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PaineWebber Tactical Allocation Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- January 1, 1996 (As Supplemented May 6, 1996)
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The Fund is a series of PaineWebber Investment Trust ("Trust"). This Prospectus
concisely sets forth information a prospective investor should know about the
Fund before investing. Please retain this Prospectus for future reference. A
Statement of Additional Information dated January 1, 1996 (which is incorpo-
rated by reference herein) has been filed with the Securities and Exchange Com-
mission. The Statement of Additional Information can be obtained without
charge, and further inquiries can be made, by contacting the Fund, your
PaineWebber investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.
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. Professional Management . Low Minimum Investment
. Portfolio Diversification . Automatic Investment Plan
. Dividend and Capital . Systematic Withdrawal Plan
Gain Reinvestment
. Exchange Privileges
. Flexible Pricing/SM/
. Suitable For Retirement Plans
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR ITS DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
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Prospectus Page 1
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PaineWebber Tactical Allocation Fund
Table of Contents
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 8
Flexible Pricing System.................................................... 9
Investment Objective and Policies.......................................... 10
Purchases.................................................................. 17
Exchanges.................................................................. 20
Redemptions................................................................ 21
Conversion of Class B Shares............................................... 22
Other Services and Information............................................. 23
Dividends, Distributions and Taxes......................................... 24
Valuation of Shares........................................................ 25
Management................................................................. 25
Performance Information.................................................... 27
General Information........................................................ 28
</TABLE>
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PaineWebber Tactical Allocation Fund
Prospectus Summary
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See the body of the Prospectus for more information on the topics discussed in
this summary.
The Fund: PaineWebber Tactical Allocation Fund ("Fund") is a
diversified series of PaineWebber Investment Trust
("Trust"), an open-end management investment company.
Investment Objective Total return, consisting of long-term capital appre-
and Policies: ciation and current income; utilizing a systematic
investment strategy that actively allocates the
Fund's assets among common stocks, U.S. Treasury
Notes and U.S. Treasury Bills.
Total Net Assets: $55.8 million at November 30, 1995.
Investment Adviser and Mitchell Hutchins Asset Management Inc. ("Mitchell
Administrator: Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber" or "PW"),
manages over $44.7 billion in assets. See "Manage-
ment."
Purchases: Shares of beneficial interest are available exclu-
sively through PaineWebber and its correspondent
firms for investors who are clients of PaineWebber or
those firms ("PaineWebber clients") and, for other
investors, through PFPC Inc., the Fund's transfer
agent ("Transfer Agent").
Flexible Pricing Investors may select Class A, Class B or Class C
System: shares, each with a public offering price that re-
flects different sales charges and expense levels.
See "Flexible Pricing System," "Purchases," "Redemp-
tions" and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable sales
charge (maximum is 4.5% of the public offering
price).
Class B Shares Offered at net asset value (a maximum contingent de-
ferred sales charge of 5% of redemption proceeds is
imposed on certain redemptions made within six years
of date of purchase). Class B shares automatically
convert into Class A shares (which pay lower ongoing
expenses) approximately six years after purchase.
Such Class B shares were not offered prior to January
1, 1996.
Class C Shares Offered at net asset value without an initial or con-
tingent deferred sales charge (a contingent deferred
sales charge of 1% of redemption proceeds is imposed
on certain redemptions made within one year of pur-
chase). Class C shares pay higher ongoing expenses
than Class A shares and do not convert into another
Class. Prior to November 10, 1995, these Class C
shares were called "Class B" shares.
Exchanges: Shares may be exchanged for shares of the correspond-
ing Class of most PaineWebber mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.
Dividends: Declared and paid quarterly; net capital gain is dis-
tributed annually. See "Dividends, Distributions and
Taxes."
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Prospectus Page 3
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PaineWebber Tactical Allocation Fund
Prospectus Summary
(Continued)
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<TABLE>
<S> <C>
Reinvestment: All dividends and capital gain distributions are paid
in Fund shares of the same Class at net asset value
unless the shareholder has requested cash.
Minimum Purchase: $1,000 for first purchase; $100 for subsequent pur-
chases.
Other Features:
<CAPTION>
<S> <C> <C>
Class A Shares Automatic investment plan Quantity discounts on initial sales charge
Systematic withdrawal plan 365-day reinstatement privilege plan
Rights of accumulation
Class B Shares Automatic investment plan Systematic withdrawal plan
Class C Shares Automatic investment plan Systematic withdrawal plan
</TABLE>
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WHO SHOULD INVEST. The Fund follows a systematic investment strategy that
actively allocates the Fund's assets among common stocks, U.S. Treasury Notes
and U.S. Treasury Bills and is designed for investors who are seeking total
return, consisting of long-term capital appreciation and current income. The
Fund's risk factors are summarized below and are described in more detail
under "Investment Objective and Policies--Risk Factors and Special
Considerations." While the Fund is not intended to provide a complete or
balanced investment program, it can serve as one component of an investor's
long-term program to accumulate assets, for instance, for retirement, college
tuition or other major goals.
ASSET ALLOCATION STRATEGY. The Fund follows an asset allocation strategy
involving investing among the following asset categories ("Segments"): (1) the
common stocks primarily included in the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500 Index") and derivative instruments relating thereto
(the "Stock Segment"), the performance of which, before deduction of operating
expenses, is intended to replicate as closely as possible the aggregate price
and yield performance of the S&P 500 Index; (2) 30-day U.S. Treasury Bills
(the "Cash Segment"); and (3) five-year U.S. Treasury Notes and derivative
instruments relating thereto (the "Note Segment"). Asset allocations are
determined by Mitchell Hutchins based on relative rates of return among the
Segments. See "Investment Objective and Policies." The Fund's asset allocation
strategy is designed to afford investors the opportunity to seek total return
during all economic and financial market cycles, with a degree of volatility
lower than that of the equity market, utilizing a systematic, cost effective
asset allocation strategy. The Fund allocates its assets among the Segments in
accordance with an Asset Allocation Model (the "Allocation Model") utilized by
Mitchell Hutchins. See "Investment Objective and Policies--Asset Allocation
Strategy."
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities.
Although the Fund will seek long-term total return consisting of both capital
appreciation and current income, the Fund may not achieve as high a level of
either capital appreciation or current income as a fund that has only one of
those objectives as its primary objective. Because the benefits of the
Allocation Model, on which the Fund's investment decisions are based, are
expected to be realized only if the recommendations are followed over several
market cycles, the Fund is intended to be a long term investment vehicle and
is not designed to provide investors with a means of speculating on short term
market movements. The investment results of the
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Prospectus Page 4
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PaineWebber Tactical Allocation Fund
Prospectus Summary
(Continued)
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Fund (and the Stock Segment) at any time may be greater or less than those of
the S&P 500 Index. Deviations from the performance of the S&P 500 Index may
result from the proportion of assets then allocated to the Stock Segment in
accordance with the Allocation Model, purchases and redemptions of shares of
the Fund that occur daily, as well as from brokerage and other expenses borne
by the Fund. Thus, no assurance can be given that the Fund's investment
objective will be achieved. The Fund may also be subject to certain risks in
using investment techniques and strategies such as entering into futures
contracts and options on futures contracts, entering into transactions
involving options on stock indexes, purchasing securities on a when-issued or
delayed delivery basis and entering into repurchase agreements. See
"Investment Objective and Policies--Risk Factors and Special Considerations"
at page 14 of this Prospectus.
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PaineWebber Tactical Allocation Fund
Prospectus Summary
(Continued)
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EXPENSES OF INVESTING IN THE FUND. The following tables are intended to assist
investors in understanding the expenses associated with investing in the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum sales charge on purchases of shares (as a
percentage of public offering price)............... 4.5% None None
Sales charge on reinvested dividends................ None None None
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds)................. None(2) 5% 1%(3)
Annual Fund Operating Expenses(4)
(as a percentage of average net assets)
Management fees..................................... 0.50% 0.50% 0.50%
12b-1 fees(5)....................................... 0.25 1.00 1.00
Other expenses...................................... 0.71 0.72 0.72
---- ---- ----
Total operating expenses............................ 1.46% 2.22% 2.22%
==== ==== ====
</TABLE>
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(1) Sales charge waivers are available for Class A and Class B shares and
reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge generally
declines by 1% annually thereafter, reaching zero after six years. See
"Purchases."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If shares are redeemed within one year of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
See "Purchases."
(3) If Class C shares are redeemed within one year of purchase, a contingent
deferred sales charge of 1% will be applied to the redemption. See
"Purchases."
(4) See "Management" for additional information. All expenses, except for
Class B shares, are those actually incurred for the fiscal year ended
August 31, 1995. Class B shares "other expenses" are based on estimates
for the Fund's current fiscal year.
(5) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees.................................. 0.25% 0.25% 0.25%
12b-1 distribution fees............................. 0.00 0.75 0.75
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class C shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.
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Prospectus Page 6
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PaineWebber Tactical Allocation Fund
Prospectus Summary
(Continued)
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Example of Effect of Fund Expenses
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares(1).................... $59 $89 $121 $212
Class B Shares:
Assuming a complete redemption at
end of period(2)(3)............... $73 $99 $139 $219
Assuming no redemption(3).......... $23 $69 $119 $219
Class C Shares:
Assuming a complete redemption at
end of period(2).................. $33 $69 $119 $255
Assuming no redemption............. $23 $69 $119 $255
</TABLE>
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(1) Assumes deduction at the time of purchase of the maximum 4.5% initial
sales charge.
(2) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the Securities and Exchange Commission ("SEC") applicable to all mutual funds;
the assumed 5% annual return is not a prediction of, and does not represent,
the projected or actual performance of any Class of the Fund's shares.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The actual expenses attributable to each Class of the Fund's shares
will depend upon, among other things, the level of average net assets and the
extent to which the Fund incurs variable expenses, such as transfer agency
costs.
