PAINEWEBBER MANAGED INVESTMENTS TRUST, 485APOS, 1996-05-30

PAINEWEBBER MANAGED INVESTMENTS TRUST
485APOS, 1996-05-30

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<PAGE>

As filed with the Securities and Exchange Commission on May 30, 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. 41 [ X ]
----- -----

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

Amendment No. 36
-----

(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)
----
60 days after filing pursuant to Rule 485(a)(i)
----

X On August 1, 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)
----
<PAGE>

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
the most recent fiscal year of the series designated PaineWebber Utility Income
Fund, which is the subject of this post-effective amendment, on May 20, 1996.

-2-
<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

Class Y shares of
Utility Income Fund
- --------------------------

Part A- Prospectus
Part B- Statement of Additional Information

Part C- Other Information

Signature Page

Exhibits

This Post-Effective Amendment does not make any changes in the currently
effective prospectuses and statements of additional information for any series
of PaineWebber Managed Investments Trust other than PaineWebber Utility Income
Fund.

-3-
<PAGE>

PaineWebber Managed Investments Trust:

Class A, B and C shares of:

PaineWebber Utility Income Fund

Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>

Part A Item No. and
Caption Prospectus Caption
------------------- -----------------------------
<C> <S> <C>
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
History................... Other Information

</TABLE>

-4-
<PAGE>

<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------
<C> <S> <C>
13. Investment Objective Investment Policies and
and Policies.............. Restrictions; Hedging
Strategies; Portfolio
Transactions

14. Management of the Fund.... Trustees, Directors and Officers

15. Control Persons and
Principal Holders of
Securities................ Trustees, Directors and Officers

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 Data.......... Performance Information

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

</TABLE>

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.

-5-
<PAGE>

PaineWebber Managed Investments Trust:

Class Y shares of:

PaineWebber Utility Income Fund

Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>

Part A Item No. and
Caption Prospectus Caption
------------------- ------------------
<C> <S> <C>
1. Cover Page................ Cover Page

2. Synopsis.................. Expense Table

3. Condensed Financial
Information............... Performance

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

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

6. Capital Stock and other Cover Page; How to Buy Shares;
Securities................ Dividends and Taxes; General
Information

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

8. Redemption or Repurchase How to Sell Shares

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
History................... Other Information

</TABLE>

-6-
<PAGE>

Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------
<C> <S> <C>
13. Investment Objective Investment Policies and
and Policies.............. Restrictions; Hedging
Strategies; Portfolio
Transactions

14. Management of the Fund.... Trustees, Directors and Officers

15. Control Persons and
Principal Holders of
Securities................ Trustees, Directors and Officers

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

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

18. Capital Stock and Other
Securities................ Other Information

19. Purchase, Redemption and
Pricing of Securities Valuation of
Being Offered............. Shares

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

21. Underwriters.............. Investment Advisory and
Distribution Arrangements
22. Calculation of
Performance Data.......... Performance Information

23. Financial Statements...... Financial Statements
</TABLE>

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.
-7-
<PAGE>

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

PaineWebber Capital Appreciation Fund

PaineWebber Financial Services Growth Fund Inc.

PaineWebber Utility Income Fund
1285 Avenue of the Americas, New York, NY 10019

Prospectus -- August 1, 1996
- --------------------------------------------------------------------------------

PaineWebber Stock Funds are designed for investors generally seeking capital
appreciation by investing principally in equity securities. 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 investing primarily in
equity securities of companies in the financial services industries.
PaineWebber Utility Income Fund seeks to provide current income and capital ap-
preciation 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 re-
tain a copy of this Prospectus for future reference.

A Statement of Additional Information dated August 1, 1996 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 invest-
ment executive at PaineWebber or one of its correspondent firms or by calling
toll-free 1-800-647-1568.
- --------------------------------------------------------------------------------

THE PAINEWEBBER FAMILY OF MUTUAL FUNDS

The PaineWebber Family of Mutual 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 STOCK category.

. Money Market Fund for . Asset Allocation Funds for long-term growth and
income and stability by income by investing in stocks and bonds.
investing in high-
quality, short-term
investments.

. Bond Funds for income by . Stock Funds for long-term growth by investing
investing mainly in mainly in equity securities.
bonds.

. Tax-Free Bond Funds for . Global Funds for long-term growth by investing
income exempt from mainly in foreign stocks or high current income
federal income taxes and, by investing mainly in global debt instruments.
in some cases, state and
local income taxes, by
investing in municipal
bonds.

A complete listing of the PaineWebber Family of Mutual Funds is found on the
back cover of this prospectus.

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS 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 DISTRIBU-
TOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

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.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 1

<PAGE>

PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund
-------------------

Table of Contents
- -------------------------------------------------------------------------------
----------
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Funds at a Glance...................................................... 3
Expense Table.............................................................. 5
Financial Highlights....................................................... 8
Investment Objective and Policies.......................................... 14
Investment Philosophy & Process............................................ 15
Performance................................................................ 17
The Funds' Investments..................................................... 20
Flexible Pricing SM........................................................ 23
How to Buy Shares.......................................................... 25
How to Sell Shares......................................................... 26
Other Services............................................................. 27
Management................................................................. 28
Determining the Shares' Net Asset Value.................................... 30
Dividends & Taxes.......................................................... 30
General Information........................................................ 31
</TABLE>

---------------
- --------------------------------------------------------------------------------
Prospectus Page 2

<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

The Funds at a Glance
- -------------------------------------------------------------------------------

The Funds offered by this Prospectus 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 college educations, plan for retirement or diver-
sify a portfolio. When selling shares, investors should be aware that they may
get more or less for their shares than they originally paid for them. As with
any mutual fund, there is no assurance that the Funds will achieve their
goals.

CAPITAL APPRECIATION FUND

GOAL: To increase the value of your investment by investing principally in the
common stock of medium-sized domestic companies and some foreign companies se-
lected 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, but they have also shown greater volatility. Be-
cause 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 invest in U.S. dollar-denominated
securities of foreign companies, which involves more risk than investing in
the securities of U.S. companies. The Fund may use derivatives, such as op-
tions and futures, in its hedging activities, which may involve additional
risks. Investors may lose money by investing in the Fund; the investment is
not guaranteed.

SIZE: On , 1996, the Fund had over $ million in assets.

FINANCIAL SERVICES GROWTH FUND

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

INVESTMENT OBJECTIVE: Long-term capital appreciation.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Be-
cause the Fund invests primarily in equity securities, its price will rise and
fall. The Fund's concentration in the banking, thrift, insurance and other fi-
nancial services industries makes it subject to greater risk and volatility
than equity funds that are more diversified, and the Fund's shares will be af-
fected by economic, competitive and regulatory developments affecting the fi-
nancial services industries. The Fund may invest in the securities of foreign
companies, which involves more risk than investing in the securities of U.S.
companies. 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; the investment is
not guaranteed.

SIZE: On , 1996, the Fund had over $ 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 domes-
tic and foreign companies engaged in the ownership or operation of facilities
used in the generation, transmission or distribution of electricity, telecom-
munications, gas or water.

INVESTMENT OBJECTIVE: Current income and capital appreciation.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Be-
cause 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 devel-
opments in those industries. The Fund may invest in the securities of foreign
companies, which involves more risk than investing in the securities of U.S.
companies. 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; the investment is
not guaranteed.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

The Funds at a Glance
(Continued)
- -------------------------------------------------------------------------------

SIZE: On , 1996, the Fund had over $ million in assets.

MANAGEMENT

Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an asset man-
agement subsidiary of PaineWebber Incorporated ("PaineWebber"), is the invest-
ment adviser and administrator of Capital Appreciation Fund, Financial Serv-
ices Growth Fund and Utility Income Fund (each a "Fund" and, collectively, the
"Funds"). Mitchell Hutchins has appointed Denver Investment Advisors, LLC
("Denver Investments") as the investment sub-adviser for 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 appreci-
ation. The Fund seeks to achieve this through investment primarily in the
common stock of medium-sized domestic companies and foreign companies that are
traded in the United States. Equity securities of small- and medium-sized com-
panies offer investors the potential for greater returns than larger companies
but are typically more volatile. Accordingly, Capital Appreciation Fund is de-
signed 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 ap-
preciation. The Fund seeks to achieve this through investment primarily in the
equity securities of domestic and foreign financial services companies, in-
cluding banks, thrift institutions ("thrifts"), insurance companies, commer-
cial finance companies, consumer finance companies, brokerage companies, in-
vestment 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. The Fund seeks to achieve this through investments in
equity securities and bonds in domestic and foreign electric, telecommunica-
tions, 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, which are traditionally viewed as conserva-
tive investments.

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 immedi-
ately invested. However, 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 purchase. After six years, Class B
shares convert to Class A shares, which have lower ongoing expenses and no
contingent deferred sales charge.

CLASS C SHARES

The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class C shares. As a result, 100% of their purchase is immedi-
ately invested. However, Class C shares have higher ongoing expenses than
Class A shares. A contingent deferred sales charge of 1% is charged on shares
sold within one year of purchase. Class C shares never convert to any other
class of shares.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 4

Expense Table
- -------------------------------------------------------------------------------

The following tables are intended to assist investors in understanding the ex-
penses associated with investing in the Class A, B and C shares of the Funds.
Expenses shown below represent those incurred for the most recent fiscal year.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES ------- ------- -------
<S> <C> <C> <C>
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
net asset value at the time of purchase or sale,
whichever is less) .................................. None 5% 1%
Exchange Fee.......................................... $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES (as a % of average net
assets)
CAPITAL APPRECIATION FUND
Management Fees....................................... 1.00% 1.00% 1.00%
12b-1 Fees............................................ 0.25 1.00 1.00
Other Expenses........................................
----- ----- -----
Total Operating Expenses.............................. % % %
===== ===== =====
FINANCIAL SERVICES GROWTH FUND
Management Fees....................................... 0.70% 0.70% 0.70%
12b-1 Fees............................................ 0.25 1.00 1.00
Other Expenses........................................
----- ----- -----
Total Operating Expenses.............................. % % %
===== ===== =====
UTILITY INCOME FUND
Management Fees....................................... 0.70% 0.70% 0.70%
12b-1 Fees............................................ 0.25 1.00 1.00
Other Expenses........................................
----- ----- -----
Total Operating Expenses.............................. % % %
===== ===== =====
</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% is imposed on the net
asset value of the shares at the time of purchase or sale, whichever is
less.

CLASS B SHARES: Sales charge waivers are available. The maximum 5% con-
tingent 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: If shares are sold within one year after purchase, 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 imposed.
- --------------------------------------------------------------------------------

The management fee payable to Mitchell Hutchins by 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. 12b-1 fees have two compo-
nents, as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees...................................... 0.25% 0.25% 0.25%
12b-1 distribution fees................................. 0.00 0.75 0.75
</TABLE>

For more information, see "Management" and "Flexible Pricing SM."

---------------
- --------------------------------------------------------------------------------
Prospectus Page 5

Expense Table
(Continued)
- -------------------------------------------------------------------------------

EXAMPLES OF EFFECT OF FUND EXPENSES

The following examples should assist investors in understanding various costs
and expenses incurred as shareholders of a Fund. The assumed 5% annual return
shown in the examples is required by regulations of the Securities and Ex-
change Commission ("SEC") applicable to all mutual funds. THESE EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES OF A FUND MAY BE MORE OR LESS THAN THOSE SHOWN.

An investor would pay the following expenses, directly or indirectly, on a
$1,000 investment in the Fund, assuming a 5% annual return:

<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $ $ $ $
Class B (Assuming sale of all shares at end of
period)....................................... $ $ $ $
Class B (Assuming no sale of shares)........... $ $ $ $
Class C (Assuming sale of all shares at end of
period)....................................... $ $ $ $
Class C (Assuming no sale of shares)........... $ $ $ $
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $ $ $ $
Class B (Assuming sale of all shares at end of
period)....................................... $ $ $ $
Class B (Assuming no sale of shares)........... $ $ $ $
Class C (Assuming sale of all shares at end of
period)....................................... $ $ $ $
Class C (Assuming no sale of shares)........... $ $ $ $
<CAPTION>
UTILITY INCOME FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $ $ $ $
Class B (Assuming sale of all shares at end of
period)....................................... $ $ $ $
Class B (Assuming no sale of shares)........... $ $ $ $
Class C (Assuming sale of all shares at end of
period)....................................... $ $ $ $
Class C (Assuming no sale of shares)........... $ $ $ $
</TABLE>

- --------------------------------------------------------------------------------
ASSUMPTIONS MADE IN THE EXAMPLES

. ALL CLASSES: Reinvestment of all dividends and distributions; percent-
age amounts listed under "Annual Fund Operating Expenses" remain the
same for years shown.
. 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 de-
ferred 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.
- --------------------------------------------------------------------------------

---------------
- --------------------------------------------------------------------------------
Prospectus Page 6

[INTENTIONALLY LEFT BLANK]

---------------
- --------------------------------------------------------------------------------
Prospectus Page 7

Financial Highlights
- -------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND

---------------
- --------------------------------------------------------------------------------
Prospectus Page 8

Financial Highlights
(Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
- ---------------------------------------------------------------------------------------
CLASS B CLASS C(2)
- ------------------------------------------ --------------------------------------------
FOR THE
PERIOD
FOR THE YEARS FOR THE PERIOD JULY 2,
ENDED MARCH 31, APRIL 7, 1992+ FOR THE YEARS ENDED MARCH 31, 1992+ TO
- ------------------------- TO MARCH 31, -------------------------------- MARCH 31,
1996 1995 1994 1993 1996 1995 1994 1993
- ---- -------- -------- -------------- ------------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ $ 12.02 $ 10.94 $ 10.00 $ $ 11.50 $ 10.47 $ 8.89
- ---- -------- -------- -------- ------- ---------- ---------- -------
(0.20) (0.17) (0.11) (0.19) (0.10) (0.05)
1.33 1.25 1.05 1.27 1.13 1.63
- ---- -------- -------- -------- ------- ---------- ---------- -------
1.13 1.08 0.94 -- (0.04) -- 1.58
- ---- -------- -------- -------- ------- ---------- ---------- -------
-- (0.04) -- -- 1.08 1.03 --
- ---- -------- -------- -------- ------- ---------- ---------- -------
$ $ 13.11 $ 12.02 $ 10.94 $ $ 12.54 $ 11.50 $ 10.47
==== ======== ======== ======== ======= ========== ========== =======
% 9.46% 9.87% 9.40% % 9.45% 9.84% 17.77%
==== ======== ======== ======== ======= ========== ========== =======
$ $139,302 $133,828 $105,490 $ $ 24,993 $ 29,884 $13,806
% 2.34% 2.30% 2.49%* % 2.35% 2.28% 2.31%*
% (1.56)% (1.60)% (1.55)%* % (1.57)% (1.58)% (1.53)%*
% 42% 60% 51% % 42% 60% 51%
</TABLE>

---------------
- --------------------------------------------------------------------------------
Prospectus Page 9

Financial Highlights
(Continued)
- -------------------------------------------------------------------------------

