PAINEWEBBER INVESTMENT TRUST, 497, 1996-07-17

PAINEWEBBER INVESTMENT TRUST
497, 1996-07-17

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PaineWebber Balanced Fund
PaineWebber Tactical Allocation Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- July 1, 1996
- --------------------------------------------------------------------------------
PaineWebber Asset Allocation Funds are designed for investors generally seeking
high total return. PaineWebber Balanced Fund invests primarily in a combination
of equity securities, investment grade bonds and money market instruments.
PaineWebber Tactical Allocation Fund follows an investment strategy that ac-
tively allocates its assets among 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 re-
tain 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 invest-
ment executive at PaineWebber or one of its correspondent firms or by calling
toll-free 1-800-647-1568.
- --------------------------------------------------------------------------------

THE PAINEWEBBER FAMILY OF MUTUAL FUNDS

The PaineWebber Family of Mutual 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 Fund for . Asset Allocation Funds for long-term growth and
income and stability by income by investing in stocks and bonds.
investing in high-
quality, short-term
investments.

. Bond Funds for income . Stock Funds for long-term growth by investing
by investing mainly in mainly in stocks.
bonds.

. Tax-Free Bond Funds for . Global Funds for long-term growth by investing
income exempt from mainly in foreign stocks or high current income
federal income taxes by investing mainly in global debt instruments.
and, in some cases,
state and local income
taxes, by investing in
municipal bonds.

A complete listing of the PaineWebber Family of Mutual Funds is found on the
back cover of this Prospectus.
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS. 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 DISTRIBU-
TOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

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Prospectus Page 1

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PaineWebber Tactical Allocation Fund
Balanced Fund

Table of Contents
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
The Funds at a Glance...................................................... 3
Expense Table.............................................................. 5
Financial Highlights....................................................... 8
Investment Objectives & Policies........................................... 11
Investment Philosophy & Process............................................ 12
Performance................................................................ 14
The Funds' Investments..................................................... 16
Flexible PricingSM......................................................... 21
How to Buy Shares.......................................................... 23
How to Sell Shares......................................................... 25
Other Services............................................................. 25
Management................................................................. 26
Determining the Shares' Net Asset Value.................................... 28
Dividends & Taxes.......................................................... 28
General Information........................................................ 30
</TABLE>

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Prospectus Page 2

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PaineWebber Tactical Allocation Fund
Balanced Fund

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

The Funds offered by this Prospectus are not intended to provide a complete or
balanced investment program, but one 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 college educations, plan for retirement or
diversify a portfolio. When selling shares, investors should be aware that
they may get more or less for their shares than they originally paid for them.
As with any mutual fund, there is no assurance that the Funds will achieve
their goals.

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 return with low volatility.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but 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 additional 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 involve more
risk than investing in 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 May 31, 1996, the Fund had over $199.7 million in assets.

TACTICAL ALLOCATION FUND

GOAL: To increase the value of your investment by following a systematic
investment strategy that actively allocates the Fund's assets among equity
securities, U.S. Treasury notes and U.S. Treasury bills.

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

RISKS: Although the Fund seeks 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, but they have also
shown greater volatility. Because the Fund invests in equity securities, its
price will rise and fall. The Fund may invest in U.S. dollar-denominated
securities of foreign companies, which involve more risk than investing in 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 May 31, 1996, the Fund had over $103.3 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 Balanced Fund and 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.

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Prospectus Page 3

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PaineWebber Tactical Allocation Fund
Balanced Fund
The Funds at a Glance
(Continued)
- -------------------------------------------------------------------------------

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. The Fund is designed for investors who want an investment
that maintains a fixed income allocation at all times, yet has the flexibility
to change its investment mix in response to changing market conditions. Over
time, the 25% minimum in fixed income investments should result in a lower
risk profile for the Fund than if it could invest 100% of its assets in
stocks.

TACTICAL ALLOCATION FUND is for investors who want 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. The Fund is designed for
investors who want to participate in the broad stock market, yet want the
flexibility to take a more defensive posture when a secular decline in stock
prices is projected. This disciplined approach to investing in stocks attempts
to shift the asset mix in anticipation of, not in response to, changing market
trends.

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. However, 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. As a result, 100% of their purchase is
immediately invested. However, Class C shares have higher ongoing expenses
than 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.

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Prospectus Page 4

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PaineWebber Tactical Allocation Fund
Balanced Fund

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

The following tables are intended to assist investors in understanding the
expenses associated with investing in Class A, B and C shares of the Funds.
Expenses shown below represent those incurred for the most recent fiscal year,
except for Class B shares of Tactical Allocation Fund, for which "Other
Expenses"are estimated based on expenses incurred by Class C shares during the
most recent fiscal year.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES ------- ------- -------
<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 of-
fering price)....................................... None None None
Maximum Contingent Deferred Sales Charge (as a % of
net asset value at the time of purchase or sale,
whichever is less).................................. None 5% 1%
Exchange Fee for Balanced Fund....................... $5.00 $5.00 $5.00
Exchange Fee for Tactical Allocation Fund............ None None None
ANNUAL FUND OPERATING EXPENSES (as a % of average net
assets)
BALANCED FUND
Management Fees...................................... 0.75% 0.75% 0.75%
12b-1 Fees........................................... 0.25 1.00 1.00
Other Expenses....................................... 0.29 0.30 0.33
----- ----- -----
Total Operating Expenses............................. 1.29% 2.05% 2.08%
===== ===== =====
TACTICAL ALLOCATION FUND
Management Fees...................................... 0.50% 0.50% 0.50%
12b-1 Fees........................................... 0.25 1.00 1.00
Other Expenses....................................... 0.71 0.72 0.72
----- ----- -----
Total Operating Expenses............................. 1.46% 2.22% 2.22%
===== ===== =====
</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 1% 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. 12b-1 fees have two components, as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees...................................... 0.25% 0.25% 0.25%
12b-1 distribution fees................................. 0.00 0.75 0.75
</TABLE>

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

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Prospectus Page 5

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PaineWebber Tactical Allocation Fund
Balanced Fund

Expense Table
(Continued)
- -------------------------------------------------------------------------------

EXAMPLES OF EFFECT OF FUND EXPENSES

The following examples should assist investors in understanding various costs
and expenses they would incur as shareholders of a Fund. The assumed 5% annual
return shown in the examples is required by regulations of the Securities and
Exchange Commission ("SEC") applicable to all mutual funds. THESE EXAMPLES
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........................................ $58 $84 $113 $194
Class B (Assuming sale of all shares at end of
period)....................................... $71 $94 $130 $201
Class B (Assuming no sale of shares)........... $21 $64 $110 $201
Class C (Assuming sale of all shares at end of
period)....................................... $31 $65 $112 $241
Class C (Assuming no sale of shares)........... $21 $65 $112 $241
</TABLE>

TACTICAL ALLOCATION FUND

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $59 $89 $121 $212
Class B (Assuming sale of all shares at end of
period)....................................... $73 $99 $139 $219
Class B (Assuming no sale of shares)........... $23 $69 $119 $219
Class C (Assuming sale of all shares at end of
period)....................................... $33 $69 $119 $255
Class C (Assuming no sale of shares)........... $23 $69 $119 $255
</TABLE>

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ASSUMPTIONS MADE IN THE EXAMPLES

. ALL CLASSES: Reinvestment of all dividends and distributions;
percentage amounts listed under "Annual Fund Operating Expenses" remain
the same for years shown.
. 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 6

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[THIS PAGE INTENTIONALLY LEFT BLANK]

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PaineWebber Tactical Allocation Fund
Balanced Fund

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

BALANCED 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
the Fund's Annual Report to Shareholders for the fiscal year ended February 29,
1996 and the report of Price Waterhouse LLP, independent accountants, 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 information in the table below relating to each of the
five years in the period ended February 29, 1996, have been audited by Price
Waterhouse LLP. Further information about the Fund's performance is also
included in the Annual Report to Shareholders, which may be obtained without
charge by calling 1-800-647-1568. Prior to August 14, 1995, the Fund pursued
certain different investment policies; thus, the information shown below for
periods prior to that date may not necessarily be indicative of current or
future operations.

