<PAGE>
------------------
PaineWebber Financial Services Growth Fund Inc.
PaineWebber Utility Income Fund
1285 Avenue of the Americas, New York, NY 10019
Prospectus -- August 1, 1998
- --------------------------------------------------------------------------------
These PaineWebber Stock Funds are designed for investors generally seeking
capital appreciation by investing principally in equity securities. Financial
Services Growth Fund invests primarily in equity securities of companies in the
financial services industries. Utility Income Fund also seeks to provide
current income and invests primarily in income-producing equity securities and
bonds of companies in the utility industries.
This Prospectus concisely sets forth information that a prospective investor
should know about the Funds before investing. Please read it carefully and
retain a copy of this Prospectus for future reference.
A Statement of Additional Information dated August 1, 1998 has been filed with
the Securities and Exchange Commission ("SEC" or "Commission") and is legally
part of this Prospectus. The Statement of Additional Information can be
obtained without charge, and further inquiries can be made, by contacting an
individual Fund, your investment executive at PaineWebber or one of its
correspondent firms or by calling toll-free 1-800-647-1568. In addition, the
Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference, and
other information regarding registrants that file electronically with the
Commission.
- --------------------------------------------------------------------------------
THE PAINEWEBBER FAMILY OF MUTUAL FUNDS
The PaineWebber Family of Mutual Funds consists of seven broad categories,
which are presented here. Generally, investors seeking to maximize return must
assume greater risk. The Funds offered by this Prospectus are in the STOCK
FUNDS category.
. Asset Allocation Funds . Global Funds for long-term growth by investing
for high total return by mainly in foreign stocks or high current income
investing in stocks and by investing mainly in global debt instruments.
bonds.
. Stock Funds for long-term . Money Market Fund for income and stability by
growth by investing investing in high-quality, short-term
mainly in equity investments.
securities.
. Bond Funds for income by . Funds of Funds for either long-term growth of
investing mainly in capital; total return; or income and,
bonds. secondarily, growth of capital by investing in
other PaineWebber mutual funds.
. Tax-Free Bond Funds for
income exempt from
federal income tax and,
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.
- --------------------------------------------------------------------------------
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUNDS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PRO-
VIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS IS NOT AN OF-
FER TO SELL SHARES OF THE FUNDS IN ANY JURISDICTION WHERE THE FUNDS OR THEIR
DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
Prospectus Page 1
<PAGE>
PaineWebber Financial Services Growth Fund Utility Income Fund
-------------------
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Funds at a Glance...................................................... 3
Expense Table.............................................................. 5
Financial Highlights....................................................... 8
Investment Objectives & Policies........................................... 12
Investment Philosophy & Process............................................ 13
Performance................................................................ 14
The Funds' Investments..................................................... 16
Flexible Pricing SM........................................................ 20
How to Buy Shares.......................................................... 23
How to Sell Shares......................................................... 24
Other Services............................................................. 25
Management................................................................. 26
Determining the Shares' Net Asset Value.................................... 27
Dividends & Taxes.......................................................... 28
General Information........................................................ 30
</TABLE>
----------
Prospectus Page 2
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund 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
diversify a portfolio. When selling shares, investors should be aware that
they may get more or less for their shares than they originally paid for them.
As with any mutual fund, there is no assurance that the Funds will achieve
their goals.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"), is
the investment adviser and administrator of each Fund.
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.
Because the Fund invests primarily in equity securities, its price will rise
and fall. The Fund's concentration in the banking, thrift, insurance and other
financial services industries makes it subject to greater risk and volatility
than equity funds that are more diversified, and the value of the Fund's
shares will be affected by economic, competitive and regulatory developments
affecting the financial services industries. The Fund may invest in the
securities of foreign companies, which may involve more risk than the
securities of U.S. companies. The Fund may use derivatives, such as options,
futures and foreign currency contracts, which may involve additional risks.
Investors may lose money by investing in the Fund; the investment is not
guaranteed.
SIZE: On June 30, 1998, the Fund had over $550 million in assets.
UTILITY INCOME FUND
GOAL: To increase the value of your investment and provide current income by
investing primarily in income-producing equity securities and bonds of
domestic and foreign companies engaged in the ownership or operation of
facilities used in the generation, transmission or distribution of
electricity, telecommunications, gas or water.
INVESTMENT OBJECTIVE: Current income and capital appreciation.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility.
Because the Fund invests primarily in equity securities, its price will rise
and fall. The Fund's concentration in the utility industries makes it subject
to greater risk and volatility than funds that are more diversified, and the
value of the Fund's shares will be affected by economic, competitive and
regulatory developments in the utility industries. The Fund may invest in the
securities of foreign companies, which may involve more risk than the
securities of U.S. companies. The Fund may use derivatives, such as options,
futures and foreign currency contracts, which may involve additional risks.
Investors may lose money by investing in the Fund; the investment is not
guaranteed.
SIZE: On June 30, 1998, the Fund had over $35 million in assets.
MINIMUM INVESTMENT
To open an account, investors need $1,000; to add to an account, investors
need only $100.
WHO SHOULD INVEST
FINANCIAL SERVICES GROWTH FUND is for investors who want long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily
in the equity securities of domestic and foreign financial services companies,
including banks, thrift institutions ("thrifts"), insurance companies,
commercial finance companies, consumer finance companies, brokerage companies,
investment management companies,
----------
Prospectus Page 3
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
The Funds at a Glance
(Continued)
- -------------------------------------------------------------------------------
companies that provide specialized services closely allied to financial
services (such as transaction processing and financial printing) 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 its objective by investing in
equity securities and bonds in domestic and foreign electric,
telecommunications, gas and water industries. Accordingly, Utility Income Fund
is designed for conservative investors who are seeking income as well as
capital growth through utility stocks and bonds, which are traditionally
viewed as conservative 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
immediately 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
immediately 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.
CLASS Y SHARES
Class Y shares are offered for sale only to limited groups of investors. The
price is the net asset value. Investors do not pay an initial sales charge
when they buy Class Y shares. As a result, 100% of their purchase is
immediately invested. Investors also do not pay a contingent deferred sales
share when they sell Class Y shares. Class Y shares have lower ongoing
expenses than any other class of shares.
----------
Prospectus Page 4
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Expense Table
- -------------------------------------------------------------------------------
The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of the Funds.
Expenses shown below are based on those incurred for the most recent fiscal
year, except that "Other Expenses" and "Total Operating Expenses" for Class Y
shares has been estimated because no Class Y shares were outstanding or were
outstanding for only two days.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
SHAREHOLDER TRANSACTION EXPENSES ------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares
(as a % of offering price)................... 4.50% None None None
Sales Charge on Reinvested Dividends (as a %
of offering price)........................... None 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% None
Exchange Fee.................................. None None None None
ANNUAL FUND OPERATING EXPENSES (as a % of
average net assets)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
FINANCIAL SERVICES GROWTH FUND
Management Fees......................................... 0.70% 0.70% 0.70% 0.70%
12b-1 Fees.............................................. 0.25 1.00 1.00 None
Other Expenses ......................................... 0.22 0.22 0.22 0.22%
---- ---- ---- ----
Total Operating Expenses................................ 1.17% 1.92% 1.92% 0.92%
==== ==== ==== ====
UTILITY INCOME FUND
Management Fees......................................... 0.70% 0.70% 0.70% 0.70%
12b-1 Fees.............................................. 0.25 1.00 1.00 None
Other Expenses ......................................... 0.97 0.98 0.98 0.97%
---- ---- ---- ----
Total Operating Expenses................................ 1.92% 2.68% 2.68% 1.67%
==== ==== ==== ====
</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
an initial sales charge. However, if an investor sells these shares
within one year after purchase, a contingent deferred sales charge of 1%
of the offering price or the net asset value of the shares at the time
of sale by the shareholder, whichever is less, is imposed.
