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PAINEWEBBER BALANCED FUND
SUPPLEMENT TO PROSPECTUS DATED DECEMBER 10, 1999
October 10, 2000
Dear Investor,
This supplement to the Prospectus dated December 10, 1999 for PaineWebber
Balanced Fund describes important changes affecting your fund. These changes
were proposed by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins")
and approved by your fund's board as in the best interests of fund shareholders.
If you have any questions about these changes, you should contact your Financial
Advisor.
The purpose of this supplement is to notify you of
- the proposed merger of Balanced Fund, a series of PaineWebber Master
Series, Inc., into PaineWebber Tactical Allocation Fund, a series of
another open-end mutual fund, and
- changes in Balanced Fund's investment strategies and portfolio managers
that became effective on October 10, 2000.
Balanced Fund's shareholders must approve its proposed merger before the
transaction can be effected. The proposed merger will be submitted to Balanced
Fund's shareholders at a meeting expected to be held in January or February
2001. If approved by Balanced Fund's shareholders, the merger is expected to
become effective in February or March 2001.
The merger is expected to be a tax-free transaction, which means that no gain
or loss will be recognized by either fund and that Balanced Fund's shareholders
will not realize any gain or loss on their receipt of Tactical Allocation Fund
shares in the merger. More information about the proposed merger, the investment
strategy changes and the portfolio manager changes is set out below.
PROPOSED MERGER
On October 6, 2000, Balanced Fund's board of directors approved the submission
to shareholders of an Agreement and Plan of Reorganization and Termination
("Plan") under which the Fund would transfer substantially all of its assets and
liabilities to Tactical Allocation Fund, a series of PaineWebber Investment
Trust. If Balanced Fund's shareholders approve the proposed merger, they will
receive shares of Tactical Allocation Fund in exchange for their shares in
Balanced Fund, and Balanced Fund will cease operations.
Balanced Fund and Tactical Allocation Fund have similar investment objectives.
Balanced Fund's investment objective is high total return with low volatility.
Tactical Allocation Fund's investment objective is total return, consisting of
long-term capital appreciation and current income. Both funds allocate their
assets between stocks and fixed income investments, although Tactical Allocation
Fund generally limits its bond investments to five-year U.S. Treasury notes and
its cash investments to U.S. Treasury bills with remaining maturities of 30
days. Balanced Fund invests in a broader selection of bonds, including bonds of
private issuers. More information about the proposed merger will be provided to
Balanced Fund's shareholders in proxy solicitation materials that are expected
to be mailed in December 2000.
You may continue to buy and sell shares in Balanced Fund and exchange your
Balanced Fund Class A, Class B and Class C shares for shares of the
corresponding class of other PaineWebber funds prior to the shareholder
meetings. When you sell or exchange your Balanced Fund shares, you generally
will be subject to federal income tax on any gain you realize. If Balanced
Fund's shareholders approve the merger proposal, Balanced Fund expects to close
to new purchases and exchange purchases approximately five business days prior
to the date on which the merger is effected.
INVESTMENT STRATEGY CHANGES
In managing Balanced Fund's stock investments, Mitchell Hutchins now seeks to
replicate (before fees and expenses) the total return of the S&P 500 Index. In
managing Balanced Fund's bond investments, Mitchell Hutchins seeks to replicate
(before fees and expenses) the total return of the Lehman Brothers Aggregate
Bond Index. Mitchell Hutchins' process for determining allocation of the Fund's
assets among different asset classes remains unchanged.
Item #ZS76
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These changes in investment strategies for Balanced Fund will result in
realignment of the fund's portfolio holdings over the next several weeks. As a
result, during this period, the fund may experience higher portfolio turnover
than normal and higher related transaction costs, including brokerage
commissions. In addition, the fund may realize more capital gains that may
increase its taxable dividends for the current year.
AS A RESULT OF THESE CHANGES, THE PROSPECTUS DATED DECEMBER 10, 1999 FOR
PAINEWEBBER BALANCED FUND IS REVISED AS FOLLOWS:
THE SECTION CAPTIONED "PRINCIPAL INVESTMENT STRATEGIES" ON P. 3 OF THE
PROSPECTUS IS REVISED BY REPLACING THE LAST PARAGRAPH WITH THE FOLLOWING:
In buying and selling individual securities for the fund,
Mitchell Hutchins uses the following criteria:
- STOCKS. The fund's stock portion is designed to
track the performance of the Standard & Poor's 500
Composite Stock Price Index.
- BONDS. The fund's bond portion is designed to track
the performance of the Lehman Brothers Aggregate
Bond Index.
THE SECTION CAPTIONED "PRINCIPAL RISKS" ON P. 3 OF THE PROSPECTUS AND THE
SECTION CAPTIONED "MORE ABOUT RISKS AND INVESTMENT STRATEGIES" ON P. 9 OF THE
PROSPECTUS ARE AMENDED BY THE ADDITION OF THE FOLLOWING NEW PARAGRAPH:
INDEX TRACKING RISK. Balanced Fund expects a close
correlation between the performance of the portion of its
assets allocated to stocks and bonds, respectively, and
that of the designated index in both rising and falling
markets. However, although the fund attempts to replicate,
before deduction of fees and expenses, the investment
results of each index, the fund's investment results for
its investments in stocks and bonds generally will not be
identical to those of the corresponding index. Deviations
from the performance of an index may result from
shareholder purchases and sales of shares that can occur
daily. In addition, the fund must pay fees and expenses
that are not borne by an index.
THE SECTION AT P. 17 OF THE PROSPECTUS CAPTIONED "PORTFOLIO MANAGERS" IS REVISED
BY REPLACING THE TEXT UNDER "BALANCED FUND" WITH THE FOLLOWING:
BALANCED FUND. T. Kirkham Barneby and Joe Baggett are
responsible for the asset allocation decisions for
Balanced Fund. Mr. Barneby is a managing director and
chief investment officer for quantitative investments of
Mitchell Hutchins. Mr. Baggett is a first vice president
of Mitchell Hutchins and a member of its quantitative
investments group. Prior to joining Mitchell Hutchins in
1996, Mr. Baggett worked at PaineWebber in its economics
group. Mr. Barneby first assumed responsibility for the
fund's asset allocation decisions in August 1995.
Mr. Baggett assumed his fund responsibilities on
October 10, 2000.
Mr. Barneby and Frank Vallario assumed responsibility for
the day-to-day management of the fund's stock investments
on October 10, 2000. Mr. Vallario is a first vice
president of Mitchell Hutchins and a member of its
quantitative investments group. Prior to joining Mitchell
Hutchins in March 1996, Mr. Vallario worked at PaineWebber
in its capital markets group.
Heidi Kirmaier assumed responsibility for the day-to-day
management of the fund's bond investments on October 10,
2000. Ms. Kirmaier is a first vice president of Mitchell
Hutchins and a member of its quantitative investments
group. Ms. Kirmaier first joined Mitchell Hutchins in
1982.
Susan Ryan is responsible for the day-to-day management of
the portion of Balanced Fund's assets invested in money
market instruments. Ms. Ryan has been with Mitchell
Hutchins since 1982 and is a senior vice president of
Mitchell Hutchins.
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