances or similar
instruments will not be considered the making of a loan.
(5) engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with
its disposition of portfolio securities.
(6) purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments
in mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject
to this limitation, and except that the Fund may exercise rights
under agreements relating to such securities, including the right
to enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be
liquidated in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result
of owning securities or other instruments, but the Fund many
purchase, sell or enter into financial options and futures,
forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.
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NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The following investment
restrictions are not fundamental and may be changed by the Trust's Board of
Trustees without shareholder approval.
Each Fund will not:
(1) mortgage, pledge or hypothecate any assets except in connection
with permitted borrowings or the issuance of senior securities.
(2) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions and except that
the Fund may make deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments.
(3) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short 'against the box' and (b)
maintain short positions in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments.
(4) invest in oil, gas or mineral exploration or development programs
or leases, except that investments in securities of issuers that
invest in such programs or leases and investments in asset-backed
securities supported by receivables generated from such programs
or leases are not subject to this prohibition.
(5) invest in companies for the purpose of exercising control or
management.
(6) invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of its net assets, which amount may
include warrants that are not listed on the New York or American
Stock Exchange, provided that those unlisted warrants, valued at
the lower of cost or market, do not exceed 2% of the Fund's net
assets, and further provided that this restriction does not apply
to warrants attached to, or sold as a unit with, other securities.
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TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their ages, business addresses
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -----------------------------------------------------
<S> <C> <C>
Margo N. Alexander**; 49 Trustee and President Ms. Alexander is president, chief executive officer
and a director of Mitchell Hutchins (since January
1995) and an executive vice president and a
director of PaineWebber. Ms. Alexander is president
and a director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard Q. Armstrong; 60 Trustee Mr. Armstrong is chairman and principal of RQA
78 West Brother Drive Enterprises (management consulting firm) (since
Greenwich, CT 06830 April 1991 and principal occupation since March
1995). Mr. Armstrong is also director of Hi Lo
Automotive, Inc. He was chairman of the board,
chief executive officer and co-owner of Adirondack
Beverages (producer and distributor of soft drinks
and sparkling/still waters) (October 1993-March
1995). He was a partner of The New England
Consulting Group (management consulting firm)
(December 1992-September 1993). He was managing
director of LVMH U.S. Corporation (U.S. subsidiary
of the French luxury goods conglomerate, Luis
Vuitton Moet Hennessey Corporation) (1987-1991) and
chairman of its wine and spirits subsidiary,
Schieffelin & Somerset Company (1987-1991). Mr.
Armstrong is a director or trustee of 29 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment advisor.
E. Garrett Bewkes, Jr.**; 69 Trustee and Chairman Mr. Bewkes is a director of Paine Webber Group Inc.
of the Board of ('PW Group') (holding company of PaineWebber and
Trustees Mitchell Hutchins) prior to December 1995, he was a
consultant to PW Group. Prior to 1988, he was
chairman of the board, president and chief
executive officer of American Bakeries Company. Mr.
Bewkes is also a director of Interstate Bakeries
Corporation and NaPro BioTherapeutics, Inc. Mr.
Bewkes is a director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
8
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<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -----------------------------------------------------
<S> <C> <C>
Richard R. Burt; 49 Trustee Mr. Burt is chairman of International Equity Partners
1101 Connecticut Avenue, N.W. (international investments and consulting firm)
Washington, D.C. 20036 (since March 1994) and a partner of McKinsey &
Company (management consulting firm) (since 1991).
He was the chief negotiator in the Strategic Arms
Reduction Talks with the former Soviet Union
(1989-1991) and the U.S. Ambassador to the Federal
Republic of Germany (1985-1989). Mr. Burt is a
director or trustee of 29 investment companies for
which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Mary C. Farrell**; 46 Trustee Ms. Farrell is a managing director, senior investment
strategist and member of the Investment Policy
Committee of PaineWebber. Ms. Farrell joined
PaineWebber in 1982. She is a member of the
Financial Women's Association and Women's Economic
Roundtable and is employed as a regular panelist on
Wall $treet Week with Louis Rukeyser. She also
serves on the Board of Overseers of New York
University's Stern School of Business. Ms. Farrell
is a director or trustee of 29 investment companies
for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Meyer Feldberg; 54 Trustee Mr. Feldberg is Dean and Professor of Management of
Columbia University the Graduate School of Business, Columbia
101 Uris Hall University. Prior to 1989, he was president of the
New York, New York 10027 Illinois Institute of Technology. Dean Feldberg is
also a director of AMSCO International Inc.,
Federated Department Stores Inc., and New World
Communications Group Incorporated. Mr. Feldberg is
a director or trustee of 29 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
George W. Gowen; 66 Trustee Mr. Gowen is a partner in the law firm of Dunnington,
666 Third Avenue Bartholow & Miller. Prior to May 1994, he was a
New York, New York 10017 partner in the law firm of Fryer, Ross & Gowen. Mr.
Gowen is also a director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a director or
trustee of 29 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
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<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -----------------------------------------------------
<S> <C> <C>
Frederic V. Malek; 59 Trustee Mr. Malek is chairman of Thayer Capital Partners
901 15th Street, N.W. (investment bank) and a co- chairman and director
Suite 300 of CB Commercial Group Inc. (real estate). From
Washington, D.C. 20005 January 1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990 to 1992, he
was vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA Inc.
(holding company of Northwest Airlines Inc.) and
Wings Holdings Inc. (holding company of NWA Inc.).
Prior to 1989, he was employed by the Marriott
Corporation (hotels, restaurants, airline catering
and contract feeding), where he most recently was
an executive vice president and president of
Marriott Hotels and Resorts. Mr. Malek is also a
director of American Management Systems, Inc.
(management consulting and computer-related
services), Automatic Data Processing, Inc., Avis,
Inc. (passenger car rental), FPL Group, Inc.
(electric services), National Education Corporation
and Northwest Airlines Inc. Mr. Malek is a director
or trustee of 29 other investment companies for
which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Carl W. Schafer; 60 Trustee Mr. Schafer is president of the Atlantic Foundation
P.O. Box 1164 (charitable foundation supporting mainly
Princeton, NJ 08542 oceanographic exploration and research). He also is
a director of Roadway Express, Inc. (trucking), The
Guardian Group of Mutual Funds, Evans Systems, Inc.
(a motor fuels, convenience store and diversified
company), Hidden Lake Gold Mines Ltd. (gold
mining), Electronic Clearing House, Inc. (financial
transactions processing), Wainoco Oil Corporation
and Nutraceutix, Inc. (biotechnology). Prior to
January 1993, he was chairman of the Investment
Advisory Committee of the Howard Hughes Medical
Institute. Mr. Schafer is a director or trustee of
29 investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
</TABLE>
10
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<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -----------------------------------------------------
<S> <C> <C>
John R. Torell III; 56 Turstee Mr. Torell is chairman of Torell Management Inc.
767 Fifth Avenue (financial advisory firm), chairman of Telesphere
Suite 4605 Corporation (electronic provider of financial
New York, NY 10153 information) and a partner of Zilkha & Company
(merchant bank and private investment company). He
is the former chairman and chief executive officer
of Fortune Bancorp (1990-1991) and 1990-1994,
respectively), the former chairman, president and
chief executive officer of CalFed, Inc. (savings
association) (1988 to 1989) and the former
president of Manufacturers Hanover Corp. (bank)
(prior to 1988). Mr. Torell is also a director of
American Home Products Corp., New Colt Inc.
(armament manufacturer) and Volt Information
Services Inc. Mr. Torell is a director or trustee
of 29 investment companies for which Mitchell
Hutchins or PaineWebber services as investment
adviser.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president and
manager -- advisory administration of Mitchell
Hutchins. Prior to November 1993, she was
compliance manager of Hyperion Capital Management,
Inc., an investment advisory firm. Prior to April
1993, Ms. Boyle was a vice president and
manager -- legal administration of Mitchell
Hutchins. Ms. Boyle is a vice president of 30
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
C. William Maher; 35 Vice President and Mr. Maher is a first vice president and a senior
Assistant Treasurer manager of the mutual fund finance division of
Mitchell Hutchins. Mr. Maher is also a vice
president and assistant treasurer of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Dennis McCauley; 48 Vice President Mr. McCauley is a managing director and Chief
Investment Officer -- Fixed Income of Mitchell
Hutchins. Prior to December, 1994, he was director
of fixed income investments of IBM Corporation. Mr.
McCauley is also a vice president of 19 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Susan Messina; 35 Vice President Ms. Messina is a senior vice president of Mitchell
Hutchins. Ms. Messina has been with Mitchell
Hutchins since 1982. Ms. Messina is a vice
president of five investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
11
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<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -----------------------------------------------------
<S> <C> <C>
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of Mitchell Hutchins.
Assistant Treasurer Ms. Moran is a vice president and assistant
treasurer of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice president and deputy
Secretary general counsel of Mitchell Hutchins. Ms. O'Donnell
is a vice president and secretary of 29 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Victoria E. Schonfeld; 45 Vice President Ms. Schonfeld is a managing director and general
counsel of Mitchell Hutchins. Prior to May 1994,
she was a partner in the law firm of Arnold &
Porter. Ms. Schonfeld is a vice president of 30
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice president and a senior
Assistant Treasurer manager of the mutual fund finance division of
Mitchell Hutchins. From August 1992 to August 1994,
he was a vice president at BlackRock Financial
Management, Inc. Prior to August 1992, he was an
audit manager with Ernst & Young LLP. Mr. Schubert
is a vice president and assistant treasurer of 30
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice president and the
Treasurer 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 30
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Gregory K. Todd; 39 Vice President and Mr. Todd is a first vice president and associate
Assistant Secretary general counsel of Mitchell Hutchins. Prior to
1993, he was a partner in the law firm of Shereff,
Friedman, Hoffman & Goodman. Mr. Todd is a vice
president and assistant secretary of 9 investment
companies and vice president and secretary of one
investment company for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ----------------------------------- --------------------- -----------------------------------------------------
<S> <C> <C>
Keith A. Weller; 35 Vice President and Mr. Weller is a first vice president and associate
Assistant Secretary general counsel of Mitchell Hutchins. Prior to May
1995, he was an attorney in private practice. Mr.
Weller is a vice president and assistant secretary
of 29 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
</TABLE>
- ------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes and Ms. Farell are 'interested persons' of the
Trust as defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.
