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PaineWebber Tax-Managed Equity Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- October 4, 1998 (as revised October 23, 1998 and April 1, 1999)
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The Fund is designed for long-term investors who seek to maximize after-tax to-
tal return by investing primarily in a diversified portfolio of equity securi-
ties believed by Mitchell Hutchins to have the potential for above-average
earnings growth with reasonable valuations. The Fund is newly organized and has
no operating history.
This Prospectus concisely sets forth information that an investor should know
about the Fund before investing. Please read this Prospectus carefully and re-
tain a copy for future reference.
A Statement of Additional Information dated October 4, 1998 (as revised October
23, 1998) has been filed with the Securities and Exchange Commission ("SEC" or
"Commission") and is legally part of this Prospectus. The Statement of Addi-
tional Information can be obtained without charge, and further inquiries can be
made, by contacting the Fund, your PaineWebber investment executive,
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568. In
addition, the Commission maintains a website (http://www.sec.gov) that contains
the Statement of Additional Information, material incorporated by reference,
and other information regarding registrants that file electronically with the
Commission.
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THE PAINEWEBBER FAMILY OF MUTUAL FUNDS
The PaineWebber Family of Mutual Funds consists of seven broad categories,
which are presented here. Generally, investors seeking to maximize return must
assume greater risk. The Fund offered by this Prospectus is in the Stock Funds
category.
. Asset Allocation Funds . Global Funds for long-term growth by investing
for high total return mainly in foreign stocks or high current income
by investing in stocks by investing mainly in global debt instruments.
and bonds.
. Money Market Fund for income and stability by
. Stock Funds for long- investing in high-quality, short-term
term growth by investments.
investing mainly in
stocks. . Funds of Funds for either long-term growth of
capital; total return; or income and,
. Bond Funds for income secondarily, growth of capital by investing in
by investing mainly in other PaineWebber mutual funds.
bonds.
. 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.
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Investors should rely only on the information contained or referred to in this
Prospectus. The Fund and its distributor have not authorized anyone to provide
investors with information that is different. The Prospectus is not an offer to
sell shares of the Fund in any jurisdiction where the Fund or its distributor
may not lawfully sell those shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Prospectus Page 1
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PaineWebber Tax-Managed Equity Fund
Table of Contents
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<TABLE>
<CAPTION>
Page
----
<S> <C>
The Fund at a Glance....................................................... 3
Expense Table.............................................................. 5
Investment Objective & Policies............................................ 7
Investment Philosophy & Process............................................ 7
Performance................................................................ 8
The Fund's Investments..................................................... 8
Flexible PricingSM......................................................... 11
How to Buy Shares.......................................................... 14
How to Sell Shares......................................................... 16
Other Services............................................................. 16
Management................................................................. 17
Determining the Shares' Net Asset Value.................................... 19
Dividends & Taxes.......................................................... 19
General Information........................................................ 21
</TABLE>
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PaineWebber Tax-Managed Equity Fund
The Fund at a Glance
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The Fund offered by this Prospectus is not intended to provide a complete
investment program, but may be appropriate as a component of an investor's
overall portfolio. Some common reasons to invest in this Fund are to finance
college educations, plan for retirement or diversify a portfolio. When selling
shares, investors should be aware that they may get more or less for their
shares than they originally paid for them. As with any mutual fund, there is
no assurance that the Fund will achieve its goal.
Goal: To maximize the after-tax value of your investment by investing
primarily in equity securities believed to have potential for above-average
earnings growth with reasonable valuations.
Investment Objective: Maximize after-tax total return.
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 may invest in U.S. dollar-denominated securities of foreign
companies, which involves more risk than investing in the securities of U.S.
companies. The Fund may use derivatives, such as options and futures, which
may involve special risks. The Fund may also invest up to 10% of its total
assets in high yield, high risk convertible bonds, which are considered
predominantly speculative and may involve major risk exposure to adverse
conditions. Investors may lose money by investing in the Fund; the investment
is not guaranteed. Mitchell Hutchins expects to minimize taxes on realized
capital gains in part by maintaining relatively low portfolio turnover and by
generally minimizing short-term capital gains. Notwithstanding the Fund's use
of tax management strategies, the Fund may have taxable income and may realize
taxable capital gains from time to time. Investors may realize capital gains
when they sell their shares.
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 the Fund.
MINIMUM INVESTMENT
To open an account, investors need $1,000; to add to an account, investors
need only $100.
WHO SHOULD INVEST
The Fund is designed for investors seeking to maximize after-tax total return
by investing primarily in equity securities believed to have potential for
above-average earnings growth with reasonable valuations. In addition, the
Fund can invest in high yield, high risk convertible bonds. These investments
offer the potential for greater returns, but also entail a substantial degree
of volatility and risk. Accordingly, the Fund is designed for investors who
are able to bear the risks that come with investments in the stocks and bonds
of such companies.
