MITCHELL HUTCHINS KIDDER PEABODY INVESTMENT TRUST, 485APOS, 1996-05-02

MITCHELL HUTCHINS KIDDER PEABODY INVESTMENT TRUST
485APOS, 1996-05-02

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<PAGE>

As filed with the Securities and Exchange Commission on May 2, 1996
1933 Act Registration No. 33-39659
1940 Act Registration No. 811-6292

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-lA

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
-----

Pre-Effective Amendment No.____ [_____]
Post-Effective Amendment No. 14 [ X ]
---- -----

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ X ]
-----

Amendment No. 15
----

(Check appropriate box or boxes.)

PAINEWEBBER INVESTMENT TRUST
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)

Registrant's telephone number, including area code: (212) 713-2000

DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)

Copies to:

ELINOR W. GAMMON, ESQ.
RICHARD C. MILLER, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone (202) 778-9000

It is proposed that this filing will become effective:

_____ Immediately upon filing pursuant to Rule 485(b)
-----
_____ On ___________________ pursuant to Rule 485(b)
-----
_____ 60 days after filing pursuant to Rule 485(a)(i)
-----
X On July 1, 1996 pursuant to Rule 485(a)(i)
----- -------------------
_____ 75 days after filing pursuant to Rule 485(a)(ii)
-----
_____ On ___________________ pursuant to Rule 485(a)(ii)
-----

Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The notice required by such rule for the Registrant's
fiscal year ended August 31, 1995 was filed on October 30, 1995.
<PAGE>

PAINEWEBBER TACTICAL ALLOCATION FUND

Contents of Registration Statement

This registration statement consists of the following papers and documents:

. Cover Sheet

. Contents of Registration Statement

. Cross Reference Sheets

. PaineWebber Tactical Allocation Fund - Class A, B and C Shares
--------------------------------------------------------------

Part A - Prospectus

Part B - Statement of Additional Information

. PaineWebber Tactical Allocation Fund - Class Y Shares
-----------------------------------------------------

Part A - Prospectus

Part B - Statement of Additional Information

. Part C - Other Information

. Signature Page

. Exhibits

This filing is made to update the Class A, B and C Prospectus and
Statement of Additional Information and to introduce the Class Y Prospectus
and Statement of Additional Information of PaineWebber Tactical Allocation
Fund. No changes are hereby made to the Prospectus or Statement of Additional
Information of PaineWebber Global Equity Fund, the second series of
PaineWebber Investment Trust.
<PAGE>

PAINEWEBBER TACTICAL ALLOCATION FUND

Class A, B and C Shares

Form N-lA Cross Reference Sheet
<TABLE>
<CAPTION>

Part A Item No.
and Caption Prospectus Caption
---------------------------------- --------------------------------
<C> <S> <C>
1. Cover Page........................ Cover Page
2. Synopsis.......................... Expense Table
3. Condensed Financial Information... Financial Highlights;
Performance
4. General Description of
Registrant........................ The Funds at a Glance;
Investment Objective and
Policies; Investment
Philosophy and Process; The
Funds' Investments; General
Information
5. Management of the Fund............ Management; General
Information
6. Capital Stock and Other
Securities........................ Cover Page; Flexible
Pricing;
Dividends and Taxes; General
Information
7. Purchase of Securities Being
Offered........................... Flexible Pricing; How to Buy
Shares; Other Services;
Determining the Shares' Net
Asset Value
8. Redemption or Repurchase.......... How to Sell Shares; Other
Services
9. Pending Legal Proceedings......... Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
---------------------------------- --------------------------------
<C> <S> <C>
10. Cover Page........................ Cover Page
11. Table of Contents................. Table of Contents
12. General Information and History... Other Information
13. Investment Objectives and
Policies.......................... Investment Policies and
Restrictions; Hedging
Strategies; Portfolio
Transactions
14. Management of the Fund............ Directors, Trustees and
Officers; Compensation Table
15. Control Persons and Principal
Holders of Securities............. Directors,Trustees and Officers

16. Investment Advisory and Other
Services.......................... Investment Advisory and
Distribution Arrangements;
Other Information
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
---------------------------------- -----------------------------
<C> <S> <C>
17. Brokerage Allocation.............. Portfolio Transactions
18. Capital Stock and Other
Securities........................ Conversion of Class B
Shares; Other Information
19. Purchase, Redemption and Pricing
of Securities Being Offered....... Reduced Sales Charges,
Additional Exchange and
Redemption Information and
Other Services; Valuation of
Shares
20. Tax Status........................ Taxes
21. Underwriters...................... Investment Advisory and
Distribution Arrangements
22. Calculation of Performance Data... Performance Information
23. Financial Statements.............. Financial Statements
</TABLE>

Part C
------

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>

PAINEWEBBER TACTICAL ALLOCATION FUND

Class Y Shares

Form N-lA Cross Reference Sheet
<TABLE>
<CAPTION>

Part A Item No.
and Caption Prospectus Caption
---------------------------------- ---------------------------------
<C> <S> <C>
1. Cover Page........................ Cover Page
2. Synopsis.......................... Expense Table
3. Condensed Financial Information... Financial Highlights;
Performance
4. General Description of
Registrant........................ The Funds at a Glance;
Investment Objective and
Policies; Investment
Philosophy and Process; The
Funds' Investments; General
Information
5. Management of the Fund............ Management; General
Information
6. Capital Stock and Other
Securities........................ Cover Page; Dividends and
Taxes; General Information
7. Purchase of Securities Being
Offered........................... How to Buy Shares;
Determining the Shares'
Net Asset Value
8. Redemption or Repurchase.......... How to Sell Shares; Other
Services
9. Pending Legal Proceedings......... Not Applicable
</TABLE>

<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
---------------------------------- --------------------------------
<C> <S> <C>
10. Cover Page........................ Cover Page
11. Table of Contents................. Table of Contents
12. General Information and History... Other Information
13. Investment Objectives and
Policies.......................... Investment Policies and
Restrictions; Hedging
Strategies; Portfolio
Transactions
14. Management of the Fund............ Directors, Trustees and
Officers; Compensation Table
15. Control Persons and Principal
Holders of Securities............. Directors, Trustees and Officers

16. Investment Advisory and Other
Services.......................... Investment Advisory and
Distribution Arrangements;
Other Information
17. Brokerage Allocation.............. Portfolio Transactions
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
---------------------------------- ------------------------------
<C> <S> <C>
18. Capital Stock and Other
Securities........................ Other Information

19. Purchase, Redemption and Pricing
of Securities Being Offered....... Valuation of Shares
20. Tax Status........................ Taxes
21. Underwriters...................... Investment Advisory and
Distribution Arrangements
22. Calculation of Performance Data... Performance Information
23. Financial Statements.............. Financial Statements
</TABLE>

Part C
------

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>

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PaineWebber

Balanced Fund

Tactical Allocation Fund

1285 Avenue of the Americas, New York, NY 10019

Prospectus -- July 1, 1996

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

The PaineWebber Asset Allocation Funds covered in this Prospectus are designed
for investors seeking high total return with low volatility. PaineWebber
Balanced Fund invests primarily in a combination of equity securities,
investment grade bonds, and money market instruments. PaineWebber Tactical
Allocation Fund invests primarily in a combination of equity securities, U.S.
Treasury Notes and U.S. Treasury Bills.

This Prospectus concisely sets forth information that a prospective investor
should know about the Funds before investing. Please read it carefully and
retain a copy of this Prospectus for future reference.

A Statement of Additional Information dated July 1, 1996 has been filed with
the Securities and Exchange Commission and is legally part of this Prospectus.
The Statement of Additional Information can be obtained without charge, and
further inquiries can be made, by contacting an individual Fund, your
investment executive at PaineWebber or one of its correspondent firms or by
calling toll-free 1-800-647-1568.

Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Funds at a Glance.................................................... 2
Expense Table............................................................ 4
Financial Highlights..................................................... 6
Investment Objective & Policies.......................................... 10
Investment Philosophy & Process.......................................... 11
Performance.............................................................. 13
The Fund's Investments................................................... 15
Flexible PricingSM....................................................... 19
How to Buy Shares........................................................ 21
How to Exchange Shares................................................... 22
How to Sell Shares....................................................... 23
Other Services........................................................... 23
Management............................................................... 24
Determining the Shares' Net Asset Value.................................. 26
Dividends & Taxes........................................................ 26
General Information...................................................... 28
</TABLE>

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

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Prospectus Page 1

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
- --------------------------------------------------------------------------------

The Funds at a Glance
------------------------------------------------------------------------------

BALANCED FUND

GOAL: To increase the value of your investment by investing in a combination of
equity securities, investment grade bonds, and money market instruments.

INVESTMENT OBJECTIVE: High total growth and income with low volatility.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities; as such, they have also shown greater volatility.
Because the Fund invests in equity securities, its price will rise and fall.
Certain investment grade securities in which the Fund may invest have
speculative characteristics. The Fund may invest in mortgage- and asset-backed
securities, which involve special risks, such as those relating to the
prepayment of principal on the underlying obligations. The Fund may invest in
U.S. dollar denominated securities of foreign companies, which involves more
risk than investing in the securities of U.S. companies. Investors may lose
money by investing in the Fund; your investment is not guaranteed.

SIZE: On , 1996, the Fund had over $ million in assets.

TACTICAL ALLOCATION FUND

GOAL: To increase the value of your investment by investing in a combination of
equity securities, U.S. Treasury Notes and U.S. Treasury Bills.

INVESTMENT OBJECTIVE: High total return, consisting of long-term capital
appreciation and current income.

RISKS: Although the Fund seeks long term total return, 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. The Fund invests in
equity securities included in the Standard and Poor's 500 Composite Stock Price
Index (the "S&P 500 Index"). Equity securities historically have shown greater
growth potential than other types of securities; as such, they have also shown
greater volatility. As a result of the Fund's investment in equity securities,
its price will rise and fall. Some of the securities in which the Fund invests
are issued by foreign companies and involve more risk than the securities of
U.S. companies. The Fund may use derivatives, such as options and futures, in
its investment activities, which may involve additional risks. Investors may
lose money by investing in the Fund; your investment is not guaranteed.

SIZE: On , 1996, the Fund had over $ million in assets.

MANAGEMENT

Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"), is the
investment adviser and administrator of the Balanced Fund and the Tactical
Allocation Fund (each a "Fund" and, collectively, the "Funds").

MINIMUM INVESTMENT

To open an account, investors need $1,000; to add to an account, investors need
only $100.

WHO SHOULD INVEST

BALANCED FUND is for investors who want high total return with low volatility
through investments in equity securities, investment grade bonds, and money
market instruments. Assets are allocated based on Mitchell Hutchins' assessment
of consensus market expectations of key economic variables and the application
of fundamental valuation techniques.

TACTICAL ALLOCATION FUND is for investors who want high total return,
consisting of long-term capital appreciation and current income, through a
systematic investment strategy that actively allocates assets among equity
securities, U.S. Treasury Notes and U.S. Treasury Bills.

These Funds are not intended to provide a complete or balanced investment
program, but one

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Prospectus Page 2
<PAGE>

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or both of them may be appropriate as a component of an investor's overall
portfolio. Some common reasons to invest in these Funds are to finance a
child's education, plan for retirement or diversify a portfolio. The Funds are
not suitable for tax-exempt institutions or qualified retirement plans, because
those investors cannot take advantage of the tax-exempt character of the Funds'
dividends. When selling shares, investors should be aware that they may get
more or less for their shares than they originally paid for them.

HOW TO PURCHASE SHARES OF THE FUNDS

Investors may select among these classes of shares:

CLASS A SHARES

The price is the net asset value plus the initial sales charge (the maximum is
4.5% of the public offering price). Although investors pay an initial sales
charge when they buy Class A shares, the ongoing expenses for this class are
lower than the ongoing expenses of Class B and Class C shares.

CLASS B SHARES

The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class B shares. As a result, 100% of their purchase is
immediately invested. Class B shares have higher ongoing expenses than Class A
shares. Depending upon how long they own the shares, investors may have to pay
a sales charge when they sell Class B shares. This sales charge is called a
"contingent deferred sales charge" and applies when investors sell their Class
B shares within six years. After six years, Class B shares convert to Class A
shares, which have lower ongoing expenses and no contingent deferred sales
charge.

CLASS C SHARES

The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class C shares, but the ongoing expenses they pay for Class C
shares are higher than for Class A shares. A contingent deferred sales charge
of 1% is charged on shares sold within one year of the purchase date. Class C
shares never convert to any other class of shares.

THE PAINEWEBBER FAMILY OF FUNDS

The PaineWebber Family of Funds consists of six broad categories, which are
presented here. Generally, investors seeking to maximize return must assume
greater risk. Balanced Fund and Tactical Allocation Fund are both in the Asset
Allocation category.

. Money Market Funds for income and stability by investing in high-quality,
short-term investments.

. Bond Funds for income by investing mainly in bonds.

. Tax-Free Bond Funds for income exempt from federal income taxes and, in some
cases, state and local income taxes, by investing in municipal bonds.

. Asset Allocation Funds for long-term growth and income by investing in stocks
and bonds.

. Growth Funds for long-term growth by investing mainly in stocks.

. Global Funds for long-term growth by investing mainly in foreign stocks or
high current income by investing mainly in global debt instruments.

------------
Prospectus Page 3
<PAGE>

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- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
- --------------------------------------------------------------------------------

Expense Table
- ------------------------------------------------------------------------------

The following tables are intended to assist investors in understanding the
expenses associated with investing in the Funds. Expenses shown below represent
those incurred for the most recent fiscal year.

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
- -------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares (as a % of
offering price)....................................... 4.5% None None
Sales Charge on Reinvested Dividends (as a % of
offering price)....................................... None None None
Maximum Contingent Deferred Sales Charge (as a % of
redemption proceeds).................................. None 5% 0.75%
Exchange Fee........................................... $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES (as a percentage of
average net assets)
BALANCED FUND
Management Fees........................................
12b-1 Fees.............................................
Other Expenses.........................................
----- ----- -----
Total Operating Expenses...............................
===== ===== =====
TACTICAL ALLOCATION FUND
Management Fees........................................
12b-1 Fees.............................................
Other Expenses.........................................
----- ----- -----
Total Operating Expenses...............................
===== ===== =====
</TABLE>

CLASS A SHARES: Sales charge waivers and a reduced sales charge purchase
plan are available. Purchases of $1 million or more are not subject to a
sales charge. However, if such shares are sold within one year after
purchase, a contingent deferred sales charge of 1% is imposed on the net
asset value of the shares at the time of purchase or sale, whichever is
less.
CLASS B SHARES: Sales charge waivers are available. The maximum 5%
contingent deferred sales charge applies to sales of shares during the
first year after purchase. The charge generally declines by 1% annually,
reaching zero after six years.
CLASS C SHARES: If shares are sold within one year after purchase, a
contingent deferred sales charge of 0.75% is imposed on the net asset value
of the shares at the time of purchase or sale, whichever is less.

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 12b-1 distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.

For more information, see "Management" and "Flexible Pricing SM."

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Prospectus Page 4
<PAGE>

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- -------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

EXAMPLE OF EFFECT OF FUND EXPENSES

The following example should assist investors in understanding various costs
and expenses incurred as shareholders of a Fund. The assumed 5% annual return
shown in the example is required by regulations of the Securities and Exchange
Commission ("SEC") applicable to all mutual funds. This example should not be
considered a representation of past or future expenses. Actual expenses of a
Fund may be more or less than those shown.

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

BALANCED FUND

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................
Class B (Assuming sale of all shares at end of
period).......................................
Class B (Assuming no sale of shares)...........
Class C (Assuming sale of all shares at end of
period).......................................
Class C (Assuming no sale of shares)...........
</TABLE>

TACTICAL ALLOCATION FUND

ASSUMPTIONS MADE IN THE EXAMPLE
. CLASS A SHARES: Deduction of the maximum 4.5% initial sales charge at the
time of purchase.
. CLASS B SHARES: Deduction of the maximum applicable contingent deferred
sales charge at the time of sale, which declines over a period of six
years. Ten-year figures assume that Class B shares convert to Class A
shares at the end of the sixth year.
. CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for
sales of shares within one year of purchase.

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Prospectus Page 5

<PAGE>

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- ------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
- --------------------------------------------------------------------------------

Financial Highlights
- ------------------------------------------------------------------------------

BALANCED FUND

The table below provides selected per share data and ratios for one Class A
share, one Class B share and one Class C share of the Fund for each of the
periods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Fund's Annual Report to Shareholders for
the fiscal year ended February 29, 1996, which are incorporated by reference
into the Statement of Additional Information. The financial statements and
notes, and the financial information appearing in the tables below insofar as
it relates to each of the five years in the period ended February 29, 1996,
have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon is included in the Annual Report to Shareholders. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge. The information provided
below [for the periods prior to the fiscal year ended February 29, 1996]
relates to the Fund's operations while it was pursuing different policies and
may not necessarily be indicative of current or future operations.

<TABLE>
<CAPTION>
CLASS A
-------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED , TO
---------------------------- --------------
<S> <C> <C>
Net asset value, beginning of
period............................
Net investment income..............
Net realized and unrealized gains
(losses) from investment
transactions......................
Total from investment operations...
Dividends from net investment
income............................
Distributions from net realized
gains from investment
transactions......................
Total dividends and distributions
to shareholders...................
Net asset value, end of period.....
Total investment return (1)........
Ratios and Supplemental Data:
Net assets, end of period (000's)..
Ratios of expenses to average net
assets............................
Ratios of net investment income to
average net assets................
Portfolio turnover rate............
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges; results for each class
would be lower if sales charges were included. Total investment returns for
periods of less than one year have not been annualized.
(2) During the period December 12, 1986 (commencement of issuance of Class B
shares) to February 28, 1987, PaineWebber reimbursed the Fund for a portion
of its operating expenses. If such reimbursement had not been made, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income to average net assets would have been 2.10% and
2.73%, respectively.
(3) Formerly Class D shares.

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Prospectus Page 6
<PAGE>

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
- --------------------------------------------------------------------------------

Financial Highlights

(Continued)
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B CLASS C(3)
---------------------------------- ----------------------------------
FOR THE YEARS ENDED FOR THE PERIOD FOR THE YEARS ENDED FOR THE PERIOD
, TO , TO
------------------- -------------- ------------------- --------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period....
--- --- --- ---
Net increase (decrease)
from investment
operations.............
Net investment income...
Net realized and
unrealized gains
(losses) from
investment
transactions...........
Net increase (decrease)
from investment
operations.............
Less dividends and
distributions..........
--- --- --- ---
Dividends from net
investment income......
Distributions from net
realized gains from
investment
transactions...........
--- --- --- ---
Total dividends and
distributions to
shareholders...........
--- --- --- ---
Net asset value, end of
period.................
--- --- --- ---
Total investment
return(1)..............
--- --- --- ---
Ratios and Supplemental
Data:
Net assets, end of
period (000's).........
Ratios of expenses to
average net assets.....
Ratios of net investment
income to average net
assets.................
Portfolio turnover rate.
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges; results for each class
would be lower if sales charges were included. Total investment returns for
periods of less than one year have not been annualized.
(2) During the period December 12, 1986 (commencement of issuance of Class B
shares) to February 28, 1987, PaineWebber reimbursed the Fund for a portion
of its operating expenses. If such reimbursement had not been made, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income to average net assets would have been 2.10% and
2.73%, respectively.
(3) Formerly Class D shares.

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Prospectus Page 7
<PAGE>

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Financial Highlights

(Continued)
------------------------------------------------------------------------------

TACTICAL ALLOCATION FUND

The following tables provide investors with data and ratios for one Class A,
Class B and Class C share for each of the periods shown. This information is
supplemented by the financial statements and accompanying notes appearing in
Tactical Allocation Fund's Annual Report to Shareholders for the fiscal year
ended August 31, 1995 and the report of Ernst & Young, LLP, independent
auditors, appearing in the Fund's Annual Report to Shareholders. Both are
incorporated by reference into the Statement of Additional Information. The
financial statements and notes, as well as the financial information in the
table below for the fiscal year ended August 31, 1995, have been audited by
Ernst & Young LLP. 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. The financial statements and notes and the financial
information in the table below, as they relate to the six months ended February
29, 1996, have been taken from the records of the Fund without examination by
the independent auditors, who do not express an opinion thereon. 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
----------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
, TO
------------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period....
--- ---
Net investment income...................
Net realized and unrealized gains
(losses) from investment transactions..
--- --- ---
Total from investment operations........
--- --- ---
Dividends from net investment income....
Distributions from net realized gains
from investment transactions...........
--- --- ---
Total dividends and distributions to
shareholders...........................
--- --- ---
Net asset value, end of period..........
--- --- ---
Total investment return(1)..............
--- --- ---
Ratios and Supplemental Data:
Net assets, end of period (000's).......
Ratios of expenses to average net
assets.................................
Ratios of net investment income to
average net assets.....................
Portfolio turnover rate.................
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges; results for each class
would be lower if sales charges were included. Total investment returns for
periods of less than one year have not been annualized.
(2) Formerly Class B shares.

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Prospectus Page 8
<PAGE>

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
- --------------------------------------------------------------------------------

Financial Highlights

(Continued)
- --------------------------------------------------------------------------------

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Prospectus Page 9
<PAGE>

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Investment Objectives and Policies
------------------------------------------------------------------------------

BALANCED FUND

The investment objective of Balanced Fund is to obtain high total return with
low volatility. The Fund seeks to achieve this objective by investing primarily
in a combination of equity securities, investment grade bonds, and money market
instruments based on Mitchell Hutchins' assessment of the optimal allocation of
the Fund's assets. The Fund seeks to maintain a dollar-weighted average
maturity for its fixed income investments (comprised of bonds and money market
instruments) of three to ten years. At least 25% of the Fund's assets will be
invested in fixed income investments.

The Fund may invest in a broad range of investment grade bonds, securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
including mortgage-backed securities, and other fixed income securities.
Investment grade bonds are those bonds that, at the time of purchase, are
assigned one of the four highest grades by Standard & Poor's, a division of the
McGraw Hill Companies, Inc. ("S&P"), or Moody's Investors Service, Inc.
("Moody's"), are comparably rated by another NRSRO or, if unrated, are
determined by Mitchell Hutchins to be of comparable quality to such rated
securities.

The Fund may also invest in convertible securities rated at least B by S&P or
Moody's, comparably rated by another NRSRO or, if unrated, determined by
Mitchell Hutchins to be of comparable quality, provided that the Fund will not
do so if, as a result, more than 10% of its total assets will be invested in
convertible securities rated below BBB by S&P, Baa by Moody's, comparably rated
by another NRSRO or, if unrated, determined by Mitchell Hutchins to be of
comparable quality.

The Fund may invest in high-grade money market instruments. Such instruments
include U.S. Treasury bills and other obligations issued or guaranteed as to
interest and principal by the U.S. government, its agencies and
instrumentalities; obligations of U.S. banks (including certificates of deposit
and bankers' acceptances) having total assets at the time of purchase in excess
of $1.5 billion, and interest-bearing savings deposits in U.S. commercial and
savings banks in principal amounts at each such bank not greater than are fully
insured by the Federal Deposit Insurance Corporation, provided that the
aggregate amount of such deposits does not exceed 5% of the value of the Fund's
assets; commercial paper and other short-term corporate obligations; and
variable and floating rate securities and repurchase agreements. The Fund may
also hold cash. In addition, the Fund may invest without limitation in
participation interests in the money market securities in which it is permitted
to invest. Participation interests are pro rata interests in securities held by
others.

TACTICAL ALLOCATION FUND

Tactical Allocation 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.

In seeking total return, Tactical Allocation 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 SUP 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 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 seeks to achieve 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 attempts to provide individual
investors a means of dealing with the difficulties often associated with asset
allocation investing with an index component.

* * * *

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As with any mutual fund, there is no assurance that either of these Funds will
achieve its investment objective. Each Fund's net asset value fluctuates based
upon changes in the value of its portfolio securities.
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Investment Philosophy and Process

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

BALANCED FUND

Mitchell Hutchins believes that capital market returns reflect the consensus
expectations for key economic variables, such as interest rates, profit growth
and inflation, and that superior performance can be obtained by reallocating
assets from time to time before changes in the consensus outlook have been
fully discounted by the market. To implement this strategy for Balanced Fund,
Mitchell Hutchins regularly surveys market participants and generates a
consensus forecast of economic variables affecting returns on equity, debt and
money market investments. It then applies fundamental valuation techniques to
the consensus data to determine what Mitchell Hutchins believes is the optimal
asset allocation for the Fund. Portfolio managers specializing in each asset
class then select specific securities for their allocated portions of the
portfolio. Mitchell Hutchins regularly monitors market outlooks and changes
asset allocations when there are significant changes in expected returns.

. In selecting equity securities for the Fund, Mitchell Hutchins follows a
disciplined methodology under which stocks from a universe of approximately
2,000 medium to large capitalization (generally at least $300 million)
companies are ranked utilizing quantitative measures of value, earnings and
price momentum in the context of Mitchell Hutchins' economic forecast. Stocks
are selected for the Fund based on fundamental analysis of the highest
ranking stocks.

. Balanced Fund's investments in debt securities are based on analyses of the
maturity structure and the risk structure (comparing yields on Treasury
securities to yields on riskier types of debt securities).

. Balanced Fund's investment in money market instruments are chosen by Mitchell
Hutchins based on its judgment of their utility in furthering the Fund's
investment objective.

TACTICAL ALLOCATION FUND

Mitchell Hutchins allocates the assets of Tactical Allocation Fund among the
Stock Segment, Cash Segment and Note Segment 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.

The Fund deviates from the published recommendations of the Allocation Model
only to the extent necessary (1) to maintain a limited

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

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.

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Performance
------------------------------------------------------------------------------

These charts show the total returns for the Funds. Sales charges have not been
deducted from the results shown. Returns would be lower if sales charges were
deducted. Past results are not a guarantee of future results.

Total returns after deducting the maximum sales charges are shown below in the
tables that follow the performance charts.

BALANCED FUND

The inception date of the Class A
shares was July 1, 1991; thus, the 1991
return represents the period from July
1, 1991 through December 31, 1991. The
Class B shares commenced operations on
December 12, 1986; thus, the 1986
return for Class B shares represents
the period from December 12, 1986
through December 31, 1986. The
inception date of Class C shares was
(CHART) July 2, 1992; thus, the 1992 return for
Class C shares represents the period
from July 2, 1992 through December 31,
1992.

TACTICAL ALLOCATION FUND

The inception date of Class A shares
was May 10, 1993; thus the 1993 return
represents the period from May 10, 1993
through December 31, 1993. The
inception date of Class B shares was
November 10, 1995; thus, the 1995
return for Class B shares represents
the period from November 10, 1995
through December 31, 1995. The Class C
shares commenced operations on July 22,
(CHART) 1992; thus, the 1992 return for Class C
shares represents the period from July
22, 1992 through December 31, 1992.

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Prospectus Page 13

<PAGE>

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BALANCED FUND

AVERAGE ANNUAL RETURNS
As of , 1996
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
Inception Date.................... 7/1/91 12/12/86 7/2/92
One Year..........................
Without deducting maximum sales
charges.......................... % % %
After deducting maximum sales
charges.......................... % % %
Five Years........................
Without deducting maximum sales
charges.......................... % % %
After deducting maximum sales
charges.......................... % % %
Life..............................
Without deducting maximum sales
charges.......................... % % %
After deducting maximum sales
charges.......................... % % %
</TABLE>

TACTICAL ALLOCATION FUND

AVERAGE ANNUAL RETURNS
As of , 1996
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
Inception Date.................... 5/10/93 11/10/95 7/22/92
One Year..........................
Without deducting maximum sales
charges.......................... % % %
After deducting maximum sales
charges.......................... % % %
Life..............................
Without deducting maximum sales
charges.......................... % % %
After deducting maximum sales
charges.......................... % % %
</TABLE>

PERFORMANCE INFORMATION

The Funds perform 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 Funds 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 of the Funds reflects deduction of the Funds' maximum initial sales
charge of 4.5% at the time of purchase, and standardized return for the Class B
and Class C shares of the Funds reflects deduction of the applicable contingent
deferred sales charge imposed on the sale of shares held for the period. One-,
five- and ten-year periods will be shown, unless the Fund or class has been in
existence for a shorter period. If so, returns will be shown for the period
since inception. Total return calculations assume reinvestment of dividends and
other distributions.