The Trust pays trustees who are not 'interested persons' of the Trust
$[1,000] annually and $[375] for each separate meeting of a board committee
thereof. Certain committee chairs receive additional annual compensation
aggregating $15,000 annually from all the funds within the PaineWebber fund
complex. Trustees of the Trust who are 'interested persons' receive no
compensation from the Fund. All trustees are reimbursed for any expenses
incurred in attending meetings. Trustees and officers of the Trust own in the
aggregate less than 1% of the shares of each Fund. Since PaineWebber and
Mitchell Hutchins perform substantially all of the services necessary for the
operation of the Trust, the Trust requires no employees. The table below
includes certain information relating to the compensation of the Trust's current
trustees who held office with the Trust or other PaineWebber funds for the last
fiscal and calendar years.
13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM THE
TRUST
AND THE
AGGREGATE COMPENSATION FUND
NAME OF PERSONS, POSITION FROM THE TRUST COMPLEX`D'
- ----------------------------------------------------------------- --------------------------- -------------
<S> <C> <C>
Richard Q. Armstrong, Trustee**.................................. $ $ 9,000
Richard R. Burt, Trustee**....................................... $ 7,750
Meyer Feldberg, Trustee**........................................ $ 106,375
George W. Gowen, Trustee**....................................... $ 99,750
Frederic V. Malek, Trustee**..................................... $ 99,750
Carl W. Schafer, Trustee......................................... $ 118,175
John R. Torell III, Trustee**.................................... $ 28,125
</TABLE>
- ------------
Only independent members of the board of trustees are compensated by the Trust
and identified above; trustees who are 'interested persons,' as defined in the
1940 Act, do not receive compensation.
* Represents fees paid to each trustee during the fiscal year ended April 30,
1996. The Trust does not have a pension or retirement plan.
** Elected as trustee at a shareholder meeting on April 15, 1996.
`D' Represents total compensation paid to each director during the calendar
year ended December 31, 1995.
14
<PAGE>
<PAGE>
BENEFICIAL OWNERSHIP OF GREATER THAN 5% OF FUND SHARES
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:
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
OF INSTITUTIONAL SHARES BENEFICIALLY
NAME AND ADDRESS* OWNED AS OF [ ]
- --------------------------------------------------- ------------------------------------------------------------
<S> <C>
Robinson-Broadhurst Foundation [25.31%]
The Chase Manhattan Bank NA, as Custodian for
Chase Home Mortgage Corp. [ 6.05%]
Frank Ferri and Mary Ellin Ferri [ 5.55%]
Marsam Pharmaceuticals Inc. [ 7.18%]
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:
<CAPTION>
NUMBER AND PERCENTAGE
OF INSTITUTIONAL SHARES BENEFICIALLY
NAME AND ADDRESS* OWNED AS OF [ ]
- --------------------------------------------------- ------------------------------------------------------------
<S> <C>
Marine Preservation Association [12.03%]
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:
<CAPTION>
NUMBER AND PERCENTAGE
OF INSTITUTIONAL SHARES BENEFICIALLY
NAME AND ADDRESS* OWNED AS OF [ ]
- --------------------------------------------------- ------------------------------------------------------------
<S> <C>
ITG Inc. [10.47%]
Thermatrix Inc. [5.27%]
James M. Sweeney Trust FBO James M. Sweeney
Trust [14.32%]
Robert S. Thompson and Elizabeth Thompson,
Trustees FBO Robert S. and Elizabeth
Thompson Trust [5.72%]
Mercury Interactive Corporation [16.64%]
The Trust is not aware as to whether or to what extent shares owned of record also are owned beneficially.
</TABLE>
- ------------
* Each of the shareholders listed may be contacted c/o Mitchell Hutchins Asset
Managment Inc., 1285 Avenue of the Americas, New York, NY 10019.
15
<PAGE>
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION AND
DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. PaineWebber acts as
the Trust's investment adviser and administrator pursuant to a contract dated
April 13, 1995 ('PaineWebber Contract'). Under the PaineWebber Contract, the
Trust pays PaineWebber an annual fee, computed daily and paid monthly, at an
annual rate of 0.25% of each Fund's average daily net assets.
For the fiscal years ended April 30, 1996, April 30, 1995 and April 30,
1994, the Government Securities Fund incurred fees of $ , $166,715 and
$283,281, 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 $ , $0 and $0, respectively, and voluntarily
paid expenses of $ , $81,678 and $21,554, respectively. For the fiscal years
ended April 30, 1996, April 30, 1995 and April 30, 1994, the Money Market Fund
incurred fees of $ , $595,984 and $800,430, respectively, to KPAM or
PaineWebber. However, during these periods, KPAM or PaineWebber voluntarily
waived a portion of its fees in the amounts of $ , $0 and $0, respectively,
and voluntarily paid expenses of $ , $45,499 and $3,470, respectively. For
the fiscal years ended April 30, 1996, April 30, 1995 and April 30, 1994, the
Treasury Securities Fund incurred fees of $ , $57,716 and $47,804 to KPAM
or PaineWebber. However, during these periods, KPAM or PaineWebber voluntarily
waived its fees in the amounts of $ , $6,926 and $40,467, respectively, and
voluntarily paid expenses of $ , $138,518 and $68,730, respectively. As of
the date of this Statement of Additional Information, PaineWebber is voluntarily
waiving .05% of its fee with respect to each Fund.
Under a contract with PaineWebber dated April 15, 1996 ('Mitchell Hutchins
Contract') with respect to the Trust, Mitchell Hutchins serves as the Trust's
sub-adviser and sub-administrator. Under the Mitchell Hutchins Contract
PaineWebber (not the Trust) pays Mitchell Hutchins a fee, computed daily and
paid monthly, at an annual rate of 50% of the fee paid by each Fund to
PaineWebber under the PaineWebber Contract.
For the periods indicated, PaineWebber paid (or accrued) to Mitchell
Hutchins the following fees.
<TABLE>
<CAPTION>
FOR THE
FISCAL YEAR
ENDED
APRIL 30,
1996
-----------
<S> <C>
Money Market Fund............................................................... $
Government Securities Fund......................................................
Treasury Securities Fund........................................................
</TABLE>
Under the terms of the PaineWebber Contract, the Trust bears all expenses
incurred in its operation that are not specifically assumed by PaineWebber.
General expenses of a Trust not readily identifiable as belonging to a specific
Fund or to any other series of the Trust are allocated among series by or under
the direction of the Trust's board in such manner as the board deems fair and
equitable. Expenses borne by the Trust include the following (or each Fund's
share of the following): (1) the cost (including brokerage commissions and other
transaction costs, if any) of securities purchased or sold by the Funds and any
losses incurred in connection therewith, (2) fees payable to and expenses
incurred on behalf of the Funds by PaineWebber, (3) organizational expenses, (4)
filing fees and expenses relating to the registration and qualification of the
shares of the Funds under federal and state securities laws and maintaining such
registrations and qualifications, (5) fees and salaries payable to the
directors, trustees and officers who are not interested persons of the Trust, or
of PaineWebber, (6) all expenses incurred in connection with the trustees'
services, including travel expenses, (7) taxes (including any income or
franchise taxes) and governmental fees, (8) costs of any liability,
uncollectable items of deposit and other insurance or fidelity bonds, (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Trust, or the Fund for violation of any law,
(10) legal, accounting and auditing expenses, including legal fees of special
counsel for those trustees who are not interested persons of the Trust, (11)
charges of custodians, transfer agents and other agents, (12) expenses of
setting in type and printing prospectuses and supplements thereto, reports and
statements
16
<PAGE>
<PAGE>
to shareholders and proxy material for existing shareholders, (13) costs of
mailing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials to existing
shareholders, (14) any extraordinary expenses (including fees and disbursements
of counsel, costs of actions, suits or proceedings to which the Trust is a party
and the expenses the Trust may incur as a result of its legal obligation to
provide indemnification to its officers, trustees, agents and shareholders)
incurred by the Fund, (15) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations, (16)
costs of mailing and tabulating proxies and costs of meetings of shareholders,
the board and any committees thereof, (17) the cost of investment company
literature and other publications provided to the directors and officers, and
(18) costs of mailing, stationery and communications equipment.
As required by state regulation, PaineWebber will reimburse a Fund if and
to the extent that the aggregate operating expenses of the Fund exceed
applicable limits for the fiscal year. Currently, the most restrictive such
limit applicable to each Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, distribution fees, taxes,
interest and extraordinary items, are excluded from this limitation. No
reimbursement pursuant to such limitation was required for the 1996 fiscal year
for any of the Funds.
Under the PaineWebber and Mitchell Hutchins Contracts (collectively,
'Contracts'), PaineWebber or Mitchell Hutchins will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund in connection
with the performance of the Contracts, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of PaineWebber or
Mitchell Hutchins in the performance of its duties or from reckless disregard of
its duties and obligations thereunder.
The Contracts are terminable with respect to each Fund at any time without
penalty by vote of the Trust's board of trustees or by vote of the holders of a
majority of the outstanding voting securities of that Fund on 60 days' written
notice to PaineWebber or Mitchell Hutchins, as the case may be. The PaineWebber
Contract is also terminable without penalty by PaineWebber on 60 days' written
notice to the appropriate Corporation or Trust, and the Mitchell Hutchins
Contract is terminable without penalty by PaineWebber or Mitchell Hutchins on 60
days' written notice to the other party. The Contracts terminate automatically
upon their assignment, and the Mitchell Hutchins Contract also terminates
automatically upon the assignment of the PaineWebber Contract.
The following table shows the approximate net assets as of May 31, 1996,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT CATEGORY
- --------------------------------------------------------------------------------- NET ASSETS
----------
($ MIL)
<S> <C>
Domestic (excluding Money Market)................................................ $ 5,608.2
Global........................................................................... 2,833.3
Equity/Balanced.................................................................. 3,127.4
Fixed Income (excluding Money Market)............................................ 5,314.1
Taxable Fixed Income........................................................ 3,683.0
Tax-Free Fixed Income....................................................... 1,631.1
Money Market Funds............................................................... 21,968.9
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds (collectively, 'PW 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 PW
Funds and other Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. PaineWebber acts as distributor of shares of the
Trust under a distribution contract with the Trust dated January 30, 1995 which
requires PaineWebber to use its best
17
<PAGE>
<PAGE>
efforts, consistent with its other business, to sell shares of the Trust. Shares
of the Trust are offered continuously.