<TABLE>
<CAPTION>
BALANCED FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------------------- -----------------------------------------
FOR THE FOR THE PERIOD FOR THE
YEAR ENDED FOR THE YEARS ENDED JULY 1, 1991+ TO YEAR ENDED FOR THE YEARS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 29, FEBRUARY 28,
------------ ------------------------------ ---------------- ------------ ----------------------------
1996 1995 1994 1993 1992 1996 1995 1994 1993
------------ -------- -------- -------- ---------------- ------------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.80 $ 12.04 $ 11.54 $ 11.01 $10.09 $ 9.90 $ 12.10 $ 11.56 $ 10.99
-------- -------- -------- -------- ------ ------- ------- ------- --------
Net investment income... 0.27++ 0.26 0.22 0.33 0.19 0.19++ 0.44 0.26 0.30
Net realized and
unrealized gains
(losses) from
investment
transactions........... 1.84 (1.07) 1.31 0.54 0.96 1.86 (1.32) 1.18 0.48
-------- -------- -------- -------- ------ ------- ------- ------- --------
Net increase (decrease)
from investment
operations............. 2.11 (0.81) 1.53 0.87 1.15 2.05 (0.88) 1.44 0.78
-------- -------- -------- -------- ------ ------- ------- ------- --------
Dividends from net
investment income...... (0.31) (0.23) (0.25) (0.34) (0.23) (0.20) (0.12) (0.12) (0.21)
Distributions from net
realized gains from
investment
transactions........... (0.75) (1.20) (0.78) -- -- (0.75) (1.20) (0.78) --
-------- -------- -------- -------- ------ ------- ------- ------- --------
Total dividends and
distributions.......... (1.06) (1.43) (1.03) (0.34) (0.23) (0.95) (1.32) (0.90) (0.21)
-------- -------- -------- -------- ------ ------- ------- ------- --------
Net asset value, end of
period................. $ 10.85 $ 9.80 $ 12.04 $ 11.54 $11.01 $ 11.00 $ 9.90 $ 12.10 $ 11.56
======== ======== ======== ======== ====== ======= ======= ======= ========
Total investment return
(1).................... 22.08 % (6.02)% 13.57 % 8.09 % 11.43 % 21.20 % (6.68)% 12.62 % 7.25 %
======== ======== ======== ======== ====== ======= ======= ======= ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $171,609 $174,761 $216,492 $154,594 $ 916 $26,627 $37,104 $83,178 $160,115
Expenses to average net
assets................. 1.29 % 1.26 % 1.21 % 1.18 % 1.30 %* 2.05 % 1.98 % 2.05 % 1.98 %
Net investment income to
average net assets..... 2.55 % 2.41 % 1.74 % 2.52 % 3.43 %* 1.81 % 1.60 % 1.00 % 2.02 %
Portfolio turnover...... 188 % 107 % 69 % 33 % 84 % 188 % 107 % 69 % 33 %
</TABLE>
- -------
* Annualized.
** Formerly Class D shares.
+ Commencement of issuance of shares.
++ Calculated using the monthly average shares outstanding for the year.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the period, reinvestment of all dividends and other
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.

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Prospectus Page 8

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PaineWebber Tactical Allocation Fund
Balanced Fund

Financial Highlights
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
BALANCED FUND
- --------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C**
- ------------------------------------------------------------------------- ------------------------------------------------
FOR THE PERIOD FOR THE FOR THE FOR THE PERIOD
DECEMBER 12, 1986+ YEAR ENDED YEARS ENDED JULY 2, 1992+ TO
FOR THE YEARS ENDED FEBRUARY 28 OR 29, TO FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
- ---------------------------------------------------- ------------------ ------------ ---------------- ----------------
1992 1991 1990 1989 1988 1987 1996 1995 1994 1993
- -------- -------- -------- -------- -------- ------------------ ------------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.21 $ 9.86 $ 9.92 $ 10.18 $ 10.40 $ 10.00 $ 9.82 $12.03 $ 11.54 $10.86
- -------- -------- -------- -------- -------- -------- ------ ------ ------- ------
0.35 0.59 0.65 0.54 0.48 0.04 0.19++ 0.19 0.14 0.13
0.78 0.38 0.10 (0.28) (0.09) 0.36 1.84 (1.07) 1.30 0.71
- -------- -------- -------- -------- -------- -------- ------ ------ ------- ------
1.13 0.97 0.75 0.26 0.39 0.40 2.03 (0.88) 1.44 0.84
- -------- -------- -------- -------- -------- -------- ------ ------ ------- ------
(0.35) (0.62) (0.70) (0.52) (0.44) -- (0.22) (0.13) (0.17) (0.16)
-- -- (0.11) -- (0.17) -- (0.75) (1.20) (0.78) --
- -------- -------- -------- -------- -------- -------- ------ ------ ------- ------
(0.35) (0.62) (0.81) (0.52) (0.61) -- (0.97) (1.33) (0.95) (0.16)
- -------- -------- -------- -------- -------- -------- ------ ------ ------- ------
$ 10.99 $ 10.21 $ 9.86 $ 9.92 $ 10.18 $ 10.40 $10.88 $ 9.82 $ 12.03 $11.54
======== ======== ======== ======== ======== ======== ====== ====== ======= ======
11.24 % 10.29 % 7.53 % 2.73 % 4.31 % 4.00 % 21.12 % (6.69)% 12.75 % 7.78 %
======== ======== ======== ======== ======== ======== ====== ====== ======= ======
$346,290 $403,557 $557,646 $651,003 $715,771 $613,024 $7,469 $8,525 $12,916 $7,058
2.02 % 1.83 % 1.84 % 1.94 % 1.98 % 2.03%*(2) 2.08 % 2.01 % 1.96 % 1.95 %*
3.25 % 5.46 % 6.04 % 5.37 % 5.01 % 2.80%*(2) 1.77 % 1.62 % 0.97 % 1.91 %*
84 % 169 % 327 % 159 % 129 % 25% 188 % 107 % 69 % 33 %
</TABLE>

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Prospectus Page 9

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PaineWebber Tactical Allocation Fund
Balanced Fund

Financial Highlights
(Concluded)
- -------------------------------------------------------------------------------

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
the 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 tables below relating to
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 prior periods
was audited by other auditors, whose report on this data was unqualified.
Further information about the Fund's performance is also included in the
Annual Report to Shareholders, which may be obtained without charge by calling
1-800-647-1568. The financial statements and notes and the financial
information in the tables 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 have not expressed an
opinion on the information.

<TABLE>
<CAPTION>
TACTICAL ALLOCATION FUND
--------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C***
------------------------------------------- -------------- ----------------------------------------------------
FOR THE FOR THE PERIOD FOR THE PERIOD FOR THE FOR THE PERIOD
SIX MONTHS FOR THE YEARS MAY 10, JANUARY 30, SIX MONTHS FOR THE YEARS JULY 22,
ENDED ENDED 1993+ 1996+ TO ENDED ENDED 1992+
FEBRUARY 29, AUGUST 31, TO AUGUST 31, FEBRUARY 29, FEBRUARY 29, AUGUST 31, TO AUGUST 31,
------------ -------------- -------------- -------------- ------------ ----------------------- ---------------
1996 1996 1996
(UNAUDITED) 1995** 1994 1993 (UNAUDITED) (UNAUDITED) 1995** 1994 1993 1992
------------ ------ ------ -------------- -------------- ------------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 14.86 $13.78 $13.50 $12.90 $15.54 $ 14.87 $ 13.78 $ 13.49 $ 12.12 $ 12.00
------- ------ ------ ------ ------ ------- ------- ------- -------- -------
Net investment
income.......... 0.11 0.22 0.24 0.08 0.01 0.03 0.12 0.13 0.18 0.03
Net realized and
unrealized gains
from investment
transactions.... 2.00 2.05 0.32 0.59 0.25 2.02 2.06 0.33 1.34 0.09
------- ------ ------ ------ ------ ------- ------- ------- -------- -------
Net increase
from investment
operations...... 2.11 2.27 0.56 0.67 0.26 2.05 2.18 0.46 1.52 0.12
------- ------ ------ ------ ------ ------- ------- ------- -------- -------
Dividends from
net investment
income.......... (0.14) (0.22) (0.24) (0.07) -- (0.07) (0.12) (0.13) (0.15) --
Distributions
from net
realized gains
from investment
transactions.... (1.06) (0.97) (0.04) -- -- (1.06) (0.97) (0.04) -- --
------- ------ ------ ------ ------ ------- ------- ------- -------- -------
Total dividends
and
distributions to
shareholders.... (1.20) (1.19) (0.28) (0.07) -- (1.13) (1.09) (0.17) (0.15) --
------- ------ ------ ------ ------ ------- ------- ------- -------- -------
Net asset value,
end of period... $ 15.77 $14.86 $13.78 $13.50 $15.80 $ 15.79 $ 14.87 $ 13.78 $ 13.49 $ 12.12
======= ====== ====== ====== ====== ======= ======= ======= ======== =======
Total investment
return(1)....... 14.59% 18.43% 4.21% 5.17% 1.67% 14.13% 17.57% 3.46% 12.61% 0.98%
======= ====== ====== ====== ====== ======= ======= ======= ======== =======
Ratios/Supplemental
Data:
Net assets, end
of period
(000's)......... $ 3,989 $1,944 $1,801 $3,007 $ 910 $54,473 $48,105 $62,970 $107,761 $ 50,222
Expenses to
average net
assets.......... 1.35%* 1.46% 1.13% 1.06%* 2.06%* 2.02%* 2.22% 1.88% 1.73% 1.75%*
Net investment
income to
average net
assets.......... 1.05%* 1.60% 1.64% 1.71%* 1.59%* 0.35%* 0.86% 0.89% 1.04% 2.42%*
Portfolio
turnover........ 5% 53% 4% 0% 5% 5% 53% 4% 0% 0%
Average
commission rate
paid per share
on common stock
investments
purchased/sold(2). $ 0.0250 -- -- -- $ 0.0250 $ 0.0250 -- -- -- --
</TABLE>
- -------
+ Commencement of issuance of shares.
* Annualized.
** Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to Mitchell Hutchins on February 13, 1995.
*** Formerly Class B shares.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable dates and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for 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) Disclosure effective for fiscal years beginning on or after September 1,
1995.

- ------------------------------==================--------------------------------
Prospectus Page 10

<PAGE>

- ------------------------------================---------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

Investment Objectives & Policies

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

The Funds' investment objectives may not be changed without shareholder
approval. Their other investment policies, except where noted, are not
fundamental and may be changed by the Funds' boards.