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 shown. 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, 1996 and the report of Ernst & Young LLP, independent au-
ditors, appearing in the Fund's Annual Report to Shareholders. Both are incor-
porated by reference into the Statement of Additional Information. The finan-
cial statements and notes, as well as the financial information in the table
below relating to each of the five years in the period ended March 31, 1996,
have been audited by Ernst & Young LLP. Further information about the Fund's
performance is also included in the Annual Report to Shareholders, which may
be obtained without charge by calling 1-800-647-1568. Information shown below
for periods prior to the year ended March 31, 1992, has also been audited by
Ernst & Young LLP, whose reports thereon were unqualified.
<TABLE>
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
-----------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------
FOR THE
PERIOD
MAY 22,
FOR THE YEARS ENDED MARCH 31, 1986+ TO
----------------------------------------------------------------------------- MARCH 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ------- ------- ------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ $ 16.92 $ 19.45 $ 13.36 $ 9.50 $ 8.63 $ 8.31 $ 7.53 $ 9.36 $ 9.25
--- ------- ------- ------- ------- ------- ------- ------- ------- --------
Net investment income... 0.25 0.15 0.10 0.15 0.25 0.24 0.25 0.21 0.22
Net realized and
unrealized gains
(losses) from
investment
transactions........... 1.34 (0.76) 6.01 3.92 0.86 0.37 0.77 (1.45) (0.09)
--- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total increase
(decrease) from
investment operations.. 1.59 (0.61) 6.11 4.07 1.11 0.61 1.02 (1.24) 0.13
--- ------- ------- ------- ------- ------- ------- ------- ------- --------
Dividends from net
investment income...... -- (0.13) (0.08) (0.02) (0.21) (0.24) (0.29) (0.24) (0.39) --
Distributions from net
realized gains on
investments............ -- (1.27) (1.84) -- -- -- -- -- (0.20) --
--- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total dividends and
distributions to
shareholders........... -- (1.40) (1.92) (0.02) (0.21) (0.24) (0.29) (0.24) (0.59) --
--- ------- ------- ------- ------- ------- ------- ------- ------- --------
Net asset value, end of
period................. $ $ 17.11 $ 16.92 $ 19.45 $ 13.36 $ 9.50 $ 8.63 $ 8.31 $ 7.53 $ 9.36
=== ======= ======= ======= ======= ======= ======= ======= ======= ========
Total investment return
(1).................... % 10.22% (3.14)% 46.79% 42.23% 13.33% 7.16% 13.76% (13.57)% 1.19%
=== ======= ======= ======= ======= ======= ======= ======= ======= ========
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's)......... $ $49,295 $48,032 $61,645 $44,867 $43,131 $95,081 $90,322 $85,130 $101,155
Expenses to average net
assets................. % 1.45% 1.44% 1.87% 1.72% 1.67% 1.33% 1.16% 1.04% 1.05%*
Net investment income
(loss) to average net
assets................. % 1.40% 0.76% 0.60% 1.32% 2.56% 2.60% 3.20% 2.64% 2.82%*
Portfolio turnover...... % 14% 22% 28% 31% 19% 29% 55% 42% 25%
</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 divi-
dends and other 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; results 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.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 10

Financial Highlights
(Continued)
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
-----------------------------------------------------------------------------------
CLASS B CLASS C(2)
-------------------------------------------------- --------------------------------
FOR THE FOR THE
PERIOD PERIOD
JULY 1, FOR THE YEARS JULY 2,
FOR THE YEARS ENDED MARCH 31, 1991+ TO ENDED MARCH 31, 1992+ TO
-------------------------------------- MARCH 31, -------------------- MARCH 31,
1996 1995 1994 1993 1992 1996 1995 1994 1993
------- -------- -------- -------- --------- ---- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ 16.71 $ 19.34 $ 13.36 $10.24 $ $16.71 $19.34 $14.61
---- -------- -------- -------- ------ --- ------ ------ ------
0.11 0.02 (0.01) -- 0.11 0.01 --
1.33 (0.75) 5.99 3.18 1.33 (0.73) 4.77
---- -------- -------- -------- ------ --- ------ ------ ------
1.44 (0.73) 5.98 3.18 1.44 (0.72) 4.77
---- -------- -------- -------- ------ --- ------ ------ ------
-- (0.03) (0.06) -- (0.06) -- (0.02) (0.07) (0.04)
-- (1.27) (1.84) -- -- -- (1.27) (1.84) --
---- -------- -------- -------- ------ --- ------ ------ ------
-- (1.30) (1.90) -- (0.06) -- (1.29) (1.91) (0.04)
---- -------- -------- -------- ------ --- ------ ------ ------
$ $ 16.85 $ 16.71 $ 19.34 $13.36 $ $16.86 $16.71 $19.34
==== ======== ======== ======== ====== === ====== ====== ======
% 9.37% (3.83)% 44.76% 31.16% % 9.34% (3.76)% 32.66%
==== ======== ======== ======== ====== === ====== ====== ======
$ $ 16,368 $ 11,517 $ 10,364 $ 765 $ $4,160 $4,370 $4,636
% 2.22% 2.16% 2.45% 2.72%* % 2.23% 2.17% 2.36%*
% 0.67% 0.05% (0.03)% 0.14%* % 0.61% 0.03% 0.01%*
% 14% 22% 28% 31% % 14% 22% 28%
</TABLE>

---------------
- --------------------------------------------------------------------------------
Prospectus Page 11

<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWeber Capital Appreciation Fund Financial Services Growth Fund Inc.
Utility Income Fund

Financial Highlights
(Continued)
- -------------------------------------------------------------------------------

UTILITY INCOME FUND

<TABLE>
<CAPTION>
UTILITY INCOME FUND
--------------------------------------------
CLASS A
--------------------------------------------
FOR THE FOR THE
PERIOD FOR THE YEARS PERIOD
NOVEMBER 30, ENDED JULY 2,
1995 TO NOVEMBER 30, 1993+ TO
MARCH 31, ---------------- NOVEMBER 30,
1996* 1995 1994 1993
------------ ------- ------- ------------
<S> <C> <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 other 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; results 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.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 12

Financial Highlights
(Continued)
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
UTILITY INCOME FUND
- ----------------------------------------------------------------------------------------------
CLASS B CLASS C(2)
- --------------------------------------------- ------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
PERIOD FOR THE YEARS PERIOD PERIOD PERIOD
NOVEMBER 30, ENDED JULY 2, NOVEMBER 30, FOR THE YEARS ENDED JULY 2,
1995 TO NOVEMBER 30, 1993+ TO 1995 TO NOVEMBER 30, 1993+ TO
MARCH 31, ---------------- NOVEMBER 30, MARCH 31, -------------------- NOVEMBER 30,
1996* 1995 1994 1993 1996* 1995 1994 1993
- ------------ ------- ------- ------------ ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 8.31 $ 9.65 $ 10.00 $ 8.31 $ 9.65 $ 10.00
--- ------- ------- ------- --- --------- --------- -------
0.40 0.42 0.17 0.40 0.42 0.16
1.45 (1.31) (0.39) 1.45 (1.31) (0.38)
--- ------- ------- ------- --- --------- --------- -------
1.85 (0.89) (0.22) 1.85 (0.89) (0.22)
--- ------- ------- ------- --- --------- --------- -------
(0.39) (0.45) (0.13) (0.39) (0.45) (0.13)
--- ------- ------- ------- --- --------- --------- -------
$ 9.77 $ 8.31 $ 9.65 $ 9.77 $ 8.31 $ 9.65
=== ======= ======= ======= === ========= ========= =======
22.73% (9.35)% (2.29)% 22.71% (9.36)% (2.28)%
=== ======= ======= ======= === ========= ========= =======
$37,554 $37,156 $45,382 $ 12,222 $ 13,922 $17,866
2.23% 2.33% 2.29%* 2.24% 2.32% 2.29%*
4.37% 4.72% 4.67%* 4.37% 4.69% 4.67%*
30% 92% 13% 30% 92% 13%
</TABLE>

---------------
- --------------------------------------------------------------------------------
Prospectus Page 13

Investment Objective and Policies
- -------------------------------------------------------------------------------

The Funds' investment objectives may not be changed without shareholder ap-
proval. Their other investment policies, except where noted, are not fundamen-
tal and may be changed by the Funds' boards.

CAPITAL APPRECIATION FUND

Capital Appreciation Fund's investment objective is long-term capital appreci-
ation. The Fund seeks to achieve this objective by investing at least 65% of
its total assets in common stocks of medium-sized (or mid cap) companies. Den-
ver Investments defines mid cap companies as public companies:

. that have market capitalizations (referring to a company's size or the value
of the equity securities it has issued) of at least $100 million and, gener-
ally, no more than $10 billion at the time of purchase; and

. that are not included in either of the largest 100 companies ranked by reve-
nues or by market capitalization in Fortune magazine's "Fortune 500."

While mid cap stocks represent potentially higher returns for investors, they
may present investors with greater risks than larger companies. Mid cap compa-
nies may be more vulnerable than larger companies to adverse business or eco-
nomic 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 U.S. dollar-denominated
equity securities of foreign companies that trade on recognized U.S. stock ex-
changes or on the U.S. over-the-counter ("OTC") market. When Denver Invest-
ments 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

Financial Services Growth Fund's investment objective is long-term capital ap-
preciation. The Fund seeks to achieve this objective by primarily investing in
equity securities of companies in the financial services industries, which
consist of the finance and insurance industries. These companies include
banks, thrift institutions, insurance companies, commercial finance companies,
consumer finance companies, brokerage companies, investment management compa-
nies 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 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 securi-
ties of financial services companies. To be considered a financial services
company, a company must:

. derive at least 50% of either its revenues or earnings from financial serv-
ices 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 com-
panies 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 eq-
uity 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 total assets in the equity securi-
ties of any one company engaged in securities-related businesses. The Fund may
invest in banks and thrifts (and their holding companies) only if their depos-
its are insured by the Federal Deposit Insurance Corporation ("FDIC"). Howev-
er, neither the securities of these companies nor

---------------
- --------------------------------------------------------------------------------
Prospectus Page 14

the Fund's shares are insured by the FDIC or any other federal or governmental
agency.

UTILITY INCOME FUND

Utility Income Fund's investment objective is current income and capital ap-
preciation. The Fund attempts to achieve its objective by investing 65% of its
total assets in income-producing equity securities and bonds issued by domes-
tic and foreign companies that are primarily engaged in the ownership or oper-
ation 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 opera-
tion of one or more such facilities; or

. more than 50% of the company's operating revenues are derived from such
businesses.

The Fund may invest in the equity securities and bonds of foreign companies.
The Fund may invest up to 35% of its total assets in equity securities and
bonds of companies that are outside the utility industries and in high quality
money market instruments. The Fund may invest up to 5% of its net assets in
bonds (including convertible securities) 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 se-
lection; 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. Addi-
tionally, 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 capi-
talize on market inefficiencies to add incremental value. The Fund generally
owns equity securities of at least 100 companies, ensuring portfolio diversi-
fication.

FINANCIAL SERVICES GROWTH FUND

In seeking long-term capital appreciation, the Fund invests in equity securi-
ties 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 in-
clude the issuer's current and anticipated revenues, earnings, cash flow and
assets. Mitchell Hutchins also considers general market conditions in the fi-
nancial services industries.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 15

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 com-
panies 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 Mitchell Hutchins determines the weighting that would best achieve a bal-
ance between income and capital appreciation, it 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.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 16

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 total returns. Returns would be lower if sales charges were deducted.
Past results are not a guarantee of future results. Total returns both before
and after deducting the maximum sales charges are shown below in the tables
that follow the performance charts.

CAPITAL APPRECIATION FUND

[GRAPH APPEARS HERE]

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. The
inception date of Class C shares is July 2, 1992; thus, the 1992 return for
Class C shares represents the period from July 2, 1992 through December 31,
1992.

AVERAGE ANNUAL RETURNS

As of March 31, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Inception Date....................................... 4/7/92 4/7/92 7/2/92
ONE YEAR
Before deducting maximum sales charges.............. % % %
After deducting maximum sales charges............... % % %
LIFE OF CLASS
Before deducting maximum sales charges.............. % % %
After deducting maximum sales charges............... % % %
</TABLE>

---------------
- --------------------------------------------------------------------------------
Prospectus Page 17

FINANCIAL SERVICES GROWTH FUND

[GRAPH APPEARS HERE]

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

AVERAGE ANNUAL RETURNS

As of March 31, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Inception Date...................................... 5/22/86 7/1/91 7/2/92
ONE YEAR
Before deducting maximum sales charges............. % % %
After deducting maximum sales charges.............. % % %
FIVE YEARS (OR LIFE OF CLASS)
Before deducting maximum sales charges............. % % %
After deducting maximum sales charges.............. % % %
LIFE
Before deducting maximum sales charges............. % N/A N/A
After deducting maximum sales charges.............. % N/A N/A
</TABLE>

---------------
- --------------------------------------------------------------------------------
Prospectus Page 18

UTILITY INCOME FUND

[GRAPH APPEARS HERE]

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.

AVERAGE ANNUAL RETURNS

As of March 31, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Inception Date....................................... 7/2/93 7/2/93 7/2/93
ONE YEAR
Before deducting maximum sales charges.............. % % %
After deducting maximum sales charges............... % % %
LIFE
Before deducting maximum sales charges.............. % % %
After deducting maximum sales charges............... % % %
</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 a Fund as a steady com-
pound 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 contin-
gent 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 divi-
dends and other distributions.

The Funds may use other total return presentations in conjunction with stan-
dardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were deducted.

Total return information reflects past performance and does not 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 each Fund's
performance is contained in its Annual Report, which may be obtained without
charge by contacting the Fund, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 19

The Funds' Investments
- -------------------------------------------------------------------------------

EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and com-
mon stock purchase warrants and rights. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. While past perfor-
mance does not guarantee future results, common stocks historically have pro-
vided 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 actu-
ally equity in a company, like common stock. Convertible securities may in-
clude debentures, notes and preferred equity securities, which are convertible
into common stock.

BONDS (including notes and debentures) are used by corporations and govern-
ments 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 sensitiv-
ity to changes in interest rates.

RISKS

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

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 Fund may invest a portion of its assets in the secu-
rities 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. compa-
nies. Foreign securities markets may be less liquid and subject to less regu-
lation than the U.S. securities markets. The costs of investing outside the
United States frequently are higher than those in the United States. These
costs include relatively higher brokerage commissions and foreign custody ex-
penses.

INVESTING IN DEVELOPING COUNTRIES. Investing in securities issued by companies
located in developing countries involves additional risks. These countries
typically have economic and political systems that are relatively less mature,
and can be expected to be less stable, than those of developed countries. De-
veloping countries may have policies that restrict investment by foreigners in
those countries, and there is a risk of government expropriation or national-
ization of private property. The possibility of low or nonexistent trading
volume in the securities of companies in developing countries may also result
in a lack of liquidity and in price volatility.

DEBT SECURITIES. Investment grade bonds are those rated within the four high-
est categories by Standard & Poor's, a division of The McGraw Hill Companies,
Inc. ("S&P"), or Moody's Investors Service, Inc. ("Moody's"). Moody's fourth
highest category (Baa) includes securities which, in its opinion, have specu-
lative features. For example, changes in economic conditions or other circum-
stances 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 and convertible securities in which Capital Appreciation Fund and Finan-
cial Services Growth Fund invest must be rated investment grade. Utility In-
come Fund may invest up to 5% of its net assets in bonds (including convert-
ible securities) rated lower than investment grade, that is, rated lower than
BBB by S&P or Baa by Moody's or comparable unrated bonds. Such bonds are con-
sidered predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve

---------------
- --------------------------------------------------------------------------------
Prospectus Page 20

major risk exposure to adverse conditions. The Funds may also invest in secu-
rities that are comparably rated by another rating agency and in unrated secu-
rities if they are deemed to be of comparable quality.

Credit ratings attempt to evaluate the safety of principal and interest pay-
ments 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 a 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 af-
fect an issuer's ability to pay principal and interest.

In addition to these general risks, investments in each Fund 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-es-
tablished, they may be more vulnerable than larger companies to adverse busi-
ness or economic developments. Such companies are typically less closely fol-
lowed by investment experts. In addition, Capital Appreciation Fund may invest
up to 35% of its total 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 mar-
ket averages in general and, therefore, may involve greater risk than invest-
ing in larger companies.

FINANCIAL SERVICES GROWTH FUND

INVESTMENTS IN FINANCIAL SERVICES INDUSTRIES. Because investments made by Fi-
nancial Services Growth Fund are concentrated in the financial services indus-
tries, 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 eco-
nomic, competitive 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 finan-
cial 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 difficul-
ties of borrowers can negatively impact the industry. Companies in the finan-
cial 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, its shares will be particu-
larly affected by economic and regulatory developments in or related to those
industries and are subject to greater risk than the shares of a Fund whose
portfolio is not so concentrated. Interest rate changes may affect 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 profit-
able. 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 environmen-
tal, nuclear facility and other safety regulations, and changes in the regula-
tory climate. Increasing competition due to past regulatory changes in 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

---------------
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Prospectus Page 21

<PAGE>
- --------------------------------------------------------------------------------
------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

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 assur-
ance that utility industries, as a whole, will experience favorable develop-
ments or that business opportunities will continue to undergo significant
changes or growth.