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PaineWebber Tactical Allocation Fund
Financial Highlights
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The table below provides selected per share data and ratios for one Class A
share and one Class C share (prior to November 10, 1995, Class C shares were
called "Class B" shares) of the Fund for each of the periods shown. No new
Class B shares were outstanding during such periods. This information is
supplemented by the financial statements and accompanying notes appearing in
the Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which are incorporated by reference into the Statement of Additional
Information. The financial statements and notes, and the financial information
for the fiscal year ended August 31, 1995 appearing in the table below, have
been audited by Ernst & Young LLP, independent auditors, whose report thereon
is included in the Annual Report to Shareholders. The financial information
for the year ended August 31, 1994 and the periods prior thereto was audited
by other auditors whose report thereon was unqualified. Further information
about the Fund's performance is also included in the Annual Report to
Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
CLASS A CLASS C#
------------------------------ ------------------------------------------
FOR THE YEAR FOR THE PERIOD FOR THE YEAR FOR THE PERIOD
ENDED MAY 10, ENDED JULY 22,
AUGUST 31, 1993+ AUGUST 31, 1992+
-------------- TO AUGUST 31, -------------------------- TO AUGUST 31,
1995** 1994 1993 1995** 1994 1993 1992
------ ------ -------------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $13.78 $13.50 $12.90 $ 13.78 $ 13.49 $ 12.12 12.00
------ ------ ------ ------- ------- -------- -------
Net investment income... 0.22 0.24 0.08 0.12 0.13 0.18 0.03
Net realized and
unrealized gains from
investment
transactions........... 2.05 0.32 0.59 2.06 0.33 1.34 0.09
------ ------ ------ ------- ------- -------- -------
Net increase from
investment operations.. 2.27 0.56 0.67 2.18 0.46 1.52 0.12
------ ------ ------ ------- ------- -------- -------
Dividends from net
investment income...... (0.22) (0.24) (0.07) (0.12) (0.13) (0.15) --
Distributions from net
realized gains from
investment
transactions........... (0.97) (0.04) -- (0.97) (0.04) -- --
------ ------ ------ ------- ------- -------- -------
Total dividends and
distributions to
shareholders........... (1.19) (0.28) (0.07) (1.09) (0.17) (0.15) --
------ ------ ------ ------- ------- -------- -------
Net asset value, end of
period................. $14.86 $13.78 $13.50 $ 14.87 $ 13.78 $ 13.59 $ 12.12
====== ====== ====== ======= ======= ======== =======
Total investment
return(1).............. 18.43% 4.21% 5.17% 17.57% 3.46% 12.61% 0.98%
====== ====== ====== ======= ======= ======== =======
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's)......... $1,944 $1,801 $3,007 $48,105 $62,970 $107,761 $50,222
Ratios of expenses to
average net assets..... 1.46% 1.13% 1.06%* 2.22% 1.88% 1.73% 1.75%*
Ratios of net investment
income to average net
assets................. 1.60% 1.64% 1.71%* 0.86% 0.89% 1.04% 2.42%*
Portfolio turnover rate. 53% 4% 0% 53% 4% 0% 0%
</TABLE>
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# Prior to November 10, 1995, called "'Class B" shares.
+ Commencement of offering of shares.
* Annualized.
** Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to Mitchell Hutchins on February 13, 1995.
(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 would be lower if sales
charges were included. Total returns for periods of less than one year
have not been annualized.
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PaineWebber Tactical Allocation Fund
Flexible Pricing System
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DIFFERENCES AMONG THE CLASSES
The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution
fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------ --------------------- ----------------------
<C> <S> <C> <C>
Class A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 4.5% of the waived or reduced for
public offering price certain purchases
Class B Maximum contingent de- Service fee of 0.25%; Shares convert to
ferred sales charge of distribution fee of Class A shares
5% of redemption pro- 0.75% approximately six
ceeds; declines to zero years after issuance
after six years
Class C Contingent deferred Service fee of 0.25%; --
sales charge of 1% of distribution fee of
redemption proceeds if 0.75%
redeem within first year
after purchase
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES
In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the ongoing annual expenses
described below, as well as any other relevant facts and circumstances:
SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.5% of the public offering price. Because of this
initial sales charge, not all of a Class A shareholder's purchase price is
invested in the Fund. Class B shares are sold with no initial sales charge,
but a contingent deferred sales charge of up to 5% of the redemption proceeds
applies to redemptions made within six years of purchase. Class C shareholders
pay no initial sales charges, although a contingent deferred sales charge of
1.00% applies to certain redemptions of Class C shares made within the first
year after purchase. Thus, the entire amount of a Class B or Class C
shareholder's purchase price is immediately invested in the Fund.
WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$50,000 and Class A share purchases made under the Fund's reduced sales charge
schedule may be made at a reduced sales charge. In considering the combined
cost of sales charges and ongoing annual expenses, investors should take into
account any reduced sales charges on Class A shares for which they may be
eligible.
The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class C shares, investors eligible for complete waivers
should purchase Class A shares.
ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of 0.25% of average daily net assets. Class B and Class C shares
pay an annual 12b-1 distribution fee of 0.75% of average daily net assets.
Annual 12b-1 distribution fees are a form of asset-based sales charges. An
investor should consider both ongoing annual expenses and initial or
contingent deferred sales charges in estimating the costs of investing in the
respective Classes of Fund shares over various time periods.
For example, assuming a constant net asset value, the cumulative distribution
fees on the Class B or Class C shares and the 4.5% maximum initial sales
charge on
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Prospectus Page 9
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PaineWebber Tactical Allocation Fund
the Class A shares would all be approximately equal if the shares were held
for six years. Because Class B shares convert to Class A shares (which do not
bear the expense of ongoing distribution fees) approximately six years after
purchase, an investor expecting to hold shares of the Fund for longer than six
years would generally pay lower cumulative expenses by purchasing Class A or
Class B shares than by purchasing Class C shares. An investor expecting to
hold shares of the Fund for less than six years would generally pay lower
cumulative expenses by purchasing Class C shares than by purchasing Class A
shares, and, due to the contingent deferred sales charges that would become
payable on redemption of Class B shares, such an investor would generally pay
lower cumulative expenses by purchasing Class C shares than Class B shares.
The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net
asset value of Fund shares, which will affect the actual amount of expenses
paid. Expenses borne by Classes may differ slightly because of the allocation
of other Class-specific expenses. The "Example of Effect of Fund Expenses"
under "Prospectus Summary" shows the cumulative expenses an investor would pay
over time on a hypothetical investment in each Class of Fund shares, assuming
an annual return of 5%.
OTHER INFORMATION
PaineWebber investment executives may receive different levels of compensation
for selling one particular Class of Fund shares rather than another. Investors
should understand that distribution fees and initial and contingent deferred
sales charges all are intended to compensate Mitchell Hutchins for
distribution services.
See "Purchases," "Redemptions" and "Management" for a more complete
description of the initial and contingent deferred sales charges, service fees
and distribution fees for the three Classes of shares. See also "Conversion of
Class B Shares," "Dividends, Distributions and Taxes," "Valuation of Shares"
and "General Information" for other differences among the three Classes.
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Investment Objective and Policies
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OBJECTIVE
The Fund's investment objective is total return, consisting of long-term
capital appreciation and current income. The Fund seeks to achieve its
objective by utilizing a systematic investment strategy that actively
allocates the Fund's assets among common stocks, U.S. Treasury Notes and U.S.
Treasury Bills.
There can be no assurance that the Fund will achieve its investment objective.
The Fund's net asset value will fluctuate based upon changes in the value of
its portfolio securities. The Fund's investment objective and certain
investment limitations, as described in the Statement of Additional
Information, are fundamental policies and may not be changed without
shareholder approval. All other investment policies may be changed by the
Trust's board of trustees without shareholder approval.
ASSET ALLOCATION STRATEGY
The Fund is designed for investors seeking total return during all economic
and financial market cycles, with a degree of volatility lower than that of
the equity market, utilizing a systematic, cost-effective approach to
allocating assets among market segments. At the same time, the Fund provides
individual investors a means of dealing with the difficulties often associated
with asset allocation investing with an index component.
In seeking total return, the Fund follows an asset allocation strategy
contemplating shifts (sometimes frequent) among the following Segments: (i)
the Stock Segment, consisting primarily of the common stocks included in the
S&P 500 Index and derivative instruments relating thereto, the performance of
which, before deduction of operating expenses, is intended to replicate as
closely as possible that of the S&P 500 Index; (ii) the Cash Segment,
consisting of
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Prospectus Page 10
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PaineWebber Tactical Allocation Fund
30-day U.S. Treasury Bills; and (iii) the Note Segment, consisting of five-
year U.S. Treasury Notes and derivative instruments relating thereto.
The Fund allocates its assets among the Segments in accordance with the
Allocation Model. The emphasis of the Allocation Model is to avoid or lower
exposure to the market in down economic cycles and to perform close to the
broad market in periods of strongly positive market performance. The asset
allocation mix for the Fund will be determined by Mitchell Hutchins at any
given time on the basis of the recommendations of the Allocation Model, except
as described below, which are determined in light of a quantitative assessment
of the expected performance of the Segments. The Fund is not managed as a
balanced portfolio, however, and may not maintain a portion of its investments
in each of the Segments at all times. Except for limited amounts always held
in the Cash Segment as described below, the Fund does not commit its assets
simultaneously to the Cash Segment and the Note Segment. Thus, during the
course of a business cycle, for example, the Fund may invest in the Stock
Segment and the Cash Segment, in the Stock Segment and the Note Segment,
solely in the Stock Segment, solely in the Cash Segment or solely in the Note
Segment.
The Fund's assets are reallocated among the Segments at such times as are
mandated by the Allocation Model based on changes in projected rates of
return. If no reallocation is mandated, on the first business day of each
month, any material amounts in each Segment in excess of the amount mandated
by the Allocation Model resulting from appreciation or receipt of dividends,
distributions, interest payments and proceeds from securities maturing are
reallocated (or "rebalanced") to the extent practicable among the Segments so
as to reestablish the recommended allocation among the Segments.
