PAINEWEBBER MANAGED INVESTMENTS TRUST, 485APOS, 1996-02-14

PAINEWEBBER MANAGED INVESTMENTS TRUST
485APOS, 1996-02-14

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<PAGE>

As filed with the Securities and Exchange Commission on February 14, 1996

1933 Act Registration No. 2-91362
1940 Act Registration No. 811-4040

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-lA

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
-----

Pre-Effective Amendment No._____ [_____]

Post-Effective Amendment No. 39 [ X ]
----- -----

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
-----

Amendment No. 34
-----

(Check appropriate box or boxes.)

PAINEWEBBER MANAGED INVESTMENTS TRUST
(Exact name of registrant as specified in charter)

1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)

Registrant's telephone number, including area code: (212)713-2000

DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)

Copies to:

ELINOR W. GAMMON, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue N.W.
2d Floor
Washington, D.C. 20036-1800
Telephone: (202)778-9000

It is proposed that this filing will become effective:

____ Immediately upon filing pursuant to Rule 485(b)
----
____ On ___________, 1996 pursuant to Rule 485(b)
----
X 60 days after filing pursuant to Rule 485(a)(i)
----
____ On _____________, 1996 pursuant to Rule 485(a)(i)
----
____ 75 days after filing pursuant to Rule 485(a)(ii)
----
____ On _____________, 1996 pursuant to Rule 485(a)(ii)
----

Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the notice required by such Rule for
its most recent fiscal year on January 26, 1996.
<PAGE>

PaineWebber Managed Investments Trust

Contents of Registration Statement

This registration statement consists of the following papers and documents.

Cover Sheet

Contents of Registration Statement

Form N-1A Cross Reference Sheet

Class A, B and C shares of:

Utility Income Fund
- -------------------

Part A- Prospectus
Part B- Statement of Additional Information

Part C- Other Information

Signature Page

Exhibits

- 2 -
<PAGE>

PaineWebber Managed Investments Trust:

Class A, B and C shares of:

PaineWebber Utility Income Fund

Form N-1A Cross Reference Sheet

Part A Item No. and
Caption Prospectus Caption
-------------------------- ------------------

1. Cover Page................ Cover Page
2. Synopsis.................. The Funds at a Glance;
Expense Table

3. Condensed Financial Financial Highlights;
Information............... Performance

4. General Description of The Funds at a Glance;
Registrant................ Investment Objectives and
Policies; Investment
Philosophy and Process; The
Funds' Investments; General
Information

5. Management of the Fund.... Management; General
Information

6. Capital Stock and other Cover Page; Flexible Pricing;
Securities................ Dividends and Taxes; General
Information

7. Purchase of Securities How to Buy Shares; Other
Being Offered............. Services; Determining the
Shares' Net Asset Value

8. Redemption or Repurchase How to Sell Shares;
Other Services

9. Pending Legal Proceeding Not Applicable

Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------
10. Cover Page................ Cover Page

11. Table of Contents......... Table of Contents

12. General Information and Other Information
History...................

- 3 -
<PAGE>

Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------

13. Investment Objective Investment Policies and
and Policies.............. Restrictions; Hedging
Strategies; Portfolio
Transactions

14. Management of the Fund.... Trustees and Officers;
Principle Shareholders

15. Control Persons and Trustees and Officers;
Principal Holders of Principle Shareholders
Securities................

16. Investment Advisory and Investment Advisory and
Other Services............ Distribution Arrangements;
Other Information

17. Brokerage Allocation...... Portfolio Transactions

18. Capital Stock and Other Conversion of Class B Shares;
Securities................ Other Information

19. Purchase, Redemption and Reduced Sales Charges,
Pricing of Securities Additional Exchange and
Being Offered............. Redemption Information and
Other Services; Valuation of
Shares

20. Tax Status................ Taxes

21. Underwriters.............. Investment Advisory and
Distribution Arrangements

22. Calculation of Performance Information
Performance Data..........

23. Financial Statements...... Financial Statements

Part C
Information required to be included in Part C is set forth under the
appropiate item, so numbered, in Part C of this Registration Statement.

- 4 -
<PAGE>

PAINEWEBBER CAPITAL APPRECIATION FUND

PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.

PAINEWEBBER UTILITY INCOME FUND

1285 Avenue of the Americas, New York, New York, 10019

Prospectus -- [Date]
________________________________________________________________________________

The PaineWebber Equity Funds covered in this prospectus are designed for
investors generally seeking capital appreciation. PaineWebber Capital
Appreciation Fund seeks long-term capital appreciation by investing primarily in
equity securities of medium-sized companies. PaineWebber Financial Services
Growth Fund focuses on long-term capital appreciation by purchasing primarily
equity securities of companies in the financial services industries. PaineWebber
Utility Income Fund seeks to provide current income and capital appreciation by
investing primarily in equity securities and debt instruments of companies in
the utility industries.

This Prospectus concisely sets forth information that a prospective investor
should know about the Funds before investing. Please read it carefully and
retain a copy of this Prospectus for future reference.

A Statement of Additional Information dated [Date] has been filed with the
Securities and Exchange 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 an individual Fund, your investment
executive at PaineWebber or one of its correspondent firms or by calling toll-
free 1-800-647-1568.

_______________________________________________
TABLE OF CONTENTS
The Funds at a Glance page 2
Expense Table 4
Financial Highlights 6
Investment Objective & Policies 15
Investment Philosophy & Process 16
Performance 17
The Fund's Investments 19
Flexible Pricing/SM/ 22
How to Buy Shares 24
How to Sell Shares 26
Other Services 26
Management 27
Determining the Shares' Net Asset Value 29
Dividends & Taxes 29
General Information 30
_______________________________________________

________________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

THE FUNDS AT A GLANCE

CAPITAL APPRECIATION FUND
- -------------------------

GOAL: To increase the value of your investment by investing primarily in the
equity securities of medium-sized domestic and foreign companies selected
primarily on the basis of earnings growth.

INVESTMENT OBJECTIVE: Long-term capital appreciation.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities; as such, they have also shown greater volatility.
Because the Fund invests primarily in equity securities, its price will rise and
fall. Medium-sized companies may have higher earnings growth rates than larger
companies, offering the potential for greater returns. However, the greater
potential of these companies may entail greater market volatility and risks of
adverse financial developments. The Fund may use derivatives, such as options,
futures and foreign currency contracts in its hedging activities, which may
involve additional risks. Investors may lose money by investing in the Fund;
your investment is not guaranteed.

SIZE: On December 31, 1995, the Fund had over $252 million in assets.

FINANCIAL SERVICES GROWTH FUND
- ------------------------------

GOAL: To increase the value of your investment by investing primarily in the
equity securities of financial services companies.

INVESTMENT OBJECTIVE: Long-term capital appreciation.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities; as such, they have also shown greater volatility.
Because the Fund invests primarily in equity securities, its price will rise and
fall. The Fund's concentration in the banking, thrift, insurance and other
financial services industries makes it subject to greater risk and volatility
than equity funds that are more diversified, and the Fund's shares will be
affected by economic, legislative and regulatory developments affecting the
financial services industries. The Fund may use derivatives, such as options,
futures and foreign currency contracts in its hedging activities, which may
involve additional risks. Investors may lose money by investing in the Fund;
your investment is not guaranteed.

SIZE: On December 31, 1995, the Fund had over $99 million in assets.

UTILITY INCOME FUND
- -------------------

GOAL: To increase the value of your investment and provide current income by
investing primarily in income-producing equity securities and bonds of domestic
and foreign companies engaged in the ownership or operation of facilities used
in the generation, transmission or distribution of electricity,
telecommunications, gas or water.

INVESTMENT OBJECTIVE: Current income and capital appreciation.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities; as such, they have also shown greater volatility.
Because the Fund invests primarily in equity securities, its price will rise and
fall. The Fund's concentration in the utility industries makes it subject to
greater risk and volatility than funds that are more diversified, and the Fund's
shares will be affected by economic, competitive and regulatory developments in
those industries. The Fund may use derivatives, such as options, futures and
foreign currency contracts in its hedging activities, which may involve
additional risks. Investors may lose money by investing in the Fund; your
investment is not guaranteed.

- 2 -
<PAGE>

SIZE: On December 31, 1995, the Fund had over $61 million in assets.

MANAGEMENT

Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins" or "Investment
Adviser"), an asset management subsidiary of PaineWebber Incorporated
("PaineWebber"), is the investment adviser and administrator of the Capital
Appreciation Fund, the Financial Services Growth Fund, and the Utility Income
Fund (each a "Fund" and, collectively, the "Funds"). Mitchell Hutchins has
appointed Denver Investment Advisors, LLC ("Investment Sub-Adviser" or "Denver
Investments") as the investment sub-adviser for the Capital Appreciation Fund.

MINIMUM INVESTMENT

To open an account, investors need $1,000; to add to an account, investors need
only $100.

WHO SHOULD INVEST

CAPITAL APPRECIATION FUND is for investors who want long-term capital
appreciation through investment primarily in the equity securities of medium-
sized domestic and foreign companies. Equity securities of small- and medium-
sized companies offer investors the potential for greater returns than larger
companies but are typically more volatile. Accordingly, Capital Appreciation
Fund is designed for investors seeking long-term growth who are able to bear the
risks that come with investments in the equity securities of such companies.

FINANCIAL SERVICES GROWTH FUND is for investors who want long-term capital
appreciation through investment primarily in the equity securities of financial
services companies, including banks, thrift institutions ("thrifts"), insurance
companies, commercial finance companies, consumer finance companies, brokerage
companies, investment management companies and their holding companies.
Accordingly, Financial Services Growth Fund is designed for investors who are
seeking long-term growth for a portion of their investments and who can assume
the risks of greater fluctuation of market value resulting from a portfolio
concentrated in the financial services industries.

UTILITY INCOME FUND is for investors who are seeking both current income and
capital appreciation through investments in equity securities and bonds in
domestic and foreign electric, telecommunications, gas and water industries.
Accordingly, Utility Income Fund is designed for conservative investors who are
seeking income, as well as capital growth through utility stocks and bonds,
traditionally viewed as conservative investments.

These Funds are not intended to provide a complete or balanced investment
program, but one or more of them may be appropriate as a component of an
investor's overall portfolio. Some common reasons to invest in these Funds are
to finance a child's college education, 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.

HOW TO PURCHASE SHARES OF THE FUNDS

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 is
4.5% 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 of Class B and Class C shares.

CLASS B SHARES

The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class B shares. As a result, 100% of their purchase is immediately
invested. Class B shares have higher ongoing expenses than Class A shares.
Depending upon how long they own the shares, investors may have to pay a sales
charge when they sell Class B shares. This sales charge is called a "contingent
deferred sales charge" and applies when investors sell their Class B shares
within six years. After six years, Class B shares convert to Class A shares,
which have lower ongoing expenses and no contingent deferred sales charge.

- 3 -
<PAGE>

CLASS C SHARES

The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class C shares, but the ongoing expenses they pay for Class C
shares are higher than for Class A shares. A contingent deferred sales charge of
1% is charged on shares sold within one year of the purchase date. Class C
shares never convert to any other class of shares.
-

EXPENSE TABLE

The following tables are intended to assist investors in understanding the
expenses associated with investing in the Funds. Expenses shown below represent
those incurred for the most recent fiscal year.
<TABLE>
<CAPTION>
Class A Class B Class C
-------- -------- --------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
Maximum Sales Charge on Purchases of Shares (as a % of offering
price)........................................................... 4.50% None None

Sales Charge on Reinvested Dividends (as a % of offering price).. None None None

Maximum Contingent Deferred Sales Charge (as a % of redemption
proceeds)........................................................ None 5% 1%

Exchange Fee..................................................... $5.00 $5.00 $5.00

ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(as a percentage of average net assets)

CAPITAL APPRECIATION FUND........................................ 1.00% 1.00% 1.00%
Management Fees............................................... 0.25 1.00 1.00
12b-1 Fees(1)................................................. 0.33 0.34 0.35
----- ----- -----
Other Expenses................................................ 1.58% 2.34% 2.35%
Total Operating Expenses..................................... ===== ===== =====

FINANCIAL SERVICES GROWTH FUND
Management Fees
12b-1 Fees (1)................................................ 0.70% 0.70% 0.70%
Other Expenses................................................ 0.25 1.00 1.00
Total Operating Expenses..................................... 0.50 0.52 0.53
----- ----- -----
1.45% 2.22% 2.23%
===== ===== =====
UTILITY INCOME FUND
Management Fees............................................... 0.70% 0.70% 0.70%
12b-1 Fees (1)................................................ 0.25 1.00 1.00
Other Expenses................................................ 0.54 0.53 0.54
----- ----- -----
Total Operating Expenses..................................... 1.49% 2.23% 2.24%
===== ===== =====
</TABLE>

CLASS A SHARES: Sales charge waivers and a reduced sales charge purchase plan
are available. Purchases of $1 million or more are not subject to a sales
charge. However, if such shares are sold within one year after purchase, a
contingent deferred sales charge of 1% of the net asset value or cost of the
shares sold, whichever is less, is imposed on the sale.

CLASS B SHARES: Sales charge waivers are available. The maximum 5% contingent
deferred sales charge applies to sales of shares during the first year after
purchase. The charge generally declines by 1% annually, reaching zero after six
years.

CLASS C SHARES: A contingent deferred sales charge of 1% of the net asset value
or cost of the shares sold, whichever is less, will be applied to sales of
shares within one year of purchase.

- 4 -
<PAGE>

The management fee payable to Mitchell Hutchins by the Capital Appreciation Fund
is greater than those paid by most funds. 12b-1 distribution fees are asset-
based sales charges. Long-term Class B and 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. The fees are the same for all
three Funds. 12b-1 fees have two components, as follows:

CLASS A CLASS B CLASS C
------- ------- -------
12b-1 service fees........ 0.25% 0.25% 0.25%
12b-1 distribution fees... 0.00 0.75 0.75

For more information, see "Management" and "Purchases."

EXAMPLE OF EFFECT OF FUND EXPENSES

The following example should assist investors in understanding various costs and
expenses incurred as shareholders of the Fund. The assumed 5% annual return
shown in the example is required by regulations of the Securities and Exchange
Commission ("SEC") applicable to all mutual funds. This example 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.

CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>

Class A................................................. $60 $ 93 $127 $224

Class B (Assuming sale of all shares at end of period).. $74 $103 $145 $231

Class B (Assuming no sale of shares).................... $24 $ 73 $125 $231

Class C (Assuming sale of all shares at end of period).. $34 $ 73 $126 $269

Class C (Assuming no sale of shares).................... $24 $ 73 $126 $269

FINANCIAL SERVICES GROWTH FUND
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>

Class A................................................. $59 $ 89 $121 $211

Class B (Assuming sale of all shares at end of period).. $73 $ 99 $139 $218

Class B (Assuming no sale of shares).................... $23 $ 69 $119 $218

Class C (Assuming sale of all shares at end of period).. $33 $ 70 $119 $256

Class C (Assuming no sale of shares).................... $23 $ 70 $119 $256

UTILITY INCOME FUND
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>

Class A................................................. $59 $ 90 $123 $215

Class B (Assuming sale of all shares at end of period).. $73 $100 $139 $221

Class B (Assuming no sale of shares).................... $23 $ 70 $119 $221

Class C (Assuming sale of all shares at end of period).. $33 $ 70 $120 $257

Class C (Assuming no sale of shares).................... $23 $ 70 $120 $257

</TABLE>

- 5 -
<PAGE>

ASSUMPTIONS MADE IN THE EXAMPLE

. CLASS A SHARES: Deduction of the maximum 4.5% initial sales charge at the time
of purchase.

. CLASS B SHARES: Deduction of the maximum applicable contingent deferred sales
charge at the time of sale, which declines over a period of six years. Ten-year
-----
figures assume that Class B shares convert to Class A shares at the end of the
sixth year.

. CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for sales
of shares within one year of purchase.

FINANCIAL HIGHLIGHTS

PAINEWEBBER CAPITAL APPRECIATION FUND

The following tables provide investors with data and ratios for one Class A,
Class B and Class C share for each of the periods. This information is
supplemented by the financial statements and accompanying notes appearing in
Capital Appreciation Fund's Annual Report to Shareholders for the fiscal year
ended March 31, 1995. Both are incorporated by reference into the Statement of
Additional Information. The financial statements and notes, as well as the
financial information in the table below relating to the fiscal year ended
March 31, 1995 and prior periods, have been audited by Ernst & Young LLP,
independent auditors. Their report is included in the Fund's Annual Report to
Shareholders, which may be obtained without charge by calling 1-800-647-1568.
The financial statements and notes and the financial information in the table
below, as they relate to the six months ended September 30, 1995, have been
taken from the records of the Fund without examination by the independent
auditors, who do not express an opinion thereon. Further information about the
Fund's performance is also included in the Annual Report to Shareholders.

<TABLE>
<CAPTION>
Class A
--------------------------------------------------
For the Six For the
Months Period
Ended For the Years Emded April
September ------------------- 7,1992
30, 1995 + to March
(Unaudited) 1995 1994 31, 1993
----------- -------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 12.81 $ 11.65 $ 10.53 $ 9.55
--------- ------- ------- ---------
Net investment loss.................................... (0.07) (0.09) (0.09) (0.06)

Net realized and unrealized gains from investment
transactions........................................... 2.52 1.29 1.21 1.04
--------- ------- ------- ---------
Total from investment operations....................... 2.45 1.20 1.12 0.98
--------- ------- ------- ---------
Net asset value, end of period......................... $ 15.26 $ 12.81 $ 11.65 $ 10.53
========= ======= ======= =========
Total investment return (1)............................ 19.13% 10.36 10.64% 10.26%
========= ======= ======= =========
Ratios/Supplemental Data:

Net assets, end of period (000's)...................... $ 72,955 $62,673 $58,523 $ 48,582
--------- ------- ------- ---------
Ratios of expenses to average net assets............... 1.58%* 1.58% 1.54% 1.72%*
--------- ------- ------- ---------
Ratio of net investment income loss to average net
assets................................................. (1.02)%* (0.79)% (0.84)% (0.78)%*
--------- ------- ------- ---------
Portfolio turnover rate................................ 30% 42% 60% 51%
--------- ------- ------- ---------
</TABLE>

- ---------------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges. The results of Class A
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.

- 6 -
<PAGE>

<TABLE>
<CAPTION>
Class B
--------------------------------------------------
For the Six
Months Ended For the Years Ended For the Period
September 30, ------------------- April 7,
1995 1992+ to
(Unaudited) 1995 1994 March 31, 1993
------------- ------------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 13.11 $ 12.02 $ 10.94 $ 10.00
-------- -------- -------- ---------
Net investment loss.................................... (0.14) (0.20) (0.17) (0.11)
Net realized and unrealized gains from investment
transactions........................................... 2.59 1.33 1.25 1.05
-------- -------- -------- ---------
Total from investment operations....................... 2.45 1.13 1.08 0.94
-------- -------- -------- ---------
Distributions from net realized gains.................. -- (0.04) -- --
======== ======== ======== =========
Net asset value, end of period......................... $ 15.56 $ 13.11 $ 12.02 $ 10.94
======== ======== ======== =========
Total investment return (1)............................ 18.69% 9.46% 9.87% 9.40%
======== ======== ======== =========
Ratios/Supplemental Data:
Net assets, end of period (000's)...................... $156,030 $139,302 $133,828 $ 105,490
-------- -------- -------- ---------
Ratios of expenses to average net assets............... 2.34% 2.34% 2.30% 2.49%*
-------- -------- -------- ---------
Ratio of net investment income loss to average net
assets................................................. (1.78)% (1.56)% (1.60)% (1.55)%*
-------- -------- -------- ---------
Portfolio turnover rate................................ 30% 42% 60% 51%
-------- -------- -------- ---------
</TABLE>

- ---------------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. Total investment returns for periods of less than one year have
not been annualized.

- 7 -
<PAGE>

<TABLE>
<CAPTION>
Class C (2)
--------------------------------------------------------
For the Six For the Years Ended March
Months Ended 31, For the Period
September 30, -------------------------- July 2,
1995 1992 + to
(Unaudited) 1995 1994 March 31, 1993
------------- ------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 12.54 $ 11.50 $ 10.47 $ 8.89
------- ------- ------- ---------
Net investment loss..................................... (0.14) (0.19) (0.10) (0.05)
Net realized and unrealized gains from investment
transactions............................................ 2.49 1.27 1.13 1.63
------- ------- ------- ---------
Total from investment operations........................ 2.35 1.08 1.03 1.58
------- ------- ------- ---------
Distributions from net realized gains................... -- (0.04) -- --
======= ======= ======= =========
Net asset value, end of period.......................... $ 14.89 $ 12.54 $ 11.50 $ 10.47
======= ======= ======= =========
Total investment return (1)............................. 18.74% 9.45% 9.84% 17.77%
======= ======= ======= =========
Ratios/Supplemental Data:
Net assets, end of period (000's)....................... $26,994 $24,993 $29,884 $ 13,806
------- ------- ------- ---------
Ratios of expenses to average net assets................ 2.37% 2.35% 2.28% 2.31%*
------- ------- ------- ---------
Ratio of net investment income loss to average net
assets.................................................. (1.81)% (1.57)% (1.58) % (1.53)%*
------- ------- ------- ---------
Portfolio turnover rate................................. 30% 42% 60% 51%
------- ------- ------- ---------
</TABLE>
- ---------------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges. The results of Class A
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
(2) Formerly Class D shares.

- 8 -
<PAGE>

FINANCIAL HIGHLIGHTS

PAINEWEBBER FINANCIAL SERVICES GROWTH FUND

The following tables provide investors with data and ratios for one Class A,
Class B and Class C share for each of the periods. This information is
supplemented by the financial statements and accompanying notes appearing in
Financial Services Growth Fund's Annual Report to Shareholders for the fiscal
year ended March 31, 1995. Both are incorporated by reference into the Statement
of Additional Information. The financial statements and notes, as well as the
financial information in the table below relating to the five years ended March
31, 1995, have been audited by Ernst & Young LLP, independent auditors. Their
report is included in the Fund's Annual Report to Shareholders, which may be
obtained without charge by calling 1-800-647-1568. The financial statements and
notes and the financial information in the table below, as they relate to the
six months ended September 30, 1995, have been taken from the records of the
Fund without examination by the independent auditors, who do not express an
opinion thereon. Further information about the Fund's performance is also
included in the Annual Report to Shareholders. The information appearing below
for periods prior to the year ended March 31, 1991, also has been audited by
Ernst & Young LLP, whose reports thereon were unqualified.

<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
For the Six
Months
Ended For the Year Ended March 31,
September -----------------------------------------------
30, 1995
(Unaudited) 1995 1994 1993 1992 1991
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 17.11 $ 16.92 $ 19.45 $ 13.36 $ 9.50 $ 8.63
------- ------- ------- ------- ------- -------
Net investment income (loss).......................... 0.14 0.25 0.15 0.10 0.15 0.25
------- ------- ------- ------- ------- -------
Net realized and unrealized gains (losses) from
investment transactions............................... 4.43 1.34 (0.76) 6.01 3.92 0.86
------- ------- ------- ------- ------- -------
Total increase/decrease from investment operations.... 4.57 1.59 (0.61) 6.11 4.07 1.11
------- ------- ------- ------- ------- -------
Dividends from investment income...................... -- (0.13) (0.08) (0.02) (0.21) (0.24)
------- ------- ------- ------- ------- -------
Distributions from realized gains on investments...... -- (1.27) (1.84) -- -- --
------- ------- ------- ------- ------- -------
Total dividends and distributions..................... -- (1.40) (1.92) (0.02) (0.21) (0.24)
------- ------- ------- ------- ------- -------
Net asset value, end of period........................ $ 21.68 $ 17.11 $ 16.92 $ 19.45 $ 13.36 $ 9.50
======= ======= ======= ======= ======= =======
Total investment return (1)........................... 26.71% 10.22% (3.14)% 46.79% 42.23% 13.33%
======= ======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)..................... $63,989 $49,295 $48,032 $61,645 $44,867 $43,131
------- ------- ------- ------- ------- -------
Expenses to average net assets........................ 1.40%* 1.45% 1.44% 1.87% 1.72% 1.67%
------- ------- ------- ------- ------- -------
Net investment income (loss) to average net assets.... 1.53%* 1.40% 0.76% 0.60% 1.32% 2.56%
------- ------- ------- ------- ------- -------
Portfolio Turnover.................................... 22% 14% 22% 28% 31% 19%
------- ------- ------- ------- ------- -------
</TABLE>

- 9 -
<PAGE>

<TABLE>
<CAPTION>
Class B
----------------------------------------------------------
For the Six
Months For the
Ended For the Year Ended March 31, Period
September ---------------------------- July 1, 1991+
30, 1995 to March 31,
(Unaudited) 1995 1994 1993 1992
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 16.85 $ 16.71 $ 19.34 $ 13.36 $ 10.24
------- ------- ------- ------- -------
Net investment income (loss)........................... 0.05 0.11 0.02 (0.01) --
------- ------- ------- ------- -------
Net realized and unrealized gains (losses) from
investment transactions................................ 4.37 1.33 (0.75) 5.99 3.18
------- ------- ------- ------- -------
Total increase/decrease from investment operations..... 4.42 1.44 (0.73) 5.98 3.18
------- ------- ------- ------- -------
Dividends from investment income....................... -- (0.03) (0.06) -- (0.06)
------- ------- ------- ------- -------
Distributions from realized gains on investments....... -- (1.27) (1.84) -- --
------- ------- ------- ------- -------
Total dividends and distributions...................... -- (1.30) (1.90) -- (0.06)
------- ------- ------- ------- -------
Net asset value, end of period......................... $ 21.27 $ 16.85 $ 16.71 $ 19.34 $ 13.36
======= ======= ======= ======= =======
Total investment return (1)............................ 26.23% 9.37% (3.83)% 44.76% 31.16%
======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)...................... $25,340 $16,368 $11,517 $10,364 $ 765
------- ------- ------- ------- -------
Expenses to average net assets......................... 2.14%* 2.22% 2.16% 2.45% 2.72%*
------- ------- ------- ------- -------
Net investment income (loss) to average net assets..... 0.76%* 0.67% 0.05% (0.03)% 0.14%*
------- ------- ------- ------- -------
Portfolio Turnover..................................... 22% 14% 22% 28% 31%
------- ------- ------- ------- -------
</TABLE>

- ---------------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. Total investment returns for periods of less than one year have
not been annualized.

- 10 -
<PAGE>

<TABLE>
<CAPTION>
Class C (2)
------------------------------------------------
For the Six For the
Months Ended For the Year Ended Period
September 30, March 31, July 2, 1992+
1995 ------------------ to March 31,
(Unaudited) 1995 1994 1993
------------- ---- ---- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period...................... $ 16.86 $16.71 $ 19.34 $ 14.61
------- ------ ------- -------
Net investment income (loss).............................. 0.05 0.11 0.01 --
------- ------ ------- -------
Net realized and unrealized gains (losses) from
investment transactions................................... 4.37 1.33 (0.73) 4.77
------- ------ ------- -------
Total increase/decrease from investment operations........ 4.42 1.44 (0.72) 4.77
------- ------ ------- -------
Dividends from investment income.......................... -- (0.02) (0.07) (0.04)
------- ------ ------- -------
Distributions from realized gains on investments.......... -- (1.27) (1.84) --
------- ------ ------- -------
Total dividends and distributions......................... -- (1.29) (1.91) (0.04)
------- ------ ------- -------
Net asset value, end of period............................ $ 21.28 $16.86 $ 16.71 $ 19.34
======= ====== ======= =======
Total investment return (1)............................... 26.22% 9.34% (3.76)% 32.66%
======= ====== ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)......................... $ 6,831 $4,160 $ 4,370 $ 4,636
------- ------ ------- -------
Expenses to average net assets............................ 2.17%* 2.23% 2.17% 2.36%*
------- ------ ------- -------
Net investment income (loss) to average net assets........ 0.73%* 0.61% 0.03% 0.01%*
------- ------ ------- -------
Portfolio Turnover........................................ 22% 14% 22% 28%
------- ------ ------- -------
</TABLE>

- 11 -
<PAGE>

FINANCIAL HIGHLIGHTS

PAINEWEBBER UTILITY INCOME FUND

The following tables provide investors with data and ratios for one Class A,
Class B and Class C shares for each of the periods. This information is
supplemented by the financial statements and accompanying notes appearing in
Utility Income Fund's Annual Report to Shareholders for the fiscal year ended
November 30, 1995. Both are incorporated by reference into the Statement of
Additional Information. The financial statements and notes, as well as the
financial information in the table below, have been audited by Ernst & Young
LLP, independent auditors. Their report is included in the Fund's Annual Report
to Shareholders, which may be obtained without charge by calling 1-800-647-1568.
Further information about the Fund's performance is also included in the Annual
Report to Shareholders.

Class A
-----------------------------------------------------
For the Period
For the Years Ended November 30, July 2, 1993+
-------------------------------- to November
1995 1994 30, 1993
---- ---- --------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 8.31 $ 9.66 $ 10.00
------- ------- -------
Net investment income........................................ 0.47 0.48 0.20

Net realized and unrealized gains (losses) from
investment and foreign currency activities................... 1.44 (1.31) (0.39)
------- ------- -------
Total increase (decrease) from investment operations......... 1.91 (0.83) (0.19)
------- ------- -------
Dividends from net investment income......................... (0.45) (0.52) (0.15)
------- ------- -------
Net asset value, end of period............................... $ 9.77 $ 8.31 $ 9.66
======= ======= =======
Total investment return (1).................................. 23.64% (8.76)% (1.95)%
======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)............................ $10,750 $12,532 $16,224
------- ------- -------
Expenses to average net assets............................... 1.49% 1.58% 1.55%*
------- ------- -------
Net investment income to average net assets.................. 5.13% 5.49% 5.38%*
------- ------- -------
Portfolio turnover........................................... 30% 92% 13%
------- ------- -------
</TABLE>

- ---------------
* Annualized.
+ Commencement of operations.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges. The results would be
lower if sales charges were included. Total investment returns for periods
of less than one year have not been annualized.

- 12 -
<PAGE>

<TABLE>
<CAPTION>
Class B
--------------------------------------------------
For the Period
For the Years Ended November 30, July 2, 1993+
-------------------------------- to November
1995 1994 30, 1993
---- ---- --------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 8.31 $ 9.65 $ 10.00
------- ------- -------
Net investment income........................................ 0.4 0.42 0.17

Net realized and unrealized gains (losses) from
investment and foreign currency activities................... 1.45 (1.31) (0.39)
------- ------- -------
Total increase (decrease) from investment operations......... 1.85 (0.89) (0.22)
------- ------- -------
Dividends from net investment income......................... (0.39) (0.45) (0.13)
------- ------- -------
Net asset value, end of period............................... $ 9.77 $ 8.31 $ 9.65
======= ======= =======
Total investment return (1).................................. 22.73% (9.35)% (2.29)%
======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)............................ $37,554 $37,156 $45,382
------- ------- -------
Expenses to average net assets............................... 2.23% 2.33% 2.29%*
------- ------- -------
Net investment income to average net assets.................. 4.37% 4.72% 4.67%*
------- ------- -------
Portfolio turnover........................................... 30% 92% 13%
------- ------- -------
</TABLE>

- 13 -
<PAGE>

<TABLE>
<CAPTION>
Class C (2)
-------------------------------------------------
For the Period
For the Years Ended November 30, July 2, 1993+
-------------------------------- to November
1995 1994 30, 1993
---- ---- --------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 8.31 $ 9.65 $ 10.00
------- ------- -------
Net investment income........................................ 0.40 0.42 0.16

Net realized and unrealized gains (losses) from
investment and foreign currency activities................... 1.45 (1.31) (0.38)
------- ------- -------
Total increase (decrease) from investment operations......... 1.85 (0.89) (0.22)
------- ------- -------
Dividends from net investment income......................... (0.39) (0.45) (0.13)
------- ------- -------
Net asset value, end of period............................... $ 9.77 $ 8.31 $ 9.65
======= ======= =======
Total investment return (1).................................. 22.71% (9.36)% (2.28)%
======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)............................ $12,222 13,922 $17,866
------- ------- -------
Expenses to average net assets............................... 2.24% 2.32% 2.29%*
------- ------- -------
Net investment income to average net assets.................. 4.37% 4.69% 4.67%*
------- ------- -------
Portfolio turnover........................................... 30% 92% 13%
------- ------- -------
</TABLE>

- 14 -
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

CAPITAL APPRECIATION FUND

PaineWebber Capital Appreciation Fund's investment objective is long-term
capital appreciation.The Fund attempts to achieve this by investing at least 65%
of its total assets in common stocks of medium-sized (or mid-cap) companies,
defined by Denver Investments as:

. domestic public companies with market capitalizations (referring to a
company's size or the value of the equity securities it has issued) of at least
$100 million and, generally, no more than $10 billion at the time of purchase
and that are not included in either of the largest 100 companies ranked by
revenues or by market capitalization in Fortune magazine's "Fortune 500;" or

. foreign companies with market capitalizations of less than $10 billion at the
time of purchase.

