<PAGE>
As filed with the Securities and Exchange Commission on August 28, 1998
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. 11 [ X ]
---- ---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
---
Amendment No. 12
----
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.
BENJAMIN J. HASKIN, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone (202) 778-9000
Approximate Date of Proposed Public Offering: Effective Date of this Post-
Effective Amendment.
It is proposed that this filing will become effective:
[___] Immediately upon filing pursuant to Rule 485(b)
[ X ] On September 1, 1998 pursuant to Rule 485(b)
--- -----------------
[___] 60 days after filing pursuant to Rule 485(a)(1)
[___] On __________________ pursuant to Rule 485(a)(1)
[___] 75 days after filing pursuant to Rule 485(a)(2)
[___] On ___________________ pursuant to Rule 485(a)(2)
Title of Securities Being Registered: Shares of Beneficial Interest.
<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
----------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Cover Page Cover Page
2. Synopsis Highlights
3. Condensed Financial Information Financial Highlights; Performance Information
4. General Description of Registrant Investment Objectives and Policies; Highlights;
General Information
5. Management of the Fund Investment Objectives and Policies; Management;
Purchases; Redemptions
5A. Management's Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities Purchases; Redemptions; Dividends and Taxes; General
Information
7. Purchase of Securities Being Offered Purchases; Redemptions; Management; Financial
Intermediaries
8. Redemption or Repurchase Purchases; Redemptions; Financial Intermediaries
9. Pending Legal Proceedings Not Applicable
<CAPTION>
Part B Item No. and Caption Statement of Additional Information Caption
----------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Policies and Restrictions
14. Management of the Fund Trustees and Officers; Principal Holders of Securities
15. Control Persons and Principal Holders of Securities Trustees and Officers; Principal Holders of Securities
16. Investment Advisory and Other Services Investment Advisory, Administration and Distribution
Arrangements
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Additional Information Regarding Redemptions
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B Item No. and Caption Statement of Additional Information Caption
----------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
19. Purchase, Redemption and Pricing of Securities Being Additional Information Regarding Redemptions;
Offered Valuation of Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory, Administration and Distribution
Arrangements
22. Calculation of Performance Data Calculation of Yield
23. Financial Statements Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
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 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,
1998 (which is incorporated by reference herein) has been filed with the
Securities and Exchange Commission ("SEC"or "Commission"). 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. In
addition, the Commission maintains a website (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference and other information regarding registrants that file electronically
with the Commission.
AN INVESTMENT IN A FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH EACH FUND SEEKS
TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN A FUND.
Not FDIC insured. May lose value. No bank guarantee.
- -------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED SEPTEMBER 1, 1998
<PAGE>
HIGHLIGHTS
See elsewhere in the Prospectus for more information on the topics discussed
in these highlights.
The Funds:
Professionally managed money market funds. 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
Objectives and
Policies:
The investment objective of each Fund is to earn high
current income to the extent consistent with the
preservation of capital and the maintenance of liquidity
through investments in a diversified portfolio of high
quality, short-term, U.S. dollar-denominated money market
instruments. Each Fund seeks to meet this objective by
following different investment policies:
Money Market Fund invests in high quality money market
instruments.
Government Securities Fund invests in short-term U.S.
government securities, the interest income from which is
generally exempt from state and local income taxation.
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 interest
from these investments is generally exempt from state and
local income taxation.
Net Assets at Money Market Fund--$1.5 billion
July 31, 1998:
Government Securities Fund--$90.1 million
Treasury Securities Fund--$178.8 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."
2
<PAGE>
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 $1,000,000 for Money Market Fund and Government Securities
Purchase: Fund (or in a combination of both) and $250,000 for
Treasury Securities Fund; no minimum for subsequent
purchases. (Financial intermediaries may establish
different minimums for their customers who purchase shares
through them.)
Public Offering Net asset value, which each Fund seeks to maintain at $1.00
Price: per share.
WHO SHOULD INVEST. 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, professional
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. While the types of money market securities in which each
Fund invests generally are considered to have low risk of loss of principal or
interest, these securities are not completely risk free. In addition, during
periods when interest rates are declining or rising, a Fund's yield will tend
to lag behind prevailing short-term market rates. 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 Objectives 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 SECURITIES FUND
AND
MONEY MARKET FUND TREASURY SECURITIES FUND
--------------------------- ---------------------------
FINANCIAL FINANCIAL
INSTITUTIONAL INTERMEDIARY INSTITUTIONAL INTERMEDIARY
SHARES SHARES SHARES SHARES**
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers).............................. 0.20% 0.20% 0.20% 0.20%
Other Expenses:
Shareholder Servicing Fees...................................... 0.00% 0.25% 0.00% 0.25%
Miscellaneous Expenses (after reimbursements)................... .09% .09% .10% 0.10%
Total Other Expenses (after reimbursements)...................... .09% .34% .10% 0.35%
------ ------ ------ ------
Total Operating Expenses (after fee waivers and reimbursements).. .29% .54% .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 $ 9 $16 $37
Financial Intermediary shares................. $ 6 $17 $30 $68
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 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 0.34%, 0.59% and 0.47%, respectively, for
Institutional shares and 0.59%, 0.84% and 0.72%, 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, $11, $19 and $43; $6, $19, $33
and $74; and $15, $15, $26 and $59, respectively, for Institutional shares and
would have been $6, $19, $33 and $74; $9, $27, $47 and $104; and $7, $23, $40
and $89, 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 the last fiscal
year of Government Securities Fund and Treasury Securities Fund. "Miscellaneous
Expenses" for the Financial Intermediary shares of these two Funds have been
estimated.
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. Financial Intermediary shares were not outstanding during the fis-
cal year ended April 30, 1998 for Government Securities Fund or Treasury Secu-
rities Fund and were outstanding for only limited periods of time prior to
that fiscal year for Money Market Fund and Government Securities Fund. 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, 1998 and are incorporated by reference into the Statement of Addi-
tional Information. The Funds' Annual Report 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 below, relating to the fiscal years
ended April 30, 1998, 1997 and 1996, have been audited by Ernst & Young LLP.
The financial information for periods prior to 1996 was audited by another in-
dependent accounting firm, whose reports thereon were unqualified.
<TABLE>
<CAPTION>
MONEY MARKET FUND
------------------------------------------------------------------------------
INSTITUTIONAL SHARES
--------------------------------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
APRIL 30, JUNE 3, 1991+
-------------------------------------------------------------- TO
1998 1997 1996 1995++ 1994 1993 APRIL 30, 1992
---------- ---------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- -------- -------- -------- -------- --------
Net investment
income......... 0.054 0.052 0.055 0.048 0.030 0.031 0.044
Net realized
losses from
investment
transactions... -- -- -- (0.008) -- -- --
---------- ---------- -------- -------- -------- -------- --------
Net increase
from investment
operations..... 0.054 0.052 0.055 0.040 0.030 0.031 0.044
---------- ---------- -------- -------- -------- -------- --------
Dividends from
net investment
income......... (0.054) (0.052) (0.055) (0.048) (0.030) (0.031) (0.044)
---------- ---------- -------- -------- -------- -------- --------
Distributions
from net
realized gain
from investment
transactions... (0.000) -- -- -- -- -- --
---------- ---------- -------- -------- -------- -------- --------
Total dividends
and
distributions
to
shareholders... (0.054) (0.052) (0.055) (0.048) (0.030) (0.031) (0.044)
---------- ---------- -------- -------- -------- -------- --------
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
========== ========== ======== ======== ======== ======== ========
Total investment
return (2)..... 5.52% 5.33% 5.61% 4.91% 3.03% 3.16% 4.52%
========== ========== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end
of period
(000's)........ $1,591,789 $1,246,799 $421,878 $220,844 $254,281 $385,618 $335,868
Expenses to
average net
assets net of
waivers/reimbursements
from adviser... 0.29% 0.25% 0.31% 0.35% 0.33% 0.34% 0.30%*
Expenses to
average net
assets before
waivers/reimbursements
from adviser... 0.34% 0.30% 0.37% 0.37% 0.33% 0.36% 0.41%*
Net investment
income to
average net
assets net of
waivers/reimbursements
from adviser... 5.38% 5.24% 5.47% 4.68% 2.96% 3.13% 4.76%*
Net investment
income to
average net
assets before
waivers/
reimbursements
from adviser... 5.33% 5.19% 5.41% 4.66% 2.96% 3.11% 4.65%*
<CAPTION>
FINANCIAL INTERMEDIARY SHARES**
--------------------------------------------------
FOR THE PERIOD
FOR THE PERIOD FOR THE MARCH 17, 1994+
JANUARY 14, 1998+ YEAR ENDED TO
TO APRIL 30, 1998 APRIL 30, 1995++ APRIL 30, 1994
----------------- ---------------- ---------------
<S> <C> <C> <C>
Net asset value,
beginning of
period......... $ 1.00 $ 1.00 $ 1.00
----------------- ---------------- ---------------
Net investment
income......... 0.015 0.027 0.004
Net realized
losses from
investment
transactions... -- -- --
----------------- ---------------- ---------------
Net increase
from investment
operations..... 0.015 0.027 0.004
----------------- ---------------- ---------------
Dividends from
net investment
income......... (0.015) (0.027) (0.004)
----------------- ---------------- ---------------
Distributions
from net
realized gain
from investment
transactions... -- -- --
----------------- ---------------- ---------------
Total dividends
and
distributions
to
shareholders... (0.015) (0.027) (0.004)
----------------- ---------------- ---------------
Contribution to
capital from
predecessor
adviser (1).... -- -- --
----------------- ---------------- ---------------
Net asset value,
end of period.. $ 1.00 $ 1.00 $ 1.00
================= ================ ===============
Total investment
return (2)..... 1.51% 3.10% 0.37%
================= ================ ===============
Ratios/Supplemental
Data:
Net assets, end
of period
(000's)........ $ 16,302 -- $ 9,000
Expenses to
average net
assets net of
waivers/reimbursements
from adviser... 0.54%* 0.60%* 0.58%*
Expenses to
average net
assets before
waivers/reimbursements
from adviser... 0.59%* 0.62%* 0.58%*
Net investment
income to
average net
assets net of
waivers/reimbursements
from adviser... 5.13%* 4.17%* 2.93%*
Net investment
income to
average net
assets before
waivers/
reimbursements
from adviser... 5.07%* 4.15%* 2.93%*
</TABLE>
- -------
+ 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 period May 1, 1997 to January 13, 1998, for the years ended April
30, 1996 and 1997 and for the period December 24, 1994 to April 30, 1995
there were no outstanding Financial Intermediary shares of Money Market
Fund. For the years ended April 30, 1996, 1997 and 1998 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 at net
asset value on the payable dates, and a sale at net asset value on the
last day of each period reported. Total investment return 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
1998 1997 1996 1995++ 1994 1993 APRIL 30, 1992 APRIL 30, 1995++
- -------- -------- -------- ------- ------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- ------- ------- -------- -------- -------
0.052 0.051 0.053 0.048 0.029 0.031 0.044 0.032
-- -- 0.001 (0.008) -- -- -- --
- -------- -------- -------- ------- ------- -------- -------- -------
0.052 0.051 0.054 0.040 0.029 0.031 0.044 0.032
- -------- -------- -------- ------- ------- -------- -------- -------
(0.052) (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 $ 1.00
======== ======== ======== ======= ======= ======== ======== =======
5.32% 5.20% 5.50% 4.61% 2.97% 3.13% 4.46% 3.31%
======== ======== ======== ======= ======= ======== ======== =======
$100,140 $106,843 $ 43,770 $54,903 $84,209 $102,611 $144,853 --
0.30% 0.30% 0.32% 0.35% 0.35% 0.34% 0.30%* 0.60%*
0.59% 0.53% 0.56% 0.47% 0.37% 0.36% 0.41%* 0.72%*
5.21% 5.09% 5.52% 4.75% 2.95% 3.11% 4.63%* 4.58%*
4.91% 4.86% 5.28% 4.63% 2.93% 3.09% 4.52%* 4.46%*
<CAPTION>
GOVTREASURY SECURITIES FUNDERNMENT SECURITIES FUND
- -----------------------------------------------------------------------------------------
INSTITUTIOINSTITUTIONAL SHARESNAL SHARES
- ----------------------------------------------------------------------------------
FOR THE YEFOR THE YEARS ENDEDARS ENDED FOR THE PERIOD
APRIL 30, APRIL 30, DECEMBER 6,
- ------------------------------------------------------------------- 1991+ TO
1998 1998 1997 1996 1995++ 1994 1993 APRIL 30, 1992
- --------- --------- --------- -------- --------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------- --------- --------- -------- --------- -------- --------- --------------
0.052 0.051 0.049 0.048 0.049 0.028 0.029 0.016
-- -- -- 0.003 (0.002) -- -- --
- --------- --------- --------- -------- --------- -------- --------- --------------
0.052 0.051 0.049 0.051 0.047 0.028 0.029 0.016
- --------- --------- --------- -------- --------- -------- --------- --------------
(0.052) (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 $ 1.00
========= ========= ========= ======== ========= ======== ========= ==============
5.32% 5.23% 5.02% 5.23% 4.75% 2.87% 2.89% 1.62%
========= ========= ========= ======== ========= ======== ========= ==============
$100,140 $179,708 $ 65,893 $19,624 $ 23,762 $38,602 $ 8,064 $ 15,003
0.30% 0.30% 0.30% 0.32% 0.22% 0.18% 0.33% 0.06%*
0.59% 0.47% 0.72% 0.94% 0.84% 0.76% 1.10% 2.05%*
5.21% 5.09% 4.97% 5.71% 5.51% 3.66% 3.65% 5.88%*
4.91% 4.92% 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 seeks to maintain 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.
MONEY MARKET FUND
Money Market Fund invests in high quality, short-term, U.S. dollar-denomi-
nated money market instruments of U.S. and foreign issuers. These instruments
include government securities, obligations of banks, commercial paper and
other short-term obligations issued by corporations, partnerships, trusts or
other entities, corporate bonds and notes, variable and floating rate securi-
ties, variable amount master demand notes, and participation interests or re-
purchase agreements involving any of the foregoing securities. Participation
interests are pro rata interests in securities held by others.