The Funds 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 deducted.

Total return information reflects past performance and does not necessarily
indicate future results. The investment return and principal value of shares of
the Funds will fluctuate. The amount investors receive when selling shares may
be more or less than what they paid. Further information about the Funds'
performance is contained in the Funds' Annual Reports, which may be obtained
without charge by contacting each Fund, your PaineWebber investment executive
or PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.

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Prospectus Page 14

<PAGE>

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
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The Funds' Investments
------------------------------------------------------------------------------

EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and
common stock purchase warrants and rights. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation. While past
performance does not guarantee future results, common stocks historically have
provided the greatest long-term growth potential in a company. However, their
prices generally fluctuate more than other securities, and reflect changes in
a company's financial condition and in overall market and economic conditions.

Preferred stock has certain fixed-income features, like a bond, but is
actually equity in a company, like common stock. Convertible securities may
include debentures, notes and preferred equity securities, which are
convertible into common stock.

U.S. GOVERNMENT SECURITIES in which the Funds may invest include direct
obligations of the U.S. government (such as Treasury bills, notes and bonds)
and obligations issued or guaranteed by U.S. government agencies and
instrumentalities.

BONDS (including notes and debentures) (Balanced Fund only) are used by
corporations to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest, and must repay the amount borrowed at
maturity. Bonds have varying degrees of investment risk and varying levels of
sensitivity to changes in interest rates.

MORTGAGE- AND ASSET-BACKED SECURITIES (Balanced Fund only) represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations ("CMOS"). Asset-backed
securities have structural characteristics similar to mortgage-backed
securities, except that the underlying assets are not first lien mortgage
loans or interests therein, but include assets such as motor vehicle
installment sale contracts, home equity loans, leases of various types of real
and personal property and receivables from revolving credit (credit card)
agreements.

ZERO COUPON SECURITIES (Balanced Fund Only) are U.S. Government Securities
that have been stripped of their unmatured interest coupon receipts or
interests in such U.S. Government Securities or coupons, such as Certificates
of Accrual Treasury Securities (CATS) and Treasury Income Growth Receipts
(TIGRs). Such securities generally are likely to be more sensitive to changes
in interest rates than other U.S. Government Securities.

MONEY MARKET INSTRUMENTS are bonds and U.S. Government Securities with
maturities of 13 months or less.

RISKS

Under normal circumstances, Balanced Fund invests primarily in equity
securities, bonds, U.S. Government Securities, mortgage- and asset-backed
securities and money market instruments, and Tactical Allocation Fund invests
primarily in equity securities and U.S. Government Securities. Following is a
discussion of risks that are common to each Fund:

EQUITY SECURITIES. Equity Securities historically have shown greater growth
potential than other types of securities. Common stocks generally represent
the riskiest investment in a company. It is possible that investors may lose
their entire investment.

INTEREST RATE AND CREDIT RISKS. Interest rate risk is the risk that interest
rates will rise and the prices of bonds and U.S. Government Securities will
fall, lowering the value of the Funds' investments. Long-term bonds and U.S.
Government Securities are generally more sensitive to interest rate changes
than short-term bonds and U.S. Government Securities. Adverse changes in
economic conditions can affect an issuer's ability to pay principal and
interest.

FOREIGN SECURITIES. Balanced Fund may invest in U.S. dollar-denominated
securities of foreign issuers that are traded on recognized U.S. exchanges or
in the U.S. over-the-counter ("OTC") market. Since the S&P 500 Index includes
common stock of foreign issuers, Tactical

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Prospectus Page 15
<PAGE>

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Allocation Fund is likewise subject to certain risks associated with
investments in foreign securities. These investments may involve special risks
arising both from political and economic developments abroad and differences
between foreign and U.S. regulatory systems. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of Fund assets and political or
social instability or diplomatic developments. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Securities of many foreign companies may be less liquid and their prices more
volatile than securities of comparable U.S. companies.

REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Repurchase agreements are transactions in which a Fund purchases securities
from a bank or recognized securities dealer and simultaneously commits to
resell the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity
of the purchase securities. Repurchase agreements carry certain risks not
associated with direct investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to the Fund
if the other party to the repurchase agreement becomes insolvent.

In addition to these general risks, investments in each of the Funds are
subject to special risk considerations:

BALANCED FUND

RISKS OF BONDS. Investment grade bonds are those rated within the four highest
categories by Standard & Poor's, a division of The McGraw Hill Companies, Inc.
("S&P"), or Moody's Investors Service, Inc. ("Moody's"). Moody's fourth highest
category (Baa) includes securities which, in its opinion, have speculative
features. Changes in economic conditions or other circumstances are more likely
to lead to a weakened capacity to make principal and interest payments than is
the case for higher-rated debt instruments. The bonds in which Balanced Fund
invests must be rated investment grade, except that the Fund may invest up to
10% of its assets in bonds rated lower than investment grade; that is, rated
lower than BBB by S&P or Baa by Moody's or comparable unrated bonds. Such bonds
are considered predominately speculative with respect to the issuer's capacity
to pay interest and repay principal and may involve major risk exposure to
adverse conditions. The Fund may also invest in securities that are comparably
rated by another rating agency and in unrated securities if they are deemed to
be of comparable quality.

Credit ratings attempt to evaluate the safety of principal and interest
payments and do not evaluate the volatility of the bond's value or its
liquidity and do not guarantee the performance of the issuer. The rating
agencies also may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be
better or worse than the rating indicates. There is a risk that rating agencies
will downgrade bonds.

RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics of
the mortgage- and asset-backed securities in which Balanced Fund may invest
differ from those of traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently on mortgage-
and asset-backed securities (usually monthly) and that principal may be prepaid
at any time because the underlying mortgage loans or other assets generally may
be prepaid at any time. As a result, if the Fund purchases these securities at
a premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if the Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to
maturity. Accelerated prepayments on securities purchased by the Fund at a
premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is prepaid in full. The
market for privately issued mortgage- and asset-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed securities.
CMO classes may be specially structured in a manner that provides any of a wide
variety of investment characteristics, such as yield, effective maturity and
interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market
interest rates, the attractiveness of the

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<PAGE>

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CMO classes and the ability of the structure to provide the anticipated
investment characteristics may be significantly reduced. These changes can
result in volatility in the market value, and in some instances, reduced
liquidity, of the CMO class.

The rate of interest payable on CMO classes may be set at levels that are
either above or below market rates at the time of issuance, so that the
securities will be sold at a substantial premium to, or at a discount from, par
value. In the most extreme case, one class will be entitled to receive all or a
portion of the interest but none of the principal from the underlying mortgage
assets (the interest-only or "IO" class) and one class will be entitled to
receive all or a portion of the principal but none of the interest (the
principal-only or "PO" class). IOs and POs may also be created from mortgage-
backed securities that are not CMOs. The yields on IOs, POs and other mortgage-
backed securities that are purchased at a substantial premium or discount
generally are extremely sensitive to the rate of principal payments (including
prepayments) on the underlying mortgage assets. If the mortgage assets
underlying an IO experience are greater than anticipated principal prepayments,
an investor may fail to recoup fully his or her initial investment even if the
security is government issued or guaranteed or is rated AAA or the equivalent.

During 1994, the value and liquidity of many mortgage-backed securities
declined sharply due primarily to increases in interest rates. There can be no
assurance that such declines will not recur. The market value of certain
mortgage-backed securities in which the Fund may invest, including IO and PO
classes of mortgage-backed securities and inverse floating rate securities, can
be extremely volatile and these securities may become illiquid. Mitchell
Hutchins seeks to manage the Fund's investments in mortgage-backed securities
so that the volatility of the Fund's portfolio, taken as a whole, is consistent
with the Fund's investment objective. If Mitchell Hutchins incorrectly
forecasts interest rate changes or other factors that may affect the volatility
of securities held by the Fund, the Fund's ability to meet its investment
objective may be reduced.

See Appendix A to the Statement of Additional Information for more information
concerning the types of mortgage-backed securities in which Balanced Fund may
invest.

RISKS OF ZERO COUPON SECURITIES. Balanced Fund may invest in certain zero
coupon securities that are "stripped" U.S. Government Securities. Zero coupon
securities pay no interest to holders prior to maturity. However, a portion of
the original issue discount on the zero coupon securities must be included in
the Fund's income. Accordingly, to continue to qualify for tax treatment as a
regulated investment company and to avoid certain excise taxes (see "Taxes" in
the Statement of Additional Information), the Fund may be required to
distribute as dividends amounts that are greater than the total amount of cash
it actually receives. These distributions must be made from the Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
The Fund will not be able to purchase additional income-producing securities
with cash used to make such distributions, and its current income ultimately
may be reduced as a result. Zero coupon securities usually trade at a deep
discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest in cash.

HEDGING AND RELATED INCOME STRATEGIES. Balanced Fund may use options (both
exchange-traded and over-the-counter) and futures contracts to attempt to
enhance income and to reduce the overall risk of its investments (hedge). These
strategies may generate taxable income. In addition, new financial products and
risk management techniques continue to be developed and may be used if
consistent with the Fund's investment objectives and policies. The Fund's
ability to use these strategies may be limited by market conditions, regulatory
limits and tax considerations. The use of options and futures solely to enhance
income may be considered a form of speculation. The Statement of Additional
Information for the Fund contains further information on these strategies.

The Fund might not use any hedging strategies, and there can be no assurance
that any strategy used will succeed. If Mitchell Hutchins is incorrect in its
judgment on market values, interest rates or other economic factors in using a
hedging strategy, the Fund may have lower net income and a net loss on the
investment. Each of these strategies involves certain risks, which include:

. the fact that the skills needed to use hedging instruments are different from
those needed to select securities for the Fund,

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Prospectus Page 17
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. the possibility of imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the securities
being hedged,

. possible constraints placed on the Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund to
maintain "cover" or to segregate securities, and

. the possibility that the Fund is unable to close out or liquidate its hedged
position.

ILLIQUID SECURITIES. Balanced Fund may invest up to 10% of its net assets in
illiquid securities, including, among other things, securities whose
disposition is restricted under the federal securities laws (other than "Rule
144A") securities Mitchell Hutchins has determined to be liquid under
procedures approved by the Corporation's board of directors).

LENDING OF PORTFOLIO SECURITIES. Balanced Fund is authorized to lend up to 33%
of the total value of its portfolio securities to broker-dealers or
institutional investors that Mitchell Hutchins deems qualified, but only when
the borrower maintains with the Fund's custodian bank collateral either in
cash or money market instruments, marked to market daily, in an amount equal
to the market value of the securities loaned, plus accrued interest and
dividends. In determining whether to lend securities to a particular broker-
dealer or institutional investor, Mitchell Hutchins will consider, and during
the period of the loan will monitor, relevant facts and circumstances,
including the creditworthiness of the borrower. The Fund will retain authority
to terminate any loans at any time.

TACTICAL ALLOCATION FUND

LIMITS OF ASSET ALLOCATION STRATEGY. Although it seeks total return,
consisting of both capital appreciation and current income, in following its
asset allocation strategy, Tactical Allocation 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
of 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.

INDEX INVESTING AND OPEN-END INVESTMENT COMPANIES. While Tactical Allocation
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.

DERIVATIVE INSTRUMENTS. Tactical Allocation 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 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. 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. Similarly, 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. See

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Prospectus Page 18
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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
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Flexible PricingSM
- --------------------------------------------------------------------------------

"Investment Techniques and Strategies" in the Statement of Additional
Information.

INVESTMENT TECHNIQUES AND STRATEGIES

Each Fund may purchase securities on a when-issued basis or may purchase or
sell securities for delayed delivery; a Fund generally would not pay for such
securities or start earning interest on them until they are delivered, but it
would immediately assume the risks of ownership, including the risk of price
fluctuation. Each Fund may borrow money for temporary or emergency purposes,
but not in excess of 10% (Balanced Fund) or 20% (Tactical Allocation Fund) of
its total assets, including (in the case of Balanced Fund) reverse
repurchase agreements involving up to 5% of its total assets.
Each Fund offers three classes of shares that differ in terms of sales charges
and expenses. An investor can select the class that is best suited to his or
her investment needs, based upon holding period and the amount of investment.

CLASS A SHARES

HOW PRICE IS CALCULATED: The price is the net asset value plus the initial
sales charge (the maximum is 4.5% of the public offering price) next calculated
after PaineWebber's New York City headquarters or the Transfer Agent receives
the purchase order. Although investors pay an initial sales charge when they
buy Class A shares, the ongoing expenses for this Class are lower than the
ongoing expenses of Class B and Class C shares. Class A shares sales charges
are calculated as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED
---------------------------------- DEALERS AS PERCENTAGE OF
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE
- -------------------- -------------- ------------------- ------------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.25%
$50,000 to $99,999...... 4.00 4.17 3.75
$100,000 to $249,999.... 3.50 3.63 3.25
$250,000 to $499,999.... 2.50 2.56 2.25
$500,000 to $999,999.... 1.75 1.78 1.50
$1,000,000 and over(1).. None None 1.00(2)
</TABLE>
- -------
(1) A contingent deferred sales charge of 1% of the shares' net asset value at
the time of their purchase or their sale, whichever is less, is charged on
sales of shares made within one year of the purchase date. However, Class A
shares representing reinvestment of any dividends or capital gain
distributions will not be subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan will not be subject to this charge. However,
investors may not withdraw annually more than 12% of the value of the Fund
account under the Plan in the first year after purchase. This charge does
not apply to Class A shares bought before November 10, 1995.
(2) Mitchell Hutchins pays 1% to PaineWebber.
SALES CHARGE REDUCTIONS & WAIVERS

Investors who are purchasing Class A shares in more than one PaineWebber fund
may combine those purchases to get a reduced sales charge. Investors who
already own Class A shares already in one or more PaineWebber funds may combine
the amount they are currently purchasing with the value of such previously
owned shares in determining the applicable reduced sales charge. To determine
the sales charge reduction in either case, please refer to the chart above.

Investors may also qualify for a lower sales charge when they combine their
purchases with those of:

. their spouses, parents or children under age 21;

. their Individual Retirement Accounts (IRAs);

. certain employee benefit plans, including 401(k) plans;

. any company controlled by the investor;

. trusts created by the investor;

. Uniform Gift to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or

-------------
Prospectus Page 19
<PAGE>

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

group of investors for the benefit of the investors, their spouses, parents or
children; or

. accounts with the same adviser

Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.

The sales charge will not apply when the investor:

. is an employee, director, trustee or officer of PaineWebber or its
affiliates;

. is the spouse, parent or child of any of the above, or advisory clients of
Mitchell Hutchins;

. buys these shares through a PaineWebber investment executive who was formerly
employed as a broker with a competing brokerage firm that was registered as a
broker-dealer with the SEC;

. the investor was the investment executive's client at the competing brokerage
firm;

. within 90 days of buying Class A shares in this Fund, the investor sells
shares of one or more mutual funds that (a) were principally underwritten by
the competing brokerage firm or its affiliates and (b) the investor either
paid a sales charge to buy those shares, paid a contingent deferred sales
charge when selling them or held those shares until the contingent deferred
sales charge was waived; and

. the amount that the investor purchases does not exceed the total amount of
money the investor received from the sale of the other mutual fund;

. is a certificate holder of unit investment trusts sponsored by PaineWebber
and has elected to have dividends and other distributions from that
investment automatically invested in Class A shares; or

. is an employer establishing an employee benefit plan qualified under section
401 or 403(b), and salary reduction plans qualified under section 401(k), of
the Internal Revenue Code ("Code"). (This waiver is subject to minimum
requirements, with respect to number of employees and investment amount,
established by Mitchell Hutchins.) Currently, the plan must have 100 or more
eligible employees or the amount invested or to be invested in the Fund or
any other PaineWebber mutual fund must total at least $1 million during the
subsequent 13-month period.

. acquires Class A shares in connection with a reorganization pursuant to which
the Fund acquires substantially all of the assets and liabilities of another
investment company in exchange solely for shares of the Fund.

For more information on how to get any reduced sales charge, investors should
contact their investment executive at PaineWebber or one of its correspondent
firms or call 1-800-647-1568.

CLASS B SHARES

HOW PRICE IS CALCULATED: The price is the net asset value next calculated after
PaineWebber's New York City headquarters or the Transfer Agent receives the
purchase order. The ongoing expenses investors pay for Class B shares are
higher than those of Class A shares. Because investors do not pay an initial
sales charge when they buy Class B shares, 100% of their purchase is
immediately invested.

Depending on how long they own their Fund investment, investors may have to pay
a contingent deferred sales charge when they sell their Fund shares. This sales
charge is called a "contingent deferred sales charge." The amount of the charge
depends on how long the investor owned the shares. The sales charge is
calculated by multiplying the net asset value of the shares at the time of sale
or purchase, whichever is less, by the percentage shown on the table below.
Investors who own shares for more than six years do not have to pay a sales
charge when selling those shares.

<TABLE>
<CAPTION>
PERCENTAGE BY WHICH
THE SHARES' NET ASSET
IF THE INVESTOR SELLS SHARES WITHIN: VALUE IS MULTIPLIED:
- ------------------------------------ ---------------------
<S> <C>
1st year since purchase................................... 5%
2nd year since purchase................................... 4
3rd year since purchase................................... 3
4th year since purchase................................... 2
5th year since purchase................................... 2
6th year since purchase................................... 1
7th year since purchase................................... None
</TABLE>

CONVERSION OF CLASS B SHARES

Class B shares automatically convert to the appropriate number of Class A
shares of equal dollar value after the investor has owned them for six years.
Dividends and other distributions paid to the investor by the Fund in the form
of additional Class B shares will also convert to Class A shares on a pro-rata
basis. This benefits shareholders because Class A shares have lower ongoing
expenses than Class B shares.

-------------
Prospectus Page 20
<PAGE>

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

. If the investor has exchanged Class B shares between PaineWebber funds, the
Fund uses the purchase date at which the initial investment was made to
determine the conversion date.

. Investors who sell shares before owning them for six years do not have to
pay the sales charge if the shares sold represent reinvested dividends
and/or capital gain distributions.

MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE

When investors sell Class B shares they have owned for less than six years,
the Fund automatically will minimize the sales charge by assuming the
investors are selling:

. First, Class B shares owned through reinvested dividends and capital gain
distributions; and

. Second, Class B shares held in the portfolio the longest.

If the investor has exchanged Class B shares between PaineWebber funds, the
Fund uses the purchase date at which the initial investment was made to
calculate the six-year period.

WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will not apply to:

. redemptions under the Fund's "Systematic Withdrawal Plan" (investors may not
withdraw annually more than 12% of the value of the Fund account);

. a distribution from a self-employed individual retirement plan ("Keogh
Plan");

. a custodial account under Section 403(b) of the Internal Revenue Code (after
the investor reaches age 59 1/2);

. an IRA distribution or a tax-free return of an excess IRA contribution;

. a tax-qualified retirement plan distribution following retirement; or

. Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death individually or as a joint tenant with
the right of survivorship with his or her spouse.

An investor must provide satisfactory information to PaineWebber or the Fund
if the investor seeks any of these waivers.

CLASS C SHARES

HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value
next calculated after PaineWebber's New York City headquarters or the Transfer
Agent receives the purchase order. Investors do not pay an initial sales
charge when they buy Class C shares, but the ongoing expenses of Class C
shares are higher than those of Class A shares. Class C shares never convert
to any other class of shares.

A contingent deferred sales charge of 1% of the net asset value of the shares
at the time of purchase or sale, whichever is less, is charged on sales of
shares made within one year of the purchase date. Redemptions of Class C
shares acquired through an exchange and held less than one year will be
subject to the same contingent deferred sales charge that would have been
imposed on Class C shares of the PaineWebber mutual fund originally purchased
that were subsequently exchanged into Class C shares of the Fund. Class C
shares representing reinvestment of any dividends or capital gain
distributions will not be subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan also will not be subject to this charge. However,
investors may not withdraw annually more than 12% of the value of the Fund
account during the first year under the Plan. This charge does not apply to
Class C shares bought before November 10, 1995.
- -------------------------------------------------------------------------------

How to Buy Shares
- -------------------------------------------------------------------------------
Prices are calculated for the Fund's Class A, Class B and Class C shares once
each Business Day, at the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time). A "Business Day" is any day,
Monday through Friday, on which the New York Stock Exchange is open for
business. Shares are purchased at the next share price calculated after the
purchase order is received.

-------------
Prospectus Page 21
<PAGE>

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

When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will
automatically receive Class A shares, which include an initial sales charge.

PAINEWEBBER CLIENTS

Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's
New York City headquarters.

Investors may pay for their purchases with checks drawn on U.S. banks or with
funds they have in their brokerage accounts at PaineWebber or its correspondent
firms. Payment is due on the third Business Day after PaineWebber's New York
City headquarters office receives the purchase order.

OTHER INVESTORS

Investors who are not PaineWebber clients may purchase Fund shares and set up
an account through the Transfer Agent by completing an account application. The
application and check must be mailed to PFPC Inc., the Funds' Transfer Agent,
Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, DE 19899.

New investors to PaineWebber may complete an account application and mail it
along with a check. Investors may also open an account in person.

Investors who already have money invested in a PaineWebber mutual fund, and
want to invest in another PaineWebber mutual fund, can:

. mail an application with a check; or

. open an account by exchanging from another PaineWebber mutual fund.

Investors do not have to send an application when making additional investments
in the Fund.

MINIMUM INVESTMENTS

<TABLE>
<S> <C>
To open an account....................................................... $1,000
To add to an account..................................................... $ 100
</TABLE>

A Fund may waive or reduce these minimums for:

. employees of PaineWebber or its affiliates; or

. participants in certain pension plans, retirement accounts or the Fund's
automatic investment plan.
- --------------------------------------------------------------------------------

How to Exchange Shares
- --------------------------------------------------------------------------------
As shareholders, investors have the privilege of exchanging Fund shares for the
same class of other PaineWebber mutual fund shares. In classes of shares where
no initial sales charge is imposed, a contingent deferred sales charge may
apply if the investor sells the shares acquired through the exchange. Exchanges
may be subject to minimum investment requirements of the fund into which
exchanges are made.

. Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or
wire.

. Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a "letter of instruction" to the Transfer Agent. The letter of
instruction must include:

. name and address;

. the Fund's name;

. the Fund account number;

. the dollar amount or number of shares to be sold; and

. a guarantee of each registered owner's signature by an eligible
institution, such as a commercial bank, trust company or stock exchange
member.

The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O.
Box 8950, Wilmington, DE 19899.

Fund shares may be exchanged only after the settlement date has passed and
payment for the

-------------
Prospectus Page 22
<PAGE>

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

- --------------------------------------------------------------------------------
------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
- --------------------------------------------------------------------------------

How to Sell Shares
- --------------------------------------------------------------------------------

shares has been made. The exchange privilege is available only in those
jurisdictions where the sale of the fund shares to be acquired are authorized.
This exchange privilege may be modified or terminated at any time and, when
required by SEC rules, upon 60-day notice. See the back cover of this
prospectus for a listing of other PaineWebber funds.
Investors can arrange to sell (redeem) shares at any time. Shares will be sold
at the share price for that class as next calculated after the order is
received and accepted. Share prices are normally calculated at the close of
regular trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time).

Investors who own more than one class of shares should specify which Class they
are selling. If they do not, the Fund will assume they are first selling their
Class A shares, then Class C, and last, Class B.

If a shareholder wants to sell shares which were purchased recently, the Fund
may delay payment until it verifies that good payment was received. In the case
of purchases by check, this can take up to 15 days.

Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Fund's transfer agent, may sell shares by writing a
"letter of instruction," as detailed in "How to Exchange Shares."

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

REINSTATEMENT PRIVILEGE

Shareholders who sell their Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount sold by purchasing the Fund's
Class A shares within 365 days after the sale. To take advantage of this
reinstatement privilege, shareholders must notify their investment executive at
PaineWebber or one of its correspondent firms at the time of purchase.
- --------------------------------------------------------------------------------

Other Services
- --------------------------------------------------------------------------------
Investors should consult their investment executive at PaineWebber or one of
its correspondent firms to learn more about the following services:

AUTOMATIC INVESTMENT PLAN

Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan Service through which the Fund
will deduct $50 or more each month from the investor's bank account to invest
directly 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."

SYSTEMATIC WITHDRAWAL PLAN

The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December) or semiannual (June and December)
withdrawals from their PaineWebber Mutual Fund account. Minimum balances and
withdrawals vary according to the class of shares:

-------------
Prospectus Page 23
<PAGE>

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

. Class A and Class C shares. Minimum value of Fund shares is $5,000; minimum
withdrawals of $100.

. Class B shares. Minimum value of Fund shares is $20,000; minimum monthly,
quarterly and semiannual withdrawals of $200, $400 and $600, respectively.

Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. Investors may not withdraw annually more than
12% of the value of the Fund account when the investor signed up for the Plan
(annually for Class B shares, during the first year under the Plan for Class A
and Class C shares). Shareholders who elect to receive dividends or other
distributions in cash may not participate in the Plan.

INDIVIDUAL RETIREMENT ACCOUNTS

A Self-Directed IRA is available through PaineWebber in which purchases of
PaineWebber funds and other investments may be made. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.

TRANSFER OF ACCOUNTS

If shareholders holding shares of a Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be
moved 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.
- --------------------------------------------------------------------------------

Management
- --------------------------------------------------------------------------------
Balanced Fund is a series of PaineWebber Master Series, Inc. ("Corporation")
and Tactical Allocation Fund is a series of PaineWebber Investment Trust
("Trust"). The board of directors for the Corporation, and the board of
trustees for the Trust, as part of their overall management responsibility,
oversee various organizations responsible for the day-to-day management of each
Fund. Mitchell Hutchins, investment adviser and administrator of each Fund,
makes and implements all investment decisions and supervises all aspects of
each Fund's operations. Each board has determined that brokerage transactions
for its respective fund may be conducted through PaineWebber or its affiliates
in accordance with procedures adopted by the board.

T. Kirkham Barneby is responsible for the asset allocation decisions for both
Balanced Fund and Tactical Allocation 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.

Mark A. Tincher is responsible for the day-to-day management of the equity
portion of Balanced Fund. Mr. Tincher is a Managing Director and Chief
Investment Officer of Equity Investments of Mitchell Hutchins responsible for
overseeing the management of domestic equity investments for Mitchell Hutchins.
Prior to joining Mitchell Hutchins in March 1995, Mr. Tincher worked for Chase
Manhattan Private Bank where he was Vice President and directed the U.S. Funds
Management and Equity Research area. At Chase since 1988, Mr. Tincher oversaw
the management of all Chase equity funds (the Vista Funds and Trust Investment
Funds).

-------------
Prospectus Page 24
<PAGE>

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

and managing investment strategy for all fixed income and cash management
investments of IBM's pension fund and self-insured medical funds. Mr. McCauley
has also served as Vice President of IBM Credit Corporation's mutual funds and
as a member of the Retirement Fund Investment Committee.

Nirmal Singh and Craig M. Varrelman assist Mr. McCauley in managing Balanced
Fund's debt securities. Mr. Singh is a vice president of Mitchell Hutchins, and
Mr. Varrelman is a first vice president of Mitchell Hutchins. Prior to joining
Mitchell Hutchins in 1993, Mr. Singh was with Merrill Lynch Asset Management,
Inc., where he was a member of the portfolio management team responsible for
managing several diversified funds, including mortgage-backed securities funds
with assets totaling approximately $8 billion. From 1990 to 1993, Mr. Singh was
a senior portfolio manager at Nomura Mortgage Fund Management Corporation,
where he was responsible for managing approximately $3 billion in mortgage
assets. From 1987 to 1990, Mr. Singh was a vice president of Lehman Brothers.
Mr. Varrelman has been with Mitchell Hutchins as a portfolio manager since 1988
and manages fixed income portfolios with an emphasis on U.S. government
securities.

