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PaineWebber S&P 500 Index Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- October 1, 1998
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PaineWebber S&P 500 Index Fund is designed for long-term investors who seek
investment results, before fees and expenses, that track the performance
results of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500
Index" or "Index"). The Fund, a series of PaineWebber Index Trust, seeks to
replicate the total return of the S&P 500 Index, which is composed of 500
selected large capitalization common stocks.
This Prospectus concisely sets forth information that a prospective investor
should know about the Fund before investing. Please read this Prospectus
carefully and retain a copy for future reference.
A Statement of Additional Information dated October 1, 1998, has been filed
with the Securities and Exchange Commission ("SEC" or "Commission") and is
legally part of this Prospectus. The Statement of Additional Information can be
obtained without charge, and further inquiries can be made, by contacting the
Fund, your investment executive at PaineWebber or one of its correspondent
firms or by calling toll-free 1-800-647-1568. In addition, the Commission
maintains a website (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other
information regarding registrants that file electronically with the Commission.
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THE PAINEWEBBER FAMILY OF MUTUAL FUNDS
The PaineWebber Family of Mutual Funds consists of seven broad categories,
which are presented here. Generally, investors seeking to maximize return must
assume greater risk. The Fund offered by this Prospectus is in the STOCK FUNDS
category.
[] Asset Allocation Funds [] Global Funds for long-
for high total return by term growth by investing
investing in stocks and mainly in foreign stocks
bonds. or high current income
by investing mainly in
global debt instruments.
[] Stock funds for long-
term growth by investing
mainly in stocks. [] Money Market Fund for
income and stability by
investing in high-
[] Bond Funds for income by quality, short-term
investing mainly in investments.
bonds.
[] Tax-Free Bond Funds for [] Funds of Funds for
income exempt from either long-term growth
federal income tax and, of capital; total
in some cases, state return; or income and,
and local income taxes, secondarily, growth of
by investing in capital by investing in
municipal bonds. other PaineWebber mutual
funds.
A complete listing of the PaineWebber Family of Mutual Funds is found on the
back cover of this Prospectus.
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INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUND AND ITS DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PROVIDE
INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS IS NOT AN OFFER TO
SELL SHARES OF THE FUND IN ANY JURISDICTION WHERE THE FUND OR ITS DISTRIBUTOR
MAY NOT LAWFULLY SELL THOSE SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Prospectus Page 1
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PaineWebber S&P 500 Index Fund
Table of Contents
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<TABLE>
<CAPTION>
Page
----
<S> <C>
The Fund At A Glance....................................................... 3
Expense Table.............................................................. 4
Financial Highlights....................................................... 6
Investment Objective & Policies............................................ 7
Investment Philosophy & Process............................................ 8
Performance................................................................ 8
The Fund's Investments..................................................... 9
Flexible PricingSM......................................................... 11
How To Buy Shares.......................................................... 14
How To Sell Shares......................................................... 15
Other Services............................................................. 16
Management................................................................. 17
Determining The Shares' Net Asset Value.................................... 18
Dividends & Taxes.......................................................... 19
General Information........................................................ 20
</TABLE>
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Prospectus Page 2
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PaineWebber S&P 500 Index Fund
The Fund at a Glance
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The Fund is not intended to provide a complete investment program but may be
appropriate as a component of an investor's overall portfolio. Some common
reasons to invest in the Fund are to finance college educations, plan for
retirement or diversify a portfolio. When selling shares, investors should be
aware that they may get more or less for their shares than they originally
paid for them. As with any mutual fund, there is no assurance that the Fund
will achieve its goal.
GOAL: To increase the value of your investment by investing in the common
stocks of companies in the S&P 500 Index.
INVESTMENT OBJECTIVE: To replicate the total return of the S&P 500 Index,
before fees and expenses.
RISKS: Stock prices rise and fall. The U.S. stock market tends to be cyclical,
with periods when stock prices generally rise and periods when prices
generally decline. Deviations from the performance of the S&P 500 Index may
result from shareholder purchases and sales of shares that can occur daily, as
well as from fees and expenses borne by the Fund. The Fund may use derivative
instruments, such as options and futures contracts, to simulate full
investment in the Index while handling cash flows into and out of the Fund and
to reduce transaction expenses. These derivatives involve special risks.
Investors may lose money by investing in the Fund; investments in the Fund are
not guaranteed.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"), is
the Fund's investment adviser and administrator.
WHO SHOULD INVEST
The Fund is for investors who seek investment results, before fees and
expenses, that track the performance results of the S&P 500 Index. Unlike
other mutual funds, which generally seek to "beat" stock market averages and
often have unpredictable results, the Fund seeks to "match" the performance of
the Index and thus is expected to provide a predictable return relative to its
benchmark.
MINIMUM INVESTMENT
To open an account, investors must invest at least $1,000; to add to an
account, investors need only $100.
HOW TO PURCHASE SHARES OF THE FUND
Investors may select among these classes of shares.
CLASS A SHARES
The price is the net asset value plus the initial sales charge; the maximum
sales charge is 2.5% of the public offering price. Although investors pay an
initial sales charge when they buy Class A shares, the ongoing expenses for
this class are lower than the ongoing expenses for Class C shares.
CLASS C SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class C shares. As a result, 100% of their purchase is
immediately invested. However, Class C shares have higher ongoing expenses
than Class A shares. A contingent deferred sales charge of 1.00% is charged on
shares sold within one year of purchase.
CLASS Y SHARES
Class Y shares are offered only to limited groups of investors. The price is
the net asset value. Investors do not pay an initial sales charge when they
buy Class Y shares. As a result, 100% of their purchase is immediately
invested. Investors also do not pay a contingent deferred sales charge when
they sell Class Y shares. Class Y shares have lower ongoing expenses than the
other classes of shares.
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Prospectus Page 3
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PaineWebber S&P 500 Index Fund
Expense Table
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The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of the Fund.
Because the Fund had less than six months of operation at the end of its
initial fiscal period, "Other Expenses" shown below are estimated.