The U.S. government securities in which Money Market Fund may invest include
direct obligations of the U.S. Treasury (such as Treasury bills, notes and
bonds) and obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including securities that are supported by the full faith
and credit of the
United States (such as Government National Mortgage Association certificates
("GNMAs")), securities supported primarily or solely by the creditworthiness
of the issuer (such as securities of the Resolution Funding Corporation and
the Tennessee Valley Authority) and securities that are supported primarily or
solely by specific pools of assets and the creditworthiness of a U.S. govern-
ment-related issuer (such as mortgage-backed securities issued by Fannie Mae,
also known as the Federal National Mortgage Association).
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.
The securities purchased by Money Market Fund consist only of obligations
that are "First Tier Securities" as defined in Rule 2a-7 under the Investment
Company Act of 1940 ("1940 Act"). As so defined, First Tier Securities include
securities that are rated in the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by a single NRSRO if only one NRSRO has assigned the obligation a short-term
rating. The Fund also may rely on the short-term rating and credit quality of
a guarantee of a security (including bond insurance, letters of credit or un-
conditional demand features) or the issuer of the guarantee to determine
whether the security is eligible for purchase. First Tier Securities also in-
clude unrated securities if Mitchell Hutchins has determined the obligations
to be of comparable quality to rated securities that so qualify. The Fund gen-
erally may invest no more than 5% of its total assets in the securities of a
single issuer (other than securities issued by the U.S. government, its agen-
cies and instrumentalities).
GOVERNMENT SECURITIES FUND
Government Securities Fund invests in U.S. government securities, the inter-
est income from which is generally exempt from state and local income taxa-
tion. The Fund intends to emphasize investments in securities eligible for
this exemption in the maximum number of states. Securities generally eligible
for this exemption include those issued by the U.S. Treasury and those issued
by certain agencies, authorities or instrumentalities of the U.S. government,
including the Federal Home Loan Banks, Federal Farm Credit Banks Funding Corp.
and SLM Holding Corp. (formerly known as the Student Loan Marketing Associa-
tion). The Fund seeks to invest substantially all of its assets in securities
with these characteristics. Under extraordinary circumstances, 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 GNMAs and those issued by Freddie
Mac, also known as the Federal Home Loan Mortgage Corporation, and the Small
8
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Business Administration. The Fund may acquire any of the above securities on a
forward commitment or when-issued basis. The Fund will not enter into repur-
chase 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 interest income on these securities is generally exempt from state
and local income taxation. The Fund may acquire any of these securities on a
forward commitment or when-issued basis. The Fund will not enter into repur-
chase 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 com
ponents are individually numbered and separately issued by the U.S. Treasury.
The staff of the SEC currently takes the position that interests in "stripped"
U.S. government securities that are not part of the STRIPS program are not
U.S. government securities.
COMMERCIAL PAPER AND OTHER SHORT-TERM OBLIGATIONS. Money Market Fund may
purchase commercial paper, which includes short-term obligations issued by
corporations, partnerships, trusts or other entities to finance short-term
credit needs. The Fund may also purchase non-convertible debt obligations with
no more than 397 days remaining to maturity at the time of purchase. Short-
term obligations issued by trusts or special purpose entities may include cer-
tificates or notes that represent participations in or are backed by pools of
mortgages or credit card, automobile or other types of receivables or finan-
cial assets.
VARIABLE AND FLOATING RATE SECURITIES. Money Market Fund and Government
Securities Fund may purchase variable and floating rate securities with
remaining maturities in excess of 13 months issued by U.S. government agencies
or instrumentalities or guaranteed by the U.S. government. In addition, Money
Market Fund may purchase variable and floating rate securities of other
issuers 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
securities is adjusted in relation to changes in specific rates, such as the
prime rate, and different securities may have different adjustment rates. A
demand feature gives a Fund the right to tender them back to the issuer or a
remarketing agent and receive the amortized cost of the security plus accrued
interest 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 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 par-
ties (subject to specified maximums) or decreased by the Fund or the issuer.
These notes are payable on demand and may or may not be rated.
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 obligations from
9
<PAGE>
banks, securities dealers or their respective affiliates and simultaneously
commits to resell the obligations to the counterparty at an agreed-upon date
or upon demand and at a price reflecting a market rate of interest unrelated
to the coupon rate or maturity of the purchased obligations. The Fund main-
tains custody of the underlying obligations prior to their repurchase, either
through its regular custodian or through a special "tri-party" custodian or
sub-custodian that maintains separate accounts for both the Fund and its
counterparty. Thus, the obligation of the counterparty to pay the repurchase
price on the date agreed to or upon demand is, in effect, secured by such ob-
ligations.
Repurchase agreements carry certain risks not associated with direct invest-
ments in securities, including possible decline in the market value of the un-
derlying obligations. Repurchase agreements involving obligations other than
U.S. government securities (such as commercial paper and corporate bonds) may
be subject to special risks and may not have the benefit of certain
protections in the event of the counterparty's insolvency. If the counterparty
or a guarantor becomes insolvent, Money Market Fund may suffer delays, costs
and possible losses in connection with the disposition of the collateral. The
Fund intends to enter into repurchase agreements only with counterparties in
transactions believed by Mitchell Hutchins to present minimal credit risks in
accordance with guidelines established by the board.
PURCHASE AND SALE TRANSACTIONS. The counterparty in a simultaneous purchase
and sale transaction with a Fund agrees to buy from the Fund the same or a
similar security to the security it is selling to the Fund at a mutually
agreed-upon time and price. The difference between the purchase cost and sale
proceeds (which includes the accrued interest on the security) determines the
yield during the term of the transaction. The Fund does not have the right to
require the counterparty to provide additional collateral if the market value
of the securities purchased by the Fund falls below the price at which the se-
curities are to be sold to the counterparty. In addition, in purchase and sale
transactions, full legal title to the securities sold to a Fund is transferred
to the Fund. If the counterparty defaults, the Fund's return on the transac-
tion is determined by the difference between the market value of the security
bought by the Fund and the amount paid by the Fund, plus related accrued in-
terest. The Fund would have rights against a defaulting counterparty for
breach of contract with respect to any losses that result from those market
fluctuations.
FOREIGN SECURITIES. Money Market Fund's investments in U.S. dollar-denomi-
nated securities of foreign issuers may involve risks that are different from
investments in U.S. issuers. These risks may include future unfavorable polit-
ical and economic developments, possible withholding taxes, seizure of foreign
deposits, currency controls, interest limitations or other governmental re-
strictions that might affect the payment of principal or interest on the
Fund's portfolio securities. Additionally, there may be less publicly avail-
able information about foreign issuers because they may not be subject to the
same regulatory requirements as domestic issuers.
RISKS OF MONEY MARKET INSTRUMENTS. While the types of money market instru-
ments in which each Fund invests generally are considered to have low risk of
loss of principal or interest, they are not completely risk free. An issuer or
guarantor may be unable or unwilling to pay interest or repay principal on its
obligations for many reasons, including adverse changes in its own financial
condition or in economic conditions generally.
During periods when interest rates are declining or rising, a Fund's yield
will tend to lag behind prevailing short-term market rates. This means that in
periods of declining interest rates a Fund's yield will tend to be somewhat
higher than prevailing short-term market rates, and in periods of rising in-
terest rates its yield generally will be somewhat lower. 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 that produce lower
yields than the balance of its portfolio, thereby reducing its yield. In peri-
ods of rising interest rates the opposite can be true.
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. Lending securities enables the Funds to earn addi-
tional income, but could result in a loss or delay in recovering these securi-
ties.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in il-
liquid securities. These include repurchase agreements maturing in more than
seven days and securities whose disposition is restricted under the federal
securities
10
<PAGE>
laws, other than those that Mitchell Hutchins has determined to be liquid pur-
suant to guidelines established by the board. The Funds do not consider secu-
rities that are eligible for resale under SEC Rule 144A to be illiquid if
Mitchell Hutchins has determined them to be liquid in accordance with proce-
dures approved by the board.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a "when-issued"
or forward commitment basis, that is, for delivery beyond the normal settle-
ment date at a stated price and yield. A Fund generally would not pay for such
securities or start earning interest on them until they are received. However,
when a Fund purchases securities on a when-issued basis, it immediately as-
sumes 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 re-
sult in a loss or missed opportunity to make an alternative investment.
OTHER INVESTMENT POLICIES. Each Fund may borrow money from banks for tempo-
rary purposes in an aggregate amount not exceeding 33 1/3% of the value of its
total assets. The costs associated with borrowing money may reduce a Fund's
net income. Money Market Fund may invest up to 10% of its total assets in the
securities of other money market funds.
A Fund's investments in securities with remaining maturities in excess of 13
months, such as variable and floating rate securities and variable amount mas-
ter demand notes, must comply with conditions established by the SEC under
which these securities may be considered to have remaining maturities of 13
months or less.
In managing each Fund's portfolio, Mitchell Hutchins may employ a number of
professional money management techniques to respond to changing economic and
money market conditions and to shifts in fiscal and monetary policy. These
techniques include 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. Mitchell
Hutchins may also seek to improve a Fund's yield by purchasing or selling se-
curities to take advantage of yield disparities among similar or dissimilar
money market instruments that regularly occur in the money markets.
New forms of money market instruments continue to be developed. Each Fund
may invest in such instruments to the extent consistent with its investment
objective.
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.
YEAR 2000 RISK. Like other mutual funds, financial and business
organizations around the world, a Fund could be adversely affected if the
computer systems used by Mitchell Hutchins, other service providers and
entities with computer systems that are linked to that Fund's records do not
properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Issue."
Mitchell Hutchins is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer systems that it uses
and to obtain satisfactory assurances that comparable steps are being taken by
each Fund's other major service providers. However, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on a Fund.
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-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 Securi-
11
<PAGE>
ties Fund (or in a combination of both) and $250,000 in Treasury Securities
Fund. These minimums may be waived at the discretion of PaineWebber or the
Trust. Financial intermediaries purchasing shares for the accounts of their
customers may set a higher or lower minimum for their customers, provided that
when their customers' shareholdings are aggregated, the above noted minimum
investment levels are met. There is no minimum subsequent investment, except
that certain financial intermediaries may establish minimums for subsequent
investments by their customers. Investors interested in purchasing Financial
Intermediary shares should consult their financial institutions concerning any
initial or subsequent minimum investment requirements.
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's bank account, care of the
Transfer Agent, and that wire must be credited to that bank account by a Fed-
eral 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 re-
ceived on that Business Day. Purchase orders may be initiated by any autho-
rized party on the account, including the shareholder's 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 offices 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 the Funds shares for a period of time.
The availability of Fund shares to customers of PaineWebber's correspondent
firms may vary 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:
Mitchell Hutchins Institutional Funds c/o The Bank of New York
CR DDA A/C #8900337516
FFC PW A/C #
[insert PaineWebber account name and account number]
ABA #021000018
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 the same class of
Money Market Fund, Government Securities Fund or Treasury Securities Fund or
Mitchell Hutchins LIR Select Money Fund (which has a $10,000,000 minimum for
initial purchases, including through exchanges, and a $100,000 minimum for
subsequent purchases) based on the next determined net asset value per share.
Exchange orders are accepted up until 12:00 noon (Eastern time) for each Fund
(2:30 p.m., Eastern time, for exchanges from Money Market Fund into Mitchell
Hutchins LIR Select Money Fund). Exchange orders received after these times
are executed on the next Business Day. If a shareholder exchanges all his or
her Fund shares, the dividends accrued on those shares for the month to date
also will be invested in the shares of the other fund into which the exchange
is made.
Shareholders may place exchange orders by telephoning the Transfer Agent at
1-888-LIR-FUND and speaking with a representative. Investors may also place an
exchange order through a PaineWebber Investment Executive or correspondent
firm, who must then relay the order to the Transfer Agent as noted above. Ex-
change or -
12
<PAGE>
ders may be initiated by any authorized party on a shareholder's account, in-
cluding the shareholder's 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 except as noted above.
The exchange privilege may be modified or terminated at any time and, when
required by SEC rules, on 60 days notice. The exchange privilege is available
only in those jurisdictions where the sale of the fund shares to be acquired
is authorized.
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 each Business Day up until 2:30 p.m. (Eastern time) for
Money Market Fund and up until 12:00 noon (Eastern time) for Government Secu-
rities 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. Re-
demption orders may be initiated by any authorized party on a shareholder's
account, including the shareholder's PaineWebber Investment Executive. Redemp-
tion 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 Busi-
ness Day the redemption request is accepted. If a shareholder redeems all the
shares owned, dividends accrued for the month to date will be paid in federal
funds and wired at the same time to the bank account(s) designated by the
shareholder.
Redemption requests will be processed by the Transfer Agent and a wire will
be initiated. However, receipt by the shareholder's designated bank account
may be delayed if a Federal Reserve Bank is experiencing delays in transfers
of funds. Neither a Fund nor the Transfer Agent is responsible for the perfor-
mance of a shareholder's receiving bank or any of its intermediaries.
A properly completed account application with signature guaranteed or other
authentication acceptable to the Transfer Agent must be on file with the
Transfer Agent before a redemption request can be processed. The application
requires that the shareholder designate the bank account(s) or PaineWebber ac-
count to which redemption proceeds should be wired. Any change in the account
designated must be submitted in a form deemed acceptable by the Transfer
Agent. If the information provided by a shareholder in a redemption request
does not correspond to the information on the application, the Transfer Agent
will not effect the transaction.
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 lower than those on Institutional shares by the
amount of fees paid by a Fund for services provided by financial intermediar-
ies through which those shares are purchased and held. See "Financial In
termediaries." A customer should consider the terms of his or her account with
a financial intermediary before purchasing shares. A financial intermediary
purchasing or redeeming shares on behalf of its customers is responsible for
transmitting orders to the Transfer Agent in accordance with its customer
agreements and the procedures noted above.
13
<PAGE>
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 twice each Business Day at 12:00 noon and 2:30 p.m. (East-
ern 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 or upon re-
demption of a shareholder's entire Fund account. Dividends are automatically
paid in additional Fund shares unless the shareholder elects instead to have
dividends transmitted by federal funds wire to either a designated bank ac-
count or PaineWebber account. A shareholder must notify the Transfer Agent in
writing in a form deemed acceptable by the Transfer Agent at least two Busi-
ness Days prior to the end of the month if the shareholder wishes to change
this election with respect to a particular monthly dividend. 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 fre-quent 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.
