<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
ANNUAL REPORT
PERFORMANCE AT A GLANCE
- --------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber Tactical
Allocation Fund (C) and the S&P 500 Index.
7/92 $10,000 $10,000
8/92 9,790 9,790
8/93 11,023 11,023
8/94 11,404 11,404
8/95 13,409 13,409
8/96 15,632 15,632
8/97 22,277 25,124
PaineWebber Tactical Allocation Fund Class C S&P 500 Index
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the
class shown based on the difference in sales charges and fees paid by
shareholders investing in different classes.
The graph depicts the performance of PaineWebber Tactical Allocation Fund (C)
versus the S&P 500 Index. It is important to note PaineWebber Tactical
Allocation Fund is a professionally managed mutual fund while the index is
not available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Commencement of
Twelve Months Five Years Operations
Ended 8/31/97 Ended 8/31/97 Through 8/31/97+
<S> <C> <C> <C> <C>
Class A* 39.26% N/A 19.06%
% Return Without Deducting Class B** 38.14% N/A 25.46%
Maximum Sales Charge Class C*** 38.20% 17.13% 16.96%
Class A* 33.01% N/A 17.79%
% Return After Deducting Class B** 33.14% N/A 23.24%
Maximum Sales Charge Class C*** 37.20% 17.13% 16.96%
</TABLE>
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 1.0% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1
distribution and service fees.
+ Commencement of issuance dates are May 10, 1993, January 30, 1996 and
July 22, 1992 for Class A, Class B and Class C shares, respectively.
++ For the period August 31, 1996 through August 31, 1997. Lipper ranked the
Fund's Class A Shares #5 of 201 flexible portfolio funds. For the life
period (May 10, 1993 through August 31, 1997), Class A shares ranked in
the first quartile (#4 of 70 funds). Class C Shares: For the period from
August 31, 1996 through August 31, 1997 and for the life period (July 22,
1992 through August 31, 1997), Class C shares ranked in the first
quartile (#6 of 201 funds and #6 of 57 funds, respectively). Rankings do
not account for sales charges; if included, rankings may differ.
Note: The Fund offers Class Y shares to a limited group of eligible investors,
including the trustee of the PaineWebber Savings Investment Plan and INSIGHT
Investment Advisory Program participants. For the year ended August 31, 1997,
and since inception, May 10, 1993 through August 31, 1997, Class Y shares have
an average annual return of 39.55% and 19.37%, respectively. Class Y shares do
not have initial or contingent deferred sales charges or ongoing distribution
and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
1
<PAGE>
ANNUAL REPORT
October 15, 1997
Dear Shareholder,
We are pleased to present the annual report for PaineWebber Tactical Allocation
Fund for the year ended August 31, 1997.
PAINEWEBBER TACTICAL ALLOCATION FUND
FUND PROFILE
GOAL:
Total return consisting of long-term capital appreciation and current income
PORTFOLIO MANAGER:
T. Kirkham Barneby,
MH Asset
Management Inc.
TOTAL NET ASSETS:
$680.1 million as of
August 31, 1997
DIVIDEND PAYMENTS:
Annually
GENERAL MARKET OVERVIEW
- -------------------------------------------------------------------------------
[GRAPHIC]
Early in the fiscal year, an improved inflationary environment and the
stability of dividend growth prospects, among other factors, indicated that
the stock market was attractive when compared to the one-year U.S. Treasury
bill. The positive outlook for stocks carried into 1997 as expectations for
continued moderate inflation and corporate profit growth, based on modest
economic growth, persisted. Although early spring was characterized by a rise
in the yield of the one-year U.S. Treasury bill and negative action in equity
prices, an improved outlook for corporate earnings and future dividend growth
continued to bode well for the relative attractiveness of the stock market.
More recently, a decline in the one-year U.S. Treasury bill yield, combined
with some improvement in dividend growth expectations, further bolstered the
case for equities.
PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
[GRAPHIC]
PERFORMANCE--Tactical Allocation Fund's total return (the net asset value
change with dividends reinvested) for the year ended August 31, 1997, without
deducting sales charges, was 39.26% for Class A shares, 38.14% for Class B
shares, 38.20% for Class C shares and 39.55% for Class Y shares. For
shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may have been lower; for example, after deducting the
maximum applicable sales charges, the Fund's total return for the period was
33.01% for Class A shares, 33.14% for Class B shares, 37.20% for Class C
shares and 39.55% for Class Y shares.
Over the fiscal year ended August 31, 1997, the Fund's Class A shares
easily outperformed the 23.19% return of its Lipper Flexible Portfolio Funds
Peer Group Average (which ranks the Fund in the first quartile within its
peer group of 201 funds++), and performed on a par with the 40.62% return of
its benchmark, the Standard & Poor's 500 Index. The Fund was fully invested
in stocks the entire fiscal year, a position that enabled the Fund to benefit
in an environment characterized by the stock market's stellar performance.
2
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
ANNUAL REPORT
PAINEWEBBER TACTICAL ALLOCATION FUND
Top Five Sectors (as a % of net assets as of August 31, 1997)
Financial 16.0%
Technology 16.0%
Consumer Cyclical 12.2%
Health Care 11.6%
Consumer Non-Cyclical 10.7%
PORTFOLIO POSITIONING--To determine the Fund's asset mix between an equity
portion designed to track the performance of the S&P 500 and a bond portion
consisting of either bonds (five-year U.S. Treasury notes) or cash (30-day
U.S. Treasury bills), management employs the Tactical Allocation Model. This
quantitative model calculates the risk premiums (the likely return advantage)
of stocks and bonds relative to a "risk-free" asset (the one-year U.S.
Treasury bill) or cash. The expected return of the stock market is compared
with that of the risk-free asset to determine the equity risk premium ("ERP").
Historically, the ERP has averaged about five percentage points per year. When
the ERP is 5.5% or greater, the Fund is fully invested in stocks. If the ERP
falls below the 5.50% hurdle, the Model is signaling that the expected return
of the stock market is not fully compensating investors for the expected
risk. Thus, some or all of the Fund's assets will be shifted to bonds or cash.
For every 0.5% that the ERP drops below 5.5%, the Model will signal that
another 25% of the Fund's assets should be shifted out of stocks. This
determination is made on the first trading day of each month.
While the Fund's goal is to be fully invested in stocks in periods of
strongly positive market performance and to avoid or reduce exposure to the
stock market during prolonged or significant market downturns, there is no
guarantee that the Model will correctly anticipate major market declines or
indicate the correct time to invest in stocks.
As of August 31, 1997, the Model's ERP was 5.86%--above the 5.5% hurdle
required for total stock allocation. Several factors influenced the ERP's
level, including the relative consistency of dividend growth projections and a
continued moderate inflationary environment. These factors indicated that the
equity market was more attractive when compared to an alternative "risk-free"
investment. Therefore, the Fund's assets remained fully invested in stocks
during the fiscal year, except for a small amount of assets kept in cash to
satisfy operating needs.
OUTLOOK
- -------------------------------------------------------------------------------
[GRAPHIC]
The Tactical Allocation Model will continue to be driven by short-term
interest rates, dividend growth expectations and market price levels. Going
forward, three conditions -- individually or in various combinations -- could
cause the equity risk premium to move below 5.5% and signal the start of a
movement away from stocks:
- - Short-term interest rates moving to significantly higher levels;
- - An increased expectation for the economy to dip into recession;
- - An excessive S&P 500 price-earnings multiple.
3
<PAGE>
ANNUAL REPORT
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued
support, and welcome any comments or questions you may have.
Sincerely,
/s/ MARGO N. ALEXANDER /s/ T. KIRKHAM BARNEBY
MARGO N. ALEXANDER T. KIRKHAM BARNEBY
President, Managing Director and Chief
Mitchell Hutchins Investment Officer--Quantitative
Asset Management Inc. Investments, Mitchell Hutchins
Asset Management Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended August 31, 1997 and reflects our views
at the time we are writing this report. Of course, these views may change in
response to changing circumstances. We encourage you to consult your
investment executive regarding your personal investment program.
++For additional performance information, see page 1.
