PAINEWEBBER MUTUAL FUNDS
PAINEWEBBER OFFERS A FAMILY OF 22
FUNDS WHICH ENCOMPASS A DIVERSIFIED
RANGE OF INVESTMENT GOALS. INVESTORS
MAY EXCHANGE THEIR FUND SHARES WITH
OTHER FUNDS WITHIN THE FAMILY FOR A
$5 EXCHANGE FEE.
INCOME FUNDS
. GLOBAL INCOME FUND
. HIGH INCOME FUND
. INVESTMENT GRADE INCOME FUND
PAINEWEBBER
. LOW DURATION U.S. GOVERNMENT INCOME FUND
. STRATEGIC INCOME FUND
TACTICAL ALLOCATION
. U.S. GOVERNMENT INCOME FUND
FUND (FORMERLY MITCHELL
TAX-FREE INCOME FUNDS
HUTCHINS/KIDDER,
PEABODY
. CALIFORNIA TAX-FREE INCOME FUND
. MUNICIPAL HIGH INCOME FUND
ASSET ALLOCATION FUND)
. NATIONAL TAX-FREE INCOME FUND
. NEW YORK TAX-FREE INCOME FUND
GROWTH FUNDS
. CAPITAL APPRECIATION FUND
. EMERGING MARKETS EQUITY FUND
. FINANCIAL SERVICES GROWTH FUND
. GLOBAL EQUITY FUND
. GROWTH FUND
. SMALL CAP GROWTH FUND
. SMALL CAP VALUE FUND
GROWTH AND INCOME FUNDS
. BALANCED FUND
. GROWTH AND INCOME FUND
. UTILITY INCOME FUND
SEMI-ANNUAL REPORT
February 29, 1996
PAINEWEBBER MONEY MARKET
FUND
- ------------------
(C)1996 PaineWebber Incorporated
[LOGO] Printed on
Recycled Paper
<PAGE>
- --------------------------------------------------------------------------------
April 16, 1996
Dear Shareholder,
During the six months ended February 29, 1996, the Federal Reserve Board
signaled its assessment of low inflationary pressure by bringing the Federal
Funds rate down to 5.25% via three rate cuts in July and December, 1995 and
January 1996.
While the pace of economic growth in 1995 was lackluster, falling interest rates
and strong corporate profits created an exceptional investment environment.
Stocks reached record-breaking highs and, in November, the Dow posted its
fourth-best monthly advance since World War II. After a dismal 1994, bonds
rallied throughout 1995, providing investors with their third-best year since
the 1920s.
As we entered 1996, the fear that economy could turn recessionary led to a
general consensus that the Federal Reserve Board would act again to cut
short-term interest rates. However, during the first quarter of 1996, sentiment
changed quickly in response to government reports showing higher-than-expected
growth, causing a sharp drop in bond prices and volatility in the stock market.
Moving forward, our view is that the economy will continue to expand, but
slowly. We forecast that inflation will remain in check, creating an environment
for stable to lower interest rates. Most important, although corporate earnings
will probably decline from 1995 levels, we believe that corporate profits will
not decrease, but will face a slowing rate of increase.
PAINEWEBBER TACTICAL ALLOCATION FUND
PaineWebber Tactical Allocation Fund's total return for the six months ended
February 29, 1996, without deducting sales charges, was 14.59% for Class A
shares, 1.67% for Class B shares (from commencement of operations on January 30,
1996 through February 29, 1996), 14.13% for Class C (formerly Class B) shares
and 14.80% for Class Y (formerly Class C) shares. The Fund's total return for
this period, after deducting the maximum applicable sales charges, was 9.43% for
Class A shares, (3.33)% for Class B shares (from commencement of operations),
13.13% for Class C shares and 14.80% for Class Y shares.
The Fund employs a disciplined, model-based approach to calculate expected
returns for U.S. stocks, bonds and cash (cash for this purpose being investments
in U.S. Treasury bills). The expected return of the broad U.S. stock market is
then compared with that of a "risk-free" asset (i.e., the one year Teasury bill)
to quantify an "equity risk premium." When the premium is above its long-term
average, the Fund invests in stocks, primarily securities in the S&P 500 Index.
Should the "equity risk premium" fall below its long-term average, the Fund's
model dictates that a portion of assets should be shifted to bonds or cash.
Despite falling corporate earnings expectations--which make up one of the
factors of the equity risk calculation--the premium remained well above the 5.5%
hurdle because short-term interest rates came down. The Fund's equity risk
premium was above 6%, well over the 5.5% premium required for a total stock
allocation. Together, these factors indicated that the equity markets were not
overvalued when compared to an alternative "risk-free" investment. Therefore,
the Fund's assets were fully invested in stocks during the period, except for a
limited amount of assets kept in cash to satisfy operating needs.
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
The charts below provide a history of the equity risk premium and bond risk
premium going back to 1984.
[GRAPH]
History of the Equity Risk Premium
(Using 1-Year Treasury Bill Yield)
1984-1996
10% -------------------------------------------------------------------------
8 -
6 -
4 - Plot Points To Come
2 -
0 -
-------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1994 1995 1996
Source: Mitchell Hutchins Asset Management Inc.
(2) Intermediate-term (five-year) Treasury note.
[GRAPH]
History of the Bond Risk Premium
1984-1996
3% -------------------------------------------------------------------------
2 -
1 - Plot Points To Come
0 -
- -1 -
-------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
Source: Mitchell Hutchins Asset Management Inc.
(2) Intermdeiate-term (five-year) Treasury note.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
We value you as a shareholder and as a client, and thank you for your continued
support. We welcome any comments or questions you may have.
Sincerely,
/s/ Margo Alexander /s/ T. Kirkham Barneby
- ------------------- --------------------------
MARGO ALEXANDER T. KIRKHAM BARNEBY
President,
Mitchell Hutchins Asset Management Inc. Managing Director and Chief
Investment Officer--
Quantitative Investments,
Mitchell Hutchins Asset
Management Inc.