TAXES. 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 taxable income
(consisting generally of net investment income and net short-term capital
gain, if any) that it distributes 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 will not qualify for the dividends-received deduc-
tion for corporations.
Some states and localities exempt from their income taxes the portions of a
Fund's dividends that are attributable to interest on U.S. Treasury securities
and certain other U.S. government securities. Dividends attributable to earn-
ings on repurchase agreements and securities loans are, as a general rule, not
eligible for that exemption.
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 interest on U.S. Treasury securities and other U.S. gov-
ernment securities that is generally exempt from state and local income taxes.
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 or PaineWebber with a correct taxpayer identification number
or (2) otherwise are subject to backup withholding.
ADDITIONAL INFORMATION. The foregoing is only a summary of some of the 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
14
<PAGE>
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, 1998, 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 for the fiscal year ended
April 30, 1998, Money Market Fund's, Government Securities Fund's and Treasury
Securities Fund's total expenses for their Institutional shares represented
0.29%, 0.30% and 0.30%, respectively, of their average net assets and Money
Market Fund's total expenses for its Financial Intermediary shares represented
0.54% of its average net assets. No Financial Intermediary shares of the other
Funds were outstanding during that period. PaineWebber (not the Funds) pays
Mitchell Hutchins a fee for its sub-advisory and sub-administration services,
at an annual rate of 50% of the fee received by PaineWebber from each Fund for
advisory and administrative services.
In accordance with procedures adopted by the Funds' board, each Fund may pay
fees to PaineWebber for its services as lending agent in its portfolio
securities lending program. Mitchell Hutchins investment personnel may engage
in securities transactions for their own accounts pursuant to a code of ethics
that establishes procedures for personal investing and restricts certain
transactions.
PaineWebber and Mitchell Hutchins are located at 1285 Avenue of the Ameri-
cas, New York, New York 10019. Mitchell Hutchins is a wholly owned asset man-
agement subsidiary of PaineWebber, which is in turn wholly owned by Paine Web-
ber Group Inc., a publicly owned financial services holding company. At July
31, 1998, PaineWebber or Mitchell Hutchins was investment adviser or sub-ad-
viser to 32 registered investment companies with 69 separate portfolios and
aggregate assets in excess of $40.5 billion.
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 has adopted a shareholder services plan ("Plan") with respect to Finan-
cial Intermediary shares. PaineWebber implements the Plan on behalf of the
Trust by entering 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.
Under the Plan, each Fund pays PaineWebber an annual fee at the annual rate
of 0.25% of the average daily net asset value of the Financial Intermediary
shares held by financial intermediaries on behalf of their customers. Under
each service agreement, PaineWebber pays an identical fee to the financial in-
termediary for providing the support services to its customers specified in
the service agreement. These services, which are described in greater detail
in the Statement of Additional Information under "Other Information--Financial
Intermediaries," may include: aggregating and processing pur-chase and redemp-
tion 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 pay-
ments on behalf of customers; providing information periodically to customers
showing their positions in Financial Intermediary shares; arranging for bank
wires; responding to customer inquiries relating to the services performed by
the financial intermediary; providing sub-accounting with respect to Financial
Intermediary shares beneficially owned by customers or the informa -
15
<PAGE>
tion necessary for sub-accounting; forwarding shareholder communications from
a Fund to customers, if required by law; and such other similar services as
the Trust may reasonably request from time to time to the extent the financial
intermediary is permitted to do so under federal and state statutes, rules and
regulations.
Under the terms of the service agreements, financial intermediaries are re-
quired to provide to their customers a schedule of any additional fees that
they may charge customers in connection with their investments in Financial
Intermediary shares. Financial Intermediary shares are available for purchase
only by financial intermediaries that have entered into service agreements
with PaineWebber in connection with their investment. Financial intermediaries
providing services to beneficial owners of Financial Intermediary shares in
certain states may be required to be registered as dealers under the laws of
those states.
Should future legislative, judicial or administrative action prohibit or re-
strict the activities of banks serving as financial intermediaries in connec-
tion with the provision of support services to their customers, the Trust and
PaineWebber might be required to alter or discontinue their arrangements with
financial intermediaries and change their 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.
Conflict of interest restrictions may apply to a financial institution's re-
ceipt of compensation from a Fund through PaineWebber under a service agree-
ment resulting from fiduciary funds being invested in Financial Intermediary
shares. Before investing fiduciary funds in Financial Intermediary shares, fi-
nancial intermediaries, including investment advisers and other money manag-
ers under the jurisdiction of the SEC, the Department of Labor or state secu-
rities commissions and banks regulated by the Comptroller of the Currency
should consult their legal advisors.
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 as a business trust under the laws of the Commonwealth of Massachu-
setts by Declaration of Trust dated February 14, 1991. The board has authority
to issue an unlimited number of shares of beneficial interest of separate se-
ries, 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.
16
<PAGE>
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.
17
<PAGE>
MITCHELL HUTCHINS'
LIQUID INSTITUTIONAL RESERVES
MONEY MARKET FUND
GOVERNMENT SECURITIES FUND
TREASURY SECURITIES FUND
SEPTEMBER 1, 1998
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUNDS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PRO-
VIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL SHARES OF THE FUNDS IN ANY JURISDICTION WHERE THE FUNDS OR THEIR
DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.
[LOGO]
<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 ("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 a diversified portfolio of 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
asset management 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, 1998. 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, 1998.
SEPTEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Policies and Restrictions........................................ 3
Trustee and Officers; Principal Holders of Securities....................... 7
Investment Advisory, Administration and Distribution Arrangements........... 13
Portfolio Transactions...................................................... 15
Additional Information Regarding Redemptions................................ 15
Valuations of Shares........................................................ 16
Taxes....................................................................... 17
Calculation of Yield........................................................ 17
Other Information........................................................... 18
Financial Statements........................................................ 19
</TABLE>
2
<PAGE>
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 other short-term 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.
The Fund may only purchase securities that are "First Tier Securities." To
qualify as a First Tier Security, a security must either be (1) rated in the
highest short-term rating category by at least two NRSROs, (2) rated in the
highest short-term rating category by a single NRSRO if only that NRSRO has
assigned the obligation a short-term rating, (3) issued by an issuer that has
received such a short-term rating with respect to a security that is
comparable in terms of priority and security, (4) subject to a guarantee rated
in the highest short-term rating category or issued by a guarantor that has
received the highest short-term rating for a comparable debt obligation or (5)
unrated, but determined by Mitchell Hutchins to be of comparable quality. If a
security in a Fund's portfolio ceases to be a "First Tier Security," as
defined in Rule 2a-7 under the Investment Company Act of 1940 ("1940 Act") 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 short-term rating category by a single NRSRO may
continue to be considered a First Tier Security.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which Money
Market Fund purchases securities or other obligations and simultaneously
commits to resell them to the counterparty at an agreed-upon date or upon
demand and at a price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities or other obligations. The
Fund maintains custody of the underlying securities or obligations prior to
their repurchase, either through its regular custodian or through a special
"tri-party" custodian or sub-custodian that maintains separate accounts for
both the Fund and its counterparty. Thus, the obligation of the counterparty
to pay the repurchase price on the date agreed to or upon demand is, in
effect, secured by such securities or obligations. If their value becomes less
than the repurchase price, plus any agreed upon additional amount, the
counterparty 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 or obligations and the price that was paid by the
Fund upon acquisition is accrued as interest and included in the Fund's net
investment income.
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. To the extent a Fund invests in illiquid securities, it may not be able
to readily liquidate such investments and may have to sell other investments
if necessary to raise cash to meet its obligations.
Restricted securities are not registered under the Securities Act of 1933
("1933 Act") and may be sold only in privately negotiated or other exempted
transactions or after a 1933 Act registration
3
<PAGE>
statement has become effective. Where registration is required, a Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time a Fund
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, a Fund
might obtain a less favorable price than prevailed when it decided to sell.
However, not all restricted securities are illiquid. A large institutional
market has developed for many U.S. and foreign securities that are not
registered under the 1933 Act. 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.
Institutional markets for restricted securities also have developed as a
result of Rule 144A, which establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers, 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 of domestic
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A-eligible restricted
securities held by a Fund, however, could affect adversely the marketability
of such portfolio securities, and a 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 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. 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
4
<PAGE>
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. 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, 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. Each Fund may reinvest cash
collateral in money market instruments or other short-term liquid investments.
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 of its loans at any time. The Funds may pay reasonable fees in connection
with a loan and may pay the borrower or placing broker a negotiated portion of
the interest earned on the reinvestment of cash held as collateral. The Funds
will receive 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, when regaining such rights is considered to be in the
Funds' interest.
Pursuant to procedures adopted by the board governing each Fund's securities
lending program, PaineWebber has been retained 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 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.
5
<PAGE>
(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 interpretations apply to, but are not a part of, this
fundamental restriction: (a) with respect to this limitation,
domestic and foreign banking will be considered to be different
industries; and (b) asset-backed securities will be grouped in
industries based upon their underlying assets and not treated as
constituting a single, separate industry.
(3) issue senior securities or borrow money, except as permitted under
the "1940 Act" and then not in excess of 33 1/3% of the Fund's
total assets (including the amount of the senior securities issued
but reduced by any liabilities not constituting senior securities)
at the time of the issuance or borrowing, except that the Fund may
borrow up to an additional 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures, other debt
securities or instruments, or participations or other 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.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Money Market Fund's investments in master
demand notes and similar instruments will not be considered to be
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.
(3) purchase portfolio securities while borrowings in excess of 5% of
its total assets are outstanding.
6
<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**; 51 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
director of PaineWebber
(since March 1984). Mrs. Al-
exander is president and a
director or trustee of 32 in-
vestment companies for which
Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
Richard Q. Armstrong; 63 Trustee Mr. Armstrong is chairman and
78 West Brother Drive principal of RQA Enterprises
Greenwich, CT 06830 (management consulting firm)
(since April 1991 and princi-
pal occupation since March
1995). Mr. Armstrong was
chairman of the board, chief
executive officer and co-
owner of Adirondack Beverages
(producer and distributor of
soft drinks and
sparkling/still waters) (Oc-
tober 1993-March 1995). He
was a partner of The New En-
gland Consulting Group (man-
agement consulting firm) (De-
cember 1992-September 1993).
He was managing director of
LVMH U.S. Corporation (U.S.
subsidiary of the French lux-
ury goods conglomerate, Louis
Vuitton Moet Hennessey Corpo-
ration) (1987-1991) and
chairman of its wine and
spirits subsidiary,
Schieffelin & Somerset Com-
pany (1987-1991). Mr. Arm-
strong is a director or
trustee of 31 investment com-
panies for which Mitchell
Hutchins or PaineWebber
serves as investment adviser.
E. Garrett Bewkes, Jr.**; 71 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 executive
officer of American Bakeries
Company. Mr. Bewkes is a di-
rector of Interstate Bakeries
Corporation. Mr. Bewkes is a
director or trustee of 32 in-
vestment companies for which
Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
---------------------------- ------------- -----------------------------------
<C> <C> <S>
Richard R. Burt; 51 Trustee Mr. Burt is chairman of IEP Advi-
1275 Pennsylvania Ave., N.W. sors, Inc. (international invest-
Washington, D.C. 20004 ments and consulting firm) (since
March 1994) and a partner of
McKinsey & Company (management
consulting firm) (since 1991). He
is also a director of Archer-Dan-
iels-Midland Co. (agricultural
commodities), Hollinger Interna-
tional Co. (publishing), Homestake
Mining Corp., Powerhouse Technolo-
gies Inc. and Wierton Steel Corp.
He was the chief negotiator in the
Strategic Arms Reduction Talks
with the former Soviet Union
(1989-1991) and the U.S. Ambassa-
dor to the Federal Republic of
Germany (1985-1989). Mr. Burt is a
director or trustee of 31 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Mary C. Farrell**; 48 Trustee Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy
Committee of PaineWebber. Ms.
Farrell joined PaineWebber in
1982. She is a member of the Fi-
nancial Women's Association and
Women's Economic Roundtable and
appears as a regular panelist on
Wall $treet Week with Louis
Rukeyser. She also serves on the
Board of Overseers of New York
University's Stern School of Busi-
ness. Ms. Farrell is a director or
trustee of 31 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Meyer Feldberg; 56 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Insti-
tute of Technology. Dean Feldberg
is also a director of Primedia
Inc., Federated Department Stores
Inc. and Revlon, Inc. Dean
Feldberg is a director or trustee
of 33 investment companies for
which Mitchell Hutchins,
PaineWebber or their affiliates
serves as investment adviser.
George W. Gowen; 68 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 Fry-
er, Ross & Gowen. Mr. Gowen is a
director or trustee of 31 invest-
ment 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>
Frederic V. Malek; 61 Trustee Mr. Malek is chairman of Thayer
1455 Pennsylvania Avenue, N.W. Capital Partners (merchant
Suite 350 bank). From January 1992 to No-
Washington, D.C. 20004 vember 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 North-
west Airlines Inc.) and Wings
Holdings Inc. (holding company
of NWA Inc.). Prior to 1989, he
was employed by the Marriott
Corporation (hotels, restau-
rants, airline catering and
contract feeding), where he
most recently was an executive
vice president and president of
Marriott Hotels and Resorts.
Mr. Malek is also a director of
American Management Systems,
Inc. (management consulting and
computer-related services), Au-
tomatic Data Processing, Inc.,
CB Commercial Group, Inc. (real
estate services), Choice Hotels
International (hotel and hotel
franchising), FPL Group, Inc.
(electric services), Manor
Care, Inc. (health care) and
Northwest Airlines Inc. Mr.
Malek is a director or trustee
of 31 investment companies for
which Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
Carl W. Schafer; 62 Trustee Mr. Schafer is president of the
66 Witherspoon Street Atlantic Foundation (charitable
#1100 foundation supporting mainly
Princeton, NJ 08542 oceanographic exploration and
research). He is a director of
Base Ten Systems, Inc. (soft-
ware), Roadway Express, Inc.
(trucking), The Guardian Group
of Mutual Funds, Harding,
Loevner Funds, Evans Systems,
Inc. (a motor fuels, conve-
nience store and diversified
company), Electronic Clearing
House, Inc. (financial transac-
tions processing), Frontier Oil
Corporation and Nutraceutix,
Inc. (biotechnology company).