CLASS B SHARES: Sales charge waivers are available. The maximum 5%
contingent deferred sales charge applies to sales of shares during the
first year after purchase. The charge generally declines by 1% annually,
reaching zero after six years.
CLASS C SHARES: If an investor sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price
or the net asset value of the shares at the time of the sale by the
shareholder, whichever is less, is imposed.
CLASS Y SHARES: No initial or contingent deferred sales charge is
imposed, nor are Class Y shares subject to 12b-1 distribution or service
fees. Class Y shares may be purchased by participants in certain
investment programs that are sponsored by PaineWebber and that may
invest in PaineWebber mutual funds ("PW Programs"), when Class Y shares
are purchased through that PW Program. Participation in a PW Program is
subject to an advisory fee at an effective annual rate of no more than
1.5% of assets held through that PW Program. This account charge is not
included in the table because investors who are not PW Program
participants also are permitted to purchase Class Y shares.
----------
Prospectus Page 5
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Expense Table
(Continued)
- -------------------------------------------------------------------------------
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 components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
12b-1 service fees.............................. 0.25% 0.25% 0.25% 0.00%
12b-1 distribution fees......................... 0.00 0.75 0.75 0.00
</TABLE>
For more information, see "Management" and "Flexible Pricing SM."
EXAMPLES OF EFFECT OF FUND EXPENSES
The following examples should assist investors in understanding various costs
and expenses they would incur as shareholders of a Fund. The assumed 5% annual
return shown in the examples is required by regulations of the SEC applicable
to all mutual funds. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF 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 each Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $56 $ 80 $106 $181
Class B (Assuming sale of all shares at end of
period)....................................... $70 $ 90 $124 $187
Class B (Assuming no sale of shares)........... $20 $ 60 $104 $187
Class C (Assuming sale of all shares at end of
period)....................................... $30 $ 60 $104 $224
Class C (Assuming no sale of shares)........... $20 $ 60 $104 $224
Class Y........................................ $ 9 $ 29 $ 51 $113
<CAPTION>
UTILITY INCOME FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $64 $103 $144 $260
Class B (Assuming sale of all shares at end of
period)....................................... $77 $113 $162 $266
Class B (Assuming no sale of shares)........... $27 $ 83 $142 $266
Class C (Assuming sale of all shares at end of
period)....................................... $37 $ 83 $142 $301
Class C (Assuming no sale of shares)........... $27 $ 83 $142 $301
Class Y........................................ $17 $ 53 $ 91 $198
</TABLE>
----------
Prospectus Page 6
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
ASSUMPTIONS MADE IN THE EXAMPLES
. ALL CLASSES: Reinvestment of all dividends and other distributions; per-
centage amounts listed under "Annual Fund Operating Expenses" remain the
same for the 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 deferred
sales charge at the time of sale, which declines over a period of six
years. Ten-year figures assume that Class B shares convert to Class A
shares at the end of the sixth year.
. CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for
sales of shares within one year of purchase.
-----------
Prospectus Page 7
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Financial Highlights
- -------------------------------------------------------------------------------
FINANCIAL SERVICES GROWTH FUND
The following tables provide investors with data and ratios for one Class A,
Class B, Class C and Class Y share for each of the periods shown. This infor-
mation is supplemented by the financial statements, accompanying notes and the
report of Ernst & Young LLP, independent auditors, which appear in the Fund's
Annual Report to Shareholders for the fiscal year ended March 31, 1998 and are
incorporated by reference into the Statement of Additional Information. The
financial statements and notes, as well as the financial information in the
table below relating to each of the five years in the period ended March 31,
1998, 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, 1994, has also been audited
by Ernst & Young LLP, whose reports thereon were unqualified.
<TABLE>
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
-----------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 23.41 $ 21.16 $ 17.11 $ 16.92 $ 19.45 $ 13.36 $ 9.50 $ 8.63 $ 8.31 $ 7.53
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income... 0.20 0.18 0.30 0.25 0.15 0.10 0.15 0.25 0.24 0.25
Net realized and
unrealized gains
(losses)
from investment
transactions........... 11.75 5.69 6.25 1.34 (0.76) 6.01 3.92 0.86 0.37 0.77
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 11.95 5.87 6.55 1.59 (0.61) 6.11 4.07 1.11 0.61 1.02
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Dividends from net
investment income...... (0.21) (0.23) (0.29) (0.13) (0.08) (0.02) (0.21) (0.24) (0.29) (0.24)
Distributions from net
realized gains from
investment
transactions........... (1.59) (3.39) (2.21) (1.27) (1.84) -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
other distributions to
shareholders........... (1.80) (3.62) (2.50) (1.40) (1.92) (0.02) (0.21) (0.24) (0.29) (0.24)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 33.56 $ 23.41 $ 21.16 $ 17.11 $ 16.92 $ 19.45 $ 13.36 $ 9.50 $ 8.63 $ 8.31
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Total investment return
(1).................... 51.92% 28.72% 39.02% 10.22% (3.14)% 46.79% 42.23% 13.33% 7.16% 13.76%
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $209,818 $85,661 $64,003 $49,295 $48,032 $61,645 $44,867 $43,131 $95,081 $90,322
Expenses to average net
assets................. 1.17% 1.52% 1.37% 1.45% 1.44% 1.87% 1.72% 1.67% 1.33% 1.16%
Net investment income
(loss) to average
net assets............. 1.12% 0.90% 1.50% 1.40% 0.76% 0.60% 1.32% 2.56% 2.60% 3.20%
Portfolio turnover...... 23% 40% 53% 14% 22% 28% 31% 19% 29% 55%
Average Commission Rate
Paid (2)............... $ 0.0595 $0.0600 -- -- -- -- -- -- -- --
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for each class would be lower if sales
charges were included. Total investment returns for periods of less than
one year have not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose the average commission rate paid per share of
common stock investments purchased or sold.
