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PaineWebber Small Cap Fund
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PROSPECTUS
DECEMBER 1, 2000
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This prospectus offers Class A, Class B, Class C and Class Y shares in one of
PaineWebber's stock funds. Each class has different sales charges and ongoing
expenses. You can choose the class that is best for you based on how much you
plan to invest and how long you plan to hold your fund shares. Class Y shares
are available only to certain types of investors.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
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On October 6, 2000, the board of trustees for PaineWebber Small Cap Fund
approved the submission to its shareholders of an Agreement and Plan of
Reorganization and Termination under which the fund would transfer substantially
all of its assets and liabilities to PACE Small/Medium Value Company Equity
Investments ('PACE fund'), a series of PaineWebber PACE Select Advisors Trust,
another open-end mutual fund. If the fund's shareholders approve its proposed
merger, you will receive shares of the PACE fund in exchange for your fund
shares and the fund will cease operations.
The same sub-advisers that now manage the fund's investments also manage the
PACE fund's investments. The merger is expected to be a tax-free organization,
which means that you will not realize any gain or loss on your receipt of PACE
fund shares in the merger and neither fund will realize any gain or loss. More
information about the proposed merger will be provided in proxy solicitation
materials that are expected to be mailed to fund shareholders in mid-December
2000.
You may continue to buy, sell and exchange your fund shares as described in this
prospectus prior to the shareholder meeting. When you sell or exchange your fund
shares, however, you generally will be subject to federal income tax on any gain
you realize. If the merger proposal is approved, the fund expects to close to
new purchases and exchange purchases approximately five business days prior to
the date on which the merger is to be effected.
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PaineWebber Small Cap Fund
CONTENTS
THE FUND
<TABLE>
<S> <C> <C>
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What every investor 3 Investment Objective, Strategies and Risks
should know about 4 Performance
the fund 5 Expenses and Fee Tables
6 More About Risks and Investment Strategies
YOUR INVESTMENT
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Information for 8 Managing Your Fund Account
managing your fund -- Flexible Pricing
account -- Buying Shares
-- Selling Shares
-- Exchanging Shares
-- Pricing and Valuation
ADDITIONAL INFORMATION
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Additional important 13 Management
information about 14 Dividends and Taxes
the fund 16 Financial Highlights
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Where to learn more Back Cover
about PaineWebber
mutual funds
</TABLE>
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The fund is not a complete or
balanced investment program.
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Prospectus Page 2
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PaineWebber Small Cap Fund
PAINEWEBBER SMALL CAP FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
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FUND OBJECTIVE
Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The fund invests primarily in common stocks of small capitalization ('small
cap') companies that are believed to have substantial potential for capital
growth. The fund considers companies with market capitalizations of up to $1.5
billion to be small cap.
The fund may invest, to a lesser extent, in stocks of larger companies and in
bonds and money market instruments. Some of the fund's investments may be in
U.S. dollar denominated securities of foreign issuers. The fund may (but is not
required to) use options, futures contracts and other derivatives as part of its
investment strategy or to help manage portfolio risks.
The fund's manager, Mitchell Hutchins Asset Management Inc., has appointed Ariel
Capital Management, Inc. ('Ariel') and ICM Asset Management, Inc. ('ICM') to
serve as sub-advisers for the fund's investments. Mitchell Hutchins allocates
the fund's assets between the two sub-advisers and may change the allocation at
any time. The relative values of each sub-adviser's share of the fund's assets
also may change over time.
In managing its share of the fund's assets, Ariel invests in stocks of companies
that it believes are misunderstood or undervalued. It seeks to identify
companies in consistent industries with distinct market niches and excellent
management teams. It focuses on value stocks, which it defines as stocks that
have a low price-to-earnings ratio based on forward earnings and that trade at a
significant discount to the private market value that Ariel calculates for each
stock. Ariel generally sells stocks that cease to meet these criteria or that
are at risk for fundamental deterioration.
In managing its share of the fund's assets, ICM invests primarily in common
stocks of companies believed to offer good relative value that have either
fallen into disfavor among investors or are under-researched. In deciding which
stocks to buy or sell for the fund, ICM uses a top-down analysis to identify
broad sectors of the market believed to offer good relative value and then seeks
to identify individual companies within those sectors that meet ICM's investment
criteria. ICM also performs a bottom-up analysis to attempt to discover
inefficiently priced stocks in a broad range of sectors, including those not
identified in the top-down analysis. These two approaches are combined in
various proportions depending on market conditions. Regardless of which approach
is used to identify stock candidates, ICM then applies fundamental research
analysis. ICM generally sells stocks that no longer meet its selection criteria,
are at risk for fundamental deterioration or when it identifies more attractive
investment opportunities.
