<PAGE>
As filed with the Securities and Exchange Commission on September 1, 1999
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. 13 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 14 [ X ]
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, 1999 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
Money Market Fund
Government Securities Fund
Treasury Securities Fund
------------------------------------
PROSPECTUS
SEPTEMBER 1, 1999
------------------------------------
This prospectus offers two classes of shares for each money market fund.
Institutional shares are offered primarily to institutional investors and
Financial Intermediary shares are offered to banks and other financial
intermediaries for the benefit of their customers.
-------------------------------------------------------
Not FDIC insured. May lose value. No bank guarantee.
-------------------------------------------------------
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the funds' shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
Contents
THE FUNDS
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
What every investor 3 Money Market Fund
should know about 6 Government Securities Fund
the funds 9 Treasury Securities Fund
12 More About Risks and
Investment Strategies
YOUR INVESTMENT
- ---------------------------------------------------------------------------------------------------------
Information for 13 Managing Your Fund Account
managing your fund -- Buying Shares
account -- Selling Shares
-- Exchanging Shares
-- Pricing and Valuation
ADDITIONAL INFORMATION
- ---------------------------------------------------------------------------------------------------------
Additional important 17 Management
information about the funds 18 Dividends and Taxes
19 Financial Highlights
- ---------------------------------------------------------------------------------------------------------
Where to learn more Back Cover
about the funds
</TABLE>
-----------------------------------
The funds are not complete or
balanced investment programs.
-----------------------------------
===========
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Money Market Fund
Money Market Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE
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.
PRINCIPAL INVESTMENT STRATEGIES
The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in a diversified portfolio of high quality money
market instruments of governmental and private issuers.
Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. The fund may invest in foreign money market instruments only if they are
denominated in U.S. dollars.
PaineWebber Incorporated, the fund's investment adviser, has appointed Mitchell
Hutchins Asset Management Inc. to serve as the fund's sub-adviser. Mitchell
Hutchins selects money market instruments for the fund based on its assessment
of relative values and changes in market and economic conditions.
PRINCIPAL RISKS
An investment in the fund is not a bank deposit and is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. While the fund seeks to maintain the value of your investment at $1.00
per share, it is possible to lose money by investing in the fund.
Money market instruments generally have a low risk of loss, but they are not
risk-free. The fund is subject to credit risk, which is the risk that issuers
may fail, or become less able, to make payments when due. The fund also is
subject to interest rate risk. When short-term interest rates rise, the value of
the fund's investments generally will fall, and its yield will tend to lag
behind prevailing rates.
More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:
Credit Risk
Interest Rate Risk
Foreign Securities Risk
Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).
===========
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Money Market Fund
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart shows Institutional shares because they have the longer performance
history. The table that follows the bar chart shows the average annual returns
over several time periods for the fund's shares.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN ON INSTITUTIONAL SHARES (1992 IS THE FUND'S FIRST FULL CALENDAR
YEAR OF OPERATIONS)
<TABLE>
<CAPTION>
PERCENTAGES
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N/A N/A N/A 3.54% 2.98% 4.02% 5.76% 5.32% 5.47% 5.43%
<CAPTION>
CALENDAR YEAR
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Total return January 1 to June 30, 1999 -- 2.39%
Best quarter during years shown: 2nd quarter, 1995 -- 1.44%
Worst quarter during years shown: 2nd quarter, 1993 -- 0.72%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES*
(INCEPTION DATE) (6/3/91)
- ---------------- --------
<S> <C>
One Year........................................ 5.43%
Five Years...................................... 5.20%
Life of Class................................... 4.70%
</TABLE>
- ------------
* Because no Financial Intermediary shares were outstanding for a full calendar
year, average annual total return for Financial Intermediary shares is not
included in the table. Performance for Financial Intermediary shares would be
lower because of the 0.25% shareholder servicing fee paid by those shares.
===========
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Money Market Fund
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)............................................. None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)............................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
FINANCIAL
INSTITUTIONAL INTERMEDIARY
SHARES SHARES
---------------- ----------------
<S> <C> <C> <C> <C>
Management Fees..................................... 0.25% 0.25%
Distribution and/or Service (12b-1) Fees............ 0.00% 0.00%
Other Expenses
Shareholder Servicing Fee...................... 0.00% 0.25%
Miscellaneous Expenses......................... 0.06% 0.06%
0.06% 0.31%
----- -----
Total Annual Fund Operating Expenses................ 0.31% 0.56%
----- -----
----- -----
Expense Reimbursement*.............................. 0.03% 0.03%
----- -----
Net Expenses*....................................... 0.28% 0.53%
----- -----
----- -----
</TABLE>
- ------------
* The fund and PaineWebber have entered into an expense reimbursement agreement.
PaineWebber has agreed to reimburse the fund to the extent that the fund's
expenses through the end of the current fiscal year, April 30, 2000, otherwise
would exceed the 'Net Expenses' rates for each class as shown above. The fund
has agreed to repay PaineWebber for those reimbursed expenses if it can do so
over the following three years without causing the fund's expenses in any of
those years to exceed those 'Net Expenses' rates.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same, except for the one year period when
the fund's expenses are lower due to its reimbursement agreement with
PaineWebber. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Shares..................... $29 $ 97 $171 $390
Financial Intermediary Shares............ 54 176 310 699
</TABLE>
===========
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Government Securities Fund
Government Securities Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE
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.
PRINCIPAL INVESTMENT STRATEGIES
The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in a diversified portfolio of high quality, U.S.
government money market instruments that pay income that is generally exempt
from state and local income tax in the maximum number of states.
Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt.
PaineWebber Incorporated, the fund's investment adviser, has appointed Mitchell
Hutchins Asset Management Inc. to serve as the fund's sub-adviser. Mitchell
Hutchins selects money market instruments for the fund based on its assessment
of relative values and changes in market and economic conditions.
PRINCIPAL RISKS
An investment in the fund is not a bank deposit and is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. While the fund seeks to maintain the value of your investment at $1.00
per share, it is possible to lose money by investing in the fund.
Money market instruments generally have a low risk of loss, but they are not
risk-free. The fund is subject to credit risk, which is the risk that issuers
may fail, or become less able, to make payments when due. The fund also is
subject to interest rate risk. When short-term interest rates rise, the value of
the fund's investments generally will fall, and its yield will tend to lag
behind prevailing rates.
More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:
Credit Risk
Interest Rate Risk
Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).
===========
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Government Securities Fund
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart shows Institutional shares because they have the longer performance
history. The table that follows the bar chart shows the average annual returns
over several time periods for the fund's shares.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN ON INSTITUTIONAL SHARES (1992 IS THE FUND'S FIRST FULL CALENDAR
YEAR OF OPERATIONS)
<TABLE>
<CAPTION>
PERCENTAGES
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N/A N/A N/A 3.53% 2.94% 3.93% 5.57% 5.17% 5.30% 5.24%
<CAPTION>
CALENDAR YEAR
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Total return January 1 to June 30, 1999 -- 2.31%
Best quarter during years shown: 2nd quarter, 1995 -- 1.39%
Worst quarter during years shown: 2nd quarter and 4th quarter, 1993 -- 0.72%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES*
(INCEPTION DATE) (6/3/91)
- ---------------- --------
<S> <C>
One Year................................................ 5.24%
Five Years.............................................. 5.04%
Life of Class........................................... 4.52%
</TABLE>
- ------------
* Because no Financial Intermediary shares were outstanding for a full calendar
year, average annual total return for Financial Intermediary shares is not
included in the table. Performance for Financial Intermediary shares would be
lower because of the 0.25% shareholder servicing fee paid by those shares.
===========
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Government Securities Fund
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
FINANCIAL
INSTITUTIONAL INTERMEDIARY
SHARES SHARES
------------- -------------
<S> <C> <C> <C> <C>
Management Fees............................................ 0.25% 0.25%
Distribution and/or Service (12b-1) Fees................... 0.00% 0.00%
Other Expenses
Shareholder Servicing Fee............................. 0.00% 0.25%
Miscellaneous Expenses*............................... 0.08% 0.08%
0.08% 0.33%
---- ----
Total Annual Fund Operating Expenses....................... 0.33% 0.58%
---- ----
---- ----
Expense Reimbursement*..................................... 0.04% 0.04%
---- ----
Net Expenses*.............................................. 0.29% 0.54%
---- ----
---- ----
</TABLE>
- ------------
* The fund and PaineWebber have entered into an expense reimbursement agreement.
PaineWebber has agreed to reimburse the fund to the extent that the fund's
expenses through the end of the current fiscal year, April 30, 2000, otherwise
would exceed the 'Net Expenses' rates for each class as shown above. The fund
has agreed to repay PaineWebber for those reimbursed expenses if it can do so
over the following three years without causing the fund's expenses in any of
those years to exceed those 'Net Expenses' rates.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same, except for the one year period when
the fund's expenses are lower due to its reimbursement agreement with
PaineWebber. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Shares..................... $30 $102 $181 $414
Financial Intermediary Shares............ 55 182 320 722
</TABLE>
===========
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Treasury Securities Fund
Treasury Securities Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE
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 investments.
PRINCIPAL INVESTMENT STRATEGIES
The fund is a money market fund and seeks to maintain a stable price of $1.00
per share. The fund invests in U.S. Treasury money market instruments that are
supported by the full faith and credit of the United States. These investments
pay income that is generally exempt from state and local income tax.
Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt.
PaineWebber Incorporated, the fund's investment adviser, has appointed Mitchell
Hutchins Asset Management Inc. to serve as the fund's sub-adviser. Mitchell
Hutchins selects money market instruments for the fund based on its assessment
of relative values and changes in market and economic conditions.
PRINCIPAL RISKS
An investment in the fund is not a bank deposit and is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. While the fund seeks to maintain the value of your investment at $1.00
per share, it is possible to lose money by investing in the fund.
Money market instruments generally have a low risk of loss, but they are not
risk-free. The fund is subject to credit risk, which is the risk that issuers
may fail, or become less able, to make payments when due. The fund also is
subject to interest rate risk. When short-term interest rates rise, the value of
the fund's investments generally will fall, and its yield will tend to lag
behind prevailing rates.
More information about these and other risks of an investment in the fund is
provided below in 'More About Risks and Investment Strategies.' In particular,
see the following headings:
Credit Risk
Interest Rate Risk
Information on the fund's recent holdings can be found in its current
annual/semi-annual reports (see back cover for information on ordering those
reports).