Cash inflows to the Fund during a month are invested in, and cash outflows
from the Fund during a month are derived from dispositions of assets in, each
Segment on a pro rata basis. In order to manage the Fund's portfolio most
effectively, cash flows into and out of the Stock Segment are managed to the
extent practicable through the use of stock index options, stock index futures
contracts and options on stock index futures contracts, as described below.
Similarly, cash flows into and out of the Note Segment are managed to the
extent practicable through the use of five-year U.S. Treasury Note futures
contracts and options thereon. See "Investment Strategies and Techniques--
Derivative Instruments" below.
The Fund deviates from the published recommendations of the Allocation Model
only to the extent necessary (1) to maintain a limited amount of assets (not
expected to exceed 2% of its total assets) in the Cash Segment in order to
have highly liquid short-term securities available to pay Fund operating
expenses and dividends and distributions on its shares and to meet anticipated
redemptions of its shares and (2) to qualify as a regulated investment company
for Federal income tax purposes. With regard to the latter, investors should
be aware that in order to so qualify, the Fund must, among other things,
derive less than 30% of its gross income from the sale or disposition of
stocks, other securities and certain financial instruments held for less than
three months. Thus, this requirement may preclude the Fund from reallocating
its assets when otherwise mandated by the Allocation Model. In such event, the
Fund would reallocate its assets in accordance with the then current
recommendations of the Allocation Model as soon as the reallocation could be
accomplished without jeopardizing the Fund's qualification as a regulated
investment company.
TYPES OF PORTFOLIO INVESTMENTS
CASH SEGMENT. Assets committed to the Cash Segment are invested to the extent
practicable in U.S. Treasury Bills having remaining maturities of 30 days or,
if no such instruments are then available for purchase at favorable prices,
these assets will be invested in U.S. Treasury Bills having remaining
maturities as close as possible to 30 days. U.S. Treasury Bills are entitled
to the full faith and credit of the U.S. Government as to payment of interest
and principal.
NOTE SEGMENT. Assets committed to the Note Segment are invested to the extent
practicable in (1) U.S. Treasury Notes having five years remaining to maturity
at the beginning of the then current calendar year or, if no such instruments
are then available for purchase at favorable prices, these assets will be
invested in U.S. Treasury Notes having remaining maturities as close as
possible to five years at the beginning of the then current calendar year; and
(2) five-year U.S. Treasury Note futures contracts and options thereon. U.S.
Treasury Notes are entitled to the full faith and credit of the U.S.
Government as to payment of interest and principal.
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PaineWebber Tactical Allocation Fund
STOCK SEGMENT. With respect to assets committed to the Stock Segment, the Fund
attempts to duplicate, before deduction of operating expenses, the investment
results of the S&P 500 Index. The S&P 500 Index is an index compiled by
Standard & Poor's Corporation ("S&P") that emphasizes large-capitalization
companies. The Stock Segment is not managed according to traditional methods
of "active" investment management, which involve the buying and selling of
securities based on economic, financial and market analysis and investment
judgment. Instead, utilizing a "passive" or "indexing" investment approach,
the Fund attempts in the Stock Segment to duplicate the investment performance
of the S&P 500 Index through statistical procedures that involve holding
substantially all 500 stocks in approximately the same relative proportions as
they are represented in the S&P 500 Index, except as described below.
The S&P 500 Index is composed of 500 common stocks that are chosen by S&P on a
statistical basis. The composition of the S&P 500 Index is determined by S&P
based on such factors as the market capitalization and trading activity of
each stock and its adequacy as a representative of stocks in a particular
industry group, and may be changed from time to time. Each stock in the S&P
500 Index is weighted by its market capitalization, which is the market price
per share of the stock multiplied by the number of shares outstanding. While
most of the stocks in the S&P 500 Index are issued by companies that are among
the 500 largest companies in terms of market capitalization, some stocks are
included for diversification and are not among the 500 largest market
capitalization stocks. The inclusion of a stock in the S&P 500 Index in no way
implies that S&P believes the stock to be an attractive investment.
While there can be no guarantee that the Stock Segment's investment results
will precisely match those of the S&P 500 Index, Mitchell Hutchins believes
that, before deduction of operating expenses, there will be a very high
correlation between the returns generated by the Stock Segment and the S&P 500
Index. The Fund attempts to achieve a correlation between the performance of
the Stock Segment and that of its benchmark index of at least 0.95, before
deduction of operating expenses. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the Stock Segment's net asset value,
including the value of its dividend and capital gains distributions, increases
or decreases in exact proportion to changes in the S&P 500 Index. The Fund's
ability to correlate the performance of the Stock Segment with the S&P 500
Index may be affected by, among other things, changes in securities markets,
the manner in which the S&P 500 Index is calculated by S&P and the timing of
purchases and redemptions. See "Risk Factors and Special Considerations--Index
Investing and Open-End Investment Companies" below. Mitchell Hutchins monitors
the correlation of the performance of the Stock Segment in relation to that of
the S&P 500 Index under the supervision of the Board of Trustees. In the
unlikely event that a high correlation is not achieved, the Board of Trustees
will take appropriate steps based on the reasons for the lower than expected
correlation. S&P is neither a sponsor of nor affiliated with the Fund.
INVESTMENT TECHNIQUES AND STRATEGIES
The Fund is authorized to engage in any one or more of the specialized
investment techniques and strategies described below:
DERIVATIVE INSTRUMENTS. The Fund anticipates that the Note Segment and the
Stock Segment will remain invested in five-year U.S. Treasury Notes or common
stocks, respectively, to the degree mandated by the Allocation Model. The Fund
may also invest its assets in stock index options, stock index futures
contracts and options on stock index futures contracts (with respect to the
Stock Segment) and five-year U.S. Treasury Note futures contracts and options
thereon (with respect to the Note Segment) in order to invest temporarily
uncommitted cash balances, to maintain liquidity to meet shareholder
redemptions or, in the case of stock index options, to minimize trading costs.
When the Fund has cash from net new sales of Fund shares or holds a
disproportionate amount of its assets in the Cash Segment, it may enter into
stock index futures or options thereon or five-year U.S. Treasury Note futures
contracts or options thereon to attempt to increase its exposure to the
appropriate asset class prior to purchasing securities to the degree mandated
by the Allocation Model. Strategies the Fund could use to accomplish this
include entering into long futures contracts, writing put options and
purchasing call options. When the Fund wishes to sell securities, because of
shareholder redemptions or otherwise, it may use futures contracts or options
to hedge against market risk until the sale can be completed. These strategies
could include entering into short futures
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PaineWebber Tactical Allocation Fund
contracts, writing call options and purchasing put options. It is anticipated
that the Fund will continue to close out positions in these instruments on at
least a quarterly basis and reconstitute its portfolio with direct purchases
or sales of securities in accordance with the then current recommendations of
the Allocation Model. The Fund does not enter into futures contracts or
options as part of a temporary defensive strategy, such as lowering the Stock
Segment's investment in common stocks to protect against potential stock
market declines, as this would be inconsistent with the Allocation Model. See
"Stock Index Options" and "Futures Contracts and Options on Futures Contracts"
below.
STOCK INDEX OPTIONS. The Fund may purchase and write put and call options on
stock indexes listed on domestic securities exchanges (which indexes include
securities held in the Fund's portfolio) as a means of pursuing the Stock
Segment's exposure in equity markets without making direct purchases of equity
securities.
A stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index. Options on stock
indexes are generally similar to options on specific securities. Unlike those
on securities, however, options on stock indexes do not involve the delivery
of an underlying security; the option in the case of an option on a stock
index represents the holder's right to obtain from the writer in cash a fixed
multiple of the amount by which the exercise price exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the
underlying stock index on the exercise date.
When the Fund writes an option on a stock index, it establishes a segregated
account with its custodian in which the Fund deposits cash or cash equivalents
or a combination of both in an amount equal to the market value of the option
and maintains the account while the option is open. If the Fund has written a
stock index option, it may terminate its obligation by effecting a closing
purchase transaction, which is accomplished by purchasing an option of the
same series as the option previously written.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may enter into
stock index futures contracts, and options on those contracts, as a means of
temporarily increasing or decreasing the Stock Segment's exposure to equity
markets in anticipation of purchases or sales of common stocks. Similarly, the
Fund may enter into five-year U.S. Treasury Note futures contracts, and
options on those contracts, as a means of temporarily increasing or decreasing
the Note Segment's exposure to five-year U.S. Treasury Notes in anticipation
of purchase or sales of these notes. A futures contract is an agreement to
take or make delivery of an amount of cash equal to the difference between the
value of the index or security at the beginning and at the end of the contract
period. An option on a futures contract, in contrast to a direct investment in
the contract, gives the purchaser the right, in return for the premium paid,
to assume a position in the underlying futures contract at a specified
exercise price at any time on or before the expiration date of the option.
The Fund may assume both "long" and "short" positions with respect to futures
contracts. A long position involves entering into a futures contract to buy a
commodity, whereas a short position involves entering into a futures contract
to sell a commodity. In entering into futures contracts, the Fund is required
to make initial "margin" payments, which are payments in the nature of
performance bonds or good faith deposits, and to make "variation" margin
payments from time to time as the values of the futures contracts fluctuate.
The Fund does not (1) enter into any futures contracts or options on futures
contracts if, immediately after the transactions, the aggregate of margin
deposits on all of the Fund's outstanding futures contracts and premiums paid
on its outstanding options on futures contracts would exceed 5% of the market
value of the total assets of the Fund after taking into account unrealized
profits and losses on any futures contracts or options on futures contracts or
(2) enter into any futures contracts or options on futures contracts if the
aggregate of the market value of the Fund's outstanding futures contracts and
market value of the currencies and futures contracts subject to outstanding
options written by the Fund would exceed 50% of the market value of the total
assets of the Fund. Each short position in a futures or options contract
entered into by the Fund is secured by the Fund's ownership of underlying
securities. The Fund does not use leverage when it enters into long futures or
options contracts; the Fund places in a segregated account with its custodian,
or designated sub-custodian, with respect to each of its long positions cash
or short-term U.S. Treasury Bills having a value equal to the underlying
commodity value of the contract.