BALANCED FUND

Balanced Fund's investment objective is to obtain high total return with low
volatility. The Fund pursues this objective by investing primarily in a
combination of three asset classes: stocks (equity securities), bonds
(investment grade bonds) and cash (money market securities). The portion
invested in each of these asset classes is based on Mitchell Hutchins'
judgment of the best allocation of the Fund's assets. However, the Fund
maintains a fixed income allocation (including bonds and cash) of at least
25%. The Fund attempts to maintain a dollar-weighted average maturity for its
fixed income investments--the average remaining time to maturity of a
portfolio's bonds--of three to ten years.

The Fund may invest in a broad range of:

. Equity securities issued by companies believed by Mitchell Hutchins to have
the potential for rapid earnings growth;

. Investment grade bonds, that is, 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 nationally recognized
statistical rating organization ("NRSRO") or, if unrated, are determined by
Mitchell Hutchins to be of comparable quality, and U.S. government
securities;

. 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. Securities rated BB or B by S&P (or Ba or B by Moody's)
are regarded as having predominantly speculative characteristics with
respect to the ability to pay interest and repay principal. While such
securities may have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
The Fund will not invest more than 10% of its total assets in convertible
securities rated below investment grade; and

. High quality money market securities.

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 using 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, the Fund shifts its asset mix among an equity portion
designed to track the performance of the S&P 500 Index (the Fund holds
approximately 450 of the 500 stocks in the S&P 500 Index), a bond portion,
consisting of five-year U.S. Treasury notes, and a cash portion, consisting of
30-day U.S. Treasury bills. The allocation among these three segments is based
on the asset mix recommendation of the Mitchell Hutchins Tactical Allocation
Model ("Model"). The Model is a systematic, cost-effective approach to
allocating assets among the three asset classes.

The performance of the Fund's equity portion is intended to replicate that of
the S&P 500 Index before deducting operating expenses.

The Fund seeks to achieve total return during all economic and financial
market cycles, with a degree of volatility lower than that of the S&P 500
Index, by investing in common stocks held in the S&P 500 Index, but can take a
more defensive posture when the Model signals a potential secular decline in
stock prices.

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

- ------------------------------==================--------------------------------
Prospectus Page 11

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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

Investment Philosophy & Process

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

BALANCED FUND

Mitchell Hutchins believes 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. Mitchell Hutchins also believes that
capital market returns (returns on stocks and bonds) reflect the consensus
expectations for key economic variables, such as interest rates, profit growth
and inflation. To implement this strategy for the Fund, Mitchell Hutchins:

. Regularly surveys market participants and generates a consensus forecast of
economic variables affecting returns on equity securities, bonds and money
market instruments; and

. Applies fundamental valuation techniques to the consensus data to determine
the asset allocation it believes to be optimal.

Once the Fund's asset allocation is determined, the portfolio managers
specializing in each asset class select individual securities for each portion
of the portfolio. Mitchell Hutchins regularly monitors market outlooks and
shifts the asset allocation mix when there are significant changes in expected
returns.

The Fund uses the following investment process to determine the individual
securities for each portion of the Fund:

. EQUITY SECURITIES. Mitchell Hutchins uses its proprietary Factor Valuation
Model to identify stocks providing a combination of value and price
momentum. This Model screens a universe of small- to large-capitalization
companies in ten different business sectors to identify undervalued
companies with strong earnings momentum that rank well in three measures:

--VALUE: projected dividends, cash flow, earnings and book value;

--MOMENTUM: earnings and price to identify companies that could surprise on
the upside; and

--ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.

The equity securities ranking in the top 20% of the Factor Valuation Model's
universe are screened twice a month. Then the portfolio managers take a closer
look at those equity securities that rank higher based on value and momentum.
Mitchell Hutchins applies traditional analysis and may speak to the management
of these companies, as well as those of their competitors.

. DEBT SECURITIES. Mitchell Hutchins selects these securities based on its
analysis of their maturity and risk structures (comparing yields on Treasury
securities to yields on riskier types of debt securities).

. MONEY MARKET INSTRUMENTS. Mitchell Hutchins' decision to use these
securities is based on its judgment of how they can further the Fund's
investment objective.

As of August 31, 1995, the Fund's assets were allocated as follows: equity
securities, 48.5%; bonds, 46.6%; and cash, 4.9%. At February 29, 1996, the
asset allocation looked like this: equity securities, 59%; bonds, 30%; and
cash, 11%.

TACTICAL ALLOCATION FUND

Mitchell Hutchins allocates the Fund's assets among stocks and bonds or cash,
based on the Model's quantitative assessment of the projected rates of return
of each asset class. The Model embraces the concept that incremental return
can be achieved through the tactical allocation of portfolio assets across
three main asset classes--stocks, bonds and cash. The emphasis of the Model is
to avoid or reduce exposure to the stock market during down economic cycles
and to perform close to the S&P 500 Index in periods of strongly positive
market performance.

The basic premise of the Model is that investors accept the risk of owning
stocks, measured as volatility of

- ------------------------------==================--------------------------------
Prospectus Page 12

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

return, because they expect a return advantage. The expected return advantage
of stocks fluctuates as investor psychology pushes the market to valuation
extremes. The Model incorporates the following factors to determine the
allocations:

.Expected future dividends and current price of stocks;

.Economic statistics;

. Five-year, "bottom-up" company earnings projections; and

.Yield-to-maturity of the one-year Treasury bill.

The Fund's asset allocation mix is dictated by the Model, except as described
below. The Fund does not maintain a portion of its investments in each asset
class at all times. The weightings can range from 100% to 0% in stocks, bonds
or cash. Possible asset mixes are 100% stocks; 75% stocks/25% bonds or cash;
100% bonds or cash. For example, as of August 31, 1995, and again as of
February 29, 1996, the Fund's assets were allocated as follows: 99% to stocks,
0% to bonds and 1% to cash. The Fund does not hold bonds and cash at the same
time, except for limited amounts always held in cash generally to pay
expenses. This disciplined approach to investing in stocks attempts to shift
the asset mix in anticipation of, not in response to, changing market trends.

Asset reallocations are made on the first business day of each month. If no
reallocation of assets is dictated by the Model, any material amounts
resulting from appreciation or receipt of dividends, distributions, interest
payments and proceeds from securities maturing in each of the asset classes
are reallocated (or "rebalanced") to the extent practicable to re-establish
the Model's recommended asset allocation mix.

In contrast to a typical S&P 500 Index fund that maintains a 100% allocation
to the Index, the Fund is designed to take a more defensive posture when the
Model signals a potential secular decline in stock prices. The Fund deviates
from the recommendations of the Model only to the extent necessary to:

. Maintain an amount in cash, not expected to exceed 2% of its total assets
under normal market conditions, to pay Fund operating expenses, dividends
and distributions on its shares and to meet anticipated sales of shares; and

. Qualify as a regulated investment company for Federal income tax purposes.
See "Dividends & Taxes."

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

- ------------------------------================---------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

Performance

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

These charts show the total returns for each Fund for each calendar year since
its inception. Sales charges have not been deducted from the total returns.
Returns would be lower if sales charges were deducted. Past results are not a
guarantee of future results.

Average annual returns for periods through each Fund's fiscal year end since
inception, both before and 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 July 2, 1992;
thus, the 1992 return for Class C shares represents the period from July 2,
1992 through December 31, 1992.

[CHART APPEARS HERE]

Class A Percentage
<S> <C>
1991 11.53%
1992 5.18%
1993 15.63%
1994 -9.88%
1995 23.16%
</TABLE>

Class B Percentage
<S> <C>
12/12/86
12/31/86 -2.40%
1987 1.21%
1988 11.34%
1989 10.84%
1990 1.94%
1991 18.52%
1992 4.46%
1993 14.66%
1994 -10.51%
1995 22.27%
</TABLE>
<TABLE>
<CAPTION>

Class C Percentage
<S> <C>
1992 5.08%
1993 14.79%
1994 -10.48%
1995 22.18%
</TABLE>

AVERAGE ANNUAL RETURNS
As of February 29, 1996
<TABLE>
<CAPTION>
CLASS C SHARES
CLASS A SHARES CLASS B SHARES (FORMERLY CLASS D SHARES)
-------------- -------------- -------------------------
<S> <C> <C> <C>
Inception Date.......... 7/1/91 12/12/86 7/2/92
ONE YEAR
Before deducting maxi-
mum sales charges..... 22.08% 21.20% 21.12%
After deducting maximum
sales charges......... 16.60% 16.20% 20.12%
FIVE YEARS
Before deducting maxi-
mum sales charges..... N/A 8.73% N/A
After deducting maximum
sales charges......... N/A 8.44% N/A
LIFE
Before deducting maxi-
mum sales charges..... 10.13% 7.90% 9.04%
After deducting maximum
sales charges......... 9.04% 7.90% 9.04%
</TABLE>

- ------------------------------==================--------------------------------
Prospectus Page 14

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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. As Class B
shares commenced operations on January 30, 1996, they are not included in this
chart or in the table below. The Class C shares commenced operations on July
22, 1992; thus, the 1992 return for Class C shares represents the period from
July 22, 1992 through December 31, 1992.

