PaineWebber
Balanced Fund
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PROSPECTUS
December 31, 2000
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This prospectus offers Class A, Class B, Class C and Class Y shares in a
PaineWebber asset allocation fund. Each class has different sales charges and
ongoing expenses. You can choose the class that is best for you based on how
much you plan to invest and how long you plan to hold your fund shares. Class Y
shares are available only to certain types of investors.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
[BOXED TEXT]
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On October 6, 2000, the fund's board of directors approved the submission to its
shareholders of an Agreement and Plan of Reorganization and Termination under
which the fund would transfer substantially all of its assets and liabilities to
PaineWebber Tactical Allocation Fund, a series of PaineWebber Investment Trust,
another open-end mutual fund. If the fund's shareholders approve its proposed
merger, you will receive like shares of Tactical Allocation Fund in exchange for
your fund shares and the fund will cease operations.
The merger is expected to be a tax-free reorganization, which means that you
will not realize any gain or loss on your receipt of Tactical Allocation Fund
shares in the merger and neither fund will realize any gain or loss. The proxy
solicitation materials to be mailed to the fund's shareholders will provide more
information about the proposed merger.
You may continue to buy, sell and exchange your fund shares as described in this
prospectus prior to the shareholder meeting. When you sell or exchange your fund
shares, however, you generally will be subject to federal income tax on any gain
you realize. If the merger proposal is approved, the fund expects to close to
new purchases and exchange purchases approximately five business days prior to
the date on which the merger is to be effected.
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PaineWebber Balanced Fund
Contents
THE FUND
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<TABLE>
<S> <C> <C>
What every investor 3 Investment Objective, Strategies and Risks
should know about
the fund 4 Performance
5 Expenses and Fee Tables
6 More About Risks and Investment Strategies
YOUR INVESTMENT
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Information for 7 Managing Your Fund Account
managing your fund -- Flexible Pricing
account -- Buying Shares
-- Selling Shares
-- Exchanging Shares
-- Pricing and Valuation
ADDITIONAL INFORMATION
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Additional important 12 Management
information about
the fund 13 Dividends and Taxes
14 Financial Highlights
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Where to learn more Back cover
about PaineWebber
mutual funds
</TABLE>
[BOXED TEXT]
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The fund is not a complete or
balanced investment program.
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Prospectus Page 2
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PaineWebber Balanced Fund
Balanced Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
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FUND OBJECTIVE
High total return with low volatility.
PRINCIPAL INVESTMENT STRATEGIES
The fund allocates its investments among three asset classes:
o stocks
o bonds
o cash (money market instruments)
The fund normally has investments in each asset class but it always keeps at
least 25% of its total assets in a combination of bonds and cash. This is
intended to limit changes in the value of fund shares compared to funds that
invest solely in stocks.
The fund's bonds are primarily investment grade, but it may invest, to a lesser
extent, in lower quality bonds (commonly known as "junk bonds"). The fund may
invest in U.S. dollar denominated securities of foreign issuers. The fund may
(but is not required to) use options, futures contracts and other derivatives to
adjust its exposure to different asset classes, to manage the "duration" of its
bond investments and to maintain exposure to stocks or bonds while maintaining a
cash balance for fund management purposes. "Duration" is a measure of the fund's
exposure to interest rate risk.
Mitchell Hutchins Asset Management Inc., the fund's investment adviser, believes
investors tend to reach a consensus as to the likely effect of changes in key
economic variables (for example, interest rates, profits and inflation) on each
asset class. Mitchell Hutchins also believes that prices of securities in each
asset class tend to move toward a level that reflects that consensus, but that
this takes time. By using fundamental valuation techniques, Mitchell Hutchins
attempts to adjust the allocation of the fund's assets among asset classes
before prices fully reflect the consensus view.
In buying and selling individual securities for the fund, Mitchell Hutchins uses
the following criteria:
o STOCKS. The fund's stock portion is designed to track the performance of
the Standard & Poor's 500 Composite Stock Price Index.
o BONDS. The fund's bond portion is designed to track the performance of the
Lehman Brothers Aggregate Bond Index.