===========
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Treasury Securities Fund
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart shows Institutional shares because they have the longer performance
history.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN ON INSTITUTIONAL SHARES (1992 IS THE FUND'S FIRST FULL CALENDAR
YEAR OF OPERATIONS)
<TABLE>
<CAPTION>
PERCENTAGES
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N/A N/A N/A 3.34% 2.72% 3.93% 5.47% 4.97% 5.16% 4.94%
<CAPTION>
CALENDAR YEAR
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Total return January 1 to June 30, 1999 -- 2.15%
Best quarter during years shown: 2nd quarter, 1995 -- 1.38%
Worst quarter during years shown: 1st quarter, 1993 -- 0.65%
AVERAGE ANNUAL TOTAL RETURNS*
as of December 31, 1998
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
(INCEPTION DATE) (2/14/91)
- ---------------- ---------
<S> <C>
One Year................................................ 4.94%
Five Years.............................................. 4.89%
Life of Class........................................... 4.35%
</TABLE>
- ------------
* No Financial Intermediary shares were outstanding prior to December 31, 1998.
Performance for Financial Intermediary shares would be lower because of the
0.25% shareholder servicing fee paid by those shares.
===========
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves Treasury Securities Fund
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)............................................. None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)............................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
FINANCIAL
INSTITUTIONAL INTERMEDIARY
SHARES SHARES
----------------------------- ---------------------------
<S> <C> <C> <C> <C>
Management Fees..................................... 0.25% 0.25%
Distribution and/or Service (12b-1) Fees............ 0.00% 0.00%
Other Expenses
Shareholder Servicing Fee...................... 0.00% 0.25%
Miscellaneous Expenses*........................ 0.08% 0.08%
0.08% 0.33%
----- -----
Total Annual Fund Operating Expenses................ 0.33% 0.58%
----- -----
----- -----
Expense Reimbursement*.............................. 0.04% 0.04%
Net Expenses*....................................... 0.29% 0.54%
----- -----
----- -----
</TABLE>
- ------------
* The fund and PaineWebber have entered into an expense reimbursement agreement.
PaineWebber has agreed to reimburse the fund to the extent that the fund's
expenses through the end of the current fiscal year, April 30, 2000, otherwise
would exceed the 'Net Expenses' rates for each class as shown above. The fund
has agreed to repay PaineWebber for those reimbursed expenses if it can do so
over the following three years without causing the fund's expenses in any of
those years to exceed those 'Net Expenses' rates.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same, except for the one year period when
the fund's expenses are lower due to its reimbursement agreement with
PaineWebber. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Shares..................... $30 $102 $181 $414
Financial Intermediary Shares............ 55 182 320 722
</TABLE>
===========
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
MORE ABOUT RISKS
AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
The main risks of investing in one or more of the funds are described below. Not
all these risks apply to each fund. You can find a list of the main risks that
apply to a particular fund by looking under the 'Investment Objective,
Strategies and Risks' heading for that fund.
Other risks of investing in a fund, along with further detail about some of the
risks described below, are discussed in the funds' Statement of Additional
Information ('SAI'). Information on how you can obtain the SAI is on the back
cover of this prospectus.
Credit Risk. Credit risk is the risk that the issuer of a money market
instrument will not make principal or interest payments when they are due. Even
if an issuer does not default on a payment, a money market instrument's value
may decline if the market believes that the issuer has become less able, or less
willing, to make payments on time. Even the highest quality money market
instruments are subject to some credit risk.
Interest Rate Risk. The value of money market instruments generally can be
expected to fall when short-term interest rates rise and to rise when short-term
interest rates fall. Interest rate risk is the risk that interest rates will
rise, so that the value of a fund's investments will fall. Also, a fund's yield
will tend to lag behind changes in prevailing short-term interest rates. This
means that a fund's income will tend to rise more slowly than increases in
short-term interest rates. Similarly, when short-term interest rates are
falling, a fund's income will tend to fall more slowly.
Foreign Securities Risk. Foreign securities involve risks that normally are not
associated with securities of U.S. issuers. These include risks relating to
political, social and economic developments abroad and differences between U.S.
and foreign regulatory requirements and market practices.
ADDITIONAL RISKS
Year 2000 Risk. The funds could be adversely affected by problems relating to
the inability of computer systems used by Mitchell Hutchins and the fund's other
service providers to recognize the year 2000. While year 2000-related computer
problems could have a negative effect on the funds, Mitchell Hutchins is working
to avoid these problems with respect to its own computer systems and to obtain
assurances from other service providers that they are taking similar steps.
Similarly, the issuers whose money market instruments are bought by the funds
and the trading systems used by the funds could be adversely affected by this
issue. The ability of an issuer or trading system to respond successfully to the
issue requires both technological sophistication and diligence, and there can be
no assurance that any steps taken will be sufficient to avoid an adverse impact
on the funds.
===========
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
ADDITIONAL INVESTMENT STRATEGIES
Like all money market funds, the funds are subject to maturity, quality and
diversification requirements designed to help them maintain a stable price of
$1.00 per share. In addition, 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 a fund's composition and weighted average maturity
based upon its assessment of the relative values of various money market
instruments and future interest rate patterns. Mitchell Hutchins also may buy or
sell money market instruments to take advantage of yield differences.
Each fund may invest to a limited extent in shares of similar money market funds
that, for Government Securities Fund and Treasury Securities Fund, have like tax
characteristics.
- --------------------------------------------------------------------------------
MANAGING YOUR FUND ACCOUNT
- --------------------------------------------------------------------------------
BUYING SHARES
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 another
bank in one day and thus may be made immediately available to a fund through its
custodian.
Each fund offers two separate classes of shares -- Institutional shares and
Financial Intermediary shares -- as an economical and convenient means for
institutions to invest short-term funds that they hold for their own account or
hold or manage for others.
You may purchase Institutional shares if you are an institutional investor.
PaineWebber Incorporated, the distributor of the fund's shares may, in its
discretion, make Institutional shares available to individuals or other
entities.
You may purchase Financial Intermediary shares only if you are a bank or other
financial intermediary buying the shares for the benefit of your customers.
Financial Intermediary shares bear special fees at the annual rate of 0.25% of
average net assets for services that these financial intermediaries provide to
the beneficial owners of the Financial Intermediary shares.
Unless you specify otherwise, all shares purchased will be Institutional shares.
You may buy fund shares by calling the funds' transfer agent, First Data
Investor Services Group, Inc., at 1-888-LIR-FUND and speaking to a
representative. You may also buy fund shares by contacting your Financial
Advisor at PaineWebber or its correspondent firms, who are then responsible for
sending the order to the transfer agent. The availability of fund shares to
customers of PaineWebber's correspondent firms may vary depending on the
arrangements between PaineWebber and those firms.
You buy shares at the net asset value next determined after receipt and
acceptance of your purchase order by the transfer agent, subject to a
===========
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13
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
fund receiving payment the same day. Your purchase order will be effective only
if you wire payment in federal funds on the same business day that you place
your order, and your wire must actually be credited to the funds' bank account
by a Federal Reserve Bank that day. Otherwise, the order will be rejected. A
business day is any day that the funds' custodian, the funds' transfer agent and
PaineWebber are open for business. Each fund effects orders to purchase its
shares each business day at the net asset value determined as of
2:30 p.m. (Eastern time) for Money Market Fund
noon (Eastern time) for Government Securities Fund and Treasury
Securities Fund
The funds and PaineWebber reserve the right to reject a purchase order or
suspend the offering of fund shares. PaineWebber may return without notice money
wired to a fund where the investor fails to place a corresponding share purchase
order.
WIRE INSTRUCTIONS
Instruct your bank to transfer federal funds by wire 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]
LIR Fund
[insert Money Market, Government or Treasury]
ABA #021000018
PaineWebber or your bank may impose a service charge for wire transfers.
MINIMUM INVESTMENTS:
Money Market Fund and Government Securities Fund (or a combination of both):
<TABLE>
<S> <C>
To open an account............... $1,000,000
To add to an account............. None
</TABLE>
Treasury Securities Fund:
<TABLE>
<S> <C>
To open an account............... $ 250,000
To add to an account............. None
</TABLE>
PaineWebber may waive these minimums. A fund may change its minimum investment
requirements at any time.
Financial intermediaries may establish different minimums for their customers
who purchase Financial Intermediary shares through them, provided that the
aggregate amounts purchased meet the above minimums. You may obtain additional
information about these minimums from your financial intermediary.
REMOTE TRADE ENTRY
The funds may offer an electronic trade order entry (RTE) capability to eligible
institutional investors who meet certain conditions. For more information on
this option, contact your Financial Advisor or the transfer agent at
1-888-LIR-FUND.
SELLING SHARES
You may sell your shares by calling the transfer agent at 1-888-LIR-FUND and
speaking with a representative. You also may sell your shares by contacting your
Financial Advisor or correspondent firm (if you previously designated them to
give instructions to the transfer agent on your behalf); they are then
responsible for sending the order to the transfer agent. The
===========
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14
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
funds accept sell orders each business day up until
2:30 p.m., Eastern time, for Money Market Fund
noon, Eastern time, for Government Securities Fund and Treasury
Securities Fund
Your sales proceeds will be paid in federal funds wired to one or more accounts
you have designated, normally on the business day the sale order is accepted. If
you sell all the shares you own, dividends accrued for the month to date will be
paid in federal funds and wired at the same time to the bank account(s) that you
designate.
Your bank account may not receive the proceeds in a timely manner if a Federal
Reserve Bank is experiencing delay in transfer of funds. Neither the funds,
PaineWebber nor the transfer agent is responsible for the performance of your
bank or any of its intermediaries.
The transfer agent will process your orders to sell shares only if you have on
file with it a properly completed account application, with a signature
guaranteed or other authentication acceptable to the transfer agent. The account
application requires you to designate the bank account(s) or PaineWebber account
for wiring sales proceeds. You must submit any change in the designated
account(s) for sale proceeds in a form acceptable to the transfer agent. The
transfer agent will not place the sales order if the information you provide
does not correspond to the information on your application.
If you have additional questions on selling shares, you should contact your
Financial Advisor or call the transfer agent at 1-888-LIR-FUND.
EXCHANGING SHARES
You may exchange shares of a fund for shares of the same class of another fund
or Mitchell Hutchins LIR Select Money Fund. LIR Select Money Fund has a
$10,000,000 minimum for initial purchases and a $100,000 minimum for subsequent
purchases. These minimums apply to initial and subsequent purchases made through
an exchange of shares. All exchanges are based on the next determined net asset
value per share.
Exchange orders are accepted up until noon, Eastern time (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 will not be effected,
and you will have to place an exchange order before these times on the following
business day if you still wish to effect an exchange. If you exchange all your
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.
You can place an exchange order by calling the transfer agent at 1-888-LIR-FUND
and speaking with a representative. You also can place an exchange order through
a PaineWebber Financial Advisor or correspondent firm (if you previously
designated them to give instructions to the transfer agent on your behalf), who
is then responsible for sending the order to the transfer agent.