[CHART APPEARS HERE]

Class A Percentage
<S> <C>
1993 6.48%
1994 -0.59%
1995 35.12%
</TABLE>

Class C Percentage
<S> <C>
7/22/92
12/31/92 6.67%
1993 7.64%
1994 -1.28%
1995 34.09%
</TABLE>

AVERAGE ANNUAL RETURNS
As of August 31, 1995
<TABLE>
<CAPTION>
CLASS C SHARES
(FORMERLY CLASS
CLASS A SHARES B SHARES)
-------------- ---------------
<S> <C> <C>
Inception Date................................... 5/10/93 7/22/92
ONE YEAR
Before deducting maximum sales charges.......... 18.43% 17.57%
After deducting maximum sales charges........... 13.10% 16.57%
LIFE
Before deducting maximum sales charges.......... 11.98% 11.00%
After deducting maximum sales charges........... 9.76% 11.00%
</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 Class B
and Class C shares of the Funds reflects the deduction of the applicable
contingent deferred sales charge imposed on a 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. 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 each Fund's
performance is contained in its Annual Report, which may be obtained without
charge by contacting the Fund, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.

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

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

The Funds' Investments

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

BALANCED FUND

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 Fund 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) are used by corporations and
governments 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.

ASSET-BACKED SECURITIES are debt obligations backed by specific types of
assets. The most common type of asset-backed securities is mortgage-backed
bonds, which represent a direct or indirect interest (participation) in--or
are secured by and payable from--a pool of mortgage loans secured by real
property. They are sold by government agencies, such as the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage Association, and
private corporations. Investors typically receive payments out of the interest
and principal on the underlying mortgages. The growth of mortgage-backed
securities and the secondary mortgage market in which they are traded has
helped keep mortgage money available for home financing.

Mortgage-backed securities include:

. Single- and multi-class pass-through securities, representing pooled debt
obligations repackaged as shares, that pass income from debtors through the
intermediary to investors;

. Collateralized mortgage obligations ("CMOs"), which are more complex
versions of mortgage-backed bonds. Evaluating the risks and rewards of CMOs
requires special knowledge.

When interest rates go down and homeowners refinance their mortgages,
mortgage-backed bonds are paid off more quickly than investors may expect.

Other asset-backed securities are structured similar to mortgage-backed
securities, except that the underlying assets are not first lien mortgage
loans or interests in them. Instead, these securities include assets such as
motor vehicle installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements.

ZERO COUPON SECURITIES are securities that make no periodic interest payments
but instead are sold at a deep discount from their face value. The buyer of
such a bond receives the rate of return by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. There
are many kinds of zero coupon securities. The most commonly known is the zero
coupon bond, which either may be issued at a deep discount by a corporation or
may be created by a brokerage firm when it strips (separates) the coupons
(unmatured interest payments) off a bond and sells the principal and the
coupons separately. This technique is used frequently with U.S. Treasury
bonds; these issues include CATS (Certificates of Accrual Treasury Securities)
and TIGRs (Treasury Income Growth Receipts).

- ------------------------------==================--------------------------------
Prospectus Page 16

<PAGE>

- ------------------------------==================-------------------------------
Paine Webber Tactical Allocation Fund
Balanced Fund

Because zero coupon securities bear no interest and holders do not receive
interest payments, they are generally more sensitive to changes in interest
rates than other U.S. government securities. For example, when interest rates
fall, the value of zero coupon securities rises more rapidly than bonds paying
out interest on a current basis, because the zero coupon bonds have locked in
a particular rate of reinvestment that becomes more attractive the further
rates fall. However, when interest rates rise, their value falls more
dramatically.

MONEY MARKET INSTRUMENTS in which the Fund may invest 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) with total assets in excess of $1.5 billion at the time of
purchase;

. Interest-bearing savings deposits in U.S. commercial and savings banks with
principal amounts not greater than are fully insured by the Federal Deposit
Insurance Corporation (the aggregate amount of these deposits may 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.

In addition, the Fund may hold cash and may invest in participation interests
of the money market securities mentioned above without limitation. These
participation interests are the interests of securities held by others on a
pro-rata basis.

TACTICAL ALLOCATION FUND

STOCK PORTION. In its stock portion, the Fund attempts to duplicate, before
the deduction of operating expenses, the investment results of the S&P 500
Index by investing in approximately 450 of the 500 common stocks included in
that Index. The S&P 500 Index, which is chosen by S&P on a statistical basis
and may change from time to time, emphasizes large capitalization stocks and
is based on such factors as the market capitalization and trading activity of
each stock and its adequacy as a representative of stocks in a particular
industry sector. The Fund attempts to achieve a correlation between the
performance of the stock portion and that of the S&P 500 Index of at least
0.95, before the deduction of operating expenses (a correlation of 1.00 would
be perfect, which would mean that the net asset value of the stock portion
increased or decreased in exactly the same proportion as changes in the
Index).

BOND PORTION. In its bond portion, the Fund invests in U.S. Treasury notes
having five years remaining to maturity at the beginning of the then-current
calendar year or, if those instruments are unavailable at favorable prices, in
U.S. Treasury notes with remaining maturities as close as possible to five
years. The Fund does not invest in bonds and cash simultaneously, except as
noted below.

CASH PORTION. In its cash portion, the Fund invests in U.S. Treasury bills
with remaining maturities of 30 days or, if those instruments are unavailable
at favorable prices, in U.S. Treasury bills with remaining maturities as close
as possible to 30 days. Limited amounts of the Fund's assets are normally
invested in cash, generally to pay expenses.

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. As with all investments, higher
returns are typically accompanied by higher risks; thus, common stocks
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,

- ------------------------------==================--------------------------------
Prospectus Page 17

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

lowering the value of the Funds' investments. Long-term bonds, including U.S.
government securities, are generally more sensitive to interest rate changes
than short-term bonds, including 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. Because the S&P 500 Index
includes common stocks of foreign issuers, Tactical Allocation Fund is also
subject to certain risks associated with investments in U.S. dollar-
denominated securities of foreign issuers.

Investing in securities of foreign companies involves more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate.
Values may also be affected by foreign tax laws, changes in foreign economic
or monetary policies, exchange control regulations and regulations involving
prohibitions on the repatriation of foreign currencies. In general, less
information may be available about foreign companies than about U.S.
companies, and they are generally not subject to the same accounting, auditing
and financial reporting standards as are U.S. companies.

REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements. In a
typical repurchase agreement, a Fund buys a security and simultaneously agrees
to sell it back at an agreed-upon price and time, usually no more than seven
days after purchase. The time and price reflect a market rate of interest
unrelated to the coupon rate or maturity of the purchased securities. Risks
associated with repurchase agreements include a possible decline in the 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 Fund are subject to
other risk considerations:

BALANCED FUND

BOND RATINGS. The Fund invests in a broad range of bonds rated investment
grade. Investment grade quality means that the securities are rated within the
four highest categories by S&P and Moody's. Moody's fourth highest category
(Baa) includes securities which, in its opinion, have speculative features.

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 the 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. Generally, prepayments on fixed-rate mortgage loans
will increase during a period of falling interest rates and decrease during a
period of rising interest rates. Mortgage- and asset-backed securities may
also 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. 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 Fund's yield. 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

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

- ------------------------------====================-----------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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 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.

Certain classes of CMOs and other mortgage-backed securities are structured in
a manner that makes them extremely sensitive to changes in prepayment rates.
Interest-only ("IO") and principal-only ("PO") classes are examples of this.
IOs are entitled to receive all or a portion of the interest, but none (or
only a nominal amount) of the principal payments, from the underlying mortgage
assets. If the mortgage assets underlying an IO experience greater than
anticipated principal prepayments, then the total amount of interest payments
allocable to the IO class, and therefore the yield to investors, generally
will be reduced. In some instances, an investor in an IO may fail to recoup
all of his or her initial investment, even if the security is government
issued or guaranteed or is rated AAA or the equivalent. Conversely, PO classes
are entitled to receive all or a portion of the principal payments, but none
of the interest, from the underlying mortgage assets. PO classes are purchased
at substantial discounts from par, and the yield to investors will be reduced
if principal payments are slower than expected. Some IOs and POs, as well as
other CMO classes, are structured to have special protections against the
effects of prepayments. These structural protections, however, normally are
effective only within certain ranges of prepayment rates and thus will not
protect investors in all circumstances.

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, 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 market interest rates or other factors that affect the
volatility of securities held by the Fund change in ways that Mitchell
Hutchins does not anticipate, the Fund's ability to meet its investment
objective may be reduced.

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

RISKS OF ZERO COUPON SECURITIES. The 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.

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, the Fund may not achieve as high a level of either
capital appreciation or current income as a fund that has only one of those
objectives as its primary objective. In addition, the need to qualify as a
regulated investment company for federal income tax purposes may limit the
Fund's ability to adhere rigidly to the recommendations of the Model. See
"Dividends & Taxes."

- ------------------------------==================--------------------------------
Prospectus Page 19

<PAGE>

- ------------------------------===================-------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

the performance of the S&P 500 Index may result from shareholder purchases and
sales of shares that occur daily, as well as from expenses borne by the Fund.

INVESTMENT TECHNIQUES AND STRATEGIES

STRATEGIC INVESTMENTS. In an attempt to reduce the overall risk of its
investments, known as hedging, or to enhance income or return, each Fund may
use certain types of strategic investments. These investments involve
derivative contracts, including options (on securities, futures and indexes)
and futures contracts (on stock indexes and debt securities). In addition, new
financial products and risk management techniques continue to be developed and
may be used if consistent with the Funds' investment objectives and policies.
Use of these strategies solely to enhance income may be considered a form of
speculation. Each Fund also may enter into certain interest rate protection
transactions to preserve a return or spread on a particular investment or
portion of its portfolio or to protect against an increase in the price of
securities the Fund anticipates purchasing at a later date. The Funds' ability
to use the strategies may be limited by market conditions, regulatory limits
and tax considerations. The Statement of Additional Information for the Funds
contains further information on these strategies.