PRINCIPAL RISKS
An investment in the fund is not guaranteed; you may lose money by investing in
the fund. The principal risks presented by the fund are:
o ASSET ALLOCATION RISK - Mitchell Hutchins may not be successful in choosing
the best allocation of the fund's assets among the three asset classes.
o EQUITY RISK - Stocks and other equity securities generally fluctuate in
value more than bonds. The fund could lose all of its investment in a
company's stock.
o INTEREST RATE RISK - The value of the fund's bond investments generally
will fall when interest rates rise.
o CREDIT RISK - Bond issuers may fail to make payments when due, or they may
become less willing or less able to do so.
o INDEX TRACKING RISK - The fund expects a close correlation between the
performance of the portion of its assets allocated to stocks and bonds,
respectively, and that of the benchmark index in both rising and falling
markets. The performance of the fund's stock and bond investments, however,
generally will not be identical to that of the benchmark index because of
the fees and expenses borne by the fund and investor purchases and sales of
fund shares, which can occur daily.
o FOREIGN INVESTING RISK - The value of the fund's investments in foreign
securities may fall due to adverse political, social and economic
developments abroad. However, because the fund's foreign investments must
be denominated in U.S. dollars, it generally is not subject to the risk of
changes in currency valuations.
o DERIVATIVES RISK - The fund's investments in derivatives may rise or fall
more rapidly than other investments.
More information about risks of an investment in the fund is provided below in
"More About Risks and Investment Strategies."
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PaineWebber Balanced Fund
PERFORMANCE
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RISK/RETURN BAR CHART AND TABLE
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
chart shows Class B shares because they have a longer performance history than
any other class of fund shares. The chart does not reflect the effect of sales
charges; if it did, the total returns shown would be lower.
The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. The table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index. The index is unmanaged and, therefore, does not reflect any sales
charges or expenses.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN ON CLASS B SHARES
[REPRESENTATION OF BAR CHART IN PRINTED PIECE.]
CALENDAR TOTAL
YEAR RETURN
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1990 1.95%
1991 18.52%
1992 4.46%
1993 14.66%
1994 -10.51%
1995 22.23%
1996 13.81%
1997 23.63%
1998 18.02%
1999 1.66%
Total return January 1, 2000 to September 30, 2000: 0.25%
Best quarter during years shown--4th quarter, 1998: 15.09%
Worst quarter during years shown--3rd quarter, 1998: (8.21)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999
<TABLE>
<CAPTION>
CLASS CLASS A CLASS B* CLASS C CLASS Y S&P 500
(INCEPTION DATE) (7/1/91) (12/12/86) (7/2/92) (3/26/98) Index
-------------- ----- ------- ----- ------ ------
<S> <C> <C> <C> <C> <C>
One Year (2.22)% (2.95)% 0.84% 2.78% 21.03%
Five Years 15.41% 15.37% 15.61% N/A 28.54%
Ten Years N/A 10.92% N/A N/A 18.19%
Life of Class 11.38% 9.91% 11.28% 6.08% **
</TABLE>
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* Assumes conversion of Class B shares to Class A shares after six years.
** Average annual total returns for the S&P 500 Index for the life of each
class shown were as follows: Class A -- 20.29%, Class B -- 17.64%, Class C
-- 21.24% and Class Y -- 19.51%.
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PaineWebber Balanced Fund
EXPENSES AND FEE TABLES
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FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
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<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price) 4.5% None None None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)` None 5% 1% None
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y
------ ------ ------ ------
Management Fees 0.75% 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees 0.25 1.00 1.00 None
Other Expenses 0.25 0.29 0.25 0.28
---- ---- ---- ----
Total Annual Fund Operating Expenses 1.25% 2.04% 2.00% 1.03%
==== ==== ==== ====
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class A .................................................................... $572 $829 $1,105 $1,893
Class B (assuming sale of all shares at end of period) .................... 707 940 1,298 1,980
Class B (assuming no sale of shares) ...................................... 207 640 1,098 1,980
Class C (assuming sale of all shares at end of period) .................... 303 627 1,078 2,327
Class C (assuming no sale of shares) ....................................... 203 627 1,078 2,327
Class Y ................................................................... 105 328 569 1,259
</TABLE>
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PaineWebber Balanced Fund
MORE ABOUT RISKS AND INVESTMENT
STRATEGIES
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PRINCIPAL RISKS
The main risks of investing in the fund are described below. Other risks of
investing in the fund, along with further detail about some of the risks
described below, are discussed in the fund's Statement of Additional Information
("SAI"). Information on how you can obtain the SAI is on the back cover of this
prospectus.
ASSET ALLOCATION RISK. Mitchell Hutchins may not be successful in choosing the
best allocation among different asset classes. Because the fund allocates its
assets among different asset classes, it is more dependent on Mitchell Hutchins'
ability to successfully assess the relative values in each asset class than are
funds that do not do so.
EQUITY RISK. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. The
fund may lose a substantial part, or even all, of its investment in a company's
stock.
INTEREST RATE RISK. The value of bonds generally can be expected to fall when
interest rates rise and to rise when interest rates fall. Interest rate risk is
the risk that interest rates will rise, so that the value of the fund's
investments in bonds will fall. Interest rate risk is the primary source of risk
for U.S. government and usually for other very high quality bonds. The impact of
changes in the general level of interest rates on lower quality bonds may be
greater or less than the impact on higher quality bonds.
