PAINEWEBBER MANAGED INVESTMENTS TRUST, 485APOS, 1999-06-01

PAINEWEBBER MANAGED INVESTMENTS TRUST
485APOS, 1999-06-01

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As filed with the Securities and Exchange Commission on June 1, 1999

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 61 [ X ]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 54 [ X ]
(Check appropriate box or boxes.)

PAINEWEBBER MANAGED INVESTMENTS TRUST
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000

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

Copies to:
ROBERT A. WITTIE, ESQ.
ELINOR W. GAMMON, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202)778-9000

Approximate Date of Proposed Public Offering: Effective Date of this
Post-Effective Amendment.

It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ ] On __________ pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1)
[ X ] On August 1, 1999, pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On __________ pursuant to Rule 485(a)(2)

Title of Securities Being Registered: Class A, B, C and Y Shares of Beneficial
Interest of PaineWebber Utility Income Fund.

<PAGE>

PAINEWEBBER
FINANCIAL SERVICES GROWTH FUND INC.

PAINEWEBBER
UTILITY INCOME FUND

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

PROSPECTUS
AUGUST 1, 1999

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

This prospectus offers shares in two of PaineWebber's stock funds. Each fund
offers four classes of shares, Classes A, B, C and Y. Each class has different
sales charges and ongoing expenses. You can choose the class that is best for
you based on how much you plan to invest and how long you plan to hold your fund
shares. Class Y shares are available only to certain types of investors.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved either fund's shares or determined whether this
prospectus is complete or accurate. To state otherwise is a crime.

<PAGE>

PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

CONTENTS
THE FUNDS
-----------------------------------------------

What every investor 3 PaineWebber Financial Services Growth Fund
should know about
the funds 7 PaineWebber Utility Income Fund

11 More on Risks and Investment Strategies

YOUR INVESTMENT
-----------------------------------------------

Information for 13 Managing Your Fund Account
managing your fund - Flexible Pricing
account - Buying Shares
- Selling Shares
- Exchanging Shares
- Pricing and Valuation

ADDITIONAL INFORMATION
-----------------------------------------------

Additional important 19 Management
information about
the funds 20 Dividends and Taxes

21 Financial Highlights

-----------------------------------------------
Where to learn more
about PaineWebber Back Cover
mutual funds

--------------------------------
The funds are not complete or balanced investment programs.
--------------------------------

2
<PAGE>

PaineWebber Financial Services Growth Fund
- ----------------------------------------------------------

PaineWebber Financial Services Growth Fund

INVESTMENT OBJECTIVE, STRATEGIES AND RISKS

FUND OBJECTIVE

Long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The fund invests primarily in stocks of financial services companies, such as
banks, thrifts, insurance companies, finance companies, securities firms, and
companies that provide specialized services to them. The fund also invests, to a
lesser extent, in stocks of other types of companies and in bonds. Some of the
fund's stocks and bonds may be of foreign issuers and may be denominated in
foreign currencies. The fund may use options, futures contracts and other
derivatives as part of its investment strategy or to help manage portfolio
risks.

The fund's investment adviser, Mitchell Hutchins Asset Management Inc., seeks to
invest in stocks of companies with better-than-average earnings growth that also
represent strong, fundamental investment values. These include companies that
may benefit from changes in the financial services industry, such as mergers and
the growth of the non-bank segments of the industry. Mitchell Hutchins
especially looks for companies whose growth characteristics and value are not
yet recognized by the market. Mitchell Hutchins also looks for companies in
growing regions or with niche products, whose earnings growth may be sustainable
throughout the business cycle.

In selecting specific investments for the fund, Mitchell Hutchins assesses a
company's current and anticipated revenues, earnings, cash flow, asset
composition and management practices.

PRINCIPAL RISKS

An investment in the fund is not guaranteed; you may lose money by investing in
the fund.

Common stocks, which are the fund's main type of investment, generally fluctuate
in value more than other investments. Since the fund's stocks are concentrated
in financial services companies, it will be more severely affected by
unfavorable developments in that industry than if it invested in a broad range
of businesses.

More information about these and other risks of an investment in the fund is
provided below in "More on Risks and Investment Strategies" under the following
headings:

o Equity Risk

o Financial Services Industry Concentration Risk

o Interest Rate Risk

o Credit Risk

o Foreign Securities Risk

o Derivatives Risk

INFORMATION ON THE FUND'S RECENT INVESTMENT STRATEGIES AND HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING SUCH REPORTS).

3
<PAGE>
PaineWebber Financial Services Growth Fund
- ----------------------------------------------------------

PERFORMANCE

RISK/RETURN BAR CHART AND TABLE

The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.

The bar chart shows how the fund's performance has varied from year to year. The
chart shows Class A shares because they have the longest performance history of
any class of fund shares. The chart does not reflect the effect of sales
charges; if it did, the total returns shown would be lower.

The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index that is unmanaged and that, therefore, does not include any sales
charges or expenses.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

TOTAL RETURN ON CLASS A SHARES

The chart below contains the following plot points:

1989 21.71%
1990 -12.33%
1991 65.37%
1992 38.68%
1993 10.32%
1994 -0.75%
1995 47.46%
1996 28.96%
1997 45.20%
1998 2.31%

Best quarter during years shown: 1st quarter, 1991 -- 22.90%
Worst quarter during years shown: 3rd quarter, 1990 -- (18.78%)

4
<PAGE>
PaineWebber Financial Services Growth Fund
- ----------------------------------------------------------
<TABLE>
<CAPTION>

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

CLASS CLASS A CLASS B* CLASS C CLASS Y S&P 500
<S> <C> <C> <C> <C> <C>
(INCEPTION DATE) (5/22/86) (7/1/91) (7/2/92) (3/30/98) INDEX
ONE YEAR (2.28)% (3.44)% 0.55% N/A 28.60%
FIVE YEARS 21.77% 21.79% 21.97% N/A 24.05%
TEN YEARS 21.88% N/A N/A N/A 19.19%
LIFE OF CLASS 16.21% 24.17% 21.30% (3.59%)** ***
- -----------
</TABLE>
* Assumes conversion of Class B shares to Class A after six years.
** Represents return for less than a full year.
*** Average annual total returns for the S&P 500 Index for the life of each
class were as follows: Class A - 16.83%; Class B - 20.19%; Class C - 21.27%;
Class Y - 12.87%.

5
<PAGE>

PaineWebber Financial Services Growth Fund
- ----------------------------------------------------------
EXPENSES AND FEE TABLES

FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investments)

CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price).................................... 4.5% None None None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price).................................... None 5% 1% None
Exchange Fee..................................................... None None None None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)

CLASS A CLASS B CLASS C CLASS Y
Management Fees.................................................. 0.70% 0.70% 0.70% 0.70%
Distribution and/or Service (12b-1) Fees......................... 0.25 1.00 1.00 0.00
Other Expenses................................................... 0.22 0.24 0.24 0.20
---- ---- ---- ----
Total Annual Fund Operating Expenses............................. 1.17% 1.94% 1.94% 0.90%
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.

This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A........................................
Class B (assuming sale of all shares at end of
period).....................................
Class B (assuming no sale of shares)...........
Class C (assuming sale of all shares at end of
period).....................................
Class C (assuming no sale of shares)...........
Class Y........................................
</TABLE>

6
<PAGE>

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

PAINEWEBBER UTILITY INCOME FUND

INVESTMENT OBJECTIVE, STRATEGIES AND RISKS

FUND OBJECTIVE

Current income and capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The fund invests primarily in income-producing stocks and bonds issued by U.S.
and foreign utility companies. These are companies that own or operate
facilities for generating, transmitting or distributing electricity, gas or
water or telecommunications. The fund also invests, to a lesser extent, in
companies outside the utility industries and in money market instruments. The
fund may use options, futures and other derivatives as part of its investment
strategy or to help manage portfolio risks.

The fund's investment adviser, Mitchell Hutchins Asset Management Inc., seeks to
find companies that should benefit from a changing operating environment.
Long-term changes include a trend toward deregulation in all utility industries,
an increasing ability of telephone companies to enter new businesses and
consolidation among electric utilities. Mitchell Hutchins allocates the fund's
investments between stocks and bonds based on its judgment of what will achieve
the best balance of income and growth under prevailing economic conditions.
Mitchell Hutchins evaluates individual issuers based on the issuer's business
and regulatory environment, its ability to maintain low production costs and
other measures of fundamental value.

PRINCIPAL RISKS

An investment in the fund is not guaranteed; you may lose money by investing in
the fund.

Common stocks generally fluctuate in value more than other investments. Utility
company stocks, like bonds, generally fall in price when interest rates rise.
Since the fund's investments are concentrated in utility companies, it will be
more severely affected by unfavorable developments in the utilities industries
than if it invested in a broad range of businesses.

More information about these and other risks of an investment in the fund is
provided below in "More on Risks and Investment Strategies" under the following
headings:

o Equity Risk

o Utility Industries Concentration Risk

o Interest Rate Risk

o Credit Risk

o Foreign Securities Risk

o Derivatives Risk

INFORMATION ON THE FUND'S RECENT INVESTMENT STRATEGIES AND HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING SUCH REPORTS).

7
<PAGE>

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

PERFORMANCE

RISK/RETURN BAR CHART AND TABLE

The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.

The bar chart shows how the fund's performance has varied from year to year. The
chart shows Class A shares because they have as long a performance history as
any class of fund shares. The chart does not reflect the effect of sales
charges; if it did, the total returns shown would be lower.

The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index and to a more narrowly based index that reflects the utility
industries market sector. Both of these indices are unmanaged and, therefore, do
not include any sales charges or expenses.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

TOTAL RETURN ON CLASS A SHARES

The chart below contains the following plot points:

1994 -9.71%
1995 28.82%
1996 7.90%
1997 25.75%
1998 12.87%

Best quarter during years shown: ___ quarter, 199_ -- ____%
Worst quarter during years shown: ___ quarter, 199_ -- (____)%

8
<PAGE>
PaineWebber Utility Income Fund
- --------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

CLASS S&P S&P
(INCEPTION DATE) CLASS A CLASS B CLASS C CLASS Y 500 UTILITY
(7/2/93) (7/2/93) (7/2/93) (9/10/98) INDEX INDEX
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR 7.77% 7.03% 11.00% N/A 28.60% 14.77%
FIVE YEARS 11.20% 11.13% 11.37% N/A 24.05% 13.90%
LIFE OF CLASS 9.99% 9.97% 10.07% 11.11%* ** ***
- -----------
</TABLE>
* Represents return for less than a full year.
** Average annual total returns for the S&P 500 Index for the life of each class
were as follows: Class A - 22.72%; Class B -- 22.72%; Class C -- 22.72%; Class Y
- - 29.05%. *** Average annual total returns for the S&P Utility Index for the
life of each class were as follows: Class A - 12.74%; Class B -- 12.74%; Class C
- -- 12.74%; Class Y - 11.17%.

9
<PAGE>

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

EXPENSES AND FEE TABLES

FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investments)

CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price)....................................... 4.5% None None None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)....................................... None 5% 1% None
Exchange Fee........................................................ None None None None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)

CLASS A CLASS B CLASS C CLASS Y
Management Fees.....................................................
Distribution and/or Service (12b-1) Fees............................
Other Expenses...................................................... _____ _____ _____ _____
Total Annual Fund Operating Expenses................................
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A.........................................
Class B (assuming sale of all shares at end of
period)......................................
Class B (assuming no sale of shares)............
Class C (assuming sale of all shares at end of
period)......................................
Class C (assuming no sale of shares)............
Class Y.........................................
</TABLE>

10
<PAGE>
PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------
MORE ABOUT RISKS AND INVESTMENT STRATEGIES

PRINCIPAL RISKS

The main risks of investing in one or both of the funds are described below. Not
all of these risks apply to each fund. You can find a list of the main risks
that apply to a particular fund by looking under the "Investment Objective,
Strategies and Risks" heading for that fund.

Other risks of investing in a fund, along with further detail about some of the
risks described below, are discussed in the funds' Statement of Additional
Information ("SAI"). Information on how you can obtain the SAI is on the back
cover of this prospectus.

CREDIT RISK. Credit risk is the risk that the issuer of a bond will not make
principal or interest payments when they are due. Even if an issuer does not
default on a payment, a bond's value may decline if the market believes that the
issuer has become less able, or less willing, to make payments on time. Even
high quality bonds are subject to some credit risk. However, credit risk is
higher for lower quality bonds. Bonds that are not investment grade involve high
credit risk and are considered speculative. Lower quality bonds may fluctuate in
value more than higher quality bonds and, during periods of market volatility,
may be more difficult to sell at the time and price a fund desires.

DERIVATIVES RISK. The value of "derivatives" - so-called because their value
"derives" from the value of an underlying asset, reference rate or index - may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for a fund to lose more than the amount it invested in the derivative.
Options, futures contracts and forward currency contracts are examples of
derivatives. If a fund uses derivatives to adjust or "hedge" the overall risk of
its portfolio, it is possible that the hedge will not succeed. This may happen
for various reasons, including unexpected changes in the value of the
derivatives that are not matched by opposite changes in the value of the rest of
the fund's portfolio.

EQUITY RISK. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. A fund
may lose a substantial part, or even all, of its investment in a company's
stock.

FINANCIAL SERVICES INDUSTRY CONCENTRATION RISK. Financial Services Growth Fund
concentrates its investments in financial services companies. Therefore, it will
be more affected by economic, competitive and regulatory developments in the
financial services industry than it would be if it invested in a broad range of
businesses.

Financial services companies may be subject to severe price competition, and
they also are subject to extensive governmental regulation. Regulation limits
their business activities and also may limit the interest rates and fees they
can charge. Proposed federal legislation would reduce the separation between
commercial and investment banking business. Both the industry and the fund may
be significantly affected if that legislation is enacted.

The profitability of financial services companies is largely dependent on the
availability and cost of capital funds. It can fluctuate significantly when
interest rates change. Credit losses resulting from financial difficulties of
customers can negatively affect the industry.

FOREIGN SECURITIES RISK. Foreign securities involve risks that normally are not
associated with securities of U.S. issuers. These include risks relating to
political, social and economic developments abroad and differences between U.S.
and foreign regulatory requirements and market practices. When securities are
denominated in foreign currencies, they also are subject to the risk that the
value of the foreign currency will fall in relation to the U.S. dollar.

INTEREST RATE RISK. The value of bonds can be expected to fall when interest
rates rise and to rise when interest rates fall. Interest rate risk is the risk
that interest rates will rise, so that the value of a fund's investments in
bonds will fall. Because interest rate risk is the primary risk presented by
U.S. government and other very high quality bonds, changes in interest rates may
actually have a larger effect on the value of those bonds than on lower quality
bonds.

UTILITY INDUSTRIES CONCENTRATION RISK. Utility Income Fund concentrates its
investments in the utility industries. Therefore, it will be more affected by
economic, competitive and regulatory developments in those industries than it
would be if it invested in a broad range of businesses.

Interest rate changes may affect the value of the fund's assets. When interest
rates decline, prices of utility stocks and bonds tend to increase. When
interest rates rise, these prices tend to decrease.

The same trend toward deregulation that presents opportunities in the utility
industries also presents special risks. Some companies may be faced with
increased competition and may become less profitable.

11
<PAGE>
PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

Electric utility companies are subject to increases in fuel and other operating
costs, increases in interest costs, compliance costs relating to environmental,
nuclear facility and other safety regulations. Other types of utilities face
similar problems.

ADDITIONAL RISKS

YEAR 2000 RISK. The funds could be adversely affected by problems relating to
the inability of computer systems used by Mitchell Hutchins and the funds' other
service providers to recognize the year 2000. While year 2000-related computer
problems could have a negative effect on the funds, Mitchell Hutchins is working
to avoid these problems with respect to its own computer systems and to obtain
assurances from service providers that they are taking similar steps.

Similarly, the companies in which the funds invest and trading systems used by
the funds could be adversely affected by this issue. The ability of a company or
trading system to respond successfully to the 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 on the funds. This risk may be
greater with respect to trading systems in foreign countries.

ADDITIONAL INVESTMENT STRATEGIES

DEFENSIVE POSITIONS; CASH RESERVES. In order to protect itself from adverse
market conditions, a fund may take a temporary defensive position that is
different from its normal investment strategy. This means that the fund may
temporarily invest a larger-than-normal part, or even all, of its assets in cash
or money market instruments. Since these investments provide relatively low
income, a defensive position may not be consistent with achieving a fund's
investment objective. Each of the funds may invest up to 35% of its total assets
in cash or money market instruments as a cash reserve for liquidity or, in the
case of Utility Income Fund, as part of its ordinary investment strategy.

PORTFOLIO TURNOVER. Each fund may engage in frequent trading (high portfolio
turnover) in order to achieve its investment objective.

Frequent trading may increase the portion of a fund's capital gains that are
realized for tax purposes in any given year. This may increase the fund's
taxable dividends in that year. Frequent trading also may increase the portion
of a fund's realized capital gains that are considered "short-term" for tax
purposes. Shareholders will pay higher taxes on dividends that represent
short-term gains than they would pay on dividends that represent long-term
gains. Frequent trading also may result in higher fund expenses due to
transaction costs.

The funds do not restrict the frequency of trading in order to limit expenses or
the tax effect that the fund's dividends may have on shareholders.

12
<PAGE>
PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

YOUR INVESTMENT

MANAGING YOUR FUND ACCOUNT

FLEXIBLE PRICING

The funds offer four classes of shares - Class A, Class B, Class C and Class Y.
Each class has different sales charges and ongoing expenses. You can choose the
class that is best for you, based on how much you plan to invest in the funds
and how long you plan to hold your fund investment. Class Y shares are only
available to certain types of investors.

CLASS A SHARES

Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is not invested in the fund.
Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets,
but they pay no 12b-1 distribution fees. The ongoing expenses for Class A shares
are lower than for Class B and Class C shares.

The Class A sales charges for each fund are described in the following tables.

<TABLE>
<CAPTION>
CLASS A SALES CHARGES FOR: FINANCIAL SERVICES GROWTH FUND
UTILITY INCOME FUND

SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED
OFFERING PRICE NET AMOUNT DEALERS AS PERCENTAGE OF
AMOUNT OF INVESTMENT INVESTED OFFERING PRICE
<S> <C> <C> <C>

Less than $50,000........ 4.50% 4.71% 4.25%
$50,000 to $99,999....... 4.00 4.17 3.75
$100,000 to $249,999..... 3.50 3.63 3.25
$250,000 to $499,999..... 2.50 2.56 2.25
$500,000 to $999,999..... 1.75 1.78 1.50
$1,000,000 and over (1) None None 1.00(2)
</TABLE>

(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of any dividends or other
distributions are not subject to this 1% charge. Withdrawals in the first
year after purchase of up to 12% of the value of the fund account under the
funds' Systematic Withdrawal Plan are not subject to this charge.
(2) Mitchell Hutchins pays 1% to PaineWebber.

13
<PAGE>
PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS. You may qualify for a lower sales charge if
you already own Class A shares of a PaineWebber mutual fund. You can combine the
value of Class A shares that you own in other PaineWebber funds and the purchase
amount of the Class A shares of the PaineWebber fund that you are buying.