Each Fund may enter into options and futures contracts under which the full
value of its portfolio is at risk. Under normal circumstances, however, the
Fund's use of these strategies will place at risk a much smaller portion of its
assets.

The Funds might not use any strategic investment, and there can be no assurance
that any strategy used will succeed. If Mitchell Hutchins is incorrect in its
judgment on interest rates, market values or other economic factors in using a
particular strategic investment, a Fund might 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 strategic investments are different
from those needed to select securities for the Funds,

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

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

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

DERIVATIVES. Some of the instruments in which the Funds may invest may be
referred to as "derivatives," because their value depends on (or "derives"
from) the value of an underlying asset, reference rate or index. These
instruments include options, futures contracts, interest rate protection
contracts and similar instruments that may be used in hedging and related
strategies. There is only limited consensus as to what constitutes a
"derivative" security. However, in Mitchell Hutchins' view, derivative
securities also include "stripped" securities and specially structured types of
mortgage- and asset-backed securities, such as IOs and POs. The market value of
derivative instruments and securities sometimes is more volatile than that of
other investments, and each type of derivative instrument may pose its own
special risks. Mitchell Hutchins takes these risks into account in its
management of the Funds.

PORTFOLIO TURNOVER. Each Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turnover rate for a Fund (100% or more)
will involve correspondingly greater transaction costs, which will be borne
directly by that Fund, and may increase the potential for short-term capital
gains.

ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in
illiquid securities, including repurchase agreements maturing in more than
seven days, certain cover for OTC options and securities whose disposition is
restricted under the federal securities laws. The Funds do not consider
securities that are eligible for resale under SEC Rule 144A to be illiquid if
Mitchell Hutchins has determined them to be liquid, based upon the trading
markets for the securities under procedures approved by the Funds' boards.

LENDING PORTFOLIO SECURITIES. Each Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of the
Fund's total assets taken at market value. Lending securities enables the Funds
to earn additional income, but could result in a loss or delay in recovering
these securities.

- ------------------------------==================--------------------------------
Prospectus Page 20

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

OTHER INFORMATION. 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.
- -------------------------------------------------------------------------------

Flexible Pricing(SM)

- -------------------------------------------------------------------------------
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 the 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 PFPC Inc., the
Funds' Transfer Agent ("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 purchase or sale, whichever is less, is charged on sales of
shares made within one year of the purchase date. Class A shares
representing reinvestment of any dividends or other distributions are not
subject to the 1% charge. Withdrawals under the Systematic Withdrawal Plan
are not subject to this charge. However, investors may not withdraw 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 purchasing Class A shares in more than one PaineWebber mutual fund
may combine those purchases to get a reduced sales charge. Investors who
already own Class A shares in one or more PaineWebber mutual funds may combine
the amount they are currently purchasing with the value of such previously
owned shares to qualify for a 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 Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of individuals for the benefit of the investors'
children; or

. accounts with the same adviser.

- ------------------------------==================--------------------------------
Prospectus Page 21

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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, its affiliates
or any PaineWebber mutual fund;

. 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; and

. 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;

. is an employer establishing an employee benefit plan qualified under section
401 or 403(b), or a salary reduction plan qualified under section 401(k), of
the Internal Revenue Code ("Code"). (This waiver is subject to minimum
requirements, with respect to the 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; or

. 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 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 following table. 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 of purchase..................................... 5%
2nd year of purchase..................................... 4
3rd year of purchase..................................... 3
4th year of purchase..................................... 2
5th year of purchase..................................... 2
6th year of purchase..................................... 1
7th year of 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. 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.

- ------------------------------==================--------------------------------
Prospectus Page 22

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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 they 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.

WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will not apply to:

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

. a distribution from an IRA, a self-employed individual retirement plan
("Keogh Plan") or a custodial account under Section 403(b) of the Internal
Revenue Code (after the investor reaches age 59 1/2);

. 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 either as the sole shareholder or with
his or her spouse as a joint tenant with the right of survivorship.

Investors must provide satisfactory information to PaineWebber or the Fund if
they seek 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. Because investors do not pay
an initial sales charge when they buy Class C shares, 100% of their purchase
is immediately invested. 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. Other PaineWebber mutual
funds may impose a different contingent deferred sales charge on Class C
shares sold within one year of the purchase date. A sale 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 the
Class C shares of the PaineWebber mutual fund originally purchased. Class C
shares representing reinvestment of any dividends or capital gains are not
subject to the 1% charge. Withdrawals under the Systematic Withdrawal Plan
also are not 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 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. The Funds and Mitchell Hutchins reserve the right
to reject any purchase order and to suspend the offering of Fund shares for a
period of time.

When placing 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

- ------------------------------==================--------------------------------
Prospectus Page 23

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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,
which can be obtained by calling 1-800-647-1568. 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.

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. A $5 fee is imposed on each exchange into or out of
Balanced Fund. Exchanges out of Tactical Allocation Fund are not charged this
fee.

. 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:

. the investor's 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.

No contingent deferred sales charge is imposed when shares are exchanged for
the corresponding class of shares of other PaineWebber mutual funds. A Fund
will use the purchase date of the initial investment to determine any
contingent deferred sales charge due when the shares are sold. Fund shares may
be exchanged only after the settlement date has passed and payment for the
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 days' notice. See the back cover of this
prospectus for a listing of other PaineWebber mutual funds.

- ------------------------------==================--------------------------------
Prospectus Page 24

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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

Investors can 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 (less any applicable contingent deferred sales charge). 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 Funds incur certain fixed costs in maintaining shareholder
accounts, each Fund 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 with a minimum initial
investment of $1,000 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 accounts. Minimum balances and
withdrawals vary according to the class of shares:

. 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 are not subject to a
contingent deferred sales charge. Investors may not withdraw more than 12% of
the value of the Fund account when the investor signed up for the Plan (for
Class B shares annually; for Class A and Class C shares, during the first year
under

- ------------------------------==================--------------------------------
Prospectus Page 25

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

the Plan). Shareholders who elect to receive dividends or other distributions
in cash may not participate in the Plan.

INDIVIDUAL RETIREMENT ACCOUNTS

Self-Directed IRAs are 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 investors 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 of the Corporation and the board of trustees
of the Trust oversee the Funds' operations and, as part of this overall
management responsibility, oversee various organizations responsible for the
day-to-day management of each Fund. Each board has appointed Mitchell Hutchins
as investment adviser and administrator responsible for the Fund's operations
(subject to the authority of the board).

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 Paine Webber Group Inc., a publicly owned financial
services holding company. On May 31, 1996, Mitchell Hutchins was adviser or
sub-adviser of 31 investment companies with 65 separate portfolios and
aggregate assets of approximately $30.4 billion.

Each board has determined that brokerage transactions for the Fund may be
conducted through PaineWebber or its affiliates in accordance with procedures
adopted by the board.

ABOUT THE INVESTMENT ADVISER

As investment adviser and administrator for Balanced Fund and Tactical
Allocation Fund, Mitchell Hutchins makes and implements all investment
decisions and supervises all aspects of each Fund's operations.

T. Kirkham Barneby is responsible for the asset allocation decisions for both
Balanced Fund and Tactical Allocation Fund. He has been responsible for the
day-to-day management of Tactical Allocation Fund since February 1995. Mr.
Barneby is a managing director and chief investment officer of 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 a
senior vice president responsible for quantitative management and asset
allocation models.

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 equities of Mitchell Hutchins, responsible for
overseeing the management of equity investments. From March 1988 to March
1995, Mr. Tincher worked for Chase Manhattan Private Bank where he was a vice
president. Mr. Tincher directed the U.S. funds management and equity research
area at Chase and oversaw the management of all Chase U.S. equity funds (the
Vista Funds and Trust Investment Funds).

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 of fixed income investments 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

- ------------------------------==================--------------------------------
Prospectus Page 26

<PAGE>

- ------------------------------===================-------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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, CFA, assist Mr. McCauley in managing
Balanced Fund's debt securities. Mr. Singh and Mr. Varrelman are both first
vice presidents of Mitchell Hutchins. Prior to joining Mitchell Hutchins in
September 1993, Mr. Singh was with Merrill Lynch Asset Management, Inc., where
he was a member of the portfolio management team. From 1990 to 1993, Mr. Singh
was a senior portfolio manager at Nomura Mortgage Fund Management Corporation.
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 Balanced
Fund 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.

Mitchell Hutchins personnel may engage in securities transactions for their own
accounts pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.

MANAGEMENT FEES & OTHER EXPENSES

Each Fund pays Mitchell Hutchins a monthly fee for its services. For the most
recent fiscal year, Mitchell Hutchins received a monthly fee from Balanced Fund
for these services at the effective 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.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins is the distributor 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 the 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.

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 either Fund 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

- ------------------------------==================--------------------------------
Prospectus Page 27

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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 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. 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.
- -------------------------------------------------------------------------------

Dividends & Taxes

- -------------------------------------------------------------------------------
DIVIDENDS

Tactical Allocation Fund pays dividends quarterly from its net investment
income, and Balanced Fund pays dividends semi-annually from its net investment
income. Each Fund also may distribute net short-term capital gain, if any,
with the periodic 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 Funds may make additional distributions if necessary to avoid income or
excise taxes. While the Funds 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 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.

