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PaineWebber Growth and Income Fund
PaineWebber Growth Fund
PROSPECTUS--MAY 1, 1996, AS REVISED AUGUST 12, 1996
PaineWebber Small Cap Fund
PROSPECTUS--AUGUST 12, 1996
Class Y Shares
1285 AVENUE OF THE AMERICAS, NEW YORK, NY 10019
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PaineWebber Stock Funds are designed for investors generally
seeking capital appreciation by investing principally in equity
securities. PaineWebber Growth and Income Fund seeks to provide
both capital growth and current income by investing in
dividend-paying equity securities believed to have potential for
rapid earnings growth. PaineWebber Growth Fund seeks long-term
capital appreciation by investing in equity securities of
companies with substantial potential for capital growth.
PaineWebber Small Cap Fund seeks long-term capital appreciation by
investing primarily in equity securities of small capitalization
companies. Prior to July 1996, Small Cap Fund was known as "Small
Cap Value Fund."
This Prospectus concisely sets forth information that an investor
should know about the Funds before investing. Please read it
carefully and retain a copy of this Prospectus for future
reference.
The Class Y shares described in this Prospectus are offered for
sale only to limited groups of investors, which include, for the
Class Y shares of Growth and Income Fund and Growth Fund, the
trustee of the PaineWebber Savings Investment Plan ("PW SIP"). See
"How to Buy Shares."
A Statement of Additional Information dated May 1, 1996 (with
respect to Growth and Income Fund and Growth Fund), as revised
August 12, 1996, and dated August 12, 1996 (with respect to Small
Cap Fund) has been filed with the Securities and Exchange
Commission and is legally part of this Prospectus. The Statement
of Additional Information can be obtained without charge, and
further inquiries can be made, by contacting an individual Fund,
your PaineWebber investment executive, PaineWebber's correspondent
firms or by calling toll-free 1-800-647-1568. Participants in the
PW SIP may make further inquiries by contacting the PaineWebber
Incorporated Benefits Department, 10th Floor, 1000 Harbor
Boulevard, Weehawken, New Jersey 07087 or by calling
1-201-902-4444.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS OR THEIR DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Prospectus Page 1
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Funds at a Glance................................................ 3
Expense Table........................................................ 5
Financial Highlights................................................. 7
Investment Objective and Policies.................................... 8
Investment Philosophy & Process...................................... 9
Performance.......................................................... 11
The Funds' Investments............................................... 12
How to Buy Shares.................................................... 15
How to Sell Shares................................................... 16
Management........................................................... 17
Determining the Shares' Net Asset Value.............................. 18
Dividends & Taxes.................................................... 18
General Information.................................................. 19
</TABLE>
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Prospectus Page 2
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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THE FUNDS AT A GLANCE
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The Funds offered by this Prospectus are not
intended to provide a complete or balanced
investment program, but one or more of them may
be appropriate as a component of an investor's
overall portfolio. Some common reasons to invest in
these Funds are to finance college educations, plan
for retirement or diversify a portfolio. When selling
shares, investors should be aware that they may get
more or less for their shares than they originally
paid for them. As with any mutual fund there is
no assurance that the Funds will achieve their goals.
GROWTH AND INCOME FUND
GOAL: To increase the value of your investment by investing primarily in
dividend-paying equity securities with the potential for rapid earnings growth.
INVESTMENT OBJECTIVE: Current income and capital growth.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Because
the Fund invests primarily in equity securities, its price will rise and fall.
The Fund may invest in U.S. dollar-denominated securities of foreign companies,
which involve more risk than investing in the securities of U.S. companies. The
Fund may also invest up to 10% of its assets in high yield, high risk
convertible bonds, which are considered predominantly speculative and may
involve major risk exposure to adverse conditions. The Fund may use derivatives,
such as options and futures, in its hedging activities, which may involve
special risks. Investors may lose money by investing in the Fund; your
investment is not guaranteed.
SIZE: On July 31, 1996, the Fund had over $593 million in assets.
GROWTH FUND
GOAL: To increase the value of your investment by investing primarily in equity
securities of companies with substantial potential for capital growth.
INVESTMENT OBJECTIVE: Long-term capital appreciation.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Because
the Fund invests primarily in equity securities, its price will rise and fall.
The Fund may invest in U.S. dollar-denominated securities of foreign companies,
which involve more risk than investing in the securities of U.S. companies. The
Fund may also invest up to 35% of its net assets in high yield, high risk bonds
and convertible securities, which are considered predominantly speculative and
involve major risk exposure to adverse conditions. The Fund may use derivatives,
such as options and futures, in its hedging activities, which may involve
special risks. Investors may lose money by investing in the Fund; your
investment is not guaranteed.
SIZE: On July 31, 1996, the Fund had over $377 million in assets.
SMALL CAP FUND
GOAL: To increase the value of your investment by investing primarily in equity
securities of small capitalization ("small cap") companies.
INVESTMENT OBJECTIVE: Long-term capital appreciation.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Because
the Fund invests primarily in equity securities, its price will rise and fall.
The Fund may invest in U.S. dollar-denominated securities of foreign companies,
which involve more
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Prospectus Page 3
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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risk than investing in the securities of U.S. companies. Small cap companies
typically are subject to a greater degree of change in earnings and business
prospects than are larger, more established companies. In addition, equity
securities of small cap companies may be less liquid and more volatile than
those of larger companies. The Fund may also invest up to 10% of its total
assets in high yield, high risk convertible bonds, which are predominantly
speculative and may involve major risk exposure to adverse conditions. The Fund
may use derivatives, such as options and futures, in its hedging activities,
which may involve special risks. Investors may lose money by investing in the
Fund; the investment is not guaranteed.
SIZE: On July 31, 1996, the Fund had over $88 million in assets.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"), is the
investment adviser and administrator of Growth and Income Fund, Growth Fund and
Small Cap Fund (each a "Fund" and, collectively, the "Funds").
