MITCHELL HUTCHINS KIDDER PEABODY INVESTMENT TRUST III, 497, 1995-12-11

MITCHELL HUTCHINS KIDDER PEABODY INVESTMENT TRUST III
497, 1995-12-11

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PAINEWEBBER SMALL CAP GROWTH FUND
1285 Avenue of the Americas
New York, New York 10019

Professional Management
Portfolio Diversification
Dividend and Capital Gain
Reinvestment
Flexible Pricing'SM'
Low Minimum Investment
Automatic Investment Plan
Systematic Withdrawal Plan
Exchange Privileges
Suitable for Retirement Plans

The Fund is a series of Mitchell Hutchins/Kidder, Peabody Investment Trust III
('Trust'). This Prospectus concisely sets forth information a prospective
investor should know about the Fund before investing. Please retain this
Prospectus for future reference. A Statement of Additional Information dated
December 1, 1995 (which is incorporated by reference herein) has been filed with
the Securities and Exchange Commission. The Statement of Additional Information
can be obtained without charge, and further inquiries can be made, by contacting
the Fund, your PaineWebber investment executive or PaineWebber's correspondent
firms or by calling toll-free 1-800-647-1568.

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

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The date of this Prospectus is December 1, 1995
PAINEWEBBER MUTUAL FUNDS

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

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PROSPECTUS SUMMARY

See the body of the Prospectus for more information on the topics discussed
in this summary.

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<S> <C>
The Fund: PaineWebber Small Cap Growth Fund ('Fund') is a diversified series of Mitchell
Hutchins/Kidder, Peabody Investment Trust III ('Trust'), an open-end management
investment company.
Investment Objective and Long-term capital appreciation; invests primarily in equity securities of small
Policies: capitalization companies.
Total Net Assets at October $47.9 million
31, 1995:
Investment Adviser and Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), an asset
Administrator: management subsidiary of PaineWebber Incorporated ('PaineWebber' or 'PW'),
manages over $44.6 billion in assets. See 'Management.'
Sub-Adviser: George D. Bjurman & Associates ('Bjurman' or 'Sub-Adviser') manages approximately
$2.5 billion in assets. See 'Management.'
Purchases: Shares of beneficial interest are available exclusively through PaineWebber and
its correspondent firms for investors who are clients of PaineWebber or those
firms ('PaineWebber clients') and, for other investors, through PFPC Inc., the
Fund's transfer agent ('Transfer Agent').
Flexible Pricing System: Investors may select Class A, Class B or Class C shares, each with a public
offering price that reflects different sales charges and expense levels. See
'Flexible Pricing System,' 'Purchases,' 'Redemptions' and 'Conversion of Class B
Shares.'
Class A Shares Offered at net asset value plus any applicable sales charge (maximum is 4.5% of
the public offering price).
Class B Shares Offered at net asset value (a maximum contingent deferred sales charge of 5% of
redemption proceeds is imposed on certain redemptions made within six years of
date of purchase). Class B shares automatically convert into Class A shares
(which pay lower ongoing expenses) approximately six years after purchase. Such
Class B shares were not offered prior to December 1, 1995.
</TABLE>

<TABLE>
<S> <C>
Class C Shares Offered at net asset value without an initial or contingent deferred sales charge
(a contingent deferred sales charge of 1% of redemption proceeds is imposed on
certain redemptions made within one year of purchase). Class C shares pay higher
ongoing expenses than Class A shares and do not convert into another Class. Prior
to November 10, 1995, these Class C shares were called 'Class B' shares.
Exchanges: Shares may be exchanged for shares of the corresponding Class of most PaineWebber
mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber; other shareholders must
redeem through the Transfer Agent.
Dividends: Declared and paid annually; net capital gain, if any, also is distributed
annually. See 'Dividends, Distributions and Taxes.'
Reinvestment: All dividends and capital gain distributions are paid in Fund shares of the same
Class at net asset value unless the shareholder has requested cash.
Minimum Purchase: $1,000 for first purchase; $100 for subsequent purchases.
</TABLE>

<TABLE>
<S> <C> <C>
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial sales charge
Systematic withdrawal plan 365-day reinstatement privilege
Rights of accumulation
Class B Shares Automatic investment plan Systematic withdrawal plan
Class C Shares Automatic investment plan Systematic withdrawal plan
</TABLE>

WHO SHOULD INVEST. The Fund invests primarily in equity securities of small
capitalization companies and is designed for investors who are seeking long-term
capital appreciation. The Fund's risk factors are summarized below and are
described in more detail under 'Investment Objective and Policies -- Risk
Factors and Special Considerations.' While the Fund is not intended to provide a
complete or balanced investment program, it can serve as one component of an
investor's long-term program to accumulate assets, for instance, for retirement,
college tuition or other major goals.

RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Small capitalization companies
typically are subject to a greater degree of change in earnings and business
prospects than are larger, more established companies. In addition, securities
of small capitalization companies are traded in lower volume than those issued
by larger companies and are more volatile than those of larger companies. In
light of these characteristics of small capitalization companies and their
securities, the Fund may be subject to greater investment risk than that assumed
by other investment companies. Certain investments made by the Fund, and certain
investment techniques and strategies that the Fund may use, could expose the
Fund to risks and special considerations. The investments presenting the Fund
with risks and special considerations are warrants, securities of foreign
issuers, non-publicly traded securities and illiquid

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securities. Investment practices that may involve risks and special
considerations to the Fund are purchasing and selling stock options and stock
index options, lending portfolio securities, purchasing securities of other
registered investment companies, entering into repurchase agreements and
entering into securities transactions on a when-issued or delayed-delivery
basis. See 'Investment Objective and Policies -- Risk Factors and Special
Considerations' at page 14 of this Prospectus.

EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in the
Fund.

SHAREHOLDER TRANSACTION EXPENSES(1)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------

<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a percentage of public offering
price)......................................................................... 4.5% None None
Sales charge on reinvested dividends............................................. None None None
Maximum contingent deferred sales charge (as a percentage of redemption
proceeds)...................................................................... None(2) 5% 1%(3)
</TABLE>

ANNUAL FUND OPERATING EXPENSES(4)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management fees.............................................................. 1.00% 1.00% 1.00%
12b-1 fees(5)................................................................ 0.25 1.00 1.00
Other expenses............................................................... 0.47 0.48 0.48
------- ------- -------
Total operating expenses..................................................... 1.72% 2.48% 2.48%
------- ------- -------
------- ------- -------
</TABLE>

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(1) Sales charge waivers are available for Class A and Class B shares and
reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge generally declines
by 1% annually thereafter, reaching zero after six years. See 'Purchases.'

(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If shares are redeemed within one year of purchase, a contingent
deferred sales charge of 1% will be applied to the redemption. See 'Purchases.'

(3) If Class C shares are redeemed within one year of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption. See
'Purchases.'

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(4) See 'Management' for additional information. The management fee payable
to Mitchell Hutchins is greater than the management fee paid by most funds. All
expenses, except for Class B shares, are those actually incurred for the fiscal
year ended July 31, 1995. Class B shares 'other expenses' are based on estimates
for the Fund's current fiscal year.

(5) 12b-1 fees have two components, as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------

<S> <C> <C> <C>
12b-1 service fees.................................................................. 0.25% 0.25% 0.25%
12b-1 distribution fees............................................................. 0.00 0.75 0.75
</TABLE>

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 distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.

EXAMPLE OF EFFECT OF FUND EXPENSES

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

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----

<S> <C> <C> <C> <C>
Class A Shares(1)................................................................. $ 62 $ 97 $ 134 $ 239
Class B Shares:
Assuming a complete redemption at end of period(2)(3)........................ $ 75 $107 $ 152 $ 246
Assuming no redemption(3).................................................... $ 25 $ 77 $ 132 $ 246
Class C Shares:
Assuming a complete redemption at end of period(2)........................... $ 35 $ 77 $ 132 $ 282
Assuming no redemption....................................................... $ 25 $ 77 $ 132 $ 282
</TABLE>

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(1) Assumes deduction at the time of purchase of the maximum 4.5% initial sales
charge.

(2) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.

(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.

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This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission ('SEC') applicable to all mutual funds; the
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of any Class of the Fund's shares.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each Class of the Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which the Fund incurs variable expenses, such as transfer agency costs.

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FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for one Class A
share and one Class C share (prior to November 10, 1995, Class C shares were
called 'Class B' shares) of the Fund for each of the periods shown. No new Class
B shares were outstanding during such periods. This information is supplemented
by the financial statements and accompanying notes appearing in the Fund's
Annual Report to Shareholders for the fiscal year ended July 31, 1995, which are
incorporated by reference into the Statement of Additional Information. The
financial statements and notes, and the financial information for the fiscal
year ended July 31, 1995 appearing in the table below, have been audited by
Ernst & Young LLP, independent auditors, whose report thereon is included in the
Annual Report to Shareholders. The financial information for the period ended
July 31, 1994 was audited by other auditors whose report thereon was
unqualified. Further information about the Fund's performance is also included
in the Annual Report to Shareholders, which may be obtained without charge.

<TABLE>
<CAPTION>
Class A Class C
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For the For the For the For the
Year ended Period ended Year ended Period ended
July 31, July 31, July 31, July 31,
1995** 1994`D' 1995** 1994`D'
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<S> <C> <C> <C> <C>
Net asset value, beginning of period........................... $ 9.79 $ 12.00 $ 9.74 $ 12.00
-------- -------- -------- --------
Income (loss) from investment operations:
Net investment loss............................................ (0.20) (0.10) (0.28) (0.13)
Net realized and unrealized gains (losses) from investment
transactions................................................. 4.17 (2.11) 4.12 (2.13)
-------- -------- -------- --------
Total increase (decrease) from investment operations........... 3.97 (2.21) 3.84 (2.26)
-------- -------- -------- --------
Net asset value, end of period................................. $ 13.76 $ 9.79 $ 13.58 $ 9.74
------------ -------- -------- --------
------------ -------- -------- --------
Total investment return(1)..................................... 40.55 % (18.42)% 39.43 % (18.83) %
------------ -------- -------- --------
------------ -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of period (000's).............................. $ 30,927 $ 29,528 $ 15,139 $ 15,159
Ratios of expenses to average net assets....................... 1.72 % 1.68 %* 2.48 % 2.43 %*
Ratios of net investment loss to average net assets............ (1.24)% (1.06)%* (2.00)% (1.80)%*
Portfolio turnover rate........................................ 101 % 56 % 101 % 56 %
</TABLE>

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* Annualized.

** On February 13, 1995, Mitchell Hutchins became investment adviser and
administrator of the Fund. Bjurman remains responsible for the management of
the Fund's portfolio.

`D' For the period November 4, 1993 (commencement of investment operations) to
July 31, 1994.

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and capital
gain distributions, if any, at net asset value on the payable date 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 returns for periods of less than one year have
not been annualized.

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FLEXIBLE PRICING SYSTEM

DIFFERENCES AMONG THE CLASSES

The primary distinctions among the Classes of the Fund's shares lie in
their initial and contingent deferred sales charge structures and in their
ongoing expenses, including asset-based sales charges in the form of
distribution fees. These differences are summarized in the table below. Each
Class has distinct advantages and disadvantages for different investors, and
investors may choose the Class that best suits their circumstances and
objectives.

<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------- -------------------------------- --------------------------------

<S> <C> <C> <C>
CLASS A Maximum initial sales charge of Service fee of 0.25% Initial sales charge waived or
4.5% of the public offering reduced for certain purchases
price
CLASS B Maximum contingent deferred Service fee of 0.25%; Shares convert to Class A shares
sales charge of 5% of redemption distribution fee of 0.75% approximately six years after
proceeds; declines to zero after issuance
six years
CLASS C Contingent deferred sales charge Service fee of 0.25%; --
of 1% of redemption proceeds if distribution fee of 0.75%
redeem within first year after
purchase
</TABLE>

FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

In deciding which Class of shares to purchase, investors should consider
the cost of sales charges together with the cost of the ongoing annual expenses
described below, as well as any other relevant facts and circumstances:

SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.5% of the public offering price. Because of this initial
sales charge, not all of a Class A shareholder's purchase price is invested in
the Fund. Class B shares are sold with no initial sales charge, but a contingent
deferred sales charge of up to 5% of the redemption proceeds applies to
redemptions made within six years of purchase. Class C shareholders pay no
initial sales charges, although a contingent deferred sales charge of 1.00%
applies to certain redemptions of Class C shares made within the first year
after purchase. Thus, the entire amount of a Class B or Class C shareholder's
purchase price is immediately invested in the Fund.

WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases
over $50,000 and Class A share purchases made under the Fund's reduced sales
charge schedule may be made at a reduced sales charge. In considering the
combined cost of sales charges and ongoing annual expenses, investors should
take into account any reduced sales charges on Class A shares for which they may
be eligible.

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The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class C shares, investors eligible for complete waivers
should purchase Class A shares.

ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual
12b-1 service fee of 0.25% of average daily net assets. Class B and Class C
shares pay an annual 12b-1 distribution fee of 0.75% of average daily net
assets. Annual 12b-1 distribution fees are a form of asset-based sales charges.
An investor should consider both ongoing annual expenses and initial or
contingent deferred sales charges in estimating the costs of investing in the
respective Classes of Fund shares over various time periods.

For example, assuming a constant net asset value, the cumulative
distribution fees on the Class B or Class C shares and the 4.5% maximum initial
sales charge on the Class A shares would all be approximately equal if the
shares were held for six years. Because Class B shares convert to Class A shares
(which do not bear the expense of ongoing distribution fees) approximately six
years after purchase, an investor expecting to hold shares of the Fund for
longer than six years would generally pay lower cumulative expenses by
purchasing Class A or Class B shares than by purchasing Class C shares. An
investor expecting to hold shares of the Fund for less than six years would
generally pay lower cumulative expenses by purchasing Class C shares than by
purchasing Class A shares, and, due to the contingent deferred sales charges
that would become payable on redemption of Class B shares, such an investor
would generally pay lower cumulative expenses by purchasing Class C shares than
Class B shares.

The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net asset
value of Fund shares, which will affect the actual amount of expenses paid.
Expenses borne by Classes may differ slightly because of the allocation of other
Class-specific expenses. The 'Example of Effect of Fund Expenses' under
'Prospectus Summary' shows the cumulative expenses an investor would pay over
time on a hypothetical investment in each Class of Fund shares, assuming an
annual return of 5%.

OTHER INFORMATION

PaineWebber investment executives may receive different levels of
compensation for selling one particular Class of Fund shares rather than
another. Investors should understand that distribution fees and initial and
contingent deferred sales charges all are intended to compensate Mitchell
Hutchins for distribution services.

See 'Purchases,' 'Redemptions' and 'Management' for a more complete
description of the initial and contingent deferred sales charges, service fees
and distribution fees for the three Classes of shares. See also 'Conversion of
Class B Shares,' 'Dividends, Distributions and Taxes,' 'Valuation of Shares' and
'General Information' for other differences among the three Classes.

INVESTMENT OBJECTIVE AND POLICIES

OBJECTIVE

The Fund's investment objective is long-term capital appreciation. The
Fund seeks to achieve its objective by investing primarily in equity securities
of small capitalization companies.

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There can be no assurance that the Fund will achieve its investment
objective. The Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities. The Fund's investment objective and certain
investment limitations, as described in the Statement of Additional Information,
are fundamental policies and may not be changed without shareholder approval.
All other investment policies may be changed by the Trust's board of trustees
without shareholder approval.

INVESTMENT POLICIES

The Fund seeks to achieve its investment objective by investing primarily
in equity securities of small capitalization companies, which are U.S. companies
with stock market capitalizations of up to $1 billion. A company's stock market
capitalization is calculated by multiplying the total number of shares of its
common stock outstanding by the market price per share of its common stock.

The Fund has been designed to provide investors with potentially greater
long-term rewards than provided by an investment in a fund that seeks capital
appreciation from common stocks of larger, better-known companies. Several
statistical studies have been published recently indicating that the historical
long-term returns on investments in common stocks of small capitalization
companies have been higher than returns on those of large capitalization
companies. In addition, small capitalization companies generally are not as well
known to the investing public and have less of an investor following than larger
companies and, therefore, may provide opportunities for investment gains as a
result of relative inefficiencies in the marketplace.

In seeking its objective, the Fund invests in equity securities of
companies Bjurman believes to be undervalued and to have the potential for high
earnings growth. Companies in which the Fund invests generally meet one or more
of the following criteria: high historical earnings-per-share ('EPS') growth;
high projected future EPS growth; an increase in research analyst earnings
estimates; attractive relative price earnings ratios; and high relative
discounted cost flows. In selecting the Fund's investments, Bjurman also focuses
on companies with capable management teams, strong industry positions, sound
capital structures, high returns on equity, high reinvestment rates and
conservative financial accounting policies. The Fund emphasizes those industries
and economic sectors Bjurman believes to have the best growth prospects.