PORTFOLIO TRANSACTIONS
The Mitchell Hutchins Contract authorizes Mitchell Hutchins (with the
approval of the Trust's board) to select brokers and dealers to execute
purchases and sales of the Funds' portfolio securities. The Contract directs
Mitchell Hutchins to use its best efforts to obtain the best available price and
most favorable execution with respect to all transactions for the Funds. To the
extent that the execution and price offered by more than one dealer are
comparable, Mitchell Hutchins may, in its discretion, effect transactions in
portfolio securities with dealers who provide the Funds with research, analysis,
advice and similar services. Although Mitchell Hutchins may receive certain
research or execution services in connection with these transactions, Mitchell
Hutchins will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid had no services been provided by the
executing dealer. Moreover, Mitchell Hutchins will not enter into any explicit
soft dollar arrangements relating to principal transactions and will not receive
in principal transactions the types of services which could be purchased for
hard dollars. Research services furnished by the dealers with which a Fund
effects securities transactions may be used by Mitchell Hutchins in advising
other funds or accounts they advise and, conversely, research services furnished
to Mitchell Hutchins in connection with other funds or accounts that Mitchell
Hutchins advises may be used in advising the Fund. Information and research
received from dealers will be in addition to, and not in lieu of, the services
required to be performed by Mitchell Hutchins under the Mitchell Hutchins
Contracts. During its past three fiscal years, none of the Funds has paid any
brokerage commissions, nor has any Fund allocated any transactions to dealers
for research, analysis, advice and similar services.
Mitchell Hutchins may engage in agency transactions in OTC equity and debt
securities in return for research and execution services. These transactions are
entered into only in compliance with procedures ensuring that the transaction
(including commissions) is at least as favorable as it would have been if
effected directly with a market-maker that did not provide research or execution
services. These procedures include Mitchell Hutchins receiving multiple quotes
from dealers before executing the transactions on an agency basis.
The Funds purchase portfolio securities from dealers and underwriters as
well as from issuers. Securities are usually traded on a net basis with dealers
acting as principal for their own accounts without a stated commission. Prices
paid to dealers in principal transactions generally include a 'spread,' which is
the difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. When securities are purchased directly
from an issuer, no commissions or discounts are paid. When securities are
purchased in underwritten offerings, they include a fixed amount of compensation
to the underwriter.
Investment decisions for each Fund and for other investment accounts
managed by Mitchell Hutchins are made independently of each other in light of
differing considerations for the various accounts. However, the same investment
decision may occasionally be made for a Fund and one or more of such accounts.
In such cases, simultaneous transactions are inevitable. Purchases or sales are
then averaged as to price and allocated between the Fund and such other
account(s) as to amount according to a formula deemed equitable to the Fund and
such account(s). While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the Fund is concerned,
or upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
Mitchell Hutchins may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from the Fund prior to their maturity at their original cost
plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that the Fund's anticipated need for liquidity makes
such actions desirable. Any such repurchase prior to maturity reduces the
possibility that the Fund would incur a capital loss in liquidating commercial
paper for which there is no established market, especially if interest rates
have risen since acquisition of the particular commercial paper.
18
<PAGE>
<PAGE>
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
Each Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange, Inc. ('NYSE') is closed
or trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, which makes it not reasonably
practicable for a Fund to dispose of securities owned by it or to determine
fairly the market value of its assets or (3) as the SEC may otherwise permit.
The redemption price may be more or less than the shareholder's cost, depending
on the market value of the Fund's portfolio at the time, although each Fund
seeks to maintain a constant net asset value of $1.00 per share.
If conditions exist that make cash payments undesirable, each Fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Fund and valued in the same way as they would
be valued for purposes of computing the Fund's net asset value. If payment is
made in securities, a shareholder may incur brokerage expenses in converting
these securities into cash. The Trust is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of either Fund
during any 90-day period for one shareholder.
VALUATION OF SHARES
Each Fund's net asset value per share is determined as of 12:00 noon,
eastern time, on each Business Day. As defined in the Prospectus, 'Business Day'
means any day on which State Street Bank and Trust Company's Boston offices,
PaineWebber's New York City offices and the New York City offices of
PaineWebber's bank, The Bank of New York, are all open for business. One or more
of these institutions will be closed on the observance of the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Patriot's Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day.
Each Fund values its portfolio securities in accordance with the amortized
cost method of valuation under Rule 2a-7 ('Rule') under the 1940 Act. To use
amortized cost to value its portfolio securities, a Fund must adhere to certain
conditions under that Rule relating to the Fund's investments, some of which are
discussed in the Prospectus. Amortized cost is an approximation of market value
of an instrument, whereby the difference between its acquisition cost and value
at maturity is amortized on a straight-line basis over the remaining life of the
instrument. The effect of changes in the market value of a security as a result
of fluctuating interest rates is not taken into account and thus the amortized
cost method of valuation may result in the value of a security being higher or
lower than its actual market value. In the event that a large number of
redemptions take place at a time when interest rates have increased, a Fund
might have to sell portfolio securities prior to maturity and at a price that
might not be desirable.
The board of trustees of the Trust have established procedures
('Procedures') for the purpose of maintaining a constant net asset value of
$1.00 per share, which include a review of the extent of any deviation of net
asset value per share, based on available market quotations, from the $1.00
amortized cost per share. Should that deviation exceed 1/2 of 1% for any Fund,
the board of trustees will promptly consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redeeming shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. Each Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less and will not purchase any instrument with a remaining
maturity of more than 397 days, will limit portfolio investments, including
repurchase agreements, to those U.S. dollar-denominated instruments that are of
eligible quality under the Rule and that Mitchell Hutchins, acting pursuant to
the Procedures, determine present minimal credit risks, and will comply with
certain reporting and recordkeeping procedures. There is no assurance that
constant net asset value per share will be maintained. In the event amortized
cost ceases to represent fair value per share, the board will take appropriate
action.
In determining the approximate market value of portfolio investments, each
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being
19
<PAGE>
<PAGE>
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried at their face value. Other assets, if any, are valued at
fair value as determined in good faith by or under the direction of the board of
trustees.
TAXES
FEDERAL TAXES. In order to continue to qualify for treatment as a regulated
investment company ('RIC') under the Internal Revenue Code, each Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income and net short-term capital gain, if any). With respect to each
Fund, these requirements include the following: (1) the Fund must derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of securities and certain other income; (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities held for less than three months; (3) at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities
and other securities, with these other securities limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Fund's total
assets; and (4) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities) of any one issuer.
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.
CALCULATION OF YIELD
Each Fund computes its yield and effective yield quotations using
standardized methods required by the SEC. The Fund from time to time advertises
(1) its current yield based on a recently ended seven-day period, computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from that
shareholder account, dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent, and (2) its effective
yield based on the same seven-day period by compounding the base period return
by adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from
the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)'pp'365/7] - 1
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each Fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed-to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.
20
<PAGE>
<PAGE>
The following yields are for the seven-day period ended July 31, 1996:
<TABLE>
<CAPTION>
EFFECTIVE
FUND YIELD YIELD
- ---------------------------------------------------------------------------- ----- ---------
<S> <C> <C>
Money Market Fund........................................................... % %
Government Securities Fund.................................................. % %
Treasury Securities Fund.................................................... % %
</TABLE>
[OTHER INFORMATION. The Fund's performance data quoted in advertising and
other promotional materials ('Performance Advertisements') represent past
performance and are not intended to predict or indicate future results. The
return on an investment in each Fund will fluctuate. In Performance
Advertisements, the Funds may compare their taxable or tax-free yield with data
published by Lipper Analytical Services, Inc. for money funds ('Lipper'), CDA
Investment Technologies, Inc. ('CDA'), IBC/Donoghue's Money Market Fund Report
('Donoghue'), Wiesenberger Investment Companies Service ('Wiesenberger') or
Investment Company Data Inc. ('ICD'), or with the performance of recognized
stock and other indexes, including (but not limited to) the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, the Morgan
Stanley Capital International World Index, the Lehman Brothers Treasury Bond
Index, the Lehman Brothers Government/Corporate Bond Index, the Salomon Brothers
Government Bond Index and changes in the Consumer Price Index as published by
the U.S. Department of Commerce. The Funds also may refer in such materials to
mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Donoghue, Wiesenberger or ICD.
Performance Advertisements also may refer to discussions of the Funds and
comparative mutual fund data and ratings reported in independent periodicals,
including (but not limited to) THE WALL STREET JOURNAL, MONEY MAGAZINE, FORBES,
BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE
CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in
Performance Advertisements may be in graphic form.
Each Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. 'Compounding' refers to the fact
that, if dividends on a Fund investment are reinvested by being paid in
additional Fund shares, any future income of the Fund would increase the value,
not only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of a Fund investment would
increase more quickly than if dividends had been paid in cash.]
[Each Fund may also compare its performance with the performances of bank
certificates of deposit ('CDs') as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index. In
comparing a Fund's performance to CD performance, investors should keep in mind
that bank CDs are insured in whole or in part by an agency of the U.S.
government and offer fixed principal and fixed or variable rates of interest,
and that bank CD yields may vary depending on the financial institution offering
the CD and prevailing interest rates. Advertisements and other promotional
materials for the Funds or for the PaineWebber Resource Management Account
('RMA')'r' and Business Services Account ('BSA')SM programs may compare features
of the RMA and BSA programs to those offered by bank checking accounts and other
bank accounts. Bank accounts are insured in whole or in part by an agency of the
U.S. government and may offer a fixed rate of return. Fund shares are not
insured or guaranteed by the U.S. government and returns thereon will fluctuate.
While each Fund seeks to maintain a stable net asset value of $1.00 per share,
there can be no assurance that it will be able to do so.]
OTHER INFORMATION
The Trust is an entity of the type commonly known as a 'Massachusetts
business trust.' Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each note, bond, contract, instrument, certificate or undertaking made or issued
by the trustees or by any officers or officer by or on behalf of the Trust, a
Fund, the trustees or any of them in connection with the Trust.
21
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<PAGE>
The Declaration of Trust provides for indemnification from a Fund's property for
all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which a
Fund itself would be unable to meet its obligations, a possibility which
PaineWebber believes is remote and not material. Upon payment of any liability
incurred by a shareholder, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The trustees
intend to conduct the operations of each Fund in such a way as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the Fund.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036, counsel to the Funds, has passed upon the
legality of the shares offered by the Prospectus. Kirkpatrick & Lockhart LLP
also acts as counsel to PaineWebber and Mitchell Hutchins in connection with
other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Funds.
