PAINEWEBBER AMERICA FUND /NY/, 497, 1997-12-18

PAINEWEBBER AMERICA FUND /NY/
497, 1997-12-18

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<PAGE>
PaineWebber Growth and Income Fund
PaineWebber Growth Fund
PaineWebber Small Cap Fund

1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
PROSPECTUS -- DECEMBER 1, 1997

PaineWebber Stock Funds are designed for investors
generally seeking capital appreciation by investing mainly
in equity securities. PaineWebber Growth and Income Fund
seeks to provide both current income and capital growth by
investing primarily in dividend-paying equity securities
believed to have potential for rapid earnings growth.
PaineWebber Growth Fund seeks long-term capital
appreciation by investing primarily in equity securities
of companies believed to have substantial potential for
capital growth. PaineWebber Small Cap Fund seeks long-term
capital appreciation by investing primarily in equity
securities of small capitalization companies.

This Prospectus concisely sets forth information that an
investor should know about the Funds before investing.
Please read this Prospectus carefully and retain a copy
for future reference.

A Statement of Additional Information dated December 1,
1997 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.

THE PAINEWEBBER FAMILY OF MUTUAL FUNDS

The PaineWebber Family of Mutual Funds consists of six
broad categories, which are presented here. Generally,
investors seeking to maximize return must assume greater
risk. The Funds in this Prospectus are all in the STOCK
FUNDS category.

<TABLE>
<S> <C>
/ / MONEY MARKET FUND for income and / / ASSET ALLOCATION FUNDS for high
stability by investing in high- quality, total return by investing in stocks
short-term investments. and bonds.
/ / BOND FUNDS for income by investing / / STOCK FUNDS for long-term growth by
mainly in bonds. investing mainly in equity securities.
/ / TAX-FREE BOND FUNDS for income exempt / / GLOBAL FUNDS for long-term growth by
from federal income tax and, in some investing mainly in foreign stocks or
cases, state and local income taxes, high current income by investing

by investing in municipal bonds. mainly in global debt instruments.
</TABLE>

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

INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR
REFERRED TO IN THIS PROSPECTUS. THE FUNDS AND THEIR
DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PROVIDE
INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE
PROSPECTUS IS NOT AN OFFER TO SELL SHARES OF THE FUNDS IN
ANY JURISDICTION WHERE THE FUNDS OR THEIR DISTRIBUTOR MAY
NOT LAWFULLY SELL THOSE SHARES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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Prospectus Page 1

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

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
The Funds at a Glance................... 3

Expense Table........................... 5

Financial Highlights.................... 8

Investment Objectives & Policies........ 18

Investment Philosophy & Process......... 18

Performance............................. 20

The Funds' Investments.................. 23

Flexible Pricing SM..................... 25

How to Buy Shares....................... 29

How to Sell Shares...................... 30

Other Services.......................... 31

Management.............................. 31

Determining the Shares' Net Asset
Value................................. 34

Dividends & Taxes....................... 34

General Information..................... 35
</TABLE>

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Prospectus Page 2

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

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

THE FUNDS AT A GLANCE
- --------------------------------------------------------------------------------

The Funds (each a 'Fund') offered by this Prospectus are not intended to provide
a complete 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 believed to have 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 involves more risk than investing in the securities of U.S. companies. The
Fund may also invest up to 10% of its total assets in high yield, high risk
convertible bonds, which are considered predominantly speculative and may
involve major risk exposure to adverse conditions. 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 October 31, 1997, the Fund had over $1.0 billion in net assets.

GROWTH FUND

GOAL: To increase the value of your investment by investing primarily in equity
securities of companies believed to have substantial potential for capital
growth.

INVESTMENT OBJECTIVE: Long-term capital appreciation.

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 October 31, 1997, the Fund had over $370.6 million in net 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 involves more 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
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; the investment is not guaranteed.

SIZE: On October 31, 1997, the Fund had over $128.2 million in net assets.

MANAGEMENT

Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), an asset
management subsidiary of PaineWebber Incorporated ('PaineWebber'), is the
investment adviser and administrator of each Fund.

MINIMUM INVESTMENT

To open an account, investors need $1,000; to add to an account, investors need
only $100.

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Prospectus Page 3

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

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

THE FUNDS AT A GLANCE
(Continued)
- --------------------------------------------------------------------------------

WHO SHOULD INVEST

GROWTH AND INCOME FUND is designed for investors seeking current income and
capital growth through investment primarily in 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 larger, more established companies
believed to be undervalued and to have potential for rapid earnings growth. 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 designed 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 primarily in large, medium and small companies believed to have
greater capital growth potential. In addition, Growth Fund can invest in high
yield, high risk bonds and convertible securities. 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 is designed for investors who are seeking long-term capital
appreciation through investments primarily in equity securities of small cap
U.S. companies and foreign companies that are traded in the United States. Small
Cap Fund seeks to invest in small cap companies believed to be undervalued and
to have strong earnings momentum. 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 SHARES OF THE FUNDS

Investors may select among these classes of shares:

CLASS A SHARES

The price is the net asset value plus the initial sales charge; the maximum
sales charge is 4.5% of the public offering price. Although investors pay an
initial sales charge when they buy Class A shares, the ongoing expenses for this
class are lower than the ongoing expenses of Class B and Class C shares.

CLASS B SHARES

The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class B shares. As a result, 100% of their purchase is immediately
invested. However, Class B shares have higher ongoing expenses than Class A
shares. Depending upon how long they own the shares, investors may have to pay a
sales charge when they sell Class B shares. This is called a 'contingent
deferred sales charge' and applies when investors sell their Class B shares
within six years after purchase. After six years, Class B shares convert to
Class A shares, which have lower ongoing expenses and no contingent deferred
sales charge.

CLASS C SHARES

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

CLASS Y SHARES

Class Y shares are offered only to limited groups of investors. The price is the
net asset value. Investors do not pay an initial sales charge when they buy
Class Y shares. As a result, 100% of their purchase is immediately invested.
Investors also do not pay a contingent deferred sales charge when they sell
Class Y shares. Class Y shares have lower ongoing expenses than any other class
of shares.

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Prospectus Page 4

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

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

EXPENSE TABLE
- --------------------------------------------------------------------------------

The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of the Funds.
Expenses shown below represent those incurred for the most recent fiscal year.

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares (as a
% of offering price)............................ 4.50% None None None
Sales Charge on Reinvested Dividends (as a % of
offering price)................................... None None None None
Maximum Contingent Deferred Sales Charge (as a %
of offering price or net asset value at the time
of sale, whichever is less)..................... None 5% 1% None
Exchange Fee...................................... None None None None
ANNUAL FUND OPERATING EXPENSES (as a % of average
net assets)
GROWTH AND INCOME FUND
Management Fees................................... 0.70% 0.70% 0.70% 0.70%
12b-1 Fees........................................ 0.23 1.00 1.00 None
Other Expenses.................................... 0.22 0.23 0.22 0.18
-------- -------- -------- --------
Total Operating Expenses.......................... 1.15% 1.93% 1.92% 0.88%
-------- -------- -------- --------
-------- -------- -------- --------
GROWTH FUND
Management Fees................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees........................................ 0.23 1.00 1.00 None
Other Expenses.................................... 0.29 0.31 0.32 0.25
-------- -------- -------- --------
Total Operating Expenses.......................... 1.27% 2.06% 2.07% 1.00%
-------- -------- -------- --------
-------- -------- -------- --------
SMALL CAP FUND
Management Fees................................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees........................................ 0.25 1.00 1.00 None
Other Expenses.................................... 0.75 0.75 0.77 0.72
-------- -------- -------- --------
Total Operating Expenses.......................... 2.00% 2.75% 2.77% 1.72%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

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

CLASS A SHARES: Sales charge waivers and a reduced sales charge purchase plan
are available. Purchases of $1 million or more are not subject to an initial
sales charge. However, if an investor sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or the
net asset value of the shares at the time of sale, whichever is less, is
imposed.
CLASS B SHARES: Sales charge waivers are available. The maximum 5% contingent
deferred sales charge applies to sales of shares during the first year after
purchase. The charge generally declines by 1% annually, reaching zero after six
years.
CLASS C SHARES: If an investor sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or the
net asset value of the shares at the time of sale, whichever is less, is
imposed.
CLASS Y SHARES: No initial or contingent deferred sales charge is imposed, nor
are Class Y shares subject to 12b-1 distribution or service fees. Class Y shares
may be purchased by participants in 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.

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

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

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

EXPENSE TABLE
(Continued)
- --------------------------------------------------------------------------------

12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class C shareholders may pay more in direct and indirect sales charges
(including 12b-1 distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. 12b-1 fees have two components, as follows:

<TABLE>
<CAPTION>
GROWTH AND INCOME FUND CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
12b-1 service fees...................... 0.23% 0.25% 0.25% None
12b-1 distribution fees................. None 0.75 0.75 None

GROWTH FUND
12b-1 service fees...................... 0.23% 0.25% 0.25% None
12b-1 distribution fees................. None 0.75 0.75 None

SMALL CAP FUND
12b-1 service fees...................... 0.25% 0.25% 0.25% None
12b-1 distribution fees................. None 0.75 0.75 None
</TABLE>

The 12b-1 fees for Class A shares of Growth and Income Fund and Growth Fund
reflect a blended annual rate of the Fund's average daily net assets of 0.25%
and 0.15%, representing shares sold on or after December 2, 1988 and shares sold
prior to that date, respectively.

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

EXAMPLES OF EFFECT OF FUND EXPENSES

The following examples should assist investors in understanding various costs
and expenses 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 TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF
A FUND MAY BE MORE OR LESS THAN THOSE SHOWN.

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

GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A................................. $ 56 $80 $ 105 $178
Class B (Assuming sale of all shares at
end of period)........................ $ 70 $91 $ 124 $187
Class B (Assuming no sale of shares).... $ 20 $61 $ 104 $187
Class C (Assuming sale of all shares at
end of period)........................ $ 30 $60 $ 104 $224
Class C (Assuming no sale of shares).... $ 20 $60 $ 104 $224
Class Y................................. $ 9 $28 $ 49 $108
</TABLE>

GROWTH FUND

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A................................. $ 57 $83 $ 112 $191
Class B (Assuming sale of all shares at
end of period)........................ $ 71 $95 $ 131 $200
Class B (Assuming no sale of shares).... $ 21 $65 $ 111 $200
Class C (Assuming sale of all shares at
end of period)........................ $ 31 $65 $ 111 $240
Class C (Assuming no sale of shares).... $ 21 $65 $ 111 $240
Class Y................................. $ 10 $32 $ 55 $122
</TABLE>

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

Prospectus Page 6

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

EXPENSE TABLE
(Continued)
- --------------------------------------------------------------------------------

SMALL CAP FUND

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A................................. $ 64 $ 105 $ 148 $267
Class B (Assuming sale of all shares at
end of period)........................ $ 78 $ 115 $ 165 $274
Class B (Assuming no sale of shares).... $ 28 $ 85 $ 145 $274
Class C (Assuming sale of all shares at
end of period)........................ $ 38 $ 86 $ 146 $310
Class C (Assuming no sale of shares).... $ 28 $ 86 $ 146 $310
Class Y................................. $ 17 $ 54 $ 93 $203
</TABLE>

ASSUMPTIONS MADE IN THE EXAMPLES
o ALL CLASSES: Reinvestment of all dividends and other distributions;
percentage amounts listed under 'Annual Fund Operating Expenses' remain the
same for years shown.
o CLASS A SHARES: Deduction of the maximum 4.5% initial sales charge at the
time of purchase.
o CLASS B SHARES: Deduction of the maximum applicable contingent deferred sales
charge at the time of redemption, which declines over a period of six years.
Ten-year figures assume that Class B shares convert to Class A shares at the
end of the sixth year.
o CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for sales
of shares within one year of purchase.

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

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

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

GROWTH AND INCOME FUND

The following tables provide investors with data and ratios for one Class A,
Class B, Class C and Class Y share for each of the periods shown. This
information is supplemented by the financial statements, accompanying notes and
the report of Ernst & Young LLP, independent auditors, which appear in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1997,
and are incorporated by reference into the Statement of
Additional Information. The financial statements and
notes, as well as the information for each of the five years in the period ended
August 31, 1997 appearing in the following tables, have been audited by Ernst &
Young LLP, independent auditors. Further information about the Fund's
performance is also included in the Annual Report to Shareholders, which may be
obtained without charge by calling 1-800-647-1568. Information shown below for
periods prior to the year ended August 31, 1993 has also been audited by Ernst &
Young LLP, independent auditors, whose reports thereon were unqualified.

<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
-------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------------------------------------------------------------------

1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 24.35 $ 22.52 $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 $ 13.32 $ 18.06
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Net investment
income........... 0.23 0.22 0.24 0.28 0.28 0.24 0.19 0.51 0.49 0.60
Net realized and
unrealized gains
(losses) from
investments...... 9.29 3.46 3.18 (0.41) 0.37 1.25 3.50 (0.61) 3.17 (2.36)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total increase
(decrease) from
investment
operations....... 9.52 3.68 3.42 (0.13) 0.65 1.49 3.69 (0.10) 3.66 (1.76)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------

Dividends from
investment
income........... (0.25) (0.34) (0.12) (0.27) (0.27) (0.27) (0.30) (0.53) (0.48) (0.88)
Distributions from
net realized
gains on
investment
transactions..... (3.02) (1.51) (1.21) (0.03) -- -- -- -- -- (2.10)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total dividends
and distributions
to
shareholders..... (3.27) (1.85) (1.33) (0.30) (0.27) (0.27) (0.30) (0.53) (0.48) (2.98)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Net asset value,
end of period.... $ 30.60 $ 24.35 $ 22.52 $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 $ 13.32
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total investment
return (1)....... 42.42% 17.40% 18.30% (0.58)% 3.15% 7.78% 23.62% (0.72)% 28.03% (10.73)%
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Ratios/Supplemental
data:
Net assets, end of
period (000's)... $441,699 $276,016 $187,057 $222,432 $359,073 $358,643 $232,555 $58,649 $61,617 $62,917
Expenses to
average net
assets**......... 1.15% 1.20%(2) 1.19% 1.20% 1.13% 1.22% 1.42% 1.41% 1.41% 1.26%
Net investment
income to average
net assets**..... 0.88% 0.98%(2) 1.07% 1.29% 1.33% 1.26% 1.79% 3.11% 3.26% 4.24%
Portfolio turnover
rate............. 70% 112% 111% 94% 37% 16% 52% 32% 79% 89%
Average commission
rate paid (3).... $ 0.0598 $ 0.0598 -- -- -- -- -- -- -- --
</TABLE>
- ------------------

<TABLE>
<S> <C>
* Annualized.
** During certain periods presented, PaineWebber/Mitchell Hutchins waived
fees or reimbursed the Fund for portions of its operating expenses. If
such waivers or reimbursements had not been made for the Class A
shares, the annualized ratio of expenses to average net assets and the
annualized ratio of net investment income to average net assets would
have been 1.65% and 3.02%, respectively, for the year ended August 31,
1989 and 1.36% and 4.14%, respectively, for the year ended August 31,
1988.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment on
the first day of each period reported, reinvestment of all dividends
and other distributions at net asset value on the payable dates and a

sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A, Class B and
Class C shares would be lower if sales charges were included. Total
investment return information for periods of less than one year has
not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
(3) Effective for fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.
</TABLE>

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
- -------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------
FOR THE
PERIOD
JULY 1,
FOR THE YEARS ENDED AUGUST 31, 1991+ TO
- ------------------------------------------------------------------------------------------ AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 24.26 $ 22.37 $ 20.37 $ 20.78 $ 20.41 $ 19.23 $ 18.04
-------- -------- -------- -------- -------- -------- ----------
Net investment
income........... 0.04 0.04 0.06 0.10 0.12 0.13 0.02
Net realized and
unrealized gains
(losses) from
investments...... 9.23 3.45 3.18 (0.37) 0.36 1.20 1.17
-------- -------- -------- -------- -------- -------- ----------
Total increase
(decrease) from
investment
operations....... 9.27 3.49 3.24 (0.27) 0.48 1.33 1.19
-------- -------- -------- -------- -------- -------- ----------

Dividends from
investment
income........... (0.05) (0.09) (0.03) (0.11) (0.11) (0.15) --
Distributions from
net realized
gains on
investment
transactions..... (3.02) (1.51) (1.21) (0.03) -- -- --
-------- -------- -------- -------- -------- -------- ----------
Total dividends
and distributions
to
shareholders..... (3.07) (1.60) (1.24) (0.14) (0.11) (0.15) --
-------- -------- -------- -------- -------- -------- ----------
Net asset value,

end of period.... $ 30.46 $ 24.26 $ 22.37 $ 20.37 $ 20.78 $ 20.41 $ 19.23
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Total investment
return (1)....... 41.33% 16.49% 17.38% (1.31)% 2.34% 6.99% 6.60%
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Ratios/Supplementa
data:
Net assets, end of
period (000's)... 376,840 $277,753 $247,543 $289,290 $461,389 $386,275 $ 57,539
Expenses to
average net
assets**......... 1.93% 1.99%(2) 1.97% 1.97% 1.90% 1.97% 2.10%*
Net investment
income to average
net assets**..... 0.11% 0.17%(2) 0.29% 0.51% 0.57% 4.90% 1.18%*
Portfolio turnover
rate............. 70% 112% 111% 94% 37% 16% 52%
Average commission
rate paid (3).... 0.0598 $ 0.0598 -- -- -- -- --