Susan Messina is responsible for the day-to-day management of the portion of
Balanced Fund's assets invested in money market instruments. Ms. Messina has
been with Mitchell Hutchins since 1982 and is a Senior Vice President of
Mitchell Hutchins.

Each of these managers first assumed responsibilities with respect to the Funds
in August 1995. Other members of Mitchell Hutchins' domestic equity and
domestic fixed income investments groups provide input on market outlook,
interest rate forecasts, investment research and other considerations
pertaining to each Fund's investments.

ABOUT THE INVESTMENT ADVISER

Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is the asset management subsidiary of PaineWebber Incorporated, which is
wholly owned by PaineWebber Group Inc., a publicly owned financial services
holding company. On , 1996, Mitchell Hutchins was adviser or sub-adviser of
investment companies with separate portfolios and aggregate assets of
approximately $ billion.

MANAGEMENT FEES & OTHER EXPENSES

Each of the Funds pays Mitchell Hutchins a monthly fee for its services. For
the fiscal year ended February 29, 1996, Mitchell Hutchins received a monthly
fee from Balanced Fund for these services at the annual rate of 0.75% of the
Fund's average daily net assets and from Tactical Allocation Fund at the annual
rate of 0.50% of the Fund's average daily net assets. The management fee
payable to Mitchell Hutchins by Balanced Fund is greater than those paid by
most funds. Annually, the trustees review each Fund's contract with Mitchell
Hutchins.

Each Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent.

Among the other expenses incurred by the Funds are 12b-1 fees which have two
components:

<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>

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins is the distributor of each of each Fund's shares and has
appointed PaineWebber as the exclusive dealer for the sale of those shares.
Under distribution plans for Class A, Class B and Class C shares ("Class A
Plan," "Class B Plan" and "Class C Plan," collectively, "Plans"), each 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.

. Monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B shares and Class C Shares.

Under all three Plans, Mitchell Hutchins primarily uses the service fees to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of
the aggregate investment amounts maintained in each Fund by PaineWebber
clients. PaineWebber then compensates its investment executives for shareholder
servicing that they perform and offsets its own expenses in servicing and
maintaining shareholder accounts.

-------------
Prospectus Page 25
<PAGE>

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

Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to:

. Offset the commissions it pays to PaineWebber for selling each Fund's Class
B and Class C shares, respectively.

. Offset each Fund's marketing costs attributable to such classes, such as
preparation, printing and distribution of sales literature, advertising and
prospectuses to prospective investors and related overhead expenses, such as
employee salaries and bonuses.

PaineWebber compensates investment executives when Class B and Class C shares
are sold, as well as on an ongoing basis. Mitchell Hutchins receives no
special compensation from any of the Funds or investors at the time of sale of
Class B or C shares.

Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution
expenses.

The Plans and the related distribution contracts for each class of shares
("Distribution Contracts") specify that each Fund must pay service and
distribution fees to Mitchell Hutchins for its activities, not as
reimbursement for specific expenses incurred. Therefore, even if Mitchell
Hutchins' expenses exceed the service or distribution fees it receives, the
Funds will not be obligated to pay more than those fees. On the other hand, if
Mitchell Hutchins' expenses are less than such fees, it will retain its full
fees and realize a profit. Expenses in excess of service and distribution fees
received or accrued through the termination date of any Plan will be Mitchell
Hutchins' sole responsibility and not that of the Funds. Annually, the board
of trustees of each Fund reviews the Plans and Mitchell Hutchins'
corresponding expenses for each class separately from the Plans and expenses
of the other classes.
- -------------------------------------------------------------------------------

Determining the Shares; Net Asset Value
- -------------------------------------------------------------------------------
The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) each Business Day. Each
Fund's net asset value per share is determined by dividing the value of the
securities held by the Fund, plus any cash or other assets, minus all
liabilities, by the total number of Fund shares outstanding.

Each Fund values its assets based on their current market value when market
quotations are readily available. If that value is not readily available,
assets are valued at fair value as determined in good faith by or under the
direction of its board of trustees. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless its board determines that this does not represent fair value.
Investments denominated in foreign currencies are valued daily in U.S. dollars
based on the then-prevailing exchange rates.
- -------------------------------------------------------------------------------

Dividends & Taxes
- -------------------------------------------------------------------------------
DIVIDENDS

-------------
Prospectus Page 26
<PAGE>

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

declare any dividend in excess of the amount of net investment income and net
short-term capital gain available for distribution at the time of declaration,
it is possible that net capital losses sustained after that time could convert
a portion of such a dividend to a non-taxable return of capital.

Dividends and other distributions paid on each class of shares of each Fund are
calculated at the same time and in the same manner. Dividends on Class B and
Class C shares of the Funds are expected to be lower than those for their Class
A shares because Class B and Class C shares have higher expenses resulting from
their distribution fees. Dividends on each class might be affected differently
by the allocation of other class-specific expenses. See "General Information."

The Funds' dividends and capital gain distributions are paid in additional Fund
shares of the same class at net asset value, unless the shareholder has
requested cash payments. Shareholders who wish to receive dividends and/or
capital gain distributions in cash, either mailed to the shareholder by check
or credited to the shareholder's PaineWebber account, should contact their
investment executive at PaineWebber or one of its correspondent firms or
complete the appropriate section of the account application.

TAXES

Each of the Funds intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will not have to
pay Federal income tax on the part of its investment company taxable income
(generally consisting of net investment income and net short-term capital gain)
and net capital gain that it distributes to its shareholders.

Dividends from each Fund's investment company taxable income (whether paid in
cash or in additional Fund shares) generally are taxable to shareholders as
ordinary income. Distributions of each Fund's net capital gain (whether paid in
cash or in additional Fund shares) are taxable to shareholders as long-term
capital gain, regardless of how long they have held their Fund shares.
Shareholders not subject to tax on their income will not be required to pay tax
on amounts distributed to them.

Balanced Fund is required to include in its gross income each year a portion of
the original issue discount on zero coupon securities it acquires, even though
the Fund receives no interest payment on the securities during the year.

YEAR-END TAX REPORTING

Each Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year and any portion of those dividends that qualifies for the corporate
dividends-received deduction.

BACKUP WITHHOLDING

Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding from dividends and capital gain
distributions at that rate is also required for shareholders who otherwise are
subject to backup withholding.

TAXES ON THE SALE OR EXCHANGE OF FUND SHARES

When shareholders sell (redeem) shares, it may result in a taxable gain or
loss. This depends upon whether the shareholders receive more or less than
their adjusted basis for the shares (which normally reflects any initial sales
charge paid on Class A shares). An exchange of any Fund's shares for shares of
another PaineWebber fund generally will have similar tax consequences. In
addition, if a Fund's shares are bought within 30 days before or after selling
other shares of the Fund (regardless of class) at a loss, all or a portion of
that loss will not be deductible and will increase the basis of the newly
purchased shares.

SPECIAL TAX RULES FOR CLASS A SHAREHOLDERS

Special tax rules apply when a shareholder sells or exchanges Class A shares
within 90 days of purchase, and subsequently acquires Class A shares of a
PaineWebber fund without paying a sales charge due to the 365-day reinstatement
privilege or the exchange privilege. In these cases, any gain on the sale or
exchange of the original Class A shares would be increased or, in the case of a
loss, decreased by the amount of the sales charge paid when those shares were
bought, and that amount will increase the basis of the PaineWebber fund shares
subsequently acquired.

-------------
Prospectus Page 27
<PAGE>

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

General Information
- --------------------------------------------------------------------------------

ADDITIONAL INFORMATION

The foregoing is only a summary of some of the important federal income tax
considerations generally affecting each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be
other federal, state or local tax considerations applicable to a particular
investor. Therefore prospective investors are urged to consult their tax
advisors.

ORGANIZATION

The Corporation is a diversified, open-end management investment company and
was incorporated in Maryland on October 29, 1985. The Corporation commenced
operations as an investment company on March 27, 1986. The Corporation has
authority to issue 10 billion shares of common stock of separate series, par
value $.001 per share; three billion of these shares are classified as shares
of Balanced Fund, and the remaining shares are classified as shares of the
Corporation's other series. Prior to August, 1995, Balanced Fund was known as
"PaineWebber Asset Allocation Fund."

The Trust was formed as a business trust 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 Tactical Allocation Fund described in this Prospectus
and in several other series.

The shares of each Fund are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. Each class represents an identical
interest in the respective Fund's investment portfolio and has the same rights,
privileges and preferences. However, each class may differ with respect to
sales charges, if any, distribution and/or service fees, in any, the expenses
allocable exclusively to each class, voting rights on matters exclusively
affecting that class, and its exchange privilege. The different sales charges
and other expenses applicable to the different classes of shares of the Funds
will affect the performance of those classes.

Each share of the respective Funds is entitled to participate equally in
dividends, other distributions and the proceeds of any liquidation of that
Fund. However, due to the differing expenses of the classes, dividends on Class
B and Class C shares are likely to be lower than for Class A shares and are
likely to be lower on Class Y shares than for any other class of shares.

Class Y shares, which are offered only to limited groups of investors, are
subject to neither an initial or contingent deferred sales charge not ongoing
service or distribution fees. More information concerning Class Y shares may be
obtained from an investment executive at PaineWebber or one of its
correspondent firms or by calling toll-free 1-800-647-1568.

VOTING RIGHTS

Shareholders of each 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 all the shares of the
Corporation or the Trust may elect all of the directors/trustees of the
respective Fund. The shares of the Funds will be voted separately except when
an aggregate vote of all series in the Corporation or the Trust is required by
the Investment Company Act of 1940 and except that only the shareholders of a
particular class of a Fund are required to vote on matters affecting only that
class, such as the terms of a Plan as it relates to a class.

SHAREHOLDER MEETINGS

The Funds do not intend to hold annual meetings.

Shareholders of record of no less than two-thirds of the outstanding shares of
the Corporation or the Trust may remove a director/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 to vote on the removal of a

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Prospectus Page 28
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director/trustee at the written request of holders of 10% of the
Corporation's/Trust's outstanding shares.

REPORTS TO SHAREHOLDERS

Each Fund sends Fund shareholders audited annual and unaudited semi-annual
reports, each of which includes a list of the investment securities held by the
Fund as of the end of the period covered by the report. The Statement of
Additional Information, which is herein incorporated by reference, is available
to shareholders upon request.

CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND AGENT

State Street Bank and Trust Company, located at One Monarch Drive, North
Quincy, Massachusetts 02171, serves as the Funds' custodian and recordkeeping
agent and employs foreign sub-custodians to provide custody of its foreign
assets. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the Funds'
transfer and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809.

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Prospectus Page 29
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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND
- ------------------------------------------------------------------------------

PaineWebber Family of Funds

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

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. Please read it carefully before investing. It
is important you have all the information you need to make a sound investment
decision.

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

PAINEWEBBER MONEY MARKET FUND

PAINEWEBBER BOND FUNDS
High Income Fund
Investment Grade Income Fund
Low Duration U.S. Government Income Fund
Strategic Income Fund
U.S. Government Income Fund

PAINEWEBBER TAX-FREE BOND FUNDS
California Tax-Free Income Fund
Municipal High Income Fund
National Tax-Free Income Fund
New York Tax-Free Income Fund

PAINEWEBBER ASSET ALLOCATION FUNDS
Balanced Fund
Tactical Allocation Fund

PAINEWEBBER GROWTH FUNDS
Capital Appreciation Fund
Growth Fund
Growth and Income Fund
Financial Services Growth Fund
Small Cap Value Fund
Utility Income Fund

PAINEWEBBER GLOBAL FUNDS
Emerging Markets Equity Fund
Global Equity Fund
Global Income Fund

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

No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their distributor. This Prospectus does not constitute an offering by the
Funds or their distributor in any jurisdiction in which such offering may not
lawfully be made.

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<PAGE>

PAINEWEBBER BALANCED FUND
PAINEWEBBER TACTICAL ALLOCATION FUND

1285 AVENUE OF THE AMERICAS

NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

The two funds named above (each a "Fund" and, collectively, "Funds") are
series of open-end management investment companies. PaineWebber Balanced Fund
("Balanced Fund") is a diversified series of PaineWebber Master Series, Inc.
("Corporation"), a professionally managed mutual fund. Balanced Fund seeks
high total return with low volatility; it invests primarily in a combination
of equity securities, investment grade debt securities and money market
instruments based on Mitchell Hutchins' assessment of the optimal allocation
of the Fund's assets.

PaineWebber Tactical Allocation Fund ("Tactical Allocation Fund") is a
diversified series of PaineWebber Investment Trust ("Trust"), a professionally
managed mutual fund. Tactical Allocation Fund seeks total return, consisting
of long-term capital appreciation and current income, 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.

The investment adviser, administrator and distributor for each Fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"). As distributor for the
Fund, Mitchell Hutchins has appointed PaineWebber to serve as the exclusive
dealer for the sale of Fund shares.

This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Funds' current Prospectus, dated July 1,
1996. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm or by calling toll-free 1-800-647-
1568. This Statement of Additional Information is dated July 1, 1996.

INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.

BALANCED FUND

YIELD FACTORS AND RATINGS. Standard & Poor's, a division of The McGraw Hill
Companies, Inc. ("S&P") and Moody's Investors Service, Inc. ("Moody's") are
private services that provide ratings of the credit quality of debt
obligations. A description of the range of ratings assigned to debt
obligations by Moody's and S&P is included in Appendix A to this Statement of
Additional Information. Balanced Fund may use these ratings in determining
whether to purchase, sell or hold a security. These ratings represent Moody's
and S&P's opinions as to the quality of the debt obligations that they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, debt obligations with
the same maturity, interest rate and rating may have different market prices.
Subsequent to its purchase by Balanced Fund, an issue of debt obligations may
cease to be rated or its rating may be reduced below the
<PAGE>

minimum rating required for purchase by the Fund. Mitchell Hutchins will
consider such an event in determining whether the Fund should continue to hold
the obligation but is not required to dispose of it.

In addition to ratings assigned to individual bond issues, Mitchell Hutchins
will analyze interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds and other debt securities in which Balanced Fund invests
are dependent on a variety of factors, including general money market
conditions, general conditions in the bond market, the financial condition of
the issuer, the size of the offering, the maturity of the obligation and its
rating. There is a wide variation in the quality of bonds, both within a
particular classification and between classifications. An issuer's obligations
under its bonds are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of bond holders or other
creditors of an issuer; litigation or other conditions may also adversely
affect the power or ability of issuers to meet their obligations for the
payment of interest and principal on their bonds.

MORTGAGE- AND ASSET-BACKED SECURITIES. Mortgage-backed securities represent
direct or indirect participations in, or are secured by and payable from,
mortgage loans secured by real property and include single- and multi-class
pass-through securities and collateralized mortgage obligations. Multi-class
pass-through securities and collateralized mortgage obligations are
collectively referred to herein as CMOs. The U.S. Government mortgage-backed
securities in which Balanced Fund may invest include mortgage-backed
securities issued or guaranteed as to the payment of principal and interest
(but not as to market value) by Ginnie Mae, Fannie Mae, or Freddie Mac. Other
mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and
special purpose entities (collectively "Private Mortgage Lenders"). Payments
of principal and interest (but not the market value) of such private mortgage-
backed securities may be supported by pools of mortgage loans or other
mortgage-backed securities that are guaranteed, directly or indirectly, by the
U.S. government or one of its agencies or instrumentalities, or they may be
issued without any government guarantee of the underlying mortgage assets but
with some form of non-government credit enhancement. For more information
about the types of mortgage-backed securities in which the Fund may invest,
see Appendix B to this Statement of Additional Information.

Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first lien mortgage
loans or interests therein, but include assets such as motor vehicle
installment sale contracts, other installment sale contracts, home equity
loans, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts or special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to a certain
amount and for a certain time period by a letter of credit or pool insurance
policy issued by a financial institution unaffiliated with the issuer, or
other credit enhancements may be present.

ADJUSTABLE RATE AND FLOATING RATE MORTGAGE-BACKED SECURITIES. Balanced Fund
may invest in adjustable rate mortgage ("ARM") and floating rate mortgage-
backed securities. Because the interest rates on ARM and floating rate
mortgage-backed securities are reset in response to changes in a specified
market index, the values of such securities tend to be less sensitive to
interest rate fluctuations than the values of fixed-rate securities. As a
result, during periods of rising interest rates, ARMs generally do not
decrease in value as much as fixed rate securities. Conversely, during periods
of declining rates, ARMs generally do not increase in value as much as fixed
rate securities. ARM mortgage-backed securities represent a right to receive
interest payments at a rate that is adjusted to reflect the interest earned on
a pool of ARMs. ARMs generally provide that the borrower's mortgage interest
rate may not be adjusted above a specified lifetime maximum

2
<PAGE>

rate or, in some cases, below a minimum lifetime rate. In addition, certain
ARMs provide for limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. ARMs also may
provide for limitations on changes in the maximum amount by which the
borrower's monthly payment may adjust for any single adjustment period. In the
event that a monthly payment is not sufficient to pay the interest accruing on
the ARM, any such excess interest is added to the mortgage loan ("negative
amortization"), which is repaid through future monthly payments. If the
monthly payment exceeds the sum of the interest accrued at the applicable
mortgage interest rate and the principal payment that would have been
necessary to amortize the outstanding principal balance over the remaining
term of the loan, the excess reduces the principal balance of the ARM.
Borrowers under ARMs experiencing negative amortization may take longer to
build up their equity in the underlying property and may be more likely to
default.

The rates of interest payable on certain ARMs, and therefore on certain ARM
mortgage-backed securities, are based on indices, such as the one-year
constant maturity Treasury rate, that reflect changes in market interest
rates. Others are based on indices, such as the 11th District Federal Home
Loan Bank Cost of Funds index ("COFI"), that tend to lag behind changes in
market interest rates. The values of ARM mortgage-backed securities supported
by ARMs that adjust based on lagging indices tend to be somewhat more
sensitive to interest rate fluctuations than those reflecting current interest
rate levels, although the values of such ARM mortgage-backed securities still
tend to be less sensitive to interest rate fluctuations than fixed-rate
securities.

Floating rate mortgage-backed securities are classes of mortgage-backed
securities that have been structured to represent the right to receive
interest payments at rates that fluctuate in accordance with an index but that
generally are supported by pools comprised of fixed-rate mortgage loans. As
with ARM mortgage-backed securities, interest rate adjustments on floating
rate mortgage-backed securities may be based on indices that lag behind market
interest rates. Interest rates on floating rate mortgage-backed securities
generally are adjusted monthly. Floating rate mortgage-backed securities are
subject to lifetime interest rate caps, but they generally are not subject to
limitations on monthly or other periodic changes in interest rates or monthly
payments.

SPECIAL CHARACTERISTICS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield
characteristics of mortgage- and asset-backed securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans or
other obligations generally may be prepaid at any time. Prepayments on a pool
of mortgage loans are influenced by a variety of economic, geographic, social
and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties
and servicing decisions. Generally, however, prepayments on fixed-rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Similar factors apply to
prepayments on asset-backed securities, but the receivables underlying asset-
backed securities generally are of a shorter maturity and thus are less likely
to experience substantial prepayments. Such securities, however, often provide
that for a specified time period the issuers will replace receivables in the
pool that are repaid with comparable obligations. If the issuer is unable to
do so, repayment of principal on the asset-backed securities may commence at
an earlier date. Mortgage- and asset-backed securities may decrease in value
as a result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayment.

ARMs also may be subject to a greater rate of prepayments in a declining
interest rate environment. For example, during a period of declining interest
rates, prepayments on ARMs could increase because the

3
<PAGE>

availability of fixed rate mortgage loans at competitive interest rates may
encourage mortgagors to "lock-in" at a lower interest rate. Conversely, during
a period of rising interest rates, prepayments on ARMs might decrease. The
rate of prepayments with respect to ARMs has fluctuated in recent years.

The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool for
passing through monthly payments to certificateholders and to any guarantor,
and due to any yield retained by the issuer. Actual yield to the holder may
vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the
issuer receives mortgage payments from the servicer and the time the issuer
makes the payments on the mortgage-backed securities, and this delay reduces
the effective yield to the holder of such securities.

Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools
of fixed rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of declining interest rates,
the rate of prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-backed securities. Conversely, in periods
of rising interest rates, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the pool. However, these effects may
not be present, or may differ in degree, if the mortgage loans in the pools
have adjustable interest rates or other special payment terms, such as a
prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
Reinvestments of prepayments may occur at lower interest rates than the
original investment, thus adversely affecting the yield of the Fund.

HEDGING AND RELATED INCOME STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes
referred to as "futures") and options on futures contracts to attempt to hedge
Balanced Fund's portfolio and to enhance income.

Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund
takes a position in a Hedging Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged. For
example, the Fund might purchase a put option on a security to hedge against a
potential decline in the value of that security. If the price of the security
declined below the exercise price of the put, the Fund could exercise that put
and thus limit its loss below the exercise price to the premium paid plus
transaction costs. In the alternative, because the value of the put option can
be expected to increase as the value of the underlying security declines, the
Fund might be able to close out the put option and realize a gain to offset
the decline in the value of the security.

Conversely, a long hedge is a purchase or sale of a Hedging Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Hedging Instrument whose price is
expected to move in

4
<PAGE>

the same direction as the price of the prospective investment being hedged.
For example, the Fund might purchase a call option on a security it intends to
purchase in order to hedge against an increase in the cost of the security. If
the price of the security increased above the exercise price of the call, the
Fund could exercise the call and thus limit its acquisition cost to the
exercise price plus the premium paid and transaction costs. Alternatively, the
Fund might be able to offset the price increase by closing out an appreciated
call option and realizing a gain.

Balanced Fund may purchase and write (sell) covered straddles on securities
or indices of debt securities. A long straddle is a combination of a call and
a put option purchased on the same security or on the same futures contract,
where the exercise price of the put is less than or equal to the exercise
price of the call. The Fund might enter into a long straddle when Mitchell
Hutchins believes it likely that interest rates will be more volatile during
the term of the option than the option pricing implies. A short straddle is a
combination of a call and a put written on the same security where the
exercise price of the put is less than or equal to the exercise price of the
call. The Fund might enter into a short straddle when Mitchell Hutchins
believes it unlikely that interest rates will be as volatile during the term
of the option as the option pricing implies.

Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on debt securities may be used to
hedge either individual securities or broad fixed income market sectors.

The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, the Fund's ability to use Hedging Instruments will
be limited by tax considerations. See "Taxes."

In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins expect to discover additional opportunities in
connection with options, futures contracts and other hedging techniques. These
new opportunities may become available as Mitchell Hutchins develop new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts or other techniques are
developed. Mitchell Hutchins may utilize these opportunities to the extent
that they are consistent with the Fund's investment objectives and permitted
by the Fund's investment limitations and applicable regulatory authorities.
The Fund's Prospectus or Statement of Additional Information will be
supplemented to the extent that new products or techniques involve materially
different risks than those described below or in the Prospectus.

Special Risks of Hedging Strategies. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow:

(1) Successful use of most Hedging Instruments depends upon Mitchell
Hutchins' ability to predict movements of the overall securities and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. While Mitchell Hutchins is experienced in the
use of Hedging Instruments, there can be no assurance that any particular
hedging strategy adopted will succeed.

(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the investments
being hedged. For example, if the value of a Hedging Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors

5
<PAGE>

unrelated to the value of the investments being hedged, such as speculative or
other pressures on the markets in which Hedging Instruments are traded.

(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because Mitchell Hutchins projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not hedged at all.

(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options). If the Fund were unable to
close out its positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair the Fund's
ability to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The Fund's ability to close out
a position in a Hedging Instrument prior to expiration or maturity depends on
the existence of a liquid secondary market or, in the absence of such a
market, the ability and willingness of a contra party to enter into a
transaction closing out the position. Therefore, there is no assurance that
any hedging position can be closed out at a time and price that is favorable
to the Fund.

Cover for Hedging Strategies. Transactions using Hedging Instruments, other
than purchased options, expose the Fund to an obligation to another party. The
Fund will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options on futures
contracts or (2) cash, receivables and short-term liquid debt securities, with
a value sufficient at all times to cover its potential obligations to the
extent not covered as provided in (1) above. The Fund will comply with SEC
guidelines regarding cover for hedging transactions and will, if the
guidelines so require, set aside cash, U.S. government securities or other
liquid, high-grade debt securities in a segregated account with its custodian
in the prescribed amount.

Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion
of the Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

Options. The Funds may purchase put and call options, and write (sell)
covered put and call options, on equity and debt securities. The purchase of
call options serves as a long hedge, and the purchase of put options serves as
a short hedge. Writing covered put or call options can enable the Fund to
enhance income by reason of the premiums paid by the purchasers of such
options. In addition, writing covered put options serves as a limited long
hedge, because increases in the value of the hedged investment would be offset
to the extent of the premium received for writing the option. However, if the
market price of the security underlying a covered put option declines to less
than the exercise price of the option, minus the premium received, the Fund
would expect to suffer a loss. Writing covered call options serves as a
limited short hedge, because declines in the value of the hedged investment
would be offset to the extent of the premium received for

6
<PAGE>

writing the option. However, if the security appreciates to a price higher
than the exercise price of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to sell the security at less
than its market value. The securities or other assets used as cover for OTC
options written by the Fund would be considered illiquid to the extent
described under "Investment Policies and Restrictions--Illiquid Securities."

The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration
dates of up to nine months. Generally, OTC options on debt securities are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option. Options that expire unexercised have no value.

The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit the Fund to realize
profits or limit losses on an option position prior to its exercise or
expiration.

The Fund may purchase or write both exchange-traded and OTC options.
Exchange markets for options on debt securities and foreign currencies exist
but are relatively new, and these instruments are primarily traded on the OTC
market. Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
in contrast, OTC options are contracts between the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Fund purchases or writes an OTC option, it relies on
the contra party to make or take delivery of the underlying investment upon
exercise of the option. Failure by the contra party to do so would result in
the loss of any premium paid by the Fund as well as the loss of any expected
benefit of the transaction. The Fund will enter into OTC option transactions
only with contra parties that have a net worth of at least $20 million.

The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears
to be a liquid secondary market. However, there can be no assurance that such
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency
of the contra party, the Fund might be unable to close out an OTC option
position at any time prior to its expiration.

If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by the Fund could cause material losses because the Fund would
be unable to sell the investment used as cover for the written option until
the option expires or is exercised.

7
<PAGE>

The Fund may purchase and write put and call options on indices of debt
securities in much the same manner as the more traditional options discussed
above, except the index options may serve as a hedge against overall
fluctuations in the debt securities market (or market sectors) rather than
anticipated increases or decreases in the value of a particular security.

Guidelines for Options. The Fund's use of options is governed by the
following guidelines, which can be changed by the Corporation's board of
directors without shareholder vote:

1. The Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums
on all other options purchased by the Fund, does not exceed 5% of the Fund's
total assets.

2. The aggregate value of securities underlying put options written by the
Fund determined as of the date the put options are written, will not exceed
50% of the Fund's net assets.

3. The aggregate premiums paid on all options (including options on
securities, foreign currencies and indices of debt securities and options on
futures contracts) purchased by the Fund that are held at any time will not
exceed 20% of the Fund's net assets.

Futures. The Fund may purchase and sell interest rate futures contracts,
stock index futures contracts and debt securities index futures contracts. The
Fund also may purchase put and call options, and write covered put and call
options, on the futures contracts it is allowed to purchase and sell. The
purchase of futures or call options thereon can serve as a long hedge, and the
sale of futures or the purchase of put options thereon can serve as a short
hedge. Writing covered call options on futures contracts can serve as a
limited short hedge, and writing covered put options on futures contracts can
serve as a limited long hedge, using a strategy similar to that used for
writing covered call options on securities or indices.