- --------------------------------------------------------------------------------
3
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN1
---------------------------------- ---------------------------------
12 MONTHS 6 MONTHS
02/29/96 08/31/95 02/28/95 ENDED 02/29/96 ENDED 02/29/96
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Class A Shares $15.77 $14.86 $12.90 32.93% 14.59%
- ------------------------------------------------------------------------------------------------------
Class B Shares 15.80 -- -- N/A N/A
- ------------------------------------------------------------------------------------------------------
Class C Shares2 15.79 14.87 12.92 31.86 14.13
- ------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN1
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
05/10/93-12/31/93 $ 12.90 $13.49 $0.0440 $ 0.1980 6.48%
- -------------------------------------------------------------------------------------------
1994 13.49 12.20 0.9720 0.2340 (0.59)
- -------------------------------------------------------------------------------------------
1995 12.20 15.16 1.0555 0.2407 35.12
- -------------------------------------------------------------------------------------------
01/01/96-02/29/96 15.16 15.77 -- -- 4.02
- -------------------------------------------------------------------------------------------
Total: $2.0715 $ 0.6727
- -------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/96: 48.75%
- -------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN1
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
01/30/96-02/29/96 $ 15.54 $15.80 -- -- 1.67%
- -------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES2
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN1
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
07/22/92-12/31/92 $ 12.00 $12.72 $0.0020 $ 0.0790 6.67%
- -------------------------------------------------------------------------------------------
1993 12.72 13.51 0.0440 0.1340 7.64
- -------------------------------------------------------------------------------------------
1994 13.51 12.23 0.9720 0.1300 (1.28)
- -------------------------------------------------------------------------------------------
1995 12.23 15.20 1.0555 0.1259 34.09
- -------------------------------------------------------------------------------------------
01/01/96-02/29/96 15.20 15.79 -- -- 3.88
- -------------------------------------------------------------------------------------------
Total: $2.0735 $ 0.4689
- -------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/96: 57.89%
- -------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS CLASS
-------------------------------- ----------------------------------
<CAPTION>
A* B** C*** A* B** C***
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Twelve Months Ended
03/31/96 30.24% N/A 29.35% 24.41% N/A 28.35%
- ----------------------------------------------------------------------------------------------------------------
Commencement of Operations+
Through 03/31/96 15.04 N/A 13.42 13.21 N/A 13.42
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
1 Figures assume reinvestment of all dividends and capital gains distributions at net
asset value on the payable dates and do not include sales charges; results for each
class would be lower if sales charges were included.
2 Formerly Class B shares.
* Maximum sales charge for Class A shares is 4.5% of the public offering price. Class A
shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is reduced to 0%
after 6 years. Class B shares bear ongoing 12b-1 distribution and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 1% and is reduced to 0%
after 1 year. Class C shares bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations dates are May 10, 1993, January 30, 1996 and July 22, 1992
for Class A, Class B and Class C shares, respectively.
</TABLE>
Note: The Fund offers Class Y (formerly Class C) shares to the trustee of the
PaineWebber Savings Investment Plan and to INSIGHT participants. For the six
months ended February 29, 1996, and since inception, May 10, 1993 through
February 29, 1996, Class Y shares have a total return of 14.80% and 49.99%,
respectively. For the year ended March 31, 1996, and since inception through
March 31, 1996, Class Y shares have an average annual return of 30.62% and
15.37%, respectively. Class Y shares do not have initial or contingent deferred
sales charges or ongoing distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
4
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Shares Value Shares Value
- ----------- ----------- ----------- -----------
<C> <S> <C> <C> <C>
COMMON STOCKS--99.18%
AEROSPACE--1.25% APPAREL, TEXTILES--(concluded)
5,100 Boeing Company........... $ 413,737 1,400 Nike, Incorporated....... $ 90,825
900 General Dynamics 1,200 Reebok International
Corporation.............. 53,662 Limited ................. 31,650
3,030 Lockheed Martin 600 Russell Corporation...... 16,800
Corporation.............. 231,038 6,900 Sara Lee Corporation..... 223,388
1,700 McDonnell Douglas 400 Springs Industries,
Corporation............. 150,025 Incorporated............ 17,300
800 Northrop Grumman 1,200 V.F. Corporation......... 64,500
Corporation............. 49,400 -----------
----------- 506,888
897,862 -----------
-----------
BANKS--7.11%
AGRICULTURE, FOOD--4.37% 6,290 Banc One Corporation..... 224,071
7,182 Archer-Daniels-Midland 5,600 Bank of America
Company.................. 138,253 Corporation.............. 399,000
3,800 Campbell Soup Company.... 234,650 1,700 Bank of Boston
3,600 Conagra, Incorporated.... 151,650 Corporation.............. 82,662
2,200 CPC International, 3,000 Bank of New York Company,
Incorporated............ 152,350 Incorporated............. 155,625
2,500 General Mills, 1,400 Bankers Trust New York
Incorporated............. 143,750 Corporation.............. 90,475
5,350 Heinz, H.J. and 1,500 Barnett Banks,
Company.................. 181,900 Incorporated............. 93,750
1,300 Hershey Foods 2,300 Boatman's Bancshares,
Corporation.............. 97,988 Incorporated............. 90,275
3,300 Kellogg Company.......... 249,150 2,700 Chase Manhattan
12,500 Phillip Morris Companies, Corporation.............. 201,150
Incorporated............. 1,237,500 3,700 Chemical Banking
1,300 Pioneer Hi Bred Corporation.............. 265,012
International, 7,200 Citicorp................. 561,600
Incorporated............. 70,038 1,800 Comerica, Incorporated... 69,975
1,900 Quaker Oats Company...... 65,313 2,000 Corestates Financial
2,400 Unilever N.V. ........... 322,800 Corporation............. 86,000
1,800 Wrigley, Wm. Jr. 2,200 First Bank System,
Company.................. 105,750 Incorporated............ 126,775
----------- 4,772 First Chicago
3,151,092 Corporation.............. 206,985
----------- 1,100 First Interstate
AIR TRANSPORT--0.43% Bancorp.................. 179,712
1,200 AMR Corporation*......... 105,300 4,285 First Union
900 Delta Air Lines, Corporation.............. 259,242
Incorporated............. 70,200 3,916 Fleet Financial Group,
900 Federal Express Incorporated............. 161,045
Corporation*............. 66,600 2,900 J.P. Morgan & Company,
2,100 Southwest Airlines Incorporated............. 237,438
Company.................. 64,575 3,440 KeyCorp.................. 129,430
----------- 2,150 Mellon Bank
306,675 Corporation.............. 120,131
----------- 2,000 National City
ALUMINUM--0.43% Corporation.............. 69,500