While mid-cap stocks represent potentially higher returns for investors, they
may present investors with greater risks than larger companies. Mid-cap stocks
may be more vulnerable than larger companies to adverse business or economic
developments. While not required to do so, the Fund considers selling equity
securities of companies that cease to be "medium-sized."

The Fund can invest up to 35% of its total assets in equity securities of
foreign companies that trade on U.S. stock exchanges or in the U.S. over-the-
counter market. When Denver Investments believes it is consistent with the
Fund's investment objective of long-term capital appreciation, the Fund may
invest up to 35% of its total assets in common stocks of companies that are
larger or smaller than those of mid-cap companies as defined above, as well as
in bonds and money market instruments.

FINANCIAL SERVICES GROWTH FUND

PaineWebber Financial Services Growth Fund seeks long-term capital appreciation
by primarily investing in equity securities of financial services companies.
Financial services companies include banks, thrift institutions, insurance
companies, commercial finance companies, consumer finance companies, brokerage
companies, investment management companies and their holding companies.

The Fund seeks to invest in companies that are benefiting from the ongoing
changes in the financial services industries, including consolidation of
regional banks and thrifts and the growth of the non-bank portion of the
financial services industry. However, this concentration subjects the Fund to
more volatility than would be experienced by a fund whose portfolio is more
diversified.

The Fund normally invests at least 65% of its total assets in equity securities
of financial services companies. To be considered a financial service company, a
company must:

. derive at least 50% of either its revenues or earnings from financial services
activities or devote at least 50% of its assets to these activities; or

. be engaged in "securities-related businesses," meaning it derives more than
15% of its gross revenues from securities brokerage or investment management
activities.

The Fund may invest up to 35% of its total assets in equity securities of
companies outside the financial services industries and in bonds of all issuers.
The Fund may also invest up to 20% of its total assets in equity securities and
bonds of foreign issuers. The Fund may invest in securities other than equity
securities when, in the opinion of Mitchell Hutchins, their potential for
capital appreciation is equal to or greater than that of equity securities or
when such holdings might reduce volatility in the Fund.

The Fund may not invest more than 5% of its assets in the equity securities of
any one company engaged in securities-related businesses. The Fund may invest in
banks and thrifts only if their deposits are insured by the Federal Deposit

- 15 -
<PAGE>

Insurance Corporation ("FDIC") and in their holding companies. However, neither
the securities of these companies nor the Fund's shares are insured by the FDIC
or any other federal or governmental agency.

UTILITY INCOME FUND

PaineWebber Utility Income Fund's investment objectives are current income and
capital appreciation; the Fund makes monthly dividend payments. The Fund
attempts to achieve its objective by investing 65% of its total assets in
income-producing equity securities and bonds issued by domestic and foreign
companies that are primarily engaged in the ownership or operation of facilities
used in the generation, transmission or distribution of electricity,
telecommunications, gas or water.

"Primarily engaged" means that:
. more than 50% of the company's assets are devoted to the ownership or
operation of one or more such facilities; or
. more than 50% of the company's operating revenues are derived from such
businesses.

The Fund does not invest more than 15% of its total assets in the equity
securities and bonds of foreign companies. The Fund may invest up to 35% of its
assets in equity securities and bonds of companies that are outside the utility
industries and in high-quality money market instruments. The Fund may not invest
more than 5% of its assets in bonds that are rated lower than investment grade.

The Fund seeks to invest in companies that should benefit from a dramatically
changing operating environment, spurred by a long-term, secular trend toward
deregulation. Some of these changes include:
. local telecommunications providers' shift from rate of return to price cap
regulation;
. more liberal legislation which is gradually eliminating entry barriers that
historically prohibited telephone companies from entering new businesses; and
. a more open market in the electric utility industry, which should lead to
consolidation within the industry.

However, the Fund's concentration in these industries subjects the Fund to more
volatility than would be experienced by a fund whose portfolio is more
diversified.

* * * *

As with any mutual fund, there is no assurance that any of these Funds will
achieve its investment objective. Each Fund's net asset value fluctuates based
upon changes in the value of its portfolio securities.

INVESTMENT PHILOSOPHY & PROCESS

CAPITAL APPRECIATION FUND

In selecting equity securities that demonstrate earnings growth potential for
the Fund, Denver Investments relies on the expertise of its team of analysts and
portfolio managers. The Team employs a "bottom-up" approach to stock selection;
that is, emphasis is placed on fundamental analysis of individual companies
rather than on broad economic or technical market analysis.

Instead of relying on information developed by other analysts and research
firms, the Team thoroughly researches the companies through analysis of their
balance sheets, income statements, products, services and management.
Additionally, their valuation techniques emphasize earnings growth. The Team
strives to identify product innovations, modifications in the marketplace,
shifts in management, attractive stocks for purchase and undesirable stocks at
an early stage. The Team's goal is to discover unrecognized stocks and
capitalize on market inefficiencies to add incremental value. The Fund generally
owns equity securities of at least 100 companies, ensuring portfolio
diversification.

- 16 -
<PAGE>

FINANCIAL SERVICES GROWTH FUND

In seeking long-term capital appreciation, the Fund invests in equity securities
of institutions considered to represent strong fundamental investment value.
Mitchell Hutchins bases the stock selection process on issuer-specific factors
affecting the potential for capital appreciation. These factors include the
issuer's current and anticipated revenues, earnings, cash flow and assets, as
well as general market conditions in the financial services industries.

Mitchell Hutchins places much emphasis on:
. searching for companies with better-than-average earnings growth that are not
yet recognized by the market;
. analyzing the practices of company management; and
. finding companies with niche products.

The Mitchell Hutchins Equity Team has met with most of the executives at the
companies in which the Fund invests. Mitchell Hutchins prefers to invest in
companies that are headquartered or doing business in growing regions and that
obtain their earnings growth in a secular, sustainable way, as opposed to
companies that generate their earnings through cyclical factors.

UTILITY INCOME FUND

Utilities represent a relatively conservative way to realize dividend income and
long-term capital appreciation opportunities. In determining the ratio of the
Fund's equity holdings to its bond holdings, Mitchell Hutchins considers which
proportions would best meet the Fund's investment objective of income and
growth. This will vary from time to time based primarily on the overall economic
environment.

Once the Fund determines the weighting that would best achieve a balance between
income and capital appreciation, Mitchell Hutchins evaluates individual issuers.
Factors considered include the issuer's business and regulatory environment, its
ability to maintain low production costs, management, financial condition,
anticipated earnings and dividends, economic health of the area it serves and
other related measures of value.

PERFORMANCE

These charts show the total returns for the Funds; 1995 returns represent the
calendar year ended December 31,1995. Sales charges have not been deducted from
the results shown. Returns would be lower if sales charges were deducted. Past
results are not a guarantee of future results. Total returns after deducting the
maximum sales charges are shown below.

CAPITAL APPRECIATION FUND (CHART)

As Class A and Class B shares commenced operations on April 7, 1992, the 1992
return represents the period from April 7, 1992 through December 31, 1992. Class
C shares commenced operations on July 2, 1992; thus, the 1992 return for Class C
shares represents the period from July 2, 1992 through December 31, 1992.

FINANCIAL SERVICES GROWTH FUND (CHART)

As Class A shares commenced operations on May 22, 1986, the 1986 return
represents the period from May 22, 1986 through December 31, 1986. The inception
date of Class B shares is July 1, 1991; thus, the 1991 return for Class B shares
represents the period from July 1, 1991 through December 31, 1991. Class C
shares commenced operations on July 2, 1992; thus, the 1992 return for Class C
shares represents the period from July 2, 1992 through December 31, 1992.

UTILITY INCOME FUND (CHART)

As Class A, Class B and Class C shares commenced operations on July 2, 1993, the
1993 return represents the period from July 2, 1993 through December 31, 1993.

- 17 -
<PAGE>

<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
AVERAGE ANNUAL RETURNS
As of March 31, 1995
Class A Shares Class B Shares Class C Shares
Inception Date 4/7/92 4/7/92 7/2/92
<S> <C> <C> <C>
ONE YEAR
Without sales charges 10.36% 9.46% 9.45%
After deducting maximum sales charges 5.38% 4.46% 8.45%
LIFE
Without sales charges 10.49% 9.64% 13.49%
After deducting maximum sales charges 8.80% 8.80% 13.49%

<CAPTION>
FINANCIAL SERVICES GROWTH FUND
AVERAGE ANNUAL RETURNS
As of March 31, 1995
Class A Shares Class B Shares Class C Shares
Inception Date 5/22/86 7/1/91 7/2/92
<S> <C> <C> <C>
ONE YEAR
Without sales charges 10.22% 9.37% 9.34%
After deducting maximum sales charges 5.24% 4.37% 8.34%
FIVE YEARS
Without sales charges 20.36% N/A N/A
After deducting maximum sales charges 19.25% N/A N/A
LIFE
Without sales charges 11.84% 20.24% 12.91%
After deducting maximum sales charges 11.25% 19.91% 12.91%

<CAPTION>
UTILITY INCOME FUND
AVERAGE ANNUAL RETURNS
As of November 30, 1995
Class A Shares Class B Shares Class C Shares
Inception Date 7/2/93 7/2/93 7/2/93
<S> <C> <C> <C>
ONE YEAR
Without sales charges 23.64% 22.73% 22.71%
After deducting maximum sales charges 18.09% 17.73% 21.71%
LIFE
Without sales charges 10.61% 8.71% 8.69%
After deducting maximum sales charges 5.64% 5.71% 8.69%
</TABLE>

PERFORMANCE INFORMATION

The Funds perform 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 Funds 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
Funds reflects deduction of the Funds' maximum initial sales charge of 4.5% at
the time of purchase, and standardized return for the Class B and Class C shares
of the Funds reflects deduction of the applicable contingent deferred sales
charge imposed on the sale of shares held for the period. One-, five- and ten-
year periods will be shown, unless the Fund or class has been in existence for a
shorter period. If so, returns will be shown for the period since inception.
Total return calculations assume reinvestment of dividends and other
distributions.

The Funds 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

- 18 -
<PAGE>

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 necessarily
indicate future results. The investment return and principal value of shares of
the Funds will fluctuate. The amount investors receive when selling shares may
be more or less than what they paid. Further information about the Funds'
performance is contained in the Funds' Annual Reports, which may be obtained
without charge by contacting each Fund, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.

THE FUNDS' INVESTMENTS

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. While past
performance does not guarantee future results, common stocks 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.

Preferred stock has certain fixed-income features, like a bond, but is actually
equity in a company, like common stock. Convertible securities may include
debentures, notes and preferred equity securities, which are convertible into
common stock.

BONDS (including notes and debentures) are used by corporations and governments
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Bonds have
varying degrees of investment risk and varying levels of sensitivity to changes
in interest rates.

RISKS

Under normal circumstances, each of the Funds invests primarily in equity
securities. Following is a discussion of these and other risks that are common
to each of the Funds:

EQUITY SECURITIES. Equity securities historically have shown greater growth
potential than other types of securities. Common stocks generally represent the
riskiest investment in a company. It is possible that investors may lose their
entire investment.

FOREIGN SECURITIES. Each of the Funds may invest a portion of its assets in the
securities of foreign companies. Investing in the securities of foreign
companies involves 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.
Foreign securities markets may be less liquid and subject to less regulation
than the U.S. securities markets. The costs of foreign investing frequently are
higher than those in the United States. These costs include relatively higher
brokerage commissions and foreign custody expenses.

DEBT SECURITIES. Investment grade bonds are those rated within the four highest
categories by Standard & Poor's, a division of the McGraw Hill Companies, Inc.,
or Moody's Investors Service, Inc. Moody's fourth highest category (Baa)
includes securities which, in its opinion, have speculative features. The Funds
may also invest in unrated securities if they are deemed to be of comparable
quality. Changes in economic conditions or other circumstances are more likely
to lead to a weakened capacity to make principal and interest payments than is
the case for higher-rated debt instruments. The bonds in which Capital
Appreciation Fund and Financial Services Growth Fund invest must be rated
investment grade. Utility Income Fund may invest up to 5% of its assets in bonds
rated lower than investment grade; that is, rated lower than BBB by Standard &
Poor's or Baa by Moody's or comparable unrated bonds. Such bonds are considered

- 19 -
<PAGE>

predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal and may involve major risk exposure to adverse conditions.

Credit ratings attempt to evaluate the safety of principal and interest payments
and do not evaluate the volatility of the bond's value or its liquidity and do
not guarantee the performance of the issuer. The rating agencies also may fail
to make timely changes in credit ratings in response to subsequent events, so
that an issuer's current financial condition may be better or worse than the
rating indicates. There is a risk that rating agencies will downgrade bonds.

INTEREST RATE AND CREDIT RISKS. Interest rate risk is the risk that interest
rates will rise and bond prices will fall, lowering the value of the Fund's bond
investments. Long-term bonds are generally more sensitive to interest rate
changes than short-term bonds. Adverse changes in economic conditions can affect
an issuer's ability to pay principal and interest.

In addition to these general risks, investments in each of the Funds are subject
to special risk considerations:

CAPITAL APPRECIATION FUND

INVESTMENTS IN MEDIUM-SIZED AND SMALLER COMPANIES. Common stocks of medium-sized
companies may offer potentially higher returns for investors. While most medium-
sized companies in which the Fund will invest are relatively well-established,
they may be more vulnerable than larger companies to adverse business or
economic developments. Such companies are typically less closely followed by
investment experts. In addition, the Capital Appreciation Fund may invest up to
35% of its assets in stocks of companies that are smaller or larger than medium-
sized companies. Smaller companies may have limited product lines, markets or
financial resources, and may be dependent on a relatively small management
group. Securities of such companies may be less liquid and more volatile than
securities of medium-sized or larger companies or the market averages in general
and therefore may involve greater risk than investing in larger companies.

FINANCIAL SERVICES GROWTH FUND

INVESTMENTS IN FINANCIAL SERVICES INDUSTRIES. Because investments made by
Financial Services Growth Fund are concentrated in the financial services
industries, its shares are subject to greater risk than the shares of a fund
whose portfolio is not so concentrated, and it will be particularly affected by
economic, legislative and regulatory developments affecting those industries.

Financial services companies are subject to extensive governmental regulation.
This regulation may limit both the amounts and types of loans and other
financial commitments these companies can make, as well as the interest rates
and fees they can charge. Profitability of these companies is largely dependent
on the availability and cost of capital funds, and can fluctuate significantly
when interest rates change. Credit losses resulting from financial difficulties
of borrowers can negatively impact the industry. Companies in the financial
services industries may be subject to severe price competition. Also, the
industry and the Fund may be significantly impacted if the legislation that is
currently being considered to reduce the separation between commercial and
investment banking businesses is enacted.

UTILITY INCOME FUND

INVESTMENTS IN UTILITY INDUSTRIES. Because investments made by Utility Income
Fund are concentrated in the utility industries, the value of and investment
return on the Fund's shares is affected by economic and regulatory developments
in or related to those industries. Interest rate changes may offset the value of
the Fund's assets. When interest rates decline, prices of utility equity
securities and bonds tend to increase. When interest rates rise, these prices
tend to decrease. The regulation of utility industries is evolving in the United
States and in foreign countries. As a result, certain companies may be forced to
defend their core businesses against outside companies and may become less
profitable. Electric utility companies have historically been subject to the
risks associated with increases in fuel and other operating costs, high interest
costs on borrowing, costs associated with compliance in regard to environmental,
nuclear facility and other safety regulations, and changes in the regulatory
climate. Increasing competition due to past regulatory changes in

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<PAGE>

the telephone communications industry continues and, although certain companies
have benefitted, many companies may be adversely affected in the future.

Gas transmission companies and gas distribution companies continue to undergo
significant changes as well. Water supply utilities are in an industry that is
highly fragmented due to local ownership and generally the companies are more
mature and are experiencing little or no per capita volume growth. There is no
assurance that favorable developments will occur in the utility industries
generally or that business opportunities will continue to undergo significant
changes or growth.

INVESTMENT TECHNIQUES AND STRATEGIES

HEDGING STRATEGIES. Each of the Funds may use certain strategies designed to
adjust the overall risk of its investment portfolio. These "hedging" strategies
involve derivative contracts, including options (on securities, foreign
currencies, futures and stock indexes), futures contracts (on foreign
currencies, stock indexes and interest rates), and forward currency contracts.
In addition, new financial products and risk management techniques continue to
be developed and may be used if consistent with the Funds' investment objective
and policies. The Statement of Additional Information for the Funds contains
further information on these strategies.

The Funds might not use any hedging strategies, and there can be no assurance
that any strategy used will succeed. If a Fund's Investment Adviser or the
Investment Sub-Adviser is incorrect in its judgment on market values, interest
rates or other economic factors in using a hedging 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 fact that the skills needed to use hedging instruments are different from
those needed to select securities for the Funds;
. the possibility of imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the securities or
currencies being hedged;
. possible constraints placed on a 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 hedged
position.

LENDING PORTFOLIO SECURITIES. Each of the Funds may lend its securities to
qualified broker-dealers or institutional investors in an amount up to 10% of
that Fund's total assets taken at market value. The Funds' loans of securities
will be collateralized in an amount at least equal to the current market value
of the loaned securities. Lending securities enables a Fund to earn additional
income, but could result in a loss or delay in recovering these securities.

DEFENSIVE POSITIONS. When the Investment Adviser or the Investment Sub-Adviser
for each Fund believes that unusual circumstances warrant a defensive posture,
each Fund may temporarily commit all or any portion of its assets to cash or
money market instruments, including repurchase agreements. In a typical
repurchase agreement, the Fund buys a security and simultaneously agrees to sell
it back at an agreed-upon price and time, usually no more than seven days after
purchase.

OTHER INFORMATION. Each Fund may invest up to 10% 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 Funds do not
consider securities that are eligible for resale pursuant to Securities and
Exchange Commission ("SEC") Rule 144A to be illiquid securities if the
applicable Board of Trustees or Board of Directors ("Board") has determined such
securities to be liquid based upon the trading markets for the securities.

Each Fund may also purchase bonds on a when-issued basis or may purchase or sell
securities for delayed delivery; a Fund generally would not pay for such
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. Each Fund may borrow money for temporary or emergency purposes, but
not in excess of 10% of its total assets. Each Fund may sell securities short
"against the box" to defer realization of gains or losses for tax or other
purposes. When a security is sold against the box, the seller owns the security.

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<PAGE>

FLEXIBLE PRICING/SM/

The Fund offers three Classes of shares that differ in terms of sales charges
and expenses. An investor can select the class that is best suited to his or her
investment needs, based upon holding period and the amount of investment.

CLASS A SHARES

HOW PRICE IS CALCULATED: The price is the net asset value plus the initial sales
charge (the maximum is 4.5% of the public offering price) next calculated after
PaineWebber's New York City headquarters or the 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 B and Class C shares. Class A shares sales charges are
calculated as follows:

<TABLE>
<CAPTION>
Sales Charge as a Percentage of: Discount to Selected
Dealers as Percentage of
Amount of Investment Offering Price Net Amount Invested Offering Price
- -------------------- -------------- ------------------- ------------------------
<S> <C> <C> <C>

Less than $50,000 4.50% 4.71% 4.25%

$50,000 to $99,999 4.00 4.17 3.75

$100,000 to $249,999 3.50 3.63 3.25

$250,000 to $499,999 2.50 2.56 2.25

$500,000 to $999,999 1.75 1.78 1.50

$1,000,000 and over(1) None None 1.00 (2)
</TABLE>

(1) A contingent deferred sales charge of 1% of the shares' net asset value at
the time of their purchase or their sale, whichever is less, is charged on sales
of shares made within one year of the purchase date. However, Class A shares
representing reinvestment of any dividends or capital gain distributions will
not be subject to the 1% charge. Withdrawals under the Systematic Withdrawal
Plan will not be subject to this charge. However, investors may not withdraw
annually more than 12% of the value of the Fund account under the Plan. This
charge does not apply to Class A shares bought before November 10, 1995 .

(2) Mitchell Hutchins pays 1% to PaineWebber.

SALES CHARGE REDUCTIONS & WAIVERS

Investors who are purchasing Class A shares in more than one PaineWebber fund
may combine those purchases to get a reduced sales charge. Investors who already
own Class A shares already in one or more PaineWebber funds may combine the
amount they are currently purchasing with the value of such previously owned
shares in determining the applicable 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 investor;
. trusts created by the investor;
. Uniform Gift to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of investors for the benefit of the investors, their
spouses, parents or 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 employee, director, trustee or officer of PaineWebber or its
affiliates;

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<PAGE>

. is the spouse, parent or child of any of the above, or advisory clients of
Mitchell Hutchins;
. 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
-- the investor 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; or
. is an employer establishing an employee benefit plan qualified under section
401 or 403(b), and salary reduction plans qualified under section 401(k), of the
Internal Revenue Code ("Code"). (This waiver is subject to minimum requirements,
with respect to number of employees and investment amount, established by
Mitchell Hutchins.) Currently, the plan must have 100 or more eligible employees
or the amount invested or to be invested in the Fund or any other PaineWebber
mutual fund must total at least $1 million during the subsequent 13-month
period.

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.

CLASS B SHARES

HOW PRICE IS CALCULATED: The price is the net asset value next calculated after
PaineWebber's New York City headquarters or the Transfer Agent receives the
purchase order. The ongoing expenses investors pay for Class B shares are higher
than those of Class A shares. Because investors do not pay an initial sales
charge when they buy Class B shares, 100% of their purchase is immediately
invested.

Depending on how long they own their Fund investment, investors may have to pay
a contingent deferred sales charge when they sell their Fund shares. This sales
charge is called a "contingent deferred sales charge." The amount of the charge
depends on how long the investor owned the shares. The sales charge is
calculated by multiplying the net asset value of the shares at the time of sale
or purchase, whichever is less, by the percentage shown on the table below.
Investors who own shares for more than six years do not have to pay a sales
charge when selling those shares.

If the investor sells shares within: Percentage by which
the shares' net asset
value is multiplied:
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None

CONVERSION OF CLASS B SHARES

Class B shares automatically convert to the appropriate number of Class A shares
of equal dollar value after the investor has owned them for six years. Dividends
and other distributions paid to the investor by the Fund in the form of
additional Class B shares will also convert to Class A shares on a pro-rata
basis. This benefits shareholders because Class A shares have lower ongoing
expenses than Class B shares. If the investor has exchanged Class B shares
between PaineWebber funds, the Fund uses the purchase date at which the initial
investment was made to determine the conversion date.

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<PAGE>

MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE

When investors sell Class B shares they have owned for less than six years, the
Fund automatically will minimize the sales charge by assuming the investors
are selling:
. First, Class B shares owned through reinvested dividends and capital gain
distributions; and
. Second, Class B shares held in the portfolio the longest.

WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will not apply to:
. redemptions under the Fund's "Systematic Withdrawal Plan"; however,
investors may not withdraw annually more than 12% of the value of the Fund
account during the first year under the Plan;
. a distribution from a self-employed individual retirement plan ("Keogh
Plan";
. a custodial account under Section 403(b) of the Internal Revenue Code (after
the investor reaches age 59 1/2);
. an IRA distribution or a tax-free return of an excess IRA contribution;
. a tax-qualified retirement plan distribution following retirement; or
. Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death individually or as a joint tenant with
the right of survivorship with his or her spouse.

An investor must provide satisfactory information to PaineWebber or the Fund if
the investor seeks any of these 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. Class C shares never convert to any other class of
shares.

A contingent deferred sales charge of 1% of the net asset value of the shares at
the time of purchase or sale, whichever is less, is charged on sales of shares
made within one year of the purchase date. Class C shares representing
reinvestment of any dividends or capital gain distributions will not be subject
to the 1% charge. Withdrawals under the Systematic Withdrawal Plan also will not
be subject to this charge. However, investors may not withdraw annually more
than 12% of the value of the Fund account during the first year under the Plan.
This charge does not apply to Class C shares bought before November 10, 1995.

HOW TO BUY SHARES

Prices are calculated for the Fund's Class A, Class B and Class C shares once
each Business Day, at the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time). A "Business Day" is any day,
Monday through Friday, on which the New York Stock Exchange is open for
business. Shares are purchased at the next share price calculated after the
purchase order is received.

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.

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. Payment is due on the third business day after PaineWebber's New York
City headquarters office receives the purchase order.

- 24 -
<PAGE>

OTHER INVESTORS

Investors who are not PaineWebber clients may purchase Fund shares and set up an
account through the Transfer Agent by completing an account application. The
application and check must be mailed to PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, DE 19899.

New investors to PaineWebber may complete an account application and mail it
along with a check. Investors may also 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

To open an account: $1,000
To add to an account: $ 100

The Fund may waive or reduce these minimums for:

. employees of PaineWebber or its affiliates; or
. participants in certain pension plans, retirement accounts or the Fund's
automatic investment plan.

HOW TO EXCHANGE SHARES

As shareholders, investors have the privilege of exchanging Fund shares for the
same class of other PaineWebber fund shares. In classes of shares 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 correspondent firms may exchange their shares by
writing a "letter of instruction" to PFPC Inc., the Fund's transfer agent. The
letter of instruction must include:
. 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 by an eligible
institution, such as a commercial bank, trust company or stock exchange
member.

The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, DE 19899.

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 are
authorized. This exchange privilege may be modified or terminated at any time
and, when required by SEC rules, upon 60-day notice. See the back cover of this
prospectus for a listing of other PaineWebber funds.

- 25 -
<PAGE>

HOW TO SELL SHARES

Investors can arrange to sell (redeem) shares at any time. Shares will be sold
at the share price for that class as next calculated after the order is received
and accepted. Share prices are normally calculated at the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time).

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, and last, Class B.

If a shareholder wants to sell shares which 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
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Fund's transfer agent, may sell shares by writing a
"letter of instruction," 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 Fund shares in any shareholder
account with a net asset value of less than $500. If the Fund elects to do so,
it will notify the shareholder of the opportunity to increase the amount
invested to $500 or more within 60 days of the notice. The Fund will not
purchase back accounts that fall below $500 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.

OTHER SERVICES

Investors should consult their investment executive at PaineWebber or one of its
correspondent firms to learn more about the following services:

AUTOMATIC INVESTMENT PLAN

Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan Service through which, for as
little as $50 a month, the Fund will deduct money 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) or semiannual (June and December)
withdrawals from their PaineWebber Mutual Fund account. Minimum balances and
withdrawals vary according to the class of shares:

. CLASS A AND CLASS C SHARES. Minimum value of Fund shares is $5,000; minimum
withdrawals of $100.
. CLASS B SHARES. Minimum value of Fund shares is $20,000; minimum monthly,
quarterly and semiannual withdrawals of $200, $400 and $600, respectively.

Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. Investors may not withdraw annually more than
12% of the value of the Fund account when the investor signed up for the Plan.
Shareholders who elect to receive dividends or other distributions in cash may
not participate in the Plan.

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<PAGE>

INDIVIDUAL RETIREMENT ACCOUNTS

A Self-Directed IRA is available through PaineWebber in which purchases of
PaineWebber 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 shareholders holding shares of a 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.

MANAGEMENT

CAPITAL APPRECIATION FUND

The Fund is governed by a Board of Trustees, which oversees the Fund's
operations. It has appointed Mitchell Hutchins as Investment Adviser and
administrator responsible for the Fund's operations (subject to the authority of
the Board of Trustees). Mitchell Hutchins has appointed the Investment Sub-
Adviser, Denver Investment Advisors, LLC, to be responsible for day-to-day
management of the Fund's investments.

In managing assets for its clients, Denver Investments strives to implement a
"team approach" rather than rely on one or two key individuals. Todger Anderson,
President and a Director of Portfolio Management of Denver Investments, is
responsible for the day-to-day management of the Fund's portfolio. He has
managed the Fund since its inception and has concentrated on medium
capitalization investing since 1975. Prior to joining Denver Investments, Mr.
Anderson had portfolio management responsibilities with Financial Programs and
at the United Bank of Denver. Directly assisting are Mr. Anderson and the Denver
Investments Equity Research Team. Mr. Luchini joined Denver Investments in 1978
as vice president and portfolio manager. Prior to joining Denver Investments,
Mr. Luchini served as vice president and portfolio manager at the National City
Bank of Cleveland from 1968 to 1978.

FINANCIAL SERVICES GROWTH FUND

The Fund is governed by a Board of Directors, which oversees the Fund's
operations. It has appointed Mitchell Hutchins as Investment Adviser and
administrator responsible for the Fund's operations (subject to the authority of
the Board of Directors). Karen L. Finkel is primarily responsible for the day-
to-day portfolio management of the Fund. Mrs. Finkel is a vice president of the
Fund and a first vice president of Mitchell Hutchins. She has held her Fund
responsibilities since January 1988 and has been employed by Mitchell Hutchins
as a portfolio manager for the last eight years.

UTILITY INCOME FUND

The Fund is governed by a Board of Trustees, which oversees the Fund's
operations. It has appointed Mitchell Hutchins as Investment Adviser and
administrator responsible for the Fund's operations (subject to the authority of
the Board of Trustees). Karen L. Finkel is primarily responsible for the day-to-
day management of the Fund's stock portfolio and determines the allocation of
Fund assets between stocks and bonds. Mary B. King is primarily responsible for
day-to-day management of the Fund's bond portfolio. Mrs. Finkel has been a
portfolio manager of the Fund since February 1995 and is a first vice president
of Mitchell Hutchins. She has been employed by Mitchell Hutchins as a portfolio
manager for the last eight years. Ms. King is a vice president of the Trust and
a first vice president of Mitchell Hutchins. She has been employed by Mitchell
Hutchins since 1985.

Each Board has determined that brokerage transactions for its respective Fund
may be conducted through PaineWebber or its affiliates. This will be the case
if, in the respective judgment of Mitchell Hutchins or the Investment Sub-
Adviser, as applicable, PaineWebber charges each Fund fair and reasonable rates,
and if it will likely result in a price and execution at least as favorable to
each Fund as would be obtainable through other qualified broker-dealers.

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<PAGE>

ABOUT THE INVESTMENT ADVISER

Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is the asset management subsidiary of PaineWebber Incorporated, which is
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. On December 31, 1995, Mitchell Hutchins was adviser or sub-
adviser of 34 investment companies with 69 separate portfolios and aggregate
assets of approximately $29.1 billion.

ABOUT THE INVESTMENT SUB-ADVISER

The Investment Sub-Adviser, Denver Investment Advisors, LLC, is located at 1225
17th Street, 26th Floor, P.O. Box 17487, Denver, Colorado 80217. Denver
Investments has managed client accounts investing primarily in stocks of medium-
sized companies since 1958 and has been managing the Fund since its inception in
April 1992. As of December 31, 1995, they managed approximately $9.5 billion of
assets of various clients.