Shareholders making their initial purchase of another fund through an exchange
should allow more time and must provide the transfer agent with a properly
completed account application for the new fund. These exchange orders should be
received by the transfer agent at least one half hour before the previously
mentioned deadlines to
===========
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15
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
allow the transfer agent sufficient time to establish an account in the new fund
in the investor's name. Otherwise the transfer agent may not be able to effect
the exchange.
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.
A fund may modify or terminate the exchange privilege at any time.
ADDITIONAL INFORMATION ABOUT YOUR ACCOUNT
Financial Intermediary Shares. Financial intermediaries purchasing or holding
shares for their customer accounts may charge those customers for cash
management and other services provided in connection with their accounts. These
charges may include account maintenance fees, compensating balance requirements
or fees based on account transactions, assets or income. The dividends payable
to the financial intermediaries' customers, who are the beneficial owners of the
shares, will be lower than those on Institutional shares by the amount of the
fees paid by the fund for shareholder services. A customer should consider the
terms of his account with a financial intermediary before purchasing shares.
A financial intermediary buying or selling shares for its customers is
responsible for transmitting orders to the transfer agent in accordance with its
customer agreements and the procedures noted above.
Institutional Shares. PaineWebber or Mitchell Hutchins (not the fund) may pay
shareholder servicing fees to financial institutions that make Institutional
shares available to their customers. The amount of these fees will be negotiated
between PaineWebber and the financial institution.
PRICING AND VALUATION
The price of fund shares is based on net asset value and is determined
separately for each class of shares. The net asset value is the total value of a
fund divided by the total number of shares outstanding. In determining net asset
value, each fund values its securities at their amortized cost. This method uses
a constant amortization to maturity of the difference between the cost of the
instrument to the fund and the amount due at maturity. Each fund's net asset
value per share is expected to be $1.00 per share, although this value is not
guaranteed.
The net asset value per share for Money Market Fund is determined twice each
Business Day at
noon (Eastern time) and
2:30 p.m. (Eastern time)
The net asset value per share for Government Securities Fund and Treasury
Securities Fund is determined once each Business Day at
noon (Eastern time)
Your price for buying or selling shares will be the net asset value that is next
calculated after a fund accepts your order.
===========
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16
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND SUB-ADVISER
PaineWebber is the investment adviser and administrator of the funds and
distributor of their shares. Mitchell Hutchins Asset Management Inc. is each
fund's sub-adviser and sub-administrator. PaineWebber and Mitchell Hutchins are
located at 1285 Avenue of the Americas, New York, New York, 10019. Mitchell
Hutchins is a wholly owned asset management subsidiary of PaineWebber, which is
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. On July 31, 1999, PaineWebber or Mitchell Hutchins was the
adviser or sub-adviser of 33 investment companies with 75 separate portfolios
and aggregate assets of approximately $48.0 billion.
ADVISORY FEES
The funds paid advisory and administration fees to PaineWebber for the most
recent fiscal year ended April 30, 1999 at the following annual rates based on
average net assets.
<TABLE>
<S> <C>
Money Market Fund............................... 0.20%
Government Securities Fund...................... 0.20%
Treasury Securities Fund........................ 0.20%
</TABLE>
These fees reflect a waiver by PaineWebber of 0.05% of the 0.25% contract rate
for each fund's advisory and administrative fees. That fee waiver is no longer
in effect.
OTHER INFORMATION. Money Market Fund and Government Securities Fund will
maintain a rating from one or more rating agencies that provide ratings on money
market funds. There can be no assurance that either fund will maintain any
particular rating or maintain it with a particular rating agency.
===========
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS
Each fund declares dividends daily and pays them monthly. Dividends are paid on
the last business day of a month or upon the sale of all the fund shares in a
shareholder's account.
Each fund distributes any net short-term capital gain annually and anticipates
that any short-term capital gain distribution would be declared during the month
of December in a given year. A fund may make more frequent distributions if
necessary to maintain its share price at $1.00.
Shares earn dividends on the day they are purchased but do not earn dividends on
the day they are sold.
Dividends on Financial Intermediary shares of a fund will be lower than
dividends on its Institutional shares because of the higher expenses borne by
Financial Intermediary shares.
You will receive dividends in additional shares of the same class unless you
elect to have the dividends transmitted by federal funds wire to either a
designated bank account or PaineWebber account. You must notify the transfer
agent in writing in a form acceptable to the transfer agent at least two
business days prior to the end of the month if you wish to change this election
for a particular monthly dividend.
TAXES
The dividends that you receive from a fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. 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 deduction for corporations.
Some states and localities do not tax dividends that are attributable to
interest on U.S. Treasury securities and certain other government securities.
The funds expect that their dividends will be taxed as ordinary income. Each
fund will tell you how you should treat its dividends for tax purposes. You
should not recognize any capital gain on the sale of your shares in a fund so
long as the fund maintains a share price of $1.00.
===========
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18
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the funds' financial performance for the past 5 years. Certain information
reflects financial results for a single fund share. In the tables, 'total
investment return' represents the rate that an investor would have earned on an
investment in the fund (assuming reinvestment of all dividends). Financial
Intermediary shares were not outstanding during the fiscal year ended April 30,
1999 for Government Securities Fund or Treasury Securities Fund and were
outstanding for only limited periods of time prior to that fiscal year for Money
Market Fund and Government Securities Fund.
The information in the financial highlights for the fiscal years ended
April 30, 1999, 1998 and 1997 has been audited by Ernst & Young LLP, independent
auditors, whose reports, along with the funds' financial statements, are
included in the funds' annual report to shareholders. The annual report may be
obtained without charge by calling 1-888-LIR-FUND. The financial information for
the fiscal year ended April 30, 1996 was audited by another independent
accounting firm, whose reports thereon were unqualified.
<TABLE>
<CAPTION>
MONEY MARKET FUND
------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES FINANCIAL INTERMEDIARY SHARES**
----------------------------------------------------------- ----------------------------------------
FOR THE PERIOD
FOR THE JANUARY 14, FOR THE
FOR THE YEARS ENDED APRIL 30, YEAR ENDED 1996'D' TO YEAR ENDED
----------------------------------------------------------- APRIL 30, APRIL 30, APRIL 30,
1999 1998 1997 1996 1995'D''D' 1999 1996 1995'D''D'
---- ---- ---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- -------- -------- ------- ------- ------
Net investment
income............... 0.051 0.054 0.052 0.055 0.048 0.048 0.015 0.027
Net realized losses
from investment
transactions......... -- -- -- -- (0.008) -- -- --
---------- ---------- ---------- -------- -------- ------- ------- ------
Net increase from
investment
operations........... 0.051 0.054 0.052 0.055 0.040 0.048 0.015 0.027
---------- ---------- ---------- -------- -------- ------- ------- ------
Dividends from net
investment income.... (0.051) (0.054) (0.052) (0.055) (0.048) (0.048) (0.015) (0.027)
---------- ---------- ---------- -------- -------- ------- ------- ------
Contribution to capital
from predecessor
adviser(1)........... -- -- -- -- 0.008 -- -- --
---------- ---------- ---------- -------- -------- ------- ------- ------
Net asset value, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- -------- -------- ------- ------- ------
---------- ---------- ---------- -------- -------- ------- ------- ------
Total investment
return(2)............ 5.22% 5.52% 5.33% 5.61% 4.91% 4.96% 1.51% 3.10%
---------- ---------- ---------- -------- -------- ------- ------- ------
---------- ---------- ---------- -------- -------- ------- ------- ------
</TABLE>
===========
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19
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
<TABLE>
<CAPTION>
MONEY MARKET FUND
------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES FINANCIAL INTERMEDIARY SHARES**
----------------------------------------------------------- ----------------------------------------
FOR THE PERIOD
FOR THE JANUARY 14, FOR THE
FOR THE YEARS ENDED APRIL 30, YEAR ENDED 1996'D' TO YEAR ENDED
----------------------------------------------------------- APRIL 30, APRIL 30, APRIL 30,
1999 1998 1997 1996 1995'D''D' 1999 1996 1995'D''D'
---- ---- ---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratios/Supplemental
Data:
Net assets, end of
period (000's)....... $2,036,379 $1,591,789 $1,246,799 $421,878 $220,844 $12,002 $16,302 --
Expenses to average net
assets net of
waivers/reimbursements
from adviser......... 0.26% 0.29% 0.25% 0.31% 0.35% 0.51% 0.54%* 0.60%
Expenses to average net
assets before
waivers/reimbursements
from adviser......... 0.31% 0.34% 0.30% 0.37% 0.37% 0.56% 0.59%* 0.62%
Net investment income
to average net assets
net of
waivers/reimbursements
from adviser......... 5.07% 5.38% 5.24% 5.47% 4.68% 4.82% 5.13%* 4.17%
Net investment income
to average net assets
before
waivers/reimbursements
from adviser......... 5.02% 5.33% 5.19% 5.41% 4.66% 4.77% 5.07%* 4.15%
</TABLE>
- ------------
'D' Issuance of shares.
'D''D' 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. Any further
subscriptions of such shares would be at $1.00 per share.
(1) Kidder Peabody Asset Management, Inc., the Fund's predecessor investment
adviser and administrator, purchased certain of the Fund's variable rate
securities on July 6, 1994 at prices equal to the securities' amortized
cost plus accrued and unpaid interest. Since the purchases were made at
prices above the securities' current fair value, the Fund 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.
===========
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20
<PAGE>
- --------------------------------------------------------------------------------
=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
-------------------------------------------------------------------------------------
FINANCIAL
INTERMEDIARY
SHARES**
INSTITUTIONAL SHARES ------------------------------
---------------------------------------------------- FOR THE PERIOD
FOR THE YEARS ENDED APRIL 30, JULY 12, 1994'D'
---------------------------------------------------- TO
1999 1998 1997 1996 1995'D''D' APRIL 30, 1995'D''D'
---- ---- ---- ---- --------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- ------- -------
Net investment income..................... 0.049 0.052 0.051 0.053 0.048 0.032
Net realized gains (losses) from
investment transactions................. -- -- -- 0.001 (0.008) --
-------- -------- -------- ------- ------- -------
Net increase from investment operations... 0.049 0.052 0.051 0.054 0.040 0.032
-------- -------- -------- ------- ------- -------
Dividends from net investment income...... (0.049) (0.052) (0.051) (0.054) (0.047) (0.032)
-------- -------- -------- ------- ------- -------
Contribution to capital from predecessor
advisor(1).............................. -- -- -- -- 0.007 --
-------- -------- -------- ------- ------- -------
Net asset value, end of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- ------- -------
-------- -------- -------- ------- ------- -------
Total investment return(2)................ 5.04% 5.32% 5.20% 5.50% 4.61% 3.31%
-------- -------- -------- ------- ------- -------
-------- -------- -------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's)......... $138,783 $100,140 $106,843 $43,770 $54,903 --
Expenses to average net assets net of
waivers/reimbursements from adviser..... 0.28% 0.30% 0.30% 0.32% 0.35% 0.60%*
Expenses to average net assets before
waivers/reimbursements from adviser..... 0.33% 0.59% 0.53% 0.56% 0.47% 0.72%*
Net investment income to average net
assets net of waivers/reimbursements
from adviser............................ 4.90% 5.21% 5.09% 5.52% 4.75% 4.58%*
Net investment income to average net
assets before waivers/reimbursements
from adviser............................ 4.85% 4.91% 4.86% 5.28% 4.63% 4.46%*
</TABLE>
- ------------
'D' Commencement of issuance of shares.