4
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN1
---------------------------------------- -----------------------------------
12 MONTHS 6 MONTHS
08/31/97 02/28/97 08/31/96 ENDED 08/31/97 ENDED 08/31/97
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Class A Shares $22.23 $19.45 $ 16.15 39.26% 14.29%
- ---------------------------------------------------------------------------------------------------------------
Class B Shares 22.08 19.40 16.13 38.14 13.81
- ---------------------------------------------------------------------------------------------------------------
Class C Shares 22.18 19.48 16.12 38.20 13.86
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
05/10/93-12/31/93 $12.90 $ 13.49 $ 0.0440 $ 0.1980 6.48%
- ---------------------------------------------------------------------------------------------------------------
1994 13.49 12.20 0.9720 0.2340 (0.59)
- ---------------------------------------------------------------------------------------------------------------
1995 12.20 15.16 1.0555 0.2407 35.12
- ---------------------------------------------------------------------------------------------------------------
1996 15.16 18.21 0.0811 0.1358 21.53
- ---------------------------------------------------------------------------------------------------------------
01/01/97-08/31/97 18.21 22.23 -- -- 22.08
- ---------------------------------------------------------------------------------------------------------------
Totals: $ 2.1526 $ 0.8085
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/97: 112.21%
- ---------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
----------------------
CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
1/30/96-12/31/96 $15.54 $ 18.18 $ 0.0811 $ 0.0879 18.06%
- ---------------------------------------------------------------------------------------------------------------
01/01/97-08/31/97 18.18 22.08 -- -- 21.45
- ---------------------------------------------------------------------------------------------------------------
Totals: $ 0.0811 $ 0.0879
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/97: 43.39%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
07/22/92-12/31/92 $12.00 $ 12.72 $ 0.0020 $ 0.0790 6.67%
- ---------------------------------------------------------------------------------------------------------------
1993 12.72 13.51 0.0440 0.1340 7.64
- ---------------------------------------------------------------------------------------------------------------
1994 13.51 12.23 0.9720 0.1300 (1.28)
- ---------------------------------------------------------------------------------------------------------------
1995 12.23 15.20 1.0555 0.1259 34.09
- ---------------------------------------------------------------------------------------------------------------
1996 15.20 18.26 0.0811 0.0008 20.66
- ---------------------------------------------------------------------------------------------------------------
01/01/97-08/31/97 18.26 22.18 -- -- 21.47
- ---------------------------------------------------------------------------------------------------------------
Totals: $ 2.1546 $ 0.4697
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/97: 122.77%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
1 Figures assume reinvestment of all dividends and capital gain distributions
at net asset value on the payable dates and do not include sales charges;
results for each class would be lower if sales charges were included.
Note: The Fund offers Class Y shares to a limited group of eligible investors,
including the trustee of the PaineWebber Savings Investment Plan and INSIGHT
Investment Advisory Program participants. For the year ended August 31, 1997,
and since inception, May 10, 1993 through August 31, 1997, Class Y shares had a
total return of 39.55% and 114.62%, respectively. Class Y shares do not have
initial or contingent deferred sales charges or ongoing distribution and service
fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
5
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
COMMON STOCKS--100.05%
AGRICULTURE, FOOD & BEVERAGE--5.54%
54,900 Archer-Daniels-Midland
Company..................... $ 1,187,203
45,300 Campbell Soup Company......... 2,100,787
23,400 Conagra, Incorporated......... 1,504,912
13,900 CPC International,
Incorporated................ 1,238,838
15,600 General Mills, Incorporated... 1,000,350
35,650 Heinz, H. J. and Company...... 1,483,931
14,100 Hershey Foods Corporation..... 752,588
40,500 Kellogg Company............... 1,812,375
149,200 Pepsico, Incorporated......... 5,371,200
8,100 Pioneer Hi-Bred International,
Incorporated................ 694,069
14,100 Quaker Oats Company........... 662,700
10,300 Ralston Purina Company........ 927,000
6,900 Supervalue, Incorporated...... 270,825
17,500 Sysco Corporation............. 621,250
241,900 The Coca-Cola Company......... 13,863,894
15,500 Unilever N.V.................. 3,119,375
10,800 Whitman Corporation........... 264,600
11,400 Wrigley, Wm. Jr. Company...... 826,500
-------------
37,702,397
-------------
AIRLINES--0.33%
8,900 AMR Corporation*.............. 896,675
7,500 Delta Air Lines,
Incorporated................ 648,750
14,300 Southwest Airlines Company.... 400,400
7,700 USAir Group, Incorporated*.... 262,763
-------------
2,208,588
-------------
ALCOHOL--0.36%
48,700 Anheuser-Busch Companies,
Incorporated................ 2,075,838
7,400 Brown Forman Corporation...... 357,050
-------------
2,432,888
-------------
APPAREL, RETAIL--0.49%
26,800 Gap, Incorporated............. 1,190,925
7,300 Harcourt General,
Incorporated................ 347,206
26,619 Limited, Incorporated......... 605,583
8,000 Nordstrom, Incorporated....... 468,000
15,500 TJX Companies, Incorporated... 426,250
14,000 Woolworth Corporation*........ 313,250
-------------
3,351,214
-------------
APPAREL, TEXTILES--0.71%
8,500 Fruit of the Loom,
Incorporated*............... 227,375
7,500 Liz Claiborne, Incorporated... 334,219
28,500 Nike Incorporated............. 1,521,188
5,900 Reebok International
Limited*.................... 259,231
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
APPAREL, TEXTILES--(CONCLUDED)
<TABLE>
<C> <S> <C>
46,800 Sara Lee Corporation.......... $ 1,883,700
6,800 V. F. Corporation............. 600,950
-------------
4,826,663
-------------
BANKS--7.98%
55,889 Banc One Corporation(1)....... 2,997,048
14,300 Bank of Boston Corporation.... 1,188,688
37,700 Bank of New York Company
Incorporated................ 1,682,362
69,000 BankAmerica Corporation....... 4,541,062
7,600 Bankers Trust New York
Corporation................. 788,500
19,600 Barnett Banks Incorporated.... 1,335,250
45,100 Citicorp...................... 5,755,887
10,600 Comerica, Incorporated........ 750,613
20,200 Corestates Financial
Corporation................. 1,242,300
15,800 Fifth Third Bancorp........... 924,300
30,572 First Chicago Corporation..... 2,193,541
55,870 First Union Corporation....... 2,685,252
25,516 Fleet Financial Group,
Incorporated................ 1,644,187
16,400 Huntington Bancshares,
Incorporated................ 530,950
17,800 J.P. Morgan & Company,
Incorporated................ 1,909,050
21,740 KeyCorp....................... 1,317,988
25,100 Mellon Bank Corporation....... 1,207,938
21,600 National City Corporation..... 1,220,400
71,042 NationsBank Corporation....... 4,218,119
36,200 Norwest Corporation........... 2,079,237
31,500 PNC Bank Corporation.......... 1,362,375
5,600 Republic New York
Corporation................. 599,550
16,100 State Street Corporation...... 802,988
21,700 Suntrust Banks,
Incorporated................ 1,356,250
41,720 The Chase Manhattan
Corporation................. 4,638,742
23,815 US Bancorp, Incorporated...... 2,085,301
15,900 Wachovia Corporation.......... 989,775
8,766 Wells Fargo and Company....... 2,228,755
-------------
54,276,408
-------------
CHEMICALS--3.32%
10,800 Air Products & Chemicals,
Incorporated................ 880,875
7,600 Ashland, Incorporated......... 380,950
10,400 Avery Dennison Corporation.... 427,050
22,600 Dow Chemical Company.......... 2,000,100
110,200 DuPont (E.I.) de Nemours &
Company..................... 6,866,837
7,900 Eastman Chemical Company...... 472,519
15,250 Engelhard Corporation......... 318,344
3,800 FMC Corporation*.............. 315,638