You may also qualify for a lower sales charge if you combine your purchases with
those of:

o your spouse, parents or children under age 21;

o your Individual Retirement Accounts (IRAs);

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

o a company that you control;

o a trust that you created;

o Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts
created by you or by a group of investors for your children; or

o accounts with the same adviser.

You may qualify for a complete waiver of the sales charge if you:

o Are an employee of PaineWebber or its affiliates or the spouse, parent or
child under age 21 of a PaineWebber employee;

o Buy these shares through a PaineWebber Financial Advisor who was formerly
employed as an investment executive with a competing brokerage firm that
was registered as a broker-dealer with the SEC, and

- you were the Financial Advisor's client at the competing brokerage
firm;

- within 90 days of buying shares in a fund, you sell shares of one or
more mutual funds that were principally underwritten by the
competing brokerage firm or its affiliates, and you either paid a
sales charge to buy those shares, pay a contingent deferred sales
charge when selling them or held those shares until the contingent
deferred sales charge was waived; and

- you purchase an amount that does not exceed the total amount of
money you received from the sale of the other mutual fund;

o Acquire these shares through the reinvestment of dividends of a
PaineWebber unit investment trust;

o Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more
eligible employees in the plan or at least $1 million in assets; or

o Are 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.

NOTE: See the funds' Statement of Additional Information for some other sales
charge waivers. If you think you qualify for any sales charge reductions or
waivers, you will need to provide documentation to PaineWebber or the fund. For
more information, you should contact your PaineWebber Financial Advisor or
correspondent firm or call 1-800-647-1568. If you want information on the funds'
Systematic Withdrawal Plan, see the Statement of Additional Information or
contact your PaineWebber Financial Advisor or correspondent firm.

CLASS B SHARES

Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase in fund shares. However, you may have
to pay the deferred sales charge when you sell your fund shares, depending on
how long you own the shares.

Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Over time, these fees will increase the cost of your investment and may cost you
more than if you paid a front-end sales charge. If you hold your Class B shares
for six years, they will automatically convert to Class A shares, which have
lower ongoing expenses.

If you sell Class B shares before the end of six years, you will pay a deferred
sales charge. We calculate the deferred sales charge by multiplying the lesser
of the net asset value of the Class B shares at the time of purchase or the net
asset value at the time of sale by the percentage shown below:

14
<PAGE>
PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------
PERCENTAGE BY WHICH THE
IF YOU SELL SHARES' NET ASSET
SHARES WITHIN: VALUE IS MULTIPLIED:

1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None

We will not impose the deferred sales charge on Class B shares representing
reinvestment of dividends or on withdrawals in any year of up to 12% of the
value of your Class B shares under the Systematic Withdrawal Plan.

To minimize your deferred sales charge, we will assume that you are selling:

o First, Class B shares representing reinvested dividends, and

o Second, Class B shares that you have owned the longest.

SALES CHARGE WAIVERS. You may qualify for a waiver of the deferred sales charge
on a sale of shares if:

o You participate in the Systematic Withdrawal Plan;
o You are older than 59-1/2 and are selling shares to take a distribution
from certain types of retirement plans;
o You receive a tax-free return of an excess IRA contribution;
o You receive a tax-qualified retirement plan distribution following
retirement; or
o The shares are sold within one year of your death and you owned the shares
either (1) as the sole shareholder or (2) with your spouse as a joint
tenant with the right of survivorship.

NOTE: If you think you qualify for any of these sales charge waivers, you will
need to provide documentation to PaineWebber or the fund. For more information,
you should contact your PaineWebber Financial Advisor or correspondent firm or
call 1-800-647-1568. If you want information on the Systematic Withdrawal Plan,
see the Statement of Additional Information or contact your PaineWebber
Financial Advisor or correspondent firm.

CLASS C SHARES

Class C shares have a level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of your
purchase in fund shares.

Class C shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Over time these fees will increase the cost of your investment and may cost you
more than if you paid a front-end sales charge. Class C shares do not convert to
another class of shares. This means that you will pay the 12b-1 fees for as long
as you own your shares.

Class C shares also have a contingent deferred sales charge. You may have to pay
the deferred sales charge if you sell your shares within one year of the date
you purchased them. We calculate the deferred sales charge on sales of Class C
shares by multiplying 1.00% by the lesser of the net asset value of the Class C
shares at the time of purchase or the net asset value at the time of sale. We
will not impose the deferred sales charge on Class C shares representing
reinvestment of dividends or on withdrawals in the first year after purchase, of
up to 12% of the value of your Class C shares under the Systematic Withdrawal
Plan.

NOTE: If you want information on the funds' Systematic Withdrawal Plan, see the
Statement of Additional Information or contact your PaineWebber Financial
Advisor or correspondent firm.

CLASS Y SHARES

Class Y shares have no sales charge. Only specific types of investors can
purchase Class Y shares. You may be eligible to purchase Class Y shares if you:

o Buy shares through PaineWebber's PACE Multi-Advisor Program;

o Buy $10 million or more of PaineWebber fund shares at any one time;

o Are a qualified retirement plan with 5,000 or more eligible employees or
$50 million in assets; or

o Are an investment company advised by PaineWebber or an affiliate of
PaineWebber.

The trustee of PaineWebber's 401(k) Plus Plan for its employees is also eligible
to purchase Class Y shares.

15
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PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

Class Y shares do not pay ongoing sales or distribution fees or sales charges.
The ongoing expenses for Class Y shares are the lowest for all the classes.

BUYING SHARES

If you are a PaineWebber client, or a client of a PaineWebber correspondent
firm, you can purchase fund shares through your Financial Advisor. Otherwise,
you can invest in the funds through the funds' transfer agent, PFPC Inc. You can
obtain an application by calling 1-800-647-1568. You must complete and sign the
application and mail it, along with a check, to:

PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.

If you wish to invest in other PaineWebber Funds, you can do so by:

o Contacting your Financial Advisor (if you have an account at PaineWebber
or at a PaineWebber correspondent firm);
o Mailing an application with a check; or
o Opening an account by exchanging shares from another PaineWebber fund.

You do not have to complete an application when you make additional investments
in the same fund.

The funds and Mitchell Hutchins reserve the right to reject a purchase order or
suspend the offering of shares.

MINIMUM INVESTMENTS

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

Each fund may waive or reduce these amounts for:

o Employees of PaineWebber or its affiliates; or
o Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the funds' automatic investment plans.

FREQUENT TRADING The interests of a fund's long-term shareholders and its
ability to manage its investments may be adversely affected when its shares are
repeatedly bought and sold in response to short-term market fluctuations -- also
known as "market timing." When large dollar amounts are involved, the fund may
have difficulty implementing long-term investment strategies, because it cannot
predict how much cash it will have to invest. Market timing also may force the
fund to sell portfolio securities at disadvantageous times to raise the cash
needed to buy a market timer's fund shares. These factors may hurt the fund's
performance and its shareholders. When Mitchell Hutchins believes frequent
trading would have a disruptive effect on a fund's ability to manage its
investments, Mitchell Hutchins and the fund may reject purchase orders and
exchanges into the fund by any person, group or account that Mitchell Hutchins
believes to be a market timer. A fund may notify the market timer that a
purchase order or an exchange has been rejected after the day the order is
placed.

SELLING SHARES

You can sell your fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the fund
will assume that you want to sell shares in the following order: Class A, then
Class C, then Class B and last, Class Y.

If you want to sell shares that you purchased recently, the fund may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.

If you have an account with PaineWebber or a PaineWebber correspondent firm, you
can sell shares by contacting your Financial Advisor.

If you do not have an account at PaineWebber or a correspondent firm, and you
bought your shares through the transfer agent, you can sell your shares by
writing to the fund's transfer agent. Your letter must include:

o Your name and address;
o The fund's name;
o The fund account number;
o The dollar amount or number of shares you want to sell; and
o 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 that is a participant in one of the
medallion programs recognized by the Securities Transfer Agents
Association. These are: Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock
Exchange Medallion Signature

16
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PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

Program (MSP). The funds will not accept signature guarantees that are not a
part of these programs.

Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.

If you sell Class A shares and then repurchase Class A shares of the same fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.

It costs each fund money to maintain shareholder accounts. Therefore, the funds
reserve the right to repurchase all shares in any account that has a net asset
value of less than $500. If a fund elects to do this with your account, it will
notify you that you can increase the amount invested to $500 or more within 60
days. A fund will not repurchase shares in accounts that fall below $500 solely
because of a decrease in the fund's net asset value.

EXCHANGING SHARES

You may exchange Class A, Class B or Class C shares of each fund for shares of
the same class of most other PaineWebber funds. You may not exchange Class Y
shares.

You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares. However, you may have to pay a deferred sales charge if you
later sell the shares you acquired in the exchange. Each fund will use the date
that you purchased the shares in the first fund to determine whether you must
pay a deferred sales charge when you sell the shares in the acquired fund.

Other PaineWebber funds may have different minimum investment amounts. You may
not be able to exchange your shares if your exchange is not as large as the
minimum investment amount in that other fund.

You may exchange shares of one fund for shares of another fund only after the
first purchase has settled and the first fund has received your payment.
PAINEWEBBER CLIENTS. If you bought your shares through PaineWebber or a
correspondent firm, you may exchange your shares by placing an order with your
PaineWebber Financial Advisor.

OTHER INVESTORS. If you are not a PaineWebber client, you may exchange your
shares by writing to the fund's transfer agent. You must include:

o Your name and address;
o The name of the fund whose shares you are selling and the name of the fund
whose shares you want to buy;
o Your account number;
o How much you are exchanging (by dollar amount or by number of shares to be
sold); and
o A guarantee of your signature. (See "Buying Shares" for information on
obtaining a signature guarantee.)

Mail the letter to:

PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.

A fund may modify or terminate the exchange privilege at any time.

PRICING AND VALUATION

The price at which you may buy, sell or exchange fund shares is based on net
asset value per share. Each fund calculates net asset value on days that the New
York Stock Exchange is open. Each fund calculates net asset value separately for
each class as of the close of regular trading on the NYSE (generally, 4:00 p.m.,
Eastern time). The NYSE normally is not open, and the funds do not price their
shares, on national holidays and on Good Friday. If trading on the NYSE is
halted for the day before 4:00 p.m., Eastern time, the fund's net asset value
per share will be calculated as of the time trading was halted.

Your price for buying, selling or exchanging shares will be based on the net
asset value that is next calculated after the fund accepts your order. If you
place your order through PaineWebber, your PaineWebber Financial Advisor is
responsible for making sure that your order is promptly sent to the fund.

You should keep in mind that a front-end sales charge may be applied to your
purchase if you buy Class A shares. A deferred sales charge may be applied when
you sell Class B or Class C shares.

Each fund calculates its net asset value based on the current market value for
its portfolio securities. The funds normally obtain market values for their
securities from independent pricing services that use reported last sales

17
<PAGE>
PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
fund's board. The funds normally use the amortized cost method to value bonds
that will mature in 60 days or less.

Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.

The funds calculate the U.S. dollar value of investments that are denominated in
foreign currencies daily, based on current exchange rates. A fund may own
securities, including some securities that trade primarily in foreign markets,
that trade on weekends or other days on which a fund does not calculate net
asset value. You will not be able to sell your shares on those days. If a fund
concludes that a material change in the value of a foreign security has occurred
after the close of trading in its principal foreign market but before the close
of regular trading on the NYSE, the fund may use fair value methods to reflect
those changes. Any use of fair value methods would be intended to assure that
the fund's net asset value fairly reflects security values as of the time of
pricing.

18
<PAGE>

MANAGEMENT

PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

INVESTMENT ADVISER

Mitchell Hutchins Asset Management Inc. is the investment adviser and
administrator of the funds. Mitchell Hutchins is located at 1285 Avenue of the
Americas, New York, New York, 10019, and is a wholly owned asset management
subsidiary of PaineWebber Incorporated, which is wholly owned by Paine Webber
Group Inc., a publicly owned financial services holding company. On June 30,
1999, Mitchell Hutchins was adviser or sub-adviser of __ investment companies
with __ separate portfolios and aggregate assets of approximately $__._ billion.

PORTFOLIO MANAGERS

FINANCIAL SERVICES GROWTH FUND. Mark Tincher and Andrew B. Dinnhaupt are
responsible for the day-to-day management of the fund's portfolio. Mr. Tincher
is a managing director and chief investment officer of equities of Mitchell
Hutchins, responsible for overseeing the management of equity investments. He
assumed his responsibilities for the fund in May 1999. Prior to joining Mitchell
Hutchins in April 1995, Mr. Tincher was a vice president at Chase Manhattan
Private Bank, where he directed the U.S. funds management and equity research
area and oversaw the management of all Chase U.S. equity funds. Mr. Dinnhaupt is
a first vice president of Mitchell Hutchins and a financial services analyst,
and has been a portfolio manager for the fund since October 1998. Prior to
joining Mitchell Hutchins in July 1996, Mr. Dinnhaupt worked at Summit Bank as
an investment officer, portfolio manager, credit analyst and financial services
analyst.

UTILITY INCOME FUND. Mark Tincher and Christopher T. Solmssen are responsible
for the day-to-day management of the fund's stock portfolio. Mr. Tincher also is
responsible for determining the allocation of fund assets between stocks and
bonds. James F. Keegan and Julieanna Berry are responsible for the day-to-day
management of the fund's bond portfolio.

Mr. Tincher and Mr. Solmssen assumed their responsibilities for the fund in May
1999. Further information about Mr. Tincher's background may be found above
under "Financial Services Growth Fund." Mr. Solmssen is a vice president of
Mitchell Hutchins and an equity analyst covering utilities, telecommunications
and energy. Prior to joining Mitchell Hutchins in January 1998, Mr. Solmssen
worked at Sun America Asset Management as an equity analyst. Mrs. Berry and Mr.
Keegan have held their fund responsibilities since March and April 1996,
respectively. Mrs. Berry is a first vice president of Mitchell Hutchins, where
she has been employed 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 in 1995, Mr. Keegan was the director of fixed
income strategy and research at the Merrion Group, L.P. From 1987 to 1994, he
was vice president of global investment management of Bankers Trust Company.

ADVISORY FEES

The funds paid advisory fees to Mitchell Hutchins for the most recent fiscal
year at the following rate of average daily net assets:

Financial Services Growth Fund 0.70%
Utility Income Fund 0.70%

19
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PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

DIVIDENDS AND TAXES

DIVIDENDS

Financial Services Growth Fund normally declares and pays dividends and
distributes any gains annually. Utility Income Fund normally pays quarterly
dividends, and distributes substantially all of its gains, if any, annually.

Classes with higher expenses are expected to have lower dividends. For example,
Class B shares are expected to have the lowest dividends of any class of a
fund's shares, while Class Y shares are expected to have the highest.

You will receive dividends in additional shares of the same class unless you
elect to receive them in cash. Contact your Financial Advisor at PaineWebber or
one of its correspondent firms if you prefer to receive dividends in cash.

TAXES

The dividends that you receive from a fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. If you hold fund shares through a tax-exempt account or plan, such as
an IRA or 401(k) plan, dividends on your shares generally will not be subject to
tax.

When you sell fund shares, you generally will be subject to federal income tax
on any gain you realize. If you exchange any fund's shares for shares of another
PaineWebber mutual fund, the transaction will be treated as a sale of the first
fund's shares, and any gain will be subject to federal income tax.

Financial Services Growth Fund expects that its dividends will be comprised
primarily of capital gain distributions. Utility Income Fund expects that its
dividends will primarily be taxed as ordinary income. The distribution of
capital gains may be taxed at a lower rate than ordinary income, depending on
whether the fund held the assets that generated the gains for more than 12
months. Your fund will tell you how you should treat its dividends for tax
purposes.

20
<PAGE>

PaineWebber Financial Services Growth Fund Utility Income Fund
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand
the funds' financial performance for the past 5 years. Shorter periods are shown
for funds or classes of fund shares that have existed for less than 5 years.
Certain information reflects financial results for a single fund share. In the
tables, "total investment return" represents the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends).

This information in the financial highlights has been audited by Ernst & Young
LLP, independent auditors, whose reports, along with the funds' financial
statements, are included in the funds' Annual Reports to Shareholders. Annual
Reports may be obtained without charge by calling 1-800-647-1568.

21
<PAGE>

PaineWebber Financial Services Growth Fund
- ----------------------------------------------------------

FINANCIAL HIGHLIGHTS

FINANCIAL SERVICES GROWTH FUND

- --------------------------------------------------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------------------------------------------------

FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>

Net asset value, beginning of period
..................................... $23.41 $21.16 $17.11 $16.92
------ ------ ------ ------
Net investment income................ 0.20 0.18 0.30 0.25
Net realized and unrealized gains
(losses) from investments......... 11.75 5.69 6.25 1.34
----- ---- ---- ----
Net increase (decrease) from
investment operations............. 11.95 5.87 6.55 1.59
----- ---- ---- ----
Dividends from net investment
income............................ (0.21) (0.23) (0.29) (0.13)
Distributions from net realized
gains from investment
transactions...................... (1.59) (3.39) (2.21) (1.27)
------ ------ ------ ------
Total dividends and other
distributions to shareholders
..................................... (1.80) (3.62) (2.50) (1.40)
------ ------ ------ ------
Net asset value, end of period....... $33.56 $23.41 $21.16 $17.11
====== ====== ====== ======
Total investment return(1)........... 51.92% 28.72% 39.02% 10.22%
====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of period (000's)....
$209,818 $85,661 $64,003 $49,295
Expenses to average net assets 1.17% 1.52% 1.37% 1.45%
Net investment income (loss) to
average net assets................ 1.12% 0.90% 1.50% 1.40%
Portfolio turnover rate.............. 23% 40% 53% 14%
</TABLE>
- ----------------------------

* Annualized
+ Commencement of issuance 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.