In pursuing its objective, the Fund invests substantially all, and under
normal conditions not less than 65%, of its assets in common stocks, preferred
stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights. To the extent that the Fund
invests in convertible debt securities, those securities will be purchased on
the basis of their equity characteristics and ratings of those securities will
not be an important factor in their selection. The equity securities in which
the Fund invests typically are traded in the over-the-counter market or are non-
publicly traded.

The Fund's investments in non-publicly traded securities (also commonly
referred to as 'restricted securities'), which are securities that are subject
to contractual or legal restrictions on transfer, may not exceed 10% of the
Fund's assets. Restricted securities include securities that are not registered
under the Securities Act of 1933, as amended (the '1933 Act'), but that can be
sold to 'qualified institutional buyers' in accordance with

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Rule 144A under the 1933 Act ('Rule 144A Securities'). The Fund is authorized to
invest up to 15% of its assets in illiquid securities, which are securities that
cannot be disposed of by the Fund within seven days in the ordinary course of
business at approximately the amount at which the Fund has valued the
securities. Illiquid securities that are held by the Fund take the form of
repurchase agreements maturing in more than seven days and other securities
subject to restrictions on resale that Bjurman has determined are not liquid
under guidelines established by the Trust's Board of Trustees.

Up to 10% of the Fund's assets may be invested in foreign securities. The
Fund may also invest in securities of foreign issuers in the form of American
Depositary Receipts ('ADRs'), which are U.S. dollar-denominated receipts
typically issued by domestic banks or trust companies that represent the deposit
with those entities of securities of a foreign issuer, and European Depositary
Receipts ('EDRs'), sometimes referred to as Continental Depositary Receipts
('CDRs'), which generally are issued by foreign banks and evidence ownership of
either foreign or domestic securities. ADRs are publicly traded on exchanges or
over-the-counter in the United States and are issued through 'sponsored' or
'unsponsored' arrangements. In a sponsored ADR arrangement, the foreign issuer
assumes the obligation to pay some or all of the depositary's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer assumes no
obligations and the depositary's transaction fees are paid directly by the ADR
holders. In addition, less information is available in the United States about
an unsponsored ADR than about a sponsored ADR. The Fund may invest in ADRs
through both sponsored and unsponsored arrangements.

During normal market conditions, less than 10% of the Fund's total assets
may be held in cash and/or invested in money market instruments for cash
management purposes, pending investment in accordance with the Fund's investment
objective and policies, and to meet anticipated redemptions and operating
expenses. During periods in which Bjurman believes that investment opportunities
in the equity markets are diminished (due to either fundamental changes in those
markets or an anticipated general decline in the value of equity securities) and
Bjurman determines that adoption of a temporary defensive investment posture is
therefore warranted, the Fund may hold cash and/or invest in money market
instruments without limitation. To the extent that it holds cash or invests in
money market instruments, the Fund may not achieve its investment objective of
long-term capital appreciation.

The Fund may invest only in the following types of money market
instruments: securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ('Government Securities'); obligations issued or
guaranteed by foreign governments or by any of their political subdivisions,
authorities, agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of foreign or
domestic banks, domestic savings and loan associations and other banking
institutions having total assets in excess of $500 million); commercial paper;
and repurchase agreements. Government Securities held by the Fund will take the
form of: direct obligations of the U.S. Treasury, and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. Certain
of the Government Securities that may be held by the Fund are instruments that
are supported by the full faith and credit of

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the United States, whereas other Government Securities that may be held by the
Fund are supported by the right of the issuer to borrow from the U.S. Treasury
or are supported solely by the credit of the instrumentality.

The Fund may invest in money market instruments issued or guaranteed by
foreign governments or by any of their political subdivisions, authorities,
agencies or instrumentalities, only if those instruments are rated AAA or AA by
Standard & Poor's ('S&P') or Aaa or Aa by Moody's Investors Service, Inc.
('Moody's') or have received an equivalent rating from another nationally
recognized statistical rating organization ('NRSRO'), or if unrated, are deemed
by Bjurman to be of equivalent quality. Commercial paper held by the Fund may be
rated no lower than A-1 by S&P or Prime-1 by Moody's or the equivalent from
another NRSRO, or if unrated, must be issued by an issuer having an outstanding
unsecured debt issue then rated within the three highest categories. At no time
will the investments of the Fund in bank obligations, including time deposits,
exceed 25% of the value of the Fund's assets.

Although the Fund has no current intention of doing so in the foreseeable
future, the Fund may engage in transactions involving futures contracts and
options on futures contracts, which are described in the Statement of Additional
Information.

INVESTMENT TECHNIQUES AND STRATEGIES

The Fund may engage in a number of investment techniques and strategies,
including those described below. The Fund is under no obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. In addition, no assurance can be given that the use of any practice
will have its intended result or that the use of any practice is, or will be,
available to the Fund.

STOCK OPTIONS. To hedge against adverse market shifts, the Fund may
purchase put and call options on securities held in its portfolio. In addition,
the Fund may seek to increase its income in an amount designed to meet operating
expenses or may hedge a portion of its portfolio investments through writing
(that is, selling) 'covered' call options. A put option provides its purchaser
with the right to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during or at the
end of the option period. In contrast, a call option gives the purchaser the
right to buy the underlying security covered by the option from the writer of
the option at the stated exercise price. A covered call option contemplates
that, for so long as the Fund is obligated as the writer of the option, it will
own (1) the underlying securities subject to the option or (2) securities
convertible into, or exchangeable without the payment of any consideration for,
the securities subject to the option. The value of the underlying securities on
which covered call options will be written at any one time by the Fund will not
exceed 5% of the Fund's total assets.

The Fund may purchase options on securities that are listed on securities
exchanges or that are traded over-the-counter. As the holder of a put option,
the Fund has the right to sell the securities underlying the option and as the
holder of a call option, the Fund has the right to purchase the securities
underlying the option, in each case at the option's exercise price at any time
prior to, or on, the option's expiration date. The Fund may choose to exercise
the options it holds, permit them to expire or terminate them prior to their
expiration by entering into closing

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sale transactions. In entering into a closing sale transaction, the Fund would
sell an option of the same series as the one it has purchased.

STOCK INDEX OPTIONS. In seeking to hedge all or a portion of its
investments, the Fund may purchase and write put and call options on stock
indexes listed on securities exchanges, which indexes include securities held in
the Fund's portfolio.

A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index. Options on
stock indexes are generally similar to options on specific securities. Unlike
those on securities, however, options on stock indexes do not involve the
delivery of an underlying security; the option in the case of an option on a
stock index represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value of the
underlying stock index on the exercise date.

When the Fund writes an option on a stock index, it will establish a
segregated account with its custodian, or a designated sub-custodian, in which
the Fund will deposit cash, money market instruments or a combination of both in
an amount equal to the market value of the option, and will maintain the account
while the option is open. If the Fund has written a stock index option, it may
terminate its obligation by effecting a closing purchase transaction, which is
accomplished by purchasing an option of the same series as the option previously
written.

INVESTMENTS IN OTHER INVESTMENT COMPANIES. As a means of regulating the
Fund's exposure to the equity markets, the Fund may invest in securities issued
by other registered investment companies, including those traded on securities
exchanges, that invest principally in securities in which the Fund is authorized
to invest. Under the 1940 Act, the Fund may invest a maximum of 10% of its total
assets in the securities of other investment companies. In addition, under the
1940 Act, not more than 5% of the Fund's total assets may be invested in the
securities of any one investment company, and the Fund may not own more than 3%
of the securities of any investment company.

LENDING PORTFOLIO SECURITIES. To generate income for the purpose of
helping to meet its operating expenses, the Fund may lend securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 30% of the Fund's assets taken at market
value. The Fund's loans of securities will be collateralized by cash, letters of
credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities are maintained at all times in a segregated account
with the Fund's custodian, or with a designated sub-custodian, in an amount at
least equal to the current market value of the loaned securities.

REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. Although the amount of the Fund's assets that may be invested in
repurchase agreements terminable in less than seven days is not limited,
repurchase agreements maturing in more than seven days, together with other
illiquid securities, may not exceed 15% of the Fund's net assets. The Fund may
engage in repurchase agreement transactions, which are in the nature of secured
loans by the Fund to certain member banks of the Federal Reserve System and with
certain dealers listed on the Federal Reserve Bank of New York's list of
reporting

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<PAGE>
dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually not
more than seven days) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the securities underlying a repurchase
agreement of the Fund is monitored on an ongoing basis by Bjurman to ensure that
the value is at least equal at all times to the total amount of the repurchase
obligation, including interest. Bjurman also monitors, on an ongoing basis to
evaluate potential risks, the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund may enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a 'when, as and if issued' basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.

SHORT SALES AGAINST THE BOX. The Fund may sell securities 'short against
the box.' Whereas a short sale is the sale of a security the Fund does not own,
a short sale is 'against the box' if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investing in the Fund involves risks and special considerations, such as
those described below:

GENERAL. An investment in shares of the Fund should not be considered to
be a complete investment program. The value of the Fund's investments, and as a
result the net asset values of the Fund's shares, fluctuates in response to
changes in the market and economic conditions as well as the financial condition
and prospects of issuers in which the Fund invests. Small capitalization
companies typically are subject to a greater degree of change in earnings and
business prospects than are larger, more established companies. In addition,
securities of small capitalization companies are traded in lower volume than
those issued by larger companies and are more volatile than those of larger
companies. In light of these characteristics of small capitalization companies
and their securities, the Fund may be subject to greater investment risk than
that assumed by other investment companies. Because of the risks
associ-

<PAGE>
<PAGE>
ated with the Fund's investments, the Fund is intended to be a long term
investment vehicle and is not designed to provide investors with a means of
speculating on short-term stock market movements.

WARRANTS. Because a warrant, which is a security permitting, but not
obligating, its holder to subscribe for another security, does not carry with it
the right to dividends or voting rights with respect to the securities that the
warrant holder is entitled to purchase, and because a warrant does not represent
any rights to the assets of the issuer, a warrant may be considered more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying security
and a warrant ceases to have value if it is not exercised prior to its
expiration date. The investment by the Fund in warrants, valued at the lower of
cost or market, may not exceed 5% of the value of the Fund's net assets.
Included within that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
('NYSE') or the American Stock Exchange. Warrants acquired by the Fund in units
or attached to securities may be deemed to be without value.

NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Non-publicly traded
securities may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund.
In addition, companies whose securities are not publicly traded are not subject
to the disclosure and other investor protection requirements that may be
applicable if their securities were publicly traded. The Fund's investments in
illiquid securities are subject to the risk that should the Fund desire to sell
any of these securities when a ready buyer is not available at a price that
Bjurman deems representative of their value, the value of the Fund's net assets
could be adversely affected.

RULE 144A SECURITIES. Certain Rule 144A Securities may be considered
illiquid and, therefore, subject to the Fund's limitation on the purchase of
illiquid securities, unless the Board of Trustees determines on an ongoing basis
that an adequate trading market exists for the Rule 144A Securities. The Fund's
purchase of Rule 144A Securities could have the effect of increasing the level
of illiquidity in the Fund to the extent that qualified institutional buyers
become uninterested for a time in purchasing Rule 144A Securities held by the
Fund. The Board of Trustees has established standards and procedures for
determining the liquidity of a Rule 144A Security and monitors Bjurman's
implementation of the standards and procedures. The ability to sell to qualified
institutional buyers under Rule 144A is a recent development and Bjurman can not
predict how this market will develop.

STOCK OPTIONS. The Fund receives a premium when it writes call options,
which increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. By writing a call, the
Fund limits its opportunity to profit from an increase in the market value of
the underlying security above the exercise price of the option for as long as
the Fund's obligation as writer of the option continues. Thus, in some periods,
the Fund will receive less total return and in other periods greater total
return from its hedged positions than it would have received from its underlying
securities if unhedged.

In purchasing a put option, the Fund seeks to benefit from a decline in
the market

<PAGE>
<PAGE>
price of the underlying security, whereas in purchasing a call option, the Fund
seeks to benefit from an increase in the market price of the underlying
security. If an option purchased is not sold or exercised when it has remaining
value, or if the market price of the underlying security remains equal to or
greater than the exercise price, in the case of a put, or remains equal to or
below the exercise price, in the case of a call, during the life of the option,
the Fund will lose its investment in the option. For the purchase of an option
to be profitable, the market price of the underlying security must decline
sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the
premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.

STOCK INDEX OPTIONS. Stock index options are subject to position and
exercise limits and other regulations imposed by the exchange on which they are
traded. If the Fund writes a stock index option, it may terminate its obligation
by effecting a closing purchase transaction, which is accomplished by purchasing
an option of the same series as the option previously written. The ability of
the Fund to engage in closing purchase transactions with respect to stock index
options depends on the existence of a liquid secondary market. Although the Fund
generally purchases or writes stock index options only if a liquid secondary
market for the options purchased or sold appears to exist, no such secondary
market may exist, or the market may cease to exist at some future date, for some
options. No assurance can be given that a closing purchase transaction can be
effected when the Fund desires to engage in such a transaction.

INVESTMENTS IN OTHER INVESTMENT COMPANIES. To the extent the Fund invests
in other investment companies, the Fund's shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. Exchange
traded investment company securities typically trade at prices that differ from
the company's net asset value per share and often trade at a discount to net
asset value. The Fund will purchase exchange traded investment company
securities only in the secondary market and not in an initial offering.

INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by
foreign companies and governments involves considerations and potential risks
not typically associated with investing in obligations issued by the U.S.
Government and U.S. corporations. Less information may be available about
foreign companies than about U.S. companies, and foreign companies generally are
not subject to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements comparable to those applicable to
domestic companies. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, restrictions or prohibitions on
the repatriation of foreign currencies, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage

<PAGE>
<PAGE>
commissions are generally higher than those charged in the United States, and
foreign securities markets may be less liquid, more volatile and subject to less
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing contractual
obligations, and could be subject to extended clearance and settlement periods.

CURRENCY EXCHANGE RATES. The Fund's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by: the intervention of the U.S.
Government, foreign governments or central banks, the imposition of currency
controls or other political developments in the United States or abroad.

LENDING PORTFOLIO SECURITIES. In lending securities to U.S. and foreign
brokers, dealers and banks, the Fund is subject to risks, which, like those
associated with other extensions of credit, include possible loss of rights in
the collateral should the borrower fail financially.

REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the return available in the market when the delivery takes
place may be higher than that applicable at the time of the purchase. This
characteristic of when-issued and delayed-delivery securities could result in
exaggerated movements in the Fund's net asset value.

PORTFOLIO TRANSACTIONS AND TURNOVER

Decisions to buy and sell securities for the Fund are made by the
Sub-Adviser, subject to review by the Board of Trustees and Mitchell Hutchins,
and are placed with brokers or dealers selected by the Sub-Adviser. The Trustees
have determined that, to the extent consistent with applicable provisions of the
1940 Act and rules and exemptions adopted thereunder, transactions for the Fund
may be executed through PaineWebber if, in the judgment of the Sub-Adviser, the
use of PaineWebber is likely to result in price and execution at least as
favorable to the Fund as those obtainable through other qualified
broker-dealers, and if, in the transaction, PaineWebber charges the Fund a fair
and reasonable rate consistent with that charged to comparable unaffiliated
customers in similar transactions.

The Fund's portfolio is actively managed. The Fund's portfolio turnover
rate may vary greatly from year to year and will not be

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<PAGE>
a limiting factor when the Sub-Adviser deems portfolio changes appropriate. An
annual turnover rate of 100% would occur if all of the securities held by the
Fund are replaced once during a period of one year. Higher portfolio turnover
rates (100% or more) will result in corresponding increases in transaction
costs, which will be borne directly by the Fund, may make it more difficult for
the Fund to qualify as a regulated investment company for federal income tax
purposes and may cause shareholders of the Fund to recognize short-term capital
gains for federal income tax purposes. See 'Dividends, Distributions and
Taxes -- Taxes.'

PURCHASES

GENERAL. Class A shares are sold to investors subject to an initial sales
charge. Class B shares are sold without an initial sales charge but are subject
to higher ongoing expenses than Class A shares and a contingent deferred sales
charge payable upon certain redemptions. Class B shares automatically convert to
Class A shares approximately six years after issuance. Class C shares are sold
without an initial sales charge but are subject to a 1% contingent deferred
sales charge for redemptions made within one year and to higher ongoing expenses
than Class A shares and do not convert into another Class. See 'Flexible Pricing
System' and 'Conversion of Class B Shares.'

Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the Transfer
Agent. Investors may contact a local PaineWebber office to open an account. The
minimum initial investment is $1,000, and the minimum for additional purchases
is $100. These minimums may be waived or reduced for investments by employees of
PaineWebber or its affiliates, certain pension plans and retirement accounts and
participants in the Fund's automatic investment plan. Purchase orders will be
priced at the net asset value per share next determined (see 'Valuation of
Shares') after the order is received by PaineWebber's New York City offices or
by the Transfer Agent, plus any applicable sales charge for Class A shares. The
Fund 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 purchase orders, investors should specify whether the order
is for Class A, Class B or Class C shares. All share purchase orders that fail
to specify a Class will automatically be invested in Class A shares.

PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million.
Investment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
pay for purchases with checks drawn on U.S. banks or with funds held in
brokerage accounts at PaineWebber or its correspondent firms. Payment is due on
the third Business Day after the order is received at PaineWebber's New York
City offices. A 'Business Day' is any day, Monday through Friday, on which the
New York Stock Exchange, Inc. ('NYSE') is open for business.

PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber
clients may purchase shares of the Fund through the Transfer Agent. Shares of
the Fund may be purchased, and an account with the Fund established, by
completing and signing the purchase application at the end of

<PAGE>
<PAGE>
this Prospectus and mailing it, together with a check to cover the purchase, to
the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950,
Wilmington, Delaware 19899. Subsequent investments need not be accompanied by an
application.

INITIAL SALES CHARGE -- CLASS A SHARES. The public offering price of
Class A shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the table
below.
Mitchell Hutchins may at times agree to reallow higher discounts to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown in the
table below. To the extent PaineWebber or any dealer receives 90% or more of the
sales charge, it may be deemed an 'underwriter' under the 1933 Act.

INITIAL SALES CHARGE SCHEDULE -- CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
------------------------------- DISCOUNT TO SELECTED
OFFERING NET AMOUNT INVESTED DEALERS AS A PERCENTAGE OF
AMOUNT OF PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE
- -------------------------------- -------- ------------------- --------------------------

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

(1) Mitchell Hutchins pays compensation to PaineWebber out of its own resources.

SALES CHARGE WAIVERS -- CLASS A SHARES. Class A shares of the Fund are
available without a sales charge through exchanges for Class A shares of most
other PaineWebber mutual funds. See 'Exchanges.' In addition, Class A shares may
be purchased without a sales charge by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber mutual fund, their spouses, parents and children and advisory
clients of Mitchell Hutchins.

Class A shares also may be purchased without a sales charge if the
purchase is made through a PaineWebber investment executive who formerly was
employed as a broker with another firm registered as a broker-dealer with the
SEC, provided (1) the purchaser was the investment executive's client at the
competing brokerage firm, (2) within 90 days of the purchase of Class A shares
the purchaser redeemed shares of one or more mutual funds for which that
competing firm or its affiliates was principal underwriter, provided the
purchaser either paid a sales charge to invest in those funds, paid a contingent
deferred sales charge upon redemption or held shares of those funds for the
period required not to pay the otherwise applicable contingent deferred sales
charge and (3) the total amount of shares of all PaineWebber mutual funds
purchased under this sales charge waiver does not exceed the amount of the
purchaser's redemption proceeds from the competing firm's funds. To take
advantage of this waiver, an investor must provide satisfactory evidence that
all the above-noted conditions are met. Qualifying investors

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<PAGE>
should contact their PaineWebber investment executives for more information.

Certificate holders of unit investment trusts ('UITs') sponsored by
PaineWebber may acquire Class A shares of the Fund without regard to minimum
investment requirements and without sales charges by electing to have dividends
and other distributions from their UIT investment automatically invested in
Class A shares.

CONTINGENT DEFERRED SALES CHARGE -- CLASS A SHARES. Purchases of Class A
shares of $1 million or more may be made without a sales charge. Purchases of
Class A shares of two or more PaineWebber mutual funds may be combined for the
purpose, and the right of accumulation also applies to such purchases. See
'Reduced Sales Charge Plans -- Class A Shares' below. If a shareholder redeems
any Class A shares that were purchased without a sales charge by reason of a
purchase of $1 million or more within one year after the date of purchase, a
contingent deferred sales charge will be applied to the redemption. The Class A
contingent deferred sales charge will be equal to 1% of the lower of (a) the net
asset value of the shares at the time of purchase or (b) the net asset value of
the shares at the time of redemption. Class A shares of the Fund held one year
or longer, and Class A shares of the Fund acquired through reinvestment of
dividends or capital gains distributions will not be subject to this contingent
deferred sales charge. The contingent deferred sales charge for Class A shares
of the Fund will be waived for redemptions in connection with the systematic
withdrawal plan, subject to the limitations described below under 'Other
Services and Information -- Systematic Withdrawal Plan.' This contingent
deferred sales charge does not apply to redemptions of Class A shares purchased
prior to November 10, 1995.

Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of another PaineWebber mutual fund without the
imposition of a contingent deferred sales charge, although contingent deferred
sales charges may apply to the Class A shares acquired through an exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on the redemption. The amount of any contingent deferred sales charge
will be paid to Mitchell Hutchins.

REDUCED SALES CHARGE PLANS -- CLASS A SHARES. If an investor or eligible
group of related Fund investors purchases Class A shares of the Fund
concurrently with Class A shares of other PaineWebber mutual funds, the
purchases may be combined to take advantage of the reduced sales charge
applicable to larger purchases. In addition, the right of accumulation permits a
Fund investor or eligible group of related Fund investors to pay the lower sales
charge applicable to larger purchases by basing the sales charge on the dollar
amount of Class A shares currently being purchased, plus the net asset value of
the investor's or group's total existing Class A shareholdings in other
PaineWebber mutual funds.

An 'eligible group of related Fund investors' includes an individual, the
individual's spouse, parents and children, the individual's individual
retirement account ('IRA'), certain companies controlled by the individual and
employee benefit plans of those companies, and trusts or Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act accounts created by the individual or
eligible group of individuals for the benefit of the individual and/or the
individual's spouse, parents or children. The term also

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includes a group of related employers and one or more qualified retirement plans
of such employers. For more information, an investor should consult the
Statement of Additional Information or contact a PaineWebber investment
executive or correspondent firm or the Transfer Agent.

CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES. The public offering
price of the Class B shares of the Fund is the next determined net asset value,
and no initial sales charge is imposed. A contingent deferred sales charge,
however, is imposed upon certain redemptions of Class B shares.

Class B shares that are redeemed will not be subject to a contingent
deferred sales charge to the extent that the value of such shares represents (1)
reinvestment of dividends or capital gain distributions or (2) shares redeemed
more than six years after their purchase. Otherwise, redemptions of Class B
shares will be subject to a contingent deferred sales charge. The amount of any
applicable contingent deferred sales charge will be calculated by multiplying
the lower of (a) the net asset value of the shares at the time of purchase or
(b) the net asset value of the shares at the time of redemption by the
applicable percentage shown in the table below:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
REDEMPTION DURING APPLICABLE
- -------------------------------- --------------------

<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>

In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares acquired through an exchange with another PaineWebber mutual fund will be
calculated from the date that the Class B shares were initially acquired in one
of the other PaineWebber funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. This will result in
any contingent deferred sales charge being imposed at the lowest possible rate.
For federal income tax purposes, the amount of the contingent deferred sales
charge will reduce the gain or increase the loss, as the case may be, realized
on the redemption. The amount of any contingent deferred sales charge will be
paid to Mitchell Hutchins.

SALES CHARGE WAIVERS -- CLASS B SHARES. The contingent deferred sales
charge will be waived for exchanges, as described below, and for redemptions in
connection with the Fund's systematic withdrawal plan; In addition, the
contingent deferred sales charge will be waived for a total or partial
redemption made within one year of the death of the shareholder. The contingent
deferred sales charge waiver is available where the decedent is either the sole
shareholder or owns the shares with his or her spouse as a joint tenant with
right of survivorship. This waiver applies only to redemption of shares held at
the time of death. The contingent deferred sales charge will also be waived in
connection with a lump-sum or other distribution in the case of an IRA, a self-
employed individual retirement plan (so-called 'Keogh Plan') or a custodial
account under Section 403(b) of the Internal Revenue Code following attainment
of age 59 1/2; any total or partial redemption resulting from a

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<PAGE>
distribution following retirement in the case of a tax-qualified retirement
plan; and a redemption resulting from a tax-free return of an excess
contribution to an IRA.

Contingent deferred sales charge waivers will be granted subject to
confirmation (by PaineWebber in the case of shareholders who are PaineWebber
clients or by the Transfer Agent in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.

PURCHASES OF CLASS C SHARES. The public offering price of the Class C
shares is the next determined net asset value. No initial or contingent deferred
sales charge is imposed.

CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES. If a shareholder
redeems Class C shares within a year after the date of the purchase, a
contingent deferred sales charge will be applied to the redemption. The
contingent deferred sales charge on Class C shares will be equal to 1.00% of the
lower of: (a) the net asset value of the shares at the time of purchase or (b)
the net asset value of the shares at the time of redemption. Class C shares of
the Fund held one year or longer and Class C shares of the Fund acquired through
reinvestment of dividends or capital gains distributions will not be subject to
the contingent deferred sales charge. The contingent deferred sales charge for
Class C shares of the Fund will be waived for redemptions in connection with the
systematic withdrawal plan, subject to the limitations described below under
'Other Services and Information -- Systematic Withdrawal Plan.' This contingent
deferred sales charge does not apply to redemptions of Class C shares purchased
prior to November 10, 1995.

Class C shares of the Fund that are purchased without a sales charge may
be exchanged for Class C shares of another PaineWebber mutual fund without the
imposition of a contingent deferred sales charge, although contingent deferred
sales charges may apply to the Class C shares acquired through an exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on the redemption. The amount of any contingent deferred sales charge
will be paid to Mitchell Hutchins.

EXCHANGES

Shares of the Fund may be exchanged for shares of the corresponding Class
of the PaineWebber mutual funds listed below, or may be acquired through an
exchange of shares of the corresponding Class of those funds. No initial sales
charge is imposed on the shares being acquired, and no contingent deferred sales
charge is imposed on the shares being disposed of, through an exchange. However,
contingent deferred sales charges may apply to redemptions of Class B shares of
PaineWebber mutual funds acquired through an exchange. Exchanges may be subject
to minimum investment requirements of the fund into which exchanges are made.

Exchanges are permitted between the Fund and other PaineWebber mutual
funds, including:

Income Funds

PW GLOBAL INCOME FUND

PW HIGH INCOME FUND

PW INVESTMENT GRADE INCOME FUND

PW LOW DURATION U.S. GOVERNMENT
INCOME FUND

PW STRATEGIC INCOME FUND

PW U.S. GOVERNMENT INCOME FUND

Tax-Free Income Funds

PW CALIFORNIA TAX-FREE INCOME FUND

PW MUNICIPAL HIGH INCOME FUND

PW NATIONAL TAX-FREE INCOME FUND

PW NEW YORK TAX-FREE INCOME FUND

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Growth Funds

PW CAPITAL APPRECIATION FUND

PW EMERGING MARKETS EQUITY FUND

PW GLOBAL EQUITY FUND

PW GROWTH FUND

PW REGIONAL FINANCIAL GROWTH FUND

PW SMALL CAP VALUE FUND

Growth and Income Funds

PW BALANCED FUND

PW GROWTH AND INCOME FUND

PW TACTICAL ALLOCATION FUND

PW UTILITY INCOME FUND

PaineWebber Money Market Fund

PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms unless the shares to be exchanged
are held in certificated form. Shareholders who are not PaineWebber clients or
who hold their shares in certificated form must place exchange orders in writing
with the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, Delaware 19899. All exchanges will be effected based on the
relative net asset values per share next determined after the exchange order is
received at PaineWebber's New York City offices or by the Transfer Agent. See
'Valuation of Shares.' Shares of the Fund purchased through PaineWebber or its
correspondent firms may be exchanged only after the settlement date has passed
and payment for such shares has been made.

OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice when such notice is
required by SEC rules. See the Statement of Additional Information for further
details. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber mutual fund shares to be acquired may be legally
made. Before making any exchange, shareholders should contact their PaineWebber
investment executives or correspondent firms or the Transfer Agent to obtain
more information and prospectuses of the PaineWebber mutual funds to be acquired
through the exchange.

REDEMPTIONS

As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid after receipt of a redemption request as described below.
PaineWebber clients may redeem non-certificated shares through PaineWebber or
its correspondent firms; all other shareholders must redeem through the Transfer
Agent. If a redeeming shareholder owns shares of more than one Class, the shares
will be redeemed in the following order unless the shareholder specifically
requests otherwise: Class C shares, then Class A shares, and finally Class B
shares.

REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients
may submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within three Business Days after
receipt of the request, repurchase proceeds (less any applicable contingent
deferred sales charge) will be paid by check or credited to the shareholder's
brokerage account at the election of the shareholder. PaineWebber investment
executives and correspondent firms are responsible for promptly forwarding
redemption requests to PaineWebber's New York City offices.

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PaineWebber reserves the right not to honor any redemption request, in
which case PaineWebber promptly will forward the request to the Transfer Agent
for treatment as described below.

REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption
requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in 'good
order' and redemption proceeds will be paid within seven days of the receipt of
the request. 'Good order' means that the request must be accompanied by the
following: (1) a letter of instruction or a stock assignment specifying the
number of shares or amount of investment to be redeemed (or that all shares
credited to a Fund account be redeemed), signed by all registered owners of the
shares in the exact names in which they are registered, (2) a guarantee of the
signature of each registered owner by an eligible institution acceptable to the
Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships, partnerships
and corporations and (4) duly endorsed share certificates, if any. Shareholders
are responsible for ensuring that a request for redemption is received in 'good
order.'

ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds
non-certificated Fund shares may have redemption proceeds of $1 million or more
wired to the shareholder's PaineWebber brokerage account or a commercial bank
account designated by the shareholder. Questions about this option, or
redemption requirements generally, should be referred to the shareholder's
PaineWebber investment executive or correspondent firm, or to the Transfer Agent
if the shares are not held in a PaineWebber brokerage account. If a shareholder
requests redemption of shares which were purchased recently, the Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.

Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $500 net asset value. If the Fund elects to do
so, it will notify the shareholder and provide the shareholder the opportunity
to increase the amount invested to $500 or more within 60 days of the notice.
The Fund will not redeem accounts that fall below $500 solely as a result of a
reduction in net asset value per share.

Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed by purchasing
Class A Fund shares within 365 days of the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their PaineWebber investment
executive or correspondent firm at the time the privilege is exercised.

CONVERSION OF CLASS B SHARES

A shareholder's Class B shares will automatically convert to Class A
shares approximately six years after the date of issuance, together with a pro
rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so converted
will no longer be subject to the higher expenses

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borne by Class B shares. The conversion will be effected at the relative net
asset values per share of the two Classes on the first Business Day of the month
in which the sixth anniversary of the issuance of the Class B shares occurs. See
'Valuation of Shares.' If a shareholder effects one or more exchanges among
Class B shares of the PaineWebber mutual funds during the six-year period, the
holding periods for the shares so exchanged will be counted toward the six-year
period.

OTHER SERVICES AND INFORMATION

Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund
through an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment 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.' When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder 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, since 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. Shareholders who own Class A or Class C shares
with a value of $5,000 or more or non-certificated Class B shares with a value
of $20,000 or more may have PaineWebber redeem a portion of their shares
monthly, quarterly or semi-annually under the systematic withdrawal plan. No
contingent deferred sales charge will be imposed on such withdrawals for Class B
shares. The minimum amount for all withdrawals of Class A or Class C shares is
$100, and minimum monthly, quarterly and semi-annual withdrawal amounts for
Class B shares are $200, $400 and $600, respectively. Quarterly withdrawals are
made in March, June, September and December, and semi-annual withdrawals are
made in June and December. A Class B shareholder may not withdraw an amount
exceeding 12% annually of his or her 'Initial Account Balance,' a term that
means the value of the Fund account at the time the shareholder elects to
participate in the systematic withdrawal plan. A shareholder's participation in
the systematic withdrawal plan will terminate automatically if the Initial
Account Balance (plus the net asset value on the date of purchase of Fund shares
acquired after the election to participate in the systematic withdrawal plan),
less aggregate redemptions made other than pursuant to the systematic withdrawal
plan, is less than $20,000 in the case of Class B shares and $5,000 in the case
of Class A or Class C shares. No contingent deferred sales charge will be
imposed on such withdrawals within the first year after purchase for Class A
shares purchased pursuant to the sales charge waiver for purchases of $1 million
or more or Class C shares, provided that the Class A or Class C shareholder does
not withdraw an amount exceeding 12% in the first year after purchase of his or
her Initial Account Balance. Share-

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holders who receive dividends or other distributions in cash may not participate
in the systematic withdrawal plan. Purchases of additional Fund shares
concurrently with withdrawals are ordinarily disadvantageous to shareholders
because of tax liabilities and, for Class A shares, sales charges.

INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Fund may be purchased
through IRAs available through the Fund. In addition, a Self-Directed IRA is
available through Paine-Webber under which investments may be made in the Fund
as well as in other investments available through PaineWebber. Investors
considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.