Tax-exempt institutions or investors funding qualified retirement plans or
individual retirement accounts ("IRAs") will not benefit from the Fund's tax-
management strategies. These investors are not subject to tax on their income
and, therefore, are generally not required to pay taxes on fund distributions.
HOW TO PURCHASE SHARES OF THE FUND
Shares of the Fund will be offered during an initial subscription period
currently scheduled to end on December 11, 1998. The Fund expects to commence
investment operations shortly thereafter.
Investors may select among these classes of shares:
Class A Shares
The price is the net asset value plus the initial sales charge; the maximum
sales charge is 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
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Prospectus Page 3
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PaineWebber Tax-Managed Equity Fund
The Fund at a Glance
(Continued)
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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 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 only to limited groups of investors. The price is
the net asset value. Investors do not pay an initial sales charge when they
buy Class Y shares. As a result, 100% of their purchase is immediately
invested. Investors also do not pay a contingent deferred sales charge when
they sell Class Y shares. Class Y shares have lower ongoing expenses than any
other class of shares.
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Prospectus Page 4
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PaineWebber Tax-Managed Equity Fund
Expense Table
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The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of the Fund.
Because the Fund has no operating history, "Other Expenses" have been
estimated for the first year of operations.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
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 offering price or net asset value at the
time of sale, whichever is less).............. None 5% 1% None
Exchange Fee................................... None None None None
Annual Fund Operating Expenses (as a % of
average net assets)
Management Fees................................ 0.75% 0.75% 0.75% 0.75%
12b-1 Fees..................................... 0.25 1.00 1.00 None
Other Expenses................................. 0.62 0.62 0.62 0.62
---- ---- ---- ----
Total Operating Expenses....................... 1.62% 2.37% 2.37% 1.37%
==== ==== ==== ====
</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,
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 a shareholder sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or
the net asset value of the shares at the time of sale, 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 the
effective maximum 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.
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% None
12b-1 distribution fees......................... None 0.75 0.75 None
</TABLE>
For more information, see "Management" and "Flexible PricingSM."
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PaineWebber Tax-Managed Equity Fund
Expense Table
(Continued)
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Examples of Effect of Fund Expenses
The following examples should assist investors in understanding various costs
and expenses incurred as shareholders of the Fund. The assumed 5% annual
return shown in the example is required by regulations of the SEC applicable
to all mutual funds. These examples should not be considered to be
representations of past or future expenses. Actual expenses of the Fund may be
more or less than those shown.
An investor would, directly or indirectly, pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
Examples 1 Year 3 Years
- -------- ------ -------
<S> <C> <C>
Class A.......................................................... $61 $90
Class B (Assuming sale of all shares at end of period)........... $74 $100
Class B (Assuming no sale of shares)............................. $24 $70
Class C (Assuming sale of all shares at end of period)........... $34 $70
Class C (Assuming no sale of shares)............................. $24 $70
Class Y.......................................................... $14 $40
</TABLE>
Assumptions Made in the Examples
. All classes: Reinvestment of all dividends and other distributions;
percentage amounts listed under "Annual Fund Operating Expenses"
remain the same for years shown.
. Class A shares: Deduction of the maximum 4.5% initial sales charge at
the time of purchase.
. Class B shares: Deduction of the maximum applicable contingent
deferred sales charge at the time of redemption, which declines over a
period of six years.
. Class C shares: Deduction of a 1% contingent deferred sales charge for
sales of shares within one year of purchase.
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Prospectus Page 6
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PaineWebber Tax-Managed Equity Fund
Investment Objective & Policies
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The Fund's investment objective may not be changed without shareholder
approval. Its other investment policies, except where noted, are not
fundamental and may be changed by the Fund's board.
The Fund's investment objective is to maximize after- tax total return. The
Fund seeks to achieve this objective by investing primarily in a diversified
portfolio of equity securities believed by Mitchell Hutchins to have the
potential for above-average earnings growth with reasonable valuations. The
Fund seeks to invest substantially all of its assets in equity securities and,
except under unusual market conditions, invests at least 65% of its total
assets in these securities. Up to 25% of the Fund's total assets may be
invested in U.S. dollar-denominated equity securities of foreign issuers that
are traded on recognized U.S. exchanges or in the U.S. over-the-counter
("OTC") market. Up to 10% of the Fund's total assets may be invested in
convertible bonds that are rated below investment grade.
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Investment Philosophy & Process
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Mitchell Hutchins manages the Fund to maximize after-tax returns by minimizing
the taxes that the Fund's shareholders would incur in connection with the
Fund's realized capital gains. Mitchell Hutchins expects to minimize taxes on
realized capital gains in part by maintaining relatively low portfolio
turnover and by generally minimizing short-term capital gains. Mitchell
Hutchins expects to invest the Fund's assets primarily in equity securities
that combine potential for above-average earnings growth with reasonable
valuations and expects that the Fund will hold the securities for a period of
years. If Mitchell Hutchins decides to sell a particular appreciated security,
under normal conditions the share lots selected for sale will be those with
holding periods that qualify for long-term capital gains treatment and, among
those, the share lots with the highest cost basis. When Mitchell Hutchins
believes it prudent to do so, it may sell securities to realize capital losses
that then can be used to offset realized capital gains.