3,300 Alcan Aluminum 4,500 NationsBank
Limited ................. 100,650 Corporation.............. 331,875
2,600 Aluminum Company of 5,100 Norwest Corporation...... 186,150
America................. 147,550 4,800 PNC Bank Corporation..... 147,000
1,200 Reynolds Metals 900 Republic New York
Company.................. 61,950 Corporation............. 53,888
----------- 1,800 Suntrust Banks,
310,150 Incorporated............. 129,375
----------- 2,900 UST, Incorporated........ 102,950
APPAREL, TEXTILES--0.70% 2,200 US Bancorp,
1,100 Fruit of the Loom, Incorporated............. 67,925
Incorporated*............ 27,912
1,100 Liz Claiborne,
Incorporated............. 34,513
</TABLE>
5
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Shares Value Shares Value
- ----------- ----------- ----------- -----------
<C> <S> <C> <C> <S> <C>
COMMON STOCKS--(continued)
BANKS--(concluded) CHEMICALS--(concluded)
2,600 Wachovia Corporation..... $ 120,900 1,000 Great Lakes Chemical
700 Wells Fargo & Company.... 172,638 Corporation.............. $ 71,500
----------- 1,600 Hercules, Incorporated... 96,000
5,122,554 1,700 Monsanto Company......... 228,863
----------- 2,100 Morton International,
BEVERAGES--3.19% Incorporated............. 79,538
11,800 Pepsico, Incorporated.... 746,350 1,000 Nalco Chemical Company... 31,750
18,700 The Coca-Cola Company.... 1,510,025 4,400 Occidental Petroleum
1,800 Whitman Corporation...... 41,850 Corporation.............. 101,200
----------- 2,800 PPG Industries,
2,298,225 Incorporated............. 129,850
----------- 2,000 Praxair, Incorporated.... 69,000
BUSINESS MACHINES--4.82% 1,100 Rohm & Haas Company...... 76,588
2,500 3Com Corporation*........ 122,188 800 Sigma Aldrich............ 45,800
2,000 Apple Computer*.......... 55,000 2,000 Union Carbide
2,800 Bay Networks, Corporation.............. 90,000
Incorporated*............ 114,800 1,500 W.R. Grace & Company..... 103,500
1,100 Cabletron Systems, -----------
Incorporated*............ 82,637 2,695,907
8,300 Cisco Systems, -----------
Incorporated*............ 394,250 CONSTRUCTION--0.26%
4,000 Compaq Computer 700 Armstrong World
Corporation*............ 202,500 Industries,
2,300 Digital Equipment Incorporated............. 41,037
Corporation*............ 165,600 1,300 Fluor Corporation........ 87,262
7,700 Hewlett-Packard 1,400 Sherwin Williams
Company.................. 775,775 Company.................. 59,325
8,500 International Business -----------
Machines................ 1,042,313 187,624
2,300 Pitney Bowes, -----------
Incorporated............. 110,975 CONSUMER DURABLES--0.36%
2,900 Sun Microsystems, 1,200 Black & Decker
Incorporated*............ 152,250 Corporation.............. 40,500
1,900 Tandem Computers, 2,300 Masco Corporation........ 65,550
Incorporated*............ 18,288 1,800 Maytag Corporation....... 35,325
3,000 Unisys Corporation*...... 18,375 1,000 Premark International
1,700 Xerox Corporation........ 221,425 Incorporated............. 52,375
----------- 1,200 Whirlpool Corporation.... 66,750
3,476,376 -----------
----------- 260,500
CHEMICALS--3.74% -----------
1,800 Air Products & Chemicals, CONTAINERS--0.18%
Incorporated............. 95,850 700 Bemis Company............ 21,437
4,200 Allied-Signal, 1,400 Crown Cork & Seal,
Incorporated............. 233,625 Incorporated............. 65,975
1,000 Ashland, Incorporated.... 36,625 1,000 Temple-Inland,
800 Avery Dennison Incorporated............. 40,250
Corporation.............. 43,100 -----------
500 B.F. Goodrich Company.... 38,062 127,662
3,900 Dow Chemical Company..... 312,975 -----------
8,300 Dupont, E.I. DeNemours & COSMETICS--1.28%
Company................. 634,950 1,100 Avon Products,
1,300 Eastman Chemical Incorporated............. 88,412
Company.................. 93,600 10,200 Procter & Gamble
1,950 Englehard Corporation.... 39,731 Company.................. 836,400
600 FMC Corporation*......... 43,800 -----------
<CAPTION> 924,812
-----------
DOMESTIC PETROLEUM RESERVES--0.90%
2,500 Atlantic Richfield
Company.................. 273,750
</TABLE>
6
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Shares Value Shares Value
- ----------- ----------- ----------- -----------
<C> <S> <C> <C> <S> <C>
COMMON STOCKS--(continued) ELECTRIC UTILITIES--(concluded)
DOMESTIC PETROLEUM 2,800 FPL Group,
RESERVES--(concluded) Incorporated............. $ 124,950
2,000 Burlington Resources, 1,800 General Public Utilities
Incorporated............. $ 72,750 Corporation.............. 60,075
600 Louisiana Land & 3,400 Houston Industries,
Exploration Company..... 25,050 Incorporated............ 76,925
900 Pennzoil Company......... 34,425 2,600 Niagara Mohawk Power
3,800 Phillips Petroleum Corporation*............. 19,500
Company.................. 133,000 1,400 Northern States Power
3,600 Unocal Corporation....... 108,000 Company.................. 68,950
----------- 2,200 Ohio Edison Company...... 52,250
646,975 5,900 Pacific Gas & Electric
----------- Company.................. 151,188
DRUGS, MEDICINE--8.31% 3,700 PacifiCorp............... 76,775
11,600 Abbott Labs.............. 484,300 3,100 PECO Energy Company...... 87,575
1,000 Allergan, Incorporated... 37,250 2,200 Pennsylvania Power &
1,400 Alza Corporation*........ 46,550 Light Resources,
4,700 American Home Products... 462,950 Incorporated............. 54,725
4,000 Amgen, Incorporated*..... 239,000 3,500 Public Service Enterprise
7,500 Bristol Myers Squibb Group, Incorporated..... 98,438
Company.................. 638,437 9,300 Southern Company......... 222,038
9,700 Johnson & Johnson........ 906,950 3,500 Texas Utilities
8,280 Lilly, Eli & Company..... 500,940 Company.................. 141,313
18,300 Merck & Company, 3,200 Unicom Corporation....... 102,400
Incorporated............. 1,212,375 1,700 Union Electric Company... 71,825
9,500 Pfizer, Incorporated..... 625,813 -----------
7,490 Pharmacia & Upjohn, 2,463,998
Incorporated............. 313,644 -----------
5,500 Schering-Plough ELECTRONICS--3.57%
Corporation.............. 308,688 1,900 Advanced Micro Devices,
2,100 Warner Lambert Company... 207,638 Incorporated............. 36,812
----------- 3,184 AMP, Incorporated........ 135,718
5,984,535 625 Andrew Corporation*...... 32,500
----------- 700 Harris Corporation....... 46,550
ELECTRIC UTILITIES--3.42% 12,300 Intel Corporation........ 723,394
2,900 American Electric Power, 2,600 Loral Corporation........ 122,525
Incorporated............. 124,337 2,000 LSI Logic Corporation*... 55,250
2,100 Baltimore Gas & Electric 3,100 Micron Technology,
Company.................. 59,587 Incorporated............. 99,200
2,400 Carolina Power and 8,800 Motorola, Incorporated... 477,400
Light.................... 87,600 1,700 National Semiconductor
2,800 Central & South West Corporation*............. 26,563
Corporation.............. 77,700 3,800 Northern
2,225 Cinergy Corporation...... 66,472 Telecommunications
3,400 Consolidated Edison Limited ................. 180,500
Company of New York..... 110,925 3,500 Raytheon Company......... 175,438
2,200 Detroit Edison Energy 3,200 Rockwell International
Company................. 78,375 Corporation.............. 182,400
2,600 Dominion Resources, 1,100 Scientific-Atlanta,
Incorporated............. 102,700 Incorporated............. 18,425
3,200 Duke Power Company....... 156,400 2,500 Silicon Graphics,
5,400 Edison International, Incorporated*............ 62,500
Incorporated............. 94,500 500 Tektronix,