<CAPTION>
GROWTH AND INCOME FUND
- -------------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------
FOR THE
PERIOD
JULY 2,
FOR THE YEARS ENDED AUGUST 31, 1992+ TO
------------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992
---------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 24.33 $ 22.43 $ 20.42 $ 20.83 $ 20.47 $ 20.95
---------- ------- ------- ------- ------- ----------
Net investment
income........... 0.05 0.05 0.06 0.11 0.11 0.02
Net realized and
unrealized gains
(losses) from
investments...... 9.24 3.46 3.19 (0.38) 0.37 (0.44)
---------- ------- ------- ------- ------- ----------
Total increase
(decrease) from
investment

operations....... 9.29 3.51 3.25 (0.27) 0.48 (0.42)
---------- ------- ------- ------- ------- ----------
Dividends from
investment
income........... (0.07) (0.10) (0.03) (0.11) (0.12) (0.06)
Distributions from
net realized
gains on
investment
transactions..... (3.02) (1.51) (1.21) (0.03) -- --
---------- ------- ------- ------- ------- ----------
Total dividends
and distributions
to
shareholders..... (3.09) (1.61) (1.24) (0.14) (0.12) (0.06)
---------- ------- ------- ------- ------- ----------
Net asset value,
end of period.... $ 30.53 $ 24.33 $ 22.43 $ 20.42 $ 20.83 $ 20.47
---------- ------- ------- ------- ------- ----------
---------- ------- ------- ------- ------- ----------
Total investment
return (1)....... 41.30% 16.52% 17.37% (1.29)% 2.35% 2.85%
-------- ---------- ------- ------- ------- -------
-------- ---------- ------- ------- ------- -------
Ratios/Supplementa
data:
Net assets, end of
period (000's)... $ 84,922 $43,148 $30,468 $37,287 $61,869 $ 13,019
Expenses to
average net
assets**......... 1.92% 1.99%(2) 1.98% 1.94% 1.87% 1.73%*
Net investment
income to average
net assets**..... 0.10% 0.18%(2) 0.28% 0.54% 0.61% 0.94%*
Portfolio turnover
rate............. 70% 112% 111% 94% 37% 16%
Average commission
rate paid (3).... $ 0.0598 $0.0598 -- -- -- --
</TABLE>

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
---------------------------------------------------------------------
CLASS Y
---------------------------------------------------------------------
FOR THE
PERIOD
FEBRUARY 12,
FOR THE YEARS ENDED AUGUST 31, 1992+ TO
----------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 23.45 $ 22.54 $ 20.42 $ 20.86 $ 20.48 $ 20.95
------- ------- ------- ------- ------- ------------
Net investment income.... 0.32 0.30 0.30 0.33 0.33 0.16
Net realized and
unrealized gains
(losses) from
investments............. 9.26 3.45 3.18 (0.40) 0.37 (0.49)
------- ------- ------- ------- ------- ------------
Total increase (decrease)
from investment
operations.............. 9.58 3.75 3.48 (0.07) 0.70 (0.33)
------- ------- ------- ------- ------- ------------
Dividends from investment
income.................. (0.32) (0.43) (0.15) (0.34) (0.32) (0.14)
Distributions from net
realized gains on
investment
transactions............ (3.02) (1.51) (1.21) (0.03) -- --
------- ------- ------- ------- ------- ------------
Total dividends and
distributions to
shareholders............ (3.34) (1.94) (1.36) (0.37) (0.32) (0.14)
------- ------- ------- ------- ------- ------------
Net asset value, end of
period.................. $ 30.59 $ 24.35 $ 22.54 $ 20.42 $ 20.86 $ 20.48
------- ------- ------- ------- ------- ------------
------- ------- ------- ------- ------- ------------
Total investment
return(1)............... 42.74% 17.77% 18.66% (0.31)% 3.44% (1.15)%

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

Ratios/supplemental data:
Net assets, end of period
(000's)................. $46,745 $22,942 $14,680 $14,690 $17,005 $ 10,560
Expenses to average net
assets.................. 0.88% 0.92%(2) 0.89% 0.90% 0.86% 0.93%*
Net investment income to
average net assets...... 1.14% 1.26%(2) 1.39% 1.60% 1.62% 1.56%*
Portfolio turnover....... 70% 112% 111% 94% 37% 16%
Average commission rate
paid(3)................. $0.0598 $0.0598 -- -- -- --
</TABLE>

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

<TABLE>
<S> <C>
* Annualized
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions at net asset value on the payable dates and a sale at net asset value on the
last day of each period reported. Total investment return information for periods of less than one year has not been
annualized.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
(3) Effective for fiscal years beginning on or after September 1, 1995, the Fund is required to disclose the average
commission rate paid per share of common stock investments purchased or sold.
</TABLE>

--------------------
Prospectus Page 10
<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

[This page intentionally left blank]

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------

GROWTH FUND

The following tables provide investors with data and ratios for one Class A,
Class B, Class C and Class Y share for each of the periods shown. This
information is supplemented by the financial statements, accompanying notes and
the report of Ernst & Young LLP, independent auditors, which appear in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1997,
and are incorporated by reference into the Statement of Additional Information.
The financial statements and notes, as well as the information for each of the
five years in the period ended August 31, 1997 appearing in the following
tables, have been audited by Ernst & Young LLP, independent auditors. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge by calling 1-800-647-1568.
Information shown below for periods prior to the year ended August 31, 1993 has
also been audited by Ernst & Young LLP, independent auditors, whose reports
thereon were unqualified.

<TABLE>
<CAPTION>
GROWTH FUND
----------------------------------------------------------
CLASS A
----------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 24.37 $ 22.27 $ 20.04 $ 20.60 $ 16.78
-------- -------- -------- -------- --------
Net investment income
(loss).................. (0.08)(4) (0.12) 0.01 -- 0.07
Net realized and
unrealized gains
(losses) from investment
transactions............ 3.76(4) 4.06 2.25 0.51 4.37
-------- -------- -------- -------- --------
Total increase (decrease)
from investment
operations.............. 3.68 3.94 2.26 0.51 4.44
-------- -------- -------- -------- --------

Dividends from net
investment income....... -- -- -- -- --
Distributions from net
realized gains on
investment transactions
to shareholders......... (2.11) (1.84) (0.03) (1.07) (0.62)
-------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders............ (2.11) (1.84) (0.03) (1.07) (0.62)
-------- -------- -------- -------- --------
Net asset value, end of
period.................. $ 25.94 $ 24.37 $ 22.27 $ 20.04 $ 20.60
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment
return(1)............... 15.85% 18.43% 11.28% 2.33% 26.97%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios/Supplemental data:
Net assets, end of period
(000's)................. $201,725 $203,882 $183,958 $141,342 $130,353
Expenses to average net
assets**................ 1.27% 1.28% 1.28%(2) 1.21% 1.22%
Net investment income
(loss) to average net
assets**................ (0.32)% (0.49)% 0.19%(2) 0.06% 0.38%
Portfolio turnover
rate.................... 86% 60% 36% 24% 36%
Average commission rate
paid(3)................. $ 0.0598 $ 0.0598 -- -- --

<CAPTION>
GROWTH FUND
----------------------------------------------------
CLASS A
----------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
----------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 17.50 $ 13.43 $ 15.57 $ 11.21 $ 15.30
-------- -------- ------- ------- -------
Net investment income
(loss).................. -- 0.02 0.17 0.06 0.13
Net realized and
unrealized gains
(losses) from investment
transactions............ (0.11) 4.68 (1.16) 4.40 (2.73)
-------- -------- ------- ------- -------
Total increase (decrease)
from investment
operations.............. (0.11) 4.70 (0.99) 4.46 (2.60)
-------- -------- ------- ------- -------
Dividends from net
investment income....... (0.01) (0.17) -- (0.10) (0.08)
Distributions from net
realized gains on
investment transactions
to shareholders......... (0.60) (0.46) (1.15) -- (1.41)
-------- -------- ------- ------- -------
Total dividends and
distributions to
shareholders............ (0.61) (0.63) (1.15) (0.10) (1.49)
-------- -------- ------- ------- -------
Net asset value, end of
period.................. $ 16.78 $ 17.50 $ 13.43 $ 15.57 $ 11.21
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
Total investment
return(1)............... (0.85)% 37.02% (7.05)% 40.10% (15.37)%
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------

Ratios/Supplemental data:
Net assets, end of period
(000's)................. $102,640 $ 96,796 $72,805 $71,681 $70,551
Expenses to average net
assets**................ 1.43% 1.56% 1.59% 1.37% 1.22%
Net investment income
(loss) to average net
assets**................ 0.00% 0.10% 2.96% 0.14% 0.82%
Portfolio turnover
rate.................... 32% 29% 39% 44% 59%
Average commission rate
paid(3)................. -- -- -- -- --
</TABLE>
- ------------------
* Annualized.

** During certain periods presented, PaineWebber/Mitchell Hutchins waived fees
or reimbursed the Fund for portions of its operating expenses. If such
waivers or reimbursements had not been made for the Class A shares, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income (loss) to average net assets would have been 1.76%
and (0.25)%, respectively, for the year ended August 31, 1989, and 1.41% and
0.63%, respectively, for the year ended August 31, 1988.

+ Commencement of offering of shares.

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results would be lower if sales charges were
included. Total investment return information for periods less than one year
has not been annualized.

(2) These ratios include non-recurring reorganization expenses of 0.06%.

(3) Effective for fiscal years beginning on or after September 1, 1995, the Fund
is required to disclose the average commission rate paid per share of common
stock investments purchased or sold.

(4) Calculated using the average shares outstanding for the year.

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GROWTH FUND
------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------------------------------------
FOR THE
PERIOD
JULY 1,
FOR THE YEARS ENDED AUGUST 31, 1991+ TO
----------------------------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 23.30 $ 21.53 $ 19.53 $ 20.25 $ 16.64 $ 17.48 $15.63
-------- -------- -------- ------- ------- ------- -----
Net investment income
(loss).................. (0.26)(4) (0.39) (0.02) (0.06) (0.05) (0.06) (0.02)
Net realized and
unrealized gains
(losses) from investment
transactions............ 3.58 (4) 4.00 2.05 0.41 4.28 (0.18) 1.87
-------- -------- -------- ------- ------- ------- -----
Total increase (decrease)
from investment
operations.............. 3.32 3.61 2.03 0.35 4.23 (0.24) 1.85
-------- -------- -------- ------- ------- ------- -----
Dividends from net
investment income....... -- -- -- -- -- -- --
Distributions from net
realized gains on
investment transactions
to shareholders......... (2.11) (1.84) (0.03) (1.07) (0.62) (0.60) --
-------- -------- -------- ------- ------- ------- -----
Total dividends and
distributions to
shareholders............ (2.11) (1.84) (0.03) (1.07) (0.62) (0.60) --
-------- -------- -------- ------- ------- ------- -----
Net asset value, end of
period.................. $ 24.51 $ 23.30 $ 21.53 $ 19.53 $ 20.25 $ 16.64 $17.48
-------- -------- -------- ------- ------- ------- -----
-------- -------- -------- ------- ------- ------- -----

Total investment
return(1)............... 14.98% 17.48% 10.40% 1.55% 25.91% (1.58)% 11.84%
-------- -------- -------- ------- ------- ------- -----
-------- -------- -------- ------- ------- ------- -----
Ratios/Supplemental data:
Net assets, end of period
(000's)................. $115,529 $140,551 $152,357 $97,272 $60,280 $35,867 $3,804
Expenses to average net
assets**................ 2.06% 2.06% 2.06%(2) 2.00% 2.02% 2.20% 2.24%*
Net investment income
(loss) to average net
assets**................ (1.12)% (1.27)% (0.60)%(2) (0.66)% (0.46)% (0.70)% (0.81)%*
Portfolio turnover
rate.................... 86% 60% 36% 24% 36% 32% 29%
Average commission rate
paid(3)................. $ 0.0598 $ 0.0598 -- -- -- -- --

<CAPTION>
GROWTH FUND
----------------------------------------------------------------------
CLASS C
----------------------------------------------------------------------
FOR THE
PERIOD
JULY 2,
FOR THE YEARS ENDED AUGUST 31, 1992+ TO
--------------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992
---------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 23.48 $ 21.68 $ 19.67 $ 20.38 $ 16.75 $17.04
---------- ------- ------- ------- ------- ------
Net investment income
(loss).................. (0.27)(4) (0.34) (0.10) (0.08) (0.06) (0.01)
Net realized and
unrealized gains
(losses) from investment
transactions............ 3.61(4) 3.98 2.14 0.44 4.31 (0.28)
---------- ------- ------- ------- ------- ------
Total increase (decrease)
from investment
operations.............. 3.34 3.64 2.04 0.36 4.25 (0.29)
---------- ------- ------- ------- ------- ------
Dividends from net
investment income....... -- -- -- -- -- --
Distributions from net
realized gains on
investment transactions
to shareholders......... (2.11) (1.84) (0.03) (1.07) (0.62) --
---------- ------- ------- ------- ------- ------
Total dividends and
distributions to
shareholders............ (2.11) (1.84) (0.03) (1.07) (0.62) --
---------- ------- ------- ------- ------- ------
Net asset value, end of
period.................. $ 24.71 $ 23.48 $ 21.68 $ 19.67 $ 20.38 $16.75
---------- ------- ------- ------- ------- ------
---------- ------- ------- ------- ------- ------
Total investment
return(1)............... 14.95% 17.50% 10.37% 1.59% 25.86% (2.95)%
---------- ------- ------- ------- ------- ------
---------- ------- ------- ------- ------- ------

Ratios/Supplemental data:
Net assets, end of period
(000's)................. $ 24,760 $29,923 $30,608 $28,561 $16,474 $2,275
Expenses to average net
assets**................ 2.07% 2.07% 2.05%(2) 1.98% 2.06% 1.98%*
Net investment income
(loss) to average net
assets**................ (1.13)% (1.28)% (0.57)%(2) (0.65)% (0.69)% (0.65)%*
Portfolio turnover
rate.................... 86% 60% 36% 24% 36% 32%
Average commission rate
paid(3)................. $ 0.0598 $0.0598 -- -- -- --
</TABLE>

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GROWTH FUND
------------------------------------------------------------------------
CLASS Y
------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year....... $ 24.74 $ 22.53 $ 20.22 $ 20.71 $ 16.83 $ 17.50
------- ------- ------- ------- ------- -------
Net investment income
(loss).................. (0.01)(4) (0.02) 0.24 0.03 0.08 0.05
Net realized and
unrealized gains
(losses) from
investments............. 3.84(4) 4.07 2.10 0.55 4.42 (0.11)
------- ------- ------- ------- ------- -------
Total increase (decrease)
from investment
operations.............. 3.83 4.05 2.34 0.58 4.50 (0.06)
------- ------- ------- ------- ------- -------
Dividends from net
investment income....... -- -- -- -- -- (0.01)
Distributions from net
realized gains on
investment transactions
to shareholders......... (2.11) (1.84) (0.03) (1.07) (0.62) (0.60)
------- ------- ------- ------- ------- -------
Total dividends and
distributions........... (2.11) (1.84) (0.03) (1.07) (0.62) (0.61)
------- ------- ------- ------- ------- -------
Net asset value, end of
year.................... $ 26.46 $ 24.74 $ 22.53 $ 20.22 $ 20.71 $ 16.83
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment
return(1)............... 16.24% 18.72% 11.58% 2.67% 27.26% (0.52)%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------

Ratios/supplemental data:
Net assets, end of year
(000's)................. $20,281 $21,409 $20,948 $30,521 $20,706 $11,581
Expenses to average net
assets.................. 1.00% 1.02% 0.97%(2) 0.94% 0.95% 1.12%
Net investment income
(loss) to average net
assets.................. (0.05)% (0.23)% 0.53%(2) 0.40% 0.60% 0.38%
Portfolio turnover
rate.................... 86% 60% 36% 24% 36% 32%
Average commission rate
paid(3)................. $0.0598 $0.0598 -- -- -- --
</TABLE>
- ------------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year 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 year reported.

(2) These ratios include non-recurring acquisition expenses of 0.05%.

(3) Effective for fiscal years beginning on or after September 1, 1995, the Fund
is required to disclose the average commission rate paid per share of common
stock investments purchased or sold.

(4) Calculated using the average shares outstanding for the year.

--------------------
Prospectus Page 14
<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

[This page intentionally left blank]

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------

SMALL CAP FUND

The following table provides investors with data and ratios for one Class A,
Class B, Class C and Class Y share for each of the periods shown. This
information is supplemented by the financial statements, accompanying notes and
the report of Price Waterhouse LLP, independent accountants, which appear in the
Fund's Annual Report to Shareholders for the fiscal year ended July 31, 1997,
and are incorporated by reference into the Statement of Additional Information.
The financial statements and notes, as well as the information appearing below,
have been audited by Price Waterhouse LLP. Further information about the Fund's
performance is also included in the Annual Report to Shareholders, which may be
obtained without charge by calling 1-800-647-1568.

<TABLE>
<CAPTION>
SMALL CAP FUND
-------------------------------------------------------------
CLASS A
-------------------------------------------------------------
FOR THE FOR THE
FOR THE YEARS PERIOD YEAR
ENDED JULY 31, ENDED ENDED
-------------------------------- JULY 31, JANUARY 31,
1997 1996# 1995 1994+ 1994
------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 10.22 $ 11.30 $ 10.27 $ 10.61 $ 10.00
------- ------- -------- -------- -----------
Net investment income
(loss)...................... (0.14) 0.00@ 0.05 0.02 0.13
Net realized and unrealized
gains (losses) from
investments................. 3.75 0.50@ 1.50 (0.36) 0.62
------- ------- -------- -------- -----------
Net increase (decrease) from
investment operations....... 3.61 0.50 1.55 (0.34) 0.75
------- ------- -------- -------- -----------
Dividends from net investment
income...................... -- -- -- -- (0.12)
Distributions from net
realized gains from
investments................. (0.41) (1.58) (0.52) -- (0.02)
------- ------- -------- -------- -----------

Total dividends and
distributions............... (0.41) (1.58) (0.52) 0.00 (0.14)
------- ------- -------- -------- -----------
Net asset value, end of
period...................... $ 13.42 $ 10.22 $ 11.30 $ 10.27 $ 10.61
------- ------- -------- -------- -----------
------- ------- -------- -------- -----------
Total investment return (1)... 36.11% 4.69% 15.80% (3.20)% 7.58%
------- ------- -------- -------- -----------
------- ------- -------- -------- -----------
Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $32,968 $30,675 $ 20,494 $ 22,848 $25,226
Expenses to average net
assets...................... 2.00% 2.11% 1.98% 1.91%* 1.75%
Net investment income (loss)
to average net assets....... (1.16)% 0.02% 0.41% 0.41%* 1.41%
Portfolio turnover............ 54% 84% 19% 20% 98%
Average commission rate
paid(2)..................... $0.0597 -- -- -- --
</TABLE>
- ------------------
* Annualized

+ For the period February 1, 1994 to July 31, 1994.

++ For the period July 26, 1996 (commencement of offering shares) to July 31,
1996.

# Effective April 1, 1996, Mitchell Hutchins took over day-to-day management
of the Fund's assets.

@ Calculated using the average shares outstanding for the period.

