<PAGE>
As filed with the Securities and Exchange Commission on July 2, 1997
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. 10 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11
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)
_____ On __________________ pursuant to Rule 485(b)
_____ 60 days after filing pursuant to Rule 485(a)(i)
X On September 1, 1997 pursuant to Rule 485(a)(i)
_____
_____ 75 days after filing pursuant to Rule 485(a)(ii)
_____ On ___________________ pursuant to Rule 485(a)(ii)
Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The notice required by such rule for the Registrant's
fiscal year ended April 30, was filed on June 27, 1997.
<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>
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 Financial Highlights; Performance Information
Information
4. General Description of Investment Objectives and Policies;
Registrant Highlights; General Information
5. Management of the Fund Expense Table; Investment Objectives and
Policies; Management; Purchases; Redemptions
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Purchases; Redemptions; Dividends and Taxes;
Securities General Information
7. Purchase of Securities Purchases; Redemptions; Management; Financial
Being Offered Intermediaries
8. Redemption or Repurchase Purchases; Redemptions; Financial
Intermediaries
9. Pending Legal Proceedings Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Part B Item No. and Caption Statement of Additional Information Caption
--------------------------- -------------------------------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Not Applicable
History
13. Investment Objectives and Investment Objective and Policies
Policies
14. Management of the Fund Trustees and Officers; Principal Holders of
Securities
15. Control Persons and Trustees and Officers; Principal Holders of
Principal Holders of Securities
Securities
16. Investment Advisory and Investment Advisory, Administration and
Other Services Distribution Arrangements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B Item No. and Caption Statement of Additional Information Caption
--------------------------- -------------------------------------------
<S> <C> <C>
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Additional Information Regarding Redemptions
Securities
19. Purchase, Redemption and Additional Information Regarding Redemptions;
Pricing of Securities Valuation of Shares
Being Offered
20. Tax Status Taxes
21. Underwriters Investment Advisory, Administration and
Distribution Arrangements
22. Calculation of Performance Calculation of Yield
Data
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>
LIQUID INSTITUTIONAL RESERVES
MONEY MARKET FUND GOVERNMENT SECURITIES FUND TREASURY SECURITIES FUND
1285 AVENUE OF THE AMERICAS . NEW YORK, NEW YORK 10019
Professionally managed money market funds seeking:
. High Current Income
. High Liquidity
. Preservation of Capital
Money Market Fund, Government Securities Fund and Treasury Securities Fund
("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 primarily 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 that a prospective investor
should know about the Funds before investing. Please retain this Prospectus
for future reference. A Statement of Additional Information dated September 1,
1997 (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 1-888-LIR-FUND.
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.
SHARES OF A FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES OF A FUND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS DATED SEPTEMBER 1, 1997
<PAGE>
HIGHLIGHTS
See elsewhere in the Prospectus for more information on the topics discussed
in these highlights.
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.
Each Fund offers investors the choice of investing in two
separate classes of shares.
. Institutional shares are available for purchase primarily
by institutional investors.
. Financial Intermediary shares are available for purchase
solely by banks and other financial intermediaries for
the benefit of their customers. Financial Intermediary
shares bear all fees payable by the Funds to those
financial intermediaries for certain services they
provide to the beneficial owners of those shares. See
"Purchases," "Redemptions," "Financial Intermediaries"
and "Valuation of Shares."
Investment Money Market Fund--A diversified money market fund seeking
Objectives and high current income to the extent consistent with the
Policies: 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 quality 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.
Net Assets at May Money Market Fund--$1.2 billion
31, 1997:
Government Securities Fund--$94.8 million.
Treasury Securities Fund--$66.1 million.
Distributor and
Investment
Adviser: PaineWebber Incorporated ("PaineWebber"). See "Management."
Sub-Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"). See "Management"
Purchases:
Shares may be purchased through PaineWebber, its
correspondent firms or through First Data Investor Services
Group, Inc., the Funds' transfer agent ("Transfer Agent").
See "Purchases."
Redemptions:
Shares may be redeemed through PaineWebber, its
correspondent firms or the Transfer Agent. See
"Redemptions."
Dividends:
Declared daily and paid monthly. All dividends are
automatically paid in Fund shares unless the shareholder
elects instead to have dividends transmitted by federal
funds wire to either a designated bank account or
PaineWebber account. See "Dividends and Taxes."
Minimum Initial
Purchase: $1,000,000 for Money Market Fund and Government Securities
Fund (or in a combination of both) and $250,000 for
Treasury Securities Fund; no minimum for subsequent
purchases.
Public Offering Net asset value, which each Fund seeks to maintain at $1.00
Price: per share.
2
<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, insurance companies,
investment counsellors, pension funds, employee benefit plans, law firms,
trusts, estates and educational, religious and charitable organizations. See
"Purchases" and "Management."
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. 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>
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>
<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
MONEY MARKET FUND SECURITIES FUND TREASURY SECURITIES FUND
-------------------------- -------------------------- --------------------------
FINANCIAL FINANCIAL FINANCIAL
INSTITUTIONAL INTERMEDIARY INSTITUTIONAL INTERMEDIARY INSTITUTIONAL INTERMEDIARY
SHARES SHARES** SHARES SHARES** SHARES SHARES**
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after
fee waivers)........... 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Shareholder Servicing
Fees................... 0.00% 0.25% 0.00% 0.25% 0.00% 0.25%
Other Expenses (after
reimbursements)........ 0.05% 0.05% 0.10% 0.10% 0.10% 0.10%
----- ----- ----- ----- ----- -----
Total Operating Expenses
(after fee
waivers and
reimbursements)........ 0.25% 0.50% 0.30% 0.55% 0.30% 0.55%
===== ===== ===== ===== ===== =====
</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>
Money Market Fund
Institutional shares.......................... $ 3 $ 8 $14 $32
Financial Intermediary shares................. $ 5 $16 $28 $63
Government Securities Fund
Institutional shares.......................... $ 3 $10 $17 $38
Financial Intermediary shares................. $ 6 $18 $31 $69
Treasury Securities Fund
Institutional shares.......................... $ 3 $10 $17 $38
Financial Intermediary shares................. $ 6 $18 $31 $69
</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, and the extent to which PaineWebber
waives fees or reimburses a Fund for expenses.
(footnotes continue on following page)
4
<PAGE>
(footnotes from previous page)
*Information in the expense table and the example reflect an agreement by
PaineWebber and Mitchell Hutchins to waive 0.05% of the management fees and to
reduce or otherwise limit the expenses of each Fund, on an annualized basis, to
0.30% and 0.55% 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, stated as a percentage of average
net assets, would have been 0.30%, 0.53% and 0.72%, respectively, for
Institutional shares and 0.55%, 0.78% and 0.97% (estimated), 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 $3, $10, $17 and $38; $5,
$17, $30 and $66; and $7, $23, $40 and $89, respectively, for Institutional
shares and would have been $6, $18, $31 and $69; $8, $25, $43 and $97; and $10,
$31, $54 and $119 (estimated), respectively, for Financial Intermediary shares.
PaineWebber and Mitchell Hutchins do not anticipate that they will waive 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
described above.
**No Financial Intermediary shares were outstanding during each Fund's last
fiscal year.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide investors with selected data and ratios for one
share of each class of shares outstanding for each Fund for each of the peri-
ods shown. No Financial Intermediary shares were outstanding during the fiscal
years ended April 30, 1997 and 1996. This information is supplemented by the
financial statements, accompanying notes and the unqualified report of Ernst &
Young LLP, independent auditors, which appear in the Funds' Annual Report to
Shareholders for the fiscal year ended April 30, 1997 and are incorporated by
reference into the Statement of Additional Information. The Funds' Annual Re-
port to Shareholders may be obtained without charge by calling 1-888-LIR-FUND.
The financial statements and notes, as well as the information in the tables
appearing below insofar as it relates to the fiscal years ended April 30, 1997
and 1996, have been audited by Ernst & Young LLP. The financial information
for periods prior to 1996 was audited by another independent accounting firm,
whose reports thereon were unqualified.
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------------------------------------------------------------
FINANCIAL
INTERMEDIARY
INSTITUTIONAL SHARES SHARES**
------------------------------------------------------------------ --------------------------------
FOR THE YEARS ENDED FOR THE PERIOD FOR THE PERIOD
APRIL 30, JUNE 3, 1991+ FOR THE MARCH 17, 1994+
-------------------------------------------------- TO YEAR ENDED TO
1997 1996 1995++ 1994 1993 APRIL 30, 1992 APRIL 30, 1995++ APRIL 30, 1994
---------- -------- -------- -------- -------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- -------- ------- -------
Net investment income... 0.052 0.055 0.048 0.030 0.031 0.044 0.027 0.004
Net realized losses from
investment
transactions........... -- -- (0.008) -- -- -- -- --
---------- -------- -------- -------- -------- -------- ------- -------
Net increase from
investment operations.. 0.052 0.055 0.040 0.030 0.031 0.044 0.027 0.004
---------- -------- -------- -------- -------- -------- ------- -------
Dividends from net
investment income...... (0.052) (0.055) (0.048) (0.030) (0.031) (0.044) (0.027) (0.004)
---------- -------- -------- -------- -------- -------- ------- -------
Contribution to capital
from predecessor
adviser (1)............ -- -- 0.008 -- -- -- -- --
---------- -------- -------- -------- -------- -------- ------- -------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ======== ======== ======= =======
Total investment return
(2).................... 5.33% 5.61% 4.91% 3.03% 3.16% 4.52% 3.10% 0.37%
========== ======== ======== ======== ======== ======== ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $1,246,799 $421,878 $220,844 $254,281 $385,618 $335,868 -- $ 9,000
Expenses to average net
assets net of
waivers/reimbursements
from adviser........... 0.25% 0.31% 0.35% 0.33% 0.34% 0.30%* 0.60%* 0.58%*
Expenses to average net
assets before
waivers/reimbursements
from adviser........... 0.30% 0.37% 0.37% 0.33% 0.36% 0.41%* 0.62%* 0.58%*
Net investment income to
average net assets net
of
waivers/reimbursements
from adviser........... 5.24% 5.47% 4.68% 2.96% 3.13% 4.76%* 4.17%* 2.93%*
Net investment income to
average net assets
before waivers/
reimbursements from
adviser................ 5.19% 5.41% 4.66% 2.96% 3.11% 4.65%* 4.15%* 2.93%*
</TABLE>
- --------
+ Commencement of issuance of shares
++ Sub-advisory functions for the Fund were transferred from Kidder Peabody
Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
* Annualized
** For the years ended April 30, 1996 and 1997 and for the period from Decem-
ber 24, 1994 to April 30, 1995 there were no outstanding Financial Inter-
mediary shares of Money Market Fund. For the years ended April 30, 1996
and 1997 and for the period from March 22, 1995 to April 30, 1996 there
were no outstanding Financial Intermediary shares of Government Securities
Fund.
(1) Kidder Peabody Asset Management, Inc., the Funds' predecessor investment
adviser and administrator, purchased certain of Money Market Fund's and
Government Securities Fund's variable rate securities on July 6, 1994 at
prices equal to the securities' amortized cost plus accrued and unpaid in-
terest. Since the purchases were made at prices above the securities' cur-
rent fair value, the Funds recorded a contribution to capital.
(2) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and dis-
tributions at net asset value on the payable dates, and a sale at net as-
set value on the last date of each period reported. Total investment re-
turn for periods of less than one year has not been annualized.