In selecting securities for the Fund, Mitchell Hutchins follows a disciplined
investment process that relies on a tax-advantaged valuation model. The model
will screen a universe of companies to identify companies believed to have
potential for above-average earnings growth. The model ranks these companies
using a combination of measures of valuation, earnings, price momentum,
profitability and low financial leverage. Generally, the model includes
companies having market capitalizations in excess of $1 billion.
Mitchell Hutchins will consider the reasonableness of the valuations of
individual securities by determining the relative valuation of the security
compared to the U.S. equity markets or other individual securities. In doing
so, Mitchell Hutchins may evaluate a number of factors, which may include the
price of the security, expected revenues or earnings, cash flow, return on
equity, projected dividends, company history, industry forecasts and economic
forecasts.
Mitchell Hutchins then applies traditional fundamental analysis to securities
that rank in the model's top 20%. Members of the Mitchell Hutchins equity
research team may speak to the management of these companies, as well as those
of their competitors. Mitchell Hutchins may make changes to the model over
time. Mitchell Hutchins seeks to identify securities that the Fund, under
normal circumstances, may hold for four to five years.
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Prospectus Page 7
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PaineWebber Tax-Managed Equity Fund
Performance
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PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
returns show the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized returns. Standardized returns for Class A
shares of the Fund reflect deduction of the Fund's maximum initial sales
charge of 4.5% at the time of purchase, and standardized returns for the Class
B and Class C shares of the Fund reflect deduction of the applicable
contingent deferred sales charge imposed on the sale of shares held for the
period. One-, five- and ten-year periods will be shown, unless the Fund or
class has been in existence for a shorter period. If so, returns will be shown
for the period since inception. Total return calculations assume reinvestment
of dividends and other distributions.
The Fund may use other total return presentations in conjunction with
standardized returns. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average
annual rates, actual year-by-year rates or any combination thereof. Non-
standardized return does not reflect initial or contingent deferred sales
charges and would be lower if such charges were deducted.
Total return information reflects past performance and does not indicate
future results. The investment return and principal value of shares of the
Fund will fluctuate. The amount investors receive when selling shares may be
more or less than what they paid.
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The Fund's Investments
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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, the Fund invests primarily in equity securities.
Following is a discussion of the risks of an investment in the 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
overall market and economic conditions. Common stocks generally represent the
riskiest investment in a company. It is possible that the Fund may experience
a substantial or complete loss on an individual equity investment.
Risks of Tax Management Strategies. Over time, securities with unrealized
gains may comprise a substantial portion of the Fund's assets. While the Fund
may use a number of strategies to avoid having to recognize large capital
gains or to reduce the Fund's exposure to price declines in these securities
without selling them, these strategies may not be successful or may not be
fully successful.
Notwithstanding the Fund's use of tax management strategies, the Fund may have
taxable income and may realize taxable capital gains from time to time. In
addition, investors who purchase Fund shares when
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Prospectus Page 8
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PaineWebber Tax-Managed Equity Fund
the Fund has large accumulated capital gains could receive a significant part
of the purchase price of their shares back as a taxable capital gain
distribution. State or federal tax laws or regulations may be amended at any
time, including adverse changes to applicable tax rates or capital gains
holding periods.
Foreign Securities. The Fund may invest a portion of its assets in U.S.
dollar-denominated securities of foreign companies that are traded on
recognized U.S. exchanges or in the U.S. OTC market. 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.
Convertible Securities. Convertible securities 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 the Fund's investments
in convertible securities. Long-term convertible securities are generally more
sensitive to interest rate changes than short-term bonds. Credit risk is the
risk that the issuer or a guarantor may be unable or unwilling to pay interest
or repay principal on the bond. Credit risk can be affected by many factors,
including adverse changes in the issuer's own financial condition or in
economic conditions.
Non-Investment Grade (Lower-Rated) Convertible Securities. The Fund may invest
up to 10% of its total assets in non-investment grade convertible securities
rated as low as B by Standard & Poor's, a division of The McGraw Hill
Companies, or Moody's Investors Service, Inc. or comparably rated by another
ratings agency. Such securities are deemed by the ratings agencies to be
predominantly speculative regarding the issuer's ability to pay principal and
interest and may involve major risk exposure to adverse economic conditions.
They are also known as "junk bonds." Lower-rated securities are frequently
unsecured by collateral and will not receive payment until more senior claims
are paid in full. The market for lower-rated securities is thinner and less
active, which may limit the Fund's ability to sell such securities at a fair
value in response to changes in the economy or financial markets.
Derivatives. Some of the instruments in which the Fund may invest may be
referred to as "derivatives," because their value depends on (or "derives"
from) the value of an underlying asset, reference rate or index. These
instruments include options, futures contracts and similar instruments. 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 takes these risks
into account in its management of the Fund.