6,100 Goodrich, B.F. Company........ 256,963
7,300 Grace, W.R. & Company......... 502,331
6,000 Great Lakes Chemical
Corporation................. 279,000
</TABLE>
6
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS--(CONTINUED)
CHEMICALS--(CONCLUDED)
<TABLE>
<C> <S> <C>
9,900 Hercules, Incorporated........ $ 511,706
10,700 International Flavors and
Fragrances.................. 547,037
4,900 Kerr-Mcgee Corporation........ 304,413
57,800 Monsanto Company.............. 2,539,587
14,000 Morton International,
Incorporated................ 465,500
6,900 Nalco Chemical Company........ 276,000
33,200 Occidental Petroleum
Corporation................. 778,125
17,700 PPG Industries,
Incorporated................ 1,115,100
15,500 Praxair, Incorporated......... 828,281
6,100 Rohm & Haas Company........... 584,456
17,600 Sherwin Williams Company...... 482,900
17,200 Tenneco, Incorporated......... 835,275
12,400 Union Carbide Corporation..... 636,275
-------------
22,605,262
-------------
COMPUTER HARDWARE--5.91%
32,600 3Com Corporation*............. 1,627,962
13,500 Apple Computer,
Incorporated*............... 293,625
19,800 Bay Networks, Incorporated*... 700,425
15,600 Cabletron Systems,
Incorporated*............... 471,900
65,000 Cisco Systems,
Incorporated*............... 4,899,375
67,150 Compaq Computer
Corporation*................ 4,398,325
32,800 Dell Computer Corporation*.... 2,691,650
15,400 Digital Equipment
Corporation*................ 662,200
24,300 EMC Corporation*.............. 1,246,894
99,500 Hewlett-Packard Company....... 6,100,594
97,300 International Business
Machines.................... 9,815,137
14,600 Pitney Bowes, Incorporated.... 1,115,075
24,200 Seagate Technology,
Incorporated*............... 924,137
17,700 Silicon Graphics,
Incorporated*............... 485,644
36,300 Sun Microsystems
Incorporated*............... 1,742,400
11,900 Tandem Computers,
Incorporated*............... 404,600
18,700 Unisys Corporation*........... 211,544
31,900 Xerox Corporation............. 2,408,450
-------------
40,199,937
-------------
COMPUTER SOFTWARE--3.46%
7,100 Adobe Systems, Incorporated... 279,562
4,800 Autodesk, Incorporated........ 210,000
35,475 Computer Associates
International
Incorporated................ 2,372,391
117,100 Microsoft Corporation*........ 15,479,156
35,600 Novell, Incorporated*......... 333,750
95,713 Oracle Systems Corporation*... 3,649,039
12,500 Parametric Technology
Corporation*................ 580,469
15,000 Thermo Electron
Corporation*................ 603,750
-------------
23,508,117
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
CONSTRUCTION, REAL PROPERTY--0.24%
4,300 Armstrong World Industries,
Incorporated................ $ 294,281
3,200 Centex Corporation............ 174,000
8,300 Fluor Corporation............. 465,838
16,200 Masco Corporation............. 719,887
-------------
1,654,006
-------------
CONSUMER DURABLES--0.11%
10,400 Maytag Corporation............ 285,350
7,700 Whirlpool Corporation......... 440,825
-------------
726,175
-------------
DEFENSE/AEROSPACE--1.92%
27,700 Allied-Signal, Incorporated... 2,286,981
97,078 Boeing Company................ 5,284,684
6,400 General Dynamics
Corporation................. 509,600
18,830 Lockheed Martin Corporation... 1,952,436
6,600 Northrop Grumman
Corporation................. 772,612
23,000 Raytheon Company.............. 1,265,000
16,300 Textron Incorporated.......... 1,015,694
-------------
13,087,007
-------------
DIVERSIFIED RETAIL--2.38%
21,200 Dayton Hudson Corporation..... 1,208,400
11,500 Dillard Department Stores,
Incorporated................ 460,000
20,500 Federated Department Stores,
Incorporated*............... 861,000
48,700 K Mart Corporation*........... 675,712
23,100 May Department Stores
Company..................... 1,243,069
4,000 Mercantile Stores,
Incorporated................ 249,750
24,200 Penney, J.C., Incorporated.... 1,452,000
38,400 Sears Roebuck & Company....... 2,179,200
221,100 Wal Mart Stores,
Incorporated(1)............. 7,849,050
-------------
16,178,181
-------------
DRUGS & MEDICINE--6.86%
6,900 Allergan, Incorporated........ 223,388
8,700 Alza Corporation*............. 252,300
62,600 American Home Products
Corporation................. 4,507,200
25,900 Amgen, Incorporated*(1)....... 1,283,669
97,500 Bristol-Myers Squibb
Company..................... 7,410,000
10,800 Cardinal Health
Incorporated................ 715,500
54,280 Lilly, Eli & Company.......... 5,679,045
117,800 Merck & Company,
Incorporated................ 10,815,512
126,100 Pfizer, Incorporated.......... 6,982,787
49,690 Pharmacia & Upjohn
Incorporated(1)............. 1,692,566
71,400 Schering-Plough Corporation... 3,427,200
</TABLE>
7
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS--(CONTINUED)
DRUGS & MEDICINE--(CONCLUDED)
<TABLE>
<C> <S> <C>
10,100 Sigma Aldrich Corporation..... $ 329,513
26,500 Warner Lambert Company........ 3,367,156
-------------
46,685,836
-------------
ELECTRIC UTILITIES--2.42%
18,200 American Electric Power,
Incorporated................ 795,112
14,800 Baltimore Gas & Electric
Company..................... 399,600
14,600 Carolina Power & Light
Company..................... 492,750
21,700 Central & South West
Corporation................. 448,919
15,425 Cinergy Corporation........... 509,989
22,800 Consolidated Edison Company of
New York, Incorporated...... 698,250
17,900 Dominion Resources,
Incorporated................ 644,400
14,600 DTE Energy Company............ 432,525
34,106 Duke Power Company............ 1,652,009
39,000 Edison International,
Incorporated................ 940,875
23,700 Entergy Corporation........... 588,056
17,400 FPL Group, Incorporated....... 809,100
12,100 General Public Utilities
Corporation................. 406,863
35,396 Houston Industries,
Incorporated................ 716,769
6,800 Northern States Power
Company..................... 327,250
16,000 Ohio Edison Company........... 352,000
28,500 PacifiCorp.................... 591,375
22,400 PECO Energy Company........... 533,400
17,400 Pennsylvania Power & Light
Company..................... 381,713
42,900 PG&E Corporation.............. 994,744
23,200 Public Service Enterprise
Group, Incorporated......... 575,650
65,900 Southern Company(1)........... 1,388,019
23,853 Texas Utilities Company....... 831,873
22,900 Unicom Corporation............ 541,012
10,200 Union Electric Company........ 379,313
-------------
16,431,566
-------------
ELECTRICAL EQUIPMENT--2.42%
11,600 DSC Communications
Corporation*................ 337,850
7,700 Eaton Corporation............. 693,481
4,100 Harris Corporation............ 357,213
12,400 Honeywell, Incorporated....... 857,150
8,700 Johnson Controls,
Incorporated................ 414,881
62,780 Lucent Technologies
Incorporated(1)............. 4,888,992
4,600 Millipore Corporation......... 227,700
58,000 Motorola Incorporated......... 4,255,750
15,000 Nextlevel Systems
Incorporated*............... 300,938
25,500 Northern Telecommunications
Limited..................... 2,527,687
4,500 Perkin Elmer Corporation...... 333,000
3,400 Tektronix, Incorporated....... 188,913
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
ELECTRICAL EQUIPMENT--(CONCLUDED)
<TABLE>
<C> <S> <C>
17,800 Tellabs, Incorporated*........ $ 1,062,437
-------------
16,445,992
-------------
ELECTRICAL POWER--4.23%
21,384 AMP, Incorporated............. 1,069,200
9,155 Andrew Corporation*........... 227,731
11,700 Cooper Industries,
Incorporated................ 623,756
43,500 Emerson Electric Company...... 2,378,906
4,100 Foster Wheeler Corporation.... 187,319
319,800 General Electric Company...... 19,987,500
5,400 General Signal Corporation.... 234,225
5,300 Grainger,W.W., Incorporated... 470,706
4,400 Raychem Corporation........... 409,475
20,700 Rockwell International
Corporation................. 1,242,000
5,600 Thomas & Betts Corporation.... 313,600
62,600 Westinghouse Electric
Corporation................. 1,611,950
-------------
28,756,368
-------------
ENERGY RESERVES & PRODUCTION--7.50%
48,000 Amoco Corporation............. 4,539,000
5,800 Anadarko Petroleum
Corporation................. 425,937
9,000 Apache Corporation............ 357,188
31,200 Atlantic Richfield Company.... 2,340,000
12,400 Burlington Resources,
Incorporated................ 627,750