MANAGEMENT FEES & OTHER EXPENSES

Each of the Funds pays Mitchell Hutchins a monthly fee for its services. For the
fiscal year ended March 31, 1995 and November 30, 1995 respectively. Financial
Services Growth Fund and Utility Income Fund each paid advisory fees to Mitchell
Hutchins at the effective annual rate of 0.70% of their average daily net
assets. For the fiscal year ended March 31, 1995, Capital Appreciation Fund paid
advisory fees to Mitchell Hutchins at an effective annual rate of 1.00% of its
average daily net assets. Annually, the Trustees review each of the Fund's
contracts with Mitchell Hutchins.

With respect to Capital Appreciation Fund, Mitchell Hutchins (not the Fund) pays
Denver Investments a fee for sub- investment advisory services in an amount
equal to 50% of the fee it receives from the Fund for advisory and
administrative services.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins is the distributor of each of the Fund's shares and has
appointed PaineWebber as the exclusive dealer for the sale of those shares.
Under distribution plans for Class A, Class B and Class C shares ("Class A
Plan," "Class B Plan" and "Class C Plan," collectively, "Plans"), each 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 B and Class C shares.

Under all three Plans, Mitchell Hutchins primarily uses the service fees to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of
the aggregate investment amounts maintained in each 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 B and Class C Plans
to:
. Offset the commissions it pays to PaineWebber for selling each Fund's Class
B and Class C shares, respectively.
. Offset each 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 B and Class C shares
are sold, as well as on an ongoing basis. Mitchell Hutchins receives no special
compensation from any of the Funds or investors at the time of sale of Class B
or C shares.

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 each class of shares
("Distribution Contracts") specify that each Fund must pay service and
distribution fees to Mitchell Hutchins for its activities, not as reimbursement
for specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses
exceed the service or distribution fees it receives, the Funds 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

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<PAGE>

through the termination date of any Plan will be Mitchell Hutchins' sole
responsibility and not that of the Funds. Annually, the Board of Trustees or
Board of Directors of each Fund reviews the Plans and Mitchell Hutchins'
corresponding expenses for each class separately from the Plans.

DETERMINING THE SHARES' NET ASSET VALUE

The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) each Business Day. Each
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.

Each Fund values its assets based on their current market value when market
quotations are readily available. If that value is not readily available, assets
are valued at fair value as determined in good faith by or under the direction
of its Board of Trustees or Board of Directors. The amortized cost method of
valuation generally is used to value debt obligations with 60 days or less
remaining to maturity, unless its Board determines that this does not represent
fair value. Investments denominated in foreign currencies are valued daily in
U.S. dollars based on the then-prevailing exchange rates.

DIVIDENDS AND TAXES

DIVIDENDS

Capital Appreciation Fund and Financial Services Growth Fund each pay an annual
dividend from its net investment income and a net short-term capital gain, if
any. Utility Income Fund pays monthly dividends from its net investment income.
Each Fund distributes any net realized gain from foreign currency transactions
with its respective dividend. Each 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 Funds may make additional distributions,
if necessary, to avoid a 4% excise tax on certain undistributed income and
capital gain.

Dividends and other distributions paid on each class of shares of each Fund are
calculated at the same time and in the same manner. Dividends on Class B and
Class C shares of the Funds are expected to be lower than those for their Class
A shares because Class B and Class C shares have higher expenses resulting from
their distribution fees. Dividends on each class might be affected differently
by the allocation of other class-specific expenses. See "General Information."

The Funds' dividends and capital gain 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/or
capital gain distributions in cash, either mailed to the shareholder by check or
credited to the shareholder's PaineWebber account, should contact their
investment executive at PaineWebber or one of its correspondent firms or
complete the appropriate section of the account application.

TAXES

Each of the Funds intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will not have to
pay Federal income tax on the part of its investment company taxable income.
This income generally consists of net investment income, net short-term capital
gain and net gains from certain foreign currency transactions, and the net
capital gain that it distributes to its shareholders.

Dividends from each Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to shareholders as ordinary
income. Distributions of each Fund's net capital gain (whether paid in cash or
additional shares) are taxable to shareholders as a long-term capital gain,
regardless of how long they 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.

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<PAGE>

YEAR-END TAX REPORTING

Following the end of each calendar year, each Fund notifies its shareholders of
the dividends and capital gain distributions paid (or deemed paid), their share
of any foreign taxes paid by the Fund that year and any portion of those
dividends that qualify for special treatment.

WITHHOLDING REQUIREMENTS

Each 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 from dividends and capital gain distributions
at that rate is also required for shareholders who otherwise are subject to
backup withholding.

TAXES ON THE SALE OR EXCHANGE OF FUND SHARES

When shareholders sell (redeem) shares, it may result in a taxable gain or loss.
This depends upon whether the shareholders receive more or less than their
adjusted basis for the shares (which normally reflects any initial sales charge
paid on Class A shares). An exchange of any Fund's shares for shares of another
PaineWebber fund generally will have similar tax consequences. In addition, if a
Fund's shares are bought within 30 days before or after selling other shares of
the Fund (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 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, in the case of a
loss, decreased by the amount of the sales charge paid when those shares were
bought, and that amount will increase the basis of the PaineWebber fund shares
subsequently acquired.

GENERAL INFORMATION

ORGANIZATION

CAPITAL APPRECIATION FUND

PaineWebber Capital Appreciation Fund is a diversified series of PaineWebber
Managed Assets Trust, which is an open-end management investment company formed
on August 9, 1991, as a business trust under the laws of the Commonwealth of
Massachusetts. The Declaration of Trust authorizes the Trustees to create
separate series and, within each series, separate Classes of an unlimited number
of shares of beneficial interest of separate series, with a par value of $0.001
per share. As of the date of this Prospectus, the Trustees have established no
series other than the Fund.

FINANCIAL SERVICES GROWTH FUND

PaineWebber Financial Services Growth Fund is a diversified, open-end management
investment company that was incorporated in Maryland on February 13, 1986. The
Fund has authority to issue 300 million shares of common stock of separate
series, par value $0.001 per share.

UTILITY INCOME FUND

PaineWebber Utility Income Fund is a diversified series of PaineWebber Managed
Investments Trust, which is an open-end management investment company formed on
November 21, 1986, as a business trust under the laws of the Commonwealth of
Massachusetts. The Trustees have authority to issue an unlimited number of
shares of beneficial interest of separate series, with a par value of $0.001 per
share. As of the date of this Prospectus, shares of four other series have been
authorized.

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<PAGE>

The shares of the Funds are divided into three classes, designated Class A,
Class B and Class C shares. Each class represents an identical interest in the
respective Fund's investment portfolio and has the same rights, privileges and
preferences. However, each class may differ with respect to sales charges, if
any, distribution and/or service fees, if any, the expenses allocable
exclusively to each class, voting rights on matters exclusively affecting that
class, and its exchange privilege. The Trustees/Directors do not anticipate any
conflicts among the interests of the holders of the different classes. The
different sales charges and other expenses applicable to the different classes
of shares of the Funds will affect the performance of those classes.

Each share of the respective Funds is entitled to participate equally in
dividends, other distributions and the proceeds of any liquidation of that Fund.
However, due to the differing expenses of the classes, dividends on Class B and
Class C shares are likely to be lower than for Class A shares.

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 any Fund may
elect all of the Trustees/Directors of that Fund. Generally, shares of the Funds
will be voted on a Trust-wide basis (if applicable) on all matters except those
affecting only the interests of one series, such as advisory contracts. In turn,
shares of the Fund will be voted on a Fund-wide basis on all matters except
those affecting only the interests of one class, such as the terms of a Plan as
it relates to a class.

SHAREHOLDER MEETINGS

The Funds do not intend to hold annual meetings.

Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust or Fund (as applicable) may remove a Trustee/Director 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
Trustee/Director at the written request of holders of 10% of the Trust's/Fund's
outstanding shares.

REPORTS TO SHAREHOLDERS

Each Fund sends Fund shareholders audited annual and unaudited semi-annual
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 herein incorporated by reference, is available
to shareholders upon request.

CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND AGENT

State Street Bank and Trust Company, located at One Monarch Drive, North Quincy,
Massachusetts 02171, serves as the Funds' custodian and recordkeeping agent and
employs foreign sub-custodians to provide custody of its foreign assets. PFPC
Inc., a subsidiary of PNC Bank, N.A., serves as the Funds' transfer and dividend
disbursing agent. It is located at 400 Bellevue Parkway, Wilmington, DE 19809.

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<PAGE>

PAINEWEBBER FAMILY OF FUNDS

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.

________________________________________________________________________________

The PaineWebber Family of Funds consists of six broad categories, which are
presented here. Generally, investors seeking to maximize return must assume
greater risk. Capital Appreciation Fund, Financial Services Growth Fund and
Utility Income Fund are all in the GROWTH category.

. Money Market Funds for income and stability by investing in high-quality,
short-term investments.
. Bond Funds for income by investing mainly in bonds.
. Tax-Free Bond Funds for income exempt from federal income taxes and, in
some cases, state and local income taxes, by investing in municipal bonds.
. Asset Allocation Funds for long-term growth and income by investing in
stocks and bonds.
. Stock Funds for long-term growth by investing mainly in stocks.
. Global Funds for long-term growth by investing mainly in foreign stocks or
high current income by investing mainly in global debt instruments.
________________________________________________________________________________

PAINEWEBBER MONEY MARKET FUND

PAINEWEBBER BOND FUNDS
High Income Fund
Investment Grade Income Fund
Low Duration U.S. Government Income Fund
Strategic Income Fund
U.S. Government Income Fund

PAINEWEBBER TAX-FREE BOND FUNDS
California Tax-Free Income Fund
Municipal High Income Fund
National Tax-Free Income Fund
New York Tax-Free Income Fund

PAINEWEBBER ASSET ALLOCATION FUNDS
Balanced Fund
Tactical Allocation Fund

PAINEWEBBER GROWTH FUNDS
Capital Appreciation Fund
Growth Fund
Growth and Income Fund
Financial Services Growth Fund
Small Cap Growth Fund
Small Cap Value Fund
Utility Income Fund

PAINEWEBBER GLOBAL FUNDS
Emerging Markets Equity Fund
Global Equity Fund
Global Income Fund

No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their distributor. This Prospectus does not constitute an offering by the
Funds or their distributor in any jurisdiction in which such offering may not
lawfully be made.

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<PAGE>

PAINEWEBBER CAPITAL APPRECIATION FUND

PAINEWEBBER FINANCIAL SERVICES GROWTH FUND

PAINEWEBBER UTILITY INCOME FUND

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

The three funds named above (each a "Fund" and, collectively, the "Funds")
are open-end management investment companies. PaineWebber Capital Appreciation
Fund ("Capital Appreciation Fund") is a diversified series of PaineWebber
Managed Assets Trust, a professionally managed, open-end management investment
company organized as a Massachusetts business trust. The Capital Appreciation
Fund seeks long-term capital appreciation; it invests primarily in common stocks
of medium-sized companies. PaineWebber Financial Services Growth Fund Inc.
("Financial Services Growth Fund") is a diversified, professionally managed
mutual fund incorporated in Maryland. The Financial Services Growth Fund seeks
long-term capital appreciation with investments primarily in stocks of financial
services companies. PaineWebber Utility Income Fund ("Utility Income Fund") is
a diversified series of PaineWebber Managed Investments Trust, a professionally
managed open-end investment company organized as a Massachusetts business trust.
The Utility Income Fund seeks to provide current income and capital appreciation
and invests primarily in income-producing equity and debt securities of domestic
and foreign companies in the utility industries.

The investment adviser, administrator and distributor for each of the Funds
is Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"). As distributor for the
Funds, Mitchell Hutchins has appointed PaineWebber to serve as the exclusive
dealer for the sale of Fund shares. Denver Investment Advisors, LLC ("Sub-
Adviser") serves as investment sub-adviser for the Capital Appreciation Fund.

This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Funds' current Prospectus, dated February __,
1996. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm or by calling toll-free 1-800-647-
1568. This Statement of Additional Information is dated February __, 1996.

INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.

YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's ("S&P") and other nationally recognized statistical rating
organizations ("NRSROs") are private services that provide ratings of the credit
quality of debt obligations. A description of the ratings assigned to corporate
debt obligations by Moody's and S&P is included in the Appendix to this
Statement of Additional Information. The Funds may use
<PAGE>

these ratings in determining whether to purchase, sell or hold a security. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, securities with the same maturity, interest
rate and rating may have different market prices.

Utility Income Fund is authorized to invest up to 5% of it total assets in non-
investment grade debt securities--that is, debt securities that are not rated at
the time of purchase within one of the four highest grades assigned by S&P or
Moody's,comparably rated by another NRSRO or determined by Mitchell Hutchins to
be of comparable quality. Lower rated debt securities generally offer a higher
current yield than that available for investment grade issues; however, they
involve higher risks in that they are especially subject to adverse changes in
general economic conditions and in the industries in which the issuers are
engaged, to changes in the financial condition of the issuers and to price
fluctuations in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of interest and principal and increase the possibility of default. In
addition, such issuers may not have more traditional methods of financing
available to them and may be unable to repay debt at maturity by refinancing.
The risk of loss due to default by such issuers is significantly greater because
such securities frequently are unsecured and subordinated to the prior payment
of senior indebtedness.

The market for lower rated debt securities has expanded rapidly in recent years,
and its growth paralleled a long economic expansion. In the past, the prices of
many lower rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur. The market for lower-rated debt
issues generally is thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rate securities,
especially in a thinly traded market.

RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. To the extent that the Funds
invest in U.S. dollar-denominated securities of foreign issuers, these
securities may not be registered with the Securities and Exchange Commission
("SEC"), nor may the issuers thereof be subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by the Funds than is available concerning U.S.
companies. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory requirements
comparable to those applicable to U.S. companies.

The Funds may invest in foreign securities by purchasing American Depository
Receipts ("ADRs"). The Financial Services Growth Fund and Utility Income Fund
also may purchase securities of foreign issuers in foreign markets and purchase
European Depository Receipts ("EDRs") or other securities convertible into
securities of issuers based in foreign countries. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. Generally, ADRs, in registered form, are denominated in
U.S. dollars and are designed for use in the U.S. securities markets, while
EDRs, in bearer form, may be denominated in other currencies and are designed
for use in European securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs are European receipts evidencing a similar arrangement. For purposes of
each Fund's investment policies, ADRs and EDRs are deemed to have the same
classification as the underlying securities they represent. Thus, an ADR or EDR
representing ownership of common stock will be treated as common stock.

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<PAGE>

The Financial Services Growth Fund and Utility Income Fund anticipate that their
brokerage transactions involving foreign securities of companies headquartered
in countries other than the United States will be conducted primarily on the
principal exchanges of such countries. Foreign security trading practices,
including those involving securities settlement where assets of the Financial
Services Growth Fund and Utility Income Fund may be released prior to receipt of
payment, may expose them to increased risk in the event of a failed trade or the
insolvency of a foreign broker-dealer. Transactions on foreign exchanges are
usually subject to fixed commissions that are generally higher than negotiated
commissions on U.S. transactions, although the Financial Services Growth Fund
and Utility Income Fund will endeavor to achieve the best net results in
effecting its portfolio transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries than in
the United States.

The values of foreign investments are affected by changes in currency rates
or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than those charged in the United States, and foreign securities
markets may be less liquid, more volatile and subject to less governmental
supervision than in the United States. Investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards and potential difficulties in enforcing contractual obligations, and
could be subject to extended clearance and settlement periods.

Investment income on certain foreign securities in which Financial Services
Growth Fund and Utility Income Fund may invest may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which the Funds would be subject.

FOREIGN CURRENCY TRANSACTIONS (applicable only to Financial Services Growth
Fund and Utility Income Fund). Although the Funds value their assets daily in
U.S. dollars, they do not intend to convert their holdings of foreign currencies
to U.S. dollars on a daily basis. The Funds' foreign currencies generally will
be held as "foreign currency call accounts" at foreign branches of foreign or
domestic banks. These accounts bear interest at negotiated rates and are payable
upon relatively short demand periods. If a bank became insolvent, the Funds
could suffer a loss of some or all of the amounts deposited. The Funds may
convert foreign currency to U.S. dollars from time to time. Although foreign
exchange dealers generally do not charge a stated commission or fee for
conversion, the prices posted generally include a "spread," which is the
difference between the prices at which the dealers are buying and selling
foreign currencies.

The value of foreign securities may change significantly when the currencies,
other than the U.S. dollar, in which the portfolio investments are denominated
strengthen or weaken against the U.S. dollar. Currency exchange rates generally
are determined by the forces of supply and demand in the foreign exchange
markets and the relative merits of investments in different countries as seen
from an international perspective. Currency exchange rates can also be affected
unpredictably by: the intervention of the U.S. Government, foreign governments
or central banks, the imposition of currency controls or other political
developments in the United States or abroad.

ILLIQUID SECURITIES. Each of the Funds may invest up to 10% of its net assets
in illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities. The term "illiquid securities" excludes securities that are eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 ("1933 Act")
that have been determined to be liquid by each Fund's board of trustees or board
of directors based upon the trading markets for the securities.

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<PAGE>

Illiquid securities include, among other things, purchased over-the-counter
("OTC") options, repurchase agreements maturing in more than seven days and
restricted securities other than those Mitchell Hutchins or the Investment Sub-
Adviser, as applicable, has determined are liquid pursuant to guidelines
established by each Fund's board of trustees or board of directors. The assets
used as cover for OTC options written by the Funds will be considered illiquid
unless the OTC options are sold to qualified dealers who agree that the Funds
may repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.

Illiquid restricted securities may be sold only in privately negotiated
transactions or in public offerings with respect to which a registration
statement is in effect under the 1933 Act . However, to the extent that
securities are freely tradeable in the country in which they are principally
traded, they are not considered illiquid securities for purposes of the 10% net
asset limitation, even if they are not freely tradeable in the United States.
Where registration is required, the Funds 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 the Funds 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.

Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.

Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the Funds, however, could affect adversely the marketability of such portfolio
securities and the Funds might be unable to dispose of such securities promptly
or at favorable prices.

Each of the Funds' board of trustees or board or directors has delegated the
function of making day-to-day determinations of liquidity to Mitchell Hutchins,
pursuant to guidelines approved by the board. Mitchell Hutchins or the Sub-
Adviser, as applicable, takes into account a number of factors in reaching
liquidity decisions, including (1) the frequency of trades for the security, (2)
the number of dealers that make quotes for the security, (3) the number of
dealers that have undertaken to make a market in the security, (4) the number of
other potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins or the Sub-Adviser, as
applicable, monitors the liquidity of restricted securities in each Fund's
portfolio and reports periodically on such decisions to the boards.

CONVERTIBLE SECURITIES. A convertible security entitles the holder to receive
interest paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to non-
convertible debt securities in that they ordinarily provide a stable stream of
income with generally higher yields than those of

- 4 -
<PAGE>

common stocks of the same or similar issuers. Convertible securities rank senior
to common stock in a corporations' capital structure but are usually
subordinated to comparable non-convertible securities.

Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases. The value of a convertible security is a
function of its "investment value" (determined by its yield comparison with the
yields of other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors also may have
an effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment
value, and generally the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.

A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Funds is called for
redemption, the Funds will be required to permit the issuer to redeem the
security, convert it into underlying common stock or sell it to a third party.

Lower rated convertible securities generally offer a higher current yield
than that available from higher grade issues, but they involve higher risks, in
that they are especially subject to adverse changes in general economic
conditions and in the industries in which the issuers are engaged, to changes in
the financial condition of the issuers and to price fluctuation in response to
changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress, which
could adversely affect their ability to make payments of principal and interest
(or, in the case of convertible preferred stock, dividends) and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them, and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a Fund
purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. The Funds maintain custody
of the underlying securities prior to their repurchase; thus, the obligation of
the bank or dealer to pay the repurchase price on the date agreed to is, in
effect, secured by such securities. If the value of these securities is less
than the repurchase price, plus any agreed-upon additional amount, the other
party to the agreement must provide additional collateral so that at all times
the collateral is at least equal to the repurchase price, plus any agreed-upon
additional amount. The difference between the total amount to be received upon
repurchase of the securities and the price that was paid by a Fund upon
acquisition is accrued as interest and included in its net investment income.
Repurchase agreements carry certain risks not associated with direct investments
in securities, including possible declines in the market value of the underlying
securities and delays and costs to the Funds if the other party to a repurchase
agreement becomes insolvent.

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<PAGE>

The Funds intend to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins or the Sub-Adviser to
present minimal credit risks in accordance with guidelines established by each
Fund's board of trustees or board of directors. Mitchell Hutchins or the Sub-
Adviser reviews and monitors the creditworthiness of those institutions under
each board's general supervision. Although the amount of a Fund's assets that
may be invested in repurchase agreements terminable in less than seven days is
not limited, repurchase agreements maturing in more than seven days, together
with other illiquid securities, may not exceed 10% of a Fund's net assets.

REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of the Fund's total assets. Such agreements involve the sale of
securities held by a Fund subject to that Fund's agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary purposes. While a reverse repurchase agreement is
outstanding, the Fund's custodian segregates assets, marked to market daily, in
an amount at least equal to the Fund's obligations under the reverse repurchase
agreement.

LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend portfolio
securities up to 10% of its total assets taken at market value to broker-dealers
or institutional investors that Mitchell Hutchins or the Sub-Adviser deems
qualified, but only when the borrower maintains with that Fund's custodian bank
collateral either in cash or money market instruments in an amount, marked to
market daily, at least equal to the market value of the securities loaned, plus
accrued interest and dividends. In determining whether to lend securities to a
particular broker-dealer or institutional investor, Mitchell Hutchins or the
Sub-Adviser, as applicable, 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 loans at any time. Each Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or money market instruments held as collateral to the
borrower or placing broker. Each Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. Each Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the Fund's
interest.

SHORT SALES "AGAINST THE BOX". The Funds may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box") to defer realization of gains or losses for tax or other purposes. To make
delivery to the purchaser in a short sale, the executing broker borrows the
securities being sold short on behalf of a Fund, and that Fund is obligated to
replace the securities borrowed at a date in the future. When a Fund sells
short, it will establish a margin account with the broker effecting the short
sale, and will deposit collateral with the broker. In addition, that Fund will
maintain with its custodian, in a segregated account, the securities that could
be used to cover the short sale. Each Fund will incur transaction costs,
including interest expense, in connection with opening, maintaining and closing
short sales against the box. The Funds do not have obligations under short-sales
that exceed 5% of a Fund's net assets.

The Funds might make a short sale "against the box" in order to hedge against
market risks when Mitchell Hutchins or the Sub-Adviser believes that the price
of a security may decline, thereby causing a decline in the value of a security
owned by a Fund or a security convertible into or exchangeable for a security
owned by a Fund, or when Mitchell Hutchins or the Sub-Adviser wants to sell a
security that a Fund owns at a current price, but also wishes to defer
recognition of gain or loss for federal income tax purposes. In such case, any
loss in a Fund's long position after the short sale should be reduced by a gain
in the short position. Conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which gains or losses in
the long position are reduced will depend upon the amount of the securities sold
short relative to the

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<PAGE>

amount of the securities a Fund owns, either directly or indirectly, and in the
case where a Fund owns convertible securities, changes in the investment values
or conversion premiums of such securities.

SEGREGATED ACCOUNTS. When the Funds enter into certain transactions to make
future payments to third parties, they will maintain with an approved custodian
in a segregated account cash, Government Securities or other liquid high-grade
debt securities, marked to market daily, in an amount at least equal to each
Fund's obligation or commitment under such transactions. As described below
under "Hedging Strategies," segregated accounts may also be required in
connection with certain transactions involving options, futures contracts and
foreign currency contracts.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, each Fund may purchase securities on a when-
issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. Each Fund enters into when-issued or delayed-
delivery transactions for the purpose of acquiring securities and not for the
purpose of leverage. When-issued securities purchased by a Fund may include
securities purchased on a "when, as and if issued" basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. Each
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments. The Funds do not enter into when-
issued or delayed-delivery transactions in excess of 5% of a Fund's net assets.

INVESTMENT IN OTHER INVESTMENT COMPANIES. Financial Services Growth Fund may
invest up to 10% of its total assets in the securities of other investment
companies. To the extent that Financial Services Growth Fund invests in other
investment companies, the Fund's shareholders incur duplicative fees and
expenses, including investment advisory fees.

SPECIAL CONSIDERATIONS CONCERNING PAINEWEBBER FINANCIAL SERVICES GROWTH FUND--
BANKING AND THRIFT INDUSTRIES. Because the Fund's investments are concentrated
in the banking and thrift industries, its shares are subject to greater risk
than the shares of a fund whose portfolio is not so concentrated and, in
particular, will be affected by economic, legislative and regulatory
developments impacting these industries. Commercial banks, thrifts and their
holding companies are especially subject to the adverse effects of volatile
interest rates, portfolio concentrations in loans to particular businesses such
as energy or real estate and competition from new entrants in their fields of
business. Economic conditions in the real estate market can have a significant
effect upon banks and thrifts that have a substantial percentage of their assets
invested in loans secured by real estate. Commercial banks and thrifts and
their holding companies are subject to extensive federal regulation and, in some
cases, to state regulation as well. However, neither federal insurance of
deposits nor governmental regulation of the bank and thrift industries ensures
the solvency or profitability of commercial banks or thrifts or their holding
companies, or insures against the risks of investing in the equity securities
issued by these institutions.

Legislation has been enacted which has altered the regulatory structure and
capital requirements of the banking and thrift industries. This legislation was
enacted as a response to financial problems experienced by a number of banks and
thrifts relating to inadequate capital, adverse economic conditions and alleged
fraud and mismanagement. This legislation also strengthened the civil sanctions
and criminal penalties for defrauding or otherwise damaging depository
institutions and their depositors and curtailed the authority of thrifts to
engage in real estate investment and certain other activities. In addition, the
legislation has given federal regulators substantial authority to use all of the
assets of a bank or thrift holding company to satisfy federal claims against an
insolvent thrift or bank owned by the holding company and mandated regulatory
action against institutions with inadequate capital levels. Legislative and
regulatory actions have also increased the capital requirements

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<PAGE>

applicable to commercial banks and thrifts. These changes have expended the
risk to holding company shareholders in the event of the insolvency of any
depository institution owned by the holding company.

There are currently pending legislative proposals that could expose bank
holding companies to well-established competitors, such a securities firms and
insurance companies, as well as companies engaged in other areas of business.
Increased competition may also result from the broadening of interstate banking
powers, which rend has already led to a reduction in the number of publicly
traded regional banks. Additionally, changes in the extent to which the FDIC
will insure deposits may result in a higher cost of funds for banks and thrifts
and the loss of deposits to competitors that are viewed as better capitalized.

SPECIAL CONSIDERATIONS CONCERNING PAINEWEBBER UTILITY INCOME FUND -- UTILITY
INDUSTRIES. Utility companies in the United States and in foreign countries are
generally subject to regulation. In the United States, most utility companies
are regulated by state and/or federal authorities. Such regulation is intended
to ensure appropriate standards of service and adequate capacity to meet public
demand. Prices are also regulated, with the intention of protecting the public
while ensuring that the rate of return earned by utility companies is sufficient
to allow them to attract capital in order to grow and continue to provide
appropriate services. There can be no assurance that such pricing policies or
rates of return will continue in the future.

The nature of regulation of utility industries is evolving both in the United
States and in foreign countries. Changes in regulation in the United States
increasingly allow utility companies to provide services and products outside
their traditional geographic areas and lines of business, creating new areas of
competition within the industries. Although certain companies may develop more
profitable opportunities, others may be forced to defend their core businesses
and may be less profitable.

The regulation of foreign utility companies may or may not be comparable to
that in the United States. Foreign regulatory systems vary from country to
country, and may evolve in ways different from regulation in the United States.

Utility Income Fund's investment policies are designed to enable it to
capitalize on evolving investment opportunities throughout the world. For
example, the rapid growth of certain foreign economies will necessitate
expansion of capacity in the utility industries in those countries. Although
many foreign utility companies currently are government-owned, thereby limiting
current investment opportunities for the Fund, Mitchell Hutchins believes that,
in order to attract significant capital for growth, foreign governments may seek
global investors through the privatization of their utility industries.
Privatization, which refers to the trend toward investor ownership of assets
rather than government ownership, is expected to occur in newer, faster-growing
economies and also in more mature economies. In addition, the economic
unification of European markets may improve economic growth, reduce costs and
increase competition in Europe, which will result in opportunities for
investment by the Fund in European utility industries. Of course, there is no
assurance that such favorable developments will occur or that investment
opportunities in foreign markets for the Fund will increase.

The revenues of domestic and foreign utility companies generally reflect the
economic growth and developments in the geographic areas in which they do
business. Mitchell Hutchins takes into account anticipated economic growth
rates and other economic developments when selecting securities of utility
companies. Further descriptions of specific segments within the global utility
industries are set forth below.

Electric. The electric utility industry consists of companies that are engaged
principally in the generation, transmission and sale of electric energy,
although many also provide other energy-related services. Domestic electric
utility companies in general recently have been favorably affected by lower fuel
and financing costs and the full or near completion of major construction
programs. In addition, many of these companies recently have generated cash
flows in excess of current operating expenses and construction expenditures,
permitting some degree of diversification into unregulated businesses. Some
electric utilities have also taken advantage of the

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<PAGE>

right to sell power outside of their traditional geographic areas. Electric
utility companies have historically been subject to the risks associated with
increases in fuel and other operating costs, high interest costs on borrowings
needed for capital construction programs, costs associated with compliance with
environmental, nuclear facility and other safety regulations and changes in the
regulatory climate. For example, in the United States, the construction and
operation of nuclear power facilities is subject to increased scrutiny by, and
evolving regulations of, the Nuclear Regulatory Commission. Increased scrutiny
might result in higher operating costs and higher capital expenditures, with the
risk that regulators may disallow inclusion of these costs in rate
authorizations.

Telecommunications. The telephone communications industry is a distinct
utility industry segment that is subject to different risks and opportunities.
Companies that provide telephone services and access to the telephone networks
comprise the largest portion of this segment. The telephone industry is large
and highly concentrated. Telephone companies in the United States are still
experiencing the effects of the break-up of American Telephone & Telegraph
Company, which occurred in 1984. Since that date the number of local and long-
distance companies and the competition among such companies has increased. In
addition, since 1984, companies engaged in telephone communication services have
expanded their nonregulated activities into other businesses, including cellular
telephone services, data processing, equipment retailing and software services.
This expansion has provided significant opportunities for certain telephone
companies to increase their earnings and dividends at faster rates than have
been allowed in traditional regulated businesses. Increasing competition and
other structural changes, however, could adversely affect the profitability of
such utilities.

Gas. Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the United States, interstate transmission
companies are regulated by the Federal Energy Regulatory Commission, which is
reducing its regulation of the industry. Many companies have diversified into
oil and gas exploration and development, making returns more sensitive to energy
prices. In the recent decade, gas utility companies have been adversely
affected by disruption in the oil industry and have also been affected by
increased concentration and competition.

Water. Water supply utilities are companies that collect, purify, distribute
and sell water. In the United States and around the world, the industry is
highly fragmented, because most of the supplies are owned by local authorities.
Companies in this industry are generally mature and are experiencing little or
no per capita volume growth. Mitchell Hutchins believes that favorable
investment opportunities may result from consolidation within this industry.

There can be no assurance that the positive developments noted above, including
those relating to business growth and changing regulation, will occur or that
risk factors other than those noted above will not develop in the future.