CREDIT RISK. Credit risk is the risk that the issuer of a bond will not make
principal or interest payments when they are due. Even if an issuer does not
default on a payment, a bond's value may decline if the market believes that the
issuer has become less able, or less willing, to make payments on time. Even
high quality bonds are subject to some credit risk. However, credit risk is
greater for lower quality bonds. Bonds that are not investment grade (commonly
known as "junk bonds") involve high credit risk and are considered speculative.
Low quality bonds may fluctuate in value more than higher quality bonds and,
during periods of market volatility, may be more difficult to sell at the time
and price the fund desires.
INDEX TRACKING RISK. The fund expects a close correlation between the
performance of the portion of its assets allocated to stocks and bonds,
respectively, and that of the benchmark index in both rising and falling
markets. While the fund attempts to replicate the results of a benchmark index
for its stock and bond investments (before the deduction of fees and operating
expenses) the fund's investment results generally will not be identical to those
of the 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.
FOREIGN INVESTING RISK. Foreign investing involves risks relating to political,
social and economic developments abroad to a greater extent than investing in
the securities of U.S. issuers. In addition, there are differences between U.S.
and foreign regulatory requirements and market practices.
DERIVATIVES RISK. The value of "derivatives" - so-called because their value
"derives" from the value of an underlying asset, reference rate or index - may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for the fund to lose more than the amount it invested in the
derivative. Options and futures contracts are examples of derivatives. The
fund's use of derivatives may not succeed for various reasons, including
unexpected changes in the values of the derivatives or the assets underlying
them. Also, if the fund uses derivatives to adjust or "hedge" the overall risk
of its portfolio, the hedge may not succeed if changes in the values of the
derivatives are not matched by opposite changes in the values of the assets
being hedged.
ADDITIONAL INVESTMENT STRATEGIES
DEFENSIVE POSITIONS; CASH RESERVES. To protect itself from adverse market
conditions, the fund may take a temporary defensive position that is different
from its normal investment strategy. This means that the fund may temporarily
invest a larger-than-normal part, or even all, of its assets in cash or money
market instruments. Since these investments provide relatively low income, a
defensive or transitional position may not be consistent with achieving the
fund's investment objective. The fund normally maintains a limited amount of
cash for liquidity purposes.
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PaineWebber Balanced Fund
PORTFOLIO TURNOVER. The fund may engage in frequent trading to achieve its
investment objective. Frequent trading can result in portfolio turnover in
excess of 100% (high portfolio turnover).
Frequent trading may increase the portion of the fund's capital gains that are
realized for tax purposes in any given year. This may increase the fund's
taxable distributions in that year. Frequent trading also may increase the
portion of the fund's realized capital gains that are considered "short-term"
for tax purposes. Shareholders will pay higher taxes on distributions that
represent short-term capital gains than they would pay on distributions that
represent long-term capital gains. Frequent trading also may result in higher
fund expenses due to transaction costs.
The fund does not restrict the frequency of trading to limit expenses or the tax
effect that the fund's distributions may have on shareholders.
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MANAGING YOUR FUND ACCOUNT
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FLEXIBLE PRICING
The fund offers four classes of shares - Class A, Class B, Class C and Class Y.
Each class has different sales charges and ongoing expenses. You can choose the
class that is best for you, based on how much you plan to invest and how long
you plan to hold your fund investment. Class Y shares are only available to
certain types of investors.
The fund has adopted a plan under rule 12b-1 for its Class A, Class B and Class
C shares that allows it to pay service fees for providing services to
shareholders and (for Class B and Class C shares) distribution fees for the sale
of its shares. Because the 12b-1 distribution fees for Class B and Class C
shares are paid out of the fund's assets on an ongoing basis, over time they
will increase the cost of your investment and may cost you more than if you paid
a front-end sales charge.
CLASS A SHARES
Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is not invested in the fund.
Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets,
but they pay no 12b-1 distribution fees. The ongoing expenses for Class A shares
are lower than for Class B and Class C shares.
The Class A sales charges for the fund are described in the following table.
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: REALLOWANCE TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
---------------- ---------- --------------- ----------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.50 3.63 3.25
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 1.75 1.78 1.50
$1,000,000 and over (1) None None 1.00(2)
</TABLE>
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(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of dividends are not subject
to this 1% charge. Withdrawals in the first year after purchase of up to
12% of the value of the fund account under the funds' Systematic Withdrawal
Plan are not subject to this charge.
(2) Mitchell Hutchins pays 1% to the dealer.