(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, if any, 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 Class A, Class B and Class C shares
would be lower if sales charges were included. Total investment return
information for periods of less than one year has not been annualized.

(2) Effective for fiscal years beginning on or after September 1, 1995, the Fund
is required to disclose the average commission rate paid per share of common
stock investments purchased or sold.

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SMALL CAP FUND
---------------------------------------------------------------
CLASS B
---------------------------------------------------------------
FOR THE
FOR THE YEARS PERIOD FOR THE
ENDED JULY 31, ENDED YEAR ENDED
--------------------------------- JULY 31, JANUARY 31,
1997 1996# 1995 1994+ 1994
------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 9.98 $ 11.15 $ 10.22 $ 10.60 $ 10.00
------- ------- --------- --------- -----------
Net investment income
(loss)...................... (0.23) (0.09)@ (0.04) (0.02) 0.06
Net realized and unrealized
gains (losses) from
investments................. 3.66 0.50@ 1.49 (0.36) 0.62
------- ------- --------- --------- -----------
Net increase (decrease) from
investment operations....... 3.43 0.41 1.45 (0.38) 0.68
------- ------- --------- --------- -----------
Dividends from net investment
income...................... -- -- -- -- (0.06)
Distributions from net
realized gains from
investments................. (0.41) (1.58) (0.52) -- (0.02)
------- ------- --------- --------- -----------
Total dividends and
distributions............... (0.41) (1.58) (0.52) 0.00 (0.08)
------- ------- --------- --------- -----------
Net asset value, end of
period...................... $ 13.00 $ 9.98 $ 11.15 $ 10.22 $ 10.60
------- ------- --------- --------- -----------
------- ------- --------- --------- -----------
Total investment return (1)... 35.16% 3.90% 14.86% (3.58)% 6.81%
------- ------- --------- --------- -----------
------- ------- --------- --------- -----------

Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $40,749 $36,612 $46,142 $52,624 $59,993
Expenses to average net
assets...................... 2.75% 2.90% 2.74% 2.69%* 2.50%
Net investment income (loss)
to average net assets....... (1.91)% (0.78)% (0.35)% (0.37)%* 0.67%
Portfolio turnover............ 54% 84% 19% 20% 98%
Average commission rate
paid(2)..................... $0.0597 -- -- -- --

<CAPTION>
SMALL CAP FUND
------------------------------------------------------------------------------------------
CLASS C CLASS Y
-------------------------------------------------------------- -----------------------
FOR THE FOR THE FOR THE
FOR THE YEARS PERIOD FOR THE YEAR PERIOD
ENDED JULY 31, ENDED YEAR ENDED ENDED ENDED
-------------------------------- JULY 31, JANUARY 31, JULY 31, JULY 31,
1997 1996# 1995 1994+ 1994 1997 1996++
------- ------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 9.97 $ 11.14 $ 10.22 $ 10.59 $ 10.00 $ 10.21 $ 10.23
------- ------- --------- --------- ----------- --------- ---------
Net investment income
(loss)...................... (0.24) (0.08)@ (0.05) (0.02) 0.06 (0.11) 00.0@
Net realized and unrealized
gains (losses) from
investments................. 3.66 0.49@ 1.49 (0.35) 0.62 3.77 (0.02)@
------- ------- --------- --------- ----------- --------- ---------
Net increase (decrease) from
investment operations....... 3.42 0.41 1.44 (0.37) 0.68 3.66 (0.02)
------- ------- --------- --------- ----------- --------- ---------
Dividends from net investment
income...................... -- -- -- -- (0.07) -- --
Distributions from net
realized gains from
investments................. (0.41) (1.58) (0.52) -- (0.02) (0.41) --
------- ------- --------- --------- ----------- --------- ---------
Total dividends and
distributions............... (0.41) (1.58) (0.52) 0.00 (0.09) (0.41) 0.00
------- ------- --------- --------- ----------- --------- ---------
Net asset value, end of
period...................... $ 12.98 $ 9.97 $ 11.14 $ 10.22 $ 10.59 $ 13.46 $ 10.21
------- ------- --------- --------- ----------- --------- ---------
------- ------- --------- --------- ----------- --------- ---------
Total investment return (1)... 35.09% 3.90% 14.76% (3.49)% 6.77% 36.65% (0.20)%
------- ------- --------- --------- ----------- --------- ---------
------- ------- --------- --------- ----------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $18,812 $18,606 $13,263 $16,285 $20,941 $ 2,768 $ 2,801
Expenses to average net
assets...................... 2.77% 2.91% 2.73% 2.69%* 2.50% 1.72% 1.72%
Net investment income (loss)
to average net assets....... (1.93)% (0.77)% (0.34)% (0.36)%* 0.64% (0.88)% 0.07%
Portfolio turnover............ 54% 84% 19% 20% 98% 54% 84%
Average commission rate
paid(2)..................... $0.0597 -- -- -- -- $0.0597 --
</TABLE>

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<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

INVESTMENT OBJECTIVES & POLICIES
- --------------------------------------------------------------------------------

The Funds' investment objectives may not be changed without shareholder
approval. Their other investment policies, except where noted, are not
fundamental and may be changed by the Funds' boards 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, the 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. The
Fund seeks to achieve this objective by investing primarily in equity securities
issued by companies believed by Mitchell Hutchins to 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 bonds and convertible securities 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 at time of purchase. The 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.

- --------------------------------------------------------------------------------
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 total
assets in dividend-paying stocks.

The Model screens a universe of small to large cap companies from ten different
business sectors to identify undervalued companies with strong earnings momentum
that rank well in three measures:

o VALUE: projected dividends, cash flow, earnings and book value;

o MOMENTUM: earnings and price to identify companies that could surprise on the
upside; and

o ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.

--------------------
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<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

The equity securities in the Model's universe are screened twice a month. Then
the Team takes a closer look at those equity securities that rank in the top 20%
of the Model's universe based on value and momentum. The Team applies
traditional fundamental analysis and may speak to the management of these
companies, as well as those of their competitors. Based on the Team's findings
in the context of Mitchell Hutchins' economic forecast, Mitchell Hutchins
decides whether to purchase or sell equity securities for the Fund. 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 a modified, growth-oriented 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 modified, growth-oriented Model, which the Team generally utilizes as part
of the stock selection process, screens a universe of small to large
capitalization companies from ten different business sectors to identify
companies that rank especially well on growth variables, including earnings
momentum, stock price movement, economic sensitivity and other growth factors.

The equity securities in the Model's universe are screened twice a month. Then
the Team takes a closer look at those equity securities that rank in the top 20%
of the Model's universe based on earnings growth. The Team applies traditional
fundamental analysis and may speak to the management of these companies, as well
as those of their competitors. Based on the Team's findings in the context of
Mitchell Hutchins' economic forecast, Mitchell Hutchins decides whether to
purchase or sell equity securities for the Fund. In seeking capital
appreciation, the Fund would also invest in bonds when, for instance, Mitchell
Hutchins anticipates that market interest rates may decline or that 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 small to large

capitalization companies from ten different business sectors to identify
undervalued companies with strong earnings momentum that rank well in three
measures:

o VALUE: projected dividends, cash flow, earnings and book value;

o MOMENTUM: earnings and price to identify companies that could surprise on the
upside; and

o ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.

Through this screening process, the Model identifies the equity securities of
small cap companies ranking in the top 20% of the universe. Then the Team
applies traditional fundamental analysis on the equity securities of these small
cap companies. The Team may speak to the management of these companies, as well
as to those of their competitors. Based on the Team's findings in the context of
Mitchell Hutchins' economic forecast, Mitchell Hutchins decides whether to
purchase or sell equity securities for the Fund. 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.

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

PERFORMANCE
- --------------------------------------------------------------------------------

These charts show the total returns for the Funds. Sales charges have not been
deducted from total returns for Class A, B and C shares. Returns would be lower
if sales charges were deducted. Past results are not a guarantee of future
results. Average annual total returns both before and after deducting the
maximum sales charges are shown below in the tables that follow the performance
charts.

GROWTH AND INCOME FUND

[BAR GRAPH]

<TABLE>
<CAPTION>
12/20/83-
12/31/83 1984 1985 1986 1987 1988 1989 1990 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A -1.03% 14.90% 22.36% 12.68% -3.16% 17.83% 24.59% -1.01% 35.34%

Class B 17.85%
Class C
Class Y

1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Class A 3.90% -2.59% -5.87% 33.21% 23.46%
Class B 3.09% -3.31% -6.62% 32.18% 22.55%
Class C 9.58% -3.30% -6.61% 32.21% 22.55%
Class Y 5.15% -2.31% -5.57% 33.63% 23.81%
</TABLE>

The 1983 return for Class A shares represents the period from inception on
December 20, 1983 through December 31, 1983. The 1991 return for Class B shares
represents the period from inception on July 1, 1991 through December 31, 1991.
The 1992 return for Class C shares represents the period from inception on July
2, 1992 through December 31, 1992. The 1992 return for Class Y shares represents
the period from inception on February 12, 1992 through December 31, 1992.

<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
As of August 31, 1997
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Inception Date..................... 12/20/83 7/1/91 7/2/92 2/12/92
ONE YEAR
Before deducting maximum sales
charges....................... 42.42% 41.33% 41.30% 42.74%
After deducting maximum sales
charges....................... 36.00% 36.33% 40.30% 42.74%
FIVE YEARS
Before deducting maximum sales
charges....................... 15.19% 14.30% 14.31% 15.51%
After deducting maximum sales
charges....................... 14.12% 14.07% 14.31% 15.51%
TEN YEARS (OR LIFE OF CLASS)
Before deducting maximum sales
charges....................... 11.85% 13.85% 14.44% 13.54%
After deducting maximum sales
charges....................... 11.34% 13.85% 14.44% 13.54%
</TABLE>

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<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

GROWTH FUND

[BAR GRAPH]

3/18/85-12/31/85 1986 1987 1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 16.87% 7.64% 4.34% 22.05% 34.27% -7.72% 47.61% 4.15%
Class B 22.18% 3.30%
Class C 12.73%
Class Y 12.21% 4.42%

1993 1994 1995 1996
<S> <C> <C> <C> <C>
Class A 19.17% -10.90% 33.02% 14.11%
Class B 18.26% -11.61% 31.95% 13.24%
Class C 18.19% -11.58% 32.00% 13.18%
Class Y 19.47% -10.64% 33.40% 14.48%
</TABLE>

The 1985 return for Class A shares represents the period from inception on March
18, 1985 through December 31, 1985. The 1991 return for Class B shares
represents the period from inception on July 1, 1991 through December 31, 1991.
The 1992 return for Class C shares represents the period from inception on July
2, 1992 through December 31, 1992. The 1991 return for Class Y shares represents
the period from inception on August 26, 1991 through December 31, 1991.

<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
As of August 31, 1997
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Inception Date..................... 3/18/85 7/1/91 7/2/92 8/26/91
ONE YEAR
Before deducting maximum sales
charges....................... 15.85% 14.98% 14.95% 16.24%
After deducting maximum sales
charges....................... 10.63% 9.98% 13.95% 16.24%
FIVE YEARS
Before deducting maximum sales
charges....................... 14.67% 13.77% 13.76% 14.99%
After deducting maximum sales
charges....................... 13.62% 13.53% 13.76% 14.99%
TEN YEARS (OR LIFE OF CLASS)
Before deducting maximum sales
charges....................... 11.49% 12.77% 12.91% 12.65%
After deducting maximum sales
charges....................... 10.98% 12.77% 12.91% 12.65%
</TABLE>

--------------------
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<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

SMALL CAP FUND

[BAR GRAPH]

<TABLE>
<CAPTION>
2/1/93-
12/31/93 1994 1995 1996
<S> <C> <C> <C> <C>
Class A 7.68% -1.20% 16.81% 17.45%
Class B 6.91% -1.96% 15.90% 16.50%
Class C 6.97% -1.96% 15.84% 16.52%
Class Y 15.51%
</TABLE>

The 1993 returns for Class A, Class B and Class C shares represent the period
from inception on February 1, 1993 through December 31, 1993. The 1996 return
for Class Y shares represents the period from inception on July 26, 1996 through
December 31, 1996.

<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
As of July 31, 1997

CLASS A CLASS B CLASS C CLASS Y
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Inception Date..................... 2/1/93 2/1/93 2/1/93 7/26/96
ONE YEAR
Before deducting maximum sales
charges....................... 36.11% 35.16% 35.09% 36.65%
After deducting maximum sales
charges....................... 30.01% 30.16% 34.09% 36.65%
LIFE
Before deducting maximum sales
charges....................... 12.79% 11.94% 11.92% 35.81%
After deducting maximum sales
charges....................... 11.64% 11.64% 11.92% 35.81%
</TABLE>

PERFORMANCE INFORMATION

The Funds perform a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized return
shows the change in value of an investment in a Fund as a steady compound annual
rate of return. Actual year-by-year returns fluctuate and may be higher or lower
than standardized return. Standardized returns for Class A shares of the Funds
reflect deduction of the Funds' maximum initial sales charge of 4.5% at the time
of purchase, and standardized returns for the Class B and Class C shares of the
Funds reflect deduction of the applicable contingent deferred sales charge
imposed on the sale of shares held for the period. One-, five- and ten-year
periods will be shown, unless the Fund or class has been in existence for a
shorter period. If so, returns will be shown for the period since inception,
known as 'Life.' Total return calculations assume reinvestment of dividends and
other distributions.

The Funds may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized

return does

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

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
not reflect initial or contingent deferred sales charges and would be lower if
such charges were deducted.

Total return information reflects past performance and does not indicate future
results. The investment return and principal value of shares of the Funds will
fluctuate. The amount investors receive when selling shares may be more or less
than what they paid. Further information about each Fund's performance is
contained in its Annual Report to Shareholders, which may be obtained without
charge by contacting the Fund, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.

- --------------------------------------------------------------------------------
THE FUNDS' INVESTMENTS
- --------------------------------------------------------------------------------

EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and common
stock purchase warrants and rights. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation.

Preferred stock has certain fixed-income features, like a bond, but is actually
equity in a company, like common stock. Convertible securities may include
debentures, notes and preferred equity securities, which are convertible into
common stock.

BONDS (including notes and debentures) are used by corporations and governments
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and must repay the amount borrowed at maturity. Bonds have
varying degrees of investment risk and varying levels of sensitivity to changes
in interest rates.

RISKS

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

EQUITY SECURITIES. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential in a company. However, their prices generally fluctuate more than
other securities and reflect changes in a company's financial condition and
overall market and economic conditions. Common stocks generally represent the
riskiest investment in a company. It is possible that a Fund may experience a
substantial or complete loss on an individual equity investment.

FOREIGN SECURITIES. Each Fund may invest a portion of its assets in U.S.
dollar-denominated securities of foreign companies that are traded on recognized
U.S. exchanges or in the U.S. OTC market. Investing in the securities of foreign
companies involves more risks than investing in securities of U.S. companies.

Their value is subject to economic and political developments in the countries
where the companies operate and to changes in foreign currency values. Values
may also be affected by foreign tax laws, changes in foreign economic or
monetary policies, exchange control regulations and regulations involving
prohibitions on the repatriation of foreign currencies.

In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.

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 a bond's value or its liquidity. There is a risk
that bonds will be downgraded by rating agencies. The ratings 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.

--------------------
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<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

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. Credit risk is the risk that the issuer or a
guarantor may be unable to pay interest or repay principal on the bond. Credit
risk can be affected by many factors, including adverse changes in the issuer's
own financial condition or in economic conditions.

NON-INVESTMENT GRADE (LOWER-RATED) BOND RATINGS. Bonds rated below investment
grade are deemed by the ratings agencies to be predominantly speculative
regarding the issuer's ability to pay principal and interest and may involve
major risk exposure to adverse economic conditions. They are also known as 'junk
bonds.' During an economic downturn or period of rising interest rates, issuers
of these securities may experience financial stress that adversely affects their
ability to pay interest and principal and may increase the possibility of
default. Lower-rated bonds are frequently unsecured by collateral and will not
receive payment until more senior claims are paid in full. The market for
lower-rated bonds is thinner and less active, which may limit 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.

DERIVATIVES. Some of the instruments in which the Funds may invest may be
referred to as 'derivatives,' because their value depends on (or 'derives' from)
the value of an underlying asset, reference rate or index. These instruments
include options, futures contracts and similar instruments that may be used in
hedging strategies. There is only limited consensus as to what constitutes a
'derivative' security. The market value of derivative instruments and securities
sometimes is more volatile than that of other investments, and each type of
derivative instrument may pose its own special risks. Mitchell Hutchins takes
these risks into account in its management of the Funds.

COUNTERPARTIES. The Funds may be exposed to the risk of financial failure or
insolvency of another party. To help lessen those risks, Mitchell Hutchins,
subject to the supervision of the respective boards of trustees, monitors and
evaluates the creditworthiness of the parties with which each Fund does
business.

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 USING DERIVATIVES. Each Fund may use derivatives, such as
options (on securities,
futures contracts and stock indexes) and futures contracts (on stock indexes and
interest rates) to reduce the overall risk of its investments ('hedge'). 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.

The Funds might not use any of these derivatives, 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:

o the fact that the skills needed to use hedging instruments are different from
those needed to select securities for the Funds,

o the possibility of imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the securities
being hedged,

--------------------
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<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

o 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

o 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.

PORTFOLIO TURNOVER. Each Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turn-
over rate (100% or more) for a Fund will involve correspondingly greater
transaction costs, which will be borne directly by the Fund, and may increase
the potential for short-term capital gains.

DEFENSIVE POSITIONS. When Mitchell Hutchins believes that unusual market or
economic circumstances warrant a defensive posture, a Fund may temporarily
commit all or any portion of its assets to cash or investment grade money market
instruments, including repurchase agreements. In a typical repurchase agreement,
a Fund buys a security and simultaneously agrees to sell it back at an
agreed-upon price and time, usually no more than seven days after purchase.

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' boards of trustees.

OTHER INFORMATION. Each Fund may 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 invest up to 35% of its total assets in
investment grade money market instruments and/or cash for liquidity purposes or
pending investment in other securities.

Each Fund may borrow money for temporary or emergency purposes but not in excess
of 10% of its total assets, including reverse repurchase agreements up to an
aggregate value of 5% (10% for Small Cap Fund) of its net assets.