----------
Prospectus Page 8
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C
- ------------------------------------------------------------------ ----------------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
JULY 1, JULY 2,
FOR THE YEARS ENDED MARCH 31, 1991+ TO FOR THE YEARS ENDED MARCH 31, 1992+ TO
- ------------------------------------------------------ MARCH 31, ---------------------------------------- MARCH 31,
1998 1997 1996 1995 1994 1993 1992 1998 1997 1996 1995 1994 1993
- -------- ------- ------- ------- ------- ------- --------- ------- ------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22.87 $ 20.75 $ 16.85 $ 16.71 $ 19.34 $ 13.36 $10.24 $ 22.84 $ 20.75 $16.86 $16.71 $19.34 $14.61
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
0.09 0.04 0.13 0.11 0.02 (0.01) -- 0.12 0.06 0.12 0.11 0.01 --
11.34 5.53 6.16 1.33 (0.75) 5.99 3.18 11.28 5.51 6.16 1.33 (0.73) 4.77
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
11.43 5.57 6.29 1.44 (0.73) 5.98 3.18 11.40 5.57 6.28 1.44 (0.72) 4.77
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
(0.09) (0.06) (0.18) (0.03) (0.06) -- (0.06) (0.09) (0.09) (0.18) (0.02) (0.07) (0.04)
(1.59) (3.39) (2.21) (1.27) (1.84) -- -- (1.59) (3.39) (2.21) (1.27) (1.84) --
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
(1.68) (3.45) (2.39) (1.30) (1.90) -- (0.06) (1.68) (3.48) (2.39) (1.29) (1.91) (0.04)
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
$ 32.62 $ 22.87 $ 20.75 $ 16.85 $ 16.71 $ 19.34 $13.36 $ 32.56 $ 22.84 $20.75 $16.86 $16.71 $19.34
======== ======= ======= ======= ======= ======= ====== ======= ======= ====== ====== ====== ======
50.80% 27.74% 37.97% 9.37% (3.83)% 44.76% 31.16% 50.76% 27.74% 37.92% 9.34% (3.76)% 32.66%
======== ======= ======= ======= ======= ======= ====== ======= ======= ====== ====== ====== ======
$198,473 $41,579 $28,147 $16,368 $11,517 $10,364 $ 765 $63,809 $12,357 $6,989 $4,160 $4,370 $4,636
1.92% 2.27% 2.12% 2.22% 2.16% 2.45% 2.72%* 1.92% 2.28% 2.14% 2.23% 2.17% 2.36%*
0.37% 0.15% 0.74% 0.67% 0.05% (0.03)% 0.14%* 0.36% 0.15% 0.72% 0.61% 0.03% 0.01%*
23% 40% 53% 14% 22% 28% 31% 23% 40% 53% 14% 22% 28%
$ 0.0595 $0.0600 -- -- -- -- -- $0.0595 $0.0600 -- -- -- --
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
CLASS Y
- -------------------------
FOR THE
PERIOD
MARCH 30,
1998+ TO
MARCH 31,
1998
---------
<C>
$ 33.22
---------
0.00
0.34
---------
0.34
---------
0.00
0.00
---------
0.00
---------
$ 33.56
=========
1.02%
=========
$ 2
0.80%*
0.00%*
23%
$0.0595
</TABLE>
-----------
Prospectus Page 9
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Financial Highlights
(Continued)
- -------------------------------------------------------------------------------
UTILITY INCOME 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, accompanying notes and the report of
Ernst & Young LLP, independent auditors, which appear in the Fund's Annual Re-
port to Shareholders for the fiscal year ended March 31, 1998 and are incorpo-
rated by reference into the Statement of Additional Information. The financial
statements and notes, as well as the financial information in the table below,
have been audited by Ernst & Young LLP. Further information about the Fund's
performance is also included in the Annual Report to Shareholders, which may
be obtained without charge by calling 1-800-647-1568.
<TABLE>
<CAPTION>
UTILITY INCOME FUND
------------------------------------------------------------
CLASS A
------------------------------------------------------------
FOR THE FOR THE FOR THE
YEARS FOUR FOR THE YEARS PERIOD
ENDED MONTHS ENDED JULY 2,
MARCH 31, ENDED NOVEMBER 30, 1993+ TO
---------------- MARCH 31, ---------------- NOVEMBER 30,
1998 1997 1996 1995 1994 1993
------- ------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66 $ 10.00
------- ------- ------- ------- ------- -------
Net investment income... 0.33 0.34 0.15 0.47 0.48 0.20
Net realized and
unrealized gains
(losses) from
investment
transactions........... 3.61 0.41 -- 1.44 (1.31) (0.39)
------- ------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 3.94 0.75 0.15 1.91 (0.83) (0.19)
------- ------- ------- ------- ------- -------
Dividends from net
investment income...... (0.35) (0.31) (0.16) (0.45) (0.52) (0.15)
------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 13.79 $ 10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66
======= ======= ======= ======= ======= =======
Total investment return
(1).................... 39.15% 7.83% 1.46% 23.64% (8.76)% (1.95)%
======= ======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $ 7,856 $ 6,039 $ 9,416 $10,750 $12,532 $16,224
Expenses to average net
assets, net of waivers
from adviser .......... 1.92% 1.93% 1.09%* 1.49% 1.58% 1.55%*
Expenses to average net
assets, before waivers
from adviser .......... 1.92% 2.00% 1.44%* 1.49% 1.58% 1.55%*
Net investment income,
net of waivers from
adviser, to average net
assets................. 2.77% 3.27% 4.26%* 5.13% 5.49% 5.38%*
Net investment income,
before waivers from
adviser, to average net
assets................. 2.77% 3.20% 3.91%* 5.13% 5.49% 5.38%*
Portfolio turnover...... 10% 41% 21% 30% 92% 13%
Average commission rate
paid (2)............... $0.0589 $0.0600 $0.0600 -- -- --
</TABLE>
- -------
*Annualized.
+Commencement of operations.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for each class would be lower if sales
charges were included. Total investment returns for periods of less than
one year have not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose the average commission rate paid per share of
common stock investments purchased or sold.
----------
Prospectus Page 10
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Financial Highlights
(Concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UTILITY INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C
- ----------------------------------------------------------- ----------------------------------------------------------------
FOR THE
FOR THE FOUR FOR THE FOR THE FOR THE FOR THE
YEARS MONTHS FOR THE YEARS PERIOD YEARS FOUR PERIOD
ENDED ENDED ENDED JULY 2, ENDED MONTHS FOR THE YEARS ENDED JULY 2,
MARCH 31, MARCH 31, NOVEMBER 30, 1993+ TO MARCH 31, ENDED NOVEMBER 30, 1993+ TO
- ---------------- --------- ---------------- NOVEMBER 30, ---------------- MARCH 31, -------------------- NOVEMBER 30,
1998 1997 1996 1995 1994 1993 1998 1997 1996 1995 1994 1993
- ------- ------- --------- ------- ------- ------------ ------- ------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $ 10.00 $ 10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $ 10.00
- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- --------- -------
0.25 0.26 0.12 0.40 0.42 0.17 0.23 0.25 0.12 0.40 0.42 0.16
3.60 0.42 (0.01) 1.45 (1.31) (0.39) 3.61 0.43 (0.01) 1.45 (1.31) (0.38)
- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- --------- -------
3.85 0.68 0.11 1.85 (0.89) (0.22) 3.84 0.68 0.11 1.85 (0.89) (0.22)
- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- --------- -------
(0.26) (0.23) (0.13) (0.39) (0.45) (0.13) (0.26) (0.23) (0.13) (0.39) (0.45) (0.13)
- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- --------- -------
$ 13.79 $ 10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $ 13.78 $ 10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65
======= ======= ======= ======= ======= ======= ======= ======= ======= ========= ========= =======
38.13% 7.05% 1.10% 22.73% (9.35)% (2.29)% 38.09% 7.06% 1.10% 22.71% (9.36)% (2.28)%
======= ======= ======= ======= ======= ======= ======= ======= ======= ========= ========= =======
$21,562 $21,071 $34,765 $37,554 $37,156 $45,382 $ 7,736 $ 6,909 $11,072 $ 12,222 $ 13,922 $17,866
2.68% 2.69% 1.85%* 2.23% 2.33% 2.29%* 2.68% 2.70% 1.85%* 2.24% 2.32% 2.29%*
2.68% 2.76% 2.20%* 2.23% 2.33% 2.29%* 2.68% 2.76% 2.20%* 2.24% 2.32% 2.29%*
2.05% 2.51% 3.51%* 4.37% 4.72% 4.67%* 1.99% 2.51% 3.50%* 4.37% 4.69% 4.67%*
2.05% 2.44% 3.16%* 4.37% 4.72% 4.67%* 1.99% 2.44% 3.15%* 4.37% 4.69% 4.67%*
10% 41% 21% 30% 92% 13% 10% 41% 21% 30% 92% 13%
$0.0589 $0.0600 $0.0600 -- -- -- $0.0589 $0.0600 $0.0600 -- -- --
</TABLE>
-----------
Prospectus Page 11
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Investment Objectives & Policies
- -------------------------------------------------------------------------------
The Funds' investment objectives may not be changed without shareholder
approval. Their other investment policies, except where noted, are not
fundamental and may be changed by the Funds' boards.