Prior to January 1993, he was
chairman of the Investment Ad-
visory Committee of the Howard
Hughes Medical Institute. Mr.
Schafer is a director or
trustee of 31 investment compa-
nies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
John J. Lee; 30 Vice President Mr. Lee is a vice president and
and Assistant a manager of the mutual fund
Treasurer finance department of Mitchell
Hutchins. Prior to September
1997, he was an audit manager
in the financial services prac-
tice of Ernst & Young LLP. Mr.
Lee is a vice president and as-
sistant treasurer of 32 invest-
ment companies for which Mitch-
ell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
-------------------------- -------------- ------------------------------------
<C> <C> <S>
Dennis McCauley; 51 Vice President Mr. McCauley is a managing director
and chief investment officer--fixed
income of Mitchell Hutchins. Prior
to December 1994, he was director
of fixed income investments of IBM
Corporation. Mr. McCauley is a vice
president of 21 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 41 Vice President Ms. Moran is a vice president and a
and Assistant manager of the mutual fund finance
Treasurer department of Mitchell Hutchins.
Ms. Moran is a vice president and
assistant treasurer of 32 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 46 Vice President Ms. O'Donnell is a senior vice pres-
and Secretary ident and deputy general counsel of
Mitchell Hutchins. Ms. O'Donnell is
a vice president and secretary of
31 investment companies and vice
president and assistant secretary
of one investment company for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Emil Polito; 37 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 32
investment companies for which
Mitchell Hutchins or PaineWebber
services as investment adviser.
Susan P. Ryan; 38 Vice President Ms. Ryan is a senior vice president
and portfolio manager of Mitchell
Hutchins. Ms. Ryan has been with
Mitchell Hutchins since 1982. Ms.
Ryan is a vice president of five
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Victoria E. Schonfeld; 47 Vice President Ms. Schonfeld is a managing director
and general counsel of Mitchell
Hutchins. Prior to May 1994, she
was a partner in the law firm of
Arnold & Porter. Ms. Schonfeld is a
vice president of 31 investment
companies and vice president and
secretary of one investment company
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Paul H. Schubert; 35 Vice President Mr. Schubert is a senior vice presi-
and Treasurer dent and the director of the mutual
fund finance department of Mitchell
Hutchins. From August 1992 to Au-
gust 1994, he was a vice president
of BlackRock Financial Management,
L.P. Mr. Schubert is a vice presi-
dent and treasurer of 32 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Barney A. Taglialatela; 37 Vice President Mr. Taglialatela is a vice president
and Assistant and a manager of the mutual fund
Treasurer finance department of Mitchell
Hutchins. Prior to February 1995,
he was a manager of the mutual fund
finance division of Kidder Peabody
Asset Management, Inc. Mr.
Taglialatela is a vice president
and assistant treasurer of 32 in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
---------------------- -------------- ----------------------------------------
<C> <C> <S>
Keith A. Weller; 37 Vice President Mr. Weller is a first vice president and
and Assistant associate general counsel of Mitchell
Secretary Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr.
Weller is a vice president and assis-
tant secretary of 31 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment advis-
er.
</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 per Fund 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.
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......... $6,150 $ 94,885
Richard R. Burt, Trustee.............. $5,700 $ 87,085
Meyer Feldberg, Trustee............... $6,150 $117,853
George W. Gowen, Trustee.............. $7,389 $101,567
Frederic V. Malek, Trustee............ $6,150 $ 95,845
Carl W. Schafer, Trustee.............. $6,150 $ 94,885
</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,
1998.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1997; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.
11
<PAGE>
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 shares:
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
OF SHARES
OWNED OF RECORD AS OF
FUND NAME AND ADDRESS* AUGUST 24, 1998
---- ----------------- ---------------------
<S> <C> <C>
Money Market Fund The Crean Foundation 79,880,958 5.11%
Government Securities Fund Reynolds Metals Company 25,000,000 19.87%
American Growth Fund 11,000,000 8.74%
National Plus Plan of the 7,705,864 6.12%
Textile Workers Pension Fund
Treasury Securities Fund Paul B Kazatian, 21,617,729 11.20%
Japonica Partners
Gilbert H. Lamphere 20,873,337 10.81%
c/o Fremont Group
Reynold Metal Con 10,000,000 5.18%
G. Jack Scholz Ttee 9,776,256 5.06%
Scholz Grantor Retained
Annuity Trust2
G. Jack Scholz Ttee 9,778,256 5.06%
Scholz Grantor Retained
Annuity Trust BI
Japonica Partners & Co. 9,666,509 5.07%
</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.
12
<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 earned or accrued advisory
fees in the amounts set forth below. As also set forth below, PaineWebber
during these periods voluntarily waived a portion of its fees and/or
voluntarily paid other Fund expenses.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30
------------------------------
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Money Market Fund............................ $3,572,192 $2,196,654 $669,836
Fee Amount Waived.......................... $ 716,790 $ 439,015 $102,772
Expenses Reimbursed........................ $ 2,739 $ 0 $ 59,795
Government Securities Fund................... $ 215,911 $ 203,152 $124,281
Fee Amount Waived.......................... $ 43,177 $ 40,607 $ 16,752
Expenses Reimbursed........................ $ 210,691 $ 144,536 $105,334
Treasury Securities Fund..................... $ 259,380 $ 99,845 $ 62,167
Fee Amount Waived.......................... $ 51,876 $ 19,956 $ 7,410
Expenses Reimbursed........................ $ 128,386 $ 147,250 $129,447
</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
----------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Money Market Fund.............................. $1,503,380 $877,358 $220,065
Government Securities Fund..................... $ 0 $ 8,099 $ 39,863
Treasury Securities Fund....................... $ 39,694 $ 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
13
<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 board 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 July 31, 1998,
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)............................... $7,867.2
Global.......................................................... 3,938.0
Equity/Balanced................................................. 6,516.0
Fixed Income (excluding Money Market)........................... 5,289.2
Taxable Fixed Income.......................................... 3,709.5
Tax-Free Fixed Income......................................... 1,579.7
Money Market Funds.............................................. 28,787.4
</TABLE>
PERSONNEL TRADING POLICIES. 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.
14
<PAGE>
PORTFOLIO TRANSACTIONS
The Mitchell Hutchins Contract authorizes Mitchell Hutchins (with the
approval of the 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.
HOLDINGS OF REGULAR BROKER-DEALERS. As of April 30, 1998, Money Market Fund
owned commercial paper and short-term obligations issued by the following
issuers that are regular broker-dealers for the Fund: Commercial papers;
Goldman Sachs Group LP--$9,772,150; Short-term corporate obligations; Morgan
Stanley Group Incorporated--$5,000,000; and Merrill Lynch & Co.,
Incorporated--$29,005,528] and [Bear Stearns Companies, Inc.--$18,000,000.
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
15
<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 12:00 noon and 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,
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 the Rule relating to its 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. If 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. If that
deviation exceeds 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. If amortized cost
ceases to represent fair value per share, the board will take appropriate
action.
16
<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
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 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) 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, that are 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 (3) 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. If a Fund failed to qualify for
treatment as a RIC for any taxable year, it would be taxed as an ordinary
corporation on its taxable income for that year (even if that income was
distributed to its shareholders) and all distributions out of its earnings and
profits would be taxable to its shareholders as dividends (that is, ordinary
income).
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)/3//6//5///7/] - 1
The following yields are for the seven-day period ended April 30, 1998:
<TABLE>
<CAPTION>
EFFECTIVE
FUND YIELD YIELD
---- ----- ---------
<S> <C> <C>
Money Market Fund
Institutional Shares.................................... 5.36% 5.50%
Financial Intermediary Shares*.......................... 5.11% 5.23%
Government Securities Fund................................ 5.24% 5.38%
Treasury Securities Fund.................................. 5.02% 5.15%
</TABLE>
- --------
*Issuance for Financial Intermediary Shares was January 14, 1998.
A 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 a Fund since it began
operations or for shorter periods. This return data may or may not assume
reinvestment of dividends (compounding).
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
17
<PAGE>
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.
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
18
<PAGE>
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations, a possibility which PaineWebber believes is remote and not
material. Upon payment of any liability incurred by a shareholder, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The trustees intend to conduct the operations of
each Fund in such a way as to avoid, as far as possible, ultimate liability of
the shareholders for liabilities of the Fund.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036, 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 has adopted a Shareholder Services Plan and Agreement ("Plan")
with respect to the Financial Intermediary shares of each Fund to assure that
the beneficial owners of the Financial Intermediary shares receive certain
support services. PaineWebber will implement the Plan by entering 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 the Financial Intermediary shares. Under the
Plan, each Fund pays PaineWebber an annual fee at the annual rate of 0.25% of
the average daily net asset value of the Financial Intermediary shares held by
financial intermediaries on behalf of their customers. Under each service
agreement, PaineWebber pays an identical fee to the financial intermediary for
providing the support services to its customers specified in the service
agreement. These services may 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
PaineWebber with respect to Government Securities Fund or Treasury Securities
Fund to financial intermediaries during the fiscal year ended April 30, 1998
because those Funds had no Financial Intermediary shares outstanding during
that period. Money Market Fund made payments through PaineWebber to financial
intermediaries in the amount of $10,975 with respect to its Financial
Intermediary shares outstanding during the fiscal year ended April 30, 1998.
The Plan requires that PaineWebber provide to the board at least annually a
written report of the amounts expended by PaineWebber under service agreements
with financial intermediaries and the purposes for which such expenditures
were made. Each service agreement requires the financial intermediary to
cooperate with PaineWebber in providing information to the board with respect
to amounts expended and services provided under the service agreement. The
Plan may be terminated at any time, without penalty, by vote of the trustees
of the Trust who are not "interested persons" of the Trust as defined in the
1940 Act and who have no direct or indirect financial interest in the
operation of the Plan ("Disinterested Trustees"). Any amendment to the Plan
must be approved by the board and any material amendment must be approved by
the Disinterested Trustees.
FINANCIAL STATEMENTS
The Funds' Annual Report to Shareholders for the most recent fiscal year 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.
19
<PAGE>
MITCHELL HUTCHINS'
LIQUID INSTITUTIONAL RESERVES
MONEY MARKET FUND
GOVERNMENT SECURITIES FUND
TREASURY SECURITIES FUND
SEPTEMBER 1, 1998
Investors should rely only on the information contained or referred to in the
Prospectus and this Statement of Additional Information. The Funds and their
distributor have not authorized anyone to provide investors with information
that is different. The Prospectus and this Statement of Additional Information
are not an offer to sell shares of the Funds in any jurisdiction where the
Funds or their distributor may not lawfully sell those shares.
[LOGO]
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 23. Exhibits
--------
(1) (a) Amended and Restated Declaration of Trust (filed herewith)
(b) Amendment effective April 18, 1996 to Declaration of Trust/1/
(2) Amended and Restated By-Laws of the Trust (filed herewith)
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest/2/
(4) (a) Investment Advisory and Administration Contract between
Registrant and PaineWebber/3/
(b) Investment Sub-advisory and Sub-administration Agreement between
PaineWebber and Mitchell Hutchins/1/
(5) Distribution Contract between Registrant and PaineWebber/4/
(6) Bonus, profit or pension plans - none
(7) Custodian Contract/3/
(8) (a) Transfer Agency Services and Shareholder Services Agreement/5/
(b) Shareholder Service Plan/1/
(c) Shareholder Service Agreement/1/
(9) Opinion and consent of counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents: Auditor's consent
(filed herewith)
(11) Financial statements omitted from Part B - none
(12) Letter of Investment Intent (previously filed)
(13) Plan Pursuant to Rule 12b-1 - none
(14) and
(27) Financial Data Schedule (filed herewith)
(15) Plan pursuant to Rule 18f-3/1/
_______________________________
/1/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No. 33-39029 filed August 30, 1996.
/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 from Post-Effective Amendment No. 8 to
registration statement, SEC File No. 33-39029 filed July 3, 1996.
/4/ Incorporated by reference to Post-Effective Amendment No. 6 to the
registration statement, SEC File No. 33-39029, filed August 25, 1995.
/5/ Incorporated by referenced from Post-Effective Amendment No. 10 to the
registration statement, SEC File No. 33-39029, filed July 2, 1997.
C-1
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
Item 25. Indemnification
---------------
Section 4.2 of Article IV of the Registrant's Declaration of Trust provides
that no Trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its shareholders, or to any shareholder, Trustee, officer, employee, or
agent thereof for any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any breach
of trust) except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 4.3(a) of Article IV of the Registrant's Declaration of Trust
provides that the Registrant, or the appropriate series of the Registrant, will
indemnify its Trustees and officers to the fullest extent permitted by law
against all liability and against all expenses reasonably incurred or paid by
such Trustees and officers in connection with any claim, action, suit or
proceeding in which such Trustee or officer becomes involved as a party or
otherwise by virtue of his or her being or having been a Trustee or officer and
against amounts paid or incurred by him or her in the settlement thereof.
Additionally, Section 4.3(b) of Article IV provides that no such person shall be
indemnified (i) where such person is liable to the Trust, a series thereof or
the shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his or her
office, (ii) where such person has been finally adjudicated not to have acted in
good faith in the 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.
C-2
<PAGE>
Section 9 of the Distribution Contract provides that the Trust will
indemnify PaineWebber and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by PaineWebber to the Trust for use in the Registration Statement; and
provided that this indemnity agreement shall not protect any such persons
against liabilities arising by reason of their bad faith, gross negligence or
willful misfeasance; and shall not inure to the benefit of any such persons
unless a court of competent jurisdiction or controlling precedent determines
that such result is not against public policy as expressed in the Securities Act
of 1933. Section 9 of each Distribution Contract also provides that PaineWebber
agrees to indemnify, defend and hold the Trust, its officers 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 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
I. PaineWebber, a Delaware corporation, is a registered investment
adviser and is wholly owned by PaineWebber Group, Inc. PaineWebber is primarily
engaged in the financial services business. Information as to the officers and
directors of PaineWebber is included in its Form ADV as filed with the
Securities and Exchange Commission (registration number 801-7163) and is
incorporated herein by reference.
II. Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of PaineWebber Group Inc. Mitchell Hutchins is primarily
engaged in the investment advisory business. Information as to the officers and
directors of Mitchell Hutchins is included in its Form ADV, as filed with the
Securities and Exchange Commission (registration number 801-13219) and is
incorporated herein by reference.
C-3
<PAGE>
Item 27. Principal Underwriters
----------------------
(a) PaineWebber serves as principal underwriter and/or investment adviser for
the following other investment companies:
MITCHELL HUTCHINS INSTITUTIONAL SERIES
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 With Positions and Offices With
Name and Principal Registrant Underwriter
- ------------------------- -------------------------- ------------------------------------
<S> <C> <C>
Margo N. Alexander Trustee and President Executive Vice President and a
(Chief Executive Officer) Director
Mary C. Farrell Trustee Managing Director, Senior Investment
Strategist and Member of the
Investment Policy Committee
</TABLE>
(c) None.
Item 28. 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 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
None.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 28th day of August, 1998.
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
- --------------------------- (Chief Executive Officer) August 28, 1998
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman August 28, 1998
- --------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee August 28, 1998
- ---------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee August 28, 1998
- ---------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee August 28, 1998
- ---------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee August 28, 1998
- ---------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee August 28, 1998
- ---------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee August 28, 1998
- ---------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee August 28, 1998
- ---------------------------
Carl W. Schafer *
/s/ Paul H. Schubert Vice President and Treasurer (Chief August 28, 1998
- --------------------------- 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
-------------
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C> <C>
(1) (a) Amended and Restated Declaration of Trust (filed herewith)
(b) Amendment effective April 18, 1996 to Declaration of Trust/1/
(2) Amended and Restated By-Laws of the Trust (filed herewith)
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest/2/
(4) (a) Investment Advisory and Administration Contract between
Registrant and PaineWebber/3/
(b) Investment Sub-advisory and Sub-administration Agreement between
PaineWebber and Mitchell Hutchins/1/
(5) Distribution Contract between Registrant and PaineWebber/4/
(6) Bonus, profit or pension plans - none
(7) Custodian Contract/3/
(8) (a) Transfer Agency Services and Shareholder Services Agreement/5/
(b) Shareholder Service Plan/1/
(c) Shareholder Service Agreement/1/
(9) Opinion and consent of counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents: Auditor's consent
(filed herewith)
(11) Financial statements omitted from Part B - none
(12) Letter of Investment Intent (previously filed)
(13) Plan Pursuant to Rule 12b-1 - none
(14) and
(27) Financial Data Schedule (filed herewith)
(15) Plan pursuant to Rule 18f-3/1/
</TABLE>
_______________________________
/1/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No. 33-39029 filed August 30, 1996.
/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 from Post-Effective Amendment No. 8 to
registration statement, SEC File No. 33-39029 filed July 3, 1996.
/4/ Incorporated by reference to Post-Effective Amendment No. 6 to the
registration statement, SEC File No. 33-39029, filed August 25, 1995.
/5/ Incorporated by referenced from Post-Effective Amendment No. 10 to the
registration statement, SEC File No. 33-39029, filed July 2, 1997.
<PAGE>
Exhibit No. 1(a)
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
LIQUID INSTITUTIONAL RESERVES
20 Exchange Place
New York, New York 10005
Dated April 26, 1991
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
LIQUID INSTITUTIONAL RESERVES
THE DECLARATION OF TRUST of Liquid Institutional Reserves made February 14,
1991, and filed in the offices of the Secretary of The Commonwealth of
Massachusetts and the City Clerk of the City of Boston and agreed to by Lawrence
H. Kaplan, Gilbert R. Ott, Jr., and David M. Elwood (such persons and any
successors to such persons and additional persons, so long as they continue in
or be admitted to office in accordance with the terms of this Declaration of
Trust, and all other persons who at the time in question have been duly elected
or appointed as trustees in accordance with the terms of this Declaration of
Trust and are then in office, are hereinafter referred to as the "Trustees") is
hereby amended and restated as of April 26, 1991.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Trustees have established a Massachusetts business trust for
the investment and reinvestment of funds contributed thereto; and
WHEREAS, the beneficial interest in the trust assets shall be divided into
transferable shares of beneficial interest which, in the discretion of the
Trustees, may be divided into separate series as hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold IN TRUST,
all money and property contributed to the trust fund and manage and dispose of
the same for the benefit of the holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
--------------------
Section 1.1. Name. The name of the trust created hereby is "Liquid
----------- ----
Institutional Reserves" (the "Trust").
Section 1.2. Definitions. Wherever they are used herein, the following
----------- -----------
terms have the following respective meanings:
(a) "Administrator" means the party, other than the Trust, to the
-------------
contract described in Section 3.3 hereof.
<PAGE>
(b) "By-laws" means the By-laws referred to in Section 2.8 hereof, as from
-------
time to time amended.
(c) "Class" means any class of Shares within a Series, which Class is or
-----
has been established within such Series in accordance with the provisions of
Article V.
(d) The terms "Commission" and "Interested Person", have the meanings given
---------- -----------------
them in the 1940 Act. Except as otherwise defined by the Trustees in
conjunction with the establishment of any Series of Shares, the term "vote of a
---------
majority of the Shares outstanding and entitled to vote" shall have the same
- -------------------------------------------------------
meaning as the term "vote of a majority of the outstanding voting securities"
-------------------------------------------------------
given it in the 1940 Act.
(e) "Custodian" means any Person other than the Trust who has custody of
---------
any Trust Property as required by 17(f) of the 1940 Act, but does not include a
system for the central handling of securities described in said 17(f).
(f) "Declaration" means this Amended and Restated Declaration of Trust as
-----------
amended from time to time. Reference in this Amended and Restated Declaration of
Trust to "Declaration," "hereof," "herein," and "hereunder" shall be deemed to
refer to this Declaration rather than exclusively to the article or section in
which such words appear.
(g) "Distributor" means the party, other than the Trust, to the contract
-----------
described in Section 3.1 hereof.
(h) The "1940 Act" means the Investment Company Act of 1940, as amended
--------
from time to time.
(i) "Fund" or "Funds" individually or collectively means the separate
---- -----
Series of Shares of the Trust, together with the assets and liabilities assigned
thereto.
(j) "His" shall include the feminine and neuter, as well as the masculine,
---
genders.
(k) "Investment Adviser" means the party, other than the Trust, to the
------------------
contract described in Section 3.2 hereof.
(l) "Person" means and includes individuals, corporations, partnerships,
------
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
(m) "Series" individually or collectively means the separate Series of the
------
Trust as may be established and designated from time to time by the Trustees
pursuant to Section 5.11 hereof. Unless the context otherwise requires, the term
"Series" shall include Classes into which Shares of the Trust, or of a Series,
may be divided from time to time.
(n) "Shareholder" means record owner of Outstanding Shares.
-----------
2
<PAGE>
(o) "Shares" means the equal proportionate units of interest into which the
------
beneficial interest in the Trust shall be divided from time to time, including
the Shares of any and all Series or of any Class within any Series (as the
context may require) which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares. "Outstanding" Shares means those
-----------
Shares shown from time to time on the books of the Trust or its Transfer Agent
as then issued and outstanding, but shall not include Shares which have been
redeemed or repurchased by the Trust and which are at the time held in the
treasury of the Trust.
(p) "Transfer Agent" means any Person other than the Trust who maintains
--------------
the Shareholder records of the Trust, such as the list of Shareholders, the
number of Shares credited to each account, and the like.
(q) "Trust" means Liquid Institutional Reserves.
-----
(r) "Trust Property" means any and all property, real or personal,
--------------
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(s) The "Trustees" means the persons who have signed this Declaration, so
--------
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, and
reference herein to a Trustee or the Trustees shall refer to such persons in
their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
--------
Section 2.1. General Powers. The Trustees shall have exclusive and
----------- --------------
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without The Commonwealth of Massachusetts
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
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Section 2.2. Investments. The Trustees shall have the power:
----------- -----------
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, securities,
including common and preferred stocks; warrants; bonds, debentures, bills, time
notes and all other evidences of indebtedness; negotiable or non-negotiable
instruments; government securities, including securities of any state,
municipality or other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market instruments
including bank certificates of deposit, finance paper, commercial paper,
bankers' acceptances and all kinds of repurchase agreements, of any corporation,
company, trust, association, firm or other business organization however
established, and of any country, state, municipality or other political
subdivision, or any governmental or quasi-governmental agency or
instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend and to pledge any such securities, to enter into
repurchase agreements and forward foreign currency exchange contracts, to
purchase and sell options on securities or indices, futures contracts and
options on futures contracts of all descriptions and to engage in all types of
hedging and risk management transactions.
(d) To exercise all rights, powers and privileges of ownership or interest
in all securities and repurchase agreements included in the Trust Property,
including the right to vote thereon and otherwise act with respect thereto and
to do all acts for the preservation, protection, improvement and enhancement in
value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue notes or other evidence of
indebtedness; to secure borrowings by mortgaging pledging or otherwise
subjecting as security the Trust Property; and to endorse, guarantee, or
undertake the performance of any obligation or engagement of any other Person
and to lend Trust Property.
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) To enter into a plan of distribution and any related agreements whereby
the Trust may finance directly or indirectly any activity which is primarily
intended to result in sale of Shares.
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(i) To adopt on behalf of the Trust, any Series or Class of any Series
thereof.
(j) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or arising out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title. Legal title to all the Trust Property shall be
----------- -----------
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust or any Series of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees in
the Trust Property shall vest automatically in each Person who may hereafter
become a Trustee. Upon the termination of the term of office, resignation,
removal or death of a Trustee he shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares. The Trustees shall have
----------- ---------------------------------
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VI and VII and Section 5.11 hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust, whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the Commonwealth of Massachusetts governing business corporations.
Section 2.5. Delegation; Committees. The Trustees shall have power to
----------- ----------------------
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or any Series of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient, to the
same extent as such delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment. Subject to Section 5.11 hereof, the
----------- ----------------------
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the
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Trust Property; to prosecute, defend, compromise or abandon any claims relating
to the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
Section 2.7. Expenses. Subject to Section 5.11 hereof, the Trustees shall
----------- --------
have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of this
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided
----------- -------------------------
herein or in the By-laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers. Subject to Section 5.11 hereof, the
----------- --------------------
Trustees shall have the power to: (a) employ or contract with such Persons as
the Trustees may deem desirable for the transaction of the business of the Trust
or any Series thereof; (b) enter into joint ventures, partnerships and any other
combinations or associations; (c) remove Trustees or fill vacancies in or add to
their number, elect and remove such officers and appoint and terminate such
agents or employees as they consider appropriate, and appoint from their own
number, and terminate, any one or more committees which may exercise some or all
of the power and authority of the Trustees as the Trustees may determine; (d)
purchase, and pay for out of Trust Property or the Property of the appropriate
Series of the Trust, insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, administrators, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust or any Series thereof has dealings,
including the Investment Adviser, Administrator,
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Distributor, Transfer Agent and selected dealers, to such extent as the Trustees
shall determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the fiscal year of the Trust or any Series
thereof and the method by which its accounts shall be kept; and (i) adopt a seal
for the Trust, but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
Section 2.10. Principal Transactions. Except in transactions not
------------ ----------------------
permitted by the 1940 Act or rules and regulations adopted by the Commission,
the Trustees may, on behalf of the Trust, buy any securities from or sell any
securities to, or lend any assets of the Trust or any Series thereof to, any
Trustee or officer of the Trust or any firm of which any such Trustee or officer
is a member acting as principal, or have any such dealings with the Investment
Adviser, Distributor or transfer agent or with any Interested Person of such
Person; and the Trust or a Series thereof may employ any such Person, or firm or
company in which such Person is an Interested Person, as broker, legal counsel,
registrar, transfer agent, dividend disbursing agent or custodian upon customary
terms.
Section 2.11. Number of Trustees. The number of Trustees shall initially
------------ ------------------
be three (3), and thereafter shall be such number as shall be fixed from time to
time by a resolution adopted by a majority of the Trustees, provided, however,
that the number of Trustees shall in no event be less than one (1) nor more than
fifteen (15).
Section 2.12. Election and Term. Except for the Trustees named herein or
------------ -----------------
appointed to fill vacancies pursuant to Section 2.14 hereof, the Trustees shall
be elected by the Shareholders owning of record a plurality of the Shares voting
at a meeting of Shareholders on a date fixed by the Trustees. Except in the
event of resignation or removals pursuant to Section 2.13 hereof, each Trustee
shall hold office until such time as less than a majority of the Trustees
holding office have been elected by Shareholders. In such event the Trustees
then in office will call a Shareholders' meeting for the election of Trustees.
Except for the foregoing circumstances, the Trustees shall continue to hold
office and may appoint successor Trustees.
Section 2.13. Resignation and Removal. Any Trustee may resign his trust
------------ -----------------------
(without the need for any prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than one) with cause, by
the action of two-thirds of the remaining Trustees or by action of two-thirds of
the outstanding Shares of beneficial interest of the Trust at a meeting duly
called pursuant to Section 5.10 hereof by the Shareholders for such purpose.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.
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Section 2.14. Vacancies. The term of office of a Trustee shall terminate
------------ ---------
and a vacancy shall occur in the event of his death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject (but only
after the Trust's initial registration statement under the Securities Act of
1933 shall have become effective) to the provisions of Section 16(a) of the 1940
Act, the remaining Trustees shall fill such vacancy by the appointment of such
other person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
Section 2.15. Delegation of Power to Other Trustees. Any Trustee may, by
------------ -------------------------------------
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration except as herein otherwise expressly provided.