- --------------------------------------------------------------------------------
FLEXIBLE PRICING(SM)
- --------------------------------------------------------------------------------

Each Fund offers four classes of shares that differ in terms of sales charges
and expenses. An investor can select the class that is best suited to his or her
investment needs, based upon the holding period and the amount of investment.

CLASS A SHARES

HOW PRICE IS CALCULATED: The price is the net asset value plus the initial sales
charge (the maximum is 4.5% of the public offering price) next calculated after
PaineWebber's New York City headquarters or PFPC Inc., the Funds' transfer agent
('Transfer Agent') receives the purchase order. Although investors pay an
initial sales charge when they buy Class A shares, the ongoing expenses for this
class are lower than those of Class B and Class C shares. Class A shares sales
charges are calculated as follows:

--------------------
Prospectus Page 25

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED
---------------------------------------- DEALERS AS PERCENTAGE
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE
- ----------------------------------- -------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000.................. 4.50% 4.71% 4.25%
$50,000 to $99,999................. 4.00 4.17 3.75
$100,000 to $249,999............... 3.50 3.63 3.25
$250,000 to $499,999............... 2.50 2.56 2.25
$500,000 to $999,999............... 1.75 1.78 1.50
$1,000,000 and over(1)............. None None 1.00(2)
</TABLE>

- ------------------
(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. However, Class A shares representing reinvestment of any dividends or
other distributions are not subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan are not subject to this charge. However,
investors may not withdraw more than 12% of the value of the Fund account
under the Plan in the first year after purchase.

(2) Mitchell Hutchins pays 1% to PaineWebber.

SALES CHARGE REDUCTIONS AND WAIVERS

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

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

o their spouses, parents or children under age 21;

o their Individual Retirement Accounts (IRAs);

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

o any company controlled by the investor;

o trusts created by the investor;

o Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of investors for the benefit of the investors'
children; or

o accounts with the same adviser.

Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.

The sales charge will not apply when the investor:

o is an employee, director, trustee or officer of PaineWebber, its affiliates or
any PaineWebber mutual fund;

o is the spouse, parent or child of any of the above;

o buys these shares through a PaineWebber investment executive who was formerly
employed as a broker with a competing brokerage firm that was registered as a
broker-dealer with the SEC; and
o was the investment executive's client at the competing brokerage firm;

o within 90 days of buying Class A shares in a Fund, the investor sells shares
of one or more mutual funds that (a) were principally underwritten by the
competing brokerage firm or its affiliates and (b) the investor either paid
a sales charge to buy those shares, paid a contingent deferred sales charge
when selling them or held those shares until the contingent deferred sales
charge was waived; and

o the amount that the investor purchases does not exceed the total amount of
money the investor received from the sale of the other mutual fund;

o is a certificate holder of unit investment trusts sponsored by PaineWebber and
has elected to have dividends and other distributions from that investment
automatically invested in Class A shares;

o is an employer establishing an employee benefit plan qualified under section
401, including a salary reduction plan qualified under section 401(k), or
section 403(b) of the Internal Revenue Code ('Code') (each a 'qualified
plan'). (This waiver is subject to minimum requirements, with respect to the
number of employees and investment amount, established by Mitchell Hutchins.
Currently, the plan must have 50 or more eligible employees and at least $1
million in plan assets.) For investments made pursuant to this waiver,
Mitchell Hutchins may make a payment to PaineWebber out of its own resources
in an amount not to exceed 1% of the amount invested;

o is a participant in the PaineWebber Members Only Program(Trademark). 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;

--------------------
Prospectus Page 26

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

o is a variable annuity offered only to qualified plans. For investments made
pursuant to this waiver. Mitchell Hutchins may make payments out of its own
resources to PaineWebber and to the variable annuity's sponsor, adviser or
distributor in a total amount not to exceed 1% of the amount invested;

o acquires Class A shares through an investment
program that is not sponsored by PaineWebber or its affiliates and that
charges participants a fee for program services, provided that the program
sponsor has entered into a written agreement with PaineWebber permitting the
sale of Class A shares at net asset value to that program. For investments
made pursuant to this waiver, Mitchell Hutchins may make a payment to
PaineWebber out of its own resources in an amount not to exceed 1% of the
amount invested. For subsequent investments or exchanges made to supplement a
rebalancing feature of such an investment program, the minimum subsequent
investment requirement is waived; or

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

For more information on how to get any reduced sales charge, investors should
contact a PaineWebber investment executive or a correspondent firm or call
1-800-647-1568. Investors must provide satisfactory information to PaineWebber
or the Fund if they seek any of these sales charge reductions or waivers.

CLASS B SHARES

HOW PRICE IS CALCULATED: The price is the net asset value next calculated after
PaineWebber's New York City headquarters or the Transfer Agent receives the
purchase order. The ongoing expenses investors pay for Class B shares are higher
than those of Class A shares. Because investors do not pay an initial sales
charge when they buy Class B shares, 100% of their purchase is immediately
invested.

Depending on how long they own their Fund investment, investors may have to pay
a sales charge when they sell their Fund shares. This sales charge is called a
'contingent deferred sales charge.' The amount of the charge depends on how long
the investor owned the shares. The sales charge is calculated by multiplying the
offering price (net asset value of the shares at the time of purchase) or the
net asset value at the time of sale by the shareholder, whichever is less, by
the percentage shown on the following table. Investors who own shares for more
than six years do not have to pay a sales charge when selling those shares.

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

<S> <C>
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
</TABLE>

CONVERSION OF CLASS B SHARES

Class B shares automatically convert to the appropriate number of Class A shares
of equal dollar value after the investor has owned them for six years. Dividends
and other distributions paid to the investor by the Fund in the form of
additional Class B shares will also convert to Class A shares on a pro-rata
basis. This benefits shareholders because Class A shares have lower ongoing
expenses than Class B shares. If the investor has exchanged Class B shares
between PaineWebber funds, the Fund uses the purchase date at which the initial
investment was made to determine the conversion date.

MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE

When investors sell Class B shares they have owned for less than six years, the
Fund automatically will minimize the sales charge by assuming the investors are
selling:

o First, Class B shares owned through reinvested dividends and capital gain
distributions; and

o Second, Class B shares held in the portfolio the longest.

WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will not apply to:

o sales of shares under the Fund's Systematic Withdrawal Plan (investors may not
withdraw annually more than 12% of the value of the Fund account under the
Plan);

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

o a tax-free return of an excess IRA contribution;

o a tax-qualified retirement plan distribution following retirement; or

o Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death either as the sole shareholder or with
his or her spouse as a joint tenant with the right of survivorship.

--------------------
Prospectus Page 27

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

An investor must provide satisfactory information to PaineWebber or the Fund if
the investor seeks any of these waivers.

CLASS C SHARES

HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value
next calculated after PaineWebber's New York City headquarters or the Transfer
Agent receives the purchase order. The ongoing expenses of Class C shares are
higher than those of Class A shares. Because investors do not pay an initial
sales charge when they buy Class C shares, 100% of their purchase is immediately
invested.

A contingent deferred sales charge of 1% of the net asset value of the shares at
the time of purchase or sale, whichever is less, is charged on sales of shares
made within one year of the purchase date. Other PaineWebber mutual funds may
impose a different contingent deferred sales charge on Class C shares sold
within one year of the purchase date. A sale of Class C shares acquired through
an exchange and held less than one year will be subject to the same contingent
deferred sales charge that would have been imposed on the Class C shares of the
PaineWebber mutual fund originally purchased. Class C shares representing
reinvestment of any dividends or capital gains will not be subject to the 1%
charge. Withdrawals under the Systematic Withdrawal Plan also will not be
subject to this charge. However, investors may not withdraw more than 12% of the
value of the Fund account under the Plan in the first year after purchase.

CLASS Y SHARES

HOW PRICE IS CALCULATED: Eligible investors may purchase Class Y shares at the
net asset value next calculated after PaineWebber's New York City headquarters
or the Transfer Agent receives the purchase order. Because investors do not pay
an initial sales charge when they buy Class Y shares, 100% of their purchase is
immediately invested. No contingent deferred sales charge is imposed on Class Y
shares, and the ongoing expenses for Class Y shares are lower than for the other
classes because Class Y shares are not subject to 12b-1 distribution or service
fees.

LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to
buy Class Y shares:

o a participant in INSIGHT when Class Y shares are purchased through that
program;

o an investor who buys $10 million or more at any one time in any combination of
PaineWebber mutual funds in the Flexible Pricing(Service Mark) System;
o a qualified plan that has either

5,000 or more eligible employees or

$50 million or more in assets;

o an investment company advised by PaineWebber or an affiliate of PaineWebber;
and

o for Growth and Income Fund and Growth Fund, the trustee of the PaineWebber
Savings Investment Plan ('PW SIP')

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(Trademark) 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 1.5% 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 qualifed plan, invoiced.

Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available to INSIGHT participants or for other INSIGHT information.

--------------------
Prospectus Page 28

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

PURCHASES BY THE TRUSTEE OF THE PW SIP

Class Y shares of Growth Fund and Growth and Income 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 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, 'Plan Documents') for a description of the procedures and
limitations applicable to making and changing investment choices.

Copies of the Plan Documents are available from the PaineWebber Incorporated
Benefits Department, 10th Floor, 1000 Harbor Boulevard, Weehawken, New Jersey
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 Fund and Growth and Income Fund are purchased 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.

- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------

Prices are calculated for each class of a Fund's shares once each Business Day,
at the close of regular trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). A 'Business Day' is any day, Monday through Friday, on
which the New York Stock Exchange is open for business.

The Funds and Mitchell Hutchins reserve the right to reject any purchase order
and to suspend the offering of Fund shares for a period of time.

When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will
automatically receive Class A shares, which include an initial sales charge.
Investors in Class Y shares must provide satisfactory information to PaineWebber
or an individual Fund that they are eligible to purchase Class Y shares.

PAINEWEBBER CLIENTS

Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's New

York City headquarters.

Investors may pay for their purchases with checks drawn on U.S. banks or with
funds they have in their brokerage accounts at PaineWebber or its correspondent
firms. Payment is due on the third Business Day after PaineWebber's New York
City headquarters receives the purchase order.

OTHER INVESTORS

Investors who are not PaineWebber clients may purchase Fund shares and set up an
account through the Transfer Agent (PFPC Inc.) by completing and signing an
account application which you may obtain by calling 1-800-647-1568. The
application and check must be mailed to PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, DE 19899.

New investors to PaineWebber may complete and sign an account application and
mail it along with a check. Investors may also open an account in person.

Investors who already have money invested in a PaineWebber mutual fund, and want
to invest in another PaineWebber mutual fund, can:

o mail an application with a check; or

o open an account by exchanging from another PaineWebber mutual fund.

Investors do not have to send an application when making additional investments
in the Fund.

MINIMUM INVESTMENTS

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

A Fund may waive or reduce these minimums for:

o employees of PaineWebber or its affiliates; or

o participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plan.

--------------------
Prospectus Page 29

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

HOW TO EXCHANGE SHARES

As shareholders, investors have the privilege of exchanging Class A, B and C
shares for shares of the same class of other PaineWebber mutual funds. For
classes of shares where no initial sales charge is imposed, a contingent
deferred sales charge may apply if the investor sells the shares acquired
through the exchange. Class Y shares are not exchangeable.

Exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.

o Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or wire.

o Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a 'letter of instruction' to the Transfer Agent. The letter of
instruction must include:

o the investor's name and address;

o the Fund's name;

o the Fund account number;

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

o 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 must be mailed to PFPC Inc., Attn:
PaineWebber Mutual Funds, P.O. Box 8950,
Wilmington, DE 19899.

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

- --------------------------------------------------------------------------------
HOW TO SELL SHARES

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

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

Investors who own more than one class of shares should specify which class they
are selling. If they do not, the Fund will assume they are first selling their
Class A shares, then Class C, then Class B and last, Class Y.

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

Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through the Funds' Transfer Agent (PFPC Inc.) may sell shares by writing a
'letter of instruction,' as detailed in 'How to Exchange Shares.'

Because the Funds incur certain fixed costs in maintaining shareholder accounts,
each Fund reserves the right to purchase back all of its shares in any
shareholder account with a net asset value of less than $500. If a Fund elects
to do so, it will notify the shareholder of the opportunity to increase the
amount invested to $500 or more within 60 days of the notice. The Fund will not
purchase back accounts that fall below $500 solely due to a reduction in net
asset value per share.

REINSTATEMENT PRIVILEGE

Shareholders who sell their Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount sold by purchasing the Fund's
Class A shares within 365 days after the sale. To take advantage of this
reinstatement privilege, shareholders must notify their investment executive at
PaineWebber or one of its correspondent firms at the time of purchase.

--------------------
Prospectus Page 30

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

OTHER SERVICES
- --------------------------------------------------------------------------------

Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services available
with respect to the Funds' Class A, Class B and C shares:

AUTOMATIC INVESTMENT PLAN

Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial
investment of $1,000 through which the Fund will deduct $50 or more each month
from the investor's bank account to invest directly in the Fund. In addition to
providing a convenient and disciplined manner of investing, participation in the
Automatic Investment Plan enables the investor to use the technique of 'dollar
cost averaging.'

SYSTEMATIC WITHDRAWAL PLAN

The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semiannual (June and December) or annual
(December) withdrawals from their 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, semi-annual and annual withdrawals of $200, $400, $600 and $800,
respectively.

Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. Investors may not withdraw annually more than
12% of the value of the Fund account when the investor signed up for the Plan.
Shareholders who elect to receive dividends or other distributions in cash may
not participate in the Plan.

INDIVIDUAL RETIREMENT ACCOUNTS

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

TRANSFER OF ACCOUNTS

If investors holding shares of a Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be moved

to an account with the Transfer Agent. However, if the other firm has entered
into a selected dealer agreement with Mitchell Hutchins relating to the Fund,
the shareholder may be able to hold Fund shares in an account with the other
firm.

- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------

Each Fund is governed by its board of trustees, which oversees the Fund's
operations. Each board has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority of
the board). As investment adviser and administrator, Mitchell Hutchins
supervises all aspects of each Fund's operations and makes and implements all
investment decisions for that Fund.

The boards, as part of their overall management responsibility, oversee various
organizations responsible for the day-to-day management of each Fund.

In accordance with procedures adopted by the boards, brokerage transactions for
the Funds may be conducted through PaineWebber or its affiliates and the Funds
may pay fees to PaineWebber for its services as lending agent in their portfolio
securities lending programs.

ABOUT THE INVESTMENT ADVISER

Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is the asset management subsidiary of PaineWebber, which is wholly owned
by Paine Webber Group Inc., a publicly owned financial services holding company.
On October 31, 1997, Mitchell Hutchins was adviser or sub-adviser of 29
investment companies with 64 separate portfolios and aggregate assets of
approximately $35.6 billion.

Personnel of Mitchell Hutchins may engage in securities transactions for their
own accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.

--------------------
Prospectus Page 31

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

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 is a managing director and chief investment officer of equities
of Mitchell Hutchins, responsible for overseeing the management of equity
investments. Upon his arrival at Mitchell Hutchins, Mr. Tincher formed the
Mitchell Hutchins Equity Research Team. Each analyst on the Team focuses on
different industries. As a result, the Team provides PaineWebber Stock Funds
with more specialized knowledge of the various industries in which the Funds
generally invest. The Equity Research Team is also assisted by members of
Mitchell Hutchins' fixed income groups, who provide input on market outlook,
interest rate forecasts and other considerations pertaining to domestic equity
and fixed income investments.

GROWTH AND INCOME FUND

Mr. Tincher has been responsible for the day-to-day management of Growth and
Income Fund since April 1995. 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).

Mr. Tincher was the sole portfolio manager of Vista Growth and Income Fund
('Vista Fund'), with full discretionary authority over the selection of
investments, from July 31, 1991 through March 16, 1995. Vista Fund's investment
objectives of long-term capital appreciation and dividend income are
substantially similar to Growth and Income Fund's investment objective of
current income and capital growth. Mr. Tincher used and relied upon the same
valuation model and analytical methods when managing the Vista Fund as he now
uses for Growth and Income Fund.

The cumulative total return for Vista Fund for the period it was managed by Mr.
Tincher was 46.18%; 39.24% after deducting that Fund's maximum sales charge of
4.75%. As of March 31, 1995, the Vista Fund had $1.6 billion in net assets. The
chart below shows calendar year total returns for Vista Fund; the 1991 return
represents the period from July 31, 1991 when Mr. Tincher took over day-to-day
management of the Vista Fund through December 31, 1991. Sales charges have not
been deducted from total returns. Returns would be lower if sales charges were
deducted.

[BAR GRAPH]

Mr. Tincher's Terms as Manager of Vista Growth and Income Fund

7/31/91-12/31/91 9.69%
1992 15.11%
1993 12.99%
1994 -3.41%

Average annual returns both before and after deducting the maximum sales charges
are shown in the table below. Average annual returns are for the one- and
three-year periods ended December 31, 1994 and the entire period during which
Mr. Tincher managed the Vista Fund (July 31, 1991 through March 16, 1995) and
are compared with the performance of the Standard & Poor's 500 Composite Stock
Price Index for each such period.

<TABLE>
<CAPTION>
VISTA S&P 500
FUND(1) INDEX(2)
------------ -------
<S> <C> <C>
Mr. Tincher's Term as Manager
7/31/91 through 3/16/95
Before deducting maximum sales
charges........................... 11.04% 10.17%
After deducting maximum sales
charges........................... 9.56% 10.17%

Three Years Ended 12/31/94
Before deducting maximum sales
charges........................... 7.90% 6.26%
After deducting maximum sales
charges........................... 6.16% 6.26%
One Year Ended 12/31/94
Before deducting maximum sales
charges........................... -3.41% 1.31%
After deducting maximum sales
charges........................... -8.00% 1.31%
</TABLE>

- ------------------
1. Average annual returns are for Class A shares and reflect, where applicable
the deduction of the maximum sales charge of 4.75%, changes in share prices,
reinvestment of dividends and distributions and are net of fund expenses. For
the fiscal years ended October 31, 1991 and October 31, 1992, expenses in the
amount of 0.51% and 0.03%, respectively, were waived or reimbursed.