'D''D' Sub-advisory functions for the Fund were transferred from Kidder Peabody
Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
* Annualized
** For the years ended April 30, 1999, 1998 and 1997 and for the period
March 22, 1995 to April 30, 1996 there were no outstanding Financial
Intermediary Shares. Any further subscriptions of such shares would
be at $1.00 per share.
(1) Kidder Peabody Asset Management, Inc., the Fund's predecessor investment
adviser and administrator, purchased certain of the Fund's variable rate
securities on July 6, 1994 at prices equal to the securities' amortized
cost plus accrued and unpaid interest. Since the purchases were made at
prices above the securities' current fair value, the Fund 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.
===========
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21
<PAGE>
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=============================
Liquid Institutional Reserves
Money Market Fund Government Securities Fund Treasury Securities Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY SECURITIES FUND
-----------------------------------------------------
INSTITUTIONAL SHARES
-----------------------------------------------------
FOR THE YEARS ENDED APRIL 30,
-----------------------------------------------------
1999 1998 1997 1996 1995'D''D'
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income....................................... 0.046 0.051 0.049 0.048 0.049
Net realized gains (losses) from investment transactions.... -- -- -- 0.003 (0.002)
-------- -------- -------- -------- --------
Net increase from investment operations..................... 0.046 0.051 0.049 0.051 0.047
-------- -------- -------- -------- --------
Dividends from net investment income........................ (0.046) (0.051) (0.049) (0.051) (0.047)
-------- -------- -------- -------- --------
Net asset value, end of year................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return(1).................................. 4.68% 5.23% 5.02% 5.23% 4.75%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of year (000's)............................. $179,227 $179,708 $ 65,893 $ 19,624 $ 23,762
Expenses to average net assets net of waivers/reimbursements
from adviser.............................................. 0.28% 0.30% 0.30% 0.32% 0.22%
Expenses to average net assets before waivers/reimbursements
from adviser.............................................. 0.33% 0.47% 0.72% 0.94% 0.84%
Net investment income to average net assets net of
waivers/reimbursements from adviser....................... 4.57% 5.09% 4.97% 5.71% 5.51%
Net investment income to average net assets before
waivers/reimbursements from adviser....................... 4.52% 4.92% 4.56% 5.09% 4.89%
</TABLE>
- ------------
'D''D' Sub-advisory functions for the Fund were transferred from Kidder Peabody
Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
(1) 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.
===========
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22
<PAGE>
TICKER SYMBOL: Institutional Shares --
Money Market Fund LIRXX
Government Securities Fund LIGXX
Treasury Securities Fund LISXX
If you want more information about the funds, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semi-annual reports to shareholders.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund and is incorporated by
reference into this prospectus.
You may discuss your questions about a fund by contacting your PaineWebber
Financial Advisor. You may obtain free copies of annual and semi-annual reports
and the SAI by contacting the funds directly at 1-888-LIR-FUND.
You may review and copy information about the funds, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and Exchange
Commission. You can get text-only copies of reports and other information about
the funds and information about the operations of the SEC's Public Reference
Room:
For a fee, by writing to or calling the
SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
Free, from the SEC's Internet website at:
http://www.sec.gov
Liquid Institutional Reserves
- -- Money Market Fund
- -- Government Securities Fund
- -- Treasury Securities Fund
Investment Company Act File No. 811-06281
'c' 1999 PaineWebber Incorporated
LIQUID INSTITUTIONAL RESERVES
Prospectus
==================================
MONEY MARKET FUND
GOVERNMENT SECURITIES FUND
TREASURY SECURITIES FUND
September 1, 1999
<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
Money Market Fund, Government Securities Fund and Treasury Securities
Fund are professionally managed money market funds organized as diversified
series of Liquid Institutional Reserves ("Trust").
The funds' investment adviser, administrator and distributor is
PaineWebber Incorporated ("PaineWebber"); their sub-adviser is Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber. Mitchell Hutchins also serves as the funds'
sub-administrator.
Portions of the funds' Annual Report to Shareholders are incorporated
by reference into this Statement of Additional Information ("SAI"). The Annual
Report accompanies this SAI. You may obtain an additional copy of the funds'
Annual Report by calling toll-free 1-888-LIR-FUND.
This SAI is not a prospectus and should be read only in conjunction
with the fund's current Prospectus, dated September 1, 1999. A copy of the
Prospectus may be obtained by calling any PaineWebber Financial Advisor or
correspondent firm or by calling toll-free 1-888-LIR-FUND. This SAI is dated
September 1, 1999.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Funds and Their Investment Policies................................ 2
The Funds' Investments, Related Risks and Limitations.................. 3
Organization of the Trust; Trustees and Officers
and Principal Holders of Securities................................ 9
Investment Advisory, Administration
and Distribution Arrangements......................................... 17
Portfolio Transactions................................................. 20
Additional Information Regarding Redemptions........................... 21
Valuation of Shares.................................................... 21
Performance Information................................................ 22
Taxes.................................................................. 25
Other Information...................................................... 25
Financial Statements................................................... 26
</TABLE>
<PAGE>
THE FUNDS AND THEIR INVESTMENT POLICIES
No fund's investment objective may be changed without shareholder
approval. Except where noted, the other investment policies of each fund may be
changed by its board without shareholder approval. As with other mutual funds,
there is no assurance that a fund will achieve its investment objective.
Each fund is a money market fund that invests in high quality money
market instruments that have, or are deemed to have, remaining maturities of 13
months or less. Money market instruments are short-term debt-obligations and
similar securities. They also include longer term bonds that have variable
interest rates or other special features that give them the financial
characteristics of short-term debt. Each fund may purchase only those
obligations that Mitchell Hutchins determines, pursuant to procedures adopted by
the board, present minimal credit risks and are "First Tier Securities" as
defined in Rule 2a-7 under the Investment Company Act of 1940, as amended
("Investment Company Act").
MONEY MARKET FUND'S investment objective is high current income to the
extent consistent with 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 fund's investments include (1)
U.S. and foreign government securities, (2) obligations of U.S. and foreign
banks, (3) commercial paper and other short-term obligations of U.S. and foreign
corporations, partnerships, trusts and similar entities, (4) repurchase
agreements and (5) investment company securities.
The fund may invest in obligations (including certificates of deposit,
bankers' acceptances, time deposits and similar obligations) of U.S. and foreign
banks only if the institution has total assets at the time of purchase in excess
of $1.5 billion. The fund's investments in non-negotiable time deposits of these
institutions will be considered illiquid if they have maturities greater than
seven days.
The fund generally may invest no more than 5% of its total assets in
the securities of a single issuer (other than U.S. government securities). The
fund may purchase only U.S. dollar-denominated obligations of foreign
issuers.
The fund may invest up to 10% of its net assets in illiquid securities.
The fund may purchase securities on a when-issued or delayed delivery basis. The
fund may lend its portfolio securities to qualified broker-dealers or
institutional investors in an amount up to 33 1/3% of its total assets. The fund
may borrow up to 33 1/3% of the value of its total assets, including reverse
repurchase agreements, for temporary purposes The fund may invest in the
securities of other money market funds.
GOVERNMENT SECURITIES FUND'S investment objective is high current
income to the extent consistent with 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 fund invests in
U.S. government securities with interest income that is generally exempt from
state and local income taxation and 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 Association). The fund will not enter into repurchase
agreements.
Under extraordinary circumstances, however, such as when securities
with interest income that is generally exempt from state and local income
taxation 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 securities issued by Ginnie Mae, also known as the Government National
Mortgage Association, and Freddie Mac, also known as the Federal Home Loan
Mortgage Corporation, and the Small Business Administration.
The fund may invest up to 10% of its net assets in illiquid securities.
The fund may purchase securities on a when-issued or delayed delivery basis. The
fund may lend its portfolio securities to qualified broker-dealers or
institutional investors in an amount up to 33 1/3% of its total assets. The fund
may borrow up to 33 1/3% of the
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<PAGE>
value of its total assets for temporary purposes. The fund may invest in the
securities of other money market funds that have similar tax characteristics.
TREASURY SECURITIES FUND'S investment objective is high current income
to the extent consistent with 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 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 tax. The fund will
not enter into repurchase agreements.
The fund may invest up to 10% of its net assets in illiquid securities.
The fund may purchase securities on a when-issued or delayed delivery basis. The
fund may lend its portfolio securities to qualified broker-dealers or
institutional investors in an amount up to 33 1/3% of its total assets. The fund
may borrow up to 33 1/3% of the value of its total assets for temporary
purposes. The fund may invest in the securities of other money market funds that
have similar tax characteristics.
THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS
The following supplements the information contained in the Prospectus
and above concerning each fund's investments, related risks and limitations.
Except as otherwise indicated in the Prospectus or the SAI, the funds have
established no policy limitations on its ability to use the investments or
techniques discussed in these documents. New forms of money market instruments
continue to be developed. The funds may invest in these instruments to the
extent consistent with their investment objectives.
YIELDS AND CREDIT RATINGS OF MONEY MARKET INSTRUMENTS; FIRST TIER
SECURITIES. The yields on the money market instruments in which the funds invest
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 assigned by nationally
recognized statistical rating organizations ("rating agencies") 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. If a security in a fund's portfolio ceases to be a
First Tier Security or Mitchell Hutchins becomes aware that a security has
received a rating below the second highest rating by any rating agency, Mitchell
Hutchins and, in certain cases, a fund's board, will consider whether a fund
should continue to hold the obligation. A First Tier Security is either (1)
rated in the highest short-term rating category by at least two rating agencies,
(2) rated in the highest short-term rating category by a single rating agency if
only that rating agency 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 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. A
First Tier Security rated in the highest short-term category by a single rating
agency at the time of purchase that subsequently receives a rating below the
highest rating category from a different rating agency may continue to be
considered a First Tier Security.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S.