64,000 Chevron Corporation........... 4,956,000
242,501 Exxon Corporation(1).......... 14,837,978
3,600 Louisiana Land & Exploration
Company..................... 275,625
76,800 Mobil Corporation............. 5,587,200
11,300 Oryx Energy Company*.......... 298,744
4,900 Pennzoil Company.............. 378,219
25,800 Phillips Petroleum Company.... 1,227,112
209,200 Royal Dutch Petroleum
Company..................... 10,616,900
25,800 Texaco, Incorporated.......... 2,973,450
24,936 Union Pacific Resources Group
Incorporated................ 623,400
24,900 Unocal Corporation............ 972,656
-------------
51,037,159
-------------
ENTERTAINMENT--1.52%
65,600 Disney, Walt Company.......... 5,038,900
4,400 King World Productions,
Incorporated................ 174,900
37,000 Seagram Company Limited....... 1,292,688
54,600 Time Warner Incorporated...... 2,811,900
35,349 Viacom, Incorporated, Class
B*.......................... 1,047,214
-------------
10,365,602
-------------
</TABLE>
8
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS--(CONTINUED)
<TABLE>
<C> <S> <C>
ENVIRONMENTAL SERVICES--0.33%
21,800 Browning Ferris Industries,
Incorporated................ $ 761,638
45,500 Waste Management
Incorporated................ 1,456,000
-------------
2,217,638
-------------
FINANCIAL SERVICES--2.36%
46,100 American Express Company...... 3,584,275
16,300 Aon Corporation............... 830,281
5,400 Beneficial Corporation........ 386,437
10,800 Countrywide Credit Industries,
Incorporated................ 363,825
68,300 Federal Home Loan Mortgage
Corporation................. 2,224,019
103,500 Federal National Mortgage
Association................. 4,554,000
13,700 Green Tree Financial
Corporation................. 601,944
10,400 Household International,
Incorporated................ 1,153,750
16,100 Marsh & McLennan Companies,
Incorporated................ 1,098,825
32,800 MBNA Corporation.............. 1,260,750
-------------
16,058,106
-------------
FOREST PRODUCTS, PAPER--1.58%
5,600 Bemis, Incorporated........... 246,050
5,700 Boise Cascade Corporation..... 225,506
9,700 Champion International
Corporation................. 574,119
19,000 Fort James Corporation........ 798,000
8,900 Georgia-Pacific Corporation... 812,125
13,700 Ikon Office Solutions
Incorporated................ 356,200
29,400 International Paper Company... 1,550,850
54,320 Kimberly Clark Corporation.... 2,576,805
11,500 Louisiana Pacific
Corporation................. 254,438
5,500 Mead Corporation.............. 390,156
11,000 Stone Container Corporation... 189,750
5,600 Temple-Inland, Incorporated... 361,200
7,500 Union Camp Corporation........ 444,844
11,300 Westvaco Corporation.......... 382,787
19,200 Weyerhaeuser Company.......... 1,108,800
5,600 Willamette Industries,
Incorporated................ 446,600
-------------
10,718,230
-------------
FOOD RETAIL--0.44%
24,900 Albertson's, Incorporated..... 855,937
27,300 American Stores Company....... 646,669
7,000 Giant Food, Incorporated,
Class A..................... 227,500
25,000 Kroger Company*............... 753,125
15,200 Winn Dixie Stores,
Incorporated................ 512,050
-------------
2,995,281
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
FREIGHT, AIR, SEA, LAND--0.11%
11,300 Federal Express
Corporation*................ $ 750,744
-------------
GAS UTILITY--0.27%
5,700 Columbia Gas System,
Incorporated................ 376,200
9,400 Consolidated Natural Gas
Company..................... 555,188
5,500 NICOR, Incorporated........... 199,719
8,800 Pacific Enterprises........... 289,850
8,500 Sonat, Incorporated........... 423,406
-------------
1,844,363
-------------
HEAVY MACHINERY--0.75%
10,300 Brunswick Corporation......... 314,150
7,500 Case Corporation.............. 502,969
37,000 Caterpillar, Incorporated..... 2,148,312
4,000 Cummins Engine Company,
Incorporated................ 307,750
25,100 Deere & Company............... 1,405,600
5,200 Harnischfeger Industries
Incorporated................ 208,650
6,100 McDermott International,
Incorporated................ 196,725
-------------
5,084,156
-------------
HOTELS--0.57%
10,550 Harrah's Entertainment
Incorporated*............... 236,716
15,600 HFS, Incorporated*............ 868,725
24,700 Hilton Hotels Corporation..... 757,981
11,500 ITT Corporation*.............. 722,344
12,700 Marriott International,
Incorporated................ 845,344
17,800 Mirage Resorts,
Incorporated*............... 477,262
-------------
3,908,372
-------------
HOUSEHOLD PRODUCTS--2.79%
6,700 Alberto Culver Company........ 195,556
12,900 Avon Products Incorporated.... 826,406
5,100 Clorox Company................ 669,375
28,700 Colgate-Palmolive Company..... 1,800,925
17,100 Fortune Brands Incorporated... 587,812
54,300 Gillette Company(1)........... 4,496,719
5,000 National Services Industries,
Incorporated................ 221,250
15,600 Newell Company................ 614,250
5,700 Owens-Corning Fiberglass...... 231,206
65,900 Procter & Gamble Company...... 8,768,819
15,100 Rubbermaid, Incorporated...... 377,500
6,200 Tupperware Corporation........ 208,088
-------------
18,997,906
-------------
INDUSTRIAL PARTS--1.07%
9,500 Black & Decker Corporation.... 363,969
5,000 Crane Company................. 220,625
</TABLE>
9
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS--(CONTINUED)
INDUSTRIAL PARTS--(CONCLUDED)
<TABLE>
<C> <S> <C>
11,000 Dover Corporation............. $ 759,687
18,350 Genuine Parts Company......... 566,556
24,600 Illinois Tool Works,
Incorporated................ 1,190,025
10,900 Ingersoll Rand Company........ 655,362
12,966 Pall Corporation.............. 307,132
7,500 Parker-Hannifin Corporation... 482,344
6,450 Snap-On, Incorporated......... 270,900
9,000 Stanley Works................. 383,063
6,900 Timken Company................ 258,319
23,100 United Technologies
Corporation................. 1,803,244
-------------
7,261,226
-------------
INDUSTRIAL SERVICES/SUPPLIES--0.23%
40,225 CUC International,
Incorporated*............... 945,287
6,700 Ecolab, Incorporated.......... 301,919
8,000 Ryder Systems, Incorporated... 285,500
-------------
1,532,706
-------------
INFORMATION & COMPUTER SERVICES--1.03%
28,600 Automatic Data Processing,
Incorporated................ 1,303,087
10,400 Block, H&R, Incorporated...... 408,200
8,200 Ceridian Corporation*......... 283,413
16,600 Cognizant Corporation......... 697,200
7,600 Computer Sciences
Corporation*................ 565,250
9,700 Dow Jones & Company,
Incorporated................ 415,281
16,600 Dun & Bradstreet
Corporation................. 464,800
15,100 Equifax Incorporated.......... 444,506
44,000 First Data Corporation........ 1,806,750
12,200 Interpublic Group Companies,
Incorporated................ 594,750
-------------
6,983,237
-------------
LEISURE--0.54%
32,100 Eastman Kodak Company......... 2,098,537
12,900 Hasbro, Incorporated.......... 346,688
28,583 Mattel Incorporated........... 955,744
4,800 Polaroid Corporation.......... 253,500
-------------
3,654,469
-------------
LIFE INSURANCE--1.08%
14,997 Aetna Life & Casualty
Company..................... 1,431,276
23,788 American General
Corporation................. 1,146,284
18,100 Conseco Incorporated.......... 778,300
7,150 Jefferson-Pilot Corporation... 497,372
10,100 Lincoln National
Corporation................. 676,069
9,500 Providian Corporation......... 353,875
12,900 SunAmerica Incorporated....... 694,987
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
LIFE INSURANCE--(CONCLUDED)
<TABLE>
<C> <S> <C>
13,700 Torchmark, Incorporated....... $ 516,319
6,600 Transamerica Corporation...... 650,513
13,700 UNUM Corporation.............. 565,125
-------------
7,310,120
-------------
LONG DISTANCE & PHONE COMPANIES--5.50%
18,700 Alltel Corporation............ 591,387
53,400 Ameritech Corporation......... 3,347,512
158,400 AT&T Corporation(1)........... 6,177,600
75,802 Bell Atlantic
Corporation(1).............. 5,486,170
96,900 BellSouth Corporation......... 4,263,600
17,000 Frontier Corporation.......... 375,063
92,800 GTE Corporation............... 4,135,400
67,500 MCI Communications
Corporation................. 1,923,750
88,751 SBC Communications,
Incorporated................ 4,825,836
42,200 Sprint Corporation............ 1,983,400
47,100 US West Communications
Group....................... 1,686,769