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PaineWebber Tactical Allocation Fund
REPURCHASE AGREEMENTS. In order to manage cash flows resulting from the
continuous sale and redemption of the Fund's shares, the Fund may engage in
repurchase agreement transactions collateralized by U.S. Treasury obligations.
Although the amount of the Fund's assets that may be invested in repurchase
agreements terminable in less than seven days is not limited, repurchase
agreements maturing in more than seven days, together with other illiquid
securities, may not exceed 10% of the Fund's net assets. The Fund may engage
in repurchase agreement transactions with certain member banks of the Federal
Reserve System and with certain dealers listed on the Federal Reserve Bank of
New York's list of reporting dealers. Under the terms of a typical repurchase
agreement, the Fund would acquire an underlying debt obligation for a
relatively short period (usually not more than seven days) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the securities underlying a repurchase agreement of the Fund is
monitored on an ongoing basis by Mitchell Hutchins to ensure that the value is
at least equal at all times to the total amount of the repurchase obligation,
including interest. Mitchell Hutchins also monitors, on an ongoing basis to
evaluate potential risks, the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices or yields deemed
advantageous at a particular time, the Fund may purchase securities on a when-
issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund enters into when-issued or delayed-
delivery transactions for the purpose of acquiring securities and not for the
purpose of leverage. When-issued securities purchased by the Fund may include
securities purchased on a "when, as and if issued" basis under which the
issuance of the securities depends on the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization or debt restructuring.
The Fund will establish with its custodian, or with a designated sub-
custodian, a segregated account consisting of cash, securities issued or
guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities ("Government Securities") or other liquid high-grade debt
obligations in an amount equal to the amount of its when-issued or delayed-
delivery purchase commitments.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves risks and special considerations, such as those
described below:
LIMITS OF ASSET ALLOCATION STRATEGY. Although it seeks total return,
consisting of both capital appreciation and current income, in following its
asset allocation strategy, the Fund may not achieve as high a level of either
capital appreciation or current income as a fund that has only one of those
objectives as its primary objective. In addition, qualification as a regulated
investment company for federal income tax purposes may limit the Fund's
ability to adhere rigidly to the recommendations of the Allocation Model. See
"Asset Allocation Strategy" above.
INVESTMENT IN COMMON STOCKS. Although the Allocation Model is designed to
reduce the volatility inherent in a common stock portfolio, to the extent the
Fund's assets are committed to the Stock Segement, the share price of the Fund
can be expected to be volatile and investors should be able to tolerate
sudden, sometimes substantial fluctuations in the value of their investment.
Because of the risks associated with common stock investments, the Fund is
intended to be a long term investment vehicle and is not designed to provide
investors with a means of speculating on short-term stock market movements.
INDEX INVESTING AND OPEN-END INVESTMENT COMPANIES. While the Fund through the
Stock Segment attempts to replicate, before deduction of operating expenses,
the investment results of the S&P 500 Index, the investment results of the
Stock Segment generally are not identical to those of the designated index.
Deviations from the performance of the S&P 500 Index may result from
shareholder purchases and redemptions of shares of the Fund that occur daily,
as well as from the expenses borne by the Fund. Shareholder purchases and
redemptions result in daily net cash inflows to or outflows from the Fund. To
the extent that a cash reserve is held to meet expected redemptions or pending
investment in portfolio securities, to the extent that portfolio
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PaineWebber Tactical Allocation Fund
securities must be sold to meet redemption requests (with resulting brokerage
costs), and to the extent that purchases and sales of portfolio securities are
made to conform the Stock Segment's holdings more closely to the relative
weightings of stocks in the S&P 500 Index in response to cash inflows or
outflows and associated brokerage costs are incurred, these daily inflows or
outflows of cash may increase the deviation between the Stock Segment's
investment results and the price and yield performance of the S&P 500 Index.
INVESTMENT IN FOREIGN SECURITIES. Since the S&P 500 Index includes common
stocks of foreign issuers, to the extent that Fund assets are committed to the
Stock Segment, the Fund is subject to considerations and potential risks not
typically associated with investing in securities issued exclusively by
domestic corporations. The values of foreign investments are affected by
changes in currency exchange rates or exchange control regulations,
restrictions or prohibitions on the repatriation of foreign currencies,
application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in the United
States or abroad) or changed circumstances in dealings between nations.
Investments in foreign companies could be affected by other factors not
present in the United States, including expropriation, confiscatory taxation,
lack of uniform accounting and auditing standards and potential difficulties
in enforcing contractual obligations.
STOCK INDEX OPTIONS. Stock index options are subject to position and exercise
limits and other regulations imposed by the exchange on which they are traded.
If the Fund writes a stock index option, it may terminate its obligation by
effecting a closing purchase transaction, which is accomplished by purchasing
an option of the same series as the option previously written. The ability of
the Fund to engage in closing purchase transactions with respect to stock
index options depends on the existence of a liquid secondary market. Although
the Fund generally purchases or writes stock index options only if a liquid
secondary market for the options purchased or sold appears to exist, no such
secondary market may exist, or the market may cease to exist at some future
date, for some options. No assurance can be given that a closing purchase
transaction can be effected when the Fund desires to engage in such a
transaction.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In entering into
transactions involving futures contracts and options on those contracts, the
Fund is subject to a number of risks and special considerations. The
successful use of futures contracts and options on those contracts draws upon
Mitchell Hutchins' special skills and experience with respect to those
instruments. Should markets move in an unexpected manner, the Fund may not
achieve the anticipated benefits of futures contracts or options on those
contracts and thus be in a less advantageous position than if those strategies
had not been used. For a number of reasons, the price of futures may not
correlate perfectly with the movement in the underlying index or security
owing to certain market distortions. First, all participants in the futures
market are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions that would distort the normal
relationship between the underlying index or security and the futures markets.
Second, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market also may cause temporary price distortions. Owing to the possibility of
price distortions in the futures market and because of the imperfect
correlation between movements in the underlying index or security and
movements in the price of futures contracts, even a correct forecast of
general market trends may not result in a successful hedging transaction.
Certain futures contracts and options on futures contracts are subject to no
daily price fluctuation limits so that adverse market movements could continue
with respect to those instruments to an unlimited extent over a period of
time.
The Fund's ability to dispose of its positions in futures contracts and
options on those contracts depends on the availability of active markets in
those instruments. Markets in options and futures with respect to a number of
securities are relatively new and still developing. Mitchell Hutchins cannot
now predict the amount of trading interest that may exist in the future in
various types of futures contracts and options. Futures and options may be
closed out only on the exchange on which the contract was entered (or a linked
exchange) so that no assurance can be given that the Fund will be able to
utilize these instruments effectively for the purposes described above. In
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PaineWebber Tactical Allocation Fund
addition, although the Fund anticipates that its options and futures
transactions does not prevent the Fund from qualifying as a regulated
investment company for federal income tax purposes, the Fund's ability to
engage in options and futures transactions may be limited by this tax
consideration. See "Dividends, Distributions and Taxes--Taxes." In writing
options, the Fund is subject to the risk of loss resulting from the difference
between the premium received for the option and the price of the futures
contract underlying the option that the Fund must purchase or deliver upon
exercise of the option.
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund bears
a risk of loss in the event that the other party to the transaction defaults
on its obligations and the Fund is delayed or prevented from exercising its
rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period
in which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or
a part of the income from the agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a when-
issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual
delivery. The Fund does not accrue income with respect to a when-issued or
delayed-delivery security prior to its stated delivery date. Purchasing
securities on a when-issued or delayed-delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself. Purchases of
securities on a when-issued basis when the Fund is substantially fully
invested may result in increased fluctuations in the Fund's net asset value
per share.
PORTFOLIO TRANSACTIONS AND TURNOVER. The Board of Trustees of the Trust has
determined that, to the extent consistent with applicable provisions of the
1940 Act and rules and exemptions thereunder, transactions for the Fund may be
executed through PaineWebber if, in the judgment of Mitchell Hutchins, the use
of PaineWebber is likely to result in price and execution at least as
favorable to the Fund as those obtainable through other qualified broker-
dealers, and if, in the transaction, PaineWebber charges the Fund a fair and
reasonable rate consistent with that charged to comparable unaffiliated
customers in similar transactions.
The Fund retains the right to sell securities in accordance with
recommendations generated by the Allocation Model irrespective of how long
they have been held. For the fiscal years ended August 31, 1995 and August 31,
1994, the Fund's portfolio turnover rates were 53.02% and 4.17%, respectively.
An annual turnover rate of 100% would occur if all of the securities held by
the Fund are replaced once during a period of one year. Higher portfolio
turnover rates can result in corresponding increases in transaction costs, may
make it more difficult for the Fund to qualify as a regulated investment
company for federal income tax purposes and may cause shareholders of the Fund
to recognize gains for federal income tax purposes. See "Dividends,
Distributions and Taxes--Taxes."
Assuming that the Allocation Model does not recommend a reallocation of assets
among the Segments, securities are sold from the Stock Segment only to reflect
certain administrative changes in the S&P 500 Index (including mergers or
changes in the composition of the S&P 500 Index) or to accommodate cash flows
into and out of the Fund while maintaining the similarity of the Stock Segment
to its benchmark. Similarly, assets are purchased or sold for each Segment
monthly, as described above, in order to accommodate cash flows and to
rebalance assets among the Segments.