Counterparties. The Fund may be exposed to the risk of financial failure or
insolvency of another party. To help lessen those risks, Mitchell Hutchins,
subject to the supervision of the Fund's board, monitors and evaluates the
creditworthiness of the parties with which the Fund does business.
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 the Fund's
other major service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund.
Similarly, the companies in which the Fund invests and trading systems used by
the Fund could be adversely affected by the Year 2000 Issue. The ability of a
company or trading system to respond successfully to the Year 2000 Issue
requires both technological sophistication and diligence, and there can be no
assurance that any steps taken will be sufficient to avoid an adverse impact.
INVESTMENT TECHNIQUES AND STRATEGIES
Strategies Using Derivatives. The Fund may use derivatives, such as options
(on securities, futures contracts and stock indices) and futures contracts (on
stock indices and interest rates) as tax management strategies to protect
against price declines in security holdings that have developed large
accumulated capital gains. The Fund may employ tax-advantaged techniques using
derivatives including, but not limited to, the purchase of put options
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Prospectus Page 9
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PaineWebber Tax-Managed Equity Fund
on securities held, equity collars (combining the purchase of a put option and
the sale of a call option), equity swaps, and the sale of stock index futures
contracts. Using these techniques rather than selling these securities may
reduce exposure to price declines in certain securities without realizing
substantial capital gains under current tax law. The ability to use certain
equity swaps and certain equity collar strategies as a tax-efficient
management technique with respect to holdings of appreciated securities
generally is limited to circumstances in which the hedging transaction is
closed out no later than 30 days after the end of the taxable year and the
underlying appreciated securities position is held unhedged for at least the
next 60 days after the hedging transaction is closed.
The Fund may also use derivatives to reduce the overall risk of its
investments ("hedge"), to reduce the risk of adverse price movements in the
securities to be purchased by the Fund while investing cash received from
investor purchases of Fund shares, to facilitate trading, to reduce
transaction costs, or to enhance return. New financial products and risk
management techniques continue to be developed and may be used if consistent
with the Fund's investment objective and policies. The Statement of Additional
Information for the Fund contains further information on these strategies.
The Fund might not use any of these derivatives or strategies, and there can
be no assurance that any strategy used will succeed. If Mitchell Hutchins is
incorrect in its judgment on market values, interest rates or other economic
factors in using a strategy, the Fund may have lower net income and a net loss
on the investment. Each strategy involves certain risks, which include:
. the fact that the skills needed to use derivatives are different from those
needed to select securities for the Fund,
. the possibility of imperfect correlation, or even no correlation, between
price movements of derivatives and price movements of the securities being
hedged,
. possible constraints placed on the Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund to
maintain "cover" or to segregate securities, and
. the possibility that the Fund is unable to close out or liquidate its
position in derivatives.
Lending Portfolio Securities. The Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of the
Fund's total assets. Lending securities enables the Fund to earn additional
income but could result in a loss or delay in recovering these securities.
Portfolio Turnover. The Fund will be managed to minimize portfolio turnover.
Under normal market conditions, the Fund's targeted portfolio turnover rate
will be approximately 20%, but will not exceed 30% during its first year of
operations.
Cash Management; Temporary and Defensive Positions. The Fund may use
derivatives to provide liquidity for anticipated sales of its shares by
shareholders, for Fund operating expenses and to manage cash flows into the
Fund pending investment in securities. The Fund may also commit up to 35% of
its total assets to cash or investment grade U.S. money market instruments,
including repurchase agreements, for liquidity purposes, or pending investment
in other securities or to reinvest collateral from securities lending. When
Mitchell Hutchins believes that unusual market or economic circumstances
warrant a defensive posture, the Fund may temporarily commit all or any
portion of its assets to cash or investment grade U.S. money market
instruments, including repurchase agreements.
Repurchase agreements are transactions in which the Fund purchases obligations
from a bank or securities dealer or its affiliates and simultaneously commits
to resell the obligations to that counterparty, usually no more than seven
days after purchase. Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible decline in the
market value of the underlying obligations. Repurchase agreements involving
obligations other than U.S. government securities (such as commercial paper
and corporate bonds) may be subject to special risks and may not have the
benefit of certain protections in the event of the counterparty's insolvency.
If the seller or guarantor becomes insolvent, the Fund may suffer delays,
costs and possible losses.
Illiquid Securities. The Fund may invest up to 15% 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 Fund does 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 board. An insufficient number of
qualified institutional buyers interested in purchasing Rule 144A-eligible
restricted securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities, and the Fund might be unable to
dispose of such securities promptly or at favorable prices. The lack of a
liquid secondary market for illiquid securities may make it more difficult for
the Fund to assign a value to those securities for purposes of calculating its
net asset value.
Other Information. The Fund may purchase securities on a when-issued basis or
may purchase or
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Prospectus Page 10
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PaineWebber Tax-Managed Equity Fund
sell securities for delayed delivery. The 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.