TRANSFER OF ACCOUNTS. If a shareholder holding shares of the Fund in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares normally will be transferred 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.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Dividends from net investment income and distributions of net realized
capital gains of the Fund, if any, are distributed annually. Unless a
shareholder instructs the Fund that dividends and capital gains distributions on
shares of any Class should be paid in cash and credited to the shareholder's
Account, dividends and capital gains distributions are reinvested automatically
at net asset value in additional shares of the same Class. The Fund is subject
to a 4% nondeductible excise tax measured with respect to certain undistributed
amounts of net investment income and capital gains. If necessary to avoid the
imposition of this tax, and if in the best interests of its shareholders, the
Fund will declare and pay dividends of its net investment income and
distributions of its net capital gains more frequently than stated above. The
per share dividends and distributions on Class A shares are higher than those on
Class B and Class C shares, as a result of the distribution fees borne by Class
B and Class C shares. Dividends on each Class also might be affected differently
by the allocation of other Class-specific expenses. See 'Fee Table,' 'Purchase
of Shares,' 'Distributor' and 'General Information.'

TAXES

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Fund's total assets is invested in the securities (other than Government
Securities or the securities of other regulated investment companies) of a
single issuer or of two or more issuers controlled by the Fund that are engaged
in the same or similar trades or businesses or in related trades or businesses
and (b) at least 50% of the market value of the Fund's total assets is
represented by (i) cash and cash items, (ii) Government Securities and
securities of other regulated investment companies and (iii) other securities
limited in respect of any one issuer to an amount not greater in value than 5%
of the market value of the Fund's total assets and to not more than 10% of the
outstanding voting securities of the issuer. The requirements for qualification
may cause the Fund to restrict the degree to which it sells or otherwise
disposes of stocks, other securities and certain financial instruments held for
less than three months. If the Fund qualifies as a regulated investment company
and meets certain distribution requirements, the Fund will not be subject to
federal income tax on its net investment income and net realized capital gains
that it distributes to its shareholders.

Dividends paid by the Fund out of net investment income and distributions
of net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of how long shareholders have
held their shares and whether the distributions are received in cash or
reinvested in additional shares. Generally, a shareholder's gain or loss on a
sale or redemption of Fund shares will be a long-term capital gain or loss if
the shares have been held for more than one year and a short-term gain or loss
if the shares are held for one year or less. Dividends and distributions paid by
the Fund generally do not qualify for the federal dividends received deduction
for corporate shareholders.

Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of these taxes
reduces the amount of dividends and distributions paid to the Fund's
shareholders. It is not expected that the Fund will be able to elect, for
federal income tax purposes, to treat certain foreign income taxes it pays as
having been paid by its shareholders.

Statements as to the tax status of each Fund shareholder's dividends and
distributions are mailed annually. Shareholders also receive, as appropriate,
various written notices after the close of the Fund's taxable year regarding the
tax status of certain dividends and distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.

Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.

VALUATION OF SHARES

Each Class' net asset value per share is calculated by State Street, the
Fund's custodian, on each day, Monday through Friday, except that net asset
value is not computed on days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on the observance of New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

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Net asset value per share of a Class is determined as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time), and is computed
by dividing the value of the Fund's net assets attributable to that Class by the
total number of shares outstanding of that Class. Generally, the Fund's
investments are valued at market value or, in the absence of a market value, at
fair value as determined by or under the direction of the Trustees.

Securities that are primarily traded on foreign exchanges that close prior
to the close of regular trading on the NYSE (currently 4:00 p.m., Eastern time)
are generally valued for purposes of calculating the Fund's net asset values at
the preceding closing values of the securities on their respective exchanges,
except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the board of trustees. Securities that are primarily traded on
foreign exchanges that close after the close of regular trading on the NYSE are
generally valued at sale prices as of a time reasonably proximate to the close
of regular trading on the NYSE or, if no sales occurred previously during that
day, at the then-current bid price.

A security that is primarily traded on a domestic stock exchange is valued
at the last sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price. An option that is written by the Fund is
generally valued at the last sale price or, in the absence of the last sale
price, the last offer price. An option that is purchased by the Fund is
generally valued at the last sale price or, in the absence of the last sale
price, the last bid price. The value of a futures contract is equal to the
unrealized gain or loss on the contract that is determined by marking the
contract to the current settlement price for a like contract on the valuation
date of the futures contract. A settlement price may not be used if the market
makes a limit move with respect to a particular futures contract or if the
securities underlying the futures contract experience significant price
fluctuations after the determination of the settlement price. When a settlement
price cannot be used, futures contracts will be valued at their fair market
value as determined by or under the direction of the Board of Trustees.

For purposes of calculating a Class' net asset value per share, assets and
liabilities initially expressed in foreign currency values are converted into
U.S. dollar values based on a formula prescribed by the Trust or, if the
information required by the formula is unavailable, as determined in good faith
by the Trustees. Corporate actions by issuers of securities held by the Fund,
such as the payment of dividends or distributions, are reflected in each Class'
net asset value on the ex-dividend date therefore, except that they will be so
reflected on the date the Fund is actually advised of the corporate action if
subsequent to the ex-dividend date. In carrying out the Fund's valuation
policies, State Street may consult with an independent pricing service retained
by the Trust. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.

MANAGEMENT

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and payable monthly, at an annual rate of 1.00% of the Fund's average daily net
assets on assets up to but not including $25 million and .90% thereafter. The
rate of fee paid to Mitchell Hutchins, although higher than the rate paid by
most other investment companies registered under the 1940 Act, is believed by
Mitchell Hutchins to be within the range charged to other investment companies
that invest in securities of small capitalization companies and reflects the
need to devote additional time and incur added expense in developing the
specialized resources contemplated by investing in these securities.

Mitchell Hutchins supervises the activities of Bjurman which, as
sub-adviser for the Fund, makes and implements all investment decisions for the
Fund. Under the sub-advisory contract, Mitchell Hutchins (not the Fund) pays
Bjurman a fee for its services as sub-adviser for the Fund in the amount of .50%
of the Fund's average daily net assets up to but not including $25 million and
.40% thereafter.

The Fund incurs other expenses and, for the fiscal year ended July 31,
1995, the Fund's total expenses for its Class A and Class C shares, stated as a
percentage of average net assets were 1.72% and 2.48%, respectively.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company. As of October 31, 1995, Mitchell Hutchins was adviser
or sub-adviser of 38 investment companies with 75 separate portfolios and
aggregate assets of over $29 billion.

Bjurman, located at 10100 Santa Monica Boulevard, Suite 1200, Los Angeles,
California 90067, is a registered investment adviser under the Investment
Advisers Act of 1940 and concentrates its investment advisory activities in the
area of equity securities with an emphasis on securities of small capitalization
companies. Bjurman provides investment advisory services to a variety of clients
having total assets under its management exceeding $2.5 billion as of September
30, 1995. Bjurman was incorporated on August 5, 1970 under the laws of the State
of California. Bjurman is controlled by Messrs. George A. Bjurman and Owen T.
Barry III. Bjurman has not previously served as an investment adviser to a
registered investment company.

As the Fund's investment sub-adviser, Bjurman manages the Fund's portfolio
in accordance with the investment objective and stated policies of the Fund and
makes investment decisions for the Fund. Bjurman also provides the Fund with
investment officers who are authorized by the Trustees to determine purchases
and sales of securities on behalf of the Fund and employs a professional staff
of portfolio managers who draw upon a variety of sources for research
information for the Fund.

Owen T. Barry III serves as the Fund's Chief Investment Officer and in
that capacity is the individual primarily responsible for the management of the
Fund's assets. Mr. Barry has been the Senior Executive Vice President of Bjurman
for more than the past five years.

Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Sub-Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the Sub-Adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales are allocated in a manner believed by the Sub-Adviser to
be

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equitable to each. In some cases, this procedure may adversely affect the price
paid or received by the Fund or the size of the position obtained or disposed of
by the Fund.

Mitchell Hutchins and Bjurman investment personnel may engage in
securities transactions for their own accounts pursuant to each firm's code of
ethics that establishes procedures for personal investing and restricts certain
transactions.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of Fund
shares and has appointed PaineWebber as the exclusive dealer for the sale of
those shares. Under separate plans of distribution pertaining to the Class A
shares, Class B shares and Class C shares ('Class A Plan,' 'Class B Plan' and
'Class C Plan,' collectively, 'Plans'), the Fund pays Mitchell Hutchins monthly
service fees at the annual rate of 0.25% of the average daily net assets of each
Class of shares. The Fund pays Mitchell Hutchins monthly distribution fees at
the annual rate of 0.75% of the average daily net assets of the Class B shares
and Class C shares.

Under all three Plans, Mitchell Hutchins uses the service fees primarily
to pay PaineWebber for shareholder servicing, currently at the annual rate of
0.25% of the aggregate investment amounts maintained in the Fund by PaineWebber
clients. PaineWebber passes on a portion of these fees to its investment
executives to compensate them for shareholder servicing that they perform and
retains the remainder to offset its own expenses in servicing and maintaining
shareholder accounts. These expenses may include costs of the PaineWebber branch
office in which the investment executive is based, such as rent, communications
equipment, employee salaries and other overhead costs.

Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class C shares. PaineWebber passes on to its investment executives a
portion of these commissions and retains the remainder to offset its expenses in
selling Class B and Class C shares. These expenses may include the branch office
costs noted above. In addition, Mitchell Hutchins uses the distribution fees
under the Class B and Class C Plans to offset the Fund's marketing costs
attributable to such Classes, such as preparation of sales literature,
advertising and printing and distributing prospectuses and other shareholder
materials to prospective investors. Mitchell Hutchins also may use the
distribution fees to pay additional compensation to PaineWebber and other costs
allocated to Mitchell Hutchins' and PaineWebber's distribution activities,
including employee salaries, bonuses and other overhead expenses.

Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives at
the time of sale of Class C shares of the Fund. If PaineWebber makes such
payments, it will retain the service and distribution fees on Class C shares
until it has been reimbursed for its sales commissions and thereafter will pass
a portion of the service and distribution fees on Class C shares on to its
investment executives.

Mitchell Hutchins receives the proceeds of the initial sales charge paid
upon the purchase of Class A shares and the contingent deferred sales charge
paid upon certain redemptions of Class B shares, and may use these proceeds for
any of the distribution expenses described above. See 'Purchases'.

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During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of shares ('Distribution Contracts') obligate
the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses exceed
its service or distribution fees, the Fund will not be obligated to pay more
than those fees and, if Mitchell Hutchins' expenses are less than such fees, it
will retain its full fees and realize a profit. The Fund will pay the service
and distribution fees to Mitchell Hutchins until either the applicable Plan or
Distribution Contract is terminated or not renewed. In that event, Mitchell
Hutchins' expenses in excess of service and distribution fees received or
accrued through the termination date will be Mitchell Hutchins' sole
responsibility and not obligations of the Fund. In their annual consideration
of the continuation of the Fund's Plans, the board of trustees will review
the Plan and Mitchell Hutchins' corresponding expenses for each Class separately
from the Plans and corresponding expenses for the other two Classes.

PERFORMANCE INFORMATION

The Fund performs a standardized computation of annualized total return
and may show this return in advertisements or promotional materials.
Standardized return shows the change in value of an investment in the 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 return for Class A
shares reflects deduction of the Fund's maximum initial sales charge at the time
of purchase, and standardized return for Class B and Class C shares reflect
deduction of the applicable contingent deferred sales charge imposed on a
redemption of shares held for the period. One-, five- and ten-year periods will
be shown, unless the class has been in existence for a shorter period. Total
return calculations assume reinvestment of dividends and other distributions.

The Fund 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 not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.

The Fund will include performance data for Class A, Class B and Class C
shares in any advertisements or promotional materials including Fund performance
data. Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than a shareholder's
cost.

GENERAL INFORMATION

ORGANIZATION. The Trust is registered under the 1940 Act as an open-end
management investment company and was formed as a business trust pursuant to a
Declaration of Trust, as amended from time to time (the 'Declaration'), under
the laws of The Commonwealth of Massachusetts on April 8, 1993. The Fund
commenced investment operations on November 4, 1993. The Declaration authorizes
the Trustees to create separate series, and within each series separate Classes,
of an unlimited number of shares of beneficial interest, par value $.001 per
share.

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When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; (2) the effect of the
respective sales charges, if any, for each Class; (3) the distribution and/or
service fees, if any, borne by each Class; (4) the expenses allocable
exclusively to each Class; (5) voting rights on matters exclusively affecting a
single Class; and (6) the exchange privilege of each Class. The board of
trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Trustees, on an ongoing
basis, will consider whether any conflict exists and, if so, take appropriate
action. Certain aspects of the shares may be changed, upon notice to Fund
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trust's board of trustees.

Shareholders of the 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 the aggregate
shares of the Trust may elect all of the Trustees. Generally, shares of the
Trust are voted on a Trust-wide basis on all matters except those affecting only
the interests of one series, such as the Fund's investment advisory agreement.
In turn, shares of the Fund are voted on a Fund-wide basis on all matters except
those affecting only the interests of one Class, such as the terms of each plan
of distribution as it relates to a Class.

The Trust does not intend to hold annual meetings of shareholders for the
purpose of electing Trustees unless, and until such time as, less than a
majority of the Trustees holding office have been elected by shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares of
the 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 for the purpose of voting on the removal of a Trustee at the written
request of holders of 10% of the Trust's outstanding shares. Shareholders of the
Fund who satisfy certain criteria will be assisted by the Trust in communicating
with other shareholders in seeking the holding of the meeting.

To avoid additional operating costs and for investor convenience, the Fund
does not issue share certificates. Ownership of the Fund's shares is recorded on
a stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is the custodian of the
Fund's assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is the Fund's transfer and dividend disbursing agent.

CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of
purchases and redemptions of Fund shares. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.

THE PAINEWEBBER
MUTUAL FUNDS

Application Form

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PaineWebber Account No.

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INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED THROUGH PAINEWEBBER. INSTEAD,
CALL YOUR PAINEWEBBER INVESTMENT EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN
ACCOUNT).
Return this completed form to:
ALSO, DO NOT USE THIS FORM TO OPEN A RETIREMENT PLAN PFPC Inc.
ACCOUNT. FOR RETIREMENT PLAN FORMS OR FOR ASSISTANCE IN P.O. Box 8950
COMPLETING THIS FORM CONTACT PFPC INC. AT 1-800-647-1568. Wilmington, DE 19899
ATTN: PaineWebber Mutual Funds
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PLEASE PRINT

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[1] INITIAL INVESTMENT ($1,000 MINIMUM)

ENCLOSED IS A CHECK FOR:
$________(payable to PaineWebber Small Cap Growth Fund) to purchase Class A [ ] or Class B [ ] or
Class C [ ] shares.
(Check one Class; if no class is specified Class A shares will be purchased)
A SEPARATE CHECK IS REQUIRED FOR YOUR INVESTMENT IN EACH FUND.

[2] ACCOUNT REGISTRATION

1. Individual / /
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First Name Last Name MI Soc. Sec. No.

2. Joint Tenancy / /
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First Name Last Name MI Soc. Sec. No.
('Joint Tenants with Rights of Survivorship' unless otherwise specified)

3. Gifts to Minors / /
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Minor's Name Soc. Sec. No.
Not valid without
signature and Soc. Sec.
or Tax ID # on
accompanying Form W-9.
-- As joint tenants,
use Lines 1 and 2.
-- As custodian for a
minor, use Lines 1
and 3.
-- In the name of a
corporation, trust
or other
organization or any
fiduciary capacity,
use Line 4.
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Under the Uniform Gifts Uniform Transfers
---------------------------------------- to Minors Act / to Minors Act
State of Residence of Minor
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4. Other Registrations
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Name Tax Ident. No.

5. If Trust, Date of Trust Instrument:
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[3] ADDRESS
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U.S. Citizen [ ] Yes [ ] No*
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Street

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City State Zip Code *Country of Citizenship
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[4] DISTRIBUTION OPTIONS See Prospectus

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Please select one of the following:
[ ] Reinvest both dividends and capital gain distributions in additional
shares.
[ ] Pay dividends to my address above; reinvest capital gain distributions.
[ ] Pay both dividends and capital gain distributions in cash to my address
above.
[ ] Reinvest dividends and pay capital gain distributions in cash to my
address above.
NOTE: If a selection is not made, both dividends and capital gain
distributions will be paid in additional Fund shares of the same Class.
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[5] SPECIAL OPTIONS (For More Information -- Check Appropriate Box)
[ ] Prototype IRA Application [ ] Automatic Investment Plan [ ] Systematic Withdrawal Plan
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[6] RIGHTS OF ACCUMULATION -- CLASS A SHARES See Prospectus
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Indicate here any other account(s) in the group of funds that would qualify for the
cumulative quantity discount as outlined in the Prospectus.
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Fund Name Account No. Registered Owner

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Fund Name Account No. Registered Owner
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[7] PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
'Affiliated' persons are defined as officers, directors/trustees and employees of the
PaineWebber funds, PaineWebber or its affiliates, and their parents, spouses and children.