Futures strategies also can be used to manage the average duration of the
Fund's portfolio. If Mitchell Hutchins wishes to shorten the average duration
of the Fund, the Fund may sell an interest rate futures contract or a call
option thereon, or purchase a put option on that futures contract. If Mitchell
Hutchins wishes to lengthen the average duration of the Fund, the Fund may buy
an interest rate futures contract or a call option thereon or sell a put
option thereon.

The Fund may also write put options on interest rate futures contracts while
at the same time purchasing call options on the same futures contracts in
order synthetically to create a long futures contract position. Such options
would have the same strike prices and expiration dates. The Fund will engage
in this strategy only when it is more advantageous to the Fund than is
purchasing the futures contract.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract, the Fund is required to deposit in a
segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of
cash, U.S. government securities or other liquid, high-grade debt securities,
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.

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Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a put or call option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.

Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to
the instrument held or written. Positions in futures and options on futures
may be closed only on an exchange or board of trade that provides a secondary
market. The Fund intends to enter into futures transactions only on exchanges
or boards of trade where there appears to be a liquid, secondary market.
However, there can be no assurance that such a market will exist for a
particular contract at a particular time.

Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.

If the Fund were unable to liquidate a futures or options position due to
the absence of a liquid secondary market or the imposition of price limits, it
could incur substantial losses. The Fund would continue to be subject to
market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a
segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might
be increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.

Guidelines for Futures and Related Options. The Fund's use of futures and
related options is governed by the following guidelines which can be changed
by the Corporation's board of directors without shareholder vote:

1. To the extent the Fund enters into futures contracts and options on
futures positions traded on a commodities exchange that are not for bona fide
hedging purposes (as defined by the CFTC), the aggregate

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<PAGE>

initial margin and premiums on those positions (excluding the amount by which
options are "in-the-money") may not exceed 5% of the Fund's net assets.

2. The aggregate premiums paid on all options (including options on
securities, foreign currencies and indices of debt securities and options on
futures contracts) purchased by the Fund that are held at any time will not
exceed 20% of the Fund's net assets.

3. The aggregate margin deposits on all futures contracts and options
thereon held at any time by the Fund will not exceed 5% of the Fund's total
assets.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which
Balanced Fund purchases securities from a bank or recognized securities dealer
and simultaneously commits to resell the securities to the bank or dealer at
an agreed-upon date and price reflecting a market rate of interest unrelated
to the coupon rate or maturity of the purchased securities. The Fund maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date
agreed to is, in effect, secured by such securities. If the value of such
securities is less than the repurchase price, plus any agreed-upon additional
amount, the other party to the agreement must provide additional collateral so
that at all times the collateral is at least equal to the repurchase price,
plus any agreed-upon additional amount. The difference between the total
amount to be received upon repurchase of the securities and the price that was
paid by the Fund upon their acquisition is accrued as interest and included in
the Fund's net investment income.

Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to Balanced Fund if the other
party to a repurchase agreement becomes insolvent. The Fund intends to enter
into repurchase agreements only with banks and dealers in transactions
believed by Mitchell Hutchins to present minimal credit risks in accordance
with guidelines established by the Corporation's board of directors. Mitchell
Hutchins will review and monitor the creditworthiness of those institutions
under the board's general supervision.

REVERSE REPURCHASE AGREEMENTS. Balanced Fund may enter into reverse
repurchase agreements with banks and securities dealers up to an aggregate
value of not more than 5% of its total assets. Such agreements involve the
sale of securities held by the Fund subject to its agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, the Fund's custodian segregates assets to cover the
Fund's obligations under the reverse repurchase agreement. See "Investment
Policies and Restrictions--Segregated Accounts."

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. A security purchased on a when-
issued or delayed delivery basis is recorded as an asset on the commitment
date and is subject to changes in market value, generally based upon changes
in the level of interest rates. Thus, fluctuation in the value of the security
from the time of the commitment date will affect Balanced Fund's net asset
value. When the Fund commits to purchase securities on a when-issued or
delayed delivery basis, its custodian segregates assets to cover the amount of
the commitment. See "Investment Policies and Restrictions--Segregated
Accounts." The Fund purchases when-issued securities only with the intention
of taking delivery, but may sell the right to acquire the security prior to
delivery if Mitchell Hutchins deems it advantageous to do so, which may result
in a gain or loss to the Fund.

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<PAGE>

ILLIQUID SECURITIES. Balanced Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities. Under current guidelines of the staff of the Securities and
Exchange Commission ("SEC"), interest-only ("IO") and principal-only ("PO")
classes of mortgage-backed securities are considered illiquid. However, IO and
PO classes of fixed-rate mortgage-backed securities issued by the U.S.
government or one of its agencies or instrumentalities will not be considered
illiquid if Mitchell Hutchins has determined that they are liquid pursuant to
guidelines established by the Corporation's board of directors. Illiquid
securities also are considered to include, among other things, repurchase
agreements with maturities in excess of seven days and securities whose
disposition is restricted under the federal securities laws (other than "Rule
144A" securities and certain commercial paper that Mitchell Hutchins has
determined to be liquid under procedures approved by the Corporation's board
of directors). Certain illiquid restricted securities may be sold only in
privately negotiated transactions or in public offerings with respect to which
a registration statement is in effect under the Securities Act of 1933 ("1933
Act"). Where registration is required, the Fund may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time the Fund may be permitted to
sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a
less favorable price than prevailed when it decided to sell.

Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and
notes. These instruments are often restricted securities because the
securities are sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that
there are contractual or legal restrictions on resale to the general public or
certain institutions is not dispositive of the liquidity of such investments.

Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted
securities that might develop as a result of Rule 144A could provide both
readily ascertainable values for restricted securities and the ability to
liquidate an investment to satisfy share redemption orders. Such markets might
include automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. An
insufficient number of qualified institutional buyers interested in purchasing
Rule 144A-eligible restricted securities held by the Fund, however, could
affect adversely the marketability of such portfolio securities, and the Fund
might be unable to dispose of such securities promptly or at favorable prices.

The Corporation's board of directors has delegated the function of making
day-to-day determinations of liquidity to Mitchell Hutchins, pursuant to
guidelines approved by the board. Mitchell Hutchins takes into account a
number of factors in reaching liquidity decisions, including (1) the frequency
of trades for the security, (2) the number of dealers that make quotes for the
security, (3) the number of dealers that have undertaken to make a market in
the security, (4) the number of other potential purchasers and (5) the nature
of the security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited

11
<PAGE>

and the mechanics of transfer). Mitchell Hutchins will monitor the liquidity
of restricted securities in the Fund's portfolio and report periodically on
such decisions to the board of directors.

SECTION 4(2) PAPER. Commercial paper issues in which Balanced Fund may
invest include securities issued by major corporations without registration
under the 1933 Act in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof and commercial paper issued in reliance on
the so-called "private placement" exemption from registration afforded by
Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the
assistance of investment dealers who make a market in Section 4(2) paper, thus
providing liquidity. The Fund's 10% limitation on investments in illiquid
securities includes Section 4(2) paper other than Section 4(2) paper that
Mitchell Hutchins has determined to be liquid pursuant to guidelines
established by the Corporation's board of directors. The board has delegated
to Mitchell Hutchins the function of making day-to-day determinations of
liquidity with respect to Section 4(2) paper, pursuant to guidelines approved
by the board that require Mitchell Hutchins to take into account the same
factors described under "Illiquid Securities" above for other restricted
securities and require Mitchell Hutchins to perform the same monitoring and
reporting functions.

SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. To the extent
Balanced Fund holds securities of foreign issuers, such securities may not be
registered with the SEC, nor are the issuers thereof subject to its reporting
requirements. Accordingly, there may be less publicly available information
concerning foreign issuers of securities held by the Fund than is available
concerning U.S. companies. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory requirements comparable to those applicable to U.S. companies.

The Fund invests in securities of foreign issuers only if such securities
are traded in the U.S. securities markets directly or through American
Depository Receipts ("ADRs"). Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the U.S. securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. For purposes of the Fund's
investment policies, ADRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR evidencing ownership of
common stock will be treated as common stock.

Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to
which the Fund would be subject.

CONVERTIBLE SECURITIES. Balanced Fund is permitted to invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security
entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities
have characteristics similar to non-convertible debt securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure but are
usually subordinated to comparable non-convertible securities. While no
securities investment is without some risk, investments in convertible
securities generally

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<PAGE>

entail less risk than the issuer's common stock, although the extent to which
such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock because they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.

The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the security's worth, at market value, if converted
into the underlying common stock). The investment value of a convertible
security is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline.
The credit standing of the issuer and other factors also may have an effect on
the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its
investment value and generally the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of
the underlying common stock approaches or exceeds the conversion price, the
price of the convertible security will be increasingly influenced by its
conversion value. In addition, a convertible security generally will sell at a
premium over its conversion value determined by the extent to which investors
place value on the right to acquire the underlying common stock while holding
a fixed income security.

SEGREGATED ACCOUNTS. When Balanced Fund enters into certain transactions
that involve obligations to make future payments to third parties, including
the purchase of securities on a when-issued or delayed delivery basis or
reverse repurchase agreements, the Fund will maintain with an approved
custodian in a segregated account cash, U.S. government securities or other
liquid high-grade debt securities, marked to market daily, in an amount at
least equal to the Fund's obligation or commitment under such transactions.

SHORT SALES "AGAINST THE BOX." As indicated in the Prospectus, Balanced Fund
may engage in short sales of securities it owns or has the right to acquire at
no added cost through conversion or exchange of other securities it owns
(short sales "against the box") to defer realization of gains or losses for
tax or other purposes. To make delivery to the purchaser in a short sale, the
executing broker borrows the securities being sold short on behalf of the
Fund, and the Fund is obligated to replace the securities borrowed at a date
in the future. When the Fund sells short, it will establish a margin account
with the broker effecting the short sale and will deposit collateral with the
broker. In addition, the Fund will maintain with its custodian, in a
segregated account, the securities that could be used to cover the short sale.
The Fund will incur transaction costs, including interest expense, in
connection with opening, maintaining and closing short sales against the box.
The Fund currently does not intend to have obligations under short sales that
at any time during the coming year exceed 5% of the Fund's net assets.

The Fund might make a short sale "against the box" in order to hedge against
market risks when Mitchell Hutchins believes that the price of a security may
decline, thereby causing a decline in the value of a security owned by the
Fund or a security convertible into or exchangeable for a security owned by
the Fund, or when Mitchell Hutchins wants to sell a security that the Fund
owns at a current price, but also wishes to defer recognition of gain or loss
for federal income tax purposes. In such case, any loss in the Fund's long
position after the short sale should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a
loss in the short position. The extent to which gains or losses in the long
position are reduced will depend upon the amount of the securities sold short
relative to the amount of the securities the

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<PAGE>

Fund owns, either directly or indirectly, and in the case where the Fund owns
convertible securities, changes in the investment values or conversion
premiums of such securities.

TACTICAL ALLOCATION FUND

DERIVATIVE INSTRUMENTS. Tactical Allocation Fund anticipates that the Note
Segment and the Stock Segment (as described in the Prospectus) of its
portfolio investments will remain invested in five-year U.S. Treasury Notes or
common stocks, respectively, to the degree mandated by its 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 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. Tactical Allocation 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 Tactical Allocation 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.

To the extent required by the laws of certain states, the Fund may not be
permitted to commit more than 5% of its assets to premiums when purchasing
call and put options on securities. Should these state laws

14
<PAGE>

change or should the Fund obtain a waiver of their application, the Fund may
commit more than 5% of its assets to premiums when purchasing call and put
options on securities. In addition, should the Trust determine that a
commitment is no longer in the best interests of the Fund and its
shareholders, the Trust will revoke the commitment by terminating the sale of
the Fund's shares in the state involved.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Tactical Allocation 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.

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

The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without its necessarily
buying or selling the securities. Because the value of the Fund's investment
securities will exceed the value of the futures contracts sold by the Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets. No
consideration is paid or received by the Fund upon trading a futures contract.
Upon trading a futures

15
<PAGE>

contract, the Fund is required to deposit in a segregated account with its
custodian an amount of cash, short-term U.S. Treasury Bills or Notes or other
high-grade, short-term money market instruments equal to approximately 1% to
10% of the contract amount (this amount is subject to change by the exchange
on which the contract is traded and brokers may charge a higher amount). This
amount is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract that is returned to the Fund upon
termination of the futures contract, assuming that all contractual obligations
have been satisfied; the broker will have access to amounts in the margin
account if the Fund fails to meet its contractual obligations. Subsequent
payments, known as "variation margin," to and from the broker, are made daily
as the price of the securities underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, the Fund may elect to close a position by
taking an opposite position, which will operate to terminate the Fund's
existing position in the contract.

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

The Fund may purchase and write put and call options on stock index future
contracts that are traded on a U.S. exchange or board of trade or a foreign
exchange, to the extent permitted under rules and interpretations of the CFTC,
as a hedge against changes in market conditions, and may enter into closing
transactions with respect to those options to terminate existing positions. No
assurance can be given that the closing transactions can be effected.

REPURCHASE AGREEMENTS. In order to manage cash flows resulting from the
continuous sale and redemption of its shares, Tactical Allocation 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.

16
<PAGE>

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices or yields
deemed advantageous at a particular time, Tactical Allocation 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.

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

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

INVESTMENT LIMITATIONS OF THE FUNDS

BALANCED FUND. The Fund will not:

(1) purchase securities of any one issuer if, as a result, more than 5%
of the Fund's total assets would be invested in securities of that issuer
or the Fund would own or hold more than 10% of the outstanding voting
securities of that issuer, except that up to 25% of the Fund's total assets
may be invested without regard to this limitation, and except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies and instrumentalities or to securities issued by
other investment companies.

17
<PAGE>

The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the
securities having the same sponsor, and mortgage- and asset-backed
securities issued by a finance or other special purpose subsidiary that are
not guaranteed by the parent company will be considered to be issued by a
separate issuer from the parent company.

(2) purchase any security if, as a result of that purchase, 25% or more
of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or to municipal
securities.

(3) issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount of the senior securities issued but reduced by any
liabilities not constituting senior securities) at the time of the issuance
or borrowing, except that the Fund may borrow up to an additional 5% of its
total assets (not including the amount borrowed) for temporary or emergency
purposes.

(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers'
acceptances or similar instruments will not be considered the making of a
loan.

(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter under
the federal securities laws in connection with its disposition of portfolio
securities.

(6) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by
interests in real estate are not subject to this limitation, and except
that the Fund may exercise rights under agreements relating to such
securities, including the right to enforce security interests and to hold
real estate acquired by reason of such enforcement until that real estate
can be liquidated in an orderly manner.

(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase, sell or
enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.

The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Fund or (2) 67% or more of the shares present at a shareholders'
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. If a percentage restriction is adhered to at
the time of an investment or transaction, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total assets will not be considered a violation of any of the foregoing
limitations.

The following investment restrictions may be changed by the vote of the
Corporation's board of directors without shareholder approval. The Fund may
not:

(1) purchase or retain the securities of any issuer if, to the knowledge
of the Fund's management, the officers and directors of the Corporation and
Mitchell Hutchins (each owning beneficially more than

18
<PAGE>

1/2 of 1% of the outstanding securities of the issuer) own in the aggregate
more than 5% of the securities of such issuer.

(2) invest more than 10% of its net assets in illiquid securities, a term
that means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund
has valued the securities and includes, among other things, repurchase
agreements maturing in more than seven days.

(3) purchase any security if as a result more than 5% of the value of the
Fund's total assets would be invested in securities of companies that
together with any predecessors have been in continuous operation for less
than three years.

(4) make investments in warrants, if such investments, valued at the
lower of cost or market, exceed 5% of the value of the Fund's net assets,
which amount may include warrants that are not listed on the New York Stock
Exchange, Inc. ("NYSE") or the American Stock Exchange, Inc. provided that
such unlisted warrants, valued at the lower of cost or market, do not
exceed 2% of the Fund's net assets, and further provided that this
restriction does not apply to warrants attached to, or sold as a unit with,
other securities.

(5) invest more than 35% of its total assets in debt securities rated Ba
or lower by Moody's or BB or lower by S&P, comparably rated by another
NRSRO or determined by Mitchell Hutchins to be of comparable quality. This
non-fundamental policy (5) can be changed only upon 30 days' advance notice
to shareholders.

(6) purchased securities on margin, except for short-term credit
necessary for clearance of portfolio transactions and except that the Fund
may make margin deposits in connection with its use of financial options
and futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments.

(7) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short "against the box" and (b) maintain
short positions in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

(8) invest in oil, gas or mineral exploration or development programs or
leases, except that investments in securities of issuers that invest in
such programs or leases and investments in asset-backed securities
supported by receivables generated from such programs or leases are not
subject to this prohibition.

(9) purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and except that this limitation does not
apply to securities received or acquired as dividends, through offers of
exchange, or as a result of reorganization, consolidation, or merger.

TACTICAL ALLOCATION FUND. The Fund will not:

19
<PAGE>

(2) The Fund will not purchase any security if, as a result of that
purchase, 25% or more of the Fund's total assets would be invested in
securities of issuers having their principal business activities in the
same industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to municipal securities.

The following investment restrictions may be changed by the vote of the
Corporation's board of directors without shareholder approval. The Fund may
not:

(1) invest in oil, gas or other mineral leases or exploration or
development programs.

(2) purchase any security, other than a security acquired pursuant to a
plan of reorganization or an offer of exchange, if as a result of the
purchase (a) the Fund would own any securities of an open-end investment
company or more than 3% of the total outstanding voting stock of any
closed-end investment company or (b) more than 5% of the value of the
Fund's total assets would be invested in securities of any one or more
closed-end investment companies.

(3) participate on a joint or joint-and-several basis in any securities
trading account.

(4) make investments for the purpose of exercising control of management.

20
<PAGE>

(5) purchase any security, if as a result of the purchase, the Fund would
then have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous operation
for fewer than three years.

(6) purchase or retain securities of any company if, to the knowledge of
the Fund, any of the Trust's Trustees or officers or any officer or
director of Mitchell Hutchins individually owns more than 5% of the
outstanding securities of the company and together they own beneficially
more than 5% of the securities.

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

(8) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the Fund may make
margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

(9) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short "against the box" and (b) maintain
short positions in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

DIRECTORS, TRUSTEES AND OFFICERS

The directors, trustees and executive officers of the Corporation and/or the
Trust, their ages, business addresses and principal occupations during the
past five years are:

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Margo N. Alexander**; 49 Director/Trustee and Mrs. Alexander is president, chief
President executive officer and a director of
Mitchell Hutchins (since January
1995), Mrs. Alexander is an execu-
tive vice president and director of
PaineWebber. Mrs. Alexander is also
a director or trustee of 29 invest-
ment companies and president of 29
other investment companies for
which Mitchell Hutchins or Paine-
Webber serves as investment advis-
er.
Richard O. Armstrong; 60 Director/Trustee Mr. Armstrong is chairman and prin-
78 West Brother Drive cipal of ROA Enterprises (manage-
Greenwich, CT 06830 ment consulting firm) (since April
1991 and principal occupation since
March 1995). Mr. Armstrong is also
a director of Hi Lo Automotive,
Inc. He was chairman of the board,
chief executive officer and co-
owner of Adirondack Beverages (pro-
ducer and distributor of soft
drinks and sparkling/still waters)
(October 1993-
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
March 1995). He was a partner of
The New England Consulting Group
(management consulting firm) (De-
cember 1992-September 1993). He was
managing director of LVMH U.S. Cor-
poration (U.S. subsidiary of the
French luxury goods conglomerate,
Luis Vuitton Moet Hennessey Corpo-
ration) (1987-1991) and chairman of
its wine and spirits subsidiary,
Schieffelin & Somerset Company
(1987-1991). Mr. Armstrong is also
a director or trustee of 28 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as in vestment adviser.
E. Garrett Bewkes, Director/Trustee and Mr. Bewkes is a director of, and
Jr.**; 69 Chairman of the Board of consultant to PaineWebber Group
Directors/Trustees Inc. ("PW Group") (holding company
of PaineWebber and Mitchell
Hutchins). Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company.
Mr. Bewkes is also a director of
Interstate Bakeries Corporation and
NaPro BioTherapeutics, Inc. and a
director or trustee of 29 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Richard R. Burt; 49 Director/Trustee Mr. Burt is chairman of Interna-
1101 Connecticut Ave- tional Equity Partners (interna-
nue, N.W. tional investments and consulting
Washington, D.C. firm) (since March 1994) and a
20036 partner of McKinsey & Company (man-
agement consulting firm) (since
1991). He is also a director of
American Publishing Company. He was
the chief negotiator in the Strate-
gic Arms Reduction Talks with the
former Soviet Union (1989-1991) and
the U.S. Ambassador to the Federal
Republic of Germany (1985-1989).
Mr. Burt is also a director or
trustee of 28 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Mary C. Farrell**; 46 Director/Trustee Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy
Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982.
She is a member of the Financial
Women's Association and Women's
Economic Roundtable, and is em-
ployed as a regular panelist on
Wall Street Week with Louis
Rukeyser. She also serves on the
Board of Overseers of New York
University's Stern School of Busi-
ness. Ms. Farrell also is a direc-
tor or trustee of 28 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Meyer Feldberg; 54 Director/Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York versity. Prior to 1989, he was
10027 president of the Illinois Institute
of Technology. Dean Feldberg is
also a director of AMSCO Interna-
tional Inc., Federated Department
Stores, Inc. and New World Communi-
cations Group Incorporated and a
director or trustee of 28 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
George W. Gowen; 66 Director/Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York Miller. Prior to May 1994, he was a
10017 partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. and a di rector
or trustee of 28 other investment
companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Frederic V. Malek; 59 Director/Trustee Mr. Malek is chairman of Thayer Cap-
901 15th Street, N.W. ital Partners (investment bank) and
Suite 300 a co-chairman and director of DB
Washington, D.C. Commercial Group Inc. (real es-
20005 tate). From January 1992 to Novem-
ber 1992, he was campaign manager
of Bush-Quayle '92. From 1990 to
1992, he was vice chairman and,
from 1989 to 1990, he was president
of Northwest
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Airlines Inc. NWA Inc. (holding
company of Northwest Airlines Inc.)
and Wings Holdings Inc. (holding
company of NWA Inc.). Prior to
1989, he was employed by the
Marriott Corporation (hotels, res-
taurants, airline catering and con-
tract feeding), where he most re-
cently was an executive vice presi-
dent and president of Marriott Ho-
tels and Resorts. Mr. Malek is also
a director of American Management
Systems, Inc., Automatic Data
processing, Inc., Avis, Inc., FPL
Group, Inc., National Education
Corporation and Northwest Airlines
Inc. and a director or trustee of
28 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Carl W. Schafer; 60 Director/Trustee Mr. Schafer is president of the At-
P.O. Box 1164 lantic Foundation (charitable foun-
Princeton, New Jersey dation supporting mainly oceano-
08542 graphic exploration and research).
He also is a director of Roadway
Express, Inc. (trucking). The
Guardian Group of Mutual Funds, Ev-
ans Systems, Inc. (a motor fuels,
convenience store and diversified
company), Hidden Lake Gold Mines
Ltd. (gold mining), Electronic
Clearing House, Inc. (financial
transactions processing), Wainoco
Oil Corporation and Nutraceutix
Inc. (biotechnology). Prior to Jan-
uary 1993, Mr. Schafer was chairman
of the Investment Advisory Commit-
tee of the Howard Hughes Medical
Institute. Mr. Schafer also is a
director or trustee of 28 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
John R. Torell III; 56 Director/Trustee Mr. Torrell is chairman of Torell
767 Fifth Avenue Management, Inc. (financial advi-
Suite 4605 sory firm) (since 1989), chairman
New York, NY 10153 of Telesphere Corporation (elec-
tronic provider of financial infor-
mation) and a partner of Zilkha &
Company (merchant banking and pri-
vate
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
investment company). He is the for-
mer chairman and chief executive
officer of Fortune Bancorp (since
1990-1991 and 1990-1994, respec-
tively), the former chairman, pres-
ident and chief executive officer
of CalFed, Inc. (savings associa-
tion) (1988 to 1989) and former
president of Manufacturers Hanover
Corp. (bank) (prior to 1988). Mr.
Torell is also a director of Ameri-
can Home Products Corp., New Colt
Inc. (armament manufacturer) and
Volt Information Sciences Inc. Mr.
Torell is a director or trustee of
28 other investment companies for
which Mitchell Hutchins or Paine-
Webber serves as investment advis-
er.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president
and manager--advisory administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital Manage-
ment, Inc., an investment advisory
firm. Prior to April 1993,
Ms. Boyle was a vice president and
manager--legal administration of
Mitchell Hutchins. Ms. Boyle is
also a vice president of 29 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was an
associate at the law firm of Seward
& Kissel. Ms. Cohen is also a vice
president and assistant secretary
of 24 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
C. William Maher; 35 Vice President and Mr. Maher is a first vice president
Assistant Treasurer and a senior manager of the mutual
fund finance division of Mitchell
Hutchins. Mr. Maher is also a vice
president and assistant treasurer
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Ann E. Moran; 38 Vice President Ms. Moran is a vice president of
and Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assistant
treasurer of 29 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice pres-
Secretary ident and deputy general counsel of
Mitchell Hutchins. Ms. O'Donnell is
also a vice president and secretary
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director
45 and general counsel of Mitchell
Hutchins. From April 1990 to May
1994, she was a partner in the New
York office of the law firm of Ar-
nold & Porter. Prior to April 1990,
she was a partner in the law firm
of Shereff, Friedman, Hoffman
& Goodman. Ms. Schonfeld is also a
vice president of 29 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 33 Vice President Mr. Schubert is a first vice presi-
and Assistant Treasurer dent and a senior manager of the
mutual fund finance division of
Mitchell Hutchins. From August 1992
to August 1994, he was a vice pres-
ident of BlackRock Financial Man-
agement, Inc. Prior to August 1992,
he was an audit manager with Ernst
& Young LLP. Mr. Schubert is also a
vice president and assistant trea-
surer of 29 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice presi-
Treasurer dent and the director of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1991, he was an
audit senior manager with Ernst &
Young LLP. Mr. Sluyters is
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
also a vice president and treasurer
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Gregory K. Todd; 39 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Keith A. Weller; 34 Vice President and Mr. Weller is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. From September
1987 to May 1995, he was an attor-
ney in private practice. Mr. Weller
is also a vice president and assis-
tant secretary of 23 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dennis McCauley; 49 Vice President Mr. McCauley is a managing director
and chief investment officer--fixed
income of Mitchell Hutchins. Prior
to December 1994, he was Director
of Fixed Income Investments of IBM
Corporation. Mr. McCauley is also a
vice president of 16 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Nirmal Singh; 39 Vice President Mr. Singh is a first vice president
(Master Series, Inc.) of Mitchell Hutchins. Prior to Sep-
tember 1993, he was a member of the
portfolio management team at Mer-
rill Lynch Asset Management, Inc.
Mr. Singh is vice president of four
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Craig M. Varrelman; 37 Vice President Mr. Varrelman is a first vice presi-
(Master Series, Inc.) dent of Mitchell Hutchins. Mr. Var-
relman is also a vice president of
four other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
T. Kirkham Barneby; 49 Vice President Mr. Barneby is a managing director
(Master Series, Inc.) and chief investment officer--quan-
titative investments of Mitchell
Hutchins. Prior to September 1994,
he was a senior vice president at
Vantage Global Management. Prior to
June 1993, he was a senior vice
president at Mitchell Hutchins In-
stitutional Investors, Inc.
Susan P. Messina; 35 Vice President Ms. Messina is a senior vice presi-
(Masters Series, Inc.) dent and portfolio manager for
Mitchell Hutchins.
Mark A. Tincher; 40 Vice President Mr. Tincher is a managing director
(Master Series, Inc.) and chief investment officer--U.S.
equity investments of Mitchell
Hutchins. Prior to March 1995, he
was a vice president and directed
the U.S. funds management and eq-
uity research areas of Chase Man-
hattan Private Bank.
Stuart Waugh; 40 Vice President Mr. Waugh is a managing director and
(Investment Series Trust) portfolio manager of Mitchell
Hutchins responsible for global
fixed income investments and cur-
rency trading.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of the
Corporation and the Trust as defined in the Investment Company Act of 1940
("1940 Act") by virtue of their positions with PW Group, Mitchell Hutchins
and/or PaineWebber.