INVESTMENT TECHNIQUES AND STRATEGIES

HEDGING STRATEGIES. Each Fund may use certain strategies designed to adjust
the overall risk of its investment portfolio. These "hedging" strategies in-
volve derivative contracts, including options (on securities, futures and
stock indexes) and futures contracts (on stock indexes and interest rates).
Financial Services Growth Fund and Utility Income Fund also may use derivative
contracts involving foreign currencies, including options and futures con-
tracts on foreign currencies and (for Utility Income Fund) forward currency
contracts. In addition, Utility Income Fund may use these strategies to at-
tempt to enhance income; the use of such strategies solely to enhance income
may be considered a form of speculation. Utility Income Fund may also enter
into certain interest rate protection transactions to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against an increase in the price of securities the Fund anticipates purchasing
at a later date. New financial products and risk management techniques con-
tinue to be developed and may be used if consistent with the Funds' investment
objectives 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 Mitchell Hutchins or Denver Invest-
ments, as applicable, is incorrect in its judgment on market values, interest
rates or other economic factors in using a hedging strategy, a 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 portfo-
lio investments at advantageous times due to the need for the Fund to main-
tain "cover" or to segregate securities; and

. the possibility that a Fund is unable to close out or liquidate its hedged
position.

LENDING PORTFOLIO SECURITIES. Each Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of that
Fund's total assets taken at market value. Lending securities enables a Fund
to earn additional income, but could result in a loss or delay in recovering
these securities.

DEFENSIVE POSITIONS. When Mitchell Hutchins or Denver Investments, as applica-
ble, 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, a 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 illiq-
uid 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 SEC Rule 144A to
be illiquid securities if Mitchell Hutchins or Denver Investments, as applica-
ble, has determined such securities to be liquid, based upon the trading mar-
kets for the securities under procedures approved by the board of directors or
board of trustees ("board").

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 enter into reverse
repurchase agreements up to an aggregate value of 5% of its net 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. For liquidity purposes, such as clearance of
portfolio transactions, the payment of dividends and expenses and payments to
selling shareholders, or pending investment, each Fund may commit up to 35% of
its total assets to cash or money market instruments, including repurchase
agreements.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 22

Flexible Pricing/SM/
- -------------------------------------------------------------------------------

Each 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 the holding period and the amount of invest-
ment.

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 calcu-
lated after PaineWebber's New York City headquarters or PFPC Inc., the Funds'
Transfer Agent ("Transfer Agent"), receives the purchase order. Although in-
vestors 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>
DISCOUNT TO SELECTED
SALES CHARGE AS A PERCENTAGE OF: DEALERS AS PERCENTAGE
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OF 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 purchase or sale, whichever is less, is charged on sales of
shares made within one year of the purchase date. Class A shares
representing reinvestment of any dividends or other distributions are not
subject to the 1% charge. Withdrawals under the Systematic Withdrawal Plan
are not subject to this charge. However, investors may not withdraw
annually more than 12% of the value of the Fund account under the Plan in
the first year after purchase. This charge does not apply to Class A
shares bought before November 10, 1995.
/(2)/ MitchellHutchins pays 1% to PaineWebber.

SALES CHARGE REDUCTIONS AND WAIVERS

Investors who are purchasing Class A shares in more than one PaineWebber mu-
tual fund may combine those purchases to get a reduced sales charge. Investors
who already own Class A shares in one or more PaineWebber mutual funds may
combine the amount they are currently purchasing with the value of such previ-
ously owned shares to qualify for a reduced sales charge. To determine the
sales charge reduction in either case, please refer to the chart above.

Investors may also qualify for a lower sales charge when they combine their
purchases with those of:

. their spouses, parents or children under age 21;

. their Individual Retirement Accounts (IRAs);

. certain employee benefit plans, including 401(k) plans;

. any company controlled by the 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'
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, its affiliates
or any PaineWebber mutual fund;

. is the spouse, parent or child of any of the above, or advisory clients of
Mitchell Hutchins;

---------------
- --------------------------------------------------------------------------------
Prospectus Page 23

. buys these shares through a PaineWebber investment executive who was for-
merly employed as a broker with a competing brokerage firm that was regis-
tered as a broker-dealer with the SEC and

. the investor was the investment executive's client at the competing broker-
age firm;

. within 90 days of buying Class A shares in a 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 ei-
ther 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 invest-
ment automatically invested in Class A shares;

. is an employer establishing an employee benefit plan qualified under section
401 or 403(b), or a salary reduction plan qualified under section 401(k), of
the Internal Revenue Code. (This waiver is subject to minimum requirements,
with respect to the 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 a Fund or any other
PaineWebber mutual fund must total at least $1 million during the subsequent
13-month period; or

. acquires Class A shares in connection with a reorganization pursuant to
which a Fund acquires substantially all of the assets and liabilities of an-
other investment company in exchange solely for shares of the Fund.

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 af-
ter 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 immedi-
ately invested.

Depending on how long they own their Fund investment, investors may have to
pay a 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 following table. Investors
who own shares for more than six years do not have to pay a sales charge when
selling those shares.

<TABLE>
<CAPTION>
IF THE INVESTOR PERCENTAGE BY WHICH THE SHARES'
SELLS SHARES WITHIN: NET ASSET VALUE IS MULTIPLIED:
- ----------------------- -------------------------------
<S> <C>
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
</TABLE>

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 be-
tween PaineWebber funds, the Fund uses the purchase date at which the initial
investment was made to determine the conversion date.

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 invest-
ors 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.

---------------
- --------------------------------------------------------------------------------
Prospectus Page 24

WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will not apply to:

. redemptions under the Fund's "Systematic Withdrawal Plan" (investors may not
withdraw annually more than 12% of the value of the Fund account);

. a distribution from an IRA, a self-employed individual retirement plan
("Keogh Plan") or a custodial account under Section 403(b) of the Internal
Revenue Code (after the investor reaches age 59 1/2);

. 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 either as the sole shareholder or with
his or her spouse as a joint tenant with the right of survivorship.

An investor must provide satisfactory information to PaineWebber or the Fund
to seek 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. Other PaineWebber mutual
funds may impose a different contingent deferred sales charge on Class C
shares sold within one year of the purchase date. A sale of Class C shares ac-
quired through an exchange and held less than one year will be subject to the
same contingent deferred sales charge that would have been imposed on Class C
shares of the PaineWebber mutual fund originally purchased. 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 with-
draw more than 12% of the value of the Fund account under the Plan in the
first year after purchase. This charge does not apply to Class C shares bought
before November 10, 1995.
- -------------------------------------------------------------------------------

How to Buy Shares

- -------------------------------------------------------------------------------
Prices are calculated for each 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 Ex-
change (currently 4:00 p.m., Eastern time). A "Business Day" is any day, Mon-
day 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 or-
der is received. The Funds and Mitchell Hutchins reserve the right to reject
any purchase order and to suspend the offering of Fund shares for a period of
time.

When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will au-
tomatically receive Class A shares, which include an initial sales charge.

PAINEWEBBER CLIENTS

Investors who are PaineWebber clients may buy shares through PaineWebber in-
vestment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1 mil-
lion). PaineWebber investment executives and correspondent firms are responsi-
ble 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 correspon-
dent firms. Payment is due on the third Business Day after PaineWebber's New
York City headquarters office receives the purchase order.

----------
- --------------------------------------------------------------------------------
Prospectus Page 25
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

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
which you may obtain by calling 1-800-647-1568. The application and check must
be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wil-
mington, DE 19899.

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 invest-
ments in the Fund.

MINIMUM INVESTMENTS

<TABLE>
<S> <C>
To open an account:............ $1,000
To add to an account:.......... $ 100
</TABLE>

A 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 au-
tomatic investment plan.

HOW TO EXCHANGE SHARES

As shareholders, investors have the privilege of exchanging Fund shares for
the same class of other PaineWebber mutual 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. Ex-
changes may be subject to minimum investment requirements of the fund into
which exchanges are made. A $5 fee is imposed on each exchange.

. 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 the Transfer Agent. The letter of in-
struction must include:

. the investor's name and address;

. the Fund's name;

. the Fund account number;

. the dollar amount or number of shares to be sold; and

. a guarantee of each registered owner's signature by an eligible institu-
tion, 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.

No contingent deferred sales charge is imposed when shares are exchanged for
the corresponding class of shares of other PaineWebber mutual funds. A Fund
will use the purchase date of the initial investment to determine any contin-
gent deferred sales charge due when the shares are sold. Fund shares may be
exchanged only after the settlement date has passed and payment for the shares
has been made. The exchange privilege is available only in those jurisdictions
where the sale of the Fund shares to be acquired is authorized. This exchange
privilege may be modified or terminated at any time and, when required by SEC
rules, upon 60 days' notice. See the back cover of this prospectus for a list-
ing of other PaineWebber mutual funds.
- -------------------------------------------------------------------------------

How to Sell Shares

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

----------
- --------------------------------------------------------------------------------
Prospectus Page 26
<PAGE>
- --------------------------------------------------------------------------------
------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

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 that were purchased recently, the Fund
may delay payment until it verifies that good payment was received. In the
case of purchases by check, this can take up to 15 days.

Investors who have an account with PaineWebber or one of PaineWebber's corre-
spondent 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 in-
struction," as detailed in "How to Exchange Shares."

Because the Funds incur certain fixed costs in maintaining shareholder ac-
counts, each Fund 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 rein-
statement 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 executives 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 with a minimum initial invest-
ment of $1,000 through which the Fund will deduct $50 or more each month 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 semi-annual (June and December) with-
drawals from their PaineWebber Mutual Fund accounts. 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 semi-annual withdrawals of $200, $400 and $600, respectively.

Withdrawals under the Systematic Withdrawal Plan will not be subject to a con-
tingent deferred sales charge. Investors may not withdraw more than 12% of the
value of the Fund account when the investor signed up for the Plan. Sharehold-
ers who elect to receive dividends or other distributions in cash may not par-
ticipate in the Plan.

INDIVIDUAL RETIREMENT ACCOUNTS

Self-Directed IRAs are available through PaineWebber in which purchases of
PaineWebber mutual funds and other investments may be made. Investors consid-
ering establishing an IRA should review applicable tax laws and should consult
their tax advisers.

TRANSFER OF ACCOUNTS

If investors 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.

----------
- --------------------------------------------------------------------------------
Prospectus Page 27
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

Management
- -------------------------------------------------------------------------------

CAPITAL APPRECIATION FUND

In managing assets for its clients, Denver Investments strives to implement a
"team approach" rather than rely on one or two key individuals. Todger Ander-
son, 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 capital-
ization investing since 1975. Prior to joining Denver Investments in 1975, Mr.
Anderson had portfolio management responsibilities with Financial Programs and
at the United Bank of Denver. Directly assisting are Larry Luchini and the
Denver Investments Equity Research Team. Mr. Luchini joined Denver Investments
in 1978 as vice president and portfolio manager. Prior to joining Denver In-
vestments, 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 opera-
tions. It has appointed Mitchell Hutchins as investment adviser and adminis-
trator 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 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 opera-
tions. It has appointed Mitchell Hutchins as investment adviser and adminis-
trator 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. James Keegan and Julieanna Berry are
primarily responsible for day-to-day management of the Fund's bond portfolio.
Mrs. Finkel is a first vice president of Mitchell Hutchins and has been a
portfolio manager of the Fund since February 1995. She has been employed by
Mitchell Hutchins as a portfolio manager for the last eight years. Mrs. Berry
has held her Fund responsibilities since March 1996 and was joined by Mr.
Keegan in April 1996. Mrs. Berry is a vice president of Mitchell Hutchins and
has been employed by Mitchell Hutchins as a portfolio manager since 1989. Mr.
Keegan is a senior vice president of Mitchell Hutchins and oversees all corpo-
rate bond investments. Prior to joining Mitchell Hutchins, Mr. Keegan was the
director of fixed income strategy and research at the Merrion Group, L.P. from
1994 to 1995. From 1987 to 1994, he was vice president of global investment
management of Bankers Trust Company.

Each board has determined that brokerage transactions for the Fund may be con-
ducted through PaineWebber or its affiliates in accordance with procedures
adopted by the board.

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 serv-
ices holding company. On , 1996, Mitchell Hutchins was adviser or sub-ad-
viser of investment companies with separate portfolios and aggregate as-
sets of over $ billion.

ABOUT THE INVESTMENT SUB-ADVISER

The investment sub-adviser, Denver Investment Advisors, LLC, is located at
1225 17th Street, 26th Floor,

----------
- --------------------------------------------------------------------------------
Prospectus Page 28
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

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 ,
1996, Denver Investments managed approximately $ 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 or period ended March 31, 1996, 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 fis-
cal year ended March 31, 1996, Capital Appreciation Fund paid advisory fees to
Mitchell Hutchins at an effective annual rate of 1.00% of its average daily
net assets.

Each Fund pays PaineWebber an annual fee of $4.00 per active shareholder ac-
count held at PaineWebber for services not provided by the Transfer Agent.

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 ad-
ministrative services.

Mitchell Hutchins and Denver Investments personnel may engage in securities
transactions for their own accounts pursuant to each firm's code of ethics
that establishes procedures for personal investing and restricts certain
transactions.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under dis-
tribution 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 the 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 share-
holder 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 spe-
cial 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 ex-
penses.

The Plans and the related distribution contracts for each class of shares
("Distribution Contracts") specify that each Fund must pay service and distri-
bution fees to Mitchell Hutchins for its activities, not as reimbursement for
specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses ex-
ceed the service or distribution fees it receives, the Funds will not be obli-
gated 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 ac-
crued through the termination date of any Plan will be Mitchell Hutchins' sole
responsibility and not that of the Funds. Annually, the board of each Fund re-
views the Plans and Mitchell Hutchins' corresponding expenses for each class
separately from the Plans and expenses of the other classes.

----------
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Prospectus Page 29
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

Determining the Shares' Net Asset Value
- -------------------------------------------------------------------------------

The net asset value of each Fund's shares fluctuates and is determined sepa-
rately 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 securi-
ties 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, as-
sets are valued at fair value as determined in good faith by or under the di-
rection of its board. The amortized cost method of valuation generally is used
to value debt obligations with 60 days or less remaining to maturity, unless
the board determines that this does not represent fair value. Investments de-
nominated in foreign currencies are valued daily in U.S. dollars based on the
then-prevailing exchange rates.
- -------------------------------------------------------------------------------

Dividends & Taxes

- -------------------------------------------------------------------------------
DIVIDENDS

Capital Appreciation Fund and Financial Services Growth Fund each pays an an-
nual dividend from its net investment income and net short-term capital gain,
if any. Utility Income Fund pays monthly dividends from its net investment in-
come. Financial Services Growth Fund and Utility Income Fund each distributes
any net realized gain from foreign currency transactions with its 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 on their
Class A shares because Class B and Class C shares have higher expenses result-
ing from their distribution fees. Dividends on each class might be affected
differently by the allocation of other class-specific expenses. See "General
Information."

Each Fund's dividends and other distributions are paid in additional Fund
shares of the same class at net asset value, unless the shareholder has re-
quested cash payments. Shareholders who wish to receive dividends and other
distributions in cash, either mailed to the shareholder by check or credited
to the shareholder's PaineWebber account, should contact their investment ex-
ecutive at PaineWebber or one of its correspondent firms or complete the ap-
propriate section of the account application.

TAXES

Each Fund intends to continue to qualify for treatment as a regulated invest-
ment 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 (gen-
erally consisting 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.

----------
- --------------------------------------------------------------------------------
Prospectus Page 30
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

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 distribu-
tions 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 distribu-
tions 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 takes into account any
initial sales charge paid on Class A shares). An exchange of any Fund's shares
for shares of another PaineWebber mutual 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 mutual fund without paying a sales charge due to the 365-day rein-
statement 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
mutual fund shares subsequently acquired.