22
<PAGE>
PaineWebber Financial Services Growth Fund
- ----------------------------------------------------------
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS

FINANCIAL SERVICES GROWTH FUND

- ------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------

FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
..................................... $22.87 $20.75 $16.85 $16.71
------ ------ ------ ------
Net investment income................ 0.09 0.04 0.13 0.11
Net realized and unrealized gains
(losses) from investments......... 11.34 5.53 6.16 1.33
----- ---- ---- ----
Net increase (decrease) from
investment operations............. 11.43 5.57 6.29 1.44
----- ---- ---- ----
Dividends from net investment
income............................ (0.09) (0.06) (0.18) (0.03)
Distributions from net realized
gains from investment
transactions...................... (1.59) (3.39) (2.21) (1.27)
------ ------ ------ ------
Total dividends and other
distributions to shareholders
..................................... (1.68) (3.45) (2.39) (1.30)
------ ------ ------ ------
Net asset value, end of period....... $32.62 $22.87 $20.75 $16.85
====== ====== ====== ======
Total investment return(1)........... 50.80% 27.74% 37.97% 9.37%
====== ====== ====== =====
Ratios/Supplemental Data:
Net assets, end of period (000's)
..................................... $198,473 $41,579 $28,147 $16,368
Expenses to average net assets 1.92% 2.27% 2.12% 2.22%
Net investment income (loss) to
average net assets................ 0.37% 0.15% 0.74% 0.67%
Portfolio turnover rate.............. 23% 40% 53% 14%
</TABLE>

23
<PAGE>

PaineWebber Financial Services Growth Fund
- ----------------------------------------------------------

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS

FINANCIAL SERVICES GROWTH FUND

- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------

FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
..................................... $22.84 $20.75 $16.86 $16.71
------ ------ ------ ------
Net investment income................ 0.12 0.06 0.12 0.11
Net realized and unrealized gains
(losses) from investments......... 11.28 5.51 6.16 1.33
----- ---- ---- ----
Net increase (decrease) from
investment operations............. 11.40 5.57 6.28 1.44
----- ---- ---- ----
Dividends from net investment
income............................ (0.09) (0.09) (0.18) (0.02)
Distributions from net realized
gains from investment
transactions...................... (1.59) (3.39) (2.21) (1.27)
------ ------ ------ ------
Total dividends and other
distributions to shareholders
..................................... (1.68) (3.48) (2.39) (1.29)
------ ------ ------ ------
Net asset value, end of period....... $32.56 $22.84 $20.75 $16.86
====== ====== ====== ======
Total investment return(1)........... 50.76% 27.74% 37.92% 9.34%
====== ====== ====== =====
Ratios/Supplemental Data:
Net assets, end of period (000's)
..................................... $63,809 $12,357 $6,989 $4,160
Expenses to average net assets 1.92% 2.28% 2.14% 2.23%
Net investment income (loss) to
average net assets................ 0.36% 0.15% 0.72% 0.61%
Portfolio turnover rate.............. 23% 40% 53% 14%
</TABLE>

24
<PAGE>

PaineWebber Financial Services Growth Fund
- ----------------------------------------------------------

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS

FINANCIAL SERVICES GROWTH FUND

- ---------------------------------------------------------------------------------------------------------------------------
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------

FOR THE PERIOD
MARCH 30, 1998+
FOR THE YEARS ENDED MARCH 31, TO MARCH 31,
--------------------------------------- --------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Net asset value, beginning of period
..................................... $32.22
Net investment income................ 0.00
Net realized and unrealized gains
(losses) from investments......... 0.34
Net increase (decrease) from
investment operations............. 0.34
----
Dividends from net investment
income............................ 0.00
Distributions from net realized
gains from investment
transactions...................... 0.00
Total dividends and other
distributions to shareholders
..................................... 0.00
----
Net asset value, end of period....... $33.56
======
Total investment return(1)........... 1.02%
=====
Ratios/Supplemental Data:
Net assets, end of period (000's)
..................................... $2
Expenses to average net assets 0.80%*
Net investment income (loss) to
average net assets................ 0.00%*
Portfolio turnover rate.............. 23%

</TABLE>

25
<PAGE>

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

FINANCIAL HIGHLIGHTS

UTILITY INCOME FUND

- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------

FOR THE FOUR
MONTHS ENDED FOR THE YEARS ENDED NOVEMBER
FOR THE YEARS ENDED MARCH 31, MARCH 31, 30,
------------------------------------------------ ---------------- ----------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
..................................... $10.20 $9.76 $9.77 $8.31 $9.66
------ ----- ----- ----- -----
Net investment income................ 0.33 0.34 0.15 0.47 0.48
Net realized and unrealized gains
(losses) from investments......... 3.61 0.41 -- 1.44 (1.31)
---- ---- -- --- ---- ------
Net increase (decrease) from
investment operations............. 3.94 0.75 0.15 1.91 (0.83)
---- ---- ---- ---- ------
Dividends from net investment
income............................ (0.35) (0.31) (0.16) (0.45) (0.52)
------ ------ ------ ------ ------
Net asset value, end of period....... $13.79 $10.20 $9.76 $9.77 $8.31
====== ====== ===== ===== =====
Total investment return (1).......... 39.15% 7.83% 1.46% 23.64% (8.76)%
====== ===== ===== ====== =======
Ratios/Supplemental Data:
Net assets, end of period (000's)
..................................... $7,856 $6,039 $9,416 $10,750 $12,532
Expenses to average net assets, net
of waivers from adviser........... 1.92% 1.93% 1.09%* 1.49% 1.58%
Expenses to average net assets,
before waivers from adviser, to
average net assets................ 1.92% 2.00% 1.44%* 1.49% 1.58%
Net investment income, before
waivers from adviser, to average
net assets........................ 2.77% 3.27% 4.26%* 5.13% 5.49%
Net investment income, before
waivers from adviser, to average
net assets........................ 2.77% 3.20% 3.91%* 5.13% 5.49%
Portfolio turnover rate.............. 10% 41% 21% 30% 92%

</TABLE>

- ------------------------------
* Annualized
+ Commencement of issuance 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.

26
<PAGE>
PaineWebber Utility Income Fund
- ---------------------------------------------
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS

UTILITY INCOME FUND

- -------------------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------------------

FOR THE FOUR
MONTHS ENDED FOR THE YEARS ENDED NOVEMBER
FOR THE YEARS ENDED MARCH 31, MARCH 31, 30,
------------------------------------------------ ---------------- ----------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period
..................................... $10.20 $9.75 $9.77 $8.31 $9.65
------ ----- ----- ----- -----
Net investment income................ 0.25 0.26 0.12 0.40 0.42
Net realized and unrealized gains
(losses) from investments......... 3.60 0.42 (0.01) 1.45 (1.31)
---- ---- ------ ---- ------
Net increase (decrease) from
investment operations............. 3.85 0.68 0.11 1.85 (0.89)
---- ---- ---- ---- ------
Dividends from net investment
income............................ (0.26) (0.23) (0.13) (0.39) (0.45)
------ ------ ------ ------ ------
Net asset value, end of period $13.79 $10.20 $9.75 $9.77 $8.31
====== ====== ===== ===== =====
Total investment return (1).......... 38.13% 7.05% 1.10% 22.73% (9.35)%
====== ===== ===== ====== =======
Ratios/Supplemental Data:
Net assets, end of period (000's).
$21,562 $21,071 $34,765 $37,554 $37,156
Expenses to average net assets, net
of waivers from adviser........... 2.68% 2.69% 1.85%* 2.23% 2.33%
Expenses to average net assets,
before waivers from adviser, to
average net assets................ 2.68% 2.76% 2.20%* 2.23% 2.33%
Net investment income, before
waivers from adviser, to average
net assets........................ 2.05% 2.51% 3.51%* 4.37% 4.72%
Net investment income, before
waivers from adviser, to average
net assets........................ 2.05% 2.44% 3.16%* 4.37% 4.72%
Portfolio turnover rate.............. 10% 41% 21% 30% 92%
</TABLE>

27
<PAGE>

PaineWebber Utility Income Fund
- ---------------------------------------------
<TABLE>
<CAPTION>

FINANCIAL HIGHLIGHTS

UTILITY INCOME FUND

- ------------------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------

FOR THE FOUR
MONTHS ENDED FOR THE YEARS ENDED NOVEMBER
FOR THE YEARS ENDED MARCH 31, MARCH 31, 30,
------------------------------------------------ ---------------- ----------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period
..................................... $10.20 $9.75 $9.77 $8.31 $9.65
------ ----- ----- ----- -----
Net investment income................ 0.23 0.25 0.12 0.40 0.42
Net realized and unrealized gains
(losses) from investments......... 3.61 0.43 (0.01) 1.45 (1.31)
---- ---- ------ ---- ------
Net increase (decrease) from
investment operations............. 3.84 0.68 0.11 1.85 (0.89)
---- ---- ---- ---- ------
Dividends from net investment
income............................ (0.26) (0.23) (0.13) (0.39) (0.45)
------ ------ ------ ------ ------
Net asset value, end of period $13.78 $10.20 $9.75 $9.77 $8.31
====== ====== ===== ===== =====
Total investment return (1).......... 38.09% 7.06% 1.10% 22.71% (9.36)%
====== ===== ===== ====== =======
Ratios/Supplemental Data:
Net assets, end of period (000's)
..................................... $7,736 $6,909 $11,072 $12,222 $13,922
Expenses to average net assets, net
of waivers from adviser........... 2.68% 2.70% 1.85%* 2.24% 2.32%
Expenses to average net assets,
before waivers from adviser, to
average net assets................ 2.68% 2.76% 2.20%* 2.24% 2.32%
Net investment income, before
waivers from adviser, to average
net assets........................ 1.99% 2.51% 3.50%* 4.37% 4.69%
Net investment income, before
waivers from adviser, to average
net assets........................ 1.99% 2.44% 3.15%* 4.37% 4.69%
Portfolio turnover rate.............. 10% 41% 21% 30% 92%
</TABLE>

28
<PAGE>

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

FINANCIAL HIGHLIGHTS

UTILITY INCOME FUND

- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------

FOR THE PERIOD
SEPTEMBER 10, 1998+
TO MARCH 31,
------------------------------------
1999
----
Net asset value, beginning of period
.....................................
Net investment income................
Net realized and unrealized gains
(losses) from investments.........
Net increase (decrease) from
investment operations ............
Dividends from net investment
income............................
Distributions from net realized gains
from investment transactions
.....................................
Total dividends and other
distributions to shareholders
.....................................
Net asset value, end of period
Total investment return(1)...........
Ratios/Supplemental Data:
Net assets, end of period (000's)
.....................................
Expenses to average net assets
Net investment income (loss) to
average net assets................
Portfolio turnover rate..............

29
<PAGE>

<S> <C> <C> <C> <C>
TICKER SYMBOL: Financial Services Growth Fund Class: A: PREAX.Q Utility Income Fund Class: A: PUTAX.Q
B: PREBX.Q B: PUIBX.Q
C: PFICX.Q C: PUTDX.Q
Y: None Y: None
</TABLE>

If you want more information about the funds, the following documents are
available free upon request:

ANNUAL/SEMI-ANNUAL REPORTS

Additional information about the funds' investments is available in the funds'
annual and semi-annual reports to shareholders. In the funds' annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the funds' performance during the last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI provides more detailed information about the funds and is incorporated
by reference into this prospectus.

You may discuss your questions about the funds by contacting your PaineWebber
Financial Advisor. You may obtain free copies of annual and semi-annual reports
and the SAI by contacting the funds directly at 1-800-647-1568.

You may review and copy information about the funds, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and Exchange
Commission. You can get text-only copies of reports and other information about
the funds:

o For a fee, by writing to or calling the SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330

o Free, from the SEC's Internet website at: http://www.sec.gov

Investment Company Act File Nos.
PaineWebber Financial Services Growth Fund Inc. - 811-4587
PaineWebber Managed Investments Trust -- 811-4040

<PAGE>

PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER UTILITY INCOME FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

Each of the funds named above is, or is a series of, a diversified,
professionally managed, open-end management investment company. PaineWebber
Financial Services Growth Fund Inc. is a Maryland corporation (the
"Corporation"). PaineWebber Utility Income Fund is a series of PaineWebber
Managed Investments Trust (the "Trust").

The investment adviser, administrator and distributor for each fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"). As
distributor for the funds, Mitchell Hutchins has appointed PaineWebber to serve
as the exclusive dealer for the sale of fund shares.

Portions of each fund's Annual Report to Shareholders are incorporated by
reference into this Statement of Additional Information. The Annual Reports
accompany this Statement of Additional Information. You may obtain an additional
copy of a fund's Annual Report by calling toll-free 1-800-647-1568.

This Statement of Additional Information ("SAI") is not a prospectus and
should be read only in conjunction with the funds' current Prospectus, dated
August 1, 1999. A copy of the Prospectus may be obtained by calling any
PaineWebber Financial Advisor or correspondent firm or by calling toll-free
1-800-647-1568. This SAI is dated August 1, 1999.

TABLE OF CONTENTS
PAGE
----
The Funds and Their Investment
Policies.............................................................2
The Funds' Investments, Related Risks and
Limitations..........................................................3
Strategies Using Derivative
Instruments..........................................................12
Organization; Board Members, Officers and Principal Holders of
Securities...........................................................20
Investment Advisory and Distribution
Arrangements............................................................28
Portfolio Transactions..................................................34
Reduced Sales Charges, Additional Exchange and Redemption
Information and Other Services.......................................36
Conversion of Class B Shares............................................41
Valuation of Shares.....................................................41
Performance Information.................................................42
Taxes...................................................................44
Other Information.......................................................47
Financial Statements....................................................49
Appendix...............................................................A-1

<PAGE>

THE FUNDS AND THEIR INVESTMENT POLICIES

No fund's investment objective may be changed without shareholder
approval. Except where noted, the other investment policies of each fund may be
changed by its board without shareholder approval. As with other mutual funds,
there is no assurance that a fund will achieve its investment objective.

FINANCIAL SERVICES GROWTH FUND'S investment objective is long-term capital
appreciation. The fund seeks to achieve this objective by investing primarily in
equity securities of companies in the financial services industries. These
companies include banks, thrift institutions ("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 normally invests at least 65% of its total assets in equity
securities of financial services companies. To be considered a financial
services company, the company must: (1) 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 (2) 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 the investment adviser, 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.

The fund may invest up to 10% of its net assets in illiquid securities.
The fund may purchase securities on a when-issued basis and may purchase or sell
securities for delayed delivery. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33-1/3%
of its total assets. The fund may also borrow from banks or through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The fund also may invest in securities of other
investment companies and may sell securities short "against the box."

UTILITY INCOME FUND'S investment objective is current income and capital
appreciation. The fund seeks 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
either: (1) more than 50% of the company's assets are devoted to the ownership
or operation of one or more such facilities; or (2) 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.

2
<PAGE>

THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS

The following supplements the information contained in the Prospectus and
above concerning the funds' investments, related risks and limitations. Except
as otherwise indicated in the Prospectus or the Statement of Additional
Information, the funds have established no policy limitations on their ability
to use the investments or techniques discussed in these documents.

EQUITY SECURITIES. Equity securities (referred to as "stocks" in the
Prospectus) include common stocks, most preferred stocks and securities that are
convertible into them, including common stock purchase warrants and rights,
equity interests in trusts, partnerships, joint ventures or similar enterprises
and depository receipts. 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, that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. Depository receipts typically are issued by banks or trust companies
and evidence ownership of underlying 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.

BONDS. Bonds are fixed or variable rate debt obligations, including notes,
debentures, and similar instruments and securities and money market instruments.
Mortgage- and asset-backed securities are types of bonds, and certain types of
income-producing, non-convertible preferred stocks may be treated as bonds for
investment purposes. Bonds generally are used by corporations and governments to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and normally must repay the amount borrowed on or before
maturity. Many preferred stocks and some bonds are "perpetual" in that they have
no maturity date.

Bonds are subject to interest rate risk and credit risk. Interest rate
risk is the risk that interest rates will rise and that, as a result, bond
prices will fall, lowering the value of a fund's investments in bonds. In
general, bonds having longer durations are more sensitive to interest rate
changes than are bonds with shorter durations. Credit risk is the risk that an
issuer may be unable or unwilling to pay interest and/or 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.

CONVERTIBLE SECURITIES. A convertible security is a bond, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest or dividends until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
unique investment characteristics in that they generally (1) have higher yields
than common stocks, but lower yields than comparable non-convertible securities,
(2) are less subject to fluctuation in value than the underlying stock because
they have fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. While
no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock. However,
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security.

Before conversion, convertible securities have characteristics similar to
non-convertible bonds in that they ordinarily provide a stable stream of income
with generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable non-convertible
securities. The value of a convertible security is a function of its "investment

3
<PAGE>

value" (determined by its yield comparison with the yields of other securities
of comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the security's worth, at market value, if converted into
the underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. In addition, a convertible
security generally will sell at a premium over its conversion value determined
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security.

WARRANTS. Warrants are securities permitting, but not obligating, holders
to subscribe for other securities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.

CREDIT RATINGS; NON-INVESTMENT GRADE BONDS. Moody's, S&P and other rating
agencies are private services that provide ratings of the credit quality of debt
obligations and certain other securities. A description of the ratings assigned
to corporate bonds by Moody's and S&P is included in the Appendix to this
Statement of Additional Information. The process by which Moody's and S&P
determine ratings for mortgage-backed securities includes consideration of the
likelihood of the receipt by security holders of all distributions, the nature
of the underlying assets, the credit quality of the guarantor, if any, and the
structural, legal and tax aspects associated with these securities. Not even the
highest such ratings represent an assessment of the likelihood that principal
prepayments will be made by obligors on the underlying assets or the degree to
which such prepayments may differ from that originally anticipated, nor do such
ratings address the possibility that investors may suffer a lower than
anticipated yield or that investors in such securities may fail to recoup fully
their initial investment due to prepayments.

Credit ratings attempt to evaluate the safety of principal and interest
payments, but they do not evaluate the volatility of a debt security's value or
its liquidity and do not guarantee the performance of the issuer. 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 rating agencies may
downgrade the rating of a bond. The funds may use these ratings in determining
whether to purchase, sell or hold a security. It should be emphasized, however,
that ratings are general and are not absolute standards of quality.
Consequently, securities with the same maturity, interest rate and rating may
have different market prices.

In addition to ratings assigned to individual bond issues, Mitchell
Hutchins or a sub-adviser will analyze interest rate trends and developments
that may affect individual issuers, including factors such as liquidity,
profitability and asset quality. The yields on bonds are dependent on a variety
of factors, including general money market conditions, general conditions in the
bond market, the financial condition of the issuer, the size of the offering,
the maturity of the obligation and its rating. There is a wide variation in the
quality of bonds, both within a particular classification and between
classifications. An issuer's obligations under its bonds are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of bond holders or other creditors of an issuer; litigation or other
conditions may also adversely affect the power or ability of issuers to meet
their obligations for the payment of interest and principal on their bonds.

Investment grade bonds are rated in one of the four highest rating
categories by Moody's or S&P, comparably rated by another rating agency or, if
unrated, determined by Mitchell Hutchins or a sub-adviser to be of comparable
quality. Moody's considers bonds rated Baa (its lowest investment grade rating)

4
<PAGE>

to have speculative characteristics. This means that 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 bonds.

Non-investment grade bonds (commonly known as "junk bonds") are rated Ba
or lower by Moody's, BB or lower by S&P, comparably rated by another rating
agency or determined by Mitchell Hutchins to be of comparable quality. A fund's
investments in non-investment grade bonds entail greater risk than its
investments in higher rated bonds. Non-investment grade bonds, which are
sometimes referred to as "high yield" bonds, are considered predominantly
speculative with respect to the issuer's ability to pay interest and repay
principal and may involve significant risk exposure to adverse conditions.
Non-investment grade bonds generally offer a higher current yield than that
available for investment grade issues; however, they involve higher risks, in
that they are especially sensitive to adverse changes in general economic
conditions and in the industries in which the issuers are engaged, to changes in
the financial condition of the issuers and to price fluctuations in response to
changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress which
could adversely affect their ability to make payments of interest and principal
and increase the possibility of default. In addition, such issuers may not have
more traditional methods of financing available to them and may be unable to
repay debt at maturity by refinancing. The risk of loss due to default by such
issuers is significantly greater because such securities frequently are
unsecured by collateral and will not receive payment until more senior claims
are paid in full.