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PaineWebber Tactical Allocation Fund
Purchases
- -------------------------------------------------------------------------------
GENERAL. Class A shares are sold to investors subject to an initial sales
charge. Class B shares are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares and a contingent
deferred sales charge payable upon certain redemptions. Class B shares
automatically convert to Class A shares approximately six years after
issuance. Class C shares are sold without an initial sales charge but are
subject to a 1% contingent deferred sales charge for redemptions made within
one year and to higher ongoing expenses than Class A shares and do not convert
into another Class. See "Flexible Pricing System" and "Conversion of Class B
Shares."
Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the
Transfer Agent. Investors may contact a local PaineWebber office to open an
account. The minimum initial investment is $1,000, and the minimum for
additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, certain pension
plans and retirement accounts and participants in the Fund's automatic
investment plan. Purchase orders will be priced at the net asset value per
share next determined (see "Valuation of Shares") after the order is received
by PaineWebber's New York City offices or by the Transfer Agent, plus any
applicable sales charge for Class A shares. The Fund and Mitchell Hutchins
reserve the right to reject any purchase order and to suspend the offering of
Fund shares for a period of time.
When placing purchase orders, investors should specify whether the order is
for Class A, Class B or Class C shares. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.
PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million.
Investment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
pay for purchases with checks drawn on U.S. banks or with funds held in
brokerage accounts at PaineWebber or its correspondent firms. Payment is due
on the third Business Day after the order is received at PaineWebber's New
York City offices. A "Business Day" is any day, Monday through Friday, on
which the New York Stock Exchange, Inc. ("NYSE") is open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber
clients may purchase shares of the Fund through the Transfer Agent. Shares of
the Fund may be purchased, and an account with the Fund established, by
completing and signing the purchase application at the end of this Prospectus
and mailing it, together with a check to cover the purchase, to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. Subsequent investments need not be accompanied by an
application.
INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the table
below.
Mitchell Hutchins may at times agree to reallow higher discounts to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown in
the table below. To the extent PaineWebber or any dealer receives 90% or more
of the sales charge, it may be deemed an "underwriter" under the 1933 Act.
INITIAL SALES CHARGE SCHEDULE--
CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE
AS A DISCOUNT TO
PERCENTAGE OF SELECTED
------------------- DEALERS
NET AMOUNT AS A
INVESTED PERCENTAGE
OFFERING (NET ASSET OF OFFERING
AMOUNT OF PURCHASE PRICE VALUE) 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
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources.
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PaineWebber Tactical Allocation Fund
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are available
without a sales charge through exchanges for Class A shares of most other
PaineWebber mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber mutual fund, their spouses, parents and children and advisory
clients of Mitchell Hutchins. Class A shares may also be purchased without a
sales charge by employee benefit plans qualified under section 401 or 403(b)
of the Internal Revenue Code (the "Code"), including salary reduction plans
qualified under section 401(k) of the Code, subject to minimum requirements
established by Mitchell Hutchins with respect to number of employees or amount
of purchase. Currently, the employers establishing the plan must have 100 or
more eligible employees or the amount invested or to be invested during the
subsequent 13-month period in the Fund or any other PaineWebber mutual fund
must total at least $1 million. If investments by an employee benefit plan
without a sales charge are made through a dealer (including PaineWebber) who
has executed a dealer agreement with Mitchell Hutchins, Mitchell Hutchins may
make a payment, out of its own resources, to the dealer in an amount not to
exceed 1% of the amount invested.
Class A shares also may be purchased without a sales charge if the purchase is
made through a PaineWebber investment executive who formerly was employed as a
broker with another firm registered as a broker-dealer with the SEC, provided
(1) the purchaser was the investment executive's client at the competing
brokerage firm, (2) within 90 days of the purchase of Class A shares the
purchaser redeemed shares of one or more mutual funds for which that competing
firm or its affiliates was principal underwriter, provided the purchaser
either paid a sales charge to invest in those funds, paid a contingent
deferred sales charge upon redemption or held shares of those funds for the
period required not to pay the otherwise applicable contingent deferred sales
charge and (3) the total amount of shares of all PaineWebber mutual funds
purchased under this sales charge waiver does not exceed the amount of the
purchaser's redemption proceeds from the competing firm's funds. To take
advantage of this waiver, an investor must provide satisfactory evidence that
all the above-noted conditions are met. Qualifying investors should contact
their PaineWebber investment executives for more information.
Certificate holders of unit investment trusts ("UITs") sponsored by
PaineWebber may acquire Class A shares of the Fund without regard to minimum
investment requirements and without sales charges by electing to have
dividends and other distributions from their UIT investment automatically
invested in Class A shares.
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES. Purchases of Class A shares
of $1 million or more may be made without a sales charge. Purchases of Class A
shares of two or more PaineWebber mutual funds may be combined for the
purpose, and the right of accumulation also applies to such purchases. See
"Reduced Sales Charge Plans--Class A Shares" below. If a shareholder redeems
any Class A shares that were purchased without a sales charge by reason of a
purchase of $1 million or more within one year after the date of purchase, a
contingent deferred sales charge will be applied to the redemption. The Class
A contingent deferred sales charge will be equal to 1% of the lower of (a) the
net asset value of the shares at the time of purchase or (b) the net asset
value of the shares at the time of redemption. Class A shares of the Fund held
one year or longer, and Class A shares of the Fund acquired through
reinvestment of dividends or capital gains distributions will not be subject
to this contingent deferred sales charge. The contingent deferred sales charge
for Class A shares of the Fund will be waived for redemptions in connection
with the systematic withdrawal plan, subject to the limitations described
below under "Other Services and Information--Systematic Withdrawal Plan." This
contingent deferred sales charge does not apply to redemptions of Class A
shares purchased prior to November 10, 1995.
Class A shares of the Fund that are purchased without a sales charge may be
exchanged for Class A shares of another PaineWebber mutual fund without the
imposition of a contingent deferred sales charge, although contingent deferred
sales charges may apply to the Class A shares acquired through an exchange.
For federal income tax purposes, the amount of the contingent deferred sales
charge will reduce the gain or increase the loss, as the case may be, on the
amount realized on the redemption. The amount of any contingent deferred sales
charge will be paid to Mitchell Hutchins.
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PaineWebber Tactical Allocation Fund
REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group
of related Fund investors purchases Class A shares of the Fund concurrently
with Class A shares of other PaineWebber mutual funds, the purchases may be
combined to take advantage of the reduced sales charge applicable to larger
purchases. In addition, the right of accumulation permits a Fund investor or
eligible group of related Fund investors to pay the lower sales charge
applicable to larger purchases by basing the sales charge on the dollar amount
of Class A shares currently being purchased, plus the net asset value of the
investor's or group's total existing Class A shareholdings in other
PaineWebber mutual funds.
An "eligible group of related Fund investors" includes an individual, the
individual's spouse, parents and children, the individual's individual
retirement account ("IRA"), certain companies controlled by the individual and
employee benefit plans of those companies, and trusts or Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act accounts created by the individual
or eligible group of individuals for the benefit of the individual and/or the
individual's spouse, parents or children. The term also includes a group of
related employers and one or more qualified retirement plans of such
employers. For more information, an investor should consult the Statement of
Additional Information or contact a PaineWebber investment executive or
correspondent firm or the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price of
the Class B shares of the Fund is the next determined net asset value, and no
initial sales charge is imposed. A contingent deferred sales charge, however,
is imposed upon certain redemptions of Class B shares.
Class B shares that are redeemed will not be subject to a contingent deferred
sales charge to the extent that the value of such shares represents (1)
reinvestment of dividends or capital gain distributions or (2) shares redeemed
more than six years after their purchase. Otherwise, redemptions of Class B
shares will be subject to a contingent deferred sales charge. The amount of
any applicable contingent deferred sales charge will be calculated by
multiplying the lower of (a) the net asset value of the shares at the time of
purchase or (b) the net asset value of the shares at the time of redemption by
the applicable percentage shown in the following table:
CONTINGENT
DEFERRED
REDEMPTION SALES CHARGE
DURING APPLICABLE
- ---------- ------------
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
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the
reinvestment of dividends and capital gain distributions and finally of other
shares held by the shareholder for the longest period of time. The holding
period of Class B shares acquired through an exchange with another PaineWebber
mutual fund will be calculated from the date that the Class B shares were
initially acquired in one of the other PaineWebber funds, and Class B shares
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution reinvestments in such
other funds. This will result in any contingent deferred sales charge being
imposed at the lowest possible rate. For federal income tax purposes, the
amount of the contingent deferred sales charge will reduce the gain or
increase the loss, as the case may be, realized on the redemption. The amount
of any contingent deferred sales charge will be paid to Mitchell Hutchins.
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge
will be waived for exchanges, as described below, and for redemptions in
connection with the Fund's systematic withdrawal plan. In addition, the
contingent deferred sales charge will be waived for a total or partial
redemption made within one year of the death of the shareholder. The
contingent deferred sales charge waiver is available where the decedent is
either the sole shareholder or owns the shares with his or her spouse as a
joint tenant with right of survivorship. This waiver applies only to
redemption of shares held at the time of death. The contingent deferred sales
charge will also be waived in connection with a lump-sum or other distribution
in the case of an IRA, a self-employed individual retirement plan (so-called
"Keogh Plan") or a custodial account under Section 403(b) of the Internal
Revenue
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PaineWebber Tactical Allocation Fund
Code following attainment of age 59 1/2; any total or partial redemption
resulting from a distribution following retirement in the case of a tax-
qualified retirement plan; and a redemption resulting from a tax-free return
of an excess contribution to an IRA.
Contingent deferred sales charge waivers will be granted subject to
confirmation (by PaineWebber in the case of shareholders who are PaineWebber
clients or by the Transfer Agent in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.