FINANCIAL SERVICES GROWTH FUND
Financial Services Growth Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective by primarily investing
in equity securities of companies in the financial services industries. These
companies include banks, thrifts, insurance companies, commercial finance
companies, consumer finance companies, brokerage companies, investment
management companies, companies that provide specialized services closely
allied to financial services (such as transaction processing and financial
printing) 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
securities 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
services activities or devote at least 50% of its assets to these
activities; or
. be engaged in "securities-related businesses," meaning it derives more than
15% of its gross revenues from securities brokerage or investment management
activities.
The Fund may invest up to 35% of its total assets in equity securities of
companies outside the financial services industries and in bonds of all
issuers. The Fund may also invest up to 20% of its total assets in equity
securities and bonds of foreign issuers. The Fund may invest in securities
other than equity securities when, in the opinion of Mitchell Hutchins, their
potential for capital appreciation is equal to or greater than that of equity
securities or when such holdings might reduce volatility in the Fund.
The Fund may not invest more than 5% of its total assets in the equity
securities of any one company engaged in securities-related businesses. The
Fund may invest in banks and thrifts (and their holding companies) only if
their deposits are insured by the Federal Deposit Insurance Corporation
("FDIC"). However, neither the securities of these companies nor the Fund's
shares are insured by the FDIC or any other federal or governmental agency.
UTILITY INCOME FUND
Utility Income Fund's investment objective is current income and capital
appreciation. The Fund attempts to achieve its objective by investing at least
65% of its total assets in income-producing equity securities and bonds issued
by domestic and foreign companies that are primarily engaged in the ownership
or operation of facilities used in the generation, transmission or
distribution of electricity, telecommunications, gas or water.
"Primarily engaged" means that:
. more than 50% of the company's assets are devoted to the ownership or
operation of one or more such facilities; or
. more than 50% of the company's operating revenues are derived from such
businesses.
The Fund 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 and 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:
----------
Prospectus Page 12
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
. 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 it 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 Fund 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
- -------------------------------------------------------------------------------
FINANCIAL SERVICES GROWTH FUND
In seeking long-term capital appreciation, the Fund invests in equity
securities of institutions considered to represent strong fundamental
investment value. Mitchell Hutchins bases the stock selection process on
issuer-specific factors affecting the potential for capital appreciation.
These factors include the issuer's current and anticipated revenues, earnings,
cash flow and assets. Mitchell Hutchins also considers general market
conditions in the financial services industries.
Mitchell Hutchins places much emphasis on:
. searching for companies with better-than-average earnings growth that are
not yet recognized by the market;
. analyzing the practices of company management; and
. finding companies with niche products.
The Mitchell Hutchins Equity Team meets with the executives at most of the
companies in which the Fund invests. Mitchell Hutchins prefers to invest in
companies that are headquartered or doing business in growing regions and that
obtain their earnings growth in a secular, sustainable way, as opposed to
companies that generate their earnings through cyclical factors.
UTILITY INCOME FUND
Utilities represent a relatively conservative way to realize dividend income
and long-term capital appreciation opportunities. In determining the ratio of
the Fund's equity holdings to its bond holdings, Mitchell Hutchins considers
which proportions would best meet the Fund's investment objective of income
and growth. This will vary from time to time based primarily on the overall
economic environment.
Once Mitchell Hutchins determines the weighting that would best achieve a
balance 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 13
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Performance
- -------------------------------------------------------------------------------
These charts show the total returns for each calendar year for the Funds.
Sales charges have not been deducted from total returns for Class A, B, and C
shares. Returns would be lower if sales charges were deducted. Average annual
total returns both before and after deducting the maximum sales charges are
shown below in the tables that follow the performance charts. Past results are
not a guarantee of future results. Utility Income Fund had no Class Y shares
outstanding during the periods shown, and Financial Services Growth Fund had
no Class Y shares outstanding during any calendar year shown.
FINANCIAL SERVICES GROWTH FUND
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 15.38% 21.71% -12.33% 65.37% 38.68% 10.32% -0.75% 47.46% 28.96% 45.20%
Class B 23.30% 37.82% 9.57% -1.53% 46.36% 28.00% 44.10%
Class C 18.80% 9.52% -1.50% 46.30% 27.99% 44.09%
</TABLE>
The 1991 returns for Class B shares represent the period from inception on
July 1, 1991 to December 31, 1991. The 1992 returns for Class C shares
represent the period from inception on July 2, 1992 to December 31, 1992.
AVERAGE ANNUAL TOTAL RETURNS
As of March 31, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Inception Date............................... 5/22/86 7/1/91 7/2/92 3/30/98
ONE YEAR
Before deducting maximum sales charges...... 51.92% 50.80% 50.76% N/A
After deducting maximum sales charges....... 45.10% 45.80% 49.76% N/A
FIVE YEARS
Before deducting maximum sales charges...... 23.75% 22.83% 22.82% N/A
After deducting maximum sales charges....... 22.61% 22.65% 22.82% N/A
TEN YEARS OR LIFE OF CLASS
Before deducting maximum sales charges...... 23.69% 28.12% 25.59% 1.02%
After deducting maximum sales charges....... 23.12% 28.12% 25.59% 1.02%
</TABLE>
Prospectus Page 14
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
UTILITY INCOME FUND
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class A -0.70% -9.71% 28.82% 7.90% 25.75%
Class B -1.02% -10.40% 27.87% 7.06% 24.78%
Class C -1.01% -10.41% 27.86% 7.07% 24.72%
</TABLE>
The 1993 returns represent the period from the Fund's inception on July 2,
1993 to December 31, 1993.
AVERAGE ANNUAL TOTAL RETURNS
As of March 31, 1998
<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.............. 39.15% 38.13% 38.09%
After deducting maximum sales charges............... 32.90% 33.13% 37.09%
THREE YEARS
Before deducting maximum sales charges.............. 21.12% 20.24% 20.23%
After deducting maximum sales charges............... 19.26% 19.54% 20.23%
LIFE
Before deducting maximum sales charges.............. 11.59% 10.76% 10.75%
After deducting maximum sales charges............... 10.52% 10.47% 10.75%
</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
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for Class A
shares of the Funds reflects deduction of the Funds' maximum initial sales
charge of 4.5% at the time of purchase, and standardized return for the Class
B and Class C shares of the Funds reflects deduction of the applicable
contingent deferred sales charge imposed on the sale of shares held for the
period. One-, five- and ten-year periods will be shown, unless the Fund or
class has been in existence for a shorter period. If so, returns will be shown
for the period since inception, known as "Life". Total return calculations
assume reinvestment of dividends and other distributions.
The Funds may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average
annual rates, actual year-by-year rates or any combination thereof. Non-
standardized return does not reflect initial or contingent deferred sales
charges and would be lower if such charges were deducted.
Total return information reflects past performance and does not indicate
future results. The investment return and principal value of shares of the
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 to Shareholders, 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 15
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
The Funds' Investments
- -------------------------------------------------------------------------------
EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and
common stock purchase warrants and rights. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation.
Preferred stock has certain fixed-income features, like a bond, but is
actually equity in a company, like common stock. Convertible securities may
include debentures, notes and preferred equity securities, which are
convertible into common stock.
BONDS (including notes and debentures) are used by corporations and
governments to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and must repay the amount borrowed at
maturity. Bonds have varying degrees of investment risk and varying levels of
sensitivity to changes in interest rates.