Each Fund pays directors/trustees who are not interested persons of the
Corporation/Trust ("disinterested directors/trustees") $1,000 annually per
Fund. Each Fund also pay its disinterested directors/trustees $150 per meeting
of the board or any committee thereof. Directors/trustees are reimbursed for
any expenses incurred in attending meetings of the board or any committee
thereof. Directors, trustees and officers of the Corporation/Trust own in the
aggregate less than 1% of the shares of the Fund. Because PaineWebber and
Mitchell Hutchins perform substantially all of the services necessary for the
operation of the Corporation, the Trust and the Funds, the Corporation and the
Trust require no employees. No officer, director or employee of PaineWebber or
Mitchell Hutchins presently receives any compensation from the Corporation or
the Trust for acting as director, trustee or officer. The table below includes
certain information relating to the compensation of the Corporation's and the
Trust's current directors/trustees who held office during the fiscal year
ended February 29, 1996.

28
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM THE
AGGREGATE CORPORATION,
COMPENSATION AGGREGATE THE TRUST
FROM THE COMPENSATION AND THE
NAME OF PERSON, POSITION CORPORATION* FROM THE TRUST* COMPLEX+
- ------------------------ ------------ --------------- ------------
<S> <C> <C> <C>
Richard Q. Armstrong .................
Director/Trustee
Richard R. Burt.......................
Director/Trustee
Meyer Feldberg........................
Director
George W. Gowen.......................
Director
Frederic V. Malek.....................
Director
Carl W. Schafer.......................
Director/Trustee
John R. Torell, III...................
Director/Trustee
</TABLE>
- --------
Only independent members of the board are compensated by the Corporation or
the Trust and identified above; directors/trustees who are "interested
persons," as defined by the 1940 Act, do not receive compensation.
* Represents fees paid to each director/trustee during the fiscal year ended
February 28, 1996.
+ Represents total compensation paid to each director during the calendar year
ended December 31, 1995.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of each Fund pursuant to a contract with the
Corporation dated August 4, 1988 and a contract with the Trust dated ,
(each an "Advisory Contract"). Under the Advisory Contracts, each Fund pays
Mitchell Hutchins an annual fee, computed daily and paid monthly, according to
the schedule set forth below:

BALANCED FUND

<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
------------------------ ------
<S> <C>
Up to $500 million................................................... 0.750%
In excess of $500 million up to $1.0 billion......................... 0.725
In excess of $1.0 billion up to $1.5 billion......................... 0.700
In excess of $1.5 billion up to $2.0 billion......................... 0.675
Over $2.0 billion.................................................... 0.650
</TABLE>

TACTICAL ALLOCATION FUND

<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
------------------------ ------
<S> <C>
Up to $250 million................................................. 0.500%
Over $250 million.................................................. 0.450
</TABLE>

29
<PAGE>

During the fiscal years ended February 29, 1996, February 28, 1995 and
February 28, 1994, the Corporation paid (or accrued) to Mitchell Hutchins
investment advisory and administrative fees of $ , $1,934,650 and
$2,326,697, respectively, with respect to the Fund.

For the fiscal years ended August 31, 1995, August 31, 1994 and August 31,
1993, the Trust paid (or accrued) management fees with respect to the Fund of
$279,950, $505,878 and $419,426, respectively, to the Fund's investment
adviser and administrator during those periods.

Under a service agreement with the Corporation that is reviewed by the
Corporation's board of directors annually, PaineWebber provides certain
services to Balanced Fund not otherwise provided by the Fund's transfer agent.
Pursuant to the service agreement, during the fiscal years ended February 29,
1996, February 28, 1995 and February 28, 1994, PaineWebber earned fees in the
amounts of $ , $100,272 and $116,755, respectively, with respect to the
Fund.

Under a service agreement with the Trust that is reviewed by the Trust's
board of trustees annually, PaineWebber provides certain services to Tactical
Allocation Fund not otherwise provided by the Fund's transfer agent. Pursuant
to the service agreement, during the fiscal years ended August 31, 1995,
August 31, 1994 and August 31, 1993, PaineWebber earned fees in the amounts of
$ , $ , and $ , respectively, with respect to the Fund.

Under the terms of the Advisory Contracts, each Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Corporation or the Trust not readily
identifiable as belonging to the Funds or to the Corporation's or Trust's
other series are allocated among series by or under the direction of the board
of directors in such manner as the board deems to be fair and equitable.
Expenses borne by each Fund include the following (or the Fund's share of the
following): (1) the cost (including brokerage commissions) of securities
purchased or sold by the Fund and any losses incurred in connection therewith;
(2) fees payable to and expenses incurred on behalf of the Fund by Mitchell
Hutchins; (3) organizational expenses; (4) filing fees and expenses relating
to the registration and qualification of the Fund's shares and the
Corporation/Trust under federal and state securities laws and maintenance of
such registrations and qualifications; (5) fees and salaries payable to
directors who are not interested persons of the Corporation/Trust or Mitchell
Hutchins; (6) all expenses incurred in connection with the directors'
services, including travel expenses; (7) taxes (including any income or
franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds; (9) any
costs, expenses or losses arising out of a liability of or claim for damages
or other relief asserted against the Corporation/Trust or the Fund for
violation of any law; (10) legal, accounting and auditing expenses, including
legal fees of special counsel for the independent directors; (11) charges of
custodians, transfer agents and other agents; (12) costs of preparing share
certificates; (13) expenses of setting in type and printing prospectuses and
supplements thereto, statements of additional information and supplements
thereto, reports and proxy materials for existing shareholders, and costs of
mailing such materials to existing shareholders; (14) any extraordinary
expenses (including fees and disbursements of counsel) incurred by the
Corporation/Trust or the Fund; (15) fees, voluntary assessments and other
expenses incurred in connection with membership in investment company
organizations; (16) costs of mailing and tabulating proxies and costs of
meetings of shareholders, the board and any committees thereof; (17) the cost
of investment company literature and other publications provided to directors
and officers; and (18) costs of mailing, stationery and communications
equipment.

As required by state regulation, Mitchell Hutchins will reimburse each Fund
if and to the extent that the aggregate operating expenses of that Fund exceed
applicable limits in any fiscal year. Currently the most

30
<PAGE>

restrictive such limit applicable to the Fund is 2.5% of the first $30 million
of a Fund's average daily net assets, 2.0% of the next $70 million of its
average daily net assets and 1.5% of its average daily net assets in excess of
$100 million. Certain expenses, such as brokerage commissions, distribution
fees, taxes, interest, certain expenses attributable to investing outside the
United States and extraordinary items, are excluded from this limitation. For
the fiscal years ended February 29, 1996, February 28, 1995 and February 28,
1994 (for Balanced Fund) and for the fiscal years ended August 31, 1995,
August 31, 1994 and August 31, 1993 (for Tactical Allocation Fund) no
reimbursements were required pursuant to such limitations for either Fund.

Under the Advisory Contracts, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by either Fund in
connection with the performance of the Advisory Contracts, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. Each Advisory Contract
terminates automatically with respect to a Fund upon assignment and is
terminable at any time without penalty by the Corporation's board of directors
or the Trust's board of trustees or by vote of the holders of a majority of a
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to the
Corporation or the Trust.

The following table shows the approximate net assets as of , 1996,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment
company may fall into more than one of the categories below.

<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- ----------
<S> <C>
Domestic (excluding Money Market).............................. $
Global.........................................................
Equity/Balanced................................................
Fixed Income (excluding Money Market)..........................
Taxable Fixed Income.........................................
Tax-Free Fixed Income........................................
Money Market Funds.............................................
</TABLE>

Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of other PaineWebber and Mitchell Hutchins/Kidder Peabody
("MH/KP") funds and other Mitchell Hutchins' advisory accounts by all Mitchell
Hutchins' directors, officers and employees, establishes procedures for
personal investing and restricts certain transactions. For example, employee
accounts generally must be maintained at PaineWebber, personal trades in most
securities require pre-clearance and short-term trading and participation in
initial public offerings generally are prohibited. In addition, the code of
ethics puts restrictions on the timing of personal investing in relation to
trades by PaineWebber and MH/KP funds and other Mitchell Hutchins advisory
clients.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class C shares of each Fund under separate distribution
contracts with the Corporation and the Trust dated July 7, 1993 and , ,
respectively (collectively, "Distribution Contracts") that require Mitchell
Hutchins to use its best efforts, consistent with its other businesses, to
sell shares of each Fund. Shares of the Funds are offered continuously. Under
separate exclusive dealer agreements between Mitchell Hutchins and PaineWebber
dated July 7, 1993 relating to the Class A, Class B and Class C shares of the
Funds (collectively, "Exclusive Dealer Agreements"), PaineWebber and its
correspondent firms sell each Fund's shares.

31
<PAGE>

Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares of each Fund adopted by the Corporation in the manner
prescribed under Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan"
and "Class C Plan," collectively, "Plans"), each Fund pays Mitchell Hutchins a
service fee, accrued daily and payable monthly, at the annual rate of 0.25% of
the average daily net assets of each Class of shares. Under the Class B Plan,
each Fund pays Mitchell Hutchins a distribution fee, accrued daily and payable
monthly, at the annual rate of 0.75% of the average daily net assets of the
Class B shares. Under the Class C Plan, each Fund pays Mitchell Hutchins a
distribution fee, accrued daily and payable monthly, at the annual rate of
0.75% of the average daily net assets of the Class C shares.

Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the Corporation's/Trust's board of directors/trustees at least
quarterly, and the directors/trustees will review, reports regarding all
amounts expended under the Plan and the purposes for which such expenditures
were made, (2) the Plan will continue in effect only so long as it is approved
at least annually, and any material amendment thereto is approved, by the
Corporation's/Trust's board of directors/trustees, including those
directors/trustees who are not "interested persons" of the Corporation/Trust
and who have no direct or indirect financial interest in the operation of the
Plan or any agreement related to the Plan, acting in person at a meeting
called for that purpose, (3) payments by a Fund under the Plan shall not be
materially increased without the affirmative vote of the holders of a majority
of the outstanding shares of the relevant Class and (4) while the Plan remains
in effect, the selection and nomination of directors who are not "interested
persons" of the Corporation/Trust shall be committed to the discretion of the
directors who are not interested persons of the Corporation/Trust.

In reporting amounts expended under the Plans to the directors/trustees,
Mitchell Hutchins will allocate expenses attributable to the sale of each
Class of Fund shares to such Class based on the ratio of sales of shares of
such Class to the sales of all three Classes of shares. The fees paid by one
Class of Fund shares will not be used to subsidize the sale of any other Class
of Fund shares.

For the fiscal years ended February 29, 1996 and August 31, 1995,
respectively, Balanced Fund and Tactical Allocation Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Class A, Class B and Class C
Plans:

<TABLE>
<CAPTION>
TACTICAL
BALANCED FUND ALLOCATION FUND
------------- ---------------
<S> <C> <C>
Class A..................................... $ $
Class B.....................................
Class C.....................................
</TABLE>

Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Funds during the fiscal years ended February 29,
1996 (Balanced Fund) and August 31, 1995 (Tactical Allocation Fund):

CLASS A

<TABLE>
<CAPTION>
TACTICAL
BALANCED FUND ALLOCATION FUND
------------- ---------------
<S> <C> <C>
Marketing and advertising........................ $ $
Amortization of commissions......................
Printing of prospectuses and statements of
additional information for other than current
shareholders....................................
Branch network costs allocated and interest ex-
pense...........................................
Service fees paid to PaineWebber investment exec-
utives..........................................
</TABLE>

32
<PAGE>

<TABLE>
<CAPTION>
TACTICAL
BALANCED FUND ALLOCATION FUND
------------- ---------------
CLASS B
<S> <C> <C>
Marketing and advertising........................ $ $
Amortization of commissions......................
Printing of prospectuses and statements of
additional information for other than current
shareholders....................................
Branch network costs allocated and interest ex-
pense...........................................
Service fees paid to PaineWebber investment exec-
utives..........................................
CLASS C
Marketing and advertising........................ $ $
Amortization of commissions......................
Printing of prospectuses and statements of
additional information for other than current
shareholders....................................
Branch network costs allocated and interest ex-
pense...........................................
Service fees paid to PaineWebber investment exec-
utives..........................................
</TABLE>

"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network
costs allocated and interest expense" consist of an allocated portion of the
expenses of various PaineWebber departments involved in the distribution of
the Fund's shares, including the PaineWebber retail branch system.

In approving each Fund's overall Flexible PricingSM system of distribution,
the Corporation's/Trust's board of directors/trustees considered several
factors, including that implementation of Flexible Pricing would (1) enable
investors to choose the purchasing option best suited to their individual
situation, thereby encouraging current shareholders to make additional
investments in the Fund and attracting new investors and assets to the Fund to
the benefit of the Fund and its shareholders; (2) facilitate distribution of
the Fund's shares; and (3) maintain the competitive position of the Fund in
relation to other funds that have implemented or are seeking to implement
similar distribution arrangements.

In approving the Class A Plan for each Fund, the directors/trustees
considered all the features of the distribution system, including (1) the
conditions under which initial sales charges would be imposed and the amount
of such charges, (2) Mitchell Hutchins' belief that the initial sales charge
combined with a service fee would be attractive to PaineWebber investment
executives and correspondent firms, resulting in a greater growth of the Fund
than might otherwise be the case, (3) the advantages to the shareholders of
economies of scale resulting from growth in the Fund's assets and potential
continued growth, (4) the services provided to the Fund and its shareholders
by Mitchell Hutchins, (5) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins and (6) Mitchell Hutchins'
shareholder service-related expenses and costs.

In approving the Class B Plan for each Fund, the directors/trustees
considered all the features of the distribution system, including (1) the
conditions under which contingent deferred sales charges would be imposed and
the amount of such charges, (2) the advantage to investors in having no
initial sales charges deducted from the Fund's purchase payments and instead
having the entire amount of their purchase payments immediately invested in
Fund shares, (3) Mitchell Hutchins' belief that the ability of PaineWebber
investment executives and correspondent firms to receive sales commissions
when Class B shares are sold and

33
<PAGE>

continuing service fees thereafter while their customers invest their entire
purchase payments immediately in Class B shares would prove attractive to the
investment executives and correspondent firms, resulting in greater growth of
the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service- and distribution-related expenses and
costs. The directors/trustees also recognized that Mitchell Hutchins'
willingness to compensate PaineWebber and its investment executives, without
the concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.

In approving the Class C Plan for each Fund, the directors/trustees
considered all the features of the distribution system, including (1) the
advantage to investors in having no initial sales charges deducted from the
Fund's purchase payments and instead having the entire amount of their
purchase payments immediately invested in Fund shares, (2) the advantage to
investors in being free from contingent deferred sales charges upon redemption
and paying for distribution on an ongoing basis, (3) Mitchell Hutchins' belief
that the ability of PaineWebber investment executives and correspondent firms
to receive sales compensation for their sales of Class C shares on an ongoing
basis, along with continuing service fees, while their customers invest their
entire purchase payments immediately in Class C shares and do not face
contingent deferred sales charges, would prove attractive to the investment
executives and correspondent firms, resulting in greater growth to the Fund
than might otherwise be the case, (4) the advantages to the shareholders of
economies of scale resulting from growth in the Fund's assets and potential
continued growth, (5) the services provided to the Fund and its shareholders
by Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins'
shareholder service- and distribution-related expenses and costs. The
directors/trustees also recognized that Mitchell Hutchins' willingness to
compensate PaineWebber and its investment executives, without the concomitant
receipt by Mitchell Hutchins of initial sales charges or contingent deferred
sales charges upon redemption, was conditioned upon its expectation of being
compensated under the Class C Plan.

With respect to each Plan, the directors/trustees considered all
compensation that Mitchell Hutchins would receive under the Plan and the
Distribution Contract, including service fees and, as applicable, initial
sales charges, distribution fees and contingent deferred sales charges. The
directors/trustees also considered the benefits that would accrue to Mitchell
Hutchins under each Plan in that Mitchell Hutchins would receive service,
distribution and advisory fees that are calculated based upon a percentage of
the average net assets of a Fund, which fees would increase if the Plan were
successful and the Fund attained and maintained significant asset levels.

Under the Distribution Contracts between the Corporation and the Trust and
Mitchell Hutchins for the Class A shares for the fiscal years set forth below,
Mitchell Hutchins earned the following approximate amounts of initial sales
charges and retained the following approximate amounts, net of concessions to
PaineWebber as exclusive dealer:

BALANCED FUND

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 29,
--------------- ------------
1994 1995 1996
------- ------- ------------
<S> <C> <C> <C>
Earned............................................. $46,856 $33,533 $
Retained........................................... 3,188 2,003
</TABLE>

34
<PAGE>

TACTICAL ALLOCATION FUND

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31,
-------------------
1993 1994 1995
----- ------ -----
<S> <C> <C> <C>
Earned................................................... $ $ $
Retained.................................................
</TABLE>

For the fiscal years ended February 28, 1994, February 28, 1995 and February
29, 1996, Mitchell Hutchins earned and retained the following contingent
deferred sales charges paid upon certain redemptions of Class B shares of
Balanced Fund:

<TABLE>
<S> <C>
1994.......................................... $185,486
1995.......................................... 149,669
1996..........................................
</TABLE>
PORTFOLIO TRANSACTIONS

Subject to policies established by the board of directors/trustees, Mitchell
Hutchins is responsible for the execution of each Fund's portfolio
transactions and the allocation of brokerage transactions. In executing
portfolio transactions, Mitchell Hutchins seeks to obtain the best net results
for the Funds, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty
of execution and operational facilities of the firm involved. Generally, bonds
are traded on the OTC market on a "net" basis without a stated commission
through dealers acting for their own account and not as brokers. Prices paid
to dealers in principal transactions generally include a "spread," which is
the difference between the prices at which the dealer is willing to purchase
and sell a specific security at the time. For Balanced Fund, for the fiscal
years ended February 29, 1996, February 28, 1995, and February 28, 1994, the
Fund paid $ , $495,853, and $540,773, respectively, in aggregate brokerage
commissions. For Tactical Allocation Fund, for the fiscal years ended August
31, 1995, August 31, 1994 and August 31, 1993, the Fund paid $82,091, $56,965
and $58,975 respectively, in aggregate brokerage commissions.

Neither Fund has any obligation to deal with any broker or group of brokers
in the execution of portfolio transactions. Each Fund contemplates that,
consistent with the policy of obtaining the best net results, brokerage
transactions may be conducted through Mitchell Hutchins or its affiliates,
including PaineWebber. The Corporation's/Trust's board of directors/trustees
has adopted procedures in conformity with Rule 17e-1 under the 1940 Act to
ensure that all brokerage commissions paid to Mitchell Hutchins and its
affiliates are reasonable and fair. Specific provisions in each Advisory
Contract authorize Mitchell Hutchins and any of its affiliates that are
members of a national securities exchange to effect portfolio transactions for
each Fund on such exchange and to retain compensation in connection with such
transactions. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations. For Balanced Fund,
for the fiscal years ended February 28, 1995 and February 28, 1994, the Fund
paid $7,266 and $67,570, respectively, in brokerage commissions to
PaineWebber. For the fiscal year ended February 29, 1996, the Fund paid $
in brokerage commissions to PaineWebber, which represented % of the total
brokerage commissions paid by that Fund and % of the aggregate dollar amount
of transactions involving the payment of commissions. For Tactical Allocation
Fund, for the fiscal year ended August 31, 1995, the Fund paid no brokerage
commissions to PaineWebber.

35
<PAGE>

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

Consistent with the interest of each Fund and subject to the review of the
board of directors/trustees, Mitchell Hutchins may cause each Fund to purchase
and sell portfolio securities through brokers who provide the Fund with
research, analysis, advice and similar services. In return for such services,
the Fund may pay to those brokers a higher commission than may be charged by
other brokers, provided that Mitchell Hutchins determines in good faith that
such commission is reasonable in terms either of that particular transaction
or of the overall responsibility of Mitchell Hutchins to the Fund and its
other clients and that the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. For the
fiscal year ended February 28, 1995, Mitchell Hutchins directed $74,360,254 in
portfolio transactions to brokers chosen because they provided research
services, for which Balanced Fund paid $144,391 in commissions. For purchases
or sales with broker-dealer firms which act as principal, Mitchell Hutchins
seeks best execution. Although Mitchell Hutchins may receive certain research
or execution services in connection with those transactions, Mitchell Hutchins
will not purchase securities at a higher price or sell securities at a lower
price than would otherwise be paid if no weight was attributed to the services
provided by the executing dealer. Moreover, Mitchell Hutchins will not enter
into any explicit soft dollar arrangements relating to principal transactions
and will not receive in principal transactions the types of services which
could be purchased for hard dollars. Mitchell Hutchins may engage in agency
transactions in OTC equity and debt securities in return for research and
execution services. These transactions are entered into only in compliance
with procedures ensuring that the transaction (including commissions) is at
least as favorable as it would have been if effected directly with a market-
maker that did not provide research or execution services. These procedures
include Mitchell Hutchins receiving multiple quotes from dealers before
executing the transactions on an agency basis.

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

Investment decisions for each Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of
differing considerations for the various accounts. However, the same
investment decision may occasionally be made for a Fund and one or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated between a Fund
and such other account(s) as to amount according to a formula deemed equitable
to the Fund and such other account(s). While in some cases this practice could
have a detrimental effect upon the price or value of the security as far as
the Fund is concerned or upon its ability to complete its entire order, in
other cases it is believed that coordination and the ability to participate in
volume transactions will be beneficial to the Fund.

36
<PAGE>

things, these procedures require that the commission or spread paid in
connection with such a purchase be reasonable and fair, that the purchase be
at not more than the public offering price prior to the end of the first
business day after the date of the public offering and that Mitchell Hutchins
or any affiliate thereof not participate in or benefit from the sale to the
Fund.

PORTFOLIO TURNOVER. The portfolio turnover rate for each Fund is calculated
by dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year. For Balanced Fund, for the
fiscal years ended February 29, 1996 and February 28, 1995, the portfolio
turnover rates for the Fund were % and 106.76%, respectively. For Tactical
Allocation Fund, for the fiscal years ended August 31, 1995 and August 31,
1994, the portfolio turnover rate for the Fund was 53.02% and 4.17%,
respectively. The higher turnover for the most recent fiscal year was due to
reallocations during that period of the Fund's portfolio in accordance with
the Fund's systematic asset allocation strategy.

REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION AND
OTHER SERVICES

COMBINED PURCHASE PRIVILEGE--CLASS A SHARES. Investors and eligible groups
of related Fund investors may combine purchases of Class A shares of each Fund
with concurrent purchases of Class A shares of any other PaineWebber or MH/KP
mutual fund and thus take advantage of the reduced sales charges for Class A
shares indicated in the table of sales charges in the Prospectus. The sales
charge payable on the purchase of Class A shares of each Fund and Class A
shares of such other funds will be at the rates applicable to the total amount
of the combined concurrent purchases.

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

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

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

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

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

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

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

(g) an employer (or a group of related employers) and one or more
qualified retirement plans of such employer or employers (an employer
controlling, controlled by or under common control with another employer is
deemed related to that other employer); or

(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The
registered investment adviser must communicate at least quarterly through a
newsletter or investment update establishing a relationship with all of the
accounts.

37
<PAGE>

RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Funds among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber or MH/KP
mutual fund. The purchaser must provide sufficient information to permit
confirmation of his or her holdings, and the acceptance of the purchase order
is subject to such confirmation. The right of accumulation may be amended or
terminated at any time.

WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares of the Funds is waived
where a total or partial redemption is made within one year following the
death of the shareholder. The contingent deferred sales charge waiver is
available where the decedent is either the sole shareholder or owns the shares
with his or her spouse as a joint tenant with right of survivorship. This
waiver applies only to redemption of shares held at the time of death.

The contingent deferred sales charge on Class B shares is waived with
respect to redemptions of shares purchased prior to July 1, 1991 by officers,
directors (or trustees) or employees of the Corporation, Mitchell Hutchins or
their affiliates (or their spouses and children under age 21). The contingent
deferred sales charge will be reduced by 50% with respect to redemptions of
Class B shares that represent shares purchased prior to July 1, 1991 with a
net asset value at time of purchase of at least $1 million.

ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of each Fund may be exchanged for shares of the
corresponding Class of most other PaineWebber or MH/KP mutual funds.
Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce the exchange fee and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended under the circumstances described below or a Fund temporarily
delays or ceases the sales of its shares because it is unable to invest
amounts effectively in accordance with the Fund's investment objective,
policies and restrictions.

If conditions exist which make cash payments undesirable, each Fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Fund and valued in the same way as they would
be valued for purposes of computing the Fund's net asset value. Any such
redemption in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting those securities into cash. The Corporation
and the Trust have each elected, however, to be governed by Rule 18f-1 under
the 1940 Act, under which a Fund is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of the net asset value of the Fund during
any 90-day period for one shareholder. This election is irrevocable unless the
SEC permits its withdrawal. Each Fund may suspend redemption privileges or
postpone the date of payment during any period (1) when the New York Stock
Exchange, Inc. ("NYSE") is closed or trading on the NYSE is restricted as
determined by the SEC, (2) when an emergency exists, as defined by the SEC,
that makes it not reasonably practicable for the Fund to dispose of securities
owned by it or fairly to determine the value of its assets, or (3) as the SEC
may otherwise permit. The redemption price may be more or less than the
shareholder's cost, depending on the market value of a Fund's portfolio at the
time.

SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or semi-
annual plans, PaineWebber will arrange for redemption by a Fund of sufficient
Fund shares to provide the withdrawal payment specified by participants in the
Fund's

38
<PAGE>

systematic withdrawal plan. The payment generally is mailed approximately five
business days after the redemption date. Withdrawal payments should not be
considered dividends, but redemption proceeds, with the tax consequences
described under "Dividends and Taxes" in the Prospectus. If periodic
withdrawals continually exceed reinvested dividends, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the systematic
withdrawal plan at any time without charge or penalty by written instructions
with signatures guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent").
Instructions to participate in the plan, change the withdrawal amount or
terminate participation in the plan will not be effective until five days
after written instructions with signatures guaranteed are received by the
Transfer Agent. Shareholders may request the forms needed to establish a
systematic withdrawal plan from their PaineWebber investment executives,
correspondent firms or the Transfer Agent at 1-800-647-1568.

REINSTATEMENT PRIVILEGE--CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed Class A shares of a Fund may reinstate their
account without a sales charge. Shareholders may exercise the reinstatement
privilege by notifying the Transfer Agent of such desire and forwarding a
check for the amount to be purchased within 365 days after the date of
redemption. The reinstatement will be made at the net asset value per share
next computed after the notice of reinstatement and check are received. The
amount of a purchase under this reinstatement privilege cannot exceed the
amount of the redemption proceeds. Gain on a redemption is taxable regardless
of whether the reinstatement privilege is exercised; however, a loss arising
out of a redemption will not be deductible to the extent the redemption
proceeds are reinvested, if the reinstatement privilege is exercised within 30
days after redemption, and an adjustment will be made to the shareholder's tax
basis for the shares acquired pursuant to the reinstatement privilege. Gain or
loss on a redemption also will be adjusted for federal income tax purposes by
the amount of any sales charge paid on Class A shares, under the circumstances
and to the extent described in "Dividends and Taxes" in the Prospectus.

