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. Customers of banks and other
financial intermediaries that purchase the funds' Financial Intermediary shares
may obtain the Prospectus from their financial intermediaries This SAI is dated
September 1, 1999.
TABLE OF CONTENTS
PAGE
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
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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 to earn high current income
to the extent consistent with the preservation of capital and the maintenance of
liquidity through investments in a diversified portfolio of high quality,
short-term, U.S. dollar-denominated money market instruments. 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), except
that the fund may invest up to 25% of its total assets in First Tier Securities
of a single issuer for a period of up to three business days. 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 to earn high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity through investments in a diversified portfolio of high
quality, short-term, U.S. dollar-denominated money market instruments. 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.
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Each investor should consult its own tax adviser to determine whether
distributions from the fund derived from interest on its portfolio investments
are exempt from state income taxation in the investor's own state.
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.
TREASURY SECURITIES FUND'S investment objective is to earn high current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity through investments in a diversified portfolio of high
quality, short-term, U.S. dollar-denominated money market instruments. The fund
invests substantially all its assets 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.
Each investor should consult its own tax adviser to determine whether
distributions from the fund derived from interest on its portfolio investments
are exempt from state income taxation in the investor's own state.
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 their 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.
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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 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 and Government Securities
Fund may invest in securities that are comprised of financial assets that have
been securitized through the use of trusts or special purpose corporations or
other entities. Such assets may include 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. 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, Money Market Fund may purchase variable and floating rate
securities of other issuers. 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.
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. Money
Market Fund will purchase variable and floating rate securities on non-U.S.
government issuers that have remaining maturities of more than 13 months only if
the securities are subject to a demand feature exercisable within 13 months or
less. 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
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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 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 financial
institutions 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 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 their 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
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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.
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 fund 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.
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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 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.
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The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgageand asset-backed securities will not be
considered to have been issued by the same issuer by reason of the securities
having the same sponsor, and mortgage- and asset-backed securities issued by a
finance or other special purpose subsidiary that are not guaranteed by the
parent company will be considered to be issued by a separate issuer from the
parent company.
(2) purchase any security if, as a result of that purchase, 25% or
more of the fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except that
this limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities or to
certificates of deposit and bankers' acceptances of domestic branches of U.S.
banks.
The following 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.
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(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.
ORGANIZATION OF THE TRUST; TRUSTEES AND OFFICERS AND
PRINCIPAL HOLDERS OF SECURITIES
The Trust was formed on February 14, 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> <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
R.Q.A. Enterprises of R.Q.A. Enterprises (management
One Old Church Road consulting firm) (since April 1991 and
Unit #6 principal occupation since March 1995).
Greenwich, CT 06830 Mr. Armstrong was chairman of the board,
chief executive officer and co-owner of
Adirondack Beverages (producer and
distributor of soft drinks and
sparkling/still waters) (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.
9
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
E. Garrett Bewkes, Jr.**; 72 Trustee and Chairman of Mr. Bewkes is a director of Paine Webber
the Board of Trustees Group 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,
1275 Pennsylvania Ave, N.W. Inc. (international investments and
Washington, DC 20004 consulting 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.
10
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
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 to
New York, NY 10027 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
New York, NY 10017 May 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
Suite 350 1992 to November 1992, he was campaign
Washington, DC 20004 manager of Bush-Quayle `92. From 1990 to
1992, he was vice chairman and, from 1989
to 1990, he was president of Northwest
Airlines Inc. 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 Aegis
Communications, Inc. (tele-services),
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.
11
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
Carl W. Schafer; 63 Trustee Mr. Schafer is president of the Atlantic
66 Witherspoon Street, #1100 Foundation (charitable foundation
Princeton, NJ 08542 supporting 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
Assistant Treasurer of 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
Assistant Treasurer a 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.
12
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
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
Assistant Treasurer manager of 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 Ms. O'Donnell is a senior vice president
Secretary 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.
13
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
Paul H. Schubert; 36 Vice President and Mr. Schubert is a senior vice president
Treasurer 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
Assistant Treasurer a 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
Assistant Secretary and 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+
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM THE TRUST AND
NAME OF PERSON, POSITION FROM THE TRUST* THE FUND COMPLEX**
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 101372
Carl W. Schafer,
Trustee ....................... 5,430 101,372
- --------------------
+ 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 132,154,452 8%
Technology...................................... 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 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, ADMINISTRATION AND
DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. PaineWebber acts as
the Trust's investment adviser and administrator pursuant to a contract dated
April 13, 1995 ("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> <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> <C>
Money Market Fund........... $1,873,488 $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 trustees 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 trustees 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 trustees who are not interested persons of the Trust; (11) charges of
custodians, transfer agents and other agents; (12) expenses of setting in type
and printing prospectuses and statements of additional information and
supplements thereto, reports and statements to shareholders and proxy material
for existing shareholders; (13) costs of mailing such materials to existing
shareholders; (14) any extraordinary expenses (including fees and disbursements
of counsel, costs of actions, suits or proceedings to which the Trust is a party
and the expenses the Trust may incur as a result of its legal obligation to
provide indemnification to its officers, trustees, agents and shareholders)
incurred by a fund; (15) fees, voluntary assessments and other expenses incurred
in connection with membership in investment company organizations; (16) costs of
mailing and tabulating proxies and costs of meetings of shareholders, the board
and any committees thereof; (17) the cost of investment company literature and
other publications provided to the trustees and officers; and (18) costs of
mailing, stationery and communications equipment.