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PaineWebber Balanced Fund
SALES CHARGE REDUCTIONS AND WAIVERS. You may qualify for a lower sales charge if
you already own Class A shares of a PaineWebber mutual fund. You can combine the
value of Class A shares that you own in other PaineWebber funds and the purchase
amount of the Class A shares of the PaineWebber fund that you are buying.
You may also qualify for a lower sales charge if you combine your purchases with
those of:
o your spouse, parents or children under age 21;
o your Individual Retirement Accounts (IRAs);
o certain employee benefit plans, including 401(k) plans;
o a company that you control;
o a trust that you created;
o Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by you or by a group of investors for your children; or
o accounts with the same adviser.
You may qualify for a complete waiver of the sales charge if you:
o Are an employee of PaineWebber or its affiliates or the spouse, parent or
child under age 21 of a PaineWebber employee;
o Buy these shares through a PaineWebber Financial Advisor who was formerly
employed as an investment executive with a competing brokerage firm that
was registered as a broker-dealer with the SEC, and
-- you were the Financial Advisor's client at the competing brokerage
firm;
-- within 90 days of buying shares in a fund, you sell shares of one or
more mutual funds that were principally underwritten by the competing
brokerage firm or its affiliates, and you either paid a sales charge
to buy those shares, pay a contingent deferred sales charge when
selling them or held those shares until the contingent deferred sales
charge was waived; and
-- you purchase an amount that does not exceed the total amount of money
you received from the sale of the other mutual fund;
o Acquire these shares through the reinvestment of dividends of a PaineWebber
unit investment trust;
o Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more
eligible employees in the plan or at least $1 million in assets;
o Are a participant in the PaineWebber Members OnlySM Program. For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
membership organizations in a total amount not to exceed 1% of the amount
invested; or
o Acquire fund shares through a PaineWebber InsightOneSM Program brokerage
account.
CLASS B SHARES
Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase in fund shares. However, you may have
to pay the deferred sales charge when you sell your fund shares, depending on
how long you own the shares.
Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
If you hold your Class B shares for six years, they will automatically convert
to Class A shares, which have lower ongoing expenses.
If you sell Class B shares before the end of six years, you will pay a deferred
sales charge. We calculate the deferred sales charge by multiplying the lesser
of the net asset value of the Class B shares at the time of purchase or the net
asset value at the time of sale by the percentage shown below:
PERCENTAGE BY WHICH THE
IF YOU SELL SHARES' NET ASSET
SHARES WITHIN: VALUE IS MULTIPLIED:
--------- ----------------
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
We will not impose the deferred sales charge on Class B shares representing
reinvestment of dividends or on withdrawals in any year of up to 12% of the
value of your Class B shares under the Systematic Withdrawal Plan.
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PaineWebber Balanced Fund
To minimize your deferred sales charge, we will assume that you are selling:
o First, Class B shares representing reinvested dividends, and
o Second, Class B shares that you have owned the longest.
SALES CHARGE WAIVERS. You may qualify for a waiver of the deferred sales charge
on a sale of shares if:
o You participate in the Systematic Withdrawal Plan;
o You are older than 591/2 and are selling shares to take a distribution from
certain types of retirement plans;
o You receive a tax-free return of an excess IRA contribution;
o You receive a tax-qualified retirement plan distribution following retirement;
o The shares are sold within one year of your death and you owned the shares
either (1) as the sole shareholder or (2) with your spouse as a joint tenant
with the right of survivorship;
o The shares are held in trust and the death of the trustee requires
liquidation of the trust; or
o The shares are sold in connection with a transfer from an existing
PaineWebber mutual fund SIMPLE IRA to another fund group's SIMPLE IRA.
CLASS C SHARES
Class C shares have a level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of your
purchase in fund shares.
Class C shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Class C shares do not convert to another class of shares. This means that you
will pay the 12b-1 fees for as long as you own your shares.
Class C shares also have a contingent deferred sales charge. You may have to pay
the deferred sales charge if you sell your shares within one year of the date
you purchased them. We calculate the deferred sales charge on sales of Class C
shares by multiplying 1.00% by the lesser of the net asset value of the Class C
shares at the time of purchase or the net asset value at the time of sale. We
will not impose the deferred sales charge on Class C shares representing
reinvestment of dividends or on withdrawals in the first year after purchase, of
up to 12% of the value of your Class C shares under the Systematic Withdrawal
Plan.
SALES CHARGE WAIVERS. You may be eligible to sell your Class C shares without
paying a contingent deferred sales charge if:
o You are a 401(k) or 403(b) qualified employee benefit plan with fewer than
100 eligible employees or less than $1 million in assets; or
o The shares are sold in connection with a transfer from an existing
PaineWebber mutual fund SIMPLE IRA to another fund group's SIMPLE IRA.