Treasury (such as Treasury bills, notes or bonds) and obligations issued or
guaranteed as to principal and interest (but not as to market value) by the U.S.
government, its agencies or its instrumentalities. U.S. government securities
include mortgage-backed securities issued or guaranteed by government agencies
or government-sponsored enterprises. Other U.S. government securities may be
backed by the full faith and credit of the U.S. government or supported
primarily or solely by the creditworthiness of the government-related issuer or,
in the case of mortgage-backed securities, by pools of assets.
U.S. government securities also include separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury,
which are traded independently under the Separate Trading of Registered
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Interest and Principal of Securities ("STRIPS") program. Under the STRIPS
programs, the principal and interest components are individually numbered and
separately issued by the U.S. Treasury.
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 also may purchase non-convertible debt obligations
subject to maturity constraints imposed by Rule 2a-7 under the Investment
Company Act.
ASSET-BACKED SECURITIES. [Money Market Fund] may invest in securities
that are comprised of financial assets. Such assets may include a motor vehicle
and other types of installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements or other types of financial assets. Such assets
are securitized through the use of trusts or special purpose corporations or
other entities. Payments or distributions of principal and interest may be
guaranteed up to a certain amount and for a certain time period by a letter of
credit or pool insurance policy issued by a financial institution unaffiliated
with the issuer, or other credit enhancements may be present. See "The Funds'
Investments, Related Risks and Limitations -- Credit and Liquidity
Enhancements."
VARIABLE AND FLOATING RATE SECURITIES AND DEMAND INSTRUMENTS. 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, the funds may purchase variable and floating rate securities of
other issuers with remaining maturities in excess of 13 months. The funds'
investments in these securities must comply with conditions established by the
Securities and Exchange Commission ("SEC") under which they may be considered to
have remaining maturities of 13 months or less. The yields on these securities
are adjusted in relation to changes in specific rates, such as the prime rate,
and different securities may have different adjustment rates. Certain of these
obligations carry a demand feature that gives the funds the right to tender them
back to a specified party, usually the issuer or a remarketing agent, prior to
maturity. See "The Funds' Investments, Related Risks and Limitations -- Credit
and Liquidity Enhancements."
Generally, each fund may exercise demand features (1) upon a default
under the terms of the underlying security, (2) to maintain its portfolio in
accordance with its investment objective and policies or applicable legal or
regulatory requirements or (3) as needed to provide liquidity to the 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 securities.
VARIABLE AMOUNT MASTER DEMAND NOTES. Money Market Fund may invest in
variable amount master demand notes, which are unsecured redeemable obligations
that permit investment of varying amounts at fluctuating interest rates under a
direct agreement between the fund and an issuer. The principal amount of these
notes may be increased from time to time by the parties (subject to specified
maximums) or decreased by the fund or the issuer. These notes are payable on
demand and may or may not be rated.
INVESTING IN FOREIGN SECURITIES. Money Market Fund's investments in
U.S. dollar-denominated securities of foreign issuers may involve risks that are
different from investments in U.S. issuers. These risks may include future
unfavorable political and economic developments, possible withholding taxes,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions that might affect the payment of principal or interest
on the fund's investments. Additionally, there may be less publicly available
information about foreign issuers because they may not be subject to the same
regulatory requirements as domestic issuers.
CREDIT AND LIQUIDITY ENHANCEMENTS. Money Market Fund may invest in
securities that have credit or liquidity enhancements or the fund may purchase
these types of enhancements in the secondary market. Such
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<PAGE>
enhancements may be structured as demand features that permit the fund to sell
the instrument at designated times and prices. These credit and liquidity
enhancements may be backed by letters of credit or other instruments provided by
banks or other financial institutions whose credit standing affects the credit
quality of the underlying obligation. Changes in the credit quality of these
could cause losses to the fund and affect its share price. The credit and
liquidity enhancements may have conditions that limit the ability of the fund to
use them when the fund wished to do so.
ILLIQUID SECURITIES. The term "illiquid securities" means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at. to which a 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
are liquid pursuant to guidelines established by the funds' board. To the extent
the funds invest in illiquid securities, they may not be able readily to
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, as amended ("Securities Act") and may be sold only in privately negotiated
or other exempted transactions or after a registration statement under the
Securities Act 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 Securities 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 under the Securities Act, which establishes a "safe
harbor" from the registration requirements of that Act for resales of certain
securities to qualified institutional buyers. 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 the fund might be unable to
dispose of such securities promptly or at favorable prices.
The board has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins pursuant to guidelines approved
by the board. Mitchell Hutchins takes into account a number of factors in
reaching liquidity decisions, which may include (1) the frequency of trades for
the security, (2) the number of dealers that make quotes, or are expected to
make quotes, for the security, (3) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how bids are solicited and
the mechanics of transfer) and (4) the existence of demand features or similar
liquidity enhancements. Mitchell Hutchins monitors the liquidity of restricted
securities in each fund's portfolio and reports periodically on such decisions
to the board.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which
Money Market Fund purchases securities or other obligations from a bank or
securities dealer (or its affiliate) 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 obligations. Securities or other obligations subject to repurchase
agreements may have maturities in excess of 13 months. The fund maintains
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
obligations.
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Repurchase agreements carry certain risks not associated with direct
investments in securities, including a possible decline in the market value of
the underlying 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 obligations and
the price that was paid by the fund upon acquisition is accrued as interest and
included in its net investment income. 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 seller
or guarantor becomes insolvent, the fund may suffer delays, costs and possible
losses in connection with the disposition of collateral. The fund intends to
enter into repurchase agreements only with counterparties in transactions
believed by Mitchell Hutchins to present minimum credit risks.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve
the sale of securities held by Money Market Fund subject to its agreement to
repurchase the securities at an agreed-upon date or upon demand and at a price
reflecting a market rate of interest. Reverse repurchase agreements are subject
to the fund's limitation on borrowings and may be entered into only with banks
and securities dealers. While a reverse repurchase agreement is outstanding, the
fund will maintain, in a segregated account with its custodian, cash or liquid
securities, marked to market daily, in an amount at least equal to its
obligations under the reverse repurchase agreement. See "The Funds' Investments,
Related Risks and Limitations -- Segregated Accounts."
Reverse repurchase agreements involve the risk that the buyer of the
securities sold by the fund might be unable to deliver them when the fund seeks
to repurchase. If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, such buyer or trustee or receiver may
receive an extension of time to determine whether to enforce the fund's
obligation to repurchase the securities, and the fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The funds may purchase
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery, i.e., for issuance or delivery to or by the funds later than
the normal settlement date for such securities 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 undertakes a when-issued or
delayed delivery obligation, it immediately assumes the risks of ownership,
including the risks of price fluctuation. Failure of the issuer to deliver a
security purchased by a funds on a when-issued or delayed delivery basis may
result in the fund's incurring a loss or missing an opportunity to make an
alternative investment.
A security purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date and is subject to changes in market
value, generally based upon changes in the level of interest rates. Thus,
fluctuation in the value of the security from the time of the commitment date
will affect a 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 "The Funds' Investments, Related Risks
and Limitations -- Segregated Accounts." A fund may sell the right to acquire
the security prior to delivery if Mitchell Hutchins deems it advantageous to do
so, which may result in a gain or loss to the fund.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each fund may invest in
securities of other money market funds, subject to Investment Company Act
limitations, which at present restrict these investments in the aggregate to no
more than 10% of the fund's total assets. The shares of other money market funds
are subject to the management fees and other expenses of those funds. At the
same time, a fund would continue to pay its own management fees and expenses
with respect to all its investments, including shares of other money market
funds. A fund may invest in the securities of other money market funds when
Mitchell Hutchins believes that (1) the amounts to be invested are too small or
are available too late in the day to be effectively invested in other money
market instruments, (2) shares of other money market funds otherwise would
provide a better return than direct investment in other money market instruments
or (3) such investments would enhance the fund's liquidity.
LENDING OF PORTFOLIO SECURITIES. Each fund is authorized to lend its
portfolio securities to broker-dealers or institutional investors that Mitchell
Hutchins deems qualified. Lending securities enables a fund to earn
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additional income, but could result in a loss or delay in recovering these
securities. The borrower of a fund's portfolios securities must maintain
acceptable collateral with the fund's custodian in an amount, 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. A fund may reinvest any cash
collateral in money market investments 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. Each fund will retain authority to terminate
any of its loans at any time. A fund 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. A fund will
receive amounts equivalent to any interest, dividends or other distributions on
the securities loaned. Each fund 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 its 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.
PaineWebber also has been approved as a borrower under each funds' securities
lending program.
SEGREGATED ACCOUNTS. When a fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis or reverse
repurchase agreements, it 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 its obligation or commitment under such transactions.
INVESTMENT LIMITATIONS OF THE FUNDS
FUNDAMENTAL LIMITATIONS. The following fundamental investment
limitations cannot be changed for a fund without the affirmative vote of the
lesser of (a) more than 50% of the outstanding shares of the fund or (b) 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 a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the following limitations.
Each fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5%
of the fund's total assets would be invested in securities of that issuer or the
fund would own or hold more than 10% of the outstanding voting securities of
that issuer, except that up to 25% of the fund's total assets may be invested
without regard to this limitation, and except that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment companies.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the securities
having the same sponsor, and mortgage- and asset-backed securities issued by a
finance or other special purpose subsidiary that are not guaranteed by the
parent company will be considered to be issued by a separate issuer from the
parent company.
(2) purchase any security if, as a result of that purchase, 25% or more
of the fund's total assets would be invested in securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities or to
certificates of deposit and bankers' acceptances of domestic branches of U.S.
banks.
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The following interpretations apply to, but are not a part of, this
fundamental restriction: (a) 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 Investment Company 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 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 may 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 LIMITATIONS. The following investment restrictions are
non-fundamental and may be changed by the vote of 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 margin 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.
(4) purchase securities of other investment companies, except to the
extent permitted by the Investment Company Act and except that this limitation
does not apply to securities received or acquired as dividends, through offers
of exchange, or as a result of reorganization, consolidation, or merger.
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ORGANIZATION OF THE TRUST; TRUSTEES AND OFFICERS AND
PRINCIPAL HOLDERS OF SECURITIES
The Trust was formed on February 4, 1991 as a business trust under the
laws of the Commonwealth of Massachusetts and has three operating series. The
Trust has authority to issue an unlimited number of shares of beneficial
interest, par value $.001 per share, of each existing or future series. The
Trust is governed by a board of trustees, which oversees the funds' operations.