The market for non-investment grade bonds, especially those of foreign
issuers, has expanded rapidly in recent years, which has been a period of
generally expanding growth and lower inflation. These securities will be
susceptible to greater risk when economic growth slows or reverses and when
inflation increases or deflation occurs. This has been reflected in recent
volatility in emerging market securities, particularly in Asia. In the past,
many lower rated bonds experienced substantial price declines reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated bonds rose dramatically.
However, such higher yields did not reflect the value of the income stream that
holders of such securities expected, but rather the risk that holders of such
securities could lose a substantial portion of their value as a result of the
issuers' financial restructurings or defaults. There can be no assurance that
such declines will not recur.

The market for non-investment grade bonds generally is thinner and less
active than that for higher quality securities, which may limit a fund's ability
to sell such securities at fair value in response to changes in the economy or
financial markets. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of
non-investment grade securities, especially in a thinly traded market.

U.S. GOVERNMENT SECURITIES include direct obligations of the U.S.
Treasury (such as Treasury bills, notes or bonds) and obligations issued or
guaranteed as to principal and interest (but not as to market value) by the
U.S. government, its agencies or its instrumentalities (collectively, "U.S.
government securities"). U.S. government securities include mortgage-backed
securities issued or guaranteed by government agencies or
government-sponsored enterprises. Other U.S. government securities may be
backed by the full faith and credit of the U.S. government or supported
primarily or solely by the creditworthiness of the government-related issuer
or, in the case of mortgage-backed securities, by pools of assets.

Treasury inflation-protected securities ("TIPS") are Treasury bonds on
which the principal value is adjusted daily in accordance with changes in the
Consumer Price Index. Interest on TIPS is payable semi-annually on the adjusted
principal value. The principal value of TIPS would decline during periods of
deflation, but the principal amount payable at maturity would not be less than
the original par amount. If inflation is lower than expected while a fund holds
TIPS, the fund may earn less on the TIPS than it would on conventional Treasury
bonds.

INVESTING IN FOREIGN SECURITIES. Investing in foreign securities involves
more risks than investing in the United States. The value of foreign securities
is subject to economic and political developments in the countries where the
companies operate and to changes in foreign currency values. Investments in
foreign securities involve risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are subject. These
risks may include expropriation, confiscatory taxation, withholding taxes on
interest and/or dividends, limitations on the use of or transfer of fund assets

5
<PAGE>

and political or social instability or diplomatic developments. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. In those European countries that have begun using the Euro as a common
currency unit, individual national economies may be adversely affected by the
inability of national governments to use monetary policy to address their own
economic or political concerns.

Securities of many foreign companies may be less liquid and their prices
more volatile than securities of comparable U.S. companies. Transactions in
foreign securities may be subject to less efficient settlement practices.
Foreign securities trading practices, including those involving securities
settlement where fund assets may be released prior to receipt of payment, may
expose the funds to increased risk in the event of a failed trade or the
insolvency of a foreign broker-dealer. Legal remedies for defaults and disputes
may have to be pursued in foreign courts, whose procedures differ substantially
from those of U.S. courts. Additionally, 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.

Securities of foreign issuers may not be registered with the Securities
and Exchange Commission ("SEC"), and the issuers thereof may not be subject to
its reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by the funds than is
available concerning U.S. companies. Foreign companies are not generally subject
to uniform accounting, auditing and financial reporting standards or to other
regulatory requirements comparable to those applicable to U.S. companies.

The funds may invest in foreign securities by purchasing depository
receipts, including American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") and Global Depository Receipts ("GDRs"), or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying
securities. They generally are in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. EDRs are
European receipts evidencing a similar arrangement, may be denominated in other
currencies and are designed for use in European securities markets. GDRs are
similar to EDRs and are designed for use in several international financial
markets. For purposes of each fund's investment policies, depository receipts
generally are deemed to have the same classification as the underlying
securities they represent. Thus, a depository receipt representing ownership of
common stock will be treated as common stock.

ADRs are publicly traded on exchanges or OTC in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depositary's transaction fees are
paid directly by the ADR holders. In addition, less information is available in
the United States about an unsponsored ADR than about a sponsored ADR.

The funds anticipate that their brokerage transactions involving foreign
securities of companies headquartered in countries other than the United States
will be conducted primarily on the principal exchanges of such countries.
However, from time to time foreign securities may be difficult to liquidate
rapidly without significantly depressing the price of such securities. Although
each fund will endeavor to achieve the best net results in effecting its
portfolio transactions, transactions on foreign exchanges are usually subject to
fixed commissions that are generally higher than negotiated commissions on U.S.
transactions. There is generally less government supervision and regulation of
exchanges and brokers in foreign countries than in the United States.

Investment income on certain foreign securities in which the funds may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the funds would be subject. In addition, substantial limitations may
exist in certain countries with respect to the funds' ability to repatriate
investment capital or the proceeds of sales of securities.

6
<PAGE>

FOREIGN CURRENCY TRANSACTIONS. Currency risk is the risk that changes in
foreign exchange rates may reduce the U.S. dollar value of a fund's foreign
investments. A fund's share value may change significantly when its investments
are denominated in foreign currencies. Generally, currency exchange rates are
determined by supply and demand in the foreign exchange markets and the relative
merits of investments in different countries. Currency exchange rates also can
be affected by the intervention of the U.S. and foreign governments or central
banks, the imposition of currency controls, speculation, devaluation or other
political or economic developments inside and outside the United States.

Each fund values its assets daily in U.S. dollars and does not intend to
convert its holdings of foreign currencies to U.S. dollars on a daily basis.
From time to time a fund's foreign currencies may be held as "foreign currency
call accounts" at foreign branches of foreign or domestic banks. These accounts
bear interest at negotiated rates and are payable upon relatively short demand
periods. If a bank became insolvent, a fund could suffer a loss of some or all
of the amounts deposited. Each fund may convert foreign currency to U.S. dollars
from time to time.

The value of the assets of a fund as measured in U.S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Further, a fund may incur costs in connection with
conversions between various currencies. Currency exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to a fund at one rate, while offering a lesser rate of exchange should
a fund desire immediately to resell that currency to the dealer. Each fund
conducts its currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
entering into forward, futures or options contracts to purchase or sell foreign
currencies.

ZERO COUPON AND OTHER OID SECURITIES. Zero coupon securities are
securities on which no periodic interest payments are made and are sold at a
deep discount from their face value. The buyer of these securities receives a
rate of return by the gradual appreciation of the security, which results from
the fact that it will be paid at face value on a specified maturity date. There
are many types of zero coupon securities. Some are issued in zero coupon form,
including Treasury bills, notes and bonds that have been stripped of (separated
from) their unmatured interest coupons (unmatured interest payments) and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Others are created by brokerage firms that strip the
coupons from interest-paying bonds and sell the principal and the coupons
separately.

The funds may invest in other securities with original issue discount
("OID"), a term that means the securities are issued at a price that is lower
than their value at maturity, even though the securities also may make cash
payments of interest prior to maturity. These OID securities usually trade at a
discount from their face value.

Zero coupon securities are generally more sensitive to changes in interest
rates than debt obligations of comparable maturities that make current interest
payments. This means that when interest rates fall, the value of zero coupon
securities rises more rapidly than securities paying interest on a current
basis. However, when interest rates rise, their value falls more dramatically.
Other OID securities also are subject to greater fluctuations in market value in
response to changing interest rates than bonds of comparable maturities that
make current distributions of interest in cash. Federal tax law requires that
the holder of a zero coupon security or other OID security include in gross
income each year the original issue discount that accrues on the security for
the year, even though the holder receives no interest payment on the security
during the year. Accordingly, to continue to qualify as a regulated investment
company and avoid imposition of federal income and excise taxes, a fund may be
required to distribute as dividends amounts that are greater than the total
amount of cash it actually receives. These distributions must be made from the
fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. A fund will not be able to purchase additional securities with cash
used to make such distributions and its current income and the value of its
shares may ultimately be reduced as a result.

ILLIQUID SECURITIES. The term "illiquid securities" for purposes of the
Prospectus and Statement of Additional Information means securities that cannot
be disposed of within seven days in the ordinary course of business at
approximately the amount at which a fund has valued the securities and includes,
among other things, purchased over-the counter options, repurchase agreements
maturing in more than seven days and restricted securities other than those

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Mitchell Hutchins has determined are liquid pursuant to guidelines established
by each fund's board. The assets used as cover for over-the counter options
written by the funds will be considered illiquid unless the over-the counter
options are sold to qualified dealers who agree that the funds may repurchase
any over-the counter options they write at a maximum price to be calculated by a
formula set forth in the option agreements. The cover for an over-the counter
option written subject to this procedure would be considered illiquid only to
the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option. Under current SEC guidelines, interest-only
("IO") and principal-only ("PO") classes of mortgage-backed securities generally
are considered illiquid. However, IO and PO classes of fixed-rate
mortgage-backed securities issued by the U.S. government or one of its agencies
or instrumentalities will not be considered illiquid if Mitchell Hutchins has
determined that they are liquid pursuant to guidelines established by each
fund's board. To the extent a fund invests in illiquid securities, it may not be
able to readily liquidate such investments and may have to sell other
investments if necessary to raise cash to meet its obligations. The lack of a
liquid secondary market for illiquid securities may make it more difficult for a
fund to assign a value to those securities for purposes of valuing its portfolio
and calculating its net asset value.

Restricted securities are not registered under the Securities Act of 1933
and may be sold only in privately negotiated or other exempted transactions or
after a 1933 Act registration statement has become effective. Where registration
is required, a fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time a fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a fund might obtain a less favorable price than
prevailed when it decided to sell.

However, not all restricted securities are illiquid. To the extent that
foreign securities are freely tradable in the country in which they are
principally traded, they generally are not considered illiquid, even if they are
restricted in the United States. A large institutional market has developed for
many U.S. and foreign securities that are not registered under the 1933 Act.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.

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

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

TEMPORARY AND DEFENSIVE INVESTMENTS; MONEY MARKET INVESTMENTS. Each fund
may invest in money market investments for temporary or defensive purposes or as
part of its normal investment program. Such investments include, among other
things, (1) securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities, (2) debt obligations of banks, savings and loan
institutions, insurance companies and mortgage bankers, (3) commercial paper and
notes, including those with variable and floating rates of interest, (4) debt

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obligations of foreign branches of U.S. banks, U.S. branches of foreign banks
and foreign branches of foreign banks, (5) debt obligations issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities, including obligations of supranational entities,
(6) bonds issued by foreign issuers, (7) repurchase agreements and (8) other
investment companies that invest exclusively in money market instruments.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
fund purchases securities or other obligations from a bank or securities dealer
(or its affiliate) and simultaneously commits to resell them to the counterparty
at an agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased obligations.
A fund maintains custody of the underlying obligations prior to their
repurchase, either through its regular custodian or through a special
"tri-party" custodian or sub-custodian that maintains separate accounts for both
the fund and its counterparty. Thus, the obligation of the counterparty to pay
the repurchase price on the date agreed to or upon demand is, in effect, secured
by such obligations. Repurchase agreements carry certain risks not associated
with direct investments in securities, including a possible decline in the
market value of the underlying obligations. If their value becomes less than the
repurchase price, plus any agreed-upon additional amount, the counterparty must
provide additional collateral so that at all times the collateral is at least
equal to the repurchase price plus any agreed-upon additional amount. The
difference between the total amount to be received upon repurchase of the
obligations and the price that was paid by a fund upon acquisition is accrued as
interest and included in its net investment income. 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 in connection with the disposition of collateral. Each fund
intends to enter into repurchase agreements only with counterparties in
transactions believed by Mitchell Hutchins to present minimum credit risks in
accordance with guidelines established by the fund's board.

REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the
sale of securities held by a fund subject to that fund's agreement to repurchase
the securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest. Reverse repurchase agreements are subject to each
fund's limitation on borrowings and may be entered into only with banks and
securities dealers or their affiliates. While a reverse repurchase agreement is
outstanding, a fund will maintain, in a segregated account with its custodian,
cash or liquid securities, marked to market daily, in an amount at least equal
to its obligations under the reverse repurchase agreement.

Reverse repurchase agreements involve the risk that the buyer of the
securities sold by a fund might be unable to deliver them when that fund seeks
to repurchase. In the event that the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
trustee or receiver may receive an extension of time to determine whether to
enforce that fund's obligation to repurchase the securities, and the fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.

LENDING OF PORTFOLIO SECURITIES. Each fund is authorized to lend up to 33
1/3% of its total assets to broker-dealers or institutional investors that
Mitchell Hutchins deems qualified. Lending securities enables a fund to earn
additional income, but could result in a loss or delay in recovering these
securities. The borrower of a fund's portfolio securities must maintain
acceptable collateral with that fund's custodian in an amount, marked to market
daily, at least equal to the market value of the securities loaned, plus accrued
interest and dividends. Acceptable collateral is limited to cash, U.S.
government securities and irrevocable letters of credit that meet certain
guidelines established by Mitchell Hutchins. Each fund may reinvest any cash
collateral in money market investments or other short-term liquid investments.
In determining whether to lend securities to a particular broker-dealer or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. Each fund will retain authority to terminate
any of its loans at any time. Each fund may pay fees in connection with a loan
and may pay the borrower or placing broker a negotiated portion of the interest
earned on the reinvestment of cash held as collateral. A fund will receive
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. Each fund will regain record ownership of loaned securities

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to exercise beneficial rights, such as voting and subscription rights, when
regaining such rights is considered to be in the fund's interest.

Pursuant to procedures adopted by the boards governing each fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for each fund. The boards also have authorized the payment of fees
(including fees calculated as a percentage of invested cash collateral) to
PaineWebber for these services. Each board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
PaineWebber also has been approved as a borrower under each fund's securities
lending program.

SHORT SALES "AGAINST THE BOX." Each fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box"). To make delivery to the purchaser in a short sale, the executing broker
borrows the securities being sold short on behalf of a fund, and that fund is
obligated to replace the securities borrowed at a date in the future. When a
fund sells short, it establishes a margin account with the broker effecting the
short sale and deposits collateral with the broker. In addition, that fund
maintains with its custodian, in a segregated account, the securities that could
be used to cover the short sale. Each fund incurs transaction costs, including
interest expense, in connection with opening, maintaining and closing short
sales against the box. No fund currently expects to have obligations under short
sales at any time during the coming year that exceed 5% of its net assets.

A fund might make a short sale "against the box" to hedge against market
risks when Mitchell Hutchins believes that the price of a security may decline,
thereby causing a decline in the value of a security owned by a fund or a
security convertible into or exchangeable for a security owned by a fund. In
such case, any loss in a fund's long position after the short sale should be
reduced by a gain in the short position. Conversely, any gain in the long
position should be reduced by a loss in the short position. The extent to which
gains or losses in the long position are reduced will depend upon the amount of
the securities sold short relative to the amount of securities a fund owns,
either directly or indirectly, and in the case where a fund owns convertible
securities, changes in the investment value or conversion premiums of such
securities.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each fund may purchase
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery, I.E., for issuance or delivery to or by the fund later than
the normal settlement date for such securities at a stated price and yield.
When-issued securities include TBA ("to be announced") securities. TBA
securities are usually mortgage-backed securities that are purchased on a
forward commitment basis with an approximate principal amount and no defined
maturity date. The actual principal amount and maturity date are determined upon
settlement when the specific mortgage pools are assigned. A fund generally would
not pay for such securities or start earning interest on them until they are
received. However, when a fund undertakes a when-issued or delayed delivery
obligation, it immediately assumes the risks of ownership, including the risks
of price fluctuation. Failure of the issuer to deliver a security purchased by a
fund on a when-issued or delayed delivery basis may result in the fund's
incurring or missing an opportunity to make an alternative investment. Depending
on market conditions, a fund's when-issued and delayed delivery purchase
commitments could cause its net asset value per share to be more volatile,
because such securities may increase the amount by which the fund's total
assets, including the value of when-issued and delayed delivery securities held
by that fund, exceeds its net assets.

A security purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date and is subject to changes in market
value, generally based upon changes in the level of interest rates. Thus,
fluctuation in the value of the security from the time of the commitment date
will affect a fund's net asset value. When a fund commits to purchase securities
on a when-issued or delayed delivery basis, its custodian segregates assets to
cover the amount of the commitment. See "The Funds' Investments, Related Risks
and Limitations--Segregated Accounts." A fund may sell the right to acquire the
security prior to delivery if Mitchell Hutchins deems it advantageous to do so,
which may result in a gain or loss to the fund.

SEGREGATED ACCOUNTS. When a fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis and reverse
repurchase agreements, it will maintain with an approved custodian in a
segregated account cash or liquid securities, marked to market daily, in an

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amount at least equal to the fund's obligation or commitment under such
transactions. As described below under "Strategies Using Derivative
Instruments," segregated accounts may also be required in connection with
certain transactions involving options or futures (or, for Utility Income Fund,
forward currency contracts and swaps).

INVESTMENT LIMITATIONS OF THE FUNDS

FUNDAMENTAL LIMITATIONS. The following fundamental investment limitations
cannot be changed for a fund without the affirmative vote of the lesser of (a)
more than 50% of the outstanding shares of the fund or (b) 67% or more of the
shares of the fund present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. If a
percentage restriction is adhered to at the time of an investment or
transaction, later changes in percentage resulting from a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the following limitations.

Each fund will not:

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

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

(2) purchase any security if, as a result of that purchase, 25% or more of
the fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry, except that this limitation
does not apply to securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or to municipal securities and except that (a)
Financial Services Growth Fund, under normal circumstances, will invest 25% or
more of its total assets in the related group of industries consisting of the
financial services industries and (b) Utility Income Fund, under normal
circumstances, will invest 25% or more of its total assets in the utility
industries as a group. For this purpose, utility industries consist of companies
primarily engaged in the ownership or operation of facilities used in the
generation, transmission or distribution of electricity, telecommunications,
gas, or water.

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

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

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

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

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

NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are
non-fundamental and may be changed by the vote of the appropriate board
without shareholder approval.

Each fund will not:

(1) invest more than 10% of its net assets in illiquid securities, a term
which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the fund has
valued the securities and includes, among other thins, repurchase agreements
maturing in more than seven days.

(2) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the fund may make margin
deposits in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.

(3) engage in short sales of securities or maintain a short position,
except that the fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.

(4) purchase securities of other investment companies, except to the
extent permitted by the Investment Company Act and except that this limitation
does not apply to securities received or acquired as dividends, through offers
of exchange, or as a result of reorganization, consolidation, or merger (and
except that a fund will not purchase securities of registered open-end
investment companies or registered unit investment trusts in reliance on
Sections 12(d)(1)(F) or 12(d)(1)(G) of the Investment Company Act).

(5) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.

STRATEGIES USING DERIVATIVE INSTRUMENTS

GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Mitchell Hutchins may use a
variety of financial instruments ("Derivative Instruments"), including certain
options, futures contracts (sometimes referred to as "futures"), options on
futures contracts, forward currency contracts and swap transactions to attempt
to hedge each fund's portfolio and also to attempt to enhance income or return
or realize gains and to manage the duration of its bond portfolio. A fund may
enter into transactions involving one or more types of Derivative Instruments
under which the full value of its portfolio is at risk. Under normal
circumstances, however, each fund's use of these instruments will place at risk
a much smaller portion of its assets. The particular Derivative Instruments that
may be used by the funds are described below.

The funds might not use any Derivative Instruments or derivative
strategies, and there can be no assurance that using any strategy will succeed.
If the Mitchell Hutchins is incorrect in its judgment on market values, interest
rates or other economic factors in using a Derivative Instrument or strategy, a
fund may have lower net income and a net loss on the investment.