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 Contracts,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of PaineWebber or Mitchell Hutchins in the performance of its duties
or from reckless disregard of its duties and obligations thereunder.
The Contracts are terminable 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.
NET ASSETS
INVESTMENT CATEGORY ($MIL)
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
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 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.
18
<PAGE>
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 a monthly fee at the annual
rate of 0.25% of the average daily net asset value of the Financial Intermediary
shares held by financial intermediaries on behalf of their customers. Under each
service agreement, PaineWebber pays an identical fee to the financial
intermediary for providing the support services to its customers specified in
the service agreement. These services may include: (i) aggregating and
processing purchase and redemption requests from customers and placing net
purchase and redemption orders with PaineWebber; (ii) providing customers with a
service that invests the assets of their accounts in Financial Intermediary
shares; (iii) processing dividend payments from the Trust on behalf of
customers; (iv) providing information periodically to customers showing their
positions in Financial Intermediary shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed by the
financial intermediary; (vii) providing sub-accounting with respect to Financial
Intermediary shares beneficially owned by customers or the information necessary
for sub-accounting; (viii) forwarding shareholder communications from the Trust
(such as proxies, shareholder reports and dividend, distribution and tax
notices) to customers, if required by law; and (ix) such other similar services
as a fund may reasonably request from time to time to the extent the financial
intermediary is permitted to do so under federal and state statutes, rules and
regulations. 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
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.
19
<PAGE>
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.
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<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 81,573,263
corporate 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 funds'
transfer agent, First Data Investor Services Group, Inc. ("Transfer Agent") and
the New York City offices of PaineWebber and PaineWebber's bank are all open for
business. One or more of these institutions will be closed on the observance of
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day.
Each fund values its portfolio securities in accordance with the
amortized cost method of valuation under Rule 2a-7 ("Rule") under the 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.
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
21
<PAGE>
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:
P(1 + T)n(SUPERSCRIPT) = 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.
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.
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).
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
FINANCIAL
INSTITUTIONAL INTERMEDIARY
SHARES SHARES
(INCEPTION DATE) (06/03/91) (01/14/98)*
---------- ----------
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%
___________________
* Date for most recent issuance of shares. Financial Intermediary shares
were originally issued on March 17, 1994, but subsequently redeemed
before being reissued in 1998.
GOVERNMENT SECURITIES FUND
INSTITUTIONAL
SHARES
(INCEPTION DATE) (06/03/91)
----------
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%
TREASURY SECURITIES FUND
INSTITUTIONAL
SHARES
(INCEPTION DATE) (06/03/91)
----------
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%
CALCULATION OF YIELD. Each fund computes its yield and effective yield
quotations using standardized methods required by the SEC. A fund from time to
time advertises (1) its current yield based on a recently ended seven-day
period, computed by determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account having a balance of one share
at the beginning of the period, subtracting a hypothetical charge reflecting
deductions from that shareholder account, dividing the difference by the value
23
<PAGE>
of the account at the beginning of the base period to obtain the base period
return and then multiplying the base period return by (365/7), with the
resulting yield figure carried to at least the nearest hundredth of one percent;
and (2) its effective yield based on the same seven-day period by compounding
the base period return by adding 1, raising the sum to a power equal to (365/7)
and subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7(SUPERSCRIPT)] - 1
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.
The following table shows the yield and effective yield for the
outstanding shares of each fund for the 7-day period ended April 30, 1999:
YIELD EFFECTIVE YIELD
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
OTHER INFORMATION. The funds' performance data quoted in advertising and
other promotional materials ("Performance Advertisements") represent past
performance and are not intended to predict or indicate future results. The
return on an investment in each fund will fluctuate. In Performance
Advertisements, the funds may compare their yields 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 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 they will be able to do so.
24
<PAGE>
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
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 represents an interest
in the fund's investment portfolio 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.
25
<PAGE>
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. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees holding office have been elected by shareholders. Shareholders of
record 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; TRANSFER AND DIVIDEND AGENT. State Street Bank and Trust
Company, located at One Heritage Drive, North Quincy, Massachusetts 02171, is
custodian of the funds' assets. First Data Investor Services Group, Inc., whose
principal business address is 4400 Computer Drive, Westborough, Massachusetts
01581-5159, is the funds' 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 funds.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, serves as independent auditors for the funds.
FINANCIAL 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 MITCHELL HUTCHINS'
OFFER TO SELL SHARES OF THE FUNDS IN
ANY JURISDICTION WHERE THE FUNDS OR Liquid Institutional Reserves
THEIR DISTRIBUTOR MAY NOT LAWFULLY
SELL THOSE SHARES. Money Market Fund
Government Securities Fund
Treasury Securities Fund
-----------
-----------------------------------
Statement of Additional Information
September 1, 1999
-----------------------------------
PAINEWEBBER
(C)1999 PaineWebber Incorporated