88,200 WorldCom, Incorporated*(1).... 2,640,487
-------------
37,436,974
-------------
MEDIA--0.40%
34,700 Comcast Corporation, Class A
Special..................... 813,281
8,000 Scientific-Atlanta,
Incorporated................ 174,000
65,600 Tele-Communications,
Incorporated Class A*....... 1,148,000
12,000 Tribune Company............... 593,250
-------------
2,728,531
-------------
MEDICAL PRODUCTS--3.67%
75,200 Abbott Laboratories........... 4,507,300
5,800 Bard, C.R. Incorporated....... 200,100
5,700 Bausch & Lomb, Incorporated... 234,056
27,000 Baxter International,
Incorporated................ 1,436,063
12,000 Becton, Dickinson & Company... 575,250
11,200 Biomet, Incorporated.......... 232,400
19,100 Boston Scientific
Corporation*(1)............. 1,346,550
7,300 Guidant Corporation........... 641,031
129,700 Johnson & Johnson............. 7,352,369
7,600 Mallinckrodt Group,
Incorporated................ 276,450
23,300 Medtronic, Incorporated....... 2,105,737
40,300 Minnesota Mining &
Manufacturing Company....... 3,621,962
8,800 St. Jude Medical,
Incorporated................ 334,950
23,900 Tyco International Limited.... 1,874,656
7,400 U.S. Surgical Corporation..... 243,738
-------------
24,982,612
-------------
</TABLE>
10
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS--(CONTINUED)
<TABLE>
<C> <S> <C>
MEDICAL PROVIDERS--1.08%
11,800 Beverly Enterprises*.......... $ 192,488
65,227 Columbia/HCA Healthcare
Corporation................. 2,058,727
22,500 Corning, Incorporated......... 1,189,687
33,700 HEALTHSOUTH Corporation*...... 840,394
16,300 Humana Incorporated*.......... 384,069
6,500 Manor Care, Incorporated...... 200,688
23,700 Service Corporation
International............... 758,400
29,600 Tenet Healthcare
Corporation*................ 806,600
18,300 United Healthcare
Corporation................. 889,837
-------------
7,320,890
-------------
MINING & METALS--1.02%
22,900 Alcan Aluminum Limited........ 800,069
17,000 Aluminum Company of America... 1,398,250
5,200 Asarco, Incorporated.......... 159,900
12,700 Crown Cork & Seal,
Incorporated................ 646,112
10,900 Cyprus Amax Minerals
Company..................... 275,225
20,900 Freeport-McMoran Copper &
Gold, Incorporated.......... 585,200
17,200 Inco Limited.................. 465,475
9,200 Nucor Corporation............. 521,525
13,900 Owens Illinois
Incorporated*............... 483,894
6,200 Phelps Dodge Corporation...... 498,712
7,700 Reynolds Metals Company....... 544,294
9,900 USX-U.S. Steel Group,
Incorporated................ 347,737
11,500 Worthington Industries,
Incorporated................ 213,469
-------------
6,939,862
-------------
MOTOR VEHICLES AND PARTS--2.26%
67,600 Chrysler Corporation.......... 2,374,450
8,300 Cooper Tire & Rubber
Company..................... 208,538
10,500 DANA Corporation.............. 483,656
6,800 Echlin, Incorporated.......... 252,025
116,300 Ford Motor Company............ 5,000,900
71,400 General Motors Corporation.... 4,480,350
15,200 Goodyear Tire & Rubber
Company..................... 936,700
12,500 ITT Industries Incorporated... 393,750
8,100 Navistar International
Corporation*................ 200,981
8,030 Paccar, Incorporated.......... 380,421
12,500 TRW, Incorporated............. 651,563
-------------
15,363,334
-------------
OIL REFINING--0.69%
9,800 Amerada Hess Corporation...... 569,625
10,600 Coastal Corporation........... 612,150
29,400 Enron Corporation............. 1,133,737
7,892 Sun Company, Incorporated..... 306,802
28,300 USX-Marathon Group............ 921,519
5,400 Western Atlas,
Incorporated*............... 427,950
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
OIL REFINING--(CONCLUDED)
<TABLE>
<C> <S> <C>
15,650 Williams Companies,
Incorporated................ $ 728,703
-------------
4,700,486
-------------
OIL SERVICES--0.98%
16,000 Baker Hughes, Incorporated.... 678,000
17,200 Dresser Industries,
Incorporated................ 718,100
24,800 Halliburton Company........... 1,184,200
2,700 Helmerich & Payne
Incorporated................ 190,687
8,800 Rowan Companies,
Incorporated*............... 262,900
48,000 Schlumberger Limited.......... 3,657,000
-------------
6,690,887
-------------
OTHER INSURANCE--2.77%
43,042 Allstate Corporation.......... 3,144,756
68,300 American International Group
Incorporated................ 6,445,812
17,300 Chubb Corporation............. 1,156,938
7,200 CIGNA Corporation............. 1,320,300
7,700 General Re Corporation........ 1,492,837
11,500 Hartford Financial Services
Group....................... 917,125
11,200 Loews Corporation............. 1,141,700
4,200 MBIA Incorporated............. 475,650
11,600 MGIC Investment Corporation... 583,625
12,500 SAFECO Corporation............ 614,063
8,100 St. Paul Companies,
Incorporated................ 594,338
7,000 The Progressive Corporation... 693,000
11,100 USF&G Corporation............. 243,506
-------------
18,823,650
-------------
PRECIOUS METALS--0.32%
37,500 Barrick Gold Corporation...... 853,125
17,600 Homestake Mining Company...... 246,400
15,876 Newmont Mining Corporation.... 671,753
25,000 Placer Dome, Incorporated..... 415,625
-------------
2,186,903
-------------
PUBLISHING--0.72%
7,800 American Greetings
Corporation, Class A........ 271,050
8,700 Deluxe Corporation............ 286,556
14,600 Donnelley, R.R. & Sons
Company..................... 568,487
13,700 Gannett, Incorporated......... 1,334,894
9,000 Knight Ridder, Incorporated... 455,625
9,900 McGraw-Hill Companies,
Incorporated................ 606,994
5,800 Meredith Corporation.......... 174,000
10,600 Moore Corporation Limited..... 210,013
9,600 New York Times Company, Class
A........................... 453,600
</TABLE>
11
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS--(CONCLUDED)
PUBLISHING--(CONCLUDED)
<TABLE>
<C> <S> <C>
10,000 Times Mirror Company.......... $ 506,875
-------------
4,868,094
-------------
RAILROADS--0.79%
15,022 Burlington Northern Santa Fe,
Incorporated................ 1,377,329
21,200 CSX Corporation............... 1,212,375
12,200 Norfolk Southern
Corporation................. 1,195,600
24,100 Union Pacific Corporation..... 1,564,994
-------------
5,350,298
-------------
RESTAURANTS--0.54%
18,100 Darden Restaurants,
Incorporated................ 182,131
67,300 McDonalds Corporation......... 3,184,132
13,600 Wendy's International,
Incorporated................ 327,250
-------------
3,693,513
-------------
SECURITIES & ASSET MANAGEMENT--1.47%
17,200 Charles Schwab Corporation.... 729,925
32,300 Merrill Lynch & Company,
Incorporated................ 1,986,450
55,900 Morgan Stanley, Dean Witter,
Discover & Company.......... 2,690,187
10,700 Salomon, Incorporated......... 640,663
62,512 Travelers Group
Incorporated................ 3,969,512
-------------
10,016,737
-------------
SEMICONDUCTOR--3.16%
13,800 Advanced Micro Devices,
Incorporated*............... 516,638
18,080 Allegheny Teldyne,
Incorporated................ 558,220
17,800 Applied Materials,
Incorporated*............... 1,679,875
160,100 Intel Corporation............. 14,749,212
13,900 LSI Logic Corporation*........ 447,406
20,600 Micron Technology,
Incorporated................ 917,988
13,900 National Semiconductor
Corporation*................ 476,075
18,700 Texas Instruments,
Incorporated................ 2,124,787
-------------
21,470,201
-------------
SPECIALTY RETAIL--1.44%
15,000 Autozone Incorporated*........ 423,750
9,900 Circuit City Stores,
Incorporated................ 352,688
20,808 Costco Companies,
Incorporated*............... 750,388
16,500 CVS Corporation............... 930,187
71,000 Home Depot, Incorporated...... 3,350,312
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
SPECIALTY RETAIL--(CONCLUDED)
<TABLE>
<C> <S> <C>
17,100 Lowe's Companies
Incorporated................ $ 591,019
6,600 Pep Boys-Manny, Moe & Jack.... 174,900
12,300 Rite Aid Corporation.......... 615,769
5,500 Tandy Corporation............. 365,063
28,000 Toys R Us, Incorporated*...... 967,750
48,400 Walgreen Company.............. 1,303,775
-------------
9,825,601
-------------
THRIFT--0.36%
10,500 Ahmanson, H F & Company....... 532,875
5,700 Golden West Financial
Corporation................. 469,181
24,230 Washington Mutual,
Incorporated................ 1,450,772
-------------
2,452,828
-------------