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS Y
SHAREHOLDER TRANSACTION EXPENSES ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares (as a % of
offering price)...................................... 2.5% None None
Sales Charge on Reinvested Dividends (as a % of offer-
ing price)........................................... None None None
Maximum Contingent Deferred Sales Charge (as a % of
offering price or net asset value at the time of
sale, whichever is less)............................. None 1% None
Exchange Fees......................................... None None None
ANNUAL FUND OPERATING EXPENSES (after December 31,
1998)*
(as a % of average net assets)
Management Fees (after waivers)....................... 0.00% 0.00% 0.00%
12b-1 Fees............................................ 0.25 1.00 None
Other Expenses (after expense reimbursements)......... 0.60 0.60 0.60
---- ---- ----
Total Operating Expenses (after fee waivers and ex-
pense reimbursements)*............................... 0.85% 1.60% 0.60%
==== ==== ====
</TABLE>
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*Mitchell Hutchins intends to waive its Management Fees and reimburse Fund
expenses so that total operating expenses for Class Y shares through December
31, 1998 (the first year of operations) do not exceed 0.35% of its average net
assets. During this period, Mitchell Hutchins will waive Management Fees and
reimburse expenses of Class A and Class C shares proportionately. After
December 31, 1998, Mitchell Hutchins intends to continue waiving Management
Fees and reimburse Fund expenses, if necessary, so that the Total Operating
Expenses for each class of shares do not exceed the amounts shown in the table
for the fiscal year ending May 31, 1999. Although Mitchell Hutchins currently
expects to continue such waivers and expense reimbursements after May 31,
1999, it may discontinue or change them at any time in the future. Without
taking into account anticipated fee waivers and expense reimbursements, the
Fund's Management Fees, estimated Other Expenses and Total Operating Expenses
would be 0.20%, 2.02% and 2.47% for its Class A shares; 0.20%, 2.02% and 3.22%
for its Class C shares; and 0.20%, 2.02% and 2.22% for its Class Y shares.
CLASS A SHARES: Sales charge waivers and a reduced sales purchase plan are
available. Purchases of $1 million or more are not subject to an initial
sales charge; however, if a shareholder sells those shares within one year
after purchase, a contingent deferred sales charge of 0.50% of the offering
price or the net asset value of the shares at the time of sale by the
shareholder, whichever is less, is imposed.
CLASS C SHARES: If a shareholder sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or
the net asset value of the shares at the time of sale by the shareholder,
whichever is less, is imposed.
CLASS Y SHARES: No initial or contingent sales charge is imposed, nor are
Class Y shares subject to 12b-1 distribution or service fees. Class Y
shares may be purchased by participants in certain investment programs that
are sponsored by PaineWebber and that may invest in PaineWebber mutual
funds ("PW Programs"), when Class Y shares are purchased through that PW
Program. Participation in a PW Program is subject to an advisory fee at the
effective maximum annual rate of 1.5% of assets held through that PW
Program. This account charge is not included in the table because investors
who are not PW Program participants also are permitted to purchase Class Y
shares of the Fund.
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Prospectus Page 4
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PaineWebber S&P 500 Index Fund
Expense Table
(Continued)
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12b-1 distribution fees are asset-based sales charges. Long-term Class C
shareholders may pay more in direct and indirect sales charges (including
12b-1 distribution fees) than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS Y
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees...................................... 0.25% 0.25% 0.00%
12b-1 distribution fees................................. 0.00 0.75 0.00
</TABLE>
For more information, see "Management" and "Flexible PricingSM."
EXAMPLES OF EFFECT OF FUND EXPENSES
The following examples should assist investors in understanding various costs
and expenses incurred as shareholders of the Fund. The assumed 5% annual
return shown in the examples is required by regulations of the SEC applicable
to all mutual funds. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF THE FUND MAY BE MORE OR LESS
THAN THOSE SHOWN.
An investor would pay the following expenses, directly or indirectly, on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A.......................................................... $33 $51
Class C (Assuming sale of all shares at end of period)........... $26 $51
Class C (Assuming no sale of shares)............................. $16 $51
Class Y.......................................................... $ 6 $19
</TABLE>
ASSUMPTION MADE IN THE EXAMPLE
. ALL CLASSES: Reinvestment of all dividends and other distributions;
percentage amounts listed under "Annual Fund Operating Expenses" remain
the same for the years shown.
. CLASS A SHARES: Deduction of the maximum 2.5% initial sales charge at
the time of purchase.
. CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for
sales of shares within one year of purchase.
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Prospectus Page 5
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PaineWebber S&P 500 Index Fund
Financial Highlights
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The following table provides investors with data and ratios for one Class Y
share for the period shown. The Fund had no Class A or Class C shares
outstanding during that period. This information is supplemented by the
financial statements, accompanying notes and the report of Ernst & Young LLP,
independent auditors, which appear in the Fund's Annual Report to Shareholders
for the period ended May 31, 1998, and are incorporated by reference into the
Statement of Additional Information. The financial statements and notes, as
well as the information below, have been audited by Ernst & Young LLP. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge by calling 1-800-647-
1568.
<TABLE>
<CAPTION>
CLASS Y
------------------
FOR THE PERIOD
DECEMBER 31, 1997+
TO
MAY 31, 1998
------------------
<S> <C>
Net asset value, beginning of period........................ $12.50
-------
Net investment income ...................................... 0.06
Net realized and unrealized gains from investments and
futures.................................................... 1.56
-------
Net increase from investment operations..................... 1.62
-------
Net asset value, end of period.............................. $ 14.12
=======
Total investment return (1)................................. 12.96 %
=======
Ratios/Supplemental Data:
Net assets, end of period (000's)......................... $12,892
Expenses to average net assets net of waivers and reim-
bursements from adviser.................................. 0.35 %*
Expenses to average net assets before waivers and reim-
bursements from adviser ................................. 2.22 %*
Net investment income to average net assets net of waivers
and reimbursements from adviser.......................... 1.41 %*
Net investment loss to average net assets before waivers
and reimbursements from adviser.......................... (0.46)%*
Portfolio Turnover Rate................................... 1 %
</TABLE>
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+ Commencement of operations.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of the period reported. Total
investment return for the period has not been annualized.
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Prospectus Page 6
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PaineWebber S&P 500 Index Fund
Investment Objective & Policies
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The Fund's investment objective is to replicate the total return of the S&P
500 Index, before fees and expenses. The investment objective of the Fund may
not be changed without shareholder approval. The Fund's other investment
policies, except where noted, are not fundamental and may be changed by its
board of trustees ("board").
The Fund seeks to achieve its objective by investing substantially all of its
assets in common stocks issued by companies in the S&P 500 Index and in
related derivatives, such as options and futures contracts, that simulate
investment in the Index. The Fund invests at least 65% of its total assets in
a substantial majority of the common stocks issued by companies represented in
the S&P 500 Index.