* * * *

Because the foregoing only summarizes some of the important tax considerations
affecting the Funds and their shareholders, the Statement of Additional Infor-
mation contains more detail. Prospective shareholders are urged to consult
their tax advisers.
- -------------------------------------------------------------------------------

General Information

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

ORGANIZATION

CAPITAL APPRECIATION FUND

Capital Appreciation Fund is a diversified series of PaineWebber Managed As-
sets Trust, an open-end management investment company which was formed on Au-
gust 9, 1991, as a business trust under the laws of the Commonwealth of Massa-
chusetts. 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.

FINANCIAL SERVICES GROWTH FUND

Financial Services Growth Fund is a diversified, open-end management invest-
ment 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

Utility Income Fund is a diversified series of PaineWebber Managed Investments
Trust, an open-end management investment company which was formed on November
21, 1986, as a business trust under the laws of the Commonwealth of Massachu-
setts. 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.
Shares of four other series have been authorized.

----------
- --------------------------------------------------------------------------------
Prospectus Page 31
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

The shares of each Fund are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. Each class represents an identical inter-
est 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, other ex-
penses allocable exclusively to each class, voting rights on matters exclu-
sively affecting that class, and its exchange privilege, if any. 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 a Fund 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 and are likely to be
higher for Class Y shares than for any other class of shares.

Class Y shares, which are offered only to limited groups of investors, are
subject to neither an initial or contingent deferred sales charge nor ongoing
service or distribution fees. More information concerning Class Y shares of
the Funds may be obtained from a PaineWebber investment executive or corre-
spondent firm or by calling 1-800-1568

Although each Fund is offering only its own shares, it is possible that a Fund
might become liable for a misstatement in the Prospectus about another Fund.
The board of each Fund has considered this factor in approving the use of a
single, combined Prospectus.

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 cumula-
tive and, as a result, the holders of more than 50% of all the shares of any
Fund (or Trust if there is more than one series) may elect all of the board
members of that Fund. The shares of the Funds will be voted separately except
that only the shareholders of a particular class of a Fund may vote on matters
affecting only that class, such as the terms of a Plan as it relates to the
class. The shares of all series of a Trust or the Corporation will be voted
separately, except when an aggregate vote of all the series is required by
law.

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 board member through a declara-
tion in writing or by vote cast in person or by proxy at a meeting called for
that purpose. A meeting will be called to vote on the removal of a board mem-
ber at the written request of holders of 10% of the outstanding shares of the
Trust or Fund, as applicable.

REPORTS TO SHAREHOLDERS

Each Fund sends its shareholders audited annual and unaudited semi-annual re-
ports, 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 Addi-
tional Information is available to shareholders upon request.

CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND AGENT

State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as each Fund's custodian and recordkeeping
agent and employs foreign sub-custodians to provide custody of any foreign as-
sets of Financial Services Growth Fund and Utility Income Fund. PFPC Inc., a
subsidiary of PNC Bank, N.A., serves as each Fund's transfer and dividend dis-
bursing agent. It is located at 400 Bellevue Parkway, Wilmington, DE 19809.

----------
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Prospectus Page 32
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

- ------------------------==============================--------------------------

PaineWebber Capital Appreciation Fund
PaineWebber Financial Services Growth Fund Inc.
PaineWebber Utility Income Fund

Prospectus -- August 1, 1996
- --------------------------------------------------------------------------------

. PAINEWEBBER BOND FUNDS . PAINEWEBBER STOCK FUNDS

High Income Fund Capital Appreciation Fund
Investment Grade Income Growth Fund
Fund Growth and Income Fund
Low Duration U.S. Financial Services Growth Fund
Government Income Fund Small Cap Value Fund
Strategic Income Fund Utility Income Fund
U.S. Government Income
Fund

. PAINEWEBBER TAX-FREE BOND . PAINEWEBBER GLOBAL FUNDS
FUNDS

California Tax-Free Emerging Markets Equity Fund
Income Fund Global Equity Fund
Municipal High Income Global Income Fund
Fund
National Tax-Free
Income Fund
New York Tax-Free
Income Fund

. PAINEWEBBER MONEY MARKET
. PAINEWEBBER ASSET FUND
ALLOCATION FUNDS

Balanced Fund
Tactical Allocation
Fund

A prospectus containing more complete information for any of these funds,
including charges and expenses, can be obtained from a PaineWebber invest-
ment executive or correspondent firm. Please read it carefully before in-
vesting. It is important you have all the information you need to make a
sound investment decision.

(C) 1996 PaineWebber Incorporated
- ------------------------==============================--------------------------
<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

STATEMENT OF ADDITIONAL INFORMATION

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

The investment adviser, administrator and distributor for each Fund 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 August 1,
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 August 1, 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, a division of The McGraw Hill Companies, Inc. ("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 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.
<PAGE>

Utility Income Fund is authorized to invest up to 5% of its net assets in
non-investment grade debt securities, including convertible 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 hold 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"). 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.

2
<PAGE>

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. Transactions on foreign exchanges are
usually subject to fixed commissions that are generally higher than negotiated
commissions on U.S. transactions, although each 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.

Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Funds may have limited
legal recourse in the event of default. Foreign government debt securities
differ from debt obligations issued by private entities in that, generally,
remedies for defaults must be pursued in the courts of the defaulting party.
Legal recourse is therefore somewhat limited. Political conditions, especially
a sovereign entity's willingness to meet the terms of its debt obligations,
are of considerable significance. Also there can be no assurance that the
holders of commercial bank loans to the same sovereign entity may not contest
payments to the holders of foreign government debt securities in the event of
default under commercial bank loan agreements.

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. Although Financial Services Growth Fund and
Utility Income Fund 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.

ILLIQUID SECURITIES. Each Fund 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 a Fund has valued the
securities and includes, 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 Sub-Adviser,
as applicable, has determined are liquid pursuant to guidelines established by
each Fund's board of trustees or board of directors (each sometimes referred
to as a "board"). 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 Securities Act of 1933 ("1933 Act").

3
<PAGE>

However, for Financial Services Growth Fund and Utility Income Fund, 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, a Fund may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time a Fund may be permitted
to sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, a Fund might obtain a
less favorable price than prevailed when it decided to sell.

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 a Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be unable to
dispose of such securities promptly or at favorable prices.

Each board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins or the Sub-Adviser, as applicable, pursuant to
guidelines approved by the board. Mitchell Hutchins or the Sub-Adviser 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 monitors the liquidity of
restricted securities in each Fund's portfolio and reports periodically on
such decisions to the applicable board.

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 Fund maintains
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

4
<PAGE>

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 a Fund if the other party to a repurchase agreement becomes insolvent.

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
board. Mitchell Hutchins or the Sub-Adviser reviews and monitors the
creditworthiness of those institutions under each board's general supervision.

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 net 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 or emergency purposes. While a reverse repurchase
agreement is outstanding, the Fund's custodian segregates assets to cover the
Fund's obligations under the reverse repurchase agreement. See "Investment
Policies and Restrictions--Segregated Accounts."

LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend portfolio
securities up to 33 1/3% of its total assets taken at market value to broker-
dealers or institutional investors that Mitchell Hutchins deems qualified, but
only when the borrower maintains with that Fund's custodian bank acceptable
collateral, marked to market daily, in an amount at least equal to the market
value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. Each Fund will
retain authority to terminate any 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". Each Fund 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. No Fund currently expects to have
obligations under short sales at any time during the coming year that exceed
5% of that 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

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<PAGE>

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 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 a Fund enters into certain transactions to make
future payments to third parties, it will maintain with an approved custodian
in a segregated account cash, U.S. government securities or other liquid high-
grade debt securities, marked to market daily, in an amount at least equal to
the 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 or futures contracts
(and, for Utility Income Fund, certain interest rate protection transactions
or forward currency contracts.)

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
each Fund may purchase securities on a "when-issued" or delayed delivery
basis. A security purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date and is subject to changes in
market value, generally based upon changes in the level of interest rates.
Thus, fluctuation in the value of the security from the time of the commitment
date will affect a Fund's net asset value. When the Fund agrees to purchase
securities on a when-issued or delayed delivery basis, its custodian
segregates assets to cover the amount of the commitment. See "Investment
Policies and Restrictions--Segregated Accounts." The Fund purchases when-
issued securities only with the intention of taking delivery, but may sell the
right to acquire the security prior to delivery if Mitchell Hutchins or the
Sub-Adviser deems it advantageous to do so, which may result in a gain or loss
to the Fund.

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 seek to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will

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<PAGE>

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 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

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<PAGE>

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. Each Fund will not:

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

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

(2) purchase any security if, as a result of that purchase, 25% or more of
the Fund's total assets would be invested in securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities and
except that (a) Financial Services Growth 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 and (b) Utility Income 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.

(3) issue senior securities or borrow money, except as permitted under the
Investment Company Act of 1940 ("1940 Act") and then not in excess of 33 1/3%
of the Fund's total assets (including the amount of the senior securities
issued but reduced by any liabilities not constituting senior securities) at
the time of the issuance or borrowing, except that the Fund may borrow up to
an additional 5% of its total assets (not including the amount borrowed) for
temporary or emergency purposes.

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

8
<PAGE>

(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter under
the federal securities laws in connection with its disposition of portfolio
securities.

(6) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by
interests in real estate are not subject to this limitation, and except that
the Fund may exercise rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be
liquidated in an orderly manner.

(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase, sell or
enter into financial options and futures, forward and spot currency contracts,
swap transactions and other financial contracts or derivative instruments.

The foregoing fundamental investment limitations cannot be changed for a
Fund without the affirmative vote of the lesser of (a) more than 50% of the
outstanding shares of the Fund or (b) 67% or more of the shares 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, which apply to each Fund, are non-
fundamental and may be changed by the vote of the Fund's board without
shareholder approval.

The Fund will not:

(1) purchase or retain the securities of any issuer if the officers and
trustees of the Trust or Corporation and the officers and directors of
Mitchell Hutchins (and, for Capital Appreciation Fund, the Sub-Adviser) 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) 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) 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) make an investment in warrants, valued at the lower of cost or market,
that exceeds 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.

(5) change its investment policies to permit the Fund to 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 NRSRO or

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<PAGE>

determined by Mitchell Hutchins (or the Sub-Adviser) to be of comparable
quality, without giving at least 30 days' advance notice to shareholders.

(6) invest in real estate limited partnerships.

(7) 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.

(8) 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.

(9) 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.

(10) 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 and only Utility Income Fund may use forward
currency contracts). Utility Income Fund may use these strategies to attempt
to enhance income and also may enter into certain interest rate protection
transactions.

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

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<PAGE>

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.

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.

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<PAGE>

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.

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

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<PAGE>

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 (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. Transactions using Hedging Instruments, other
than purchased options, expose the Funds to an obligation to another party. A
Fund 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. Each Fund 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, in the case of Financial Services Growth Fund and Utility Income Fund, on
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."

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<PAGE>

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.

A Fund 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.

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 a Fund 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, a Fund 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 use of options is governed by the
following guidelines, which can be changed by each Fund's board 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.

14
<PAGE>

(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 and
interest rate futures contracts and, in the case of Financial Services Growth
Fund and Utility Income Fund, foreign currency futures contracts. A Fund 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.

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, a
Fund 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

15
<PAGE>

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.

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 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 a Fund will not exceed 5% of its total assets.

FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. Financial
Services Growth Fund and Utility Income Fund 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

16
<PAGE>

entering into transactions using Hedging Instruments on another currency or a
basket of currencies, the value of which Mitchell Hutchins 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.

FORWARD CURRENCY CONTRACTS. Utility Income Fund 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 Fund may purchase a forward currency contract to
lock in the U.S. dollar price of a security denominated in a foreign currency
that the Fund intends to acquire. Forward currency contract transactions may
also serve as short hedges--for example, the Fund 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, Utility Income Fund 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 believes will have a positive correlation to the values of the
currency being hedged. In addition, the Fund may use forward currency
contracts to shift its exposure to foreign currency fluctuations from one
country to another. For example, if the Fund owned securities denominated in a
foreign currency and Mitchell Hutchins 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 Utility Income 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.

17
<PAGE>

When the 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 Utility Income 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, Utility Income 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. Utility Income Fund
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 the
Fund to deliver an amount of foreign currency in excess of the value of the
position being hedged by such contracts or (2) the 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.

INTEREST RATE PROTECTION TRANSACTIONS. Utility Income Fund may enter into
interest rate protection transactions, including interest rate swaps and
interest rate caps, collars and floors. Interest rate swap transactions
involve an agreement between two parties to exchange payments that are based,
for example, on variable and fixed rates of interest and that are calculated
on the basis of a specified amount of principal (the "notional principal
amount") for a specified period of time. Interest rate cap and floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the counterparty when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which payments are made when a designated market interest rate either goes
above a designated ceiling level or goes below a designated floor level on
predetermined dates or during a specified time period. The Fund intends to use
these transactions as a hedge and not as a speculative investment. Interest
rate protection transactions are subject to risks comparable to those
described above with respect to other hedging strategies.

Utility Income Fund may enter into interest rate swaps, caps, collars and
floors on either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Fund receiving

18
<PAGE>

or paying, as the case may be, only the net amount of the two payments.
Inasmuch as these interest rate protection transactions are entered into for
good faith hedging purposes, and inasmuch as segregated accounts will be
established with respect to such transactions, Mitchell Hutchins believes such
obligations do not constitute senior securities and, accordingly, will not
treat them as being subject to the Fund's borrowing restrictions. The net
amount of the excess, if any, of the Fund's obligations over its entitlements
with respect to each interest rate swap will be accrued on a daily basis and
appropriate Fund assets having an aggregate net asset value at least equal to
the accrued excess will be maintained in a segregated account as described
above in "Investment Policies and Restrictions--Segregated Accounts." The Fund
also will establish and maintain such segregated accounts with respect to its
total obligations under any interest rate swaps that are not entered into on a
net basis and with respect to any interest rate caps, collars and floors that
are written by the Fund.

Utility Income Fund will enter into interest rate protection transactions
only with banks and recognized securities dealers believed by Mitchell
Hutchins to present minimal credit risk in accordance with guidelines
established by the Trust's board of trustees. If there is a default by the
other party to such a transaction, the Fund will have to rely on its
contractual remedies (which may be limited by bankruptcy, insolvency or
similar laws) pursuant to the agreements related to the transaction.

The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.