6
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------
FINANCIAL
INTERMEDIARY
INSTITUTIONAL SHARES SHARES**
- ------------------------------------------------------------- ----------------
FOR THE YEARS ENDED FOR THE PERIOD FOR THE PERIOD
APRIL 30, JUNE 3, 1991+ JULY 12, 1994+
- --------------------------------------------- TO TO
1997 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 $ 1.00 $ 1.00
- -------- ------- ------- ------- -------- -------- -------
0.051 0.053 0.048 0.029 0.031 0.044 0.032
-- 0.001 (0.008) -- -- -- --
- -------- ------- ------- ------- -------- -------- -------
0.051 0.054 0.040 0.029 0.031 0.044 0.032
- -------- ------- ------- ------- -------- -------- -------
(0.051) (0.054) (0.047) (0.029) (0.031) (0.044) (0.032)
- -------- ------- ------- ------- -------- -------- -------
-- -- 0.007 -- -- -- --
- -------- ------- ------- ------- -------- -------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======== ======== =======
5.20% 5.50% 4.61% 2.97% 3.13% 4.46% 3.31%
======== ======= ======= ======= ======== ======== =======
$106,843 $43,770 $54,903 $84,209 $102,611 $144,853 --
0.30% 0.32% 0.35% 0.35% 0.34% 0.30%* 0.60%*
0.53% 0.56% 0.47% 0.37% 0.36% 0.41%* 0.72%*
5.09% 5.52% 4.75% 2.95% 3.11% 4.63%* 4.58%*
4.86% 5.28% 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+
- ------------------------------------------------------ TO
1997 1997 1996 1995++ 1994 1993 APRIL 30, 1992
---- -------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------- -------- -------- -------- -------- -------- -----------------
0.051 0.049 0.048 0.049 0.028 0.029 0.016
-- -- 0.003 (0.002) -- -- --
- --------- -------- -------- -------- -------- -------- -----------------
0.051 0.049 0.051 0.047 0.028 0.029 0.016
- --------- -------- -------- -------- -------- -------- -----------------
(0.051) (0.049) (0.051) (0.047) (0.028) (0.029) (0.016)
- --------- -------- -------- -------- -------- -------- -----------------
-- -- -- -- -- -- --
- --------- -------- -------- -------- -------- -------- -----------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ======== ======== ======== =================
5.20% 5.02% 5.23% 4.75% 2.87% 2.89% 1.62%
========= ======== ======== ======== ======== ======== =================
$106,843 $65,893 $19,624 $23,762 $38,602 $8,064 $15,003
0.30% 0.30% 0.32% 0.22% 0.18% 0.33% 0.06%*
0.53% 0.72% 0.94% 0.84% 0.76% 1.10% 2.05%*
5.09% 4.97% 5.71% 5.51% 3.66% 3.65% 5.88%*
4.86% 4.56% 5.09% 4.89% 3.08% 2.88% 3.89%*
</TABLE>
7
<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 li-
quidity 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 or are deemed to 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
weighted average 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 con-
ditions 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 markets.
There can be no assurance that the Funds will achieve their investment ob-
jectives. 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 generally 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-denomi-
nated money market instruments. These instruments include government securi-
ties, obligations of banks, commercial paper and other short-term corporate
obligations, corporate bonds and notes, variable and floating rate securities
and participation interests or repurchase agreements involving any of the
foregoing securities. Participation interests are pro rata interests in secu-
rities held by others.
The U.S. government securities in which the Money Market Fund may invest in-
clude 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 credit-
worthiness of a U.S. government-related issuer (such as mortgage-backed secu-
rities issued by Fannie Mae, also known as the Federal National Mortgage Asso-
ciation).
Money Market Fund may invest in obligations (including certificates of de-
posit, bankers' acceptances and similar obligations) of U.S. and foreign banks
having total assets in excess of $1.5 billion at the time of purchase. The
Fund may invest in non-negotiable time deposits of U.S. banks, savings associ-
ations and similar depository institutions having total assets in excess of
$1.5 billion at the time of purchase only if the time deposits have maturities
of seven days or less. Money Market Fund also may invest in interest-bearing
savings deposits in U.S. banks and savings associations having total assets of
$1.5 billion or less, provided that the principal amount of each deposit is
fully insured by the Federal Deposit Insurance Corporation and provided that
the aggregate principal amount of such deposits (plus interest earned) does
not exceed 5% of the Fund's assets.
The commercial paper and other short-term obligations purchased by Money
Market Fund consist only of obligations that Mitchell Hutchins determines,
pursuant to procedures adopted by the Trust's board of trustees (sometimes re-
ferred to as the "board"), 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 high-
est short-term rating category by a single NRSRO if only that NRSRO has as-
signed the obligations a short-term rating or (3) unrated, but determined by
8
<PAGE>
Mitchell Hutchins to be of comparable quality ("First Tier Securities"). The
Fund generally may invest no more than 5% of its total assets in the securi-
ties of a single issuer (other than securities issued by the U.S. government,
its agencies or instrumentalities).
GOVERNMENT SECURITIES FUND
Government Securities Fund invests in U.S. government securities, the inter-
est 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 agen-
cies, authorities or instrumentalities of the U.S. government, including the
Federal Home Loan Banks, Federal Farm Credit Banks Funding Corp. and the Stu-
dent Loan Marketing Association. The Fund seeks to invest substantially all of
its assets in securities with these characteristics. Under extraordinary cir-
cumstances, however, such as when securities with those characteristics are
unavailable at prices deemed reasonable by Mitchell Hutchins, 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 ba-
sis. The Fund will not enter into repurchase agreements.
Each investor should consult its own tax advisor to determine whether dis-
tributions from Government Securities Fund derived from interest on its port-
folio securities are exempt from state income taxation in the investor's own
state.
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.
OTHER INVESTMENT POLICIES AND RISK FACTORS
U.S. GOVERNMENT SECURITIES. Money Market Fund may also acquire custodial re-
ceipts that evidence ownership of future interest payments, principal payments
or both that have been "stripped" from certain U.S. Treasury notes or bonds.
These custodial receipts are known by various names, including "Treasury In-
vestment Growth Receipts" ("TIGRs") and "Certificates of Accrual on Treasury
Securities" ("CATS"). Each Fund may also invest in separately traded principal
and interest components of securities issued or guaranteed by the U.S. Trea-
sury. 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. The staff of the SEC currently takes the position that inter-
ests in "stripped" U.S. government securities that are not part of the STRIPS
program are not U.S. government securities.
VARIABLE AND FLOATING RATE SECURITIES. Money Market Fund and Government Se-
curities Fund may purchase variable and floating rate securities with remain-
ing maturities in excess of 13 months issued by U.S. government agencies or
instrumentalities or guaranteed by the U.S. government. In addition, Money
Market Fund may purchase variable and floating rate securities of other is-
suers with remaining maturities in excess of 13 months if they are subject to
a demand feature exercisable within 13 months or less. The yield on these se-
curities is adjusted in relation to changes in specific rates, such as the
prime rate, and different securities may have different adjustment rates. The
Funds' investments in these securities must comply with conditions established
by the SEC under which they may be considered to have remaining maturities of
13 months or less. Certain of these obligations carry a demand feature that
gives a Fund the right to tender them back to the issuer or a remarketing
agent and receive the principal amount of the security prior to maturity. The
demand feature may be backed by letters of credit or other liquidity support
arrangements provided by banks or other financial institutions, whose credit
standing affects the credit quality of the obligation. Changes in the credit
quality of these institutions could cause losses to a Fund and affect its
share price.
VARIABLE AMOUNT MASTER DEMAND NOTES. Securities purchased by Money Market
Fund may include variable amount master demand notes, which are unsecured re-
deemable obligations that permit investment of varying amounts
9
<PAGE>
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 agree-
ments with U.S. banks and dealers with respect to any security in which that
Fund is authorized to invest, except that securities subject to repurchase
agreements may have maturities in excess of 13 months. Repurchase agreements
are transactions in which the Fund purchases securities from a bank or recog-
nized securities dealer and simultaneously commits to resell the securities to
that bank or dealer at an agreed-upon date or upon demand and at a price re-
flecting 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 de-
cline in the market value of the underlying securities and delays and costs to
the Fund if the other party to the repurchase agreement becomes insolvent, the
Fund intends to enter into repurchase agreements only with banks and dealers
in transactions believed by Mitchell Hutchins to present minimal credit risks
in accordance with guidelines established by the board.
FOREIGN SECURITIES. Money Market Fund may invest in U.S. dollar-denominated
securities of foreign issuers, including debt securities of foreign corpora-
tions and foreign governments and obligations of foreign banks. Such invest-
ments may involve risks that are different from investments in U.S. issuers.
These risks may include future unfavorable political and economic develop-
ments, possible withholding taxes, seizure of foreign deposits, currency con-
trols, interest limitations or other governmental restrictions that might af-
fect the payment of principal or interest on the securities held by the Fund.
Additionally, there may be less publicly available information about foreign
issuers as these issuers may not be subject to the same regulatory require-
ments as domestic issuers.
LENDING OF PORTFOLIO SECURITIES. Each Fund may lend its securities to quali-
fied broker-dealers or institutional investors in an amount up to 33 1/3% of
the Fund's total assets taken at market value. Lending securities enables the
Funds to earn additional income, but could result in a loss or delay in recov-
ering these securities.
OTHER INVESTMENT POLICIES. Each Fund may purchase securities on a "when-is-
sued" 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 immedi-
ately 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.
Each Fund may borrow money from banks for temporary purposes in an aggregate
amount not exceeding 33 1/3% of the value of the Fund's total assets. A Fund
may not purchase portfolio securities while borrowings exceed 5% of the value
of the Fund's assets.
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 State-
ment of Additional Information, also may not be changed without shareholder
approval. All other investment policies may be changed by the board without
shareholder approval.
PURCHASES
The Funds accept the settlement of purchase orders only in available federal
funds. ("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 an-
other bank in one day and thus may be made immediately available to a Fund
through its custodian.)
Each Fund offers investors the choice of investing in two separate classes
of shares--Institutional shares and Financial Intermediary shares. Institu-
tional shares in each Fund are available for purchase by institutional invest-
ors, and, at the discretion of PaineWebber, for purchase by individuals or
other entities. Financial Intermediary shares in each Fund are available for
purchase only by banks and other financial intermediaries for the benefit of
their customers. Financial Intermediary shares bear all fees pay
10
<PAGE>
able by the Fund to those financial intermediaries for certain services they
provide to the beneficial owners of these shares.
The minimum initial investment is $1,000,000 in Money Market Fund or Govern-
ment Securities Fund (or in a combination of both) and $250,000 in Treasury
Securities Fund. These minimums may be waived at the discretion of
PaineWebber. Financial intermediaries purchasing shares for the accounts of
their customers may set a higher minimum for their customers. There is no min-
imum subsequent investment.
Shares of the Funds are offered for sale, without a sales charge, at the net
asset value per share next determined after receipt and acceptance of a pur-
chase order by the Transfer Agent, subject to timely receipt of federal funds
as provided below. An investor can place a purchase order up until 2:30 p.m.
(Eastern time) for Money Market Fund and 12:00 noon (Eastern time) for Govern-
ment Securities Fund and Treasury Securities Fund by telephoning the Transfer
Agent at 1-888-LIR-FUND and speaking with a representative. Investors may also
place an order through a PaineWebber Investment Executive or correspondent
firm who must then relay the order to the Transfer Agent by the times noted
above. For the purchase of Fund shares to be effected on that Business Day,
the investor must wire federal funds to the Trust, care of the Transfer Agent,
and that wire must be credited to that bank account by a Federal Reserve Bank
on that Business Day. Otherwise, the order will be executed as of such times
on the following Business Day if federal funds have been received by that
time. Calls may be initiated by any authorized party on the account, including
your PaineWebber Investment Executive. A "Business Day" is any day on which
the Massachusetts offices of the Trust's custodian, State Street Bank and
Trust Company ("Custodian"), and the Transfer Agent, and the New York City of-
fices of PaineWebber and PaineWebber's bank are all open for business.
The Trust and PaineWebber reserve the right to reject any purchase order and
to suspend the offering of Fund shares for a period of time.
[The availability of Fund shares to customers of PaineWebber's correspondent
firms varies depending on the arrangements between PaineWebber and such
firms.]
Investors who are purchasing shares should instruct their banks to transfer
federal funds by wire. Wire transfers should be directed to:
LIR Fund
[insert Fund name: Money Market, Government or Treasury]
c/o BSD&T Company
CR DDA #13-860-6
CR PW A/C #
[insert PaineWebber account name and account number]
ABA #011001234
Unless the investor otherwise specifies, all shares purchased will be Insti-
tutional shares.
REMOTE TRADE ENTRY. At its discretion, the Trust may offer eligible institu-
tional investors who meet certain conditions an electronic trade order entry
(RTE) capability. For more information on this option, please contact your
PaineWebber Investment Executive or the Transfer Agent at 1-888-LIR-FUND.
PaineWebber and/or an investor's bank may impose a service charge for wire
transfers.
EXCHANGES
Shareholders may exchange shares of one Fund for shares of another Fund
based on the next determined net asset value per share. Exchange orders are
accepted up until 12:00 noon (Eastern time) for each Fund by telephoning the
Transfer Agent at 1-888-LIR-FUND and speaking with a representative. Investors
may also place an order through a PaineWebber Investment Executive or corre-
spondent firm which must then relay the order to the Transfer Agent as noted
above. Calls may be initiated by any authorized party on the account, includ-
ing your PaineWebber Investment Executive.
Exchange transactions must meet the minimum initial investment of the new
Fund. There is no minimum for subsequent exchanges between Fund accounts once
they have been activated.