- ------------------------------==================--------------------------------
Prospectus Page 28

<PAGE>

- ------------------------------===================-------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

TAXES

Each Fund 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. These
requirements may limit the ability of Tactical Allocation Fund to reallocate
its assets under certain circumstances.

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 generally 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 special
treatment.

WITHHOLDING REQUIREMENTS

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 at that rate is also required from dividends
and capital gain distributions payable to those 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 takes into account any
initial sales charge paid on Class A shares). An exchange of a Fund's shares
for shares of another PaineWebber mutual 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 purchases Class A shares of a
PaineWebber mutual 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
mutual fund shares subsequently acquired.

* * * *

Because the foregoing only summarizes some of the important federal income tax
considerations affecting the Funds and their shareholders, a further discussion
is contained in the Statement of Additional Information. Prospective
shareholders are urged to consult their tax advisors.

- ------------------------------==================--------------------------------
Prospectus Page 29

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

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

ORGANIZATION

BALANCED FUND

Balanced Fund is a diversified series of the Corporation, an open-end
management investment company that was incorporated in Maryland on October 29,
1985. The Corporation has authority to issue 10 billion shares of common stock
of separate series, par value $.001 per share; four 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.

TACTICAL ALLOCATION FUND

Tactical Allocation Fund is a series of the Trust, an open-end management
investment company that was formed on March 28, 1991, as a business trust
under the laws of the Commonwealth of Massachusetts. The trustees have
authority to issue an unlimited number of shares of beneficial interest of
separate series, with a par value of $.001 per share. Shares of one other
series have been authorized.

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,
other 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 each Fund 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 nor 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.

Although each Fund is offering only its own shares, it is possible that a Fund
could become liable for misstatements in the Prospectus about the other Fund.
The boards have considered this factor in approving the use of a single,
combined Prospectus.

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 board members 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
law and except that only the shareholders of a particular class of a Fund may
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 board member 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 board member at
the written request of holders of 10% of the Corporation's or Trust's
outstanding shares.

REPORTS TO SHAREHOLDERS

Each Fund sends its 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 is available to shareholders upon request.

- ------------------------------==================--------------------------------
Prospectus Page 30

<PAGE>

- ------------------------------===================------------------------------
PaineWebber Tactical Allocation Fund
Balanced Fund

CUSTODIAN & RECORDKEEPING AGENT;
TRANSFER & DIVIDEND AGENT

State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as the Funds' custodian and recordkeeping
agent. 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.

- ------------------------------==================--------------------------------
Prospectus Page 31

<PAGE>

- ------------------------------=================---------------------------------

PaineWebber Balanced Fund
PaineWebber Tactical Allocation Fund
Prospectus -- July 1, 1996

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

. PAINEWEBBER BOND FUNDS . PAINEWEBBER STOCK FUNDS

High Income Fund Capital Appreciation Fund
Investment Grade Income Financial Services Growth Fund
Fund Growth Fund
Low Duration U.S. Growth and Income Fund
Government Income Fund Small Cap Value Fund
Strategic Income Fund Utility Income Fund
U.S. Government Income
Fund

. PAINEWEBBER TAX-FREE BOND . PAINEWEBBER GLOBAL FUNDS
FUNDS

Emerging Markets Equity Fund
California Tax-Free Global Equity Fund
Income Fund Global Income Fund
Municipal High Income
Fund

National Tax-Free
Income Fund
New York Tax-Free . PAINEWEBBER MONEY MARKET FUND
Income Fund

. PAINEWEBBER ASSET
ALLOCATION FUNDS

Balanced Fund
Tactical Allocation
Fund

A prospectus containing more complete information for any of the above
funds, including charges and expenses, can be obtained from a PaineWebber
investment executive or correspondent firm. Please read it carefully before
investing. It is important you have all the information you need to make a
sound investment decision.

- ------------------------------================----------------------------------

<PAGE>
- --------------------------------------------------------------------------------
------------------

PaineWebber Balanced Fund
PaineWebber Tactical Allocation Fund
Class Y Shares

1285 Avenue of the Americas, New York, NY 10019
Prospectus -- July 1, 1996

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

PaineWebber Asset Allocation Funds are designed for investors generally seeking
high total return. PaineWebber Balanced Fund invests primarily in a combination
of equity securities, investment grade bonds and money market instruments.
PaineWebber Tactical Allocation Fund follows an investment strategy that
actively allocates its assets among equity securities, U.S. Treasury notes and
U.S. Treasury bills.

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.

The Class Y shares described in this Prospectus are currently offered for sale
primarily to participants in the INSIGHT Investment Advisory Program ("IN-
SIGHT"), when purchased through that program. See "How to Buy Shares."

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

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.

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.

---------
----------------------------------------------------------------------------
Prospectus Page 1
<PAGE>

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

Table of Contents

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

Page
----
The Funds at a Glance...................................................... 3
Expense Table.............................................................. 5
Financial Highlights....................................................... 6
Investment Objectives & Policies........................................... 7
Investment Philosophy & Process............................................ 8
Performance................................................................ 10
The Funds' Investments..................................................... 11
How to Buy Shares.......................................................... 15
How to Sell Shares......................................................... 16
Management................................................................. 17
Determining the Shares' Net Asset Value.................................... 18
Dividends & Taxes.......................................................... 19
General Information........................................................ 20

----------
- --------------------------------------------------------------------------------
Prospectus Page 2
<PAGE>

- -------------------------------------------------------------------------------
-------------------
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 return with low volatility.

RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but 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 additional 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 involve more
risk than investing in 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 May 31, 1996, the Fund had over $199.7 million in assets.

TACTICAL ALLOCATION FUND

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

SIZE: On May 31, 1996, the Fund had over $103.3 million in assets.

MANAGEMENT

WHO SHOULD INVEST

----------
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Balanced Fund Tactical Allocation Fund

The Funds at a Glance
(Continued)

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

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.

----------
- --------------------------------------------------------------------------------
Prospectus Page 4
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Tactical Allocation Fund
Balanced Fund
Expense Table

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

The following tables are intended to assist investors in understanding the
expenses associated with investing in Class Y shares of the Funds.

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge on Purchases of Shares.............................. None
Sales Charge on Reinvested Dividends..................................... None
Maximum Contingent Deferred Sales Charge................................. None
Maximum Annual Investment Advisory Fee Payable by Shareholders through
INSIGHT (as a % of average daily value of shares held) (1).............. 1.50%

ANNUAL FUND OPERATING EXPENSES (as a % of average net assets) (2)
BALANCED FUND
Management Fees.......................................................... 0.75%
12b-1 Fees............................................................... 0.00
Other Expenses (estimated)............................................... 0.29
----
Total Operating Expenses (estimated)..................................... 1.04%
====
TACTICAL ALLOCATION FUND
Management Fees.......................................................... 0.50%
12b-1 Fees............................................................... 0.00
Other Expenses........................................................... 0.73
----
Total Operating Expenses................................................. 1.23%
====
</TABLE>
- -------
(1) Participation in INSIGHT is subject to payment of an advisory fee at the
maximum annual rate of 1.50% of assets held through INSIGHT (generally
charged quarterly in advance), which may be charged to the INSIGHT
participant's PaineWebber account. This account charge is not included in
the table.
(2) See "Management" for additional information. The fees and expenses for
Tactical Allocation Fund are those actually incurred for the fiscal year
ended August 31, 1995. The fees and expenses for Balanced Fund are estimated
based on the expenses incurred by the Class A shares of that Fund for the
fiscal year ended February 29, 1996.

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, directly or indirectly, pay the following expenses
(including the 1.50% annual INSIGHT fee) on a $1,000 investment in each Fund,
assuming (1) a 5% annual return, (2) reinvestment of all dividends and
distributions and (3) percentage amounts listed under "Annual Fund Operating
Expenses" remain the same for years shown.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
BALANCED FUND................................... $26 $79 $135 $288

<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TACTICAL ALLOCATION FUND........................ $28 $85 $144 $306
</TABLE>

----------
- --------------------------------------------------------------------------------
Prospectus Page 5
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Balanced Fund Tactical Allocation Fund

Financial Highlights

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

TACTICAL ALLOCATION FUND

The following table provides investors with data and ratios for one Class Y
share 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 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 relating to 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 prior periods
was audited by other auditors, whose report on this data was unqualified.
Further information about the Fund's performance is also included in the
Annual Report to Shareholders, which may be obtained without charge by calling
1-800-647-1568. 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 have not expressed an opinion on
the information.

During the fiscal year ended February 29, 1996 no, Class Y shares for Balanced
Fund were outstanding and thus no financial information was available.