19
<PAGE>

TRUSTEES, DIRECTORS AND OFFICERS

The trustees or directors and executive officers of each Trust and the
Corporation, their ages, business addresses and principal occupations during
the past five years are:

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Margo N. Alexander**; 49 Trustee/Director and Mrs. Alexander is president, chief
President executive officer and a director of
Mitchell Hutchins (since January
1995) and also an executive vice
president and a director of
PaineWebber. Mrs. Alexander is
president and a director or trustee
of 30 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Richard Q. Armstrong; 60 Trustee/Director Mr. Armstrong is chairman and prin-
78 West Brother Drive cipal of RQA Enterprises (manage-
Greenwich, CT 06830 ment consulting firm) (since April
1991 and principal occupation since
March 1995). Mr. Armstrong is also
a director of Hi Lo Automotive,
Inc. He was chairman of the board,
chief executive officer and co-
owner of Adirondack Beverages
(producer and distributor of soft
drinks and sparkling/still waters)
(October 1993-March 1995). He was a
partner of the New England Con-
sulting Group (management consult-
ing firm) (December 1992-September
1993). He was managing director of
LMVH U.S. Corporation (U.S. sub-
sidiary of the French luxury goods
conglomerate, Luis Vuitton Moet
Hennessey Corporation) (1987-1991)
and chairman of its wine and spir-
its subsidiary, Schieffelin & Som-
erset Company (1987-1991). Mr.
Armstrong is a director or trustee
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
E. Garrett Bewkes, Jr.**; 69 Trustee/Director and Mr. Bewkes is a director of Paine
Chairman of the Webber Group Inc. ("PW Group")
Board of (holding company of PaineWebber and
Trustees/Directors Mitchell Hutchins). Prior to De-
cember 1995, he was a consultant to
PW Group. Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company. Mr.
Bewkes is also a director of In-
terstate Bakeries Corporation and
NaPro BioTherapeutics, Inc. and is
a director or trustee of 30 in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Richard R. Burt; 49 Trustee/Director Mr. Burt is chairman of Interna-
1101 Connecticut Avenue, N.W. tional Equity Partners (interna-
Washington, D.C. 20036 tional investments and consulting
firm) (since March 1994) and a
partner of McKinsey & Company
(management consulting firm) (since
1991). He is also a director of
American Publishing Company. He was
the chief negotiator in the Stra-
tegic Arms Reduction Talks with the
former Soviet Union (1989-1991) and
the U.S. Ambassador to the Federal
Republic of Germany (1985-1989).
Mr. Burt is a director or trustee
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Mary C. Farrell**; 46 Trustee/Director Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy
Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982.
She is a member of the Financial
Women's Association and Women's
Economic Roundtable and is employed
as a regular panelist on Wall
Street Week with Louis Rukeyser.
She also serves on the Board of
Overseers of New York University's
Stern School of Business. Ms.
Farrell is a director or trustee of
29 investment companies for which
Mitchell Hutchins or PaineWebber
serves as an investment adviser.
Meyer Feldberg; 54 Trustee/Director Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Institute
of Technology. Dean Feldberg is
also a director of AMSCO Interna-
tional Inc., Federated Department
Stores, Inc. and New World Commu-
nications Group Incorporated and is
a director or trustee of 29 in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen; 66 Trustee/Director Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a
director or trustee of 29 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Frederic V. Malek; 59 Trustee/Director Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment bank)
Suite 300 and a co-chairman and director of
Washington, D.C. 20005 CB Commercial Group Inc. (real es-
tate). From January 1992 to Novem-
ber 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 Man-
agement Systems, Inc. Automatic
Data Processing, Inc., Avis, Inc.,
FPL Group, Inc., ICF International,
Manor Care, Inc. and National Edu-
cation Corporation. Mr. Malek is a
director or trustee of 29 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Carl W. Schafer; 60 Trustee/Director Mr. Schafer is president of the At-
P.O. Box 1164 lantic Foundation (charitable
Princeton, NJ 08542 foundation supporting mainly
oceanographic exploration and re-
search). He also is a director of
Roadway Express, Inc. (trucking),
The Guardian Group of Mutual Funds,
Evans Systems, Inc. (a motor fuels,
convenience store and diversified
company), Hidden Lake Gold Mines
Ltd., ) gold mining), Electronic
Clearing House, Inc., (financial
transactions processing), Wainoco
Oil Corporation and Nutraceutix,
Inc. (biotechnology). Prior to
January 1993, he was chairman of
the Investment Advisory Committee
of the Howard Hughes Medical In-
stitute. Mr. Schafer is a director
or trustee of 29 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as an investment
adviser.
John R. Torrell, III; 58 Trustee/Director Mr. Torell is chairman of Torell
767 Fifth Avenue Management, Inc. (financial advi-
Suite 4605 sory firm), chairman of Telesphere
New York, NY 10153 Corporation (electronic provider of
financial information) and a part-
ner of Zilkha & Company (merchant
bank and private investment compa-
ny). He is the former chairman and
chief executive officer of Fortune
Bancorp (1990-1991 and 1990-1994,
respectively), the former chairman,
president and chief executive of-
ficer of CalFed, Inc. (savings as-
sociation) (1988 to 1989) and the
former president of Manufacturers
Hanover Corp. (bank) (prior to
1988). Mr. Torell is also a direc-
tor of American Home Products
Corp., New Colt Inc. (armament
manufacturer) and Volt Information
Sciences Inc. Mr. Torell is a di-
rector or trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS*; POSITION WITH THE BUSINESS EXPERIENCE;
AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
------------------ ----------------- --------------------
<C> <C> <S>
Julieanna Berry; 32 Vice President Ms. Berry is a vice president and a
(Managed Investments portfolio manager of Mitchell
Trust only) Hutchins. Ms. Berry is a vice
president of two investment compa-
nies 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 administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital Man-
agement, Inc., an investment advi-
sory firm. Prior to April 1993, Ms.
Boyle was a vice president
and manager--legal administration
of Mitchell Hutchins. Ms. Boyle is
a vice president of 30 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Karen L. Finkel; 38 Vice President Mrs. Finkel is a first vice presi-
(Financial Services dent and a portfolio manager of
Growth Fund and Managed Mitchell Hutchins. Mrs. Finkel is a
Investments Trust only) vice president of two investment
company for which Mitchell Hutchins
serves as investment adviser.
Ellen R. Harris; 49 Vice President Ms. Harris is a managing director
(Managed Investments and a portfolio manager of Mitchell
Trust only) Hutchins. Ms. Harris is a vice
president of three investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
James F. Keegan; 35 Vice President Mr. Keegan is a senior vice presi-
(Managed Investments dent and a portfolio manager of
Trust only) Mitchell Hutchins. Prior to March
1996, he was director of fixed in-
come strategy and research of
Merrion Group, L.P. From 1987 to
1994, he was a vice president of
global investment management of
Bankers Trust Company. Mr. Keegan
is a vice president of two invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Thomas J. Libassi; 37 Vice President Mr. Libassi is a senior vice presi-
(Managed Investments dent and a portfolio manager of
Trust only) Mitchell Hutchins. Prior to May
1994, he was a vice president of
Keystone Custodian Funds Inc. with
portfolio management responsibili-
ty. Mr. Libassi is a vice president
of four investment companies for
which Mitchell Hutchins serves as
investment adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president
Assistant Treasurer and a senior manager of the mutual
fund finance division of Mitchell
Hutchins. Mr. Maher is a vice
president and assistant treasurer
of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dennis McCauley; 49 Vice President Mr. McCauley is a managing director
(Managed Investments and chief investment officer--fixed
Trust only) income of Mitchell Hutchins. Prior
to December 1994, he was director
of fixed income investments of IBM
Corporation. Mr. McCauley is a vice
president of 19 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is a
vice president and assistant trea-
surer of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy general coun-
sel of Mitchell Hutchins. Ms.
O'Donnell is a vice president and
secretary of 30 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Victoria E. Schonfeld; 45 Vice President Ms. Schonfeld is a managing director
and general counsel of Mitchell
Hutchins. Prior to May 1994, she
was a partner in the law firm of
Arnold & Porter. Ms. Schonfeld is a
vice president of 30 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice presi-
Assistant Treasurer dent and a senior 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
a vice president and assistant
treasurer of 30 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Nirmal Singh; 39 Vice President (Managed Mr. Singh is a first vice president
Investments Trust only) and a portfolio manager of Mitchell
Hutchins. Prior to September 1993,
he was a member of the portfolio
management team at Merrill Lynch
Asset Management, Inc. Mr. Singh is
a vice president of five investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice pres-
Treasurer ident and the director of the mu-
tual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager with
Ernst & Young LLP. Mr. Sluyters is
a vice president and treasurer of
30 investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
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 eq-
uity research areas of Chase Man-
hattan Private Bank. Mr. Tincher is
a vice president of 14 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Craig M. Varrelman; 37 Vice President (Managed Mr. Varrelman is a first vice pres-
Investments Trust only) ident and a portfolio manager of
Mitchell Hutchins. Mr. Varrelman is
a vice president of five 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
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to May
1995, he was an attorney in private
practice. Mr. Weller is a vice
president and assistant secretary
of 29 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.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of each
Fund as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber, and/or PW Group.

Each Trust and the Corporation pays trustees/directors who are not
"interested persons" of the Trust or Corporation $1,000 annually for each
series and $150 for each board meeting and each separate meeting of a board
committee. Managed Investments Trust presently has five series and thus pays
each such trustee $5,000 annually, plus any additional amounts due for board
or committee meetings. Managed Assets Trust and Financial Services Growth Fund
have only one series and thus pay each such trustee or director $1,000
annually, plus any additional amounts due for board or committee meetings.
Certain committee chairs receive additional compensation aggregating $15,000
annually from all the funds within the PaineWebber fund complex. All
trustees/directors are reimbursed for any expenses incurred in attending
meetings. Trustees/directors own in the aggregate less than 1% of the
outstanding shares of each Fund. Because PaineWebber and Mitchell Hutchins
perform substantially all the services necessary for the operation of the
Trusts, the Corporation and each Fund, the Trusts and Corporation require no
employees. No officer, director or employee of Mitchell Hutchins or
PaineWebber presently receives any compensation from the Trusts or Corporation
for acting as a trustee/director or officer.

28
<PAGE>

The table below includes certain information relating to the compensation of
the current trustees/directors who held office with the Trusts and Corporation
or with other PaineWebber funds during the fiscal years indicated.

COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION AGGREGATE TOTAL
AGGREGATE FROM PW COMPENSATION COMPENSATION
COMPENSATION FINANCIAL FROM FROM THE
FROM PW SERVICES MANAGED TRUST AND
MANAGED GROWTH INVESTMENTS THE FUND
NAME OF PERSON, POSITION ASSETS TRUST* FUND, INC.* TRUST* COMPLEX**
- ------------------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Richard Q. Armstrong,
Trustee/Director......... -- -- -- $
Richard R. Burt,
Trustee/Director......... -- -- --
Meyer Feldberg,
Trustee/Director......... $ $
George W. Gowen,
Trustee/Director.........
Frederic V. Malek,
Trustee/Director.........
Carl W. Schafer,
Trustee/Director......... -- -- --
John R. Torell, III,
Trustee/Director......... -- -- --
</TABLE>
- --------
Only independent members of the board are compensated by the Trusts or the
Corporation and identified above; trustees/directors who are "interested
persons," as defined by the 1940 Act, do not receive compensation.

* Represents fees paid to each trustee/director during the year ended March
31, 1996; the Trusts and Corporation do not have pension or retirement
plans.

** Represents total compensation paid to each trustee/director 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 separate contracts (each an
"Advisory Contract") with each Trust and Corporation. Under the Advisory
Contracts, each Fund pays Mitchell Hutchins a fee, computed daily and paid
monthly, at the annual rate specified in the Prospectus. Furthermore, under a
service agreement ("Service Agreement") with each Fund that is reviewed by
each board annually, PaineWebber provides certain services to the Funds not
otherwise provided by the Funds' transfer agent.

Under the terms of the Advisory Contracts, each Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by each Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred

29
<PAGE>

in connection therewith; (2) fees payable to and expenses incurred on behalf
of the Fund by Mitchell Hutchins; (3) 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/directors and officers who are not interested persons (as defined in
the 1940 Act) of the Trust/Corporation or Mitchell Hutchins; (6) all expenses
incurred in connection with the trustees'/directors' 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/Corporation or Fund for violation of any law; (10) legal,
accounting and auditing expenses, including legal fees of special counsel for
the independent trustees/directors; (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/directors and officers; and (18) costs of mailing, stationery and
communications equipment.

As required by state regulation, Mitchell Hutchins will reimburse a 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,
certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the last three
fiscal years, no reimbursements were made pursuant to such limitation to any
Fund.

Under each Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the performance of the 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. Each Advisory Contract
terminates automatically upon assignment and is terminable at any time without
penalty by the Fund's board of trustees/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 Capital Appreciation Fund pursuant to an Advisory
Contract dated March 20, 1992 with the Trust. 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. For the fiscal
years ended March 31, 1996, March 31, 1995, and March 31, 1994, the Fund paid
(or accrued) to Mitchell Hutchins investment advisory and administration fees
of $ , $2,168,097 and $2,018,477, respectively.

Pursuant to the Service Agreement, for the fiscal years ended March 31,
1996, March 31, 1995 and March 31, 1994, Capital Appreciation Fund paid (or
accrued) to PaineWebber service fees of $ , $98,260 and $88,794,
respectively.

30
<PAGE>

The Advisory Contract authorizes 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 be purchased, sold or held by Capital
Appreciation 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, 1996, March 31, 1995 and March
31, 1994, Mitchell Hutchins paid (or accrued) to the Sub-Adviser sub-advisory
fees of $ , $1,084,049 and $1,009,239, 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,
Capital Appreciation 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
Capital Appreciation 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 Financial Services Growth Fund pursuant to an
Advisory Contract with the Fund dated April 1, 1990. 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.
For the fiscal years ended March 31, 1996, March 31, 1995 and March 31, 1994,
the Fund paid (or accrued) to Mitchell Hutchins investment advisory and
administration fees totalling $ , $480,025 and $513,461, respectively.

Pursuant to the Service Agreement, for the fiscal years ended March 31,
1996, March 31, 1995 and March 31, 1994, Financial Services Growth Fund paid
(or accrued) to PaineWebber $ , $22,723 and $22,270, respectively.

UTILITY INCOME FUND. Mitchell Hutchins acts as the investment adviser and
administrator of Utility Income Fund pursuant to an Advisory Contract with the
Trust dated April 21, 1988, as supplemented by a separate Fee Agreement dated
May 1, 1992. 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. During the four months ended March 31, 1996 and 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.

31
<PAGE>

Pursuant to the Service Agreement, during the four months ended March 31,
1996 and 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 (or accrued) to PaineWebber $ , $24,449,
$28,223 and $10,021, respectively.

NET ASSETS. The following table shows the approximate net assets as of June
30, 1996, 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
($ MIL)
INVESTMENT CATEGORY ----------
<S> <C>
Domestic (excluding Money Market).............................. $
Global.........................................................
Equity/Balanced................................................
Fixed Income (excluding Money Market)..........................
Taxable Fixed Income.........................................
Tax-Free Fixed Income........................................
Money Market Funds.............................................
</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, establishes procedures for personal investing and
restricts certain transactions. For example, employee accounts generally must
be maintained at PaineWebber, personal trades in most securities require pre-
clearance and short-term trading and participation in initial public offerings
generally are prohibited. In addition, the code of ethics puts restrictions on
the timing of personal investing in relation to trades by PaineWebber Funds
and other Mitchell Hutchins advisory clients. 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 or November 10, 1995
(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 Fund are offered continuously. Under separate exclusive
dealer agreements between Mitchell Hutchins and PaineWebber dated July 7, 1993
or November 10, 1995 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 each Trust or Corporation in the manner prescribed
under Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan" and "Class
C Plan," collectively, "Plans"), each Fund pays 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 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

32
<PAGE>

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.

The Funds paid (or accrued) the following fees to Mitchell Hutchins under
the Class A, Class B and Class C Plans during the fiscal periods shown:

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 periods shown:

<TABLE>
<CAPTION>
FINANCIAL
CAPITAL SERVICES
APPRECIATION GROWTH UTILITY INCOME
FUND FUND FUND
------------ --------- ----------------
FOUR
FISCAL MONTHS FISCAL
FISCAL YEAR YEAR ENDED YEAR
ENDED ENDED MARCH ENDED
MARCH 31, MARCH 31, 31, NOVEMBER
1996 1996 1996 30, 1996
------------ --------- ------- --------
<S> <C> <C> <C> <C>
CLASS A
Marketing and advertising............. $ $ $ $
Printing of prospectuses and statement
of additional information............ $ $ $ $
Branch network costs allocated and in-
terest expense....................... $ $ $ $
Service fees paid to PaineWebber In-
vestment Executives.................. $ $ $ $
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
FINANCIAL
CAPITAL SERVICES
APPRECIATION GROWTH UTILITY INCOME
FUND FUND FUND
------------ --------- -----------------
FISCAL FOUR FISCAL
FISCAL YEAR YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH NOVEMBER
1996 1996 31, 1996 30, 1996
------------ --------- -------- --------
<S> <C> <C> <C> <C>
CLASS B
Marketing and advertising............ $ $ $ $
Amortization of commissions.......... $ $ $ $
Printing of prospectuses and
statement of additional
information......................... $ $ $ $
Branch network costs allocated and
interest expense.................... $ $ $ $
Service fees paid to PaineWebber in-
vestment executives................. $ $ $ $
CLASS C
Marketing and advertising............ $ $ $ $
Amortization of commissions.......... $ $ $ $
Printing of prospectuses and
statement of additional
information......................... $ $ $ $
Branch network costs allocated and
interest expense.................... $ $ $ $
Service fees paid to PaineWebber in-
vestment 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 PricingSM system of distribution,
each Trust's or Corporation's board 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 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 Fund
than might otherwise be the case, (3) the advantages to the shareholders of
economies of scale resulting from growth in the Fund's assets and potential
continued growth, (4) the services provided to the Fund and its 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

34
<PAGE>

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 Fund
than might otherwise be the case, (4) the advantages to the shareholders of
economies of scale resulting from growth in the Fund's assets and potential
continued growth, (5) the services provided to the Fund and its 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 Fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its 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 Fund, which would increase if the
Plan were successful and the Fund attained and maintained significant asset
levels.