ARTICLE III
CONTRACTS
---------
Section 3.1. Distribution Contract. The Trustees may in their discretion
----------- ---------------------
from time to time enter into an exclusive or non-exclusive distribution contract
or contracts providing for the sale of the Shares to net the Trust or the
applicable Series of the Trust not less than the amount provided for in Section
7.l of Article VII hereof, whereby the Trustees may either agree to sell the
Shares to the other party to the contract or appoint such other party their
sales agent for the Shares, and in either case on such terms and conditions, if
any, as may be prescribed in the By-laws, and such further terms and conditions
as the Trustees may in their discretion determine not inconsistent with the
provisions of this Article III or of the By-laws; and such contract may also
provide for the repurchase of the Shares by such other party as agent of the
Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in their
----------- -------------------------------
discretion from time to time enter into an investment advisory contract or, if
the Trustees establish multiple Series, separate investment advisory contracts
with respect to each Series, whereby the other party to such contract or
contracts shall undertake to manage the investment operations of one or
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more Series of the Trust and the compositions of the portfolios of the Trust or
such Series, including the purchase, retention and disposition of securities and
other assets, in accordance with the investment objectives, policies and
restrictions of the Trust or such Series and all upon such terms and conditions
as the Trustees may in their discretion determine, including the grant of
authority to such other party to determine what securities shall be purchased or
sold by the Trust or the applicable Series of the Trust and what portion of its
assets shall be uninvested, which authority shall include the power to make
changes in the investments of the Trust or any Series.
Section 3.3. Administration and Service Agreements. The Trustees may in
----------- -------------------------------------
their discretion from time to time enter into an administration contract or, if
the Trustees establish multiple Series or Classes separate administration
contracts with respect to each Series or Class, whereby the other party to such
contract shall undertake to manage the business affairs of the Trust or of a
Series of the Trust and furnish the Trust or a Series or Class thereof office
facilities, and shall be responsible for the ordinary clerical, bookkeeping and
recordkeeping services at such office facilities, and other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine. The Trustees may in their discretion also from time
to time enter into service agreements with respect to one or more Classes of
Shares whereby the other parties to such service agreements will provide
distribution services and support services upon such terms and conditions as the
Trustees in their discretion may determine.
Section 3.4. Affiliations of Trustees or Officers, Etc. The fact that:
----------- ------------------------------------------
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of
any organization, with which a contract of the character described in
Sections 3.1, 3.2 or 3.3 above or for services as Custodian, Transfer Agent
or disbursing agent or for related services may have been or may hereafter
be made, or that any such organization, or any parent or affiliate thereof,
is a Shareholder of or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in Sections
3.1, 3.2 or 3.3 above or for services as Custodian, Transfer Agent or
disbursing agent or for related services may have been or may hereafter be
made also has any one or more of such contracts with one or more other
partnerships, corporations, trusts, associations or other organizations, or
has other business or interests.
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
Section 3.5. Compliance with 1940 Act. Any contract entered into pursuant
----------- ------------------------
to Sections 3.1 or 3.2 shall be consistent with and subject to the requirements
of Section 15 of the
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1940 Act (including any other applicable Act of Congress hereafter enacted)
with respect to its continuance in effect, its termination and the method of
authorization and approval of such contract or renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
-------------------
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
----------- -----------------------------------------------------
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property, or to the Property of one or
more specific Series of the Trust if the claim arises from the conduct of such
Trustee, officer, employee or agent with respect to only such Series, for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust. If any Shareholder, Trustee, officer, employee, or agent, as such, of
the Trust, is made a party to any suit or proceeding to enforce any such
liability of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each Shareholder harmless
from and against all claims and liabilities, to which such Shareholder may
become subject by reason of his being or having been a Shareholder, and shall
reimburse such Shareholder out of the Trust Property for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The indemnification and reimbursement required by the preceding
sentence shall be made only out of assets of the one or more Series whose Shares
were held by said Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder. The rights accruing
to a Shareholder under this Section 4.l shall not impair any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc. 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 own bad faith, willful misfeasance, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions
----------- -------------------------
and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust, or by one or more Series thereof if the claim
arises from his or her
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conduct with respect to only such Series, to the fullest extent permitted by law
against all liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof or the
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust or a Series
thereof;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(ii) resulting
in a payment by a Trustee or officer, unless there has been a
determination 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 office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon a review of readily available facts (as opposed to
a full trial-type inquiry) by (x) vote of a majority of the Non-
interested Trustees acting on the matter (provided that a majority of
the Non-interested Trustees then in office act on the matter) or (y)
written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust or a Series thereof prior to final
disposition thereof upon receipt of an undertaking by or on
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behalf of the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 4.3, provided that
either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such advances;
or
(ii) a majority of the Non-interested Trustees acting on the matter
(provided that a majority of the Non-interested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Non-interested Trustee" is one who (i) is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) is not involved in the claim, action, suit or proceeding.
Section 4.4. No Bond Required of Trustees. No Trustee shall be obligated
----------- ----------------------------
to give any bond or other security for the performance of any of his duties
hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc.
----------- -----------------------------------------------------------
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust or a Series thereof shall be
bound to make any inquiry concerning the validity of any transaction purporting
to be made by the Trustees or by said officer, employee or agent or be liable
for the application of money or property paid, loaned, or delivered to or on the
order of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of the applicable Series, and may
contain any further recital which they may deem appropriate, but the omission of
such recital shall not operate to bind the Trustees individually. The Trustees
shall at all times maintain insurance for the protection of the Trust Property
or the Trust Property of the applicable Series, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee, officer or employee
----------- -------------------------
of the Trust or a Series thereof shall, in the performance of his 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
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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.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 5.1. Beneficial Interest. The interest of the beneficiaries
----------- -------------------
hereunder shall be divided into transferable shares of beneficial interest, all
of one class, except as provided in Section 5.11 hereof, par value .001 per
share. The number of shares of beneficial interest authorized hereunder is
unlimited. All Shares issued hereunder including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall be
fully paid and non-assessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust Property
----------- ----------------------
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to share or assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration. The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with respect
to any Series of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create
----------- ----------
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may,
----------- ------------------
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of, liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury. The Trustees may from time to
time divide or combine the Shares of the Trust or, if the Shares be divided into
Series, of any Series of the Trust or of any
13
<PAGE>
Class thereof, into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust or in the Trust Property
allocated or belonging to such Series or C1ass. Contributions to the Trust or
Series thereof may be accepted for, and Shares shall be redeemed as, whole
Shares and/or 1/1,000ths of a Share or integral multiples thereof.
Section 5.5. Register of Shares. A register shall be kept at the
----------- ------------------
principal office of the Trust or an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or in
the By-laws provided, until he has given his address to the Transfer Agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of share certificates and promulgate appropriate rules and regulations as to
their use.
Section 5.6. Transfer of Shares. Shares shall be transferable on the
----------- ------------------
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices. Any and all notices to which any Shareholder may
----------- -------
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 5.8. Treasury Shares. Shares held in the treasury shall, until
----------- ---------------
resold pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote
----------- -------------
only (i) for the election of Trustees as provided in Section 2.12; (ii) with
respect to any investment advisory
14
<PAGE>
contract entered into pursuant to Section 3.2; (iii) with respect to termination
of the Trust or a Series thereof as provided in Section 8.2; (iv) with respect
to any amendment of this Declaration to the extent and as provided in Section
8.3; (v) with respect to any merger, consolidation or sale of assets as provided
in Section 8.4; (vi) with respect to incorporation of the Trust to the extent
and as provided in Section 8.5; (vii) to the same extent as the stockholders of
a Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or a Series or Class thereof or the
Shareholders of any of them (provided, however, that a Shareholder of a specific
Series or Class shall not be entitled to a derivative or class action on behalf
of any other Series or Class (or Shareholder of any other Series or Class) of
the Trust); (viii) with respect to any plan adopted pursuant to Rule 12b-1 (or
any successor rule) under the 1940 Act, and related matters; and (ix) with
respect to such additional matters relating to the Trust as may be required by
this Declaration, the By-laws or any registration of the Trust as an investment
company under the 1940 Act with the Commission (or any successor agency) or as
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote. If
separate Series of Shares are established, Shares shall be voted as a single
Class on any matter submitted to a vote of the Shareholders of the Trust except
as provided in Section 5.11(f) hereof. There shall be no cumulative voting in
the election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, this Declaration
or the By-laws to be taken by Shareholders. The By-laws may include further
provisions for Shareholders' votes and meetings and related matters.
Section 5.10. Meetings of Shareholders. Meetings of the Shareholders of
------------ ------------------------
the Trust may be called at any time by the President, and shall be called by the
President or the Secretary at the request, in writing or by resolution, of a
majority of the Trustees, or at the written request of the holder or holders of
ten percent (10%) or more of the total number of Shares then issued and
outstanding of the Trust entitled to vote at such meeting. Meetings of the
Shareholders of any Series or Class of the Trust shall be called by the
President or the Secretary at the written request of the holder or holders of
ten percent (10%) or more of the total number of Shares then issued and
outstanding of such Series or Class of the Trust entitled to vote at such
meeting. Any such request shall state the purpose of the proposed meeting.
Section 5.11. Series Designation. The Trustees, in their discretion, may
------------ ------------------
authorize the division of Shares into two or more Series, and may divide the
Shares or the Shares of any Series into two or more Classes, and the different
Series or Classes shall be established and designated, and the variations in the
relative rights and preferences as between the different Series (and Classes
thereof) shall be fixed and determined, by the Trustees; provided, that all
Shares shall be identical except that there may be variations so fixed and
determined between different Series (and Classes thereof) as to investment
objective, purchase price, right of redemption or obligations to make payments,
special and relative rights as to dividends and on liquidation, reinvestment,
exchange, conversion rights, and conditions under which the several Series shall
have separate voting rights, all of which are subject to the limitations set
forth below. All references to Shares in this Declaration shall be deemed to be
Shares of any or all Series as the context may require.
15
<PAGE>
If the Trustees shall divide the Shares of the Trust into two or more
Series, or Shares of the Trust or of any Series into two or more Classes, the
following provisions shall be applicable:
(a) The number of authorized Shares and the number of Shares of each Series
or Class that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any Series or Class thereof into one or more other Series (or Classes within the
same or one or more other Series) that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other Series or Class thereof), reissue for such consideration and on such terms
as they may determine, or cancel any Shares of any Series or Class thereof
reacquired by the Trust at their discretion from time to time.
(b) All consideration received by the Trust for the issue or sale of Shares
of a particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors of such Series and except
as may otherwise be required by applicable tax laws, and shall be so recorded
upon the books of account of the Trust. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series, the Trustees
shall allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes. No holder of Shares of any Series shall have any claim on or right to
any assets allocated or belonging to any other Series.
(c) The assets belonging to each particular Series shall be charged with
the liabilities of the Trust in respect of that Series or Class or Classes
thereof and all expenses, costs, charges and reserves attributable to that
Series or Class or Classes thereof, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Series or Class or Classes thereof shall be
allocated and charged by the Trustees to and among any one or more of the Series
or Class or Classes thereof established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes. The Trustees shall have full discretion, to
the extent not inconsistent with the 1940 Act, to determine which items are
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders. The assets of a particular Series of the Trust
shall, under no circumstances, be charged with liabilities attributable to any
other Series or Class of the Trust. All persons extending credit to, or
contracting with or having any claim against a particular Series of the Trust
shall look only to the assets of that particular Series for payment of such
credit, contract or claim.
16
<PAGE>
Shares of each Class of each Series shall bear the expenses of payments
under any agreements ("Special Class Agreements") entered into by or on behalf
of the Trust with organizations that provide for services to beneficial owners
of Shares of that Class. Expenses described in the preceding sentence are
sometimes referred to herein as "Special Class Expenses".
(d) The power of the Trustees to pay dividends and make distributions shall
be governed by Section 7.2 of this Declaration with respect to any one or more
Series or Classes which represents the interests in the assets of the Trust
immediately prior to the establishment of two or more Series or Classes. With
respect to any other Series or Class, dividends and distributions on Shares of a
particular Series or Class may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Series or Class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Series or Class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Series or Class (including, without
limitation the allocation to a Class of Special Class expenses relating to that
Class). All dividends and distributions on Shares of a particular Series or
Class shall be distributed pro rata to the Shareholders of that series or Class
in proportion to the number of Shares of that Series or Class held by such
Shareholders at the time of record established for the payment of such dividends
or distribution.
(e) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series or
Class shall be entitled to receive his pro rata share of distributions of income
and capital gains made with respect to such Series or Class. Upon redemption of
his Shares or indemnification for liabilities incurred by reason of his being or
having been a Shareholder of a Series, such Shareholder shall be paid solely out
of the funds and property of such Series of the Trust. Upon liquidation or
termination of a Series or Class of the Trust, Shareholders of such Series shall
be entitled to receive a pro rata share of the net assets of such Series or
Class. A Shareholder of a particular Series of the Trust shall not be entitled
to participate in a derivative or class action on behalf of any other Series or
the Shareholders of any other Series of the Trust.
(f) On each matter submitted to a vote of Shareholders, all Shares of all
Series and Classes shall vote as a single class; provided, however, that (a) as
to any matter with respect to which a separate vote of any Series or Class is
required by the 1940 Act or is required by a separate agreement applicable to
such Series or Class, such requirements as to a separate vote by that Series or
Class shall apply, (b) to the extent that a matter referred to in (a) above,
affects more than one Class or Series and the interests of each such Class or
Series in the matter are identical, then, subject to (c) below, the Shares of
all such affected Classes or Series shall vote as a single class; (c) as to any
matter which does not affect the interests of a particular Series or Class, only
the holders of Shares of the one or more affected Series or Classes shall be
entitled to vote and (d) the provisions of the following paragraph shall apply.
17
<PAGE>
On any matter that pertains to any Special Class Agreement or to any
Special Class Expenses with respect to any Series, which matter is submitted to
a vote of Shareholders, only Shares of the affected Class of such Series shall
be entitled to vote except that to the extent said matter affects Shares of
another Class or Series, such other Shares shall also be entitled to vote.
Except as otherwise provided in this Article V, the Trustees shall have the
power to determine the designations, preferences, privileges, payment
obligations, limitations and rights, including voting and dividend rights, of
each Class and Series of Shares.
The establishment and designation of any Series of Shares shall be
effective (i) upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights, payment obligations, if any, and preferences of such Series, (ii) upon
the execution of an instrument in writing by an officer of the Trust pursuant to
a vote of a majority of the Trustees, or (iii) as otherwise provided in such
instrument. Each instrument referred to in this section shall have the status
of an amendment to this Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
-----------------------------------
Section 6.1. Redemption of Shares. All Shares of the Trust shall be
----------- --------------------
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust.