PRINCIPAL RISKS
An investment in the fund is not guaranteed; you may lose money by investing in
the fund. The principal risks presented by the fund are:
Equity Risk -- Stocks and other equity securities generally fluctuate in value
more than bonds. The fund could lose all of its investment in a company's
stock.
Limited Capitalization Risk -- Equity risk is greater for the common stocks of
mid and small cap companies because they generally are more vulnerable to
adverse business or economic developments and they may have more limited
resources. In general, these risks are greater for small cap companies than for
mid cap companies.
Foreign Investing Risk -- The value of the fund's investments in foreign
securities may fall due to adverse political, social and economic developments
abroad. However, because the fund's foreign investments must be denominated in
U.S. dollars, it generally is not subject to the risk of changes in currency
valuations.
Derivatives Risk -- The fund's investments in derivatives may rise or fall more
rapidly than other investments.
More information about risks of an investment in the fund is provided below in
'More About Risks and Investment Strategies.'
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PaineWebber Small Cap Fund
PERFORMANCE
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RISK/RETURN BAR CHART AND TABLE
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
chart shows Class A shares because they have as long a performance history as
any class of fund shares. The chart does not reflect the effect of sales
charges; if it did, the total returns shown would be lower.
The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on two broad based
market indices of small cap companies that are unmanaged and, therefore, do not
include any sales charges or expenses.
The fund's past performance does not necessarily indicate how the fund will
perform in the future. This may be particularly true for the period prior to
October 10, 2000, when Mitchell Hutchins or another sub-adviser managed the
fund's assets.
TOTAL RETURN ON CLASS A SHARES (1994 IS THE FUND'S FIRST FULL CALENDAR YEAR OF
OPERATIONS)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
CALENDAR TOTAL
YEAR RETURN
-------- ------
<S> <C>
1990 0
1991 0
1992 0
1993 0
1994 (1.2)
1995 16.81
1996 17.45
1997 27.38
1998 (6.75)
1999 2.23
</TABLE>
Total return January 1, 2000 to September 30, 2000 -- 16.23%
Best quarter during years shown: 3rd quarter, 1997 -- 21.53%
Worst quarter during years shown: 3rd quarter, 1998 -- (26.69)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999
<TABLE>
<CAPTION>
RUSSELL 2000
CLASS A CLASS B* CLASS C CLASS Y S&P SMALLCAP 600 [SMALL CAP]
CLASS (2/1/93) (2/1/93) (2/1/93) (7/26/96) INDEX** INDEX***
(INCEPTION DATE) -------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
One Year.......................... (2.39)% (3.68)% 0.41% 2.57% 12.41% 21.26%
Five Years........................ 9.73 % 9.76 % 9.88% N/A 17.05% 16.69%
Life of Class..................... 7.91 % 7.88 % 7.78% 10.65% ** ***
</TABLE>
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* Assumes conversion of Class B shares to Class A after six years.
** Average annual total returns for the S&P SmalICap 600 Index for the life of
each class were as follows: Class A, Class B and Class C -- 13.63%; Class
Y -- 15.41%.
*** Average annual total returns for the Russell 2000 [Small Cap] Index for the
life of each class were as follows: Class A, Class B and Class C -- 13.78%;
Class Y -- 16.24%.
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PaineWebber Small Cap Fund
EXPENSES AND FEE TABLES
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FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 4.5% None None None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5% 1% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Management Fees............................................. 1.00% 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 0.00
Other Expenses.............................................. 0.38 0.46 0.41 0.35
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.63% 2.46% 2.41% 1.35%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A................................................ $608 $ 941 $1,297 $2,296
Class B (assuming sale of all shares at end of
period).............................................. 749 1,067 1,511 2,403
Class B (assuming no sale of shares)................... 249 767 1,311 2,403
Class C (assuming sale of all shares at end of
period).............................................. 344 751 1,285 2,746
Class C (assuming no sale of shares)................... 244 751 1,285 2,746
Class Y................................................ 137 428 739 1,624
</TABLE>
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Prospectus Page 5
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PaineWebber Small Cap Fund
MORE ABOUT RISKS
AND INVESTMENT STRATEGIES
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PRINCIPAL RISKS
The main risks of investing in the fund are described below. Other risks of
investing in the fund, along with further detail about some of the risks
described below, are discussed in the fund's Statement of Additional Information
('SAI'). Information on how you can obtain the SAI is on the back cover of this
prospectus.
Equity Risk. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. The
fund may lose a substantial part, or even all, of its investment in a company's
stock.
Limited Capitalization Risk. Securities of mid and small cap companies generally
involve greater risk than securities of larger capitalization companies because
they may be more vulnerable to adverse business or economic developments. Small
cap companies also may have limited product lines, markets or financial
resources, and they may be dependent on a relatively small management group.