The S&P 500 Index is composed of 500 common stocks that are selected by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), to
capture the price performance of a large cross-section of the U.S. publicly
traded stock market. These 500 stocks, most of which trade on the New York
Stock Exchange, represent approximately 75% of the market value of all U.S.
common stocks. Each stock in the Index is weighted by its total market value
relative to the total market value of all securities in the Index. S&P selects
the component stocks included in the Index with the aim of achieving a
distribution at the Index level representative of the various industry
components of the U.S. market for common stocks. Therefore, the 500 stocks do
not represent the 500 largest companies. Aggregate market value and trading
activity also are considered in the selection process.
The inclusion of a security in the S&P 500 Index in no way implies an opinion
by S&P as to the attractiveness of the security as an investment. The Fund is
not sponsored, endorsed, sold or promoted by S&P.
ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX. "Standard & Poor's(R),"
"S&P(R)," "S&P 500(R)," and "500" are trademarks of The McGraw-Hill Companies,
Inc. and have been licensed for use by the Fund. S&P makes no representation
or warranty, express or implied, to the purchasers of the Fund or any member
of the public regarding the advisability of investing in securities generally
or the Fund particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Fund is the licensing
of certain trademarks and trade names of S&P and the Index, which is
determined, composed, and calculated by S&P without regard to the Fund. S&P
has no obligation to take the needs of the Fund into consideration in
determining, composing or calculating the Index. S&P is not responsible for
and has not participated in the determination or calculation of the equation
by which shares of the Fund are priced or converted into cash. S&P has no
obligation or liability in connection with the administration of the Fund or
the marketing or sale of the Fund's shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND OR ITS SHAREHOLDERS OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH DAMAGES.
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Prospectus Page 7
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PaineWebber S&P 500 Index Fund
Investment Philosophy & Process
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The Fund is not managed according to traditional methods of "active"
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, it
uses a "passive" investment approach in attempting to replicate the investment
performance of the S&P 500 Index.
The Fund invests in substantially all 500 stocks in the S&P 500 Index in
proportion to their weighting in the Index and, ordinarily, invests in at
least 450 stocks that are represented in the Index. If the Fund experiences
exceptional levels of purchases or redemptions, the Fund may be delayed in
rebalancing its portfolio to reflect the weightings of the common stocks
reflected in the Index or may hold less than 450 stocks of the Index. The Fund
will be rebalanced as soon as practicable to reflect the common stock
weightings represented in the Index and may use derivative instruments to
replicate the weightings of the Index in the interim. From time to time,
adjustments may be made in the Fund's investments because of changes in the
composition of the Index.
Because the Fund seeks to replicate the performance of the S&P 500 Index, a
close correlation between the Fund's performance and the performance of the
Index is anticipated in both rising and falling markets.
The Fund attempts to achieve a correlation, over time, between the performance
of its investments and that of the S&P 500 Index of at least 0.95, before
deduction of fees and expenses. A correlation of 1.00 would represent perfect
correlation between the Fund's performance and that of the Index. The
performance of the Fund versus that of the Index is compared at least weekly.
If an unexpected tracking error develops, the Fund's portfolio will be
rebalanced to bring it into line with the Index. There can be no assurance
that the Fund will achieve its expected results.
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Performance
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The Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for Class A
shares of the Fund reflects deduction of the maximum initial sales charge of
2.5% at the time of purchase, and standardized return for the Class C shares
reflects the deduction of the applicable contingent deferred sales charge
imposed on a sale of shares held for the period. One-, five- and ten-year
periods will be shown, unless the Fund has been in existence for a shorter
period. If so, returns will be shown for the period since inception, known as
"Life." Total return calculations assume reinvestment of dividends and other
distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average
annual rates, actual year-by-year rates or any combination thereof. Non-
standardized return does not reflect initial or contingent deferred sales
charges and would be lower if such charges were deducted.
Total return information reflects past performance and does not indicate
future results. The investment return and principal value of shares of the
Fund will fluctuate. The amount investors receive when selling shares may be
more or less than what they paid.
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Prospectus Page 8
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PaineWebber S&P 500 Index Fund
The Fund's Investments
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EQUITY SECURITIES. Equity securities include common stocks, preferred stocks
and securities that are convertible into them, including convertible
debentures and notes and common stock purchase warrants and rights. Common
stocks, the most familiar type, represent an equity (ownership) interest in a
corporation.
RISKS
EQUITY SECURITIES. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential in a company. However, their prices generally fluctuate more than
other securities and reflect changes in a company's financial condition and in
overall market and economic conditions. Common stocks generally represent the
riskiest investment in a company. It is possible that the Fund may experience
a substantial or complete loss on an individual common stock investment.
INDEX INVESTING AND OPEN-END INVESTMENT COMPANIES. While the Fund attempts to
replicate, before deduction of fees and operating expenses, the investment
results of the S&P 500 Index, the Fund's investment results generally will not
be identical to those of the Index. Deviations from the performance of the
Index may result from shareholder purchases and sales of shares that can occur
daily, as well as from fees and expenses borne by the Fund.
FOREIGN SECURITIES. The S&P 500 Index includes some U.S. dollar-denominated
foreign securities that are traded on recognized U.S. exchanges or on the U.S.
over-the-counter ("OTC") market. Investing in the securities of foreign
companies may involve more risks than investing in securities of U.S.
companies. Their value is subject to economic and political developments in
the countries where the companies operate and to changes in foreign currency
values. Values may also be affected by foreign tax laws, changes in foreign
economic or monetary policies, exchange control regulations and regulations
involving prohibitions on the repatriation of foreign currencies. In general,
less information may be available about foreign companies than about U.S.
companies, and
foreign companies are generally not subject to the same accounting, auditing
and financial reporting standards as are U.S. companies.
DERIVATIVES. Some of the instruments in which the Fund may invest may be
referred to as "derivatives," because their value depends on (or "derives"
from) the value of an underlying asset, reference rate or index. Derivatives
include options and futures contracts that may be used to simulate full
investment in the S&P 500 Index and in other strategies. There is limited
consensus as to what constitutes a "derivative" security or instrument. The
market value of derivatives sometimes is more volatile than that of other
investments, and each type of derivative may pose its own special risks.
Mitchell Hutchins takes these risks into account in its management of the
Fund.
COUNTERPARTIES. The Fund may be exposed to the risk of financial failure or
insolvency of another party. To help lessen those risks, Mitchell Hutchins,
subject to the supervision of the board, monitors and evaluates the
creditworthiness of the parties with which the Fund does business.