INVESTMENT LIMITATIONS OF THE FUNDS

CAPITAL APPRECIATION FUND. The Fund may not (1) purchase securities of any one
issuer (except U.S. government securities) if as a result more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would own or
hold more than 10% of the outstanding voting securities of that issuer,
provided, however, that up to 25% of the value of the Fund's total assets may be
invested without regard to these limitations; (2) 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
options, futures contracts and options on futures contracts; (3) underwrite
securities of other issuers, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed an underwriter under
the federal securities laws; (4) make short sales of securities or maintain a
short position, except that the Fund may (a) make short sales of securities it
does not own in an amount up to 25% of its net assets, (b) make short sales and
maintain short positions in connection with its use of options, futures
contracts and options on futures contracts

- 9 -
<PAGE>

and (c) sell short "against the box"; (5) purchase or sell real estate, provided
that the Fund may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts, except that the Fund
may purchase or sell financial futures contracts, such as stock index, interest
rate and bond index futures contracts and options thereon; (7) invest in oil,
gas or mineral-related programs or leases; (8) make loans, except through loans
of portfolio securities as described in the Prospectus or this Statement of
Additional Information and except through repurchase agreements; provided that
for purposes of this restriction the acquisition of bonds, debentures, or other
corporate debt securities and investment in government obligations, short-term
commercial paper, certificates of deposit and bankers' acceptances shall not be
deemed to be the making of loans; (9) purchase any securities issued by any
other investment company, except in connection with the merger, consolidation or
acquisition of all the securities or assets of such an issuer; (10) issue senior
securities or borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in an aggregate amount not in excess
of 10% of the Fund's total assets; provided further that the Fund will not
purchase securities while borrowings in excess of 5% of the Fund's total assets
are outstanding; or (11) make an investment in any one industry if the
investment would cause the aggregate value of the Fund's investments in such
industry to equal or exceed 25% of the Fund's total assets.

The foregoing fundamental investment limitations cannot be changed 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 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, a later increase or decrease 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 foregoing limitations.

The following investment restrictions may be changed by the Trust's board of
trustees without shareholder approval: the Fund may not (1) purchase or retain
the securities of any issuer if, to the knowledge of the Fund's management, the
officers and trustees of the Trust and the officers and directors of Mitchell
Hutchins and the Sub-Adviser (each owning beneficially more than 0.5% of the
outstanding securities of an issuer) own in the aggregate more than 5% of the
securities of the issuer; (2) purchase any security if as a result more than 5%
of the Fund's total assets would be invested in securities of companies that
together with any predecessors have been in continuous operation for less than
three years; (3) invest more than 10% of its net assets in illiquid securities,
a term which means securities that cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which the Fund
has valued the securities and includes, among other things, repurchase
agreements maturing in more than seven days; (4) invest in warrants, valued at
the lower of cost or market, in excess of 5% of the value of its net assets,
which amount may include warrants that are not listed on the New York Stock
Exchange, Inc. ("NYSE") or the American Stock Exchange, Inc., provided that such
unlisted warrants, valued at the lower of cost or market, do not exceed 2% of
the Fund's net assets, and further provided that this restriction does not apply
to warrants attached to, or sold as a unit with, other securities; or (5) invest
more than 35% of its total assets in debt securities rated Ba or lower by
Moody's Investors Service, Inc. or BB or lower by Standard & Poor's Ratings
Group (or determined by Mitchell Hutchins to be of comparable quality.) This
non-fundamental policy (5) can be changed only upon 30 days' advance notice to
shareholders. The Fund will interpret fundamental investment limitation (5) to
prohibit investment in real estate limited partnerships.

FINANCIAL SERVICES GROWTH FUND. The Fund may not (1) issue senior securities
or borrow money, except from banks or through reverse repurchase agreements for
emergency or temporary purposes, and then in an aggregate amount not in excess
of 10% of the value of the Fund's total assets at the time of such borrowing,
provided that the Fund will not purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of the Fund's total assets are
outstanding; (2) make an investment in any one industry or group of related
industries (other than the related group of industries consisting of the banking
industry and the thrift industry) if doing so would cause the value of
investments in such industry or group of industries to equal or exceed 25% of

- 10 -
<PAGE>

the total assets of the Fund taken at market value; (3) purchase securities of
any one issuer (other than U.S. government securities) if as a result more than
5% of the Fund's total assets would be invested in securities of such issuer or
the Fund would own or hold 10% or more 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 these limitations; (4) 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
options, futures contracts and options on futures contracts; (5) underwrite
securities of other issuers, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed an underwriter under
federal securities laws; (6) make short sales of securities or maintain a short
position, except that the Fund may make short sales and maintain short positions
in connection with its use of options, futures contracts and options on futures
contracts and may sell short "against the box" (7) purchase or sell real estate,
provided that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein, including real estate investment trusts; (8) purchase or sell
commodities or commodity contracts, except that the Fund may purchase or sell
stock index, interest rate and foreign currency futures contracts and options
thereon; (9) invest in oil, gas or mineral-related programs or leases, provided
that the Fund may invest in securities issued by companies that engage in such
activities; (10) make loans, except through loans of portfolio securities as
described in the Prospectus or this Statement of Additional Information and
except through repurchase agreements, provided that for purposes of this
limitation the acquisition of publicly distributed bonds, debentures or other
corporate debt securities and investment in government obligations, short-term
commercial paper, certificates of deposit and bankers' acceptances shall not be
deemed to be the making of a loan; or (11) purchase any securities issued by any
other investment company, except by purchase in the open market where no
commission or profit, other than a customary brokers' commission, is earned by
any sponsor or dealer associated with the investment company whose shares are
acquired as a result of such purchase, provided that such securities in the
aggregate do not represent more than 10% of the total assets of the Fund, and
except in connection with the merger, consolidation or acquisition of all the
securities or assets of another investment company.

The following investment restrictions may be changed by the vote of the board of
directors of the Fund without shareholder approval: (1) the Fund will not
purchase or retain the securities of any issuer if, to the knowledge of the
Fund's management, the officers and directors of the Fund and Mitchell Hutchins
(each owning beneficially more than 1/2 of 1% of the outstanding securities of
the issuer) own in the aggregate more than 5% of the securities of such issuer;
(2) the Fund will not invest more than 10% of its net assets in illiquid
securities, a term which means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which the Fund has valued the securities and includes, among other things,
repurchase agreements maturing in more than seven days; (3) the Fund's
investments in warrants, valued at the lower of cost or market, may not exceed
5% of the value of its net assets, which amount may include warrants that are
not listed on the New York Stock Exchange, Inc. ("NYSE") or the American Stock
Exchange, Inc., provided that such unlisted warrants, valued at the lower of
cost or market, do not exceed 2% of the Fund's net assets, and further provided
that this restriction does not apply to warrants attached to, or sold as a unit
with, other securities; (4) the Fund will not purchase any security if as a
result the Fund would have more than 5% of its total assets invested in
securities of companies which together with any predecessors have been in
continuous operation for less than three years; and (5) the Fund will not invest
more than 35% of its total assets in debt securities rated Ba or lower by
Moody's or BB or lower by S&P (or determined by Mitchell Hutchins to

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<PAGE>

be of comparable quality). This non-fundamental policy (5) can be changed only
upon 30 days' advance notice to shareholders.

UTILITY INCOME FUND. The Fund may not: (1) issue senior securities or borrow
money, except from banks or through reverse repurchase agreements for emergency
or temporary purposes, and then in an aggregate amount not in excess of 10% of
the value of the Fund's total assets at the time of such borrowing, provided
that the Fund will not purchase securities while borrowings (including reverse
repurchase agreements) in excess of 5% of the value of the Fund's total assets
are outstanding; (2) purchase securities of any one issuer if as a result more
than 5% of the Fund's total assets would be invested in such issuer or the Fund
would own or hold 10% of the outstanding securities of that issuer, except that
up to 25% of the Fund's total assets may be invested without regard to this
limitation and provided that this limitation does not apply to securities issued
or guaranteed by the U.S. government, its agencies and instrumentalities; (3)
make an investment in any one industry if the investment would cause the
aggregate value of the Fund's investments in such industry to exceed 25% of the
Fund's total assets, except that U.S. government securities are not subject to
this limitation and except that the Fund, under normal circumstances, will
invest 25% or more of its total assets in utility industries as a group (utility
industries for this purpose consist of companies primarily engaged in the
ownership or operation of facilities used in the generation, transmission or
distribution of electricity, telecommunications, gas or water); (4) purchase
securities on margin, except for short-term credits necessary for clearance of
portfolio transactions, and except that the Fund may make margin deposits in
connection with its use of options, futures contracts and options on futures
contracts; (5) engage in the business of underwriting securities of other
issuers, except to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed an underwriter under federal
securities laws and except that the Fund may write options; (6) make short sales
of securities or maintain a short position, except that the Fund may (a) make
short sales and maintain short positions in connection with its use of options,
futures contracts, options on futures contracts and forward contracts and (b)
sell short "against the box"; (7) Purchase or sell real estate (including real
estate limited partnership interests), provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein; (8) purchase or sell
commodities or commodity contracts, except that the Fund may purchase and sell
financial futures contracts, such as interest rate, stock index, bond index and
foreign currency futures contracts and options thereon, may engage in
transactions in foreign currencies and may purchase or sell options on foreign
currencies; (9) invest in oil, gas or mineral-related programs or leases; or
(10) make loans, except through loans of portfolio securities and except through
repurchase agreements, provided that for purposes of this restriction the
acquisition of publicly distributed bonds, debentures or other corporate debt
securities and investment in government obligations, short-term commercial
paper, certificates of deposit and bankers' acceptances shall not be deemed to
be the making of a loan.

The following investment restrictions are non-fundamental and may be changed by
the vote of the Fund's board of trustees without shareholder approval: (1) the
Fund will not purchase or retain the securities of any issuer if, to the
knowledge of the Fund's management, the officers and trustees of the Trust and
the officers and directors of Mitchell Hutchins (each owning beneficially more
than 0.5% of the outstanding securities of the issuer) own in the aggregate more
than 5% of the securities of the issuer; (2) the Fund will not invest more than
10% of its net assets in illiquid securities, a term which means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days; (3) the Fund will

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<PAGE>

not purchase any security if as a result the Fund would have more than 5% of its
total assets invested in securities of companies which together with any
predecessors have been in continuous operation for less than three years; (4)
the Fund will not purchase securities of other open-end investment companies,
except in connection with a merger, consolidation, reorganization or acquisition
of assets; (5) the Fund's investments in warrants, valued at the lower of cost
or market, may not exceed 5% of the value of its net assets, which amount may
include warrants that are not listed on the New York Stock Exchange Inc.
("NYSE") or the American Stock Exchange, Inc., provided that such warrants,
valued at the lower of cost or market, do not exceed 2% of the Fund's net
assets, and further provided that this restriction does not apply to warrants
attached to, or sold as a unit with, other securities. For purposes of this
restriction, the term "warrants" does not include options on debt securities,
bond indices, foreign currencies or futures contracts; and (6) the Fund will not
invest more than 35% of its total assets in debt securities rated Ba or lower by
Moody's or BB or lower by S&P, comparably rated by another SRO or determined by
Mitchell Hutchins to be of comparable quality. This non-fundamental policy (6)
can be changed only upon 30 days' advance notice to shareholders.

CHANGES TO INVESTMENT LIMITATIONS OF THE FUNDS

At a special meeting of shareholders scheduled for April 10, 1996, shareholders
will be asked to approve changes to each Fund's fundamental investment
restrictions. If approved, the following investment restrictions will supersede
and replace the restrictions enumerated above for each of the Funds:

The Funds will not:

(1) purchase securities of any one issuer if, as a result, more than 5% of
the Fund's total assets would be invested in securities of that issuer
or the Fund would own or hold more than 10% of the outstanding voting
securities of that issuer, except that up to 25% of the Fund's total
assets may be invested without regard to this limitation, and except
that this limitation does not apply to securities issued or guaranteed
by the U.S. government, its agencies and instrumentalities or to
securities issued by other investment companies.

The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will
not be considered to have been issued by the same issuer by reason of
the securities having the same sponsor, and mortgage- and asset-backed
securities issued by a finance or other special purpose subsidiary
that are not guaranteed by the parent company will be considered to be
issued by a separate issuer from the parent company.

(2) issue senior securities or borrow money, except as permitted under the
1940 Act and then not in excess of 33 % 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.

(3) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction,
the acquisition of bonds, debentures or other debt securities and
investments in government obligations, commercial paper, certificates
of deposit, bankers' acceptances or similar instruments will not be
considered the making of a loan.

(4) 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.

- 13 -
<PAGE>

(5) 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.

(6) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, except that 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.

The following fundamental limitation would be applicable only to Capital
Appreciation Fund:

The following fundamental limitation would be applicable only to Financial
Services Growth Fund:

(7) 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, and except that the Fund, under normal
circumstances, will invest 25% or more of its total assets in the
related group of industries consisting of the financial services
industries.

The following fundamental limitation would be applicable only to Utility Income
Fund:

(7) 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, and except that the Fund, under normal
circumstances, will invest 25% or more of its total assets in the
utility industries as a group. For this purpose, utility industries
consist of companies primarily engaged in the ownership or operation
of facilities used in the generation, transmission or distribution of
electricity, telecommunications, gas, or water.

If the foregoing fundamental restrictions are approved by each Fund's
shareholders, the Funds would become subject to the non-fundamental investment
restrictions listed below. These non-fundamental restrictions would replace
certain of each Fund's current fundamental restrictions and would be in addition
to the non-fundamental policies and restrictions already described in this
Statement of Additional Information.

The following investment restrictions are not fundamental and may be changed by
each Fund's board of trustees or board of directors without shareholder
approval.

The Funds will not:

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<PAGE>

. 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.

. 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.

. invest in oil, gas or mineral exploration or development programs or
leases, except that investments in securities of issuers that invest in
such programs or leases and investments in asset-backed securities
supported by receivables generated from such programs or leases are not
subject to this prohibition.

. purchase securities of other investment companies, except to the extent
permitted by the 1940 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.

HEDGING STRATEGIES

HEDGING INSTRUMENTS. Mitchell Hutchins (or, in the case of Capital Appreciation
Fund, the Sub-Adviser) may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes referred
to as "futures") and options on futures contracts, to attempt to hedge each
Fund's portfolio. In particular, each Fund may use the hedging instruments
described below (except that only Financial Services Growth Fund and Utility
Income Fund may enter into hedging transactions relating to foreign currencies):

Options on Equity and Debt Securities and Foreign Currencies -- A call option is
a short-term contract pursuant to which the purchaser of the option, in return
for a premium, has the right to buy the security or currency underlying the
option at a specified price at any time during the term of the option. The
writer of the call option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to deliver the underlying
security or currency against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right to
sell the underlying security or currency at a specified price during the option
term. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to buy the
underlying security or currency at the exercise price.

Options on Stock Indexes -- A stock index assigns relative values to the stocks
included in the index and fluctuates with changes in the market values of those
stocks. A stock index option operates in the same way as a more traditional
stock option, except that exercise of a stock index option is effected with cash
payment and does not involve delivery of securities. Thus, upon exercise of a
stock index option, the purchaser will realize, and the writer will pay, an
amount based on the difference between the exercise price and the closing price
of the stock index.

Stock Index Futures Contracts -- A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar amount
times the difference between the stock index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the stocks comprising the index is made. Generally,
contracts are closed out prior to the expiration date of the contract.

- 15 -
<PAGE>

Interest Rate and Foreign Currency Futures Contracts -- Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.

Options on Futures Contracts -- Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon exercise
of the option, the delivery of the futures position to the holder of the option
will be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future. The writer of an option, upon exercise, will assume a short
position in the case of a call and a long position in the case of a put.

Forward Currency Contracts -- A forward currency contract involves an obligation
to purchase or sell a specific currency at a specified future date, which may be
any fixed number of days from the contract date agreed upon by the parties, at a
price set at the time the contract is entered into.

GENERAL DESCRIPTION OF HEDGING STRATEGIES. Hedging strategies can be broadly
categorized as "short hedges" and "long hedges." A short hedge is a purchase or
sale of a Hedging Instrument intended to partially or fully offset potential
declines in the value of one or more investments held in a Fund's portfolio.
Thus, in a short hedge a Fund takes a position in a Hedging Instrument whose
price is expected to move in the opposite direction of the price of the
investment being hedged. For example, a Fund might purchase a put option on a
security to hedge against a potential decline in the value of that security. If
the price of the security declined below the exercise price of the put, a Fund
could exercise the put and thus limit its loss below the exercise price to the
premium paid plus transactions costs. In the alternative, because the value of
the put option can be expected to increase as the value of the underlying
security declines, a Fund might be able to close out the put option and realize
a gain to offset the decline in the value of the security.

Conversely, a long hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential increases in the acquisition cost of one
or more investments that a Fund intends to acquire. Thus, in a long hedge, a
Fund takes a position in a Hedging Instrument whose price is expected to move in
the same direction as the price of the prospective investment being hedged. For
example, a Fund might purchase a call option on a security it intends to
purchase in order to hedge against an increase in the cost of the security. If
the price of the security increased above the exercise price of the call, a Fund
could exercise the call and thus limit its acquisition cost to the exercise
price plus the premium paid and transactions costs. Alternatively, a Fund might
be able to offset the price increase by closing out an appreciated call option
and realizing a gain.

Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that a Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast, generally
are used to hedge against price movements in broad equity market sectors in
which a Fund has invested or expects to invest. Hedging Instruments on debt
securities may be used to hedge either individual securities or broad fixed
income market sectors.

Because the Funds intend to use options and futures for hedging purposes, each
Fund may enter into any futures contracts or options on futures contracts or
forward currency contracts as long as the aggregate of the market value of the
Fund's outstanding futures and forward currency contracts and market value of
the currencies and futures contracts subject to outstanding options written by
that Fund does not exceed 50% of the

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<PAGE>

market value of the total assets of that Fund. Under normal circumstances,
however, the value of a Fund's portfolio assets so hedged generally will be a
much smaller amount.

The use of Hedging Instruments is subject to applicable regulations of the SEC,
the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, a Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Taxes."

In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins and the Sub-Adviser expect to discover additional
opportunities in connection with options, futures contracts and other hedging
techniques. These new opportunities may become available as Mitchell Hutchins or
the Sub-Adviser develops new techniques, as regulatory authorities broaden the
range of permitted transactions and as new options, futures contracts, foreign
currency contracts or other techniques are developed. Mitchell Hutchins or the
Sub-Adviser, as applicable, may utilize these opportunities to the extent that
they are consistent with each Fund's investment objective and permitted by each
Fund's investment limitations and applicable regulatory authorities. The Funds'
Prospectus or Statement of Additional Information will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.

SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow.

(1) Successful use of most Hedging Instruments depends upon the ability of
Mitchell Hutchins or the Sub-Adviser, as applicable, to predict movements of the
overall securities and interest rate markets, which requires different skills
than predicting changes in the prices of individual securities. While Mitchell
Hutchins and the Sub-Adviser are experienced in the use of Hedging Instruments,
there can be no assurance that any particular hedging strategy adopted will
succeed.

(2) There might be imperfect correlation, or even no correlation, between price
movements of a Hedging Instrument and price movements of the investments being
hedged. For example, if the value of a Hedging Instrument used in a short hedge
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded.

The effectiveness of hedges using Hedging Instruments on indices will depend on
the degree of correlation between price movements in the index and price
movements in the securities being hedged.

(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because Mitchell Hutchins or the Sub-Adviser projected a decline in the
price of a security in that Fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or partially
offset by a decline in the price of the Hedging Instrument. Moreover, if the
price of the Hedging Instrument declined by more than the increase in the price
of the security, that Fund could suffer a loss. In either such case, the Fund
would have been in a better position had it not hedged at all.

(4) As described below, a Fund might be required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when it takes positions in
Hedging Instruments involving obligations to third parties

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<PAGE>

(i.e., Hedging Instruments other than purchased options). If the Fund was unable
to close out its positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
positions expired or matured. These requirements might impair a Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position in
a Hedging Instrument prior to expiration or maturity depends on the existence of
a liquid secondary market or, in the absence of such a market, the ability and
willingness of a contra party to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to a Fund.

COVER FOR HEDGING STRATEGIES. The Funds will not use Hedging Instruments for
speculative purposes or for purposes of leverage. Transactions using Hedging
Instruments, other than purchased options, expose the Funds to an obligation to
another party. The Funds will not enter into any such transactions unless it
owns either (1) an offsetting ("covered") position in securities, other options
or futures contracts or (2) cash and short-term liquid debt securities, with a
value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Funds will comply with SEC guidelines
regarding cover for hedging transactions and will, if the guidelines so require,
set aside cash, U.S. government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.

Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
a Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

OPTIONS. The Funds may purchase put and call options, and write (sell) covered
put or call options, on equity and debt securities and stock indices and foreign
currencies. The purchase of call options serves as a long hedge, and the
purchase of put options serves as a short hedge. Writing covered call options
serves as a limited short hedge, because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing the
option. However, if the security appreciates to a price higher than the exercise
price of the call option, it can be expected that the option will be exercised
and the affected Fund will be obligated to sell the security at less than its
market value. Writing covered put options serves as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to purchase the security at more than its market value. The securities or other
assets used as cover for OTC options written by a Fund would be considered
illiquid to the extent described under "Investment Policies and Restrictions-
Illiquid Securities."

The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Options that expire unexercised have no value.

The Funds may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.

- 18 -
<PAGE>

The Funds may purchase and write both exchange-traded and OTC options. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between a Fund and its contra party (usually
a securities dealer or a bank) with no clearing organization guarantee. Thus,
when a Fund purchases or writes an OTC option, it relies on the contra party to
make or take delivery of the underlying investment upon exercise of the option.
Failure by the contra party to do so would result in the loss of any premium
paid by the Fund as well as the loss of any expected benefit of the transaction.
The Funds will enter into OTC option transactions only with contra parties that
have a net worth of at least $20 million.

Generally, the OTC debt options or foreign currency options used by the Funds
are European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.

The Funds' ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Funds intend to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Funds will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Funds, there is no
assurance that the Funds will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency of
the contra party, the Funds might be unable to close out an OTC option position
at any time prior to its expiration.

If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or call
option written by the Fund could cause material losses because the Fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.

LIMITATIONS ON THE USE OF OPTIONS. The Funds' use of options is governed by the
following guidelines, which can be changed by each Fund's board of trustees or
board of directors without shareholder vote:

(1) Each Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums on
all other options held by that Fund, does not exceed 5% of its total assets.

(2) The aggregate value of securities underlying put options written by a Fund
determined as of the date the put options are written will not exceed 50% of a
Fund's net assets.

(3) The aggregate premiums paid on all options (including options on securities,
foreign currencies and stock and bond indices and options on futures contracts)
purchased by each Fund that are held at any time will not exceed 20% of that
Fund's net assets.

FUTURES. The Funds may purchase and sell stock index futures contracts, interest
rate futures contracts and foreign currency futures contracts. The Funds may
also purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered call
options on futures contracts can serve as a limited short hedge, and writing
covered put options on futures contracts can serve as a limited long hedge,
using a strategy similar to that used for writing covered options on securities
or indices.

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<PAGE>

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, U.S. government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call option on a futures contract, in accordance with applicable
exchange rules. Unlike margin in securities transactions, initial margin on
futures contracts does not represent a borrowing, but rather is in the nature of
a performance bond or good-faith deposit that is returned to a Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Funds may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.

Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents a
daily settlement of each Fund's obligations to or from a futures broker. When a
Fund purchases an option on a future, the premium paid plus transaction costs is
all that is at risk. In contrast, when a Fund purchases or sells a futures
contract or writes a call option thereon, it is subject to daily variation
margin calls that could be substantial in the event of adverse price movements.
If a Fund has insufficient cash to meet daily variation margin requirements, it
might need to sell securities at a time when such sales are disadvantageous.

Holders and writers of futures positions and options on futures can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, an instrument identical to the instrument
held or written. Positions in futures and options on futures may be closed only
on an exchange or board of trade that provides a secondary market. The Funds
intend to enter into futures transactions only on exchanges or boards of trade
where there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.

Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future or related option can vary from the previous
day's settlement price; once that limit is reached, no trades may be made that
day at a price beyond the limit. Daily price limits do not limit potential
losses because prices could move to the daily limit for several consecutive days
with little or no trading, thereby preventing liquidation of unfavorable
positions.

If a Fund were unable to liquidate a futures or related options position due to
the absence of a liquid secondary market or the imposition of price limits, it
could incur substantial losses. A Fund would continue to be subject to market
risk with respect to the position. In addition, except in the case of purchased
options, a Fund would continue to be required to make daily variation margin
payments and might be required to maintain the position being hedged by the
future or option or to maintain cash or securities in a segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.

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<PAGE>

LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The use of futures and
related options is governed by the following guidelines, which can be changed by
each Fund's board of trustees or board of directors without shareholder vote:

(1) To the extent a Fund enters into futures contracts and options on futures
positions that are not for bona fide hedging purposes (as defined by the CFTC),
the aggregate initial margin and premiums on those positions (excluding the
amount by which options are "in-the-money") may not exceed 5% of that Fund's net
assets.

(2) The aggregate premiums paid on all options (including options on securities,
foreign currencies and stock or bond indices and options on futures contracts)
purchased by a Fund that are held at any time will not exceed 20% of that Fund's
net assets.

(3) The aggregate margin deposits on all futures contracts and options thereon
held at any time by each Fund will not exceed 5% of its total assets.

FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. The Funds may use
options and futures on foreign currencies, as described above, and forward
currency forward contracts, as described below, to hedge against movements in
the values of the foreign currencies in which the Funds' securities are
denominated. Such currency hedges can protect against price movements in a
security a Fund owns or intends to acquire that are attributable to changes in
the value of the currency in which it is denominated. Such hedges do not,
however, protect against price movements in the securities that are attributable
to other causes.

The Funds might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, the Funds may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on another currency or a
basket of currencies, the value of which Mitchell Hutchins or the Sub-Adviser
believes will have a positive correlation to the value of the currency being
hedged. The risk that movements in the price of the Hedging Instrument will not
correlate perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.

The value of Hedging Instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Hedging Instruments, a
Fund could be disadvantaged by having to deal in the odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global, round-the-
clock market. To the extent the U.S. options or futures markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements might take place in the underlying markets that cannot be
reflected in the markets for the Hedging Instruments until they reopen.

Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Funds might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.

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<PAGE>

FORWARD CURRENCY CONTRACTS. The Funds may enter into forward currency contracts
to purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency. Such transactions may serve as long hedges--for
example, the Funds may purchase a forward currency contract to lock in the U.S.
dollar price of a security denominated in a foreign currency that the Funds
intend to acquire. Forward currency contract transactions may also serve as
short hedges--for example, the Funds may sell a forward currency contract to
lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of
a security denominated in a foreign currency.

As noted above, the Funds also may seek to hedge against changes in the value of
a particular currency by using forward contracts on another foreign currency or
a basket of currencies, the value of which Mitchell Hutchins or the Sub-Adviser
believes will have a positive correlation to the values of the currency being
hedged. In addition, the Funds may use forward currency contracts to shift their
exposure to foreign currency fluctuations from one country to another. For
example, if a Fund owned securities denominated in a foreign currency and
Mitchell Hutchins or the Sub-Adviser believed that currency would decline
relative to another currency, it might enter into a forward contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency. Transactions that use two foreign currencies are
sometimes referred to as "cross hedging." Use of a different foreign currency
magnifies the risk that movements in the price of the Hedging Instrument will
not correlate or will correlate unfavorably with the foreign currency being
hedged.

The cost to a Fund of engaging in forward currency contracts varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because forward currency contracts are usually
entered into on a principal basis, no fees or commissions are involved. When a
Fund enters into a forward currency contract, it relies on the contra party to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the contra party to do so would result in the loss of any
expected benefit of the transaction.

As is the case with futures contracts, holders and writers of forward currency
contracts can enter into offsetting closing transactions, similar to closing
transactions on futures, by selling or purchasing, respectively, an instrument
identical to the instrument purchased or sold. Secondary markets generally do
not exist for forward currency contracts, with the result that closing
transactions generally can be made for forward currency contracts only by
negotiating directly with the contra party. Thus, there can be no assurance that
a Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to maintain cash or securities in a segregated account.

The precise matching of forward currency contract amounts and the value of the
securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.

LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. The Funds may enter into
forward currency contracts or maintain a net exposure to such contracts only if
(1) the consummation of the contracts would not obligate a Fund to deliver an
amount of foreign currency in excess of the value of the position being hedged
by such contracts or (2) a Fund segregates with its custodian cash, U.S.
government securities or other liquid, high-grade debt securities in an amount
not less than the value of its total assets committed to the consummation of the
contract and not covered as provided in (1) above, as marked to market daily.

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<PAGE>

TRUSTEES AND OFFICERS; PRINCIPAL SHAREHOLDERS

CAPITAL APPRECIATION FUND. The trustees and executive officers of PaineWebber
Managed Assets Trust, their ages, business addresses and principal occupations
during the past five years are:

<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address*; Age the Trust Other Directorships
- ------------------------------ -------------------- ----------------------------------------------------------
<S> <C> <C>

E. Garrett Bewkes, Jr.**; 68 Trustee and Mr. Bewkes is a director of Paine Webber Group Inc.
Chairman of the ("PW Group") (holding company of PaineWebber and
Board of Trustees Mitchell Hutchins) and 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 also a director of Interstate
Bakeries Corporation and NaPro BioTherapeutics, Inc.
and a director or trustee of 26 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Meyer Feldberg; 53 Trustee Mr. Feldberg is Dean and Professor of Management of
Columbia University the Graduate School of Business, Columbia University.
101 Uris Hall Prior to 1989, he was president of the Illinois Institute
New York, New York 10027 of Technology. Dean Feldberg is also a director of
AMSCO International Inc., Federated Department
Stores, Inc. and New World Communications Group Incorporated
and a director or trustee of 16 other investment companies
for which Mitchell Hutchins or PaineWebber serves as investment
adviser.

George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law firm of Dunnington,
666 Third Avenue Bartholow & Miller. Prior to May 1994, he was a
New York, New York 10017 partner in the law firm of Fryer, Ross & Gowen. Mr.
Gowen is also a director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a director or trustee of 14
other investment companies for which Mitchell Hutchins
PaineWebber serves as investment adviser.
</TABLE>

- 23 -
<PAGE>

Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Capital Partners
901 15th Street, N.W. (investment bank) and a co-chairman and director of
Suite 300 CB Commercial Group Inc. (real estate). From
Washington, D.C. 20005 January 1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990 to 1992, he
was vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA Inc.
(holding company of Northwest Airlines Inc.) and
Wings Holdings Inc. (holding company of NWA Inc.).
Prior to 1989, he was employed by the Marriott
Corporation (hotels, restaurants, airline catering and
contract feeding), where he most recently was an
executive vice president and president of Marriott
Hotels and Resorts. Mr. Malek is also a director of
American Management Systems, Inc. Automatic Data
Processing, Inc., Avis, Inc., FPL Group, Inc., ICF
International Manor Care, Inc. and National Education
Corporation. Mr. Malek is a director or trustee of 14
other investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.