PURCHASES OF CLASS C SHARES. The public offering price of the Class C shares
is the next determined net asset value. No initial or contingent deferred
sales charge is imposed.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. If a shareholder redeems
Class C shares within a year after the date of the purchase, a contingent
deferred sales charge will be applied to the redemption. The contingent
deferred sales charge on Class C shares will be equal to 1.00% of the lower
of: (a) the net asset value of the shares at the time of purchase or (b) the
net asset value of the shares at the time of redemption. Class C shares of the
Fund held one year or longer and Class C shares of the Fund acquired through
reinvestment of dividends or capital gains distributions will not be subject
to the contingent deferred sales charge. The contingent deferred sales charge
for Class C shares of the Fund will be waived for redemptions in connection
with the systematic withdrawal plan, subject to the limitations described
below under "Other Services and Information--Systematic Withdrawal Plan." This
contingent deferred sales charge does not apply to redemptions of Class C
shares purchased prior to November 10, 1995.
Class C shares of the Fund that are purchased without a sales charge may be
exchanged for Class C shares of another PaineWebber mutual fund without the
imposition of a contingent deferred sales charge, although contingent deferred
sales charges may apply to the Class C shares acquired through an exchange.
For federal income tax purposes, the amount of the contingent deferred sales
charge will reduce the gain or increase the loss, as the case may be, on the
amount realized on the redemption. The amount of any contingent deferred sales
charge will be paid to Mitchell Hutchins.
- -------------------------------------------------------------------------------
Exchanges
- -------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of the corresponding Class of
the PaineWebber mutual funds listed below, or may be acquired through an
exchange of shares of the corresponding Class of those funds. No initial sales
charge is imposed on the shares being acquired, and no contingent deferred
sales charge is imposed on the shares being disposed of, through an exchange.
However, contingent deferred sales charges may apply to redemptions of Class B
shares of PaineWebber mutual funds acquired through an exchange. Exchanges may
be subject to minimum investment requirements of the fund into which exchanges
are made.
Exchanges are permitted between the Fund and other PaineWebber mutual funds,
including:
INCOME FUNDS
. PW Global Income Fund
. PW High Income Fund
. PW Investment Grade Income Fund
. PW Low Duration U.S. Government Income Fund
. PW Strategic Income Fund
. PW U.S. Government Income Fund
TAX-FREE INCOME FUNDS
. PW California Tax-Free Income Fund
. PW Municipal High Income Fund
. PW National Tax-Free Income Fund
. PW New York Tax-Free Income Fund
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PaineWebber Tactical Allocation Fund
GROWTH FUNDS
. PW Capital Appreciation Fund
. PW Emerging Markets Equity Fund
. PW Global Equity Fund
. PW Growth Fund
. PW Financial Services Growth Fund
. PW Small Cap Value Fund
. PW Small Cap Growth Fund
GROWTH AND INCOME FUNDS
. PW Balanced Fund
. PW Growth and Income Fund
. PW Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms unless the shares to be exchanged
are held in certificated form. Shareholders who are not PaineWebber clients or
who hold their shares in certificated form must place exchange orders in
writing with the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds,
P.O. Box 8950, Wilmington, Delaware 19899. All exchanges will be effected
based on the relative net asset values per share next determined after the
exchange order is received at PaineWebber's New York City offices or by the
Transfer Agent. See "Valuation of Shares." Shares of the Fund purchased
through PaineWebber or its correspondent firms may be exchanged only after the
settlement date has passed and payment for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice when such notice is
required by SEC rules. See the Statement of Additional Information for further
details. This exchange privilege is available only in those jurisdictions
where the sale of the PaineWebber mutual fund shares to be acquired may be
legally made. Before making any exchange, shareholders should contact their
PaineWebber investment executives or correspondent firms or the Transfer Agent
to obtain more information and prospectuses of the PaineWebber mutual funds to
be acquired through the exchange.
- -------------------------------------------------------------------------------
Redemptions
- -------------------------------------------------------------------------------
As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid after receipt of a redemption request as described
below. PaineWebber clients may redeem non-certificated shares through
PaineWebber or its correspondent firms; all other shareholders must redeem
through the Transfer Agent. If a redeeming shareholder owns shares of more
than one Class, the shares will be redeemed in the following order unless the
shareholder specifically requests otherwise: Class C shares, then Class A
shares, and finally Class B shares.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients may
submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent,
PaineWebber may honor a redemption request by repurchasing Fund shares from a
redeeming shareholder at the shares' net asset value next determined after
receipt of the request by PaineWebber's New York City offices. Within three
Business Days after receipt of the request, repurchase proceeds (less any
applicable contingent deferred sales charge) will be paid by check or credited
to the shareholder's brokerage account at the election of the shareholder.
PaineWebber investment executives and correspondent firms are responsible for
promptly forwarding redemption requests to PaineWebber's New York City
offices.
PaineWebber reserves the right not to honor any redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem
their shares through the Transfer Agent by mail; other shareholders also may
redeem Fund shares through the Transfer Agent. Shareholders should mail
redemption
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Prospectus Page 21
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PaineWebber Tactical Allocation Fund
requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in "good
order" and redemption proceeds will be paid within seven days of the receipt
of the request. "Good order" means that the request must be accompanied by the
following: (1) a letter of instruction or a stock assignment specifying the
number of shares or amount of investment to be redeemed (or that all shares
credited to a Fund account be redeemed), signed by all registered owners of
the shares in the exact names in which they are registered, (2) a guarantee of
the signature of each registered owner by an eligible institution acceptable
to the Transfer Agent and in accordance with SEC rules, such as a commercial
bank, trust company or member of a recognized stock exchange, (3) other
supporting legal documents for estates, trusts, guardianships, custodianships,
partnerships and corporations and (4) duly endorsed share certificates, if
any. Shareholders are responsible for ensuring that a request for redemption
is received in "good order."
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds non-
certificated Fund shares may have redemption proceeds of $1 million or more
wired to the shareholder's PaineWebber brokerage account or a commercial bank
account designated by the shareholder. Questions about this option, or
redemption requirements generally, should be referred to the shareholder's
PaineWebber investment executive or correspondent firm, or to the Transfer
Agent if the shares are not held in a PaineWebber brokerage account. If a
shareholder requests redemption of shares which were purchased recently, the
Fund may delay payment until it is assured that good payment has been
received. In the case of purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $500 net asset value. If the Fund elects to
do so, it will notify the shareholder and provide the shareholder the
opportunity to increase the amount invested to $500 or more within 60 days of
the notice. The Fund will not redeem accounts that fall below $500 solely as a
result of a reduction in net asset value per share.
Shareholders who have redeemed Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount redeemed by purchasing Class A
Fund shares within 365 days of the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their PaineWebber investment
executive or correspondent firm at the time the privilege is exercised.
- -------------------------------------------------------------------------------
Conversion of Class B Shares
- -------------------------------------------------------------------------------
A shareholder's Class B shares will automatically convert to Class A shares
approximately six years after the date of issuance, together with a pro rata
portion of all Class B shares representing dividends and other distributions
paid in additional Class B shares. The Class B shares so converted will no
longer be subject to the higher expenses borne by Class B shares. The
conversion will be effected at the relative net asset values per share of the
two Classes on the first Business Day of the month in which the sixth
anniversary of the issuance of the Class B shares occurs. See "Valuation of
Shares." If a shareholder effects one or more exchanges among Class B shares
of the PaineWebber mutual funds during the six-year period, the holding
periods for the shares so exchanged will be counted toward the six-year
period.
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Prospectus Page 22
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PaineWebber Tactical Allocation Fund
Other Services and Information
- -------------------------------------------------------------------------------
Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund
through an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost
averaging." When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net
asset value per share is low and fewer shares when the net asset value per
share is high. Using this technique, a shareholder's average purchase price
per share over any given period will be lower than if the shareholder
purchased a fixed number of shares on a monthly basis during the period. Of
course, investing through the automatic investment plan does not assure a
profit or protect against loss in declining markets. Additionally, since the
automatic investment plan involves continuous investing regardless of price
levels, an investor should consider his or her financial ability to continue
purchases through periods of low price levels.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own Class A or Class C shares
with a value of $5,000 or more or non-certificated Class B shares with a value
of $20,000 or more may have PaineWebber redeem a portion of their shares
monthly, quarterly or semi-annually under the systematic withdrawal plan. No
contingent deferred sales charge will be imposed on such withdrawals for Class
B shares. The minimum amount for all withdrawals of Class A or Class C shares
is $100, and minimum monthly, quarterly and semi-annual withdrawal amounts for
Class B shares are $200, $400 and $600, respectively. Quarterly withdrawals
are made in March, June, September and December, and semi-annual withdrawals
are made in June and December. A Class B shareholder may not withdraw an
amount exceeding 12% annually of his or her "Initial Account Balance," a term
that means the value of the Fund account at the time the shareholder elects to
participate in the systematic withdrawal plan. A shareholder's participation
in the systematic withdrawal plan will terminate automatically if the Initial
Account Balance (plus the net asset value on the date of purchase of Fund
shares acquired after the election to participate in the systematic withdrawal
plan), less aggregate redemptions made other than pursuant to the systematic
withdrawal plan, is less than $20,000 in the case of Class B shares and $5,000
in the case of Class A or Class C shares. No contingent deferred sales charge
will be imposed on such withdrawals within the first year after purchase for
Class A shares purchased pursuant to the sales charge waiver for purchases of
$1 million or more or Class C shares, provided that the Class A or Class C
shareholder does not withdraw an amount exceeding 12% in the first year after
purchase of his or her Initial Account Balance. Shareholders who receive
dividends or other distributions in cash may not participate in the systematic
withdrawal plan. Purchases of additional Fund shares concurrently with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A shares, sales charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Fund may be purchased through
IRAs available through the Fund. In addition, a Self-Directed IRA is available
through PaineWebber under which investments may be made in the Fund as well as
in other investments available through PaineWebber. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS. If a shareholder holding shares of the Fund in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares normally will be transferred to an account with the Transfer
Agent. However, if the other firm has entered into a selected dealer agreement
with Mitchell Hutchins relating to the Fund, the shareholder may be able to
hold Fund shares in an account with the other firm.