3,400 Entergy Corporation...... 96,475 Incorporated............. 22,688
</TABLE>
7
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Shares Value Shares Value
- ----------- ----------- ----------- -----------
<C> <S> <C> <C> <S> <C>
COMMON STOCKS--(continued)
ELECTRONICS--(concluded) HOTELS, RESTAURANTS--1.11%
2,900 Texas Instruments, 2,200 Darden Restaurants,
Incorporated............ $ 144,638 Incorporated............. $ 26,950
400 Thomas & Betts 1,550 Harrah's Entertainment,
Corporation.............. 28,800 Incorporated*............ 42,044
----------- 900 Hilton Hotels
2,571,301 Corporation.............. 84,375
----------- 2,000 Marriott International,
FOREIGN PETROLEUM RESERVES--0.07% Incorporated............. 98,250
900 Kerr-McGee Corporation... 53,663 10,400 McDonalds Corporation.... 520,000
----------- 1,500 Wendy's International,
FOREST PRODUCTS--0.05% Incorporated............. 27,188
1,600 Louisiana Pacific -----------
Corporation.............. 37,000 798,807
----------- -----------
GAS UTILITIES--0.58% INTERNATIONAL OIL--4.18%
800 Columbia Gas System, 9,800 Chevron Corporation...... 545,125
Incorporated............. 35,000 18,600 Exxon Corporation........ 1,478,700
1,500 Consolidated Natural Gas 6,000 Mobil Corporation........ 657,750
Company.................. 64,500 4,100 Texaco, Incorporated..... 326,975
3,700 Enron Corporation........ 135,512 -----------
600 NICOR, Incorporated...... 16,125 3,008,550
1,300 Pacific Enterprises...... 34,775 -----------
2,300 Panhandle Eastern IRON & STEEL--0.26%
Corporation.............. 65,838 1,700 Bethlehem Steel
700 Peoples Energy Corporation*............. 23,375
Corporation.............. 21,525 800 Inland Steel Industries,
1,300 Sonat, Incorporated...... 43,550 Incorporated............. 19,500
----------- 1,300 Nucor Corporation........ 70,038
416,825 1,300 USX-U.S. Steel Group..... 42,575
----------- 1,450 Worthington Industries,
HEALTHCARE (NON-DRUG)--2.25% Incorporated............. 31,175
900 Bausch & Lomb, -----------
Incorporated............. 34,987 186,663
4,000 Baxter International, -----------
Incorporated............. 183,000 LEISURE, LUXURY--0.26%
1,000 Becton, Dickinson & 1,500 Brunswick Corporation.... 34,312
Company.................. 82,000 1,400 Hasbro, Incorporated..... 48,300
1,500 Biomet, Incorporated*.... 28,500 3,187 Mattel, Incorporated..... 105,968
2,500 Boston Scientific -----------
Corporation*............. 120,000 188,580
6,685 Columbia/HCA Healthcare -----------
Corporation.............. 366,004 LIFE INSURANCE--0.45%
900 C.R. Bard, 3,000 American General
Incorporated............. 32,287 Corporation.............. 109,125
322 Guidant Corporation...... 15,255 1,150 Jefferson-Pilot
2,400 Humana, Incorporated*.... 58,800 Corporation.............. 63,969
1,100 Manor Care, 1,500 Providian Corporation.... 69,375
Incorporated............. 42,213 1,100 Transamerica
3,500 Medtronic, Corporation.............. 82,913
Incorporated............. 200,813 -----------
700 Millipore Corporation.... 31,063 325,382
1,100 St. Jude Medical, -----------
Incorporated*........... 41,525 LIQUOR--0.66%
3,000 Tenet Healthcare 3,800 Anheuser-Busch Companies,
Corporation*............. 67,125 Incorporated............. 256,025
2,700 United Healthcare 700 Brown Forman
Corporation*............ 176,175 Corporation.............. 27,387
2,300 US Healthcare,
Incorporated............. 112,125
1,000 US Surgical
Corporation.............. 28,375
-----------
1,620,247
-----------
</TABLE>
8
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Shares Value Shares Value
- ----------- ----------- ----------- -----------
<C> <S> <C> <C> <S> <C>
COMMON STOCKS--(continued) MORTGAGE FINANCING--(concluded)
LIQUOR--(concluded) 16,100 Federal National Mortgage
5,600 Seagram Company Association.............. $ 509,162
Limited ................. $ 192,500 -----------
----------- 748,412
475,912 -----------
----------- MOTOR VEHICLES--2.32%
MEDIA--1.97% 5,600 Chrysler Corporation..... 315,700
2,700 Comcast Corporation, 1,500 DANA Corporation......... 45,375
Class A Special......... 52,987 1,000 Echlin, Incorporated..... 33,875
600 King World Productions, 700 Fleetwood Enterprises,
Incorporated*............ 25,125 Incorporated............. 18,812
8,500 Tele Communications, 16,000 Ford Motor Company....... 500,000
Incorporated, Class A*... 178,500 11,200 General Motors
5,900 Time Warner, Corporation.............. 574,000
Incorporated............. 252,225 1,900 Honeywell,
1,100 Tribune Company.......... 73,425 Incorporated............. 100,700
4,449 Viacom, Incorporated, 1,800 ITT Industries,
Class B*................. 174,623 Incorporated............. 47,250
10,100 Walt Disney & Company.... 661,550 765 Paccar, Incorporated..... 36,146
----------- -----------
1,418,435 1,671,858
----------- -----------
MISCELLANEOUS FINANCE--1.89%
7,200 American Express OIL REFINING, DISTRIBUTION--2.69%
Company.................. 331,200 1,500 Amerada Hess
900 Beneficial Corporation... 46,800 Corporation.............. 77,250
2,664 Dean Witter, Discover & 7,400 Amoco Corporation........ 514,300
Company.................. 143,190 1,600 Coastal Corporation...... 58,800
1,500 Household International, 8,000 Royal Dutch Petroleum
Incorporated............. 100,875 Company.................. 1,102,000
3,300 MBNA Corporation......... 93,225 1,292 Sun Company,
2,600 Merrill Lynch & Company, Incorporated............. 37,630
Incorporated............. 149,825 4,000 USX-Marathon Electric
2,300 Morgan Stanley Group, Group.................... 74,000
Incorporated............. 107,813 1,600 Williams Companies,
1,700 Salomon, Incorporated.... 64,813 Incorporated............. 76,000
4,806 Travelers Goup, -----------
Incorporated............. 321,401 1,939,980
----------- -----------
1,359,142 OIL SERVICE--0.66%
----------- 2,000 Baker Hughes,
MISCELLANEOUS MINING, METALS--0.37% Incorporated............. 52,750
800 Asarco, Incorporated..... 23,900 1,800 Halliburton Company...... 98,775
1,500 Cyprus Amax Minerals 500 Helmerich & Payne,
Company.................. 38,812 Incorporated............. 16,750
1,900 Freeport-McMoran Copper & 3,600 Schlumberger Limited .... 262,350
Gold Corporation......... 61,987 800 Western Atlas,
1,700 Inco Limited ............ 54,188 Incorporated*............ 42,100
1,100 Phelps Dodge -----------
Corporation.............. 67,238 472,725
800 Teledyne, Incorporated... 22,500 -----------
----------- OTHER INSURANCE--2.97%
268,625 1,800 Aetna Life & Casualty
----------- Company.................. 136,125
MORTGAGE FINANCING--1.04% 6,542 Allstate Corporation..... 280,488
2,900 Federal Home Loan 7,100 American International
Mortgage Corporation.... 239,250 Group, Incorporated..... 686,037
1,300 Chubb Corporation........ 126,262
</TABLE>
9
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Shares Value Shares Value
- ----------- ----------- ----------- -----------
<C> <S> <C> <C> <S> <C>
COMMON STOCKS--(continued) POLLUTION CONTROL--(concluded)
OTHER INSURANCE--(concluded) 7,200 WMX Technologies,
1,200 CIGNA Corporation........ $ 142,200 Incorporated............. $ 205,200
1,200 General Re Corporation... 172,650 -----------
1,800 ITT Hartford Group, 327,412
Incorporated*............ 92,700 -----------
1,500 Lincoln National PRECIOUS METALS--0.56%
Corporation.............. 82,500 5,100 Barrick Gold
1,800 Loews Corporation........ 153,000 Corporation.............. 154,275
1,800 SAFECO Corporation....... 65,700 1,400 Echo Bay Mines
1,200 St. Paul Companies, Limited ................. 19,250