INDUSTRY CONCENTRATION POLICY. The Fund will invest 25% or more of its total
assets in securities of issuers in the same industry if necessary to replicate
the weighting of that particular industry in the S&P 500 Index.
YEAR 2000 RISK. Like other mutual funds and other financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by Mitchell Hutchins, other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Issue." Mitchell Hutchins is
taking steps that it believes are reasonably designed to address the Year 2000
Issue with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Fund's other major service providers. However, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Fund.
Similarly, the companies in which the Fund invests and trading systems used by
the Fund could be adversely affected by the Year 2000 Issue. The ability of a
company or trading system to respond successfully to the Year 2000 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.
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Prospectus Page 9
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Paine Webber S&P 500 Index Fund
INVESTMENT TECHNIQUES AND STRATEGIES
STRATEGIES USING DERIVATIVES. The Fund may use derivatives, which may include
options (both exchange traded and OTC) and futures contracts in strategies
intended to simulate full investment in the S&P 500 Index while retaining a
cash balance for Fund management purposes, such as to provide liquidity to
meet anticipated sales of its shares by shareholders and for Fund operating
expenses. The Fund may also use these derivatives to reduce the risk of
adverse price movements in the securities in the Index while investing cash
received from investor purchases of Fund shares, to facilitate trading and to
reduce transaction costs. New financial products and management techniques
continue to be developed and may be used by the Fund if consistent with its
investment objective and policies. The Statement of Additional Information
contains further information on these derivatives and related strategies.
The Fund might not use any derivative instruments or strategies, and there can
be no assurance that using them will succeed. If Mitchell Hutchins is
incorrect in its judgment on market values or other economic factors in using
a strategy, the Fund may have lower net income and a net loss on the
investment. Each of these strategies involves certain risks, which include:
. the possibility of imperfect correlation between price movements of
derivatives used in the Fund's strategies and price movements of the
securities in the S&P 500 Index;
. possible constraints placed on the Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund to
maintain "cover" or to segregate securities; and
. the possibility that the Fund is unable to close out or liquidate its
position in derivatives.
LENDING PORTFOLIO SECURITIES. The Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of the
Fund's total assets. Lending securities enables the Fund to earn additional
income, but could result in a loss or delay in recovering these securities.
CASH MANAGEMENT. The Fund expects to use derivatives to provide liquidity for
anticipated sales of its shares by shareholders and for Fund operating
expenses and to manage cash flows into the Fund pending investment in
securities in the S&P 500 Index. The Fund may also invest in cash or
investment grade U.S. money market instruments, including repurchase
agreements, for liquidity purposes or pending investment in other securities.
The Fund is authorized to invest up to 35% of its total assets in cash or
money market instruments, although it expects these investments will represent
a much smaller portion of its total assets under normal circumstances.
Repurchase agreements are transactions in which the Fund purchases obligations
from a bank or securities dealer or its affiliates and simultaneously commits
to resell the obligations to that counterparty, usually no more than seven
days after purchase. Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible decline in the
market value of the underlying obligations. Repurchase agreeements 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.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities, including certain cover for OTC options and securities
whose disposition is restricted under the federal securities laws. The Fund
does not consider securities that are eligible for resale pursuant to SEC Rule
144A to be illiquid securities if Mitchell Hutchins has determined the
securities are liquid, based upon the trading markets for the securities under
procedures approved by the board.
OTHER INFORMATION. The Fund may purchase securities on a when-issued basis or
may purchase or sell securities for delayed delivery. The Fund would not pay
for the securities or start earning interest on them until they are delivered,
but it would immediately assume the risks of ownership, including the risk of
price fluctuation. The Fund may borrow money for temporary or emergency
purposes in an amount up to 33 1/3% of its total assets, including up to 5% of
its net assets in reverse repurchase agreements.
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Prospectus Page 10
<PAGE>
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-------------------
PaineWebber S&P 500 Index Fund
Flexible Pricing
- -------------------------------------------------------------------------------
The Fund offers through this Prospectus three classes of shares that differ in
terms of sales charges and expenses. An eligible investor can select the class
that is best suited to his or her investment needs, based upon the holding
period and the amount of the investment.
CLASS A SHARES
HOW PRICE IS CALCULATED: The price is the net asset value plus the initial
sales charge (the maximum is 2.5% of the public offering price next calculated
after PaineWebber's New York City headquarters or PFPC Inc., the Fund's
transfer agent ("Transfer Agent"), receives the purchase order. Although
investors pay an initial sales charge when they buy Class A shares, the
ongoing expenses for this class are lower than the ongoing expenses of Class C
shares. Class A shares sales charges are calculated as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DISCOUNTS TO SELECTED
---------------------------------- DEALERS AS PERCENTAGE OF
MOUNT OF INVESTMENTA OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE
- -------------------- -------------- ------------------- ------------------------
<S> <C> <C> <C>
Less than $100,000...... 2.50% 2.56% 2.25%
$100,000 to $249,999.... 2.00 2.04 1.75
$250,000 to $499,999.... 1.50 1.52 1.25
$500,000 to $999,999.... 1.00 1.01 0.75
$1,000,000 and over(1).. None None 0.50(2)
</TABLE>
- -------
(1) A contingent deferred sales charge of 0.50% of the shares' offering price
or the net asset value at the time of sale by the shareholder, whichever
is less, is charged on sales of shares made within one year of the
purchase date. Class A shares representing reinvestment of any dividends
or other distributions are not subject to the 0.50% charge. Withdrawals
under the Systematic Withdrawal Plan are not subject to this charge.
However, investors may withdraw no more than 12% of the value of the Fund
account under the Plan in the first year after purchase.
(2) Mitchell Hutchins pays 0.50% to PaineWebber.
SALES CHARGE REDUCTIONS & WAIVERS
Investors purchasing Class A shares in more than one PaineWebber mutual fund
may combine those purchases to get a reduced sales charge. Investors who
already own Class A shares in one or more PaineWebber mutual funds may combine
the amount they are currently purchasing with the value of such previously
owned shares to qualify for a reduced sales charge. To determine the sales
charge reduction in either case, please refer to the chart above.
Investors may also qualify for a lower sales charge when they combine their
purchases with those of:
. their spouses, parents or children under age 21;
. their Individual Retirement Accounts (IRAs);
. certain employee benefit plans, including 401(k) plans;
. any company controlled by the investors;
. trusts created by the investor;
. Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of investors for the benefit of the investors'
children; or
. accounts with the same adviser.
Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.
The sales charge will not apply when the investor:
. is an employer, director, trustee or officer of PaineWebber, its affiliates
or any PaineWebber mutual fund;
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Prospectus Page 11
<PAGE>
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-------------------
Paine Webber S&P 500 Index Fund
. is the spouse, parent or child of any of the above;
. buys these shares through a PaineWebber investment executive who was
formerly employed as a broker with a competing brokerage firm that was
registered as a broker-dealer with the SEC; and
. was the investment executive's client at the competing brokerage firm;
. within 90 days of buying Class A shares in this Fund, the investor sells
shares of one or more mutual funds that (a) were principally underwritten by
the competing brokerage firm or its affiliates and (b) the investor either
paid a sales charge to buy those shares, paid a contingent deferred sales
charge when selling them or held those shares until the contingent deferred
sales charge was waived; and
. the amount that the investor purchases does not exceed the total amount of
money the investor received from the sale of the other mutual fund;
. is a certificate holder of unit investment trusts sponsored by PaineWebber
and has elected to have dividends and other distributions from that
investment automatically invested in Class A shares;
. is an employer establishing an employee benefit plan qualified under section
401, including a salary reduction plan qualified under section 401(k) or
section 403(b), of the Internal Revenue Code ("Code") (each a "qualified
plan"). (This waiver is subject to minimum requirements, with respect to the
number of employees and amount of plan assets, established by Mitchell
Hutchins. Currently, a plan must have 50 or more eligible employees and at
least $1 million in plan assets.) For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested;
. is a participant in the PaineWebber Members Only Program(TM). For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
membership organizations in a total amount not to exceed 1% of the amount
invested;
. is a variable annuity offered only to qualified plans. For investments made
pursuant to this waiver, Mitchell Hutchins may make payments out of its own
resources to PaineWebber and to the variable annuity's sponsor, adviser or
distributor in a total amount not to exceed 1% of the amount invested;
. acquires Class A shares through an investment program that is not sponsored
by PaineWebber or its affiliates and that charges participants a fee for
program services, provided that the program sponsor has entered into a
written agreement with PaineWebber permitting the sale of Class A shares at
net asset value to that program. For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested. For
subsequent investments or exchanges made to supplement a rebalancing feature
of such an investment program, the minimum subsequent investment requirement
is also waived;
. acquires Class A shares in connection with a reorganization pursuant to
which the Fund acquires substantially all of the assets and liabilities of
another investment company in exchange solely for shares of the Fund; or
. acquires Class A shares in connection with the disposition of proceeds from
the sale of shares of Managed High Yield Plus Fund Inc. that were acquired
during that fund's initial public offering of shares and that met certain
other conditions described in its prospectus.
For more information on how to get any reduced sales charge, investors should
contact their investment executive at PaineWebber or one of its correspondent
firms or call 1-800-647-1568. Investors must provide satisfactory information
to PaineWebber or the Fund if they seek any of these sales charge reductions
or waivers.
CLASS C SHARES
HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value
next calculated after PaineWebber's New York City headquarters or the Transfer
Agent receives the purchase order. Investors do not pay an initial sales
charge when they buy Class C shares, but the ongoing expenses of Class C
shares are higher than those of Class A shares. Because investors do not pay
an initial sales charge when they buy Class C shares, 100% of their purchase
is immediately invested.
A contingent deferred sales charge of 1% of the offering price (net asset
value at the time of purchase) or net asset value of the shares at the time of
sale by the shareholder, whichever is less, is charged on sales of shares made
within one year of the purchase date. Other PaineWebber mutual funds may
impose a
----------
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Prospectus Page 12
<PAGE>
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-------------------
Paine Webber S&P 500 Index Fund
different contingent deferred sales charge on Class C shares sold within one
year of the purchase date. A sale of Class C shares acquired through an
exchange and held less than one year will be subject to the same contingent
deferred sales charge that would have been imposed on the Class C shares of
the PaineWebber mutual fund originally purchased. Class C shares representing
reinvestment of any dividends or capital gains are not subject to the 1%
charge. Withdrawals under the Systematic Withdrawal Plan also are not subject
to this charge. However, investors may withdraw no more than 12% of the value
of the Fund account under the Plan in the first year after purchase.
CLASS Y SHARES
HOW PRICE IS CALCULATED. Class Y shares are sold to eligible investors at the
net asset value next calculated after PaineWebber's New York City headquarters
or the Transfer Agent receives the purchase order. Because investors do not
pay an initial sales charge when they buy Class Y shares, 100% of their
purchase is immediately invested. The ongoing expenses for Class Y shares are
lower than the other classes because Class Y shares are not subject to rule
12b-1 service or distribution fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy
Class Y shares:
. a participant in the PaineWebber Program listed below, when Class Y shares
are purchased through that program;
. an investor who buys $10 million or more at any one time in any combination
of the Fund and any PaineWebber mutual fund in the Flexible Pricing
System SM;
. an employee benefit plan qualified under section 401, including a salary
reduction plan qualified under section 401(k), or 403(b) of the Code that
has either
. 5,000 or more eligible employees or
. $50 million or more in assets; and
. an investment company advised by PaineWebber or an affiliate of PaineWebber.
PACE MULTI-ADVISOR PROGRAM. An investor who participates in the PACE Multi-
Advisor Program is eligible to purchase Class Y shares. The PACE Multi-Advisor
Program is an advisory program sponsored by PaineWebber that provides
comprehensive investment services, including investor profiling, a
personalized asset allocation strategy using an appropriate combination of
funds, and a quarterly investment performance review. Participation in the
Pace Multi-Advisor Program is subject to payment of an advisory fee to
PaineWebber at the effective maximum annual rate of 1.5% of assets. Employees
of PaineWebber and its affiliates are entitled to a waiver of this fee.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available to the PACE Multi-Advisor Program.
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Prospectus Page 13
<PAGE>
-------------------
PaineWebber S&P 500 Index Fund
How to Buy Shares
Shares are purchased at the next share price calculated after the purchase
order is received by PaineWebber's New York City headquarters or the Transfer
Agent. Prices are calculated for each class of the Fund's shares once each
Business Day, at the close of regular trading on the New York Stock Exchange
(usually 4:00 p.m., Eastern time). Prices will be calculated earlier when the
New York Stock Exchange closes early because trading has been halted for the
day. A "Business Day" is any day, Monday through Friday, on which the New York
Stock Exchange is open for business.