(Footnotes on next page)

--------------------
Prospectus Page 32

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

(Footnotes from previous page)

2. The Standard & Poor's 500 Composite Stock Price Index ('Index') is an
unmanaged index of common stocks that is considered to be generally
representative of the United States stock market. The Index is adjusted to
reflect reinvestment of dividends. No sales charges are applicable.
- ------------------

Historical performance is not indicative of future performance. Vista Fund is a
separate fund and its historical performance is not indicative of the past or
future performance of Growth and Income Fund. S&P 500 Index and Vista Fund
performance information calculated by Lipper Analytical Services Inc; used with
permission.

GROWTH FUND

Ellen R. Harris has been responsible for the day-to-day portfolio management of
Growth Fund since its inception. Ms. Harris 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).

SMALL CAP FUND

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.

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.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. There is no
distribution plan with respect to the Funds' Class Y shares. Under distribution
plans for Class A, Class B and Class C shares ('Class A Plan,' 'Class B Plan'
and 'Class C Plan,' collectively, 'Plans'), the Funds pay Mitchell Hutchins:

o Monthly service fees at the annual rate of up to 0.25% of the average daily
net assets of each class of shares.

o Monthly distribution fees at the annual rate of 0.75% of the average daily net
assets of Class B and Class C shares.

Under the Plans, Mitchell Hutchins primarily uses the service fees to pay
PaineWebber for shareholder servicing, currently at the annual rate of up to
0.25% of the aggregate investment amounts maintained in each Fund's Class A,
Class B and Class C shares by PaineWebber clients. PaineWebber then compensates
its investment executives for shareholder servicing that they perform and
offsets its own expenses in servicing and maintaining shareholder accounts.

Mitchell Hutchins uses the distribution fees under the Class B and Class C Plans
to:

o Offset the 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 investment executives when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from any of the Funds or investors at the time
Class B or C shares are bought.

Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid upon
sales of shares. These proceeds may be used to cover distribution expenses.

The Plans and the related distribution contracts for each class of shares
('Distribution Contracts') specify that each Fund must pay service and
distribution fees to Mitchell Hutchins for its activities, not as reimbursement
for specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses
exceed the service or distribution fees it receives, the Funds will not be
obligated to pay more than those fees. On the other hand, if Mitchell Hutchins'
expenses are less than such fees, it will retain its full fees and realize a
profit. Expenses in excess of service and distribution fees received or accrued
through the termination date of any Plan will be Mitchell Hutchins' sole
responsibility and not that of the Funds. Annually, the board of each Fund
reviews each Plan and Mitchell Hutchins' corresponding expenses for each class
separately from the Plans and expenses of the other classes.

--------------------
Prospectus Page 33
<PAGE>

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

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

DETERMINING THE SHARES'
NET ASSET VALUE
- --------------------------------------------------------------------------------

The net asset value of a Fund's shares fluctuates and is determined separately
for each class as of the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) each Business Day. Each Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund, plus any cash or other assets, minus all liabilities, by the total
number of Fund shares outstanding.

Each Fund values its assets based on their current market value when market
quotations are readily available. If market quotations are not readily
available, assets are valued at fair value as determined in good faith by or
under the direction of its board. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless a Fund's board 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.

- --------------------------------------------------------------------------------
DIVIDENDS & TAXES
- --------------------------------------------------------------------------------

DIVIDENDS

Growth Fund and Small Cap Fund each pays an annual dividend, and Growth and
Income Fund pays a semiannual dividend, from its 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. If determined by its board to be in the best interests
of its shareholders, Growth and Income Fund may also make additional
distributions of net investment income and net short-term capital gain, if any.

Dividends and other distributions paid on each class of shares of a Fund are
calculated at the same time and in the same manner. Dividends on Class A, B and
C shares of a Fund are expected to be lower than those on its Class Y shares
because the other shares have higher expenses resulting from their service fees
and, in the case of Class B and Class C shares, their distribution fees.
Dividends on Class B and Class C shares of a Fund are expected to be lower than
those on its Class A shares because Class B and Class C shares have higher
expenses resulting from their
distribution fees. Dividends on each class might be affected differently by the
allocation of other class-specific expenses. See 'General Information.'

Each Fund's dividends and other distributions are paid in additional Fund shares

of the same class at net asset value, unless the shareholder has requested cash
payments. Shareholders who wish to receive dividends and other distributions in
cash, either mailed to them by check or credited to their PaineWebber accounts,
should contact their investment executives at PaineWebber or one of its
correspondent firms or complete the appropriate section of the account
application.

TAXES

Each Fund intends to continue to qualify for treatment as a regulated investment
company under the Code so that it will not have to pay federal income tax on
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 its shareholders as ordinary
income. Distributions of each Fund's net capital gain (whether paid in cash or
additional shares) are taxable to its shareholders as long-term capital gain,
regardless of how long they have held their Fund shares. Under the Taxpayer
Relief Act of 1997, different maximum tax rates apply to net capital gain
depending on the taxpayer's holding period and marginal rate of federal income
tax -- generally, 28% for gain recognized on capital assets held for more than
one year but not more than 18 months and 20% (10% for taxpayers in the 15%
marginal tax bracket) for gain

--------------------
Prospectus Page 34
<PAGE>

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

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

recognized on capital assets held for more than 18 months. A notice issued by
the Internal Revenue Service in November 1997 permits each Fund to bifurcate
each net capital gain distribution into a 20% rate gain distribution and a 28%
rate gain distribution (in accordance with the Fund's holding periods for the
securities it sold that generated the gain) and requires its shareholders to
treat those portions accordingly. Shareholders who are not subject to tax on
their income generally will not be required to pay tax on distributions from the
Funds.

YEAR-END TAX REPORTING

Following the end of each calendar year, each Fund notifies its shareholders of
the amounts of dividends and capital gain distributions paid (or deemed paid) by
the Fund that year and any portion of those dividends that qualifies for special
tax treatment. The information regarding capital gain distributions designates
the portions thereof subject to the different maximum rates of tax applicable to
individuals' net capital gain indicated above.

BACKUP WITHHOLDING

Each Fund must withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the Funds with a correct taxpayer identification
number. Withholding at that rate also is required from dividends and capital
gain distributions payable to such shareholders who otherwise are subject to
backup withholding.

TAXES ON THE SALE OR EXCHANGE OF FUND SHARES

A shareholder's sale (redemption) of Fund shares may result in a taxable gain or
loss. This depends upon whether the shareholder receives more or less than the
adjusted basis for the shares (which normally includes any initial sales charge
paid on Class A shares). An exchange of 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 that Fund (regardless of class) at a loss, all or a portion of
that loss will not be deductible and will increase the basis of the newly
purchased shares.

SPECIAL TAX RULES FOR CLASS A SHAREHOLDERS

Special tax rules apply when a shareholder sells (redeems) or exchanges Class A
shares within 90 days of purchase and subsequently acquires Class A shares of
the same or another PaineWebber mutual fund without paying a sales charge due to
the 365-day reinstatement privilege or the exchange privilege. In these cases,
any gain on the sale or exchange of the original Class A shares would be
increased, or any loss would be decreased, by the amount of the sales charge
paid when those shares were bought, and that amount would increase the basis of
the PaineWebber mutual fund shares subsequently acquired.

No gain or loss will be recognized to a shareholder as a result of conversion of
Class B shares into Class A shares.

* * * *

Because the foregoing only summarizes some of the important considerations
affecting the Funds and their shareholders, a further discussion is contained in
the Statement of Additional Information. Prospective shareholders are urged to
consult their tax advisers.

- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------

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 board
has 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 board has
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share.

--------------------
Prospectus Page 35

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

SMALL CAP FUND

Small Cap Fund is a diversified series of PaineWebber Securities Trust
('Securities 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 board has 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.

The shares of each Fund are divided into four classes, designated Class A, Class
B, Class C and Class Y shares. Each class of shares of a Fund represents an
identical interest in that Fund's investment portfolio and has the same rights,
privileges and preferences. However, each class may differ with respect to sales
charges, if any, distribution and/or service fees, if any, other expenses
allocable exclusively to each class, voting rights on matters exclusively
affecting that class, and its exchange privilege, if any. The different sales
charges and other expenses applicable to the different classes of shares of 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 a Fund's Class A, B, C and Y
shares will differ.

Although each Fund is offering only its own shares, it is possible that a Fund
could become liable for a misstatement in the Prospectus about another Fund. The
board of each Fund considered this factor in approving the use of a 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 any Fund (or
Securities Trust, which has more than one series) may elect all of the trustees
of that Fund or of Securities Trust. The shares of a Fund will be voted together
except that only the shareholders of a particular class of a Fund may vote on
matters affecting only that class, such as the terms of a Plan as it relates to
the class. The shares of each series of Securities Trust will be voted
separately except where an aggregate vote of all series is required by law.

SHAREHOLDER MEETINGS
The Funds do not hold annual meetings.

Shareholders of record of no less than two-thirds of the outstanding shares of a
Fund or Securities Trust may remove a trustee through a declaration in writing

or by vote cast in person or by proxy at a meeting called for that purpose. A
meeting will be called to vote on the removal of a trustee at the written
request of holders of 10% of a Fund's or Securities Trust's outstanding shares.

REPORTS TO SHAREHOLDERS

Each Fund sends its shareholders audited annual and unaudited semiannual
reports, each of which includes a list of the investment securities held by that
Fund as of the end of the period covered by the report. The Statement of
Additional Information, which is incorporated herein by reference, is available
to shareholders upon request.

CUSTODIAN & RECORDKEEPING AGENT;
TRANSFER & DIVIDEND DISBURSING AGENT

State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as 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. PFPC (not the Funds) pays PaineWebber for certain transfer
agency related services that PFPC has delegated to PaineWebber.

--------------------
Prospectus Page 36

<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

[This page intentionally left blank]

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Prospectus Page 37
<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

[This page intentionally left blank]

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Prospectus Page 38
<PAGE>
------------------------------

PaineWebber Growth and Income Fund Growth Fund Small Cap Fund

[This page intentionally left blank]

--------------------
Prospectus Page 39
<PAGE>
PaineWebber Growth and Income Fund
PaineWebber Growth Fund
PaineWebber Small Cap Fund

PROSPECTUS--DECEMBER 1, 1997

<TABLE>
<S> <C>
/ / PAINEWEBBER BOND FUNDS / / PAINEWEBBER STOCK FUNDS
High Income Fund Capital Appreciation Fund
Investment Grade Income Fund 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 Fund Utility Income Fund
/ / PAINEWEBBER TAX-FREE BOND FUNDS / / PAINEWEBBER GLOBAL FUNDS
California Tax-Free Income Fund Asia Pacific Growth Fund
Municipal High Income Fund Emerging Markets Equity Fund
National Tax-Free Income Fund Global Equity Fund
New York Tax-Free Income Fund Global Income Fund
/ / PAINEWEBBER ASSET / / PAINEWEBBER MONEY MARKET FUND
ALLOCATION FUNDS
Balanced Fund
Tactical Allocation Fund
</TABLE>

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.

(Copyright) 1997 PaineWebber Incorporated

---------------
<PAGE>
PAINEWEBBER GROWTH AND INCOME FUND
PAINEWEBBER GROWTH FUND
PAINEWEBBER SMALL CAP FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

The three funds named above (each a 'Fund' and, collectively, 'Funds') are
diversified series of professionally managed, open-end management investment
companies organized as Massachusetts business trusts (each a 'Trust' and,
collectively, 'Trusts'). PaineWebber Growth and Income Fund ('Growth and Income
Fund'), a series of PaineWebber America Fund ('America Fund'), seeks to provide
current income and capital growth; it invests primarily in dividend-paying
equity securities believed to have potential for rapid earnings growth.
PaineWebber Growth Fund ('Growth Fund'), a series of PaineWebber Olympus Fund
('Olympus Fund'), seeks long-term capital appreciation; it invests primarily in
equity securities of companies believed to have substantial potential for
capital growth. PaineWebber Small Cap Fund ('Small Cap Fund'), a series of
PaineWebber Securities Trust ('Securities Trust'), seeks long-term capital
appreciation; it invests primarily in equity securities of small capitalization
companies.

Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly
owned asset management subsidiary of PaineWebber Incorporated ('PaineWebber'),
serves as investment adviser, administrator and distributor for each Fund. As
distributor, Mitchell Hutchins has appointed PaineWebber as the exclusive dealer
for the sale of Fund shares.

This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Funds' current Prospectus, dated December 1,
1997. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm or by calling toll-free
1-800-647-1568. This Statement of Additional Information is dated December 1,
1997.

INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations. Except as otherwise
indicated in the Prospectus or Statement of Additional Information, there are no
policy limitations on a Fund's ability to use the investments or techniques

discussed in these documents.

YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ('Moody's'),
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ('S&P'), and
other nationally recognized statistical rating organizations ('NRSROs') are
private services that provide ratings of the credit quality of debt obligations.
A description of the ratings assigned to corporate debt obligations by Moody's
and S&P is included in the Appendix to this Statement of Additional Information.
The Funds may use these ratings in determining whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices.

Ratings of debt securities represent the NRSROs' opinions regarding their
quality, are not a guarantee of quality, and may be reduced after a Fund has
acquired the security. Mitchell Hutchins will consider such an event in
determining whether a Fund should continue to hold the security but is not
required to dispose of it. In the event that, due to a downgrade of one or more
debt securities, an amount in excess of the permitted percentage of a Fund's net
assets is held in securities rated below investment grade and comparable unrated
securities, the Fund will engage in an orderly disposition of such securities to
the extent necessary to ensure that its holdings of such securities does not
exceed that percentage.

Debt securities rated Ba or lower by Moody's, BB or lower by S&P,
comparably rated by another NRSRO or determined by Mitchell Hutchins to be of
comparable quality are below investment grade, are deemed by those agencies to
be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. Lower rated debt securities
<PAGE>
generally offer a higher current yield than that available for investment grade
issues, but they involve higher risks, in that they are especially subject to
adverse changes in general economic conditions and in the industries in which
the issuers are engaged, to changes in the financial condition of the issuers
and to price fluctuations in response to changes in interest rates. During
periods of economic downturn or rising interest rates, highly leveraged issuers
may experience financial stress which could adversely affect their ability to
make payments of interest and principal and increase the possibility of default.
In addition, such issuers may not have more traditional methods of financing
available to them and may be unable to repay debt at maturity by refinancing.
The risk of loss due to default by such issuers is significantly greater because
such securities frequently are unsecured and subordinated to the prior payment
of senior indebtedness.

The market for lower rated debt securities has expanded rapidly in recent
years, and its growth generally paralleled a long economic expansion. In the
past, the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or defaults. There can be no

assurance that such declines will not recur. The market for lower rated debt
issues generally is thinner and less active than that for higher quality
securities, which may limit 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 lower rated securities,
especially in a thinly traded market.

RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Securities of foreign
issuers may not be registered with the Securities and Exchange Commission
('SEC'), nor may the issuers thereof be subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by the Funds than is available concerning U.S.
companies. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory requirements
comparable to those applicable to U.S. companies.

The Funds may invest in foreign securities by purchasing American
Depository Receipts ('ADRs'). Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the U.S. securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. For purposes of each Fund's
investment policies, ADRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR representing ownership of
common stock will be treated as common stock. ADRs are publicly traded on
exchanges or over-the-counter ('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.

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.

ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets (15%
for Small Cap Fund) in illiquid securities. The term 'illiquid securities' for
this purpose means securities that cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which a Fund has
valued the securities and includes, among other things, purchased OTC options,
repurchase agreements maturing in more than seven days and restricted securities
other than those Mitchell Hutchins has determined are liquid pursuant to
guidelines established by each Trust's board of trustees (each sometimes
referred to as a 'board'). The assets used as cover for OTC options written by
each Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option

<PAGE>
written subject to this procedure would be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.

Illiquid restricted securities may be sold only in privately negotiated
transactions or in public offerings with respect to which a registration
statement is in effect under the Securities Act of 1933 ('1933 Act'). 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 the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell.

Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.

Rule 144A under the 1933 Act establishes a 'safe harbor' from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the Funds, however, could affect adversely the marketability of such portfolio
securities, and the Funds 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 offers 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 boards.

CONVERTIBLE SECURITIES. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible debt securities 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.

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 since they have fixed income characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases. The value of a convertible security is a
function of its 'investment 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

3
<PAGE>
low relative to the investment value, the price of the convertible security is
governed principally by its investment value, and 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.

A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security, convert
it into underlying common stock or sell it to a third party.

Lower rated convertible securities generally offer a higher current yield
than that available from higher grade issues, but they involve higher risks, in
that they are especially subject to adverse changes in general economic
conditions and in the industries in which the issuers are engaged, to changes in
the financial condition of the issuers and to price fluctuation 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 principal and interest

(or, in the case of convertible preferred stock, dividends) and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them, and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.

GOVERNMENT SECURITIES. Government securities in which the Funds may invest
include direct obligations of the U.S. Treasury and obligations issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities
('Government Securities'). Direct obligations of the U.S. Treasury include a
variety of securities that differ in their interest rates, maturities and dates
of issuance. Among the Government Securities that may be held by the Funds are
instruments that are supported by the full faith and credit of the United
States; instruments that are supported by the right of the issuer to borrow from
the U.S. Treasury; and instruments that are supported solely by the credit of
the agency or instrumentality.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
The Fund maintains custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the repurchase
price on the date agreed to or upon demand is, in effect, secured by such
securities. If the value of these securities is less than the repurchase price,
plus any agreed-upon additional amount, the other party to the agreement must
provide additional collateral so that at all times the collateral is at least
equal to the repurchase price, plus any agreed-upon additional amount. The
difference between the total amount to be received upon repurchase of the
securities and the price that was paid by a Fund upon acquisition is accrued as
interest and included in its net investment income. Repurchase agreements carry
certain risks not associated with direct investments in securities, including
possible declines in the market value of the underlying securities and delays
and costs to the Funds if the other party to a repurchase agreement becomes
insolvent.

The Funds intend to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by each board. Mitchell Hutchins
reviews and monitors the creditworthiness of those institutions under each
board's general supervision.

REVERSE REPURCHASE AGREEMENTS. The Funds may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of the Fund's net assets (10% of total assets for Small Cap Fund).
Such agreements involve the sale of securities held by a Fund subject to its
agreement to repurchase the securities at an agreed-upon date and price
reflecting a market rate of interest. Such agreements are considered to be
borrowings and may be entered into only for temporary purposes. While a reverse
repurchase agreement is outstanding, a Fund's custodian segregates assets to
cover the Fund's

<PAGE>
obligations under the reverse repurchase agreement. See 'Investment Policies and
Restrictions--Segregated Accounts.'

LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend portfolio
securities up to 33 1/3% of its total assets taken at market value to
broker-dealers or institutional investors that Mitchell Hutchins deems
qualified, but only when the borrower maintains with that Fund's custodian bank
acceptable collateral, marked to market daily, in an amount at least equal to
the market value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. Each Fund will
retain authority to terminate any loans at any time. Each Fund may pay
reasonable fees in connection with a loan and may pay a negotiated portion of
the interest earned on the cash or money market instruments held as collateral
to the borrower or placing broker. Each Fund will receive reasonable interest on
the loan or a flat fee from the borrower and amounts equivalent to any
dividends, interest or other distributions on the securities loaned. Each Fund
will regain record ownership of loaned securities to exercise beneficial rights,
such as voting and subscription rights and rights to dividends, interest or
other distributions, when regaining such rights is considered to be in the
Fund's interest.

Pursuant to procedures adopted by the appropriate board governing each
Fund's securities lending program, the boards have approved retention of
PaineWebber to serve as lending agent for the Funds. The appropriate board also
has authorized each Fund to pay 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 received $10,718 and $44,947 in
compensation from Growth and Income Fund and Growth Fund, respectively, for the
fiscal year ended August 31, 1997, and $2,847 from Small Cap Fund for the fiscal
year ended July 31, 1997.

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 will incur transaction costs,
including interest expense, in connection with opening, maintaining and closing
short sales against the box. No Fund currently expects to have obligations under
short sales that at any time during the coming year exceed 5% of its net assets.

The Funds might make a short sale 'against the box' in order 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 corresponding gain in the short position. Conversely, any
gain in the long position after the short sale should be reduced by a
corresponding loss in the short position. The extent to which gains or losses in
the long position are reduced will depend upon the amount of the securities sold
short relative to the amount of the securities a Fund owns, either directly or
indirectly, and in the case where a Fund owns convertible securities, changes in
the investment values or conversion premiums of such securities.

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.' In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but a Fund generally
would not pay for such securities or start earning interest or dividends on them
until they are delivered. However, when a Fund purchases securities on a
when-issued or delayed delivery basis, it immediately assumes the risks of
ownership, including the risk of price fluctuation. Failure by a counterparty to
deliver a security purchased on a when-issued or delayed delivery basis may
result in a loss or missed 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

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<PAGE>
amount by which the Fund's total assets, including the value of when-issued and
delayed delivery securities held by the 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.
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 agrees to purchase
securities on a when-issued basis, its custodian segregates assets to cover the
amount of the commitment. See 'Investment Policies and Restrictions--Segregated
Accounts.' The Funds purchase when-issued securities only with the intention of
taking delivery, but may sell the right to acquire the security prior to
delivery if Mitchell Hutchins deems it advantageous to do so, which may result
in capital gain or loss to a Fund.

SEGREGATED ACCOUNTS. When a Fund enters into certain transactions that
involve obligations to make future payments to third parties, such as reverse
repurchase agreements or the purchase of securities on a when-issued or delayed
delivery basis, it will maintain with an approved custodian in a segregated
account cash or liquid securities, marked to market daily, in an amount at least
equal to the Fund's obligation or commitment under such transactions. As
described below under 'Hedging Strategies Using Derivative Instruments,'
segregated accounts may also be required in connection with certain transactions
involving options and futures contracts.

FUNDAMENTAL INVESTMENT 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 that Fund or (b) 67% or
more of the shares of that 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, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of total assets will not be
considered a violation of any of the 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 limitation: 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.

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

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

(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.

<PAGE>
(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
in 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 not
fundamental and may be changed by each board without shareholder approval.

Each Fund will not:

(1) invest more than 10% of its net assets (15% of net assets for Small Cap
Fund) 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 it has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days.

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

(3) 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.

(4) 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.

(5) purchase securities of other investment companies, except to the extent
permitted by the 1940 Act (and except that each 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 1940
Act) and except that this limitation does not apply to securities received or
acquired as dividends, through offers of exchange, or as a result of
reorganization, consolidation, or merger.

HEDGING STRATEGIES USING DERIVATIVE INSTRUMENTS

HEDGING INSTRUMENTS. Mitchell Hutchins may use a variety of financial
instruments ('Derivative Instruments'), including certain options, futures

contracts (sometimes referred to as 'futures') and options on futures contracts,
to attempt to hedge each Fund's 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, a Fund's use
of Derivative Instruments will place at risk a much smaller portion of its
assets. In particular, each Fund may use the Derivative Instruments described
below:

OPTIONS ON EQUITY AND DEBT SECURITIES--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 underlying the option at a specified price at
any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to deliver the underlying security 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 at a specified price
during the option term. The writer of the put option, who receives the premium,
has the obligation, upon exercise of the option during the option term, to buy
the underlying security at the exercise price.

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

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

INTEREST RATE FUTURES CONTRACTS--Interest rate 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 at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, 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, 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, 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.

GENERAL DESCRIPTION OF HEDGING STRATEGIES. Hedging strategies can be
broadly categorized as 'short hedges' and 'long hedges.' A short hedge is a
purchase or sale of a Derivative Instrument intended to partially or fully
offset potential declines in the value of one or more investments held in a
Fund's portfolio. Thus, in a short hedge, a Fund takes a position in a
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.

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.

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 equity market
sectors in which a Fund has invested or expects to invest. Derivative
Instruments on debt securities may be used to hedge either individual securities
or broad fixed income market sectors.

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 will be limited by tax considerations. See
'Taxes.'

In addition to the products, strategies and risks described below and in
the Prospectus, Mitchell Hutchins expects to discover additional opportunities
in connection with options, futures contracts and other hedging techniques.
These new opportunities may become available as Mitchell Hutchins develops new
techniques, as regulatory authorities broaden the range of permitted

transactions and as new options, futures contracts, or other techniques are
developed. Mitchell Hutchins may utilize these opportunities to the extent that
they are

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<PAGE>
consistent with a Fund's investment objective and permitted by the Fund's
investment limitations and applicable regulatory authorities. The Funds'
Prospectus or Statement of Additional Information will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.

SPECIAL RISKS OF HEDGING STRATEGIES. The use of 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 and interest
rate 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
hedging 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 being hedged. For example, if the value of a Derivative Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which
Derivative Instruments are traded.

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. Because the Funds invest
primarily in common stocks of issuers meeting the specific criteria described in
the Prospectus, there might be a significant lack of correlation between the
portfolio and the stock indices underlying any such Derivative Instruments used
by a Fund.

(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 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, that Fund could
suffer a loss. In either such case, the Fund would have been in a better
position had it not hedged at all.

(4) As described below, a Fund might be required to maintain assets as

'cover,' maintain segregated accounts or make margin payments when it takes
positions in Derivative Instruments involving obligations to third parties
(i.e., Derivative Instruments other than purchased options). If the Fund were
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 contra party to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to a Fund.

COVER FOR HEDGING STRATEGIES. The Funds will not use Derivative
Instruments for speculative purposes or for purposes of leverage. 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,
other options or futures contracts or (2) cash and liquid securities, with a
value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Funds will comply with SEC guidelines
regarding cover for hedging 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.

<PAGE>

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, the commitment of a large portion of
a Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

OPTIONS. The Funds may purchase put and call options, and write (sell)
covered put or call options, on equity and debt securities and stock indices.
The purchase of call options serves as a long hedge, and the purchase of put
options serves as a short hedge. Writing covered call options serves as a
limited short hedge, because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and the
affected Fund will be obligated to sell the security at less than its market
value. Writing covered put options serves as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to purchase the security at more than its market value. The securities or other
assets used as cover for OTC options written by a Fund would be considered
illiquid to the extent described under 'Investment Policies and
Restrictions--Illiquid Securities.'

The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Options that expire unexercised have no value.

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

The Funds may purchase and write both exchange-traded and OTC options.
Exchange markets for options on debt securities exist but are relatively new,
and these instruments are primarily traded on the OTC market. Exchange-traded
options in the United States are issued by a clearing organization affiliated
with the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC options
are contracts between a Fund and its contra party (usually a securities dealer
or a bank) with no clearing organization guarantee. Thus, when a Fund purchases
or writes an OTC option, it relies on the contra party to make or take delivery

of the underlying investment upon exercise of the option. Failure by the contra
party to do so would result in the loss of any premium paid by the Fund as well
as the loss of any expected benefit of the transaction. The Funds will enter
into OTC option transactions only with contra parties that have a net worth of
at least $20 million.

Generally, the OTC debt options used by the Funds are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.

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

<PAGE>
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 a Fund could cause material losses because the Fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.

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

(1) Each 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 that Fund, does not exceed 5% of
its total assets.

(2) The aggregate value of underlying securities on which a Fund
writes covered calls will not exceed 50% of its total assets.

(3) To the extent cash or cash equivalents, including Government
Securities, are maintained in a segregated account to collateralize options
written on securities or stock indexes, each Fund will limit
collateralization to 20% of its net assets.

FUTURES. The Funds may purchase and sell stock index futures contracts and
interest rate futures contracts. The Funds may also purchase put and call
options, and write covered put and call options, on futures in which it is
allowed to invest. The purchase of futures or call options thereon can serve as
a long hedge, and the sale of futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options on futures contracts can
serve as a limited short hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a strategy similar to that
used for writing covered options on securities or indices.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, 'initial margin' consisting of cash obligations of the
U.S. government 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
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because

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

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

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

LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The Funds' use of
futures and related options is governed by the following guidelines, which can
be changed by each 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 and stock or bond indices and options on futures contracts)
purchased by a Fund that are held at any one time will not exceed 20% of
its net assets.

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

<PAGE>
TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES

The trustees and executive officers of each Trust (the same positions are
held in each of the three Trusts, except as otherwise indicated), their ages,
business addresses and principal occupations during the past five years are:

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Margo N. Alexander**; 50 Trustee and Mrs. Alexander is president, chief executive
President officer and a director of Mitchell Hutchins
(since January 1995) and an executive
vice president and a director of Paine-
Webber. Mrs. Alexander is president and a
director or trustee of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard Q. Armstrong; 62 Trustee Mr. Armstrong is chairman and principal of
78 West Brother Drive RQA Enterprises (management consulting
Greenwich, CT 06830 firm) (since April 1991 and principal
occupation since March 1995). He is also a
director of Hi Lo Automotive, Inc. He was
chairman of the board, chief executive
officer and co-owner of Adirondack
Beverages (producer and distributor of soft
drinks and sparkling/still waters) (Oc-
tober 1993-March 1995). Mr. Armstrong 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, Luis 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
27 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
E. Garrett Bewkes, Jr.**; 71 Trustee and Mr. Bewkes is a director of Paine Webber
Chairman of the Group Inc. ('PW Group') (holding company of
Board of Trustees 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 also a director of Interstate
Bakeries Corporation and NaPro

BioTherapeutics, Inc. Mr. Bewkes is a
director or trustee of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
Richard R. Burt; 50 Trustee Mr. Burt is chairman of International Equity
1101 Connecticut Avenue, N.W. Partners (international investments and
Washington, D.C. 20036 consulting firm) (since March 1994) and a
partner of McKinsey & Company (management
consulting firm) (since 1991). He is also a
director of American Publishing Company and
Archer-Daniels-Midland Co. (agricultural
commodities). 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 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
<S> <C> <C>
Mary C. Farrell**; 47 Trustee Ms. Farrell is a managing director, senior
investment strategist, and member of the
Investment Policy Committee of PaineWeb-
ber. 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 $treet 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 27 investment com-
panies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Meyer Feldberg; 55 Trustee Mr. Feldberg is Dean and Professor of Man-
Columbia University agement of the Graduate School of Busi-
101 Uris Hall ness, Columbia University. Prior to 1989,
New York, New York 10027 he was president of the Illinois Institute
of Technology. Dean Feldberg is also a di-
rector of K-III Communications Corpora-
tion, Federated Department Stores Inc., and
Revlon, Inc. Dean Feldberg is a director or
trustee of 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen; 68 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, New York 10017 May 1994, he was a partner in the law firm
of Fryer, Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a director

or trustee of 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Frederic V. Malek; 60 Trustee Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Avenue, N.W. Partners (merchant bank). From January 1992
Suite 350 to November 1992, he was campaign manager
Washington, D.C. 20004 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 ser-
vices), Choice Hotels International (hotel
and hotel franchising), FPL Group, Inc.
(electric services), Integra, Inc.
(bio-medical), Manor Care, Inc. (health
care), National Education Corporation and
Northwest Airlines Inc. Mr. Malek is a
director or trustee of 27 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Carl W. Schafer; 61 Trustee Mr. Schafer is president of the Atlantic
P.O. Box 1164 Foundation (charitable foundation sup-
Princeton, N.J. 08542 porting mainly oceanographic exploration
and research). He is a director of Roadway
Express, Inc. (trucking), The Guardian
Group of Mutual Funds, Evans Systems, Inc.
(a motor fuels, convenience store and
diversified company), Electronic Clearing
House, Inc. (financial transactions
processing), Wainoco Oil Corporation and
Nutraceutix Inc. (biotechnology). Prior to
January 1993, Mr. Schafer was chairman of
the Investment Advisory Committee of the
Howard Hughes Medical Institute. Mr.
Schafer is a director or trustee of 27
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Ellen R. Harris; 51 Vice President Ms. Harris is a managing director and a
(Olympus Fund only) portfolio manager of Mitchell Hutchins. Ms.
Harris is a vice president of two in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Donald R. Jones; 37 Vice President Mr. Jones is a first vice president and a
(Securities Trust only) portfolio manager of Mitchell Hutchins.
Prior to February 1996, he was a vice
president in the asset management group of
First Fidelity Bancorporation. Mr. Jones is
a vice president of one investment company
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Thomas J. Libassi; 38 Vice President Mr. Libassi is a senior vice president and
(Securities Trust only) portfolio manager of Mitchell Hutchins.
Prior to May 1994, he was a vice president
of Keystone Custodian Funds Inc. with
portfolio management responsibility. Mr.
Libassi is a vice president of four in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Dennis McCauley; 51 Vice President Mr. McCauley is a managing director and chief
(Securities Trust only) investment officer--fixed income of
Mitchell Hutchins. Prior to December 1994,
he was director of fixed income in-
vestments of IBM Corporation. Mr. McCauley
is a vice president of 18 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president and a manager
Assistant Treasurer of the mutual fund finance division of
Mitchell Hutchins. Ms. Moran is a vice
president and assistant treasurer of 28 in-
vestment companies for which Mitchell
Hutchins and or PaineWebber serves as in-
vestment adviser.
Dianne E. O'Donnell; 45 Vice President and Ms. O'Donnell is a senior vice president and
Secretary deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice president
and secretary of 27 investment companies
and vice president and assistant secretary
of one investment company for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Emil Polito; 37 Vice President Mr. Polito is a senior vice president and
director of operations and control for
Mitchell Hutchins. From March 1991 to
September 1993, he was director of the
mutual funds sales support and service
center for Mitchell Hutchins and
PaineWebber. Mr. Polito is also vice pres-
ident of 28 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins. Prior
to May 1994, she was a partner in the law
firm of Arnold & Porter. Ms. Schonfeld is a
vice president of 27 investment companies
and a vice president and secretary of one
investment company for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Paul H. Schubert; 34 Vice President and Mr. Schubert is a first vice president and
Assistant Treasurer the director of the mutual fund finance
division of Mitchell Hutchins. From August
1992 to August 1994, he was a vice
president at BlackRock Financial Management
Inc. Mr. Schubert is a vice president and
treasurer of 28 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Nirmal Singh; 41 Vice President Mr. Singh is a senior vice president and a
(Securities Trust only) portfolio manager of Mitchell Hutchins.
Prior to September 1993, he was a member of
the portfolio management team at Merrill
Lynch Asset Management, Inc. Mr. Singh is
vice president of four investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Barney A. Taglialatela; 36 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance divi-
sion of Mitchell Hutchins. Prior to Febru-
ary 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
28 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Mark A. Tincher; 42 Vice President Mr. Tincher is a managing director and chief
investment officer--U.S. equity invest-
ments of Mitchell Hutchins. Prior to March
1995, he was a vice president and directed
the U.S. funds management and equity re-
search areas of Chase Manhattan Private
Bank. Mr. Tincher is a vice president of 13
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.

Craig M. Varrelman; 38 Vice President Mr. Varrelman is a senior vice president and
(Securities Trust only) a portfolio manager of Mitchell Hutchins.
Mr. Varrelman is a vice president of four
investment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Stuart Waugh; 42 Vice President Mr. Waugh is a managing director and a
(Securities Trust only) portfolio manager of Mitchell Hutchins
responsible for global fixed income in-
vestments and currency trading. Mr. Waugh
is a vice president of five investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Keith A. Weller; 36 Vice President and Mr. Weller is a first vice president and
Assistant Secretary 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
27 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ian W. Williams; 40 Vice President and Mr. Williams is a vice president and a man-
Assistant Treasurer ager of the mutual fund finance division of
Mitchell Hutchins. Mr. Williams is a vice
president and assistant treasurer of 28
investment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment 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
Trust as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber, and/or PW Group.

Olympus Fund and America Fund each pays trustees who are not 'interested
persons' of the Trust $1,500 annually for each series. Olympus Fund and America
Fund each presently has one series and thus pays each such trustee $1,500
annually; Securities Trust pays trustees who are not 'interested persons' of the
Trust $1,500 for Small Cap Fund and $1,000 for the Trust's second series and
thus pays each such trustee $2,500 annually. Each Trust pays $150 for each board
meeting and separate meeting of a board committee (other than committee meetings
held on the same day as a board meeting). In addition, each Trust pays any
additional amounts due for board

18
<PAGE>
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 each from the relevant funds. All Trustees are
reimbursed for any expenses incurred in attending meetings. Trustees and
officers own in the aggregate less than 1% of the outstanding shares of each
Fund. Because PaineWebber and Mitchell Hutchins perform substantially all of the
services necessary for the operation of the Trusts and each Fund, the Trusts
require no employees. No officer, director or employee of Mitchell Hutchins or
PaineWebber presently receives any compensation from any Trust for acting as a
trustee or officer.