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Nature of Relationship

[8] SIGNATURE(S) AND TAX CERTIFICATION

I warrant that I have full authority and am of legal age to purchase shares of the Fund
and have received and read a current Prospectus of the Fund and agree to its terms. The
Fund and its Transfer Agent will not be liable for acting upon instructions or inquiries
believed genuine. Under penalties of perjury, I certify that (1) my taxpayer
identification number provided in this application is correct and (2) I am not subject to
backup withholding because (i) I have not been notified that I am subject to backup
withholding as a result of failure to report interest or dividends or (ii) the IRS has
notified me that I am no longer subject to backup withholding (STRIKE OUT CLAUSE (2) IF
INCORRECT).
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Individual (or Custodian) Joint Registrant (if any) Date

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Corporate Officer, Partner, Trustee, etc. Title Date

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[9] INVESTMENT EXECUTIVE IDENTIFICATION (To be Completed By Investment Executive Only)

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Broker No./Name Branch Wire Code

( )
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Branch Address Telephone
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[10] CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Correspondent Firm Only)

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Name Address

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MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECUTIVE OR CORRESPONDENT FIRM OR TO:
PFPC INC., P.O. BOX 8950, WILMINGTON, DELAWARE 19899.
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Shares of the Fund can be exchanged for shares of the following PaineWebber
Mutual Funds:

INCOME FUNDS
PW Global Income Fund
PW High Income Fund
PW Investment Grade Income Fund
PW Low Duration U.S. Government Income Fund
PW Strategic Income Fund
PW U.S. Government Income Fund

TAX-FREE INCOME FUNDS
PW California Tax-Free Income Fund
PW Municipal High Income Fund
PW National Tax-Free Income Fund
PW New York Tax-Free Income Fund
GROWTH FUNDS
PW Capital Appreciation Fund
PW Emerging Markets Equity Fund
PW Global Equity Fund
PW Growth Fund
PW Regional Financial Growth Fund
PW Small Cap Value Fund

GROWTH AND INCOME FUNDS
PW Balanced Fund
PW Growth and Income Fund
PW Tactical Allocation Fund
PW Utility Income Fund

PAINEWEBBER MONEY MARKET FUND
------------------------

A prospectus containing more complete information for any of the above funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Read the prospectus carefully before investing.

'c'1995 PaineWebber Incorporated

[Recycled Logo] Printed on recycled paper

PAINEWEBBER

SMALL CAP GROWTH FUND

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TABLE OF CONTENTS

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PAGE
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Prospectus Summary................................. 2
Financial Highlights............................... 7
Flexible Pricing System............................ 8
Investment Objective and Policies.................. 9
Purchases.......................................... 18
Exchanges.......................................... 22
Redemptions........................................ 23
Conversion of Class B Shares....................... 24
Other Services and Information..................... 25
Dividends, Distributions and Taxes................. 26
Valuation of Shares................................ 27
Management......................................... 28
Performance Information............................ 31
General Information................................ 31
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PROSPECTUS
December 1, 1995
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PAINEWEBBER SMALL CAP GROWTH FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

PaineWebber Small Cap Growth Fund ('Fund') is a diversified series of
Mitchell Hutchins/Kidder, Peabody Investment Trust III ('Trust'), a
professionally managed mutual fund. The Fund seeks long-term capital
appreciation by investing primarily in equity securities of small capitalization
companies. The Fund's investment adviser, administrator and distributor is
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly owned
subsidiary of PaineWebber Incorporated ('PaineWebber'). The Fund's investment
sub-adviser is George D. Bjurman & Associates ('Bjurman' or 'Sub-Adviser'). As
distributor for the Fund, Mitchell Hutchins has appointed PaineWebber to serve
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 Fund's current Prospectus, dated December 1, 1995. A copy
of the Prospectus may be obtained by calling any PaineWebber investment
executive or corresponding firm or by calling toll-free 1-800-647-1568. This
Statement of Additional Information is dated December 1, 1995.

INVESTMENT POLICIES AND RESTRICTIONS

The Prospectus discusses the investment objective of the Fund and the
policies employed in achieving that objective. Supplemental information is set
out below concerning certain of the securities and other instruments in which
the Fund may invest, the investment techniques and strategies that the Fund may
utilize and certain risks involved with those investments, techniques and
strategies.

GOVERNMENT SECURITIES

Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ('Government Securities') in which the Fund may invest include
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. Government, including the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board, Student Loan Marketing
Association and Resolution Trust Corporation. Direct obligations of the United
States Treasury include a variety of securities that differ in their interest
rates, maturities and dates of issuance. Because the U.S. Government is not
obligated by law to provide support to an instrumentality that it sponsors, the
Fund invests in obligations issued by an

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instrumentality of the U.S. Government only if the Sub-Adviser, under the
supervision of Mitchell Hutchins, determines that the instrumentality's credit
risk does not make its securities unsuitable for investment by the Fund.

INVESTMENT TECHNIQUES AND STRATEGIES

STOCK OPTIONS. To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options on securities. Should these state laws change or
should the Fund obtain a waiver of their application, the Fund may commit more
than 5% of its assets to premiums when purchasing call and put options on
securities. In addition, should the Trust determine that a commitment is no
longer in the best interests of the Fund and its shareholders, the Trust will
revoke the commitment by terminating the sale of the Fund's shares in the state
involved.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Although the Fund has
no current intention of doing so in the foreseeable future, the Fund reserves
authority to trade stock index futures contracts, and options on those
contracts, for a variety of risk reduction purposes such as hedging a portion of
the Fund's portfolio or providing an efficient means of regulating the Fund's
exposure to certain equity markets. A stock index futures contract is an
agreement to take or make delivery of an amount of cash equal to the difference
between the value of the index at the beginning and at the end of the contract
period. An option on a futures contract, in contrast to a direct investment in
the contract, gives the purchaser the right, in return for the premium paid, to
assume a position in the underlying futures contract at a specified exercise
price at any time on or before the expiration date of the option. The Fund may
assume both 'long' and 'short' positions with respect to futures contracts. A
long position involves entering into a futures contract to buy a commodity,
whereas a short position involves entering into a futures contract to sell a
commodity.

The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without necessarily buying or
selling the securities. Because the value of the Fund's investment securities
will exceed the value of the futures contracts sold by the Fund, an increase in
the value of the futures contracts could only mitigate, but not totally offset,
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon trading a futures contract. Upon trading a futures
contract, the Fund will be required to deposit in a segregated account with its
custodian, or designated sub-custodian, an amount of cash, short-term Government
Securities or other U.S. dollar-denominated, high-grade, short-term money market
instruments equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded and brokers
may charge a higher amount). This amount is known as 'initial margin' and is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming that all
contractual obligations have been satisfied; the broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as 'variation margin,' to and from the
broker, will be made daily as the price of the currency or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as 'marking-to-market.'
At any time prior to the expiration of a futures contract, the Fund may elect to
close a position by

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taking an opposite position, which will operate to terminate the Fund's existing
position in the contract.

The Fund may not (1) trade any futures contracts or options on futures
contracts if, immediately after the transactions, the aggregate of margin
deposits on all of the Fund's outstanding futures contracts and premiums paid on
its outstanding options on futures contracts would exceed 5% of the market value
of the total assets of the Fund after taking into account unrealized profits and
losses on any futures contracts or options on futures contracts or (2) enter
into any futures contracts or options on futures contracts if the aggregate of
the market value of the Fund's outstanding futures contracts and market value of
the futures contracts subject to outstanding options written by the Fund would
exceed 50% of the market value of the total assets of the Fund. Each short
position in a futures or options contract entered into by the Fund is secured by
the Fund's ownership of underlying securities. The Fund does not use leverage
when it enters into long futures or options contracts; the Fund places in a
segregated account with its custodian, or designated sub-custodian, with respect
to each of its long positions, cash or money market instruments having a value
equal to the underlying commodity value of the contract.

The Fund may trade stock index futures contracts to the extent permitted
under rules and interpretations adopted by the Commodity Futures Trading
Commission (the 'CFTC'). U.S. futures contracts have been designed by exchanges
that have been designated as 'contract markets' by the CFTC, and must be
executed through a futures commission merchant, or brokerage firm, that is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.

In entering into transactions involving futures contracts and options on
those contracts, the Fund is subject to a number of risks and special
considerations. The successful use of futures contracts and options on those
contracts draws upon Bjurman's special skills and experience with respect to
those instruments and usually depends on Bjurman's ability to forecast stock
market movements correctly. Should stock markets move in an unexpected manner,
the Fund may not achieve the anticipated benefits of futures contracts or
options on those contracts or may realize losses and thus be in a less
advantageous position than if those strategies had not been used. Certain
futures contracts and options on futures contracts are subject to no daily price
fluctuation limits so that adverse market movements could continue with respect
to those instruments to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of those instruments and
movements in the price of the securities hedged or used for cover are not
perfect.

The Fund's ability to dispose of its positions in futures contracts and
options on those contracts depends on the availability of active markets in
those instruments. Markets in options and futures with respect to a number of
securities are relatively new and still developing. Bjurman cannot now predict
the amount of trading interest that may exist in the future in various types of
futures contracts and options. Futures and options may be closed out only on the
exchange on which the contract was entered (or a linked exchange) so that no
assurance can be given that the Fund will be able to utilize these instruments
effectively for the purposes described above.

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No secondary market for futures contracts currently exists, and although
the Fund intends to trade futures contracts only if an active market for them
exists, no assurance can be given that an active market will exist for the
contracts at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made on that day at a price beyond that limit. Prices for futures contracts may
move to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting the Fund to substantial losses. In that case, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the Fund's securities being hedged, if any, may partially or
completely offset losses on the futures contract.

In addition, although the Trust anticipates that the Fund's options and
futures transactions will not prevent the Fund from qualifying as a regulated
investment company for federal income tax purposes, the Fund's ability to engage
in options and futures transactions may be limited by this tax consideration.
See 'Dividends, Distributions and Taxes -- Taxes,' in the Prospectus. In writing
options, the Fund is subject to the risk of loss resulting from the difference
between the premium received for the option and the price of the futures
contract underlying the option that the Fund must purchase or deliver upon
exercise of the option.

LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 30% of the value of the Fund's total
assets. The Fund's loans of securities will be collateralized by cash, letters
of credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities will be maintained at all times in a segregated
account with the Fund's custodian, or with a designated sub-custodian, in an
amount at least equal to the current market value of the loaned securities. From
time to time, the Fund may pay a part of the interest earned from the investment
of collateral received for securities loaned to the borrower and/or a third
party that is unaffiliated with the Fund and is acting as a 'finder.' The Fund
complies with the following conditions whenever it loans securities: (1) the
Fund must receive at least 100% cash collateral or equivalent securities from
the borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower except that,
if a material event adversely affecting the investment in the loaned securities
occurs, the Trust's Board of Trustees must terminate the loan and regain the
right to vote the securities.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When the Fund engages in
when-issued or delayed-delivery securities transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.

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INVESTMENT RESTRICTIONS

Investment restrictions numbered 1 through 10 below have been adopted by
the Trust as fundamental policies with respect to the Fund. Under the Investment
Company Act of 1940, as amended (the '1940 Act'), a fundamental policy may not
be changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. Investment restrictions numbered 11
through 17 may be changed by a vote of a majority of the Trust's Board of
Trustees at any time.

Under the investment restrictions adopted by the Trust with respect to the
Fund:

1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.

2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, except that this limitation is not applicable to the
Fund's investments in Government Securities, and up to 25% of the Fund's
assets may be invested without regard to this 10% limitation.

3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 20% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of the Fund,
the Fund will not make any additional investments.

4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 30% of the Fund's assets taken at value and entering into
repurchase agreements.

5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include the government of
any country other than the United States, but not the U.S. Government.

6. The Fund will not purchase securities on margin, except that the
Fund may obtain any short-term credits necessary for the clearance of
purchases and sales of securities. For purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts or options on futures contracts will not be deemed to be
a purchase of securities on margin.

7. The Fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open, the Fund
owns an equal amount of the securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issue as, and equal in amount to, the securities sold short.

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8. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real
estate.

9. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other similar
contracts.

10. The Fund will not act as an underwriter of securities, except
that the Fund may acquire securities under circumstances in which, if the
securities were sold, the Fund might be deemed to be an underwriter for
purposes of the Securities Act of 1933, as amended.

11. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.

12. The Fund will not purchase any investment company security, other
than a security acquired pursuant to a plan of reorganization or an offer
of exchange, if as a result of the purchase (a) the Fund would own more
than 3% of the total outstanding voting securities of any investment
company, (b) more than 5% of the value of the Fund's total assets would be
invested in securities of any one investment company or (c) more than 10%
or the Fund's total assets would be invested in securities issued by
investment companies.

13. The Fund will not participate on a joint or joint-and-several
basis in any securities trading account.

14. The Fund will not make investments for the purpose of exercising
control of management.

15. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of its total assets
invested in securities of companies (including predecessors) that have been
in continuous operation for fewer than three years.

16. The Fund will not purchase or retain securities of any company
if, to the knowledge of the Fund, any of the Trust's Trustees or officers
or any officer or director of Mitchell Hutchins or Bjurman individually
owns more than 0.5% of the outstanding securities of the company and
together they own beneficially more than 5% of the securities.

17. The Fund will not invest in warrants (other than warrants
acquired by the Fund as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of the Fund's net assets of
which not more than 2% of the Fund's net assets may be invested in warrants
not listed on a recognized foreign or domestic stock exchange.

The Trust may make commitments regarding the Fund more restrictive than the
restrictions listed above so as to permit the sale of the Fund's shares in
certain states. Should the Trust determine that a commitment is no longer in the
best interests of the Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of the Fund's shares in the state involved.
The percentage limitations contained in the restrictions listed above apply at
the time of purchase of the securities.

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TRUSTEES AND OFFICERS

The names of Trustees and officers of the Trust, together with information
as to their principal business occupations during the last five years, are shown
below.

David J. Beaubien, 60, Trustee. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring instruments. Director of IEC,
Inc., manufacturer of electronic assemblies, Belfort Instruments, Inc.,
manufacturer of environmental instruments, and Oriel Corp., manufacturer of
optical instruments. Prior to January 1991, Senior Vice President of EG&G, Inc.,
a company that makes and provides a variety of scientific and technically
oriented products and services. Mr. Beaubien is a director or trustee of 11
other investment companies for which Mitchell Hutchins or PaineWebber
Incorporated ('PaineWebber') serves as investment adviser.

William W. Hewitt, Jr., 66, Trustee. Trustee of The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Bond Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The
Guardian Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian
U.S. Government Trust. Mr. Hewitt is a director or trustee of 11 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Thomas R. Jordan, 66, Trustee. Principal of The Dilenschneider Group, Inc.,
a corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm. Mr. Jordan is a director or trustee
of 10 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.

Carl W. Schafer, 59, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd., Evans Systems, Inc.
and Hidden Lake Gold Mines Ltd., gold mining companies, Electronic Clearing
House, Inc., a financial transactions processing company, Wainoco Oil
Corporation and Nutraceutix, Inc., a biotechnology company. Prior to January
1993, chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Mr.
Schafer is a director or trustee of 10 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.

Margo N. Alexander, 48, President. President, chief executive officer and a
director of Mitchell Hutchins. Prior to January 1995, an executive vice
president of PaineWebber. Ms. Alexander is also a director or trustee of two
investment companies and president of 37 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.

Owen T. Barry III, 50, Senior Vice President and Chief Investment Officer.
Senior Executive Vice President and Director of Investments of Bjurman.

Teresa M. Boyle, 37, Vice President. First vice president and
manager -- advisory administration of Mitchell Hutchins. Prior to November 1993,
compliance manager of Hyperion Capital Management, Inc., an investment advisory
firm. Prior to April 1993, a vice president and

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manager -- legal administration of Mitchell Hutchins. Ms. Boyle is also a vice
president of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Neil G. Cumming, 41, Vice President and Investment Officer. Senior Vice
President and Portfolio Manager/Senior Research Analyst of Bjurman. Prior to
August 1992, Investment Department Manager of First Business Bank of Los
Angeles.

Scott H. Griff, 29, Vice President and Assistant Secretary. Vice president
and attorney of Mitchell Hutchins. Prior to January 1995, an associate at the
law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff is also a vice
president and assistant secretary of 10 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.

C. William Maher, 34, Vice President and Assistant Treasurer. Mr. Maher is
a first vice president and a senior manager of the mutual fund finance division
of Mitchell Hutchins. Mr. Maher is also a vice president and assistant treasurer
of 37 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.

Ann E. Moran, 38, Vice President and Assistant Treasurer. Vice president of
Mitchell Hutchins. Ms. Moran is also a vice president and assistant treasurer of
37 other investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.

Dianne E. O'Donnell, 43, Vice President and Secretary. Senior vice
president and deputy general counsel of Mitchell Hutchins. Ms. O'Donnell is also
a vice president and secretary of 37 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.

Victoria E. Schonfeld, 44, Vice President. Managing director and general
counsel of Mitchell Hutchins. From April 1990 to May 1994, a partner in the law
firm of Arnold & Porter. Ms. Schonfeld is also a vice president and assistant
secretary of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Paul H. Schubert, 32, Vice President and Assistant Treasurer. First vice
president and a senior manager of the mutual fund finance division of Mitchell
Hutchins. From August 1992 to August 1994, vice president at BlackRock Financial
Management, Inc. Prior to August 1992, an audit manager with Ernst & Young LLP.
Mr. Schubert is also a vice president and assistant treasurer of 37 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Julian F. Sluyters, 35, Vice President and Treasurer. Senior vice president
and the director of the mutual fund finance division of Mitchell Hutchins. Prior
to 1991, an audit senior manager with Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 37 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.