The Fund may borrow money for temporary or emergency purposes but not in
excess of 33 1/3% of its total assets, including reverse repurchase agreements
up to an aggregate value of 5% of its net assets. The Fund may sell short
"against the box."
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Flexible PricingSM
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The 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
Fund's transfer agent ("Transfer Agent") receives the purchase order. Although
investors pay an initial sales charge when they buy Class A shares, the
ongoing expenses for this class are lower than those of Class B and Class C
shares. Class A shares sales charges are calculated as follows:
<TABLE>
<CAPTION>
Sales Charge as a Percentage of: Discount to Selected
---------------------------------- Dealers as Percentage
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
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. However, 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, please refer to the chart above.
Investors may also qualify for a reduced sales charge when they combine their
purchases with those of:
. their spouses, parents or children under age 21;
. their 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 investors for the benefit of the investors'
children; or
. accounts with the same adviser.
Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.
The sales charge will not apply when the investor:
. is an employee, director, trustee or officer of
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Prospectus Page 11
<PAGE>
- -------------------------------------------------------------------------------
-------------------
PaineWebber Tax-Managed Equity Fund
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
. was the investment executive's client at the competing brokerage firm;
. within 90 days of buying Class A shares in the 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 investment amount, established by Mitchell Hutchins.
Currently, the 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;
. acquires Class A shares in connection with a reorganization pursuant to
which the Fund acquires substantially all of the assets and liabilities of
another investment company in exchange solely for shares of the Fund; or
. acquires Class A shares in connection with the disposition of proceeds from
the sale of shares of Managed High Yield Plus Fund Inc. that were acquired
during that Fund's initial public offering of shares and that meet certain
other conditions described in its prospectus.
For more information on how to get any reduced sales charge, investors should
contact a PaineWebber investment executive or a correspondent firm 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 owned the shares. The sales charge is calculated by
multiplying the offering price (net asset value of the shares at the time of
purchase) or the net asset value at the time of sale by the shareholder,
----------
Prospectus Page 12
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
whichever is less, by the percentage shown on the following table. Investors
who own shares for more than six years do not have to pay a sales charge when
selling those shares.
<TABLE>
<CAPTION>
Percentage by which
If the investor the shares' net asset
sells shares within: 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 to
seek any of these waivers.
CLASS C SHARES
How Price Is Calculated: The price of Class C shares is the net asset value
next calculated after PaineWebber's New York City headquarters or the Transfer
Agent receives the purchase order. Investors do not pay an initial sales
charge when they buy Class
C shares, but the ongoing expenses of Class C shares are higher than those of
Class A shares. Because investors do not pay an initial sales charge when they
buy Class C shares, 100% of their purchase is immediately invested. 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 of the shares at the time of purchase) or the net asset value of the
shares at the time of sale by the shareholder, whichever is less, is charged
on sales of shares made within one year of the purchase date. Other
PaineWebber mutual funds may impose a different contingent deferred sales
charge on Class C shares sold within one year of the purchase date. A sale of
Class C shares acquired through an exchange and held less than one year will
be subject to the same contingent deferred sales charge that would have been
imposed on the Class C shares of the PaineWebber mutual fund originally
purchased. Class C shares representing reinvestment of any dividends or
capital gains will not be subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan also will not be subject to this charge. However,
investors may not withdraw 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 PaineWebber's New York City headquarters
or the Transfer Agent receives the
purchase order. Because investors do not pay an initial sales charge when they
buy Class Y shares, 100% of their purchase is immediately invested. 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 12b-1 distribution or service fees.
----------
Prospectus Page 13
<PAGE>
- -------------------------------------------------------------------------------
-------------------
PaineWebber Tax-Managed Equity Fund
Limited Groups of Investors. Only the following investors are eligible to buy
Class Y shares:
. a participant in one of the PW Programs listed below when Class Y shares are
purchased through that PW Program;
. an investor who buys $10 million or more at any one time in any combination
of PaineWebber mutual funds in the Flexible Pricing System SM;
. a qualified plan that has either
5,000 or more eligible employees or
$50 million or more in assets;
. 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
effective maximum annual rate of 1.5% of assets. Employees of PaineWebber and
its affiliates are entitled to a waiver of this fee.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available through the PACE Multi-Advisor Program.
- -------------------------------------------------------------------------------
How to Buy Shares
- -------------------------------------------------------------------------------
During an initial subscription period currently scheduled to end on December
11, 1998 ("Offering Period"), Class B, C and Y shares will be offered at a
subscription price equal to the Fund's initial net asset value per share of
$12.50, and Class A shares will be offered at that price plus any applicable
initial sales charge. See "Flexible Pricing--Class A Shares." Payment of the
purchase price must be made in the manner specified below. The Fund expects to
commence investment operations shortly thereafter. After that date, the net
asset value of Fund shares will fluctuate, and the price of Fund shares will
be determined in the manner described above.