Securities of small cap companies may be less liquid and more volatile than
securities of larger companies or the market averages in general. 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.
Foreign Securities Risk. Foreign investing involves risks relating to political,
social and economic developments abroad to a greater extent than investing in
the securities of U.S. issuers. In addition, there are differences between U.S.
and foreign regulatory requirements and market practices.
Derivatives Risk. The value of 'derivatives' -- so-called because their value
'derives' from the value of an underlying asset, reference rate or index -- may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for the fund to lose more than the amount it invested in the
derivative. Options and futures contracts are examples of derivatives. The
fund's use of derivatives may not succeed for various reasons, including
unexpected changes in the values of the derivatives or the assets underlying
them. Also, if the fund uses derivatives to adjust or 'hedge' the overall risk
of its portfolio, the hedge may not succeed if changes in the values of the
derivatives are not matched by opposite changes in the values of the assets
being hedged.
ADDITIONAL RISKS
Credit and Interest Rate Risks. The fund is authorized to invest in bonds and
other income-producing securities. These securities are subject to credit risk
and interest rate risk.
Credit risk is the risk that the issuer of a bond will not make principal or
interest payments when they are due. Even if an issuer does not default on a
payment, a bond's value may decline if the market believes that the issuer has
become less able, or less willing, to make payments on time. Even high quality
bonds are subject to some credit risk. However, credit risk is higher for lower
quality bonds. Bonds that are not investment grade involve high credit risk and
are considered speculative.
The value of bonds generally can be expected to fall when interest rates rise
and to rise when interest rates fall. Interest rate risk is the risk that
interest rates will rise, so that the value of a fund's investments in bonds
will fall. Interest rate risk is the primary risk presented by U.S. government
and usually for other very high quality bonds. The impact of changes in the
general level of interest rates on lower quality bonds may be greater or less
than the impact on higher quality bonds.
ADDITIONAL INVESTMENT STRATEGIES
Defensive Positions; Cash Reserves. In order to protect itself from adverse
market conditions, the fund may take a temporary defensive position that is
different from its normal investment strategy. This means that the fund may
temporarily invest a larger-than-normal part, or even all, of its assets in cash
or money market instruments. In addition, if the fund's board appoints a new
sub-adviser to manage all or a
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Prospectus Page 6
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PaineWebber Small Cap Fund
portion of the fund's investments, the fund may increase its cash reserves to
facilitate the transition to the investment style and strategies of the new sub-
adviser. Since these investments provide relatively low income, a defensive or
transitional position may not be consistent with achieving the fund's investment
objective. The fund may invest up to 35% of its total assets in cash or money
market instruments as a cash reserve for liquidity or as part of its ordinary
investment strategy.
Portfolio Turnover. The fund may engage in frequent trading to achieve its
investment objective. Frequent trading can result in portfolio turnover in
excess of 100% (high portfolio turnover).
Frequent trading may increase the portion of a fund's capital gains that are
realized for tax purposes in any given year. This may increase the fund's
taxable distributions in that year. Frequent trading also may increase the
portion of the fund's realized capital gains that are considered 'short-term'
for tax purposes. Shareholders will pay higher taxes on distributions that
represent short-term gains than they would pay on distributions that represent
long-term gains. Frequent trading also may result in higher fund expenses due to
transaction costs.
The fund does not restrict the frequency of trading in order to limit expenses
or the tax effect that the fund's distributions may have on shareholders.
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PaineWebber Small Cap Fund
MANAGING YOUR FUND ACCOUNT
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FLEXIBLE PRICING
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The fund offers four classes of shares -- Class A, Class B, Class C and
Class Y. Each class has different sales charges and ongoing expenses. You can
choose the class that is best for you, based on how much you plan to invest and
how long you plan to hold your fund investment. Class Y shares are only
available to certain types of investors.
The fund has adopted a plan under rule 12b-1 for its Class A, Class B and Class
C shares that allows it to pay service fees for providing services to
shareholders and (for Class B and Class C shares) distribution fees for the sale
of its shares. Because the 12b-1 distribution fees for Class B and Class C
shares are paid out of the fund's assets on an ongoing basis, over time they
will increase the cost of your investment and may cost you more than if you paid
a front-end sales charge.
CLASS A SHARES
Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is not invested in the fund.
Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets,
but they pay no 12b-1 distribution fees. The ongoing expenses for Class A shares
are lower than for Class B and Class C shares.
The Class A sales charges for the fund are described in the following table.
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: REALLOWANCE TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE 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. Class A shares representing reinvestment of dividends are not subject
to this 1% charge. Withdrawals in the first year after purchase of up to 12%
of the value of the fund account under the fund's Systematic Withdrawal Plan
are not subject to this charge.