Gregory K. Todd, 38, Vice President and Assistant Secretary. First vice
president and associate general counsel of Mitchell Hutchins. Prior to 1993, a
partner with the law firm of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant secretary of 37 other investment companies
for which Mitchell Hutchins or PaineWebber serves as investment adviser.

The addresses of the Trustees are as follows: Mr. Beaubien, Montague
Industrial Park, 101 Industrial Road, Box 746, Turner Falls, Massachusetts
01376; Mr. Hewitt, P.O. Box 2359,

Princeton, New Jersey 08543-2359; Mr. Jordan, 200 Park Avenue, New York, New
York 10166; and Mr. Schafer, P.O. Box 1164, Princeton, New Jersey 08542. The
address of the officers listed above, other than Messrs. Barry and Cumming, is
1285 Avenue of the Americas, New York, New York 10019. The address of Messrs.
Barry and Cumming is 10100 Santa Monica Boulevard, Suite 1200, Los Angeles,
California 90067.

By virtue of the responsibilities assumed by Mitchell Hutchins under its
management agreement with the Trust (the 'Management Agreement'), and by the
Sub-Adviser under its Sub-Investment Advisory Agreement with Mitchell Hutchins
and the Trust, the Fund requires no executive employees other than officers of
the Trust, none of whom devotes full time to the affairs of the Fund. Trustees
and officers of the Trust, as a group, owned less than 1% of the outstanding
Class A shares, Class C shares and Class Y shares of beneficial interest as of
November 1, 1995. The Trust pays each Trustee who is not an officer, director or
employee of Mitchell Hutchins, the Sub-Adviser, or any of their affiliates, an
annual retainer of $1,000, and $375 for each Board of Trustees meeting attended,
and reimburses the Trustee for out-of-pocket expenses associated with attendance
at Board meetings. The Chairman of the Board's audit committee receives an
annual fee of $250. No officer, director or employee of Mitchell Hutchins, the
Sub-Adviser, or any of their affiliates, receives any compensation from the
Trust for serving as an officer or Trustee of the Trust. The amount of
compensation paid by the Fund to each Trustee for the fiscal year ended July 31,
1995, and the aggregate amount of compensation paid to each such Trustee for the
year ended December 31, 1994 by all investment companies in the same fund
complex for which such person is a Board member were as follows:

<TABLE>
<CAPTION>
(5)
(3) TOTAL COMPENSATION
(2) PENSION OR (4) FROM FUND AND
(1) AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL OTHER INVESTMENT
NAME OF BOARD COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPANIES IN THE
MEMBER FUND FUND'S EXPENSES RETIREMENT FUND COMPLEX*
- ------------------------------ ----------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
David J. Beaubien $ 2,500 None None $ 80,700
William W. Hewitt, Jr. $ 2,500 None None $ 74,425
Thomas R. Jordan $ 2,500 None None $ 83,125
Carl W. Schafer $ 2,750 None None $ 84,575
</TABLE>

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

* Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

The Fund bears all expenses incurred in its operation that are not
specifically assumed by Mitchell Hutchins or the Sub-Adviser. General expenses
of the Trust not readily identifiable as belonging to the Fund are allocated
among the Fund or the Trust's other series by or under the direction of the
board of trustees in such manner as the board deems to be fair and equitable.
Expenses borne by the Fund include the following (or the Fund's share of 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

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registration and qualification of the Fund's shares and the Trust under federal
and state securities laws and maintenance of such registrations and
qualifications, (5) fees and salaries payable to trustees who are not interested
persons (as defined in the 1940 Act) of the Trust 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, uncollectable 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
the Fund for violation of any law, (10) legal, accounting and auditing expenses,
including legal fees of special counsel for the independent trustees, (11)
charges of custodians, transfer agents and other agents, (12) costs of preparing
share certificates, (13) expenses of setting in type and printing prospectuses
and supplements thereto, statements of additional information and supplements
thereto, reports and proxy materials for existing shareholders, and costs of
mailing such materials to existing shareholders, (14) any extraordinary expenses
(including fees and disbursements of counsel) incurred by the Trust or the Fund,
(15) fees, voluntary assessments and other expenses incurred in connection with
membership in investment. company organizations, (16) costs of mailing and
tabulating proxies and costs of meetings of shareholders, the board and any
committees thereof, (17) the cost of investment company literature and other
publications provided to trustees and officers and (18) costs of mailing,
stationery and communications equipment.

For the fiscal year ended July 31, 1995 and for the period November 4, 1993
(commencement of investment operations) through July 31, 1994, the Trust paid
(or accrued) management fees with respect to the Fund of $474,177 and $411,260,
respectively, to the Fund's investment adviser and administrator during those
periods.

For the fiscal year ended July 31, 1995 and for the period November 4, 1993
(commencement of investment operations) through July 31, 1994, the Fund's
investment adviser and administrator paid (or accrued) fees of $237,089 and
$175,005, respectively, to the Sub-Adviser with respect to the Fund.

Mitchell Hutchins has agreed that, if in any fiscal year of the Fund, the
aggregate expenses of the Fund (including management fees, but excluding
interest, taxes, brokerage and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Trust, Mitchell Hutchins
will reimburse the Trust for the excess expense. This expense reimbursement
obligation is limited to the amount of Mitchell Hutchins' fees under its
respective agreement with the Trust in respect of the Fund. Any expense
reimbursement will be estimated, reconciled and paid on a monthly basis. As of
the date of this Statement of Additional Information, the most restrictive state
expense limitation applicable to the Fund requires reimbursement of expenses in
any year that the Fund's expenses subject to the limitation exceed 2 1/2% of the
first $30 million of the average daily value of the Fund's net assets, 2% of the
next $70 million of the average daily value of the Fund's net assets and 1 1/2%
of the remaining average daily value of the Fund's net assets. For the fiscal
year ended July 31, 1995, the Fund's expenses did not exceed such limitations.

Under their respective agreements with the Trust in respect of the Fund,
each of Mitchell Hutchins and the Sub-Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Trust with respect
to the Fund in connection with the matters to which the agreement relates,
except for a loss resulting from willful misfeasance, bad faith or gross
negligence

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on its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under the agreement.

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 the 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 and other Mitchell
Hutchins advisory clients.

The Sub-Adviser's personnel also may invest in securities for their own
accounts pursuant to its code of ethics which establishes procedures for
personal investing and restricts certain transactions.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins serves as the distributor of the Fund's shares on a best
efforts basis. Under a Shareholder Servicing and Distribution Plans (the
'Plans') adopted by the Trust with respect to the Fund pursuant to Rule 12b-1
under the 1940 Act, the Trust pays Mitchell Hutchins monthly fees calculated at
the aggregate annual rates of .25%, 1.00% and 1.00% of the value of the Fund's
average daily net assets attributed to Class A shares, Class B shares and Class
C shares, respectively. Under their terms, the Plans continues from year to
year, so long as their continuance is approved annually by vote of the Trustees,
including a majority of the Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the
Plans (the 'Independent Trustees'). The Plans may not be amended to increase
materially the amount to be spent for the services provided by Mitchell Hutchins
without Fund shareholder approval, and all material amendments of the Plans also
must be approved by the Trustees in the manner described above. The Plans may be
terminated with respect to a Class at any time, without penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) represented by the
Class on not more than 30 days' written notice to Mitchell Hutchins.

Pursuant to the Plans, Mitchell Hutchins provides the Trustees with
periodic reports of amounts expended under the Plans and the purpose for which
the expenditures were made. The Trustees believe that the Fund's expenditures
under the Plans benefit the Fund and its shareholders by providing better
shareholder services and by facilitating the distribution of shares. With
respect to Class A shares, for the fiscal year ended July 31, 1995, Mitchell
Hutchins received $76,456 from the Fund. During such fiscal year, it is
estimated that Mitchell Hutchins and PaineWebber spent $6,221 on advertising,
$1,495 on printing and mailing of prospectuses to other than current
shareholders, $34,406 on commission credits to branch offices for payments of
shareholder servicing compensation to investment executives and $36,644 on
overhead and other branch office distribution or shareholder servicing-related
expenses. With respect to Class C shares, for the fiscal year ended July 31,
1995, Mitchell Hutchins received $149,419 from the Fund.

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During such fiscal year, it is estimated that Mitchell Hutchins and PaineWebber
spent $2,027 on advertising, $487 was spent on printing and mailing of
prospectuses to other than current shareholders, $46,416 was spent on commission
credits to branch offices for payments of commissions and shareholder servicing
compensation to investment executives and $74,699 was spent on overhead and
other branch office distribution or shareholder servicing-related expenses. No
Class B shares were outstanding during that period. The term 'overhead and other
branch office distribution or shareholder servicing-related expenses' represents
(1) the expenses of operating PaineWebber's branch offices in connection with
the sale of Fund shares or servicing of shareholder accounts, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (2) the costs of client sales seminars, (3) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (4) other
incidental expenses relating to branch promotion of Fund sales.

PORTFOLIO TRANSACTIONS

Decisions to buy and sell securities for the Fund are made by the
Sub-Adviser, subject to review by Mitchell Hutchins and the Trust's Board of
Trustees. Transactions on domestic stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On exchanges
on which commissions are negotiated, the cost of transactions may vary among
different brokers. On most foreign exchanges, commissions are generally fixed.

Subject to policies established by the board of directors, the Sub-Adviser
is responsible for the execution of the Fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions, the
Sub-Adviser seeks to obtain the best net results for the Fund, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved. Generally, bonds are traded on the OTC market
on a 'net' basis without a stated commission through dealers acting for their
own account and not as brokers. Prices paid to dealers in principal transactions
generally include a 'spread,' which is the difference between the prices at
which the dealer is willing to purchase and sell a specific security at the
time. For the period November 4, 1993 (commencement of investment operations)
through the fiscal year ended July 31, 1994 and for the fiscal year ended July
31, 1995, the Fund paid $39,326 and $65,409, respectively, in aggregate
brokerage commissions.

The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through Mitchell Hutchins or its affiliates, including PaineWebber.
The Trust's board of trustees has adopted procedures in conformity with Rule
17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
For the fiscal year ended July 31, 1995, the Fund paid no brokerage commissions
to PaineWebber.

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

Consistent with the interest of the Fund and subject to the review of the
board of directors, the Sub-Adviser may cause the Fund to purchase and sell
portfolio securities 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 the Sub-Adviser determines in good faith that such commission is
reasonable in terms either of that particular transaction or of the overall
responsibility of the Sub-Adviser to the Fund and its other clients and that the
total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term. For purchases or sales with
broker-dealer firms which act as principal, the Sub-Adviser seeks best
execution. Although the Sub-Adviser may receive certain research or execution
services in connection with these transactions, the Sub-Adviser will not
purchase securities at a higher price or sell securities at a lower price than
would otherwise be paid if no weight was attributed to the services provided by
the executing dealer. Moreover, the Sub-Adviser 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. The Sub-Adviser 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 provided
research or execution services. These procedures include the Sub-Adviser
receiving multiple quotes from dealers before executing the transaction on an
agency basis.

Research services furnished by the brokers or dealers through which or with
which the Fund effects securities transactions may be used by the Sub-Adviser in
advising other funds or accounts and, conversely, research services furnished to
the Sub-Adviser by brokers or dealers in connection with other funds or accounts
that the Sub-Adviser advises may be used by the Sub-Adviser in advising the
Fund. Information and research received from such brokers or dealers will be in
addition to, and not in lieu of, the services required to be performed by the
Sub-Adviser under the Sub-Investment Contract.

Investment decisions for the Fund and for other investment accounts managed
by the Sub-Adviser 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 the 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 the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such other
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 Fund is concerned or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.

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The Fund will not purchase securities in underwritings in which Mitchell
Hutchins or any of its affiliates is a member of the underwriting or selling
group, except pursuant to procedures adopted by the Corporation's board of
directors pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the commission or spread paid in connection with such a
purchase be reasonable and fair, that 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 Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to the Fund.

PORTFOLIO TURNOVER. The portfolio turnover rate is calculated by dividing
the lesser of the 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 the
securities in the portfolio during the year. For the fiscal year ended July 31,
1995 and for the period from November 4, 1993 (commencement of investment
operations) to July 31, 1994, the portfolio turnover rate for the Fund was 101%
and 56%, respectively.

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
Fund with concurrent purchases of Class A shares of any other PaineWebber mutual
fund and thus take advantage of the reduced sales charges for Class A shares
indicated in the table of sales charges in the Prospectus. The sales charge
payable on the purchase of Class A shares of the Funds and Class A shares of
such other funds will be at the rates applicable to the total amount of the
combined concurrent purchases.

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

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

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

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

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

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

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

(g) an employer (or a 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).

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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 Fund 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 of the Fund is waived where a
total or partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only to
redemption of shares held at the time of death.

ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Fund may be exchanged for shares of the
corresponding Class of most other PaineWebber mutual funds. 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 the 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 which make cash payments undesirable, each Fund
reserves the right to honor any request for redemption by making payment in
whole or in part in securities chosen by the Fund and valued in the same way as
they would be valued for purposes of computing the Fund's net asset value. Any
such redemption in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting those securities into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
one shareholder. This election is irrevocable unless the SEC permits its
withdrawal. The Fund may suspend redemption privileges or postpone the date of
payment during any period (1) when the 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 the 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 the Fund's portfolio at the
time.

SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or
semi-annual plans, PaineWebber will arrange for redemption by the Fund of
sufficient Fund shares to provide the withdrawal payment specified by
participants in the Fund's systematic withdrawal plan. The payment generally is
mailed approximately three business days after the redemption date. Withdrawal
payments should not be

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considered dividends, but redemption proceeds, with the tax consequences
described under 'Dividends, Distributions and 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 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 Class A shares of the Fund may reinstate their
account 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 redemption proceeds are
reinvested, if the reinstatement privilege is exercised within 30 days after
redemption, and an adjustment will be made to the shareholder's tax basis for
the 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 and Taxes' in the Prospectus.

Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.

PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN'SM';
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT'r' (RMA'r')

Shares of the 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.

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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
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:

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

comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;

automatic 'sweep' of uninvested cash into the RMA accountholder's choice of
one of the five RMA money market funds -- RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California 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;

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<PAGE>
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;

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;

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

expanded account protection to $25 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

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 the Fund will automatically convert to Class A shares,
based on the relative net asset values of each of the Classes, as of the close
of business on the first Business Day (as defined below) of the month in which
the sixth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean (1) the
date on which such Class B shares were issued, or (2) 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,
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, a pro rata portion of
the Class B shares in the sub-account will also convert to Class A. The portion
will be determined by the ratio that the shareholder's Class B shares converting
to Class A 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 (1) the continuing
applicability of a ruling of the Internal Revenue Service 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 (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of each Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.

<PAGE>
<PAGE>
VALUATION OF SHARES

The Fund determines the net asset value per share separately for each Class
of shares as of the close of regular trading (currently 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, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Securities that are listed on stock exchanges are valued at the last sale
price on the day the securities are being 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 the Sub-Adviser as the primary market. Securities traded in the
OTC market and listed on Nasdaq are valued at the last available sale price on
Nasdaq at 4:00 p.m., Eastern time; other OTC securities are valued at the last
bid price available prior to valuation.

Where market quotations, are readily available, debt securities are valued
based upon those quotations, provided such quotations adequately reflect, in the
Sub-Adviser's judgment, fair value of the security. Where such market quotations
are not readily available, such securities are valued based upon appraisals
received from a pricing service using a computerized matrix system, or based
upon appraisals derived from information concerning the security or similar
securities received from recognized dealers in those securities. All other
securities or assets will be valued at fair value as determined in good faith by
or under the direction of the Trust's board of trustees. The amortized cost
method of valuation generally is used to value debt obligations with 60 days or
less remaining to maturity, unless the Trust's board of trustees determines that
this does not represent fair value.

PERFORMANCE INFORMATION

The Fund's 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. Average annual total return quotes ('Standardized Return')
used in the Fund's Performance Advertisements are calculated according to the
following formula:

<TABLE>
<S> <C> <C>
P(1 + T)'pp'n = 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 made at the
beginning of that period.
</TABLE>

<PAGE>
<PAGE>
the period. In calculating the ending redeemable value for Class A shares, the
Fund's maximum 4.5% initial 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 and 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 Fund 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 Fund calculates Non-Standardized Return
for specified periods of time by assuming the 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 these charges
would reduce the return.

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

The following table shows performance information for the Class A and Class
C shares of the Fund for the periods indicated. No Class B shares were
outstanding during those periods. All returns for periods of more than one year
are expressed as an average return.