WHO SHOULD INVEST
GROWTH AND INCOME FUND is designed for investors seeking capital growth and
current income through investment in growth-oriented, dividend-paying equity
securities of U.S. companies and foreign companies that are traded in the United
States. Growth and Income Fund invests primarily in equity securities of larger
growth companies and smaller issuers with the potential for rapid earnings
growth that pay dividends. In addition, Growth and Income Fund can invest in
high yield, high risk convertible bonds. These investments offer the potential
for greater returns but also entail a substantial degree of volatility and risk.
Accordingly, Growth and Income Fund is designed for investors who are able to
bear the risks that come with investments in the stocks and bonds of such
companies.
GROWTH FUND is for investors who want long-term capital appreciation through
investment primarily in growth-oriented equity securities of U.S. companies and
foreign companies that are traded in the United States. Growth Fund invests in
equity securities of both larger growth companies and smaller issuers with
greater appreciation potential. In addition, Growth Fund can invest in high
yield, high risk bonds. These investments offer the potential for greater
returns but also entail a substantial degree of volatility and risk.
Accordingly, Growth Fund is designed for investors who are able to bear the
risks that come with investments in the stocks and bonds of such companies.
SMALL CAP FUND invests primarily in equity securities of small cap U.S.
companies and foreign companies that are traded in the U.S., and is designed for
investors who are seeking long-term capital appreciation. Several statistical
studies have been published indicating that the historical long-term returns of
small cap equity securities have been higher than those of large cap equity
securities. Equity securities of small cap companies generally exhibit greater
market volatility than is the case with equity securities of larger companies,
or equity securities in general. In addition, Small Cap Fund can invest in high
yield, high risk convertible bonds. These investments offer the potential for
greater returns, but also entail a substantial degree of volatility and risk.
Accordingly, Small Cap Fund is designed for investors who are able to bear the
risks and fluctuations associated with investment in smaller companies.
HOW TO PURCHASE CLASS Y SHARES
OF THE FUNDS
Eligible investors may purchase Class Y shares of the Funds as follows:
The price is the net asset value next calculated after PaineWebber's New York
City headquarters or the Fund's Transfer Agent ("Transfer Agent") receives the
purchase order.
Investors do not pay an initial sales charge when they buy Class Y shares. 100%
of their purchase is immediately invested. Investors also do not pay a
redemption fee or contingent deferred sales charge when they sell Class Y
shares.
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Prospectus Page 4
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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EXPENSE TABLE
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The following tables are intended to assist investors in understanding the
expenses associated with investing in Class Y shares of the Funds.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS Y
-------
<S> <C>
Maximum Sales Charge on Purchases of Shares........................... None
Sales Charge on Reinvested Dividends.................................. None
Maximum Contingent Deferred Sales Charge.............................. None
ANNUAL FUND OPERATING EXPENSES(1)(2) (as a % of average net assets)
GROWTH AND INCOME FUND
Management Fees....................................................... 0.70%
12b-1 Fees............................................................ 0.00
Other Expenses........................................................ 0.19
-------
Total Operating Expenses.............................................. 0.89%
-------
-------
GROWTH FUND(3)
Management Fees....................................................... 0.75%
12b-1 Fees............................................................ 0.00
Other Expenses........................................................ 0.17
-------
Total Operating Expenses.............................................. 0.92%
-------
-------
SMALL CAP FUND
Management Fees....................................................... 1.00%
12b-1 Fees............................................................ 0.00
Other Expenses (estimated)............................................ 0.53
-------
Total Operating Expenses.............................................. 1.53%
-------
-------
</TABLE>
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(1) Class Y shares may be purchased by participants in the INSIGHT Investment
Advisory Program ("INSIGHT") sponsored by PaineWebber, when purchased
through that program. Participation in INSIGHT is subject to payment of an
advisory fee at the maximum annual rate of 1.50% of assets held through
INSIGHT (generally charged quarterly in advance), which may be charged to
the INSIGHT participant's PaineWebber account. This account charge is not
included in the table because non-INSIGHT participants are permitted to
purchase Class Y shares of the Funds.
(2) The fees and expenses are those actually incurred for the most recent fiscal
year, except that "Other expenses" for Small Cap Fund have been estimated
based on the expenses incurred for that Fund's Class A shares for the twelve
month period ended January 31, 1996.
(3) Does not include 0.05% in non-recurring reorganization expenses which were
incurred during the fiscal year ended August 31, 1995. If those expenses
were included, "Other expenses" for Class Y shares would be 0.22% and "Total
operating expenses" would be 0.97%.
The management fees paid by Growth Fund and Small Cap Fund are higher than those
paid by most other mutual funds. However, Mitchell Hutchins believes that these
fees are comparable to the management fees paid by other funds with similar
investment objectives and policies.
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Prospectus Page 5
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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EXPENSE TABLE
(Continued)
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EXAMPLE OF EFFECT OF FUND EXPENSES
The following example should assist investors in understanding various costs and
expenses incurred as shareholders of a Fund. The assumed 5% annual return shown
in the examples is required by regulations of the Securities and Exchange
Commission ("SEC") applicable to all mutual funds. THESE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF A
FUND MAY BE MORE OR LESS THAN THOSE SHOWN.
An investor would pay the following expenses, directly or indirectly, on a
$1,000 investment in the Fund, assuming (1) a 5% annual return, (2) reinvestment
of all dividends and distributions and (3) percentage amounts listed under
"Annual Fund Operating Expenses" remain the same for years shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GROWTH AND INCOME FUND...................................... $ 9 $28 $49 $110
GROWTH FUND................................................. $ 10 $31 $54 $119
SMALL CAP FUND.............................................. $ 16 $48 $83 $182
</TABLE>
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Prospectus Page 6
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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FINANCIAL HIGHLIGHTS
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The following table provides investors with data and ratios for one Class Y
share of Growth and Income Fund and Growth Fund for each of the periods shown.