(2) Mitchell Hutchins pays 1% to the dealer.
Sales Charge Reductions and Waivers. You may qualify for a lower sales charge if
you already own Class A shares of a PaineWebber mutual fund. You can combine the
value of Class A shares that you own in other PaineWebber funds and the purchase
amount of the Class A shares of the PaineWebber fund that you are buying.
You may also qualify for a lower sales charge if you combine your purchases with
those of:
your spouse, parents or children under age 21;
your Individual Retirement Accounts (IRAs);
certain employee benefit plans, including 401(k) plans;
a company that you control;
a trust that you created;
Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created by
you or by a group of investors for your children; or
accounts with the same adviser.
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PaineWebber Small Cap Fund
You may qualify for a complete waiver of the sales charge if you:
Are an employee of PaineWebber or its affiliates or the spouse, parent or child
under age 21 of a PaineWebber employee;
Buy these shares through a PaineWebber Financial Advisor who was formerly
employed as an investment executive with a competing brokerage firm that was
registered as a broker-dealer with the SEC; and
-- you were the Financial Advisor's client at the competing brokerage firm;
-- within 90 days of buying shares in the fund, you sell shares of one or
more mutual funds that were principally underwritten by the competing
brokerage firm or its affiliates, and you either paid a sales charge to
buy those shares, pay a contingent deferred sales charge when selling
them or held those shares until the contingent deferred sales charge was
waived; and
-- you purchase an amount that does not exceed the total amount of money you
received from the sale of the other mutual fund.
Acquire these shares through the reinvestment of dividends of a PaineWebber unit
investment trust;
Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more eligible
employees in the plan or at least $1 million in assets;
Are a participant in the PaineWebber Members Only'sm' Program. 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; or
Acquire these shares through a PaineWebber InsightOne'sm' Program brokerage
account.
CLASS B SHARES
Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase in fund shares. However, you may have
to pay the deferred sales charge when you sell your fund shares, depending on
how long you own the shares.
Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
If you hold your Class B shares for six years, they will automatically convert
to Class A shares, which have lower ongoing expenses.
If you sell Class B shares before the end of six years, you will pay a deferred
sales charge. We calculate the deferred sales charge by multiplying the lesser
of the net asset value of the Class B shares at the time of purchase or the net
asset value at the time of sale by the percentage shown below:
<TABLE>
<CAPTION>
PERCENTAGE BY WHICH THE
IF YOU SELL SHARES' NET ASSET
SHARES WITHIN: VALUE IS MULTIPLIED:
-------------- --------------------
<S> <C>
1st year since purchase... 5%
2nd year since purchase... 4
3rd year since purchase... 3
4th year since purchase... 2
5th year since purchase... 2
6th year since purchase... 1
7th year since purchase... None
</TABLE>
We will not impose the deferred sales charge on Class B shares representing
reinvestment of dividends or on withdrawals in any year of up to 12% of the
value of your Class B shares under the Systematic Withdrawal Plan.
To minimize your deferred sales charge, we will assume that you are selling:
First, Class B shares representing reinvested dividends, and
Second, Class B shares that you have owned the longest.
Sales Charge Waivers. You may qualify for a waiver of the deferred sales charge
on a sale of shares if:
You participate in the Systematic Withdrawal Plan;
You are older than 59 1/2 and are selling shares to take a distribution from
certain types of retirement plans;
You receive a tax-free return of an excess IRA contribution;
You receive a tax-qualified retirement plan distribution following retirement;
The shares are sold within one year of your death and you owned the shares
either (1) as the sole shareholder or (2) with your spouse as a joint tenant
with the right of survivorship;
The shares are held in trust and the death of the trustee requires liquidation
of the trust; or
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PaineWebber Small Cap Fund
The shares are sold in connection with a transfer from an existing PaineWebber
Mutual Funds SIMPLE IRA plan to another fund group's SIMPLE IRA plan.
CLASS C SHARES
Class C shares have a level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of your
purchase in fund shares.
Class C shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Class C shares do not convert to another class of shares. This means that you
will pay the 12b-1 fees for as long as you own your shares.
Class C shares also have a contingent deferred sales charge. You may have to pay
the deferred sales charge if you sell your shares within one year of the date
you purchased them. We calculate the deferred sales charge on sales of Class C
shares by multiplying 1.00% by the lesser of the net asset value of the Class C
shares at the time of purchase or the net asset value at the time of sale. We
will not impose the deferred sales charge on Class C shares representing
reinvestment of dividends or on withdrawals in the first year after purchase, of
up to 12% of the value of your Class C shares under the Systematic Withdrawal
Plan.