RISKS
Under normal circumstances, each Fund invests primarily in equity securities.
Following is a discussion of these and other risks that are common to each
Fund:
EQUITY SECURITIES. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential in a company. However, their prices generally fluctuate more than
other securities, and reflect changes in a company's financial condition and
in overall market and economic conditions. Common stocks generally represent
the riskiest investment in a company. It is possible that a Fund may
experience a substantial or complete loss on an individual equity investment.
FOREIGN SECURITIES. Each Fund may invest a portion of its assets in the
securities of foreign companies. Investing in the securities of foreign
companies involves more risks than investing in securities of U.S. companies.
Their value is subject to economic and political developments in the countries
where the companies operate and to changes in foreign currency values. Values
may also be affected by foreign tax laws, changes in foreign economic or
monetary policies, exchange control regulations and regulations involving
prohibitions on the repatriation of foreign currencies.
In general, less information may be available about foreign companies than
about U.S. companies, and foreign companies are generally not subject to the
same accounting, auditing and financial reporting standards as are U.S.
companies. Foreign securities markets may be less liquid and subject to less
regulation than the U.S. securities markets. The costs of investing outside
the United States frequently are higher than those in the United States. These
costs include relatively higher brokerage commissions and foreign custody
expenses.
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.
Developing countries may have policies that restrict investment by foreigners
in those countries, and there is a risk of government expropriation or
nationalization 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.
BONDS. Bonds are subject to interest rate risk and credit risk. Interest rate
risk is the risk that interest rates will rise and bond prices will fall,
lowering the value of a fund's investments. Long-term bonds generally are more
sensitive to interest rate changes than short-term bonds. Credit risk is the
risk that the issuer or a guarantor may be unable to pay interest or repay
principal on the bond. This can be affected by many factors, including adverse
changes in the issuer's own financial condition or in economic conditions.
----------
Prospectus Page 16
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
A bond's credit risk may be rated Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's").
Generally, the bonds and convertible securities that the Funds may buy must be
rated investment grade. In addition, Utility Income Fund may invest up to 5%
of its net assets in bonds and convertible securities that are rated below
investment grade. The Funds also may invest in securities that are comparably
rated by another nationally recognized rating agency and in unrated securities
if they are deemed to be of comparable quality.
Investment grade bonds are those rated within the four highest categories by
S&P or Moody's. Moody's fourth highest category (Baa) includes securities
which, in its opinion, have speculative features. For example, changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher-rated debt instruments.
Bonds rated below investment grade, that is, rated lower than BBB by S&P or
Baa by Moody's, are considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major
risk exposure to adverse conditions. These bonds are commonly referred to as
junk bonds. During an economic downturn or period of rising interest rates,
issuers of these securities may experience financial stress that adversely
affects their ability to pay interest and principal and may increase the
possibility of default. Lower-rated bonds are frequently unsecured by
collateral and will not receive payment until more senior claims are paid in
full. The market for lower-rated bonds is thinner and less active, which may
limit a Fund's ability to sell such bonds at a fair value in response to
changes in the economy or financial markets.
Credit ratings attempt to evaluate the safety of principal and interest
payments; they do not guarantee the performance of the issuer and they do not
attempt to evaluate the volatility of the bond's value or its liquidity. The
rating agencies 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 the rating
agencies will downgrade bonds.
DERIVATIVES. Some of the instruments in which the Funds may invest may be
referred to as "derivatives" because their value depends on (or "derives"
from) the value of an underlying asset, reference rate or index. These
instruments include options, futures contracts, forward currency contracts,
swaps and similar instruments that may be used in hedging and related
strategies. There is only limited consensus as to what constitutes a
"derivative" security. The market value of derivative instruments and
securities sometimes is more volatile than that of other investments, and each
type of derivative instrument may pose its own special risks. Mitchell
Hutchins take these risks into account in its management of the Funds.
COUNTERPARTIES. The Funds may be exposed to the risk of financial failure or
insolvency of another party with which a Fund enters into a transaction, such
as a repurchase agreement or a derivative contract. Subject to board
supervision, Mitchell Hutchins monitors and evaluates the creditworthiness of
these counterparties to help minimize those risks.
YEAR 2000 RISK. Like other mutual funds and other financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by Mitchell Hutchins, other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Issue." Mitchell Hutchins is
taking steps that it believes are reasonably designed to address the Year 2000
Issue with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Fund's other major service providers. However, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Fund.
The companies in which the Funds invest also could be adversely affected by
the Year 2000 Issue. Financial Services Growth Fund invests primarily in
securities of companies in the financial services industries, which, are
especially dependent on computer systems to properly process and calculate
date-related information and transactions. While many companies in the
financial services industries are taking steps to address the Year 2000 Issue,
there can be no assurance these steps will be sufficient to avoid an adverse
impact.
* * *
In addition to these general risks, investments in each Fund are subject to
special sector risk considerations:
----------
Prospectus Page 17
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
FINANCIAL SERVICES GROWTH FUND
INVESTMENTS IN FINANCIAL SERVICES INDUSTRIES. Because investments made by
Financial Services Growth Fund are concentrated in the financial services
industries, its shares are subject to greater risk than the shares of a fund
whose portfolio is not so concentrated, and it will be particularly affected
by economic, 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
financial commitments these companies can make, as well as the interest rates
and fees they can charge. Profitability of these companies is largely
dependent on the availability and cost of capital funds, and can fluctuate
significantly when interest rates change. Credit losses resulting from
financial difficulties of borrowers can negatively affect the industry.
Companies in the financial services industries may be subject to severe price
competition. Also, the industry and the Fund may be significantly affected 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
particularly 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
profitable. Electric utility companies have historically been subject to the
risks associated with increases in fuel and other operating costs, high
interest costs on borrowing, costs associated with compliance in regard to
environmental, nuclear facility and other safety regulations, and changes in
the regulatory climate. Increasing competition due to past regulatory changes
in the telephone communications industry continues and, although certain
companies have benefitted, many companies may be adversely affected in the
future.
Gas transmission companies and gas distribution companies continue to undergo
significant changes as well. Water supply utilities are in an industry that is
highly fragmented due to local ownership and generally the companies are more
mature and are experiencing little or no per capita volume growth. There is no
assurance that utility industries, as a whole, will experience favorable
developments or that business opportunities will continue to undergo
significant changes or growth.
INVESTMENT TECHNIQUES AND STRATEGIES
STRATEGIES USING DERIVATIVE CONTRACTS. Each Fund may use certain investments
and strategies designed to adjust the overall risk of its investment
portfolio. These "hedging" strategies involve 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 contracts on foreign currencies and (for Utility
Income Fund) forward currency contracts. In addition, Utility Income Fund may
use these strategies to attempt 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 continue 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
derivative contracts and related hedging strategies.
The Funds might not use any derivative contract or related strategy, and there
can be no assurance that any strategy will succeed. If Mitchell Hutchins 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
--------------
Prospectus Page 18
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
investment. Each strategy involves certain risks, which include:
. the fact that the skills needed to implement a strategy using derivative
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 derivative instruments used in hedging strategies and
price movements of the securities or currencies being hedged;
. possible constraints placed on a Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund to
maintain "cover" or to segregate securities; and
. the possibility that 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. Lending securities enables a Fund to earn additional
income, but could result in a loss or delay in recovering these securities.
TEMPORARY AND DEFENSIVE POSITIONS. When Mitchell Hutchins believes that
unusual circumstances warrant a defensive posture, each Fund may temporarily
commit all or any portion of its assets to cash or investment grade money
market instruments, including repurchase agreements. Each Fund also may commit
up to 35% of its total assets to cash or investment grade money market
instruments, including repurchase agreements, for liquidity purposes or
pending investment in other securities. 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.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in
illiquid securities. These include 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 has determined
such securities to be liquid, based upon the trading markets for the
securities under procedures approved by the Funds' boards.