This information is supplemented by the financial statements and accompanying
notes appearing in each Fund's Annual Report to Shareholders for the fiscal year
ended August 31, 1995 and the report of Ernst & Young LLP, independent auditors,
appearing in each Fund's Annual Report to Shareholders. The financial
statements, notes and independent auditors reports are incorporated by reference
into the Statement of Additional Information. The financial statements and
notes, as well as the financial information in the table below, have been
audited by Ernst & Young LLP. Further information about each Fund's performance
is also included in the Annual Report to Shareholders, which may be obtained
without charge by calling 1-800-647-1568. No information is presented for Class
Y shares of Small Cap Fund because no such shares were outstanding during the
periods shown.
<TABLE>
<CAPTION>
CLASS Y(2)
---------------------------------------------------------------------------------------
GROWTH AND INCOME FUND GROWTH FUND++
-------------------------------------------- ----------------------------------------
FOR THE
FOR THE PERIOD
YEARS ENDED FEBRUARY 12, FOR THE YEARS ENDED
AUGUST 31, 1992+ TO AUGUST 31,
----------------------------- AUGUST 31, ----------------------------------------
1995 1994 1993 1992 1995 1994 1993 1992
-------- ------- ------- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 20.42 $ 20.86 $ 20.48 $ 20.95 $ 20.22 $ 20.71 $ 16.83 $ 17.50
-------- ------- ------- ------ ------- ------- ------- -------
Net investment income.......... 0.30 0.33 0.33 0.16 0.24 0.03 0.08 0.05
Net realized and unrealized
gains (losses) from investment
transactions................... 3.18 (0.40) 0.37 (0.49) 2.10 0.55 4.42 (0.11)
-------- ------- ------- ------ ------- ------- ------- -------
Total increase/decrease from
investment operations......... 3.48 (0.07) 0.70 (0.33) 2.34 0.58 4.50 (0.06)
-------- ------- ------- ------ ------- ------- ------- -------
Dividends from net investment
income......................... (0.15) (0.34) (0.32) (0.14) -- -- -- (0.01)
Distributions from net realized
gains on investment
transactions................... (1.21) (0.03) -- -- (0.03) (1.07) (0.62) (0.60)
-------- ------- ------- ------ ------- ------- ------- -------
Total dividends and
distributions.................. (1.36) (0.37) (0.32) (0.14) (0.03) (1.07) (0.62) (0.61)
-------- ------- ------- ------ ------- ------- ------- -------
Net asset value, end of
period......................... $ 22.54 $ 20.42 $ 20.86 $ 20.48 $ 22.53 $ 20.22 $ 20.71 $ 16.83
-------- ------- ------- ------ ------- ------- ------- -------
-------- ------- ------- ------ ------- ------- ------- -------
Total investment return(1)..... 18.66% (0.31)% 3.44% (1.15)% 11.58% 2.67% 27.26% (0.52)%
-------- ------- ------- ------ ------- ------- ------- -------
-------- ------- ------- ------ ------- ------- ------- -------
Ratios/Supplemental data:
Net assets, end of period
(000's)........................ $ 14,680 $14,690 $17,005 $ 10,560 $20,948 $30,521 $20,706 $11,581
Expenses to average net
assets......................... 0.89% 0.90% 0.86% 0.93%* 0.97%(3) 0.94% 0.95% 1.12%
Net investment income to
average net assets............. 1.39% 1.60% 1.62% 1.56%* 0.53%(3) 0.40% 0.60% 0.38%
Portfolio turnover............. 111.27% 94.32% 36.52% 15.57% 36.10% 24.41% 35.81% 32.49%
</TABLE>
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<TABLE>
<C> <S>
* Annualized.
+ Commencement of offering of shares.
++ A per share breakdown for Class Y shares has been omitted for the period August 26, 1991
(commencement of offering of shares) to August 31, 1991 due to immaterial amounts.
(1) Total investment return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and distributions at net asset value
on the payable dates and a sale at net asset value on the last day of each period
reported. Total investment returns for periods of less than one year have not been
annualized.
(2) Formerly Class C shares.
(3) These ratios include non-recurring acquisition expenses of 0.05%.
</TABLE>
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Prospectus Page 7
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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INVESTMENT OBJECTIVE & POLICIES
- --------------------------------------------------------------------------------
The Funds' investment objectives may not be changed without shareholder
approval. Their other investment policies, except where noted, are not
fundamental and may be changed by the Funds' boards of trustees.
GROWTH AND INCOME FUND
The investment objective of Growth and Income Fund is current income and capital
growth. The Fund seeks to achieve this objective by investing primarily in
dividend-paying equity securities believed by Mitchell Hutchins to have the
potential for rapid earnings growth. Normally, Growth and Income Fund invests at
least 65% of its total assets in such equity securities. The Fund may invest up
to 35% of its total assets in equity securities not meeting these selection
criteria, as well as in U.S. government bonds, corporate bonds and money market
instruments, including up to 10% in convertible bonds rated below investment
grade. Up to 25% of the Fund's total assets may be invested in U.S.
dollar-denominated equity securities and bonds of foreign issuers that are
traded on recognized U.S. exchanges or in the U.S. over-the-counter ("OTC")
market.
GROWTH FUND
The investment objective of Growth Fund is long-term capital appreciation.
Growth Fund seeks to achieve this objective by investing primarily in equity
securities issued by companies that, in the judgment of Mitchell Hutchins, have
substantial potential for capital growth. Under normal circumstances, at least
65% of the Fund's total assets are invested in equity securities. The Fund may
invest up to 35% of its total assets in U.S. government bonds and in corporate
bonds (including up to 10% in corporate bonds rated below investment grade). Up
to 25% of the Fund's total assets may be invested in U.S. dollar-denominated
equity securities and bonds of foreign issuers that are traded on recognized
U.S. exchanges or in the U.S. OTC market.
SMALL CAP FUND
The investment objective of Small Cap Fund is long-term capital appreciation.
Under normal circumstances, at least 65% of the Fund's total assets are invested
in equity securities of small cap companies, which are defined as companies
having market capitalizations of up to $1 billion. Small Cap Fund may invest up
to 35% of its total assets in equity securities of companies that are larger
than small cap companies, as well as in U.S. government bonds, corporate bonds
and money market instruments, including up to 10% of total assets in convertible
bonds rated below investment grade. Up to 25% of the Fund's total assets may be
invested in U.S. dollar-denominated equity securities of foreign issuers traded
on recognized U.S. exchanges or in the U.S. OTC market.