REDEMPTIONS
Shareholders may redeem all or any portion of the shares in their accounts
at any time at the net asset value per share next computed after the receipt
of a redemption request in proper form by the Transfer Agent. Redemption or-
ders are accepted up until 2:30 p.m. (Eastern time) for Money Market Fund and
up until 12:00 noon (Eastern time) for Government Securities Fund
11
<PAGE>
and Treasury Securities Fund by telephoning the Transfer Agent at #1-888-LIR-
FUND and speaking with a representative. Investors may also place an order
through a PaineWebber Investment Executive or correspondent firm which must
then relay the order to the Transfer Agent by the times noted above. Calls may
be initiated by any authorized party on the account, including your
PaineWebber Investment Executive. Redemption proceeds will be paid by federal
funds wired to one or more of the bank accounts that have been designated by
the shareholder, normally on the Business Day the redemption request is ac-
cepted.
ADDITIONAL INFORMATION ON REDEMPTIONS. Shareholders with questions about re-
demption requirements should consult their PaineWebber Investment Executives,
correspondent firms or the Transfer Agent at 1-888-LIR-FUND. Shareholders will
earn dividends on redeemed shares up to (but not including) the day of redemp-
tion. The redemption price may be more or less than the purchase price, de-
pending on the market value of a Fund's portfolio; however, each Fund antici-
pates that its net asset value per share will normally be $1.00 per share. See
"Valuation of Shares."
There is no minimum amount for redemptions.
ADDITIONAL INFORMATION ON FINANCIAL INTERMEDIARY SHARES. Each Fund's shares
are sold and redeemed without charge by the Fund. Financial intermediaries
purchasing or holding Financial Intermediary shares for their customer ac-
counts 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 In-
termediary shares will be reduced by the amount of fees paid by a Fund to fi-
nancial 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 re-
sponsible for transmitting orders to the Transfer Agent in accordance with its
customer agreements and the procedures noted above.
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
value of its investments and other assets minus its liabilities by the number
of Fund shares outstanding. The net asset value per share for Money Market
Fund is determined once each Business Day at 2:30 p.m. (Eastern time). The net
asset value per share for Government Securities Fund and Treasury Securities
Fund 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 differ-
ence 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.
DIVIDENDS AND TAXES
DIVIDENDS. Each Business Day, each Fund declares as dividends all of its net
investment income. Shares are entitled to receive dividends beginning on the
date the purchase order is accepted; dividends are accrued to shareholder ac-
counts daily and are paid on the last Business Day of the month. Dividends are
automatically paid in additional Fund shares unless the shareholder elects in-
stead to have dividends transmitted by federal funds wire to either a desig-
nated bank account or PaineWebber account. 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 an-
ticipate payment of any long-term capital gain distributions. Dividends paid
on both classes of shares are calculated at the same time and in the same man-
ner. Dividends on Institutional shares are expected to be higher than those
paid on Financial Intermediary shares because of the higher expenses borne by
the Financial Intermediary shares.
12
<PAGE>
FEDERAL TAX. Each Fund intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code so that it will
be relieved of federal income tax on that part of its investment company tax-
able income (consisting generally of taxable net investment income and net
short-term capital gain, if any) that is distributed to its shareholders.
Dividends from a Fund's investment company taxable income (whether paid in
cash or in additional Fund shares) are taxable to its shareholders as ordinary
income to the extent of its earnings and profits. Shareholders not subject to
tax on their income will not be required to pay tax on amounts distributed to
them. The Funds' dividends and distributions will not qualify for the divi-
dends-received deduction for corporations.
Some states permit shareholders to treat their portions of a Fund's divi-
dends that are attributable to interest on U.S. Treasury securities and cer-
tain U.S. government securities as income that is exempt from state and local
income taxes, if the Fund meets certain asset and diversification require-
ments. Dividends attributable to earnings on repurchase agreements and securi-
ties loans 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. gov-
ernment 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) other-
wise are subject to backup withholding.
ADDITIONAL INFORMATION. The foregoing is only a summary of some of the im-
portant 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 con-
siderations applicable to a particular investor. Prospective shareholders are
urged to consult their tax advisers.
MANAGEMENT
The board, as part of its overall management responsibility, oversees vari-
ous organizations responsible for the Funds' day-to-day management.
PaineWebber, the Funds' investment adviser and administrator, provides a con-
tinuous investment program for each Fund and supervises all aspects of its op-
erations. 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, 1997, the advisory and administration fees payable to
PaineWebber by each Fund were equal to 0.25% of the Fund's average daily net
assets. PaineWebber has undertaken to waive 0.05% of its fees and to maintain
each Fund's total annual operating expenses at a level not exceeding 0.30% and
0.55% 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 and/or expense reimbursements with respect to each
Fund's Institutional shares, for the fiscal year ended April 30, 1997, Money
Market Fund's, Government Securities Fund's and Treasury Securities Fund's to-
tal expenses represented 0.25%, 0.30% and 0.30%, respectively, of their aver-
age 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 administra-
tive services.
PaineWebber and Mitchell Hutchins are located at 1285 Avenue of the Ameri-
cas, 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, 1997,
PaineWebber or Mitchell Hutchins was investment adviser or sub-adviser to 30
registered investment companies with 65 separate portfolios and aggregate as-
sets in excess of $32.7 billion.
Mitchell Hutchins personnel may engage in securities transactions for their
own accounts pursuant to a code of ethics that establishes procedures for per-
sonal investing and restricts certain transactions.
13
<PAGE>
PaineWebber is the distributor of each Fund's shares.
FINANCIAL INTERMEDIARIES
Financial intermediaries, such as banks and savings associations, may pur-
chase 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 Interme-
diary shares in consideration of the Trust's payment of 0.25%, 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 State-
ment 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 show-
ing 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 neces-
sary 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 interme-
diary is permitted to do so under federal and state statutes, rules and regu-
lations. 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 Finan-
cial Intermediary shares. Financial Intermediary shares are available for pur-
chase only by financial intermediaries that have entered into service agree-
ments with the Trust in connection with their investment. Financial intermedi-
aries 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 re-
strict the activities of banks serving as financial intermediaries in connec-
tion with the provision of support services to their customers, the Trust
might be required to alter or discontinue its arrangements with financial in-
termediaries 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 invest-
ment 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 calcu-
lated similarly, but when annualized the income earned is assumed to be rein-
vested. 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 Institu-
tional shares and Financial Intermediary shares. Since holders of Financial
Intermediary shares bear all service fees for the services rendered by finan-
cial intermediaries, the net yield on Financial Intermediary shares can be ex-
pected at any given time to be approximately 0.25% lower than the net yield on
Institutional shares. Any additional fees directly assessed by financial in-
termediaries 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 re-
investment of dividends (compounding).
GENERAL INFORMATION
The Trust is registered as an open-end management investment company and was
organized
14
<PAGE>
as a business trust under the laws of the Commonwealth of Massachusetts by
Declaration of Trust dated February 14, 1991. The board has authority to issue
an unlimited number of shares of beneficial interest of separate series, par
value $0.001 per share.
Each share of a Fund has equal voting, dividend and liquidation rights, ex-
cept that beneficial owners of Financial Intermediary shares receive certain
services directly from financial intermediaries, bear certain service fees and
enjoy 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 trustees unless fewer than a majority of
the trustees holding office have been elected by shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares
of the 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 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 Trust's outstanding shares.
Shareholders of each Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not cumula-
tive and, as a result, the holders of more than 50% of the shares of the Trust
may elect all of its trustees. The shares of each Fund will be voted together,
except that only the shareholders of a particular class of a Fund may vote on
matters affecting only that class. The shares of each series of the Trust will
be voted separately, except when an aggregate vote of all the securities is
required by law. Financial intermediaries holding shares for their own ac-
counts 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 conve-
nience, share certificates are not issued. Ownership of shares of each Fund is
recorded on a share 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 semiannual finan-
cial statements of the Funds. All purchases and redemptions of Fund shares are
confirmed to shareholders at least quarterly.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heri-
tage Drive, North Quincy, Massachusetts 02171, is custodian of the Trust's as-
sets. First Data Investor Services Group, Inc., whose principal business ad-
dress is 4400 Computer Drive, Westborough, Massachusetts 01581-5159, is the
Trust's transfer and dividend disbursing agent.
15
<PAGE>
PaineWebber
Prospectus
---------------------------------------------------------------------------
Liquid
Institutional
Reserves
Money Market
Fund
Government
Securities
Fund
Treasury
Securities
Fund
SEPTEMBER 1, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
Highlights.................................................................. 2
Financial Highlights........................................................ 6
Investment Objectives and Policies.......................................... 8
Purchases................................................................... 10
Exchanges................................................................... 11
Redemptions................................................................. 11
Valuation of Shares......................................................... 12
Dividends and Taxes......................................................... 12
Management.................................................................. 13
Financial Intermediaries.................................................... 13
Performance Information..................................................... 14
General Information......................................................... 14
</TABLE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus. 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 their distributor in any jurisdiction in which such offering may not
lawfully be made.
PaineWebber
(C)1997 PaineWebber Incorporated
<PAGE>
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 ("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 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,
1997. A copy of the Prospectus may be obtained by contacting any PaineWebber
Investment Executive or correspondent firm or by calling 1-888-LIR-FUND. This
Statement of Additional Information is dated September 1, 1997.
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 U.S. government
securities, commercial paper and bank obligations) are dependent on a variety
of factors, including general money market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer,
the size of the offering, the maturity of the obligation and the ratings of
the issue. The ratings of nationally recognized statistical rating
organizations ("NRSROs") represent their opinions as to the quality of the
obligations they undertake to rate. Ratings, however, are general and are not
absolute standards of quality. Consequently, obligations with the same rating,
maturity and interest rate may have different market prices. Subsequent to its
purchase by 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 or the Trust's board of trustees
("board") 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.
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, except that securities subject to repurchase
agreements may have maturities in excess of 13 months. The Fund maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or securities dealer to pay the repurchase price on the
date agreed to or upon demand is, in effect, secured by such securities. If
the value of these securities is less than the repurchase price, plus any
agreed-upon additional amount, the other party to the agreement must provide
additional collateral so that at all times the collateral is at least equal to
the repurchase price plus any agreed-upon additional amount. The difference
between the total amount to be received upon repurchase of the securities and
the price that was paid by the Fund upon acquisition is accrued as interest
and included in the Fund's net investment income.
<PAGE>
Repurchase agreements carry certain risks not associated with direct
investments in securities. Money Market Fund intends to enter into repurchase
agreements only with banks and dealers in transactions believed by Mitchell
Hutchins to present minimal credit risks in accordance with guidelines
established by the board. Mitchell Hutchins will review and monitor the
creditworthiness of those institutions under the board's general supervision.
ILLIQUID SECURITIES. No Fund may invest more than 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, repurchase agreements maturing in
more than seven days and restricted securities other than those Mitchell
Hutchins has determined to be liquid pursuant to guidelines established by the
board.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933 ("1933 Act"), including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to
the general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily
resold or on an issuer's ability to honor a demand for repayment. Therefore,
the fact that there are contractual or legal restrictions on resale to the
general public or certain institutions is not dispositive of the liquidity of
such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted
securities have developed as a result of Rule 144A, providing both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. Such markets include
automated systems for the trading, clearance and settlement of unregistered
securities, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing certain restricted securities held by a Fund,
however, could affect adversely the marketability of such portfolio
securities, and the Fund might be unable to dispose of such securities
promptly or at favorable prices.
The board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins, pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities held by the Funds and reports periodically on such
decisions to the board.
FLOATING RATE AND VARIABLE RATE DEMAND INSTRUMENTS. Money Market Fund and
Government Securities 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 amortized cost value plus accrued
interest. A demand feature is often backed by a letter of credit, guarantee or
other liquidity support arrangement from a bank or other financial institution
that may be drawn upon demand, after specified notice, for all or any part of
the exercise price of the demand feature. Generally, a Fund intends to
exercise demand features (1) upon a default under the terms of the underlying
security, (2) to maintain a Fund's portfolio in accordance with its investment
objective and policies or applicable legal or regulatory requirements or (3)
as needed to provide liquidity to a Fund in order to meet redemption requests.
The ability of a bank or other financial institution to fulfill its
obligations under a letter of credit, guarantee or other liquidity arrangement
might be affected by possible financial difficulties of its borrowers, adverse
interest rate or economic conditions, regulatory limitations or other factors.
The interest rate on floating rate or variable
2
<PAGE>
rate securities ordinarily is readjusted on the basis of the prime rate of the
bank that originated the financing or some other index or published rate, such
as the 90-day U.S. Treasury bill rate, or is otherwise reset to reflect market
rates of interest. Generally, these interest rate adjustments cause the market
value of floating rate and variable rate securities to fluctuate less than the
market value of fixed rate obligations.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
each Fund may purchase securities on a "when-issued" or "delayed delivery"
basis. A security purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date and is subject to changes in
market value, generally based upon changes in the level of interest rates.