TOBACCO--1.60%
236,800 Phillip Morris Companies
Incorporated................ 10,330,400
18,600 UST, Incorporated............. 537,075
-------------
10,867,475
-------------
WIRELESS TELECOMMUNICATIONS--0.43%
49,700 Airtouch Communications,
Incorporated*............... 1,680,481
60,700 US West Media Group*.......... 1,214,000
-------------
2,894,481
-------------
Total Common Stocks (cost--$577,487,293)....... 680,409,277
-------------
INVESTMENTS OF CASH COLLATERAL
FOR SECURITIES LOANED--3.75%
MONEY MARKET FUNDS--3.75%
11,050 Prime Portfolio............... 11,050
4,589,722 TempFund Portfolio............ 4,589,722
20,556,605 Liquid Assets Portfolio....... 20,556,605
356,223 TempCash Portfolio............ 356,223
-------------
25,513,600
Total Investments of Cash Collateral for
Securities Loaned (cost--$25,513,600)..........
-------------
Total Investments
(cost--$603,000,893)--103.80%................ 705,922,877
(25,816,743)
Liabilities in excess of other
assets--(3.80)%................................
-------------
Net Assets--100.00%............................ $ 680,106,134
-------------
-------------
</TABLE>
- -----------------
* Non-Income producing security
(1) Security, or portion thereof, was on loan at August 31, 1997
See accompanying notes to financial statements
12
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost--$603,000,893).... $705,922,877
Receivable for shares of beneficial interest sold........... 5,654,838
Dividends receivable........................................ 1,315,079
Deferred organizational expenses............................ 6,909
Other assets................................................ 20,854
------------
Total assets................................................ 712,920,557
------------
LIABILITIES
Collateral for securities loaned............................ 25,513,600
Payable for investments purchased........................... 3,737,008
Due to custodian............................................ 1,653,742
Payable for shares of beneficial interest repurchased....... 1,031,986
Payable to affiliate........................................ 723,006
Accrued expenses and other liabilities...................... 155,081
------------
Total liabilities........................................... 32,814,423
------------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount
authorized)............................................... 570,440,733
Undistributed net investment income......................... 1,084,753
Accumulated net realized gains from investment
transactions.............................................. 5,658,664
Net unrealized appreciation of investments.................. 102,921,984
------------
Net assets.................................................. $680,106,134
------------
------------
CLASS A:
Net assets.................................................. $170,759,334
------------
Shares outstanding.......................................... 7,681,939
------------
Net asset value and redemption value per share.............. $22.23
------------
------------
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price)........................ $23.28
------------
------------
CLASS B:
Net assets.................................................. $239,835,842
------------
Shares outstanding.......................................... 10,859,819
------------
Net asset value and offering price per share................ $22.08
------------
------------
CLASS C:
Net assets.................................................. $233,043,560
------------
Shares outstanding.......................................... 10,507,445
------------
Net asset value and offering price per share................ $22.18
------------
------------
CLASS Y:
Net assets.................................................. $ 36,467,398
------------
Shares outstanding.......................................... 1,633,116
------------
Net asset value, offering price and redemption value per
share..................................................... $22.33
------------
------------
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
AUGUST 31,
1997
-------------
<S> <C>
INVESTMENT INCOME:
Dividends and interest...................................... $ 6,602,956
-------------
EXPENSES:
Investment advisory and administration...................... 1,756,146
Service fees--Class A....................................... 213,818
Service and distribution fees--Class B...................... 1,071,964
Service and distribution fees--Class C...................... 1,403,684
Transfer agency............................................. 255,177
Custody and accounting...................................... 213,260
Reports and notices to shareholders......................... 137,846
Legal and audit............................................. 64,430
Interest expense............................................ 56,206
Federal and state registration.............................. 49,844
Amortization of organizational expenses..................... 45,040
Trustees' fees.............................................. 15,750
Other expenses.............................................. 21,649
-------------
5,304,814
-------------
NET INVESTMENT INCOME....................................... 1,298,142
-------------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions............. 6,528,545
Net change in unrealized appreciation/depreciation of
investments............................................... 86,240,937
-------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT
ACTIVITIES................................................ 92,769,482
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 94,067,624
-------------
-------------
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED AUGUST 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income....................................... $ 1,298,142 $ 440,621
Net realized gains from investment transactions............. 6,528,545 639,897
Net change in unrealized appreciation/depreciation of
investments............................................... 86,240,937 7,172,338
-------------- --------------
Net increase in net assets resulting from operations........ 94,067,624 8,252,856
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A.............................. (334,066) (21,259)
Net investment income--Class B.............................. (260,230) --
Net investment income--Class C.............................. (4,451) (231,540)
Net investment income--Class Y.............................. (118,419) (26,853)
Net realized gains from investment transactions--Class A.... (199,505) (164,292)
Net realized gains from investment transactions--Class B.... (240,097) --
Net realized gains from investment transactions--Class C.... (451,261) (3,334,342)
Net realized gains from investment transactions--Class Y.... (64,412) (171,644)
-------------- --------------
Total dividends and distributions to shareholders........... (1,672,441) (3,949,930)
-------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares........................ 550,623,261 101,580,239
Cost of shares repurchased.................................. (102,944,924) (23,861,622)
Proceeds from dividends reinvested.......................... 1,553,373 3,902,294
-------------- --------------
Net increase in net assets from beneficial interest
transactions.............................................. 449,231,710 81,620,911
-------------- --------------
Net increase in net assets.................................. 541,626,893 85,923,837
NET ASSETS:
Beginning of year........................................... 138,479,241 52,555,404
-------------- --------------
End of year (including undistributed net investment of
income of $1,084,753 and
$105,244, respectively)................................... $ 680,106,134 $ 138,479,241
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Tactical Allocation Fund (the "Fund") is a series of PaineWebber
Investment Trust (the "Trust") and is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as an
open-end, diversified management investment company. Organizational costs have
been deferred and are being amortized using the straight line method over a
period not to exceed 60 months from the date the Fund commenced operations.