* * * *
As with any mutual fund, there can be no assurance that any of these Funds will
achieve its investment objective. Each Fund's net asset value fluctuates based
upon changes in the value of its portfolio securities.
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Prospectus Page 8
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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INVESTMENT PHILOSOPHY & PROCESS
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
In seeking to balance capital growth with current income, Mitchell Hutchins
follows a disciplined investment process that relies on the Mitchell Hutchins
Equity Research Team and the Mitchell Hutchins Factor Valuation Model. In order
to fulfill the income component, the Fund invests at least 65% of its assets in
dividend-paying stocks.
The Model screens a universe of small-to large-capitalization companies in ten
different business sectors to identify undervalued companies with strong
earnings momentum that rank well in three measures:
- -- VALUE: projected dividends, cash flow, earnings and book value;
- -- MOMENTUM: earnings and price to identify companies that could surprise on the
upside; and
- -- ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.
The equity securities ranking in the top 20% of the Factor Valuation Model's
universe are screened twice a month. Then the portfolio managers take a closer
look at those equity securities that rank higher based on value and momentum.
Mitchell Hutchins applies traditional analysis and may speak to the management
of these companies, as well as those of their competitors. In seeking capital
appreciation, the Fund would also invest in bonds when, for instance, Mitchell
Hutchins anticipates that market interest rates may decline or credit factors or
ratings affecting particular issuers may improve.
GROWTH FUND
In selecting equity securities with the potential for above-average growth in
earnings, cash flow and/or book value that are selling at a reasonable value
relative to that growth, Mitchell Hutchins follows a disciplined investment
process that relies on the Mitchell Hutchins Equity Research Team and combines a
"bottom-up," stock-by-stock approach with the Mitchell Hutchins Factor Valuation
Model. The Fund can invest in companies of large market capitalizations,
medium-sized companies and smaller companies that are aggressively expanding
their businesses. This flexibility allows the Fund to invest more of its assets
in companies that have greater earnings growth potential regardless of their
market capitalizations. When investing in small cap companies the Team places
more emphasis on the trading volume of the company's stock.
The Model screens a universe of small- to large-capitalization companies in ten
different business sectors to identify undervalued companies with strong
earnings momentum that rank well in three measures.
- -- VALUE: projected dividends, cash flow, earnings and book value;
- -- MOMENTUM: earnings and price to identify companies that could surprise on the
upside; and
- -- ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.
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Prospectus Page 9
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
- --------------------------------------------------------------------------------
The equity securities ranking in the top 20% of the Factor Valuation Model's
universe are screened on a monthly basis. Then the portfolio managers take a
closer look at those equity securities that rank higher based on earnings growth
and apply traditional analysis. Mitchell Hutchins may speak to the management of
these companies, as well as those of their competitors. In seeking capital
appreciation, the Fund would also invest in bonds when, for instance, Mitchell
Hutchins anticipates that market interest rates may decline or credit factors or
ratings affecting particular issuers may improve.
SMALL CAP FUND
In selecting small cap equity securities with the potential for capital
appreciation, Mitchell Hutchins follows a disciplined investment process that
relies on the Mitchell Hutchins Factor Valuation Model and the Mitchell Hutchins
Equity Research Team. The Model screens a universe of companies in ten different
business sectors to identify undervalued companies with strong earnings momentum
that rank well in three measures:
- -- VALUE: projected dividends, cash flow, earnings and book value;
- -- MOMENTUM: earnings and price to identify companies that could surprise on the
upside; and
- -- ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.
Through this screening process, the Factor Valuation Model identifies the equity
securities of small cap companies ranking in the top 20% of the universe. Then
the portfolio managers apply traditional analysis to the equity securities of
these small cap companies. Mitchell Hutchins may speak to the management of
these companies, as well as to those of their competitors. In seeking capital
appreciation, the Fund would also invest in bonds when, for instance, Mitchell
Hutchins anticipates that market interest rates may decline or credit factors or
ratings affecting particular issuers may improve.
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Prospectus Page 10
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
These charts show the total returns for Growth and Income Fund and Growth Fund
for each calendar year since Class Y shares were first offered. No information
is presented for Class Y shares of Small Cap Fund because no such shares were
outstanding during the periods shown. Past results are not a guarantee of future
results.
GROWTH AND INCOME FUND
The inception date of Class Y shares was February 12, 1992; thus the 1992 return
represents the period from February 12, 1992 through December 31, 1992.
[CHART]
15%
35%
33.63%
25%
15%
5% 5.63%
-2.31%
- -5%
-5.57%
- -1.5%
2/12/92-12/31/92 1993 1994 1995
AVERAGE ANNUAL RETURNS
As of August 31, 1995
<TABLE><CAPTION>
CLASS Y SHARES
--------------
<S> <C>
Inception Date............................. 2/12/92
One Year................................... 18.66%
Life....................................... 5.37%
</TABLE>
GROWTH FUND
The inception date of Class Y shares was August 26, 1991, thus the 1991 return
represents the period from August 26, 1991 through December 31, 1991.
[CHART]
45%
35%
25%
15%
35%
33.40%
25%
19.47%
15%
12.21%
5% 4.41%
- - 5%
-10.64%
- -15%
- -25%
8/26/91-12/31/91 1992 1993 1994 1995
AVERAGE ANNUAL RETURNS
As of August 31, 1995
<TABLE><CAPTION>
CLASS Y SHARES
--------------
<S> <C>
Inception Date............................. 8/26/91
One Year................................... 11.58%
Life....................................... 10.33%
</TABLE>
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Prospectus Page 11
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The Funds perform a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized return
shows the change in value of an investment in the Funds as a steady compound
annual rate of return. Actual year-by-year returns fluctuate and may be higher
or lower than standardized return. One-, five- and ten-year periods will be
shown, unless the Fund or class has been in existence for a shorter period.