Thus, fluctuation in the value of the security from the time of the commitment
date will affect the Fund's net asset value. When 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."
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, the Fund
will maintain with an approved custodian in a segregated account cash or
liquid securities, marked to market daily, in an amount at least equal to the
Fund's obligation or commitment under such transactions.
LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, each Fund
is authorized to lend up to 33 1/3% of its total assets to broker-dealers or
institutional investors that Mitchell Hutchins deems qualified, but only when
the borrower maintains acceptable collateral with the 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 or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Funds will retain authority to terminate
any loan at any time. The Funds may pay reasonable fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
money market instruments held as collateral to the borrower or placing broker.
The 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 regain record ownership
of loaned securities to exercise beneficial rights, such as voting and
subscription rights and rights to dividends, interest or other distributions,
when regaining such rights is considered to be in the Funds' interest.
Pursuant to procedures approved by the board governing each Fund's
securities lending program, the board has approved retention of PaineWebber to
serve as lending agent for the Funds. The board also has authorized the
payment of fees (including fees calculated as a percentage of invested cash
collateral) to PaineWebber for these services. The board periodically reviews
all portfolio securities loan transactions for which PaineWebber acted as
lending agent.
FUNDAMENTAL INVESTMENT LIMITATIONS. The following fundamental investment
limitations cannot be changed for 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 of the Fund 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, later changes 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
3
<PAGE>
total assets may be invested without regard to this limitation, and
except that this limitation does not apply to securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities
or to securities issued by other investment companies.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will
not be considered to have been issued by the same issuer by reason
of the securities having the same sponsor, and mortgage- and
asset-backed securities issued by a finance or other special purpose
subsidiary that are not guaranteed by the parent company will be
considered to be issued by a separate issuer from the parent
company.
(2) purchase any security if, as a result of that purchase, 25% or more
of the Fund's total assets would be invested in securities of
issuers having their principal business activities in the same
industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to municipal securities or to certificates of
deposit and bankers' acceptances of domestic branches of U.S. banks.
The following interpretation applies to, but is not a part of, this
fundamental restriction: With respect to this limitation, domestic
and foreign banking will be considered to be different industries.
(3) issue senior securities or borrow money, except as permitted under
the Investment Company Act of 1940 ("1940 Act") and then not in
excess of 33 1/3% of the Fund's total assets (including the amount
of the senior securities issued but reduced by any liabilities not
constituting senior securities) at the time of the issuance or
borrowing, except that the Fund may borrow up to an additional 5% of
its total assets (not including the amount borrowed) for temporary
or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures, other debt
securities or instruments, or participations or other interests
therein and investments in government obligations, commercial paper,
certificates of deposit, bankers' acceptances or similar instruments
will not be considered the making of a loan.
(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities.
(6) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in mortgage-
backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this
limitation, and except that the Fund may exercise rights under
agreements relating to such securities, including the right to
enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated
in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund many purchase,
sell or enter into financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts
or derivative instruments.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The following investment
restrictions may be changed by the board without shareholder approval.
Each Fund will not:
(1) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions and except that
the Fund may make deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments.
(2) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short "against the box" and (b)
maintain short positions in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments.
4
<PAGE>
TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
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
---------------------------- ----------------- -----------------------------
<C> <C> <S>
Margo N. Alexander**; 50 Trustee and Mrs. Alexander is president,
President chief executive officer and
a director of Mitchell
Hutchins (since January
1995), and an executive vice
president and a director of
PaineWebber. Mrs. Alexander
is president and a director
or trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber
serves as investment advis-
er.
Richard Q. Armstrong; 62 Trustee Mr. Armstrong is chairman and
78 West Brother Drive principal of RQA Enterprises
Greenwich, CT 06830 (management consulting firm)
(since April 1991 and prin-
cipal occupation since March
1995). Mr. Armstrong is also
director of Hi Lo Automo-
tive, Inc. He was chairman
of the board, chief execu-
tive officer and co-owner of
Adirondack Beverages (pro-
ducer and distributor of
soft drinks and
sparkling/still waters) (Oc-
tober 1993-March 1995). Mr.
Armstrong was a partner of
The New England Consulting
Group (management consulting
firm) (December 1992-
September 1993). He was man-
aging 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 subsid-
iary, Schieffelin & Somerset
Company (1987-1991). Mr.
Armstrong is a director or
trustee of 28 investment
companies for which Mitchell
Hutchins or PaineWebber
serves as investment advi-
sor.
E. Garrett Bewkes, Jr.**; 70 Trustee and Mr. Bewkes is a director of
Chairman of the Paine Webber Group Inc. ("PW
Board of Trustees Group") (holding company of
PaineWebber and Mitchell
Hutchins). Prior to December
1995, he was a consultant to
PW Group. Prior to 1988, he
was chairman of the board,
president and chief execu-
tive officer of American
Bakeries Company. Mr. Bewkes
is also a director of Inter-
state Bakeries Corporation
and NaPro BioTherapeutics,
Inc. Mr. Bewkes is a direc-
tor or trustee of 29 invest-
ment companies for which
Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
POSITION
WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
----------------------------- -------- -------------------------------------
<C> <C> <S>
Richard R. Burt; 50 Trustee Mr. Burt is chairman of International
1101 Connecticut Avenue, N.W. Equity Partners (international in-
Washington, D.C. 20036 vestments and consulting firm)
(since March 1994) and a partner of
McKinsey & Company (management con-
sulting firm) (since 1991). He is
also a director of American Publish-
ing Company and Archer-Daniels-Mid-
land Co. (agricultural commodities).
He was the chief negotiator in the
Strategic Arms Reduction Talks with
the former Soviet Union (1989-1991)
and the U.S. Ambassador to the Fed-
eral Republic of Germany (1985-
1989). Mr. Burt is a director or
trustee of 28 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
Mary C. Farrell**; 47 Trustee Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy Com-
mittee of PaineWebber. Ms. Farrell
joined PaineWebber in 1982. She is a
member of the Financial Women's As-
sociation and Women's Economic
Roundtable and is employed as a reg-
ular panelist on Wall $treet Week
with Louis Rukeyser. She also serves
on the Board of Overseers of New
York University's Stern School of
Business. Ms. Farrell is a director
or trustee of 28 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
Meyer Feldberg; 55 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior
New York, New York 10027 to 1989, he was president of the Il-
linois Institute of Technology. Dean
Feldberg is also a director of K-III
Communications Corporation, Feder-
ated Department Stores Inc. and Rev-
lon, Inc. Dean Feldberg is a direc-
tor or trustee of 28 investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
George W. Gowen; 67 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate In-
vestments, Inc. Mr. Gowen is a di-
rector or trustee of 28 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
------------------------------ -------------- ------------------------------
<C> <C> <S>
Frederic V. Malek; 60 Trustee Mr. Malek is chairman of
1455 Pennsylvania Avenue, N.W. Thayer Capital Partners (mer-
Suite 350 chant bank). From January
Washington, D.C. 20004 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 com-
pany 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 exec-
utive vice president and
president of Marriott Hotels
and Resorts. Mr. Malek is
also a director of American
Management Systems, Inc.
(management consulting and
computer-related services),
Automatic Data Processing,
Inc., CB Commercial Group,
Inc. (real estate services),
Choice Hotels International
(hotel and hotel franchis-
ing), FPL Group, Inc. (elec-
tric services), Integra, Inc.
(bio-medical), Manor Care,
Inc. (health care), National
Education Corporation and
Northwest Airlines Inc. Mr.
Malek is a director or
trustee of 28 investment com-
panies for which Mitchell
Hutchins or PaineWebber
serves as investment adviser.
Carl W. Schafer; 61 Trustee Mr. Schafer is president of
P.O. Box 1164 the Atlantic Foundation
Princeton, NJ 08542 (charitable foundation sup-
porting mainly 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 compa-
ny), Electronic Clearing
House, Inc. (financial trans-
actions processing), Wainoco
Oil Corporation and
Nutraceutix, Inc. (biotech-
nology company). Prior to
January 1993, he was chairman
of the Investment Advisory
Committee of the Howard
Hughes Medical Institute. Mr.
Schafer is a director or
trustee of 28 investment com-
panies for which Mitchell
Hutchins or PaineWebber
serves as investment adviser.
Dennis McCauley; 50 Vice President Mr. McCauley is a managing di-
rector and chief investment
officer--fixed income of
Mitchell Hutchins. Prior to
December, 1994, he was direc-
tor of fixed income invest-
ments of IBM Corporation. Mr.
McCauley is a vice president
of 19 investment companies
for which Mitchell Hutchins
or PaineWebber serves as in-
vestment adviser.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
------------------------- -------------- -----------------------------------
<C> <C> <S>
Ann E. Moran; 40 Vice President Ms. Moran is a vice president and a
and Assistant manager of the mutual fund finance
Treasurer division of Mitchell Hutchins. Ms.
Moran is a vice president and as-
sistant treasurer of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 45 Vice President Ms. O'Donnell is a senior vice
and Secretary president and deputy general coun-
sel of Mitchell Hutchins. Ms.
O'Donnell is a vice president and
secretary of 28 investment compa-
nies and vice president and assis-
tant secretary of one investment
company for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Emil Polito; 36 Vice President Mr. Polito is a senior vice presi-
dent and director of operations
and control for Mitchell Hutchins.
From March 1991 to September 1993
he was director of the Mutual
Funds Sales Support and Service
Center for Mitchell Hutchins and
PaineWebber. Mr. Polito is vice
president of 29 investment compa-
nies for which Mitchell Hutchins
or PaineWebber services as invest-
ment adviser.
Susan P. Ryan; 37 Vice President Ms. Ryan is a senior vice president
of Mitchell Hutchins. Ms. Ryan has
been with Mitchell Hutchins since
1982. Ms. Ryan is a vice president
of five investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing direc-
tor and general counsel of Mitch-
ell Hutchins. Prior to May 1994,
she was a partner in the law firm
of Arnold & Porter. Ms. Schonfeld
is a vice president of 29 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 34 Vice President Mr. Schubert is a first vice presi-
and Treasurer dent and the director of the mu-
tual fund finance division of
Mitchell Hutchins. From August
1992 to August 1994, he was a vice
president of BlackRock Financial
Management, L.P. Prior to August
1992, he was an audit manager with
Ernst & Young LLP. Mr. Schubert is
a vice president and treasurer of
29 investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
-------------------------- -------------- ---------------------------------
<C> <C> <S>
Barney A. Taglialatela; 36 Vice President Mr. Taglialatela is a vice presi-
and Assistant dent and a manager of the mutual
Treasurer fund finance division of Mitch-
ell Hutchins. Prior to February
1995, he was a manager of the
mutual fund finance division of
Kidder Peabody Asset Management,
Inc. Mr. Taglialatela is a vice
president and assistant trea-
surer of 28 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Keith A. Weller; 36 Vice President Mr. Weller is a first vice presi-
and Assistant dent and associate general coun-
Secretary sel of Mitchell Hutchins. Prior
to May 1995, he was an attorney
in private practice. Mr. Weller
is a vice president and assis-
tant secretary of 28 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Ian W. Williams; 39 Vice President Mr. Williams is a vice president
and Assistant and a manager of the mutual fund
Treasurer finance division of Mitchell
Hutchins. Prior to June 1992, he
was an audit senior accountant
with Price Waterhouse LLP. Mr.
Williams is a vice president and
assistant treasurer of 28 in-
vestment 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. Farrell 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 for each Fund and $150 for each board meeting and each meeting of a
board committee (other than committee meetings held on the same day as a board
meeting). Each chairman of the audit and contract review committee of
individual funds within the PaineWebber fund complex receives additional
compensation aggregating $15,000 annually from the relevant funds. 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. Because PaineWebber and Mitchell Hutchins perform
substantially all of the services necessary for the operation of the Trust,
the Trust requires no employees.
9
<PAGE>
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.
COMPENSATION TABLE+
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM THE TRUST
AGGREGATE COMPENSATION AND THE
NAME OF PERSONS, POSITION FROM THE TRUST* FUND COMPLEX**
- ------------------------- ---------------------- ------------------
<S> <C> <C>
Richard Q. Armstrong, Trustee......... $4,675 $59,873
Richard R. Burt, Trustee.............. $4,225 $51,173
Meyer Feldberg, Trustee............... $4,675 $96,181
George W. Gowen, Trustee.............. $4,675 $92,431
Frederic V. Malek, Trustee............ $4,675 $92,431
Carl W. Schafer, Trustee.............. $4,867 $62,307
</TABLE>
- --------
+ Only independent 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,
1997.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1996; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.