Under the Distribution Contracts, 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.

35
<PAGE>

<TABLE>
<CAPTION>
FISCAL YEAR END
----------------------------
1996 1995 1994
-------- -------- ----------
<S> <C> <C> <C>
CAPITAL APPRECIATION FUND
Earned............................................ $ $ $
Retained.......................................... $ $ $
FINANCIAL SERVICES GROWTH FUND
Earned............................................ $ $ $
Retained.......................................... $ $ $
</TABLE>

<TABLE>
<CAPTION>
FOR FOUR
MONTHS FOUR FISCAL YEARS ENDED
ENDED NOVEMBER 30
MARCH 31, -------------------------
1996 1995 1994 1993
--------- ------- -------- --------
<S> <C> <C> <C> <C>
UTILITY INCOME FUND
Earned...................................... $ $ $ $
Retained.................................... $ $ $ $
</TABLE>

For the fiscal periods shown, Mitchell Hutchins earned and retained the
following contingent deferred sales charges paid upon certain redemptions of
Class A, Class B and Class C shares.

<TABLE>
<CAPTION>
CAPITAL FINANCIAL
APPRECIATION SERVICES
FUND GROWTH FUND UTILITY INCOME FUND
------------ ----------- ------------------------
FISCAL YEAR FISCAL YEAR FOUR MONTHS FISCAL YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, NOVEMBER 30,
1996 1996 1996 1995
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Class A....................... $ $ $ $
Class B....................... $ $ $ $
Class C....................... $ $ $ $
</TABLE>

PORTFOLIO TRANSACTIONS

Subject to policies established by each Fund's board, Mitchell Hutchins or
the Sub-Adviser, as applicable, 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 a Fund, 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. While Mitchell Hutchins and the Sub-Adviser generally seek
reasonably competitive commission rates, payment of the lowest commission is
not necessarily consistent with obtaining the best net results. 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. For the fiscal years ended
March 31, 1996, March 31, 1995 and March 31, 1994, Capital Appreciation Fund
paid $ , $322,307 and $421,737, respectively, in brokerage commissions. For
the fiscal years ended March 31, 1996, March 31, 1995 and March 31, 1994,
Financial Services Growth Fund paid $ , $20,088 and $28,924, respectively,
in brokerage commissions. During the four months ended March 31, 1996 and for
the fiscal years ended November 30,

36
<PAGE>

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. Each Fund's 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 years
ended March 31, 1994 and March 31, 1995, Capital Appreciation Fund paid $2,730
and $0, respectively and Financial Services Growth Fund paid $0 in brokerage
commissions to PaineWebber or any other Mitchell Hutchins affiliate. For the
fiscal year ended March 31, 1996, Capital Appreciation Fund paid $ in
brokerage commissions to PaineWebber, which represented % of the total
brokerage commissions paid by that Fund and % of the aggregate dollar amount
of transactions involving the payment of commissions. For the fiscal year
ended March 31, 1996, Financial Services Growth Fund paid $ in brokerage
commissions to PaineWebber, which represented % of the total brokerage
commissions paid by that Fund and % of the aggregate dollar amount of
transactions involving the payment of commissions. For the fiscal years ended
November 30, 1994 and November 30, 1995, Utility Income Fund paid no brokerage
commissions to PaineWebber or any other Mitchell Hutchins affiliate. For the
four months ended March 31, 1996, Utility Income Fund paid $ in brokerage
commissions to PaineWebber, which represented % of the total brokerage
commissions paid by that Fund and % of the aggregate dollar amount of
transactions involving the payment of commissions.

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 a Fund to purchase and sell portfolio securities from and to
dealers or through brokers who provide that Fund 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 or the Sub-
Adviser, as applicable, to that Fund and its other clients and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. For the fiscal year ended March 31, 1996 (for
Capital Appreciation Fund and Financial Services Growth Fund) and for the four
months ended March 31, 1996 and the fiscal year ended November 30, 1995 (for
Utility Income Fund), Mitchell Hutchins or the Sub-Adviser directed $ ,
$ , $ and $ , respectively, in portfolio transactions to brokers chosen
because they provided research services, for which the Funds paid $ , $ ,
$ and $ , respectively, in commissions.

37
<PAGE>

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 a Fund 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 fiscal periods shown
were:

<TABLE>
<S> <C>
CAPITAL APPRECIATION FUND
Fiscal Year ended March 31, 1996............................................ %
Fiscal Year ended March 31, 1995............................................ %
FINANCIAL SERVICES GROWTH FUND
Fiscal Year ended March 31, 1996............................................ %
Fiscal Year ended March 31, 1995............................................ %
UTILITY INCOME FUND
Fiscal Year ended March 31, 1996............................................ %
Fiscal Year ended November 30, 1995......................................... %
Fiscal Year ended November 30, 1994......................................... %
</TABLE>

38
<PAGE>

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) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The
registered investment adviser must communicate at least quarterly through a
newsletter or investment update establishing a relationship with all of the
accounts.

RIGHTS OF ACCUMULATIONS-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.

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.

39
<PAGE>

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 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

40
<PAGE>

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

41
<PAGE>

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 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.

42
<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 Financial Services Growth Fund and Utility Income Fund 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.

43
<PAGE>

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 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:

<TABLE>
<S> <C> <C> <C>
P(1 + T)n = ERV
a hypothetical initial payment of $1,000 to purchase shares of a
where: P = specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.
</TABLE>

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over
the period. 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.

44
<PAGE>

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

CAPITAL APPRECIATION FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended March 31, 1996:
Standardized Return*.................................. % % %
Non-Standardized Return............................... % % %
Inception** to March 31, 1996:
Standardized Return*.................................. % % %
Non-Standardized Return............................... % % %
</TABLE>
- --------
* 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 and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the
period.
** The inception date for each Class of shares is as follows: Class A--April
7, 1992, and Class C--July 2, 1992.

FINANCIAL SERVICES GROWTH FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended March 31, 1996:
Standardized Return*.................................. % % %
Non-Standardized Return............................... % % %
Five years ended March 31, 1996:
Standardized Return*.................................. %
Non-Standardized Return............................... %
Inception** to March 31, 1996:
Standardized Return*.................................. % % %
Non-Standardized Return............................... % % %
</TABLE>
- --------
* 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 and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the
period.
** The inception date for each Class of shares is as follows: Class A--May 22,
1986, and Class B--July 1, 1991, and Class C--July 2, 1992.

UTILITY INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Year ended March 31, 1996:
Standardized Return*.................................. % % %
Non-Standardized Return............................... % % %
Inception** to March 31, 1996:
Standardized Return*.................................. % % %
Non-Standardized Return............................... % % %
</TABLE>

45
<PAGE>

- --------
* 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 and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the
period.
** The inception date for each Classes of shares is 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.

The Funds may also compare their performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, 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.

46
<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]

The chart is shown for illustrative purposes only and does not represent any
fund's performance. These returns consist of income, capital appreciation (or
depreciation), and should not be considered an indication or guarantee of
future investments results. Year-to-year fluctuations in certain markets have
been significant and negative returns have been experienced in certain markets
from time to time. Stocks are measured by the S&P 500 Index, an unmanaged
weighted index comprising 500 widely held common stock and varying in
composition. 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. Inflation is measured by the Consumer Price Index. The
indexes are unmanaged and are not available for investment.
- --------
Source: Stocks, Bonds, Bills and Inflation 1996 YearbookTM Ibbotson Assoc.,
Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).

47
<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.

TAXES

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, each Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income 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) the Fund must derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition
of securities 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) the
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 the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities, 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 the Fund's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. government
securities or the securities of other RICs) of any one issuer.

Dividends and other distributions declared by a Fund 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 Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund 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 a 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.

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.

48
<PAGE>

Dividends and interest received by a 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
a Fund's 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, the 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. A Fund 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, a 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 the 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, and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses a Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, futures and forward currency contracts derived by a Fund with

49
<PAGE>

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 a 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 a Fund does not qualify
for this treatment, it may be forced to defer the closing out of certain
options, futures and forward currency contracts 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 AND UTILITY INCOME FUND

PaineWebber Managed Assets Trust and PaineWebber Managed Investments Trust
each is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of a 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. 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.

Prior to February 26, 1992, PaineWebber Managed Investments Trust was known
as "PaineWebber Fixed Income Portfolios."

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."

50
<PAGE>

OTHER CLASSES. Each Fund is authorized to issue Class Y shares in addition
to Class A, Class B and Class C shares. Class Y 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.

Prior to November 10, 1995, each Fund's Class C shares were known as "Class
D" shares.

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. 20036-1800, 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.

51
<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.

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

AAA. Debt ated 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

52
<PAGE>

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 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.

53
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

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 FUNDS OR THEIR DISTRIBUTOR. THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.

----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions..................................... 1
Hedging Strategies....................................................... 10
Trustees, Directors and Officers......................................... 20
Investment Advisory and Distribution Arrangements........................ 29
Portfolio Transactions................................................... 36
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services.......................................................... 39
Conversion of Class B Shares............................................. 43
Valuation of Shares...................................................... 43
Performance Information.................................................. 44
Taxes.................................................................... 48
Other Information........................................................ 50
Financial Statements..................................................... 51
Appendix................................................................. 52
</TABLE>

PaineWebber
Capital Appreciation Fund

PaineWebber
Financial Services Growth Fund

PaineWebber
Utility Income Fund

- --------------------------------------------------------------------------------
Statement of Additional Information

August 1, 1996

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

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

PaineWebber Capital Appreciation Fund

PaineWebber Financial Services Growth Fund Inc.

PaineWebber Utility Income Fund

Class Y Shares
1285 Avenue of the Americas, New York, NY 10019
Prospectus -- August 1, 1996
- --------------------------------------------------------------------------------

The Class Y shares described in this Prospectus are currently offered for sale
primarily to participants in the INSIGHT Investment Advisory Program ("IN-
SIGHT"), when purchased through that program. See "How to Buy Shares."

---------
- --------------------------------------------------------------------------------
Prospectus Page 1
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

Table of Contents
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
The Funds at a Glance...................................................... 3
Expense Table.............................................................. 5
Investment Objective and Policies.......................................... 7
Investment Philosophy & Process............................................ 8
Performance................................................................ 9
The Funds' Investments..................................................... 10
How to Buy Shares.......................................................... 13
How to Sell Shares......................................................... 13
Management................................................................. 14
Determining the Shares' Net Asset Value.................................... 15
Dividends & Taxes.......................................................... 15
General Information........................................................ 17
</TABLE>

----------
- --------------------------------------------------------------------------------
Prospectus Page 2
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

The Funds at a Glance
- -------------------------------------------------------------------------------

CAPITAL APPRECIATION FUND

INVESTMENT OBJECTIVE: Long-term capital appreciation.

SIZE: On , 1996, the Fund had over $ million in assets.

FINANCIAL SERVICES GROWTH FUND

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

INVESTMENT OBJECTIVE: Long-term capital appreciation.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Be-
cause the Fund invests primarily in equity securities, its price will rise and
fall. The Fund's concentration in the banking, thrift, insurance and other fi-
nancial services industries makes it subject to greater risk and volatility
than equity funds that are more diversified, and the Fund's shares will be af-
fected by economic, competitive and regulatory developments affecting the fi-
nancial services industries. The Fund may invest in the securities of foreign
companies, which involves more risk than investing in the securities of U.S.
companies. 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; the investment is
not guaranteed.

SIZE: On , 1996, the Fund had over $ million in assets.

UTILITY INCOME FUND

INVESTMENT OBJECTIVE: Current income and capital appreciation.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Be-
cause 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 devel-
opments in those industries. The Fund may invest in the securities of foreign
companies, which involves more risk than investing in the securities of U.S.
companies. 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; the investment is
not guaranteed.

----------
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

The Funds at a Glance
(Continued)
- -------------------------------------------------------------------------------

SIZE: On , 1996, the Fund had over $ million in assets.

MANAGEMENT

WHO SHOULD INVEST

HOW TO PURCHASE CLASS Y SHARES OF THE FUNDS

Eligible investors may purchase Class Y shares of the Funds as follows:

The price is the net asset value next calculated after PaineWebber's New York
City headquarters or the Transfer Agent receive the purchase order.

Investors do not pay an initial sales charge when they buy Class Y shares.
100% of their purchase is immediately invested. Investors also do not pay a
redemption fee or contingent deferred sales charge when they sell Class Y
shares.

----------
- --------------------------------------------------------------------------------
Prospectus Page 4
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

Expense Table
- -------------------------------------------------------------------------------

The following tables are intended to assist investors in understanding the ex-
penses associated with investing in the Class Y, shares of the Funds.

<TABLE>
<CAPTION>
CLASS Y
SHAREHOLDER TRANSACTION EXPENSES -------
<S> <C>
Maximum Sales Charge on Purchases of Shares (as a % of offering price). None
Sales Charge on Reinvested Dividends (as a % of offering price)........ None
Maximum Contingent Deferred Sales Charge (as a % of net asset value at
the time of purchase or sale, whichever is less) ..................... None
Maximum annual investment advisory fee payable to shareholders through
INSIGHT (as a % of average daily net asset value of shares held)(1) .. 1.50%
ANNUAL FUND OPERATING EXPENSES(2) (as a % of average net assets)
CAPITAL APPRECIATION FUND
Management Fees........................................................ 1.00%
12b-1 Fees............................................................. 0.00
Other Expenses.........................................................
----
Total Operating Expenses............................................... %
====
FINANCIAL SERVICES GROWTH FUND
Management Fees........................................................ 0.70%
12b-1 Fees............................................................. 0.00
Other Expenses.........................................................
----
Total Operating Expenses............................................... %
====
UTILITY INCOME FUND
Management Fees........................................................ 0.70%
12b-1 Fees............................................................. 0.00
Other Expenses.........................................................
----
Total Operating Expenses............................................... %
====
</TABLE>

- -------
(1) Participation in INSIGHT is subject to payment of an advisory fee at the
maximum annual rate of 1.50% of assets held through INSIGHT (generally
charged quarterly in advance), which may be charged to the INSIGHT partic-
ipants' PaineWebber account.
(2) "Other expenses" are estimated based on the expenses incurred by each
Fund's Class A shares for the most recent fiscal year. Does not include
the INSIGHT fee.

The management fee payable to Mitchell Hutchins by Capital Appreciation Fund
is greater than those paid by most funds.

----------
- --------------------------------------------------------------------------------
Prospectus Page 5
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

Expense Table
(Continued)
- -------------------------------------------------------------------------------

EXAMPLES OF EFFECT OF FUND EXPENSES

An investor would, directly or indirectly, pay the following expenses (includ-
ing 1.50% annual INSIGHT fee) on a $1,000 investment in the Fund, assuming a
5% annual return:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Appreciation Fund........................................ $ $
Financial Services Growth Fund................................... $ $
Utility Income Fund.............................................. $ $
</TABLE>

These examples assume that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses remain the same in the years shown.

----------
- --------------------------------------------------------------------------------
Prospectus Page 6
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

Investment Objective and Policies
- -------------------------------------------------------------------------------

The Funds' investment objectives may not be changed without shareholder ap-
proval. Their other investment policies, except where noted, are not fundamen-
tal and may be changed by the Funds' boards.

CAPITAL APPRECIATION FUND

. that are not included in either of the largest 100 companies ranked by reve-
nues or by market capitalization in Fortune magazine's "Fortune 500."

FINANCIAL SERVICES GROWTH FUND

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

. derive at least 50% of either its revenues or earnings from financial serv-
ices 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.

----------
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Prospectus Page 7
<PAGE>
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-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

the Fund's shares are insured by the FDIC or any other federal or governmental
agency.