<TABLE>
<CAPTION>
CLASS A CLASS C
------- ---------------
<S> <C> <C>
Fiscal year ended July 31, 1995:
Standardized Return*......................................................... 34.24% 38.43%
Non-Standardized Return...................................................... 40.55% 39.43%
Five years ended July 31, 1995:
Standardized Return*......................................................... NA NA
Non-Standardized Return...................................................... NA NA
Inception** to July 31, 1995:
Standardized Return*......................................................... 5.38% 7.43%
Non-Standardized Return...................................................... 8.25% 7.43%
</TABLE>

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

* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. Class C shares impose a 1% contingent
deferred sales charge only on redemptions made within a year of purchase;
therefore, for periods longer than one year, Non-Standardized Return is
identical to Standardized Return.

** The inception date for the Class A shares and Class C shares of the Fund is
November 4, 1993.

<PAGE>
<PAGE>
Year Treasury Bond Index, the Lehman Brothers Government/Corporate Bond Index,
the Salomon Brothers Non-U.S. World Government Bond Index, and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The Fund
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 Fund and comparative mutual fund data and ratings reported
in independent periodicals, including (but not limited to) THE WALL STREET
JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S,
FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE
KIPPINGER LETTERS. Comparisons in Performance Advertisements may be in graphic
form.

The Fund 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 by
being paid in additional Fund shares, any future income or capital appreciation
of the 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 the Fund investment would increase more quickly than if
dividends or other distributions had been paid in cash.

The Fund may also compare its performance with the performance of bank
certificates of deposits (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and the
averages of yields of CDs of major banks published by Banxquote'r' Money
Markets. In comparing the Fund's 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. Fund shares are not
insured or guaranteed by the U.S. government and returns thereon and net asset
value will fluctuate. The debt securities held by the Fund generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in the Fund involves greater risks than an
investment in either a money market fund or a CD.

TAXES

Set forth below is a summary of certain income tax considerations generally
affecting the Fund and its shareholders. The summary is not intended as a
substitute for individual tax planning, and shareholders are urged to consult
their tax advisors regarding the application of federal, state, local and
foreign tax laws to their specific tax situations.

TAX STATUS OF THE FUND AND ITS SHAREHOLDERS

The Fund is treated as a separate entity for federal income tax purposes.
The Fund's net investment income, capital gains and distributions are determined
for each Class of shares separately from any other series or Class that the
Trust may designate.

<PAGE>
<PAGE>
The Fund has qualified for the fiscal period ended July 31, 1995 as a
'regulated investment company' under the Code and intends to continue to qualify
for this treatment for each year. If the Fund (1) is a regulated investment
company and (2) distributes to its shareholders at least 90% of its net
investment income (including for this purpose its net realized short term
capital gains), the Fund will not be liable for federal income taxes to the
extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.

The Fund's transactions in options and futures contracts are subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer Fund losses. These rules (1) could affect the character,
amount and timing of distributions to shareholders of the Fund, (2) will require
the Fund to 'mark to market' certain types of the positions in its portfolio
(that is, treat them as if they were closed out), and (3) may cause the Fund to
recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes described above and in the Prospectus. The Fund will seek to
monitor its transactions, will seek to make the appropriate tax elections and
will seek to make the appropriate entries in its books and records when it
acquires any option, futures contract or hedged investment, to mitigate the
effect of these rules and prevent disqualification of the Fund as a regulated
investment company.

If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income as of the later of (1) the date of such stock became
ex-dividend with respect to such dividends (i.e., the date on which a buyer of
the stock would not be entitled to receive the declared, but unpaid, dividends)
or (2) the date the Fund acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, the Fund may be required to pay dividends
based on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.

As a general rule, a shareholder's gain or loss on a sale or redemption of
Fund shares is a long-term capital gain or loss if the shareholder has held the
shares for more than one year. The gain or loss is a short-term capital gain or
loss if the shareholder has held the shares for one year or less.

The Fund's net realized long-term capital gains are distributed as
described in the Prospectus. The distributions ('capital gain dividends'), if
any, will be taxable to shareholders as long-term capital gains, regardless of
how long a shareholder has held Fund shares, and are designated as capital gain
dividends in a written notice mailed by the Trust to the shareholders of the
Fund after the close of the Fund's prior taxable year. If a shareholder receives
a capital gain dividend with respect to any Fund share, and if the share is sold
before it has been held by the shareholder for more than six months, then any
loss on the sale or exchange of the share, to the extent of the capital gain
dividend, will be treated as a long-term capital loss. Investors considering
buying Fund shares on or just prior to the record date for a taxable dividend or
capital gain distribution should be aware that the amount of the forthcoming
dividend or distribution payment will be a taxable dividend or distribution
payment.

Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently

<PAGE>
<PAGE>
acquires shares of another PaineWebber fund on which a sales charge normally is
imposed without paying a sales charge in accordance with the exchange privilege
described in the Prospectus. In these cases, any gain on the disposition of the
fund shares will be increased, or loss decreased, by the amount of the sales
charge paid when the shares were acquired, and that amount will increase the
adjusted basis of the Fund shares subsequently acquired. In addition, if shares
of the Fund are purchased within 30 days of redeeming shares at a loss, the loss
is not deductible and instead increases the basis of the newly purchased shares.

If a shareholder fails to furnish the Trust with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to 'backup withholding,' then the
shareholder may be subject to a 31% 'backup withholding' tax with respect to (1)
taxable dividends and distributions from the Fund and (2) the proceeds of any
redemptions of Fund shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's regular federal income
tax liability.

INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES

If the Fund purchases shares in certain foreign entities classified under
the Code as 'passive foreign investment companies,' the Fund may be subject to
federal income tax on a portion of an 'excess distribution' or gain from the
disposition of the shares, even though the income may have to be distributed as
a taxable dividend by the Fund to its shareholders. In addition, gain on the
disposition of shares in a passive foreign investment company generally is
treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a passive foreign investment company.

The Fund may be eligible to elect to include in its gross income its share
of earnings of a passive foreign investment company on a current basis.
Generally, the election would eliminate the interest charge and the ordinary
income treatment on the disposition of stock, but such an election may have the
effect of accelerating the recognition of income and gains by the Fund compared
to a fund that did not make the election. In addition, information required to
make such an election may not be available to the Fund. If the Fund is not able
to make the foregoing election, it may able to avoid the interest charge (but
not the ordinary income treatment) on disposition of the stock by electing,
under proposed regulations, each year to mark-to-market the stock (that is,
treat it as if it were sold for fair market value). Such an election could also
result in acceleration of income to the Fund.

OTHER INFORMATION

Equity Fund.' Prior to November 10, 1995, the Fund's Class C shares were called
'Class B' shares. New Class B shares were not offered prior to December 1, 1995.

Massachusetts law provides that shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Declaration disclaims shareholder liability for acts or obligations
of the Trust, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration provides for indemnification from the Trust's
property for all losses and expenses of any shareholder of the Trust held
personally liable for the obligations of the Trust. Thus, the risk of a Fund
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.

CLASS-SPECIFIC EXPENSES. The Fund might determine to allocate certain of
its expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares of the Funds bear higher transfer agency fees per shareholder account
than those borne by Class A or Class C shares. The higher fee is imposed due to
the higher costs incurred by the Transfer Agent in tracking shares subject to a
contingent deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the applicable
charge. 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.

INDEPENDENT AUDITORS

Ernst & Young LLP, located at 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Trust. In that capacity, Ernst & Young
LLP audits the Trust's financial statements at least annually. For the period
ended July 31, 1994, the Trust's independent auditors were Deloitte & Touche
LLP, located at 2 World Financial Center, New York, New York 10281.

COUNSEL

Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as counsel to the Trust.

FINANCIAL STATEMENTS

The Fund's Annual Report to Shareholders for the fiscal year ended July 31,
1995 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 by reference in this
Statement of Additional Information.

24<PAGE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION 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 FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE 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
Trustees and Officers............................ 7
Investment Advisory and Distribution
Arrangements................................... 9
Portfolio Transactions........................... 12
Reduced Sales Charges, Additional
Exchange and Redemption
Information and Other Services................. 14
Conversion of Class B Shares..................... 18
Valuation of Shares.............................. 19
Performance Information.......................... 19
Taxes............................................ 21
Other Information................................ 23
Financial Statements............................. 24
</TABLE>

'c'1995 PAINEWEBBER INCORPORATED

[Recycled Logo] Printed on recycled paper

PaineWebber
Small Cap Growth Fund

- --------------------------------------
Statement of Additional Information
December 1, 1995

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

PAINEWEBBER
<PAGE>
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
CLASS Y SHARES
1285 Avenue of the Americas
New York, New York 10019

Professional Management
Portfolio Diversification
Dividend and Capital Gain
Reinvestment
Low Minimum Investment
Automatic Investment Plan
Systematic Withdrawal Plan
Exchange Privileges
Suitable for Retirement Plans

The Class Y shares described in this Prospectus are currently offered for sale
primarily to participants in the INSIGHT Investment Advisory Program
('INSIGHT'), when purchased through that program. See 'Purchases.'

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

------------------------
The date of this Prospectus is December 1, 1995
PAINEWEBBER MUTUAL FUNDS

<PAGE>
<PAGE>
PROSPECTUS SUMMARY

EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in the
Fund.

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum sales charge on purchases of shares (as a percentage of public offering
price).......................................................................... None
Sales charge on reinvested dividends.............................................. None
Maximum contingent deferred sales charge (as a percentage of redemption
proceeds)....................................................................... None
Maximum Annual Investment Advisory Fee Payable by Shareholders through INSIGHT (as
a percentage of average daily value of shares held)............................. 1.50%
</TABLE>

ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<S> <C>
Management fees.................................................................... 1.00%
12b-1 fees......................................................................... 0.00
Other expenses..................................................................... 0.48
----
Total operating expenses........................................................... 1.48%
----
----
</TABLE>

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

(1) See 'Management' for additional information. The management fee payable to
Mitchell Hutchins is greater than the management fee paid by most funds.

EXAMPLE OF EFFECT OF FUND EXPENSES*

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

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- -------- ----------- ---------- ---------
<S> <C> <C> <C>
$ 15 $47 $ 81 $ 177
</TABLE>

This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission ('SEC') applicable to all mutual funds; the
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of Class Y shares of the Fund.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to Class Y shares of the Fund will depend upon,
among other things, the level of average net assets and the extent to which the
Fund incurs variable expenses, such as transfer agency costs.

<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for one Class Y
share (prior to November 10, 1995, called 'Class C' shares) of the Fund for each
of the periods shown. This information is supplemented by the financial
statements and accompanying notes appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended July 31, 1995, which are incorporated by
reference into the Statement of Additional Information. The financial statements
and notes, and the financial information for the fiscal year ended July 31, 1995
appearing in the table below, have been audited by Ernst & Young LLP,
independent auditors, whose report thereon is included in the Annual Report to
Shareholders. The financial information for the period ended July 31, 1994 was
audited by other auditors whose report thereon was unqualified. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge.

<TABLE>
<CAPTION>
Class Y
--------------------------
For the For the
Year ended Period ended
July 31, July 31,
1995** 1994`D'
------------ ------------

<S> <C> <C>
Net asset value, beginning of period.................................................... $ 9.81 $ 12.00
-------- --------
Income (loss) from investment operations:
Net investment loss..................................................................... (0.28) (0.06)
Net realized and unrealized gains (losses) from investment transactions................. 4.29 (2.13)
-------- --------
Total increase (decrease) from investment operations.................................... 4.01 (2.19)
-------- --------
Net asset value, end of period.......................................................... $ 13.82 $ 9.81
-------- --------
-------- --------
Total investment return(1).............................................................. 40.88 % (18.25)%
-------- --------
-------- --------
Ratios/Supplemental Data:
Net assets, end of period (000's)....................................................... $ 5,895 $ 5,827
Ratios of expenses to average net assets................................................ 1.48 % 1.43 %*
Ratios of net investment loss to average net assets..................................... (0.99)% (0.81)%*
Portfolio turnover rate................................................................. 101 % 56 %
</TABLE>

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

* Annualized.

** On February 13, 1995, Mitchell Hutchins became investment adviser and
administrator of the Fund. Bjurman remains responsible for the management of
the Fund's portfolio.

`D' For the period November 4, 1993 (commencement of investment operations) to
July 31, 1994.

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and capital
gain distributions, if any, at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. Total
investment returns for periods of less than one year have not been
annualized.

3<PAGE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

OBJECTIVE

The Fund's investment objective is long-term capital appreciation. The
Fund seeks to achieve its objective by investing primarily in equity securities
of small capitalization companies.

There can be no assurance that the Fund will achieve its investment
objective. The Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities. The Fund's investment objective and certain
investment limitations, as described in the Statement of Additional Information,
are fundamental policies and may not be changed without shareholder approval.
All other investment policies may be changed by the Trust's board of trustees
without shareholder approval.

INVESTMENT POLICIES

The Fund's investments in non-publicly traded securities (also commonly
referred to

<PAGE>
<PAGE>
as 'restricted securities'), which are securities that are subject to
contractual or legal restrictions on transfer, may not exceed 10% of the Fund's
assets. Restricted securities include securities that are not registered under
the Securities Act of 1933, as amended (the '1933 Act'), but that can be sold to
'qualified institutional buyers' in accordance with Rule 144A under the 1933 Act
('Rule 144A Securities'). The Fund is authorized to invest up to 15% of its
assets in illiquid securities, which are securities that cannot be disposed of
by the Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities that are held by the Fund take the form of repurchase agreements
maturing in more than seven days and other securities subject to restrictions on
resale that Bjurman has determined are not liquid under guidelines established
by the Trust's Board of Trustees.

<PAGE>
<PAGE>
chase agreements. Government Securities held by the Fund will take the form of:
direct obligations of the U.S. Treasury, and obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. Certain of the
Government Securities that may be held by the Fund are instruments that are
supported by the full faith and credit of the United States, whereas other
Government Securities that may be held by the Fund are supported by the right of
the issuer to borrow from the U.S. Treasury or are supported solely by the
credit of the instrumentality.

INVESTMENT TECHNIQUES AND STRATEGIES

The Fund may purchase options on securities that are listed on securities
exchanges or that are traded over-the-counter. As the holder of a put option,
the Fund has

<PAGE>
<PAGE>
the right to sell the securities underlying the option and as the holder of a
call option, the Fund has the right to purchase the securities underlying the
option, in each case at the option's exercise price at any time prior to, or on,
the option's expiration date. The Fund may choose to exercise the options it
holds, permit them to expire or terminate them prior to their expiration by
entering into closing sale transactions. In entering into a closing sale
transaction, the Fund would sell an option of the same series as the one it has
purchased.

<PAGE>
<PAGE>
chase agreements maturing in more than seven days, together with other illiquid
securities, may not exceed 15% of the Fund's net assets. The Fund may engage in
repurchase agreement transactions, which are in the nature of secured loans by
the Fund to certain member banks of the Federal Reserve System and with certain
dealers listed on the Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually not
more than seven days) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the securities underlying a repurchase
agreement of the Fund is monitored on an ongoing basis by Bjurman to ensure that
the value is at least equal at all times to the total amount of the repurchase
obligation, including interest. Bjurman also monitors, on an ongoing basis to
evaluate potential risks, the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investing in the Fund involves risks and special considerations, such as
those described below:

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In addition, securities of small capitalization companies are traded in lower
volume than those issued by larger companies and are more volatile than those of
larger companies. In light of these characteristics of small capitalization
companies and their securities, the Fund may be subject to greater investment
risk than that assumed by other investment companies. Because of the risks
associated with the Fund's investments, the Fund is intended to be a long term
investment vehicle and is not designed to provide investors with a means of
speculating on short-term stock market movements.

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price of the option for as long as the Fund's obligation as writer of the option
continues. Thus, in some periods, the Fund will receive less total return and in
other periods greater total return from its hedged positions than it would have
received from its underlying securities if unhedged.

In purchasing a put option, the Fund seeks to benefit from a decline in
the market price of the underlying security, whereas in purchasing a call
option, the Fund seeks to benefit from an increase in the market price of the
underlying security. If an option purchased is not sold or exercised when it has
remaining value, or if the market price of the underlying security remains equal
to or greater than the exercise price, in the case of a put, or remains equal to
or below the exercise price, in the case of a call, during the life of the
option, the Fund will lose its investment in the option. For the purchase of an
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price, in the case of a put, and must
increase sufficiently above the exercise price, in the case of a call, to cover
the premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.

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<PAGE>
exchange control regulations, restrictions or prohibitions on the repatriation
of foreign currencies, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
the United States or abroad) or changed circumstances in dealings between
nations. Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
those charged in the United States, and foreign securities markets may be less
liquid, more volatile and subject to less governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations, and could be subject to
extended clearance and settlement periods.

PORTFOLIO TRANSACTIONS AND TURNOVER

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execution at least as favorable to the Fund as those obtainable through other
qualified broker-dealers, and if, in the transaction, PaineWebber charges the
Fund a fair and reasonable rate consistent with that charged to comparable
unaffiliated customers in similar transactions.

The Fund's portfolio is actively managed. The Fund's portfolio turnover
rate may vary greatly from year to year and will not be a limiting factor when
the Sub-Adviser deems portfolio changes appropriate. An annual turnover rate of
100% would occur if all of the securities held by the Fund are replaced once
during a period of one year. Higher portfolio turnover rates (100% or more) will
result in corresponding increases in transaction costs, which will be borne
directly by the Fund, may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes and may cause
shareholders of the Fund to recognize short-term capital gains for federal
income tax purposes. See 'Dividends, Distributions and Taxes -- Taxes.'