You may be eligible to sell your shares without paying a contingent deferred
sales charge if you are a 401(k) or 403(b) qualified employee benefit plan with
less than 100 eligible employees or less than $1 million in assets.
Sales Charge Waivers. You may qualify for a waiver of the deferred sales charge
on a sale of shares if:
The shares are sold in connection with a transfer from an existing PaineWebber
Mutual Funds SIMPLE IRA plan to another fund group's SIMPLE IRA plan.
NOTE ON SALES CHARGE WAIVERS FOR CLASS A, CLASS B AND CLASS C SHARES
If you think you qualify for any of the sales charge waivers described above,
you will need to provide documentation to PaineWebber or the fund. For more
information, you should contact your PaineWebber Financial Advisor or
correspondent firm or call 1-800-647-1568. If you want information on the fund's
Systematic Withdrawal Plan, see the SAI or contact your PaineWebber Financial
Advisor or correspondent firm.
CLASS Y SHARES
Class Y shares have no sales charge. Only specific types of investors can
purchase Class Y shares. You may be eligible to purchase Class Y shares if you:
Buy shares through PaineWebber's PACE'sm' Multi Advisor Program;
Buy $10 million or more of PaineWebber fund shares at any one time;
Are a qualified retirement plan with 5,000 or more eligible employees or $50
million in assets; or
Are a corporation, bank, trust company, insurance company, pension fund,
employee benefit plan, professional firm, trust, estate or educational,
religious or charitable organization with 5,000 or more employees or with over
$50 million in investable assets.
The trustee of PaineWebber's 401(k) Plus Plan for its employees is also eligible
to purchase Class Y shares.
Class Y shares do not pay ongoing distribution or service fees or sales charges.
The ongoing expenses for Class Y shares are the lowest for all the classes.
BUYING SHARES
If you are a PaineWebber client, or a client of a PaineWebber correspondent
firm, you can purchase fund shares through your Financial Advisor. Otherwise,
you can invest in the fund through the fund's transfer agent, PFPC Inc. You can
obtain an application by calling 1-800-647-1568. You must complete and sign the
application and mail it, along with a check, to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you wish to invest in other PaineWebber funds, you can do so by:
Contacting your Financial Advisor (if you have an account at PaineWebber or at a
PaineWebber correspondent firm);
Mailing an application with a check; or
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PaineWebber Small Cap Fund
Opening an account by exchanging shares from another PaineWebber fund.
You do not have to complete an application when you make additional investments
in the same fund.
The fund and Mitchell Hutchins reserve the right to reject a purchase order or
suspend the offering of shares.
MINIMUM INVESTMENTS
<TABLE>
<S> <C>
To open an account............... $1,000
To add to an account............. $ 100
</TABLE>
The fund may waive or reduce these amounts for:
Employees of PaineWebber or its affiliates; or
Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the funds' automatic investment plans.
Frequent Trading. The interests of the fund's long-term shareholders and its
ability to manage its investments may be adversely affected when its shares are
repeatedly bought and sold in response to short-term market fluctuations -- also
known as 'market timing'. When large dollar amounts are involved, the fund may
have difficulty implementing long-term investment strategies, because it cannot
predict how much cash it will have to invest. Market timing also may force the
fund to sell portfolio securities at disadvantageous times to raise the cash
needed to buy a market timer's fund shares. These factors may hurt the fund's
performance and its shareholders. When Mitchell Hutchins believes frequent
trading would have a disruptive effect on the fund's ability to manage its
investments, Mitchell Hutchins and the fund may reject purchase orders and
exchanges into the fund by any person, group or account that Mitchell Hutchins
believes to be a market timer. The fund may notify the market timer that a
purchase order or an exchange has been rejected after the day the order is
placed.
SELLING SHARES
--------------
You can sell your fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the fund
will assume that you want to sell shares in the following order: Class A, then
Class C, then Class B and last, Class Y.
If you want to sell shares that you purchased recently, the fund may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.
If you have an account with PaineWebber or a PaineWebber correspondent firm, you
can sell shares by contacting your Financial Advisor.
If you do not have an account at PaineWebber or a correspondent firm, and you
bought your shares through the transfer agent, you can sell your shares by
writing to the fund's transfer agent. Your letter must include:
Your name and address;
The fund's name;
The fund account number;
The dollar amount or number of shares you want to sell; and
A guarantee of each registered owner's signature. A signature guarantee may be
obtained from a financial institution, broker, dealer or clearing agency that
is a participant in one of the medallion programs recognized by the Securities
Transfer Agents Association. These are: Securities Transfer Agents Medallion
Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York
Stock Exchange Medallion Signature Program (MSP). The fund will not accept
signature guarantees that are not a part of these programs.