NOTES ON SALES CHARGE WAIVERS FOR CLASS A, CLASS B AND CLASS C SHARES
If you think you qualify for any of the sales charge waivers described above,
you will need to provide documentation to PaineWebber or the fund. For more
information, you should contact your PaineWebber Financial Advisor or
correspondent firm or call 1-800-647-1568. If you want information on the fund's
Systematic Withdrawal Plan, see the SAI or contact your PaineWebber Financial
Advisor or correspondent firm.
CLASS Y SHARES
Class Y shares have no sales charge. Only specific types of investors can
purchase Class Y shares. You may be eligible to purchase Class Y shares if you:
o Buy shares through PaineWebber's PACESM Multi Advisor Program;
o Buy $10 million or more of PaineWebber fund shares at any one time;
o Are a qualified retirement plan with 5,000 or more eligible employees or
$50 million in assets; or
o Are a corporation, bank, trust company, insurance company, pension fund,
employee benefit plan, professional firm, trust, estate or educational,
religious or charitable organization with 5,000 or more employees or with
over $50 million in investable assets.
The trustee of PaineWebber's 401(k) Plus Plan for its employees is also eligible
to purchase Class Y shares.
Class Y shares do not pay ongoing distribution or service fees or sales charges.
The ongoing expenses for Class Y shares are the lowest for all the classes.
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PaineWebber Balanced Fund
BUYING SHARES
If you are a PaineWebber client, or a client of a PaineWebber correspondent
firm, you can purchase fund shares through your Financial Advisor. Otherwise,
you can invest in the fund through the fund's transfer agent, PFPC Inc. You can
obtain an application by calling 1-800-647-1568. You must complete and sign the
application and mail it, along with a check, to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you wish to invest in other PaineWebber funds, you can do so by:
o Contacting your Financial Advisor (if you have an account at PaineWebber or
at a PaineWebber correspondent firm);
o Mailing an application with a check; or
o Opening an account by exchanging shares from another PaineWebber fund.
You do not have to complete an application when you make additional investments
in the same fund.
The fund and Mitchell Hutchins reserve the right to reject a purchase order or
suspend the offering of shares.
MINIMUM INVESTMENTS
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To open an account $1,000
To add to an account $ 100
The fund may waive or reduce these amounts for:
o Employees of PaineWebber or its affiliates; or
o Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the fund's automatic investment plans.
FREQUENT TRADING. The interests of the fund's long-term shareholders and its
ability to manage its investments may be adversely affected when its shares are
repeatedly bought and sold in response to short-term market fluctuations -- also
known as "market timing." When large dollar amounts are involved, the fund may
have difficulty implementing long-term investment strategies, because it cannot
predict how much cash it will have to invest. Market timing also may force the
fund to sell portfolio securities at disadvantageous times to raise the cash
needed to buy a market timer's fund shares. These factors may hurt the fund's
performance and its shareholders. When Mitchell Hutchins believes frequent
trading would have a disruptive effect on the fund's ability to manage its
investments, Mitchell Hutchins and the fund may reject purchase orders and
exchanges into the fund by any person, group or account that Mitchell Hutchins
believes to be a market timer. The fund may notify the market timer that a
purchase order or an exchange has been rejected after the day the order is
placed.
SELLING SHARES
You can sell your fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the fund
will assume that you want to sell shares in the following order: Class A, then
Class C, then Class B and last, Class Y.
If you want to sell shares that you purchased recently, the fund may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.
If you have an account with PaineWebber or a PaineWebber correspondent firm, you
can sell shares by contacting your Financial Advisor.
If you do not have an account at PaineWebber or a correspondent firm, and you
bought your shares through the transfer agent, you can sell your shares by
writing to the fund's transfer agent. Your letter must include:
o Your name and address;
o The fund's name;
o The fund account number;
o The dollar amount or number of shares you want to sell; and
o A guarantee of each registered owner's signature. A signature guarantee may
be obtained from a financial institution, broker, dealer or clearing agency
that is a participant in one of the medallion programs recognized by the
Securities Transfer Agents Association. These are: Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP)
and the New York Stock Exchange Medallion Signature Program (MSP). The fund
will not accept signature guarantees that are not a part of these programs.
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Prospectus Page 10
<PAGE>
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PaineWebber Balanced Fund
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you sell Class A shares and then repurchase Class A Shares of the same fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.
It costs the fund money to maintain shareholder accounts. Therefore, the fund
reserves the right to repurchase all shares in any account that has a net asset
value of less than $500. If the fund elects to do this with your account, it
will notify you that you can increase the amount invested to $500 or more within
60 days. The fund will not repurchase shares in accounts that fall below $500
solely because of a decrease in the fund's net asset value.