Currently, the Fund offers Class A, Class B, Class C and Class Y shares. Each
class represents interests in the same assets of the Fund, and the classes are
identical except for differences in their sales charge structures, ongoing
service and distribution charges and certain transfer agency expenses. In
addition, Class B shares and all corresponding reinvested dividend shares
automatically convert to Class A shares approximately six years after issuance.
All classes of shares have equal voting privileges except that Class A, Class B,
and Class C shares each have exclusive voting rights with respect to their
respective service and/or distribution plans. Class Y shares have no service or
distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
VALUATION OF INVESTMENTS--Securities that are listed on stock exchanges are
valued at the last sale price on the day the securities are being valued or,
lacking any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned asset management subsidiary of PaineWebber
Incorporated ("PaineWebber") and investment adviser, administrator and
distributor of the Fund as the primary market. Securities traded in the
over-the-counter ("OTC") market and listed on the Nasdaq Stock Market, Inc.
("Nasdaq") are valued at the last available sale price, or last bid price
available if no sale occurs, on Nasdaq prior to the time of valuation. Where
market quotations are readily available, debt securities are valued thereon,
provided such quotations adequately reflect the fair value of the securities in
the judgment of Mitchell Hutchins. When market quotations are not readily
available, securities are valued based upon appraisals derived from information
concerning those securities or similar securities received from recognized
dealers in those securities. All other securities are valued at fair value as
determined in good faith by, or under the direction of, the Trust's board of
trustees. The amortized cost method of valuation is used to value short-term
debt instruments with sixty days or less remaining to maturity, unless the
Trust's board of trustees determines that this does not represent fair value.
REPURCHASE AGREEMENTS--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/ or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to
interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and
Administration Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, the Fund pays Mitchell Hutchins
an investment advisory and administration fee, which is accrued daily and paid
monthly, at an annual rate of 0.50% of the Fund's average daily net assets
(Class Y shares have no service or distribution plan). At August 31, 1997, the
Fund owed Mitchell Hutchins $287,417 in investment advisory and administration
fees.
For the year ended August 31, 1997, the Fund paid $2,472 in brokerage
commissions to PaineWebber for transactions executed on behalf of the Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of service and/or distribution pertaining to Class A, Class B and Class C
shares, the Fund pays Mitchell Hutchins monthly service fees at the annual rate
of 0.25% of the average daily net assets of Class A, Class B and Class C shares
and monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B and Class C shares. At August 31, 1997, the Fund owed
Mitchell Hutchins $435,589 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed the Fund that for the year
ended August 31, 1997, it earned $3,157,453 in sales charges.
SECURITY LENDING
The Fund may lend up to 33 1/3% of its total assets to qualified institutions.
The loans are secured at all times by cash or U.S. government securities in an
amount at least equal to the market value of the securities loaned, plus accrued
interest, determined on a daily basis and adjusted accordingly. The Fund will
regain record ownership of loaned
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
securities to exercise certain beneficial rights, however, the Fund may bear the
risk of delay in recovery of, or even loss of rights in, the securities loaned
should the borrower fail financially. The Fund receives compensation, which is
included in interest income, for lending its securities from interest earned on
the cash or U.S. government securities held as collateral, net of fee rebates
paid to the borrower plus reasonable administrative and custody fees. The Fund's
lending agent is PaineWebber, who received $4,200 in compensation in that
capacity from the Fund for the year ended August 31, 1997.
As of August 31, 1997, the Fund held cash and/or cash equivalents having an
aggregate value of $25,513,600 as collateral for portfolio securities loaned
having a market value of $24,190,503.
BANK LINE OF CREDIT
The Fund may borrow up to $10 million under a short-term unsecured line of
credit ("Line of Credit") and may participate with other funds managed by
Mitchell Hutchins in a $200 million committed credit facility ("Facility") to be
utilized for, temporary financing until the settlement of sale or purchase of
portfolio securities, the repurchase or redemption of shares of the Fund at the
request of the shareholders and other temporary or emergency purposes.
Under the Facility arrangement, the Fund has agreed to pay a commitment fee,
pro rata, based on the relative asset size of the Funds in the Facility.
Interest is charged to the Fund at rates based on prevailing market rates in
effect at the time of borrowings. For the year ended August 31, 1997, the Fund
did not borrow under the Facility and had an average daily amount of borrowing
outstanding under the Line of Credit arrangement of approximately $1,934,000
with a related weighted average annualized interest rate of 6.26%.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1997 was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1997, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over
cost)............................................................... $ 106,578,825
Gross depreciation (investments having an excess of cost over
value).............................................................. (3,656,841)
-------------
Net unrealized appreciation of investments............................ $ 102,921,984
-------------
-------------
</TABLE>
For the year ended August 31, 1997, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases............................................................. $ 471,739,284
Sales................................................................. $ 22,377,666
</TABLE>
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year,
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
To reflect reclassifications for the Fund arising from permanent "book/tax"
differences for the year ended August 31, 1997, undistributed net investment
income was increased by $398,533, accumulated net realized gains from investment
transactions were decreased by $318,837 and beneficial interest was decreased by
$79,696.
BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended August 31, 1997:
Shares sold................... 8,395,445 $168,990,356 10,195,130 $207,328,762 7,474,383 $151,185,931
Shares repurchased............ (2,197,019) (44,557,135) (1,127,432) (22,990,205) (1,559,610) (31,328,880)
Dividends reinvested.......... 25,482 470,393 25,089 462,390 23,737 439,368
----------- ------------ ----------- ------------ ----------- ------------
Net increase.................. 6,223,908 $124,903,614 9,092,787 $184,800,947 5,938,510 $120,296,419
----------- ------------ ----------- ------------ ----------- ------------
----------- ------------ ----------- ------------ ----------- ------------
Year ended August 31, 1996:
Shares sold................... 1,906,617 $ 30,914,538 1,905,981 $ 31,017,232 1,800,540 $ 29,065,779
Shares repurchased............ (591,622) (9,588,391) (138,949) (2,261,449) (699,659) (11,142,425)
Dividends reinvested.......... 12,226 184,252 -- -- 233,396 3,525,554
----------- ------------ ----------- ------------ ----------- ------------
Net increase.................. 1,327,221 $ 21,510,399 1,767,032 $ 28,755,783 1,334,277 $ 21,448,908
----------- ------------ ----------- ------------ ----------- ------------
----------- ------------ ----------- ------------ ----------- ------------
<CAPTION>
CLASS Y
-------------------------
SHARES AMOUNT
----------- ------------
<S> <C> <C>
Year ended August 31, 1997:
Shares sold................... 1,018,316 $ 23,118,212
Shares repurchased............ (185,400) (4,068,704)
Dividends reinvested.......... 9,790 181,222
----------- ------------
Net increase.................. 842,706 $ 19,230,730
----------- ------------
----------- ------------
Year ended August 31, 1996:
Shares sold................... 662,966 $ 10,582,690
Shares repurchased............ (53,691) (869,357)
Dividends reinvested.......... 12,761 192,488
----------- ------------
Net increase.................. 622,036 $ 9,905,821
----------- ------------
----------- ------------
</TABLE>
19
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------------- -------------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE YEARS MAY 10, FOR THE YEAR JANUARY 30,
ENDED AUGUST 31, 1993+ TO ENDED 1996+ TO
-------------------------------------- AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995** 1994 1993 1997 1996
-------- -------- -------- -------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 16.15 $ 14.86 $ 13.78 $ 13.50 $ 12.90 $ 16.13 $ 15.54
-------- -------- -------- -------- ------ -------------- -------
Net investment income................ 0.18@ 0.18 0.22 0.24 0.08 0.03@ 0.02
Net realized and unrealized gains
from investments.................... 6.12@ 2.31 2.05 0.32 0.59 6.09@ 0.57
-------- -------- -------- -------- ------ -------------- -------
Net increase from investment
operations.......................... 6.30 2.49 2.27 0.56 0.67 6.12 0.59
-------- -------- -------- -------- ------ -------------- -------
Dividends from net investment
income.............................. (0.14) (0.14) (0.22 ) (0.24) (0.07) (0.09) --
Distributions from net realized gains
from investment transactions........ (0.08) (1.06) (0.97 ) (0.04) -- (0.08) --
-------- -------- -------- -------- ------ -------------- -------
Total dividends and distributions to
shareholders........................ (0.22) (1.20) (1.19 ) (0.28) (0.07) (0.17) --
-------- -------- -------- -------- ------ -------------- -------
Net asset value, end of period....... $ 22.23 $ 16.15 $ 14.86 $ 13.78 $ 13.50 $ 22.08 $ 16.13
-------- -------- -------- -------- ------ -------------- -------
-------- -------- -------- -------- ------ -------------- -------
Total investment return(1)........... 39.26% 17.35% 18.43% 4.21% 5.17% 38.14% 3.80%
-------- -------- -------- -------- ------ -------------- -------
-------- -------- -------- -------- ------ -------------- -------
Ratios/supplemental data:
Net assets, end of period (000's).... $170,759 $ 23,551 $ 1,944 $ 1,801 $ 3,007 $ 239,836 $ 28,495
Expenses to average net assets....... 0.99% 1.17% 1.46% 1.13% 1.06%* 1.74% 1.84%*
Net investment income to average net
assets.............................. 0.88% 1.12% 1.60% 1.64% 1.71%* 0.13% 0.47%*
Portfolio turnover rate.............. 6% 6% 53% 4% 0% 6% 6%
Average commission rate paid(2)...... $0.0250 $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.