Incorporated............. 67,950 2,100 Homestake Mining
1,050 Torchmark Corporation.... 48,694 Company.................. 40,688
1,100 UNUM Corporation......... 64,763 1,621 Newmont Mining
1,400 USF&G Corporation........ 21,000 Corporation.............. 92,194
----------- 3,500 Placer Dome,
2,140,069 Incorporated............. 98,875
----------- -----------
PAPER--1.57% 405,282
1,700 Alco Standard -----------
Corporation.............. 80,537 PRODUCERS GOODS--7.31%
800 Boise Cascade 2,700 American Brands,
Corporation.............. 28,200 Incorporated............. 122,512
1,400 Champion International 2,700 Applied Materials,
Corporation.............. 56,000 Incorporated*............ 96,525
700 Federal Paper Board, 400 Briggs & Stratton
Incorporated............. 37,362 Corporation.............. 17,150
1,400 Georgia-Pacific 1,100 Case Corporation......... 58,437
Corporation.............. 88,375 3,000 Caterpillar,
3,700 International Paper Incorporated............. 200,625
Company.................. 131,813 1,800 Cooper Industries,
1,400 James River Incorporated............. 69,525
Corporation.............. 36,925 400 Crane Company............ 16,200
4,160 Kimberly Clark 3,800 Deere & Company.......... 148,675
Corporation.............. 317,720 1,700 Dover Corporation........ 75,650
1,000 Mead Corporation......... 50,000 2,600 Dresser Industries,
500 Potlatch Corporation..... 20,563 Incorporated............ 73,125
1,320 Stone Container 1,800 DSC Communications
Corporation.............. 18,150 Corporation*............. 54,900
1,100 Union Camp Corporation... 51,288 1,300 Eaton Corporation........ 75,237
1,500 Westvaco Corporation..... 43,500 3,300 Emerson Electric
2,900 Weyerhaeuser Company.................. 256,987
Corporation.............. 122,888 600 Foster Wheeler
900 Willamette Industries, Corporation.............. 26,400
Incorporated............. 47,250 24,800 General Electric
----------- Company.................. 1,872,400
1,130,571 800 General Signal
----------- Corporation.............. 29,100
PHOTOGRAPHIC, OPTICAL--0.55% 1,900 Genuine Parts &
5,100 Eastman Kodak Company.... 364,650 Company.................. 81,225
700 Polaroid Corporation..... 30,800 700 Harnischfeger Industries,
----------- Incorporated............. 26,512
395,450 1,800 Illinois Tool Works,
----------- Incorporated............ 118,575
POLLUTION CONTROL--0.45% 1,600 Ingersoll Rand Company... 65,400
3,500 Browning Ferris 1,800 ITT Corporation*......... 108,675
Industries, 800 Johnson Controls,
Incorporated............. 103,687 Incorporated............. 57,400
1,900 Laidlaw, Incorporated.... 18,525 1,200 Mallinckrodt Group,
Incorporated............. 47,100
800 McDermott International,
Incorporated............. 15,400
6,200 Minnesota Mining &
Manufacturing Company.... 403,775
</TABLE>
10
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Shares Value Shares Value
- ----------- ----------- ----------- -----------
<C> <S> <C> <C> <S> <C>
COMMON STOCKS--(continued) RAILROADS, TRANSIT--(concluded)
PRODUCERS GOODS--(concluded) 3,100 Union Pacific
600 National Services Corporation.............. $ 204,600
Industries, -----------
Incorporated............. $ 20,925 784,560
800 Owens-Corning -----------
Fiberglass*.............. 32,500 RETAIL (FOOD)--0.72%
1,666 Pall Corporation......... 45,399 3,700 Albertson's
1,100 Parker-Hannifin Incorporated............. 136,900
Corporation.............. 38,638 2,100 American Stores
700 Perkin Elmer Company.................. 61,162
Corporation.............. 32,200 1,000 Giant Food, Incorporated,
700 Raychem Corporation...... 45,413 Class A................. 32,875
600 Snap On, Incorporated.... 26,850 800 Great Atlantic & Pacific
800 Stanley Works............ 45,200 Tea Company............. 18,000
1,400 Tellabs, Incorporated*... 66,150 1,800 Kroger Company*.......... 66,825
2,800 Tenneco, Incorporated.... 156,450 1,200 Super Value Stores,
1,300 Textron, Incorporated.... 102,375 Incorporated............. 38,700
700 The Cummins Engine 2,700 Sysco Corporation........ 88,763
Company, Incorporated... 29,487 2,300 Winn Dixie Stores,
600 The Timken Company....... 27,000 Incorporated............ 78,775
600 Trinova Corporation...... 18,075 -----------
1,100 TRW, Incorporated........ 95,288 522,000
2,200 Tyco International -----------
Limited ................. 79,475 RETAIL (OTHER)--3.97%
1,900 United Technologies 1,500 Circuit City Stores,
Corporation.............. 204,250 Incorporated............. 44,437
700 Varity Corporation*...... 26,425 1,200 Dayton Hudson
900 W.W. Grainger, Corporation.............. 89,250
Incorporated............. 61,537 1,600 Dillard Department
----------- Stores, Incorporated.... 50,000
5,271,147 3,100 Federated Department
----------- Stores, Incorporated*... 93,775
PUBLISHING--0.74% 2,000 F.W. Woolworth &
1,100 American Greetings Company*................. 24,000
Corporation, Class A..... 30,112 2,200 Gap, Incorporated........ 117,975
2,200 Gannett, Incorporated.... 149,600 1,200 Harcourt General,
900 Knight Ridder, Incorporated............. 52,050
Incorporated............. 62,325 7,200 Home Depot,
900 McGraw-Hill Companies, Incorporated............. 311,400
Incorporated............. 78,638 3,400 J.C. Penney,
1,600 Moore Corporation Incorporated............. 161,500
Limited ................. 31,400 6,100 K Mart Corporation*...... 42,700
1,500 New York Times Company, 5,000 Limited, Incorporated.... 87,500
Class A................. 41,250 2,500 Lowe's Companies,
2,200 R.R. Donnelley & Sons Incorporated............ 77,500
Company.................. 79,200 3,700 May Department Stores
1,700 Times Mirror Company..... 57,800 Company.................. 172,513
----------- 1,700 Melville Corporation..... 54,188
530,325 800 Mercantile Stores,
----------- Incorporated............. 41,900
RAILROADS, TRANSIT--1.09% 1,300 Nordstrom,
2,122 Burlington Northern, Incorporated............. 58,663
Incorporated............. 169,760 1,000 Pep Boys-Manny, Moe &
1,200 Conrail, Incorporated.... 86,550 Jack..................... 30,000
3,100 CSX Corporation.......... 139,112 2,608 Price Costco,
1,900 Norfolk Southern Incorporated*............ 44,988
Corporation.............. 154,850 1,300 Rite Aid Corporation..... 40,950
1,900 Santa Fe Pacific Gold 5,800 Sears Roebuck &
Corporation.............. 29,688 Company.................. 263,175
1,100 Tandy Corporation........ 48,125
1,000 TJX Companies,
Incorporated............. 22,250
</TABLE>
11
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Shares Value Shares Value
- ----------- ----------- ----------- -----------
<C> <S> <C> <C> <S> <C>
COMMON STOCKS--(concluded) SOAPS, HOUSEWARE--(concluded)
RETAIL (OTHER)--(concluded) 2,200 Newell Company........... $ 61,050
4,000 Toys R Us, 1,700 Ralston Purina Company... 113,900
Incorporated*............ $ 95,500 2,300 Rubbermaid,
33,900 Wal Mart Stores, Incorporated............. 64,688
Incorporated............. 720,375 -----------
3,600 Walgreen Company......... 118,800 1,086,063
----------- -----------
2,863,514 TELEPHONE, TELEGRAPH--8.13%
----------- 7,600 Airtouch Communications,
SERVICES--4.04% Incorporated*............ 235,600
700 Autodesk, Incorporated... 24,762 2,800 Alltel Corporation....... 93,100
4,300 Automatic Data 8,300 Ameritech Corporation.... 478,287
Processing, 23,700 AT & T Corporation....... 1,507,912
Incorporated............. 166,625 6,600 Bell Atlantic
1,000 Ceridian Corporation*.... 43,000 Corporation.............. 436,425