OPTIONS ON SECURITIES AND FOREIGN CURRENCIES. A call option is a
short-term contract pursuant to which the purchaser of the option, in return for
a premium, has the right to buy the security or currency underlying the option

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at a specified price at any time during the term of the option or at specified
times or at the expiration of the option, depending on the type of option
involved. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to deliver the
underlying security or currency against payment of the exercise price. A put
option is a similar contract that gives its purchaser, in return for a premium,
the right to sell the underlying security or currency at a specified price
during the option term or at specified times or at the expiration of the option,
depending on the type of option involved. The writer of the put option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to buy the underlying security or currency at the exercise price.

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

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

INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS. Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of bonds or currency, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.

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

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

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

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

A fund may purchase and write (sell) straddles on securities or indices of
securities. A long straddle is a combination of a call and a put option
purchased on the same security or on the same futures contract, where the
exercise price of the put is equal to the exercise price of the call. A fund
might enter into a long straddle when Mitchell Hutchins believes it likely that
the prices of the securities will be more volatile during the term of the option
than the option pricing implies. A short straddle is a combination of a call and
a put written on the same security where the exercise price of the put is equal
to the exercise price of the call. A fund might enter into a short straddle when
Mitchell Hutchins believes it unlikely that the prices of the securities will be
as volatile during the term of the option as the option pricing implies.

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

Income strategies using Derivative Instruments may include the writing of
covered options to obtain the related option premiums. Return or gain strategies
may include using Derivative Instruments to increase or decrease a fund's
exposure to different asset classes without buying or selling the underlying
instruments. A fund also may use derivatives to simulate full investment by the
fund while maintaining a cash balance for fund management purposes (such as to
provide liquidity to meet anticipated shareholder sales of fund shares and for
fund operating expenses).

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

In addition to the products, strategies and risks described below and in
the Prospectus, Mitchell Hutchins may discover additional opportunities in
connection with Derivative Instruments and with hedging, income, return and gain
strategies. These new opportunities may become available as regulatory
authorities broaden the range of permitted transactions and as new Derivative
Instruments and techniques are developed. Mitchell Hutchins may utilize these
opportunities for a fund to the extent that they are consistent with the fund's
investment objective and permitted by its investment limitations and applicable
regulatory authorities. The funds' Prospectus or SAI will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.

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

(1) Successful use of most Derivative Instruments depends upon the ability
of Mitchell Hutchins to predict movements of the overall securities, interest
rate or currency exchange markets, which requires different skills than
predicting changes in the prices of individual securities. While Mitchell
Hutchins is experienced in the use of Derivative Instruments, there can be no
assurance that any particular strategy adopted will succeed.

(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments that are being hedged. For example, if the value of a Derivative

14
<PAGE>

Instrument used in a short hedge increased by less than the decline in value of
the hedged investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors affecting the markets in which Derivative
Instruments are traded, rather than the value of the investments being hedged.
The effectiveness of hedges using Derivative Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.

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

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

COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using
Derivative Instruments, other than purchased options, expose the funds to an
obligation to another party. A fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies or other options or futures contracts or (2) cash or liquid
securities with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. Each fund will
comply with SEC guidelines regarding cover for such transactions and will, if
the guidelines so require, set aside cash or liquid securities in a segregated
account with its custodian in the prescribed amount.

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

OPTIONS. The funds may purchase put and call options, and write (sell)
covered put or call options on securities in which they invest and related
indices and on foreign currencies. The purchase of call options may serve as a
long hedge, and the purchase of put options may serve as a short hedge. A fund
may also use options to attempt to enhance return or realize gains by increasing
or reducing its exposure to an asset class without purchasing or selling the
underlying securities. Writing covered put or call options can enable a fund to
enhance income by reason of the premiums paid by the purchasers of such options.
Writing covered call options serves as a limited short hedge, because declines
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security appreciates to
a price higher than the exercise price of the call option, it can be expected
that the option will be exercised and the affected fund will be obligated to
sell the security at less than its market value. Writing covered put options
serves as a limited long hedge, because increases in the value of the hedged
investment would be offset to the extent of the premium received for writing the
option. However, if the security depreciates to a price lower than the exercise
price of the put option, it can be expected that the put option will be
exercised and the fund will be obligated to purchase the security at more than
its market value. The securities or other assets used as cover for
over-the-counter options written by a fund would be considered illiquid to the
extent described under "The Funds' Investments, Related Risks and
Limitations--Illiquid Securities."

15
<PAGE>

The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Generally, over-the-counter options on bonds are
European-style options. This means that the option can only be exercised
immediately prior to its expiration. This is in contract to American-style
options that may be exercised at any time. There are also other types of options
that may be exercised on certain specified dates before expiration.
Options that expire unexercised have no value.

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

The funds may purchase and write both exchange-traded and over-the-counter
options. Currently, many options on equity securities (stocks) are
exchange-traded. Exchange markets for options on bonds exist but are relatively
new, and these instruments are primarily traded on the over-the-counter market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, over-the-counter options are contracts between a fund and its
counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a fund purchases or writes an
over-the-counter option, it relies on the counterparty to make or take delivery
of the underlying investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any premium paid by the fund
as well as the loss of any expected benefit of the transaction.

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

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

A fund may purchase and write put and call options on indices in much the
same manner as the more traditional options discussed above, except the index
options may serve as a hedge against overall fluctuations in a securities market
(or market sector) rather than anticipated increases or decreases in the value
of a particular security.

LIMITATIONS ON THE USE OF OPTIONS. Each funds' use of options is governed
by the following guidelines, which can be changed by its board without
shareholder vote:

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

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

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<PAGE>

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

FUTURES. The funds may purchase and sell securities index futures
contracts, interest rate future contracts and foreign currency future contracts.
A fund may purchase put and call options, and write covered put and call
options, on futures in which it is allowed to invest. The purchase of futures or
call options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered call
options on futures contracts can serve as a limited short hedge, and writing
covered put options on futures contracts can serve as a limited long hedge,
using a strategy similar to that used for writing covered options on securities
or indices. In addition, a fund may purchase or sell futures contracts or
purchase options thereon to increase or reduce its exposure to an asset class
without purchasing or selling the underlying securities, either as a hedge or to
enhance return or realize gains.

Futures strategies also can be used to manage the average duration of a
fund's bond portfolio. If Mitchell Hutchins wishes to shorten the average
duration of a fund's bond portfolio, the fund may sell a futures contract or a
call option thereon, or purchase a put option on that futures contract. If
Mitchell Hutchins wishes to lengthen the average duration of the fund's bond
portfolio, the fund may buy a futures contract or a call option thereon, or sell
a put option thereon.

A fund may also write put options on futures contracts while at the same
time purchasing call options on the same futures contracts in order
synthetically to create a long futures contract position. Such options would
have the same strike prices and expiration dates. A fund will engage in this
strategy only when it is more advantageous to a fund than is purchasing the
futures contract.

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

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

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

Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be

17
<PAGE>

made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.

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

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

LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. Each fund's use of
futures and related options is governed by the following guidelines, which can
be changed by its board without shareholder vote:

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

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

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

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

A fund might seek to hedge against changes in the value of a particular
currency when no Derivative Instruments on that currency are available or such
Derivative Instruments are considered expensive. In such cases, the fund may
hedge against price movements in that currency by entering into transactions
using Derivative Instruments on another currency or a basket of currencies, the
value of which Mitchell Hutchins believes will have a positive correlation to
the value of the currency being hedged. In addition, a fund may use forward
currency contracts to shift exposure to foreign currency fluctuations from one
country to another. For example, if a fund owned securities denominated in a
foreign currency and Mitchell Hutchins believed that currency would decline
relative to another currency, it might enter into a forward contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency. Transactions that use two foreign currencies are
sometimes referred to as "cross hedging." Use of a different foreign currency
magnifies the risk that movements in the price of the Derivative Instrument will
not correlate or will correlate unfavorably with the foreign currency being
hedged.

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<PAGE>

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

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

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

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

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

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

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

LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. A fund may enter
into forward currency contracts or maintain a net exposure to such contracts
only if (1) the consummation of the contracts would not obligate the fund to

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<PAGE>

deliver an amount of foreign currency in excess of the value of the position
being hedged by such contracts or (2) the fund segregates with its custodian
cash or liquid securities in an amount not less than the value of its total
assets committed to the consummation of the contract and not covered as provided
in (1) above, as marked to market daily.

SWAP TRANSACTIONS. Each fund may enter into swap transactions, which
include swaps, caps, floors and collars relating to interest rates, currencies,
securities or other instruments. Interest rate swaps involve an agreement
between two parties to exchange payments that are based, for example, on
variable and fixed rates of interest and that are calculated on the basis of a
specified amount of principal (the "notional principal amount") for a specified
period of time. Interest rate cap and floor transactions involve an agreement
between two parties in which the first party agrees to make payments to the
contra party when a designated market interest rate goes above (in the case of a
cap) or below (in the case of a floor) a designated level on predetermined dates
or during a specified time period. Interest rate collar transactions involve an
agreement between two parties in which payments are made when a designated
market interest rate either goes above a designated ceiling level or goes below
a designated floor level on predetermined dates or during a specified time
period. Currency swaps, caps, floors and collars are similar to interest rate
swaps, caps, floors and collars, but they are based on currency exchange rates
rather than interest rates. Equity swaps or other swaps relating to securities
or other instruments are also similar, but they are based on changes in the
value of the underlying securities or instruments. For example, an equity swap
might involve an exchange of the value of a particular security or securities
index in a certain notional amount for the value of another security or index or
for the value of interest on that notional amount at a specified fixed or
variable rate.

Each fund may enter into interest rate swap transactions to preserve a
return or spread on a particular investment or portion of its bond portfolio or
to protect against any increase in the price of securities it anticipates
purchasing at a later date. A fund may use interest rate swaps, caps, floors and
collars as a hedge on either an asset-based or liability-based basis, depending
on whether it is hedging its assets or its liabilities. Interest rate swap
transactions are subject to risks comparable to those described above with
respect to other derivatives strategies.

A fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the fund receiving or paying, as the case may be,
only the net amount of the two payments. Since segregated accounts will be
established with respect to such transactions, Mitchell Hutchins believes such
obligations do not constitute senior securities and, accordingly, will not treat
them as being subject to the fund's borrowing restrictions. The net amount of
the excess, if any, of the fund's obligations over its entitlements with respect
to each swap will be accrued on a daily basis, and appropriate fund assets
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account as described above in "Investment Policies
and Restrictions--Segregated Accounts." The fund also will establish and
maintain such segregated accounts with respect to its total obligations under
any swaps that are not entered into on a net basis.

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

ORGANIZATION; BOARD MEMBERS, OFFICERS AND PRINCIPAL HOLDERS OF SECURITIES

Each of the Trust and the Corporation is governed by a board of trustees
or directors, which oversees its operations and which is authorized to establish
additional series and to issue an unlimited number of shares of beneficial
interest of the Trust or common stock of the Corporation, as applicable, for
each existing or future series, par value $0.001 per share.

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

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<PAGE>
<TABLE>
<CAPTION>

POSITION WITH
NAME AND ADDRESS*; AGE TRUST/CORPORATION BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ----------------- ----------------------------------------
<S> <C> <C>

Margo N. Alexander**; 52 Trustee/Director and Mrs. Alexander is chairman (since
President March 1999), chief executive officer
and a director of Mitchell Hutchins
(since January 1995), and an executive
vice president and a director of
PaineWebber (since March 1984). Mrs.
Alexander is president and a director
or trustee of 32 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Richard Q. Armstrong; 64 Trustee/Director Mr. Armstrong is chairman and
R.Q.A. Enterprises principal of R.Q.A. Enterprises
One Old Church Road (management consulting firm) (since
Unit #6 April 1991 and principal occupation
Greenwich, CT 06830 since March 1995). Mr. Armstrong was
chairman of the board, chief executive
officer and co-owner of Adirondack
Beverages (producer and distributor of
soft drinks and sparkling/still waters)
(October 1993-March 1995). He was a
partner of The New England Consulting
Group (management consulting firm)
(December 1992-September 1993). He was
managing director of LVMH U.S.
Corporation (U.S. subsidiary of the
French luxury goods conglomerate, Louis
Vuitton Moet Hennessey Corporation)
(1987-1991) and chairman of its wine
and spirits subsidiary, Schieffelin &
Somerset Company (1987-1991). Mr.
Armstrong is a director or trustee of
31 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

E. Garrett Bewkes, Jr.**; 72 Trustee/Director and Mr. Bewkes is a director of Paine
Chairman of the Board Webber Group Inc. ("PW Group")
of Trustees/Directors (holding company of PaineWebber and
Mitchell Hutchins). Prior to December
1995, he was a consultant to PW Group.
Prior to 1988, he was chairman of the
board, president and chief executive
officer of American Bakeries Company.
Mr. Bewkes is a director of Interstate
Bakeries Corporation. Mr. Bewkes is a
director or trustee of 35 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

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POSITION WITH
NAME AND ADDRESS*; AGE TRUST/CORPORATION BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ----------------- ----------------------------------------

Richard R. Burt; 52 Trustee/Director Mr. Burt is chairman of IEP Advisors,
1275 Pennsylvania Ave., N.W. Inc. (international investments and
Washington, DC 20004 consulting firm) (since March 1994)
and a partner of McKinsey & Company
(management consulting firm) (since
1991). He is also a director of
Archer-Daniels-Midland Co.
(agricultural commodities), Hollinger
International Co. (publishing),
Homestake Mining Corp., Powerhouse
Technologies Inc. and Wierton Steel
Corp. He was the chief negotiator in
the Strategic Arms Reduction Talks
with the former Soviet Union
(1989-1991) and the U.S. Ambassador to
the Federal Republic of Germany
(1985-1989). Mr. Burt is a director or
trustee of 31 investment companies for
which Mitchell Hutchins, PaineWebber
or one of their affiliates serves as
investment adviser.

Mary C. Farrell**; 49 Trustee/Director Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy
Committee of PaineWebber. Ms. Farrell
joined PaineWebber in 1982. She is a
member of the Financial Women's
Association and Women's Economic
Roundtable and appears as a regular
panelist on Wall Street Week with
Louis Rukeyser. She also serves on the
Board of Overseers of New York
University's Stern School of Business.
Ms. Farrell is a director or trustee
of 31 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

Meyer Feldberg; 57 Trustee/Director Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior
New York, NY 10027 to 1989, he was president of the
Illinois Institute of Technology. Dean
Feldberg is also a director of
Primedia, Inc., Federated Department
Stores, Inc. and Revlon, Inc. Dean
Feldberg is a director or trustee of
34 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

George W. Gowen; 69 Trustee/Director Mr. Gowen is a partner in the law firm
666 Third Avenue of Dunnington, Bartholow & Miller.
New York, NY 10017 Prior to May 1994, he was a partner in
the law firm of Fryer, Ross & Gowen.
Mr. Gowen is a director or trustee of
34 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

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<PAGE>
POSITION WITH
NAME AND ADDRESS*; AGE TRUST/CORPORATION BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ----------------- ----------------------------------------

Frederic V. Malek; 62 Trustee/Director Mr. Malek is chairman of Thayer
1455 Pennsylvania Ave., N.W. Capital Partners (merchant bank). From
Suite 350 January 1992 to November 1992, he was
Washington, DC 20004 campaign manager of Bush-Quayle `92.
From 1990 to 1992, he was vice
chairman and, from 1989 to 1990, he
was president of Northwest Airlines
Inc., NWA Inc. (holding company of
Northwest Airlines Inc.) and Wings
Holdings Inc. (holding company of NWA
Inc.). Prior to 1989, he was employed
by the Marriott Corporation (hotels,
restaurants, airline catering and
contract feeding), where he most
recently was an executive vice
president and president of Marriott
Hotels and Resorts. Mr. Malek is also
a director of American Management
Systems, Inc. (management consulting
and computer related services),
Automatic Data Processing, Inc., CB
Commercial Group, Inc. (real estate
services), Choice Hotels International
(hotel and hotel franchising), FPL
Group, Inc. (electric services), Manor
Care, Inc. (health care) and Northwest
Airlines Inc. Mr. Malek is a director
or trustee of 31 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Carl W. Schafer; 63 Trustee/Director Mr. Schafer is president of the
66 Witherspoon Street, #1100 Atlantic Foundation (charitable
Princeton, NJ 08542 foundation supporting mainly
oceanographic exploration and
research). He is a director of Base
Ten Systems, Inc. (software), Roadway
Express, Inc. (trucking), The Guardian
Group of Mutual Funds, the Harding,
Loevner Funds, Evans Systems, Inc.
(motor fuels, convenience store and
diversified company), Electronic
Clearing House, Inc. (financial
transactions processing), Frontier Oil
Corporation and Nutraceutix, Inc.
(biotechnology company). Prior to
January 1993, he was chairman of the
Investment Advisory Committee of the
Howard Hughes Medical Institute. Mr.
Schafer is a director or trustee of 31
investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

23
<PAGE>
POSITION WITH
NAME AND ADDRESS*; AGE TRUST/CORPORATION BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ----------------- ----------------------------------------

Brian M. Storms;** 44 Trustee/Director Mr. Storms is president and chief
operating officer of Mitchell Hutchins
(since March 1999). Prior to March
1999, he was president of Prudential
Investments (1996-1999). Prior to
joining Prudential, he was a managing
director at Fidelity Investments. Mr.
Storms is a director or trustee of 31
investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

T. Kirkham Barneby; 53 Vice President Mr. Barneby is a managing director
(Trust only) and chief investment officer --
quantitative investments of Mitchell
Hutchins. Prior to September 1994, he
was a senior vice president at
Vantage Global Management. Mr.
Barneby is a vice president of seven
investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

Julieanna Berry; 36 Vice President Ms. Berry is a vice president and a
(Trust only) portfolio manager of Mitchell
Hutchins. Ms. Berry is a vice
president of two investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

James F. Keegan; 38 Vice President Mr. Keegan is a senior vice president
and a portfolio manager of Mitchell
Hutchins. Prior to March 1996, he was
director of fixed income strategy and
research of Merrion Group, L.P. From
1987 to 1994, he was a vice president
of global investment management of
Bankers Trust. Mr. Keegan is a vice
president of three investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

John J. Lee; 30 Vice President and Mr. Lee is a vice president and a
Assistant Treasurer manager of the mutual fund finance
department of Mitchell Hutchins. Prior
to September 1997, he was an audit
manager in the financial services
practice of Ernst & Young LLP. Mr. Lee
is a vice president and assistant
treasurer of 32 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as an investment adviser.