Total return calculations assume reinvestment of dividends and other
distributions.
The Funds may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof.
Total return information reflects past performance and does not necessarily
indicate future results. The investment return and principal value of shares of
the Funds will fluctuate. The amount investors receive when selling shares may
be more or less than what they paid. Further information about the Funds'
performance is contained in the Funds' Annual Reports, which may be obtained
without charge by contacting the Fund, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.
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THE FUNDS' INVESTMENTS
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EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and common
stock purchase warrants and rights. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. While past
performance does not guarantee future results, common stocks historically have
provided the greatest long-term growth potential in a company. However, their
prices generally fluctuate more than other securities, and reflect changes in a
company's financial condition and in overall market and economic conditions.
Preferred stock has certain fixed-income features, like a bond, but is actually
equity in a company, like common stock. Convertible securities may include
debentures, notes and preferred equity securities, which are convertible into
common stock.
BONDS (including notes and debentures) are used by corporations and governments
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and must repay the amount borrowed at maturity. Bonds have
varying degrees of investment risk and varying levels of sensitivity to changes
in interest rates.
RISKS
Each Fund predominantly invests its assets in equity securities. Following is a
discussion of these risks and other risks that are common to each Fund:
EQUITY SECURITIES. Equity securities historically have shown greater growth
potential than other types of securities. Common stocks generally represent the
riskiest investment in a company. It is possible that investors may lose their
entire investment.
FOREIGN SECURITIES. Each Fund may invest a portion of its assets in U.S.
dollar-denominated securities of foreign companies that are traded on recognized
U.S. exchanges or in the U.S. OTC market. Investing in the securities of foreign
companies involves more risks than investing in securities of U.S. companies.
Their value is subject to economic and political developments in the countries
where the companies operate and to changes in foreign currency values. Values
may also be affected by foreign tax laws, changes in foreign economic or
monetary policies, exchange control regulations and regulations involving
prohibitions on the repatriation of foreign currencies.
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Prospectus Page 12
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
BOND RATINGS. Investment grade bonds are those rated within the four highest
categories by Standard & Poor's, a division of The McGraw Hill Companies
("S&P"), or Moody's Investors Service, Inc. ("Moody's"). Moody's fourth highest
category (Baa) includes securities which, in its opinion, have speculative
features. For example, changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher-rated debt instruments. The Funds may also
invest in securities that are comparably rated by another ratings agency and in
unrated securities if they are deemed to be of comparable quality. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the volatility of the bond's value or its liquidity. There is a
risk that bonds will be downgraded by rating agencies. The rating agencies may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial condition may be better or worse than the
rating indicates.
INTEREST RATE AND CREDIT RISKS. Interest rate risk is the risk that interest
rates will rise and bond prices will fall, lowering the value of a Fund's bond
investments. Long-term bonds are generally more sensitive to interest rate
changes than short-term bonds. Adverse changes in economic conditions can affect
an issuer's ability to pay principal and interest.
NON-INVESTMENT GRADE (LOWER-RATED) BOND RATINGS. Lower-rated bonds are deemed by
the ratings agencies to be predominantly speculative regarding the issuer's
ability to pay principal and interest and may involve major risk exposure during
adverse economic conditions. They are also known as "junk bonds." During an
economic downturn or period of rising interest rates, issuers of those
securities may experience financial stress that adversely affects their ability
to pay interest and principal and may increase the possibility of default.
Lower-rated bonds are frequently unsecured by collateral and will not receive
payment until more senior claims are paid in full. The market for lower-rated
bonds is thinner and less active, which may limit the Funds' ability to sell
such bonds at a fair value in response to changes in the economy or financial
markets.
Growth and Income Fund can invest up to 10% of total assets in convertible
securities rated as low as B by S&P or Moody's or comparably rated by another
ratings agency.
Growth Fund can invest up to 10% of total assets in bonds and convertible
securities rated as low as B+ by S&P, B1 by Moody's or comparably rated by
another ratings agency.
Small Cap Fund can invest up to 10% of total assets in convertible securities
rated as low as B by S&P or Moody's or comparably rated by another ratings
agency.
In addition to these general risks, Small Cap Fund is also subject to the
following risk consideration:
SMALL CAP COMPANIES. Small cap companies may be more vulnerable than larger
companies to adverse business or economic developments. Small cap companies may
also have limited product lines, markets or financial resources, and may be
dependent on a relatively small management group. Securities of such companies
may be less liquid and more volatile than securities of larger companies or the
market averages in general and, therefore, may involve greater risk than
investing in larger companies. In addition, small cap companies may not be
well-known to the investing public, may not have institutional ownership and may
have only cyclical, static or moderate growth prospects.
INVESTMENT TECHNIQUES AND STRATEGIES
HEDGING STRATEGIES. Each Fund may use certain strategies designed to adjust the
overall risk of its investment portfolio. These "hedging" strategies involve
derivative contracts, including options (on securities, futures and stock
indexes) and futures contracts (on stock indexes and interest rates). In
addition, new financial products and risk management techniques continue to be
developed and may be used if consistent with the Funds' investment objectives
and policies. The Statement of Additional Information for the Funds contains
further information on these strategies.
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Prospectus Page 13
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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The Funds might not use any hedging strategies, and there can be no assurance
that any strategy used will succeed. If Mitchell Hutchins is incorrect in its
judgment on market values, interest rates or other economic factors in using a
hedging strategy, a Fund may have lower net income and a net loss on the
investment. Each of these strategies involves certain risks, which include:
. the fact that the skills needed to use hedging instruments are different from
those needed to select securities for the Funds;
. the possibility of imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the securities
being hedged;
. possible constraints placed on a Fund's ability to purchase or sell portfolio
investments at advantageous times due to the need for the Fund to maintain
"cover" or to segregate securities; and
. the possibility that the Fund is unable to close out or liquidate its hedged
position.