Judith Davidson Moyers; 60 Trustee Mrs. Moyers is president of Public Affairs Television,
Public Affairs Television Inc., an educational consultant and a home economist.
356 W. 58th Street Mrs. Moyers is also a director of Ogden Corporation and a
New York, New York 10019 director or trustee of 14 other investment companies
for which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Margo N. Alexander; 48 President Mrs. Alexander is president, chief executive officer and
a director of Mitchell Hutchins. Prior to January 1995,
Mrs. Alexander was an executive vice president of
PaineWebber. Mrs. Alexander is also a trustee of nine
other investment companies and president of 31 other
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president and
manager--advisory administration of Mitchell Hutchins.
Prior to November 1993, she was compliance manager
of Hyperion Capital Management, Inc., an investment
advisory firm. Prior to April 1993, Ms. Boyle was a
vice president and manager--legal administration of
Mitchell Hutchins. Ms. Boyle is also a vice president
of 31 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
</TABLE>

- 24 -
<PAGE>

Gigi L. Capes; 31 Vice President and Ms. Capes is a vice president and the tax manager of
Assistant Treasurer the mutual fund finance division of Mitchell Hutchins.
Prior to 1992, she was a tax senior consultant with
KPMG Peat Marwick. Ms. Capes is also a vice president
and assistant treasurer 31 other investment companies
for which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and attorney of Mitchell
Assistant Secretary Hutchins. Prior to December 1993, she was an
associate at the law firm of Seward & Kissel. Ms.
Cohen is also a vice president and assistant secretary of
24 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.

C. William Maher; 34 Vice President and Mr. Maher is a first vice president and the senior
Assistant Treasurer manager of the Fund Administration Division of
Mitchell Hutchins. Mr. Maher is also a vice president
and assistant treasurer of 31 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of Mitchell Hutchins.
Assistant Treasurer Ms. Moran is also a vice president and assistant
treasurer of 31 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment
adviser.

Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a senior vice president and deputy
Secretary general counsel of Mitchell Hutchins. Ms. O'Donnell
is also a vice president and secretary of 31 other
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Victoria E. Schonfeld; 45 Vice President Ms. Schonfeld is a managing director and general
counsel of Mitchell Hutchins. From April 1990 to
May 1994, she was a partner in the law firm of Arnold
& Porter. Ms. Schonfeld is also a vice president of
31 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.

- 25 -
<PAGE>

Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice president and the director
Treasurer of the mutual fund finance division of Mitchell
Hutchins. Prior to 1991, he was an audit senior
manager with Ernst & Young LLP. Mr. Sluyters is
also a vice president and treasurer of 31 other
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Mark A. Tincher; 40 Vice President Mr. Tincher is a managing director and chief
investment officer--U.S. equity investments of Mitchell
Hutchins. Prior to March 1995, he was a vice
president and directed the U.S. funds management and
equity research areas of Chase Manhattan Private
Bank. Mr. Tincher is also a vice president of 10 other
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Gregory K. Todd; 39 Vice President and Mr. Todd is a first vice president and associate general
Assistant Secretary counsel of Mitchell Hutchins. Prior to 1993, he was a
partner in the law firm of Shereff, Friedman, Hoffman
& Goodman. Mr. Todd is also a vice president and
assistant secretary of 31 other investment companies
for which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Keith A. Weller; 34 Vice President and Mr. Weller is a first vice president and associate
Assistant Secretary general counsel of Mitchell Hutchins. From September
1987 to May 1995, he was an attorney in private
practice. Mr. Weller is also a vice president and
assistant secretary of 23 other investment companies
for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

- 26 -
<PAGE>

FINANCIAL SERVICES GROWTH FUND. The Trustees and executive officers of
PaineWebber Financial Services Growth Fund Inc., their ages, business addresses
and principal occupations during the past five years are:

E. Garrett Bewkes, Jr.**; 68 Director and Mr. Bewkes is a director of Paine Webber Group Inc.
Chairman of the ("PW Group") (holding company of PaineWebber and
Board of Directors Mitchell Hutchins) and 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 also a director of Interstate
Bakeries Corporation and NaPro BioTherapeutics, Inc.
and a director or trustee of 26 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Meyer Feldberg; 53 Director Mr. Feldberg is Dean and Professor of Management of
Columbia University the Graduate School of Business, Columbia University.
101 Uris Hall Prior to 1989, he was president of the Illinois Institute
New York, New York 10027 of Technology. Dean Feldberg is also a director of
AMSCO International Inc., Federated Department
Stores, Inc., and New World Communications Group Incorporated
and a director or trustee of 16 other investment companies
for which Mitchell Hutchins or PaineWebber serves as investment
adviser.

George W. Gowen; 65 Director Mr. Gowen is a partner in the law firm of Dunnington,
666 Third Avenue Bartholow & Miller. Prior to May 1994, he was a
New York, New York 10017 partner in the law firm of Fryer, Ross & Gowen.
Mr. Gowen is also a director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a director or trustee of 14
other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

- 27 -
<PAGE>

Frederic V. Malek; 58 Director Mr. Malek is chairman of Thayer Capital Partners
901 15th Street, N.W. (investment bank) and a co-chairman and director of
Suite 300 CB Commercial Group Inc. (real estate). From
Washington, D.C. 20005 January 1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990 to 1992, he
was vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA Inc.
(holding company of Northwest Airlines Inc.) and
Wings Holdings Inc. (holding company of NWA Inc.).
Prior to 1989, he was employed by the Marriott
Corporation (hotels, restaurants, airline catering and
contract feeding), where he most recently was an
executive vice president and president of Marriott
Hotels and Resorts. Mr. Malek is also a director of
American Management Systems, Inc. Automatic Data
Processing, Inc., Avis, Inc., FPL Group, Inc., ICF
International Manor Care, Inc. and National Education
Corporation. Mr. Malek is a director or trustee of 14
other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Judith Davidson Moyers; 60 Director Mrs. Moyers is president of Public Affairs Television,
Public Affairs Television Inc., an educational consultant and a home economist.
356 W. 58th Street Mrs. Moyers is also a director of Ogden Corporation and a
New York, New York 10019 director or trustee of 14 other investment companies for
which Mitchell Hutchins or PaineWebber serves as investment
adviser.

Margo N. Alexander; 48 President Mrs. Alexander is president, chief executive officer and
a director of Mitchell Hutchins. Prior to January 1995,
Mrs. Alexander was an executive vice president of
PaineWebber. Mrs. Alexander is also a trustee of
nine other investment companies and president of 31 other
investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.

- 28 -
<PAGE>

Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and attorney of Mitchell
Assistant Secretary Hutchins. Prior to December 1993, she was an
associate at the law firm of Seward & Kissel. Ms.
Cohen is also a vice president and assistant secretary of
24 other investment company for which Mitchell
Hutchins or PaineWebber serves as investment adviser.

Karen L. Finkel; 38 Vice President Mrs. Finkel is a first vice president and portfolio
manager of Mitchell Hutchins. Mrs. Finkel is also a
vice president of one other investment company for
which Mitchell Hutchins serves as investment adviser.

- 30 -
<PAGE>

UTILITY INCOME FUND. The Trustees and executive officers of PaineWebber Managed
Investments Trust, their ages, business addresses and principal occupations
during the past five years are:

Meyer Feldberg; 53 Trustee Mr. Feldberg is Dean and Professor of Management of
Columbia University the Graduate School of Business, Columbia University.
101 Uris Hall Prior to 1989, he was president of the Illinois Institute
New York, New York 10027 of Technology. Dean Feldberg is also a director of
AMSCO International Inc., Federated Department
Stores, Inc., and New World Communications Group
Incorporated and a director or trustee of 16
other investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.

George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law firm of Dunnington,
666 Third Avenue Bartholow & Miller. Prior to May 1994, he was a
New York, New York 10017 partner in the law firm of Fryer, Ross & Gowen.
Mr. Gowen is also a director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a director or trustee of
14 other investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
</TABLE>

- 31 -
<PAGE>

Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Capital Partners
901 15th Street, N.W. (investment bank) and a co-chairman and director of
Suite 300 CB Commercial Group Inc. (real estate). From
Washington, D.C. 20005 January 1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990 to 1992, he
was vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA Inc.
(holding company of Northwest Airlines Inc.) and
Wings Holdings Inc. (holding company of NWA Inc.).
Prior to 1989, he was employed by the Marriott
Corporation (hotels, restaurants, airline catering and
contract feeding), where he most recently was an
executive vice president and president of Marriott
Hotels and Resorts. Mr. Malek is also a director of
American Management Systems, Inc. Automatic Data
Processing, Inc., Avis, Inc., FPL Group, Inc., ICF
International Manor Care, Inc. and National Education
Corporation. Mr. Malek is a director or trustee of 14 other
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Judith Davidson Moyers; 59 Trustee Mrs. Moyers is president of Public Affairs Television,
Public Affairs Television Inc., an educational consultant and a home economist.
356 W. 58th Street Mrs. Moyers is also a director of Ogden Corporation
New York, New York 10019 and a director or trustee of 14 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Margo N. Alexander; 48 President Mrs. Alexander is president, chief executive officer and
a director of Mitchell Hutchins. Prior to January 1995,
Mrs. Alexander was an executive vice president of
PaineWebber. Mrs. Alexander is also a trustee of
nine other investment companies and president of 31 other
investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.

- 32 -
<PAGE>

Gigi L. Capes; 31 Vice President and Ms. Capes is a vice president and the tax manager of
Assistant Treasurer the mutual fund finance division of Mitchell Hutchins.
Prior to 1992, she was a tax senior consultant with
KPMG Peat Marwick. Ms. Capes is also a vice president
and assistant treasurer 31 other investment company
for which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and attorney of Mitchell
Assistant Secretary Hutchins. Prior to December 1993, she was an
associate at the law firm of Seward & Kissel.
Ms. Cohen is also a vice president and assistant
secretary of 24 other investment company for which
Mitchell Hutchins or PaineWebber serves as investment
adviser.

Ellen R. Harris; 49 Vice President Ms. Harris is chief domestic equity strategist and a
managing director of Mitchell Hutchins. Ms. Harris is
also a vice president of two other investment companies
for which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Mary B. King; 32 Vice President Mrs. King is a first vice president and a portfolio
manager of Mitchell Hutchins. Mrs. King is also a
vice president of one other investment company for
which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Thomas J. Libassi; 37 Vice President Mr. Libassi is a senior vice president of Mitchell
Hutchins. Prior to May 1994, he was a vice president
of Keystone Custodian Funds Inc. with portfolio
management responsibility. Mr. Libassi is also a vice
president of three other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment
adviser.

Dennis McCauley; 49 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 also a vice president of 16 other
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

- 33 -
<PAGE>

Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice president and a senior
Assistant Treasurer manager of the mutual fund finance division of Mitchell
Hutchins. From August 1992 to August 1994, he was a vice
president at Black-Rock Financial Management, L.P.
Prior to August 1992, he was an audit manager with
Ernst & Young LLP. Mr. Schubert is also a vice
president and assistant treasurer of 31 other investment
companies for which Mitchell Hutchins or
Nirmal Singh; 39 Vice President PaineWebber serves as investment adviser.
Hutchins. Prior to September 1993, he was a member
of the portfolio management team at Merrill Lynch
Asset Management, Inc. Mr. Singh is vice president
of four other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.

- 34 -
<PAGE>

Craig M. Varrelman; 37 Vice President Mr. Varrelman is a first vice president of Mitchell
Hutchins. Mr. Varrelman is also a vice president of
four other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.

Keith A. Weller; 34 Vice President and Mr. Weller is a first vice president and associate
Assistant Secretary general counsel of Mitchell Hutchins. From September
1987 to May 1995, he was an attorney in private
practice. Mr. Waller is also a vice president and
assistant secretary of 23 other investment companies
for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

_________________________

* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.

** Messrs. Bewkes is an "interested person" of the Trust as defined in the
Investment Company Act of 1940 ("1940 Act") by virtue of his positions with
PW Group.

Trustees who are not "interested persons" receive $2,500 annually and $250 per
meeting of the board or any committee thereof from PaineWebber Managed Assets
Trust (Capital Appreciation Fund), $1,500 and $250 per meeting of the board or
any committee thereof from PaineWebber Financial Services Growth Fund, Inc., and
$5,000 annually and $250 per meeting of the board or any committee thereof from
PaineWebber Managed Investments Trust (Utility Income Fund). Trustees also are
reimbursed for any expenses incurred in attending meetings. Trustees and
officers of the Trust own in the aggregate less than 1% of the shares of each
Fund. Because Mitchell Hutchins and PaineWebber perform substantially all of
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 receive any compensation from the Trust for acting as a trustee or
officer.

- 35 -
<PAGE>

The table below includes certain information relating to the compensation
of each Trust's trustees or Fund's directors who held office during the last
fiscal year.

COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Pension or
Compensation Aggregate Retirement Total
Aggregate From PW Compensation Benefits Compensation
Compensation Financial From Accrued as Estimated From the
From PW Services Managed Part of Annual Trust and the
Managed Growth Fund, Investments the Trust's Benefits Upon Fund
Name of Person, Position Assets Trust* Inc.* Trust** Expenses Retirement Complex***
- --------------------------------- ------------- -------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Garrett Bewkes, Jr. - - - - - -
Trustee/Director and chairman of
the board of trustees/directors

Meyer Feldberg,
Trustee/Director................. $4,875 $3,000 $7,250 - - $106,375

George W. Gowen,
Trustee/Director................. 4,625 2,750 7,250 - - 99,750

Frederic V. Malek,
Trustee/Director................. 4,875 3,000 7,250 - - 99,750

Judith Davidson Moyers,
Trustee/Director................. 4,375 2,500 7,250 - - 98,500

Thomas F. Murray
Trustee/Director................. 4,625 2,750 6,500 - - 83,750
</TABLE>
__________________________

* Represents fees paid to each trustee during the fiscal year ended March 31,
1995.

** Represents fees paid to each trustee during the fiscal year ended November
30, 1995.

*** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1995.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS

Mitchell Hutchins acts as the investment adviser and administrator to each Fund
pursuant to advisory contracts. Under the advisory contracts, each Fund pays
Mitchell Hutchins a fee, computed daily and paid monthly, at the annual rate of
the value of the Fund's average daily net assets. Furthermore, under a service
agreement with each Fund that is reviewed by each board of trustees or board of
directors annually, PaineWebber provides certain services to the Funds not
otherwise provided by the Funds' transfer agent.

Under the terms of the Advisory Contract, the Fund bears all expenses incurred
in its operation that are not specifically assumed by Mitchell Hutchins.
Expenses borne by the Fund include the following: (1) the cost (including
brokerage commissions) 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 Mitchell Hutchins; (3)

- 36 -
<PAGE>

organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to trustees and officers who are not interested
persons (as defined in the 1940 Act) of the Trust or Mitchell Hutchins; (6) all
expenses incurred in connection with the trustees' services, including travel
expenses; (7) taxes (including any income or franchise taxes) and governmental
fees; (8) costs of any liability, 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
Fund for violation of any law; (10) legal, accounting and auditing expenses,
including legal fees of special counsel for the independent trustees; (11)
charges of custodians, transfer agents and other agents; (12) costs of preparing
share certificates; (13) expenses of setting in type and printing prospectuses,
statements of additional information and supplements thereto, reports and proxy
materials for existing shareholders, and costs of mailing such materials to
shareholders; (14) any extraordinary expenses (including fees and disbursements
of counsel) incurred by the 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 trustees and
officers; and (18) costs of mailing, stationery and communications equipment.

As required by state regulation, Mitchell Hutchins will reimburse the Fund if
and to the extent the aggregate operating expenses of the Fund in any fiscal
year exceed applicable limits. Currently, the most restrictive such limit
applicable to the Fund is 2.5% of the first $30 million of the Fund's average
daily net assets, 2.0% of the next $70 million of its average daily net assets
and 1.5% of its average daily net assets in excess of $100 million. Certain
expenses, such as brokerage commissions, taxes, interest, distribution fees and
extraordinary items, are excluded from this limitation. For the last applicable
fiscal years and period, no reimbursements were made pursuant to such limitation
to any Fund.

Under the Advisory Contract, Mitchell Hutchins will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the Advisory Contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Advisory Contract terminates
automatically upon assignment and is terminable at any time without penalty by
the Fund's board of directors or by vote of the holders of a majority of the
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to the Fund.

CAPITAL APPRECIATION FUND. Mitchell Hutchins acts as the investment adviser and
administrator of the Fund pursuant to a contract dated March 20, 1992 with the
Trust ("Advisory Contract"). Under the Advisory Contract, the Fund pays Mitchell
Hutchins a fee, computed daily and paid monthly, at the annual rate of 1.00% of
the Fund's average daily net assets. Pursuant to the Advisory Contract, for the
fiscal years ended March 31, 1995 and March 31, 1994 and the period from April
7, 1992 (commencement of operations) to March 31, 1993, the Fund paid (or
accrued) to Mitchell Hutchins in investment advisory and administration fees of
$2,168,097, $2,018,477 and $1,109,234, respectively.

Pursuant to a service agreement with the Fund that is reviewed by the Trust's
board of trustees annually, PaineWebber provides certain services to the Fund
not otherwise provided by its transfer agent. Pursuant to the service agreement,
for the fiscal years ended March 31, 1995 and March 31, 1994 and the period from
April 7, 1992 (commencement of operations) to March 31, 1993 and the Fund paid
(or accrued) to PaineWebber service fees of $98,260, $88,794 and $55,713,
respectively.

The Advisory Contract authorities Mitchell Hutchins to retain one or more sub-
advisers, but does not require Mitchell Hutchins to do so. Mitchell Hutchins
has entered into a separate contract with the Sub-Adviser, dated March 21, 1995
("Sub-Advisory Contract"), pursuant to which the Sub-Adviser determines what
securities will

- 37 -
<PAGE>

be purchased, sold or held by the Fund. Under the Sub-Advisory Contract,
Mitchell Hutchins (not the Fund) pays the Sub-Adviser a monthly fee of 50% of
the fee paid by the Fund to Mitchell Hutchins under the Advisory Contract. The
Sub-Adviser bears all expenses incurred by it in connection with its services
under the Sub-Advisory Contract. Under the Sub-Advisory Contract and a prior
substantially identical contract for the fiscal years ended March 31, 1995 and
March 31, 1994 and the period from April 7, 1992 (commencement of operations) to
March 31, 1993, Mitchell Hutchins paid (or accrued) to the Sub-Adviser sub-
advisory fees of $1,084,049, $1,009,239 and $554,617, respectively.

Under the Sub-Advisory Contract, the Sub-Adviser will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust, the
Fund, its shareholders or Mitchell Hutchins in connection with the Sub-Advisory
Contract, except any liability to the Trust, the Fund, its shareholders or
Mitchell Hutchins to which the Sub-Adviser would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Sub-Advisory Contract.

The Sub-Advisory Contract terminates automatically upon its assignment or the
termination of the Advisory Contract and is terminable at any time without
penalty by the board of trustees or by vote of the holders of a majority of the
Fund's outstanding voting securities on 60 days' notice to the Sub-Adviser, or
by the Sub-Adviser on 120 days' written notice to Mitchell Hutchins. The Sub-
Advisory Contract may also be terminated by Mitchell Hutchins (1) upon material
breach by the Sub-Adviser of its representations and warranties, which breach
shall not have been cured within a 20-day period after notice of such breach;
(2) if the Sub-Adviser becomes unable to discharge its duties and obligations
under the Sub-Advisory Contract or (3) on 120 days' notice to the Sub-Adviser.

FINANCIAL SERVICES GROWTH FUND. Mitchell Hutchins acts as the investment
- ------------------------------
adviser and administrator of the Fund pursuant to a contract with the Fund dated
April 1, 1990 ("Advisory Contract"). Under the Advisory Contract, the Fund pays
Mitchell Hutchins a fee, computed daily and paid monthly, at the annual rate of
0.70% of the Fund's average daily net assets. During the fiscal years ended
March 31, 1995, March 31, 1994 and March 31, 1993, the Fund paid (or accrued) to
Mitchell Hutchins investment advisory and administration fees totalling
$480,025, $513,461 and $376,258, respectively.

Pursuant to a service agreement with the Fund that is reviewed by the Fund's
board of directors annually, PaineWebber provides certain services to the Fund
not otherwise provided by its transfer agent. Pursuant to the service
agreement, for the fiscal years ended March 31, 1995, March 31, 1994 and March
31, 1993, the Fund paid (or accrued) to PaineWebber $22,723, $22,270 and
$14,702, respectively.

UTILITY INCOME FUND. Mitchell Hutchins acts as the investment adviser and
- -------------------
administrator of the Fund pursuant to a contract with the Trust dated April 21,
1988, as supplemented by a separate Fee Agreement dated May 1, 1992 ("Advisory
Contract"). Under the Advisory Contract, the Trust pays Mitchell Hutchins an
annual fee of 0.70% of the Fund's average net assets, computed daily and paid
monthly.

For the fiscal years ended November 30, 1995 and November 30, 1994 and the
period July 2, 1993 (commencement of operations) to November 30, 1993, the Trust
paid (or accrued) to Mitchell Hutchins investment advisory and administration
fees of $436,613, $515,462 and $190,913, respectively.

Under a service agreement with the Trust, PaineWebber provides certain services
to the Fund not otherwise provided by its transfer agent. The agreement is
reviewed by the Trust's board of trustees annually. For the fiscal years ended
November 30, 1995 and November 30, 1994 and the period July 2, 1993,
(commencement of operations) to November 30, 1993, PaineWebber earned fees under
the service agreement in the amounts of $24,449, $28,223 and $10,021,
respectively.

- 38 -
<PAGE>

NET ASSETS

The following table shows the approximate net assets as of December 31, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>

Net Assets
Investment Category ($ mil)
- --------------------------------------- -----------
<S> <C>

Domestic (excluding Money Market)...... $ 5,674.6

Global................................. 2,847.3

Equity/Balanced........................ 2,810.4

Fixed Income (excluding Money Market).. 5,711.5

Taxable Fixed Income.............. 3,957.9

Tax-Free Fixed Income............. 1,753.6

Money Market Funds..................... 20,622.2

</TABLE>

PERSONNEL TRADING POLICIES

Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to codes of ethics that describes the fiduciary duty owed to
shareholders of PaineWebber mutual funds and other Mitchell Hutchins advisory
accounts by all Mitchell Hutchins' directors, officers and employees. The codes
of ethics establish 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 applicable to Mitchell Hutchins
personnel puts restrictions on the timing of personal investing in relation to
trades by PaineWebber and other Mitchell Hutchins advisory clients. Sub-Adviser
personnel may also invest in securities for their own accounts pursuant to a
comparable code of ethics.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins acts as the distributor of the Funds' Class A, Class B and
Class C shares under separate distribution contracts with each Fund dated July
7, 1993 (collectively, "Distribution Contracts") that require Mitchell Hutchins
to use its best efforts, consistent with its other businesses, to sell shares of
each Fund. Shares of each of the Funds are offered continuously. Under separate
exclusive dealer agreements between Mitchell Hutchins and PaineWebber dated July
7, 1993, relating to the Class A, Class B and Class C shares (collectively,
"Exclusive Dealer Agreements"), PaineWebber and its correspondent firms sell the
Funds' shares.

Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares adopted by the Funds in the manner prescribed under Rule 12b-1
under the 1940 Act ("Class A Plan," "Class B Plan" and "Class C Plan,"
collectively, "Plans"), the Funds each pay Mitchell Hutchins a service fee,
accrued daily and payable monthly, at the annual rate of 0.25% of the average
daily net assets of each Class of shares for each respective Fund. Under the
Class B Plan and the Class C Plan, each Fund pays Mitchell Hutchins a
distribution

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<PAGE>

fee, accrued daily and payable monthly, at the annual rate of 0.75% of the
average daily net assets of the Class B shares and Class C shares of each
respective Fund.

Among other things, each Plan provides that (1) Mitchell Hutchins will submit to
each Fund's board of trustees or board of directors at least quarterly, and the
trustees or directors will review, reports regarding all amounts expended under
the Plan and the purposes for which such expenditures were made, (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by each board of trustees or board
of directors, including those trustees or directors who are not "interested
persons" of their respective Funds and who have no direct or indirect financial
interest in the operation of the Plan or any agreement related to the Plan,
acting in person at a meeting called for that purpose, (3) payments by a Fund
under the Plan shall not be materially increased without the affirmative vote of
the holders of a majority of the outstanding shares of the relevant class of the
respective Fund and (4) while the Plan remains in effect, the selection and
nomination of trustees or directors who are not "interested persons" of the
Funds shall be committed to the discretion of the trustees or directors who are
not "interested persons" of their respective Funds.

In reporting amounts expended under the Plans to the trustees or directors,
Mitchell Hutchins allocates expenses attributable to the sale of each Class of
each Fund's shares to such Class based on the ratio of sales of shares of such
Class to the sales of all three Classes of shares. The fees paid by one Class of
a Fund's shares will not be used to subsidize the sale of any other Class of
Fund shares.

For the fiscal year ended March 31, 1995 (for Capital Appreciation Fund and
Financial Services Growth Fund) and November 30, 1995 (for Utility Income Fund),
the Funds paid (or accrued) the following respective fees to Mitchell Hutchins
under the Plans:

<TABLE>
<CAPTION>
CAPITAL FINANCIAL
APPRECIATION SERVICE
FUND GROWTH FUND UTILITY INCOME FUND
-------------------- ----------------- -------------------

Class A.. $ 146,951 $124,319 $ 28,100

Class B.. $1,322,393 $142,332 $380,824

Class C.. $ 257,893 $ 46,135 $130,503

</TABLE>

Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to each Fund during the fiscal year ended March 31, 1995
(for Capital Appreciation Fund and Financial Services Growth Fund) and November
30, 1995 (for Utility Income Fund):

- 40 -
<PAGE>

<TABLE>
<CAPTION>
CAPITAL FINANCIAL
APPRECIATION SERVICES
FUND GROWTH FUND UTILITY INCOME FUND
------------ ----------- -------------------
<S> <C> <C> <C>
CLASS A
- -------

Marketing and advertising.................. $ 25,350 $ 14,403 $ 33,365

Printing of prospectuses and statement of $ 1,834 $ 4,851 $ 93
additional information....................

Branch network costs allocated and $279,694 $ 63,628 $ 31,627
interest expense..........................

Service fees paid to PaineWebber $ 66,128 $ 55,944 $ 12,645
Investment Executives.....................

CLASS B
- -------

Marketing and advertising.................. $ 57,431 $ 18,082 $159,959

Amortization of commissions................ $568,533 $ 67,011 $189,121

Printing of prospectuses and statement of $ 4,068 $ 1,611 $ 447
additional information....................

Branch network costs allocated and $703,288 $117,529 $191,113
interest expense..........................

Service fees paid to PaineWebber $148,770 $ 16,012 $ 42,843
investment executives.....................

CLASS C
- -------

Marketing and advertising.................. $ 29,735 $ 25,515 $ 41,770

Amortization of commissions................ $ 36,119 $ 19,875 $ 28,994

Printing of prospectuses and statement of $ 2,074 $ 409 $ 117
additional information....................

Branch network costs allocated and $344,927 $195,843 $ 42,551
interest expense..........................
Service fees paid to PaineWebber $ 29,013 $ 5,190 $ 14,682
investment executives.....................
</TABLE>

"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing the Funds' shares. These
internal costs encompass office rent, salaries and other overhead expenses of
various departments and areas of operations of Mitchell Hutchins. "Branch
network costs allocated and interest expense" consist of an allocated portion of
the expenses of various PaineWebber departments involved in the distribution of
the Funds' shares, including the PaineWebber retail branch system.

In approving the Funds' overall Flexible Pricing SM system of distribution, each
Trust's boards of trustees or Fund's board of directors considered several
factors, including that implementation of Flexible Pricing would (1) enable
investors to choose the purchasing option best suited to their individual
situation, thereby encouraging current shareholders to make additional
investments in each respective Fund and attracting new investors and assets to
the Fund to the benefit of the Fund and its shareholders, (2) facilitate
distribution of the Funds' shares

- 41 -
<PAGE>

and (3) maintain the competitive position of the Funds in relation to other
funds that have implemented or are seeking to implement similar distribution
arrangements.

In approving the Class A Plan, the trustees or directors of each Fund considered
all the features of the distribution system, including (1) the conditions under
which initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales charge combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Funds than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Funds' assets and potential continued growth, (4) the
services provided to the Funds and their shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement
with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder service-related
expenses and costs.

In approving the Class B Plan, the trustees or directors of each Fund considered
all the features of the distribution system, including (1) the conditions under
which contingent deferred sales charges would be imposed and the amount of such
charges, (2) the advantage to investors in having no initial sales charges
deducted from Fund purchase payments and instead having the entire amount of
their purchase payments immediately invested in Fund shares, (3) Mitchell
Hutchins' belief that the ability of PaineWebber investment executives and
correspondent firms to receive sales commissions when Class B shares are sold
and continuing service fees thereafter while their customers invest their entire
purchase payments immediately in Class B shares would prove attractive to the
investment executives and correspondent firms, resulting in greater growth of
the Funds than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Funds' assets
and potential continued growth, (5) the services provided to the Funds and their
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service and distribution-related expenses and
costs. The trustees and directors also recognized that Mitchell Hutchins'
willingness to compensate PaineWebber and its investment executives, without the
concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.

In approving the Class C Plan, the trustees or directors of each Fund considered
all the features of the distribution system, including (1) the advantage to
investors in having no initial sales charges deducted from the Fund purchase
payments and instead having the entire amount of their purchase payments
immediately invested in Fund shares, (2) the advantage to investors in being
free from contingent deferred sales charges upon redemption for shares held more
than one year and paying for distribution on an ongoing basis, (3) Mitchell
Hutchins' belief that the ability of PaineWebber investment executives and
correspondent firms to receive sales compensation for their sales of Class C
shares on an ongoing basis, along with continuing service fees, while their
customers invest their entire purchase payments immediately in Class C shares
and generally do not face contingent deferred sales charges, would prove
attractive to the investment executives and correspondent firms, resulting in
greater growth to the Funds than might otherwise be the case, (4) the advantages
to the shareholders of economies of scale resulting from growth in the Funds'
assets and potential continued growth, (5) the services provided to the Funds
and their shareholders by Mitchell Hutchins, (6) the services provided by
PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins
and (7) Mitchell Hutchins' shareholder service- and distribution-related
expenses and costs. The trustees and directors also recognized that Mitchell
Hutchins' willingness to compensate PaineWebber and its investment executives
without the concomitant receipt by Mitchell Hutchins of initial sales charges or
contingent deferred sales charges upon redemption, was conditioned upon its
expectation of being compensated under the Class C Plan.

With respect to each Plan, the trustees or directors considered all compensation
that Mitchell Hutchins would receive under the Plan and the Distribution
Contract, including service fees and, as applicable, initial sales charges,
distribution fees and contingent deferred sales charges. The trustees and
directors also considered the benefits that would accrue to Mitchell Hutchins
under each Plan in that Mitchell Hutchins would receive service, distribution
and advisory fees which are calculated based upon a percentage of the average
net assets of each

- 42 -
<PAGE>

Fund, which would increase if the Plan were successful and the Funds attained
and maintained significant asset levels.

Under the Distribution Contract for the Class A shares and similar prior
distribution contracts, for the fiscal years set forth below, Mitchell Hutchins
earned the following approximate amounts of sales charges and retained the
following approximate amounts, net of concessions to PaineWebber as exclusive
dealer.

Fiscal Year Ended

1995 1994 1993
-------- -------- ----------
CAPITAL APPRECIATION FUND

Earned........... $118,445 $286,632 $1,566,801

Retained......... $ 7,400 $ 16,609 $ 93,862

FINANCIAL SERVICES GROWTH FUND

Earned........... $ 65,516 $130,214 $ 104,620

Retained......... $ 37,931 $ 85,205 $ 15,815

UTILITY INCOME FUND

Earned........... $ 12,015 $ 74,565 $ 650,971

Retained......... $ 608 $ 4,440 $ 72,315

For the fiscal year ended August 31, 1995 (for Capital Appreciation Fund and
Financial Services Growth Fund) and November 30, 1995 (for Utility Income Fund),
Mitchell Hutchins earned and retained $574,248, $81,254, and $276,058,
respectively, in contingent deferred sales charges paid upon certain redemptions
of Class B shares.