PRINCIPAL HOLDERS OF SECURITIES
The following persons are shown on the Trust's records as having owned of
record 5% or more of the indicated Fund's Institutional shares:
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
OF INSTITUTIONAL SHARES BENEFICIALLY
FUND NAME AND ADDRESS* OWNED AS OF JUNE 30, 1997
---- ----------------- ------------------------------------
<S> <C> <C>
Government Securities Fund Imperial Thrift & Loan Association 8,833,206.53 (11.2%)
National Plus Plan of the Textile
Workers Pension Fund 6,872,929.55 (8.7%)
Alliance Imaging, Inc. 10,144,277.09 (12.9%)
Treasury Securities Fund Macrochem Corp. 6,396,607.86 (8.1%)
Louis C. Generali & Sandra E. Generali 3,958,549.27 (7.6%)
Joseph Lucarelli Jr. 5,235,625.29 (6.7%)
</TABLE>
The Trust is not aware as to whether or to what extent shares owned of
record also are owned beneficially.
- --------
* Each shareholder listed above may be contacted c/o Mitchell Hutchins Asset
Management Inc., 1285 Avenue of the Americas, New York, NY 10019.
10
<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.
During each of the periods indicated, PaineWebber or Kidder, Peabody Asset
Management, Inc. ("KPAM"), a predecessor adviser and administrator, earned or
accrued advisory fees in the amounts set forth below. As also set forth below,
PaineWebber or KPAM during these periods voluntarily waived a portion of its
fees and/or voluntarily paid other Fund expenses.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30
----------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Money Market Fund.............................. $2,196,654 $669,836 $595,984
Fee Amount Waived............................ $ 439,015 $102,772 $ 0
Expenses Reimbursed.......................... $ 0 $ 59,795 $ 45,499
Government Securities Fund..................... $ 203,152 $124,281 $166,715
Fee Amount Waived............................ $ 40,607 $ 16,752 $ 0
Expenses Reimbursed.......................... $ 144,536 $105,334 $ 81,678
Treasury Securities Fund....................... $ 99,845 $ 62,167 $ 57,716
Fee Amount Waived............................ $ 19,956 $ 7,410 $ 6,926
Expenses Reimbursed.......................... $ 147,250 $129,447 $138,518
</TABLE>
Under a contract with PaineWebber dated April 15, 1996 with respect to the
Trust ("Mitchell Hutchins Contract"), 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, net of waivers and/or
reimbursements.
During each of the periods indicated, PaineWebber paid (or accrued) to
Mitchell Hutchins the fees indicated below under either the Mitchell Hutchins
Contract or a predecessor agreement:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30
--------------------------
1997 1996
---------- ----------
<S> <C> <C> <C>
Money Market Fund................................ $ 877,358 $ 220,065
Government Securities Fund....................... $ 8,099 $ 39,863
Treasury Securities Fund......................... $ 0 $ 17,551
</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 the Trust not readily identifiable as belonging to a
specific Fund 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 trustees and officers who are not interested persons of the
Trust or 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 a Fund for violation of any law,
(10) legal, accounting and auditing expenses, including legal fees of special
counsel for those trustees who are not
11
<PAGE>
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 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 a Fund, (15) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations, (16) costs of
mailing and tabulating proxies and costs of meetings of shareholders, the
board and any committees thereof, (17) the cost of investment company
literature and other publications provided to the trustees and officers, and
(18) costs of mailing, stationery and communications equipment.
Under the PaineWebber and Mitchell Hutchins Contracts (collectively,
"Contracts"), PaineWebber or Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
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 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, 1997,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment
company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT CATEGORY NET ASSETS
------------------- ----------
( $ MIL)
<S> <C>
Domestic (excluding Money Market)............................... $5,757.7
Global.......................................................... 3,109.4
Equity/Balanced................................................. 3,943.5
Fixed Income (excluding Money Market)........................... 4,923.6
Taxable Fixed Income.......................................... 3,379.7
Tax-Free Fixed Income......................................... 1,543.9
Money Market Funds.............................................. 23,869.9
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds and other Mitchell Hutchins'
advisory accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber mutual 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, which requires PaineWebber
to use its best efforts, consistent with its other business, to sell shares of
the Trust. Shares of the Trust are offered continuously.
12
<PAGE>
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 that
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 it advises 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 Contract. During the 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 over-the-counter
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 a requirement
that Mitchell Hutchins obtain 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 a Fund
and such other account(s) as to amount according to a formula deemed equitable
to that 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.
As of April 30, 1997, Money Market Fund owned commercial paper and short-
term obligations issued by the following issuers that are regular broker-
dealers for the Fund: Bear Stearns Companies, Inc.--$12,000,000; Goldman Sachs
Group LP--$14,990,783; Morgan Stanley Group Incorporated--$34,909,110; and
Merrill Lynch & Co., Incorporated--$46,970,116.
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 ("NYSE") is closed or
trading on the NYSE is restricted as
13
<PAGE>
determined by the Securities and Exchange Commission ("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 a Fund
during any 90-day period for one shareholder.
VALUATION OF SHARES
Money Market Fund's net asset value per share is determined by State Street
Bank and Trust Company ("State Street") as of 2:30 p.m., Eastern time, on each
Business Day. Government Securities Fund's and Treasury Securities Fund's net
asset values per share are determined by State Street as of 12:00 noon,
Eastern time, on each Business Day. As defined in the Prospectus, "Business
Day" means any day on which the Massachusetts offices of State Street, and the
Fund's transfer agent, First Data Investor Services Group, Inc. ("Transfer
Agent") and the New York City offices of PaineWebber and PaineWebber's bank
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, Patriots' 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 has established procedures ("Procedures") for the purpose of
maintaining a constant net asset value of $1.00 per share, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for any Fund, the board will promptly consider
whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends and utilizing a net asset value per share as
determined by using available market quotations. Each Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less and will not
purchase any instrument having, or deemed to have, a remaining maturity of
more than 397 days, will limit portfolio investments, including repurchase
agreements, to those U.S. dollar-denominated instruments that are of high
quality under the Rule and that Mitchell Hutchins, acting pursuant to the
Procedures, determines 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.
14
<PAGE>
In determining the approximate market value of portfolio investments, each
Fund may employ outside organizations, which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves
and other specific adjustments. This may result in the securities being valued
at a price different from the price that would have been determined had the
matrix or formula method not been used.
TAXES
In order to continue to qualify for treatment as a regulated investment
company 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) and must meet several additional
requirements. Among these requirements are the following: (1) the Fund must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of securities and certain other income; (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities held for less than three months; (3) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. government
securities and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value
of the Fund's total assets; and (4) at the close of 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.
A Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
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) to the power of 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.
The following yields are for the seven-day period ended April 30, 1997:
<TABLE>
<CAPTION>
EFFECTIVE
FUND YIELD YIELD
---- ----- ---------
<S> <C> <C>
Money Market Fund......................................... 5.35% 5.49%
Government Securities Fund................................ 5.19% 5.33%
Treasury Securities Fund.................................. 5.06% 5.18%
</TABLE>
15
<PAGE>
OTHER INFORMATION. The Funds' performance data quoted in advertising and
other promotional materials ("Performance Advertisements") represent past
performance and are not intended to predict or indicate future results. The
return on an investment in each Fund will fluctuate. In Performance
Advertisements, the Funds may compare their taxable yield with data published
by Lipper Analytical Services, Inc. for money funds ("Lipper"), CDA Investment
Technologies, Inc. ("CDA"), IBC Financial Data, Inc. ("IBC"), Wiesenberger
Investment Companies Service ("Wiesenberger") or Investment Company Data Inc.
("ICD"), or with the performance of recognized stock and other indexes,
including the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the 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, IBC, 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 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 also compare its performance with the performances of bank
certificates of deposit ("CDs") as measured by the CDA Certificate of Deposit
Index and the Bank Rate Monitor National Index and the average of yields of
CDs of major banks published by Banxquotes(R) Money Markets. In comparing a
Fund's performance to CD performance, investors should keep in mind that bank
CDs are insured in whole or in part by an agency of the U.S. government and
offer fixed principal and fixed or variable rates of interest, and that bank
CD yields may vary depending on the financial institution offering the CD and
prevailing interest rates. 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.
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 make available to shareholders a daily accrual factor
or "mil rate" representing dividends accrued to shareholder accounts on a
given day or days. Certain shareholders may find that this information
facilitates accounting or recordkeeping.
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. 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
16
<PAGE>
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, serves as counsel to the Funds.
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 the financial intermediary
to provide support services to its customers who beneficially own Financial
Intermediary shares in consideration of the Trust's payment of 0.25% (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. No payments were made by any Fund
to financial intermediaries during the fiscal year ended April 30, 1997
because no Financial Intermediary shares were outstanding during that period.
The Trust's agreements with financial intermediaries are governed by an
Amended and Restated Shareholder Services Plan (the "Plan") adopted by the
board in connection with the offering of Financial Intermediary shares.
Pursuant to the Plan, the board 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 1940
Act and have no direct or indirect financial interest in these arrangements
(the "Independent Trustees").
The board 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,
including a majority of the Independent Trustees. So long as the Trust's
arrangements with financial intermediaries are in effect, the selection and
nomination of the members of the board who are not "interested persons" of the
Trust, as defined in the 1940 Act, will be committed to the discretion of
those non-interested trustees.
17
<PAGE>
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 advisers before
investing fiduciary funds in Financial Intermediary shares. See also
"Financial Intermediaries" in the Prospectus.
FINANCIAL STATEMENTS
The Funds' Annual Report to Shareholders for the fiscal year ended April 30,
1997 is a separate document 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.
18
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE 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; Principal Holders of Securities..................... 5
Investment Advisory, Administration and Distribution Arrangements.......... 11
Portfolio Transactions..................................................... 13
Additional Information Regarding Redemptions............................... 13
Valuation of Shares........................................................ 14
Taxes...................................................................... 15
Calculation of Yield....................................................... 15
Other Information.......................................................... 16
Financial Statements....................................................... 18
</TABLE>
(C) 1997 PaineWebber Incorporated
LIQUID INSTITUTIONAL RESERVES
MONEY MARKET FUND
GOVERNMENT SECURITIES FUND
TREASURY SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
September 1, 1997
- --------------------------------------------------------------------------------
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements (filed herewith)
Money Market Fund
- -----------------
Included in Part A of the Registration Statement:
Financial Highlights for one Institutional share of the Fund for each of
the five years in the period ended April 30, 1997 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, 1995 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 through EDGAR on July 2, 1997, Accession
No. 0000912057-97-023286:
Portfolio of Investments at April 30, 1997.
Statement of Assets and Liabilities at April 30, 1997.
Statement of Operations for the year ended April 30, 1997.
Statement of Changes in Net Assets for each of the two years in the period
ended April 30, 1997.
Notes to Financial Statements.
Financial Highlights for one Institutional share of the Fund for each of
the five years in the period ended April 30, 1997.
Financial Highlights for one Financial Intermediary share of the Fund for
the year ended April 30, 1995 and for the period March 17, 1994
(commencement of offering) through April 30, 1994.
Report of Ernst & Young LLP, Independent Auditors, dated June 13, 1997.
Government Securities Fund
- --------------------------
Included in Part A of the Registration Statement:
Financial Highlights for one Institutional share of the Fund for each of
the five years in the period ended April 30, 1997 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 period July 12, 1994 (commencement of offering) to April 30, 1995.
C-1
<PAGE>
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 through EDGAR on July 2, 1997, Accession
No. 0000912057-97-023286:
Portfolio of Investments at April 30, 1997.
Statement of Assets and Liabilities at April 30, 1997.
Statement of Operations for the year ended April 30, 1997.
Statement of Changes in Net Assets for each of the two years in the period
ended April 30, 1997.
Notes to Financial Statements.
Financial Highlights for one Institutional share of the Fund for each of
the five years in the period ended April 30, 1997.
Financial Highlights for one Financial Intermediary share of the Fund for
the period July 12, 1994 (commencement of offering) through April 30, 1995.
Report of Ernst & Young LLP, Independent Auditors, dated June 13, 1997.
Treasury Securities Fund
- ------------------------
Included in Part A of the Registration Statement:
Financial Highlights for one Institutional share of the Fund for each of
the five years in the period ended April 30, 1997 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 through EDGAR on July 2, 1997, Accession
No. 0000912057-97-023286:
Portfolio of Investments at April 30, 1997.