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 PaineWebber; (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. No Financial Intermediary shares were outstanding during the
fiscal year ended April 30, 1996. The Trust has not yet made payments to
financial intermediaries with respect to Financial Intermediary shares of the
Treasury Securities Fund.
The Trust's agreements with financial intermediaries are governed by an
Amended and Restated Shareholder Services Plan (the 'Plan') adopted by the Board
of Trustees in connection with the offering of Financial Intermediary shares.
Pursuant to the Plan, the Board of Trustees reviews, 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
22
<PAGE>
<PAGE>
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 'Financial
Intermediaries' in the Trust's Prospectus.
FINANCIAL STATEMENTS
The Funds' Annual Reports to Shareholders for the fiscal year ended April
30, 1996 are separate documents supplied with this Statement of Additional
Information and the financial statements, accompanying notes and reports of
independent auditors appearing therein are incorporated herein by this
reference.
23
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<PAGE>
APPENDIX A
SERVICES AVAILABLE THROUGH THE RMA PROGRAM TO RMA ACCOUNTHOLDERS
Shares of the Funds are available to investors who are Participants in the
RMA program offered by PaineWebber and its correspondent firms. The following is
a summary of some of the services available to RMA Participants. For more
complete information, investors should refer to their RMA account agreement and
the brochure entitled 'Facts About Your PaineWebber Resource Management
Account.'
THE PAINEWEBBER PREMIER STATEMENT. RMA Participants receive a monthly
Premier account statement, which provides consolidated information to assist
with portfolio management decisions and personal financial planning. The Premier
account statement summarizes securities transactions, charges, cash advances and
checks (if applicable) and provides cost basis information and calculations of
unrealized and realized gains and losses on most investments. A menu of
customized statement options is available to assist in managing the accounts.
PRELIMINARY AND YEAR-END SUMMARY STATEMENT. RMA Participants receive
preliminary (nine month) summary information and year-end summary account
statements that provide a comprehensive overview of tax-related activity in the
account during the year to help investors with tax planning.
CHOICE OF MONEY MARKET FUNDS AND AUTOMATIC SWEEP OF UNINVESTED CASH. As
described more fully in the prospectus under the heading 'Purchases -- The RMA
and BSA Programs,' RMA Participants select from a variety of money market funds
as a primary fund into which uninvested cash is automatically swept on a daily
basis. By automatically investing cash balances into a money market fund, this
sweep feature minimizes the extent to which an investor's assets remain idle
while held in the account pending investment.
CHECK WRITING. RMA Participants have ready access to the assets held in
their RMA account through the check writing feature. There are no minimum check
amounts or per check charges. The RMA checks also include an expense coding
system that enables the investor to track types of expenses for tax and
financial planning.
DIRECT DEPOSIT. Regular payments from an employer, pension, social security
or other sources may be eligible for electronic deposit into RMA Participants'
accounts.
ELECTRONIC FUNDS TRANSFER/BILL PAYMENT SERVICE. RMA Participants can
electronically transfer money between their RMA and other financial
institutions, transfer funds to and from other PaineWebber accounts and pay
bills. Unlimited transfers from financial accounts and ten free transfers to
financial accounts are permitted monthly, with a nominal charge per transaction
thereafter. A Bill Payment Service is available for an additional charge.
GOLD MASTERCARD'r'. RMA Participants are provided with a Gold MasterCard
that makes account assets easily accessible. The Gold MasterCard is accepted by
businesses, stores and services both in the U.S. and abroad, and can be used to
obtain cash advances at thousands of automated teller machines in the U.S. For
an additional annual fee, investors can also obtain a line of credit from Bank
One that can be accessed through their Gold MasterCard. Through MasterCard's
enhanced MasterAssist'r' and MasterPurchase'r' programs, investors can obtain
other benefits, including rental car insurance, emergency medical and travel
assistance, legal services and purchase protection.
EXTENDED ACCOUNT PROTECTION. Assets of RMA Participants that are held in an
RMA Account by PaineWebber or one of its correspondent firms are protected for
up to $50 million through private insurance in the event of the liquidation or
failure of the firm. This protection is in addition to the $500,000 in
protection provided to account holders by the Securities Investor Protection
Corporation ('SIPC'). Neither the SIPC protection nor the additional account
protection insurance applies to shares of the Funds because such shares are
registered directly in the name of the shareholder, and not in the name of
PaineWebber or one of its correspondent firms.
THE PAINEWEBBER PROTECTOR. The PaineWebber Protector is a popular
convalescent care insurance program. Participants can elect to own $50,000 to
$200,000 of convalescent care benefits. This feature is not available to
PaineWebber's correspondent firms.
A-1
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<PAGE>
RMA RESOURCE ACCUMULATION PLANSM. The RMA Resource Accumulation Plan is an
automatic mutual fund investment program that provides RMA participants the
ability to purchase shares of mutual funds on a regular, periodic basis. The
minimum purchase in the program is $100 per investment, however, initial minimum
purchase requirements of the designated mutual fund(s) must be met before an
investor can participate in this program. The participant must receive a
prospectus, which contains more complete information (including charges and
expenses), for each fund before the application form to participate in the
Resource Accumulation Plan is submitted.
RMA AUTHORIZATION LIMIT. RMA Participants' Authorization Limit is the
combined amount of any uninvested cash balances in the account, money fund
balances and, if applicable, the Securities Credit Line (margin). The
Authorization Limit is reduced each time a debit is generated in their
securities account, a security is purchased, an RMA check is paid, cash advances
are obtained from MasterCard or when an electronic transfer/payment is made. The
Authorization Limit is increased when funds are deposited into their securities
account.
FINANCIAL SERVICES CENTER AND RESOURCELINE'r'. RMA Participants have day
and night access to information concerning their RMA account. This service is
available by calling (800) RMA-1000. RMA representatives are available at the
Financial Services Center from 8:30 a.m. to 8:00 p.m. (EST) to answer inquiries
from Participants regarding their accounts and ResourceLine, an automated voice
response system, provides 24 hour account information.
SECURITIES CREDIT LINE. RMA Participants may choose to have a Securities
Credit Line (margin) as part of their RMA account.
A-2
<PAGE>
<PAGE>
APPENDIX B
SERVICES AVAILABLE THROUGH THE BSA PROGRAM FOR BSA ACCOUNTHOLDERS
Shares of the Funds are available to investors who are Participants in the
Business Services Account ('BSA') program. The following is a summary of some of
the services that are available to BSA Participants. For more complete
information, investors should refer to their BSA Account Agreement and the
brochure entitled 'Facts About Your Business Services Account.'
PREMIER BUSINESS SERVICES ACCOUNT STATEMENT -- BSA Participants receive the
monthly Premier Business Services Account statement, which provides consolidated
information to assist with portfolio management decisions and business finances.
The Premier Business Services Account statement summarizes securities
transactions, charges, cash advances and checks in chronological order with
running cash and money fund balances. When applicable, the expiration and
beneficiary of outstanding letters of credit are printed. The 'Portfolio
Management' feature provides cost basis information where available as well as
calculated gains and losses on most investments. A menu of customized statement
options is available to assist in managing account.
PRELIMINARY AND YEAR-END SUMMARY STATEMENT -- BSA Participants receive
preliminary (nine month) summary information and year-end summary account
statements that provide a comprehensive overview of tax-related activity in the
account during the year to help investors plan.
CHOICE OF MONEY MARKET FUNDS AND AUTOMATIC SWEEP OF UNINVESTED CASH -- As
described more fully in the prospectus under the heading 'Purchases--The RMA and
BSA Programs,' BSA Participants select from a variety of money market funds as a
primary fund into which uninvested cash is automatically swept on a daily basis.
By automatically investing cash balances into a money market fund, this sweep
feature minimizes the extent to which an investor's assets remain idle while
held in the account pending investment.
CHECK WRITING -- BSA Participants have ready access to the assets held in
their BSA account through the check writing feature. There are no minimum check
amounts. BSA Participants may clear up to 100 checks each month without
incurring per check charges. Participants can order from a number of business
check styles to suit their check writing needs. The BSA checks also include an
expense code system that enables the investors to track business expense types
for tax and financial planning.
MASTERCARD BUSINESSCARD'r' -- BSA Participants can elect to receive a
MasterCard BusinessCard for easy access to account assets. The MasterCard
BusinessCard is accepted by businesses, stores and services worldwide, and can
be used to obtain cash at thousands of automated teller machines in the U.S.
Through MasterCard's enhanced MasterAssist'r' and MasterPurchase'r' programs,
investors can obtain other benefits including full value primary rental car
insurance, emergency medical and travel assistance, legal services and purchase
protection.
SECURITIES CREDIT LINE -- BSA Participants may choose to have a Securities
Credit Line (margin) as part of their BSA account.
EXTENDED ACCOUNT PROTECTION -- Assets of BSA Participants that are held in
a BSA Account by PaineWebber or one of its correspondent firms are protected for
up to $50 million through private insurance in the event of the liquidation or
failure of the firm. This protection is in addition to the $500,000 in
protection provided to accountholders by the Securities Investor Protection
Corporation ('SIPC'). Neither the SIPC protection nor the additional account
protection insurance applies to shares of the Funds because such shares are
registered directly in the name of the shareholder, and not in the name of
PaineWebber or one of its correspondent firms.
BSA AUTHORIZATION LIMIT -- BSA Participants' Authorization Limit is the
combined amount of any uninvested cash balances in the account, money fund
balances and, if applicable, the Securities Credit Line (margin). The
Authorization Limit is reduced each time a debit is generated in their
securities account, a security is purchased, a BSA check is paid, cash advances
are obtained from MasterCard or when an electronic transfer/payment is made. The
Authorization Limit is increased when funds are deposited into their securities
account.
FINANCIAL SERVICES CENTER AND RESOURCELINE'r' -- BSA Participants can call
the Financial Services Center at (800) BSA-0140 from 8:30 A.M. to 8:00 P.M. EST.
and speak to a PaineWebber representative
B-1
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to resolve any inquiries about their accounts. The automated ResourceLine
provides basic account information through a touchtone phone and is available
night and day by calling (800) BSA-0140.
ELECTRONIC FUNDS TRANSFER/PAYMENT SERVICE -- BSA Participants have the
option to initiate transfers of funds to and from their accounts, pay bills and
process their payroll through an electronic fund transfer service. Unlimited
transfers to the BSA and twenty free transfers/payments out of the BSA are
permitted monthly with nominal fees thereafter. Participants can set up payees
to receive regular or one time payments simply by calling an 800 number.