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

PAINEWEBBER RMA RESOURCE ACCUMULATION PLANSM;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(R) (RMA(R))

Shares of the PaineWebber mutual funds (each a "PW Fund" and, collectively,
the "PW Funds") are available for purchase through the RMA Resource
Accumulation Plan ("Plan") by customers of PaineWebber and its correspondent
firms who maintain Resource Management Accounts ("RMA accountholders"). The
Plan allows an RMA accountholder to continually invest in one or more of the
PW Funds at regular intervals, with payment for shares purchased automatically
deducted from the client's RMA account. The client may elect to invest at
monthly or quarterly intervals and may elect either to invest a fixed dollar
amount (minimum $100 per period) or to purchase a fixed number of shares. A
client can elect to have Plan purchases executed on the first or fifteenth day
of the month. Settlement occurs three Business Days (as defined under
"Valuation of Shares") after the trade date, and the purchase price of the
shares is withdrawn from the investor's RMA account on the settlement date
from the following sources and in the following order: uninvested cash
balances, balances in RMA money market funds, or margin borrowing power, if
applicable to the account.

To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a

39
<PAGE>

current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions
under the Plan may be changed at any time, but may take up to two weeks to
become effective.

The terms of the Plan or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds
may be offered through the Plan.

Periodic Investing and Dollar Cost Averaging.

Periodic investing in the PW Funds or other mutual funds, whether through
the Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an
investor to take advantage of "dollar cost averaging." By investing a fixed
amount in mutual fund shares at established intervals, an investor purchases
more shares when the price is lower and fewer shares when the price is higher,
thereby increasing his or her earning potential. Of course, dollar cost
averaging does not guarantee a profit or protect against a loss in a declining
market, and an investor should consider his or her financial ability to
continue investing through periods of low share prices. However, over time,
dollar cost averaging generally results in a lower average original investment
cost than if an investor invested a larger dollar amount in a mutual fund at
one time.

PaineWebber's Resource Management Account.

In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:

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

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

. automatic "sweep" of uninvested cash into the RMA accountholder's choice of
one of the five RMA money market funds--RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund and RMA New York Municipal Money Fund. Each money market fund
attempts to maintain a stable price per share of $1.00, although there can
be no assurance that it will be able to do so. Investments in the money
market funds are not insured or guaranteed by the U.S. government;

. check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders can
code their checks to classify expenditures. All canceled checks are
returned each month;

. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;

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

40
<PAGE>

. expanded account protection to $25 million in the event of the liquidation
of PaineWebber. This protection does not apply to shares of the RMA money
market funds or the PW Funds because those shares are held at the transfer
agent and not through PaineWebber; and

. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.

The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.

CONVERSION OF CLASS B SHARES

Class B shares of each Fund will automatically convert to Class A shares of
that Fund, based on the relative net asset values of each of the Classes, as
of the close of business on the first Business Day (as defined below) of the
month in which the sixth anniversary of the initial issuance of such Class B
shares of the Fund occurs. For the purpose of calculating the holding period
required for conversion of Class B shares, the date of initial issuance shall
mean (1) the date on which such Class B shares were issued, or (2) for
Class B shares obtained through an exchange, or a series of exchanges, the
date on which the original Class B shares were issued. For purposes of
conversion to Class A, Class B shares purchased through the reinvestment of
dividends and other distributions paid in respect of Class B shares will be
held in a separate sub-account. Each time any Class B shares in the
shareholder's regular account (other than those in the sub-account) convert to
Class A, a pro rata portion of the Class B shares in the sub-account will also
convert to Class A. The portion will be determined by the ratio that the
shareholder's Class B shares converting to Class A bears to the shareholder's
total Class B shares not acquired through dividends and other distributions.

The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends
and other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and (2) the
continuing availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event. If the conversion
feature ceased to be available, the Class B shares of each Fund would not be
converted and would continue to be subject to the higher ongoing expenses of
the Class B shares beyond six years from the date of purchase. Mitchell
Hutchins has no reason to believe that these conditions for the availability
of the conversion feature will not continue to be met.

VALUATION OF SHARES

Each Fund determines the net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., Eastern
time) on the NYSE on each Business Day, which is defined as each Monday
through Friday when the NYSE is open. Currently, the NYSE is closed on the
observance of the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Securities that are listed on stock exchanges are valued at the last sale
price on the day the securities are being valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by Mitchell Hutchins as the primary market. Securities traded in
the OTC market and listed on Nasdaq are valued at the last available sale
price on Nasdaq at 4:00 p.m., Eastern time; other OTC securities are valued at
the last bid price available prior to valuation.

41
<PAGE>

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

PERFORMANCE INFORMATION

Each Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are
not intended to indicate future performance. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.

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

<TABLE>
<S> <C> <C> <C>
P(1 + T)n = ERV
a hypothetical initial payment of $1,000 to purchase shares of a
where: P = specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of that period.
</TABLE>

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over
the period. In calculating the ending redeemable value for Class A shares,
each Fund's maximum 4.5% initial sales charge is deducted from the initial
$1,000 payment and, for Class B and Class C shares, the applicable contingent
deferred sales charge imposed on a redemption of Class B and Class C shares
held for the period is deducted. All dividends and other distributions are
assumed to have been reinvested at net asset value.

Each Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). Each Fund calculates Non-Standardized
Return for specified periods of time by assuming the investment of $1,000 in
Fund shares and assuming the reinvestment of all dividends and other
distributions. The rate of return is determined by subtracting the initial
value of the investment from the ending value and by dividing the remainder by
the initial value. Neither initial nor contingent deferred sales charges are
taken into account in calculating Non-Standardized Return; the inclusion of
these charges would reduce the return.

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

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<PAGE>

The following table shows performance information for the Class A, Class B
and Class C shares of the Funds for the periods indicated. All returns for
periods of more than one year are expressed as an average return.

BALANCED FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended February 29, 1996:
Standardized Return*..................................
Non-Standardized Return...............................
Five years ended February 29, 1996:
Standardized Return*..................................
Non-Standardized Return...............................
Inception** to February 29, 1996:
Standardized Return*..................................
Non-Standardized Return...............................

TACTICAL ALLOCATION FUND
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended August 31, 1995:
Standardized Return*.................................. 13.10% NA 16.57%
Non-Standardized Return............................... 18.43% NA 17.57%
Five years ended August 31, 1995:
Standardized Return*.................................. NA NA NA
Non-Standardized Return............................... NA NA NA
Inception*** to August 31, 1995:
Standardized Return*.................................. 9.76% NA 11.00%
Non-Standardized Return............................... 11.98% NA 11.00%
</TABLE>
- --------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the
period.

** The inception date for the Class B shares of Balanced Fund was December
12, 1986. The inception dates for Class A shares and Class C shares of
Balanced Fund were July 1, 1991 and July 2, 1992, respectively.

*** The inception date for Class C shares of Tactical Allocation Fund was July
22, 1992. The inception dates for Class A and Class B shares of Tactical
Allocation Fund were May 10, 1993 and November 10, 1995, respectively.

43
<PAGE>

Each Fund also may refer in such materials to mutual fund performance rankings
and other data, such as comparative asset, expense and fee levels, published
by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance Advertisements
also may refer to discussions of the Funds and comparative mutual fund data
and ratings reported in independent periodicals, including (but not limited
to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL
WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE
WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in Performance
Advertisements may be in graphic form.

Each Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the Fund investment are
reinvested by being paid in additional Fund shares, any future income or
capital appreciation of the Fund would increase the value, not only of the
original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid
in cash.

Each Fund may also compare its performance with the performance of bank
certificates of deposits (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and
the averages of yields of CDs of major banks published by Banxquote (R) Money
Markets. In comparing a Fund's performance to CD performance, investors should
keep in mind that bank CDs are insured in whole or in part by an agency of the
U.S. government and offer fixed principal and fixed or variable rates of
interest, and that bank CD yields may vary depending on the financial
institution offering the CD and prevailing interest rates. Fund shares are not
insured or guaranteed by the U.S. government and returns thereon and net asset
value will fluctuate. The debt securities held by each Fund generally have
longer maturities than most CDs and may reflect interest rate fluctuations for
longer term securities. An investment in either Fund involves greater risks
than an investment in either a money market fund or a CD.

TAXES

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, each Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-
term capital gain) ("Distribution Requirement") and must meet several
additional requirements. These requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities, or other income derived with
respect to its business of investing in securities ("Income Requirement"); (2)
the Fund must derive less than 30% of its gross income each taxable year from
the sale or other disposition of securities held for less than three months
("Short-Short Limitation"); (3) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value
of the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (4) at the close of each quarter
of the Fund's taxable year, not more than 25% of the value of its total assets
may be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer.

44
<PAGE>

Dividends and other distributions declared by each Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will
be taxed to shareholders for the year in which that December 31 falls.

A portion of the dividends from each Fund's investment company taxable
income (whether paid in cash or in additional Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.

If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder
will pay full price for the shares and receive some portion of the price back
as a taxable distribution.

Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.

Each Fund may invest in the stock of "passive foreign investment companies"
("PFICs") if such stock is denominated in U.S. dollars and otherwise is a
permissible investment. A PFIC is a foreign corporation that, in general,
meets either of the following tests: (1) at least 75% of its gross income is
passive or (2) an average of at least 50% of its assets produce, or are held
for the production of, passive income. Under certain circumstances, the Fund
will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain from disposition
of such stock (collectively "PFIC income"), plus interest thereon, even if the
Fund distributes the PFIC income as a taxable dividend to its shareholders.
The balance of the PFIC income will be included in the Fund's investment
company taxable income and, accordingly, will not be taxable to it to the
extent that income is distributed to its shareholders. If the Fund invests in
a PFIC and elects to treat the PFIC as a "qualified electing fund," then in
lieu of the foregoing tax and interest obligation, the Fund will be required
to include in income each year its pro rata share of the qualified electing
fund's annual ordinary earnings and net capital gain (the excess of net long-
term capital gain over net short-term capital loss)--which likely would have
to be distributed to satisfy the Distribution Requirement and avoid imposition
of the Excise Tax--even if those earnings and gain are not distributed to the
Fund. In most instances it will be very difficult, if not impossible, to make
this election because of certain requirements thereof.

Pursuant to proposed regulations, open-end RICs, such as the Funds, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means recognizing as gain for each taxable year
the excess, as of the end of that year, of the fair market value of each such
PFIC's stock over the owner's adjusted basis in that stock (including mark-to-
market gain for each prior year for which an election was in effect).

45
<PAGE>

payment on them during the year. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
accrued original issue discount, in order to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax, the Fund may be required
in a particular year to distribute as a dividend an amount that is greater
than the total amount of cash it actually receives. Those distributions will
be made from the Fund's cash assets or from the proceeds of sales of portfolio
securities, if necessary. The Fund may realize capital gains or losses from
those sales, which would increase or decrease its investment company taxable
income and/or net capital gain. In addition, any such gains may be realized on
the disposition of securities held for less than three months. Because of the
Short-Short Limitation, any such gains would reduce the Fund's ability to sell
other securities held for less than three months that it might wish to sell in
the ordinary course of its portfolio management.

OTHER INFORMATION

Prior to August 1995, Balanced Fund was named "PaineWebber Asset Allocation
Fund."

CLASS-SPECIFIC EXPENSES. Each Fund might determine to allocate certain of
its expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares of a Fund bear higher transfer agency fees per shareholder account than
those borne by Class A or Class C shares. The higher fee is imposed due to the
higher costs incurred by the Transfer Agent in tracking shares subject to a
contingent deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the
applicable charge. Moreover, the tracking and calculations required by the
automatic conversion feature of the Class B shares will cause the Transfer
Agent to incur additional costs. Although the transfer agency fee will differ
on a per account basis as stated above, the specific extent to which the
transfer agency fees will differ between the Classes as a percentage of net
assets is not certain, because the fee as a percentage of net assets will be
affected by the number of shareholder accounts in each Class and the relative
amounts of net assets in each Class.

COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Ave., N.W., Washington, D.C., 20036-1800, counsel to the Corporation and the
Trust, has passed upon the legality of the shares offered by the Prospectus.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.

INDEPENDENT AUDITORS. Price Waterhouse LLP, 1177 Avenue of the Americas, New
York, N.Y. 10036, serves as Balanced Fund's independent accountants. Ernst &
Young LLP, 787 Seventh Avenue, New York, New York 10019, serves as Tactical
Allocation Fund's independent auditors.

FINANCIAL STATEMENTS

Balanced Fund's Annual Report to Shareholders for the fiscal year ended
February 29, 1996, and Tactical Allocation Fund's Annual Report to
Shareholders for the fiscal year ended August 31, 1995, each is a separate
document supplied with this Statement of Additional Information, and the
financial statements, accompanying notes and report of independent accountants
appearing therein are incorporated by reference in this Statement of
Additional Information.

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<PAGE>

APPENDIX A

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues;
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities; A. Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future; Baa. Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well; Ba. Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class; B. Bonds which are rated B
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.

Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

DESCRIPTION OF S&P CORPORATE DEBT RATINGS

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the high-
est rated issues only in small degree; A. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories; BBB. Debt rated BBB is regarded as hav-
ing an adequate capacity to pay interest and repay principal. Whereas it nor-
mally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in higher
rated categories; BB, B. Debt rated BB or B is regarded as having predomi-
nantly speculative characteristics with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and B a
somewhat higher degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large uncer-
tainties or major exposures to adverse conditions.

A-1
<PAGE>

Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NR: "NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy.

DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS

PRIME-1. Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries; high rates of return
on funds employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well
established access to a range of financial markets and assured sources of
alternate liquidity; PRIME-2. Issuers rated Prime-2 (or supporting
institutions) have a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS

A-1. This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation; A-
2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

A-2
<PAGE>

APPENDIX B

MORTGAGE-BACKED SECURITIES

The U.S. government securities in which Balanced Fund may invest include
mortgage-backed securities issued or guaranteed by Ginnie Mae, Fannie Mae or
Freddie Mac. Other mortgage-backed securities in which the Fund may invest
will be issued by Private Mortgage Lenders. Such private mortgage-backed
securities may be supported by pools of mortgage loans or other mortgage-
backed securities that are guaranteed, directly or indirectly, by the U.S.
government or one of its agencies or instrumentalities, or they may be issued
without any government guarantee of the underlying mortgage assets but with
some form of non-government credit enhancement. New types of mortgage-backed
securities are developed and marketed from time to time and, consistent with
its investment limitations, the Fund expects to invest in those new types of
mortgage-backed securities that Mitchell Hutchins believes may assist the Fund
in achieving its investment objective. Similarly, the Fund may invest in
mortgage-backed securities issued by new or existing governmental or private
issuers other than those identified herein.

GINNIE MAE CERTIFICATES

Ginnie Mae guarantees certain mortgage pass-through certificates ("Ginnie
Mae certificates") that are issued by Private Mortgage Lenders and that
represent ownership interests in individual pools of residential mortgage
loans. These securities are designed to provide monthly payments of interest
and principal to the investor. Timely payment of interest and principal is
backed by the full faith and credit of the U.S. government. Each mortgagor's
monthly payments to his lending institution on his residential mortgage are
"passed through" to certificateholders such as Balanced Fund. Mortgage pools
consist of whole mortgage loans or participations in loans. The terms and
characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. Lending institutions that originate mortgages
for the pools are subject to certain standards, including credit and other
underwriting criteria for individual mortgages included in the pools.

FANNIE MAE CERTIFICATES

Fannie Mae facilitates a national secondary market in residential mortgage
loans insured or guaranteed by U.S. government agencies and in privately
insured or uninsured residential mortgage loans (sometimes referred to as
"conventional mortgage loans" or "conventional loans") through its mortgage
purchase and mortgage-backed securities sales activities. Fannie Mae issues
guaranteed mortgage pass-through certificates ("Fannie Mae certificates"),
which represent pro rata shares of all interests and principal payments made
and owed on the underlying pools. Fannie Mae guarantees timely payment of
interest and principal on Fannie Mae certificates. The Fannie Mae guarantee is
not backed by the full faith and credit of the U.S. government.

FREDDIE MAC CERTIFICATES

Freddie Mac also facilitates a national secondary market for conventional
residential and U.S. government-insured mortgage loans through its mortgage
purchase and mortgage-backed securities sales activities. Freddie Mac issues
two types of mortgage pass-through securities: mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). Each PC
represents a pro rata share of all interest and principal payments made and
owed on the underlying pool. Freddie Mac generally guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal, but it also
has a PC program under which it guarantees timely payment of both principal
and interest. GMCs also represent a pro rata interest in a pool of mortgages.
These instruments, however, pay interest semi-annually and return

B-1
<PAGE>

principal once a year in guaranteed minimum payments. The Freddie Mac
guarantee is not backed by the full faith and credit of the U.S. government.

PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES

Mortgage-backed securities issued by Private Mortgage Lenders are structured
similarly to the pass-through certificates and collateralized mortgage
obligations ("CMOs") issued or guaranteed by Ginnie Mae, Fannie Mae and
Freddie Mac. Such mortgage-backed securities may be supported by pools of U.S.
government or agency insured or guaranteed mortgage loans or by other
mortgage-backed securities issued by a government agency or instrumentality,
but they generally are supported by pools of conventional (i.e., non-
government guaranteed or insured) mortgage loans. Since such mortgage-backed
securities normally are not guaranteed by an entity having the credit standing
of Ginnie Mae, Fannie Mae and Freddie Mac, they normally are structured with
one or more types of credit enhancement. See "--Types of Credit Enhancement."
These credit enhancements do not protect investors from changes in market
value.

The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
government in connection with the savings and loan crisis, holds assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquires such assets in its corporate capacity. These
assets include, among other things, single family and multifamily mortgage
loans, as well as commercial mortgage loans. In order to dispose of such
assets in an orderly manner, RTC has established a vehicle registered with the
SEC through which it sells mortgage-backed securities. RTC mortgage-backed
securities represent pro rata interests in pools of mortgage loans that RTC
holds or has acquired, as described above, and holds or has acquired, as
described above, and are supported by one or more of the types of private
credit enhancements used by Private Mortgage Lenders.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS

CMOs are debt obligations that are collateralized by mortgage loans or
mortgage pass-through securities (such collateral collectively being called
"Mortgage Assets"). CMOs may be issued by Private Mortgage Lenders or by
government entities such as Fannie Mae or Freddie Mac. Multi-class mortgage
pass-through securities are interests in trusts that are comprised of mortgage
assets and that have multiple classes similar to those in CMOs. Unless the
context indicates otherwise, references herein to CMOs include multi-class
mortgage pass-through securities. Payments of principal of and interest on the
mortgage assets (and in the case of CMOs, any reinvestment income thereon)
provide the funds to pay debt service on the CMOs or to make schedule
distributions on the multi-class mortgage pass-through securities.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the mortgage assets may cause CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrued on all classes of a CMO (other
than any PO class) on a monthly, quarterly or semi-annual basis. The principal
and interest on the mortgage assets may be allocated among the several classes
of a CMO in many ways. In one structure, payments of principal, including any
principal prepayments, on the mortgage assets are applied to the classes of a
CMO in the order of their respective stated maturities or final distribution
dates so that no payment of principal will be made on any class of the CMO
until all other classes having an earlier stated maturity or final
distribution date have been paid in full. In some CMO structures, all or a
portion of the interest attributable to one or more of the CMO classes may be
added to the principal amounts attributable to such classes, rather than
passed through to certificateholders on a current basis, until other classes
of the CMO are paid in full.

B-2
<PAGE>

Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution
date of each class, which, as with other CMO structures, must be retired by
its stated maturity date or final distribution date but may be retired
earlier.

ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES

ARM mortgage-backed securities are mortgage-backed securities that represent
a right to receive interest payments at a rate that is adjusted to reflect the
interest earned on a pool of mortgage loans bearing variable or adjustable
rates of interest (such mortgage loans are referred to as "ARMs"). Floating
rate mortgage-backed securities are classes of mortgage-backed securities that
have been structured to represent the right to receive interest payments at
rates that fluctuate in accordance with an index but that generally are
supported by pools comprised of fixed-rate mortgage loans. Because the
interest rates on ARM and floating rate mortgage-backed securities are reset
in response to changes in a specified market index, the values of such
securities tend to be less sensitive to interest rate fluctuations than the
values of fixed-rate securities.

TYPES OF CREDIT ENHANCEMENT

To lessen the effect of failures by obligors on mortgage assets to make
payments, mortgage-backed securities may contain elements of credit
enhancement. Such credit enhancement falls into two categories: (1) liquidity
protection and (2) protection against losses resulting after default by an
obligor on the underlying assets and collection of all amounts recoverable
directly from the obligor and through liquidation of the collateral. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pool of assets (usually the bank, savings association or
mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool
occurs in a timely fashion. Protection against losses resulting after default
and liquidation ensures ultimate payment of the obligations on at least a
portion of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor, from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Funds will not
pay any additional fees for such credit enhancement, although the existence of
credit enhancement may increase the price of a security. Credit enhancements
do not provide protection against changes in the market value of the security.

Examples of credit enhancement arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class
securities with one or more classes subordinate to other classes as to the
payment of principal thereof and interest thereon, with the result that
defaults on the underlying assets are borne first by the holders of the
subordinated class), creation of "spread accounts" or "reserve funds" (where
cash or investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and "over-
collateralization" (where the scheduled payments on, or the principal amount
of, the underlying assets exceed that required to make payment of the
securities and pay any servicing or other fees). The degree of credit
enhancement provided for each issue generally is based on historical
information regarding the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated could adversely
affect the return on an investment in such a security.

B-3
<PAGE>

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

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions..................................... 1
Directors, Trustees and Officers......................................... 21
Compensation Table....................................................... 29
Investment Advisory and Distribution Arrangements........................ 29
Portfolio Transactions................................................... 35
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services.......................................................... 37
Conversion of Class B Shares............................................. 41
Valuation of Shares...................................................... 41
Performance Information.................................................. 42
Taxes.................................................................... 44
Other Information........................................................ 46
Financial Statements..................................................... 46
Appendix A...............................................................
Appendix B...............................................................
</TABLE>

[LOGO] Recycled Paper

PAINEWEBBER
BALANCED FUND

PAINEWEBBER
TACTICAL ALLOCATION FUND

- --------------------------------------------------------------------------------
Statement of Additional Information
July 1, 1996
- --------------------------------------------------------------------------------

PAINEWEBBER

<PAGE>

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

PaineWebber

Balanced Fund

Tactical Allocation Fund

Class Y Shares

1285 Avenue of the Americas, New York, NY 10019

Prospectus -- July 1, 1996

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

The Class Y shares described in this Prospectus are currently offered for sale
primarily to participants in the INSIGHT Investment Advisory Program
("INSIGHT"), when purchased through that program, and to the trustee of the
PaineWebber Savings Investment Plan ("PW SIP") on behalf of the PW SIP. See
"How to Buy Shares."

Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Funds at a Glance.................................................... 2
Expense Table............................................................ 4
Financial Highlights..................................................... 5
Investment Objective and Policies........................................ 6
Investment Philosophy and Process........................................ 7
Performance.............................................................. 9
The Funds' Investments................................................... 10
How to Buy Shares........................................................ 14
How to Sell Shares....................................................... 15
Management............................................................... 16
Determining the Shares; Net Asset Value.................................. 17
Dividends & Taxes........................................................ 18
General Information...................................................... 19
</TABLE>

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

- --------------------------------------------------------------------------------
The Funds at a Glance
- --------------------------------------------------------------------------------
BALANCED FUND

GOAL: To increase the value of your investment by investing in a combination of
equity securities, investment grade bonds, and money market instruments.

INVESTMENT OBJECTIVE: High total growth and income with low volatility.

SIZE: On , 1996, the Fund had over $ million in assets.

TACTICAL ALLOCATION FUND

GOAL: To increase the value of your investment by investing in a combination of
equity securities, U.S. Treasury Notes and U.S. Treasury Bills.

INVESTMENT OBJECTIVE: High total return, consisting of long-term capital
appreciation and current income.

SIZE: On , 1996, the Fund had over $ million in assets.

MANAGEMENT

MINIMUM INVESTMENT

To open an account, investors need $1,000; to add to an account, investors need
only $100.

WHO SHOULD INVEST

These Funds are not intended to provide a complete or balanced investment
program, but one
<PAGE>

- ------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

HOW TO PURCHASE CLASS Y SHARES

Eligible investors may purchase Class Y shares of the Funds as follows:

The price is the net asset value next calculated after PaineWebber's New York
City headquarters or the Transfer Agent receives the purchase order.

Investors do not pay an initial sales charge when they buy Class Y shares. 100%
of their purchase is immediately invested. Investors also do not pay a
redemption fee or contingent deferred sales charge when they sell Class Y
shares.

THE PAINEWEBBER FAMILY OF FUNDS

. Money Market Funds for income and stability by investing in high-quality,
short-term investments.

. Bond Funds for income by investing mainly in bonds.

. Tax-Free Bond Funds for income exempt from federal income taxes and, in some
cases, state and local income taxes, by investing in municipal bonds.

. Asset Allocation Funds for long-term growth and income by investing in stocks
and bonds.

. Growth Funds for long-term growth by investing mainly in stocks.

. Global Funds for long-term growth by investing mainly in foreign stocks or
high current income by investing mainly in global debt instruments.

------------
Prospectus Page 3
<PAGE>

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

- --------------------------------------------------------------------------------
Expense Table
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS Y
- -------------------------------- -------
<S> <C>
Maximum Sales Charge on Purchases of Shares (as a % of offering price). None
Sales Charge on Reinvested Dividends (as a % of offering price)........ None
Maximum Contingent Deferred Sales Charge (as a % of redemption
proceeds)............................................................. None
Exchange Fee........................................................... None
ANNUAL FUND OPERATING EXPENSES* (as a percentage of average net assets)
BALANCED FUND
Management Fees........................................................
12b-1 Fees.............................................................
Other Expenses.........................................................
----
Total Operating Expenses...............................................
====
TACTICAL ALLOCATION FUND
Management Fees........................................................
12b-1 Fees.............................................................
Other Expenses.........................................................
----
Total Operating Expenses...............................................
====
</TABLE>
- -------
* See "Management" for additional information. The fees and expenses are those
actually incurred for the fiscal year ended February 29, 1996. Participation
in INSIGHT is subject to payment of an advisory fee at the maximum annual
rate of 1.50% of assets held through INSIGHT. This account charge is not
included in the table because non-INSIGHT participants are permitted to
purchase Class Y shares of the Funds.

EXAMPLE OF EFFECT OF FUND EXPENSES

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

BALANCED FUND

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class Y.........................................

TACTICAL ALLOCATION FUND

<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class Y.........................................
</TABLE>

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Prospectus Page 4
<PAGE>

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

The following tables provide investors with data and ratios for one Class Y
share for Tactical Allocation Fund for each of the periods shown. This
information is supplemented by the financial statements and accompanying notes
appearing in Tactical Allocation Fund's Annual Report to Shareholders for the
fiscal year ended August 31, 1995 and the report of Ernst & Young, LLP,
independent auditors, appearing in the Fund's Annual Report to Shareholders.
Both are incorporated by reference into the Statement of Additional
Information. The financial statements and notes, as well as the financial
information in the table below for the fiscal year ended August 31, 1995, have
been audited by Ernst & Young LLP. 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. The financial statements and notes and
the financial information in the table below, as they relate to the six months
ended February 29, 1996, have been taken from the records of the Fund without
examination by the independent auditors, who do not express an opinion thereon.
Further information about the Fund's performance is also included in the Annual
Report to Shareholders, which may be obtained without charge. As of February
29, 1996, Class Y shares for Balanced Fund had not yet commenced operations and
no financial information was therefore available.

<TABLE>
<CAPTION>
TACTICAL ALLOCATION FUND
CLASS Y(2)
----------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
, TO
------------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period....
--- ---
Net investment income...................
Net realized and unrealized gains
(losses) from investment transactions..
--- --- ---
Total from investment operations........
--- --- ---
Dividends from net investment income....
Distributions from net realized gains
from investment transactions...........
--- --- ---
Total dividends and distributions to
shareholders...........................
--- --- ---
Net asset value, end of period..........
--- --- ---
Total investment return(1)..............
--- --- ---
Ratios and Supplemental Data:
Net assets, end of period (000's).......
Ratios of expenses to average net
assets.................................
Ratios of net investment income to
average net assets.....................
Portfolio turnover rate.................
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges; results for each class
would be lower if sales charges were included. Total investment returns for
periods of less than one year have not been annualized.
(2) Formerly Class C shares.