PURCHASES

Class Y shares (prior to November 10, 1995, called 'Class C' shares) are
sold to eligible investors at the net asset value next determined (see
'Valuation of Shares') after the purchase order is received at PaineWebber's New
York City offices. No initial or contingent deferred sales charge is imposed,
nor are Class Y shares subject to Rule 12b-1 distribution or service fees. The
Fund and Mitchell Hutchins reserve the right to reject any purchase order and to
suspend the offering of the Class Y shares for a period of time.

INSIGHT. An investor who purchases $50,000 or more of shares of the
PaineWebber mutual funds that are in the Flexible Pricing System may participate
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, professional
investment advice regarding investment among the funds by portfolio specialists,
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 another of their PaineWebber accounts or billed
separately.

ACQUISITION OF CLASS Y SHARES BY OTHERS. Present holders of Class Y shares
who are not current INSIGHT participants may acquire Class A shares of the Fund
without a sales charge. This category includes former employees of Kidder,
Peabody & Co. Incorporated ('Kidder, Peabody'), their associated accounts,
present and former directors and trustees of the former Kidder, Peabody mutual
funds and employees of Bjurman, employee benefit plans, individual retirement
accounts and employee-sponsored individual retirement plans for those employees,
and the spouses and minor children of those employees when orders on their
behalf are placed by those employees. The Fund is authorized to

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<PAGE>
offer Class Y shares to employee benefit and retirement plans of Paine Webber
Group, Inc., and its affiliates and certain other investment advisory programs
that are sponsored by PaineWebber and that may invest in PaineWebber mutual
funds. At present, however, INSIGHT participants are the only purchasers in
these two categories.

REDEMPTIONS

As described below, Class Y shares may be redeemed at their net asset
value and redemption proceeds will be paid after receipt of a redemption request
as described below.

PaineWebber reserves the right not to honor any redemption request, in
which case PaineWebber promptly will forward the request to the Transfer Agent
for treatment as described below.

ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder may have redemption
proceeds of $1 million or more wired to the shareholder's PaineWebber brokerage
account or a commercial bank account designated by the shareholder. Questions
about this option, or redemption requirements generally, should be referred to
the shareholder's PaineWebber investment executive or correspondent firm, or to
the Transfer Agent if the shares are not held in a PaineWebber brokerage
account. If a shareholder requests

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<PAGE>
redemption of shares which were purchased recently, the Fund may delay payment
until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

TAXES

The Fund has qualified for the fiscal year ended July 31, 1995 as a
regulated investment company within the meaning of the Code and intends to
qualify for this treatment in each year. To qualify as a regulated investment
company for federal income tax purposes, the Fund limits its income and
investments so that (1) at least 90% of its gross income is derived from
dividends, interest payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in stock,
securities or currencies, (2) less than 30% of its gross income is derived from
the sale or disposition of stocks or securities and certain financial
instruments (including certain options, futures and forward contracts) that were
held for less than three months and (3) at the close of each quarter of the
taxable year (a) not more than 25% of the market value of the Fund's total
assets is invested in the securities (other than Government Securities or the
securities of other regulated investment companies) of a single issuer or of two
or more issuers controlled by the Fund that are engaged in the same or similar
trades or businesses or in related trades or businesses and (b) at least 50% of
the market value of the Fund's total assets is represented by (i) cash and cash
items, (ii) Government Securities and securities of other regulated investment
companies and (iii) other securities limited in respect of any one issuer to an
amount not greater in value than 5% of the market value of the Fund's total
assets and to not more than 10% of the outstanding voting securities of the
issuer. The requirements for qualification may cause the Fund to restrict the
degree to which it sells or otherwise disposes of

<PAGE>
<PAGE>
stocks, other securities and certain financial instruments held for less than
three months. If the Fund qualifies as a regulated investment company and meets
certain distribution requirements, the Fund will not be subject to federal
income tax on its net investment income and net realized capital gains that it
distributes to its shareholders.

Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.

VALUATION OF SHARES

Net asset value per share is calculated by State Street, the Fund's
custodian, on each day, Monday through Friday, except that net asset value is
not computed on days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on the observance of New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Net asset value per share is determined as of the close of regular trading
on the NYSE (currently 4:00 p.m., Eastern time), and is computed by dividing the
value of the Fund's net assets attributable to that Class by the total number of
shares outstanding of that Class. Generally, the Fund's investments are valued
at market value or, in the absence of a market value, at fair value as
determined by or under the direction of the Trustees.

<PAGE>
<PAGE>
to have changed that value, the fair market value of those securities will be
determined by consideration of other factors by or under the direction of the
board of trustees. Securities that are primarily traded on foreign exchanges
that close after the close of regular trading on the NYSE are generally valued
at sale prices as of a time reasonably proximate to the close of regular trading
on the NYSE or, if no sales occurred previously during that day, at the
then-current bid price.

MANAGEMENT

The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's
day-to-day management. Mitchell Hutchins, the Fund's investment adviser and
administrator, supervises all aspects of the Fund's operations. Mitchell
Hutchins receives a monthly fee for its services, computed daily and payable
monthly, at an annual rate of 1.00% of the Fund's average daily net assets on
assets up to but not including $25 million and .90% thereafter. The rate of fee
paid to Mitchell Hutchins, although higher than the rate paid by most other
investment companies registered under the 1940 Act, is believed by Mitchell
Hutchins to be within the range charged to other investment companies that
invest in securities of small capitalization companies and reflects the need to
devote additional time and incur added expense in developing the specialized
resources contemplated by investing in these securities.

Mitchell Hutchins supervises the activities of Bjurman which, as
sub-adviser for the Fund, makes and implements all investment decisions for the
Fund. Under the sub-advi-

<PAGE>
<PAGE>
sory contract, Mitchell Hutchins (not the Fund) pays Bjurman a fee for its
services as sub-adviser for the Fund in the amount of .50% of the Fund's average
daily net assets up to but not including $25 million and .40% thereafter.

The Fund incurs other expenses and, for the fiscal year ended July 31,
1995, the Fund's total expenses for its Class Y shares, stated as a percentage
of average net assets was 1.48%.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the
Fund's Class Y shares and has appointed PaineWebber as the exclusive dealer for
the sale of those shares.

PERFORMANCE INFORMATION

The Fund performs a standardized computation of annualized total return
and may

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<PAGE>
show this return in advertisements or promotional materials. Standardized return
shows the change in value of an investment in the Fund as a steady compound
annual rate of return. Actual year-by-year returns fluctuate and may be higher
or lower than standardized return. One-, five- and ten-year periods will be
shown, unless the shares have been in existence for a shorter period. Total
return calculations assume reinvestment of dividends and other distributions.

Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than a shareholder's
cost.

GENERAL INFORMATION

When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; (2) the effect of the
respective sales charges, if any, for each Class; (3) the distribution and/or
service fees, if any, borne by each Class; (4) the expenses allocable
exclusively to each Class; (5) voting rights on matters exclusively affecting a
single Class; and (6) the exchange privilege of each Class. The board of
trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Trustees, on an ongoing
basis, will consider whether any conflict exists and, if so, take appropriate
action. Certain aspects of the shares may be changed, upon notice to Fund
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trust's board of trustees.

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than two-thirds of the outstanding shares of the 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 for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Shareholders of the Fund who satisfy certain
criteria will be assisted by the Trust in communicating with other shareholders
in seeking the holding of the meeting.

'c'1995 PaineWebber Incorporated

[Recycled Logo] Printed on recycled paper

PAINEWEBBER

SMALL CAP GROWTH FUND
CLASS Y SHARES

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
-----
Prospectus Summary................................. 2
Financial Highlights............................... 3
Investment Objective and Policies.................. 4
Purchases.......................................... 12
Redemptions........................................ 13
Dividends, Distributions and Taxes................. 14
Valuation of Shares................................ 15
Management......................................... 16
Performance Information............................ 17
General Information................................ 18
</TABLE>

PROSPECTUS
December 1, 1995

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<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
CLASS Y SHARES
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

INVESTMENT POLICIES AND RESTRICTIONS

GOVERNMENT SECURITIES

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<PAGE>
support to an instrumentality that it sponsors, the Fund invests in obligations
issued by an instrumentality of the U.S. Government only if the Sub-Adviser,
under the supervision of Mitchell Hutchins, determines that the
instrumentality's credit risk does not make its securities unsuitable for
investment by the Fund.

INVESTMENT TECHNIQUES AND STRATEGIES

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<PAGE>
taking an opposite position, which will operate to terminate the Fund's existing
position in the contract.

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<PAGE>
INVESTMENT RESTRICTIONS

Under the investment restrictions adopted by the Trust with respect to the
Fund:

9. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other similar
contracts.

11. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.

13. The Fund will not participate on a joint or joint-and-several
basis in any securities trading account.

14. The Fund will not make investments for the purpose of exercising
control of management.

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<PAGE>
TRUSTEES AND OFFICERS

The names of Trustees and officers of the Trust, together with information
as to their principal business occupations during the last five years, are shown
below.

Owen T. Barry III, 50, Senior Vice President and Chief Investment Officer.
Senior Executive Vice President and Director of Investments of Bjurman.

The addresses of the Trustees are as follows: Mr. Beaubien, Montague
Industrial Park, 101 Industrial Road, Box 746, Turner Falls, Massachusetts
01376; Mr. Hewitt, P.O. Box 2359,

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

* Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

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<PAGE>
on its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under the agreement.

The Sub-Adviser's personnel also may invest in securities for their own
accounts pursuant to its code of ethics which establishes procedures for
personal investing and restricts certain transactions.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins acts as the distributor of the Class Y shares of the Fund
under a distribution contract with the Trust that requires Mitchell Hutchins to
use its best efforts, consistent with its other businesses, to sell shares of
the Fund. Shares of the Fund are offered continuously. Under an exclusive dealer
agreement between Mitchell Hutchins and PaineWebber relating to Class Y shares
of the Fund, PaineWebber and its correspondent firms sell the Fund's Class Y
shares.

PORTFOLIO TRANSACTIONS

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<PAGE>
The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through Mitchell Hutchins or its affiliates, including PaineWebber.
The Trust's board of trustees has adopted procedures in conformity with Rule
17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
For the fiscal year ended July 31, 1995, the Fund paid no brokerage commissions
to PaineWebber.

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

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Investment decisions for the Fund and for other investment accounts managed
by the Sub-Adviser 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 the 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 the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such other
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 Fund is concerned or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.

The Fund will not purchase securities in underwritings in which Mitchell
Hutchins or any of its affiliates is a member of the underwriting or selling
group, except pursuant to procedures adopted by the Corporation's board of
directors pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the commission or spread paid in connection with such a
purchase be reasonable and fair, that 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 Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to the Fund.

VALUATION OF SHARES

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as determined in good faith by or under the direction of the Trust's board of
trustees. The amortized cost method of valuation generally is used to value debt
obligations with 60 days or less remaining to maturity, unless the Trust's board
of trustees determines that this does not represent fair value.

PERFORMANCE INFORMATION

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

<TABLE>
<S> <C>
P(1 + T)'pp'n = 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 made 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
Fund's maximum 4.5% initial 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 and Class C shares held for the
period is deducted. All dividends and other distributions are assumed to have
been reinvested at net asset value.

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

The following table shows performance information for the Class A, Class C
and Class Y shares of the Fund for the periods indicated. No Class B shares were
outstanding during those periods. All returns for periods of more than one year
are expressed as an average return.

<TABLE>
<CAPTION>
CLASS A CLASS C CLASS Y
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended July 31, 1995:
Standardized Return*.............................................. 34.24% 38.43% 40.88%
Non-Standardized Return........................................... 40.55% 39.43% 40.88%
Five years ended July 31, 1995:
Standardized Return*.............................................. NA NA NA
Non-Standardized Return........................................... NA NA NA
Inception** to July 31, 1995:
Standardized Return*.............................................. 5.38% 7.43% 8.53%
Non-Standardized Return........................................... 8.25% 7.43% 8.53%
</TABLE>

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** The inception date for the Class A shares, Class C shares and Class Y shares
of the Fund is November 4, 1993.

OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ('Lipper') for growth funds; CDA Investment
Technologies, Inc. ('CDA'); Wiesenberger Investment Companies Service
('Wiesenberger'); Investment Company Data Inc. ('ICD'); or Morningstar Mutual
Funds ('Morningstar'); or with the performance of recognized stock and other
indexes, including (but not limited to) the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average, the NASDAQ Composite Index,
the Russell 2000 Index, the Russell 1000 Index, the Wilshire Small Cap Index,
PSI Small Cap Index, the Lehman Brothers 20+ Year Treasury Bond Index, the
Lehman Brothers Government/Corporate Bond Index, the Salomon Brothers Non-U.S.
World Government Bond Index, and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. The Fund 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 Fund and comparative mutual fund data and ratings reported in
independent periodicals, including (but not limited to) THE WALL STREET JOURNAL,
MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE
NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPPINGER
LETTERS. Comparisons in Performance Advertisements may be in graphic form.

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The Fund may also compare its performance with the performance of bank
certificates of deposits (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and the
averages of yields of CDs of major banks published by Banxquote'r' Money
Markets. In comparing the Fund's 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. Fund shares are not
insured or guaranteed by the U.S. government and returns thereon and net asset
value will fluctuate. The debt securities held by the Fund generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in the Fund involves greater risks than an
investment in either a money market fund or a CD.

TAXES

TAX STATUS OF THE FUND AND ITS SHAREHOLDERS

The Fund has qualified for the fiscal period ended July 31, 1995 as a
'regulated investment company' under the Code and intends to continue to qualify
for this treatment for each year. If the Fund (1) is a regulated investment
company and (2) distributes to its shareholders at least 90% of its net
investment income (including for this purpose its net realized short term
capital gains), the Fund will not be liable for federal income taxes to the
extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.

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If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income as of the later of (1) the date of such stock became
ex-dividend with respect to such dividends (i.e., the date on which a buyer of
the stock would not be entitled to receive the declared, but unpaid, dividends)
or (2) the date the Fund acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, the Fund may be required to pay dividends
based on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.

Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires shares of a fund in the PaineWebber
Family of Funds on which a sales charge normally is imposed without paying a
sales charge in accordance with the exchange privilege described in the
Prospectus. In these cases, any gain on the disposition of the fund shares will
be increased, or loss decreased, by the amount of the sales charge paid when the
shares were acquired, and that amount will increase the adjusted basis of the
Fund shares subsequently acquired. In addition, if shares of the Fund are
purchased within 30 days of redeeming shares at a loss, the loss is not
deductible and instead increases the basis of the newly purchased shares.

INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES

If the Fund purchases shares in certain foreign entities classified under
the Code as 'passive foreign investment companies,' the Fund may be subject to
federal income tax on a portion of an

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'excess distribution' or gain from the disposition of the shares, even though
the income may have to be distributed as a taxable dividend by the Fund to its
shareholders. In addition, gain on the disposition of shares in a passive
foreign investment company generally is treated as ordinary income even though
the shares are capital assets in the hands of the Fund. Certain interest charges
may be imposed on either the Fund or its shareholders with respect to any taxes
arising from excess distributions or gains on the disposition of shares in a
passive foreign investment company.

OTHER INFORMATION

The Trust was organized as a business trust under the laws of The
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated April 8,
1993, as amended from time to time (the 'Declaration'). The Fund commenced
operations on November 4, 1993. Prior to November 1, 1995, the name of the Fund
was 'Mitchell Hutchins/Kidder, Peabody Small Cap Growth Fund.' Prior to February
13, 1995, the name of the Fund was 'Kidder, Peabody Small Cap Equity Fund.'
Prior to November 10, 1995, the Fund's Class C shares were called 'Class B'
shares and Class Y shares were called 'Class C' shares. New Class B shares were
not offered prior to December 1, 1995.

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<PAGE>
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.

INDEPENDENT AUDITORS

COUNSEL

Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as counsel to the Trust.

FINANCIAL STATEMENTS

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION 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 FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.

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TABLE OF CONTENTS

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Statement of Additional Information.............. 1
Investment Policies and Restrictions............. 1
Trustees and Officers............................ 7
Investment Advisory and Distribution
Arrangements................................... 9
Portfolio Transactions........................... 11
Valuation of Shares.............................. 13
Performance Information.......................... 14
Taxes............................................ 16
Other Information................................ 18
Financial Statements............................. 19
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'c'1995 PAINEWEBBER INCORPORATED

[Recycled Logo] Printed on recycled paper

PaineWebber
Small Cap Growth Fund

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Statement of Additional Information
December 1, 1995

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PAINEWEBBER

STATEMENT OF DIFFERENCES

Superscript shall be represented as ..................'pp'
Dagger shall be represented as .......................'D'
Service Mark shall be represented as .................'SM'
Copyright shall be represented as ....................'c'
Register Mark shall be represented as ................'r'

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