Thomas J. Libassi; 40 Vice President Mr. Libassi is a senior vice president
(Trust only) and a portfolio manager of Mitchell
Hutchins, where he has been employed
since 1994. Mr. Libassi is a vice
president of six investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

24
<PAGE>
POSITION WITH
NAME AND ADDRESS*; AGE TRUST/CORPORATION BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ----------------- ----------------------------------------

Kevin J. Mahoney; 33 Vice President and Mr. Mahoney is a first vice
Assistant Treasurer president and senior manager of the
mutual fund finance department of
Mitchell Hutchins. From August 1996
through March 1999, he was the manager
of the mutual fund internal control
group of Salomon Smith Barney. Prior to
August 1996, he was an associate and
assistant treasurer for BlackRock
Financial Management L.P. Mr. Mahoney
is a vice president and assistant
treasurer of 32 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Dennis McCauley; 52 Vice President Mr. McCauley is a managing director
(Trust only) and chief investment officer--fixed
income of Mitchell Hutchins. Prior to
December 1994, he was director of
fixed income investments of IBM
Corporation. Mr. McCauley is a vice
president of 22 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Ann E. Moran; 42 Vice President and Ms. Moran is a vice president and a
Assistant Treasurer manager of the mutual fund finance
department of Mitchell Hutchins. Ms.
Moran is a vice president and
assistant treasurer of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Dianne E. O'Donnell; 47 Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy general counsel
of Mitchell Hutchins. Ms. O'Donnell is
a vice president and secretary of 31
investment companies and a vice
president and assistant secretary of
one investment company for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

Emil Polito; 38 Vice President Mr. Polito is a senior vice president
and director of operations and control
for Mitchell Hutchins. Mr. Polito is a
vice president of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Victoria E. Schonfeld; 48 Vice President Ms. Schonfeld is a managing director
and general counsel of Mitchell
Hutchins (since May 1994) and a senior
vice president of PaineWebber (since
July 1995). Ms. Schonfeld is a vice
president of 31 investment companies
and a vice president and secretary of
one investment company for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

25
<PAGE>
POSITION WITH
NAME AND ADDRESS*; AGE TRUST/CORPORATION BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ----------------- ----------------------------------------

Paul H. Schubert; 36 Vice President and Mr. Schubert is a senior vice
Treasurer president and director of the mutual
fund finance department of Mitchell
Hutchins. Mr. Schubert is a vice
president and treasurer of 32
investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

Nirmal Singh; 43 Vice President Mr. Singh is a senior vice president
(Trust only) and a portfolio manager of Mitchell
Hutchins. Mr. Singh is a vice
president of four investment companies
for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Barney A. Taglialatela; 38 Vice President and Mr. Taglialatela is a vice president
Assistant Treasurer and a manager of the mutual fund
finance department of Mitchell
Hutchins. Prior to February 1995, he
was a manager of the mutual fund
finance division of Kidder Peabody
Asset Management, Inc. Mr.
Taglialatela is a vice president and
assistant treasurer of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Mark A. Tincher; 43 Vice President Mr. Tincher is a managing director and
chief investment officer--equities of
Mitchell Hutchins. Prior to March
1995, he was a vice president and
directed the U.S. funds management and
equity research areas of Chase
Manhattan Private Bank. Mr. Tincher is
a vice president of 13 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.

Keith A. Weller; 37 Vice President and Mr. Weller is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to May 1995,
he was an attorney in private
practice. Mr. Weller is a vice
president and assistant secretary of
31 investment companies for which
Mitchell Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.

</TABLE>

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

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

** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of each
fund as defined in the Investment Company Act by virtue of their positions
with Mitchell Hutchins, PaineWebber, and/or PW Group.

The Trust pays trustees who are not "interested persons" of the Trust
("disinterested trustees") $1,000 annually for each series and the
Corporation (which has only one series) pays directors who are not
"interested persons" of the Corporation $1,500 annually. The Trust and the
Corporation each pays such board members up to $150 per series for each
board meeting and each separate meeting of a board committee. The Trust

26
<PAGE>

presently has six series and thus pays each such trustee $6,000 annually,
plus any additional annual amounts due for board or committee meetings. The
Corporation pays each such director $1,500 annually, plus any additional
amounts due for board or committee meetings. Each chairman of the audit and
contract review committees of individual funds within the PaineWebber fund
complex receives additional compensation aggregating $15,000 annually from
the relevant funds. All board members are reimbursed for any expenses
incurred in attending meetings. Board members and officers own in the
aggregate less than 1% of the shares of each fund. Because Mitchell
Hutchins and PaineWebber perform substantially all of the services
necessary for the operation of the Trust, the Corporation and each fund,
the Trust and the Corporation require no employees. No officer, director or
employee of Mitchell Hutchins or PaineWebber presently receives any
compensation from the Trust or the Corporation for acting as a trustee or
officer.

27
<PAGE>

The table below includes certain information relating to the compensation
of the current board members who held office with the Trust, the Corporation or
with other PaineWebber funds during the funds' fiscal year ended March 31, 1999.

COMPENSATION TABLE+

TOTAL COMPENSATION
------------------
AGGREGATE FROM THE
--------- --------
AGGREGATE COMPENSATION TRUST/CORPORATION
--------- ------------ -----------------
COMPENSATION FROM THE AND THE FUND
------------ -------- ------------
NAME OF PERSON, POSITION FROM THE TRUST* CORPORATION* COMPLEX**
------------------------ --------------- ------------ ---------
<S> <C>

Richard Q. Armstrong,
Trustee/Director $101,372
Richard R. Burt,
Trustee/Director $101,372
Meyer Feldberg,
Trustee/Director $116,222
George W. Gowen,
Trustee/Director $108,272
Frederic V. Malek,
Trustee/Director $101,372
Carl W. Schafer,
Trustee/Director $101,372
</TABLE>

- --------------------
Only independent board members are compensated by the Trust or the
Corporation and identified above; board members who are "interested
persons," as defined by the Investment Company Act, do not receive
compensation.

* Represents fees paid to each board member indicated for the fiscal year
ended March 31, 1999.

** Represents total compensation paid during the calendar year ended December
31, 1998, to each board member by 31 investment companies (33 in the case
of Messrs. Feldberg and Gowen) for which Mitchell Hutchins, PaineWebber or
one of their affiliates served as investment adviser. No fund within the
PaineWebber fund complex has a bonus, pension, profit sharing or retirement
plan.

PRINCIPAL HOLDERS OF SECURITIES

As of July __, 1999, the funds' records showed no shareholders as owning
5% or more of any class of a fund's shares.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator pursuant to a separate contract (each an "Advisory
Contract") with each fund. The Advisory Contract for Financial Services Growth
Fund is dated April 1, 1990. The Advisory Contract for Utility Income Fund is
dated April 21, 1988, as supplemented by a separate fee agreement dated May 1,
1992. Under the applicable Advisory Contract, each fund pays Mitchell Hutchins a
fee, computed daily and paid monthly, at the annual rate of 0.70% of average
daily net assets.

28
<PAGE>

During each of the periods indicated, Mitchell Hutchins earned (or
accrued) advisory fees in the amounts set forth below:
<TABLE>
<CAPTION>

FISCAL YEARS ENDED MARCH 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>

Financial Services Growth Fund............... $________ $1,912,197 $771,491

Utility Income Fund.......................... $________ $235,331 $314,323*

* Of this amount, $30,480 was waived by Mitchell Hutchins.
</TABLE>

Under the terms of the applicable Advisory Contract, each fund bears all
expenses incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by each fund include the following: (1) the cost
(including brokerage commissions, if any) of securities purchased or sold by the
fund and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the fund by Mitchell Hutchins; (3) organizational
expenses; (4) filing fees and expenses relating to the registration and
qualification of the fund's shares under federal and state securities laws and
maintenance of such registrations and qualifications; (5) fees and salaries
payable to trustees who are not interested persons of the fund or Mitchell
Hutchins; (6) all expenses incurred in connection with the trustees' services,
including travel expenses; (7) taxes (including any income or franchise taxes)
and governmental fees; (8) costs of any liability, uncollectible items of
deposit and other insurance or fidelity bonds; (9) any costs, expenses or losses
arising out of a liability of or claim for damages or other relief asserted
against the fund for violation of any law; (10) legal, accounting and auditing
expenses, including legal fees of special counsel for the independent trustees;
(11) charges of custodians, transfer agents and other agents; (12) costs of
preparing share certificates; (13) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders and
costs of mailing such materials to existing shareholders; (14) any extraordinary
expenses (including fees and disbursements of counsel) incurred by the fund;
(15) fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; (16) costs of mailing and
tabulating proxies and costs of meetings of shareholders, the board and any
committees thereof; (17) the cost of investment company literature and other
publications provided to trustees and officers; and (18) costs of mailing,
stationery and communications equipment.

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

SECURITIES LENDING. During the years ended March 31, 1998 and March 31,
1999, the funds paid (or accrued) the following fees to PaineWebber for its
services as securities lending agent:

FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------

Financial Services Growth Fund

Utility Income Fund

NET ASSETS. The following table shows the approximate net assets as of
June 30, 1999, sorted by category of investment objective, of the investment
companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.

29
<PAGE>

NET ASSETS
INVESTMENT CATEGORY ($MIL)
------------------- ------
<S> <C>

Domestic (excluding Money Market)............................
Global.......................................................
Equity/Balanced..............................................
Fixed Income (excluding Money Market)........................
Taxable Fixed Income.................................
Tax-Free Fixed Income................................
Money Market Funds...........................................

</TABLE>

PERSONAL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of PaineWebber mutual funds and other
Mitchell Hutchins advisory accounts by all Mitchell Hutchins' directors,
officers and employees, establishes procedures for personal investing and
restricts certain transactions. For example, employee accounts generally must be
maintained at PaineWebber, personal trades in most securities require
pre-clearance and short-term trading and participation in initial public
offerings generally are prohibited. In addition, the code of ethics puts
restrictions on the timing of personal investing in relation to trades by
PaineWebber funds and other Mitchell Hutchins advisory clients.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of shares of each fund under separate distribution contracts with
each fund (collectively, "Distribution Contracts"). Each Distribution Contract
requires Mitchell Hutchins to use its best efforts, consistent with its other
businesses, to sell shares of the applicable fund. Shares of each fund are
offered continuously. Under separate exclusive dealer agreements between
Mitchell Hutchins and PaineWebber relating to each class of shares of the funds
(collectively, "Exclusive Dealer Agreements"), PaineWebber and its correspondent
firms sell each fund's shares.

Under separate plans of distribution pertaining to the Class A, Class B
and Class C shares of each fund adopted by the Trust or the Corporation in the
manner prescribed under Rule 12b-1 under the Investment Company Act (each,
respectively, a "Class A Plan," "Class B Plan" and "Class C Plan," and
collectively, "Plans"), each fund pays Mitchell Hutchins a service fee, accrued
daily and payable monthly, at the annual rate of 0.25% of the average daily net
assets of each class of shares. Under the Class B Plan and the Class C Plan,
each fund pays Mitchell Hutchins a distribution fee, accrued daily and payable
monthly, at the annual rate of 0.75% of the average daily net assets of the
Class B shares. There is no distribution plan with respect to the funds' Class Y
shares.

Mitchell Hutchins uses the service fees under the Plans for Class A, B and
C shares primarily to pay PaineWebber for shareholder servicing, currently at
the annual rate of 0.25% of the aggregate investment amounts maintained in each
fund by PaineWebber clients. PaineWebber then compensates its Financial Advisors
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:

o Offsetthe commissions it pays to PaineWebber for selling each fund's
Class B and Class C shares, respectively.

o 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 Financial Advisors 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.

30
<PAGE>

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 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.

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

In reporting amounts expended under the Plans to the board members,
Mitchell Hutchins allocates expenses attributable to the sale of each class of
each fund's shares to such class based on the ratio of sales of shares of such
class to the sales of all three classes of shares. The fees paid by one class of
a fund's shares will not be used to subsidize the sale of any other class of
fund shares.

The funds paid (or accrued) the following service and/or distribution fees
to Mitchell Hutchins under the Class A, Class B and Class C Plans during the
fiscal year ended March 31, 1999:

FINANCIAL SERVICES GROWTH FUND UTILITY INCOME FUND
------------------------------ -------------------
Class A........

Class B........

Class C........

Mitchell Hutchins estimates that it and its parent corporation,
PaineWebber, incurred the following shareholder service-related and
distribution-related expenses with respect to each fund during the fiscal year
ended March 31, 1999:

FINANCIAL SERVICES
GROWTH FUND UTILITY INCOME FUND
----------- -------------------

CLASS A
Marketing and advertising........
Amortization of commissions......
Printing of prospectuses and
statements of additional
information......................
Branch network costs
allocated and interest expense...
Service fees paid to
PaineWebber Financial Advisors...

31
<PAGE>
FINANCIAL SERVICES
GROWTH FUND UTILITY INCOME FUND
----------- -------------------

CLASS B
Marketing and advertising........
Amortization of commissions......
Printing of prospectuses and
statements of additional
information......................
Branch network costs
allocated and interest expense...
Service fees paid to
PaineWebber Financial Advisors....

CLASS C
Marketing and advertising........
Amortization of commissions......
Printing of prospectuses and
statements of additional
information......................
Branch network costs
allocated and interest expense...
Service fees paid to
PaineWebber Financial Advisors...

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

In approving each fund's overall Flexible Pricing(SERVICEMARK) system of
distribution, the applicable board considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby encouraging
current shareholders to make additional investments in the fund and attracting
new investors and assets to the fund to the benefit of the fund and its
shareholders, (2) facilitate distribution of the fund's shares and (3) maintain
the competitive position of the fund in relation to other funds that have
implemented or are seeking to implement similar distribution arrangements.

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

In approving the Class B Plan, the board of each fund considered all the
features of the distribution system, including (1) the conditions under which
contingent deferred sales charges would be imposed and the amount of such
charges, (2) the advantage to investors in having no initial sales charges
deducted from fund purchase payments and instead having the entire amount of
their purchase payments immediately invested in fund shares, (3) Mitchell
Hutchins' belief that the ability of PaineWebber Financial Advisors and
correspondent firms to receive sales commissions when Class B shares are sold
and continuing service fees thereafter while their customers invest their entire
purchase payments immediately in Class B shares would prove attractive to the
Financial Advisors and correspondent firms, resulting in greater growth of the
fund than might otherwise be the case, (4) the advantages to the shareholders of

32
<PAGE>

economies of scale resulting from growth in the fund's assets and potential
continued growth, (5) the services provided to the fund and its shareholders by
Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins'
shareholder service- and distribution-related expenses and costs. The board
members also recognized that Mitchell Hutchins' willingness to compensate
PaineWebber and its Financial Advisors, without the concomitant receipt by
Mitchell Hutchins of initial sales charges, was conditioned upon its expectation
of being compensated under the Class B Plan.

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

With respect to each Plan, the boards considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The boards also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that Mitchell
Hutchins would receive service, distribution and advisory fees that are
calculated based upon a percentage of the average net assets of each fund, which
fees would increase if the Plan were successful and the fund attained and
maintained significant asset levels.

Under the Distribution Contract between each fund and Mitchell Hutchins
for the Class A shares for the fiscal years (or periods) set forth below,
Mitchell Hutchins earned the following approximate amounts of sales charges and
retained the following approximate amounts, net of concessions to PaineWebber as
exclusive dealer.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
1999 1998 1997
---- ---- ----
<S> <C> <C>

FINANCIAL SERVICES GROWTH FUND
Earned................................ $2,006,218 $318,111
Retained.............................. $143,106 $21,364
UTILITY INCOME FUND
Earned................................ $21,396 $5,958
Retained.............................. $1,402 $340

</TABLE>

33
<PAGE>

Mitchell Hutchins earned and retained the following contingent deferred
sales charges paid upon certain redemptions of shares for the fiscal year ended
March 31, 1999:

FINANCIAL SERVICES GROWTH
FUND UTILITY INCOME FUND
---- -------------------
Class A................
Class B................
Class C................

PORTFOLIO TRANSACTIONS

Subject to policies established by each board, Mitchell Hutchins is
responsible for the execution of each fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions,
Mitchell Hutchins seeks to obtain the best net results for a fund, taking into
account such factors as the price (including the applicable brokerage commission
or dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved. While Mitchell Hutchins generally seeks
reasonably competitive commission rates, payment of the lowest commission is not
necessarily consistent with obtaining the best net results. Prices paid to
dealers in principal transactions generally include a "spread," which is the
difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. The funds may invest in securities traded
in the over-the-counter market and will engage primarily in transactions
directly with the dealers who make markets in such securities, unless a better
price or execution could be obtained by using a broker. During the fiscal years
indicated, the funds paid the brokerage commissions set forth below:

FISCAL YEAR ENDED MARCH 31
-------------------------------------------------

<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Financial Services Growth Fund.............. $317,283 $80,638

FISCAL YEAR FISCAL YEAR
ENDED ENDED
1999 MARCH 31, 1998 MARCH 31, 1997
---- -------------- --------------
Utility Income Fund......................... $15,213 $72,018

</TABLE>

The funds have no obligation to deal with any broker or group of brokers
in the execution of portfolio transactions. The funds contemplate that,
consistent with the policy of obtaining the best net results, brokerage
transactions may be conducted through Mitchell Hutchins or its affiliates,
including PaineWebber. Each board has adopted procedures in conformity with Rule
17e-1 under the Investment Company Act to ensure that all brokerage commissions
paid to PaineWebber are reasonable and fair. Specific provisions in the Advisory
Contracts authorize Mitchell Hutchins and any of its affiliates that is a member
of a national securities exchange to effect portfolio transactions for the funds
on such exchange and to retain compensation in connection with such
transactions. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations.

[For the last three years, Utility Income Fund paid no brokerage
commissions to PaineWebber.] For the fiscal year ended March 31, 1997, Financial
Services Growth Fund paid no brokerage commissions to PaineWebber. For the
fiscal years ended March 31, 1998 and March 31, 1999, Financial Services Growth
Fund paid $17,400 and $______, respectively, in brokerage commissions to
PaineWebber, which represented 5.48% and ____%, respectively, of the total

34
<PAGE>

commissions paid by that fund and 4.14% and ____%, respectively, of the
aggregate dollar amount of the fund's transactions involving commission
payments.

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

Consistent with the interests of the funds and subject to the review of
each board, Mitchell Hutchins may cause a fund to purchase and sell portfolio
securities through brokers who provide that fund with research, analysis, advice
and similar services. In return for such services, the funds may pay to those
brokers a higher commission than may be charged by other brokers, provided that
Mitchell Hutchins determines in good faith that such commission is reasonable in
terms either of that particular transaction or of the overall responsibility of
Mitchell Hutchins to that fund and its other clients and that the total
commissions paid by the fund will be reasonable in relation to the benefits to
the fund over the long term. During the fiscal year ended March 31, 1999, the
funds directed the portfolio transactions indicated below to brokers chosen
because they provide research and analysis, for which the funds paid the
brokerage commissions indicated below:

AMOUNT OF PORTFOLIO BROKERAGE
TRANSACTIONS COMMISSIONS PAID
------------ ----------------
Financial Services Growth Fund......
Utility Income Fund.................

For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions,
Mitchell Hutchins will not purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid if no weight was
attributed to the services provided by the executing dealer. Moreover, Mitchell
Hutchins will not enter into any explicit soft dollar arrangements relating to
principal transactions and will not receive in principal transactions the types
of services that could be purchased for hard dollars. Mitchell Hutchins may
engage in agency transactions in over-the-counter securities in return for
research and execution services. These transactions are entered into only in
compliance with procedures ensuring that the transaction (including commissions)
is at least as favorable as it would have been if effected directly with a
market-maker that did not provide research or execution services. These
procedures include Mitchell Hutchins receiving multiple quotes from dealers
before executing the transactions on an agency basis.