LENDING PORTFOLIO SECURITIES. Each Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of that
Fund's total assets taken at market value. Lending securities enables a Fund to
earn additional income, but could result in a loss or delay in recovering these
securities.
DEFENSIVE POSITIONS. When Mitchell Hutchins believes that unusual circumstances
warrant a defensive posture, each Fund may temporarily commit all or any portion
of its assets to cash or money market instruments, including repurchase
agreements. In a typical repurchase agreement, the Fund buys a security and
simultaneously agrees to sell it back at an agreed-upon price and time, usually
no more than seven days after purchase.
ILLIQUID SECURITIES. Growth and Income Fund and Growth Fund each may invest up
to 10% of its net assets, and Small Cap Fund up to 15% of its net assets, in
illiquid securities. These include certain cover for OTC options and securities
whose disposition is restricted under the federal securities laws. The Funds do
not consider securities that are eligible for resale pursuant to SEC Rule 144A
to be illiquid securities if Mitchell Hutchins has determined such securities to
be liquid, based upon the trading markets for the securities under procedures
approved by the Funds' board of trustees.
OTHER INFORMATION. Each Fund may also purchase securities on a when-issued basis
or may purchase or sell securities for delayed delivery. A Fund generally would
not pay for such securities or start earning interest on them until they are
delivered, but it would immediately assume the risks of ownership, including the
risk of price fluctuation. Each Fund may borrow money for temporary or emergency
purposes, but not in excess of 10% of its total assets, including reverse
repurchase agreements involving up to 5% (10% for Small Cap Fund) of its net
assets. Each Fund may sell securities short "against the box" to defer
realization of gains or losses for tax or other purposes. When a security is
sold against the box, the seller owns the security. For liquidity purposes such
as clearance of portfolio transactions, the payment of dividends and expenses
and payments to selling shareholders, or pending investment, each Fund may
commit up to 35% of its total assets to cash or money market instruments,
including repurchase agreements.
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Prospectus Page 14
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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HOW TO BUY SHARES
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Class Y shares are sold to eligible investors at the net asset value next
determined after the purchase order is received at PaineWebber's New York City
offices or, with respect to Growth and Income Fund and Growth Fund, for
purchases by the trustee of the PW SIP, by the Transfer Agent. No initial or
contingent deferred sales charge is imposed, nor are Class Y shares subject to
rule 12b-1 distribution or service fees. The Funds and Mitchell Hutchins reserve
the right to reject any purchase order and to suspend the offering of the Class
Y shares for a period of time. Mitchell Hutchins, the distributor for each
Fund's Class Y shares, has appointed PaineWebber to serve as the exclusive
dealer for each Fund's Class Y shares.
The following investors are eligible to buy Class Y shares:
. a participant in INSIGHT when Class Y shares are purchased through that
program;
. an investor who buys $10 million or more at any one time in any combination of
PaineWebber mutual funds in the Flexible PricingSM System;
. an employee benefit plan qualified under section 401 (including a salary
reduction plan qualified under section 401(k)) or 403(b) of the Internal
Revenue Code that has either
5,000 or more eligible employees or
$50 million or more in assets; and
. an investment company advised by PaineWebber or an affiliate of PaineWebber.
INSIGHT
An investor who purchases $50,000 or more of shares of the mutual funds that are
available to INSIGHT participants (which include the PaineWebber mutual funds in
the Flexible Pricing System and certain other specified mutual funds) may take
part in INSIGHT, a total portfolio asset allocation program sponsored by
PaineWebber, and thus become eligible to purchase Class Y shares. INSIGHT offers
comprehensive investment services, including a personalized asset allocation
investment strategy using an appropriate combination of funds, monitoring of
investment performance and comprehensive quarterly reports that cover market
trends, portfolio summaries and personalized account information.
Participation in INSIGHT is subject to payment of an advisory fee to PaineWebber
at the maximum annual rate of 1.50% of assets held through the program
(generally charged quarterly in advance), which covers all INSIGHT investment
advisory services and program administration fees. Employees of PaineWebber and
its affiliates are entitled to a 50% reduction in the fee otherwise payable for
participation in INSIGHT. INSIGHT clients may elect to have their INSIGHT fees
charged to their PaineWebber accounts (by the automatic redemption of money
market fund shares) or, if a qualified plan, invoiced.
Please contact your PaineWebber investment executive or PaineWebber
correspondent firm for more information concerning mutual funds that are
available to INSIGHT participants or for other INSIGHT program information.
PURCHASES BY THE TRUSTEE OF THE PW SIP
The Class Y shares of Growth and Income Fund and Growth Fund also are offered
for sale to the trustee of the PW SIP, a defined contribution plan sponsored by
Paine Webber Group Inc. ("PW Group"). The trustee of the PW SIP purchases and
redeems these Class Y shares to implement the investment choices of individual
plan participants with respect to their PW SIP contributions. Individual plan
participants should consult the Plan Information Statement and Summary Plan
Description of the PW SIP (collectively the "Plan Documents") for a description
of the procedures and limitations applicable to making and changing investment
choices.
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Prospectus Page 15
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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Copies of the Plan Documents are available from the PaineWebber Incorporated
Benefits Department, 1000 Harbor Boulevard, 10th Floor, Weehawken, NJ 07087
(telephone 1-201-902-4444).
As described in the Plan Documents, the average net asset value per share at
which Class Y shares of Growth and Income Fund and Growth Fund are purchased or
redeemed by the trustee of the PW SIP for the accounts of individual
participants might be more or less than the net asset value per share prevailing
at the time that such participants made their investment choices or made their
contributions to the PW SIP.
ACQUISITION OF CLASS Y SHARES BY
OTHERS
Each Fund is authorized to offer Class Y shares to other employee benefit and
retirement plans of PW Group and its affiliates and certain other investment
programs that are sponsored by PaineWebber and that may invest in PaineWebber
mutual funds. At present, however, INSIGHT participants and PW SIP are the only
purchasers in these two categories.
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HOW TO SELL SHARES
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Investors can sell (redeem) shares at any time. Shares will be sold at the share
price as next calculated after the order is received and accepted. Share prices
are normally calculated at the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time).
Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Funds' Transfer Agent, may sell shares by writing a
"letter of instruction." The letter of instruction must include:
. the investor's name and address;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be sold; and
. a guarantee of each registered owner's signature by an eligible institution,
such as a commercial bank, trust company or stock exchange member.
The letter of instruction must be mailed to PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, DE 19899.
If a shareholder wants to sell shares that were purchased recently, the Fund may
delay payment until it verifies that good payment was received. In the case of
purchases by check, this can take up to 15 days.
Because each Fund incurs fixed costs in maintaining shareholder accounts, each
Fund reserves the right to purchase back all Fund shares in any shareholder
account having a net asset value of less than $500. If the Fund elects to do so,
it will notify the shareholder of the opportunity to increase the amount
invested to $500 or more within 60 days of the notice. The Fund will not
purchase back accounts that fall below $500 solely due to a reduction in net
asset value per share.
SALES BY PARTICIPANTS IN PW SIP
The trustee of the PW SIP sells Class Y shares of Growth and Income Fund and
Growth Fund to implement the investment choices of individual plan participants
with respect to their PW SIP contributions, as described in the Plan Documents
referenced under "How to Buy Shares" above. The price at which Class Y shares
are sold by the trustee of the PW SIP might be more or less than the price per
share at the time the participants made their investment choices.
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Prospectus Page 16
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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MANAGEMENT
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Each Fund is governed by a board of trustees, which oversees the Fund's
operations. Each Fund has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority of
the board of trustees).
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is the asset management subsidiary of PaineWebber, which is wholly owned
by PW Group, a publicly owned financial services holding company. At July 31,
1996, Mitchell Hutchins was adviser or sub-adviser of 31 investment companies
with 64 separate portfolios and aggregate assets of approximately $30 billion.
Each board of trustees has determined that brokerage transactions for the Fund
may be conducted through PaineWebber or its affiliates in accordance with
procedures adopted by such board of trustees.
ABOUT THE INVESTMENT ADVISER
As investment adviser for Growth and Income Fund, Growth Fund and Small Cap
Fund, Mitchell Hutchins makes and implements all investment decisions and
supervises all aspects of each Fund's operations.
Mark A. Tincher has been responsible for the day-to-day management of Growth and
Income Fund since April 1995. Mr. Tincher, a vice president of the Fund, is a
managing director and chief investment officer of equities of Mitchell Hutchins,
responsible for overseeing the management of equity investments. From March 1988
to March 1995, Mr. Tincher worked for Chase Manhattan Private Bank where he was
a vice president. Mr. Tincher directed the U.S. funds management and equity
research area at Chase and oversaw the management of all Chase U.S. equity funds
(the Vista Funds and Trust Investment Funds).
Ellen R. Harris has been primarily responsible for the day-to-day portfolio
management of Growth Fund since its inception. Ms. Harris, a vice president of
the Fund, is a managing director of Mitchell Hutchins. Prior to joining Mitchell
Hutchins in 1983 as a portfolio manager, Ms. Harris served as a vice president
and portfolio manager at American General Capital Management (now American
Capital Management).
Donald R. Jones has been primarily responsible for
day-to-day portfolio management of Small Cap Fund since April 1996. Mr. Jones
has been a first vice president of Mitchell Hutchins since February 1996. Prior
to joining Mitchell Hutchins, Mr. Jones was a vice president in the Asset
Management Group of First Fidelity Bancorporation, which he joined in 1983.
Mitchell Hutchins personnel may engage in securities transactions for their own
accounts pursuant to a code of ethics that establishes procedures for persons
investing and restricts certain transactions.
MANAGEMENT FEES & OTHER EXPENSES
The Funds pay Mitchell Hutchins a monthly fee for its services. For the most
recently ended fiscal year, the Funds paid advisory fees at the annual rate (as
a percentage of average daily net assets) of 0.70% for Growth and Income Fund,
0.75% for Growth Fund and 1.00% for Small Cap Fund.
Each Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent.
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Prospectus Page 17
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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DETERMINING THE SHARES' NET ASSET VALUE
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The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) each Business Day. A
"Business Day" is any day, Monday through Friday, on which the New York Stock
Exchange is open for business. Each Fund's net asset value per share is
determined by dividing the value of the securities held by the Fund, plus any
cash or other assets, minus all liabilities, by the total number of Fund shares
outstanding.
Each Fund values its assets based on their current market value when market
quotations are readily available. If that value is not readily available, assets
are valued at fair value as determined in good faith by or under the direction
of its board of trustees. The amortized cost method of valuation generally is
used to value debt obligations with 60 days or less remaining to maturity,
unless a Fund's board of trustees determines that this does not represent fair
value. It should be recognized that judgment plays a greater role in valuing
lower rated corporate bonds because there is less reliable, objective data
available.
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DIVIDENDS & TAXES
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DIVIDENDS
Growth Fund and Small Cap Fund each pay an annual dividend and Growth and Income
Fund pays a semi-annual dividend from net investment income and net short-term
capital gain, if any. Each Fund also distributes annually substantially all of
its net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any. Each Fund may make additional distributions,
if necessary, to avoid a 4% excise tax on certain undistributed income and
capital gain.
Dividends and other distributions paid on Class Y shares of the Funds are
calculated at the same time and in the same manner as dividends and
distributions of other classes of shares.
Each Fund's dividends and capital gain distributions are paid in additional
Class Y shares, unless the shareholder has requested cash payments. Shareholders
who wish to receive dividends and other distributions in cash, either mailed to
the shareholder by check or credited to the shareholder's PaineWebber account,
should contact their investment executives at PaineWebber or one of its
correspondent firms. For PW SIP participants, Growth and Income Fund and Growth
Fund's Class Y dividends and distributions are paid in additional Class Y shares
at net asset value unless the transfer agent is instructed otherwise.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated investment
company under the Internal Revenue Code so that it will not have to pay Federal
income tax on that part of its investment company taxable income (generally
consisting of net investment income and net short-term capital gain) and net
capital gain that it distributes to its shareholders.