During the Offering Period, PaineWebber and selected dealers may obtain non-
binding indications of interest prior to actually confirming any orders.
Subscriptions for shares will be accepted through the last day of the Offering
Period. To the extent that payment is made to PaineWebber or selected dealers
prior to the Closing Date, such persons may benefit from the temporary use of
those payment monies. The Fund reserves the right to withdraw, cancel or
modify the offering of shares during the Offering Period without notice and
reserves the right to refuse any order in whole or part, if the Fund
determines that it is in its best interest.
Shares are purchased at the next share price calculated after the purchase
order is received by PaineWebber's New York City headquarters or the Transfer
Agent. Prices are calculated for each class of the Fund's shares once each
Business Day, normally at the close of regular trading on the New York Stock
Exchange (usually 4:00 p.m., Eastern time). Prices will be calculated earlier
when the New York Stock Exchange closes early because trading has been halted
for the day. A "Business Day" is any day, Monday through Friday, on which the
New York Stock Exchange is open for business.
The Fund and Mitchell Hutchins reserve the right to reject any purchase order
and to suspend the offering of Fund shares for a period of time.
When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will
automatically receive Class A shares, which include an initial sales charge.
Investors in Class Y shares must provide satisfactory information to
PaineWebber or the Fund that they are eligible to purchase Class Y shares.
PaineWebber Clients
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber
----------
Prospectus Page 14
<PAGE>
- -------------------------------------------------------------------------------
-------------------
PaineWebber Tax-Managed Equity Fund
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 and signing 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 may also open an account
in person.
Investors who already have money invested in a PaineWebber mutual fund, and
want to invest in another PaineWebber mutual fund, can:
. mail an application with a check; or
. open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional
investments in the Fund.
Minimum Investments
<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.
. 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 shares of the same class 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 Class A, B or C shares are
exchanged for the corresponding class of shares of other PaineWebber mutual
funds. The Fund will use the purchase date of the initial investment to
determine any contingent deferred sales charge due when the acquired shares
are sold. Fund shares may be exchanged only after the settlement date has
passed and payment for the shares has been made. The exchange privilege is
available only in those
----------
Prospectus Page 15
<PAGE>
- -------------------------------------------------------------------------------
-------------------
PaineWebber Tax-Managed Equity Fund
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 a 60-day notice. See the back cover of this
Prospectus for a listing of other PaineWebber mutual funds.
- -------------------------------------------------------------------------------
How to Sell Shares
- -------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price for that class (less any applicable contingent deferred sales
charge) as next calculated after the order is received and accepted. Share
prices are normally calculated at the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m., Eastern time). Prices will be calculated
earlier when the New York Stock Exchange closes early because trading has been
halted for the day.
Investors who own more than one class of shares should specify which class
they are selling. If they do not, the Fund will assume they are first selling
their Class A shares, then Class C, 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 the Fund's Transfer Agent (PFPC Inc.) may sell shares by writing a
"letter of instruction," as detailed in "How to Exchange Shares."
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the 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 the Fund will deduct $50 or more on a
monthly, quarterly, semiannual or annual basis from the investor's bank
account to invest directly in the Fund. In addition to providing a convenient
and disciplined manner of investing, participation in the Automatic Investment
Plan enables the investor to use the technique of "dollar cost averaging."
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semiannual (June and December) or
annual (December) withdrawals from their Fund account. Minimum balances and
withdrawals vary according to the class of shares:
----------
Prospectus Page 16
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
. 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, semi-annual 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. Investors may withdraw annually no more than
12% of the value of the Fund account when the investor signed up for the Plan
(for Class B shares, annually; for Class A and Class C shares, during the
first year under the Plan). Shareholders who elect to receive dividends or
other distributions in cash may not participate in the Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-Directed IRAs are available through PaineWebber in which purchases of
PaineWebber funds and other investments may be made. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of the Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be
moved to an account with the Transfer Agent. However, if the other firm has
entered into a selected dealer agreement with Mitchell Hutchins relating to
the Fund, the shareholder may be able to hold Fund shares in an account with
the other firm.
- -------------------------------------------------------------------------------
Management
- -------------------------------------------------------------------------------
The Fund is governed by its 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). As investment adviser and administrator, Mitchell Hutchins
supervises all aspects of the Fund's operations and makes and implements all
investment decisions for the Fund.
The board, as part of its overall management responsibility, oversee various
organizations responsible for the day-to-day management of the Fund.
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 August 31, 1998, Mitchell Hutchins was adviser or sub-
adviser of 32 investment companies with 68 separate portfolios and aggregate
assets of approximately $38.9 billion.