The Fund and Mitchell Hutchins reserve the right to reject any purchase order
and to suspend the offering of Fund shares for a period of time.
When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will
automatically receive Class A shares, which include an initial sales charge.
Investors in Class Y shares must provide satisfactory information to
PaineWebber or the Fund that they are eligible to purchase Class Y shares.
PAINEWEBBER CLIENTS
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's
New York City headquarters. Investors may pay for their purchases with checks
drawn on U.S. banks or with funds they have in their brokerage accounts at
PaineWebber or its correspondent firms.
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up
an account through the Transfer Agent (PFPC Inc.) by completing an account
application which may be obtained by calling 1-800-647-1568. The application
and check must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O.
Box 8950, Wilmington, DE 19899.
Investors who are new to PaineWebber may complete and sign an account
application and mail it along with a check. Investors also may open an account
in person.
Investors who already have money invested in a PaineWebber mutual fund, and
want to invest in another PaineWebber mutual fund, can:
. mail an application with a check; or
. open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional
investments in the Fund.
MINIMUM INVESTMENTS
<TABLE>
<S> <C>
To open an account............. $1,000
To add to an account........... $ 100
</TABLE>
The Fund may waive or reduce these minimums for:
. employees of PaineWebber or its affiliates; or
. participants in certain pension plans, retirement accounts, investment
programs or the Fund's automatic investment plan.
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Class A and C
shares for the same class of most other PaineWebber mutual funds. Class Y
shares are not exchangeable. For classes where no initial sales charge is
imposed, a contingent deferred sales charge may apply if the investor sells
the shares acquired through the exchange.
Exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.
. Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or
wire.
. Investors who do not have an account with an investment executive at
PaineWebber or one of its
- -------------------------------------------------------------------------------
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Prospectus Page 14
<PAGE>
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-------------------
PaineWebber S&P 500 Index Fund
correspondent firms may exchange their shares by writing a "letter of
instruction" to the Transfer Agent. The letter of instruction must include:
. the investor's name and address;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be sold; and
. a guarantee of each registered owner's signature. A signature guarantee may
be obtained from a domestic bank or trust company, broker, dealer, clearing
agency or savings association which is a participant in a medallion program
recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and the New York Stock Exchange
Medallion Signature Program (MSP). Signature guarantees which are not part
of these programs will not be accepted.
The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O.
Box 8950, Wilmington, DE 19899.
No contingent deferred sales charge is imposed when Class A or C shares are
exchanged for the corresponding class of shares of other PaineWebber mutual
funds. A Fund will use the purchase date of the initial investment to
determine any contingent deferred sales charge due when the acquired shares
are sold. Fund shares may be exchanged only after the settlement date has
passed and payment for the shares has been made. The exchange privilege is
available only in those jurisdictions where the sale of the fund shares to be
acquired is authorized. This exchange privilege may be modified or terminated
at any time and, when required by SEC rules, upon 60 days' notice. See the
back cover of this Prospectus for a list of other PaineWebber mutual funds.
- -------------------------------------------------------------------------------
How to Sell Shares
- -------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price for that class as next calculated (less any contingent deferred
sales charge) after the order is received by PaineWebber's New York City
headquarters or the Transfer Agent. Share prices are normally calculated at
the close of regular trading on the New York Stock Exchange (usually 4:00
p.m., Eastern time). Prices will be calculated earlier when the New York Stock
Exchange closes early because trading has been halted for the day.
Investors who own more than one class of shares should specify which class
they are selling. If they do not, the Fund will assume they are first selling
their Class A shares, then Class C shares and last, Class Y shares.
If a shareholder wants to sell shares that were purchased recently, the Fund
may delay payment until it verifies that good payment was received. In the
case of purchases by check, this can take up to 15 days.
Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executives. PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' sell orders to PaineWebber's New
York City headquarters. Investors who do not have an account and have bought
their shares through the Fund's Transfer Agent (PFPC Inc.), may sell shares by
writing a "letter of instruction" to the Transfer Agent, as detailed in "How
to Exchange Shares."
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, it reserves the right to purchase back all of its shares in any
shareholder account with a net asset value of less than $5,000. If the Fund
elects to do so, it will notify the shareholder of the opportunity to increase
the amount invested to $5,000 or more within 60 days of the notice. The Fund
will not purchase back accounts that fall below $5,000 solely due to a
reduction in net asset value per share.
REINSTATEMENT PRIVILEGE
Shareholders who sell their Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount sold by purchasing the Fund's
Class A shares within 365 days after the sale. To take advantage of this
reinstatement privilege, shareholders must notify their investment executive
at PaineWebber or one of its correspondent firms at the time of purchase.
----------
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Prospectus Page 15
<PAGE>
-------------------
PaineWebber S&P 500 Index Fund
Other Services
- ------------------------------------------------------------------------------
Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services available
with respect to the Fund's Class A and Class C shares:
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial
investment of $1,000 through which the Fund will deduct $50 or more monthly,
quarterly, semiannually or annually from the investor's bank account to invest
directly in the Fund. In addition to providing a convenient and disciplined
manner of investing, participation in the Automatic Investment Plan enables
the investor to use the technique of "dollar cost averaging."
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semiannual (June and December) or
annual (December) withdrawals from their Fund accounts. To participate in this
Plan, an investor's Class A or Class C shares must have a minimum value of
$5,000; the minimum value of withdrawals is $100.
An investor may not withdraw more than 12% of the value of the Fund account
when the investor signed up for the Plan during the first year under the Plan.
Shareholders who elect to receive dividends or other distributions in cash may
not participate in the Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-directed Individual Retirement Accounts ("IRAs") are available through
PaineWebber in which purchases of PaineWebber mutual funds and other
investments may be made. Investors considering establishing an IRA should
review applicable tax laws and should consult their tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of the Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be
moved to an account with the Transfer Agent. However, if the other firm has
entered into a selected dealer agreement with Mitchell Hutchins relating to
the Fund, the shareholder may be able to hold Fund shares in an account with
the other firm.
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Prospectus Page 16
<PAGE>
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-------------------
PaineWebber S&P 500 Index Fund
Management
- -------------------------------------------------------------------------------
The Fund is governed by a board of trustees, which oversees its operations.