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you sell Class A shares and then repurchase Class A shares of the same fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.
It costs the fund money to maintain shareholder accounts. Therefore, the fund
reserves the right to repurchase all shares in any account that has a net asset
value of less than $500. If the fund elects to do this with your account, it
will notify you that you can increase the amount invested to $500 or more within
60 days. The fund will not repurchase shares in accounts that fall below $500
solely because of a decrease in the fund's net asset value.
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<PAGE>
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PaineWebber Small Cap Fund
EXCHANGING SHARES
-----------------
You may exchange Class A, Class B or Class C shares of the fund for shares of
the same class of most other PaineWebber funds. You may not exchange Class Y
shares.
You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares. However, you may have to pay a deferred sales charge if you
later sell the shares you acquired in the exchange. The fund will use the date
that you purchased the shares in the first fund to determine whether you must
pay a deferred sales charge when you sell the shares in the acquired fund.
Other PaineWebber funds may have different minimum investment amounts. You may
not be able to exchange your shares if your exchange is not as large as the
minimum investment amount in that other fund.
You may exchange shares of one fund for shares of another fund only after the
first purchase has settled and the first fund has received your payment.
PaineWebber and Correspondent Firm Clients. If you bought your shares through
PaineWebber or a correspondent firm, you may exchange your shares by placing an
order with your Financial Advisor.
Other Investors. If you are not a PaineWebber or correspondent firm client, you
may exchange your shares by writing to the fund's transfer agent. You must
include:
Your name and address;
The name of the fund whose shares you are selling and the name of the fund whose
shares you want to buy;
Your account number;
How much you are exchanging (by dollar amount or by number of shares to be
sold); and
A guarantee of your signature. (See 'Selling Shares' for information on
obtaining a signature guarantee.)
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
A fund may modify or terminate the exchange privilege at any time.
PRICING AND VALUATION
---------------------
The price at which you may buy, sell or exchange fund shares is based on net
asset value per share. The fund calculates net asset value on days that the New
York Stock Exchange is open. The fund calculates net asset value separately for
each class as of the close of regular trading on the NYSE (generally,
4:00 p.m., Eastern time). The NYSE normally is not open, and the fund does not
price its shares, on most national holidays and on Good Friday. If trading on
the NYSE is halted for the day before 4:00 p.m., Eastern time, the fund's net
asset value per share will be calculated as of the time trading was halted.
Your price for buying, selling or exchanging shares will be based on the net
asset value that is next calculated after the fund accepts your order. If you
place your order through PaineWebber, your PaineWebber Financial Advisor is
responsible for making sure that your order is promptly sent to the fund.
You should keep in mind that a front-end sales charge may be applied to your
purchase if you buy Class A shares. A deferred sales charge may be applied when
you sell Class B or Class C shares.
The fund calculates its net asset value based on the current market value for
its portfolio securities. The fund normally obtains market values for its
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized 'matrix'
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
fund's board. The fund normally uses the amortized cost method to value bonds
that will mature in 60 days or less.
Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.
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PaineWebber Small Cap Fund
MANAGEMENT
--------------------------------------------------------------------------------
MANAGER
Mitchell Hutchins Asset Management Inc. is the manager and administrator of the
fund. Mitchell Hutchins is located at 51 West 52nd Street, New York, New York,
10019-6114, and is a wholly owned asset management subsidiary of PaineWebber
Incorporated, which is a wholly owned indirect subsidiary of UBS AG, an
internationally diversified organization with headquarters in Zurich,
Switzerland and operations in many areas of the financial services industry. On
October 31, 2000, Mitchell Hutchins was adviser or sub-adviser of 31 investment
companies with 75 separate portfolios and aggregate assets of approximately
$58.3 billion.
Mitchell Hutchins, with the approval of the fund's board, has selected
investment sub-advisers for the fund and reviews the performance of those sub-
advisers.
SUB-ADVISERS AND PORTFOLIO MANAGERS
Ariel Capital Managment, Inc. ('Ariel') and ICM Asset Management, Inc. ('ICM')
serve as sub-advisers for the fund. Ariel is located at 307 North Michigan
Avenue, Suite 500, Chicago, Illinois 60601. As of September 30, 2000, Ariel had
approximately $4.6 billion in assets under management. Eric T. McKissack is
primarily responsible for the day-to-day management of the fund's assets
allocated to Ariel and has held his fund responsibilities since October 10,
2000. He has been with Ariel since 1986 and is currently its vice chair and
co-chief investment officer.
ICM is located at 601 W. Main Avenue, Suite 600, Spokane, Washington 99201.