The board also is authorized to establish additional series. The trustees and
executive officers of the Trust, their ages, business addresses and principal
occupations during the past five years are:
<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
<S> <C> <C>
Margo N. Alexander**; 52 Trustee and President Mrs. Alexander is chairman (since March
1999), chief executive officer and a
director of Mitchell Hutchins (since
January 1995), and an executive vice
president and a director of PaineWebber
(since March 1984). Mrs. Alexander is
president and a director or trustee of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Richard Q. Armstrong; 64 Trustee Mr. Armstrong is chairman and principal of
R.Q.A. Enterprises R.Q.A. Enterprises (management consulting
One Old Church Road firm)(since April 1991 and principal
Unit #6 occupation since March 1995). Mr. Armstrong
Greenwich, CT 06830 was chairman of the board, chief executive
officer and co-owner of Adirondack
Beverages (producer and distributor of
soft drinks and sparkling/still waters)
(October 1993-March 1995). He was a
partner of The New England Consulting
Group (management consulting firm)
(December 1992-September 1993). He was
managing director of LVMH U.S. Corporation
(U.S. subsidiary of the French luxury
goods conglomerate, Louis Vuitton Moet
Hennessey Corporation) (1987-1991) and
chairman of its wine and spirits
subsidiary, Schieffelin & Somerset Company
(1987-1991). Mr. Armstrong is a director
or trustee of 31 investment companies for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 72 Trustee and Chairman of the Mr. Bewkes is a director of Paine Webber Group
Board of Trustees Inc. ("PW 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 director of Interstate Bakeries
Corporation. Mr. Bewkes is a director or trustee
of 35 investment companies for which Mitchell
Hutchins, PaineWebber or one of their affiliates
serves as investment adviser.
Richard R. Burt; 52 Trustee Mr. Burt is chairman of IEP Advisors, Inc.
1275 Pennsylvania Ave, N.W. (international investments and consulting
Washington, DC 20004 firm)(since March 1994) and a partner of
McKinsey & Company (management consulting
firm) (since 1991). He is also a director of
Archer-Daniels-Midland Co. (agricultural
commodities), Hollinger International Co.
(publishing), Homestake Mining Corp. (gold
mining), Powerhouse Technologies Inc.
(provides technology to gaming and wagering
industry) and Wierton Steel Corp. (makes
and finishes steel products). He was the
chief negotiator in the Strategic Arms
Reduction Talks with the former Soviet Union
(1989-1991) and the U.S. Ambassador to the
Federal Republic of Germany (1985-1989). Mr.
Burt is a director or trustee of 31 investment
companies for which Mitchell Hutchins, PaineWebber
or one of their affiliates serves as investment
adviser.
Mary C. Farrell**; 49 Trustee Ms. Farrell is a managing director, senior
investment strategist and member of the
Investment Policy Committee of
PaineWebber. Ms. Farrell joined
PaineWebber in 1982. She is a member of
the Financial Women's Association and
Women's Economic Roundtable and 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 Business. Ms.
Farrell is a director or trustee of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
<S> <C> <C>
Meyer Feldberg; 57 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior
New York, NY 10027 to 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg is
also a director of Primedia, Inc.
(publishing), Federated Department Stores,
Inc. (operator of department stores) and
Revlon, Inc. (cosmetics). Dean Feldberg is
a director or trustee of 34 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
George W. Gowen; 69 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, NY 10017 1994, he was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is a
director or trustee of 34 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Frederic V. Malek; 62 Trustee Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Ave, N.W. Partners (merchant bank). From January 1992 to
Suite 350 November 1992, he was campaign manager of
Washington, DC 20004 Bush-Quayle `92. From 1990 to 1992, he was
vice chairman and, from 1989 to 1990, he
was president of Northwest Airlines Inc.
and NWA Inc. (holding company of Northwest
Airlines Inc.). Prior to 1989, he was
employed by the Marriott Corporation
(hotels, restaurants, airline catering and
contract feeding), where he most recently
was an executive vice president and
president of Marriott Hotels and Resorts.
Mr. Malek is also a director of American
Management Systems, Inc. (management
consulting and computer related services),
Automatic Data Processing, Inc. (computing
services), CB Richard Ellis, Inc. (real
estate services), FPL Group, Inc.
(electric services), Global Vacation Group
(packaged vacations), HCR/Manor Care, Inc.
(health care) and Northwest Airlines Inc.
Mr. Malek is a director or trustee of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
<S> <C> <C>
Carl W. Schafer; 63 Trustee Mr. Schafer is president of the Atlantic
66 Witherspoon Street, #1100 Foundation (charitable foundation supporting
Princeton, NJ 08542 mainly oceanographic exploration and
research). He is a director of Base Ten
Systems, Inc. (software), Roadway Express,
Inc. (trucking), The Guardian Group of
Mutual Funds, the Harding, Loevner Funds,
Evans Systems, Inc. (motor fuels,
convenience store and diversified
company), Electronic Clearing House, Inc.
(financial transactions processing),
Frontier Oil Corporation and Nutraceutix,
Inc. (biotechnology company). Prior to
January 1993, he was chairman of the
Investment Advisory Committee of the
Howard Hughes Medical Institute. Mr.
Schafer is a director or trustee of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Brian M. Storms;** 44 Trustee Mr. Storms is president and chief operating
officer of Mitchell Hutchins (since March
1999). Prior to March 1999, he was
president of Prudential Investments
(1996-1999). Prior to joining Prudential,
he was a managing director at Fidelity
Investments. Mr. Storms is a director or
trustee of 31 investment companies for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
John J. Lee; 31 Vice President and Mr. Lee is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Prior to September 1997, he was
an audit manager in the financial services
practice of Ernst & Young LLP. Mr. Lee is
a vice president and assistant treasurer
of 32 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as an investment
adviser.
Kevin J. Mahoney; 33 Vice President and Mr. Mahoney is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
department of Mitchell Hutchins. From
August 1996 through March 1999, he was the
manager of the mutual fund internal
control group of Salomon Smith Barney.
Prior to August 1996, he was an associate
and assistant treasurer of BlackRock
Financial Management L.P. Mr. Mahoney is a
vice president and assistant treasurer of
32 investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
<S> <C> <C>
Dennis McCauley; 52 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 22
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Ann E. Moran; 42 Vice President and Ms. Moran is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Ms. Moran is a vice president
and assistant treasurer of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Dianne E. O'Donnell; 47 Vice President and Secretary Ms. O'Donnell is a senior vice president and
deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice
president and secretary of 31 investment
companies and a vice president and
assistant secretary of one investment
company for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Emil Polito; 38 Vice President Mr. Polito is a senior vice president and
director of operations and control for
Mitchell Hutchins. Mr. Polito is a vice
president of 32 investment companies for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
Susan Ryan; 39 Vice President Ms. Ryan is a senior vice president and
portfolio manager of Mitchell Hutchins and
has been with Mitchell Hutchins since
1982. Ms. Ryan is a vice president of five
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser
Victoria E. Schonfeld; 48 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins
(since May 1994) and a senior vice
president of PaineWebber (since July
1995). Ms. Schonfeld is a vice president
of 31 investment companies and a vice
president and secretary of one investment
company for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
<S> <C> <C>
Paul H. Schubert; 36 Vice President and Treasurer Mr. Schubert is a senior vice president and
director of the mutual fund finance
department of Mitchell Hutchins. Mr.
Schubert is a vice president and treasurer
of 32 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
Barney A. Taglialatela; 38 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund 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 investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Keith A. Weller; 38 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr. Weller
is a vice president and assistant
secretary of 31 investment companies for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
</TABLE>
- -------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes, Ms. Farrell and Mr. Storms are "interested
persons" of the fund as defined in the Investment Company Act by virtue
of their positions with Mitchell Hutchins, PaineWebber, and/or PW Group.
The Trust pays trustees who are not "interested persons" of the Trust
$1,000 annually for each series and up to $150 per series for each board meeting
and each separate meeting of a board committee. The Trust presently has three
series and thus pays each such trustee $3,000 annually, plus any additional
amounts due for board or committee meetings. Each chairman of the audit and
contract review committees 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 outstanding shares of any class of each fund. Because PaineWebber
and Mitchell Hutchins perform substantially all the services necessary for the
operation of the Trust, the Trust requires no employees. No officer, director or
employee of Mitchell Hutchins or PaineWebber presently receives any compensation
from the Trust for acting as a trustee or officer.
14
<PAGE>
The table below includes certain information relating to the
compensation of the current trustees who held office with the Trust during the
fiscal year ended April 30, 1999 and the compensation of those trustees from all
PaineWebber funds during the 1998 calendar year.
COMPENSATION TABLE'D'
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION FROM THE TRUST AND THE FUND
NAME OF PERSON, POSITION FROM THE TRUST* COMPLEX**
------------------------ --------------- ---------
<S> <C> <C>
Richard Q. Armstrong,
Trustee $ 5,430 $ 101,372
Richard R. Burt,
Trustee 5,340 101,372
Meyer Feldberg,
Trustee 5,430 116,222
George W Gowen,
Trustee 7,473 108,272
Frederic V. Malek,
Trustee 5,430 101,372
Carl W. Schafer,
Trustee 5,430 101,372
</TABLE>
- --------------------
'D' Only independent board members are compensated by the PaineWebber funds and
identified above; board members who are "interested persons," as defined by
the Investment Company Act, do not receive compensation from the funds.
* Represents fees paid to each trustee for the fiscal year ended April 30,
1999.
** Represents total compensation paid during the calendar year ended December
31, 1998, to each board member by 31 investment companies (33 in the case of
Messrs. Feldberg and Gowen) for which Mitchell Hutchins, PaineWebber or one
of their affiliates served as investment adviser. No fund within the
PaineWebber fund complex has a bonus, pension, profit sharing or retirement
plan.
15
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of July 31, 1999, the Trust's records showed [the following
shareholders as owning 5% or more of a class of the funds' shares.
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE OF SHARES
NAME AND ADDRESS* BENEFICIALLY OWNED AS OF JULY 31, 1999
---------------- --------------------------------------
<S> <C> <C>
MONEY MARKET FUND
-----------------
International Game Technology................... 132,154,452 8%
Institutional shares
Parbanc Co...................................... 47,307,021 100%
Financial Intermediary
shares
GOVERNMENT SECURITIES FUND
--------------------------
Michael Dougherty............................... 33,646,481 23%
Institutional shares
Macrochem Corp.................................. 16,440,121 11%
Institutional shares
American Growth Fund Inc........................ 10,075,308 7%
Institutional shares
TREASURY SECURITIES FUND
------------------------
Old South Church in Boston...................... 13,982,810 9%
Institutional shares
</TABLE>
- ----------------
* Each shareholder listed above may be contacted c/o Mitchell Hutchins Asset
Management Inc., 1285 Avenue of the Americas, New York, NY 10019.
16
<PAGE>
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. PaineWebber acts as the Trust's
investment adviser and administrator pursuant to a contract dated April 13, 1995
("Advisory Contract"). Under the Advisory Contract, each fund pays PaineWebber
an annual fee, computed daily and paid monthly, at an annual rate of 0.25% of
its average daily net assets.