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Prospectus Page 23
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PaineWebber Tactical Allocation Fund
Dividends, Distributions and Taxes
- -------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund pays dividends from its net investment
income quarterly. The Fund distributes annually substantially all of its net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) and net short-term capital gain, if any. Unless a shareholder
instructs the Fund that dividends and capital gains distributions on shares of
any Class should be paid in cash and credited to the shareholder's Account,
dividends and capital gains distributions are reinvested automatically at net
asset value in additional shares of the same Class. The Fund is subject to a
4% nondeductible excise tax measured with respect to certain undistributed
amounts of net investment income and capital gains. If necessary to avoid the
imposition of this tax, and if in the best interests of its shareholders, the
Fund will declare and pay dividends of its net investment income and
distributions of its net capital gains more frequently than stated above. The
per share dividends and distributions on Class A shares are higher than those
on Class B and Class C shares, as a result of the distribution fees borne by
Class B and Class C shares. Dividends on each Class also might be affected
differently by the allocation of other Class-specific expenses. See "Fee
Table," "Purchase of Shares," "Distributor" and "General Information."
TAXES. The Fund has qualified for the fiscal year ended August 31, 1995 to be
treated as a regulated investment company within the meaning of the Code and
intends to qualify for this treatment for each year. To qualify as a regulated
investment company for federal income tax purposes, the Fund limits its income
and investments so that (1) less than 30% of its gross income is derived from
the sale or disposition of stocks, other securities and certain financial
instruments (including certain forward contracts) that were held for less than
three months and (2) at the close of each quarter of the taxable year (a) not
more than 25% of the market value of the Fund's total assets is invested in
the securities (other than Government Securities) of a single issuer or of two
or more issuers controlled by the Fund that are engaged in the same or similar
trades or businesses or in related trades or businesses and (b) at least 50%
of the market value of the Fund's total assets is represented by (i) cash and
cash items, (ii) Government Securities and (iii) other securities limited in
respect of any one issuer to an amount not greater in value than 5% of the
market value of the Fund's total assets and to not more than 10% of the
outstanding voting securities of the issuer. The requirements for
qualification may cause the Fund to restrict the degree to which it sells or
otherwise disposes of stocks, other securities and certain financial
instruments held for less than three months. If the Fund qualifies as a
regulated investment company and meets certain distribution requirements, the
Fund will not be subject to federal income tax on its net investment income
and net realized capital gains that it distributes to its shareholders.
Dividends paid by the Fund out of net investment income and distributions of
net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of how long shareholders
have held their shares and whether the distributions are received in cash or
reinvested in additional shares. Dividends and distributions paid by the Fund
generally do not qualify for the federal dividends received deduction for
corporate shareholders.
Statements as to the tax status of each Fund shareholder's dividends and
distributions are mailed annually. Shareholders also receive, as appropriate,
various written notices after the close of the Fund's taxable year regarding
the tax status of certain dividends and distributions that were paid (or that
are treated as having been paid) by the Fund to its shareholders during the
preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.
Shareholders are urged to consult their tax advisors regarding the application
of federal, state, local and foreign tax laws to their specific situations
before investing in the Fund.
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Prospectus Page 24
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PaineWebber Tactical Allocation Fund
Valuation of Shares
- -------------------------------------------------------------------------------
Each Class' net asset value per share is calculated by State Street Bank and
Trust Company, the Fund's custodian, on each day, Monday through Friday,
except that net asset value is not computed on a day in which no orders to
purchase, sell, exchange or redeem Fund shares have been received, any day on
which there is not sufficient trading in the Fund's portfolio securities that
the Fund's net asset values per share might be materially affected by changes
in the value of such portfolio securities or on days on which the NYSE is not
open for trading. The NYSE is currently scheduled to be closed on New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday when one of those
holidays falls on a Saturday or on the subsequent Monday when one of those
holidays falls on a Sunday.
Net asset value per share of a Class is determined as of the close of regular
trading on the NYSE, and is computed by dividing the value of the Fund's net
assets attributable to that Class by the total number of shares outstanding of
that Class. Generally, the Fund's investments are valued at market value or,
in the absence of a market value, at fair value as determined by or under the
direction of the Trustees.
A security that is primarily traded on a stock exchange is valued at the last
sale price on that exchange or, if no sales occurred during the day, at the
current quoted bid price. Short-term investments that mature in 60 days or
less are valued on the basis of amortized cost (which involves valuing an
investment at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the investment) when the Board of
Trustees has determined that amortized cost represents fair value. An option
that is written by the Fund is generally valued at the last sale price or, in
the absence of the last sale price, the last offer price. An option that is
purchased by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. The value of a futures
contract is equal to the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract. A settlement price may
not be used if the market makes a limit move with respect to a particular
futures contract or if the securities underlying the futures contract
experience significant price fluctuations after the determination of the
settlement price. When a settlement price cannot be used, futures contracts
will be valued at their fair market value as determined by or under the
direction of the Board of Trustees.
- -------------------------------------------------------------------------------
Management
- -------------------------------------------------------------------------------
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's day-
to-day management. Mitchell Hutchins, the Fund's investment adviser and
administrator, supervises all aspects of the Fund's operations. Mitchell
Hutchins receives a monthly fee for its services, computed daily and payable
monthly, at an annual rate of 0.50% of the Fund's average daily net assets on
assets up to but not including $250 million and 0.45% thereafter.
The Fund incurs other expenses and, for the fiscal year ended August 31, 1995,
the Fund's total expenses for its Class A and Class C shares, stated as a
percentage of average net assets were 1.46% and 2.22%, respectively.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company.
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Prospectus Page 25
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PaineWebber Tactical Allocation Fund
As of November 30, 1995, Mitchell Hutchins was adviser or subadviser of 38
investment companies with 70 separate portfolios and aggregate assets of over
$29.6 billion.
As the Fund's investment adviser, Mitchell Hutchins manages the Fund's
portfolio in accordance with the investment objective and stated policies of
the Fund and makes investment decisions for the Fund. Mitchell Hutchins also
provides the Fund with investment officers who are authorized by the Trustees
to determine purchases and sales of securities on behalf of the Fund and
employs a professional staff of portfolio managers who draw upon a variety of
sources for research information for the Fund.
T. Kirkham Barneby is responsible for the asset allocation decisions for the
Fund. Mr. Barneby is a Managing Director and Chief Investment Officer--
Quantitative Investments of Mitchell Hutchins. Mr. Barneby rejoined Mitchell
Hutchins in 1994, after being with Vantage Global Management for one year.
During the eight years that Mr. Barneby was previously with Mitchell Hutchins,
he was Senior Vice President responsible for quantitative management and asset
allocation models. Before joining Mitchell Hutchins, Mr. Barneby served as
Director of Pension Investment Strategy at the Continental Group in Stamford,
Connecticut and has held positions in the Economics Department at both
Citibank, N.A. and Merrill Lynch.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by Mitchell Hutchins, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by Mitchell Hutchins are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales are allocated in a manner believed by Mitchell
Hutchins to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or disposed of by the Fund.
Mitchell Hutchins investment personnel may engage in securities transactions
for their own accounts pursuant to each firm's code of ethics that establishes
procedures for personal investing and restricts certain transactions.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of Fund shares
and has appointed PaineWebber as the exclusive dealer for the sale of those
shares. Under separate plans of distribution pertaining to the Class A shares,
Class B shares and Class C shares ("Class A Plan," "Class B Plan" and "Class C
Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins monthly service
fees at the annual rate of 0.25% of the average daily net assets of each Class
of shares. The Fund pays Mitchell Hutchins monthly distribution fees at the
annual rate of 0.75% of the average daily net assets of the Class B shares and
Class C shares.
Under all three Plans, Mitchell Hutchins uses the service fees primarily to
pay PaineWebber for shareholder servicing, currently at the annual rate of
0.25% of the aggregate investment amounts maintained in the Fund by
PaineWebber clients. PaineWebber passes on a portion of these fees to its
investment executives to compensate them for shareholder servicing that they
perform and retains the remainder to offset its own expenses in servicing and
maintaining shareholder accounts. These expenses may include costs of the
PaineWebber branch office in which the investment executive is based, such as
rent, communications equipment, employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class C shares. PaineWebber passes on to its investment executives
a portion of these commissions and retains the remainder to offset its
expenses in selling Class B and Class C shares. These expenses may include the
branch office costs noted above. In addition, Mitchell Hutchins uses the
distribution fees under the Class B and Class C Plans to offset the Fund's
marketing costs attributable to such Classes, such as preparation of sales
literature, advertising and printing and distributing prospectuses and other
shareholder materials to prospective investors. Mitchell Hutchins also may use
the distribution fees to pay additional compensation to PaineWebber and other
costs allocated to Mitchell Hutchins' and PaineWebber's distribution
activities, including employee salaries, bonuses and other overhead expenses.
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PaineWebber Tactical Allocation Fund
Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class C shares of the Fund. If PaineWebber makes such
payments, it will retain the service and distribution fees on Class C shares
until it has been reimbursed for its sales commissions and thereafter will
pass a portion of the service and distribution fees on Class C shares on to
its investment executives.
Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions of Class B shares, and may use these proceeds for any
of the distribution expenses described above. See "Purchases."
During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of shares ("Distribution Contracts")
obligate the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses
exceed its service or distribution fees, the Fund will not be obligated to pay
more than those fees and, if Mitchell Hutchins' expenses are less than such
fees, it will retain its full fees and realize a profit. The Fund will pay the
service and distribution fees to Mitchell Hutchins until either the applicable
Plan or Distribution Contract is terminated or not renewed. In that event,
Mitchell Hutchins' expenses in excess of service and distribution fees
received or accrued through the termination date will be Mitchell Hutchins'
sole responsibility and not obligations of the Fund. In their annual
consideration of the continuation of the Fund's Plans, the board of trustees
will review the Plan and Mitchell Hutchins' corresponding expenses for each
Class separately from the Plans and corresponding expenses for the other two
Classes.