DIRECT DEPOSIT -- Regular payments from customers, receivables and other
sources may be eligible for electronic deposit into BSA Participants' accounts.
This feature permits the investor's money to be invested sooner and eliminates
excess paperwork.
LETTERS OF CREDIT -- BSA Participants can have Standby Letters of Credit
issued on their behalf through PaineWebber at competitive rates and backed by
securities in their account.
B-2
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[This Page Intentionally Left Blank]
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No person has been authorized to give any information or to make any
representations not contained in the Prospectus or in this Statement of
Additional Information in connection with the offering made by the Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Funds or their distributor. The Prospectus
and this Statement of Additional Information do not constitute an offering by
the Funds or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions........... 1
Trustees and Officers.......................... 8
Beneficial Ownership of Greater than 5% of Fund
Shares....................................... 15
Investment Advisory, Administration and
Distribution Arrangements.................... 16
Portfolio Transactions......................... 18
Additional Information Regarding Redemptions... 19
Valuation of Shares............................ 19
Taxes.......................................... 20
Calculation of Yield........................... 20
Other Information.............................. 21
Financial Statements........................... 23
Appendix A..................................... A-1
Appendix B..................................... B-1
</TABLE>
LIQUID INSTITUTIONAL RESERVES
MONEY MARKET FUND
GOVERNMENT SECURITIES FUND
TREASURY SECURITIES FUND
----------------------------------------------------------
Statement of Additional Information
September 1, 1996
----------------------------------------------------------
'c'1996 PaineWebber Incorporated
<PAGE>
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (to be filed)
Money Market Fund
-----------------
Included in Part A of the Registration Statement:
Financial Highlights for one Institutional share of the Fund
for each of the four years in the period ended April 30, 1996 and for the period
June 3, 1991 (commencement of offering) to April 30, 1992.
Financial Highlights for one Financial Intermediary share of
the Fund for each of the two years in the period ended April 30, 1996 and for
the period March 17, 1994 (commencement of offering) to April 30, 1994.
Included in Part B of the Registration Statement through incorporation
by reference from the Annual Report to Shareholders, previously filed
with the Securities and Exchange Commission on or about June ____,
1996, Accession No. _________:
Portfolio of Investments at April 30, 1996.
Statement of Assets and Liabilities at April 30, 1996.
Statement of Operations for the year ended April 30, 1996.
Statement of Changes in Net Assets for each of the two years
in the period ended April 30, 1996.
Notes to Financial Statements.
Financial Highlights for one Institutional share of the Fund
for each of the four years in the period ended April 30, 1996
and for the period June 3, 1991 (commencement of offering)
through April 30, 1992.
Financial Highlights for one Financial Intermediary share of
the Fund for each of the two years in the period ended April
30, 1996 and for the period March 17, 1994 (commencement of
offering) through April 30, 1994.
Report of Ernst & Young LLP, Independent Auditors, dated
June____, 1996.
Government Securities Fund
--------------------------
Included in Part A of the Registration Statement:
C-1
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<PAGE>
Financial Highlights for one Institutional share of the Fund
for each of the four years in the period ended April 30, 1996
and for the period June 3, 1991 (commencement of offering) to
April 30, 1992.
Financial Highlights for one Financial Intermediary share of
the Fund for the year ended April 30, 1996 and for the period
July 12, 1994 (commencement of offering) to April 30, 1995.
Included in Part B of the Registration Statement through incorporation
by reference from the Annual Report to Shareholders, previously filed
with the Securities and Exchange Commission on or about June, ___,
1996, Accession No. __________:
Portfolio of Investments at April 30, 1996.
Statement of Assets and Liabilities at April 30, 1996.
Statement of Operations for the year ended April 30, 1996.
Statement of Changes in Net Assets for each of the two years
in the period ended April 30, 1996.
Notes to Financial Statements.
Financial Highlights for one Institutional share of the Fund
for each of the four years in the period ended April 30, 1996
and for the period June 3, 1991 (commencement of offering)
through April 30, 1992.
Financial Highlights for one Financial Intermediary share of
the Fund for the period ended April 30, 1996, and for the
period July 12, 1994 (commencement of offering) through April
30, 1995.
Report of Ernst & Young LLP, Independent Auditors, dated
June_____, 1996.
Treasury Securities Fund
Included in Part A of the Registration Statement:
Financial Highlights for one Institutional share of the Fund for each
of the four years in the period ended April 30, 1996 and for the period
December 6, 1991 (commencement of offering) to April 30, 1992.
Included in Part B of the Registration Statement through incorporation
by reference from the Annual Report to Shareholders, previously filed
with the Securities and Exchange Commission on or about June ___, 1996,
Accession No. _________:
C-2
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<PAGE>
Portfolio of Investments at April 30, 1996.
Statement of Assets and Liabilities at April 30, 1996.
Statement of Operations for the year ended April 30, 1996.
Statement of Changes in Net Assets for each of the two years
ended April 30, 1996.
Notes to Financial Statements.
Financial Highlights for one Institutional share of the Fund
for each of the four years in the period ended April 30, 1996
and for the period December 6, 1991 (commencement of offering)
through April 30, 1992.
Report of Ernst & Young LLP, Independent Auditors, dated
June____ , 1996.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
1(a) Amended and Restated Declaration of Trust(1/)
1(b) Amendment effective April 18, 1996 to Declaration of Trust (to be
filed)
2 Amended and Restated By-Laws of the Trust(1/)
3 Voting Trust Agreement - none
4 Instruments defining the rights of holders of Registrant's shares of
beneficial interest(2/)
5(a) Investment Advisory and Administration Contract between Registrant
and PaineWebber (filed herewith)
5(b) Investment Sub-advisory and Sub-administration Agreement between
PaineWebber and Mitchell Hutchins (to be filed)
6(a) Distribution Contract between Registrant and PaineWebber(3/)
-
7 Bonus, profit or pension plans - none
8 Custodian Contract (filed herewith)
9(a) Transfer Agency Services and Shareholder Services Agreement (filed herewith)
9(b) Shareholder Service Plan (to be filed)
9(c) Shareholder Service Agreement (to be filed)
10 Other Opinions, appraisals, rulings and consents: Opinion and Consent
of counsel(4/)
11 Consent of Independent Auditors (to be filed)
12 Financial statements omitted from Part B - none
13 Letter of Investment Intent(4/)
14 Prototype Retirement Plan - none
15 Plan Pursuant to Rule 12b-1 - none
16 Schedule for computation of performance quotations provided in
the Registration Statement in response to Item 22(5/)
17 Financial Data Schedule (to be filed)
18 Plan pursuant to Rule 18f-3 (to be filed)
</TABLE>
C-3
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<PAGE>
- -------------------------------
(1/) Incorporated by reference to Pre-effective Amendment No. 1 to registration
statement (SEC File No. ____), filed April 26, 1991.
(2/) Incorporated herein by reference from Articles II, IV, V, VI, VII and VIII
of the Registrant's Amended and Restated Declaration of Trust and Article
II of the Registrant's Amended and Restated By-Laws.
(3/) Incorporated by reference to Post-Effective Amendment No. 6 to registration
statement, filed August 25, 1995, Accession No. 000095- 0117-95-000312.
(4/) Incorporated herein by reference from Pre-Effective Amendment No. 2 to
registration statement (SEC File No. ___); filed May 23, 1991.
(5/) Incorporated herein by reference from Post-Effective Amendment No. 2 to
registration statement (SEC File No. ___); filed August 28, 1992.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
C-4
<PAGE>
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
<TABLE>
<CAPTION>
Number of Record
Shareholders as of
Title of Class June 5, 1996
- -------------- ------------------
<S> <C>
Shares of Beneficial Interest,
par value $0.001 per share
Government Securities Fund
Institutional Shares
Financial Intermediary Shares
Institutional Shares 95
Financial Intermediary Shares 0
Money Market Fund
Institutional Shares 548
Financial Intermediary Shares 0
Treasury Securities Fund
Institutional Shares 48
Financial Intermediary Shares 0
</TABLE>
Item 27. Indemnification
---------------
Section 4.2 of Article IV of the Registrant's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Trust shall be
liable to the Trust, its shareholders, or to any shareholder, Trustee, officer,
employee, or agent thereof for any action or failure to act (including without
limitation the failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
Section 4.3(a) of Article IV of the Registrant's Declaration of Trust
provides that the Registrant, or the appropriate series of the Registrant, will
indemnify its Trustees and officers to the fullest extent permitted by law
against all liability and against all expenses reasonably incurred or paid by
such Trustees and officers in connection with any claim, action, suit or
proceeding in which such Trustee or officer becomes involved as a party or
otherwise by virtue of his or her being or having been a Trustee or officer and
against amounts paid or incurred by him or her in the settlement thereof.
Additionally, Section 4.3(b) of Article IV provides that no such person shall be
indemnified (i) where such person is liable to the Trust, a series thereof or
the shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his or her
office, (ii) where such person has been finally adjudicated not to have acted in
good faith in the
C-5
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reasonable belief that his or her action was in the best interest of the Trust,
or a series thereof, or (iii) in the event of a settlement or other disposition
not involving a final adjudication as provided in (ii) above resulting in a
payment by a Trustee or officer, unless there has been a determination by the
court of other body approving the settlement or other disposition or based upon
a review of readily available facts by vote of a majority of the non-interested
Trustees or written opinion of independent legal counsel, that such Trustee or
officer did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Section 4.3(b) of Article IV further provides that the rights of indemnification
may be insured against by policies maintained by the Trust. Section 4.4 of
Article IV provides that no Trustee shall be obligated to give any bond or other
security for the performance of any of his or her duties hereunder.
Section 4.6 of Article IV provides that each Trustee, officer or
employee of the Trust or a series thereof shall, in the performance of his or
her duties, be fully and completely justified and protected with regard to any
act or any failure to act resulting from reliance in good faith upon the books
of account or other records of the Trust or a series thereof, upon an opinion of
counsel, or upon reports made to the Trust or a series thereof by any of its
officers or employees or by the Investment Adviser, the Administrator, the
Distributor, Transfer Agent, selected dealers, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees, officers
or employees of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
Section 9 of the Investment Advisory and Administration Contract with
PaineWebber, Incorporated ("PaineWebber") provides that PaineWebber shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
any series of the Registrant in connection with the matters to which the
Contract relates, except for a loss resulting from the willful misfeasance, bad
faith, or gross negligence of PaineWebber in the performance of its duties or
from its reckless disregard of its obligations and duties under the Contract.