In accordance with procedures adopted by the board, brokerage transactions for
the Fund may be conducted through PaineWebber or its affiliates and the Fund
may pay fees 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 a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Mark A. Tincher and Christopher G. Altschul are primarily responsible for the
day-to-day portfolio management of the Fund. Mr. Tincher is a managing
director and chief investment officer of equities of Mitchell Hutchins,
responsible for overseeing the management of equity investments. Prior to
March 1995, Mr. Tincher worked for Chase Manhattan Private Bank ("Chase")
where he was a vice president. Mr. Tincher directed the U.S. funds management
and equity research area at Chase, and oversaw the management of all Chase
U.S. equity funds. Mr. Altschul is a first vice president of Mitchell
Hutchins. He is currently responsible for the quantitative equity valuation
model and has various analytical responsibilities. Prior to joining Mitchell
Hutchins in April 1995, Mr. Altschul worked as an equity analyst at Chase.
Upon his arrival at Mitchell Hutchins, Mr. Tincher formed the Mitchell
Hutchins Equity Research Team. Each analyst on the Team focuses on different
industries. As a result, the Team provides PaineWebber Stock Funds with more
specialized knowledge of the various industries in which the Fund generally
invest. The Equity Research Team is also assisted by members of Mitchell
Hutchins' fixed
----------
Prospectus Page 17
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
income groups, who provide input on market outlook, interest rate forecasts
and other considerations pertaining to domestic equity and fixed income
investments.
MANAGEMENT FEES & OTHER EXPENSES
The Fund incurs various expenses in its operations, such as the management fee
paid to Mitchell Hutchins, 12b-1 service and distribution fees, custody and
transfer agency fees, professional fees, expenses of board and shareholder
meetings, fees and expenses relating to registration of its shares, taxes and
governmental fees, fees and expenses of trustees, costs of obtaining
insurance, expenses of printing and distributing shareholder materials and
extraordinary expenses, including costs or losses in any litigation.
The Fund has agreed to pay Mitchell Hutchins a monthly fee for its advisory
services at the annual rate of 0.75% of its average daily net assets.
The Fund has applied for exemptive relief to the SEC to permit its board to
appoint or replace sub-advisers and to amend sub-advisory contracts without
obtaining shareholder approval.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. There is no
distribution plan with respect to the Fund's Class Y shares. Under
distribution plans for Class A, Class B and Class C shares ("Class A Plan,"
"Class B Plan" and "Class C Plan," collectively, "Plans"), the Fund pays
Mitchell Hutchins:
. Monthly service fees at the annual rate of up to 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.
Mitchell Hutchins uses the service fees for Class A, B and C shares, primarily
to pay PaineWebber for shareholder servicing, currently at the annual rate of
up to 0.25% of the aggregate investment amounts maintained in the 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 the Fund's Class B
and Class C shares, respectively.
. Offset the Fund's marketing costs attributable to such classes, such as
preparation, printing and distribution of sales literature, advertising and
prospectuses to prospective investors and related overhead expenses, such as
employee salaries and bonuses.
PaineWebber compensates investment executives when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from the Fund or investors at the time Class
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 the 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
Fund will not be obligated to pay more than those fees. On the other hand, if
Mitchell Hutchins' expenses are less than such fees, it will retain its full
fees and realize a profit. Expenses in excess of service and distribution fees
received or accrued through the termination date of any Plan will be Mitchell
Hutchins' sole responsibility and not that of the Fund. Annually, the board
reviews each Plan and Mitchell Hutchins' corresponding expenses for each class
separately from the Plans and expenses of the other classes.
----------
Prospectus Page 18
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
Determining the Shares' Net Asset Value
- -------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined
separately for each class, normally as of the close of regular trading on the
New York Stock Exchange ("NYSE") (usually 4:00 p.m., Eastern time) each
Business Day. The Fund's net asset value per share is determined by dividing
the value of the securities held by the Fund, plus any cash or other assets,
minus all liabilities, by the total number of Fund shares outstanding. If
trading on the NYSE is halted before 4:00 p.m., Eastern time, and trading on
the NYSE will not resume again that day, the Fund's net asset value per share
will be calculated at the time trading was halted.
The Fund values its assets based on their current market value when market
quotations are readily available. If market quotations are not readily
available, assets are valued at fair value as determined in good faith by or
under the direction of the board. 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.
It should be recognized that judgment plays a greater role in valuing below
investment grade convertible securities in which the Fund may invest because
there is less reliable, objective data available.
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Dividends & Taxes
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DIVIDENDS
The Fund pays an annual dividend from its net investment income and any net
short-term capital gain. The Fund also annually distributes substantially all
of its net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any. The Fund may make additional distributions,
if necessary, to avoid a 4% excise tax on certain undistributed income and
capital gain. If determined by the board to be in the best interests of the
shareholders, the Fund may also make additional distributions of net
investment income and any net short-term capital gain.
Dividends and other distributions paid on each class of shares of the Fund are
calculated at the same time and in the same manner. Dividends on Class A, B
and C shares 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 are expected to be lower than those on Class A
shares because Class B and Class C shares have higher expenses resulting from
their distribution fees. Dividends on each class might be affected differently
by the allocation of other class-specific expenses. See "General Information."