------------
Prospectus Page 5
<PAGE>

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PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

- --------------------------------------------------------------------------------
Investment Objectives and Policies
- --------------------------------------------------------------------------------

BALANCED FUND

TACTICAL ALLOCATION FUND

* * * *

------------
Prospectus Page 6
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

- --------------------------------------------------------------------------------
Investment Philosophy and Process
- --------------------------------------------------------------------------------

BALANCED FUND

. Balanced Fund's investment in money market instruments are chosen by Mitchell
Hutchins based on its judgment of their utility in furthering the Fund's
investment objective.

TACTICAL ALLOCATION FUND

The Fund deviates from the published recommendations of the Allocation Model
only to

------------
Prospectus Page 7
<PAGE>

- ------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

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.

------------
Prospectus Page 8
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------

These charts show the total returns for Class Y shares of Tactical Allocation
Fund. Past results are not a guarantee of future results. As of February 29,
1996, Class Y shares for Balanced Fund had not yet commenced operations and no
performance information was therefore available .

Total returns after deducting the maximum sales charges are shown below in the
tables that follow the performance charts.

TACTICAL ALLOCATION FUND

As Class Y shares commenced operations
on May 10, 1993, the 1993 return
represents the period from May 10, 1993
to December 31, 1993.
(CHART)

TACTICAL ALLOCATION FUND

AVERAGE ANNUAL RETURNS
As of , 1996

<TABLE>
<CAPTION>
CLASS Y SHARES
--------------
<S> <C>
Inception Date................................................... 5/10/93
One Year......................................................... %
Life............................................................. %
</TABLE>

PERFORMANCE INFORMATION

------------
Prospectus Page 9
<PAGE>

- -------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

- -------------------------------------------------------------------------------
The Funds' Investments
- -------------------------------------------------------------------------------

MONEY MARKET INSTRUMENTS are bonds and U.S. Government Securities with
maturities of 13 months or less.

RISKS

-------------
Prospectus Page 10
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

In addition to these general risks, investments in each of the Funds are
subject to special risk considerations:

BALANCED FUND

-------------
Prospectus Page 11
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

See Appendix A to the Statement of Additional Information for more information
concerning the types of mortgage-backed securities in which Balanced Fund may
invest.

. the fact that the skills needed to use hedging instruments are different from
those needed to select securities for the Fund,

-------------
Prospectus Page 12
<PAGE>

- -------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

. the possibility of imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the securities
being hedged,

. possible constraints placed on the Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund to
maintain "cover" or to segregate securities, and

. the possibility that the Fund is unable to close out or liquidate its hedged
position.

TACTICAL ALLOCATION FUND

-------------
Prospectus Page 13
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

"Investment Techniques and Strategies" in the Statement of Additional
Information.

INVESTMENT TECHNIQUES AND STRATEGIES

- --------------------------------------------------------------------------------
How to Buy Shares
- --------------------------------------------------------------------------------

Class Y shares are sold to eligible investors at the net asset value next
determined after the purchase order is received at PaineWebber's New York City
headquarters or, for purchases by the trustee of the PW SIP, by the Funds'
transfer agent ("Transfer Agent"). No initial or contingent deferred sales
charge is imposed, nor are Class Y shares subject to rule 12b-1 distribution or
service fees. The Funds and Mitchell Hutchins reserve the right to reject any
purchase order and to suspend the offering of the Class Y shares for a period
of time. Mitchell Hutchins, the distributor for each Fund's Class Y shares, has
appointed PaineWebber to serve as the exclusive dealer for each Fund's Class Y
shares.

INSIGHT

An investor who purchases $50,000 or more of shares of the mutual funds that
are available to INSIGHT participants (which include the PaineWebber mutual
funds in the Flexible Pricing System SM and certain other specified mutual
funds) may take part in INSIGHT, a total portfolio asset allocation program
sponsored by PaineWebber, and thus become eligible to purchase Class Y shares.
INSIGHT offers comprehensive investment services, including a personalized
asset allocation investment strategy using an appropriate combination of funds,
monitoring of investment performance and comprehensive quarterly reports that
cover market trends, portfolio summaries and personalized account information.

Participating in INSIGHT is subject to payment of an advisory fee to
PaineWebber at the maximum annual rate of 1.5% of assets held through the
program (generally charged quarterly in advance), which covers all INSIGHT
investment advisory services and program administration fees. Employees of
PaineWebber and its affiliates are entitled to a 50% reduction in the fee
otherwise payable for participation in INSIGHT. INSIGHT clients may elect to
have their INSIGHT fees charged to their PaineWebber accounts (by the automatic
redemption of money market fund shares) or, if a qualified plan, invoiced.

Please contact your PaineWebber investment executive or PaineWebber
correspondent firm or call 1-800-647-1568 for more information concerning
mutual funds that are available to INSIGHT participants or for other INSIGHT
program information.

PURCHASES BY THE TRUSTEE OF THE PW SIP

The Class Y shares also are offered for sale to the trustee of the PW SIP, a
defined contribution plan sponsored by PaineWebber Group, Inc. ("PW Group").
The trustee of the PW SIP purchases and redeems Class Y shares to implement the
investment choices of individual plan participants with respect to their PW SIP
contributions. Individual plan participants should consult the Plan Information
Statement and Summary Plan Description of the PW SIP (collectively the "Plan
Documents") for a description of the procedures and limitations applicable to
making and changing investment choices.

Copies of the Plan Documents are available from the PaineWebber Incorporated
Benefits Department, 1000 Harbor Boulevard, 10th Floor, Weehawken, NJ 07087
(telephone 1-201-902-4444).

As described in the Plan Documents, the average net asset value per share at
which Class Y shares of a Fund are purchased or redeemed by the trustee

-------------
Prospectus Page 14
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

of the PW SIP for the accounts of individual participants might be more or less
than the net asset value per share prevailing at the time that such
participants made their investment choices or made their contributions to the
PW SIP.

ACQUISITION OF CLASS Y SHARES BY OTHERS

Present holders of Class Y shares of a former Mitchell Hutchins/Kidder, Peabody
("MH/KP") mutual fund who are not current INSIGHT participants may acquire
Class Y shares of a Fund only when those shares are issued in connection with
the reorganization of the MH/KP mutual fund into that Fund. This category
includes former employees of Kidder, Peabody & Co., Incorporated ("Kidder,
Peabody"), their associated accounts, present and former directors and trustees
of the MH/KP mutual funds.

Dividends and other distributions on Class Y shares of a Fund issued in
connection with the reorganization will be paid in additional Class Y shares at
net asset value, unless the shareholder has requested cash payments. These
holders may not otherwise purchase additional Class Y shares.

Each Fund is authorized to offer Class Y shares to other employee benefit and
retirement plans of PW Group and its affiliates and certain other investment
advisory programs that are sponsored by PaineWebber and that may invest in
PaineWebber mutual funds. At present, however, INSIGHT participants and the PW
SIP are the only purchasers in these two categories.

- --------------------------------------------------------------------------------
How to Sell Shares
- --------------------------------------------------------------------------------

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

REDEMPTIONS THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS

INSIGHT participants who are Class Y shareholders may submit redemption
requests to their investment executives or correspondent firms in person or by
telephone, mail or wire. As agent for the Funds, PaineWebber may honor a
redemption request by repurchasing Class Y shares from a redeeming shareholder
at the shares net asset value next determined after receipt of the request by
PaineWebber's New York City headquarters. Within three Business Days after
receipt of the request, repurchase proceeds 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
headquarters. A "Business Day" is any day, Monday through Friday, on which the
New York Stock Exchange is open for business.

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.

REDEMPTIONS THROUGH THE TRANSFER AGENT

Shareholders also may redeem Fund shares through the Transfer Agent.
Shareholders should mail redemption requests directly to the Transfer Agent:
PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware
19899. A redemption request will be executed at the net asset value next
computed after it is received in "good order," and redemption proceeds will be
paid within seven days of the receipt of the request.

"Good order" means that the request must be accompanied by the following: (1) a
letter of instruction or a stock assignment specifying the number of shares or
amount of investment to be redeemed (or that all shares credited to the 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,

-------------
Prospectus Page 15
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

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."

REDEMPTION FOR PARTICIPANTS IN PW SIP

The trustee of the PW SIP redeems Class Y shares to implement the investment
choices of individual plan participants with respect to their PW SIP
contributions, as described in the Plan Documents referenced under "Purchases"
above. As described in the Plan Documents, the average net asset value per
share at which Class Y shares are redeemed by the trustee of the PW SIP might
be more or less than the net asset value per share prevailing at the time that
such participants made their investment choices.

ADDITIONAL INFORMATION ON REDEMPTIONS

A shareholder (other than a participant in the PW SIP) 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 investment executive at PaineWebber or one of its
correspondent firms. If a shareholder requests redemption of shares which were
purchased recently, a 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 each Fund incurs certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to redeem all Fund shares in any
shareholder account having a net asset value below $500. If a 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. A
Fund will not redeem accounts that fall below the minimum required level solely
as a result of a reduction in net asset value per share.

- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------

Balanced Fund is a series of PaineWebber Master Series, Inc. ("Corporation")
and Tactical Allocation Fund is a series of PaineWebber Investment Trust
("Trust"). The board of directors for the Corporation, and the board of
trustees for the Trust, as part of their overall management responsibility,
oversee various organizations responsible for the day-to-day management of each
Fund. Mitchell Hutchins, investment adviser and administrator of each Fund,
makes and implements all investment decisions and supervises all aspects of
each Fund's operations. Each board has determined that brokerage transactions
for its respective fund may be conducted through PaineWebber or its affiliates
in accordance with procedures adopted by the board.

-------------
Prospectus Page 16
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

Dennis L. McCauley is responsible for the day-to-day management of the debt
securities portion of Balanced Fund. Mr. McCauley is a Managing Director and
Chief Investment Officer--Fixed Income of Mitchell Hutchins responsible for
overseeing all active fixed income investments, including domestic and global
taxable and tax-exempt mutual funds. Prior to joining Mitchell Hutchins in
1994, Mr. McCauley worked for IBM Corporation where he was Director of Fixed
Income Investments responsible for developing and managing investment strategy
for all fixed income and cash management investments of IBM's pension fund and
self-insured medical funds. Mr. McCauley has also served as Vice President of
IBM Credit Corporation's mutual funds and as a member of the Retirement Fund
Investment Committee.

ABOUT THE INVESTMENT ADVISER

MANAGEMENT FEES & OTHER EXPENSES

Each Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent.

- --------------------------------------------------------------------------------
Determining the Shares; Net Asset Value
- --------------------------------------------------------------------------------

The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) each Business Day. Each
Fund's net asset value per share is determined by dividing the value of the
securities held by the Fund, plus any cash or other assets, minus all

-------------
Prospectus Page 17
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

liabilities, by the total number of Fund shares outstanding.

- --------------------------------------------------------------------------------
Dividends & Taxes
- --------------------------------------------------------------------------------

DIVIDENDS

Each Fund pays dividends semi-annually from its net investment income; it also
may distribute net short-term capital gain, if any, with the semi-annual
dividend. Net investment income includes dividend income, accrued interest and
discount, less amortization of premium and accrued expenses. Substantially all
of each Fund's net capital gain (the excess of net long-term capital gain over
net short-term capital loss), if any, and any undistributed net short-term
capital gain, is distributed at least annually. The Fund may make additional
distributions if necessary to avoid income or excise taxes. While the Fund will
not declare any dividend in excess of the amount of net investment income and
net short-term capital gain available for distribution at the time of
declaration, it is possible that net capital losses sustained after that time
could convert a portion of such a dividend to a non-taxable return of capital.

Dividends and other distributions paid on Class Y shares of each Fund are
calculated at the same time and in the same manner as dividends and
distributions on other classes of shares.

TAXES

YEAR-END TAX REPORTING

-------------
Prospectus Page 18
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

BACKUP WITHHOLDING

TAXES ON THE SALE OR EXCHANGE OF FUND SHARES

Qualified profit-sharing plans such as the PW SIP generally pay no Federal
income tax. Individual participants in the PW SIP should consult the plan
documents and their own advisers for information on the tax consequences
associated with participating in the PW SIP.

ADDITIONAL INFORMATION

- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------

ORGANIZATION

The shares of each Fund are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. Each class represents an identical
interest in the respective Fund's investment portfolio and has the same rights,
privileges and preferences. However, each class may differ with respect to
sales charges, if any, distribution and/or service fees, if any, the expenses
allocable exclusively to each class, voting rights on matters exclusively
affecting that class, and its exchange privilege. The different sales charges
and other expenses applicable to the different classes of shares of the Funds
will effect the performance of those classes.

Each share of the respective Funds is entitled to participate equally in
dividends, other distributions and the proceeds of any liquidation of that
Fund. However, due to the differing expenses of the

-------------
Prospectus Page 19
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

classes, dividends on Class B and Class C shares are likely to be lower than
for Class A shares and are likely to be lower on Class Y shares than for any
other class of shares.

More information concerning Class A, Class B and Class C shares may be obtained
from an investment executive at PaineWebber or one of its correspondent firms
or by calling toll-free 1-800-647-1568.

VOTING RIGHTS

SHAREHOLDER MEETINGS

The Funds do not intend to hold annual meetings.

REPORTS TO SHAREHOLDERS

CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND AGENT

-------------
Prospectus Page 20
<PAGE>

- ------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND TACTICAL ALLOCATION FUND

- ------------------------------------------------------------------------------
PaineWebber Family of Funds
- ------------------------------------------------------------------------------

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

PAINEWEBBER MONEY MARKET FUND

PAINEWEBBER BOND FUNDS
High Income Fund
Investment Grade Income Fund
Low Duration U.S. Government Income Fund
Strategic Income Fund
U.S. Government Income Fund

PAINEWEBBER TAX-FREE BOND FUNDS
California Tax-Free Income Fund
Municipal High Income Fund
National Tax-Free Income Fund
New York Tax-Free Income Fund

PAINEWEBBER ASSET ALLOCATION FUNDS
Balanced Fund
Tactical Allocation Fund

PAINEWEBBER GROWTH FUNDS
Capital Appreciation Fund
Growth Fund
Growth and Income Fund
Financial Services Growth Fund
Small Cap Value Fund
Utility Income Fund

PAINEWEBBER GLOBAL FUNDS
Emerging Markets Equity Fund
Global Equity Fund
Global Income Fund

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

<PAGE>

PAINEWEBBER BALANCED FUND
PAINEWEBBER TACTICAL ALLOCATION FUND
CLASS Y SHARES

1285 AVENUE OF THE AMERICAS

NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.

BALANCED FUND

2
<PAGE>

3
<PAGE>

4
<PAGE>

5
<PAGE>

unrelated to the value of the investments being hedged, such as speculative or
other pressures on the markets in which Hedging Instruments are traded.

6
<PAGE>

7
<PAGE>

Guidelines for Options. The Fund's use of options is governed by the
following guidelines, which can be changed by the Corporation's board of
directors without shareholder vote:

2. The aggregate value of securities underlying put options written by the
Fund determined as of the date the put options are written, will not exceed
50% of the Fund's net assets.

8
<PAGE>

9
<PAGE>

initial margin and premiums on those positions (excluding the amount by which
options are "in-the-money") may not exceed 5% of the Fund's net assets.

3. The aggregate margin deposits on all futures contracts and options
thereon held at any time by the Fund will not exceed 5% of the Fund's total
assets.

10
<PAGE>

11
<PAGE>

and the mechanics of transfer). Mitchell Hutchins will monitor the liquidity
of restricted securities in the Fund's portfolio and report periodically on
such decisions to the board of directors.

12
<PAGE>

13
<PAGE>

Fund owns, either directly or indirectly, and in the case where the Fund owns
convertible securities, changes in the investment values or conversion
premiums of such securities.

TACTICAL ALLOCATION FUND

14
<PAGE>

15
<PAGE>

16
<PAGE>

INVESTMENT LIMITATIONS OF THE FUNDS

BALANCED FUND. The Fund will not:

17
<PAGE>

The following investment restrictions may be changed by the vote of the
Corporation's board of directors without shareholder approval. The Fund may
not:

18
<PAGE>

1/2 of 1% of the outstanding securities of the issuer) own in the aggregate
more than 5% of the securities of such issuer.

TACTICAL ALLOCATION FUND. The Fund will not:

19
<PAGE>

The following investment restrictions may be changed by the vote of the
Corporation's board of directors without shareholder approval. The Fund may
not:

(1) invest in oil, gas or other mineral leases or exploration or
development programs.

(3) participate on a joint or joint-and-several basis in any securities
trading account.

(4) make investments for the purpose of exercising control of management.

20
<PAGE>

DIRECTORS, TRUSTEES AND OFFICERS

The directors, trustees and executive officers of the Corporation and/or the
Trust, their ages, business addresses and principal occupations during the
past five years are:

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Margo N. Alexander**; 49 Director/Trustee and Mrs. Alexander is president, chief
President executive officer and a director of
Mitchell Hutchins (since January
1995), Mrs. Alexander is an execu-
tive vice president and director of
PaineWebber. Mrs. Alexander is also
a director or trustee of 29 invest-
ment companies and president of 29
other investment companies for
which Mitchell Hutchins or Paine-
Webber serves as investment advis-
er.
Richard O. Armstrong; 60 Director/Trustee Mr. Armstrong is chairman and prin-
78 West Brother Drive cipal of ROA Enterprises (manage-
Greenwich, CT 06830 ment consulting firm) (since April
1991 and principal occupation since
March 1995). Mr. Armstrong is also
a director of Hi Lo Automotive,
Inc. He was chairman of the board,
chief executive officer and co-
owner of Adirondack Beverages (pro-
ducer and distributor of soft
drinks and sparkling/still waters)
(October 1993-
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
March 1995). He was a partner of
The New England Consulting Group
(management consulting firm) (De-
cember 1992-September 1993). He was
managing director of LVMH U.S. Cor-
poration (U.S. subsidiary of the
French luxury goods conglomerate,
Luis Vuitton Moet Hennessey Corpo-
ration) (1987-1991) and chairman of
its wine and spirits subsidiary,
Schieffelin & Somerset Company
(1987-1991). Mr. Armstrong is also
a director or trustee of 28 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as in vestment adviser.
E. Garrett Bewkes, Director/Trustee and Mr. Bewkes is a director of, and
Jr.**; 69 Chairman of the Board of consultant to PaineWebber Group
Directors/Trustees Inc. ("PW Group") (holding company
of PaineWebber and Mitchell
Hutchins). Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company.
Mr. Bewkes is also a director of
Interstate Bakeries Corporation and
NaPro BioTherapeutics, Inc. and a
director or trustee of 29 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Richard R. Burt; 49 Director/Trustee Mr. Burt is chairman of Interna-
1101 Connecticut Ave- tional Equity Partners (interna-
nue, N.W. tional investments and consulting
Washington, D.C. firm) (since March 1994) and a
20036 partner of McKinsey & Company (man-
agement consulting firm) (since
1991). He is also a director of
American Publishing Company. He was
the chief negotiator in the Strate-
gic Arms Reduction Talks with the
former Soviet Union (1989-1991) and
the U.S. Ambassador to the Federal
Republic of Germany (1985-1989).
Mr. Burt is also a director or
trustee of 28 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Mary C. Farrell**; 46 Director/Trustee Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy
Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982.
She is a member of the Financial
Women's Association and Women's
Economic Roundtable, and is em-
ployed as a regular panelist on
Wall Street Week with Louis
Rukeyser. She also serves on the
Board of Overseers of New York
University's Stern School of Busi-
ness. Ms. Farrell also is a direc-
tor or trustee of 28 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Meyer Feldberg; 54 Director/Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York versity. Prior to 1989, he was
10027 president of the Illinois Institute
of Technology. Dean Feldberg is
also a director of AMSCO Interna-
tional Inc., Federated Department
Stores, Inc. and New World Communi-
cations Group Incorporated and a
director or trustee of 28 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
George W. Gowen; 66 Director/Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York Miller. Prior to May 1994, he was a
10017 partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. and a di rector
or trustee of 28 other investment
companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Frederic V. Malek; 59 Director/Trustee Mr. Malek is chairman of Thayer Cap-
901 15th Street, N.W. ital Partners (investment bank) and
Suite 300 a co-chairman and director of DB
Washington, D.C. Commercial Group Inc. (real es-
20005 tate). From January 1992 to Novem-
ber 1992, he was campaign manager
of Bush-Quayle '92. From 1990 to
1992, he was vice chairman and,
from 1989 to 1990, he was president
of Northwest
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Airlines Inc. NWA Inc. (holding
company of Northwest Airlines Inc.)
and Wings Holdings Inc. (holding
company of NWA Inc.). Prior to
1989, he was employed by the
Marriott Corporation (hotels, res-
taurants, airline catering and con-
tract feeding), where he most re-
cently was an executive vice presi-
dent and president of Marriott Ho-
tels and Resorts. Mr. Malek is also
a director of American Management
Systems, Inc., Automatic Data
processing, Inc., Avis, Inc., FPL
Group, Inc., National Education
Corporation and Northwest Airlines
Inc. and a director or trustee of
28 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Carl W. Schafer; 60 Director/Trustee Mr. Schafer is president of the At-
P.O. Box 1164 lantic Foundation (charitable foun-
Princeton, New Jersey dation supporting mainly oceano-
08542 graphic exploration and research).
He also is a director of Roadway
Express, Inc. (trucking). The
Guardian Group of Mutual Funds, Ev-
ans Systems, Inc. (a motor fuels,
convenience store and diversified
company), Hidden Lake Gold Mines
Ltd. (gold mining), Electronic
Clearing House, Inc. (financial
transactions processing), Wainoco
Oil Corporation and Nutraceutix
Inc. (biotechnology). Prior to Jan-
uary 1993, Mr. Schafer was chairman
of the Investment Advisory Commit-
tee of the Howard Hughes Medical
Institute. Mr. Schafer also is a
director or trustee of 28 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
John R. Torell III; 56 Director/Trustee Mr. Torrell is chairman of Torell
767 Fifth Avenue Management, Inc. (financial advi-
Suite 4605 sory firm) (since 1989), chairman
New York, NY 10153 of Telesphere Corporation (elec-
tronic provider of financial infor-
mation) and a partner of Zilkha &
Company (merchant banking and pri-
vate
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
investment company). He is the for-
mer chairman and chief executive
officer of Fortune Bancorp (since
1990-1991 and 1990-1994, respec-
tively), the former chairman, pres-
ident and chief executive officer
of CalFed, Inc. (savings associa-
tion) (1988 to 1989) and former
president of Manufacturers Hanover
Corp. (bank) (prior to 1988). Mr.
Torell is also a director of Ameri-
can Home Products Corp., New Colt
Inc. (armament manufacturer) and
Volt Information Sciences Inc. Mr.
Torell is a director or trustee of
28 other investment companies for
which Mitchell Hutchins or Paine-
Webber serves as investment advis-
er.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president
and manager--advisory administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital Manage-
ment, Inc., an investment advisory
firm. Prior to April 1993,
Ms. Boyle was a vice president and
manager--legal administration of
Mitchell Hutchins. Ms. Boyle is
also a vice president of 29 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was an
associate at the law firm of Seward
& Kissel. Ms. Cohen is also a vice
president and assistant secretary
of 24 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
C. William Maher; 35 Vice President and Mr. Maher is a first vice president
Assistant Treasurer and a senior manager of the mutual
fund finance division of Mitchell
Hutchins. Mr. Maher is also a vice
president and assistant treasurer
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Ann E. Moran; 38 Vice President Ms. Moran is a vice president of
and Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assistant
treasurer of 29 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice pres-
Secretary ident and deputy general counsel of
Mitchell Hutchins. Ms. O'Donnell is
also a vice president and secretary
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director
45 and general counsel of Mitchell
Hutchins. From April 1990 to May
1994, she was a partner in the New
York office of the law firm of Ar-
nold & Porter. Prior to April 1990,
she was a partner in the law firm
of Shereff, Friedman, Hoffman
& Goodman. Ms. Schonfeld is also a
vice president of 29 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 33 Vice President Mr. Schubert is a first vice presi-
and Assistant Treasurer dent and a senior manager of the
mutual fund finance division of
Mitchell Hutchins. From August 1992
to August 1994, he was a vice pres-
ident of BlackRock Financial Man-
agement, Inc. Prior to August 1992,
he was an audit manager with Ernst
& Young LLP. Mr. Schubert is also a
vice president and assistant trea-
surer of 29 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice presi-
Treasurer dent and the director of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1991, he was an
audit senior manager with Ernst &
Young LLP. Mr. Sluyters is
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
also a vice president and treasurer
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.

Gregory K. Todd; 39 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Keith A. Weller; 34 Vice President and Mr. Weller is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. From September
1987 to May 1995, he was an attor-
ney in private practice. Mr. Weller
is also a vice president and assis-
tant secretary of 23 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.

Dennis McCauley; 49 Vice President Mr. McCauley is a managing director
and chief investment officer--fixed
income of Mitchell Hutchins. Prior
to December 1994, he was Director
of Fixed Income Investments of IBM
Corporation. Mr. McCauley is also a
vice president of 16 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.

Nirmal Singh; 39 Vice President Mr. Singh is a first vice president
(Master Series, Inc.) of Mitchell Hutchins. Prior to Sep-
tember 1993, he was a member of the
portfolio management team at Mer-
rill Lynch Asset Management, Inc.
Mr. Singh is vice president of four
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH CORPORATION/TRUST OTHER DIRECTORSHIPS
----------------- ---------------------- --------------------
<S> <C> <C>
Craig M. Varrelman; 37 Vice President Mr. Varrelman is a first vice presi-
(Master Series, Inc.) dent of Mitchell Hutchins. Mr. Var-
relman is also a vice president of
four other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.

T. Kirkham Barneby; 49 Vice President Mr. Barneby is a managing director
(Master Series, Inc.) and chief investment officer--quan-
titative investments of Mitchell
Hutchins. Prior to September 1994,
he was a senior vice president at
Vantage Global Management. Prior to
June 1993, he was a senior vice
president at Mitchell Hutchins In-
stitutional Investors, Inc.

Susan P. Messina; 35 Vice President Ms. Messina is a senior vice presi-
(Masters Series, Inc.) dent and portfolio manager for
Mitchell Hutchins.

Mark A. Tincher; 40 Vice President Mr. Tincher is a managing director
(Master Series, Inc.) and chief investment officer--U.S.
equity investments of Mitchell
Hutchins. Prior to March 1995, he
was a vice president and directed
the U.S. funds management and eq-
uity research areas of Chase Man-
hattan Private Bank.

Stuart Waugh; 40 Vice President Mr. Waugh is a managing director and
(Investment Series Trust) portfolio manager of Mitchell
Hutchins responsible for global
fixed income investments and cur-
rency trading.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of the
Corporation and the Trust as defined in the Investment Company Act of 1940
("1940 Act") by virtue of their positions with PW Group, Mitchell Hutchins
and/or PaineWebber.

28
<PAGE>

COMPENSATION TABLE

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

BALANCED FUND

TACTICAL ALLOCATION FUND

29
<PAGE>

30
<PAGE>

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class Y shares of each Fund under separate distribution contracts with the
Corporation and the Trust dated July 7, 1993 and , , respectively
(collectively, "Distribution Contracts") that require Mitchell Hutchins to use
its best efforts, consistent with its other businesses, to sell shares of each
Fund. Class Y shares of the Funds are offered continuously. Under separate
exclusive dealer agreements between Mitchell Hutchins and PaineWebber dated
July 7, 1993 relating to the Class Y shares of the Funds (collectively,
"Exclusive Dealer Agreements"), PaineWebber and its correspondent firms sell
each Fund's shares.