Information and research services furnished by brokers or dealers through
which or with which the funds effect securities transactions may be used by
Mitchell Hutchins in advising other funds or accounts and, conversely, research
services furnished to Mitchell Hutchins by brokers or dealers in connection with
other funds or accounts that either of them advises may be used in advising the
funds. Information and research received from brokers or dealers will be in
addition to, and not in lieu of, the services required to be performed by
Mitchell Hutchins under the Advisory Contracts.

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

35
<PAGE>

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

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

The funds' respective portfolio turnover rates for the fiscal years shown
were:

FISCAL YEARS ENDED MARCH 31,

1999 1998
---- ----
Financial Services Growth Fund......... 23%
Utility Income Fund................... 10%

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

WAIVERS OF SALES CHARGES/CONTINGENT DEFERRED SALES CHARGES -- CLASS A
SHARES. The following additional sales charge waivers are available for Class A
shares if you:

o Purchase shares through 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 l% of the amount invested;

o Acquire 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
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 also waived;

o Acquire shares in connection with a reorganization pursuant to which
a fund acquires substantially all of the assets and liabilities of
another fund in exchange solely for shares of the acquiring fund; or

o Acquire 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

In addition, reduced sales charges on Class A shares are available through
the combined purchase plan or through rights of accumulation described below.
Class A share purchases of $1 million or more are not subject to an initial
sales charge; however, if a shareholder sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or the
net asset value of the shares at the time of sale by the shareholder, whichever
is less, is imposed.

36
<PAGE>

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

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

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

(b) an individual and his or her individual retirement account ("IRA");

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

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

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

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

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

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

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

REINSTATEMENT PRIVILEGE -- CLASS A SHARES. Shareholders who have redeemed
Class A shares of a fund may reinstate their account without a sales charge by
notifying the transfer agent of such desire and forwarding a check for the
amount to be purchased within 365 days after the date of redemption. The
reinstatement will be made at the net asset value per share next computed after
the notice of reinstatement and check are received. The amount of a purchase
under this reinstatement privilege cannot exceed the amount of the redemption
proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised, although a loss arising out of a
redemption might not be deductible under certain circumstances. See "Taxes"
below.

WAIVERS OF CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. 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. Among other circumstances, the contingent
deferred sales charge on Class B shares is waived where a total or partial
redemption is made within one year following the death of the shareholder. The

37
<PAGE>

contingent deferred sales charge waiver is available where the decedent is
either the sole shareholder or owns the shares with his or her spouse as a joint
tenant with right of survivorship. This waiver applies only to redemption of
shares held at the time of death.

PURCHASES OF CLASS Y SHARES THROUGH THE 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 Financial Advisor or PaineWebber's correspondent firms
for more information concerning mutual funds that are available through the PACE
Multi Advisor Program.

ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the funds may be exchanged for shares of the
corresponding class of most other PaineWebber mutual funds. Class Y shares are
not eligible for exchange. Shareholders will receive at least 60 days' notice of
any termination or material modification of the exchange offer, except no notice
need be given if, under extraordinary circumstances, either redemptions are
suspended under the circumstances described below or a fund temporarily delays
or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the fund's investment objective, policies and
restrictions.

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

The funds may suspend redemption privileges or postpone the date of
payment during any period (1) when the New York Stock Exchange is closed or
trading on the New York Stock Exchange is restricted as determined by the SEC,
(2) when an emergency exists, as defined by the SEC, that makes it not
reasonably practicable for a fund to dispose of securities owned by it or fairly
to determine the value of its assets or (3) as the SEC may otherwise permit. The
redemption price may be more or less than the shareholder's cost, depending on
the market value of a fund's portfolio at the time.

SERVICE ORGANIZATIONS. A fund may authorize service organizations, and
their agents, to accept on its behalf purchase and redemption orders that are in
"good form." A fund will be deemed to have received these purchase and
redemption orders when a service organization or its agent accepts them. Like
all customer orders, these orders will be priced based on the fund's net asset
value next computed after receipt of the order by the service organizations or
their agents. Service organizations may include retirement plan service
providers who aggregate purchase and redemption instructions received from
numerous retirement plans or plan participants.

AUTOMATIC INVESTMENT PLAN. PaineWebber offers an automatic investment plan
with a minimum initial investment of $1,000 through which a fund will deduct $50
or more on a monthly, quarterly, semi-annual or annual basis from the investor's
bank account to invest directly in the fund. Participation in the automatic
investment plan enables an investor to use the technique of "dollar cost
averaging." When an investor invests the same dollar amount each month under the
plan, the investor will purchase more shares when a fund's net asset value per
share is low and fewer shares when the net asset value per share is high. Using
this technique, an investor's average purchase price per share over any given
period will be lower than if the investor purchased a fixed number of shares on
a monthly basis during the period. Of course, investing through the automatic
investment plan does not assure a profit or protect against loss in declining
markets. Additionally, because the automatic investment plan involves continuous

38
<PAGE>

investing regardless of price levels, an investor should consider his or her
financial ability to continue purchases through periods of both low and high
price levels.

SYSTEMATIC WITHDRAWAL PLAN. The systematic withdrawal plan allows
investors to set up monthly, quarterly (March, June, September and December),
semi-annual (June and December) or annual (December) withdrawals from their
PaineWebber Mutual Fund accounts. Minimum balances and withdrawals vary
according to the class of shares:

o Class A and Class C shares. Minimum value of fund shares is $5,000;
minimum withdrawals of $100.

o Class B shares. Minimum value of fund shares is $20,000; minimum
monthly, quarterly, and 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 if the investor withdraws 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 this plan.

An investor's participation in the systematic withdrawal plan will
terminate automatically if the "Initial Account Balance" (a term that means the
value of the fund account at the time the investor elects to participate in the
systematic withdrawal plan), less aggregate redemptions made other than pursuant
to the systematic withdrawal plan, is less than the minimum values specified
above. Purchases of additional shares of a fund concurrent with withdrawals are
ordinarily disadvantageous to shareholders because of tax liabilities and, for
Class A shares, initial sales charges. On or about the 20th of a month for
monthly, quarterly, semi-annual and annual plans, PaineWebber will arrange for
redemption by the funds of sufficient fund shares to provide the withdrawal
payments specified by participants in the funds' systematic withdrawal plan. The
payments generally are mailed approximately five Business Days (defined under
"Valuation of Shares") after the redemption date. Withdrawal payments should not
be considered dividends, but redemption proceeds. If periodic withdrawals
continually exceed reinvested dividends and other distributions, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the systematic
withdrawal plan at any time without charge or penalty by written instructions
with signatures guaranteed to PaineWebber or PFPC Inc. Instructions to
participate in the plan, change the withdrawal amount or terminate participation
in the plan will not be effective until five days after written instructions
with signatures guaranteed are received by PFPC. Shareholders may request the
forms needed to establish a systematic withdrawal plan from their PaineWebber
Financial Advisors, correspondent firms or PFPC at 1-800-647-1568.

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 PFPC. 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.

PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN(SERVICEMARK);
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(REGISTERED) (RMA)(REGISTERED)

Shares of PaineWebber mutual funds (each a "PW fund" and, collectively,
the "PW funds") are available for purchase through the RMA Resource Accumulation
Plan ("Plan") by customers of PaineWebber and its correspondent firms who
maintain Resource Management Accounts ("RMA accountholders"). The Plan allows an
RMA accountholder to continually invest in one or more of the PW funds at
regular intervals, with payment for shares purchased automatically deducted from
the client's RMA account. The client may elect to invest at monthly or quarterly

39
<PAGE>

intervals and may elect either to invest a fixed dollar amount (minimum $100 per
period) or to purchase a fixed number of shares. A client can elect to have Plan
purchases executed on the first or fifteenth day of the month. Settlement occurs
three Business Days (defined under "Valuation of Shares") after the trade date,
and the purchase price of the shares is withdrawn from the investor's RMA
account on the settlement date from the following sources and in the following
order: uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.

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

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

PERIODIC INVESTING AND DOLLAR COST AVERAGING. Periodic investing in the PW
funds or other mutual funds, whether through the Plan or otherwise, helps
investors establish and maintain a disciplined approach to accumulating assets
over time, de-emphasizing the importance of timing the market's highs and lows.
Periodic investing also permits an investor to take advantage of "dollar cost
averaging." By investing a fixed amount in mutual fund shares at established
intervals, an investor purchases more shares when the price is lower and fewer
shares when the price is higher, thereby increasing his or her earning
potential. Of course, dollar cost averaging does not guarantee a profit or
protect against a loss in a declining market, and an investor should consider
his or her financial ability to continue investing through periods of both low
and high share prices. However, over time, dollar cost averaging generally
results in a lower average original investment cost than if an investor invested
a larger dollar amount in a mutual fund at one time.

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

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

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

o automatic "sweep" of uninvested cash into the RMA accountholder's
choice of one of the six RMA money market funds-RMA Money Market
Portfolio, RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA
California Municipal Money Fund, RMA New Jersey Municipal Money Fund
and RMA New York Municipal Money Fund. AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH A
MONEY MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
MONEY MARKET FUND.

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

o Gold MasterCard, with or without a line of credit, which provides
RMA accountholders with direct access to their accounts and can be

40
<PAGE>

used with automatic teller machines worldwide. Purchases on the Gold
MasterCard are debited to the RMA account once monthly, permitting
accountholders to remain invested for a longer period of time;

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

o expanded account protection to $100 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares
of the RMA money market funds or the PW funds because those shares
are held at PFPC and not through PaineWebber; and

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

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

CONVERSION OF CLASS B SHARES

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

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

VALUATION OF SHARES

Each fund determines its net asset value per share separately for each
class of shares, normally as of the close of regular trading (usually 4:00 p.m.,
Eastern time) on the New York Stock Exchange on each Business Day, which is
defined as each Monday through Friday when the New York Stock Exchange is open.
Prices will be calculated earlier when the New York Stock Exchange closes early
because trading has been halted for the day. Currently the New York Stock
Exchange is closed on the observance of the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Securities that are listed on exchanges normally are valued at the last
sale price on the day the securities are valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by Mitchell Hutchins as the primary market. Securities traded in the
over-the-counter market and listed on the Nasdaq Stock Market ("Nasdaq")
normally are valued at the last available sale price on Nasdaq prior to
valuation; other over-the-counter securities are valued at the last bid price
available prior to valuation. Where market quotations are readily available,
portfolio securities are valued based upon market quotations, provided those
quotations adequately reflect, in the judgment of Mitchell Hutchins, the fair

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<PAGE>

value of the security. Where those market quotations are not readily available,
securities are valued based upon appraisals received from a pricing service
using a computerized matrix system or based upon appraisals derived from
information concerning the security or similar securities received from
recognized dealers in those securities. All other securities and other assets
are valued at fair value as determined in good faith by or under the direction
of the applicable board. It should be recognized that judgment often plays a
greater role in valuing thinly traded securities, including many lower rated
bonds, than is the case with respect to securities for which a broader range of
dealer quotations and last-sale information is available. The amortized cost
method of valuation generally is used to value debt obligations with 60 days or
less remaining until maturity, unless the applicable board determines that this
does not represent fair value.

PERFORMANCE INFORMATION

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

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

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

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B and Class C shares, the applicable contingent deferred sales charge
imposed on a redemption of Class B or Class C shares held for the period is
deducted. All dividends and other distributions are assumed to have been
reinvested at net asset value.

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

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

The following tables show performance information for each class of the
funds' shares outstanding for the periods indicated. All returns for periods of
more than one year are expressed as an average annual return.

42
<PAGE>

FINANCIAL SERVICES GROWTH FUND INC.

CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>

Year ended March 31, 1999:
Standardized Return*..............
Non-Standardized Return...........
Five Years ended March 31, 1999:
Standardized Return*..............
Non-Standardized Return...........
Ten Years ended March 31, 1999:
Standardized Return...............
Non-Standardized Return...........
Inception** to March 31, 1999:
Standardized Return*..............
Non-Standardized Return...........

</TABLE>

- --------------------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B and Class C shares reflect deduction of the applicable contingent
deferred sales charge imposed on a redemption of shares held for the
period. Class Y shares do not impose an initial or contingent deferred
sales charge; therefore, the performance information is the same for both
standardized return and non-standardized return for the periods indicated.

** The inception date for each Class of shares is as follows: Class A-May 22,
1986, Class B-July 1, 1991, Class C-July 2, 1992 and Class Y-March 30,
1998.
<TABLE>
<CAPTION>

UTILITY INCOME FUND

CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>

Year ended March 31, 1999:
Standardized Return*..............
Non-Standardized Return...........
Inception** to March 31, 1999:
Standardized Return*..............
Non-Standardized Return...........

</TABLE>

- --------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the
period. [Class Y shares do not impose an initial or contingent deferred
sales charge; therefore, the performance information is the same for both
standardized return and non-standardized return for the periods indicated.

** The inception date for Class A, B and C shares is July 2, 1993; the
inception date for Class Y shares is September 10, 1998.

OTHER INFORMATION. In Performance Advertisements, the funds may compare
their Standardized Return and/or their Non-Standardized Return with data
published by Lipper Inc. ("Lipper") for U.S. government funds, corporate bond
(BBB) funds and high yield funds, CDA Investment Technologies, Inc. ("CDA"),
Wiesenberger Investment Companies Service ("Wiesenberger"), Investment Company
Data, Inc. ("ICD") or Morningstar Mutual Funds ("Morningstar"), or with the
performance of recognized stock, bond and other indices, including the Municipal
Bond Buyers Indices, Lehman Bond Index, the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"), the Dow Jones Industrial Average, Merrill Lynch
Municipal Bond Indices, the Morgan Stanley Capital International World Index,
the Lehman Brothers Treasury Bond Index, Lehman Brothers Government/Corporate
Bond Index, the Salomon Brothers World Government Bond Index and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. Each fund
also may refer in these materials to mutual fund performance rankings and other
data, such as comparative asset, expense and fee levels, published by Lipper,

43
<PAGE>

CDA, Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer
to discussions of the funds and comparative mutual fund data and ratings
reported in independent periodicals, including THE WALL STREET JOURNAL, MONEY
Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW
YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS.
Comparisons in Performance Advertisements may be in graphic form.

The funds may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a fund investment are reinvested in
additional fund shares, any future income or capital appreciation of a fund
would increase the value, not only of the original fund investment, but also of
the additional fund shares received through reinvestment. As a result, the value
of a fund investment would increase more quickly than if dividends or other
distributions had been paid in cash.

The funds may also compare their performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote(R) Money Markets. In comparing the funds'
performance to CD performance, investors should keep in mind that bank CDs are
insured in whole or in part by an agency of the U.S. government and offer fixed
principal and fixed or variable rates of interest, and that bank CD yields may
vary depending on the financial institution offering the CD and prevailing
interest rates. Shares of the funds are not insured or guaranteed by the U.S.
government and returns and net asset values will fluctuate. The debt securities
held by the funds generally have longer maturities than most CDs and may reflect
interest rate fluctuations for longer term debt securities. An investment in any
fund involves greater risks than an investment in either a money market fund or
a CD.

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

[CHART]

[TO BE UPDATED]

The chart is shown for illustrative purposes only and does not represent
either fund's performance. These returns consist of income and capital
appreciation (or depreciation) and should not be considered an indication or
guarantee of future investment results. Year-to-year fluctuations in certain
markets have been significant and negative returns have been experienced in
certain markets from time to time. Stocks are measured by the S&P 500, an
unmanaged weighted index comprising 500 widely held common stocks and varying in
composition. Unlike investors in bonds and U.S. Treasury bills, common stock
investors do not receive fixed income payments and are not entitled to repayment
of principal. These differences contribute to investment risk. Returns shown for
long-term government bonds are based on U.S. Treasury bonds with 20-year
maturities. Inflation is measured by the Consumer Price Index. The indexes are
unmanaged and are not available for investment.

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

Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM) Ibbotson Assoc.,
Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).

Over time, although subject to greater risks and higher volatility, stocks
have outperformed all other investments by a wide margin, offering a solid hedge
against inflation. From 1926 to 1998, stocks beat all other traditional asset
classes. A $10,000 investment in the stocks comprising the S&P 500 grew to
$__,___,___, significantly more than any other investment.

TAXES

BACKUP WITHHOLDING. Each fund is required to withhold 31% of all taxable
dividends, capital gain distributions and redemption proceeds payable to
individuals and certain other non-corporate shareholders who do not provide the

44
<PAGE>

fund or PaineWebber with a correct taxpayer identification number. Withholding
at that rate also is required from dividends and capital gain distributions
payable to those shareholders who otherwise are subject to backup withholding.

SALE OR EXCHANGE OF FUND SHARES. A shareholder's sale (redemption) of
shares may result in a taxable gain or loss, depending on whether the
shareholder receives more or less than his or her adjusted basis for the shares
(which normally includes any initial sales charge paid on Class A shares). An
exchange of any fund's shares for shares of another PaineWebber mutual fund
generally will have similar tax consequences. In addition, if a fund's shares
are bought within 30 days before or after selling other shares of the fund
(regardless of class) at a loss, all or a portion of that loss will not be
deductible and will increase the basis of the newly purchased shares.

SPECIAL RULE FOR CLASS A SHAREHOLDERS. A special tax rule applies 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 would increase the basis of the PaineWebber mutual fund shares
subsequently acquired.

CONVERSION OF CLASS B SHARES. A shareholder will recognize no gain or loss
as a result of a conversion from Class B shares to Class A shares.

QUALIFICATION AS A REGULATED INVESTMENT COMPANY. To continue to qualify
for treatment as a regulated investment company ("RIC") under the Code, each
fund must distribute to its shareholders for each taxable year at least 90% of
the sum of its net interest income excludable from gross income under section
103(a) of the Code and its investment company taxable income (consisting
generally of taxable net investment income and net short-term capital gain) and
must meet several additional requirements. For each fund these requirements
include the following: (1) the fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities, or other
income (including gains from options or futures) derived with respect to its
business of investing in securities ("Income Requirement"); (2) at the close of
each quarter of the fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities that are limited, in respect of
any one issuer, to an amount that does not exceed 5% of the value of the fund's
total assets; and (3) at the close of each quarter of the fund's taxable year,
not more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of any
one issuer. If a fund failed to qualify for treatment as a RIC for any taxable
year, it would be taxed as an ordinary corporation on its taxable income for
that year (even if that income was distributed to its shareholders) and all
distributions out of its earnings and profits (including distributions
attributable to tax-exempt interest income) would be taxable to its
shareholders, as dividends (that is, ordinary income).