<TABLE>
<CAPTION>
TACTICAL ALLOCATION FUND
---------------------------------------------
CLASS Y***
---------------------------------------------
FOR THE SIX FOR THE YEARS FOR THE PERIOD
MONTHS ENDED ENDED MAY 10, 1993+
FEBRUARY 29, AUGUST 31, TO AUGUST 31,
------------ ---------------- --------------
1996
(UNAUDITED) 1995** 1994 1993
------------ ------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of pe-
riod............................ $ 14.88 $ 13.79 $ 13.52 $ 12.90
------- ------- ------- -------
Net investment income............ 0.19 0.23 0.25 0.09
Net realized and unrealized gains
from investment transactions.... 1.95 2.09 0.33 0.60
------- ------- ------- -------
Net increase from investment op-
erations........................ 2.14 2.32 0.58 0.69
------- ------- ------- -------
Dividends from net investment in-
come............................ (0.16) (0.26) (0.27) (0.07)
Distributions from net realized
gains from investment
transactions.................... (1.06) (0.97) (0.04) --
------- ------- ------- -------
Total dividends and distributions
to shareholders................. (1.22) (1.23) (0.31) (0.07)
------- ------- ------- -------
Net asset value, end of period... $ 15.80 $ 14.88 $ 13.79 $ 13.52
======= ======= ======= =======
Total investment return (1)...... 14.80% 18.79% 4.41% 5.30%
======= ======= ======= =======
Ratios/ supplemental data:
Net assets, end of period
(000's)........................ $12,686 $ 2,506 $ 3,880 $ 3,379
Expenses to average net assets.. 1.09%* 1.23% 0.88% 0.81%*
Net investment income to average
net assets..................... 1.53%* 1.86% 1.90% 1.96%*
Portfolio turnover.............. 5% 53% 4% 0%
Average commission rate paid per
share on common stock invest-
ments purchased/sold (2)....... $0.0250 -- -- --
</TABLE>
- -------
+ Commencement of issuance of shares.
* Annualized.
** Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to Mitchell Hutchins on February 13, 1995.
*** Formerly Class C shares.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable dates, and a
sale at net asset value on the last day of each period reported. Total
investment returns for periods of less than one year have not been
annualized.
(2) Disclosure effective for fiscal years beginning on or after September 1,
1995.

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

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

Investment Objectives & Policies

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

The Funds' investment objectives may not be changed without shareholder
approval. Their other investment policies, except where noted, are not
fundamental and may be changed by the Funds' boards.

BALANCED FUND

The Fund may invest in a broad range of:

. Equity securities issued by companies believed by Mitchell Hutchins to have
the potential for rapid earnings growth;

. High quality money market securities.

TACTICAL ALLOCATION FUND

The performance of the Fund's equity portion is intended to replicate that of
the S&P 500 Index before deducting operating expenses.

* * * *

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

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

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

Investment Philosophy & Process

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

BALANCED FUND

. Regularly surveys market participants and generates a consensus forecast of
economic variables affecting returns on equity securities, bonds and money
market instruments; and

. Applies fundamental valuation techniques to the consensus data to determine
the asset allocation it believes to be optimal.

The Fund uses the following investment process to determine the individual
securities for each portion of the Fund:

--VALUE: projected dividends, cash flow, earnings and book value;

--MOMENTUM: earnings and price to identify companies that could surprise on
the upside; and

--ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.

. MONEY MARKET INSTRUMENTS. Mitchell Hutchins' decision to use these
securities is based on its judgment of how they can further the Fund's
investment objective.

TACTICAL ALLOCATION FUND

The basic premise of the Model is that investors accept the risk of owning
stocks, measured as volatility of return, because they expect a return
advantage. The expected return advantage of stocks fluctuates as investor
psychology pushes the market to valuation extremes. The Model incorporates the
following factors to determine the allocations:

. Expected future dividends and current price of stocks;

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

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

. Economic statistics;

. Five-year, "bottom-up" company earnings projections; and

. Yield-to-maturity of the one-year Treasury bill.

The Fund's asset allocation mix is dictated by the Model, except as described
below. The Fund does not maintain a portion of its investments in each asset
class at all times. The weightings can range from 100% to 0% in stocks, bonds
or cash. Possible asset mixes are 100% stocks; 75% stocks/25% bonds or cash;
100% bonds or cash. For example, as of August 31, 1995, and again as of
February 29, 1996, the Fund's assets were allocated as follows: 99% to stocks,
0% to bonds and 1% to cash. The Fund does not hold bonds and cash at the same
time, except for limited amounts held in cash generally to pay expenses. This
disciplined approach to investing in stocks attempts to shift the asset mix in
anticipation of, not in response to, changing market trends.

. Qualify as a regulated investment company for Federal income tax purposes.
See "Dividends & Taxes."

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

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

Performance

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

This chart shows the total returns for Class Y shares of Tactical Allocation
Fund for each calendar year since the Fund's inception. Past results are not a
guarantee of future results. Average annual returns for periods from inception
through the Fund's fiscal year end are shown below the performance chart. No
Class Y shares for Balanced Fund were outstanding during 1995 so no performance
is presented for that Fund.

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 APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
5/10/93-12/31/93 6.65%
1994 -0.28%
1995 35.48%
</TABLE>

AVERAGE ANNUAL RETURNS
As of August 31, 1995
<TABLE>
<CAPTION>
CLASS Y SHARES
--------------
<S> <C>
Inception Date................................................... 5/10/93
One Year......................................................... 18.79%
Life............................................................. 12.28%
</TABLE>

PERFORMANCE INFORMATION

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 each Fund's
performance is contained in its Annual Report, which may be obtained without
charge by contacting the Fund, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.

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PaineWebber Balanced Fund Tactical Allocation Fund

The Funds' Investments

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BALANCED FUND

Mortgage-backed securities include:

. Single- and multi-class pass-through securities, representing pooled debt
obligations repackaged as shares, that pass income from debtors through the
intermediary to investors;

. Collateralized mortgage obligations ("CMOs"), which are more complex
versions of mortgage-backed bonds. Evaluating the risks and rewards of CMOs
requires special knowledge.

When interest rates go down and homeowners refinance their mortgages,
mortgage-backed bonds are paid off more quickly than investors may expect.

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PaineWebber Balanced Fund Tactical Allocation Fund

Because zero coupon securities bear no interest and holders do not receive
interest payments, they are generally more sensitive to changes in interest
rates than other U.S. government securities. For example, when interest rates
fall, the value of zero coupon securities rises more rapidly than bonds paying
out interest on a current basis because the zero coupon bonds have locked in a
particular rate of reinvestment that becomes more attractive the further rates
fall. However, when interest rates rise, their value falls more dramatically.

MONEY MARKET INSTRUMENTS in which the Fund may invest 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) with total assets in excess of $1.5 billion at the time of
purchase;

. Commercial paper and other short-term corporate obligations; and

. Variable and floating-rate securities and repurchase agreements.

TACTICAL ALLOCATION FUND

STOCK PORTION. In its stock portion, the Fund attempts to duplicate, before
the deduction of operating expenses, the investment results of the S&P 500
Index by investing in approximately 450 of the 500 common stocks included in
that index. The S&P 500 Index, which is chosen by S&P on a statistical basis
and may change from time to time, emphasizes large capitalization stocks and
is based on such factors as the market capitalization and trading activity of
each stock and its adequacy as a representative of stocks in a particular
industry sector. The Fund attempts to achieve a correlation between the
performance of the stock portion and that of the S&P 500 Index of at least
0.95, before the deduction of operating expenses (a correlation of 1.00 would
be perfect, which would mean that the net asset value of the stock portion
increased or decreased in exactly the same proportion as changes in the
Index).

RISKS

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, including
U.S. government securities, are generally more sensitive to interest rate
changes than short-term bonds, including U.S. government securities. Adverse
changes in economic conditions can affect an issuer's ability to pay principal
and interest.

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PaineWebber Balanced Fund Tactical Allocation Fund

associated with investments in U.S. dollar-denominated securities of foreign
issuers.

In addition to these general risks, investments in each Fund are subject to
other risk considerations:

BALANCED FUND

The Fund may invest up to 10% of its total assets in convertible bonds rated
lower than investment grade, that is, below BBB by S&P or Baa by Moody's, but
no lower than B by S&P or Moody's. These bonds, which are commonly referred to
as "junk bonds", are considered to be predominantly speculative with respect
to the issuer's ability to pay interest and repay principal and may be more
sensitive to adverse conditions. The Fund's policy of investing a portion of
its assets in lower rated securities thus entails greater risks than those
associated with investment in higher rated securities. The Fund also may
invest in securities that are comparably rated by another NRSRO and unrated
securities deemed by Mitchell Hutchins 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.

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PaineWebber Balanced Fund Tactical Allocation Fund

amount) of the principal payments, from the underlying mortgage assets. If the
mortgage assets underlying an IO experience greater than anticipated principal
prepayments, then the total amount of interest payments allocable to the IO
class, and therefore the yield to investors, generally will be reduced. In
some instances, an investor in an IO may fail to recoup all of his or her
initial investment, even if the security is government issued or guaranteed or
is rated AAA or the equivalent. Conversely, PO classes are entitled to receive
all or a portion of the principal payments, but none of the interest, from the
underlying mortgage assets. PO classes are purchased at substantial discounts
from par, and the yield to investors will be reduced if principal payments are
slower than expected. Some IOs and POs, as well as other CMO classes, are
structured to have special protections against the effects of prepayments.
These structural protections, however, normally are effective only within
certain ranges of prepayment rates and thus will not protect investors in all
circumstances.

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

TACTICAL ALLOCATION FUND

INDEX INVESTING AND OPEN-END INVESTMENT COMPANIES. While the Fund's stock
portion attempts to duplicate, before deduction of operating expenses, the
investment results of the S&P 500 Index, the investment results of the stock
portion generally are not identical to those of the Index. Deviations from the
performance of the S&P 500 Index may result from shareholder purchases and
sales of shares that occur daily, as well as from expenses borne by the Fund.