EXCHANGING SHARES
You may exchange Class A, Class B or Class C shares of the fund for shares of
the same class of most other PaineWebber funds. You may not exchange Class Y
shares.
You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares. However, you may have to pay a deferred sales charge if you
later sell the shares you acquired in the exchange. The fund will use the date
that you purchased the shares in the first fund to determine whether you must
pay a deferred sales charge when you sell the shares in the acquired fund.
Other PaineWebber funds may have different minimum investment amounts. You may
not be able to exchange your shares if your exchange is not as large as the
minimum investment amount in that other fund.
You may exchange shares of one fund for shares of another fund only after the
first purchase has settled and the first fund has received your payment.
PAINEWEBBER AND CORRESPONDENT FIRM CLIENTS. If you bought your shares through
PaineWebber or a correspondent firm, you may exchange your shares by placing an
order with your Financial Advisor.
OTHER INVESTORS. If you are not a PaineWebber or correspondent firm client, you
may exchange your shares by writing to the fund's transfer agent. You must
include:
o Your name and address;
o The name of the fund whose shares you are selling and the name of the fund
whose shares you want to buy;
o Your account number;
o How much you are exchanging (by dollar amount or by number of shares to be
sold); and
o A guarantee of your signature. (See "Selling Shares" for information on
obtaining a signature guarantee.)
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
A fund may modify or terminate the exchange privilege at any time.
PRICING AND VALUATION
The price at which you may buy, sell or exchange fund shares is based on net
asset value per share. The fund calculates net asset value on days that the New
York Stock Exchange is open. The fund calculates net asset value separately for
each class as of the close of regular trading on the NYSE (generally, 4:00 p.m.,
Eastern time). The NYSE normally is not open, and the fund does not price its
shares, on most national holidays and on Good Friday. If trading on the NYSE is
halted for the day before 4:00 p.m., Eastern time, the fund's net asset value
per share will be calculated as of the time trading was halted.
Your price for buying, selling or exchanging shares will be based on the net
asset value that is next calculated after the fund accepts your order. If you
place your order through PaineWebber, your PaineWebber Financial Advisor is
responsible for making sure that your order is promptly sent to the fund.
You should keep in mind that a front-end sales charge may be applied to your
purchase if you buy Class A shares. A deferred sales charge may be applied when
you sell Class B or Class C shares.
The fund calculates its net asset value based on the current market value for
its portfolio securities. The fund normally obtains market values for its
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
fund's board. The fund normally uses the amortized cost method to value bonds
that will mature in 60 days or less.
Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.
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Prospectus Page 11
<PAGE>
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PaineWebber Balanced Fund
MANAGEMENT
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INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc. is the investment adviser and
administrator of the fund. Mitchell Hutchins is located at 51 West 52nd Street,
New York, New York 10019-6114, and is a wholly owned asset management subsidiary
of PaineWebber Incorporated, which is an indirect wholly owned subsidiary of UBS
AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many areas of the financial services
industry. On November 30, 2000, Mitchell Hutchins was manager, adviser or
sub-adviser of 31 investment companies with 75 separate portfolios and aggregate
assets of approximately $59.5 billion.
PORTFOLIO MANAGERS
T. Kirkham Barneby and Joe Baggett are responsible for the asset allocation
decisions for the 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. She has held her fund responsibilities since August 1995.
ADVISORY FEES
The fund paid fees to Mitchell Hutchins for advisory and administrative services
during the last fiscal year at the annual rate of 0.75% of average daily net
assets.
OTHER INFORMATION
The fund has received an exemptive order from the SEC that permits its board to
appoint and replace sub-advisers and to amend sub-advisory contracts without
shareholder approval. The fund's shareholders must approve this policy before
its board may implement it. As of the date of this prospectus, the shareholders
of the fund have not been asked to do so.
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Prospectus Page 12
<PAGE>
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PaineWebber Balanced Fund
DIVIDENDS AND TAXES
-------------------------------------------------------------------------------
DIVIDENDS
The fund normally declares and pays dividends semi-annually and distributes any
gains annually.
Classes with higher expenses are expected to have lower dividends. For example,
Class B and Class C shares are expected to have the lowest dividends of any
class of the fund's shares, while Class Y shares are expected to have the
highest.
You will receive dividends in additional shares of the same class unless you
elect to receive them in cash. Contact your Financial Advisor at PaineWebber or
one of its correspondent firms if you prefer to receive dividends in cash.
TAXES
The dividends that you receive from the fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. If you hold fund shares through a tax-exempt account or plan, such as
an IRA or 401(k) plan, dividends on your shares generally will not be subject to
tax.