During each of the periods indicated, the funds paid (or accrued) to
PaineWebber the following fees under the Advisory Contract. During these
periods, PaineWebber voluntarily waived a portion of its fees and/or voluntarily
paid other fund expenses, as set forth below.
<TABLE>
<CAPTION>
Fiscal year Ended April 30
--------------------------------------------------
1999 1998 1997
-------------- --------------- -------------
<S> <C> <C> <C>
Money Market Fund........... $4,684,985 $3,572,192 $2,196,654
Fee Amount Waived 936,943 716,790 439,015
Expenses Reimbursed 973 2,739 0
Government Securities Fund.. $ 285,771 215,911 203,152
Fee Amount Waived 56,592 43,177 40,607
Expenses Reimbursed 0 210,691 144,536
Treasury Securities Fund.... 458,169 259,380 99,845
Fee Amount Waived 90,943 51,876 19,956
Expenses Reimbursed 0 128,386 147,250
</TABLE>
Under a contract with PaineWebber dated April 15, 1996 ("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 fees 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
--------------------------------------------------
1999 1998 1997
--------------- -------------- -------------
<S> <C> <C> <C>
Money Market Fund........... $1,873,688 $1,503,380 $887,358
Government Securities Fund.. 114,287 0 8,099
Treasury Securities Fund.... 183,070 39,694 0
</TABLE>
Under the terms of the Advisory Contract, each fund 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 or to the Trust's other series are allocated among series by or
under the direction of the board of directors 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 fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the fund by PaineWebber; (3) organizational
expenses; (4) filing fees and expenses relating to the registration and
qualification of fund shares under federal and state securities laws and
maintaining such registrations and qualifications; (5) fees and salaries payable
to the directors and officers who are not interested persons of the fund or
PaineWebber; (6) all expenses incurred in connection with the trustees'
17
<PAGE>
services, including travel expenses; (7) taxes (including any income or
franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible 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 directors who are not interested persons of the Trust; (11) charges of
custodians, transfer agents and other agents; (12) expenses of setting in type
and printing prospectuses and statements of additional information and
supplements thereto, reports and statements to shareholders and proxy material
for existing shareholders; costs of mailing such materials to 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 directors
and officers; and (18) costs of mailing, stationery and communications
equipment.
The Advisory and Mitchell Hutchins Contracts (collectively, "Contracts")
noted above provide that PaineWebber or Mitchell Hutchins, as the case may be,
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the funds in connection with the performance of the contract, 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 by vote of the funds' board or by the
holders of a majority of the outstanding voting securities of the funds at any
time without penalty, on 60 days' written notice to PaineWebber or Mitchell
Hutchins, as the case may be. The Advisory 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
automatically terminates upon the assignment of the Advisory Contract.
During the fiscal year ended April 30, 1999, the funds did not pay fees
to PaineWebber for its services as lending agent because the funds did not
engage in any securities lending activities.
NET ASSETS. The following table shows the approximate net assets as of
July 31, 1999, 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>
NET ASSETS
INVESTMENT CATEGORY ($MIL)
------------------- ------
<S> <C>
Domestic (excluding Money Market)................................... $ 8,159.6
Global.............................................................. 4,524.1
Equity/Balanced..................................................... 7.791.1
Fixed Income (excluding Money Market)............................... 4,892.6
Taxable Fixed Income........................................ 3,363.8
Tax-Free Fixed Income....................................... 1,528.8
Money Market Funds.................................................. 35,370.4
</TABLE>
PERSONAL 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 PaineWebber 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
18
<PAGE>
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 Funds and other Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. PaineWebber acts as the distributor of each
fund's shares under a distribution contract with the Trust ("Distribution
Contract"), which requires PaineWebber to use its best efforts, consistent with
its other business, to sell shares of the funds. Shares of the funds are offered
continuously.
FINANCIAL INTERMEDIARIES. Financial intermediaries, such as banks and
savings associations, may purchase Financial Intermediary shares for the
accounts of their customers. The Trust has adopted a shareholder services plan
("Plan") with respect to Financial 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 Intermediary shares.
Under the Plan, each fund pays PaineWebber an annual fee at the annual
rate of 0.25% of the average daily net assets 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. During the fiscal year ended April 30, 1999, the Trust
made payments through PaineWebber to financial intermediaries with respect to
Financial Intermediary shares in the amount of $24,898 for Money Market Fund, $0
for Government Securities Fund and $0 for Treasury Securities Fund.
Under the terms of the service agreements, financial intermediaries are
required to provide to their customers a schedule of any additional fees that
they may charge customers in connection with their investments in Financial
Intermediary shares. Financial Intermediary shares are available for purchase
only by financial intermediaries that have entered into service agreements with
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.
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 Investment Company 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.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of banks serving as financial intermediaries in
connection with the provision of support services to their customers, the Trust
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
19
<PAGE>
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
receipt of compensation from a fund through PaineWebber under a service
agreement resulting from fiduciary funds being invested in Financial
Intermediary shares. Before investing fiduciary funds in Financial Intermediary
shares, financial intermediaries, including investment advisers and other money
managers under the jurisdiction of the SEC, the Department of Labor or state
securities commissions and banks regulated by the Comptroller of the Currency
should consult their legal advisors.
PORTFOLIO TRANSACTIONS
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. During the last three fiscal years, the funds paid no
brokerage commissions.
For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions, it
will not purchase securities at a higher price or sell securities at a lower
price than would otherwise be paid if no weight was attributed to the services
provided by the executing dealer. Mitchell Hutchins may engage in agency
transactions in over-the-counter securities in return for research and execution
services. These transactions are entered into only pursuant to procedures that
are designed to ensure 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.
Research services and information received from brokers or dealers are
supplemental to Mitchell Hutchins' own research efforts and, when utilized, are
subject to internal analysis before being incorporated into their investment
processes. Information and research services furnished by brokers or dealers
through which or with which the funds effect securities transactions may be used
by Mitchell Hutchins in advising other funds or accounts and, conversely,
research services furnished to Mitchell Hutchins by brokers or dealers in
connection with other funds or accounts that either of them advises may be used
in advising the funds.
Investment decisions for the funds 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 the funds and one or more of such
accounts. In such cases, simultaneous transactions are inevitable. Purchases or
sales are then averaged as to price and allocated between the funds and such
other account(s) as to amount according to a formula deemed equitable to the
funds 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 funds
are 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 funds.
20
<PAGE>
As of April 30, 1999, Money Market Fund owned securities issued by the
following companies which are regular broker-dealers for the fund:
<TABLE>
<CAPTION>
ISSUER TYPE OF SECURITY VALUE
------ ---------------- -----
<S> <C> <C>
Bear Stearns Companies Incorporated short-term corporate obligation $ 5,000,000
Goldman Sachs Group Incorporated commercial paper/short-term corporate 81,573,263
obligation
Merrill Lynch & Company Incorporated short-term corporate obligation 21,175,453
Morgan Stanley, Dean Witter & Company commercial paper 19,879,000
</TABLE>
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 is closed or
trading on the New York Stock Exchange is restricted as determined by the SEC,
(2) when an emergency exists, as defined by the SEC, that makes it not
reasonably practicable for the fund to dispose of securities owned by it or
fairly to determine the 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 each fund's portfolio at the time; although the
funds attempt 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, the 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 a 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 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 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 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 Investment
Company Act. To use amortized cost to value its portfolio securities, the funds
must adhere to certain conditions under the Rule relating to its investments,
some of which are discussed in this SAI. 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, the
funds might have to sell portfolio securities prior to maturity and at a price
that might not be desirable.
21
<PAGE>
The board has established 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 each 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.
In determining the approximate market value of portfolio investments,
the funds 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. Other assets, if any, are valued at fair value as
determined in good faith by or under the direction of the board.
PERFORMANCE INFORMATION
The funds' performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return will fluctuate.
Total Return Calculations. Average annual total return quotes
("Standardized Return") used in each fund's Performance Advertisements are
calculated according to the following formula:
<TABLE>
<S> <C>
P(1 + T)'pp'n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a specified class
T = average annual total return of shares of that class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the beginning of that period.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. All dividends are assumed to have been reinvested at net asset value.
22
<PAGE>
The following tables show performance information for the funds' shares
outstanding for the periods indicated. All returns for periods of more than one
year are expressed as an average annual return.
MONEY MARKET FUND
<TABLE>
<CAPTION>
INSTITUTIONAL FINANCIAL
SHARES INTERMEDIARY SHARES
(INCEPTION DATE) (06/03/91) (01/14/98)
---------------- ---------- ----------
<S> <C> <C>
Year ended April 30, 1999:
Standardized Return ........................... 5.22% 4.96%
Five Years ended April 30, 1999
Standardized Return............................ 5.31% N/A
Inception* to April 30, 1999:
Standardized Return............................ 4.71% 5.04%
</TABLE>
GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
(INCEPTION DATE) (06/03/91)
--------------- ----------
<S> <C>
Year ended April 30, 1999:
Standardized Return............................ 5.04%
Five Years ended April 30, 1999
Standardized Return............................ 5.15%
Inception* to April 30, 1999:
Standardized Return............................ 4.53%
</TABLE>
TREASURY SECURITIES FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
(INCEPTION DATE) (12/06/91)
---------------- ----------
<S> <C>
Year ended April 30, 1999:
Standardized Return............................ 4.68%
Five Years ended April 30, 1999
Standardized Return............................ 4.98%
Inception* to April 30, 1999:
Standardized Return............................ 4.36%
</TABLE>
CALCULATION OF YIELD. Each fund computes its yield and effective yield
quotations using standardized methods required by the SEC. The funds from time
to time advertise (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
23
<PAGE>
effective yield based on the same seven-day period by compounding the base
period return by adding 1, raising the sum to a power equal to (365/7) and
subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)'pp'365/7] - 1
The funds may also advertise other performance data, which may consist
of the annual or cumulative return (including net short-term capital gain, if
any) earned on a hypothetical investment in each 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 alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.
The following table shows the yield and effective yield for the
outstanding shares of each fund for the 7-day period ended April 30, 1999:
<TABLE>
<CAPTION>
YIELD EFFECTIVE YIELD
----- ---------------
<S> <C> <C>
Money Market Fund
Institutional shares 4.74% 4.85%
Financial Intermediary shares 4.49% 4.59%
Government Securities Fund
Institutional shares 4.56% 4.66%
Financial Intermediary shares N/A N/A
Treasury Securities Fund
Institutional shares 4.23% 4.32%
Financial Intermediary shares N/A N/A
</TABLE>
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 its 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 Smith Barney 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.