Although ICM has been in the investment advisory business since 1981, it has not
previously advised mutual funds. As of September 30, 2000, ICM had approximately
$1.86 billion in assets under management. ICM uses a team approach in the
day-to-day management of its share of the fund's assets and has held its fund
responsibilities since October 10, 2000. ICM's team is led by Kevin A. Jones,
CFA, and James M. Simmons, CFA. Five experienced analysts round out the research
team led by Messrs. Simmons and Jones.
Mr. Simmons is the founder and chief investment officer of ICM. Mr. Jones is a
senior portfolio manager with ICM and has managed small- and mid-cap portfolios
since 1997. Prior to his appointment as senior portfolio manager in October
1998, Mr. Jones covered numerous industries as a research analyst. Before
joining ICM, Mr. Jones spent time as a portfolio analyst for another Northwest
investment adviser and as a financial consultant for two major brokerage firms.
He has over 12 years experience in the securities industry.
ADVISORY FEES
The fund paid fees to Mitchell Hutchins for advisory and administrative services
during the last fiscal year at the annual rate of 1.00% of its average daily net
assets.
OTHER INFORMATION
The fund has received an exemptive order from the SEC that permits its board to
appoint and replace sub-advisers and to amend sub-advisory contracts without
obtaining shareholder approval. The fund's shareholders must approve this policy
before its board may implement it. As of the date of this prospectus, the
shareholders of the fund have not been asked to do so.
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<PAGE>
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------------------------
PaineWebber Small Cap Fund
DIVIDENDS AND TAXES
--------------------------------------------------------------------------------
DIVIDENDS
The fund normally declares and pays dividends and distributes any gains
annually.
Classes with higher expenses are expected to have lower dividends. For example,
Class B shares and Class C are expected to have the lowest dividends of any
class of the fund's shares, while Class Y shares are expected to have the
highest.
You will receive dividends in additional shares of the same class unless you
elect to receive them in cash. Contact your Financial Advisor at PaineWebber or
one of its correspondent firms if you prefer to receive dividends in cash.
TAXES
The dividends that you receive from the fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. If you hold fund shares through a tax-exempt account or plan, such as
an IRA or 401(k) plan, dividends on your shares generally will not be subject to
tax.
When you sell fund shares, you generally will be subject to federal income tax
on any gain you realize. If you exchange the fund's shares for shares of another
PaineWebber mutual fund, the transaction will be treated as a sale of the first
fund's shares, and any gain will be subject to federal income tax.
The fund expects that its dividends will be comprised primarily of capital gain
distributions. A distribution of capital gains will be taxed at a lower rate
than ordinary income if the fund held the assets that generated the gains for
more than 12 months. The fund will tell you annually how you should treat its
dividends for tax purposes.
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<PAGE>
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PaineWebber Small Cap Fund
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<PAGE>
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------------------------
PaineWebber Small Cap Fund
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following financial highlights table is intended to help you understand the
fund's financial performance for the past 5 years. Shorter periods are shown for
classes of fund shares that have existed for less than 5 years. Certain
information reflects financial results for a single fund share. In the tables,
'total investment return' represents the rate that an investor would have earned
(or lost) on an investment in the fund (assuming reinvestment of all dividends).
This information in the financial highlights has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the fund's financial statements, is included in the fund's Annual Report to
Shareholders. The Annual Report may be obtained without charge by calling
1-800-647-1568.
PAINEWEBBER SMALL CAP FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------- -----------------------------------------------
FOR THE YEARS ENDED JULY 31, FOR THE YEARS ENDED JULY 31,
----------------------------------------------- -----------------------------------------------
2000 1999 1998 1997 1996# 2000 1999 1998 1997 1996#
---- ---- ---- ---- ----- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 10.97 $ 13.34 $ 13.42 $ 10.22 $ 11.30 $ 10.36 $ 12.78 $ 13.00 $ 9.98 $ 11.15
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income (loss).. (0.14)@ (0.08) (0.13) (0.14) 0.00@ (0.22)@ (0.29) (0.22) (0.23) (0.09)@
Net realized and unrealized
gains (losses) from
investments.................. 1.46@ (1.18) 1.22 3.75 0.50@ 1.36@ (1.02) 1.17 3.66 0.50@
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) from
investment operations........ 1.32 (1.26) 1.09 3.61 0.50 1.14 (1.31) 0.95 3.43 0.41
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions from net
realized gains from
investments.................. -- (1.11) (1.17) (0.41) (1.58) -- (1.11) (1.17) (0.41) (1.58)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period....................... $ 12.29 $ 10.97 $ 13.34 $ 13.42 $ 10.22 $ 11.50 $ 10.36 $ 12.78 $ 13.00 $ 9.98
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total investment return(1).... 12.03% (8.95)% 8.45% 36.11% 4.69% 11.00% (9.79)% 7.60% 35.16% 3.90%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period
(000's)...................... $40,482 $46,680 $47,589 $32,968 $30,675 $11,593 $18,361 $54,639 $40,749 $36,612
Expenses to average net
assets, net of waivers from
adviser(2)................... 1.63% 1.59% 1.56% 2.00% 2.11% 2.46% 2.43% 2.33% 2.75% 2.90%
Net investment income (loss)
to average net assets, net of
waivers from adviser(2)...... (1.22)% (0.77)% (0.99)% (1.16)% 0.02% (2.09)% (1.62)% (1.75)% (1.91)% (0.78)%
Portfolio turnover rate....... 83% 61% 45% 54% 84% 83% 61% 45% 54% 84%
</TABLE>
---------
# Effective April 1, 1996, Mitchell Hutchins took over day-to-day management of
the Fund's assets.