When you sell fund shares, you generally will be subject to federal income tax
on any gain you realize. If you exchange the fund's shares for shares of another
PaineWebber mutual fund, the transaction will be treated as a sale of the fund's
shares, and any gain will be subject to federal income tax.
The fund expects that its dividends will include capital gain distributions.
However, a portion of the fund's dividends will be taxed as ordinary income. A
distribution of capital gains will be taxed at a lower rate than ordinary income
if the fund held the assets that generated the gains for more than 12 months.
The fund will tell you annually how you should treat its dividends for tax
purposes.
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Prospectus Page 13
<PAGE>
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PaineWebber Balanced Fund
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------
The following financial highlights table is intended to help you understand the
fund's financial performance for the past 5 years. Shorter periods are shown for
classes of fund shares that have existed for less than 5 years. Certain
information reflects financial results for a single fund share. In the tables,
"total investment return" represents the rate that an investor would have earned
(or lost) on an investment in the fund (assuming reinvestment of all dividends).
This information in the financial highlights has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the fund's financial statements, is included in the fund's Annual Report to
Shareholders. The Annual Report may be obtained without charge by calling
1-800-647-1568.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
FOR THE
SIX FOR THE
FOR THE YEARS ENDED MONTHS YEAR
AUGUST 31, ENDED ENDED
------------------------------------------------------- AUGUST 31, FEBRUARY 29,
2000 1999 1998 1997 1996(2) 1996
-------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 11.60 $ 11.27 $ 12.50 $ 10.27 $ 10.85 $ 9.80
-------- --------- -------- --------- --------- ---------
Net investment income .................... 0.22++ 0.22++ 0.23++ 0.23++ 0.12++ 0.27++
Net realized and unrealized gains (losses)
from investments, futures and options .. 0.66++ 1.56++ 0.31++ 2.79++ (0.12)++ 1.84++
-------- --------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations ............................. 0.88 1.78 0.54 3.02 0.00 2.11
-------- --------- --------- --------- --------- ---------
Dividends from net investment income .... (0.23) (0.22) (0.22) (0.24) (0.10) (0.31)
Distributions from net realized gains
from investment transactions ........... (0.97) (1.23) (1.55) (0.55) (0.48) (0.75)
-------- --------- --------- --------- ---------- ---------
Total dividends and distributions to
shareholders ........................... (1.20) (1.45) (1.77) (0.79) (0.58) (1.06)
-------- --------- --------- --------- ---------- ---------
Net asset value, end of period ........... $ 11.28 $ 11.60 $ 11.27 $ 12.50 $ 10.27 $ 10.85
======== ========= ========= ========= ========== =========
Total investment return (1) .............. 8.27% 16.20% 4.69% 30.67% 0.03% 22.08%
======== ========= ========= ========= ========== =========
Ratios/supplemental data:
Net assets, end of period (000's) ........ $ 190,695 $ 196,684 $ 182,362 $ 176,403 $ 157,525 $ 171,609
Expenses to average net assets,
net of waivers from adviser (3) ........ 1.25% 1.22% 1.26% 1.46% 1.34%* 1.29%
Net investment income to average net
assets, net of waivers from adviser (3) 2.03% 1.81% 1.88% 2.02% 2.19%* 2.55%
Portfolio turnover rate .................. 151% 234% 190% 188% 103% 188%
* Annualized.
+ Commencement of issuance of shares.
++ Calculated using the average shares outstanding for the period.
(1) Total investment return is calculated assuming a $10,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include any applicable sales charges or program fees; results would be
lower if they were included. Total investment return for periods less than
one year has not been annualized.
(2) Fiscal year changed to August 31.
(3) During the years ended August 31, 2000 and August 31, 1999, Mitchell
Hutchins waived a portion of its advisory and administration fees. The
ratios excluding the waiver would be the same since the fee waiver
represents less than 0.005%.