The Fund has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority
of the board). As investment adviser and administrator, Mitchell Hutchins
supervises all aspects of the Fund's operations and makes and implements all
investment decisions for the Fund.
In accordance with procedures adopted by the board, brokerage transactions for
the Fund may be conducted through PaineWebber or its affiliates and the Fund
may pay fees, including fees calculated as a percentage of earnings, to
PaineWebber for its services as lending agent in its portfolio securities
lending program. Personnel of Mitchell Hutchins may engage in securities
transactions for their own accounts pursuant to Mitchell Hutchins' code of
ethics, which establishes procedures for personal investing and restricts
certain transactions.
ABOUT THE INVESTMENT ADVISER
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York
10019, is a wholly owned asset management subsidiary of PaineWebber
Incorporated, which is wholly owned by Paine Webber Group Inc., a publicly
owned financial services holding company. On August 31, 1998, Mitchell
Hutchins was adviser or sub-adviser of 32 investment companies with 68
separate portfolios and aggregate assets of approximately $38.9 billion.
T. Kirkham Barneby is responsible for the day-to-day management of the Fund's
portfolio. Mr. Barneby is a managing director and chief investment officer of
quantitative investments of Mitchell Hutchins. Mr. Barneby rejoined Mitchell
Hutchins in 1994 after being with Vantage Global Management for one year.
During the eight years that Mr. Barneby was previously with Mitchell Hutchins,
he was a senior vice president responsible for quantitative management and
asset allocation models.
MANAGEMENT FEES & OTHER EXPENSES
The Fund incurs various expenses in its operations, such as the management fee
paid to Mitchell Hutchins, 12b-1 service and distribution fees, custody and
transfer agency fees, professional fees, expenses of board and shareholder
meetings, fees and expenses relating to registration of its shares, taxes and
governmental fees, fees and expenses of trustees, costs of obtaining
insurance, expenses of printing and distributing shareholder materials,
organizational expenses and extraordinary expenses, including costs or losses
in any litigation.
The Fund has agreed to pay Mitchell Hutchins a management fee at the annual
rate of 0.20% of the Fund's average daily net assets. Mitchell Hutchins
intends to waive its management fees and reimburse Fund expenses, if
necessary, so that the total operating expenses for the fiscal year ending May
31, 1999 do not exceed 0.85% for Class A shares, 1.60% for Class C shares and
0.60% for Class Y shares. Although Mitchell Hutchins currently expects to
continue such waivers and expense reimbursements after May 31, 1999, it may
discontinue or change them at any time in the future.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. There is no
distribution plan with respect to the Fund's Class Y shares. Under the
distribution plan for Class A and Class C shares ("Class A Plan" and "Class C
Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins:
. Monthly service fees at the annual rate of 0.25% of the average daily net
assets of each class of shares.
. Monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class C shares.
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Prospectus Page 17
<PAGE>
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-------------------
PaineWebber S&P 500 Index Fund
Mitchell Hutchins uses the service fees under the Plans primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25%
of the aggregate investment amounts maintained in the Fund by PaineWebber
clients. PaineWebber then compensates its investment executives for
shareholder servicing that they perform and offsets its own expenses in
servicing and maintaining shareholder accounts.
Mitchell Hutchins uses the distribution fees under the Class C Plan to:
. Offset the commissions it pays to PaineWebber for selling the Fund's Class C
shares.
. Offset the Fund's marketing costs attributable to such classes, such as
preparation, printing and distribution of sales literature, advertising and
prospectuses to prospective investors and related overhead expenses, such as
employee salaries and bonuses.
PaineWebber compensates investment executives when Class C shares are bought
by investors, as well as on an ongoing basis. Mitchell Hutchins receives no
special compensation from the Fund or investors at the time Class C shares are
bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution
expenses.
The Plans and the related distribution contracts for Class A and Class C
shares ("Distribution Contracts") specify that the service and distribution
fees paid to Mitchell Hutchins are not reimbursement for specific expenses
incurred. Therefore, even if Mitchell Hutchins' expenses exceed the service
and distribution fees it receives, the Fund will not be obligated to pay more
than those fees. On the other hand, if Mitchell Hutchins' expenses are less
than such fees, it will retain its full fees and realize a profit. Expenses in
excess of service and distribution fees received or accrued through the
termination date of the Plan will be Mitchell Hutchins' sole responsibility
and not that of the Fund. Annually, the board reviews each Plan and Mitchell
Hutchins' corresponding expenses for that class of shares separately from the
Plan and expenses of the other class.
- -------------------------------------------------------------------------------
Determining the Shares' Net Asset Value
- -------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined
separately for each class, normally as of the close of regular trading on the
New York Stock Exchange (usually 4:00 p.m., Eastern time) each Business Day.
The Fund's net asset value per share is determined by dividing the value of
the securities held by the Fund, plus any cash or other assets, minus all
liabilities, by the total number of Fund shares outstanding.
If trading on the NYSE is halted for the day before 4:00 p.m., Eastern time,
and trading on the NYSE will not resume again that day, the Fund's net asset
value per share will be calculated at the time trading was halted.
The Fund values its assets based on its current market value when market
quotations are readily available. If market quotations are not readily
available, assets are valued at fair value as determined in good faith by or
under the direction of the board.
Short-term investments that have a maturity of more than 60 days are valued at
prices based on market quotations for securities of similar type, yield and
maturity. The amortized cost method of valuation generally is used to value
debt obligations with 60 days or less remaining to maturity, unless the board
determines that this does not represent fair value.
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Prospectus Page 18
<PAGE>
-------------------
PaineWebber S&P 500 Index Fund
Dividends & Taxes
- -------------------------------------------------------------------------------
DIVIDENDS
The Fund pays an annual dividend from its net investment income and net short-
term capital gain, if any. The Fund also distributes annually substantially
all of its net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any. The Fund may make additional distributions,
if necessary, to avoid a 4% excise tax on certain undistributed income and
capital gains.
Dividends and other distributions paid on each class of shares of the Fund are
calculated at the same time and in the same manner. Dividends on Class A and
Class C shares of the Fund are expected to be lower than those on its Class Y
shares because shares of the first two classes have higher expenses resulting
from their service fees and, in the case of Class C shares, their distribution
fees. Similarly, dividends on Class C shares are expected to be lower than
those on Class A shares because Class A shares bear no distribution fees.
Dividends on each class might also be affected differently by the allocation
of other class-specific expenses. See "General Information."