The funds may also compare their performance with the performance of
bank certificates of deposit ("CDs") as measured by the CDA Certificate of
Deposit Index and the Bank Rate Monitor National Index and the
24
<PAGE>
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 the funds seek 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.
The funds may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends on the funds' investments are reinvested by being paid in
additional fund shares, any future income of the funds would increase the value,
not only of the original funds' investments, but also of the additional fund
shares received through reinvestment. As a result, the value of the funds'
investments would increase more quickly than if dividends had been paid in cash.
The funds 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.
TAXES
BACKUP WITHHOLDING. The funds are required to withhold 31% of all
dividends and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the funds or PaineWebber with a
correct taxpayer identification number. Withholding at that rate also is
required from dividends payable to those shareholders who otherwise are subject
to backup withholding.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. To continue to qualify
for treatment as a regulated investment company ("RIC") under the Internal
Revenue Code, the 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 gains, 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 and 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, securities of other RICs 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 or the securities of other
RICs) of any one issuer. If the fund failed to qualify for treatment as a RIC
for any taxable year, (a) it would be taxed as an ordinary Trust on the full
amount of its taxable income for that year without being able to deduct the
distributions it makes to its shareholders and (b) the shareholders would treat
all those distributions as dividends (that is, ordinary income) to the extent of
the fund's earnings and profits. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest, and make
substantial distributions before requalifying for RIC treatment.
OTHER INFORMATION
MASSACHUSETTS BUSINESS TRUST. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders could, under certain circumstances, be held personally liable for
the obligations of the Trust. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each note, bond, contract, instrument,
certificate or undertaking made or issued by the trustees or by any officers or
officer by or on behalf of the Trust, a fund, the trustees or any of them in
connection with the Trust. The Declaration of Trust provides for indemnification
from a fund's property for all losses and expenses of any shareholder held
personally liable for the obligations of the fund. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which a fund itself would be unable to meet its
obligations, a possibility which PaineWebber believes is remote and not
material. Upon payment of any liability incurred by a shareholder, the
25
<PAGE>
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.
CLASS OF SHARES. A share of each class of a fund represent an interest
in the fund's investment portfolios and has similar rights, privileges and
preferences. Each share of a fund has equal voting, dividend and liquidation
rights, except that beneficial owners of Financial Intermediary shares receive
certain services directly from financial intermediaries and bear the related
service costs.
VOTING RIGHTS. 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 cumulative and, as a result, the holders of more than 50% of all
the shares of the Trust may elect all its board members. The shares of a fund
will be voted together, except that only the shareholders of a particular class
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 accounts must undertake to vote the shares in the same proportions as the
vote of shares held for their customers.
The Trust does not hold annual meetings. Shareholders of record holding
no less than two thirds of the outstanding shares of the Trust may remove a
board member by vote cast in person or by proxy at a meeting called for that
purpose. A meeting will be called to vote on the removal of a board member at
the written request of holders of record of at least 10% of the outstanding
shares of the Trust..
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State
Street Bank and Trust Company, located at One Heritage Drive, North Quincy,
Massachusetts 02171, serves as custodian and recordkeeping agent for the funds.
First Data Investor Services Group, Inc., whose principal business address is
4400 Computer Drive, Westborough, Massachusetts 01581-5159, is the fund's
transfer and dividend disbursing agent.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the fund.
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 fund.
FINANCIAL STATEMENTS
The funds' Annual Report to Shareholders for their last fiscal year ended April
30, 1999 is a separate document supplied with this SAI, and the financial
statements, accompanying notes and report of independent auditors appearing
therein are incorporated herein by this reference.
26
<PAGE>
YOU 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 YOU WITH INFORMATION THAT IS
DIFFERENT. THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION 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.
-----------
'c'1999 PaineWebber Incorporated
Mitchell Hutchins'
Liquid Institutional Reserves
Money Market Fund
Government Securities Fund
Treasury Securities Fund
- -----------------------------------
Statement of Additional Information
September 1, 1999
- -----------------------------------
PAINEWEBBER
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(1) (a) Amended and Restated Declaration of Trust 1/
(b) Amendment effective April 18, 1996 to Declaration of Trust 2/
(2) Amended and Restated By-Laws of the Trust 1/
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 3/
(4) (a) Investment Advisory and Administration Contract between
Registrant and PaineWebber 4/
(b) Investment Sub-advisory and Sub-administration Agreement
between PaineWebber and Mitchell Hutchins 2/
(5) Distribution Contract between Registrant and PaineWebber 5/
(6) Bonus, profit or pension plans - none
(7) Custodian Contract 4/
(8) (a) Transfer Agency Services and Shareholder Services Agreement 6/
(b) Shareholder Service Plan 2/
(c) Shareholder Service Agreement 2/
(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 (not applicable)
(15) Plan pursuant to Rule 18f-3 2/
-
- -------------------------------
1/ Incorporated by reference from Post-Effective Amendment No. 11 to the
registration statement, SEC File No. 33-39029, filed August 28, 1998.
2/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No. 33-39029, filed August 30, 1996.
3/ 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.
4/ Incorporated by reference from Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 33-39029, filed July 3, 1996.
5/ Incorporated by reference to Post-Effective Amendment No. 6 to the
registration statement, SEC File No. 33-39029, filed August 25, 1995.
C-1
<PAGE>
6/ Incorporated by referenced from Post-Effective Amendment No. 10 to the
registration statement, SEC File No. 33-39029, filed July 2, 1997.
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
C-2
<PAGE>
and held harmless by the Registrant against all liabilities, except those
arising out of willful misfeasance, bad faith, or reckless disregard of its
obligations and duties under the Agreement.
Section 9 of the Distribution Contract provides that the Trust will
indemnify PaineWebber and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by PaineWebber to the Trust for use in the Registration Statement; and
provided that this indemnity agreement shall not protect any such persons
against liabilities arising by reason of their bad faith, gross negligence or
willful misfeasance; and shall not inure to the benefit of any such persons
unless a court of competent jurisdiction or controlling precedent determines
that such result is not against public policy as expressed in the Securities Act
of 1933. Section 9 of each Distribution Contract also provides that PaineWebber
agrees to indemnify, defend and hold the Trust, its officers 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 Paine Webber Group Inc. PaineWebber is primarily
engaged in the financial services business. Information as to the officers and
directors of PaineWebber is included in its Form ADV as filed with the
Securities and Exchange Commission (registration number 801-7163) and is
incorporated herein by reference.
II. Mitchell Hutchins, a Delaware corporation, is a registered
investment adviser and is a wholly owned subsidiary of PaineWebber which is, in
turn, a wholly owned subsidiary of Paine Webber 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 LIR MONEY 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. Unless otherwise indicated,
the principal business address of each person named is 1285 Avenue of the
Americas, New York, NY 10019.
<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 under Rule 485(b) of 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 30th day of August, 1999.
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 August 30, 1999
- ---------------------------
Margo N. Alexander * (Chief Executive Officer)
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman August 30, 1999
- --------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee August 30, 1999
- ---------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee August 30, 1999
- ---------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee August 30, 1999
- ---------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee August 30, 1999
- ---------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee August 30, 1999
- ---------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee August 30, 1999
- ---------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee August 30, 1999
- ---------------------------
Carl W. Schafer *
/s/ Brian M. Storms Trustee August 30, 1999
- ------------------------------------
Brian M. Storms **
/s/ Paul H. Schubert Vice President and Treasurer (Chief August 30, 1999
- ------------------------------------ Financial and Accounting Officer)
Paul H. Schubert
</TABLE>
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.
** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated May 14, 1999 and incorporated by reference from Post-Effective
Amendment No. 61 to the registration statement of PaineWebber Managed
Investments Trust, SEC File 2-91362, filed June 1, 1999.
C-5
<PAGE>
LIQUID INSTITUTIONAL RESERVES
EXHIBIT INDEX
-------------
Exhibit
Number
- ------
(1) (a) Amended and Restated Declaration of Trust 1/
(b) Amendment effective April 18, 1996 to Declaration of Trust 2/
(2) Amended and Restated By-Laws of the Trust 1/
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 3/
(4) (a) Investment Advisory and Administration Contract between
Registrant and PaineWebber 4/
(b) Investment Sub-advisory and Sub-administration Agreement
between PaineWebber and Mitchell Hutchins 2/
(5) Distribution Contract between Registrant and PaineWebber 5/
(6) Bonus, profit or pension plans - none
(7) Custodian Contract 4/
(8) (a) Transfer Agency Services and Shareholder Services Agreement 6/
(b) Shareholder Service Plan 2/
(c) Shareholder Service Agreement 2/
(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 (not applicable)
(15) Plan pursuant to Rule 18f-3 2/
-
- -------------------------------
1/ Incorporated by reference from Post-Effective Amendment No. 11 to the
registration statement, SEC File No. 33-39029, filed August 28, 1998.
2/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No. 33-39029, filed August 30, 1996.
3/ 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.
4/ Incorporated by reference from Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 33-39029, filed July 3, 1996.
5/ Incorporated by reference to Post-Effective Amendment No. 6 to the
registration statement, SEC File No. 33-39029, filed August 25, 1995.
6/ Incorporated by referenced from Post-Effective Amendment No. 10 to the
registration statement, SEC File No. 33-39029, filed July 2, 1997.
STATEMENT OF DIFFERENCES
The copyright symbol shall be expressed as............................... 'c'
The registered trademark symbol shall be expressed as.................... 'r'
The dagger symbol shall be expressed as.................................. 'D'
Characters normally expressed as superscript shall be preceded by........ 'pp'
<PAGE>
Exhibit No. 9
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
WWW.KL.COM
August 30, 1999
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 that may be issued during the time that
Post-Effective Amendment No. 13 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) of the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by investment companies organized as business trusts in that State 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 creditors of,
contractors with and claimants against the Trust or any series shall look only
to the assets of the Trust for the appropriate series for payment. It also
requires that notice of such disclaimer be given in each note, bond, contract,
certificate, undertaking or instrument made or issued by the officers or the
trustees of the Trust on behalf of the Trust. The Declaration of Trust further
provides: (1) for indemnification from the assets of the Trust or the
appropriate series for all loss and expense of any shareholder held personally
liable for the obligations of the Trust or any series by virtue of ownership of
shares of the Trust or such series; and (2) for the Trust or appropriate series
to assume the defense of any claim against the shareholder for any act or
obligation of the Trust or series. Thus, the risk of a shareholder incurring
financial loss on
<PAGE>
Liquid Institutional Reserves
August 30, 1999
Page 2
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
18,1999, in this Registration Statement (Form N-1A No. 33-39029) of Liquid
Institutional Reserves (comprising, respectively, the Money Market Fund,
Government Securities Fund and Treasury Securities Fund).
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
August 31, 1999