3,650 Computer Associates 14,700 BellSouth Corporation.... 586,162
International, 14,300 GTE Corporation.......... 613,112
Incorporated............. 250,937 10,100 MCI Communications
900 Computer Sciences Corporation.............. 295,425
Corporation*............ 65,700 6,500 NYNEX Corporation........ 334,750
2,750 CUC International, 6,500 Pacific Telesis Group.... 183,625
Incorporated*............ 89,031 9,200 SBC Communications,
1,300 Deluxe Corporation....... 41,762 Incorporated............. 504,850
1,400 Dow Jones & Company, 5,100 Sprint Corporation....... 219,300
Incorporated............. 54,600 13,800 US West, Incorporated*... 372,388
2,500 Dun & Bradstreet -----------
Corporation.............. 158,125 5,860,936
900 Ecolab, Incorporated..... 27,337 -----------
3,400 First Data Corporation... 235,450 THRIFT INSTITUTIONS--0.19%
1,600 H&R Block, 1,100 Golden West Financial
Incorporated............. 56,600 Corporation.............. 55,687
1,200 Interpublic Group 1,700 Great Western Financial
Companies, Corporation.............. 38,887
Incorporated............. 50,550 1,800 H.F. Ahmanson &
1,200 Marsh & McLennan Company.................. 40,950
Companies............... 116,550 -----------
8,900 Microsoft Corporation*... 878,319 135,524
5,100 Novell, Incorporated*.... 62,156 -----------
6,550 Oracle Corporation*...... 340,600 TIRE & RUBBER--0.19%
1,400 Ryder Systems, 1,300 Cooper Tire & Rubber
Incorporated............. 35,175 Company.................. 32,987
1,800 Service Corporation 2,200 Goodyear Tire & Rubber
International............ 81,675 Company.................. 104,500
400 Shared Medical Systems... 22,300 -----------
6,000 Westinghouse Electric 137,487
Company................. 111,000 -----------
----------- TRUCKING, FREIGHT--0.06%
2,912,254 600 Caliber Systems,
----------- Incorporated............. 25,350
SOAPS, HOUSEWARE--1.51% 700 Consolidated Freightways,
1,000 Clorox Company........... 84,750 Incorporated............. 17,150
2,200 Colgate-Palmolive -----------
Company.................. 172,150 42,500
3,400 Corning, Incorporated.... 110,500 -----------
1,400 Dial Corporation......... 42,000 71,469,036
6,500 Gillette Company......... 351,812 Total Common Stocks (cost--$55,480,343) -----------
1,700 International Flavors and
Fragrances............... 85,213
</TABLE>
12
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ----------- -----------
<S> <C> <C>
NON-CONVERTIBLE PREFERRED STOCK--0.00%
MISCELLANEOUS MINING, METALS
18 Teledyne, Incorporated
(cost--$184)........................................................... $ 270
-----------
</TABLE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT--1.00%
Principal
Amount Maturity Interest
(000) Date Rate
- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 720 Repurchase Agreement dated 02/29/96, with State
Street Bank & Trust Company, collateralized by
$726,145 U.S. Treasury Notes, 5.375%, due
11/30/97; proceeds: $720,095 (cost--$720,000)...... 03/01/96 4.750% 720,000
----------
Total Investments (cost--$56,200,527)--100.18%........................................ 72,189,306
Liabilities in excess of other assets--(0.18)%........................................ (131,440)
-----------
Net Assets--100.00%................................................................... $72,057,866
===========
</TABLE>
- ------------
* Non-income producing security
See accompanying notes to financial statements
13
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost-$56,200,527).......................... $72,189,306
Receivable for shares of beneficial interest sold............................... 602,884
Receivable for investments sold................................................. 292,675
Dividends and interest receivable............................................... 164,833
Other assets.................................................................... 106,206
-----------
Total assets.................................................................... 73,355,904
-----------
LIABILITIES
Payable for investments purchased............................................... 1,033,208
Payable for shares of beneficial interest repurchased........................... 124,451
Payable to affiliate............................................................ 71,116
Accrued expenses and other liabilities.......................................... 69,263
-----------
Total liabilities............................................................... 1,298,038
-----------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount authorized)............. 55,912,467
Distributions in excess of net investment income................................ (204,765)
Accumulated net realized gains from investment transactions..................... 361,385
Net unrealized appreciation of investments...................................... 15,988,779
-----------
Net assets...................................................................... $72,057,866
===========
CLASS A:
Net assets...................................................................... $ 3,989,498
-----------
Shares outstanding.............................................................. 252,985
-----------
Net asset value and redemption value per share.................................. $15.77
Maximum offering price per share (net asset value plus sales charge of 4.50% of ======
offering price)................................................................. $16.51
CLASS B: ======
Net assets...................................................................... $ 909,667
-----------
Shares outstanding.............................................................. 57,576
-----------
Net asset value and offering price per share.................................... $15.80
CLASS C: ======
Net assets...................................................................... $54,472,929
-----------
Shares outstanding.............................................................. 3,448,942
-----------
Net asset value and offering price per share.................................... $15.79
CLASS Y: ======
Net assets...................................................................... $12,685,772
-----------
Shares outstanding.............................................................. 803,129
-----------
Net asset value, offering price and redemption value per share.................. $15.80
======
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
Statement of Operations
For The Six Months Ended February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................................ $ 664,219
Interest......................................................................... 13,943
----------
678,162
----------
EXPENSES:
Investment advisory and administration........................................... 141,908
Service fees-Class A............................................................. 3,107
Service and distribution fees-Class B............................................ 191
Service and distribution fees-Class C............................................ 252,117
Custody and accounting........................................................... 37,684
Transfer agency.................................................................. 25,057
Amortization of organizational expenses.......................................... 24,666
Legal and audit.................................................................. 17,567