OTHER INFORMATION. Each Fund may also purchase securities 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, including reverse repurchase agreements involving up to 5% of its net
assets. Each Fund may sell securities short "against the box." When a security
is sold against the box, the seller retains ownership of the security.
----------
Prospectus Page 19
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Flexible PricingSM
- -------------------------------------------------------------------------------
Each Fund offers through this Prospectus four classes of shares that differ in
terms of sales charges and expenses. An eligible investor can select the class
that is best suited to his or her investment needs, based upon the holding
period and the amount of investment.
CLASS A SHARES
HOW PRICE IS CALCULATED: The price is the net asset value plus the initial
sales charge (the maximum is 4.5% of the public offering price) next
calculated after PaineWebber's New York City headquarters or PFPC Inc., the
Funds' Transfer Agent ("Transfer Agent"), receives the purchase order.
Although investors pay an initial sales charge when they buy Class A shares,
the ongoing expenses for this class are lower than the ongoing expenses of
Class 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' offering price or
net asset value at the time of sale by the shareholder, whichever is less,
is charged on sales of shares made within one year of the purchase date.
Class A shares representing reinvestment of any dividends or other
distributions are not subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan are not subject to this charge. However,
investors may not withdraw more than 12% of the value of the Fund account
under the Plan in the first year after purchase.
(/2/Mitchell)Hutchins pays 1% to PaineWebber.
SALES CHARGE REDUCTIONS AND WAIVERS
Investors who are purchasing Class A shares in more than one PaineWebber
mutual fund may combine those purchases to get a reduced sales charge.
Investors who already own Class A shares in one or more PaineWebber mutual
funds may combine the amount they are currently purchasing with the value of
such previously owned shares to qualify for a reduced sales charge. To
determine the sales charge reduction in either case, please refer to the chart
above.
Investors may also qualify for a lower sales charge when they combine their
purchases with those of:
. their spouses, parents or children under age 21;
. their Individual Retirement Accounts (IRAs);
. certain employee benefit plans, including 401(k) plans;
. any company controlled by the investor;
. trusts created by the investor;
. Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of individuals 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;
. buys these shares through a PaineWebber investment executive who was
formerly employed as a broker with a competing brokerage firm that was
registered as a broker-dealer with the SEC; and
----------
Prospectus Page 20
<PAGE>
------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
. the investor was the investment executive's client at the competing
brokerage 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
either paid a sales charge to buy those shares, paid a contingent deferred
sales charge when selling them or held those shares until the contingent
deferred sales charge was waived; and
. the amount that the investor purchases does not exceed the total amount of
money the investor received from the sale of the other mutual fund;
. is a certificate holder of unit investment trusts sponsored by PaineWebber
and has elected to have dividends and other distributions from that
investment automatically invested in Class A shares;
. is an employer establishing an employee benefit plan qualified under section
401, including a salary reduction plan qualified under section 401(k), or
section 403(b) of the Internal Revenue Code ("Code") (each a "qualified
plan"). (This waiver is subject to minimum requirements, with respect to the
number of employees and amount of plan assets, established by Mitchell
Hutchins. Currently, a plan must have 50 or more eligible employees and at
least $1 million in plan assets.) For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested;
. is a participant in the PaineWebber Members Only Program(TM). For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
membership organizations in a total amount not to exceed 1% of the amount
invested;
. is a variable annuity offered only to qualified plans. For investments made
pursuant to this waiver, Mitchell Hutchins may make payments out of its own
resources to PaineWebber and to the variable annuity's sponsor, adviser or
distributor in a total amount not to exceed 1% of the amount invested;
. acquires Class A shares through an investment program that is not sponsored
by PaineWebber or its affiliates and that charges participants a fee for
program services, provided that the program sponsor has entered into a
written agreement with PaineWebber permitting the sale of Class A shares at
net asset value to that program. For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested. For
subsequent investments or exchanges made to implement a rebalancing feature
of such an investment program, the minimum subsequent investment requirement
is waived; or
. acquires Class A shares in connection with a reorganization pursuant to
which a Fund acquires substantially all of the assets and liabilities of
another investment company in exchange solely for shares of the Fund.
. acquires Class A shares in connection with the disposition of proceeds from
the sale of shares of Managed High Yield Plus Fund Inc. that were acquired
during that fund's initial public offering of shares and that meet certain
other conditions described in its prospectus.
For more information on how to get any reduced sales charge, investors should
contact their investment executive at PaineWebber or one of its correspondent
firms or call 1-800-647-1568. Investors must provide satisfactory information
to PaineWebber or the Fund if they seek any of these sales charge reductions
or waivers.
CLASS B SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated
after PaineWebber's New York City headquarters or the Transfer Agent receives
the purchase order. The ongoing expenses investors pay for Class B shares are
higher than those of Class A shares. Because investors do not pay an initial
sales charge when they buy Class B shares, 100% of their purchase is
immediately invested.
Depending on how long they own their Fund investment, investors may have to
pay a 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 has 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.
----------
Prospectus Page 21
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
<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
between 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
investors are selling:
. First, Class B shares owned through reinvested dividends and capital gain
distributions; and
. Second, Class B shares held in the portfolio the longest.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will not apply to:
. sales of shares under the Fund's "Systematic Withdrawal Plan" (investors may
withdraw annually no more than 12% of the value of the Fund account under
the Plan);
. a distribution from an IRA, a self-employed individual retirement plan
("Keogh Plan") or a custodial account under section 403(b) of the 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.
Investors must provide satisfactory information to PaineWebber or the Fund if
the investor seeks any of these waivers.
CLASS C SHARES
HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value
next calculated after PaineWebber's New York City headquarters or the Transfer
Agent receives the purchase order. Investors do not pay an initial sales
charge when they buy Class C shares, but the ongoing expenses of Class C
shares are higher than those of Class A shares. Class C shares never convert
to any other class of shares.
A contingent deferred sales charge of 1% of the offering price (the net asset
value at the time of purchase) or the net asset value of the shares at the
time of sale by the shareholders, 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
acquired through an exchange and held less than one year will be subject to
the same contingent deferred sales charge that would have been imposed on
Class C shares of the PaineWebber mutual fund originally purchased. Class C
shares representing reinvestment of any dividends or other 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 withdraw
no more than 12% of the value of the Fund account under the Plan in the first
year after purchase.
CLASS Y SHARES
HOW PRICE IS CALCULATED
Eligible investors may purchase Class Y shares at the net asset value next
calculated after the purchase order is received at PaineWebber's New York City
headquarters or at the Transfer Agent. Because investors do not pay an initial
sales charge when they buy Class Y shares, 100% of their purchase is
immediately invested. No contingent deferred sales charge is imposed on Class
Y shares, and the ongoing expenses for Class Y shares are lower than for the
other classes because Class Y shares are not subject to rule 12b-1
distribution fees or service fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy
Class Y shares:
. a participant in the PW Program listed below when Class Y shares are
purchased through that PW Program;
----------
Prospectus Page 22
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
. an investor who buys $10 million or more at any one time in any combination
of PaineWebber mutual funds in the Flexible Pricing SM System;
. a qualified plan that has either 5,000 or more eligible employees or $50
million or more in assets; and
. an investment company advised by PaineWebber or an affiliate of PaineWebber.