The table below includes certain information relating to the compensation
of each Trust's current trustees who held office with that Trust or with other
PaineWebber funds during the fiscal year indicated.

COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION AGGREGATE AGGREGATE TOTAL
FROM PW COMPENSATION COMPENSATION COMPENSATION
AMERICA FUND FROM PW FROM PW FROM THE
(GROWTH AND OLYMPUS FUND SECURITIES TRUSTS AND
INCOME (GROWTH TRUST (SMALL THE FUND
NAME OF PERSON, POSITION FUND)(1) FUND)(1) CAP FUND)(2) COMPLEX(3)
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Richard Q. Armstrong, Trustee...... $2,400 $2,400 $2,950 $ 59,873
Richard R. Burt, Trustee........... $2,250 $2,250 $2,650 $ 51,173
Meyer Feldberg, Trustee............ $2,400 $2,400 $2,950 $ 96,181
George W. Gowen, Trustee........... $2,400 $2,400 $2,950 $ 92,431
Frederic V. Malek, Trustee......... $2,400 $2,400 $2,950 $ 92,431
Carl W. Schafer, Trustee........... $2,400 $2,400 $2,950 $ 62,307
</TABLE>

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

Only independent members of the board are compensated by the Trusts and
identified above; trustees who are 'interested persons,' as defined by the 1940
Act, do not receive compensation.

(1) Represents fees paid to each trustee during the fiscal year ended August 31,
1997.

(2) Represents fees paid to each trustee during the fiscal year ended July 31,
1997.

(3) Represents total compensation paid to each trustee during the calendar year
ended December 31, 1996; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.

OWNERSHIP OF GREATER THAN 5% OF FUND SHARES

The following shareholder is shown in Olympus Fund's records as owning more
than 5% of Growth Fund's shares.

<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
OF SHARES OWNED
NAME AND ADDRESS* AS OF NOVEMBER 1, 1997
- ---------------------------------------- ----------------------
<S> <C>
Northern Trust Company as Trustee for
the benefit of
PaineWebber 401(k) Plan............... 747,480.500 5.44%
</TABLE>

- ------------------
* The shareholder listed may be contacted c/o Mitchell Hutchins Asset
Management Inc., 1285 Avenue of the Americas, New York, NY 10019.

<PAGE>
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of each Fund pursuant to separate advisory contracts
(each an 'Advisory Contract') with each Trust. Under the Advisory Contracts,
each Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the
annual rate specified below. Prior to August 1, 1997, pursuant to service
agreements, PaineWebber provided certain services to the Funds not otherwise
provided by the transfer agent. These agreements were reviewed annually by each
Trust's board. Effective August 1, 1997, PaineWebber provides transfer agency
related services to the Funds pursuant to a delegation of authority from PFPC
Inc. and is compensated for those services by PFPC Inc., not the Funds.

Under the terms of the Advisory Contracts, each Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by each Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred 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 and officers who are not interested persons (as defined in
the 1940 Act) 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 Trust or 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, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders, and costs of mailing such materials to shareholders; (14)
any extraordinary expenses (including fees and disbursements of counsel)
incurred by the Fund; (15) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (16)
costs of mailing and tabulating proxies and costs of meetings of shareholders,
the boards 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 contracts, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. Each Advisory Contract terminates
automatically upon assignment and is terminable at any time without penalty by
the applicable 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.

GROWTH AND INCOME FUND. Pursuant to the Advisory Contract dated March 1,
1989, between America Fund and Mitchell Hutchins, Growth and Income Fund pays
Mitchell Hutchins a fee at the annual rate of 0.70% of the Fund's average daily
net assets, computed daily and paid monthly. For the fiscal years ended August
31, 1997, August 31, 1996 and August 31, 1995, Growth and Income Fund paid (or
accrued) to Mitchell Hutchins investment advisory and administration fees of
$5,312,189, $4,075,174 and $3,378,079, respectively. Pursuant to the applicable
service agreement, during the fiscal years ended August 31, 1997, August 31,
1996 and August 31, 1995, Growth and Income Fund paid (or accrued) to
PaineWebber service fees of $191,744, $206,622 and $219,613, respectively. For
the period August 1, 1997 to August 31, 1997, PFPC, Inc., not the Funds, paid
PaineWebber $30,998 for Growth and Income Fund for transfer agency related
services pursuant to the delegation of authority from PFPC Inc.

Mitchell Hutchins Institutional Investors Inc. ('MHII'), a wholly owned
subsidiary of Mitchell Hutchins, served as sub-adviser to Growth and Income Fund
from May 19, 1994 to April 25, 1995 pursuant to a sub-advisory contract between
MHII and Mitchell Hutchins under which Mitchell Hutchins (not the Fund) paid
MHII a fee in the annual amount of 0.25% of the Fund's average daily net assets.
During the period from September 1, 1994 to April 25, 1995, Mitchell Hutchins
paid or accrued to MHII sub-advisory fees of $998,353.

20
<PAGE>
GROWTH FUND. Pursuant to the Advisory Contract dated March 1, 1989,
between Olympus Fund and Mitchell Hutchins, Growth Fund pays Mitchell Hutchins a
fee at the annual rate of 0.75% of the Fund's average daily net assets, computed
daily and paid monthly. For the fiscal years ended August 31, 1997, August 31,
1996 and August 31, 1995, Growth Fund paid (or accrued) to Mitchell Hutchins
investment advisory and administration fees of $2,934,644, $2,985,925 and
$1,993,930, respectively. Pursuant to the applicable service agreement, during
the fiscal years ended August 31, 1997, August 31, 1996 and August 31, 1995,
Growth Fund paid (or accrued) to PaineWebber service fees of $110,890, $134,864
and $114,163, respectively. For the period August 1, 1997 to August 31, 1997,
PFPC, Inc. not the Funds, paid PaineWebber $14,698 for Growth Fund for transfer
agency related services pursuant to the delegation of authority from PFPC Inc.

SMALL CAP FUND. Pursuant to the Advisory Contract dated January 28, 1993,
between Securities Trust and Mitchell Hutchins, Small Cap Fund pays Mitchell
Hutchins a fee at the annual rate of 1.00% of the Fund's average daily net
assets, computed daily and paid monthly. For the fiscal years ended July 31,
1997, July 31, 1996, and July 31, 1995, Small Cap Fund paid (or accrued) to
Mitchell Hutchins investment advisory and administration fees of $873,636,
$731,472 and $829,906, respectively. Pursuant to the applicable service
agreement during the fiscal years ended July 31, 1997, July 31, 1996 and July
31, 1995, Small Cap Fund paid (or accrued) to PaineWebber service fees of
$35,040, $36,944 and $72,929, respectively.

Royce and Associates ('Royce'), formerly Quest Advisory Corp., served as a
sub-adviser to Small Cap Fund from February 1, 1993 through March 31, 1996,
pursuant to a sub-advisory contract between Royce and Mitchell Hutchins dated
January 28, 1993, under which Mitchell Hutchins (not the Fund) paid or accrued

to Royce Advisory during the fiscal years ended July 31, 1996 and July 31, 1995,
$249,955 and $414,953, respectively, in sub-advisory fees.

NET ASSETS. The following table shows the approximate net assets as of
October 31, 1997, sorted by category of investment objective, of the investment
companies for which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.

<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
---------------------------------------- ----------
<S> <C>
Domestic (excluding Money Market)....... $ 6,349.3
Global.................................. 3,280.3
Equity/Balanced......................... 4,776.0
Fixed Income (excluding Money Market)... 4,853.6
Taxable Fixed Income.................. 3,287.5
Tax-Free Fixed Income................. 1,566.1
Money Market Funds...................... 26,066.9
</TABLE>

PERSONNEL 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 Trust (collectively, 'Distribution Contracts') that require Mitchell
Hutchins to use its best efforts, consistent with its other businesses, to sell
shares of each Fund. Shares of each of the Funds are offered continuously. Under
separate exclusive dealer agreements between Mitchell Hutchins and PaineWebber
relating to each class of shares (collectively, 'Exclusive Dealer Agreements'),
PaineWebber and its correspondent firms sell the Funds' shares.

Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares adopted by each Trust in the manner prescribed under Rule 12b-1
under the 1940 Act ('Class A Plan,' 'Class B Plan' and 'Class C Plan,'
collectively, 'Plans'), each Fund pays Mitchell Hutchins a service fee, accrued
daily and

21
<PAGE>
payable monthly, at the annual rate of 0.25% of the average daily net assets for
each class, except that the Class A Plans for Growth and Income Fund and Growth
Fund provide that the service fee paid with respect to shares sold prior to
December 2, 1988 ('Old Shares') is paid at the annual rate of 0.15% of the
Fund's net assets represented by such Old Shares. Shares acquired through new
purchases, reinvestment of dividends and other distributions and exchanges on/or
after December 2, 1988 are not considered 'Old Shares' for this purpose. Under
the Class B Plan and the Class C Plan, those Funds also pay Mitchell Hutchins a
distribution fee, accrued daily and payable monthly, at the annual rate of 0.75%

of the average daily net assets of the Class B shares and Class C shares,
respectively. There is no distribution plan with respect to the Funds' Class Y
shares.

Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the applicable board at least quarterly, and the trustees 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 trustees who are not
'interested persons' of the relevant Trust and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan, acting in person at a meeting called for that purpose, (3) payments by a
Fund under the Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the outstanding shares of the relevant
class of the Fund, and (4) while the Plan remains in effect, the selection and
nomination of trustees who are not 'interested persons' of a Trust shall be
committed to the discretion of the trustees who are not 'interested persons' of
the respective Trust.

In reporting amounts expended under the Plans to the trustees, 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.

For the fiscal year ended August 31, 1997, (for Growth and Income Fund and
Growth Fund) and July 31, 1997 (for Small Cap Fund), the Funds paid (or accrued)
the following fees to Mitchell Hutchins under the Plans:

<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL CAP
FUND FUND FUND
---------- ---------- ---------
<S> <C> <C> <C>
Class A................................. $ 478,075 $ 784,677 $ 75,231
Class B................................. $1,326,859 $3,245,358 $ 367,939
Class C................................. $ 287,127 $ 596,262 $ 177,393
</TABLE>

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 years
ended August 31, 1997 (for Growth and Income Fund and Growth Fund) and July 31,
1997 (for Small Cap Fund):

CLASS A

<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL CAP
FUND FUND FUND
---------- ---------- ---------
<S> <C> <C> <C>
Marketing and advertising............... $ 132,602 $ 137,579 $ 38,909
Printing of prospectuses and statements
of additional information to other
than current shareholders............ 1,256 1,770 1,806
Branch network costs allocated and
interest expense..................... 604,346 737,383 94,235
Service fees paid to PaineWebber
investment executives................ 180,442 296,483 28,201
</TABLE>

22
<PAGE>
CLASS B

<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL CAP
FUND FUND FUND
---------- ---------- ---------
<S> <C> <C> <C>
Marketing and advertising............... $ 84,008 $ 130,498 $ 47,577
Amortization of commissions............. 400,905 1,042,924 111,944
Printing of prospectuses and statements
of additional information to other
than current shareholders............ 796 1,679 2,208

Branch network costs allocated and
interest expense..................... 415,934 773,637 125,942
Service fees paid to PaineWebber
investment executives................ 125,142 306,470 34,485
</TABLE>

CLASS C

<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL CAP
FUND FUND FUND
---------- ---------- ---------
<S> <C> <C> <C>
Marketing and advertising............... $ 18,167 $ 24,166 $ 22,935
Amortization of commissions............. 81,244 169,049 49,855
Printing of prospectuses and statements
of additional information to other
than current shareholders............ 172 311 1,065
Branch network costs allocated and
interest expense..................... 81,848 133,397 55,902
Service fees paid to PaineWebber
investment executives................ 27,082 56,351 16,619
</TABLE>

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

In approving the Fund's overall Flexible Pricing(Service Mark) system of
distribution, each 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 Funds and attracting
new investors and assets to the Funds to the benefit of each Fund and its
shareholders, (2) facilitate distribution of the Fund's shares and (3) maintain
the competitive position of a 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 investment executives and correspondent firms,
resulting in greater growth of the Funds than might otherwise be the case, (3)
the advantages to the shareholders of economies of scale resulting from growth
in each Fund's assets and potential continued growth, (4) the services provided
to each 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, each board 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 investment executives and correspondent firms to
receive sales commissions when Class B shares are sold and continuing service
fees thereafter while their customers invest their entire purchase payments
immediately in Class B shares would prove attractive to the investment
executives and correspondent firms, resulting in greater growth of each Fund
than might otherwise be the case, (4) the advantages to the shareholders of
economies of scale resulting from growth in each Fund's assets and potential
continued growth, (5) the services provided to a Fund and its shareholders by
Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins

<PAGE>
and (7) Mitchell Hutchins' shareholder service- and distribution-related
expenses and costs. The trustees also recognized that Mitchell Hutchins'
willingness to compensate PaineWebber and its investment executives, without the
concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.

In approving the Class C Plan, 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 an investor's purchase payments immediately invested in
Fund shares, (2) the advantage to investors in being free from contingent
deferred sales charges upon redemption for shares held more than one year and
paying for distribution on an ongoing basis, (3) Mitchell Hutchins' belief that
the ability of PaineWebber investment executives and correspondent firms to
receive sales compensation for their sales of Class C shares on an ongoing
basis, along with continuing service fees, while their customers invest their
entire purchase payments immediately in Class C shares and generally do not face
contingent deferred sales charges, would prove attractive to the investment
executives and correspondent firms, resulting in greater growth to each Fund
than might otherwise be the case, (4) the advantages to the shareholders of
economies of scale resulting from growth in each Fund's assets and potential
continued growth, (5) the services provided to each Fund and its shareholders by
Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins'
shareholder service- and distribution-related expenses and costs. The trustees
also recognized that Mitchell Hutchins' willingness to compensate PaineWebber
and its investment executives without the concomitant receipt by Mitchell
Hutchins of initial sales charges or contingent deferred sales charges upon
redemption, was conditioned upon its expectation of being compensated under the
Class C Plan.

With respect to each Plan, the 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 which 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 Funds attained and
maintained significant asset levels.

Under the Distribution Contract for the Class A shares and similar prior
distribution contracts, for the fiscal years set forth below, Mitchell Hutchins
earned the following approximate amounts of sales charges and retained the
following approximate amounts, net of concessions to PaineWebber as exclusive
dealer.

<TABLE>
<CAPTION>
FISCAL YEAR

---------------------------------
1997 1996 1995
---------- -------- -------
<S> <C> <C> <C>
GROWTH AND INCOME FUND
Earned.................................. $1,057,894 $369,006 $68,358
Retained................................ $ 28,748 $ 21,741 $ 3,619
GROWTH FUND
Earned.................................. $ 113,033 $104,474 $62,298
Retained................................ $ 6,886 $ 6,032 $ 3,619
SMALL CAP FUND
Earned.................................. $ 39,599 $ 16,418 $41,750
Retained................................ $ 2,303 $ 1,131 $ 1,208
</TABLE>

For the last fiscal year of the relevant Fund, Mitchell Hutchins earned and
retained $251,694 from Growth Fund, $375,279 from Growth and Income Fund and
$85,036 from Small Cap Fund in contingent deferred sales charges paid upon
certain redemptions of Class A, B and C shares.

<PAGE>
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 the Funds, 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, through which most debt securities and
some equity securities are traded, generally include a 'spread,' which is the
difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. The Funds may invest in securities traded
in the OTC market and will engage primarily in transactions directly with the
dealers who make markets in such securities, unless a better price or execution
could be obtained by using a broker. During the indicated fiscal years ended
August 31 (for Growth and Income Fund and Growth Fund) and July 31 (for Small
Cap Fund), the Funds paid the brokerage commissions set forth below:

<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Growth and Income Fund........................................ $1,139,813 $1,246,465 $1,241,906
Growth Fund................................................... 665,156 400,232 273,991
Small Cap Fund................................................ 147,913 211,004 120,717
</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 PaineWebber. Each board has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid
to PaineWebber are reasonable and fair. Specific provisions in the Advisory
Contracts authorize PaineWebber and any of its affiliates that is a member of a
national security 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. During the indicated fiscal years
ended August 31 (for Growth and Income Fund and Growth Fund) and July 31 (for
Small Cap Fund), the Funds paid to PaineWebber the brokerage commissions set
forth below:

<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------

1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Growth and Income Fund................................................. $43,440 $22,470 $65,991
Growth Fund............................................................ 32,130 2,400 4,200
Small Cap Fund......................................................... 3,900 0 665
</TABLE>

The amounts paid by the Funds to PaineWebber in brokerage commissions for
their most recent fiscal years represent (1) for Growth and Income Fund, 3.81%
of the total brokerage commission paid and 3.36% of the total dollar amount of
transactions involving the payment of brokerage commissions, (2) for Growth
Fund, 4.90% of the total brokerage commission paid and 5.04% of the total dollar
amount of transactions involving the payment of brokerage commissions, and (3)
for Small Cap Fund, 2.64% of the total brokerage commission paid and 2.00% of
the total dollar amount of transactions involving the payment of brokerage
commissions.

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

Consistent with the interests of each Fund and subject to the review of its
board, Mitchell Hutchins may cause the Fund to purchase and sell portfolio
securities from and to dealers or through brokers who provide the Fund with
research, analysis, advice and similar services. In return for such services,
the Fund 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 the particular Fund and
its other clients and that the total commissions paid

25
<PAGE>
by the Fund will be reasonable in relation to the benefits to the Fund over the
long term. During the fiscal years ended August 31, 1997 (for Growth and Income
Fund and Growth Fund) and July 31, 1997 (for Small Cap Fund), 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:

<TABLE>
<CAPTION>
AMOUNT OF PORTFOLIO BROKERAGE COMMISSIONS
TRANSACTIONS PAID
------------------- ---------------------
<S> <C> <C>
Growth and Income Fund...................................... $70,042,961 $93,938
Growth Fund................................................. 56,438,985 66,329
Small Cap Fund.............................................. 10,390,512 27,170
</TABLE>

For purchases or sales with broker-dealer firms which 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 were
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 which could be purchased for hard dollars. Mitchell Hutchins may
engage in agency transactions in OTC equity and debt securities in return for
research and execution services. These transactions are entered into only in
compliance with procedures ensuring that the transaction (including commissions)
is at least as favorable as it would have been if effected directly with a
market-maker that did not provide research or execution services. These
procedures include Mitchell Hutchins 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,
information and 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 the Funds 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.