Dividends from each Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to shareholders as ordinary
income. Distributions of each Fund's net capital gain (whether paid in cash or
additional shares) are taxable to shareholders as a long-term capital gain,
regardless of how long they have held their Fund shares. Shareholders who are
not subject to tax on their income generally will not be required to pay tax on
distributions from the Funds.
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Prospectus Page 18
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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Qualified profit-sharing plans such as the PW SIP generally pay no Federal
income tax. Individual participants in the PW SIP should consult the plan
documents and their own tax advisers for information on the tax consequences of
participating in the PW SIP.
YEAR-END TAX REPORTING
Following the end of each calendar year, each Fund notifies its shareholders of
the dividends and capital gain distributions paid (or deemed paid) by the Fund
that year and any portion of those dividends that qualify for special tax
treatment.
BACKUP WITHHOLDING
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to shareholders who otherwise are subject
to backup withholding.
TAXES ON THE SALE OF FUND SHARES
A shareholder's sale (redemption) of shares may result in a taxable gain or
loss. This depends upon whether the shareholder receives more or less than the
adjusted basis for the shares. In addition, if a Fund's shares are bought within
30 days before or after selling other shares of the Fund at a loss, all or a
portion of that loss will not be deductible and will increase the basis of the
newly purchased shares.
* * * *
Because the foregoing only summarizes some of the important tax considerations
affecting the Funds and their shareholders, prospective shareholders are urged
to consult their tax advisers.
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GENERAL INFORMATION
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ORGANIZATION
GROWTH AND INCOME FUND
Growth and Income Fund is a diversified series of PaineWebber America Fund, an
open-end management investment company that was formed on October 31, 1986, as a
business trust under the laws of the Commonwealth of Massachusetts. The trustees
have authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share.
GROWTH FUND
Growth Fund is a diversified series of PaineWebber Olympus Fund, an open-end
management investment company that was formed on October 31, 1986, as a business
trust under the laws of the Commonwealth of Massachusetts. The trustees have
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share.
SMALL CAP FUND
Small Cap Fund is a diversified series of PaineWebber Securities Trust ("Trust")
an open-end management investment company that was formed on December 3, 1992,
as a business trust under the laws of the Commonwealth of Massachusetts. The
trustees have authority to issue an unlimited number of shares of beneficial
interest of separate series, par value $0.001 per share. In addition to Small
Cap Fund, shares of one other series have been authorized.
SHARES
The shares of each Fund are divided into four classes, designated Class A
shares, Class B shares, Class C shares and Class Y shares. A share of each class
represents an identical interest in the respective Fund's investment portfolio
and has the same rights, privileges and preferences. However, each class may
differ with respect to sales charges, if any, distribution and/or service fees,
if any, other expenses allocable exclusively to each class, voting rights on
matters exclusively affecting that class, and
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Prospectus Page 19
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND GROWTH FUND SMALL CAP FUND
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its exchange privilege, if any. The different sales charges and other expenses
applicable to the different classes of shares of the Funds will affect the
performance of those classes.
Each share of a Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of that Fund. However, due to
the differing expenses of the classes, dividends on the other classes are likely
to be lower than for the Class Y shares.
More information concerning Class A, Class B and Class C shares of the Funds may
be obtained from a PaineWebber investment executive or correspondent firm or by
calling 1-800-647-1568.
Although each Fund is offering only its own shares, it is possible that a Fund
might become liable for misstatements in the Prospectus about another Fund. The
board of trustees of each Fund has considered this factor in approving the use
of a single, combined prospectus.
VOTING RIGHTS
Shareholders of each Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not 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 trustees of that
Fund or Trust. The shares of the different classes 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. The shares of each series of the
Trust will be voted separately, except when an aggregate vote of all the series
is required by law.
SHAREHOLDER MEETINGS
The Funds do not intend to hold annual meetings.
Shareholders of record of no less than two-thirds of the outstanding shares of a
Fund or the Trust (as applicable) may remove a trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. A meeting will be called to vote on the removal of a trustee at the
written request of holders of 10% of the outstanding shares of a Fund or the
Trust, as applicable.
REPORTS TO SHAREHOLDERS
Each Fund sends its shareholders audited annual and unaudited semi-annual
reports, each of which includes a list of the investment securities held by the
Fund as of the end of the period covered by the report. The Statement of
Additional Information is available to shareholders upon request.
CUSTODIAN & RECORDKEEPING AGENT;
TRANSFER & DIVIDEND AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as each Fund's custodian and recordkeeping
agent. 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.
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Prospectus Page 20
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PaineWebber Growth and Income Fund
PaineWebber Growth Fund
PROSPECTUS--MAY 1, 1996, AS REVISED AUGUST 12, 1996
PaineWebber Small Cap Fund
PROSPECTUS--AUGUST 12, 1996
Class Y Shares
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/X/ PAINEWEBBER BOND FUNDS /X/ PAINEWEBBER GROWTH FUNDS
High Income Fund Capital Appreciation Fund
Investment Grade Income Financial Services Growth Fund
Low Duration U.S. Government Growth Fund
Income Fund Growth and Income Fund
Strategic Income Fund Small Cap Fund
U.S. Government Income Utility Income Fund
/X/ PAINEWEBBER TAX-FREE BOND /X/ PAINEWEBBER GLOBAL FUNDS
FUNDS Emerging Markets Equity Fund
Global Equity Fund
California Tax-Free Global Income Fund
Municipal High Income
National Tax-Free Income
New York Tax-Free Income
/X/ PAINEWEBBER ASSET /X/ PAINEWEBBER MONEY MARKET
ALLOCATION FUNDS FUND
Balanced Fund
Tactical Allocation Fund
A prospectus containing more complete information for any of these
funds, including charges and expenses, can be obtained from a
PaineWebber investment executive or correspondent firm. Please
read it carefully before investing. It is important you have all
the information you need to make a sound investment decision.
(R) 1996 PAINEWEBBER INCORPORATED
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