PORTFOLIO TRANSACTIONS

Subject to policies established by each Fund's board of trustees or board of
directors, Mitchell Hutchins (or, in the case of PaineWebber Capital
Appreciation Fund throughout this section on Portfolio Transactions, the Sub-
Adviser) is responsible for the execution of each Fund's portfolio transactions
and the allocation of brokerage transactions. In executing portfolio
transactions, Mitchell Hutchins or the Sub-Adviser seeks to obtain the best net
results for the Funds, taking into account such factors as the price (including
the applicable brokerage commission or dealer spread), size of order, difficulty
of execution and operational facilities of the firm involved. Prices paid to
dealers in principal transactions, through which most debt securities and some
equity securities are traded, 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. The Funds may invest in securities traded
in the OTC market and will engage primarily in transactions directly with the
dealers who make markets in such securities, unless a better price or execution
could be obtained by using a broker. While Mitchell Hutchins or

- 43 -
<PAGE>

the Sub-Adviser generally seeks reasonably competitive commission rates and
dealer spreads, payment of the lowest commission or spread is not necessarily
consistent with obtaining the best net results. For the fiscal years ended March
31, 1995, and March 31, 1994 and the period from April 7, 1992 (commencement of
operations) to March 31, 1993, Capital Appreciation Fund paid $322,307, $421,737
and $577,885, respectively, in brokerage commissions. For the fiscal years ended
March 31, 1995, March 31, 1994 and March 31, 1993, Financial Services Growth
Fund paid $20,088, $28,924 and $49,552, respectively, in brokerage commissions.
For the fiscal years ended November 30, 1995, and November 30, 1994 and the
period July 2, 1993 (commencement of operations) to November 30, 1993, Utility
Income Fund paid $74,250, $185,420 and $107,760, respectively, in brokerage
commissions.

The Funds have no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Funds contemplate that, consistent with
the policy of obtaining the best net results, brokerage transactions may be
conducted through PaineWebber. The Funds' board of trustees or board of
directors has adopted procedures in conformity with Rule 17e-1 under the 1940
Act to ensure that all brokerage commissions paid to PaineWebber are reasonable
and fair. Specific provisions in the Advisory Contracts authorize PaineWebber to
effect portfolio transactions for the Funds on such exchange and to retain
compensation in connection with such transactions. Any such transactions will be
effected and related compensation paid only in accordance with applicable SEC
regulations. For the fiscal year ended March 31, 1995, Capital Appreciation Fund
paid no brokerage commissions to PaineWebber or any other Mitchell Hutchins
affiliate. For the fiscal year ended March 31, 1994, Capital Appreciation Fund
paid $2,730 in brokerage commissions to PaineWebber. For the period from April
7, 1992 (commencement of operations) to March 31, 1993, no brokerage commissions
were paid by the Fund to PaineWebber or any other Mitchell Hutchins affiliate.
For the fiscal year ended March 31, 1995, Financial Services Growth Fund paid no
brokerage commissions to PaineWebber. For the fiscal years ended March 31, 1994
and March 31, 1993, Financial Services Growth Fund paid $0 and $4200,
respectively, in brokerage commissions to PaineWebber. For the fiscal years
ended November 30, 1995 and November 30, 1994 and the period July 2, 1993
(commencement of operations) to November 30, 1993, Utility Income Fund paid no
brokerage commissions to PaineWebber or any other affiliate of Mitchell
Hutchins.

Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Funds' procedures in selecting FCMs to execute their transactions in futures
contracts, including procedures permitting the use of PaineWebber are similar to
those in effect with respect to brokerage transactions in securities.

Consistent with the interests of the Funds and subject to the review of each
Fund's board of trustees or board of directors, Mitchell Hutchins or the Sub-
Adviser may cause the Funds to purchase and sell portfolio securities from and
to dealers or through brokers who provide the Funds with research, analysis,
advice and similar services. In return for such services, the Funds may pay to
those brokers a higher commission than may be charged by other brokers, provided
that Mitchell Hutchins or the Sub-Adviser determines in good faith that such
commission is reasonable in terms either of that particular transaction or of
the overall responsibility of Mitchell Hutchins and the Sub-Adviser, as
applicable, to the Funds and their other clients and that the total commissions
paid by the Funds will be reasonable in relation to the benefits to the Funds
over the long term. For the fiscal year ended March 31, 1995 (for Capital
Appreciation Fund and Financial Services Growth Fund) and November 30, 1995 (for
Utility Income Fund), Mitchell Hutchins directed $45,882,954, $743,887 and
$7,084,068, respectively, in portfolio transactions to brokers chosen because
they provided research services, for which the Funds paid $75,512, $1,400 and
$10,010, respectively, in commissions.

For purchases or sales with broker-dealer firms which act as principal, Mitchell
Hutchins or the Sub-Adviser seeks best execution. Although Mitchell Hutchins and
the Sub-Adviser may receive certain research or execution services in connection
with these transactions, Mitchell Hutchins and the Sub-Adviser will not purchase

- 44 -
<PAGE>

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. Moreover, Mitchell Hutchins and the Sub-Adviser will not enter
into any explicit soft dollar arrangements relating to principal transactions
and will not receive in principal transactions the types of services which could
be purchased for hard dollars. Mitchell Hutchins or the Sub-Adviser may engage
in agency transactions in OTC equity and debt securities in return for research
and execution services. These transactions are entered into only in compliance
with procedures ensuring that the transaction (including commissions) is at
least as favorable as it would have been if effected directly with a market-
maker that did not provide research or execution services. These procedures
include Mitchell Hutchins or the Sub-Adviser receiving multiple quotes from
dealers before executing the transactions on an agency basis.

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 or the Sub-Adviser in advising other funds or accounts and, conversely,
research services furnished to Mitchell Hutchins or the Sub-Adviser by brokers
or dealers in connection with other funds or accounts that either of them
advises may be used in advising the Funds. Information and research received
from brokers or dealers will be in addition to, and not in lieu of, the services
required to be performed by Mitchell Hutchins under the Advisory Contract or the
Sub-Adviser under the Sub-Advisory Contract.

Investment decisions for the Funds and for other investment accounts managed by
Mitchell Hutchins or by the Sub-Adviser are made independently of each other in
light of differing considerations for the various accounts. However, the same
investment decision may occasionally be made for a Fund and one or more of such
accounts. In such cases, simultaneous transactions are inevitable. Purchases or
sales are then averaged as to price and allocated between that Fund and such
other account(s) as to amount according to a formula deemed equitable to the
Fund and such account(s). While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as the Funds
are concerned, or upon their ability to complete their entire order, in other
cases it is believed that coordination and the ability to participate in volume
transactions will be beneficial to the Funds.

The Funds will not purchase securities that are offered in underwritings in
which PaineWebber is a member of the underwriting or selling group, except
pursuant to procedures adopted by each Fund's board of trustees or board of
directors pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the spread or commission paid in connection with such a
purchase be reasonable and fair, the purchase be at not more than the public
offering price prior to the end of the first business day after the date of the
public offering and that PaineWebber or any affiliate thereof not participate in
or benefit from the sale to the Funds.

PORTFOLIO TURNOVER. The Funds' annual portfolio turnover rates may vary greatly
from year to year, but they will not be a limiting factor when management deems
portfolio changes appropriate. The portfolio turnover rate is calculated by
dividing the lesser of each Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year.

The Funds' respective portfolio turnover rates for the preceding two fiscal
years were:

CAPITAL APPRECIATION FUND

Fiscal Year ended March 31, 1995 42%

Fiscal Year ended March 31, 1994 60%

FINANCIAL SERVICES GROWTH FUND

Fiscal Year ended March 31, 1995 14%

Fiscal Year ended March 31, 1994 22%

- 45 -
<PAGE>

UTILITY INCOME FUND

Fiscal Year ended November 30, 1995 30%
Fiscal Year ended November 30, 1994 92%

REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES

COMBINED PURCHASE PRIVILEGE-CLASS A SHARES. Investors and eligible groups of
related Fund investors may combine purchases of Class A shares of the Funds with
concurrent purchases of Class A shares of any other PaineWebber mutual fund and
thus take advantage of the reduced sales charges indicated in the table of sales
charges for Class A shares in the Prospectus. The sales charge payable on the
purchase of Class A shares of the Funds and Class A shares of such other funds
will be at the rates applicable to the total amount of the combined concurrent
purchases.

An "eligible group of related Fund investors" can consist of any combination of
the following:

(a) an individual, that individual's spouse, parents and children;

(b) an individual and his or her Individual Retirement Account ("IRA");

(c) an individual (or eligible group of individuals) and any company controlled
by the individual(s) (a person, entity or group that holds 25% or more of the
outstanding voting securities of a corporation will be deemed to control the
corporation, and a partnership will be deemed to be controlled by each of its
general partners);

(d) an individual (or eligible group of individuals) and one or more employee
benefit plans of a company controlled by individual(s);

(e) an individual (or eligible group of individuals) and a trust created by the
individual(s), the beneficiaries of which are the individual and/or the
individual's spouse, parents or children;

(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to Minors
Act account created by the individual or the individual's spouse;

(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed related to
that other employer); or

(h) an individual's accounts with the same investment adviser.

RIGHTS OF ACCUMULATION-CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Funds among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount equal
to the then-current net asset value of the purchaser's combined holdings of
Class A Fund shares and Class A shares of any other PaineWebber mutual fund. The
purchaser must provide sufficient information to permit confirmation of his or
her holdings, and the acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time.

- 46 -
<PAGE>

WAIVERS OF SALES CHARGES-CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the individual shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only to
redemption of shares held at the time of death.

Certain PaineWebber mutual funds offered shares subject to contingent deferred
sales charges before the implementation of the Flexible Pricing System on July
1, 1991 ("CDSC Funds"). The contingent deferred sales charge is waived with
respect to redemptions of Class B shares of CDSC Funds purchased prior to July
1, 1991 by officers, directors (trustees) or employees of the CDSC Funds,
Mitchell Hutchins or their affiliates (or their spouses and children under age
21). In addition, the contingent deferred sales charge will be reduced by 50%
with respect to redemptions of Class B shares of CDSC Funds purchased prior to
July 1, 1991 with a net asset value at the time of purchase of at least $1
million. If Class B shares of a CDSC Fund purchased prior to July 1, 1991 are
exchanged for Class B shares of the Funds, any waiver or reduction of the
contingent deferred sales charge that applied to the Class B Shares of the CDSC
Fund will apply to the Class B shares of the Funds acquired through the
exchange.

ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the Prospectus,
eligible shares of the Funds may be exchanged for shares of the corresponding
Class of most other PaineWebber mutual funds. This exchange privilege is
available only in those jurisdictions where the sale of PaineWebber fund shares
to be acquired through such exchange may be legally made. Shareholders will
receive at least 60 days' notice of any termination or material modification of
the exchange offer, except no notice need be given of an amendment whose only
material effect is to reduce the exchange fee and no notice need be given if,
under extraordinary circumstances, either redemptions are suspended under the
circumstances described below or a Fund temporarily delays or ceases the sales
of its shares because it is unable to invest amounts effectively in accordance
with the Fund's investment objective, policies and restrictions.

If conditions exist that make cash payments undesirable, the Funds reserve the
right to honor any request for redemption by making payment in whole or in part
in securities chosen by the Funds and valued in the same way as they would be
valued for purposes of computing the Funds' net asset value. If payment is made
in securities, a shareholder may incur brokerage expenses in converting these
securities into cash. Each Fund has elected, however, to be governed by Rule
18f-1 under the 1940 Act, under which the Funds are obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Funds during any 90-day period for one shareholder. This election is irrevocable
unless the SEC permits its withdrawal.

The Funds may suspend redemption privileges or postpone the date of payment
during any period (1) when the NYSE is closed or trading on the NYSE is
restricted as determined by the SEC, (2) when an emergency exists, as defined by
the SEC, that makes it not reasonably practicable for a 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 a Fund's portfolio at the
time.

SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly plans
and on or about the 15th of the months selected for quarterly or semi-annual
plans, PaineWebber will arrange for redemption by the Funds of sufficient Fund
shares to provide the withdrawal payment specified by participants in the Funds'
systematic withdrawal plan. The payment generally is mailed approximately five
business days after the redemption date. Withdrawal payments should not be
considered dividends, but redemption proceeds, with the tax consequences
described under "Dividends and Taxes" in the Prospectus. If periodic withdrawals
continually exceed reinvested dividends, a shareholder's investment may be
correspondingly reduced. A shareholder may change the amount of the systematic
withdrawal or terminate participation in the systematic withdrawal plan at any
time without charge or penalty by written instructions with signatures
guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to
participate in the plan, change the withdrawal amount or terminate

- 47 -
<PAGE>

participation in the plan will not be effective until five days after written
instructions with signatures guaranteed are received by the Transfer Agent.
Shareholders may request the forms needed to establish a systematic withdrawal
plan from their PaineWebber investment executives, correspondent firms or the
Transfer Agent at 1-800-647-1568.

REINSTATEMENT PRIVILEGE-CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in the Funds without a sales charge. Shareholders may exercise the reinstatement
privilege by notifying the Transfer Agent of such desire and forwarding a check
for the amount to be purchased within 365 days after the date of redemption. The
reinstatement will be made at the net asset value per share next computed after
the notice of reinstatement and check are received. The amount of a purchase
under this reinstatement privilege cannot exceed the amount of the redemption
proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised; however, a loss arising out of a
redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, and an adjustment will be made to the
shareholder's tax basis for shares acquired pursuant to the reinstatement
privilege. Gain or loss on a redemption also will be adjusted for federal income
tax purposes by the amount of any sales charge paid on Class A shares, under the
circumstances and to the extent described in "Dividends and Taxes" in the
Prospectus.

PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN SM;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT (R)(RMA (R))

Shares of PaineWebber mutual funds (each a "PW Fund" and, collectively, the "PW
Funds") are available for purchase through the RMA Resource Accumulation Plan
("Plan") by customers of PaineWebber and its correspondent firms who maintain
Resource Management Accounts ("RMA accountholders"). The Plan allows an RMA
accountholder to continually invest in one or more of the PW Funds at regular
intervals, with payment for shares purchased automatically deducted from the
client's RMA account. The client may elect to invest at monthly or quarterly
intervals and may elect either to invest a fixed dollar amount (minimum $100 per
period) or to purchase a fixed number of shares. A client can elect to have Plan
purchases executed on the first or fifteenth day of the month. Settlement occurs
three Business Days (defined under "Valuation of Shares") after the trade date,
and the purchase price of the shares is withdrawn from the investor's RMA
account on the settlement date from the following sources and in the following
order: uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.

To participate in the Plan, an investor must be an RMA accountholder, must have
made an initial purchase of the shares of each PW Fund selected for investment
under the Plan (meeting applicable minimum investment requirements) and must
complete and submit the RMA Resource Accumulation Plan Client Agreement and
Instruction Form available from PaineWebber. The investor must have received a
current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.

The terms of the Plan, or an RMA accountholder's participation in the Plan, may
be modified or terminated at any time. It is anticipated that, in the future,
shares of other PW Funds and/or mutual funds other than the PW Funds may be
offered through the Plan.

PERIODIC INVESTING AND DOLLAR COST AVERAGING.

Periodic investing in the PW Funds or other mutual funds, whether through the
Plan or otherwise, helps investors establish and maintain a disciplined approach
to accumulating assets over time, de-emphasizing the importance of timing the
market's highs and lows. Periodic investing also permits an investor to take
advantage of "dollar cost averaging." By investing a fixed amount in mutual fund
shares at established intervals, an

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<PAGE>

investor purchases more shares when the price is lower and fewer shares when the
price is higher, thereby increasing his or her earning potential. Of course,
dollar cost averaging does not guarantee a profit or protect against a loss in a
declining market, and an investor should consider his or her financial ability
to continue investing through periods of low share prices. However, over time,
dollar cost averaging generally results in a lower average original investment
cost than if an investor invested a larger dollar amount in a mutual fund at one
time.

PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.

In order to enroll in the Plan, an investor must have opened an RMA account with
PaineWebber or one of its correspondent firms. The RMA account is PaineWebber's
comprehensive asset management account and offers investors a number of
features, including the following:

. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold MasterCard
(R) transactions during the period, and provide unrealized and realized
gain and loss estimates for most securities held in the account;

. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;

. automatic "sweep" of uninvested cash into the RMA accountholder's choice of
one of the seven RMA money market funds-RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund, RMA Connecticut Municipal Money Fund, RMA New Jersey Municipal
Money Fund and RMA New York Municipal Money Fund. Each money market fund
attempts to maintain a stable price per share of $1.00, although there can
be no assurance that it will be able to do so. Investments in the money
market funds are not insured or guaranteed by the U.S. government;

. check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders can
code their checks to classify expenditures. All canceled checks are
returned each month;

. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;

. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;

. expanded account protection to $25 million in the event of the liquidation
of PaineWebber. This protection does not apply to shares of the RMA money
market funds or the PW Funds because those shares are held at the transfer
agent and not through PaineWebber; and

. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.

The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.

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<PAGE>

CONVERSION OF CLASS B SHARES

Class B shares of the Funds will automatically convert to Class A shares, based
on the relative net asset values per share of the two Classes, as of the close
of business on the first Business Day (as defined under "Valuation of Shares")
of the month in which the sixth anniversary of the initial issuance of such
Class B shares of each Fund occurs. For the purpose of calculating the holding
period required for conversion of Class B shares, the date of initial issuance
shall mean (i) the date on which such Class B shares were issued, or (ii) for
Class B shares obtained through an exchange, or a series of exchanges, the date
on which the original Class B shares were issued. If the shareholder acquired
Class B shares of each Fund through an exchange of Class B shares of a CDSC Fund
that were acquired prior to July 1, 1991, the shareholder's holding period for
purposes of conversion will be determined based on the date the CDSC Fund shares
were initially issued. For purposes of conversion into Class A, Class B shares
purchased through the reinvestment of dividends and other distributions paid in
respect of Class B shares will be held in a separate sub-account. Each time any
Class B shares in the shareholder's regular account (other than those in the
sub-account) convert to Class A, a pro rata portion of the Class B shares in the
sub-account will also convert to Class A. The portion will be determined by the
ratio that the shareholder's Class B shares converting to Class A bears to the
shareholder's total Class B shares not acquired through dividends and other
distributions.

The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends and
other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of the Funds would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.

VALUATION OF SHARES

The Funds determine their net asset values per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., eastern time)
on the NYSE on each Business Day, which is defined as each Monday through Friday
when the NYSE is open. Currently the NYSE is closed on the observance of the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Securities that are listed on U.S. and foreign stock exchanges are valued at the
last sale price on the day the securities are valued or, lacking any sales on
such day, at the last available bid price. In cases where securities are traded
on more than one exchange, the securities are generally valued on the exchange
considered by Mitchell Hutchins or the Sub-Adviser as the primary market.
Securities traded in the OTC market and listed on Nasdaq are valued at the last
trade price on Nasdaq at 4:00 p.m., eastern time; other OTC securities are
valued at the last bid price available prior to valuation. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of each Fund's board of
trustees or board of directors. In valuing lower rated corporate debt securities
it should be recognized that judgment often plays a greater role than is the
case with respect to securities for which a broader range of dealer quotations
and last-sale information is available. All investments of the Funds quoted in
foreign currency will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rate prevailing at the time such valuation is
determined by the Funds' custodian.

Foreign currency exchange rates are generally determined prior to the close of
trading on the NYSE. Occasionally events affecting the value of foreign
investments and such exchange rates occur between the time

- 50 -
<PAGE>

at which they are determined and the close of trading on the NYSE, which events
would not be reflected in a computation of the Funds' net asset value on that
day. If events materially affecting the value of such investments or currency
exchange rates occur during such time period, the investments will be valued at
their fair value as determined in good faith by or under the direction of each
Fund's board of trustees or board of directors. The foreign currency exchange
transactions of the Funds conducted on a spot (that is, cash) basis are valued
at the spot rate for purchasing or selling currency prevailing on the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than one-tenth of one
percent due to the costs of converting from one currency to another.

PERFORMANCE INFORMATION

The Funds' performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and is not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.

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/ = 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. In
calculating the ending redeemable value, for Class A shares, the maximum 4.5%
sales charge is deducted from the initial $1,000 payment and, for Class B and
Class C shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B or Class C shares held for the period is deducted. All
dividends and other distributions are assumed to have been reinvested at net
asset value.

The Funds also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Funds calculate Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund shares
and assuming the reinvestment of all dividends and other distributions. The rate
of return is determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the initial value. Neither
initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return; the inclusion of those charges would reduce
the return.

Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years reflect conversion of the Class B shares to Class A
shares at the end of the sixth year.

The following table shows performance information for the Class A, Class B and
Class C shares of the Funds for the periods indicated. All returns for periods
of more than one year are expressed as an average return.

- 51 -
<PAGE>

CAPITAL APPRECIATION FUND
-------------------------

Class A Class B Class C
------- ------- -------

Fiscal year ended March 31, 1995:

Standardized Return*.......... 5.38% 4.46% 8.45%
Non-Standardized Return....... 10.36% 9.46% 9.45%

Inception** to March 31, 1995:

Standardized Return*.......... 8.80% 8.80% 13.49%
Non-Standardized Return....... 10.49% 9.64% 13.49%

- ---------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B shares reflect deduction of the applicable contingent deferred
sales charges imposed on a redemption of shares held for the period. Class
C shares impose a contingent deferred sales charge only on redemptions made
within a year of purchase; therefore, for periods longer than one year,
Non-Standardized Return is identical to Standardized Return.

** The inception date for each Class of shares is as follows: Class A - April
7, 1992, Class B - April 7, 1992, and Class C - July 2, 1992.

FINANCIAL SERVICES GROWTH FUND
------------------------------

CLASS A CLASS B CLASS C
-------- -------- --------

Fiscal year ended March 31, 1995:

Standardized Return*............ 5.24% 4.37% 8.34%
Non-Standardized Return......... 10.22% 9.37% 9.34%

Five years ended March 31, 1995:

Standardized Return*............ 19.25% NA NA
Non-Standardized Return......... 20.36% NA NA

Inception** to March 31, 1995:

Standardized Return*............ 11.25% 19.91% 12.91%
Non-Standardized Return......... 11.84% 20.24% 12.91%

- ---------------

* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B shares reflect deduction of the applicable contingent deferred
sales charges imposed on a redemption of shares held for the period. Class
C shares impose a contingent deferred sales charge only on redemptions made
within a year of purchase; therefore, for periods longer than one year,
Non-Standardized Return is identical to Standardized Return.

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<PAGE>

** The inception date for each Class of shares is as follows: Class A - May
22, 1986, Class B - July 1, 1991, and Class C - July 2, 1992.

UTILITY INCOME FUND
-------------------

CLASS A CLASS B CLASS C
-------- -------- --------

Fiscal year ended November 30,
1995:

Standardized Return*............ 18.09% 17.73% 21.71%
Non-Standardized Return......... 23.64% 22.73% 22.71%

Inception** to November 30, 1995:

Standardized Return*............ 5.64% 5.71% 8.69%
Non-Standardized Return......... 10.61% 8.71% 8.69%

** The inception date for each Class of shares is as follows: Class A - July
2, 1993, Class B - July 2, 1993, and Class C - July 2, 1993.

OTHER INFORMATION. In Performance Advertisements, the Funds may compare their
Standardized Return and/or their Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Companies Service ("Wiesenberger"), Investment
Company Data, Inc. ("ICD") or Morningstar Mutual Funds ("Morningstar"), with the
performance of recognized stock and other indices, including (but not limited
to) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), the Dow
Jones Industrial Average, the Nasdaq Composite Index, the Russell 2000 Index,
the Wilshire 5000 Index, the Lehman Bond Index, 30-year and 10-year U.S.
Treasury bonds, the Morgan Stanley Capital International World 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, Wiesenberger, ICD or Morningstar. Performance Advertisements also
may refer to discussions of the Funds and comparative mutual fund data and
ratings reported in independent periodicals, including (but not limited to) 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 include discussions or illustrations of the effects of compounding
in Performance Advertisements. "Compounding" refers to the fact that, if
dividends or other distributions on a Fund investment are reinvested in
additional Fund shares, any future income or capital appreciation of a Fund
would increase the value, not only of the original Fund investment, but also of
the additional Fund shares received through reinvestment. As a result, the value
of a Fund investment would increase more quickly than if dividends or other
distributions had been paid in cash.

- 53 -
<PAGE>

The Funds may also compare their performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and the
averages of yields of CDs of major banks published by Banxquote(R) Money
Markets. In comparing the Funds' 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. Shares of the Funds
are not insured or guaranteed by the U.S. government and returns and net asset
value will fluctuate. The securities held by the Funds generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in any of the Funds involves greater risks than
an investment in either a money market fund or a CD.

- 54 -
<PAGE>

The Funds may also compare its performance to general trends in the stock and
bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.

[GRAPHICS]

- 55 -
<PAGE>

Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1926 to 1994, stocks beat all
other traditional asset classes. A $10 investment in the S&P 500 grew to $8,101,
significantly more than any other investment.

The chart shown is for illustrative purposes only and does not represent the
Funds' performance and should not be considered an indication or guarantee of
future results. Year-to-year fluctuations of the S&P 500 have been significant,
and total return for some periods has been negative. The S&P 500 includes
companies with larger market capitalizations than those in which the Funds
invest. Unlike investors in bonds and Treasury bills, common stock investors do
not receive fixed income payments and are not entitled to repayment of
principal. These differences contribute to investment risk. Returns shown for
long-term government bonds are based on Treasury bonds with 20-year maturities.

TAXES

In order to continue to qualify for treatment as a regulated investment company
("RIC") under the Internal Revenue Code, the Funds must distribute to their
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income net short-term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
Among these requirements are the following: (1) each Fund must derive at least
90% of their gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) each Fund must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, or any of the following, that were held for
less than three months--options, futures or forward contracts (other than those
on foreign currencies), or foreign currencies (or options, futures or forward
contracts thereon) that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities) ("Short-Short Limitation"); (3) at the close of each quarter of each
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, with these other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of that
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (4) at the close of each quarter of each
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.

Dividends and other distributions declared by the Funds in October, November or
December of any year and payable to shareholders of record on a date in any of
those months will be deemed to have been paid by the Funds and received by the
shareholders on December 31 of that year if the distributions are paid by the
Funds during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.

A portion of the dividends from each Fund's investment company taxable income
(whether paid in cash or reinvested in additional Fund shares) may be eligible
for the dividends-received deduction allowed to corporations. The eligible
portion may not exceed the aggregate dividends received by each Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.

If shares of any Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.

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<PAGE>

Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.

Dividends and interest received by each Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
the Funds' total assets at the close of its taxable year consists of securities
of foreign corporations, it will be eligible to, and may, file an election with
the Internal Revenue Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. Pursuant to the election, each Fund
would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as paid
by him or her, his or her proportionate share of those taxes; (2) treat his or
her share of those taxes and of any dividend paid by the Fund that represents
income from foreign or U.S. possessions sources as his or her own income from
those sources; and (3) either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his or her federal
income tax. The Funds will report to its shareholders shortly after each
taxable year their respective shares of the income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this election.

Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the one-
year period ending on October 31 of that year, plus certain other amounts.

Each Fund may invest in the stock of "passive foreign investment companies"
("PFICs") if such stock is a permissible investment. A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, each Fund will be subject to federal income tax on a portion of
any "excess distribution" received on the stock of a PFIC or of any gain from
disposition of such stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in each Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. If a Fund invests in
a PFIC and elects to treat the PFIC as a "qualified electing fund," then in lieu
of the foregoing tax and interest obligation, the Fund will be required to
include in income each year its pro rata share of the qualified electing fund's
annual ordinary earnings and net capital gain (the excess of net long-term
capital gain over net short-term capital loss)-which would have to be
distributed to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax-even if those earnings and gain are not distributed to the Fund. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.

Pursuant to proposed regulations, open-end RICs, such as the Funds, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-to-
market," in this context, means recognizing as gain for each taxable year the
excess, as of the end of that year, of the fair market value of each such PFIC's
stock over the owner's adjusted basis in that stock (including mark-to-market
gain for each prior year for which an election was in effect).

The use of hedging strategies, such as writing ("selling") and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses the Fund realizes in connection therewith. Income from foreign currencies
(except certain gains therefrom that may be excluded by futures regulations),
and income from transactions in options, futures

- 57 -
<PAGE>

and forward currency contracts derived by each Fund with respect to its business
of investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from the disposition of
options and futures contracts (other than those on foreign currencies) will be
subject to the Short-Short Limitation if they are held for less than three
months. Income from the disposition of foreign currencies, and options, futures
and forward contracts on foreign currencies, that are not directly related to
the Fund's principal business of investing in securities (or options and futures
with respect to securities) also will be subject to the Short-Short Limitation
if they are held for less than three months.

If a Fund satisfies certain requirements, any increase in value of a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Fund satisfies the Short-
Short Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. Each Fund will
consider whether it should seek to qualify for this treatment for its hedging
transactions. To the extent the Fund does not qualify for this treatment, it may
be forced to defer the closing out of certain options and futures beyond the
time when it otherwise would be advantageous to do so, in order for the Fund to
continue to qualify as a RIC.

OTHER INFORMATION

CAPITAL APPRECIATION FUND
- -------------------------

PaineWebber Managed Assets Trust is an entity of the type commonly known as
a "Massachusetts business trust." Under Massachusetts law, shareholders of the
Fund could, under certain circumstances, be held personally liable for the
obligations of the Trust or Fund. However, the Trust's Declaration of Trust
disclaims shareholder liability for acts or obligations of the Trust or the Fund
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 or the Fund, the
trustees or any of them in connection with the Trust. The Declaration of Trust
provides for indemnification from the 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 the fund itself would
be unable to meet its obligations, a possibility that Mitchell Hutchins believes
it remote and not material.

FINANCIAL SERVICES GROWTH FUND
- ------------------------------

PaineWebber Financial Services Growth Fund is incorporated in the State of
Maryland. Prior to December 14, 1995, the Fund's name was "PaineWebber Regional
Financial Growth Fund," and prior to July 1, 1991, the Fund's name was
"PaineWebber Classic Regional Financial Fund Inc." Prior to April 1, 1990, the
Fund operated as a closed-end investment company under the name of "Regional
Financial Shares Investment Fund Inc."

The Fund is authorized to issue Class C shares in addition to Class A,
Class B and Class D shares. Class C shares, if issued, would bear no service or
distribution fees, would be sold with no initial sales charge and would be
redeemable at net asset value without the imposition of a contingent deferred
sales charge.

UTILITY INCOME FUND
- -------------------

PaineWebber Managed Investments Trust is an entity of the type commonly
known as a "Massachusetts business trust." Prior to February 26, 1992, the
Trust's name was "PaineWebber Fixed Income Portfolios." Under Massachusetts
law, shareholders of the Fund could, under certain circumstances, be held
personally liable for the obligations of the Fund. However, the Trust's
Declaration of Trust disclaims shareholder liability for

- 58 -
<PAGE>

acts or obligations of the Trust or the Fund and requires the 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, the Fund, the trustees or any of them in connection with
the Trust. The Declaration of Trust provides for indemnification from the
Fund's property for all losses and expenses of any Fund shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder's incurring financial loss on account of a shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which Mitchell Hutchins believes is remote and not
material. Upon payment of any liability incurred by a shareholder solely by
reason of being or having been 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 Fund's operations in such a way as to avoid,
as far as possible, ultimate liability of the shareholders for liabilities of
the Fund.

CLASS-SPECIFIC EXPENSES. Each Fund may determine to allocate certain of
its expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares bear higher transfer agency fees per shareholder account than those borne
by Class A or Class C shares. The higher fee is imposed due to the higher costs
incurred by the transfer agent in tracking shares subject to a contingent
deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the applicable
charge. Moreover, the tracking and calculations required by the automatic
conversion feature of the Class B shares will cause the transfer agent to incur
additional costs. Although the transfer agency fee will differ on a per account
basis as stated above, the specific extent to which the transfer agency fees
will differ between the Classes as a percentage of net assets is not certain,
because the fee as a percentage of net assets will be affected by the number of
shareholder accounts in each Class and the relative amounts of net assets in
each Class.

COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036, counsel to the Funds, has passed upon the
legality of the shares offered by the Funds' Prospectus. 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

Each Fund's Annual Report to Shareholders for the last fiscal year is a
separate document supplied with this Statement of Additional Information and the
financial statements, accompanying notes and reports of independent auditors
appearing therein are incorporated herein by this reference.

- 59 -
<PAGE>

APPENDIX

DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC. ("MOODY'S") CORPORATE BOND
RATINGS

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as a
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues; Aa. Bonds which are rated Aa
are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities; A. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future; Baa. Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa. Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C. Bonds which are rated C
are the lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Note: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category, the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

DESCRIPTION OF STANDARD & POOR'S ("S&P") CORPORATE DEBT RATINGS

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the higher
rated issues only in small degree; A. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories; BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories; BB,
B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk

- 60 -
<PAGE>

exposures to adverse conditions; C1. The rating C1 is reserved for income bonds
on which no interest is being paid; D. Debt rated D is in default, and payment
of interest and/or repayment of principal is in arrears.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

No person has been authorized to give any information or to make any
representations not contained in the Prospectus or in this Statement of
Additional Information in connection with the offering made by the Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Fund or its distributor. The Prospectus
and this Statement of Additional Information do not constitute an offering by
the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.

TABLE OF CONTENTS

PAGE NO.
--------

INVESTMENT POLICIES AND RESTRICTIONS....................... 1

HEDGING STRATEGIES......................................... 15

TRUSTEES AND OFFICERS...................................... 23

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS.......... 36

PORTFOLIO TRANSACTIONS..................................... 43

REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES................. 46

CONVERSION OF CLASS B SHARES............................... 50

VALUATION OF SHARES........................................ 50

PERFORMANCE INFORMATION.................................... 51

TAXES...................................................... 56

OTHER INFORMATION.......................................... 58

FINANCIAL STATEMENTS....................................... 59

APPENDIX................................................... 60

- 61 -
<PAGE>

PAINEWEBBER CAPITAL APPRECIATION FUND

PAINEWEBBER FINANCIAL SERVICES GROWTH FUND

PAINEWEBBER UTILITY INCOME FUND

________________________________________________________________________________

Statement of Additional Information

February , 1996
<PAGE>

PART C. OTHER INFORMATION
-------------------------

Item 24. Financial Statements and Exhibits
---------------------------------

(a) Financial Statements: (filed herewith)

Included in Part A of this Registration Statement for PaineWebber Utility
Income Fund:

Financial Highlights for one Class A share of the Fund for the two years in
the period ended November 30, 1995 and for the period July 2, 1993
(commencement of operations) to November 30, 1993.

Financial Highlights for one Class B share of the Fund for the two years in
the period ended November 30, 1995 and for the period July 2, 1993
(commencement of operations) to November 30, 1993.

Financial Highlights for one Class C share of the Fund for the two years in
the period ended November 30, 1995 and for the period July 2, 1993
(commencement of operations) to November 30, 1993.

Included in Part B of this Registration Statement for PaineWebber Utility
Income Fund through incorporation by reference from the annual report to
shareholders through EDGAR on January 31, 1996 (Accession No.
0000950130-96-000316):

Portfolio of Investments at November 30, 1995.

Statement of Assets and Liabilities at November 30, 1995.

Statement of Operations for the year ended November 30, 1995.

Statement of Changes in Net Assets for the two years in the period ended
November 30, 1995.

Notes to Financial Statements.

Financial Highlights for one Class A share of the Fund for the two years in
the period ended November 30, 1995 and the period July 2, 1993
(commencement of operations) to November 30, 1993.

Financial Highlights for one Class B share of the Fund for the two years in
the period ended November 30, 1995 and the period July 2, 1993
(commencement of operations) to November 30, 1993.

Financial Highlights for one Class C share of the Fund for the two years in
the period ended November 30, 1995 and the period July 2, 1993
(commencement of operations) to November 30, 1993.

Report of Ernst & Young LLP, Independent Auditors, dated January 13, 1996.

C-1
<PAGE>

(b) Exhibits:
(1) (a) Declaration of Trust1/
-
(b) Amendment to Declaration of Trust effective January 28, 19882/
-
(c) Amendment to Declaration of Trust effective July 1, 19906/
-
(d) Amendment to Declaration of Trust effective March 21, 19917/
-
(e) Amendment to Declaration of Trust effective April 1, 19918/
-
(f) Amendment to Declaration of Trust effective July 1, 199111/
--
(g) Amendment to Declaration of Trust effective February 26, 199210/
--
(h) Amendment to Declaration of Trust effective January 25, 199312/
--
(i) Amendment to Declaration of Trust effective May 25, 199314/
--
(j) Amendment to Declaration of Trust effective July 30, 199314/
--
(k) Amendment to Declaration of Trust effective November 13, 199318/
--
(l) Amendment to Declaration of Trust effective July 20,
199520/
--
(m) Amendments to Declaration of Trust effective October 20, 1995,
November 10, 1995 and November 29, 1995 (filed herewith)
(2) (a) By-Laws1/
-
(b) Amendment to By-Laws effective March 19, 19917/
-
(c) Amendment to By-Laws effective September 28, 199418/
--
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the Registrant's share
of beneficial interest19/
--
(5) (a) Investment Advisory and Administration Contract4/
-
(b) Investment Advisory Fee Agreement with respect to PaineWebber
Utility Income Fund15/
--
(c) Investment Advisory Fee Agreement with respect to PaineWebber Low
Duration U.S. Government Income Fund15/
--
(6) (a) Distribution Contract with respect to Class A Shares15/
--
(b) Distribution Contract with respect to Class B Shares15/
--
(c) Distribution Contract with respect to Class C Shares
(filed herewith)
(d) Distribution Contract with respect to Class Y Shares
(filed herewith)
(e) Exclusive Dealer Agreement with respect to Class A Shares15/
--
(f) Exclusive Dealer Agreement with respect to Class B Shares15/
--
(g) Exclusive Dealer Agreement with respect to Class C
Shares (filed herewith)
(h) Exclusive Dealer Agreement with respect to Class Y
Shares (filed herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement2/
-
(9) (a) Transfer Agency and Service Contract6/
-
(b) Service Contract5/
-

C-2
<PAGE>

(10) (a) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class A and Class B shares of U.S.
Government Income Fund, Investment Grade Income Fund, and High
Income Fund8/
-
(b) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class A and Class B shares of
PaineWebber Utility Income Fund9/
-
(c) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class C Shares of the above-
referenced Funds11/
--
(d) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to PaineWebber Low Duration U.S.
Government Income Fund12/
--
(e) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class Y Shares of PaineWebber Low
Duration U.S. Government Income Fund20/
--
(11) Auditor's Consent (filed herewith)
(12) Financial statements omitted from prospectus - none
(13) Letter of investment intent3/
-
(14) Prototype Retirement Plan10/
(15) (a) Plan pursuant to Rule 12b-1 with respect to Class A
Shares9/
-
(b) Plan pursuant to Rule 12b-1 with respect to Class B Shares9/
-
(c) Plan pursuant to Rule 12b-1 with respect to Class C Shares12/
--
(d) Distribution Fee Addendum with respect to Class Y shares of
PaineWebber Low Duration U.S. Government Income Fund15/
--
(16) Schedule for Computation of Performance Quotations8/
-
(a) Schedule for Computation of Performance Quotations for Class A
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund7/
-
(b) Schedule for Computation of Performance Quotations for Class B
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund10/
--
(c) Schedule for Computation of Performance Quotations for Class Y
shares of U.S. Government Income Fund10/
--
(d) Schedule for Computation of Performance Quotations For Class C
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund13/
--
(e) Schedule for Computation of Performance Quotations for Class A,
Class B and Class C shares of PaineWebber Utility Income Fund16/
--
(f) Schedule for Computation of Performance Quotations for Class A,
Class B, and Class C shares of PaineWebber Low Duration U.S.
Government Income Fund16/
--
(17) and (27) Financial Data Schedule (filed herewith)
(18) Plan Pursuant to Rule 18f-320/
--

C-3
<PAGE>

1/ Incorporated by reference from Post-Effective Amendment No. 5 to the
-
registration statement, SEC File No. 2-91362, filed January 30, 1987.

2/ Incorporated by reference from Post-Effective Amendment No. 8 to the
-
registration statement, SEC File No. 2-91362, filed March 31, 1988.

3/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
-
registration statement, SEC File No. 2-91362, filed July 18, 1984.

4/ Incorporated by reference from Post-Effective Amendment No. 10 to the
-
registration statement, SEC File No. 2-91362, filed March 6, 1989.

5/ Incorporated by reference from Post-Effective Amendment No. 12 to the
-
registration statement, SEC File No. 2-91362, filed January 31, 1990.

6/ Incorporated by reference from Post-Effective Amendment No. 15 to the
-
registration statement, SEC File No. 2-91362, filed January 31, 1991.

7/ Incorporated by reference from Post-Effective Amendment No. 16 to the
-
registration statement, SEC File No. 2-91362, filed March 28, 1991.

8/ Incorporated by reference from Post-Effective Amendment No. 18 to the
-
registration statement, SEC File No. 2-91362, filed May 2, 1991.

9/ Incorporated by reference from Post-Effective Amendment No. 19 to the
-
registration statement, SEC File No. 2-91362, filed March 2, 1992.

10/ Incorporated by reference from Post-Effective Amendment No. 20 to the
--
registration statement, SEC File No. 2-91362, filed April 1, 1992.

11/ Incorporated by reference from Post-Effective Amendment No. 21 to the
--
registration statement, SEC File No. 2-91362, filed May 1, 1992.

12/ Incorporated by reference from Post-Effective Amendment No. 23 to the
--
registration statement, SEC File No. 2-91362, filed January 26, 1993.

13/ Incorporated by reference from Post-Effective Amendment No. 24 to the
--
registration statement, SEC File No. 2-91362, filed April 1, 1993.

C-4
<PAGE>

14/ Incorporated by reference from Post-Effective Amendment No. 25 to the
--
registration statement, SEC File No. 2-91362, filed August 10, 1993.

15/ Incorporated by reference from Post-Effective Amendment No. 26 to the
--
registration statement, SEC File No. 2-91362, filed October 4, 1993.

16/ Incorporated by reference from Post-Effective Amendment No. 28 to the
--
registration statement, SEC File No. 2-91362, filed April 1, 1994.

17/ Incorporated by reference from Post-Effective Amendment No. 30 to the
--
registration statement, SEC File No. 2-91362, filed July 1, 1994.

18/ Incorporated by reference from Post-Effective Amendment No. 34 to the
--
registration statement, SEC File No. 2-91362, filed January 27, 1995.

19/ Incorporated by reference from Articles III, VIII, IX, X and XI of
--
Registrant's Declaration of Trust, as amended effective January 28,
1988, July 1, 1990, March 21, 1991, April 1, 1991, July 1, 1991,
February 26, 1992, January 25, 1993, July 30, 1993, November 13, 1993,
July 20, 1995, October 20, 1995, November 10, 1995, and November 29,
1995 and from Articles II, VII and X of Registrant's By-Laws, as
amended March 19, 1993 and September 28, 1994.

20/ Incorporated by reference from Post-Effective Amendment No. 38
--
to the registration statement, SEC File No. 2-91362, filed
September 5, 1995.

Item 25. Persons Controlled by or under Common Control with
--------------------------------------------------
Registrant
----------

None.

Item 26. Number of Holders of Securities
-------------------------------

Number of Record
Title of Class Shareholders as of
- -------------- January 31, 1996
------------------
Shares of beneficial interest, par value
$0.001 per share, in

U.S. Government Income Fund

Class A Shares 28,438

Class B Shares 5,745

C-5
<PAGE>

Class C Shares 3,453

Class Y Shares 204

Investment Grade Income Fund

Class A Shares 16,993

Class B Shares 3,921

Class C Shares 2,098

Class Y Shares 0

High Income Fund

Class A Shares 16,671

Class B Shares 12,787

Class C Shares 6,457

Class Y Shares 0

PaineWebber Utility Income Fund

Class A Shares 1,004

Class B Shares 3,353

Class C Shares 1,139

Class Y Shares 0

PaineWebber Low Duration

U.S. Government Income Fund

Class A Shares 1,149

Class B Shares 970

Class C Shares 18,007

Class Y Shares 43

C-6
<PAGE>

Item 27. Indemnification
---------------

Section 2 of "Indemnification" in Article X of the Declaration of
Trust provides that the Registrant will indemnify its trustees and officers
to the fullest extent permitted by law against claims and expenses asserted
against or incurred by them by virtue of being or having been a trustee or
officer; provided that no such person shall be indemnified where there has
been an adjudication or other determination, as described in Article X,
that such person is liable to the Registrant or its shareholders by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office or did not act
in good faith in the reasonable belief that his or her action was in the
best interest of the Registrant. Section 2 of "Indemnification" in Article
X also provides that the Registrant may maintain insurance policies
covering such rights of indemnification.

Additionally, "Limitation of Liability" in Article X of the
Declaration of Trust provides that the trustees or officers of the
Registrant shall not be personally liable to any person extending credit
to, contracting with, or having a claim against, the Trust; and that,
provided they have exercised reasonable care and have acted under the
reasonable belief that their actions are in the best interest of the
Registrant, the trustees and officers shall not be liable for neglect or
wrongdoing by them or any officer, agent, employee or investment adviser of
the Registrant.

Section 2 of Article XI of the Declaration of Trust additionally
provides that, subject to the provisions of Section 1 of Article XI and to
Article X, the trustees shall not be liable for errors of judgment or
mistakes of fact or law, or for any act or omission in accordance with
advice of counsel or other experts, or failing to follow such advice, with
respect to the meaning and operation of the Declaration of Trust.

Article XI of the By-Laws provides that the Registrant may purchase
and maintain insurance on behalf of any person who is or was a trustee,
officer or employee of the Trust, or is or was serving at the request of
the Trust as a trustee, officer or employee of a corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or her and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the Registrant
would have the power to indemnify him or her against such liability,
provided that the Registrant may not acquire insurance protecting any
trustee or officer against liability to the Registrant or its shareholders
to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his or her office.

C-7
<PAGE>

Section 9 of the Investment Advisory and Administration Contract (the
"Contract") between Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") and the Trust provides that Mitchell Hutchins shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Registrant in connection with the matters to which the Contract
relates, except for a loss resulting from willful misfeasance, bad faith,
or gross negligence of Mitchell Hutchins in the performance of its duties
or from its reckless disregard of its obligations and duties under the
Contract. Section 10 of the Contract provides that the trustees shall not
be liable for any obligations of the Trust under the Contract and that
Mitchell Hutchins shall look only to the assets and property of the Trust
in settlement of such right or claim and not to the assets and property of
the trustees.

Section 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors or controlling
persons against all liabilities arising from any alleged untrue statement
of material fact in the Registration Statement or from any alleged omission
to state in the Registration Statement a material fact required to be
stated in it or necessary to make the statements in it, in light of the
circumstances under which they were made, not misleading, except insofar as
liability arises from untrue statements or omissions made in reliance upon
and in conformity with information furnished by Mitchell Hutchins to the
Trust for use in the Registration Statement; and provided that this
indemnity agreement shall not protect any such persons against liabilities
arising by reason of their bad faith, gross negligence or willful
misfeasance; and shall not inure to the benefit of any such persons unless
a court of competent jurisdiction or controlling precedent determines that
such result is not against public policy as expressed in the Securities Act
of 1933. Section 9 of each Distribution Contract also provides that
Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its
officers and trustees free and harmless of any claims arising out of any
alleged untrue statement or any alleged omission of material fact contained
in information furnished by Mitchell Hutchins for use in the Registration
Statement or arising out of an agreement between Mitchell Hutchins and any
retail dealer, or arising out of supplementary literature or advertising
used by Mitchell Hutchins in connection with each Distribution Contract.

Section 9 of each Exclusive Dealer Agreement contains provisions
similar to Section 9 of each Distribution Contract, with respect to
PaineWebber Incorporated ("PaineWebber").

Section 6 of the Service Contract provides that PaineWebber shall be
indemnified and held harmless by the Trust against all liabilities, except
those arising out of bad faith, gross negligence, willful misfeasance or
reckless disregard of its duties under the Service Contract.

C-8
<PAGE>

Section 10 of each Distribution Contract and Section 7 of the Service
Contract contain provisions similar to that of Section 10 of the Investment
Advisory and Administration Contract, with respect to Mitchell Hutchins and
PaineWebber, as appropriate.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to trustees, officers
and controlling persons of the Trust, pursuant to the foregoing provisions
or otherwise, the Trust has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Trust of expenses incurred or paid by a trustee, officer
or controlling person of the Trust in connection with the successful
defense of any action, suit or proceeding or payment pursuant to any
insurance policy) is asserted against the Trust by such trustee, officer or
controlling person in connection with the securities being registered, the
Trust will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------

Mitchell Hutchins, a Delaware corporation, is a registered investment
advisor and is a wholly owned subsidiary of PaineWebber which is, in turn,
a wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to
the officers and directors of Mitchell Hutchins is included in its Form ADV
filed with the Securities and Exchange Commission (registration number 801-
13219) and is incorporated herein by reference.

Item 29. Principal Underwriters
----------------------

(a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following other investment companies:

. ALL-AMERICAN TERM TRUST INC.
. GLOBAL HIGH INCOME DOLLAR FUND INC.
. GLOBAL SMALL CAP FUND INC.
. INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
. MANAGED HIGH YIELD FUND INC.
. MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
. MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
. MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
. PAINEWEBBER AMERICA FUND
. PAINEWEBBER INVESTMENT SERIES
. PAINEWEBBER MANAGED ASSETS TRUST

C-9
<PAGE>

. PAINEWEBBER MANAGED INVESTMENTS TRUST
. PAINEWEBBER MASTER SERIES, INC.
. PAINEWEBBER MUNICIPAL SERIES
. PAINEWEBBER MUTUAL FUND TRUST
. PAINEWEBBER OLYMPUS FUND
. PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND, INC.
. PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
. PAINEWEBBER SECURITIES TRUST
. PAINEWEBBER SERIES TRUST
. STRATEGIC GLOBAL INCOME FUND, INC.
. TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
. 2002 TARGET TERM TRUST INC.

(b) Mitchell Hutchins is the principal underwriter for the Registrant.
PaineWebber acts as exclusive dealer for the shares of the Registrant. The
directors and officers of Mitchell Hutchins, their principal business
addresses and their positions and offices with Mitchell Hutchins are
identified in its Form ADV with the Securities and Exchange Commission
(registration number 801-13219). The directors and officers of
PaineWebber, their principal business addresses and their positions and
offices with PaineWebber are identified in its Form ADV filed with the
Securities and Exchange Commission (registration number 801-7163). The
foregoing information is hereby incorporated by reference. The information
set forth below is furnished for those directors and officers of Mitchell
Hutchins or PaineWebber who also serve as trustees or officers of the
Registrant:

Position and Offices
Name and Principl Position With With Underwriter or
Business Address Registrant Exclusive Dealer
- ---------------- ------------- --------------------

Margo N. Alexander President Director, President
1285 Avenue of the Americas and Chief Executive
New York, New York 10019 Officer of Mitchell
Hutchins and Director
and Executive Vice
President of
PaineWebber

Julianna Berry Vice Vice President and a
1285 Avenue of the Americas President Portfolio Manager of
New York, New York 10019 Mitchell Hutchins

Teresa M. Boyle Vice First Vice President
1285 Avenue of the Americas President and Manager -
New York, New York 10019 Advisory
Administration of
Mitchell Hutchins

C-10
<PAGE>

Position and Offices
Name and Principl Position With With Underwriter or
Business Address Registrant Exclusive Dealer
- ---------------- ------------- --------------------

Gigi L. Capes Vice Vice President and
1285 Avenue of the Americas President and Tax Manager of Mutual
New York, New York 10019 Assistant Fund Finance Division
Treasurer of Mitchell Hutchins

Joan L. Cohen Vice Vice President and
1285 Avenue of the Americas President Attorney of Mitchell
New York, New York 10019 Hutchins

Karen L. Finkel Vice First Vice President
1285 Avenue of the Americas President and a Portfolio
New York, New York 10019 Manager of Mitchell
Hutchins

Ellen R. Harris Vice Managing Director of
1285 Avenue of the Americas President Mitchell Hutchins
New York, New York 10019

Mary B. King Vice First Vice President
1285 Avenue of the Americas President and a Portfolio
New York, New York 10019 Manager of Mitchell
Hutchins

Thomas J. Libassi Vice Senior Vice President
1285 Avenue of the Americas President of Mitchell Hutchins
New York, New York 10019

C. William Maher Vice First Vice President
1285 Avenue of the Americas President and of Mitchell Hutchins
New York, New York 10019 Assistant
Treasurer

Dennis McCauley Vice Managing Director
1285 Avenue of the Americas President and Chief Investment
New York, New York 10019 Officer -- Fixed
Income of Mitchell
Hutchins
Ann E. Moran Vice Vice President of
1285 Avenue of the Americas President Mitchell Hutchins
New York, New York 10019 and Assistant
Treasurer

Dianne E. O'Donnell Vice Senior Vice President
1285 Avenue of the Americas President and Deputy General
New York, New York 10019 and Secretary Counsel of Mitchell
Hutchins

C-11
<PAGE>

Position and Offices
Name and Principl Position With With Underwriter or
Business Address Registrant Exclusive Dealer
- ---------------- ------------- --------------------

Victoria E. Schonfeld Vice Managing Director and
1285 Avenue of the Americas President General Counsel of
New York, New York 10019 Mitchell Hutchins

Paul H. Schubert Vice First Vice President
1285 Avenue of the Americas President and Senior Manager of
New York, New York 10019 and Assistant Mutual Fund Finance
Treasurer Division of Mitchell
Hutchins

Nirmal Singh Vice First Vice President
1285 Avenue of the Americas President of
New York, New York 10019 Mitchell Hutchins

Julian F. Sluyters Vice Senior Vice President
1285 Avenue of the Americas President and Director of
New York, New York 10019 and Treasurer Mutual Fund Finance
Division of Mitchell
Hutchins

Mark A. Tincher Vice Managing Director
1285 Avenue of the Americas President and Chief
New York, New York 10019 Investment Officer
-- U.S. Equity
Investments of
Mitchell Hutchins
Gregory K. Todd Vice First Vice President
1285 Avenue of the Americas President and Associate General
New York, New York 10019 and Assistant Counsel of Mitchell
Secretary Hutchins

Craig M. Varrelman Vice First Vice President
1285 Avenue of the Americas President of Mitchell Hutchins
New York, New York 10019
Keith A. Weller Vice First Vice
1285 Avenue of the Americas President President and
New York, New York 10019 and Assistant Associate General
Secretary Counsel of
Mitchell Hutchins

C-12
<PAGE>

Item 30. Location of Accounts and Records
--------------------------------

The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained
in the physical possession of Mitchell Hutchins, 1285 Avenue of the
Americas, New York, New York 10019. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession
of Registrant's transfer agent and custodian.

Item 31. Management Services
-------------------

Not applicable.

Item 32. Undertakings
------------

Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.

C-13
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, PaineWebber Managed Investments Trust, has
duly caused this Post-Effective Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of New York and State of
New York, on the 14th day of February, 1996.

PAINEWEBBER MANAGED INVESTMENTS TRUST

By: /s/Dianne E. O'Donnell
_________________________
Dianne E. O'Donnell
Vice President, Secretary

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:

Signature Title Date
--------- ----- ----
/s/ Margo N. Alexander * Trustee and President February 14, 1996
- ----------------------------- (Chief Executive Officer)
Margo N. Alexander

/s/ E. Garrett Bewkes, Jr.** Trustee and Chairman of the February 14, 1996
- ------------------------------ Board of Trustees
E. Garrett Bewkes, Jr.

/s/ Meyer Feldberg*** Trustee February 14, 1996
- ------------------------------
Meyer Feldberg

/s/ George W. Gowen**** Trustee February 14, 1996
- ------------------------------
George W. Gowen

/s/ Frederic V. Malek**** Trustee February 14, 1996
- ------------------------------
Frederic V. Malek

/s/ Judith Davidson Moyers**** Trustee February 14, 1996
- ------------------------------
Judith Davidson Moyers

/s/ Julian F. Sluyters Vice President and February 14, 1996
- ------------------------------ Treasurer (Principal
Judith Davidson Moyers Financial and Accounting
Officer)
<PAGE>

SIGNATURES (CONTINUED)

* Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated May 8, 1995 and incorporated by reference from Post-Effective
Amendment No. 34 to the registration statement of PaineWebber America Fund
SEC File No. 2-78626, filed May 10, 1995.

** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated January 3, 1994 and incorporated by reference from Post-
Effective Amendment No. 25 to the registration statement of PaineWebber
Investment Series, SEC File 33-11025, filed March 1, 1994.

*** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated June 12, 1991 and incorporated by reference from Post-Effective Amendment
No. 16 to the registration statement of PaineWebber Investment Series, SEC File
No. 33-11025, filed July 31, 1991.

**** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated March 27, 1990 and incorporated by reference from Post-Effective Amendment
No. 7 to the registration statement of PaineWebber Municipal Series, SEC File
No. 33-11611, filed June 29, 1990.

<PAGE>

PAINEWEBBER MANAGED INVESTMENTS TRUST

EXHIBIT INDEX
-------------
Ex
Number
-------

(1) (a) Declaration of Trust1/
-
(b) Amendment to Declaration of Trust effective January 28, 19882/
-
(c) Amendment to Declaration of Trust effective July 1, 19906/
-
(d) Amendment to Declaration of Trust effective March 21, 19917/
-
(e) Amendment to Declaration of Trust effective April 1, 19918/
-
(f) Amendment to Declaration of Trust effective July 1, 199111/
--
(g) Amendment to Declaration of Trust effective February 26, 199210/
--
(h) Amendment to Declaration of Trust effective January 25, 199312/
--
(i) Amendment to Declaration of Trust effective May 25, 199314/
--
(j) Amendment to Declaration of Trust effective July 30, 199314/
--
(k) Amendment to Declaration of Trust effective November 13, 199318/
--
(l) Amendment to Declaration of Trust effective July 20,
199520/
--
(m) Amendments to Declaration of Trust effective October 20,
1995, November 10, 1995, and November 29, 1995 (filed
herewith)
(2) (a) By-Laws1/
(b) Amendment to By-Laws effective March 19, 19917/
-
(c) Amendment to By-Laws effective September 28, 199418/
--
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the
Registrant's share of beneficial interest19/
--
(5) (a) Investment Advisory and Administration Contract4/
-
(b) Investment Advisory Fee Agreement with respect to PaineWebber
Utility Income Fund15/
--
(c) Investment Advisory Fee Agreement with respect to PaineWebber
Low Duration U.S. Government Income Fund15/
--
(6) (a) Distribution Contract with respect to Class A Shares15/
--
(b) Distribution Contract with respect to Class B Shares15/
--
(c) Distribution Contract with respect to Class C Shares
(filed herewith)
(d) Distribution Contract with respect to Class Y Shares
(filed herewith)

- 1 -
<PAGE>

(e) Exclusive Dealer Agreement with respect to Class A Shares15/
--
(f) Exclusive Dealer Agreement with respect to Class B Shares15/
--
(g) Exclusive Dealer Agreement with respect to Class C
Shares (filed herewith)
(h) Exclusive Dealer Agreement with respect to Class Y
Shares (filed herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement2/
-
(9) (a) Transfer Agency and Service Contract6/
-
(b) Service Contract5/
-
(10) (a) Opinion and consent of Kirkpatrick & Lockhart LLP,
counsel to the Registrant, with respect to Class A and
Class B shares of U.S. Government Income Fund, Investment
Grade Income Fund, and High Income Fund8/
-
(b) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class A and Class B shares of
PaineWebber Utility Income Fund9/
-
(c) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class C Shares of the above-
referenced Funds11/
--
(d) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to PaineWebber Low Duration U.S.
Government Income Fund12/
--
(e) Opinion and consent of Kirkpatrick & Lockhart LLP,
counsel to the Registrant, with respect to Class Y Shares
of PaineWebber Low Duration U.S. Government Income Fund20/
--
(11) Auditor's Consent (filed herewith)
(12) Financial statements omitted from prospectus - none
(13) Letter of investment intent3/
-
(14) Prototype Retirement Plan10/
--
(15) (a) Plan pursuant to Rule 12b-1 with respect to Class A
Shares9/
-
(b) Plan pursuant to Rule 12b-1 with respect to Class B Shares9/
-
(c) Plan pursuant to Rule 12b-1 with respect to Class C Shares12/
--
(d) Distribution Fee Addendum with respect to Class C shares of
PaineWebber Low Duration U.S. Government Income Fund15/
--
(16) Schedule for Computation of Performance Quotations8/
-
(a) Schedule for Computation of Performance Quotations for Class A
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund7/
-
(b) Schedule for Computation of Performance Quotations for Class B
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund10/
--
(c) Schedule for Computation of Performance Quotations for Class Y
shares of U.S. Government Income Fund10/
--

- 2 -
<PAGE>

(d) Schedule for Computation of Performance Quotations for Class C
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund13/
--
(e) Schedule for Computation of Performance Quotations for Class A,
Class B and Class C shares of PaineWebber Utility Income Fund16/
--
(f) Schedule for Computation of Performance Quotations for Class A,
Class B, and Class C shares of PaineWebber Low Duration U.S.
Government Income Fund16/
--
(17) and (27) Financial Data Schedule (filed herewith)
(18) Plan Pursuant to Rule 18f-320/
--

1/ Incorporated by reference from Post-Effective Amendment No. 5 to the
-
registration statement, SEC File No. 2-91362, filed January 30, 1987.

2/ Incorporated by reference from Post-Effective Amendment No. 8 to the
-
registration statement, SEC File No. 2-91362, filed March 31, 1988.

3/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
-
registration statement, SEC File No. 2-91362, filed July 18, 1984.

4/ Incorporated by reference from Post-Effective Amendment No. 10
-
to the registration statement, SEC File No. 2-91362, filed March 6, 1989.

5/ Incorporated by reference from Post-Effective Amendment No. 12
-
to the registration statement, SEC File No. 2-91362, filed
January 31, 1990.

6/ Incorporated by reference from Post-Effective Amendment No. 15 to the
-
registration statement, SEC File No. 2-91362, filed January 31, 1991.

7/ Incorporated by reference from Post-Effective Amendment No. 16 to the
-
registration statement, SEC File No. 2-91362, filed March 28, 1991.

8/ Incorporated by reference from Post-Effective Amendment No. 18 to the
-
registration statement, SEC File No. 2-91362, filed May 2, 1991.

9/ Incorporated by reference from Post-Effective Amendment No. 19 to the
-
registration statement, SEC File No. 2-91362, filed March 2, 1992.

10/ Incorporated by reference from Post-Effective Amendment No. 20 to the
--
registration statement, SEC File No. 2-91362, filed April 1, 1992.

- 3 -
<PAGE>

11/ Incorporated by reference from Post-Effective Amendment No. 21 to the
--
registration statement, SEC File No. 2-91362, filed May 1, 1992.

12/ Incorporated by reference from Post-Effective Amendment No. 23 to the
--
registration statement, SEC File No. 2-91362, filed January 26, 1993.

13/ Incorporated by reference from Post-Effective Amendment No. 24 to the
--
registration statement, SEC File No. 2-91362, filed April 1, 1993.

14/ Incorporated by reference from Post-Effective Amendment No. 25 to the
--
registration statement, SEC File No. 2-91362, filed August 10, 1993.