Reports and notices to shareholders.............................................. 16,021
Federal and state registration................................................... 13,588
Trustees' fees................................................................... 5,000
Other expenses................................................................... 10,644
----------
547,550
----------
Net investment income............................................................ 130,612
----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions.................................. 597,051
Net change in unrealized appreciation/depreciation of investments................ 6,480,070
----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES..................... 7,077,121
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $7,207,733
==========
</TABLE>
See accompanying notes to financial statements
15
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended For the
February 29, 1996 Year Ended
(unaudited) August 31, 1995
----------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................ $ 130,612 $ 521,857
Net realized gains from investment transactions.............. 597,051 4,134,795
Net change in unrealized appreciation/depreciation of
investments.................................................. 6,480,070 3,525,426
----------- -------------
Net increase in net assets resulting from operations......... 7,207,733 8,182,078
----------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A............................... (21,259) (28,999)
Net investment income--Class C............................... (231,540) (477,902)
Net investment income--Class Y............................... (26,853) (61,587)
Net realized gains from investment transactions--Class A..... (164,292) (119,229)
Net realized gains from investment transactions--Class C..... (3,334,342) (3,841,032)
Net realized gains from investment transactions--Class Y..... (171,644) (244,263)
----------- --------------
Total dividends and distributions to shareholders............ (3,949,930) (4,773,012)
----------- --------------
]FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares......................... 17,804,121 4,589,510
Cost of shares repurchased................................... (5,461,756) (28,817,534)
Proceeds from dividends reinvested........................... 3,902,294 4,723,579
----------- --------------
Net increase (decrease) in net assets from beneficial 16,244,659 (19,504,445)
interest transactions........................................ ----------- --------------
Net increase (decrease) in net assets........................ 19,502,462 (16,095,379)
NET ASSETS:
Beginning of period.......................................... 52,555,404 68,650,783
----------- ------------
End of period................................................ $72,057,866 $ 52,555,404
=========== ==============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements--(unaudited)
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Tactical Allocation Fund (formerly Mitchell Hutchins/Kidder, Peabody
Asset Allocation Fund) (the "Fund") is a series of PaineWebber Investment Trust
(formerly Mitchell Hutchins/Kidder, Peabody Investment Trust) (the "Trust") and
is registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, as an open-end, diversified management
investment company.
Currently, the Fund offers Class A, Class B, Class C (formerly Class B) and
Class Y (formerly Class C) shares. Effective November 10, 1995, the Fund began
using industry standardized nomenclature, and Class B and Class C shares were
renamed Class C and Class Y shares, respectively, and a new Class B was offered.
Each class represents interests in the same assets of the Fund, and the classes
are identical except for differences in their sales charge structures, ongoing
service and distribution charges and certain transfer agency expenses. In
addition, Class B shares and all corresponding dividend reinvested shares
automatically convert to Class A shares approximately six years after initial
issuance. All classes of shares have equal voting privileges, except that each
class has exclusive voting rights with respect to its service and/or
distribution plan. Organizational costs have been deferred and are being
amortized using the straight line method over a period not to exceed 60 months
from the date the Fund commenced operations.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. Following is a summary of
significant accounting policies:
Valuation of Investments--Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect the fair value of the securities in the judgment of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of
PaineWebber Incorporated ("PaineWebber") and investment adviser and
administrator of the Fund. When market quotations are not readily available,
securities are valued based upon appraisals derived from information concerning
those securities or similar securities received from recognized dealers in those
securities. All other securities are 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, which approximates market value, 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.
Repurchase Agreements--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued intrest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be
17
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
subject to legal proceedings. The Fund occasionally participates in joint
repurchase agreement transactions with other funds managed by Mitchell Hutchins.
Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classses). Class-specific expenses are charged directly to the applicable class
of shares.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an investment advisory and
administration contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, Mitchell Hutchins receives
compensation from the Fund, computed daily and paid monthly, at an annual rate
of 0.50% of the Fund's average daily net assets up to $250 million and 0.45%
thereafter. At February 29, 1996, the Fund owed Mitchell Hutchins $27,114 in
investment advisory and administration fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses in
any fiscal year, exclusive of taxes, interest, brokerage fees, distribution fees
and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the six months ended
February 29, 1996, no reimbursements were required pursuant to the above
limitation for the Fund.
18
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of distribution pertaining to Class A, Class B and Class C (formerly Class
B) shares, the Fund pays Mitchell Hutchins monthly service fees at the annual
rate of 0.25% of the average daily net assets of Class A, Class B and Class C
shares and monthly distribution fees at the annual rate of 0.75% of the average
daily net assets of Class B and Class C shares. At February 29, 1996, the Fund
owed Mitchell Hutchins $44,002 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by the shareholders upon the purchase of Class A shares and the contingent
deferred sales charges paid by the shareholders upon certain redemptions of
Class A, Class B and Class C shares. Mitchell Hutchins has informed the Fund
that for the six months ended February 29, 1996, it earned approximately $53,000
in sales charges.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February 29,
1996 was substantially the same as the cost of securities for financial
statement purposes.