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Prospectus Page 14
<PAGE>
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PaineWebber Balanced Fund
CLASS B
-------------------------------------------------------------------------------
FOR THE
SIX FOR THE
FOR THE YEARS ENDED MONTHS YEAR
AUGUST 31, ENDED ENDED
------------------------------------------------------ AUGUST 31, FEBRUARY 29,
2000 1999 1998 1997 1996(2) 1996
-------- --------- ---------- --------- ---------- ---------
$ 11.84 $ 11.48 $ 12.70 $ 10.42 $ 11.00 $ 9.90
-------- --------- ---------- --------- ---------- ---------
0.14++ 0.13++ 0.14++ 0.14++ 0.08 ++ 0.19++
0.67++ 1.59++ 0.31++ 2.84++ (0.11)++ 1.86++
-------- --------- ---------- --------- ---------- ---------
0.81 1.72 0.45 2.98 (0.03) 2.05
-------- --------- ---------- --------- ---------- ---------
(0.12) (0.13) (0.12) (0.15) (0.07) (0.20)
(0.97) (1.23) (1.55) (0.55) (0.48) (0.75)
-------- --------- ---------- --------- ---------- ---------
(1.09) (1.36) (1.67) (0.70) (0.55) (0.95)
-------- --------- ---------- --------- ---------- ---------
$ 11.56 $ 11.84 $ 11.48 $ 12.70 $ 10.42 $ 11.00
======== ========= ========== ========= ========= =========
7.44% 15.28% 3.87% 29.70% (0.30)% 21.20%
======== ========= ========== ========= ========= =========
$ 22,197 $ 28,719 $ 26,425 $ 22,768 $ 22,307 $ 26,627
2.04% 1.98% 2.03% 2.22% 2.09%* 2.05%
1.22% 1.04% 1.13% 1.27% 1.43%* 1.81%
151% 234% 190% 188% 103% 188%
CLASS C
---------------------------------------------------------------------------------
FOR THE
SIX FOR THE
FOR THE YEARS ENDED MONTHS YEAR
AUGUST 31, ENDED ENDED
------------------------------------------------------- AUGUST 31, FEBRUARY 29,
2000 1999 1998 1997 1996(2) 1996
-------- --------- ---------- --------- ---------- ---------
$ 11.60 $ 11.28 $ 12.52 $ 10.29 $ 10.88 $ 9.82
-------- --------- ---------- --------- ---------- ---------
0.14++ 0.14++ 0.14++ 0.14++ 0.08++ 0.19++
0.66++ 1.56++ 0.31++ 2.80++ (0.12)++ 1.84++
-------- --------- ---------- --------- ---------- ---------
0.80 1.70 0.45 2.94 (0.04) 2.03
-------- --------- ---------- --------- ---------- ---------
(0.14) (0.15) (0.14) (0.16) (0.07) (0.22)
(0.97) (1.23) (1.55) (0.55) (0.48) (0.75)
-------- --------- ---------- --------- ---------- ---------
(1.11) (1.38) (1.69) (0.71) (0.55) (0.97)
-------- --------- ---------- --------- ---------- ---------
$ 11.29 $ 11.60 $ 11.28 $ 12.52 $ 10.29 $ 10.88
======== ========= ========== ========= ========= =========
$ 7.46% 15.34% 3.89% 29.70% (0.38)% 21.12%
======== ========= ========== ========= ========= =========
$ 20,371 $ 19,894 $ 14,581 $ 8,736 $ 6,979 $ 7,469
2.00% 1.95% 2.00% 2.21% 2.09%* 2.08%
1.29% 1.08% 1.18% 1.27%* 1.44%* 1.77%
151% 234% 190% 188% 103% 188%
CLASS Y
---------------------------------------------
FOR THE
PERIOD
MARCH 26, 1998+
FOR THE YEAR ENDED THROUGH
AUGUST 31, AUGUST 31,
2000 1999 1998
--------- ---------- ---------
$ 11.59 $ 11.27 $ 12.55
--------- ---------- ---------
0.25++ 0.26++ 0.11++
0.66++ 1.55++ (1.28)++
--------- ---------- ---------
0.91 1.81 (1.17)
--------- ---------- ---------
(0.26) (0.26) (0.11)
(0.97) (1.23) --
--------- ---------- ---------
(1.23) (1.49) (0.11)
--------- ---------- ---------
$ 11.27 $ 11.59 $ 11.27
========= ========== =========
8.54% 16.42% (9.41)%
========= ========== =========
$ 601 $ 519 $ 175
1.03% 0.96% 0.89%*
2.28%* 2.11% 2.48%*
151% 234% 190%
</TABLE>
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Prospectus Page 15
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PaineWebber Balanced Fund
TICKER SYMBOL: Balanced Fund Class A: PASAX
B: PASBX
C: PASCX
Y: None
If you want more information about the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In the fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund and is incorporated by
reference into this prospectus.
You may discuss your questions about the fund by contacting your Financial
Advisor. You may obtain free copies of the fund's annual and semi-annual reports
and its SAI by contacting the fund directly at 1-800-647-1568.
You may review and copy information about the fund, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and Exchange
Commission. You may obtain information about the operations of the SEC's Public
Reference Room by calling the SEC at 1-202-942-8090. You may get copies of
reports and other information about the fund:
o For a fee, by electronic request at [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102; or
o Free from the EDGAR Database on the SEC's Internet website at
http://www.sec.gov
PaineWebber Master Series, Inc.
- PaineWebber Balanced Fund
Investment Company Act File No. 811-4448
(C)2000 PaineWebber Incorporated. All rights reserved.
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