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
1940 Act. Among other things, these procedures require that the spread or
commission paid in connection with such a purchase be reasonable and fair, the
purchase be at not more than the public offering price prior to the end of the
first business day after the date of the public offering and that PaineWebber or
any affiliate thereof not participate in or benefit from the sale to the Funds.

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

average value of securities in the portfolio during the year.

<PAGE>

<TABLE>
<CAPTION>
PORTFOLIO
TURNOVER RATE
-------------
<S> <C>
GROWTH AND INCOME FUND
Fiscal Year Ended August 31, 1997................. 70%
Fiscal Year Ended August 31, 1996................. 112%
GROWTH FUND
Fiscal Year Ended August 31, 1997................. 86%
Fiscal Year Ended August 31, 1996................. 60%
SMALL CAP FUND
Fiscal Year Ended July 31, 1997................... 54%
Fiscal Year Ended July 31, 1996................... 84%
</TABLE>

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

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

An 'eligible group of related Fund investors' can consist of any
combination of the following:

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

(b) an individual and his or her Individual Retirement Account
('IRA');

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

(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by such 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) an individual's accounts with the same investment adviser.

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.

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

27
<PAGE>
death of the shareholder. The contingent deferred sales charge waiver is
available where the decedent is either the individual shareholder or owns the
shares with his or her spouse as a joint tenant with right of survivorship. This
waiver applies only to redemption of shares held at the time of death.

ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Funds may be exchanged for shares of the
corresponding class of most other PaineWebber mutual funds. This exchange
privilege is available only in those jurisdictions where the sale of PaineWebber
fund shares to be acquired through such exchange may be legally made.
Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce the exchange fee and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended under the circumstances described below or a Fund temporarily
delays or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the Fund's investment objective, policies and
restrictions.

If conditions exist that make cash payments undesirable, the Funds reserve
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Funds and valued in the same way as they would
be valued for purposes of computing the Funds' net asset value. 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 Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which a

Fund 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 ('NYSE') is closed or trading on the NYSE
is restricted as determined by the SEC, (2) when an emergency exists, as defined
by the SEC, that makes it not reasonably practicable for a Fund to dispose of
securities owned by it or fairly to determine the value of its assets or (3) as
the SEC may otherwise permit. The redemption price may be more or less than the
shareholder's cost, depending on the market value of a Fund's portfolio at the
time.

AUTOMATIC INVESTMENT PLAN. Participation in the Automatic Investment Plan
enables an investor to use the technique of 'dollar cost averaging.' When the
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
investing regardless of price levels, an investor should consider his or her
financial ability to continue purchases through periods of low price levels.

SYSTEMATIC WITHDRAWAL 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 $5,000 for
Class A and Class C shareholders or $20,000 for Class B shareholders. Purchases
of additional Fund shares 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 each month for monthly,
quarterly, semiannual or annual plans, PaineWebber will arrange for redemption
by a Fund of sufficient Fund shares to provide the withdrawal payment specified
by participants in the Funds' systematic withdrawal plan. The payment generally
is mailed approximately five Business Days (defined under 'Valuation of Shares')
after the redemption date. Withdrawal payments should not be considered
dividends, but redemption proceeds, with the tax consequences described under
'Dividends & Taxes' in the Prospectus. If periodic withdrawals continually
exceed reinvested dividends, a shareholder's investment may be correspondingly
reduced. A shareholder may change the amount of the systematic withdrawal or
terminate participation in the systematic withdrawal plan at any time without
charge or penalty by written instructions with signatures guaranteed to
PaineWebber or PFPC Inc. ('Transfer Agent'). Instructions to participate in the
plan, change the withdrawal amount or terminate participation in the plan will
not be effective until five days after written instructions with signatures
guaranteed are received by the Transfer Agent. Shareholders may request the

28
<PAGE>
forms needed to establish a systematic withdrawal plan from their PaineWebber
investment executives, correspondent firms or the Transfer Agent at

1-800-647-1568.

REINSTATEMENT PRIVILEGE--CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in the Funds without a sales charge. Shareholders may exercise the reinstatement
privilege by notifying the Transfer Agent of such desire and forwarding a check
for the amount to be purchased within 365 days after the date of redemption. The
reinstatement will be made at the net asset value per share next computed after
the notice of reinstatement and check are received. The amount of a purchase
under this reinstatement privilege cannot exceed the amount of the redemption
proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised; however, a loss arising out of a
redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, and an adjustment will be made to the
shareholder's tax basis for shares acquired pursuant to the reinstatement
privilege. Gain or loss on a redemption also will be adjusted for federal income
tax purposes by the amount of any sales charge paid on Class A shares, under the
circumstances and to the extent described in 'Dividends & Taxes' in the
Prospectus.

PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN(SERVICE MARK);
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
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 low share
prices. However, over time, dollar cost averaging generally results in a lower
average original investment cost than if an investor invested a larger dollar
amount in a mutual fund at one time.

PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT. In order to enroll in the Plan,
an investor must have opened an RMA account with PaineWebber or one of its
correspondent firms. The RMA account is

29
<PAGE>
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 preliminary 9-month and 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. Each money market fund attempts to maintain a
stable price per share of $1.00, although there can be no assurance that
it will be able to do so. Investments in the money market funds are not
insured or guaranteed by the U.S. government;

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 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 the transfer agent 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 availability of 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 the conversion of
shares will 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

30
<PAGE>
of purchase. Mitchell Hutchins has no reason to believe that this condition for
the availability of the conversion feature will not be met.

VALUATION OF SHARES

The Funds determine their net asset values per share separately for each
class of shares as of the close of regular trading (generally 4:00 p.m., Eastern
time) on the NYSE on each Business Day, which is defined as each Monday through
Friday when the NYSE is open. Currently the NYSE is closed on the observance of
the following holidays: New Year's Day, 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 U.S. stock exchanges are valued at the last
sale price on the day the securities are valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by Mitchell Hutchins as the primary market. Securities traded in the
OTC market and listed on The Nasdaq Stock Market ('Nasdaq') are valued at the
last trade price on Nasdaq at 4:00 p.m., Eastern time; other OTC securities are
valued at the last bid price available prior to valuation. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of each board.

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:

<TABLE>
<C> <S>
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.
</TABLE>

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or 'T' in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B and Class C shares, the applicable contingent deferred sales charge
imposed on a redemption of Class B or Class C shares held for the period is
deducted. All dividends and other distributions are assumed to have been
reinvested at net asset value.

The Funds also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth

above ('Non-Standardized Return'). The Funds calculate Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund shares
and assuming the reinvestment of all dividends and other distributions. The rate
of return is determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the initial value. Neither
initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return; the inclusion of those charges would reduce
the return.

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

<PAGE>
The following table shows performance information for each classs of shares
of the Funds for the periods indicated. All returns for periods of more than one
year are expressed as an average return.

GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended August 31, 1997:
Standardized Return*.................. 36.00% 36.33% 40.30% 42.74%
Non-Standardized Return............... 42.42% 41.33% 41.30% 42.74%
Five years ended August 31, 1997:
Standardized Return*.................. 14.12% 14.07% 14.31% 15.51%
Non-Standardized Return............... 15.19% 14.30% 14.31% 15.51%
Ten years ended August 31, 1997
Standardized Return*.................. 11.34% NA NA NA
Non-Standardized Return............... 11.85% NA NA NA
Inception** to August 31, 1997:
Standardized Return*.................. 13.43% 13.85% 14.44% 13.54%
Non-Standardized Return............... 13.81% 13.85% 14.44% 13.54%
</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, Non-Standardized Return is identical to Standardized Return.
** The inception date for each class of shares is as follows: Class A--December
20, 1983, Class B--July 1, 1991, Class C--July 2, 1992 and Class Y--February
12, 1992.

GROWTH FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended August 31, 1997:
Standardized Return*.................. 10.63% 9.98% 13.95% 16.24%
Non-Standardized Return............... 15.85% 14.98% 14.95% 16.24%
Five years ended August 31, 1997:
Standardized Return*.................. 13.62% 13.53% 13.76% 14.99%
Non-Standardized Return*.............. 14.67% 13.77% 13.76% 14.99%
Ten years ended August 31, 1997:
Standardized Return*.................. 10.98% NA NA NA
Non-Standardized Return*.............. 11.49% NA NA NA

Inception** to August 31, 1997:
Standardized Return*.................. 13.83% 12.77% 12.91% 12.65%
Non-Standardized Return............... 14.25% 12.77% 12.91% 12.65%
</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, Non-Standardized Return is identical to Standardized Return.
** The inception date for each class of shares is as follows: Class A--March 18,
1985, Class B--July 1, 1991, Class C--July 2, 1992 and Class Y--August 26,
1991.

<PAGE>
SMALL CAP FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
One year ended July 31, 1997:
Standardized Return*.................. 30.01% 30.16 % 34.09% 36.65%
Non-Standardized Return............... 36.11% 35.16 % 35.09% 36.65%
Inception** to July 31, 1997:
Standardized Return*.................. 11.64% 11.64 % 11.92% 35.81%
Non-Standardized Return............... 12.79% 11.94 % 11.92% 35.81%
</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, Non-Standardized Return is identical to Standardized Return.
** The inception date for Class A, Class B and Class C shares is February 1,
1993. The inception date for Class Y shares is July 26, 1996.

OTHER INFORMATION. In Performance Advertisements, the Funds may compare
their Standardized Return and/or their Non-Standardized Return with data
published by Lipper Analytical Services, Inc. ('Lipper'), CDA Investment
Technologies, Inc. ('CDA'), Wiesenberger Investment Companies Service
('Wiesenberger'), Investment Company Data, Inc. ('ICD') or Morningstar Mutual
Funds ('Morningstar'), with the performance of recognized stock and other
indices, including the Standard & Poor's 500 Composite Stock Price Index ('S&P
500'), the Standard & Poor's 600 Small-Cap Index, the Standard & Poor's 400
Mid-Cap Index, the Dow Jones Industrial Average, the Nasdaq Composite Index, the
Russell 2000 Index, the Russell 1000 Index (including Value and Growth
sub-indexes), the Wilshire 5000 Index, the Lehman Bond Index, 30-year and
10-year U.S. Treasury bonds, the Morgan Stanley Capital International World
Index and changes in the Consumer Price Index as published by the U.S.
Department of Commerce. The Funds also may refer in such materials to mutual
fund performance rankings and other data, such as comparative asset, expense and
fee levels, published by Lipper, CDA, Wiesenberger, ICD or Morningstar.
Performance Advertisements also may refer to discussions of the Funds and
comparative mutual fund data and ratings reported in independent periodicals,
including THE WALL STREET JOURNAL, MONEY, SMART MONEY, MUTUAL FUNDS, 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(Registered) Money Markets. In comparing the
Funds' performance to CD performance, investors should keep in mind that bank
CDs are insured in whole or in part by an agency of the U.S. government and
offer fixed principal and fixed or variable rates of interest, and that bank CD
yields may vary depending on the financial institution offering the CD and
prevailing interest rates. Shares of the Funds are not insured or guaranteed by
the U.S. government and returns and net asset value will fluctuate. The debt
securities held by the Funds generally have longer maturities than most CDs and
may reflect interest rate fluctuations for longer term securities. An investment
in any 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.

33
<PAGE>
[GRAPHICS -- CAMERA READY CHART]

The chart is shown for illustrative purposes only and does not represent
any 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. Small cap stocks are represented by an index of the ninth and
tenth decile of the New York Stock Exchange (NYSE) plus stocks listed on the
American Stock Exchange (AMEX) and over-the-counter (OTC) with the same or less
capitalization as the upper bound of the NYSE ninth decile. Common 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 indices are unmanaged and are not available for investment.
- ------------------
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook(Trademark) Ibbotson
Assoc., Chi., (annual updates work by Roger C. Ibbotson & Rex A
Sinquefield).

Over time, small cap and large cap stocks have outperformed all other
investments by a wide margin, offering a solid hedge against inflation. From
1926 to 1996, stocks beat all other traditional asset classes.

34
<PAGE>

TAXES

In order to continue to qualify for treatment as a regulated investment
company ('RIC') under the Internal Revenue Code, each Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-term
capital gain) ('Distribution Requirement') 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, with these other securities 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 that does not represent more than 10% of the issuer's
outstanding voting securities; 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. In addition, through the end of its current
taxable year (July 31, 1998), Small Cap Fund must derive less than 30% of its
gross income from the sale or other disposition of securities, options or
futures held for less than three months ('Short-Short Limitation'). Thereafter,
Small Cap Fund will no longer need to satisfy the Short-Short Limitation to
qualify as a RIC, as a result of the Taxpayer Relief Act of 1997 ('Tax Act').

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

A portion of the dividends from each Fund's investment company taxable
income (whether paid in cash or 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
alternative minimum tax.

If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.

Each Fund will be subject to a nondeductible 4% excise tax ('Excise Tax')
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net

income for the one-year period ending on October 31 of that year, plus certain
other amounts.

Each Fund may invest in the stock of 'passive foreign investment companies'
('PFICs') if such stock is a permissible investment. A PFIC is a foreign
corporation--other than a 'controlled foreign corporation' (i.e., a foreign
corporation in which, on any day during its taxable year, more than 50% of the
total voting power of all voting stock therein or the total value of all stock
therein is owned, directly, indirectly, or constructively, by 'U.S.
shareholders,' defined as U.S. persons that individually own, directly,
indirectly, or constructively, at least 10% of that voting power) as to which a
Fund is a U.S. shareholder (effective for its taxable year beginning in
1998)--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 each Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. If a Fund invests in
a PFIC and elects to treat the PFIC as a 'qualified electing fund' ('QEF'), then
in lieu of the foregoing tax

35
<PAGE>
and interest obligation, the Fund would be required to include in income each
year its pro rata share of the QEF's annual ordinary earnings and net capital
gain (the excess of net long-term capital gain over net short-term capital
loss)--which likely would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax--even if those
earnings and gain were not distributed to the Fund by the QEF. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.

Effective for its taxable year beginning in 1998, 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. A Fund's adjusted basis
in each PFIC's stock with respect to which it makes this election will be
adjusted to reflect the amounts of income included and deductions taken under
the election. Regulations proposed in 1992 would provide a similar election with
respect to the stock of certain PFICs.

The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will 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 options and

futures derived by a Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
However, for Small Cap Fund, income from the disposition of options and futures
contracts will be subject to the Short-Short Limitation if they are held for
less than three months.

If Small Cap Fund satisfies certain requirements, any increase in value of
a position that is part of a 'designated hedge' will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Small
Cap Fund will consider whether it should seek to qualify for this treatment for
its hedging transactions. To the extent Small Cap Fund does not qualify for this
treatment, it may be forced to defer the closing out of certain options and
futures beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to continue to qualify as a RIC.

OTHER INFORMATION

Growth and Income Fund's name was changed from 'PaineWebber Dividend Growth
Fund' to its current name effective April 3, 1995. Effective July 26, 1996, the
name of Small Cap Fund was changed from 'PaineWebber Small Cap Value Fund' to
its current name. On July 26, 1996, Small Cap Fund was combined in a tax-free
reorganization with PaineWebber Small Cap Growth Fund, a series of PaineWebber
Investment Trust III. As a result of the reorganization, each shareholder of
PaineWebber Small Cap Growth Fund became a shareholder of Small Cap Fund. Prior
to November 10, 1995, each Fund's Class C shares were known as 'Class D' shares.
Prior to November 10, 1995, the Class Y shares of Growth and Income Fund and
Growth Fund were known as Class C shares.

Each Trust is an entity of the type commonly known as a 'Massachusetts
business trust.' Under Massachusetts law, shareholders of a Fund could, under
certain circumstances, be held personally liable for the obligations of the
applicable Trust or Fund. However, each Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust or the Fund and
requires that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate or undertaking made or issued by the trustees or by any
officers or officer by or on behalf of the Trust or Fund, the trustees or any of
them in connection with the Trust. Each Declaration of Trust provides for
indemnification from a Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of that Fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which a 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 will be entitled to reimbursement from the general assets of that
Fund. The trustees intend to

36
<PAGE>
conduct the operations of each Fund in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Funds.

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 shares bear higher transfer agency fees per shareholder account than
those borne by other classes. The higher fee is imposed due to the higher costs
incurred by the Transfer Agent in tracking shares subject to a contingent
deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the applicable
charge. Moreover, the tracking and calculations required by the automatic
conversion feature of the Class B shares will cause the Transfer Agent to incur
additional costs. Although the transfer agency fee will differ on a per account
basis as stated above, the specific extent to which the transfer agency fees
will differ between the classes as a percentage of net assets is not certain,
because the fee as a percentage of net assets will be affected by the number of
shareholder accounts in each class and the relative amounts of net assets in
each class.

COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, 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 Growth Fund and Growth and Income Fund. Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036, serves as
independent accountants for Small Cap Fund.

FINANCIAL STATEMENTS

Each Fund's Annual Report to Shareholders for its last fiscal year is a
separate document supplied with this Statement of Additional Information, and
the financial statements, accompanying notes and report of independent auditors
appearing therein are incorporated herein by this reference.

<PAGE>
APPENDIX

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

Note: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from 'Aa' through 'B' in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category, the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

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 higher rated

issues only in small degree; 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 debt 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 uncertainties 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; BB. An obligation rated BB is
less vulnerable to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties 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

A-1
<PAGE>
financial commitment on the obligation; CCC. An obligation rated CCC is
currently vulnerable to nonpayment and is dependent upon favorable business,
financial and economic conditions for the obligor to meet its financial
commitments 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 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 an 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.

A-2

<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
ANY FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.

------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Additional Information............ 1
Investment Policies and Restrictions........... 1
Hedging Strategies Using Derivative
Instruments.................................. 7
Trustees and Officers; Principal Holders of
Securities................................... 13
Investment Advisory and Distribution
Arrangements................................. 20
Portfolio Transactions......................... 25
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services.... 27
Conversion of Class B Shares................... 30
Valuation of Shares............................ 31
Performance Information........................ 31
Taxes.......................................... 35
Other Information.............................. 36
Financial Statements........................... 37
Appendix....................................... A-1
</TABLE>

PaineWebber
Growth and Income Fund
PaineWebber
Growth Fund
PaineWebber
Small Cap Fund

Statement of Additional Information
December 1, 1997
PAINEWEBBER