PACE MULTI-ADVISOR PROGRAM: An investor who participates in the PACE Multi-
Advisor Program is eligible to purchase Class Y shares. The PACE Multi-Advisor
Program is an advisory program sponsored by PaineWebber that provides
comprehensive investment services, including investor profiling, a
personalized asset allocation strategy using an appropriate combination of
funds, and a quarterly investment performance review. Participation in the
PACE Multi-Advisor Program is subject to payment of an advisory fee at the
maximum annual rate of 1.5% of assets. Employees of PaineWebber and its
affiliates are entitled to a waiver of this fee.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available through the PACE Multi-Advisor Program.
- -------------------------------------------------------------------------------
How to Buy Shares
- -------------------------------------------------------------------------------
Prices are calculated for each class of a Fund's shares once each Business
Day, at the close of regular trading on the New York Stock Exchange (currently
4:00 p.m., Eastern time). A "Business Day" is any day, Monday through Friday,
on which the New York Stock Exchange is open for business.
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
automatically receive Class A shares, which include an initial sales charge.
Investors in Class Y shares must provide satisfactory information to
PaineWebber or the Funds that they are eligible to purchase Class Y shares.
PAINEWEBBER CLIENTS
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's
New York City headquarters.
Investors may pay for their purchases with checks drawn on U.S. banks or with
funds they have in their brokerage accounts at PaineWebber or its
correspondent firms.
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up
an account through the Transfer Agent (PFPC Inc.) by completing an account
application, which 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, Wilmington, DE 19899.
Investors who are new to PaineWebber may complete and sign an account
application and mail it along with a check. Investors also may open an account
in person.
Investors who already have money invested in a PaineWebber mutual fund, and
want to invest in another PaineWebber mutual fund, can:
. mail an application with a check; or
. open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional
investments in the Fund.
MINIMUM INVESTMENTS
<TABLE>
<S> <C>
To open an account:............ $1,000
To add to an account:.......... $ 100
</TABLE>
A Fund may waive or reduce these minimums for:
. employees of PaineWebber or its affiliates; or
. participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plan; or
----------
Prospectus Page 23
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
. transactions in Class A and Class Y shares made in certain investment
programs.
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Class A, B and C
shares for the same class of shares of most other PaineWebber mutual funds.
Class Y shares are not exchangeable. For classes of shares where no initial
sales charge is imposed, a contingent deferred sales charge may apply if the
investor sells the shares acquired through the exchange.
Exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.
. Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or
wire.
. Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a "letter of instruction" to the Transfer Agent. The letter of
instruction must include:
. the investor's name and address;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be sold; and
. a guarantee of each registered owner's signature. A signature guarantee may
be obtained from a domestic bank or trust company, broker, dealer, clearing
agency or savings association which is a participant in a medallion program
recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock
Exchange Medallion Signature Program (MSP). Signature guarantees which are
not a part of these programs will not be accepted.
The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O.
Box 8950, Wilmington, DE 19899.
No contingent deferred sales charge is imposed when shares are exchanged for
the corresponding class of shares of other PaineWebber mutual funds. A Fund
will use the purchase date of the initial investment to determine any
contingent deferred sales charge due when the 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 listing of other PaineWebber mutual funds. PaineWebber S&P
500 Index Fund does not currently participate in the Flexible Pricing
System(TM) and is not available for exchanges.
- -------------------------------------------------------------------------------
How to Sell Shares
- -------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price for that class as next calculated (less any applicable contingent
deferred sales charge) after the order is received. Share prices are normally
calculated at the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time).
Investors who own more than one class of shares should specify which class
they are selling. If they do not, the Fund will assume they are first selling
their Class A shares, then Class C, then Class B and last, Class Y.
If a shareholder wants to sell shares that were purchased recently, the Fund
may delay payment until it verifies that good payment was received. In the
case of purchases by check, this can take up to 15 days.
Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Fund's Transfer Agent, may sell shares by writing a
"letter of instruction," as detailed in "How to Exchange Shares."
----------
Prospectus Page 24
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, 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
reinstatement privilege, shareholders must notify their investment executive
at PaineWebber or one of its correspondent firms at the time of purchase.
- -------------------------------------------------------------------------------
Other Services
- -------------------------------------------------------------------------------
Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services available
with respect to the Fund's Class A, B and C shares.
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial
investment of $1,000 through which a Fund will deduct $50 or more monthly,
quarterly, semiannually or annually from the investor's bank account to invest
directly in the Fund. In addition to providing a convenient and disciplined
manner of investing, participation in the Automatic Investment Plan enables
the investor to use the technique of "dollar cost averaging."
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semiannual (June and December) or
annual (December) withdrawals from their 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, semiannual and annual withdrawals of $200, $400, $600 and $800,
respectively.
Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. An investor may withdraw no more than 12% of
the value of the Fund account when the investor signed up for the Plan
(annually for Class B shares; during the first year under the Plan for Class A
and C shares). Shareholders who elect to receive dividends or other
distributions in cash may not participate in this 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
considering 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 25
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Management
- -------------------------------------------------------------------------------
FINANCIAL SERVICES GROWTH FUND
The Fund is governed by a board of directors, which oversees the Fund's
operations. It has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority
of the board). Karen L. Finkel is primarily responsible for the day-to-day
portfolio management of the Fund. Mrs. Finkel is a senior 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
ten years.
UTILITY INCOME FUND
The Fund is governed by a board of trustees, which oversees the Fund's
operations. It has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority
of the board). 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 F. Keegan and Julieanna Berry are
primarily responsible for day-to-day management of the Fund's bond portfolio.
Mrs. Finkel is a senior 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 ten years. Mrs. Berry
has held her Fund responsibilities since March 1996 and was joined by Mr.
Keegan in April 1996. Mrs. Berry is a first 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 corporate 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.
* * * *
In accordance with procedures adopted by the boards, brokerage transactions
for the Funds may be conducted through PaineWebber or its affiliates and the
Funds may pay fees to PaineWebber for its services as lending agent in their
portfolio securities lending programs. Mitchell Hutchins 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.
ABOUT THE INVESTMENT ADVISER
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is a wholly owned asset management subsidiary of PaineWebber, which is
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. On June 30, 1998, Mitchell Hutchins was adviser or sub-
adviser of 31 investment companies with 69 separate portfolios and aggregate
assets of over $40.4 billion.
MANAGEMENT FEES & OTHER EXPENSES
Each Fund pays Mitchell Hutchins a monthly fee for its services. For the
fiscal year ended March 31, 1998, each Fund paid advisory fees to Mitchell
Hutchins at the annual rate of 0.70% of its average daily net assets.
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. There is no
distribution plan with respect to the Funds' Class Y shares. Under
distribution plans for Class A, Class B and Class C shares ("Class A Plan,"
"Class B Plan" and "Class C Plan," collectively, "Plans"), each Fund pays
Mitchell Hutchins:
. Monthly service fees at the annual rate of 0.25% of the average daily net
assets of each class of shares.
. Monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B and Class C shares.
Under the Plans, Mitchell Hutchins primarily uses the service fees for Class
A, B and C shares to pay PaineWebber for shareholder servicing, currently at
the annual rate of 0.25% of the aggregate investment
----------
Prospectus Page 26
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
amounts maintained in each Fund's Class A, Class B and Class C shares by
PaineWebber clients. PaineWebber then compensates its investment executives
for shareholder servicing that they perform and offsets its own expenses in
servicing and maintaining shareholder accounts.
Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to:
. Offset the commissions it pays to PaineWebber for selling each Fund's Class
B and Class C shares, respectively.
. Offset each Fund's marketing costs attributable to such classes, such as
preparation, printing and distribution of sales literature, advertising and
prospectuses to prospective investors and related overhead expenses, such as
employee salaries and bonuses.