Statement of Assets and Liabilities at April 30, 1997.
Statement of Operations for the year ended April 30, 1997.
Statement of Changes in Net Assets for each of the two years ended April
30, 1997.
Notes to Financial Statements.
Financial Highlights for one Institutional share of the Fund for each of
the five years in the period ended April 30, 1997.
Report of Ernst & Young LLP, Independent Auditors, dated June 13, 1997.
C-2
<PAGE>
(b) Exhibits:
Exh. No. Description of Exhibit
- -------- ----------------------
1 (a) Amended and Restated Declaration of Trust /1/
(b) Amendment effective April 18, 1996 to Declaration of Trust /7/
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 /6/
(b) Investment Sub-advisory and Sub-administration Agreement between
PaineWebber and Mitchell Hutchins /7/
6 Distribution Contract between Registrant and PaineWebber /3/
7 Bonus, profit or pension plans - none
8 Custodian Contract /6/
9 (a) Transfer Agency Services and Shareholder Services Agreement (filed
herewith)
(b) Shareholder Service Plan /7/
(c) Shareholder Service Agreement /7/
10 Other Opinions, appraisals, rulings and consents: Opinion and Consent of
counsel (previously filed)
11 Consent of Independent Auditors (filed herewith)
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 and
27 Financial Data Schedule (filed herewith)
18 Plan pursuant to Rule 18f-3 /7/
_______________________________
/1/ Incorporated by reference to Pre-effective Amendment No. 1 to the
registration statement (SEC File No. 33-39029), filed April 26, 1991.
/2/ Incorporated 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 the
registration statement (SEC File No. 33-39029), filed August 25, 1995.
/4/ Incorporated by reference to Pre-Effective Amendment No. 2 to the
registration Statement (SEC File No. 33-39029), filed May 23, 1991.
/5/ Incorporated by reference from Post-Effective Amendment No. 2 to
registration statement (SEC File No. 33-39029), filed August 28, 1992.
/6/ Incorporated by reference from Post-Effective Amendment No. 8 to
registration statement (SEC File No. 33-39029) filed July 3, 1996.
/7/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement (SEC File No. 33-39029), filed August 30, 1996.
C-3
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
-------------------------------
<TABLE>
<CAPTION>
Number of Record
Shareholders as of
Title of Class June 30 , 1997
-------------- ------------------
<S> <C>
Shares of Beneficial Interest, par
value $0.001 per share
Money Market Fund
Institutional Shares 940
Financial Intermediary Shares 0
Government Securities Fund
Institutional Shares 105
Financial Intermediary Shares 0
Treasury Securities Fund
Institutional Shares 160
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
C-4
<PAGE>
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 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
C-5
<PAGE>
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
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 Paine Webber Group, Inc. PaineWebber is
primarily engaged in the financial services business. Information as to the
officers and directors of PaineWebber is included in its Form ADV 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.
C-6
<PAGE>
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
(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 POSITIONS AND OFFICES
NAME AND PRINCIPAL WITH REGISTRANT WITH UNDERWRITER
- ------------------ --------------------- ------------------------
<S> <C> <C>
Margo N. Alexander Trustee and President Executive Vice President
(Chief Executive and a Director
Officer)
Mary C. Farrell Trustee Managing Director,Senior
Investment Strategist
and 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-7
<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, 1997.
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, 1997
- ---------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ Garrett Bewkes, Jr. Trustee and Chairman June 30, 1997
- ---------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee June 30, 1997
- ----------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee June 30, 1997
- ----------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee June 30, 1997
- ----------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee June 30, 1997
- ----------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee June 30, 1997
- ----------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee June 30, 1997
- ----------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee June 30, 1997
- ----------------------------
Carl W. Schafer *
/s/ Paul H. Schubert Vice President and Treasurer (Chief June 30, 1997
- ---------------------------- Financial and Accounting Officer)
Paul H. Schubert
</TABLE>
<PAGE>
SIGNATURES (CONTINUED)
* Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 30 to the registration statement of PaineWebber Managed Municipal
Trust, SEC File 2-89016, filed June 27, 1996.
<PAGE>
LIQUID INSTITUTIONAL RESERVES
EXHIBIT INDEX
-------------
Exh. No. Description of Exhibit
- -------- ----------------------
1 (a) Amended and Restated Declaration of Trust /1/
(b) Amendment effective April 18, 1996 to Declaration of Trust /7/
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 /6/
(b) Investment Sub-advisory and Sub-administration Agreement between
PaineWebber and Mitchell Hutchins /7/
6 Distribution Contract between Registrant and PaineWebber /3/
7 Bonus, profit or pension plans - none
8 Custodian Contract /6/
9 (a) Transfer Agency Services and Shareholder Services Agreement (filed
herewith)
(b) Shareholder Service Plan /7/
(c) Shareholder Service Agreement /7/
10 Other Opinions, appraisals, rulings and consents: Opinion and Consent
of counsel (previously filed)
11 Consent of Independent Auditors (filed herewith)
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 and
27 Financial Data Schedule (filed herewith)
18 Plan pursuant to Rule 18f-3 /7/
_______________________________
/1/ Incorporated by reference to Pre-effective Amendment No. 1 to the
registration statement (SEC File No. 33-39029), filed April 26, 1991.
/2/ Incorporated 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 the
registration statement (SEC File No. 33-39029), filed August 25, 1995.
/4/ Incorporated by reference to Pre-Effective Amendment No. 2 to the
registration Statement (SEC File No. 33-39029), filed May 23, 1991.
/5/ Incorporated by reference from Post-Effective Amendment No. 2 to
registration statement (SEC File No. 33-39029), filed August 28, 1992.
/6/ Incorporated by reference from Post-Effective Amendment No. 8 to
registration statement (SEC File No. 33-39029) filed July 3, 1996.
/7/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement (SEC File No. 33-39029), filed August 30, 1996.
<PAGE>
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 30th day of May 1997 between LIQUID
INSTITUTIONAL RESERVES (the "Fund"), a Massachusetts business trust having its
principal place of business at 1285 Avenue of the Americas, New York, NY 10019
and FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts
corporation with principal offices at 4400 Computer Drive, Westboro,
Massachusetts 01581.
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;
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Exhibit 1, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint FDISG as
its transfer agent, dividend disbursing agent and agent in connection with
certain other activities and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 Definitions.
-----------
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended from
time to time.
(b) "Authorized Person" shall be deemed to include (i) any authorized
officer of the Fund; or (ii) any person, whether or not such person is an
officer or employee of the Fund, duly authorized to give Oral Instructions
or Written Instructions on behalf of the Fund as indicated in writing to
FDISG from time to time.
(c) "Board of Directors" shall mean the Board of Directors or Board of
Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange Commission.
1
<PAGE>
(e) "Custodian" refers to any custodian or subcustodian of securities
and other property which the Fund may from time to time deposit, or cause
to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, all as amended from time to
time.
(g) "1940 Act" shall mean the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder, all as amended from time to
time.
(h) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by FDISG from a person reasonably believed
by FDISG to be an Authorized Person;
(i) "Portfolio" shall mean each separate series of shares offered by
the Fund representing interests in a separate portfolio of securities and
other assets;
(j) "Prospectus" shall mean the most recently dated Fund Prospectus
and Statement of Additional Information, including any supplements thereto,
if any, which has become effective under the Securities Act of 1933 and the
1940 Act.
(k) "Shares" refers collectively to such shares of capital stock or
beneficial interest, as the case may be, or class thereof, of each
respective Portfolio of the Fund as may be issued from time to time.
(l) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(m) "Written Instructions" shall mean a written communication signed
by a person reasonably believed by FDISG to be an Authorized Person and
actually received by FDISG. Written Instructions shall include manually
executed originals and authorized electronic transmissions, including
telefacsimile of a manually executed original or other process.
Article 2 Appointment of FDISG.
--------------------
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
FDISG as transfer agent and dividend disbursing agent for Shares of each
respective Portfolio of the Fund and as shareholder servicing agent for the
Fund, and FDISG hereby accepts such appointments and agrees to perform the
duties hereinafter set forth. (As used herein, "shareholder servicing agent"
refers to the services contemplated by this Agreement and not to those described
in the
2
<PAGE>
Prospectus as being provided by financial intermediaries, such as banks and
savings associations, to the holders of the Fund's Financial Intermediary
shares.)
Article 3 Duties of FDISG.
---------------
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of a
transfer agent; acting as service agent in connection with dividend and
distribution functions; and performing shareholder account and
administrative agent functions in connection with the issuance, transfer
and redemption or repurchase (including coordination with the Custodian) of
Shares of each Portfolio, as more fully described in the written schedule
of duties of FDISG annexed hereto as Schedule A and incorporated herein,
and in accordance with the terms of the Prospectus of the Fund on behalf of
the applicable Portfolio, applicable law and the procedures established
from time to time between FDISG and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant to Rule
17Ad-10(e) of the 1934 Act a record of the total number of Shares of each
Portfolio which are authorized, based upon data provided to it by the Fund,
and issued and outstanding. FDISG shall provide the Fund on a regular basis
with the total number of Shares of each Portfolio which are authorized and
issued and outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Fund.
(c) Notwithstanding any of the foregoing provisions of this Agreement,
FDISG shall be under no duty or obligation to inquire into, and shall not
be liable for: (i) the legality of the issuance or sale of any Shares or
the sufficiency of the amount to be received therefor; (ii) the legality of
the redemption of any Shares, or the propriety of the amount to be paid
therefor; (iii) the legality of the declaration of any dividend by the
Board of Directors, or the legality of the issuance of any Shares in
payment of any dividend; or (iv) the legality of any recapitalization or
readjustment of the Shares.
3.2 In addition, the Fund shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of FDISG for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions subject to
blue sky compliance by the Fund and the reporting of such transactions to the
Fund as provided above.
3
<PAGE>
3.3 In addition to the duties set forth herein, FDISG shall perform such
other duties and functions, and shall be paid such amounts therefor, as may from
time to time be agreed upon in writing between the Fund and FDISG.
3.4 FDISG 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. The Fund agrees to reimburse FDISG for all reasonable out of pocket
expenses incurred by FDISG in connection with FDISG's compliance with this
Section 3.4.
3.5 In addition to performing the foregoing services, the Fund hereby
engages FDISG as its non-exclusive service provider with respect to the
Print/Mail Services as set forth in Schedule B for the fees also identified in
Schedule B. FDISG agrees to perform the services and its obligations subject to
the terms and conditions of this Agreement, recognizing that certain of such
communications with Shareholders will originate directly from PaineWebber and
not be subject to the charges set forth in Schedule B.
Article 4 Recordkeeping and Other Information.
-----------------------------------
4.1 FDISG shall create and maintain all records required of it pursuant to
its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such section, and
will be surrendered promptly to the Fund on and in accordance with the Fund's
request.
4.3 In case of any requests or demands for the inspection of Shareholder
records of the Fund, FDISG will endeavor to notify the Fund of such request and
secure Written Instructions as to the handling of such request. FDISG reserves
the right, however, to exhibit the Shareholder records to any person whenever it
is advised by its counsel that it may be held liable for the failure to comply
with such request.
Article 5 FUND INSTRUCTIONS.
-----------------
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions reasonably believed by FDISG to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until
4
<PAGE>
receipt of a Written Instruction thereof from the Fund. FDISG will also have no
liability when processing Share certificates which it reasonably believes to
bear the proper manual or facsimile signatures of the officers of the Fund and
the proper countersignature of FDISG.
5.2 At any time, FDISG may request Written Instructions from the Fund and
may seek advice from legal counsel for the Fund, or its own legal counsel, with
respect to any matter arising in connection with this Agreement, and it shall
not be liable for any action taken or not taken or suffered by it in good faith
in accordance with such Written Instructions or in accordance with the opinion
of counsel for the Fund or for FDISG, except that FDISG remains liable for any
action taken or not taken by it which constitutes willful misfeasance, bad faith
or negligence by FDISG or its employees or the reckless disregard by FDISG or
its employees of its duties and obligations under this Agreement. Written
Instructions requested by FDISG will be provided by the Fund within a reasonable
period of time.
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing or
acting on behalf of the Fund only if said representative is an Authorized
Person. The Fund agrees that all Oral Instructions shall be followed within one
business day by confirming Written Instructions, and that the Fund's failure to
so confirm shall not impair in any respect FDISG's right to rely on Oral
Instructions.
Article 6 Compensation.