The Fund's dividends and other distributions are paid in additional Fund
shares of the same class at net asset value, unless the shareholder has
requested cash payments. Shareholders who wish to receive dividends and other
distributions in cash, either mailed to them by check or credited to their
PaineWebber accounts, should contact their investment executives at
PaineWebber or one of its correspondent firms or complete the appropriate
section of the account application.
TAXES
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will not have to pay federal
income tax on the part of its investment company taxable income and net
capital gain that it distributes to its shareholders. Investment company
taxable income generally consists of net investment income and net short-term
capital gain (the excess of gains from the sale or exchange of capital assets
held for not more than one year over losses from those assets).
Dividends from the Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to its shareholders as
ordinary income. Distributions of the Fund's net capital gain (whether paid in
cash or additional shares) are taxable to its shareholders as long-term
capital gain, regardless of how long they have held their Fund shares. Under
the Taxpayer Relief Act of 1997, as modified by recent legislation, the
maximum tax rate applicable to a non-corporate taxpayer's net capital gain
recognized on capital assets held for more than one year is 20% (10% for
taxpayers in the 15% marginal tax bracket). In the case of a regulated
investment company such as the Fund, the relevant holding period is determined
by how long the Fund has held the portfolio securities on which the gain was
realized, not by how long the shareholders have held their Fund shares.
Shareholders who are not subject to tax on their income generally will not be
required to pay tax on distributions.
YEAR-END TAX REPORTING
Following the end of each calendar year, the Fund notifies its shareholders of
the amounts of dividends and capital gain distributions paid (or deemed paid)
for that year including any portion of those dividends that qualifies for
special treatment.
BACKUP WITHHOLDING
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
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Prospectus Page 19
<PAGE>
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PaineWebber S&P 500 Index Fund
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
A shareholder's sale (redemption) of shares may result in a taxable gain or
loss. This depends upon whether the shareholder receives more or less than the
shareholder's adjusted basis for the shares (which normally includes any
initial sales charge paid on Class A shares). An exchange of a Fund's shares
for shares of another PaineWebber mutual fund generally will have the same tax
consequences. In addition, if Fund shares are bought within 30 days before or
after selling other Fund shares (regardless of class) at a loss, all or a
portion of that loss will not be deductible and will increase the basis of the
newly purchased shares.
SPECIAL TAX RULES FOR CLASS A SHAREHOLDERS
Special tax rules apply when a shareholder sells or exchanges Class A shares
within 90 days of purchase and subsequently acquires Class A shares of a
PaineWebber mutual fund without paying a sales charge due to the 365-day
reinstatement privilege or the exchange privilege. In these cases, any gain on
the sale or exchange of the original Class A shares would be increased, or any
loss would be decreased, by the amount of the sales charge paid when those
shares were bought, and that amount would increase the basis of the
PaineWebber mutual fund shares subsequently acquired.
* * * *
Because the foregoing only summarizes some of the important tax considerations
affecting the Fund and its shareholders, prospective shareholders are urged to
consult their tax advisers.
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General Information
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ORGANIZATION
The Fund is a diversified series of PaineWebber Index Trust ("Trust"), an
open-end management investment company formed on May 27, 1997 as a business
trust under the laws of Delaware. The board has authority to issue an
unlimited number of shares of beneficial interest of separate series, with a
par value of $0.001 per share.
SHARES
The shares of the Fund are divided into three classes, Class A, Class C and
Class Y. Each class represents an identical interest in the Fund's investment
portfolio and has the same rights, privileges and preferences. However, each
class may differ with respect to sales charges, distribution and/or service
fees, other expenses allocable exclusively to that class and voting rights on
matters exclusively affecting that class and its exchange privilege. The
different charges applicable to the different classes of shares of the Fund
will affect the performance of those classes.
Each share of the Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of the Fund. However, due to
the differing expenses of the classes, dividends and liquidation proceeds on
Class A, C and Y shares will differ.
VOTING RIGHTS
Shareholders of the Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and the holders of more than 50% of all the shares of the Fund may elect all
the board members of the Trust. The shares of the Fund will be voted together,
except that only the shareholders of a particular class may vote on matters
affecting only that class, such as the terms of a distribution plan as it
relates to the class. As of August 31, 1998 PaineWebber owns more than 69% of
the outstanding shares of the Fund and may be deemed controlling persons of
the Fund until additional investors purchase Fund shares.
SHAREHOLDER MEETINGS
The Fund does not intend to hold annual meetings.
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Prospectus Page 20
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PaineWebber S&P 500 Index Fund
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a board member through a declaration in writing or 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 10% of the outstanding shares of the Trust.
REPORTS TO SHAREHOLDERS
The Fund sends its shareholders audited annual and unaudited semiannual
reports, each of which includes a list of the investment securities held by
the Fund as of the end of the period covered by the report. The Statement of
Additional Information, which is incorporated by this reference into this
Prospectus, is available to shareholders upon request.
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as custodian and recordkeeping agent for
the Fund. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the Fund's
transfer and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809.
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Prospectus Page 21
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PaineWebber S&P 500 Index Fund
Prospectus -- October 1, 1998
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.PAINEWEBBER BOND FUNDS .PAINEWEBBER STOCK FUNDS
High Income Fund Financial Services Growth Fund
Investment Grade Income Growth Fund
Fund Growth and Income Fund
Low Duration U.S. Mid Cap Fund
Government Income Fund Small Cap Fund
Strategic Income Fund S&P 500 Index Fund
U.S. Government Income Utility Income Fund
Fund
.PAINEWEBBER TAX-FREE BOND .PAINEWEBBER GLOBAL FUNDS
FUNDS
Asia Pacific Growth Fund
California Tax-Free Emerging Markets Equity Fund
Income Fund Global Equity Fund
Municipal High Income Global Income Fund
Fund
National Tax-Free
Income Fund
New York Tax-Free
Income Fund
. PAINEWEBBER .PAINEWEBBER MONEY MARKET FUND
ASSETALLOCATION FUNDS
Balanced Fund .PAINEWEBBER FUNDS OF FUNDS
Tactical Allocation
Fund Mitchell Hutchins Conservative Portfolio
Mitchell Hutchins Moderate Portfolio
Mitchell Hutchins Aggressive Portfolio
A prospectus containing more complete information for any of the above
funds, including charges and expenses, can be obtained from a PaineWebber
investment executive or correspondent firm. Please read it carefully before
investing. It is important you have all the information you need to make a
sound investment decision.
(C) 1998 PaineWebber Incorporated
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