The Trust shall redeem the Shares of the Trust or any Series or Class
thereof at the price determined as hereinafter set forth, upon the appropriately
verified written application of the record holder thereof (or upon such other
form of request as the Trustees may determine) at such office or agency as may
be designated from time to time for that purpose by the Trustees. The Trustees
may from time to time specify additional conditions, not inconsistent with the
1940 Act, regarding the redemption of Shares in the Trust's then effective
prospectus under the Securities Act of 1933.
Section 6.2. Price. Shares shall be redeemed at their net asset value
----------- ------
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
Section 6.3. Payment. Payment of the redemption price of Shares of the
----------- -------
Trust or any Series or class thereof shall be made in cash or in property to the
Shareholder at such time and in the manner, not inconsistent with the 1940 Act
or other applicable laws, as may be specified from time to time in the Trust's
then effective prospectus under the Securities Act of 1933, subject to the
provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value.
----------- --------------------------------------------------------
If, pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of
the determination of net asset value
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<PAGE>
with respect to Shares of the Trust or of any Series thereof, the rights of
Shareholders (including those who shall have applied for redemption pursuant to
Section 6.1 hereof but who shall not yet have received payment) to have Shares
redeemed and paid for by the Trust or a Series or Class thereof shall be
suspended until the termination of such suspension is declared. Any record
holder who shall have his redemption right so suspended may, during the period
of such suspension, by appropriate written notice of revocation at the office or
agency where application was made, revoke any application for redemption not
honored and withdraw any certificates on deposit. The redemption price of Shares
for which redemption applications have not been revoked shall be the net asset
value of such Shares next determined as set forth in Section 7.1 after the
termination of such suspension, and payment shall be made within seven (7) days
after the date upon which the application was made plus the period after such
application during which the determination of net asset value was suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
----------- -----------------------
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
Section 6.6. Redemption of Shareholder's Interest. The Trustees, in
----------- ------------------------------------
their sole discretion, may cause the Trust to redeem all of the Shares of one or
more Series held by any Shareholder if the value of such Shares held by such
Shareholder is less than the minimum amount established from time to time by the
Trustees.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
----------- -----------------------------------------------------
Investment Company; Disclosure of Holding. If the Trustees shall, at any time
- -----------------------------------------
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities if the Trust has or may become concentrated in any Person to
an extent which would disqualify the Trust or any Series of the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust or any Series of the Trust sufficient to maintain
or bring the direct or indirect ownership of Shares or other securities of the
Trust or any Series of the Trust into conformity with the requirements for such
qualification and (ii) to refuse to transfer or issue Shares or other securities
of the Trust or any Series of the Trust to any Person whose acquisition of the
Shares or other securities of the Trust or any Series of the Trust in question
would result in such disqualification. The redemption shall be effected at the
redemption price and in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
19
<PAGE>
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
----------- ----------------------------------------------------------
Asset Value Formula. The Trust may also reduce the number of outstanding Shares
- --------------------
of the Trust or of any Series of the Trust pursuant to the provisions of Section
7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
----------- ---------------------------------
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust or a Series
thereof of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Trust or a Series thereof fairly to determine the
value of its net assets, or (iv) during any other period when the Commission may
for the protection of Shareholders of the Trust by order permit suspension of
the right of redemption or postponement of the date of payment or redemption;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions prescribed in (ii), (iii), or (iv) exist. Such
suspension shall take effect at such time as the Trust shall specify but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment on redemption until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which in the absence of an official ruling by
the Commission, the determination of the Trust shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
----------------------------
Section 7.1. Net Asset Value. The value of the assets of the Trust or of
----------- ---------------
any Series or Class of the Trust may be determined on the basis of the amortized
cost of such securities, by appraisal of the securities owned by the Trust or
any Series of the Trust, or by such other method as shall be deemed to reflect
the fair value thereof, determined in good faith by or under the direction of
the Trustees. From the total value of said assets, there shall be deducted all
indebtedness, interest, taxes, payable or accrued, including estimated taxes on
unrealized book profits, expenses and management charges accrued to the
appraisal date, net income determined and declared as a distribution and all
other items in the nature of liabilities which shall be deemed appropriate, as
incurred by or allocated to any Series or Class of the Trust, including any
Special Class Expenses allocable to a Class. The resulting amount which shall
represent the total net assets of the Trust or Series or Class thereof shall be
divided by the number of Shares of the Trust or Series or Class thereof
outstanding at the time and the quotient so obtained shall be deemed to be the
net asset value of the Shares of the Trust or Series or Class thereof. The net
asset value of the Shares shall be determined at least once on each business
day, as of the close of trading on the New York Stock Exchange or as of such
other time or times as the Trustees shall
20
<PAGE>
determine. The power and duty to make the daily calculations may be delegated by
the Trustees to the Investment Adviser, the Administrator, the Custodian, the
Transfer Agent or such other Person as the Trustees by resolution may determine.
The Trustees may suspend the daily determination of net asset value to the
extent permitted by the 1940 Act.
Section 7.2. Distributions to Shareholders. The Trustees shall from time
----------- -----------------------------
to time distribute ratably among the Shareholders of the Trust or of a Series
thereof such proportion of the net profits, surplus (including paid-in surplus),
capital, or assets of the Trust or such Series held by the Trustees as they may
deem proper. Such distributions may be made in cash or property (including
without limitation any type of obligations of the Trust or Series or any assets
thereof), and the Trustees may distribute ratably among the Shareholders of the
Trust or Series thereof additional Shares of the Trust or Series thereof
issuable hereunder in such manner, at such times, and on such terms as the
Trustees may deem proper. Such distributions may be among the Shareholders of
the Trust or Series thereof at the time of declaring a distribution or among the
Shareholders of the Trust or Series thereof at such other date or time or dates
or times as the Trustees shall determine. The Trustees may in their discretion
determine that, solely for the purposes of such distributions, Outstanding
Shares shall exclude Shares for which orders have been placed subsequent to a
specified time on the date the distribution is declared or on the next preceding
day if the distribution is declared as of a day on which the New York Stock
Exchange is not open for business, all as described in the then effective
prospectus under the Securities Act of 1933. The Trustees may always retain from
the net profits such amount as they may deem necessary to pay the debts or
expenses of the Trust or a Series thereof or Class thereof or to meet
obligations of the Trust or a Series or Class thereof, or as they may deem
desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
related plans as the Trustees shall deem appropriate. The Trustees may in their
discretion determine that an account administration fee or other similar charge
may be deducted directly from the income and other distributions paid on Shares
to a Shareholder's account in each Series.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or a Series or Class thereof to avoid or reduce liability for
--------
taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
----------- ------------------------------------------------------
Reduction of Outstanding Shares. Subject to Section 5.11 hereof, the net
- -------------------------------
income of the Series of the Trust shall be determined in such manner as the
Trustees shall provide by resolution. Expenses of the Trust or of a Series
thereof, including the advisory or management fee, shall be accrued each day.
Each Class shall bear only expenses relating to its Shares and an allocable
share of Series expenses in accordance with such policies as may be established
by the Trustees from time to time and as are not inconsistent with the
provisions of this Declaration of Trust or of any applicable document filed by
the Trust with the Commission or of the Internal Revenue Code of 1986, as
amended. Such net income may be determined by or under the direction of the
Trustees
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<PAGE>
as of the close of trading on the New York Stock Exchange on each day on which
such market is open or as of such other time or times as the Trustees shall
determine, and, except as provided herein, all the net income of any Series or
Class of the Trust, as so determined, may be declared as a dividend on the
outstanding Shares of such Series. If, for any reason, the net income of any
Series of the Trust determined at any time is a negative amount, the Trustees
shall have the power with respect to such Series (i) to offset each
Shareholder's pro rata share of such negative amount from the accrued dividend
account of such Shareholder, or (ii) to reduce the number of Outstanding Shares
of such Series by reducing the number of Shares in the account of such
Shareholder by that number of full and fractional Shares which represents the
amount of such excess negative net income, or (iii) to cause to be recorded on
the books of the Trust an asset account in the amount of such negative net
income, which account may be reduced by the amount, provided that the same shall
thereupon become the property of the Trust with respect to such Series and shall
not be paid to any Shareholder, of dividends declared thereafter upon the
Outstanding Shares of such Series on the day such negative net income is
experienced, until such asset account is reduced to zero; or (iv) to combine the
methods described in clauses (i) and (ii) and (iii) of this sentence, in order
to cause the net asset value per Share of such Series to remain at a constant
amount per Outstanding Share immediately after each such determination and
declaration. The Trustees shall also have the power to fail to declare a
dividend out of net income for the purpose of causing the net asset value per
Share to be increased to a constant amount. The Trustees shall have full
discretion to determine whether any cash or property received shall be treated
as income or as principal and whether any item of expense shall be charged to
the income or the principal account, and their determination made in good faith
shall be conclusive upon the Shareholders. In the case of stock dividends
received, the Trustees shall have full discretion to determine, in the light of
the particular circumstances, how much if any of the value thereof shall be
treated as income, the balance, if any, to be treated as principal. The Trustees
shall not be required to adopt, but may at any time adopt, discontinue or amend
the practice of maintaining the net asset value per Share of a Series at a
constant amount.
Section 7.4. Power to Modify Foregoing Procedures. Notwithstanding any
----------- ------------------------------------
of the foregoing provisions of this Article VII, but subject to Section 5.11
hereof, the Trustees may prescribe, in their absolute discretion, such other
bases and times for determining the per Share net asset value of the Shares of
the Trust or a Series thereof or net income of the Trust or a Series thereof, or
the declaration and payment of dividends and distributions as they may deem
necessary or desirable. Without limiting the generality of the foregoing, the
Trustees may establish several Series of Shares in accordance with Section 5.11,
and declare dividends thereon in accordance with Section 5.11(d).
ARTICLE VIII
DURATION; TERMINATION OF TRUST OR A SERIES
OR A CLASS; AMENDMENT; MERGERS, ETC.
------------------------------------
Section 8.1. Duration. The Trust shall continue without limitation of
----------- --------
time but subject to the provisions of this Article VIII.
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Section 8.2. Termination of the Trust, a Series or a Class. The Trust or
----------- ---------------------------------------------
any Series or Class thereof may be terminated by (i) the affirmative vote of the
holders of not less than two-thirds of the Shares outstanding and entitled to
vote at any meeting of Shareholders of the Trust or the appropriate Series or
Class thereof or (ii) an instrument in writing signed by a majority of the
Trustees, stating that a majority of the Trustees has determined that the
continuation of the Trust or a Series or Class thereof is not in the best
interest of such Series or Class, the Trust or their respective shareholders as
a result of such factors or events adversely affecting the ability of such
Series or the Trust to conduct its business and operations in an economically
viable manner. Such factors and events may include the inability of a Series or
Class or the Trust to maintain its assets at an appropriate size, changes in
laws or regulations governing the Series or Class or the Trust or affecting
assets of the type in which such Series or Class or the Trust invests or
economic developments or trends having a significant adverse impact on the
business or operations of such Series or the Trust. Upon the termination of the
Trust or any Series or Class thereof,
(i) The Trust or the Series shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
any Series or any Class thereof and all of the powers of the Trustees under
this Declaration shall continue until the affairs of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of
the Trust or the Series, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining
Trust Property or Trust Property allocated or belonging to such Series to
one or more persons at public or private sale for consideration which may
consist in whole or in part of cash, securities or other property of any
kind, discharge or pay its liabilities, and do all other acts appropriate
to liquidate its business; provided that any sale, conveyance. assignment,
exchange, transfer or other disposition of all or substantially all the
Trust Property or Trust Property allocated or belonging to such Series
shall require Shareholder approval in accordance with Section 8.4 hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or the remaining property of the
terminated Series or Class thereof, in cash or in kind or partly each,
among the Shareholders of the Trust or the Series according to their
respective rights.
(b) After termination of the Trust or any Series or Class thereof and
distribution to the Shareholders as herein provided, a majority of the Trustees
shall execute and lodge among the records of the Trust and file with the Office
of the Secretary of The Commonwealth of Massachusetts an instrument in writing
setting forth the fact of such termination, and the Trustees shall thereupon be
discharged from all further liabilities and duties with respect to the Trust or
the terminated Series or Class thereof, and the rights and interests of all
Shareholders of the Trust or the terminated Series or Class thereof shall
thereupon cease.
23
<PAGE>
Section 8.3. Amendment Procedure. (a) This Declaration may be amended by
----------- -------------------
a vote of the holders of a majority of the Shares outstanding and entitled to
vote or by any instrument in writing, without a meeting, signed by a majority of
the Trustees and consented to by the holders of a majority of the Shares
outstanding and entitled to vote. The Trustees may amend this Declaration
without the vote or consent of Shareholders if they deem it necessary to conform
this Declaration to the requirements of applicable federal or state laws or
regulations or the requirements of the regulated investment company provisions
of the Internal Revenue Code, but the Trustees shall not be liable for failing
so to do. The Trustees may also amend this Declaration without the vote or
consent of Shareholders if they deem it necessary or desirable to change the
name of the Trust or to make any other changes in the Declaration which do not
materially affect the rights of Shareholders hereunder.
(b) No amendment may be made under this Section 8.3 which would change any
rights with respect to any Shares of the Trust or any Series or Class thereof by
reducing the amount payable thereon upon liquidation of the Trust, any Series or
Class thereof or by diminishing or eliminating any voting rights pertaining
thereto, except with the vote or consent of the holders of two-thirds of the
Shares of the Trust or such Series or Class thereof outstanding and entitled to
vote. Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust or any
----------- ----------------------------------------
Series thereof may merge or consolidate with any other corporation, association,
trust or other organization or may sell, lease or exchange all or substantially
all of the Trust Property or Trust Property allocated or belonging to such
Series, including its good will, upon such terms and conditions and for such
consideration when and as authorized at any meeting of Shareholders called for
the purpose by the affirmative vote of the holders of two-thirds of the Shares
of the Trust or such Series outstanding and entitled to vote, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the Shares of the Trust or such Series; provided,
however, that, if such merger, consolidation, sale, lease or exchange is
recommended by the Trustees, the vote or written consent of the holders of a
majority of the Shares of the Trust or such Series outstanding and entitled to
vote shall be sufficient authorization; and any such merger, consolidation,
sale, lease or exchange shall be deemed for all purposes to have been
accomplished under and pursuant to Massachusetts law.