At February 29, 1996, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ....... $16,865,718
Gross depreciation (investments having an excess of cost over value) ....... (876,939)
-----------
Net unrealized appreciation of investments............................ $15,988,779
===========
</TABLE>
For the six months ended February 29, 1996, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases............................................................. $14,892,197
Sales................................................................. $ 2,622,942
</TABLE>
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year,
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
19
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value of beneficial interest
authorized. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
-------------------- ----------------- ------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ -------- ---------- ------------ -------- -----------
Six months ended
February 29, 1996:
Shares sold....... 122,134 $1,926,123 60,050 $966,985 297,938 $ 4,692,420 640,446 $10,218,593
Shares
repurchased...... (12,185) (194,101) (2,474) (40,011) (317,050) (4,936,324) (18,452) (291,320)
Dividends
reinvested....... 12,226 184,252 -- -- 233,396 3,525,554 12,761 192,488
------- ---------- ------ -------- ---------- ------------ -------- -----------
Net increase......... 122,175 $1,916,274 57,576 $926,974 214,284 $ 3,281,650 634,755 $10,119,761
======= ========== ====== ======== ========== ============ ======== ===========
Year ended
August 31, 1995:
Shares sold....... 30,699 $ 417,600 -- -- 240,419 $ 3,374,974 58,954 $ 796,936
Shares
repurchased...... (42,560) (569,663) -- -- (1,923,810) (25,667,593) (196,048) (2,580,278)
Dividends
reinvested....... 11,959 148,029 -- -- 347,832 4,275,686 24,214 299,864
------- ---------- ------ -------- ---------- ------------ -------- -----------
Net increase
(decrease)......... 98 $ (4,034) -- -- (1,335,559) $(18,016,933) (112,880) $(1,483,478)
======= ========== ====== ======== ========== ============= ======== ===========
</TABLE>
20
<PAGE>
[Intentionally left blank]
21
<PAGE>
PaineWebber Tactical Allocation Fund
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
FOR THE SIX FOR THE YEAR FOR THE PERIOD
MONTHS ENDED ENDED MAY 10, 1993+
FEBRUARY 29, 1996 AUGUST 31, TO AUGUST 31,
------------------
(UNAUDITED) 1995** 1994 1993
----------------- ------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 14.86 $ 13.78 $ 13.50 $ 12.90
------- ------- ------- -------
Net investment income....................... 0.11 0.22 0.24 0.08
Net realized and unrealized gains from
investment transactions.................... 2.00 2.05 0.32 0.59
------- ------- ------- -------
Net increase from investment operations..... 2.11 2.27 0.56 0.67
------- ------- ------- -------
Dividends from net investment income........ (0.14) (0.22) (0.24) (0.07)
Distributions from net realized gains from
investment transactions.................... (1.06) (0.97) (0.04) --
------- ------- ------- -------
Total dividends and distributions to
shareholders................................ (1.20) (1.19) (0.28) (0.07)
------- ------- ------- -------
Net asset value, end of period.............. $ 15.77 $ 14.86 $ 13.78 $ 13.50
======= ======= ======= =======
Total investment return (1)................. 14.59% 18.43% 4.21% 5.17%
======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000's).......... $ 3,989 $ 1,944 $ 1,801 $ 3,007
Ratio of expenses to average net assets.... 1.35%* 1.46% 1.13% 1.06%*
Ratio of net investment income to average
net assets............................... 1.05%* 1.60% 1.64% 1.71%*
Portfolio turnover rate.................... 5% 53% 4% 0%
Average commission rate paid per share on
common stock investments
purchased/sold (2)....................... $0.0250 -- -- --
</TABLE>
- ------------
+ Commencement of issuance of shares
* Annualized
** Investment advisory functions for the Fund were transferred from Kidder,
Peabody Asset Management, Inc. to Mitchell Hutchins on February 13, 1995.
*** Formerly Class B
**** Formerly Class C
(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 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 sales charges; results for Class A, Class B and
Class C shares would be lower if sales charges were included. Total
investment returns for periods of less than one year have not been
annualized.
(2) Disclosure effective for fiscal years beginning on or after September 1,
1995.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C*** CLASS Y****
- -------------- ------------------------------------------------------------ -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD FOR THE SIX FOR THE SIX
JANUARY 30, MONTHS FOR THE PERIOD MONTHS FOR THE PERIOD
1996+ TO ENDED FOR THE YEAR JULY 22, ENDED FOR THE YEAR MAY 10,
FEBRUARY 29, FEBRUARY 29, ENDED 1992+ TO FEBRUARY 29, ENDED 1993+
1996 1996 AUGUST 31, AUGUST 31, 1996 AUGUST 31, TO AUGUST 31,
---------------------------- -----------------
(UNAUDITED) (UNAUDITED) 1995** 1994 1993 1992 (UNAUDITED) 1995** 1994 1993
- -------------- ------------ ------- ------- -------- -------------- ------------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15.54 $ 14.87 $ 13.78 $ 13.49 $ 12.12 $ 12.00 $ 14.88 $ 13.79 $ 13.52 $ 12.90
------- ---------- ------- ------- -------- ------- -------- ------- ------- -------
0.01 0.03 0.12 0.13 0.18 0.03 0.19 0.23 0.25 0.09
0.25 2.02 2.06 0.33 1.34 0.09 1.95 2.09 0.33 0.60
------- ---------- ------- ------- -------- ------- -------- ------- ------- -------
0.26 2.05 2.18 0.46 1.52 0.12 2.14 2.32 0.58 0.69
------- ---------- ------- ------- -------- ------- -------- ------- ------- -------
-- (0.07) (0.12) (0.13) (0.15) -- (0.16) (0.26) (0.27) (0.07)
-- (1.06) (0.97) (0.04) -- -- (1.06) (0.97) (0.04) --
------- ---------- ------- ------- -------- ------- -------- ------- ------- -------
-- (1.13) (1.09) (0.17) (0.15) -- (1.22) (1.23) (0.31) (0.07)
------- ---------- ------- ------- -------- ------- -------- ------- ------- -------
$ 15.80 $ 15.79 $ 14.87 $ 13.78 $ 13.49 $ 12.12 $ 15.80 $ 14.88 $ 13.79 $ 13.52
======== ========== ======= ======= ======== ======= -------- ------- ------- -------
1.67% 14.13% 17.57% 3.46% 12.61% 0.98% 14.80% 18.79% 4.41% 5.30%
======== ========== ======= ======= ======== ======= ======== ------- ------- -------
$ 910 $ 54,473 $48,105 $62,970 $107,761 $ 50,222 $ 12,686 $ 2,506 $ 3,880 $ 3,379
2.06%* 2.02%* 2.22% 1.88% 1.73% 1.75%* 1.09%* 1.23% 0.88% 0.81%*
1.59%* 0.35%* 0.86% 0.89% 1.04% 2.42%* 1.53%* 1.86% 1.90% 1.96%*
5% 5% 53% 4% 0% 0% 5% 53% 4% 0%
$ 0.0250 $ 0.0250 -- -- -- -- $ 0.0250 -- -- --
</TABLE>
23
<PAGE>
---------------------------------------
TRUSTEES
E. Garrett Bewkes, Jr.
Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
John R. Torell III
---------------------------------------
OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
T. Kirkham Barneby
Vice President
---------------------------------------
INVESTMENT ADVISER,
ADMINISTRATOR AND
DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
---------------------------------------
A Prospectus containing more complete
information for any of the funds listed
on the back cover can be obtained from
a PaineWebber investment executive or
correspondent firm. Read the prospectus
carefully before investing.
The financial information included
herein is taken from the records of the
Fund without examination by independent
auditors who do not express an opinion
thereon.
This report is not to be used in
connection with the offering of shares
of the Fund unless accompanied or
preceded by an effective prospectus.