------------
6.1 The Fund on behalf of each of the Portfolios will compensate FDISG for
the performance of its obligations hereunder in accordance with the fees set
forth in the written Fee Schedule annexed hereto as Schedule B and incorporated
herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund on
behalf of each of the Portfolios agrees to pay, and will be billed separately
for, reasonable out-of-pocket expenses incurred by FDISG in the performance of
its duties hereunder. Out-of-pocket expenses shall include, but shall not be
limited to, the items specified in the written schedule of out-of-pocket charges
annexed hereto as Schedule C and incorporated herein. Schedule C may be modified
by written agreement between the parties. Unspecified out-of-pocket expenses
shall be limited to those out-of-pocket expenses reasonably incurred by FDISG in
the performance of its obligations hereunder and pre-approved by the Fund.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all fees
and out-of-pocket expenses within fifteen (15) days following the receipt of the
respective invoice.
6.4 Any compensation agreed to hereunder may be adjusted from time to time
by attaching to Schedule B, a revised Fee Schedule executed and dated by the
parties hereto.
Article 7 Documents.
---------
5
<PAGE>
In connection with the appointment of FDISG, the Fund shall, on or before
the date this Agreement goes into effect, but in any case within a reasonable
period of time for FDISG to prepare to perform its duties hereunder, deliver or
cause to be delivered to FDISG the documents set forth in the written schedule
of Fund Documents annexed hereto as Schedule D.
Article 8 Transfer Agent System.
---------------------
8.1 FDISG shall retain title to and ownership of any and all data bases,
computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Fund herein (the "FDISG System") provided, however, it
is understood that the Fund shall retain ownership of all Shareholder records
and information maintained by FDISG on the FDISG System.
8.2 FDISG hereby grants to the Fund a limited license to the FDISG System
for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the FDISG System for either account inquiry or to transmit transaction
information, including but not limited to maintenance, exchanges, purchases and
redemptions, such direct access capability shall be limited to direct entry to
the FDISG System by means of on-line mainframe terminal entry or PC emulation of
such mainframe terminal entry and any other non-conforming method of
transmission of information to the FDISG System is strictly prohibited without
the prior written consent of FDISG.
8.4 In the event that the Fund, including any affiliate or agent of the
Fund, or any third party desires to transmit certain transaction instructions
directly to the FDISG System and produce reports associated with these
transactions from a remote location, FDISG agrees to make available its
proprietary Remote Trade Entry ("RTE") Software. The Fund's use of RTE shall be
in accordance with the terms of this Agreement. Any third party utilizing RTE
shall execute and be bound by the terms and conditions of the Remote Trade Entry
License Agreement attached hereto as Exhibit 1 or such other agreement that is
acceptable to both the fund and FDISG. FDISG hereby acknowledges that
shareholders which utilize RTE shall in no event be deemed to be agents of the
Fund.
Article 9 Representations and Warranties.
------------------------------
9.1 FDISG represents and warrants to the Fund that:
6
<PAGE>
(a) it is a corporation duly organized, existing and in good standing
under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to authorize
it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory agency as a
transfer agent and such registration will remain in effect for the duration
of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized, existing and in good standing under the laws
of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize it
to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933, as
amended, and the 1940 Act on behalf of each of the Portfolios is currently
effective and will remain effective, and all appropriate state securities
law filings have been made and will continue to be made, with respect to
all Shares of the Fund being offered for sale; and
(e) all outstanding Shares are validly issued, fully paid and non-
assessable and when Shares are hereafter issued in accordance with the
terms of the Fund's Articles of Incorporation and its Prospectus with
respect to each Portfolio, such Shares shall be validly issued, fully paid
and non-assessable.
Article 10 Indemnification.
---------------
10.1 Except as set forth in Sections 10.2 and 10.3 below, FDISG shall not
be responsible for and the Fund on behalf of each Portfolio shall indemnify and
hold FDISG harmless from and against any and all claims, costs, expenses
(including reasonable attorneys' fees), losses, damages, charges, payments and
liabilities of any sort or kind which may be
7
<PAGE>
asserted against FDISG or for which FDISG may be held to be liable (a "Claim")
arising out of or attributable to any of the following:
(a) any actions of FDISG required to be taken pursuant to this
Agreement;
(b) FDISG's reasonable reliance on, or reasonable use of information,
data, records and documents (including but not limited to magnetic tapes,
computer printouts, hard copies and microfilm copies) received by FDISG
from the Fund, or any authorized third party acting on behalf of the Fund,
including but not limited to the prior transfer agent for the Fund, in the
performance of FDISG's duties and obligations hereunder;
(c) the reliance on, or the implementation of, any Written or Oral
Instructions or any other instructions or requests of the Fund on behalf of
the applicable Portfolio;
(d) the offer or sales of shares in violation of any requirement under
the securities laws or regulations of any state that such shares be
registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale of
such shares in such state; and
(e) the Fund's refusal or failure to comply with the terms of this
Agreement, or any Claim which arises out of the Fund's negligence or
misconduct or the breach of any representation or warranty of the Fund made
herein.
10.2 FDISG shall not be indemnified under Section 10.1 against any
liability (or any expense incidental to such liability) arising out of the
willful misfeasance, bad faith or negligence of FDISG or its employees or the
reckless disregard by FDISG or its employees of its duties and obligations under
this Agreement.
10.3 FDISG shall indemnify and hold the Fund, on behalf of each Portfolio,
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against the Fund or for which the Fund
may be held to be liable (a "Claim") arising out of or attributable to the
willful misfeasance, bad faith or negligence of FDISG or its employees or the
reckless disregard by FDISG or its employees of its duties and obligations under
this Agreement.
10.4 In any case in which a party may be asked to indemnify or hold the
other party harmless, the party seeking indemnification ("Indemnified Party")
will notify the other party promptly after identifying any situation which it
believes presents or appears to present a claim for indemnification against the
other party, although the failure to do so shall not prevent recovery by the
Indemnified Party, and shall keep the other party advised with respect to all
developments concerning such situation. The party who may be required to
indemnify ("Indemnifying Party") shall have the option to defend the Indemnified
Party against any Claim which may be the subject of this indemnification and in
the event that the Indemnifying Party so
8
<PAGE>
elects, such defense shall be conducted by counsel chosen by the Indemnifying
Party and satisfactory to the Indemnified Party, and thereupon the Indemnifying
Party shall take over complete defense of the Claim and the Indemnified Party
shall sustain no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Article 10 shall survive the termination of this
Agreement.
10.5 Any claim for indemnification under this Agreement must be made prior
to the earlier of:
(a) one year after the Indemnifying Party becomes aware of the event
for which indemnification is claimed; or
(b) one year after the earlier of the termination of this Agreement or
the expiration of the term of this Agreement.
10.6 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
the sole and exclusive remedy for claims or other actions or proceedings to
which a party's indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care and Limitation of Liability
--------------------------------------------
11.1 FDISG shall at all times act in good faith and agrees to use its best
efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said errors are caused by FDISG's own negligence,
bad faith, willful misconduct or that of its employees, or the reckless
disregard by FDISG or its employees of its duties and obligations under this
Agreement.
11.2 Neither party may assert any cause of action against the other party
under this Agreement that accrued more than two (2) years prior to the filing of
the suit (or commencement of arbitration proceedings) alleging such cause of
action.
11.3 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
11.4 The members of the Board of Directors of the Fund and the
Shareholders of any Portfolio shall not be liable for any obligations of the
Fund or the Portfolios under this Agreement, and FDISG agrees, that in asserting
any rights or claims under this Agreement, it shall look only to the assets and
property of the Fund or the particular Portfolio in settlement of such right or
claims, and not to such members of the Board of Directors or Shareholders. FDISG
further agrees that it will look only to the assets and property of a particular
Portfolio in asserting
9
<PAGE>
any right or claims under this Agreement with respect to services rendered with
respect to that Portfolio and will not seek to obtain settlement of such rights
or claims from the assets of any other Portfolio of the Fund.
Article 12 Consequential Damages.
---------------------
12.1 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL EITHER PARTY TO THIS AGREEMENT, ITS AFFILIATES OR ANY OF ITS OR
THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER
ANY THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY TO THE OTHER CONTRACTING PARTY FOR LOST PROFITS, EXEMPLARY, PUNITIVE,
SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY
EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF WHETHER SUCH DAMAGES WERE
FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
--------------------
13.1 This Agreement shall be effective on the date first written above and
shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each
provided that it may be terminated by either party during a Renewal Term upon
written notice given at least sixty (60) days prior to termination.
13.3 In the event a termination notice is given by the Fund, it shall be
accompanied by a resolution of the Board of Directors, certified by the
Secretary of the Fund, designating a successor transfer agent or transfer
agents. Upon such termination and at the expense of the Fund, FDISG will deliver
to such successor a certified list of shareholders of the Fund (with names and
addresses), and all other relevant books, records, correspondence and other Fund
records or data in the possession of FDISG, and FDISG will cooperate with the
Fund and any successor transfer agent or agents in the substitution process.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If FDISG is the Non-Defaulting Party, its termination of
this Agreement shall not constitute a waiver of any other rights or remedies of
FDISG with respect to services performed prior to such termination or rights of
FDISG to be reimbursed for out-of-pocket
10
<PAGE>
expenses. In all cases, termination by the Non-Defaulting Party shall not
constitute a waiver by the Non-Defaulting Party of any other rights it might
have under this Agreement or otherwise against the Defaulting Party.
Article 14 Additional Portfolios.
---------------------
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit 1, with respect to which the Fund
desires to have FDISG render services as transfer agent under the terms hereof,
the Fund shall so notify FDISG in writing, and if FDISG agrees in writing to
provide such services, Exhibit 1 shall be amended to include such additional
portfolios.
Article 15 Confidentiality.
---------------
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and FDISG shall exercise at least the same degree of care, but not less than
reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect its own confidential
information of a similar nature. The Fund and FDISG shall not duplicate, sell or
disclose to others the Confidential Information of the other, in whole or in
part, without the prior written permission of the other party, except as may be
required by applicable law or at the request of the Commission or other
governmental agency. The parties further agree that a breach of this Section
15.1 would irreparably damage the other party and accordingly agree that each of
them is entitled, without bond or other security, to an injunction or
injunctions to prevent breaches of this provision. The Fund and FDISG may,
however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. The Fund and FDISG may also disclose the Confidential
Information to independent contractors, auditors, and professional advisors.
Notwithstanding the previous sentence, in no event shall either the Fund or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive material,
and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, the Fund's shareholders, sales
estimates, business plans, and internal performance results relating to the
past, present or future business activities of the Fund or FDISG, their
respective subsidiaries and affiliated companies (including, with respect
to the Fund, its
11
<PAGE>
investment adviser and principal underwriter) and the customers, clients
and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and secret
in the sense that its confidentiality affords the Fund or FDISG a
competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and models,
and any other tangible manifestation of the foregoing of either party which now
exist or come into the control or possession of the other.
Article 16 Security and Disaster Recovery
------------------------------
16.1 FDISG represents and warrants that, to the best of its knowledge, the
various procedures and systems which FDISG has implemented with regard to the
safeguarding from loss or damage attributable to fire, theft or any other cause
(including provision for 24 hours a day restricted access) of the Fund's blank
checks, certificates, records and other data and FDISG'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.
FDISG shall review such systems and procedures on a periodic basis and the Fund
shall have access to review these systems and procedures.
16.2 FDISG, or an affiliate of FDISG, 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, FDISG shall, at no additional expense to the fund, take all
reasonable steps to minimize service interruptions. FDISG shall have no
liability with respect to the loss of data or service interruptions caused by
equipment failures, provided such loss or interruption is not caused by the
negligence of FDISG and provided further that FDISG has complied with the
provisions of this Article 16.
Article 17 Force Majeure.
-------------
17.1 Subject to the provisions of Article 16, no party shall be liable for
any default or delay in the performance of its obligations under this Agreement
if and to the extent such default
12
<PAGE>
or delay is caused, directly or indirectly, by (i) fire, flood, elements of
nature or other acts of God; (ii) any outbreak or escalation of hostilities,
war, riots or civil disorders in any country, (iii) any act or omission of the
other party or any governmental authority; (iv) any labor disputes (whether or
not the employees' demands are reasonable or within the party's power to
satisfy); or (v) nonperformance by a third party or any similar cause beyond the
reasonable control of such party, including without limitation, failures or
fluctuations in telecommunications or other equipment. In any such event, the
non-performing party shall be excused from any further performance and
observance of the obligations so affected only for as long as such circumstances
prevail and such party continues to use commercially reasonable efforts to
recommence performance or observance as soon as practicable.
Article 18 Assignment and Subcontracting.