PaineWebber compensates investment executives when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from any of the Funds or investors at the
time Class B or C shares are bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution
expenses.
The Plans and the related distribution contracts for Class A, Class B, and
Class C shares ("Distribution Contracts") specify that each Fund must pay
service and distribution fees to Mitchell Hutchins for its activities, not as
reimbursement for specific expenses incurred. Therefore, even if Mitchell
Hutchins' expenses exceed the service or distribution fees it receives, the
Funds will not be obligated to pay more than those fees. On the other hand, if
Mitchell Hutchins' expenses are less than such fees, it will retain its full
fees and realize a profit. Expenses in excess of service and distribution fees
received or accrued 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 reviews the Plans and Mitchell Hutchins' corresponding expenses
for each class separately from the Plans and expenses of the other classes.
- -------------------------------------------------------------------------------
Determining the Shares' Net Asset Value
- -------------------------------------------------------------------------------
The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) each Business Day. Each
Fund's net asset value per share is determined by dividing the value of the
securities held by the Fund, plus any cash or other assets, minus all
liabilities, by the total number of Fund shares outstanding.
Each Fund values its assets based on their current market value when market
quotations are readily available. If that value is not readily available,
assets are valued at fair value as determined in good faith by or under the
direction of its board. 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 denominated in foreign currencies are valued daily in U.S. dollars
based on the then-prevailing exchange rates. It should be rec- ognized that
judgment plays a greater role in valuing below investment grade securities in
which Utility Income Fund may invest because there is less reliable, objective
data available.
----------
Prospectus Page 27
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Dividends & Taxes
- -------------------------------------------------------------------------------
DIVIDENDS
Financial Services Growth Fund pays an annual dividend from its net investment
income and net short-term capital gain, if any. Utility Income Fund pays
quarterly dividends from its net investment income. Each Fund also distributes
annually any net gains from foreign currency transactions, any short-term
capital gain and 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 a Fund's shares are
calculated at the same time and in the same manner. Dividends on Class A, B
and C shares of a Fund are expected to be lower than those on its Class Y
shares because the other shares have higher expenses resulting from their
service fees and, in the case of Class B and Class C shares, their
distribution fees. Dividends on Class B and Class C shares of a Fund are
expected to be lower than those on its Class A shares because Class B and
Class C shares have higher expenses resulting from their distribution fees.
Dividends on each class also 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
requested 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
executives at PaineWebber or one of its correspondent firms or complete the
appropriate section of the account application.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will not have to pay federal
income tax on the part of its investment company taxable income (generally
consisting of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) and 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 its shareholders as
ordinary income. Distributions of each Fund's net capital gain (whether paid
in cash or additional shares) are taxable to its shareholders as long-term
capital gain, regardless of how long they have held their Fund shares. Under
the Taxpayer Relief Act of 1997, as modified by recent legislation, the
maximum tax rate applicable to a non-corporate taxpayer's net capital gain
recognized on capital assets held for more than one year is 20% (10% for
taxpayers in the 15% marginal tax bracket). In the case of a regulated
investment company such as a Fund, the relevant holding period is determined
by how long the Fund has held the portfolio securities on which the gain was
realized, not by how long the shareholders have held their Fund shares.
Shareholders who are not subject to tax on their income generally will not be
required to pay tax on distributions from the Funds.
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 qualifies for special treatment.
----------
Prospectus Page 28
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
BACKUP WITHHOLDING
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
TAX ON THE SALE OR EXCHANGE
OF FUND SHARES
A shareholder's sale (redemption) of shares may result in a taxable gain or
loss. This depends on whether the shareholder receives more or less than the
adjusted basis for the shares (which normally includes any initial sales
charge paid on Class A shares). An exchange of a Fund's shares for shares of
another PaineWebber mutual fund generally will have 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 the
same or another PaineWebber mutual fund without paying a sales charge due to
the 365-day reinstatement privilege or the exchange privilege. In these cases,
any gain on the sale or exchange of the original Class A shares would be
increased (or any loss would be decreased) by the amount of the sales charge
paid when those shares were bought, and that amount will increase the basis of
the PaineWebber mutual fund shares subsequently acquired.
* * * *
The foregoing only summarizes some of the important tax considerations
affecting the Funds and their shareholders. Please see the further discussion
in the Statement of Additional Information. Prospective shareholders are urged
to consult their tax advisers.
----------
Prospectus Page 29
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
General Information
- -------------------------------------------------------------------------------
ORGANIZATION
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
Utility Income Fund is a diversified series of PaineWebber Managed Investments
Trust ("Trust"), an open-end management investment company that was formed on
November 21, 1986, as a business trust under the laws of the Commonwealth of
Massachusetts. The trustees have authority to issue an unlimited number of
shares of beneficial interest of separate series, par value $0.001 per share.
Shares of seven other series have been authorized.
SHARES
The shares of each Fund are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. Each class of shares of a Fund represents
an identical interest in that 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 affecting that class, and its exchange privilege, if any. The
different sales charges and other expenses applicable to the different classes
of shares of a Fund 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 a Fund's Class A, B, C
and Y shares will differ.
Although each Fund is offering only its own shares, it is possible that a Fund
could become liable for misstatements in the Prospectus about another Fund.
The board of each Fund 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
cumulative and, as a result, the holders of more than 50% of all the shares of
a Fund (or the Trust, which has more than one series) may elect all of the
board members of that Fund or Trust. The shares of a Fund will be voted
together 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 a class. The shares of all series of the Trust 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
declaration in writing or by vote cast in person or by proxy at a meeting
called for that purpose. A meeting will be called to vote on the removal of a
board member at the written request of holders of 10% of the outstanding
shares of the Trust or Fund, as applicable.
REPORTS TO SHAREHOLDERS
Each Fund sends its shareholders audited annual and unaudited semiannual
reports, each of which includes a list of the investment securities held by
the Fund as of the end of the period covered by the report. The Statement of
Additional Information 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
assets of the Funds. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as each
Fund's transfer and dividend disbursing agent. It is located at 400 Bellevue
Parkway, Wilmington, DE 19809.
----------
Prospectus Page 30
<PAGE>
------------------
---------
- --------------------------------------------------------------------------------
----------------------------------------------------------------------------
PaineWebber Financial Services Growth Fund Inc.
PaineWebber Utility Income Fund
Prospectus -- August 1, 1998
- --------------------------------------------------------------------------------
. PAINEWEBBER BOND FUNDS . PAINEWEBBER STOCK FUNDS
High Income Fund Financial Services Growth Fund
Investment Grade Income Fund Growth Fund
Low Duration U.S. Growth and Income Fund
Government Income Fund Mid Cap Fund
Strategic Income Fund Small Cap Fund
U.S. Government Income Fund S&P 500 Index Fund
Utility Income Fund
. PAINEWEBBER TAX-FREE BOND FUND . PAINEWEBBER GLOBAL FUNDS
California Tax-Free Income Fund Asia Pacific Growth Fund
Municipal High Income Fund Emerging Markets Equity Fund
National Tax-Free Income Fund Global Equity Fund
New York Tax-Free Income Fund Global Income Fund
. PAINEWEBBER ASSET ALLOCATION FUNDS . PAINEWEBBER FUNDS OF FUNDS
Balanced Fund Mitchell Hutchins Aggressive Portfolio
Tactical Allocation Mitchell Hutchins Moderate Portfolio
Mitchell Hutchins Conservative
Portfolio Fund
. PAINEWEBBER MONEY MARKET 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) 1998 PaineWebber Incorporated
---------------