UTILITY INCOME FUND

"Primarily engaged" means that:

. more than 50% of the company's assets are devoted to the ownership or opera-
tion of one or more such facilities; or

. more than 50% of the company's operating revenues are derived from such
businesses.

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.

* * * *

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

Investment Philosophy & Process

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

CAPITAL APPRECIATION FUND

FINANCIAL SERVICES GROWTH FUND

----------
- --------------------------------------------------------------------------------
Prospectus Page 8
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

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.

UTILITY INCOME FUND

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

Performance

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

----------
- --------------------------------------------------------------------------------
Prospectus Page 9
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

The Funds' Investments
- -------------------------------------------------------------------------------

RISKS

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

----------
- --------------------------------------------------------------------------------
Prospectus Page 10
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

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

CAPITAL APPRECIATION FUND

FINANCIAL SERVICES GROWTH FUND

UTILITY INCOME FUND

Gas transmission companies and gas distribution companies continue to undergo
significant changes as well. Water supply utilities are in an industry that is
highly

----------
- --------------------------------------------------------------------------------
Prospectus Page 11
<PAGE>
- --------------------------------------------------------------------------------
------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

INVESTMENT TECHNIQUES AND STRATEGIES

. 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 portfo-
lio investments at advantageous times due to the need for the Fund to main-
tain "cover" or to segregate securities; and

. the possibility that a Fund is unable to close out or liquidate its hedged
position.

----------
- --------------------------------------------------------------------------------
Prospectus Page 12
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

How to Buy Shares

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

Class Y shares are sold to eligible investors at the net asset value next de-
termined after the purchase order is received at PaineWebber's New York City
offices. No initial or contingent deferred sales charge is imposed, nor are
Class Y shares subject to rule 12b-1 distribution or service fees. The Funds
and Mitchell Hutchins reserve the right to reject any purchase order and to
suspend the offering of the Class Y shares for a period of time. Mitchell
Hutchins, the distributor for each Fund's Class Y shares, has appointed
PaineWebber to serve as the exclusive dealer for each Fund's Class Y shares.

INSIGHT

An investor who purchases $50,000 or more of shares of the mutual funds that
are available to INSIGHT participants (which include the PaineWebber mutual
funds in the Flexible Pricing System SM and certain other specified mutual
funds) may take part in INSIGHT, a total portfolio asset allocation program
sponsored by PaineWebber, and thus become eligible to purchase Class Y shares.
INSIGHT offers comprehensive investment services, including a personalized as-
set allocation investment strategy using an appropriate combination of funds,
monitoring of investment performance and comprehensive quarterly reports that
cover market trends, portfolio summaries and personalized account information.

Participating in INSIGHT is subject to payment of an advisory fee to
PaineWebber at the maximum annual rate of 1.50% of assets held through the
program (generally charged quarterly in advance), which covers all INSIGHT in-
vestment advisory services and program administration fees. Employees of
PaineWebber and its affiliates are entitled to a 50% reduction in the fee oth-
erwise payable for participation in INSIGHT. INSIGHT clients may elect to have
their INSIGHT fees charged to their PaineWebber accounts (by the automatic re-
demption of money market fund shares) or, if a qualified plan, invoiced.

Please contact your PaineWebber investment executive or PaineWebber correspon-
dent firm or call 1-800-697-1568 for more information concerning mutual funds
that are available to INSIGHT participants or for other INSIGHT program infor-
mation.

ACQUISITION OF CLASS Y SHARES BY OTHERS

Certain present holders of Class Y shares who are not current INSIGHT partici-
pants may acquire Class Y shares of a Fund without a sales charge. This cate-
gory includes former employees of Kidder, Peabody & Co., Incorporated ("Kid-
der, Peabody"), their associated accounts, present and former directors and
trustees of the former Kidder, Peabody mutual funds.

Each Fund is authorized to offer Class Y shares to employee benefit and re-
tirement plans of PaineWebber Group Inc. and its affiliates and certain other
investment programs that are sponsored by PaineWebber and that may invest in
PaineWebber mutual funds. At present, however, INSIGHT participants are the
only purchasers in these two categories.
- -------------------------------------------------------------------------------

How to Sell Shares

- -------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price 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).

INSIGHT participants who are Class Y shareholders can sell their shares by
contacting their investment executives at PaineWebber or its correspondent
firms.

Because each Fund incurs fixed costs in maintaining shareholder accounts, each
Fund reserves the right to purchase back all Fund shares in any shareholder
account having 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. A Fund will not pur-
chase back accounts that fall below $500 solely due to reduction in net asset
value per share.

----------
- --------------------------------------------------------------------------------
Prospectus Page 13
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

Management
- -------------------------------------------------------------------------------

CAPITAL APPRECIATION FUND

FINANCIAL SERVICES GROWTH FUND

UTILITY INCOME FUND

Each board has determined that brokerage transactions for the Fund may be con-
ducted through PaineWebber or its affiliates in accordance with procedures
adopted by the board.

ABOUT THE INVESTMENT ADVISER

ABOUT THE INVESTMENT SUB-ADVISER

The investment sub-adviser, Denver Investment Advisors, LLC, is located at
1225 17th Street, 26th Floor,

----------
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Prospectus Page 14
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

MANAGEMENT FEES & OTHER EXPENSES

Each Fund pays PaineWebber an annual fee of $4.00 per active shareholder ac-
count held at PaineWebber for services not provided by the Transfer Agent.

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

Determining the Shares' Net Asset Value

- -------------------------------------------------------------------------------
The net asset value of each Fund's shares fluctuates and is determined sepa-
rately 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. A "Business
Day" is any day, Monday through Friday, on which the New York Stock Exchange
is open for business. 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.

Dividends & Taxes

- -------------------------------------------------------------------------------
DIVIDENDS

----------
- --------------------------------------------------------------------------------
Prospectus Page 15
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

distributions, if necessary, to avoid a 4% excise tax on certain undistributed
income and capital gain.

Dividends and other distributions paid on Class Y shares of each Fund are cal-
culated at the same time and in the same manner as dividends and distributions
on other classes of shares.

Each Fund's dividends and other distributions are paid in additional Fund
shares of the same class at net asset value, unless the shareholder has re-
quested cash payments. Shareholders who wish to receive dividends and other
distributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their investment execu-
tive at PaineWebber or one of its correspondent firms.

TAXES

Each Fund intends to continue to qualify for treatment as a regulated invest-
ment 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 (gener-
ally consisting 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, re-
gardless 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.

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 divi-
dends that qualify for special treatment.

WITHHOLDING REQUIREMENTS

TAXES ON THE SALE 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 takes into account any ini-
tial sales charge paid on Class A shares). In addition, if a Fund's shares are
bought within 30 days before or after selling other shares of the Fund (regard-
less 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.

* * * *

Because the foregoing only summarizes some of the important tax considerations
affecting the Funds and their shareholders, the Statement of Additional
Information contains more detail. Prospective shareholders are urged to consult
their tax advisers.

----------
- --------------------------------------------------------------------------------
Prospectus Page 16
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

General Information
- --------------------------------------------------------------------------------

ORGANIZATION

CAPITAL APPRECIATION FUND

Capital Appreciation Fund is a diversified series of PaineWebber Managed Assets
Trust, an open-end management investment company which was 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 bene-
ficial interest of separate series, with a par value of $0.001 per share.

FINANCIAL SERVICES GROWTH FUND

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

The shares of each Fund are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. Each class represents an identical inter-
est 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, other expenses
allocable exclusively to each class, voting rights on matters exclusively af-
fecting that class, and its exchange privilege, if any. 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 a Fund 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 the other classes are
likely to be lower than for the Class Y shares.

More information concerning Class A, Class B and Class C shares of the Funds
may be obtained from a PaineWebber investment executive or correspondent firm
or by calling 1-800-647-1568.

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
(or Trust if there is more than one series) may elect all of the board members
of that Fund. The shares of the different classes of a Fund will be voted to-
gether, except that only the shareholders of a particular class of a Fund may
vote on matters affecting only that class, such as the terms of a Plan as it
relates to the class. The shares of all series of a Trust or the Corporation
will be voted separately, except when an aggregate vote of all the series is
required by law.

SHAREHOLDER MEETINGS

The Funds do not intend to hold annual meetings.

----------
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Prospectus Page 17
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Capital Appreciation Fund Financial Services Growth Fund
Inc. Utility Income Fund

vote on the removal of a board member at the written request of holders of 10%
of the outstanding shares of the Trust or Fund, as applicable.

REPORTS TO SHAREHOLDERS

CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND AGENT

----------
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Prospectus Page 18
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

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

PaineWebber Capital Appreciation Fund
PaineWebber Financial Services Growth Fund Inc.
PaineWebber Utility Income Fund Class Y Shares

Prospectus -- August 1, 1996

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

. PAINEWEBBER BOND FUNDS . PAINEWEBBER STOCK FUNDS

. PAINEWEBBER TAX-FREE BOND . PAINEWEBBER GLOBAL FUNDS
FUNDS
Emerging Markets Equity Fund
California Tax-Free Global Equity Fund
Income Fund Global Income Fund
Municipal High Income
Fund
National Tax-Free
Income Fund
New York Tax-Free
Income Fund
. PAINEWEBBER MONEY MARKET
FUND
. PAINEWEBBER ASSET
ALLOCATION FUNDS

Balanced Fund
Tactical Allocation
Fund

/(C)/ 1996 PaineWebber Incorporated
----------
- --------------------------------------------------------------------------------

<PAGE>

PAINEWEBBER CAPITAL APPRECIATION FUND

PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.

PAINEWEBBER UTILITY INCOME FUND

CLASS Y SHARES

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Funds' current Prospectus for their Class Y
shares, dated August 1, 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 August 1, 1996.

INVESTMENT POLICIES AND RESTRICTIONS

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

2
<PAGE>

3
<PAGE>

4
<PAGE>

5
<PAGE>

Utility Income Fund's investment policies seek to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will

6
<PAGE>

7
<PAGE>

decade, gas utility companies have been adversely affected by disruption in
the oil industry and have also been affected by increased concentration and
competition.

INVESTMENT LIMITATIONS. Each Fund will not:

8
<PAGE>

The following investment restrictions, which apply to each Fund, are non-
fundamental and may be changed by the vote of the Fund's board without
shareholder approval.

The Fund will not:

9
<PAGE>

determined by Mitchell Hutchins (or the Sub-Adviser) to be of comparable
quality, without giving at least 30 days' advance notice to shareholders.

(6) invest in real estate limited partnerships.

HEDGING STRATEGIES

10
<PAGE>

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.

11
<PAGE>

Alternatively, a Fund might be able to offset the price increase by closing
out an appreciated call option and realizing a gain.

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.

12
<PAGE>

13
<PAGE>

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

14
<PAGE>

(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.

15
<PAGE>

prices could move to the daily limit for several consecutive days with little
or no trading, thereby preventing liquidation of unfavorable positions.

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

16
<PAGE>

17
<PAGE>

18
<PAGE>

19
<PAGE>

TRUSTEES, DIRECTORS AND OFFICERS

The trustees or directors and executive officers of each Trust and the
Corporation, their ages, business addresses and principal occupations during
the past five years are:

20
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
E. Garrett Bewkes, Jr.**; 69 Trustee/Director and Mr. Bewkes is a director of Paine
Chairman of the Webber Group Inc. ("PW Group")
Board of (holding company of PaineWebber and
Trustees/Directors Mitchell Hutchins). Prior to De-
cember 1995, he was a consultant to
PW Group. Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company. Mr.
Bewkes is also a director of In-
terstate Bakeries Corporation and
NaPro BioTherapeutics, Inc. and is
a director or trustee of 30 in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Richard R. Burt; 49 Trustee/Director Mr. Burt is chairman of Interna-
1101 Connecticut Avenue, N.W. tional Equity Partners (interna-
Washington, D.C. 20036 tional investments and consulting
firm) (since March 1994) and a
partner of McKinsey & Company
(management consulting firm) (since
1991). He is also a director of
American Publishing Company. He was
the chief negotiator in the Stra-
tegic Arms Reduction Talks with the
former Soviet Union (1989-1991) and
the U.S. Ambassador to the Federal
Republic of Germany (1985-1989).
Mr. Burt is a director or trustee
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Mary C. Farrell**; 46 Trustee/Director Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy
Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982.
She is a member of the Financial
Women's Association and Women's
Economic Roundtable and is employed
as a regular panelist on Wall
Street Week with Louis Rukeyser.
She also serves on the Board of
Overseers of New York University's
Stern School of Business. Ms.
Farrell is a director or trustee of
29 investment companies for which
Mitchell Hutchins or PaineWebber
serves as an investment adviser.
Meyer Feldberg; 54 Trustee/Director Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Institute
of Technology. Dean Feldberg is
also a director of AMSCO Interna-
tional Inc., Federated Department
Stores, Inc. and New World Commu-
nications Group Incorporated and is
a director or trustee of 29 in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen; 66 Trustee/Director Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a
director or trustee of 29 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Frederic V. Malek; 59 Trustee/Director Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment bank)
Suite 300 and a co-chairman and director of
Washington, D.C. 20005 CB Commercial Group Inc. (real es-
tate). From January 1992 to Novem-
ber 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 Man-
agement Systems, Inc. Automatic
Data Processing, Inc., Avis, Inc.,
FPL Group, Inc., ICF International,
Manor Care, Inc. and National Edu-
cation Corporation. Mr. Malek is a
director or trustee of 29 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Carl W. Schafer; 60 Trustee/Director Mr. Schafer is president of the At-
P.O. Box 1164 lantic Foundation (charitable
Princeton, NJ 08542 foundation supporting mainly
oceanographic exploration and re-
search). He also is a director of
Roadway Express, Inc. (trucking),
The Guardian Group of Mutual Funds,
Evans Systems, Inc. (a motor fuels,
convenience store and diversified
company), Hidden Lake Gold Mines
Ltd., ) gold mining), Electronic
Clearing House, Inc., (financial
transactions processing), Wainoco
Oil Corporation and Nutraceutix,
Inc. (biotechnology). Prior to
January 1993, he was chairman of
the Investment Advisory Committee
of the Howard Hughes Medical In-
stitute. Mr. Schafer is a director
or trustee of 29 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as an investment
adviser.
John R. Torrell, III; 58 Trustee/Director Mr. Torell is chairman of Torell
767 Fifth Avenue Management, Inc. (financial advi-
Suite 4605 sory firm), chairman of Telesphere
New York, NY 10153 Corporation (electronic provider of
financial information) and a part-
ner of Zilkha & Company (merchant
bank and private investment compa-
ny). He is the former chairman and
chief executive officer of Fortune
Bancorp (1990-1991 and 1990-1994,
respectively), the former chairman,
president and chief executive of-
ficer of CalFed, Inc. (savings as-
sociation) (1988 to 1989) and the
former president of Manufacturers
Hanover Corp. (bank) (prior to
1988). Mr. Torell is also a direc-
tor of American Home Products
Corp., New Colt Inc. (armament
manufacturer) and Volt Information
Sciences Inc. Mr. Torell is a di-
rector or trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

24
<PAGE>

25
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Thomas J. Libassi; 37 Vice President Mr. Libassi is a senior vice presi-
(Managed Investments dent and a portfolio manager of
Trust only) Mitchell Hutchins. Prior to May
1994, he was a vice president of
Keystone Custodian Funds Inc. with
portfolio management responsibili-
ty. Mr. Libassi is a vice president
of four investment companies for
which Mitchell Hutchins serves as
investment adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president
Assistant Treasurer and a senior manager of the mutual
fund finance division of Mitchell
Hutchins. Mr. Maher is a vice
president and assistant treasurer
of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dennis McCauley; 49 Vice President Mr. McCauley is a managing director
(Managed Investments and chief investment officer--fixed
Trust only) income of Mitchell Hutchins. Prior
to December 1994, he was director
of fixed income investments of IBM
Corporation. Mr. McCauley is a vice
president of 19 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is a
vice president and assistant trea-
surer of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy general coun-
sel of Mitchell Hutchins. Ms.
O'Donnell is a vice president and
secretary of 30 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Victoria E. Schonfeld; 45 Vice President Ms. Schonfeld is a managing director
and general counsel of Mitchell
Hutchins. Prior to May 1994, she
was a partner in the law firm of
Arnold & Porter. Ms. Schonfeld is a
vice president of 30 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice presi-
Assistant Treasurer dent and a senior 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
a vice president and assistant
treasurer of 30 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Nirmal Singh; 39 Vice President (Managed Mr. Singh is a first vice president
Investments Trust only) and a portfolio manager of Mitchell
Hutchins. Prior to September 1993,
he was a member of the portfolio
management team at Merrill Lynch
Asset Management, Inc. Mr. Singh is
a vice president of five investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice pres-
Treasurer ident and the director of the mu-
tual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager with
Ernst & Young LLP. Mr. Sluyters is
a vice president and treasurer of
30 investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
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 eq-
uity research areas of Chase Man-
hattan Private Bank. Mr. Tincher is
a vice president of 14 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Craig M. Varrelman; 37 Vice President (Managed Mr. Varrelman is a first vice pres-
Investments Trust only) ident and a portfolio manager of
Mitchell Hutchins. Mr. Varrelman is
a vice president of five 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
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to May
1995, he was an attorney in private
practice. Mr. Weller is a vice
president and assistant secretary
of 29 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.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of each
Fund as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber, and/or PW Group.