Section 8.5. Incorporation. With the approval of the holders of a
----------- -------------
majority of the Shares of the Trust or a Series thereof outstanding and entitled
to vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the Trust Property allocated or belonging to such Series or to
carry on any business
24
<PAGE>
in which the Trust shall directly or indirectly have any interest, and to sell,
convey and transfer the Trust Property or the Trust Property allocated or
belonging to such Series to any such corporation, trust, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization, or any corporation, partnership, trust, association or
organization in which the Trust or such Series holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organization or
entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
-----------------------
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1. Execution and Filing. This Declaration and any amendment
------------ --------------------
hereto shall be filed in the office of the Secretary of The Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its execution. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and filed with the Secretary of the Commonwealth of
Massachusetts. A restated Declaration shall, upon execution, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto.
Section 10.2. Governing Law. This Declaration is executed by the
------------ -------------
Trustees and delivered in The Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said State.
25
<PAGE>
Section 10.3. Counterparts. This Declaration may be simultaneously
------------ ------------
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
------------ -------------------------
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying (a) the number or identity of Trustees or Shareholders,
(b) the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Shareholders, (d) the fact
that the number of Trustees or Shareholders present at any meeting or executing
any written instrument satisfies the requirements of this Declaration, (e) the
form of any By-laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations. (a) The
------------ ----------------------------------------------
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
Section 10.6. The Trustees shall maintain a resident agent in The
------------
Commonwealth of Massachusetts which agent shall initially be CT Corporation
System, 2 Oliver Street, Boston, Massachusetts 02109. The Trustees may designate
from time to time a successor resident in The Commonwealth of Massachusetts.
26
<PAGE>
Exhibit No. 2
AMENDED AND RESTATED
BY-LAWS
OF
LIQUID INSTITUTIONAL RESERVES
ARTICLE I
DEFINITIONS
The terms "By-laws", "Commission", "Custodian", "Declaration'', "1940
------- ---------- --------- ----------- ----
Act", "Series", "Shareholder", "Shares", "Transfer Agent", "Trust", "Trust
- --- ------ ----------- ------ -------------- ----- -----
Property" and "Trustees" have the respective meanings given them in the
- -------- --------
Declaration of Trust of Liquid Institutional Reserves dated February 14, 1991,
as amended from time to time.
ARTICLE II
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders of the Trust or a
--------------------
Series thereof shall be held as provided in the Declaration at such place within
or without the Commonwealth of Massachusetts as the Trustees shall designate.
Section 2. Notice of Meetings. Notice of all meetings of the
------------------------------
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his address as recorded on
the register of the Trust mailed at least (10) days and not more than ninety
(90) days before the meeting; provided, however, that notice of a meeting need
-------- -------
not be given to a shareholder to whom such notice need not be given under the
proxy rules of the Commission under the 1940 Act and the Securities Exchange Act
of 1934. Only the business stated in the notice of the meeting shall be
considered at such meeting. No notice need be given to any Shareholder who
shall have failed to inform the Trust of his current address or if a written
waiver of notice is executed by the Shareholder, or his attorney thereunto
authorized, before or after the meeting and which waiver is filed with the
records of the meeting.
Section 3. Quorum and Adjournment of Meetings. The holders of record
----------------------------------------------
of thirty percent (30%) of the outstanding Shares of the Trust or a Series
thereof present in person or by proxy shall constitute a quorum at any meeting
of the Shareholders of the Trust or a Series thereof, except as otherwise
provided in the Declaration. If, however, such quorum shall not be present or
represented at any meeting of Shareholders, the holders of a majority of the
Shares present in person or by proxy shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
the requisite number of Shares
<PAGE>
entitled to vote at such meeting shall be present. At such adjourned meeting,
any business may be transacted that might have been transacted at the meeting as
originally notified.
Section 4. Record Date for Meetings and Other Purposes. For the
-------------------------------------------------------
purpose of determining the Shareholders who are entitled to notice of and to
vote at any meeting, or to participate in any distribution, or for the purpose
of any other action, the Trustees may fix in advance, as a record date, a date
not more than ninety (90) or less than ten (10) days prior to the date of any
meeting of Shareholders or distribution or other action, for the determination
of the persons to be treated as Shareholders of record for such purposes, except
for dividend payments, which shall be governed by the Trust's Prospectus(es) and
Statement(s) of Additional Information as in effect from time to time.
Section 5. Proxies. At any meeting of Shareholders, any holder of
-------------------
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote and each fractional Share shall be
entitled to a proportionate fractional vote.
Section 6. Inspection of Records. The records of the Trust shall be
---------------------------------
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
Section 7. Action without Meeting. Any action which may be taken by
----------------------------------
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE III
TRUSTEES
Section 1. Meetings of the Trustees. Regular meetings of the
------------------------------------
Trustees shall be held at such time and on such notice as the Trustees may from
time to time determine. Special meetings of the Trustees shall be held whenever
called by the Chairman, the Secretary, or by two or more of the Trustees, at the
time being in office.
Section 2. Notice of Special Meetings. Notice of the time and place
--------------------------------------
of each special meeting shall be given by the Secretary or an Assistant
Secretary or by the officer or Trustees calling the meeting and shall be mailed
to each Trustee at least one day before the meeting, or shall be telegraphed,
cabled, or wirelessed to each Trustee at his business address, or personally
delivered to him at least one day before the meeting. Such notice may, however,
be
-2-
<PAGE>
waived by any Trustee. Notice of a meeting need not be given to any Trustee
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A notice or waiver of notice need not specify the purpose of any meeting.
Section 3. Quorum and Adjournment of Meetings. A majority of the
----------------------------------------------
Trustees shall be present in person at any regular or special meeting of the
Trustees in order to constitute a quorum for the transaction of business at such
meeting and, except as otherwise required by law, the Declaration or these By-
laws, the act of a majority of the Trustees present at any such meeting at which
a quorum is present, shall be the act of the Trustees. In the absence of a
quorum, a majority of the Trustees present may adjourn the meeting from time to
time until a quorum shall have been obtained. Notice of an adjourned meeting
need not be given.
Section 4. Committees. The Trustees, by vote of a majority of all
----------------------
the Trustees, may elect from their own number committees to consist of not less
than two (2) members to hold office at the pleasure of the Trustees, and shall
have such powers as the Trustees may, from time to time, delegate to them by
resolution, except those powers which by law, the Declaration or these By-laws
they are prohibited from delegating. A majority of all members of any such
committee may determine its action and fix the time and place of its meetings,
unless the Trustees shall otherwise provide. The Trustees shall have the power
at any time to change the members and powers of any such committee, to fill
vacancies and to discharge any such committee.
Section 5. Telephone Meetings. The Trustees or a committee of the
------------------------------
Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall be deemed to have been held at a place designated by the Trustees at the
meeting. Participation in a telephone conference meeting shall constitute
presence in person at such meeting.
Section 6. Action Without Meeting. Any action required or permitted
----------------------------------
to be taken at any meeting of the Trustees or any committee thereof may be taken
by the Trustees without a meeting if all the Trustees consent to the action in
writing and the written consents are filed with the records of the Trustees'
meetings. Such consents shall be treated as a vote for all purposes.
ARTICLE IV
OFFICERS
Section 1. General Provisions. The executive officers of the Trust
------------------------------
shall be a Chairman (who shall be a Trustee), a President, a Treasurer, one or
more Vice Presidents and a Secretary, each of whom shall be elected by the
Trustees. The Trustees may elect or appoint such other officers, agents or
employees as the business of the Trust may require, including one or more
Assistant Secretaries and one or more Assistant Treasurers. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers, agents or employees.
-3-
<PAGE>
Section 2. Term of Office and Qualifications. Except as otherwise
---------------------------------------------
provided by law, the Declaration or these By-laws, the Chairman, the President,
the Vice President(s), the Treasurer and the Secretary shall each hold office
until his successor shall have been duly elected and qualified, and all other
officers shall hold office at the pleasure of the Trustees. Any two offices may
be held by the same person, except that the Chairman or the President may not be
the same person as the Treasurer. Any officer may be but, except for the
Chairman, none need be, a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting
-------------------
of the Trustees, may remove any officer with or without cause, by a vote of a
majority of the Trustees then in office. Any officer or agent appointed by an
officer or committee may be removed with or without cause by such appointing
officer or committee.
Section 4. Powers and Duties. The officers of the Trust shall have
-----------------------------
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Trustees.
Section 5. Compensation of Officers and Trustees. Subject to any
-------------------------------------------------
applicable provisions of the Declaration, the compensation of the officers and
Trustees shall be fixed from time to time by the Trustees or, in the case of
officers, by any committee or officer upon whom such power may be conferred by
the Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.
ARTICLE V
FISCAL YEAR
The fiscal year of the Trust shall be fixed by resolution of the
Trustees. The fiscal year of the Trust shall be the taxable year of each Series
of the Trust.
ARTICLE VI
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE VII
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these By-laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Notice, if mailed for the purposes
of these By-laws, shall be deemed to have been given when deposited in the U.S.
mail. Notice, if telegraphed, cabled or wirelessed for the purposes of these
By-laws,
-4-
<PAGE>
shall be deemed to have been given when delivered to a representative
of any telegraph, cable or wireless company with instructions that it be
telegraphed, cabled or wirelessed.
ARTICLE VIII
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at
-------------------------------------
all times maintain in the custody of one or more Custodians (including any sub-
custodian for the Custodian), to the extent required by and in a manner
consistent with the 1940 Act and the rules thereunder, all funds, securities and
similar investments included in the Trust Property or the Trust Property
allocated or belonging to a Series thereof.
Section 2. Action Upon Termination of Custodian Agreement. Upon
----------------------------------------------------------
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian and require
that the cash and securities owned by the Trust be delivered directly to the
successor custodian.
ARTICLE IX
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed, or
new By-laws may be adopted by (a) vote of a majority of the Shares outstanding
and entitled to vote or (b) by a majority of the Trustees, provided, however,
that no By-laws may be amended, adopted or repealed by the Trustees. If such
amendment, adoption or repeal requires, pursuant to laws, the Declaration or
these By-laws, a vote of the Shareholders.
-5-
<PAGE>
Exhibit No. 9
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2/ND/ FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
August 28, 1998
Liquid Institutional Reserves
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have requested our opinion, as counsel to Liquid Institutional Reserves
("Trust"), as to certain matters regarding the issuance of certain Shares of the
Trust. As used in this letter, the term "Shares" means the Institutional shares
and Financial Intermediary shares of beneficial interest of the series of the
Trust listed below during the time that Post-Effective Amendment No. 11 to the
Trust's Registration Statement on Form N-1A ("PEA") is effective and has not
been superseded by another post-effective amendment. These series of the Trust
are Money Market Fund, Government Securities Fund and Treasury Securities Fund.
As such counsel, we have examined certified or other copies, believed by us to
be genuine, of the Trust's Declaration of Trust and by-laws and such resolutions
and minutes of meetings of the Trust's Board of Trustees as we have deemed
relevant to our opinion, as set forth herein. Our opinion is limited to the laws
and facts in existence on the date hereof, and it is further limited to the laws
(other than the conflict of law rules) in the Commonwealth of Massachusetts that
in our experience are normally applicable to the issuance of shares by
unincorporated voluntary associations and to the Securities Act of 1933 ("1933
Act"), the Investment Company Act of 1940 ("1940 Act") and the regulations of
the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the Shares
has been duly authorized by the Trust and that, when sold in accordance with the
terms contemplated by the PEA, including receipt by the Trust of full payment
for the Shares and compliance with the 1933 Act and the 1940 Act, the Shares
will have been validly issued, fully paid and non-assessable.
We note, however, that 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. The Declaration of Trust states that persons with claims against the
Trust shall look only to the Trust property or to the property of one or more
series of the Trust for satisfaction of claims. It also requires that notice of
such disclaimer be given in each obligation, contract, instrument, certificate
or undertaking
<PAGE>
Liquid Institutional Reserves
August 28, 1998
Page 2
made or issued by the trustees of the Trust on behalf of the Trust. The
Declaration of Trust further provides: (1) that the Trust shall indemnify and
hold each shareholder harmless from and against all claims and liabilities to
which such shareholder may become subject by reason of having been a shareholder
and (2) for the Trust to reimburse each shareholder out of Trust property for
all legal and other expenses reasonably incurred in connection with such claims.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust or series
would be unable to meet its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed with
the SEC and to the reference to our firm in the statement of additional
information that is being filed as part of the PEA.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
<PAGE>
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 24,
1998, in this Registration Statement (Form N-1A No. 2-98149) of Liquid
Institutional Reserves (comprising, respectively, the Money Market Fund,
Government Securities Fund and Treasury Securities Fund).
Ernst & Young LLP
New York, New York
August 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> GOVERNMENT SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 94,848
<INVESTMENTS-AT-VALUE> 94,848
<RECEIVABLES> 5,920
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 54
<TOTAL-ASSETS> 100,822
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 682
<TOTAL-LIABILITIES> 682
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,140
<SHARES-COMMON-STOCK> 100,140
<SHARES-COMMON-PRIOR> 106,857
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,140
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,755
<OTHER-INCOME> 0
<EXPENSES-NET> 257
<NET-INVESTMENT-INCOME> 4,498
<REALIZED-GAINS-CURRENT> 13
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,498)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 317,329
<NUMBER-OF-SHARES-REDEEMED> (328,114)
<SHARES-REINVESTED> 4,068
<NET-CHANGE-IN-ASSETS> (6,703)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 216
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511
<AVERAGE-NET-ASSETS> 86,364
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.052
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.052)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<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> 02
<NAME> MONEY MARKET FUND-INSTITUTIONAL
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 1,600,690
<INVESTMENTS-AT-VALUE> 1,600,690
<RECEIVABLES> 8,689
<ASSETS-OTHER> 92
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,609,471
<PAYABLE-FOR-SECURITIES> 9,899
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,784
<TOTAL-LIABILITIES> 17,683
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,591,834
<SHARES-COMMON-STOCK> 1,591,834
<SHARES-COMMON-PRIOR> 1,246,796
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<TABLE> <S> <C>
<PAGE>
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<NAME> MONEY MARKET FUND-FINANCIAL INTERMEDIARY
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<NAME> TREASURY SECURITIES FUND
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<S> <C>
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