Section 13 of the Contract provides that the Trustees shall not be liable for
any obligations of the Trust or any series under the Contract and that
PaineWebber shall look only to the assets and property of the Registrant in
settlement of such right or claim and not to the assets and property of the
Trustees.
Section 7 of the Sub-Investment Advisory and Sub-Administration
Agreement between PaineWebber and Mitchell Hutchins Asset Management, Inc.
("Mitchell Hutchins") provides that PaineWebber shall be indemnified and held
harmless by the Registrant against all liabilities, except those arising out of
willful misfeasance, bad faith, or reckless disregard of its obligations and
duties under the Agreement.
Section 9 of the Distribution Contract provides that the Trust will
indemnify PaineWebber and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by PaineWebber to the Trust for use in the Registration Statement; and
provided that this indemnity agreement shall not protect any such persons
against liabilities arising by reason of their bad faith, gross negligence or
willful misfeasance; and shall not inure to the benefit of any such persons
unless a court of competent jurisdiction or controlling precedent determines
that such result is not against public policy as expressed in the Securities Act
of 1933. Section 9 of each Distribution Contract also provides that PaineWebber
agrees to indemnify, defend and hold the Trust, its officers
C-6
<PAGE>
<PAGE>
and Trustees free and harmless of any claims arising out of any alleged untrue
statement or any alleged omission of material fact contained in information
furnished by PaineWebber for use in the Registration Statement or arising out of
an agreement between PaineWebber and any retail dealer, or arising out of
supplementary literature or advertising used by PaineWebber in connection with
the Contract.
Section 10 of the Distribution Contract contains provisions similar to
Section 13 of the Investment Advisory and Administration Contract.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to Trustees, officers and controlling
persons of the Trust, pursuant to the foregoing provisions or otherwise, the
Trust has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of expenses
incurred or paid by a Trustee, officer or controlling person of the Trust in
connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Trust by such
Trustee, officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
I. PaineWebber, a Delaware corporation, is a registered investment
adviser and is wholly owned by PaineWebber 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 as filed with the
Securities and Exchange Commission (registration number 801-7163) and is
incorporated herein by reference.
II. Mitchell Hutchins, a Delaware corporation, is a registered
investment adviser and is a wholly owned subsidiary of PaineWebber which is, in
turn, a wholly owned subsidiary of PaineWebber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Mitchell Hutchins is included in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-13219) and is incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
(a) PaineWebber serves as principal underwriter and/or investment
adviser for the following other investment companies:
PAINEWEBBER RMA MONEY FUND, INC.
PAINEWEBBER RMA TAX-FREE FUND, INC.
PAINEWEBBER MUNICIPAL MONEY MARKET SERIES
PAINEWEBBER MANAGED MUNICIPAL TRUST
C-7
<PAGE>
<PAGE>
(b) PaineWebber is the Registrant's principal underwriter. 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 Trust.
<TABLE>
<CAPTION>
Positions and Offices With
Name and Principal Positions and Offices Underwriter or Exclusive
Business Address With Registrant Dealer
- ------------------ --------------------- --------------------------
<S> <C> <C>
Margo N. Alexander Director and Executive Vice President and
1285 Avenue of the Americas President (Chief Executive Director
New York, NY 10019 Officer)
Mary C. Farrell Director Managing Director, Senior
1285 Avenue of the Americas Investment Strategist and
New York, NY 10019 member of the Investment
Policy Committee
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's Portfolio Manager, Mitchell Hutchins Asset
Management Inc., 1285 Avenue of the Americas, New York, New York 10019. All
other accounts, books and documents required by Rule 31a-1 are maintained in the
physical possession of Registrant's transfer agent and custodian.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-8
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 30th day of June, 1996.
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, this
Post-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee June 30, 1996
- -------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman June 30, 1996
- -------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee June 30, 1996
- --------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee June 30, 1996
- --------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee June 30, 1996
- --------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee June 30, 1996
- --------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee June 30, 1996
- --------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee June 30, 1996
- --------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee June 30, 1996
- --------------------------
Carl W. Schafer *
/s/ John R. Torell III Trustee June 30, 1996
- --------------------------
John R. Torell III *
/s/ Julian F. Sluyters Vice President and Treasurer (Chief June 30, 1996
- -------------------------- Financial and Accounting Officer)
Julian F. Sluyters
</TABLE>
<PAGE>
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 30 to the Registration Statement of PaineWebber Managed Municipal
Trust, SEC File No. 2-89016, filed June 27, 1996.
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as.......... 'r'
The dagger symbol shall be expressed as........................ 'D'
The copyright symbol shall be expressed as..................... 'c'
The service mark symbol shall be expressed as.................. 'SM'
Mathematical powers usually represented as a
superscript shall be preceded by............................ 'pp'
<PAGE>
<PAGE>
LIQUID INSTITUTIONAL RESERVES
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
---------- ----------------------
<S> <C>
1(a) Amended and Restated Declaration of Trust(1/)
1(b) Amendment effective April 18, 1996 to Declaration of
Trust (to be filed)
2 Amended and Restated By-Laws of the Trust(1/)
3 Voting Trust Agreement - none
4 Instruments defining the rights of holders of Registrant's shares of
beneficial interest(2/)
5(a) Investment Advisory and Administration Contract between Registrant and
PaineWebber (filed herewith)
5(b) Investment Sub-advisory and Sub-administration Agreement between
PaineWebber and Mitchell Hutchins (to be filed)
6(a) Distribution Contract between Registrant and PaineWebber(3/)
7 Bonus, profit or pension plans - none
8 Custodian Contract (filed herewith)
9(a) Transfer Agency Services and Shareholder Services Agreement (filed herewith)
9(b) Shareholder Service Plan (to be filed)
((c) Shareholder Service Agreement (to be filed)
10 Other Opinions, appraisals, rulings and consents: Opinion and Consent of
counsel(4/)
11 Consent of Independent Auditors (to be filed)
12 Financial statements omitted from Part B - none
13 Letter of Investment Intent(4/)
14 Prototype Retirement Plan - none
15 Plan Pursuant to Rule 12b-1 - none
16 Schedule for computation of performance quotations provided in the
Registration Statement in response to Item 22(5/)
17 Financial Data Schedule (to be filed)
18 Plan pursuant to Rule 18f-3 (to be filed)
</TABLE>
- -------------------------------
(1/) Incorporated by reference to Pre-effective Amendment No. 1 to registration
statement (SEC File No. ____), filed April 26, 1991.
(2/) Incorporated herein by reference from Articles II, IV, V, VI, VII and VIII
of the Registrant's Amended and Restated Declaration of Trust and Article
II of the Registrant's Amended and Restated By-Laws.
(3/) Incorporated by reference to Post-Effective Amendment No. 6 to registration
statement, filed August 25, 1995, Accession No. 000095-0117- 95-000312.
(4/) Incorporated herein by reference from Pre-Effective Amendment No. 2 to
registration statement (SEC File No. ___); filed May 23, 1991.
(5/) Incorporated herein by reference from Post-Effective Amendment No. 2 to
registration statement (SEC File No. ___); filed August 28, 1992.
<PAGE>
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of April 13, 1995 between LIQUID INSTITUTIONAL
RESERVES, a Massachusetts business trust ("Fund"), and PAINEWEBBER INCORPORATED
("Manager"), 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.
WHEREAS the Fund is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company, and
intends to offer for public sale distinct shares of beneficial interest
("Shares"), which may be offered in separate and distinct classes of shares,
each corresponding to a distinct portfolio ("Series"); and
WHEREAS the Fund desires to retain Manager as investment adviser and
administrator to furnish certain administrative, investment advisory and
portfolio management services to the Fund and each Series as now exists and as
hereafter may be established, and Manager is willing to furnish such services;
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 Manager as investment adviser
and administrator of the Fund and each Series for the period and on the terms
set forth in this Contract. Manager accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Duties as Investment Adviser.
(a) Subject to the supervision of the Fund's Board of Trustees
("Board"), Manager will provide a continuous investment program for each Series,
including investment research and management with respect to all securities and
investments and cash equivalents in each Series. Manager will determine from
time to time what securities and other investments will be purchased, retained
or sold by each Series.
<PAGE>
<PAGE>
(b) Manager 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, Manager may, in its discretion, use brokers who provide
the Series with research, analysis, advice and similar services to execute
portfolio transactions on behalf of the Series, and Manager may pay to those
brokers in return for brokerage and research services a higher commission than
may be charged by other brokers, subject to Manager's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of Manager 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 the Series over the long term. In no instance will
portfolio securities be purchased from or sold to Manager, 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
Manager simultaneously places orders to purchase or sell the same security on
behalf of a Series and one or more other accounts advised by Manager, 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 the
Series.
(c) Manager 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 the Board reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
Manager 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) Manager will oversee the computation of the net asset value and the
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 the 1940
Act and any supplements thereto ("Registration Statement") or as more frequently
requested by the Board.
(e) The Fund hereby authorizes Manager and any entity or person
associated with Manager which is a member of a national securities exchange to
effect any transaction on such exchange for the account of any Series, which
transaction is permitted by Section 11(a) of the 1934 Act, and the Fund hereby
consents to the
- 2 -
<PAGE>
<PAGE>
retention of compensation by Manager or any person or entity associated with
Manager for such transaction.
3. Duties as Administrator. Manager will administer the affairs of the
Fund and each Series subject to the supervision of the Board and the following
understandings:
(a) Manager will supervise all aspects of the operations of the Fund
and each Series, including oversight of transfer agency, custodial and
accounting services, 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 the affairs of the Fund and
each Series.
(b) Manager will provide the Fund and each Series with such corporate,
administrative and clerical personnel (including officers of the Fund) and
services as are reasonably deemed necessary or advisable by the Board, including
the maintenance of certain books and records of the Fund and each Series.
(c) Manager 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 required reports to each Series'
shareholders and the Securities and Exchange Commission and other appropriate
federal or state regulatory authorities.
(d) Manager will provide the Fund and each Series with, or obtain for
it, adequate office space and all necessary office equipment and services,
including telephone service, heat, utilities, stationery supplies and similar
items.
(e) Manager will provide the Board on a regular basis with economic and
investment analyses and reports and make available to the Board upon request any
economic, statistical and investment services normally available to
institutional or other customers of Manager.