31
<PAGE>

PORTFOLIO TRANSACTIONS

32
<PAGE>

with those transactions, Mitchell Hutchins will not purchase securities at a
higher price or sell securities at a lower price than would otherwise be paid
if no weight was attributed to the services provided by the executing dealer.
Moreover, Mitchell Hutchins will not enter into any explicit soft dollar
arrangements relating to principal transactions and will not receive in
principal transactions the types of services which could be purchased for hard
dollars. Mitchell Hutchins may engage in agency transactions in OTC equity and
debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide
research or execution services. These procedures include Mitchell Hutchins
receiving multiple quotes from dealers before executing the transactions on an
agency basis.

The Funds will not purchase securities in underwritings in which Mitchell
Hutchins or any of its affiliates is a member of the underwriting or selling
group, except pursuant to procedures adopted by the Corporation's/Trust's
board of directors/trustees pursuant to Rule 10f-3 under the 1940 Act. Among
other things, these procedures require that the commission or spread paid in
connection with such a purchase be reasonable and fair, that the purchase be
at not more than the public offering price prior to the end of the first
business day after the date of the public offering and that Mitchell Hutchins
or any affiliate thereof not participate in or benefit from the sale to the
Fund.

33
<PAGE>

VALUATION OF SHARES

PERFORMANCE INFORMATION

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

34
<PAGE>

The following table shows performance information for the Class Y shares of
Tactical Allocation Fund for the periods indicated. All returns for periods of
more than one year are expressed as an average return. As of February 29,
1996, the Class Y shares of Balanced Fund had not yet commenced operations and
no performance information was therefore available.

<TABLE>
TACTICAL ALLOCATION FUND
<CAPTION>
CLASS Y
-------
<S> <C>
Fiscal year ended August 31, 1995:
Standardized Return*.................................................. %
Non-Standardized Return............................................... %
Inception** to August 31, 1995:
Standardized Return*.................................................. %
Non-Standardized Return............................................... %
</TABLE>
- --------
* Class Y shares do not impose an initial or contingent deferred sales
charge; therefore, Non-Standardized Return is identical to Standardized
Return.

** The inception date for Class Y shares of Tactical Allocation Fund was May
10, 1993.

OTHER INFORMATION. In Performance Advertisements, each Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper") for flexible portfolio funds; CDA
Investment Technologies, Inc. ("CDA"); Wiesenberger Investment Companies
Service ("Wiesenberger"); Investment Company Data Inc. ("ICD"); or Morningstar
Mutual Funds ("Morningstar"); or with the performance of recognized stock and
other indexes, including (but not limited to) the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, the Morgan
Stanley International Capital World Index, the Lehman Brothers 20+ Year
Treasury Bond Index, the Lehman Brothers Government/Corporate Bond Index, the
Salomon Brothers Non-U.S. World Government Bond Index, and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. Each
Fund also may refer in such materials to mutual fund performance rankings and
other data, such as comparative asset, expense and fee levels, published by
Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance Advertisements also
may refer to discussions of the Funds and comparative mutual fund data and
ratings reported in independent periodicals, including (but not limited to)
THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL
WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE
WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in Performance
Advertisements may be in graphic form.

35
<PAGE>

of the Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase
more quickly than if dividends or other distributions had been paid in cash.

TAXES

36
<PAGE>

Balanced Fund may acquire zero coupon securities or other securities issued
with original issue discount. As a holder of such securities, the Fund must
include in its gross income the portion of the original issue discount that
accrues on the securities during the taxable year, even if the Fund receives
no corresponding payment on them during the year. Because the Fund annually
must distribute substantially all of its investment company taxable income,
including any accrued original issue discount, in order to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax, the Fund may
be required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those
distributions will be made from the Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. The Fund may realize capital
gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gain. In addition, any
such gains may be realized on the disposition of securities held for less than
three months. Because of the Short-Short Limitation, any such gains would
reduce the Fund's ability to sell other securities held for less than three
months that it might wish to sell in the ordinary course of its portfolio
management.

37
<PAGE>

OTHER INFORMATION

Prior to August 1995, Balanced Fund was named "PaineWebber Asset Allocation
Fund."

INDEPENDENT AUDITORS. Price Waterhouse LLP, 1177 Avenue of the Americas, New
York, N.Y. 10036, serves as the Balanced Fund's independent accountants. Ernst
& Young LLP, 787 Seventh Avenue, New York, New York 10019, serves as Tactical
Allocation Fund's independent auditors.

FINANCIAL STATEMENTS

38
<PAGE>

APPENDIX A

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

DESCRIPTION OF S&P CORPORATE DEBT RATINGS

A-1
<PAGE>

Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS

A-2
<PAGE>

APPENDIX B

MORTGAGE-BACKED SECURITIES

GINNIE MAE CERTIFICATES

FANNIE MAE CERTIFICATES

FREDDIE MAC CERTIFICATES

B-1
<PAGE>

principal once a year in guaranteed minimum payments. The Freddie Mac
guarantee is not backed by the full faith and credit of the U.S. government.

PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS

B-2
<PAGE>

ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES

TYPES OF CREDIT ENHANCEMENT

B-3
<PAGE>

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions....................................... 1
Directors, Trustees and Officers........................................... 21
Compensation Table......................................................... 29
Investment Advisory and Distribution Arrangements.......................... 29
Portfolio Transactions..................................................... 32
Valuation of Shares........................................................ 34
Performance Information.................................................... 34
Taxes...................................................................... 36
Other Information.......................................................... 38
Financial Statements....................................................... 38
Appendix A.................................................................
Appendix B.................................................................
</TABLE>

[LOGO] Recycled Paper

PAINEWEBBER
BALANCED FUND

PAINEWEBBER
TACTICAL ALLOCATION FUND

CLASS Y SHARES

PAINEWEBBER

<PAGE>

PART C. OTHER INFORMATION
-------------------------

Item 24. Financial Statements and Exhibits
---------------------------------

(a) Financial Statements (to be filed)

PaineWebber Tactical Allocation Fund
------------------------------------

Included in Part A of the Registration Statement:

Financial Highlights for one Class A, Class B and Class C share of
the Fund for the six months ended February 29, 1996 (unaudited).

Financial Highlights for one Class Y share of the Fund for the six
months ended February 29, 1996 (unaudited).

Financial Highlights for one Class A share of the Fund for each of
the three years in the period ended August 31, 1995 and for the
period November 14, 1991 (commencement of offering) to August 31,
1992.

Financial Highlights for one Class B share of the Fund for the
period August 25, 1995 (commencement of offering) to August 31,
1995.

Financial Highlights for one Class C share of the Fund for each of
the two years in the period ended August 31, 1995 and for the period
May 10, 1993 (commencement of offering) to August 31, 1993.

Financial Highlights for one Class Y share of the Fund for each of
the two years in the period ended August 31, 1995 and for the period
May 10, 1993 (commencement of offering) to August 31, 1993.

Included in Part B of the Registration Statement through incorporation by
reference from the Semi-Annual Report to Shareholders, previously filed
with the Securities and Exchange Commission through EDGAR on March, ___,
1996, Accession No. ___________________:

Portfolio of Investments at February 29, 1996 (unaudited)

Statement of Assets and Liabilities at February 29, 1996 (unaudited)

Statement of Operations for the year ended August 31, 1995 and the
six months ended February 29, 1996 (unaudited)

Statement of Changes in Net Assets for the six months ended February
29, 1996 (unaudited)

Financial Highlights for one Class A, Class B and Class C share of
the Fund for the six months ended February 29, 1996 (unaudited)

C-1
<PAGE>

Financial Highlights for one Class Y share of the Fund for the six
months ended February 29, 1996 (unaudited)

Included in Part B of the Registration Statement through incorporation by
reference from the Annual Report to Shareholders, previously filed with
the Securities and Exchange Commission through EDGAR on November 8, 1995,
Accession No. 0000873803-95-000006:

Portfolio of Investments at August 31, 1995

Statement of Assets and Liabilities at August 31, 1995

Statement of Operations for the year ended August 31, 1995

Statement of Changes in Net Assets for each of the two years in the
period ended August 31, 1995

Notes to Financial Statements

Financial Highlights for one Class B share of the Fund for the
period August 25, 1995 (commencement of offering) through August 31,
1995

Financial Highlights for one Class C share of the Fund for each of
the two years in the period ended August 31, 1995 and for the period
May 10, 1993 (commencement of offering) through August 31, 1993

Financial Highlights for one Class Y share of the Fund for each of
the two years in the period ended August 31, 1995 and for the period
May 10, 1993 (commencement of offering) through August 31, 1993

Report of Ernst & Young LLP, Independent Auditors, dated October 30,
1995

(b) Exhibits:

Exhibit No. Description of Exhibit
----------- ----------------------
1(a) Declaration of Trust*
1(b) Amendment effective September 3, 1991 to Declaration of
Trust*
1(c) Amendment effective December 11, 1991 to Declaration of
Trust*
1(d) Amendment effective February 13, 1995 to Declaration of
Trust*
1(e) Amendment effective February 29, 1996 to Declaration of
Trust (to be filed)
1(f) Amendment effective April 18, 1996 to Declaration of
Trust (to be filed)

C-2
<PAGE>

2(a) By-Laws of the Trust*
2(b) Amendment effective August 28, 1991 to By-laws*
3 Inapplicable
4 Instruments defining the rights of holders of the
Registrant's shares of beneficial interest*
5(a) Investment Advisory and Administration Contract*
5(b) Investment Sub-advisory Contract*
6(a) Distribution Contract Class A Shares*
6(b) Distribution Contract Class B Shares*
6(c) Distribution Contract Class C Shares*
6(d) Exclusive Dealer Agreement with respect to
Class A Shares 1/
6(e) Exclusive Dealer Agreement with respect to
Class B Shares 1/
7 Inapplicable
8 Form of Custody Contract with State Street Bank and Trust
Company*
9 Transfer Agency and Service Agreement*
10 Opinion of Willkie, Farr & Gallagher, including consent*
11 Consent of Deloitte & Touche (to be filed)
12 Inapplicable
13 Form of Purchase Agreement*
14 Inapplicable
15(a) Amended and Restated Shareholder Servicing and
Distribution Plan *
15(b) Shareholder Servicing Agreement*
15(c) Distribution Related Services Agreement*
16 Schedule for computation of performance quotations
provided in the Registration Statement in response
to Item 22*
17 and 27 Financial Data Schedule (to be filed)
18 Plan pursuant to Rule 18f-3 1/
19 Powers of Attorney (filed herewith)
_______________________________

* Previously filed.

/1/ Incorporated by reference from Post-Effective Amendment No. 12 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on November 2, 1995.

Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------

None.

C-3
<PAGE>

Item 26. Number of Holders of Securities
-------------------------------
<TABLE>
<CAPTION>

Number of Record
Shareholders as of
Title of Class February 9, 1996
- -------------------------------------- ------------------
<S> <C>
Shares of Beneficial Interest,
par value $0.001 per share
- --------------------------------------
PaineWebber Global Equity Fund
Class A Shares 30,567
Class B Shares 15,658
Class C Shares 7,098
Class Y Shares 653
PaineWebber Tactical Allocation Fund
Class A shares 223
Class B shares 16
Class C shares 2,037
Class Y shares 314
</TABLE>

Item 27. Indemnification
---------------

Section 4.2 of Article IV of the Registrant's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Trust shall be
liable to the Trust, its shareholders, or to any shareholder, Trustee,
officer, employee, or agent thereof for any action or failure to act
(including without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for his or her own bad
faith, willful misfeasance, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

Section 4.3(a) of Article IV of the Registrant's Declaration of Trust
provides that the appropriate series of the Registrant will indemnify its
Trustees and officers to the fullest extent permitted by law against all
liability and against all expenses reasonably incurred or paid by such
Trustees and officers in connection with any claim, action, suit or proceeding
in which such Trustee or officer becomes involved as a party or otherwise by
virtue of his or her being or having been a Trustee or officer and against
amounts paid or incurred by him or her in the settlement thereof.
Additionally, Section 4.3(b) of Article IV provides that no such person shall
be indemnified (i) where such person is liable to the Trust, a series thereof
or the shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office, (ii) where such person has been finally adjudicated not to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of the Trust, or a series thereof, or (iii) in the event of a
settlement or other disposition not involving a final adjudication as provided
in (ii) above resulting in a payment by a Trustee or officer, unless

C-4
<PAGE>

there has been a determination by the court of other body approving the
settlement or other disposition or based upon a review of readily available
facts by vote of a majority of the non-interested Trustees or written opinion
of independent legal counsel, that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office. Section 4.3(b) of
Article IV further provides that the rights of indemnification may be insured
against by policies maintained by the Trust. Section 4.4 of Article IV
provides that no Trustee shall be obligated to give any bond or other security
for the performance of any of his or her duties hereunder.

Section 4.6 of Article IV provides that each Trustee, officer or employee
of the Trust or a series thereof shall, in the performance of his or her
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or a series thereof, upon an opinion of
counsel, or upon reports made to the Trust or a series thereof by any of its
officers or employees or by the Investment Adviser, the Administrator, the
Distributor, Transfer Agent, selected dealers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.

Section 9 of the Investment Advisory and Administration Contract
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides
that Mitchell Hutchins shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any series of the Registrant in
connection with the matters to which the Contract relates, except for a loss
resulting from the willful misfeasance, bad faith, or gross negligence of
Mitchell Hutchins in the performance of its duties or from its reckless
disregard of its obligations and duties under the Contract. Section 13 of the
Contract provides that the Trustees shall not be liable for any obligations of
the Trust or any series under the Contract and that Mitchell Hutchins shall
look only to the assets and property of the Registrant in settlement of such
right or claim and not to the assets and property of the Trustees.

Section 9 of the Sub-Investment Advisory Agreement between Mitchell
Hutchins and GE Investment Management Incorporated ("GE Investment
Management") provides that GE Investment Management shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust
in connection with the matters to which the Agreement relates, except for a
loss resulting from the willful misfeasance, bad faith, or gross negligence of
GE Investment Management in the performance of its duties or from its reckless
disregard of its obligations and duties under the Agreement. Section 9 of the
Agreement also provides that the Trustees shall not be liable for any
obligations of the Trust under the Agreement and that Mitchell Hutchins and GE
Investment Management shall look only to the assets and property of the Trust
in settlement of such right or claim and not to the assets and property of the
Trustees.

C-5
<PAGE>

Section 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors and controlling
persons against all liabilities arising from any alleged untrue statement of
material fact in the Registration Statement or from any alleged omission to
state in the Registration Statement a material fact required to be stated in
it or necessary to make the statements in it, in light of the circumstances
under which they were made, not misleading, except insofar as liability arises
from untrue statements or omissions made in reliance upon and in conformity
with information furnished by Mitchell Hutchins to the Trust for use in the
Registration Statement; and provided that this indemnity agreement shall not
protect any such persons against liabilities arising by reason of their bad
faith, gross negligence or willful misfeasance; and shall not inure to the
benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public policy
as expressed in the Securities Act of 1933. Section 9 of each Distribution
Contract also provides that Mitchell Hutchins agrees to indemnify, defend and
hold the Trust, its officers and Trustees free and harmless of any claims
arising out of any alleged untrue statement or any alleged omission of
material fact contained in information furnished by Mitchell Hutchins for use
in the Registration Statement or arising out of an agreement between Mitchell
Hutchins and any retail dealer, or arising out of supplementary literature or
advertising used by Mitchell Hutchins in connection with the Contract.

Section 10 of each Distribution Contract contains provisions similar
to Section 13 of the Investment Advisory and Administration Contract.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to Trustees, officers and
controlling persons of the Trust, pursuant to the foregoing provisions or
otherwise, the Trust has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Trust of expenses incurred or paid by a Trustee, officer or controlling
person of the Trust in connection with the successful defense of any action,
suit or proceeding or payment pursuant to any insurance policy) is asserted
against the Trust by such Trustee, officer or controlling person in connection
with the securities being registered, the Trust will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------

(a) Mitchell Hutchins Asset Management Inc.
---------------------------------------

Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which

C-6
<PAGE>

is, in turn, a wholly owned subsidiary of Paine Webber Group Inc. Mitchell
Hutchins is primarily engaged in the investment advisory business.
Information as to the officers and directors of Mitchell Hutchins is included
in its Form ADV, as filed with the Securities and Exchange Commission
(registration number 801-13219) and is incorporated herein by reference.

(b) GE Investment Management Incorporated
-------------------------------------

GE Investment Management ("GEIM") (the investment sub-adviser for
PaineWebber Global Equity Fund) is a registered investment adviser and is
wholly owned by General Electric Company. GEIM is primarily engaged in the
investment advisory business. Information as to the officers and directors of
GE Investment Management is included in its Form ADV, as filed with the
Securities and Exchange Commission (registration number 801-31947) and is
incorporated herein by reference.

Item 29. Principal Underwriters
----------------------

(a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following investment companies:

ALL-AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER INVESTMENT TRUST III
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
2002 TARGET TERM TRUST INC.

(b) Mitchell Hutchins is the Registrant's principal underwriter.
PaineWebber acts as exclusive dealer of the Registrant's shares. The
directors and officers of Mitchell Hutchins, their principal business
addresses, and their positions and offices with Mitchell Hutchins are
identified in its Form ADV, as filed with the Securities and Exchange
Commission (registration number 801-13219). The directors and officers of
PaineWebber, their principal business addresses, and their positions and
offices with PaineWebber are identified in its Form ADV, as filed with the
Securities and Exchange Commission (registration number 801-7163). The
foregoing information is hereby incorporated herein by reference. The

C-7
<PAGE>

information set forth below is furnished for those directors and officers of
Mitchell Hutchins or PaineWebber who also serve as trustees or officers of the
Registrant:

POSITIONS AND POSITIONS AND OFFICES
NAME AND PRINCIPAL OFFICES WITH UNDERWRITER OR
BUSINESS ADDRESS WITH REGISTRANT EXCLUSIVE DEALER
- ----------------------------- ---------------- ---------------------
<S> <C> <C>
Margo N. Alexander........... Trustee and President and Chief
1285 Avenue of the Americas President Executive Officer of
New York, NY 10019 Mitchell Hutchins;
Executive Vice
President and Director
of PaineWebber

T. Kirkham Barneby........... Vice President Managing Director and
1285 Avenue of the Americas Chief Investment
New York, NY 10019 Officer-Quantitative
Investments of Mitchell
Hutchins

Teresa M. Boyle.............. Vice President First Vice President
1285 Avenue of the Americas and Manager-Advisory
New York, NY 10019 Administration of
Mitchell Hutchins

Mary C. Farrell.............. Trustee Managing Director,
1285 Avenue of the Americas Senior Investment
New York, NY 10019 Strategist and Member
of the Investment
Policy Committee of
PaineWebber

Scott Griff.................. Vice President Vice President and
1285 Avenue of the Americas and Assistant Attorney of Mitchell
New York, NY 10019 Secretary Hutchins

Ralph R. Layman.............. Chief Executive Vice
3003 Summer Street Investment President of GE
P.O. Box 7900 Officer Investment Management
Stamford, CT 06904 and General Electric
Investment Corporation

C. William Maher............. Vice President First Vice President
1285 Avenue of the Americas and Assistant and a Senior Manager of
New York, NY 10019 Treasurer the Mutual Fund Finance
Division of Mitchell
Hutchins

Ann E. Moran................. Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, NY 10019 Treasurer

Dianne E. O'Donnell.......... Vice President Senior Vice President
1285 Avenue of the Americas and Secretary and Deputy General
New York, NY 10019 Counsel of Mitchell
Hutchins
</TABLE>

C-8
<PAGE>

POSITIONS AND POSITIONS AND OFFICES
NAME AND PRINCIPAL OFFICES WITH UNDERWRITER OR
BUSINESS ADDRESS WITH REGISTRANT EXCLUSIVE DEALER
- ----------------------------- ---------------- ---------------------
<S> <C> <C>
Victoria E. Schonfeld........ Vice President Managing Director and
1285 Avenue of the Americas General Counsel of
New York, NY 10019 Mitchell Hutchins

Paul H. Schubert............. Vice President First Vice President
1285 Avenue of the Americas and Assistant and a Senior Manager of
New York, NY 10019 Treasurer the Mutual Fund Finance
Division of Mitchell
Hutchins

Julian F. Sluyters........... Vice President Senior Vice President
1285 Avenue of the Americas and Treasurer and Director of the
New York, NY 10019 Mutual Fund Finance
Division of Mitchell
Hutchins

Pamela J. Thomas............. Investment Vice President of
3003 Summer Street Officer Global Equities and
P.O. Box 7900 International Equity
Stamford, CT 06904 Analyst for General
Electric Investment
Corporation

Gregory K. Todd.............. Vice President First Vice President
1285 Avenue of the Americas and Assistant and Associate General
New York, NY 10019 Secretary Counsel of Mitchell
Hutchins
</TABLE>

Item 30. Location of Accounts and Records
--------------------------------

The books and other documents required by paragraphs (b)(4), (c) and (d)
of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's investment adviser and administrator,
Mitchell Hutchins, 1285 Avenue of the Americas, New York, New York 10019. All
other accounts, books and documents required by Rule 31a-1 are maintained in
the physical possession of Registrant's transfer agent and custodians.

Item 31. Management Services
-------------------

Not applicable.

Item 32. Undertakings
------------

C-9
<PAGE>

(a) Registrant undertakes to call a meeting of its shareholders for the
purpose of voting upon the question of removal of a trustee or trustees of
Registrant when requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares and, in connection with the meeting, to
comply with the provisions of Section 16(c) of the 1940 Act relating to
communications with the shareholders of certain common-law trusts.

(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report
to shareholders upon request and without charge.

C-10
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 29th day of April, 1996.

PAINEWEBBER INVESTMENT TRUST

By: /s/ Dianne E. O'Donnell
------------------------------------
Dianne E. O'Donnell
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>

Signature Title Date
- -------------------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee April 29, 1996
- -------------------------------------------------- (Chief Executive Officer)
Margo N. Alexander *

/s/ E. Garrett Bewkes, Jr. Trustee and Chairman April 29, 1996
- -------------------------------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. **

/s/ Richard Q. Armstrong Trustee April 29, 1996
- --------------------------------------------------
Richard Q. Armstrong ***

/s/ Richard Burt Trustee April 29, 1996
- --------------------------------------------------
Richard Burt ***

/s/ Mary C. Farrell Trustee April 29, 1996
- --------------------------------------------------
Mary C. Farrell ***

/s/ Meyer Feldberg Trustee April 29, 1996
- --------------------------------------------------
Meyer Feldberg ***

/s/ George W. Gowen Trustee April 29, 1996
- --------------------------------------------------
George W. Gowen **

/s/ Frederic V. Malek Trustee April 29, 1996
- --------------------------------------------------
Frederic V. Malek ***

/s/ Carl W. Schafer Trustee April 29, 1996
- --------------------------------------------------
Carl W. Schafer ***

/s/ John R. Torell III Trustee April 29, 1996
- --------------------------------------------------
John R. Torell III ***

/s/ Julian F. Sluyters Vice President and Treasurer April 29, 1996
- -------------------------------------------------- (Chief Financial and
Julian F. Sluyters Accounting Officer)

</TABLE>
<PAGE>

SIGNATURES (CONTINUED)

* Signature affixed by Dianne E. O'Donnell pursuant to power of attorney
dated May 18, 1995 and previously filed.

** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
April 18, 1996 and filed herewith.

*** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
April 18, 1996 and incorporated by reference from Post-Effective Amendment
No. 17 to the registration statement of PaineWebber Municipal Series, SEC
File No. 33-11611, filed April 25, 1996.
<PAGE>

PAINEWEBBER INVESTMENT TRUST

EXHIBIT INDEX
-------------

Exhibit
--------
<TABLE>
<CAPTION>
No. Description of Exhibit
---- ----------------------
<S> <C> <C>

1 (a) Declaration of Trust*
(b) Amendment effective September 3, 1991 to Declaration of Trust*
(c) Amendment effective December 11, 1991 to Declaration of Trust*
(d) Amendment effective February 13, 1995 to Declaration of Trust*
(e) Amendment effective February 29, 1996 to Declaration of Trust (to be
filed)
(f) Amendment effective April 18, 1996 to Declaration of Trust (to be
filed)
2 (a) By-Laws of the Trust*
(b) Amendment effective August 28, 1991 to By-laws*
3 Inapplicable
4 Instruments defining the rights of holders of the Registrant's shares
of beneficial interest*
5 (a) Investment Advisory and Administration Contract*
(b) Investment Sub-advisory Contract*
6 (a) Distribution Contract Class A Shares*
(b) Distribution Contract Class B Shares*
(c) Distribution Contract Class C Shares*
(d) Exclusive Dealer Agreement with respect to Class A Shares/1/
(e) Exclusive Dealer Agreement with respect to Class B Shares 1/
7 Inapplicable
8 Form of Custody Contract with State Street Bank and Trust Company*
9 Transfer Agency and Service Agreement*
10 Opinion of Willkie, Farr & Gallagher, including consent*
11 Consent of Deloitte & Touche (to be filed)
12 Inapplicable
13 Form of Purchase Agreement*
14 Inapplicable
15 (a) Amended and Restated Shareholder Servicing and Distribution Plan*
(b) Shareholder Servicing Agreement*
(c) Distribution Related Services Agreement*
16 Schedule for computation of performance quotations provided in the
Registration Statement in response to Item 22*
17 and 27 Financial Data Schedule (to be filed)
18 Plan pursuant to Rule 18f-3/1/
19 Powers of Attorney (filed herewith)
</TABLE>

_______________________________

* Previously filed.

/1/ Incorporated by reference from Post-Effective Amendment No. 12 to the
registration statement, SEC File No. 33-39659, filed on November 2, 1995.

<PAGE>

EXHIBIT 19

POWER OF ATTORNEY

I, E. Garrett Bewkes, Jr., Trustee of PaineWebber Securities Trust,
PaineWebber Investment Trust, PaineWebber Investment Trust II, PaineWebber
Investment Trust III, PaineWebber America Fund, PaineWebber Olympus Fund,
PaineWebber Managed Investments Trust, PaineWebber Mutual Fund Trust,
PaineWebber Series Trust, PaineWebber Municipal Series, PaineWebber Investment
Series and PaineWebber Managed Assets Trust (collectively, the "Funds"), hereby
constitute and appoint Victoria E. Schonfeld, Dianne E. O'Donnell, Gregory K.
Todd, Joan L. Cohen, Keith A. Weller, Elinor W. Gammon and Robert A. Wittie, and
each of them singly, my true and lawful attorneys, with full power to them to
sign for me, and in my capacity as Trustee for the Fund, any and all amendments
to each of the particular registration statements of the Fund, and all
instruments necessary or desirable in connection therewith, filed with the
Securities and Exchange Commission, hereby ratifying and confirming my signature
as it may be signed by said attorneys to any and all amendments to said
registration statements.

Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.

Signature Title Date

/s/ E. Garrett Bewkes, Jr. Trustee April 18, 1996
- --------------------------------
E. Garrett Bewkes, Jr.

<PAGE>

POWER OF ATTORNEY

I, George W. Gowen, Trustee of PaineWebber Securities Trust, PaineWebber
Investment Trust, PaineWebber Investment Trust II, PaineWebber Investment Trust
III, PaineWebber America Fund, PaineWebber Olympus Fund, PaineWebber Managed
Investments Trust, PaineWebber Mutual Fund Trust, PaineWebber Series Trust,
PaineWebber Municipal Series, PaineWebber Investment Series and PaineWebber
Managed Assets Trust (collectively, the "Funds"), hereby constitute and appoint
Victoria E. Schonfeld, Dianne E. O'Donnell, Gregory K. Todd, Joan L. Cohen,
Keith A. Weller, Elinor W. Gammon and Robert A. Wittie, and each of them singly,
my true and lawful attorneys, with full power to them to sign for me, and in my
capacity as Trustee for the Fund, any and all amendments to each of the
particular registration statements of the Fund, and all instruments necessary or
desirable in connection therewith, filed with the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it may be signed by
said attorneys to any and all amendments to said registration statements.

Pursuant to the requirements of the Securities Act of 1933, this instrument
has been signed below by the following in the capacity and on the date
indicated.

Signature Title Date

/s/ George W. Gowen Trustee April 18, 1996
- --------------------------------
George W. Gowen