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

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

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

45
<PAGE>

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

Dividends and interest received, and gains realized, by a fund on foreign
securities may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions (collectively "foreign taxes") that would
reduce the return on its securities. Tax conventions between certain countries
and the United States, however, may reduce or eliminate foreign taxes, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of a fund's total assets at
the close of its taxable year consists of securities of foreign corporations, it
will be eligible to, and may, file an election with the Internal Revenue Service
that will enable its shareholders, in effect, to receive the benefit of the
foreign tax credit with respect to any foreign taxes paid by it. Pursuant to the
election, the fund would treat those taxes as dividends paid to its shareholders
and each shareholder (1) would be required to include in gross income, and treat
as paid by him or her, his or her proportionate share of those taxes, (2) would
be required to treat his or her share of those taxes and of any dividend paid by
the fund that represents income from foreign or U.S. possessions sources as his
or her own income from those sources, and (3) could either deduct the foreign
taxes deemed paid by him or her in computing his or her taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against his or her federal income tax. A fund will report to its
shareholders shortly after each taxable year their respective shares of foreign
taxes paid and the income from sources within, and taxes paid to, foreign
countries and U.S. possessions if it makes this election. Individuals who have
no more than $300 ($600 for married persons filing jointly) of creditable
foreign taxes included on Forms 1099 and all of whose foreign source income is
"qualified passive income" may elect each year to be exempt from the extremely
complicated foreign tax credit limitation, in which event they would be able to
claim a foreign tax credit without having to file the detailed Form 1116 that
otherwise is required.

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

The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward currency contracts,
involves complex rules that determine for income tax purposes the amount,
character and timing of recognition of the gains and losses a fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, futures and forward currency contracts derived by a fund with respect
to its business of investing in securities or foreign currencies, qualify as
permissible income under the Income Requirement.

Each fund may invest in the stock of "passive foreign investment
companies" ("PFICs") if that stock is a permissible investment. A PFIC is a
foreign corporation (with certain exceptions) that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain from disposition of such stock (collectively
"PFIC income"), plus interest thereon, even if the fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent it distributes that income
to its shareholders.

If a fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain --which it
may have to distribute to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax--even if the QEF did not distribute those earnings
and gain to the fund. In most instances it will be very difficult, if not
impossible, to make this election because of certain of its requirements.

46
<PAGE>

Each fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
a fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included by the fund for
prior taxable years under the election (and under regulations proposed in 1992
that provided a similar election with respect to the stock of certain PFICs). A
fund's adjusted basis in each PFIC's stock with respect to which it has made
this election will be adjusted to reflect the amounts of income included and
deductions taken thereunder.

If a fund has an "appreciated financial position"-- generally, an interest
(including an interest through an option, futures or forward currency contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis--and enters into a "constructive sale" of the position, the fund
will be treated as having made an actual sale thereof, with the result that gain
will be recognized at that time. A constructive sale generally consists of a
short sale, an offsetting notional principal contract or a futures or forward
currency contract entered into by a fund or a related person with respect to the
same or substantially identical property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to a fund's
transaction during any taxable year that otherwise would be treated as a
constructive sale if the transaction is closed within 30 days after the end of
that year and the fund holds the appreciated financial position unhedged for 60
days after that closing (i.e., at no time during that 60-day period is the
fund's risk of loss regarding that position reduced by reason of certain
specified transactions with respect to substantially identical or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale or granting an option to buy substantially identical
stock or securities).

A fund may acquire zero coupon or other securities issued with original
issue discount ("OID") and/or Treasury inflation-protected securities ("TIPS"),
on which principal is adjusted based on changes in the Consumer Price Index. A
fund must include in its gross income the OID that accrues on those securities,
and the amount of any principal increases on TIPS, during the taxable year, even
if the fund receives no corresponding payment on them during the year.
Similarly, a fund that invests in payment-in-kind ("PIK") securities must
include in its gross income securities it receives as "interest" on those
securities. Each fund has elected similar treatment with respect to securities
purchased at a discount from their face value ("market discount"). Because a
fund annually must distribute substantially all of its investment company
taxable income, including any accrued OID, market discount and other non-cash
income, to satisfy the Distribution Requirement, it may be required in a
particular year to distribute as a dividend an amount that is greater than the
total amount of cash it actually receives. Those distributions would have to be
made from the fund's cash assets or from the proceeds of sales of portfolio
securities, if necessary. The fund might realize capital gains or losses from
those sales, which would increase or decrease its investment company taxable
income and/or net capital gain.

The foregoing is only a general summary of some of the important federal
income tax considerations generally affecting the funds and their shareholders.
No attempt is made to present a complete explanation of the federal tax
treatment of the funds' activities, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential investors are urged
to consult their own tax advisers for more detailed information and for
information regarding any state, local or foreign taxes applicable to the funds
and to dividends and distributions therefrom.

OTHER INFORMATION

MASSACHUSETTS BUSINESS TRUSTS. The Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law, shareholders
of Utility Income Fund could, under certain circumstances, be held personally
liable for the obligations of the fund or its Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust or the fund and requires that notice of such disclaimer be given in
each note, bond, contract, instrument, certificate or undertaking made or issued
by the board members or by any officers or officer by or on behalf of the Trust
or the fund, the board members or any of them in connection with the Trust. The
Declaration of Trust provides for indemnification from the fund's property for

47
<PAGE>

all losses and expenses of any shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the fund itself would be unable to meet its obligations, a possibility that
Mitchell Hutchins believes is remote and not material. Upon payment of any
liability incurred by a shareholder solely by reason of being or having been a
shareholder, the shareholder paying such liability would be entitled to
reimbursement from the general assets of the fund. The board members intend to
conduct each fund's operations in such a way as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the fund.

CLASSES OF SHARES. A share of each class 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 the funds will affect
the performance of those classes. Each share of a fund is entitled to
participate equally in dividends, other distributions and the proceeds of any
liquidation of that fund. However, due to the differing expenses of the classes,
dividends and liquidation proceeds on Class A, B, C and Y shares will differ.

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 Rule 12b-1
Plan as it relates to the class. The shares of each series of the Trust will be
voted separately, except when an aggregate vote of all the series of the Trust
is required by law.

The funds do not 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.

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

PRIOR NAMES. Prior to December 14, 1995, Financial Services Growth Fund
was known as "PaineWebber Regional Financial Growth Fund Inc." Prior to November
10, 1995, each fund's Class C shares were known as "Class D" shares.

CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State
Street Bank and Trust Company, located at One Heritage Drive, North Quincy,
Massachusetts 02171, serves as custodian and recordkeeping agent for each fund.
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.

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

48
<PAGE>

COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the funds.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.

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

FINANCIAL STATEMENTS

Each fund's Annual Report to Shareholders for its last fiscal year ended March
31, 1999 is a separate document supplied with this SAI, and the financial
statements, accompanying notes and report of independent auditors or independent
accountants appearing therein are incorporated herein by this reference.

49
<PAGE>

APPENDIX

RATINGS INFORMATION

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

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

Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category, the modifier
2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

DESCRIPTION OF S&P CORPORATE DEBT RATINGS

AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong; A. An obligation rated A is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. However, the
obligor's capacity to meet its financial commitment on the obligation is still
strong; BBB. An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation; BB, B, CCC, CC, C. Obligations rated BB, B, CCC, CC and C are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions; BB. An
obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing certainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation; B. An
obligation rated B is more vulnerable to nonpayment than obligations rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation., Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation; CCC. An obligation rated CCC is currently vulnerable to

A-1
<PAGE>

nonpayment and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation; CC. An obligation rated CC is currently highly vulnerable to
nonpayment; C. The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are not being continued; D. An obligation rated D is in payment
default. The D rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not expired, unless
S&P believes that such payments will be made during such grace period. The D
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on a obligation are jeopardized.

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

r. This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

A-2

<PAGE>

YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR REFERRED TO IN THE PROSPECTUS PaineWebber
AND THIS STATEMENT OF ADDITIONAL
INFORMATION. THE FUNDS AND THEIR Financial Services Growth
DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS Fund
DIFFERENT. THE PROSPECTUS AND THIS
STATEMENT OF ADDITIONAL INFORMATION ARE
NOT AN OFFER TO SELL SHARES OF THE FUNDS PaineWebber
IN ANY JURISDICTION WHERE THE FUNDS OR
THEIR DISTRIBUTOR MAY NOT LAWFULLY SELL Utility Income Fund
THOSE SHARES.

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

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

Statement of Additional Information

August 1, 1999
------------------------------------------

PAINEWEBBER

<PAGE>

PART C. OTHER INFORMATION

Item 23. Exhibits

(1) (a) Amended and Restated Declaration of Trust 1/

(b) Amendment to Declaration of Trust effective April 8, 1998 2/

(d) Amendment to Declaration of Trust effective August 19, 1998 3/

(2) Restated By-Laws 1/

(3) Instruments defining the rights of holders of the Registrant's
shares of beneficial interest 4/

(4) (a) Investment Advisory and Administration Contract 1/

(b) Investment Advisory and Administration Contract with respect
to PaineWebber Tax-Managed Equity Fund 3/

(d) Investment Advisory Fee Agreement with respect to PaineWebber Low
Duration U.S. Government Income Fund 1/

(e) Investment Advisory Fee Agreement with respect to PaineWebber Asia
Pacific Growth Fund 5/

(f) Sub-Investment Advisory Contract with respect to PaineWebber Low
Duration U.S. Government Income Fund 6/

(g) Sub-Advisory Contract with respect to PaineWebber Asia
Pacific Growth Fund 5/

(5) (a) Distribution Contract with respect to Class A Shares 1/

(b) Distribution Contract with respect to Class B Shares 1/

(d) Distribution Contract with respect to Class Y Shares 7/

(e) Exclusive Dealer Agreement with respect to Class A Shares 1/

(f) Exclusive Dealer Agreement with respect to Class B Shares 1/

(g) Exclusive Dealer Agreement with respect to Class C Shares 7/

(h) Exclusive Dealer Agreement with respect to Class Y Shares 7/

(6) Bonus, profit sharing or pension plans - none

(7) Custodian Agreement 1/

(8) Transfer Agency Agreement 8/

(9) Opinion and consent of counsel (to be filed)

(10) Other opinions, appraisals, rulings and consents: Auditors' consent
(to be filed)

(11) Financial statements omitted from prospectus - none

(12) Letter of investment intent 1/

C-1
<PAGE>

(13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A Shares 3/

(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B Shares 3/

(14) and

(27) Financial Data Schedule (to be filed)

(15) Plan pursuant to Rule 18f-3 9/

(16) Power of Attorney dated May 14, 1999 for Brian M. Storms (filed
herewith)

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

1/ Incorporated by reference from Post-Effective Amendment No. 52 to the
registration statement, SEC File No. 2-91362, filed February 27, 1998.

2/ Incorporated by reference from Post-Effective Amendment No. 54 to the
registration statement, SEC File No. 2-91362, filed July 21, 1998.

3/ Incorporated by reference from Post-Effective Amendment No. 59 to the
registration statement, SEC File No. 2-91362, filed February 26, 1999.

4/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Amended and Restated Declaration of Trust and from
Articles II, VII and X of Registrant's Restated By-Laws.

5/ Incorporated by reference from Post Effective Amendment No. 50 to the
registration statement, SEC File No. 2-91362, filed July 7, 1997.

6/ Incorporated by reference from Post-Effective Amendment No. 37 to the
registration statement, SEC File No. 2-91362, filed March 31, 1995.

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

8/ Incorporated by reference from Post-Effective Amendment No. 53 to the
registration statement, SEC File No. 2-91362, filed March 31, 1998.

9/ Incorporated by reference from Post-Effective Amendment No. 43 to the
registration statement, SEC File No. 2-91362, filed July 31, 1996.

Item 24. Persons Controlled by or under Common Control with Registrant

None.

C-2
<PAGE>

Item 25. Indemnification

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

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

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

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

Section 9 of each Investment Advisory and Administration Contract
("Advisory Contract") between Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins") and the Trust provides that Mitchell Hutchins shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Registrant in connection with the matters to which the
Advisory Contract relates, except for a loss resulting from willful
misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations
and duties under the Advisory Contract. The sub-advisory contracts with
respect to PaineWebber Low Duration U.S. Government Income Fund and
PaineWebber Asia Pacific Growth Fund contain similar provisions with
respect to those sub-advisers. Section 10 of each Advisory Contract
provides that the trustees shall not be liable for any obligations of the
Trust under the Advisory Contract and that Mitchell Hutchins shall look
only to the assets and property of the Trust in settlement of such right or
claim and not to the assets and property of the trustees.

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

C-3
<PAGE>

in information furnished by Mitchell Hutchins for use in the Registration
Statement or arising out of an agreement between Mitchell Hutchins and any
retail dealer, or arising out of supplementary literature or advertising
used by Mitchell Hutchins in connection with each Distribution Contract.

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

Section 10 of each Distribution Contract contains provisions similar
to that of the section of the Investment Advisory and Administration
Contracts limiting the liability of the Trust's trustees.

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

Item 26. Business and Other Connections of Investment Adviser

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

Pacific Investment Management Company ("PIMCO") serves as sub-adviser
for PaineWebber Low Duration U.S. Government Income Fund. PIMCO, a Delaware
general partnership, is a registered investment adviser and a subsidiary
partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). The general partners
of PIMCO Advisors are PIMCO Advisors Holding L.P., a publicly traded
company listed on the New York Stock Exchange under the symbol "PA" and
PIMCO Partners, G.P., a a general partnership between Pacific Life
Insurance Company and PIMCO Partners, LLC., a limited liability company
controlled by the PIMCO managing directors. PIMCO is primarily engaged in
the investment advisory business. Information as to the officers and
managing directors and partners of PIMCO is included in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-48187) and is incorporated herein by reference.

Schroder Capital Management International Inc. ("Schroder Capital")
serves as investment sub-adviser for PaineWebber Asia Pacific Growth Fund.
Schroder Capital, a New York corporation, is a registered investment
adviser and is primarily engaged in the investment advisory business.
Schroder Capital is a wholly owned indirect subsidiary of Schroders plc,
the London Stock Exchange listed holding company parent of a large
worldwide group of banks and financial services companies (referred to as
the "Schroder Group") with associated companies and branch and
representative offices located worldwide. Information regarding the
officers and directors of Schroder Capital is included in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-15834) and is incorporated herein by reference.

C-4
<PAGE>

Item 27. Principal Underwriters

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

ALL-AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
MANAGED HIGH YIELD PLUS FUND INC.
MITCHELL HUTCHINS INSTITUTIONAL SERIES
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
2002 TARGET TERM TRUST INC.

(b) Mitchell Hutchins is the principal underwriter for the Registrant.
PaineWebber acts as exclusive dealer for the shares of the Registrant. The
directors and officers of Mitchell Hutchins, their principal business
addresses and their positions and offices with Mitchell Hutchins are
identified in its Form ADV, as filed with the Securities and Exchange
Commission (registration number 801-13219). The directors and officers of
PaineWebber, their principal business addresses and their positions and
offices with PaineWebber are identified in its Form ADV, as filed with the
Securities and Exchange Commission (registration number 801-7163). The
foregoing information is hereby incorporated by reference. The information
set forth below is furnished for those directors and officers of Mitchell
Hutchins or PaineWebber who also serve as trustees or officers of the
Registrant. Unless otherwise indicated, the principal business address of
each person named is 1285 Avenue of the Americas, New York, NY 10019.

<TABLE>
<CAPTION>
Position and Offices with
Name Position With Registrant Underwriter or Exclusive Dealer

Margo N. Alexander Trustee and President Chairman, Chief Executive Officer
and a Director of Mitchell Hutchins
and Executive Vice President and a
Director of PaineWebber

C-5
<PAGE>

Mary C. Farrell Trustee Managing Director, Senior Investment
Strategist and member of Investment
Policy Committee of PaineWebber

Brian M. Storms Trustee President and Chief Operating Officer
of Mitchell Hutchins

T. Kirkham Barneby Vice President Managing Director and Chief Investment
Officer - Quantitative Investments of
Mitchell Hutchins

Julianna Berry Vice President First Vice President and a Portfolio
Manager of Mitchell Hutchins

James F. Keegan Vice President Senior Vice President and a Portfolio
Manager of Mitchell Hutchins

John J. Lee Vice President and Vice President and a Manager of the
Assistant Treasurer Mutual Fund Finance Department of
Mitchell Hutchins

Thomas J. Libassi Vice President Senior Vice President and a Portfolio
Manager of Mitchell Hutchins

Kevin J. Mahoney Vice President and First Vice President and a Senior
Assistant Treasurer Manager of the Mutual Fund Finance Department
of Mitchell Hutchins

Dennis McCauley Vice President Managing Director and Chief Investment
Officer - Fixed Income of Mitchell Hutchins

Ann E. Moran Vice President and Vice President and a Manager of the Mutual
Assistant Treasurer Fund Finance Department of Mitchell Hutchins

Dianne E. O'Donnell Vice President and Senior Vice President and Deputy General Counsel
Secretary of Mitchell Hutchins

Emil Polito Vice President Senior Vice President and Director of Operations
and Control of Mitchell Hutchins

Victoria E. Schonfeld Vice President Managing Director and General Counsel of
Mitchell Hutchins and a Senior Vice
President of PaineWebber

Paul H. Schubert Vice President and Senior Vice President and Director of the Mutual Fund
Treasurer Finance Department of Mitchell Hutchins

Nirmal Singh Vice President Senior Vice President and a Portfolio Manager of
Mitchell Hutchins

Barney A. Taglialatela Vice President and Vice President and a Manager of the Mutual Fund
Assistant Treasurer Finance Department of Mitchell Hutchins

Mark A. Tincher Vice President Managing Director and Chief Investment
Officer - Equities of Mitchell Hutchins

C-6
<PAGE>

Keith A. Weller Vice President and First Vice President and Associate
Assistant Secretary General Counsel of Mitchell Hutchins
</TABLE>

Item 28. Location of Accounts and Records

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

Item 29. Management Services

Not applicable.

Item 30. Undertakings

None.

C-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 28th day of May, 1999.

PAINEWEBBER MANAGED INVESTMENTS TRUST

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

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

Signature Title Date
- --------- ----- ----

/s/ Margo N. Alexander President and Trustee May 28, 1999
- ------------------------------ (Chief Executive Officer)
Margo N. Alexander *

/s/ E. Garrett Bewkes, Jr. Trustee and Chairman May 28, 1999
- ------------------------------ of the Board of Trustees
E. Garrett Bewkes, Jr. *

/s/ Richard Q. Armstrong Trustee May 28, 1999
- ------------------------------
Richard Q. Armstrong *

/s/ Richard R. Burt Trustee May 28, 1999
- ------------------------------
Richard R. Burt *

/s/ Mary C. Farrell Trustee May 28, 1999
- ------------------------------
Mary C. Farrell *

/s/ Meyer Feldberg Trustee May 28, 1999
- ------------------------------
Meyer Feldberg *

/s/ George W. Gowen Trustee May 28, 1999
- ------------------------------
George W. Gowen *

/s/ Frederic V. Malek Trustee May 28, 1999
- ---------------------
Frederic V. Malek *

/s/ Carl W. Schafer Trustee May 28, 1999
- ------------------------------
Carl W. Schafer *

/s/ Brian M. Storms Trustee May 28, 1999
- ------------------------------
Brian M. Storms **

/s/ Paul H. Schubert Vice President and May 28, 1999
- ------------------------------ Treasurer (Chief Financial
Paul H. Schubert and Accounting Officer)

<PAGE>

SIGNATURES (CONTINUED)

* Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 30 to the registration statement of PaineWebber Managed Municipal
Trust, SEC File 2-89016, filed June 27, 1996.

** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
May 14, 1999 and filed herewith as Exhibit 16.

<PAGE>

PAINEWEBBER MANAGED INVESTMENTS TRUST

EXHIBIT INDEX

Exhibit
Number