4. Further Duties. In all matters relating to the performance of this
Contract, Manager will act in conformity with the Declaration of Trust, By-Laws
and currently effective Registration Statement of the Fund, as delivered to
Manager and upon which it shall be entitled to rely, and with the instructions
and directions of the Board, and will comply with the requirements of the 1940
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
5. Delegation of Manager's Duties as Investment Adviser and
Administrator. With respect to any or all Series, Manager may enter into one or
more contracts ("Sub-Advisory or Sub-Administration Contract") with a
sub-adviser or sub-administrator
- 3 -
<PAGE>
<PAGE>
in which Manager delegates to such sub-adviser or sub-administrator any or all
of its duties specified in Paragraphs 2 and 3 of this Contract, provided that
each Sub-Advisory or Sub-Administration Contract imposes on the sub-adviser or
sub-administrator bound thereby all the duties and conditions to which Manager
is subject by Paragraphs 2, 3 and 4 of this Contract, and further provided that
each Sub-Advisory or Sub-Administration Contract meets all requirements of the
1940 Act and rules thereunder.
6. Services Not Exclusive. The services furnished by Manager hereunder
are not to be deemed exclusive and Manager 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 Manager, 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.
7. Expenses.
(a) During the term of this Contract, each Series will bear all
expenses, not specifically assumed by Manager, incurred in its operations and
the offering of its shares.
(b) Expenses borne by each Series will include but not be limited to
the following (or each Series' proportionate share of the following): (i) the
cost (including brokerage commissions) of securities purchased or sold by the
Series and any losses incurred in connection therewith; (ii) fees payable to and
expenses incurred on behalf of the Series by Manager under this Contract; (iii)
expenses of organizing the Fund and the Series; (iv) filing fees and expenses
relating to the registration and qualification of the Series' shares and the
Fund under federal and/or state securities laws and maintaining such
registration and qualification; (v) fees and salaries payable to the Fund's
Trustees and officers who are not interested persons of the Fund or Manager;
(vi) all expenses incurred in connection with the Trustees' services, including
travel expenses in the case of Trustees who are not interested persons of the
Fund or Manager; (vii) taxes (including any income or franchise taxes) and
governmental fees; (viii) costs of any liability, uncollectible items of deposit
and other insurance and fidelity bonds; (ix) any costs, expenses or losses
arising out of a liability of or claim for damages or other relief asserted
against the Fund or Series for violation of any law and any indemnification
relating thereto; (x) legal, accounting and auditing expenses, including legal
fees of special counsel for those Trustees of the Fund who are not interested
persons of the Fund; (xi) charges of custodians, transfer agents and other
agents; (xii) costs of preparing share certificates; (xiii) expenses of
- 4 -
<PAGE>
<PAGE>
setting in type and printing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders; (xiv) costs of mailing prospectuses and supplements
thereto, statements of additional information and supplements thereto, reports
and proxy materials to existing shareholders; (xv) any extraordinary expenses
(including fees and disbursements of counsel, costs of actions, suits or
proceedings to which the Fund is a party and the expenses the Fund may incur as
a result of its legal obligation to provide indemnification to its officers,
Trustees, agents and shareholders or to Manager) incurred by the Fund or Series;
(xvi) fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; (xvii) cost of mailing and
tabulating proxies and costs of meetings of shareholders, the Board and any
committees thereof; (xviii) the cost of investment company literature and other
publications provided by the Fund to its Trustees and officers; (xix) costs of
mailing, stationery and communications equipment; (xx) expenses incident to any
dividend, withdrawal or redemption options; (xxi) charges and expenses of any
outside pricing service used to value portfolio securities and (xxii) interest
on borrowings of the Fund.
(c) Manager will assume the cost of any compensation for services
provided to the Fund received by the officers of the Fund and by those Trustees
who are interested persons of the Fund.
(d) The payment or assumption by Manager of any expenses of the Fund or
a Series that Manager is not required by this Contract to pay or assume shall
not obligate Manager to pay or assume the same or any similar expense of the
Fund or a Series on any subsequent occasion.
8. Compensation.
(a) For the services provided and the expenses assumed pursuant to this
Contract with respect to the Money Market Fund, the Government Securities fund,
and the Treasury Securities Fund, the Fund will pay to Manager a fee, computed
daily and paid monthly, at an annual rate of .25% of each such Series' average
daily net assets.
(b) For the services provided and the expenses assumed pursuant to this
Contract with respect to any Series hereafter established, the Trust will pay to
Manager from the assets of such Series a fee in an amount to be agreed upon in a
written fee agreement ("Fee Agreement") executed by the Fund on behalf of such
Series and by Manager. All such Fee Agreements shall provide that they are
subject to all terms and conditions of this Contract.
- 5 -
<PAGE>
<PAGE>
(c) The fee shall be computed daily and paid monthly to Manager on or
before the first business day of the next succeeding calendar month.
(d) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective day to the end of the month
or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
9. Limitation of Liability of Manager. Manager and its delegates,
including any Sub-Adviser or Sub-Administrator to the Fund, shall not be liable
for any error of judgment or mistake of law or for any loss suffered by any
Series, the Fund or any of its shareholders, in connection with the matters to
which this Contract relates, except to the extent that such a loss results 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 Manager, who may be or become an officer,
Trustee, employee or agent of the Fund shall be deemed, when rendering services
to any Series or the Fund or acting with respect to any business of such Series
or the Fund, to be rendering such service 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 Manager even though paid by it.
10. 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 it has first been approved (i) by a vote of a majority of those
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 shall
continue in effect for two years 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 those 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 by vote of a majority of the outstanding voting securities of a
Series with respect to that Series.
- 6 -
<PAGE>
<PAGE>
(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 or by a vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to Manager or by Manager
at any time, without the payment of any penalty, on sixty days' written notice
to the Fund. 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 automatically
terminate in the event of its assignment.
11. 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, and no material 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.
12. 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 in accordance with the 1940 Act, provided, however,
that Section 13 below 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 1940 Act, the latter shall control.
13. 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 Fund under this Contract, and
Manager agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund in settlement of such
right or claim, and not to such Trustee, shareholder, officer, employee or
agent. The Fund 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.
14. 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",
- 7 -
<PAGE>
<PAGE>
"assignment", "broker", "investment adviser", "national securities exchange",
"net assets", "prospectus", "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 Securities and Exchange Commission by any rule, regulation or
order. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Contract is affected by a rule, regulation or order of the
Securities and Exchange Commission, 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 officers designated as of the day and year first above
written.
Attest: PAINEWEBBER INCORPORATED
JENNIFER FARRELL By THOMAS EGGERS
--------------------------------------
Attest: LIQUID INSTITUTIONAL RESERVES
JENNIFER FARRELL By DIANNE E. O'DONNELL
--------------------------------------
- 8 -
<PAGE>
<PAGE>
CUSTODIAN CONTRACT
Between
LIQUID INSTITUTIONAL RESERVES
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By It................... 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States.................. 2
2.1 Holding Investments.............................................. 2
2.2 Delivery of Securities........................................... 2
2.3 Registration of Securities....................................... 4
2.4 Bank Accounts.................................................... 5
2.5 Availability of Federal Funds.................................... 5
2.6 Collection of Income............................................. 5
2.7 Payment of Fund Monies........................................... 6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased............................................. 7
2.9 Appointment of Agents............................................ 7
2.10 Deposit of Fund Assets in Securities System...................... 7
2.11 Fund Assets Held in the Custodian's Direct
Paper System..................................................... 9
2.12 Segregated Account...............................................10
2.13 Ownership Certificates for Tax Purposes..........................10
2.14 Proxies..........................................................10
2.15 Communications Relating to Portfolio Securities..................11
3. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund...................................................11
4. Proper Instructions.....................................................11
5. Actions Permitted Without Express Authority.............................12
6. Evidence of Authority...................................................12
7. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income.......................13
8. Records.................................................................13
9. Opinion of Fund's Independent Accountants...............................13
10. Reports to Fund by Independent Public Accountants.......................14
<PAGE>
<PAGE>
11. Compensation of Custodian...............................................14
12. Responsibility of Custodian.............................................14
13. Mitigation by Custodian.................................................16
14. Notification of Litigation; Right to Proceed............................16
15. Effective Period, Termination and Amendment............................16
16. Successor Custodian.....................................................17
17. Interpretive and Additional Provisions..................................18
18. Additional Funds........................................................18
19. Massachusetts Law to Apply..............................................18
20. Limitation of Trustee, Officer and Shareholder Liability...............19
21. No Liability of Other Portfolios........................................19
22. Confidentiality.........................................................19
23. Assignment..............................................................19
24. Severability............................................................19
25. Prior Contracts.........................................................20
26. Shareholder Communications Election.....................................20
</TABLE>
<PAGE>
<PAGE>
CUSTODIAN CONTRACT
This Contract between Liquid Institutional Reserves, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 1285 Avenue of the Americas, New York, New York, 10019
hereinafter called the "Fund" and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian".
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund currently has established three series of shares, the
Money Market Fund, the Government Securities Fund and the Treasury Securities
Fund (such series, together with all other series subsequently established by
the Fund and made subject to this Contract in accordance with Article 19, being
herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio desires to be held in places within the United States
("domestic securities") pursuant to the provisions of the Declaration of Trust.
The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all
securities and cash of the Portfolios, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash consideration received
by it for such new or treasury shares of beneficial interest of the Fund
representing interests in the Portfolios, ("Shares") as may be issued or sold
from time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 4),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian.
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2. Duties of the Custodian with Respect to Property of the Fund Held Bv the
Custodian in the United States
2.1 Holding Investments. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies, (each, a "U.S. Securities System") and (b)
commercial paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian (the "Direct Paper
System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for
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exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund on behalf of the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian and the
Fund on behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for which
collateral is to be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible for the delivery
of securities owned by the Portfolio prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by the Fund
on behalf of the Portfolio requiring a pledge of assets by the Fund on
behalf of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange
Act") and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance
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with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best
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efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, which shall contain only property held by the Custodian as
custodian for the applicable Portfolio, subject only to draft or order by
the Custodian acting pursuant to the terms of this Contract, and shall hold
in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Portfolio, other than cash
maintained by the Portfolio in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds
held by the Custodian for a Portfolio may be deposited by it to its credit
as Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company shall
be qualified to act as a custodian under the Investment Company Act of 1940
and that each such bank or trust company and the funds to be deposited with
each such bank or trust company shall on behalf of each applicable
Portfolio be approved by vote of a majority of the Board of Trustees of the
Fund. Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as
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may be necessary to assist the Fund in arranging for the timely delivery to
the Custodian of the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a custodian and
has been designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section 2.10
hereof; (c) in the case of a purchase involving the Direct Paper
System, in accordance with the conditions set forth in Section 2. 11;
(d) in the case of repurchase agreements entered into between the Fund
on behalf of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of the
securities either in certificate form or through an entry crediting
the Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing purchase
by the Portfolio of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time deposit
account of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to Proper Instructions from
the Fund as defined in Article 4;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Article 3 hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer agent
and legal fees, and
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operating expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short; and
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of domestic securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder. In the event of
any loss, damage or expense suffered or incurred by the Fund or a Portfolio
caused by or resulting from the negligence or willful misconduct of any
agent appointed by the Custodian pursuant to this Section 2.9, the
Custodian shall promptly reimburse the Fund or the applicable Portfolio in
the amount of such loss, damage or expense.