The Fund's dividends and other distributions are paid in additional Fund
shares of the same class at net asset value, unless the shareholder has
requested cash payments. Shareholders who wish to receive dividends and other
distributions in cash, either mailed to them by check or credited to their
PaineWebber accounts, should contact their investment executives at
PaineWebber or one of its correspondent firms or complete the appropriate
section of the account application.
TAXES
The Fund intends to qualify for treatment as a regulated investment company
under the Code so that it will not have to pay federal income tax on the part
of its investment company taxable income and net capital gain that it
distributes to its shareholders. Investment company taxable income generally
consists
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Prospectus Page 19
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PaineWebber Tax-Managed Equity Fund
of net investment income and net short-term capital gain (the excess of gains
from the sale or exchange of capital assets held for not more than one year
over losses from sales or exchanges thereof).
Dividends from the Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to its shareholders as
ordinary income. Distributions of the Fund's net capital gain (whether paid in
cash or additional shares) are taxable to its shareholders as long-term
capital gain, regardless of how long they have held their Fund shares. Under
the Taxpayer Relief Act of 1997, as modified by recent legislation, the
maximum tax rate applicable to a non-corporate taxpayer's net capital gain
recognized on capital assets held for more than one year is 20% (10% for
taxpayers in the 15% marginal tax bracket).
Shareholders who are not subject to tax on their income generally will not be
required to pay tax on distributions from the Fund.
YEAR-END TAX REPORTING
Following the end of each calendar year, the Fund notifies its shareholders of
the amounts of dividends and capital gain distributions paid (or deemed paid)
by the Fund that year and any portion of those dividends that qualifies for
special tax treatment.
BACKUP WITHHOLDING
The Fund must 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.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
A shareholder's sale (redemption) of Fund shares may result in a taxable gain
or loss. This depends upon 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 the Fund's shares for shares of
another PaineWebber mutual fund generally will have similar tax consequences.
In addition, if the 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 (redeems) 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 would increase the
basis of the PaineWebber mutual fund shares subsequently acquired.
No gain or loss will be recognized to a shareholder as a result of conversion
of Class B shares to Class A shares.
* * * *
The foregoing only summarizes some of the important considerations affecting
the Fund and its shareholders. See the Statement of Additional Information for
further discussion. Prospective shareholders are urged to consult their tax
advisers.
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Prospectus Page 20
<PAGE>
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PaineWebber Tax-Managed Equity Fund
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General Information
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ORGANIZATION
The Fund is a newly organized 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 board has 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 the Fund are divided into four classes, designated Class A, Class
B, Class C and Class Y shares. Each class of shares of the Fund represents an
identical interest in the Fund's investment portfolio and has the same rights,
privileges and preferences. However, each class may differ with respect to
sales charges, 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 the
Fund will affect the performance of those classes.
Each share of the Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of the Fund. However, due to
the differing expenses of the classes, dividends on the Fund's different
classes of shares will differ.
VOTING RIGHTS
Shareholders of the Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, as a result, the holders of more than 50% of all the shares of the Trust
may elect all of the trustees of the Trust. The shares of the Fund will be
voted together except that only the shareholders of a particular class of the
Fund may vote on matters affecting only that class, such as the terms of a Plan
as it relates to the class. The shares of each series of the Trust will be
voted separately except where an aggregate vote of all series is required by
law.
SHAREHOLDER MEETINGS
The Fund does not hold annual meetings.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. A meeting will be
called to vote on the removal of a trustee at the written request of holders of
10% of the Trust's outstanding shares.
REPORTS TO SHAREHOLDERS
The Fund sends its shareholders audited annual and unaudited semiannual
reports, each of which includes a list of the investment securities held by the
Fund as of the end of the period covered by the report. The Statement of
Additional Information, which is incorporated herein by reference, is available
to shareholders upon request.
CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as the Fund's custodian and recordkeeping
agent. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the Fund's transfer
and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809.
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Prospectus Page 21
<PAGE>
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PaineWebber Tax-Managed Equity Fund
Prospectus -- October 4, 1998 (As Revised October 23, 1998 and April 1, 1999)
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. PaineWebber Funds of Funds . PaineWebber Bond Funds
Aggressive Portfolio High Income Fund
Moderate Portfolio Investment Grade Income Fund
Conservative Portfolio Low Duration U.S. Government Income Fund
Strategic Income Fund
U.S. Government Income Fund
. PaineWebber
AssetAllocation Funds
Balanced Fund . PaineWebber Tax-Free Bond Funds
Tactical Allocation Fund
California Tax-Free Income Fund
Municipal High Income Fund
National Tax-Free Income Fund
. PaineWebber Stock Funds New York Tax-Free Income Fund
Financial Services
Growth Fund
Growth Fund
Growth and Income Fund . PaineWebber Global Funds
Mid Cap Fund
Small Cap Fund Asia Pacific Growth Fund
Tax-Managed Equity Fund Emerging Markets Equity Fund
S&P 500 Index Fund Global Equity Fund
Utility Income Fund Global Income 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
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