28
<PAGE>

COMPENSATION TABLE

* Represents fees paid to each trustee/director during the year ended March
31, 1996; the Trusts and Corporation do not have pension or retirement
plans.
** Represents total compensation paid to each trustee/director during the
calendar year ended December 31, 1995.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

29
<PAGE>

30
<PAGE>

31
<PAGE>

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Funds' Class Y shares under separate distribution contracts with each Fund
dated August 1, 1996 (collectively, "Distribution Contracts") that require
Mitchell Hutchins to use its best efforts, consistent with its other
businesses, to sell shares of each Fund. Class Y shares of each Fund are
offered continuously. Under separate exclusive dealer agreements between
Mitchell Hutchins and PaineWebber dated August 1, 1996 relating to the Class Y
shares (collectively, "Exclusive Dealer Agreements"), PaineWebber and its
correspondent firms sell the Funds' Class Y shares.

PORTFOLIO TRANSACTIONS

32
<PAGE>

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. For the fiscal years ended
March 31, 1996, March 31, 1995 and March 31, 1994, Capital Appreciation Fund
paid $ , $322,307 and $421,737, respectively, in brokerage commissions. For
the fiscal years ended March 31, 1996, March 31, 1995 and March 31, 1994,
Financial Services Growth Fund paid $ , $20,088 and $28,924, respectively,
in brokerage commissions. During the four months ended March 31, 1996 and 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.

33
<PAGE>

the long term. For the fiscal year ended March 31, 1996 (for Capital
Appreciation Fund and Financial Services Growth Fund) and for the four months
ended March 31, 1996 and the fiscal year ended November 30, 1995, (for Utility
Income Fund), Mitchell Hutchins or the Sub-Adviser directed $ , $ , $
and $ , respectively, in portfolio transactions to brokers chosen because
they provided research services, for which the Funds paid $ , $ , $ and
$ , 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 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.

34
<PAGE>

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 fiscal periods shown
were:

<TABLE>
<S> <C>
CAPITAL APPRECIATION FUND
Fiscal Year ended March 31, 1996............................................ %
Fiscal Year ended March 31, 1995............................................ %
FINANCIAL SERVICES GROWTH FUND
Fiscal Year ended March 31, 1996............................................ %
Fiscal Year ended March 31, 1995............................................ %
UTILITY INCOME FUND
Four Months ended March 31, 1996............................................ %
Fiscal Year ended November 30, 1995......................................... %
Fiscal Year ended November 30, 1994......................................... %
</TABLE>

VALUATION OF SHARES

35
<PAGE>

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

TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in each Fund's Performance Advertisements are calculated
according to the following formula:

36
<PAGE>

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.

37
<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]

38
<PAGE>

TAXES

39
<PAGE>

40
<PAGE>

OTHER INFORMATION

CAPITAL APPRECIATION FUND AND UTILITY INCOME FUND

Prior to February 26, 1992, PaineWebber Managed Investments Trust was known
as "PaineWebber Fixed Income Portfolios."

FINANCIAL SERVICES GROWTH FUND

41
<PAGE>

ADDITIONAL REDEMPTION INFORMATION. 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.

AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Funds.

FINANCIAL STATEMENTS

42
<PAGE>

APPENDIX

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

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

43
<PAGE>

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.

44
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions....................................... 1
Hedging Strategies......................................................... 10
Trustees, Directors and Officers........................................... 20
Investment Advisory and Distribution Arrangements.......................... 29
Portfolio Transactions..................................................... 32
Valuation of Shares........................................................ 35
Performance Information.................................................... 36
Taxes...................................................................... 39
Other Information.......................................................... 41
Financial Statements....................................................... 42
Appendix................................................................... 43
</TABLE>

PaineWebber
Capital Appreciation Fund

PaineWebber
Financial Services Growth Fund

PaineWebber
Utility Income Fund

- --------------------------------------------------------------------------------
Statement of Additional Information

August 1, 1996

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

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

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

(a) Financial Statements: (to be filed)

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 four months
ended March 31, 1996, 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 four months
ended March 31, 1996, 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 four months
ended March 31, 1996, 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 filed with the Securities and Exchange Commission through EDGAR on
, 1996 (Accession No. :

Portfolio of Investments at March 31, 1996.

Statement of Assets and Liabilities at March 31, 1996.

Statement of Operations for the four months ended March 31, 1996 and the
year ended November 30, 1995.

Statement of Changes in Net Assets for the four months ended March 31, 1996
and 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 four months
ended March 31, 1996, 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 four months
ended March 31, 1996, the two years in the period ended November 30, 1995
and the period July 2, 1993 (commencement of operations) to November 30,
1993.

C-1
<PAGE>

Financial Highlights for one Class C share of the Fund for the four months
ended March 31, 1996, 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 May ,
1996.

(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, 199521/
--
(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 Shares21/
--
(d) Distribution Contract with respect to Class Y Shares21/
--
(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
Shares21/
--

C-2
<PAGE>

(h) Exclusive Dealer Agreement with respect to Class Y
Shares21/
--
(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/
--

(f) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class Y Shares of PaineWebber Utility
Income Fund (filed herewith)

(11) Auditor's Consent (to be filed)
(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/
--

C-3
<PAGE>

(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 (to be filed)
(18) Plan Pursuant to Rule 18f-322/
--

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.

C-4
<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.

21/ Incorporated by reference from Post-Effective Amendment No. 39
-- to the registration statement, SEC File No. 2-91362, filed
February 14, 1996.

22/ Incorporated by reference from Post-Effective Amendment No. 40
-- to the registration statement, SEC File No. 2-91362, filed
March 29, 1996.

C-5
<PAGE>

Item 25. Persons Controlled by or under Common Control with
--------------------------------------------------
Registrant - None
----------

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

<TABLE>
<CAPTION>
Number of Record
Title of Class Shareholders as of
-------------- May 17, 1996
-----------------
<S> <C>

Shares of beneficial interest, par value
$0.001 per share, in

U.S. Government Income Fund
Class A Shares 26,755
Class B Shares 5,366
Class C Shares 3,173
Class Y Shares 204
Investment Grade Income Fund
Class A Shares 16,177
Class B Shares 3,644
Class C Shares 2,001
Class Y Shares 0
High Income Fund
Class A Shares 15,841
Class B Shares 11,897
Class C Shares 6,058
Class Y Shares 0
PaineWebber Utility Income Fund
Class A Shares 920
Class B Shares 3,011
Class C Shares 1,054
Class Y Shares 0
PaineWebber Low Duration
U.S. Government Income Fund
Class A Shares 1,048
Class B Shares 890
Class C Shares 16,107
Class Y Shares 39

</TABLE>

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
indemnifiedand 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, as 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.

. INSURED MUNICIPAL INCOME FUND INC.
. INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
. MANAGED HIGH YIELD FUND INC.
. PAINEWEBBER AMERICA FUND
. PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.

. PAINEWEBBER INVESTMENT SERIES
. PAINEWEBBER INVESTMENT TRUST
. PAINEWEBBER INVESTMENT TRUST II

C-9
<PAGE>

. PAINEWEBBER INVESTMENT TRUST III
. PAINEWEBBER MANAGED ASSETS TRUST
. PAINEWEBBER MANAGED INVESTMENTS TRUST
. PAINEWEBBER MASTER SERIES, INC.
. PAINEWEBBER MUNICIPAL SERIES
. PAINEWEBBER MUTUAL FUND TRUST
. PAINEWEBBER OLYMPUS FUND

. 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, as filed 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, as 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:

<TABLE>
<CAPTION>
Position Position and Offices
Name and Principal With With Underwriter or
Business Address Registrant Exclusive Dealer
- ------------------ ------------- ----------------------
<S> <C> <C>

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

Mary C. Farrell Trustee Managing Director,
1285 Avenue of the Americas Senior Investment
New York, New York 10019 Strategist and Member
of Investment Policy
Committee of
PaineWebber

</TABLE>

C-10
<PAGE>

<TABLE>
<CAPTION>
Position Position and Offices
Name and Principal With With Underwriter or
Business Address Registrant Exclusive Dealer
------------------ ------------- ----------------------
<S> <C> <C>

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

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

James F. Keegan Vice Senior 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 and a Portfolio
New York, New York 10019 Manager of Mitchell
Hutchins

C. William Maher Vice First Vice President
1285 Avenue of the Americas President and a Senior Manager
New York, New York 10019 and of the Mutual Fund
Assistant Finance Division of
Treasurer Mitchell Hutchins

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

</TABLE>

C-11
<PAGE>

<TABLE>
<CAPTION>
Position and Offices
Name and Principal Position With With Underwriter or
Business Address Registrant Exclusive Dealer
------------------ ------------- ----------------------
<S> <C> <C>

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

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 a Senior Manager
New York, New York 10019 and of the Mutual Fund
Assistant Finance Division of
Treasurer Mitchell Hutchins

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

Julian F. Sluyters Vice Senior Vice President
1285 Avenue of the Americas President and Director of the
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

Craig M. Varrelman Vice First Vice President
1285 Avenue of the Americas President and a Portfolio
New York, New York 10019 Manager of Mitchell
Hutchins

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

</TABLE>

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 has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 29th day of May, 1996.

PAINEWEBBER MANAGED INVESTMENTS TRUST

By: /s/ Dianne E. O'Donnell
----------------------------------
Dianne E. O'Donnell
Vice President and Secretary

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

Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee May 29, 1996
- ----------------------------- (Chief Executive Officer)
Margo N. Alexander *, **

/s/ E. Garrett Bewkes, Jr. Trustee and Chairman May 29, 1996
- ----------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. ***

/s/ Richard Q. Armstrong Trustee May 29, 1996
- -----------------------------
Richard Q. Armstrong **

/s/ Richard Burt Trustee May 29, 1996
- -----------------------------
Richard Burt **

/s/ Mary C. Farrell Trustee May 29, 1996
- -----------------------------
Mary C. Farrell **

/s/ Meyer Feldberg Trustee May 29, 1996
- -----------------------------
Meyer Feldberg **

/s/ George W. Gowen Trustee May 29, 1996
- -----------------------------
George W. Gowen ***

/s/ Frederic V. Malek Trustee May 29, 1996
- -----------------------------
Frederic V. Malek **

/s/ Carl W. Schafer Trustee May 29, 1996
- -----------------------------
Carl W. Schafer **

/s/ John R. Torell III Trustee May 29, 1996
- -----------------------------
John R. Torell III **

Julian F. Sluyters Vice President and Treasurer May 29, 1996
- ----------------------------- (Chief Financial and Accounting
Julian F. Sluyters Officer)

</TABLE>
<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
April 18, 1996 and incorporated by reference from Post-Effective Amendment
No. 17 to the registration statement of PaineWebber Municipal Series, SEC
File No. 33-11611, filed April 25, 1996.

*** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
April 18, 1996 and incorporated by reference from Post-Effective Amendment
No. 14 to the registration statement of PaineWebber Investment Trust, SEC
File No. 33-39659, filed May 2, 1996.
<PAGE>

PAINEWEBBER MANAGED INVESTMENTS TRUST

EXHIBIT INDEX
-------------
Exhibit
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, 199521/
--

(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 Shares21/
--
(d) Distribution Contract with respect to Class Y Shares21/
--
(e) Exclusive Dealer Agreement with respect to Class A Shares15/
--
(f) Exclusive Dealer Agreement with respect to Class B Shares15/
--

-1-
<PAGE>

(g) Exclusive Dealer Agreement with respect to Class C Shares21/
--
(h) Exclusive Dealer Agreement with respect to Class Y Shares21/
--
(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/
--
(f) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class Y Shares of PaineWebber
Utility Income Fund (filed herewith)
(11) Auditor's Consent (to be filed)
(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 (to be filed)
(18) Plan Pursuant to Rule 18f-322/
--

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

-3-

<PAGE>

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.

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.

21/ Incorporated by reference from Post-Effective Amendment No. 39 to the
-- registration statement, SEC File No. 2-91362, filed
February 14, 1996.

22/ Incorporated by reference from Post-Effective Amendment No. 40
--
-4-
<PAGE>

to the registration statement, SEC File No. 2-91362, filed
March 29, 1996.

<PAGE>

Exhibit 10(f)

KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800

May 30, 1996

PaineWebber Managed Investments Trust
1285 Avenue of the Americas
New York, New York 10019

Dear Sir/Madam:

PaineWebber Managed Investments Trust ("Trust") is an unincorporated
voluntary association organized under the laws of the Commonwealth of
Massachusetts on November 21, 1986. You have requested our opinion regarding
certain matters in connection with the issuance by the Trust of an indefinite
number of Class Y shares of beneficial interest ("Class Y Shares") of
PaineWebber Utility Income Fund, one of the five series of the Trust.

We have, as counsel, participated in various business and other matters
related to the Trust. We have examined copies, either certified or otherwise
proved to be genuine, of the Declaration of Trust and By-Laws of the Trust, the
minutes of the meetings of the trustees and other documents relating to the
organization and operation of the Trust, and we generally are familiar with its
business affairs. Based on the foregoing, it is our opinion that the unlimited
number of unissued Class Y Shares of PaineWebber Utility Income Fund, which are
currently being registered under the Securities Act of 1933, as amended ("1933
Act"), may be legally and validly issued from time to time in accordance with
the Trust's Declaration of Trust and By-Laws and, subject to compliance with the
1933 Act, the Investment Company Act of 1940, as amended, and various state laws
regulating the offer and sale of securities; and when so issued, the Class Y
Shares of PaineWebber Utility Income Fund will be legally issued, fully paid and
nonassessable by the Trust.

The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the trust. The
<PAGE>

PaineWebber Managed Investments Trust
May 30, 1996
Page 2

Declaration of Trust states that creditors of, contractors with and claimants
against the Trust or any series thereof shall look only to the assets of the
Trust or the appropriate series for payment. It also requires that notice of
such disclaimer be given in each note, bond, contact, certificate, undertaking
or instrument made or issued by the officers or trustees of the Trust on behalf
of the Trust. The Declaration of Trust further provides (i) for indemnification
from the assets of the appropriate series for all loss and expense of any
shareholder held personally liable for the obligations of the Trust or any
series by virtue of ownership of shares of such series and (ii) for the
appropriate series to assume the defense of any claim against the shareholder
for any act or obligation of the series. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust or series would be unable to meet its
obligations.

We hereby consent to the filing of this opinion in connection with Post-
Effective Amendment No. 41 to the Trust's Registration Statement on Form N-1A
(SEC File Nos. 2-91362 and 811-4040) to be filed with the Securities and
Exchange Commission. We also consent to the reference to our firm under the
caption "Counsel" in the Statement of Additional Information filed as part of
the Registration Statement.

Very truly yours,

KIRKPATRICK & LOCKHART LLP

/s/ Elinor W. Gammon

By:________________________
Elinor W. Gammon