-----------------------------
18.1 This Agreement, its benefits and obligations shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. This Agreement may not be assigned or otherwise
transferred by either party hereto, without the prior written consent of the
other party, which consent shall not be unreasonably withheld; provided,
however, that FDISG may, in its sole discretion, assign all its right, title and
interest in this Agreement to an affiliate, parent or subsidiary, or to the
purchaser of substantially all of its business. FDISG may, in its sole
discretion, engage subcontractors to perform any of the obligations contained in
this Agreement to be performed by FDISG; however, such subcontractors shall be
bound by the terms of this Agreement as though an original party hereto, and
FDISG shall be responsible for the performance of such subcontractors under the
terms and conditions of this Agreement as if such performance were its own,
unless such subcontractors are PaineWebber Incorporated, Mitchell Hutchins Asset
Management, Inc. or an affiliated person of either.
18.2 Notwithstanding Section 18.1 above, FDISG may assign its rights and
delegate its duties under the Agreement to PaineWebber Incorporated or Mitchell
Hutchins Asset Management Inc., or an affiliated person of either, upon mutual
prior written acknowledgment of such assignment by FDISG and the Fund.
Article 19 Arbitration.
-----------
19.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
National Association of Securities Dealers in New York, New York in accordance
with its applicable rules, except that the Federal Rules of Evidence and the
Federal Rules of Civil Procedure with respect to the discovery process shall
apply.
19.2 The parties hereby agree that judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
13
<PAGE>
19.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 19.
Article 20 Notice.
-------
Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Fund or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund: Liquid Institutional Reserves
1285 Avenue of the Americas
New York, NY 10019
Attention: Colleen McDermott
with copies to: Dianne E. O'Donnell, Secretary
Robert P. Hetzer
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
Article 21 Governing Law/Venue.
-------------------
The laws of the State of New York, excluding the laws on conflicts of laws,
shall govern the interpretation, validity, and enforcement of this Agreement.
All actions arising from or related to this Agreement shall be brought in the
state and federal courts sitting in New York City, and FDISG and Client hereby
submit themselves to the exclusive jurisdiction of those courts.
Article 22 Counterparts.
-------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 23 Captions.
---------
14
<PAGE>
The captions of this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
Article 24 Publicity.
---------
Neither FDISG nor the Fund shall release or publish news releases, public
announcements, advertising or other publicity relating to this Agreement or to
the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements.
Article 25 Relationship of Parties.
-----------------------
25.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
25.2 Upon reasonable notice by the Fund, FDISG shall make available during
regular business hours such of its facilities and premises employed in
connection with the performance of its duties under this Agreement for
reasonable visitation by the Fund, or any person retained by the Fund, as may be
necessary for the Fund to evaluate the quality of the services performed by
FDISG pursuant hereto.
Article 26 Entire Agreement; Severability.
------------------------------
26.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against FDISG unless said writing is executed by a Senior Vice
President, Executive Vice President, or President of FDISG. A party's waiver of
a breach of any term or condition in the Agreement shall not be deemed a waiver
of any subsequent breach of the same or another term or condition.
26.2 The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not affect
the validity of the remainder of this Agreement. In such case, the parties shall
in good faith modify or substitute such provision consistent with the original
intent of the parties. Without limiting the generality of this paragraph, if a
court determines that any remedy stated in this Agreement has failed of its
essential purpose, then all
15
<PAGE>
other provisions of this Agreement, including the limitations on liability and
exclusion of damages, shall remain fully effective.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
LIQUID INSTITUTIONAL RESERVES
By: /s/ Dianne E. O'Donnell
----------------------------
Title: DIANNE E. O'DONNELL
-------------------------
SECRETARY AND VICE PRESIDENT
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Gerald G. Kokos
----------------------------
Title: Executive Vice President
-------------------------
APPROVED
LEGAL
16
<PAGE>
Exhibit 1
LIST OF PORTFOLIOS
------------------
Money Market Fund
Government Securities Fund
Treasury Securities Fund
17
<PAGE>
Schedule A
DUTIES OF FDISG
---------------
1. Shareholder Information. FDISG shall maintain a record of the number
-----------------------
of Shares held by each Shareholder of record which shall include name, address
and taxpayer identification number. FDISG has been informed by the Fund that it
has not and does not intend to issue share certificates.
2. Shareholder Services. FDISG shall respond as appropriate to all
---------------------
inquiries and communications from Shareholders relating to Shareholder accounts
with respect to its duties hereunder and as may be from time to time mutually
agreed upon between FDISG and the Fund. As part of these services, FDISG shall
provide toll-free lines (at the expense of the Fund) for direct shareholder use,
plus customer liaison staff for on-line inquiry response.
3. Mailing Communications to Shareholders; Proxy Materials. FDISG will
-------------------------------------------------------
address and mail to Shareholders whose Fund accounts are not linked to a
PaineWebber account (each a "Fund-only account"), all reports to such
Shareholders, and dividend and distribution notices. At the expense of the Fund,
FDISG shall provide such Shareholder account information as is reasonably
necessary to facilitate the mailing and tabulation of proxy material for the
Fund's meetings of Shareholders. FDISG understands that the Fund normally
retains the services of other service providers in connection with proxy
solicitations. However, in connection with meetings of Shareholders, if
requested in advance by the Fund, FDISG will prepare Shareholder lists, mail and
certify as to the mailing of proxy materials, process and tabulate returned
proxy cards, report on proxies voted prior to meetings, act as inspector of
election at meetings and certify Shares voted at meetings. If the Fund retains a
third party in connection with a proxy solicitation, FDISG agrees to take
reasonable steps to facilitate such party's activities.
4. Sales of Shares
---------------
(a) FDISG shall not be required to issue any Shares of the Fund where
it has received a Written Instruction from the Fund or official notice from any
appropriate authority that the sale of the Shares of the Fund has been suspended
or discontinued. The existence of such Written Instructions or such official
notice shall be conclusive evidence of the right of FDISG to rely on such
Written Instructions or official notice. FDISG recognizes that the Fund and
PaineWebber reserve the right to reject any purchase order and to suspend the
offering of Fund Shares for a period of time as provided in the Prospectus; the
Fund will provide FDISG with Written Instructions in connection with the
exercise of this right.
(b) In the event that any wire of Federal Funds for the payment of
money in connection with the sale of Shares is not received or voided or
reversed for any reason, FDISG will endeavor to: (I) give prompt notice of such
occurrence to the Fund or its designee; (ii) place
18
<PAGE>
a stop transfer order against all Shares issued as a result of such order, if
any; and (iii) take such actions as FDISG may from time to time deem
appropriate.
(c) FDISG shall maintain necessary communication with the Fund's
custodian in order to report daily sales activity and transmit sales proceeds to
such custodian on a daily basis for those days on which the Fund is open for
business.
5. Transfer and Repurchase
-----------------------
(a) FDISG shall process all requests to transfer or redeem Shares in
accordance with the transfer or repurchase procedures set forth in the Fund's
Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of Oral or
Written Instructions accompanied by such documents as FDISG reasonably may deem
necessary or otherwise pursuant to the Prospectus.
(c) FDISG reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the endorsement on the instructions is valid
and genuine. FDISG also reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the requested transfer or repurchase is
legally authorized, and it shall incur no liability for the refusal, in good
faith, to make transfers or repurchases which FDISG, in its good judgment, deems
improper or unauthorized, or until it is reasonably satisfied that there is no
basis to any claims adverse to such transfer or repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
(e) FDISG shall, upon receipt of the monies provided to it by the
Custodian for the repurchase of Shares, pay such monies as are received from the
Custodian, all in accordance with the procedures described in the written
instruction received by FDISG from the Fund.
(f) FDISG shall not process or effect any repurchase with respect to
Shares of the Fund after receipt by FDISG or its agent of notification of the
suspension of the determination of the net asset value of the Fund.
6. Dividends
---------
(a) Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to Shares of the
Fund, the Fund shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of
19
<PAGE>
such dividend or distribution, the ex-dividend date, the date of payment
thereof, the record date as of which Shareholders entitled to payment shall be
determined, the amount payable per Share to the Shareholders of record as of
that date, the total amount payable on the payment date and whether such
dividend or distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of the
Board of Directors, the Fund will provide FDISG with sufficient cash to make
payment to the Shareholders of record as of such payment date.
(c) If FDISG does not receive sufficient cash from the Fund to make
total dividend and/or distribution payments to all Shareholders of the Fund as
of the payable date, FDISG will, upon notifying~ the Fund, withhold payment to
all such Shareholders until sufficient cash is provided to FDISG.
7. Additional Services.
-------------------
(a) Calculate Shareholder Servicing Fee payments and broker trail
commissions.
(b) Monitor and maintain all systems necessary to implement and
operate the multi-class distribution system, as described in the Prospectus,
provided, however, that such systems shall not be materially different from
those used by FDISG in connection with providing services to its other clients
utilizing a multi-class structure.
(c) Send duplicate confirmations and statements to brokers of their
clients' activity, whether executed through the broker-dealer or directly with
FDISG if requested by the Fund to do so with regard to Fund-only accounts only.
8. In addition to and neither in lieu nor in contravention of the services
set forth above, FDISG shall: (i) perform all the customary services of a
transfer agent, registrar, dividend and distribution disbursing agent and agent
of the dividend reinvestment plan as described in the FUND'S prospectus and
herein consistent with those requirements in effect as at the date of this
Agreement. The detailed definition, frequency, limitations and associated costs
(if any) set out in the attached fee schedule, include but are not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies (if requested by the Fund), tabulating proxies (if requested by
the Fund), mailing Shareholder reports to current Shareholders (unless the Fund
selects another service provider for this task and so informs FDISG),
withholding taxes on U.S. resident and non-resident alien accounts for "Fund -
only accounts" where applicable, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities for all Fund - only account Shareholders.
If the Fund retains another service provider with respect to a Shareholder
mailing, FDISG agrees to take reasonable steps, at the expense of the Fund, to
facilitate such other service provider's activities, including providing
Shareholder account information.
20
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information and to the incorporation by reference of our report dated June 13,
1997, in this Registration Statement (Form N-1A No. 33-39029) of Liquid
Institutional Reserves.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
June 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 1,244,603
<INVESTMENTS-AT-VALUE> 1,244,603
<RECEIVABLES> 5,024
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 139
<TOTAL-ASSETS> 1,249,766
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,967
<TOTAL-LIABILITIES> 2,967
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,246,796
<SHARES-COMMON-STOCK> 1,246,796
<SHARES-COMMON-PRIOR> 421,886
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,246,799
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 48,219
<OTHER-INCOME> 0
<EXPENSES-NET> 2,215
<NET-INVESTMENT-INCOME> 46,004
<REALIZED-GAINS-CURRENT> 10
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 46,014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (46,004)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,398,406
<NUMBER-OF-SHARES-REDEEMED> (7,616,174)
<SHARES-REINVESTED> 42,678
<NET-CHANGE-IN-ASSETS> 824,920
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,197
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,654
<AVERAGE-NET-ASSETS> 878,662
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> GOVERNMENT SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 91,188
<INVESTMENTS-AT-VALUE> 91,188
<RECEIVABLES> 15,889
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 71
<TOTAL-ASSETS> 107,148
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 305
<TOTAL-LIABILITIES> 305
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106,857
<SHARES-COMMON-STOCK> 106,857
<SHARES-COMMON-PRIOR> 43,768
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 106,843
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,379
<OTHER-INCOME> 0
<EXPENSES-NET> (244)
<NET-INVESTMENT-INCOME> 4,135
<REALIZED-GAINS-CURRENT> (10)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,125
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,140)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 670,826
<NUMBER-OF-SHARES-REDEEMED> (611,608)
<SHARES-REINVESTED> 3,871
<NET-CHANGE-IN-ASSETS> 63,074
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 203
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 429
<AVERAGE-NET-ASSETS> 81,260
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> TREASURY SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 39,744
<INVESTMENTS-AT-VALUE> 39,744
<RECEIVABLES> 26,320
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 34
<TOTAL-ASSETS> 66,098
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 205
<TOTAL-LIABILITIES> 205
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,915
<SHARES-COMMON-STOCK> 65,915
<SHARES-COMMON-PRIOR> 19,655
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 65,893
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,106
<OTHER-INCOME> 0
<EXPENSES-NET> (120)
<NET-INVESTMENT-INCOME> 1,986
<REALIZED-GAINS-CURRENT> 9
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,995
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,986)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 439,538
<NUMBER-OF-SHARES-REDEEMED> (395,078)
<SHARES-REINVESTED> 1,800
<NET-CHANGE-IN-ASSETS> 46,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (31)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,197
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,654
<AVERAGE-NET-ASSETS> 39,938
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