INVESTMENT TECHNIQUES AND STRATEGIES

STRATEGIC INVESTMENTS. In an attempt to reduce the overall risk of its
investments, known as hedging or to enhance income or return, each Fund may
use certain types of strategic investments. These investments involve
derivative contracts, including options (on securities, futures and indexes)
and futures contracts (on stock indexes and debt securities). In addition, new
financial products and risk management techniques continue to be developed and
may be used if consistent with the Funds' investment objectives and policies.
Use of these strategies solely to enhance income may be considered a form of
speculation. Each Fund also may enter into certain interest rate protection
transactions to preserve a return or spread on a particular investment or
portion of its portfolio or to protect against an increase in the price of
securities the Fund anticipates purchasing at a later date. The

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PaineWebber Balanced Fund Tactical Allocation Fund

Funds' ability to use the strategies may be limited by market conditions,
regulatory limits and tax considerations. The Statement of Additional
Information for the Funds contains further information on these strategies.

The Funds might not use any strategic instrument, and there can be no
assurance that any strategy used will succeed. If Mitchell Hutchins is
incorrect in its judgment on interest rates, market values or other economic
factors in using a particular strategic instrument, a Fund might 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 strategic instruments are different
from those needed to select securities for the Funds,

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

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

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

DERIVATIVES. Some of the instruments in which the Funds may invest may be
referred to as "derivatives" because their value depends on (or "derives"
from) the value of an underlying asset, reference rate or index. These
instruments include options, futures contracts, interest rate protection
contracts and similar instruments that may be used in hedging and related
strategies. There is only limited consensus as to what constitutes a
"derivative" security. However, in Mitchell Hutchins' view, derivative
securities also include "stripped" securities and specially structured types
of mortgage- and asset-backed securities, such as IOs and POs. The market
value of derivative instruments and securities sometimes is more volatile than
that of other investments, and each type of derivative instrument may pose its
own special risks. Mitchell Hutchins takes these risks into account in its
management of the Funds.

PORTFOLIO TURNOVER. Each Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turnover rate for a Fund (100% or
more) will involve correspondingly greater transaction costs, which will be
borne directly by that Fund, and may increase the potential for short-term
capital gains.

LENDING PORTFOLIO SECURITIES. Each Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of the
Fund's total assets taken at market value. Lending securities enables the
Funds to earn additional income, but could result in a loss or delay in
recovering these securities.

How to Buy Shares

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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 by PFPC Inc., 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

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PaineWebber Balanced Fund Tactical Allocation Fund

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 SM System 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.

Participation 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.

ACQUISITION OF CLASS Y SHARES BY OTHERS

Present holders of Class Y shares of Tactical Allocation Fund who are not
current INSIGHT participants may not purchase additional Class Y shares of
that Fund. This category includes former employees of Kidder, Peabody & Co.,
Incorporated ("Kidder, Peabody"), their associated accounts and former
directors and trustees of the former Kidder, Peabody mutual funds. Dividends
and other distributions on Class Y shares of Tactical Allocation Fund owned by
these holders will continue to be paid in additional Class Y shares at net
asset value, unless the shareholder has requested cash payments.

Each Fund is authorized to offer Class Y shares to certain other investment
advisory programs that are sponsored by PaineWebber and that may invest in
PaineWebber mutual funds. At present, however, INSIGHT participants are the
only purchasers in this category.
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How to Sell Shares

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Class Y shares may be sold (redeemed) at their net asset value and proceeds
from the sale of shares will be paid after receipt of a request to sell
shares, as described below.

SALES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS

INSIGHT participants who are Class Y shareholders may submit requests to sell
shares to their investment executives or correspondent firms in person or by
telephone, mail or wire. As agent for the Funds, PaineWebber may honor a
request to sell shares by repurchasing Class Y shares from a selling
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 requests to sell shares 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 request to sell shares, in
which case PaineWebber promptly will forward the request to PFPC Inc., the
Funds' Transfer Agent ("Transfer Agent"), for treatment as described below.

SALES THROUGH THE TRANSFER AGENT

Shareholders also may sell Fund shares through the Transfer Agent.
Shareholders should mail requests to

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PaineWebber Balanced Fund Tactical Allocation Fund

sell shares directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber
Mutual Funds, P.O. Box 8950, Wilmington, Delaware 19899. A request to sell
shares will be executed at the net asset value next computed after it is
received in "good order," and proceeds from the sale 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 sold (or that all shares credited to the Fund
account be sold), signed by all registered owners of the shares in the exact
names in which they are registered, (2) a guarantee of the signature of each
registered owner by an eligible institution acceptable to the Transfer Agent
and in accordance with SEC rules, such as a commercial bank, trust company or
member of a recognized stock exchange, (3) other supporting legal documents
for estates, trusts, guardianships, custodianships, partnerships and
corporations and (4) duly endorsed share certificates, if any. Shareholders
are responsible for ensuring that a request to sell shares is received in
"good order."

ADDITIONAL INFORMATION ON SALES

A shareholder may have proceeds from the sale of shares 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 sale
requirements generally, should be referred to the shareholder's investment
executive at PaineWebber or one of its correspondent firms. If a shareholder
wants to sell shares that 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 the Funds incur certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to purchase back all Fund shares in any
shareholder account with a net asset value below $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.
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Management

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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 of the Corporation and the board of trustees
of the Trust oversee the Funds' operations and, as part of this overall
management responsibility, oversee various organizations responsible for the
day-to-day management of each Fund. Each board has appointed Mitchell Hutchins
as investment adviser and administrator responsible for the Fund's operations
(subject to the authority of the board).

Each board has determined that brokerage transactions for the Fund may be
conducted through PaineWebber or its affiliates in accordance with procedures
adopted by the board.

ABOUT THE INVESTMENT ADVISER

As investment adviser for Balanced Fund and Tactical Allocation Fund, Mitchell
Hutchins makes and implements all investment decisions and supervises all
aspects of each Fund's operations.

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PaineWebber Balanced Fund Tactical Allocation Fund

Mr. Tincher worked for Chase Manhattan Private Bank where he was a vice
president. Mr. Tincher directed the U.S. funds management and equity research
area at Chase and oversaw the management of all Chase U.S. equity funds (the
Vista Funds and Trust Investment Funds).

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 of fixed income investments 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.

Nirmal Singh and Craig M. Varrelman, CFA, assist Mr. McCauley in managing
Balanced Fund's debt securities. Mr. Singh and Mr. Varrelman are both first
vice presidents of Mitchell Hutchins. Prior to joining Mitchell Hutchins in
September 1993, Mr. Singh was with Merrill Lynch Asset Management, Inc., where
he was a member of the portfolio management team. From 1990 to 1993, Mr. Singh
was a senior portfolio manager at Nomura Mortgage Fund Management Corporation.
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.

Each of these managers first assumed responsibilities with respect to Balanced
Fund in August 1995.

Mitchell Hutchins personnel may engage in securities transactions for their
own accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.

MANAGEMENT FEES & OTHER EXPENSES

Each Fund pays Mitchell Hutchins a monthly fee for its services. For the most
recent fiscal year, Mitchell Hutchins received a monthly fee from Balanced
Fund for these services at the effective 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.

Balanced 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. Tactical Allocation Fund does not pay this fee. The Funds
incur other expenses, such as custody and transfer agency fees and
professional fees.
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Determining the Shares' Net Asset Value

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PaineWebber Balanced Fund Tactical Allocation Fund

Dividends & Taxes

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DIVIDENDS

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

Each Fund 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. These
requirements may limit the ability of Tactical Allocation Fund to reallocate
its assets under certain circumstances.

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 generally 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

WITHHOLDING REQUIREMENTS

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 at that rate is also required from
dividends and capital gain distributions payable so those shareholders who
otherwise are subject to backup withholding.

TAXES ON THE SALE 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. In addition, if a Fund's shares are
bought within 30 days before or after selling other shares of the Fund at a
loss, all or a portion of that loss will not be deductible and will increase
the basis of the newly purchased shares.

* * * *

Because the foregoing only summarizes some of the important federal income tax
considerations affecting the Funds and their shareholders, a further
discussion is contained in the Statement of Additional Information.
Prospective shareholders are urged to consult their tax advisors.

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PaineWebber Balanced Fund Tactical Allocation Fund

General Information

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ORGANIZATION

BALANCED FUND

TACTICAL ALLOCATION FUND

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

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PaineWebber Family of Funds

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. PAINEWEBBER BOND FUNDS . PAINEWEBBER STOCK FUNDS

High Income Fund Capital Appreciation Fund
Investment Grade Income Fund Financial Services Growth Fund
Low Duration U.S. Government Growth Fund
Income Fund Growth and Income Fund
Strategic Income Fund Small Cap Value Fund
U.S. Government Income Fund Utility Income Fund

. PAINEWEBBER TAX-FREE . PAINEWEBBER GLOBAL FUNDS
BOND FUNDS
Emerging Markets Equity Fund
California Tax-Free Income Fund Global Equity Fund
Municipal High Income Fund Global Income Fund
National Tax-Free Income Fund
New York Tax-Free Income Fund . PAINEWEBBER MONEY MARKET FUND

. PAINEWEBBER ASSET
ALLOCATION FUNDS

Balanced Fund
Tactical Allocation Fund

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