'D' For the period July 26, 1996 (commencement of offering shares) to July 31,
1996.
@ Calculated using the average monthly shares outstanding for the period.
(1) Total investment return is calculated assuming a $10,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale at
net asset value on the last day of each year reported. The figures do not
include any applicable sales charges or program fees; results would be lower
if they were included.
(2) During the year ended July 31, 2000 Mitchell Hutchins waived a portion of
its advisory and administration fees. The ratios excluding the waiver would
be the same since the fee waiver represents less than 0.005%.
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Prospectus Page 16
<PAGE>
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PAINEWEBBER SMALL CAP FUND
<TABLE>
<CAPTION>
CLASS C CLASS Y
----------------------------------------------- ---------------------------------------------------------
FOR THE YEARS ENDED JULY 31, FOR THE YEARS ENDED JULY 31, FOR THE
----------------------------------------------- --------------------------------- PERIOD ENDED
2000 1999 1998 1997 1996# 2000 1999 1998 1997 JULY 31, 1996'D'
---- ---- ---- ---- ----- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.36 $ 12.76 $ 12.98 $ 9.97 $ 11.14 $11.07 $13.42 $13.46 $10.21 $10.23
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
(0.22)@ (0.20) (0.21) (0.24) (0.08)@ (0.12)@ (0.07) (0.07) (0.11) 0.00@
1.36@ (1.09) 1.16 3.66 0.49@ 1.47@ (1.17) 1.20 3.77 (0.02)@
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
1.14 (1.29) 0.95 3.42 0.41 1.35 (1.24) 1.13 3.66 (0.02)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
-- (1.11) (1.17) (0.41) (1.58) -- (1.11) (1.17) (0.41) --
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
$ 11.50 $ 10.36 $ 12.76 $ 12.98 $ 9.97 $12.42 $11.07 $13.42 $13.46 $10.21
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
11.00% (9.63)% 7.61% 35.09% 3.90% 12.20% (8.73)% 8.74% 36.65% (0.20)%
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
$12,648 $18,913 $32,174 $18,812 $18,606 $1,831 $5,044 $7,169 $2,768 $2,801
2.41% 2.39% 2.32% 2.77% 2.91% 1.35% 1.31% 1.39% 1.72% 1.72%*
(2.03)% (1.59)% (1.75)% (1.93)% (0.77)% (1.04)% (0.50)% (0.83)% (0.88)% 0.07%*
83% 61% 45% 54% 84% 83% 61% 45% 54% 84%
</TABLE>
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PaineWebber Small Cap Fund
<TABLE>
<S> <C> <C> <C>
TICKER SYMBOL: Small Cap Fund Class: A: PSCAX
B: PSCBX
C: PSCDX
Y: None
</TABLE>
If you want more information about the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In the fund's annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund and is incorporated by
reference into this prospectus.
You may discuss your questions about the fund by contacting your Financial
Advisor. You may obtain free copies of the fund's annual and semi-annual reports
and its SAI by contacting the fund directly at 1-800-647-1568.
You may review and copy information about the fund, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and Exchange
Commission. You may obtain information about the operations of the SEC's Public
Reference Room by calling the SEC at 1-202-942-8090. You may get copies of
reports and other information about the fund:
For a fee, by electronic request at [email protected] or by writing the SEC's
Public Reference Section, Washington, D.C. 20549-0102; or
Free, from the EDGAR Database on the SEC's Internet website at:
http://www.sec.gov
PaineWebber Securities Trust
-- PaineWebber Small Cap Fund
Investment Company Act File No. 811-7374
'c' 2000 PaineWebber Incorporated. All rights reserved.
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STATEMENT OF DIFFERENCES
------------------------
The service mark symbol shall be expressed as.......................... 'sm'
The dagger symbol shall be expressed as................................ 'D'
The copyright symbol shall be expressed as............................. 'c'