- -------------------------------------------------------------------------------
Performance Information
- -------------------------------------------------------------------------------
The Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for Class A
shares reflects deduction of the Fund's maximum initial sales charge at the
time of purchase, and standardized return for Class B and Class C shares
reflect deduction of the applicable contingent deferred sales charge imposed
on a redemption of shares held for the period. One-, five-and ten-year periods
will be shown, unless the class has been in existence for a shorter period.
Total return calculations assume reinvestment of dividends and other
distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average
annual rates, actual year-by-year rates or any combination thereof. Non-
standardized return does not reflect initial or contingent deferred sales
charges and would be lower if such charges were included.
The Fund will include performance data for Class A, Class B and Class C shares
in any advertisements or promotional materials including Fund performance
data. Total return and yield information reflects past performance and does
not necessarily indicate future results. Investment return and principal
values will fluctuate, and proceeds upon redemption may be more or less than a
shareholder's cost.
-------------
Prospectus Page 27
<PAGE>
-------------------------------
PaineWebber Tactical Allocation Fund
General Information
- -------------------------------------------------------------------------------
ORGANIZATION OF THE TRUST. The Trust was formed as a business trust pursuant
to a Declaration of Trust, as amended from time to time (the "Declaration"),
under the laws of The Commonwealth of Massachusetts on March 28, 1991. The
Fund commenced operations on July 22, 1992. The Declaration authorizes the
Trust's Board of Trustees to create separate series, and within each series
separate Classes, of an unlimited number of shares of beneficial interest, par
value $.001 per share. As of the date of this Prospectus, the Trustees have
established several such series, representing interests in the Fund described
in this Prospectus and in several other series.
When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion
rights. Each Class represents an identical interest in the Fund's investment
portfolio. As a result, the Classes have the same rights, privileges and
preferences, except with respect to: (1) the designation of each Class; (2)
the effect of the respective sales charges, if any, for each Class; (3) the
distribution and/or service fees, if any, borne by each Class; (4) the
expenses allocable exclusively to each Class; (5) voting rights on matters
exclusively affecting a single Class; and (6) the exchange privilege of each
Class. The Board of Trustees does not anticipate that there will be any
conflicts among the interests of the holders of the different Classes. The
Trustees, on an ongoing basis, will consider whether any conflict exists and,
if so, take appropriate action. Certain aspects of the shares may be changed,
upon notice to Fund shareholders, to satisfy certain tax regulatory
requirements, if the change is deemed necessary by the Trustees.
Shareholders of the Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, as a result, the holders of more than 50% of the aggregate shares of the
Trust may elect all of the Trustees. Generally, shares of the Trust will be
voted on a Trust-wide basis on all matters except those affecting only the
interests of one series, such as the Fund's management and investment advisory
agreement.
In turn, shares of the Fund will be voted on a Fund-wide basis on all matters
except those affecting only the interests of one Class, such as the terms of the
Plan as it relates to a Class.
The Trust intends to hold no annual meetings of shareholders for the purpose
of electing Trustees unless, and until such time as, less than a majority of
the Trustees holding office have been elected by shareholders. Shareholders of
record of no less than two-thirds of the outstanding shares of the Trust may
remove a Trustee through a declaration in writing or by vote cast in person or
by proxy at a meeting called for that purpose. A meeting will be called for
the purpose of voting on the removal of a Trustee at the written request of
holders of 10% of the Trust's outstanding shares. Shareholders of the Fund who
satisfy certain criteria will be assisted by the Trust in communicating with
other shareholders in seeking the holding of the meeting.
To avoid additional operating costs and for investor convenience, the Fund
does not issue share certificates. Ownership of the Fund's shares is recorded
on a stock register by the Transfer Agent and shareholders have the same
rights of ownership with respect to such shares as if certificates had been
issued.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is the custodian of the
Fund's assets. PFPC Inc., a subsidiary of PNC Bank, National Association,
whose principal business address is 400 Bellevue Parkway, Wilmington, Delaware
19809, is the Fund's transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of Fund shares. PaineWebber clients receive statements at
least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.
-------------
Prospectus Page 28
<PAGE>
Application Form
THE PAINEWEBBER
MUTUAL FUNDS [_][_]-[_][_][_][_][_]-[_][_]
PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).
ALSO, DO NOT USE THIS FORM TO OPEN A Return this completed
RETIREMENT PLAN ACCOUNT. FOR form to: PFPC Inc. P.O.
RETIREMENT PLAN FORMS OR FOR Box 8950 Wilmington,
ASSISTANCE IN COMPLETING THIS FORM Delaware 19899 ATTN:
CONTACT PFPC INC. AT 1-800-647-1568. PaineWebber Mutual Funds
PLEASE PRINT
- --------------------------------------------------------------------------------
1 INITIAL INVESTMENT ($1,000 Minimum)
ENCLOSED IS A CHECK FOR:
$ (payable to PaineWebber Tactical Allocation Fund) to
purchase Class A [_] Class B [_] or Class C [_] shares
(Check one; if no Class is specified, Class A shares will be
purchased)
2 ACCOUNT REGISTRATION
Not valid 1. Individual ________________ _______________ ____/____/____
without First Name Last Name MI Soc. Sec. No.
signature and
Soc. Sec. or 2. Joint Tenancy _____________ _______________ ____/____/____
Tax ID # on First Name Last Name MI Soc. Sec. No.
accompanying ("Joint Tenants with Rights of Survivorship"
Form W-9 unless otherwise specified)
- --As joint 3. Gifts to Minors ___________________________ ____/____/____
tenants, use Minor's Name Soc. Sec. No.
Lines 1 and 2
Under the ____________________________________
- --As custodian State of Residence of Minor
for a minor, Uniform Gifts to Minors Act/
use Lines 1 Uniform Transfers to Minors Act
and 3
4. Other Registrations _______________________ _______________
- --In the name Name Tax Ident. No.
of a
corporation, 5. If Trust, Date of
trust or other Trust Instrument: _______ ____________________________________
organization
or any
fiduciary
capacity, use
Line 4
3 ADDRESS
____________________________________ U.S. Citizen
Street [_] Yes [_] No*
____________________________________ _______________________
City State Zip Code *Country of Citizenship
4 DISTRIBUTION OPTIONS (See Prospectus)
Please select one of the following:
[_] Reinvest both dividends and capital gain distributions in
additional shares
[_] Pay dividends to my address above; reinvest capital gain
distributions
[_] Pay both dividends and capital gain distributions in cash
to my address above
Reinvest dividends and pay capital gain distributions in
cash to my address above NOTE: If a selection is not made,
both dividends and capital gain distributions will be paid
in additional Fund shares of the same Class.
5 SPECIAL OPTIONS (For More Information--Check Appropriate Box)
[_] Prototype IRA Application
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
<PAGE>
6 RIGHTS OF ACCUMULATION--CLASS A SHARES (See Prospectus)
Indicate here any other account(s) in
the group of funds that qualify for the
cumulative quantity discount as outlined
in the Prospectus.
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
7 PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
"Affiliated" persons are defined as officers, directors/trustees
and employees of the PaineWebber funds, PaineWebber or its
affiliates, and their parents, spouses and children.
-----------------------------------------------
Nature of Relationship
8 SIGNATURE (S) AND TAX CERTIFICATION
I Warrant that I have full authority and am of legal age to
purchase shares of the Fund(s) specified and read a current
Prospectus of the Fund(s) and agree to its terms. The Fund(s) and
their Transfer Agent will not be liable for acting upon
instructions or inquiries believed genuine. Under penalties of
perjury, I certify that (1) my taxpayer identification number
provided in this application is correct and (2) I am not subject
to backup withholding because (i) I have not been notified that I
am subject to backup withholding as a result of failure to report
interest or dividends or (ii) the IRS has notified me that I am
no longer subject to backup withholding (strike out clause (2) if
incorrect).
--------------------------- ------------------------- -------
Individual (or custodian) Joint Registrant (if any) Date
--------------------------- ------------------------- -------
Corporate Officer, Partner, Title Date
Trustee, etc.
9 INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By
Investment Executive Only)
-------------------------- --------------------------
Broker No./Name Branch Wire Code
( )
-------------------------- --------------------------
Branch Address Telephone
10 CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By
Correspondent Firm Only)
-------------------------- --------------------------
Name Address
--------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX 8950, WILMINGTON,
DELAWARE 19899.
<PAGE>
- --------------------------------------------------------------------------------
PaineWebber Tactical Allocation Fund
Prospectus -- January 1, 1996 (As Supplemented May 6, 1996)
- --------------------------------------------------------------------------------
Shares of the Fund can be exchanged for shares of the following PaineWebber
Mutual Funds:
. INCOME FUNDS . GROWTH FUNDS
PW Global Income Fund PW Capital Appreciation Fund
PW High Income Fund PW Emerging Markets Equity Fund
PW Investment Grade Income Fund PW Global Equity Fund
PW Low Duration U.S. Government PW Growth Fund
Income Fund PW Financial Services Growth Fund
PW Strategic Income Fund PW Small Cap Value Fund
PW U.S. Government Income Fund PW Small Cap Growth Fund
. TAX-FREE INCOME FUNDS . GROWTH AND INCOME FUNDS
PW California Tax-Free Income Fund PW Balanced Fund
PW Municipal High Income Fund PW Growth and Income Fund
PW National Tax-Free Income Fund PW Utility Income Fund
PW New York Tax-Free Income Fund
. PAINEWEBBER MONEY MARKET FUND
A prospectus containing more complete information for any of the above
funds, including charges and expenses, can be obtained from a PaineWebber
investment executive or correspondent firm. Read the prospectus carefully
before investing.
(C) 1996 PaineWebber Incorporated
- --------------------------------------------------------------------------------