15/ Incorporated by reference from Post-Effective Amendment No. 26 to the
--
registration statement, SEC File No. 2-91362, filed October 4, 1993.

16/ Incorporated by reference from Post-Effective Amendment No. 28 to the
--
registration statement, SEC File No. 2-91362, filed April 1, 1994.

17/ Incorporated by reference from Post-Effective Amendment No. 30 to the
--
registration statement, SEC File No. 2-91362, filed July 1, 1994.

18/ Incorporated by reference from Post-Effective Amendment No. 34 to the
--
registration statement, SEC File No. 2-91362, filed January 27, 1995

19/ Incorporated by reference from Articles III, VIII, IX, X and XI of
--
Registrant's Declaration of Trust, as amended effective January 28,
1988, July 1, 1990, March 21, 1991, April 1, 1991 July 1, 1991,
February 26, 1992, January 25, 1993, July 30, 1993, November 13, 1993,
July 20, 1995, October 20, 1995, November 10, 1995, and November 29,
1995 and from Articles II, VII and X of Registrant's By-Laws, as
amended March 19, 1993 and September 28, 1994.

20/ Incorporated by reference from Post-Effective Amendment No. 38
--
to the registration statement, SEC File No. 2-91362, filed September 5,
1995.

- 4 -

<PAGE>

EXHIBIT 1(m)

PAINEWEBBER MANAGED INVESTMENTS TRUST

AMENDMENT TO DECLARATION OF TRUST AND
CERTIFICATE OF VICE PRESIDENT AND SECRETARY

I, Dianne E. O'Donnell, Vice President and Secretary of PaineWebber Managed
Investments Trust ("Trust"), hereby certify that the board of trustees of the
Trust adopted the following resolutions, which became effective on October 20,
1995, November 10, 1995 and November 29, 1995, as indicated below:

Resolution Effective October 20, 1995:
- --------------------------------------

RESOLVED, that the name of the Series of the Trust designated as
"PaineWebber Short-Term U.S. Government Income Fund" be, and it hereby is,
changed to "PaineWebber Low Duration U.S. Government Income Fund."

Resolutions Effective November 10, 1995:
- ----------------------------------------

RESOLVED, that the unlimited number of shares of beneficial interest
previously known as the "Class D shares" of each of the five Series of the Trust
known as the U.S. Government Income Fund, Investment Grade Income Fund, High
Income Fund, PaineWebber Low Duration U.S. Government Income Fund and
PaineWebber Utility Income Fund be renamed the "Class C" shares of those Series;
and be it further

RESOLVED, that the unlimited number of shares of beneficial interest
previously known as the "Class C shares" of each of the five Series of the Trust
known as the U.S. Government Income Fund, Investment Grade Income Fund, High
Income Fund, PaineWebber Low Duration U.S. Government Income Fund and
PaineWebber Utility Income Fund be renamed the "Class Y" shares of those Series.

Resolutions Effective November 29, 1995:
- ----------------------------------------

WHEREAS, the Series of the Trust designated as the "PaineWebber Short-Term
U.S. Government Income Fund for Credit Unions" ("Credit Union Fund") no longer
has any shares outstanding, provision has been made for the disposition of all
liabilities of Credit Union Fund and the Trustees have determined that
continuation of Credit Union Fund is not in the best interests of Credit Union
Fund or the Trust; and
<PAGE>

WHEREAS, the name of another Series of the Trust was recently changed to
"PaineWebber Low Duration U.S. Government Income Fund; now therefore be it

RESOLVED, that the Series of the Trust designated as the "PaineWebber
Short-Term U.S. Government Income Fund for Credit Unions" be, and it hereby is,
terminated and abolished pursuant to Section 2 of Article III of the Trust's
Declaration of Trust; and be it further

RESOLVED, that Section 1 of Article III of the Trust's Declaration of Trust
be, and it hereby is, amended to reflect the termination of one Series and the
change in the name of another Series, the amended section to read, in relevant
part, as follows:

Section 1. . . . Without limiting the authority of the Trustees set
forth in this Section 1 to establish and designate any further Series,
the Trustees have established and designated five Series of Shares to
be known as the "U.S. Government Income Fund," "Investment Grade
Income Fund," "High Income Fund," "PaineWebber Utility Income Fund"
and "PaineWebber Low Duration U.S. Government Income Fund."

Dated: December 15, 1995 By: /s/ Dianne E. O'Donnell
------------------------
Dianne E. O'Donnell
Vice President and Secretary
PaineWebber Managed
Investments Trust

New York, New York (ss)

Subscribed and sworn to before me this 15th day of December, 1995.

/s/ Karyn Freeman
- -------------------
Notary Public

<PAGE>

EXHIBIT 6(c)

PAINEWEBBER MANAGED INVESTMENTS TRUST

DISTRIBUTION CONTRACT
CLASS C SHARES

CONTRACT made as of November 10, 1995 between PAINEWEBBER MANAGED
INVESTMENTS TRUST, a Massachusetts business trust ("Fund"), and MITCHELL
HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").

WHEREAS the Fund is registered under the Investment Company Act of l940, as
amended ("l940 Act"), as an open-end management investment company and currently
has five distinct series of shares of beneficial interest ("Series"), which
correspond to distinct portfolios and have been designated as the PaineWebber
U.S. Government Income Fund, PaineWebber Investment Grade Income Fund,
PaineWebber High Income Fund, PaineWebber Utility Income Fund and PaineWebber
Low Duration U.S. Government Income Fund; and

WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act for its Class C Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class C Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class C Shares
established; and

WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class C Shares of each such Series on the terms and conditions hereinafter set
forth;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class C Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does
<PAGE>

not preclude sales of the Class C Shares directly through the Fund's transfer
agent in the manner set forth in the Registration Statement. As used in this
Contract, the term "Registration Statement" shall mean the currently effective
registration statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.

2. Services and Duties of Mitchell Hutchins.
----------------------------------------

(a) Mitchell Hutchins agrees to sell Class C Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.

(b) Upon the later of the date of this Contract or the initial
offering of the Class C Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class C Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.

(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class C Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.

(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.

(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class C Shares.

(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class C Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.

- 2 -
<PAGE>

(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.

(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.

3. Authorization to Enter into Exclusive Dealer Agreements and to
--------------------------------------------------------------
Delegate Duties as Distributor. With respect to the Class C Shares of any or
- ------------------------------
all Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class C Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.

4. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.

5. Compensation.
-------------

(a) As compensation for its service activities under this contract
with respect to the Class C Shares, Mitchell

- 3 -
<PAGE>

Hutchins shall receive from the Fund a service fee at the rate and under the
terms and conditions of the Plan adopted by the Fund with respect to the Class C
Shares of the Series, as such Plan is amended from time to time, and subject to
any further limitations on such fee as the Board may impose.

(b) As compensation for its activities under this contract with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall
receive from the Fund a distribution fee at the rate and under the terms and
conditions of the Plan adopted by the Fund with respect to the Class C Shares of
the Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.

(c) As compensation for its activities under this contract with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class C
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.

(d) Mitchell Hutchins may reallow any or all of the distribution
fees, contingent deferred sales charges, or service fees which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.

6. Duties of the Fund.
-------------------

(a) The Fund reserves the right at any time to withdraw offering
Class C Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.

(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class C Shares. If the Fund
has determined that certificates shall be issued, the Fund will not cause
certificates representing Class C Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund
will cause certificates evidencing Class C Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.

- 4 -
<PAGE>

current prospectus, statement of additional information, and annual and interim
reports of any Series as Mitchell Hutchins may request, and the Fund shall
cooperate fully in the efforts of Mitchell Hutchins to sell and arrange for the
sale of the Class C Shares of the Series and in the performance of Mitchell
Hutchins under this Contract.

(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class C Shares under the 1933 Act to the end that there will be available for
sale such number of Class C Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.

(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class C Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Declaration of Trust or By-Laws to comply with the laws of
any jurisdiction, to maintain an office in any jurisdiction, to change the terms
of the offering of the Class C Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class C Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.

7. Expenses of the Fund. The Fund shall bear all costs and expenses of
--------------------
registering the Class C Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of Class C Shares for sale and of the
Fund as a broker or dealer under the securities laws of such jurisdictions as
shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e)
hereof, and the

- 5 -
<PAGE>

costs and expenses payable to each such jurisdiction for continuing
qualification therein.

8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class C Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class C Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class C Shares as
may be incurred in connection with their sales efforts.

9. Indemnification.
---------------

(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is also an officer or trustee
of the Fund or who controls the Fund within the meaning of Section 15 of the
1933 Act, unless a court of competent jurisdiction shall determine, or it shall
have been determined by controlling precedent, that such result would not be
against public policy as expressed in the 1933 Act; and further provided, that
in no event shall anything contained

- 6 -
<PAGE>

herein be so construed as to protect Mitchell Hutchins against any liability to
the Fund or to the shareholders of any Series to which Mitchell Hutchins would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Contract. The Fund shall not be liable
to Mitchell Hutchins under this indemnity agreement with respect to any claim
made against Mitchell Hutchins or any person indemnified unless Mitchell
Hutchins or other such person shall have notified the Fund in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to Mitchell Hutchins or any person against whom
such action is brought otherwise than on account of this indemnity agreement.
The Fund shall be entitled to participate at its own expense in the defense or,
if it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the Fund
and satisfactory to indemnified defendants in the suit whose approval shall not
be unreasonably withheld. In the event that the Fund elects to assume the
defense of any suit and retain counsel, the indemnified defendants shall bear
the fees and expenses of any additional counsel retained by them. If the Fund
does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Fund agrees to notify Mitchell
Hutchins promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance or sale of
any of its Class C Shares.

(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and trustees and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such

- 7 -
<PAGE>

information not misleading, or arising out of any agreement between Mitchell
Hutchins and any retail dealer, or arising out of any supplemental sales
literature or advertising used by Mitchell Hutchins in connection with its
duties under this Contract. Mitchell Hutchins shall be entitled to participate,
at its own expense, in the defense or, if it so elects, to assume the defense of
any suit brought to enforce the claim, but if Mitchell Hutchins elects to assume
the defense, the defense shall be conducted by counsel chosen by Mitchell
Hutchins and satisfactory to the indemnified defendants whose approval shall not
be unreasonably withheld. In the event that Mitchell Hutchins elects to assume
the defense of any suit and retain counsel, the defendants in the suit shall
bear the fees and expenses of any additional counsel retained by them. If
Mitchell Hutchins does not elect to assume the defense of any suit, it will
reimburse the indemnified defendants in the suit for the reasonable fees and
expenses of any counsel retained by them.

10. Limitation of Liability of the Trustees and Shareholders of the Fund.
--------------------------------------------------------------------
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.

11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any
---------------------------------------------------------------
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.

12. Duration and Termination.
------------------------

(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such action.

- 8 -
<PAGE>

(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class C Shares of such Series.

(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class C Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.

(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.

13. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.

14. Governing Law. This Contract shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act[, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.

15. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.

- 9 -
<PAGE>

the benefit of the parties hereto and their respective successors. As used in
this Contract, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the l940 Act.

IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.

ATTEST: PAINEWEBBER MANAGED INVESTMENTS TRUST

_________________________ By:_________________________

ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.

_________________________ By: _________________________

- 10 -

<PAGE>

EXHIBIT 6(d)

PAINEWEBBER MANAGED INVESTMENTS TRUST

DISTRIBUTION CONTRACT
CLASS Y SHARES

CONTRACT made as of July 1, 1991 and amended November 10, 1995, between
PAINEWEBBER MANAGED INVESTMENTS TRUST, a Massachusetts business trust ("Fund"),
and MITCHELL HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell
Hutchins").

WHEREAS the Fund is registered under the Investment Company Act of l940, as
amended ("l940 Act"), as an open-end management investment company and currently
offers for public sale five distinct series of shares of beneficial interest
("Series"), which correspond to distinct portfolios and have been designated as
the PaineWebber U.S. Government Income Fund, PaineWebber Investment Grade Income
Fund, PaineWebber High Income Fund, PaineWebber Utility Income Fund and
PaineWebber Low Duration U.S. Government Income Fund; and

WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
Y shares ("Class Y Shares") (previously known as Class C shares); and

WHEREAS the Fund desires to retain Mitchell Hutchins as principal
distributor in connection with the offering and sale of the Class Y Shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board and have Class Y Shares established; and

WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class Y Shares of each such Series on the terms and conditions hereinafter set
forth;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class Y Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does
<PAGE>

not preclude sales of the Class Y Shares directly through the Fund's transfer
agent in the manner set forth in the Registration Statement. As used in this
Contract, the term "Registration Statement" shall mean the currently effective
registration statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.

2. Services and Duties of Mitchell Hutchins.
----------------------------------------

(a) Mitchell Hutchins agrees to sell Class Y Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.

(b) Upon the later of the date of this Contract or the initial
offering of the Class Y Shares by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class Y Shares of that Series and will accept such orders on behalf of the Fund
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Fund's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.

(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class Y Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.

(d) The offering price of the Class Y Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.

(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class Y Shares.

(f) To facilitate redemption of Class Y Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class Y Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement.

(g) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins

- 2 -
<PAGE>

shall not sell or knowingly provide such list or lists to any unaffiliated
person.

3. Authorization to Enter into Exclusive Dealer Contracts and to Delegate
----------------------------------------------------------------------
Duties as Distributor. With respect to the Class Y Shares of any or all Series,
- ---------------------
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Class
Y Shares. In a separate contract or as part of any such exclusive dealer
agreement, Mitchell Hutchins also may delegate to PaineWebber or another
registered and qualified dealer ("sub-distributor") any or all of its duties
specified in this Contract, provided that such separate contract or exclusive
dealer agreement imposes on the sub-distributor bound thereby all applicable
duties and conditions to which Mitchell Hutchins is subject under this Contract,
and further provided that such separate contract or exclusive dealer agreement
meets all requirements of the 1940 Act and rules thereunder.

5. Compensation and Reimbursement of Distribution Expenses. The Fund
-------------------------------------------------------
shall have no obligation to compensate or reimburse Mitchell Hutchins for any
services performed by it hereunder.

6. Duties of the Fund.
-------------------

(a) The Fund reserves the right at any time to withdraw offering
Class Y Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.

(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class Y Shares. If the Fund
has determined that certificates shall be issued, the Fund will not cause
certificates representing Class Y Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund
will cause certificates evidencing Class Y Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.

- 3 -
<PAGE>

(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class Y Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class Y Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.

(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class Y Shares under the 1933 Act to the end that there will be available for
sale such number of Class Y Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.

(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class Y Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Declaration of Fund or By-Laws to comply with the laws of
any jurisdiction, to maintain an office in any jurisdiction, to change the terms
of the offering of the Class Y Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class Y Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.

7. Expenses of the Fund. The Fund shall bear all costs and expenses of
---------------------
registering the Class Y Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements

- 4 -
<PAGE>

and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
to shareholders; and (iv) the qualifications of Class Y Shares for sale and of
the Fund as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.

8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class Y Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class Y Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class Y Shares as
may be incurred in connection with their sales efforts.

9. Indemnification.
---------------

- 5 -
<PAGE>

Registration Statement; provided, however, that this indemnity agreement shall
not inure to the benefit of any person who is also an officer or trustee of the
Fund or who controls the Fund within the meaning of Section 15 of the 1933 Act,
unless a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect Mitchell
Hutchins against any liability to the Fund or to the shareholders of any Series
to which Mitchell Hutchins would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations under this Contract. The
Fund shall not be liable to Mitchell Hutchins under this indemnity agreement
with respect to any claim made against Mitchell Hutchins or any person
indemnified unless Mitchell Hutchins or other such person shall have notified
the Fund in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon Mitchell Hutchins or such other person (or after
Mitchell Hutchins or the person shall have received notice of service on any
designated agent). However, failure to notify the Fund of any claim shall not
relieve the Fund from any liability which it may have to Mitchell Hutchins or
any person against whom such action is brought otherwise than on account of this
indemnity agreement. The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to indemnified defendants in the
suit whose approval shall not be unreasonably withheld. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify Mitchell Hutchins promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Class Y Shares.

(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and trustees, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the

- 6 -
<PAGE>

Fund, its trustees or officers, or any such controlling person may incur under
the 1933 Act or under common law or otherwise arising out of or based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by Mitchell Hutchins to the Fund for use in the Registration
Statement, arising out of or based upon any alleged omission to state a material
fact in connection with such information required to be stated in the
Registration Statement necessary to make such information not misleading, or
arising out of any agreement between Mitchell Hutchins and any retail dealer, or
arising out of any supplemental sales literature or advertising used by Mitchell
Hutchins in connection with its duties under this Contract. Mitchell Hutchins
shall be entitled to participate, at its own expense, in the defense or, if it
so elects, to assume the defense of any suit brought to enforce the claim, but
if Mitchell Hutchins elects to assume the defense, the defense shall be
conducted by counsel chosen by Mitchell Hutchins and satisfactory to the
indemnified defendants whose approval shall not be unreasonably withheld. In
the event that Mitchell Hutchins elects to assume the defense of any suit and
retain counsel, the defendants in the suit shall bear the fees and expenses of
any additional counsel retained by them. If Mitchell Hutchins does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.

12. Duration and Termination.
------------------------

- 7 -
<PAGE>

persons of the Fund, and have no direct or indirect financial interest in this
Contract or in any agreements related thereto (all such Trustees collectively
being referred to herein as the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on such action.

(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class Y Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.

(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.

14. Governing Law. This Contract shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.

15. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.

- 8 -
<PAGE>

16. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.

IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.

ATTEST: PAINEWEBBER MANAGED INVESTMENTS TRUST

_________________________ By _________________________

ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.

_________________________ By: _________________________

- 9 -

<PAGE>

EXHIBIT 6(g)

EXCLUSIVE DEALER AGREEMENT
CLASS C SHARES OF PAINEWEBBER MANAGED INVESTMENTS TRUST

AGREEMENT made as of November 10, 1995, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.

WHEREAS PaineWebber Managed Investments Trust ("Fund") is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and

WHEREAS the Fund currently has five distinct series of shares of beneficial
interest ("Series"), which correspond to distinct portfolio and have been
designated as the PaineWebber U.S. Government Income Fund, PaineWebber
Investment Grade Income Fund, PaineWebber High Income Fund, PaineWebber Utility
Income Fund and PaineWebber Low Duration U.S. Government Income Fund; and

WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
C shares ("Class C Shares") (previously known as Class D shares) and has adopted
a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act ("Plan") with
respect to the Class C Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class C Shares
established; and

WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class C Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and

WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent
in connection with the offering and sale of such Class C Shares and to perform
such services on the terms and conditions hereinafter set forth;
<PAGE>

NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:

1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
exclusive agent to sell and to arrange for the sale of the Class C Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class C Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.

2. Services, Duties and Representations of PaineWebber.
---------------------------------------------------

(a) PaineWebber agrees to sell the Class C Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.

(b) Upon the later of the date of this Agreement or the initial
offering of Class C Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class C Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in
the manner set forth in the Registration Statement.

(c) PaineWebber in its discretion may sell Class C Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.

(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.

- 2 -
<PAGE>

(e) PaineWebber shall not be obligated to sell any certain number of
Class C Shares.

(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class C Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable
contingent deferred sales charge, if any, computed in accordance with and in the
manner set forth in the Registration Statement.

(g) Painewebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.

(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Rules of Fair Practice of
the NASD; (ii) it is registered as a broker-dealer with the Securities and
Exchange Commission; (iii) it will maintain any filings and licenses required by
federal and state laws to conduct the business contemplated under this
Agreement; and (iv) it will comply with all federal and state laws and
regulations applicable to the offer and sale of the Class C Shares.

(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class C Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.

(j) PaineWebber shall not permit any employee or agent to offer or
sell Class C Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.

(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class C Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or

- 3 -
<PAGE>

sell the Class C Shares in jurisdictions in which they have not been approved
for offer and sale.

3. Services Not Exclusive. The services furnished by PaineWebber
----------------------
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.

4. Compensation.
------------

(a) As compensation for its service activities under this Agreement
with respect to the Class C Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class C Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.

(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall pay
to PaineWebber such commissions for sales of the Class C shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.

(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.

(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.

- 4 -
<PAGE>

5. Duties of Mitchell Hutchins.
---------------------------

(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class C Shares of any or all Series by written notice
to Mitchell Hutchins.

(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class C
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class C Shares
and in the performance of PaineWebber under this Agreement.

(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the Class C Shares.

6. Advertising. Mitchell Hutchins agrees to make available such sales
-----------
and advertising materials relating to the Class C Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class C Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.

7. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and sale
of the Class C Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.

8. Expenses of PaineWebber. PaineWebber shall bear all costs and
-----------------------
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class C Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
Class C

- 5 -
<PAGE>

Shares, and all expenses of PaineWebber, its Investment Executives and employees
and others who engage in or support the sale of Class C Shares as may be
incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell
Hutchins shall advise the Board of any such agreement as to additional costs and
expenses borne by PaineWebber at their first regular meeting held after such
agreement but shall not be required to obtain prior approval for such agreements
from the Board.

9. Indemnification.
---------------

(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class C Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.

- 6 -
<PAGE>

gating or defending against such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins or its officers
or directors or the Fund, its officers or trustees, or any such controlling
person may incur under the 1933 Act, under common law or otherwise arising out
of or based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.

10. Duration and Termination.
------------------------

(a) This Agreement shall become effective upon the date

written above, provided that, with respect to any Series, this Contract shall
not take effect unless such action has first been approved by vote of a majority
of the Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto (all
such trustees collectively being referred to herein as the "Independent
Trustees") cast in person at a meeting called for the purpose of voting on such
action.

(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Trustees, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class C Shares of such Series.

(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the

- 7 -
<PAGE>

Class C Shares of such Series on 30 days' written notice to Mitchell Hutchins
and PaineWebber.

(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.

(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.

11. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.

12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
-----------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class C Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.

13. Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.

14. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective

- 8 -
<PAGE>

successors. As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meaning as such terms have in the 1940 Act.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.

MITCHELL HUTCHINS ASSET
MANAGEMENT INC.

Attest: _______________________ By: ________________________

PAINEWEBBER INCORPORATED

Attest: _______________________ By: ________________________

- 9 -

<PAGE>

EXHIBIT 6(h)

EXCLUSIVE DEALER AGREEMENT
CLASS Y SHARES OF PAINEWEBBER MANAGED INVESTMENTS TRUST

AGREEMENT made as of July 1, 1991 and amended November 10, 1995, between
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a Delaware
corporation, and PaineWebber Incorporated ("PaineWebber"), a Delaware
corporation.

WHEREAS the Fund currently offers for public sale five distinct series of
shares of beneficial interest ("Series"), which correspond to distinct
portfolios and have been designated as the PaineWebber U.S. Government Income
Fund, PaineWebber Investment Grade Income Fund, PaineWebber High Income Fund,
PaineWebber Utility Income Fund and PaineWebber Low Duration U.S. Government
Income Fund; and

WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the
Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class Y
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class Y Shares established; and

WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class Y Shares of each
such Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Fund under the Distribution
Contract; and

WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent
in connection with the offering and sale of such Class Y Shares and to perform
such services on the terms and conditions hereinafter set forth;
<PAGE>

NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:

1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
exclusive agent to sell and to arrange for the sale of the Class Y Shares on the
terms and for the period set forth in this Contract. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class Y Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Contract,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.

2. Services, Duties and Representations of PaineWebber.
---------------------------------------------------

(a) PaineWebber agrees to sell the Class Y Shares on a best efforts basis
from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Contract and the Registration
Statement.

(b) Upon the later of the date of this Contract or the initial offering of
Class Y Shares by a Series, PaineWebber will hold itself available to receive
orders, satisfactory to PaineWebber and Mitchell Hutchins, for the purchase of
Class Y Shares and will accept such orders on behalf of Mitchell Hutchins and
the Fund as of the time of receipt of such orders and will promptly transmit
such orders as are accepted to the Fund's transfer agent. Purchase orders shall
be deemed effective at the time and in the manner set forth in the Registration
Statement.

(c) PaineWebber in its discretion may sell Class Y Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.

(d) The offering price of the Class Y Shares of each Series shall be the
net asset value per Share as next determined by the Fund following receipt of an
order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.

- 2 -
<PAGE>

(e) PaineWebber shall not be obligated to sell any certain number of Class
Y Shares.

(f) To facilitate redemption of Class Y Shares by shareholders directly or
through dealers, PaineWebber is authorized but not required on behalf of
Mitchell Hutchins and the Fund to repurchase Class Y Shares presented to it by
shareholders, its correspondent firms and other dealers at the price determined
in accordance with, and in the manner set forth in, the Registration Statement.

(g) PaineWebber represents and warrants that: (i) it is a member in good
standing of the National Association of Securities Dealers, Inc. and agrees to
abide by the Rules of Fair Practice of such Association; (ii) it is registered
as a broker-dealer with the Securities and Exchange Commission; (iii) it will
maintain any filings and licenses required by federal and state laws to conduct
the business contemplated under this Agreement;

and (iv) it will comply with all federal and state laws and regulations
applicable to the offer and sale of the Class Y Shares.

(h) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class Y Shares and in complying with the terms and conditions of
this Contract as more specifically set forth in paragraph 8.

(i) PaineWebber shall not permit any employee or agent to offer or sell
Class Y Shares unless such person is duly licensed under applicable federal and
state laws and regulations.

(j) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class Y Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class Y Shares in jurisdictions in which they have not been
approved for offer and sale.

3. Services Not Exclusive. The services furnished by PaineWebber
----------------------
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.

- 3 -
<PAGE>

4. Compensation.
------------

Mitchell Hutchins shall not be obligated to pay any compensation to
PaineWebber hereunder nor to reimburse any of PaineWebber's expenses incurred
hereunder.

5. Duties of Mitchell Hutchins.
---------------------------

(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class Y Shares of any or all Series by written notice
to Mitchell Hutchins.

(b) Mitchell Hutchins shall keep PaineWebber fully informed of the Fund's
affairs and shall make available to PaineWebber copies of all information,
financial statements and other papers which PaineWebber may reasonably request
for use in connection with the distribution of Class Y Shares, including,
without limitation, certified copies of any financial statements prepared for
the Fund by its independent public accountant and such reasonable number of
copies of the most current prospectus, statement of additional information, and
annual and interim reports of any Series as PaineWebber may request, and
Mitchell Hutchins shall cooperate fully in the efforts of PaineWebber to sell
and arrange for the sale of the Class Y Shares and in the performance of
PaineWebber under this Contract.

(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the Class Y Shares.

6. Advertising. Mitchell Hutchins agrees to make available such sales and
-----------
advertising materials relating to the Class Y Shares as Mitchell Hutchins in its
discretion determines appropriate. PaineWebber agrees to submit all sales and
advertising materials developed by it relating to the Class Y Shares to Mitchell
Hutchins for approval. PaineWebber agrees not to publish or distribute such
materials without first receiving such approval in writing. Mitchell Hutchins
shall assist PaineWebber in obtaining any regulatory approvals of such materials
that may be required of or desired by PaineWebber.

7. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and sale
of the Class Y Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.

8. Expenses of PaineWebber. PaineWebber shall bear all costs and expenses
-----------------------
of (i) preparing, printing, and distributing any materials not prepared by the
Fund or Mitchell Hutchins and other materials used by PaineWebber in connection
with its offering of Class Y Shares for sale to the public; (ii) any expenses

- 4 -
<PAGE>

of advertising incurred by PaineWebber in connection with such offering; (iii)
the expenses of registration or qualification of PaineWebber as a dealer or
broker under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to PaineWebber's
investment executives or other employees and others for selling Class Y Shares,
and all expenses of PaineWebber, its investment executives and employees and
others who engage in or support the sale of Class Y Shares as may be incurred in
connection with their sales efforts. PaineWebber shall bear such additional
costs and expenses as it and Mitchell Hutchins may agree upon, such agreement to
be evidenced in a writing signed by both parties. Mitchell Hutchins shall
advise the Board of any such agreement as to additional costs and expenses borne
by PaineWebber at their first regular meeting held after such agreement but
shall not be required to obtain prior approval for such agreements from the
Board.

9. Indemnification.
---------------

(a) Mitchell Hutchins agrees to indemnify, defend, and hold PaineWebber,
its officers and directors, and any person who controls PaineWebber within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class Y Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Contract.

- 5 -
<PAGE>

(b) PaineWebber agrees to indemnify, defend, and hold Mitchell Hutchins and
its officers and directors, the Fund, its officers and trustees, and any person
who controls Mitchell Hutchins or the Fund within the meaning of Section 15 of
the 1933 Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending
against such claims, demands or liabilities and any counsel fees incurred in
connection therewith) which Mitchell Hutchins or its officers or directors or
the Fund, its officers or trustees, or any such controlling person may incur
under the 1933 Act, under common law or otherwise arising out of or based upon
any alleged untrue statement of a material fact contained in information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement; arising out of or based upon any alleged omission to
state a material fact in connection with such information required to be stated
in the Registration Statement or necessary to make such information not
misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Contract.

10. Duration and Termination.
------------------------

(a) This Contract shall become effective upon the date

written above, provided that, with respect to any Series, this Contract shall
not take effect unless such action has first been approved by vote of a majority
of the Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of this Contract or in any agreements related thereto
(all such trustees collectively being referred to herein as the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
action.

(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board with respect to any given Series or by vote of a majority of the
outstanding voting securities of the Class Y Shares of such Series.

(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Contract may also be terminated at any

- 6 -
<PAGE>

time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the Class Y Shares of such Series on 30 days' written
notice to Mitchell Hutchins and PaineWebber.

(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series. This Contract will
automatically terminate in the event of its assignment or in the event that the
Distribution contract is terminated.

11. Amendment of this Agreement. No provision of this Contract may be
---------------------------
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.

12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
-----------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class Y Shares, but
only for so long as this Contract or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.

13. Governing Law. This Contract shall be construed in accordance with
-------------
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.

14. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the

- 7 -
<PAGE>

outstanding voting securities," "interested person" and "assignment" shall have
the same meaning as such terms have in the 1940 Act.

IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first written
above.

MITCHELL HUTCHINS ASSET
MANAGEMENT INC.

Attest: _______________________ By: ________________________

PAINEWEBBER INCORPORATED

Attest: _______________________ By: _________________________

- 8 -

<PAGE>

EXHIBIT 11

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information and to the incorporation by reference of our reports dated May 19,
1995, May 19, 1995 and January 15, 1996 of PaineWebber Capital Appreciation
Fund, PaineWebber Financial Services Growth Fund Inc. (formerly PaineWebber
Regional Financial Growth Fund Inc.) and PaineWebber Utility Income Fund Inc.,
respectively, in this Registration Statement (Form N-1A No. 2-91362) of
PaineWebber Managed Investments Trust.

/s/ Ernst & Young LLP
Ernst & Young LLP

New York, New York
February 13, 1996

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 161
<NAME> PAINEWEBBER UTILITY INCOME FUND CLASS A
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 8774
<INVESTMENTS-AT-VALUE> 9529
<RECEIVABLES> 1518
<ASSETS-OTHER> 68
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11115
<PAYABLE-FOR-SECURITIES> 298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67
<TOTAL-LIABILITIES> 365
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11623
<SHARES-COMMON-STOCK> 1100
<SHARES-COMMON-PRIOR> 1507
<ACCUMULATED-NII-CURRENT> 18
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1646)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 755
<NET-ASSETS> 10750
<DIVIDEND-INCOME> 346
<INTEREST-INCOME> 385
<OTHER-INCOME> 0
<EXPENSES-NET> (164)
<NET-INVESTMENT-INCOME> 567
<REALIZED-GAINS-CURRENT> (44)
<APPREC-INCREASE-CURRENT> 1804
<NET-CHANGE-FROM-OPS> 2327
<EQUALIZATION> 0
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<PAGE>

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<NAME> PAINEWEBBER UTILITY INCOME FUND CLASS B
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<PAGE>

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<NAME> PAINEWEBBER UTILITY INCOME FUND CLASS C
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