2.10 Deposit of Fund Assets in Securities System. . The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to
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herein as "U.S. Securities Systems" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and regulations,
if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in an
account ("Account") of the Custodian in the U.S. Securities System
which shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of transfers of
securities for the account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of each
transfer to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on behalf of
the Portfolio copies of daily transaction sheets reflecting each day's
transactions in the U.S. Securities System for the account of the
Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial certificate required by Article 15 hereof; and
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio
for any loss or damage to the
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Portfolio resulting from use of the U.S. Securities System by reason
of any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such rights as
it may have against the U.S. Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the U.S. Securities System
or any other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Portfolio has
not been made whole for any such loss or damage. The Custodian agrees
to cooperate with Fund in connection with the enforcement of the
Fund's subrogation rights.
2.11 Fund Assets Held in the Custodian's Direct Paper Svstem. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio,
in the form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transaction in the Securities System for the account of the
Portfolio; and
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6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper Instructions
from the Fund on behalf of each applicable Portfolio establish and maintain
a segregated account or accounts for and on behalf of each such Portfolio,
into which account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD
(or any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio, (ii) for
purposes of segregating cash or government securities in connection with
options purchased, sold or written by the Portfolio or commodity futures
contracts or options thereon purchased or sold by the Portfolio, (iii) for
the purposes of compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, but only, in the case of clause
(iv), upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
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2.15 Communications Relating to Portfolio Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Fund on behalf of
the Portfolio desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Fund on behalf of the
Portfolio shall notify the Custodian at least three business days prior to
the date on which the Custodian is to take such action.
3. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued
or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian shall honor checks drawn
on the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
4. Proper Instructions
Proper Instructions as used throughout this Contract means a writing signed
or initialed by two or more persons as the Board of Trustees shall have from
time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a
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specific statement of the purpose for which such action is requested and may be
in the form of standing instructions. Oral instructions will be considered
Proper Instructions if the Custodian reasonably believes them to have been given
by a person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees, Proper Instructions
may include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and the Custodian are
satisfied that such procedures afford adequate safeguards for the Portfolios'
assets. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three -- party agreement
which requires a segregated asset account in accordance with Section 2.12.
5. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in defnitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
6. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote,
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and such vote may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
7. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
8. Records
The Custodian shall with respect to each Portfolio create, maintain and
retain all records relating to its activities and obligations under this
Contract in such manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to Section 31 thereof
and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of
the Fund and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund, attorneys for and auditors employed by the Fund, and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
9. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
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10. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in suffcient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct, the Custodian shall be without liability to the Fund for any loss,
liability, claim or expense resulting from or caused by; (i) errors by the Fund
or the Investment Advisor in their instructions to the Custodian; (ii) the
insolvency of or acts or omissions by a Securities System; and (iii) any
provision of any present or future law or regulation or order of the United
States of America, or any state thereof, or any other country, or political
suWivision thereof or of any court of competent jurisdiction.
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If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange ("Advance") or in the event that
the Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct ("Liability"),
then in such event property equal in value to not more than 125% of such Advance
and accrued interest on the Advance or the anticipated amount of such Liability,
held at any time for the account of the appropriate Portfolio by the Custodian
or sub-custodian may be held as security for such Liability or for such Advance
and accrued interest on the Advance. The Custodian shall designate the security
or securities constituting security for an Advance or Liability (the "Designated
Securities") by notice in writing to the Fund (which may be sent by tested
telefax or telex). In the event the value of the Designated Securities shall
decline to less than 110% of the amount of such Advance and accrued interest on
the Advance or the anticipated amount of such Liability, then the Custodian may
designate in the same manner an additional security for such obligation
("Additional Securities"), but the aggregate value of the Designated Securities
and Additional Securities shall not be in excess of 125% of the amount of such
Advance and the accrued interest on the Advance or the anticipated amount of
such Liability. At the request of the Fund, on behalf of a Portfolio, the
Custodian shall agree to substitution of a security or securities which have a
value equal to the value of the Designated or Additional Securities which the
Fund desires be released from their status as security, and such release from
status as security shall be effective upon the Custodian and the Fund agreeing
in writing as to the identity of the substituted security or securities, which
shall thereupon become Designated Securities.
Notwithstanding the above, the Custodian shall, at the request of the Fund,
on behalf of a Portfolio, immediately release from their status as security any
or all of the Designated Securities or Additional Securities upon the
Custodian's receipt from such Portfolio of cash or cash equivalents in an amount
equal to 100% of the value of the Designated Securities or Additional Securities
that the Fund desires to be released from their status as security pursuant to
this Section. Interest, dividends and other distributions paid or received on
the Designated Securities and Additional Securities, other than payments of
principal or payments upon retirement,
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redemption or repurchase, shall remain the property of the Portfolio and shall
not be subject to this Section.
13. Mitigation by Custodian
Upon the occurrence of any event connected with the duties of the Custodian
under this Contract which causes or may cause any loss, damage or expense to the
Fund or any Portfolio, (i) the Custodian shall, and (ii) shall exercise
reasonable efforts to cause any sub-custodian to, use reasonable efforts and
take all reasonable steps under the circumstances to mitigate the effect of such
event and to avoid continuing harm to the Fund and the Portfolios.
14. Notification of Litigation: Right to Proceed
The Fund shall not be liable for indemnification under this Contract to the
extent that the Fund's ability to defend against any litigation or proceeding
brought against the Custodian in respect of which indemnity may be sought under
this Contract is prejudiced by the Custodian's failure to give prompt notice of
the commencement of any such litigation or proceeding. With respect to claims in
such litigation or proceeding for which indemnity by the Fund may be sought and,
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
and, after written notice from the Fund to the Custodian, the Fund may assume
the defense of such litigation or proceeding with counsel of its choice at its
own expense in respect of that portion of the litigation for which the Fund may
be subject to an indemnification obligation; provided, however, that the
Custodian shall be entitled to participate in the defense of any such litigation
or proceeding. If the Fund has acknowledged in writing its obligation to
indemnify the Custodian with respect to such litigation or proceeding, the
Custodian's participation shall be at its own expense and the Fund shall control
the defense of the litigation or proceeding. If the Fund is not permitted to
participate in or control such litigation or proceeding under applicable law or
by a ruling of a court of competent jurisdiction, the Custodian shall reasonably
prosecute such litigation or proceeding. The Custodian shall not consent to the
entry of any judgment or enter into any settlement in any such litigation or
proceeding without providing the Fund with adequate notice of any such
settlement or judgment, and without the Fund's prior written consent. The
Custodian shall submit written evidence to the Fund with respect to any cost or
expense for which it is seeking indemnification in such form and detail as the
Fund may reasonably request.
15. Effective Period. Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than
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thirty (30) days after the date of such delivery or mailing; provided, however
that the Custodian shall not with respect to a Portfolio act under Section 2.10
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.11 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio; provided further, however, that the
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
16. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than
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$25,000,000, all securities, funds and other properties held by the Custodian on
behalf of each applicable Portfolio and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract on behalf
of each applicable Portfolio and to transfer to an account of such successor
custodian all of the securities of each such Portfolio held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
17. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
18. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the Money Market Fund, the Government Securities Fund and the
Treasury Securities Fund with respect to which it desires to have the Custodian
render services as custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
19. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
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20. Limitation of Trustee, Officer, and Shareholder Liability
It is expressly agreed that the obligations of the Fund and each Portfolio
hereunder shall not be binding upon any of the Trustees, officers, agents or
employees of the Fund or upon the shareholders of any Portfolio personally, but
shall only bind the assets and property of the Fund, as provided in its
Declaration of Trust. The execution and delivery of this Contract have been
authorized by the Trustees of the Fund, and this Contract has been executed and
delivered by an authorized officer of the Fund acting as such; neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the assets and property
of the Fund, as provided in its Declaration of Trust.
21. No Liability of Other Portfolios
Notwithstanding any other provision of this Contract, the parties agree
that the assets and liabilities of each Portfolio are separate and distinct from
the assets and liabilities of each other Portfolio and that no Portfolio shall
be liable or shall be charged for any debt, obligation or liability of any other
Portfolio, whether arising under this Contract or otherwise.
22. Confidentiality
The Custodian agrees that all books records, information and data
pertaining to the business of the Fund which are exchanged or received pursuant
to the negotiation or carrying out of this Contract shall remain confidential,
shall not be voluntarily disclosed to any other person, except as may be
required by law, and shall not be used by the Custodian for any purpose not
directly related to the business of the Fund, except with the Fund's prior
written consent.
23. Assignment
Neither the Fund nor the Custodian shall have the right to assign any of
its rights or obligations under this Contract without the prior written consent
of the other party.
24. Severability
If any provision of this Contract is held to be unenforceable as a matter
of law, the other terms and provisions of this Contract shall not be affected
thereby and shall remain in full force and effect.
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25. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
26. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address, and
share positions.
NO [X] The Custodian is not authorized to release the Fund's name, address, and
share positions.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of April, 1995.
LIQUID INSTITUTIONAL RESERVES
By: DIANNE E. O'DONNELL
DIANNE E. O'DONNELL
SECRETARY AND VICE PRESIDENT
STATE STREET BANK AND TRUST COMPANY
By: RONALD E. LOGUE
Executive Vice President
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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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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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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
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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
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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
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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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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
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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
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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
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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.
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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.
George W. Gainer
By:_______________________________
LIQUID INSTITUTIONAL RESERVES
Dianne E. O'Donnell
By:_______________________________
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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;
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(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;
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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
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(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.
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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.
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APPENDIX C
Treasury Securities Fund
Government Securities Fund
Kidder, Peabody Money Market Fund
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