April 9, 1998
Supplement to the PaineWebber Capital Appreciation Fund
Prospectus
Dated August 1, 1997
Dear Investor,
This is a supplement to the Prospectus of PaineWebber Capital
Appreciation Fund ("Fund"). At a meeting held on April 8, 1998, the Board of
Trustees approved the following matters:
1. Termination of the Sub-Advisory Contract with Denver Investment
Advisors, LLC and the assumption of day-to-day portfolio management
responsibilities by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), effective on May 1, 1998.
2. Changing the name of the Fund to "PaineWebber Mid Cap Fund," also
effective on May 1, 1998.
3. Narrowing the Fund's definition of mid-cap companies to include
those companies with market capitalizations of at least $750 million and no more
than $6 billion at the time of purchase, also effective on May 1, 1998.
THE FOLLOWING REPLACES THE INFORMATION CONCERNING THE FUND IN THE
"INVESTMENT PHILOSOPHY AND PROCESS" SECTION ON PROSPECTUS P. 15:
CAPITAL APPRECIATION FUND. Mitchell Hutchins follows a disciplined investment
process that relies on the Mitchell Hutchins Equity Research Team and the
Mitchell Hutchins Factor Valuation Model. The Model screens a universe of
companies from ten business sectors to identify undervalued companies with
strong earnings momentum that rank well in three measures:
. VALUE: projected dividends, cash flow, earnings and book value;
. MOMENTUM: earnings and prices to identify companies that could
surprise on the upside; and
. ECONOMIC SENSITIVITY: to forecast how different equity securities
and industries may perform under various economic scenarios.
The equity securities in the Model's universe are screened twice a month. Then
the Team takes a closer look at those equity securities that meet the
capitalization requirements of the Fund and 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
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as 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.
THE FOLLOWING SUPPLEMENTS THE INFORMATION CONCERNING THE FUND UNDER THE
CAPTION "INVESTMENT TECHNIQUES AND STRATEGIES" ON PROSPECTUS P. 23:
PORTFOLIO TURNOVER. Mitchell Hutchins anticipates restructuring about 50% of the
Fund's portfolio of investments following its assumption of day-to-day portfolio
management to reflect Mitchell Hutchins' investment philosophy and process. This
restructuring could result in higher than usual portfolio turnover for the year.
The restructuring could involve correspondingly increased transaction costs,
which would be borne directly by the Fund, and may increase the potential for
realizing short-term and long-term capital gains, which could increase taxable
distributions to Fund shareholders at year-end.
THE FOLLOWING SUPPLEMENTS THE INFORMATION IN THE FIRST PARAGRAPH
CONCERNING THE FUND UNDER THE CAPTION "HOW TO BUY SHARES" ON PROSPECTUS P. 27:
The Fund will be closed to new purchases and exchange purchases into the Fund
beginning May 1, 1998 through June 24, 1998.
THE FOLLOWING REPLACES THE INFORMATION CONCERNING THE FUND IN THE
"MANAGEMENT" SECTION ON PROSPECTUS P. 29:
CAPITAL APPRECIATION FUND. Mark A. Tincher, Christopher G. Altschul and Antony
J. Scott will be primarily responsible for the day-to-day portfolio management
of the Fund beginning on May 1, 1998. Mr. Tincher is a managing director and
chief investment officer of equities at 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 in which the PaineWebber
Stock Funds invest. As a result, the Team provides the PaineWebber Stock Funds
with more specialized knowledge of various industries in which the Funds invest.
The Equity Research Team is also assisted by members of Mitchell Hutchins' fixed
income groups, who provide market outlook, interest rate forecasts and other
considerations pertaining to domestic equity and fixed income investments. From
March 1988 to March 1995, Mr. Tincher worked for Chase Manhattan Private Bank
where he was a vice president. Mr. Tincher directed the U.S. funds management
and equity research area at Chase and oversaw the management of all Chase U.S.
equity funds (the Vista Funds and Trust Investment Funds).
Mr. Altschul joined Mitchell Hutchins in April 1995 and is currently responsible
for the quantitative equity valuation model and has various analytical
responsibilities. Prior to joining Mitchell Hutchins, Mr. Altschul worked as an
equity analyst at Chase Manhattan Bank beginning in 1989. Mr. Scott joined
Mitchell Hutchins in May 1996 and is currently an equity analyst responsible for
technology, media, entertainment and medical products industries. Prior to
joining Mitchell Hutchins, Mr. Scott worked at Morgan Stanley as a research
analyst in the technology group beginning in 1992.