@ Calculated using the average shares outstanding for the period
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net asset
value on the last day of each period reported. The figures do not include
sales charges; results for Class A, Class B and Class C would be lower if
sales charges were included. Total investment return for periods of less than
one year has not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the Fund
is required to disclose the average commission rate paid per share of common
stock investments purchased or sold.
20
<PAGE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------
FOR THE YEARS
ENDED AUGUST 31,
------------------------------------------------
1997 1996 1995** 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 16.12 $ 14.87 $ 13.78 $ 13.49 $ 12.12
-------- -------- -------- -------- --------
Net investment income................... 0.03@ 0.06 0.12 0.13 0.18
Net realized and unrealized gains from
investment transactions................. 6.11@ 2.32 2.06 0.33 1.34
-------- -------- -------- -------- --------
Net increase from investment
operations.............................. 6.14 2.38 2.18 0.46 1.52
-------- -------- -------- -------- --------
Dividends from net investment income.... -- (0.07) (0.12) (0.13) (0.15)
Distributions from net realized gains
from
investment transactions................. (0.08) (1.06) (0.97) (0.04) --
-------- -------- -------- -------- --------
Total dividends and distributions to
shareholders............................ (0.08) (1.13) (1.09) (0.17) (0.15)
-------- -------- -------- -------- --------
Net asset value, end of period.......... $ 22.18 $ 16.12 $ 14.87 $ 13.78 $ 13.49
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return (1)............. 38.20% 16.52% 17.57% 3.46% 12.61%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000's)....... $233,044 $ 73,630 $ 48,105 $ 62,970 $107,761
Expenses to average net assets.......... 1.75% 1.95% 2.22% 1.88% 1.73%
Net investment income to average net
assets.................................. 0.14% 0.35% 0.86% 0.89% 1.04%
Portfolio turnover rate................. 6% 6% 53% 4% 0%
Average commission rate paid(2)......... $0.0250 $0.0250 -- -- --
<CAPTION>
CLASS Y
------------------------------------------------------
FOR THE YEARS FOR THE PERIOD
ENDED MAY 10,
AUGUST 31, 1993+ TO
-------------------------------------- AUGUST 31,
1997 1996 1995** 1994 1993
-------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 16.20 $ 14.88 $ 13.79 $ 13.52 $ 12.90
-------- -------- -------- -------- ------
Net investment income................... 0.23@ 0.30 0.23 0.25 0.09
Net realized and unrealized gains from
investment transactions................. 6.13@ 2.24 2.09 0.33 0.60
-------- -------- -------- -------- ------
Net increase from investment
operations.............................. 6.36 2.54 2.32 0.58 0.69
-------- -------- -------- -------- ------
Dividends from net investment income.... (0.15) (0.16) (0.26 ) (0.27) (0.07)
Distributions from net realized gains
from
investment transactions................. (0.08) (1.06) (0.97 ) (0.04) --
-------- -------- -------- -------- ------
Total dividends and distributions to
shareholders............................ (0.23) (1.22) (1.23 ) (0.31) (0.07)
-------- -------- -------- -------- ------
Net asset value, end of period.......... $ 22.33 $ 16.20 $ 14.88 $ 13.79 $ 13.52
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
Total investment return (1)............. 39.55% 17.70% 18.79% 4.41% 5.30%
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
Ratios/supplemental data:
Net assets, end of period (000's)....... $ 36,467 $ 12,803 $ 2,506 $ 3,880 $ 3,379
Expenses to average net assets.......... 0.74% 0.95% 1.23% 0.88% 0.81%*
Net investment income to average net
assets.................................. 1.16% 1.38% 1.86% 1.90% 1.96%*
Portfolio turnover rate................. 6% 6% 53% 4% 0%
Average commission rate paid(2)......... $0.0250 $0.0250 -- -- --
</TABLE>
21
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of
PaineWebber Tactical Allocation Fund
We have audited the accompanying statement of assets and liabilities of
PaineWebber Tactical Allocation Fund, including the portfolio of investments, as
of August 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the two years in the period ended
August 31, 1994 were audited by other auditors whose report dated October 14,
1994 expressed an unqualified opinion on the financial highlights.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at August 31, 1997, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber Tactical Allocation Fund at August 31, 1997, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, in conformity with generally accepted
accounting principles.
[SIGNATURE]
New York, New York
October 14, 1997
22
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (August 31,
1997) as to federal tax status of distributions received by shareholders during
such fiscal year. Accordingly, we are advising you that the following
distributions paid during the fiscal year are taxable and are derived from the
following sources:
<TABLE>
<CAPTION>
PER SHARE DATA: CLASS A CLASS B CLASS C CLASS Y
- ------------------------------------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net investment income*...................................... $0.1358 $0.0879 $0.0008 $0.1491
Short-term capital gains*................................... 0.0056 0.0056 0.0056 0.0056
Long-term capital gains..................................... 0.0755 0.0755 0.0755 0.0755
Percentage of ordinary income dividends qualifying for the
dividends received deduction available to corporate
shareholders.............................................. 100% 100 % 100% 100%
</TABLE>
- -----------------
* Taxable as ordinary income
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1997. The second notification, which
will reflect the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1998. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund.
23
<PAGE>
- -------------------------------------------------------------------------------
TRUSTEES
E. Garrett Bewkes, Jr.
CHAIRMAN
Margo N. Alexander
Richard Q. Armstrong
Richard Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander
PRESIDENT
Victoria E. Schonfeld
VICE PRESIDENT
Dianne E. O'Donnell
VICE PRESIDENT AND SECRETARY
Paul H. Schubert
VICE PRESIDENT AND TREASURER
T. Kirkham Barneby
VICE PRESIDENT
INVESTMENT ADVISER
AND ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE OFFERING OF SHARES OF THE
FUND UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR ANY OF THE FUNDS LISTED
ON THE BACK COVER CAN BE OBTAINED FROM A PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
<PAGE>
PaineWebber offers a family of 22 funds which
encompass a diversified range of investment goals.
BOND FUNDS
- - High Income Fund
- - Investment Grade Income Fund
- - Low Duration U.S. Government Income Fund
- - Strategic Income Fund
- - U.S. Government Income Fund
TAX-FREE BOND FUNDS
- - California Tax-Free Income Fund
- - Municipal High Income Fund
- - National Tax-Free Income Fund
- - New York Tax-Free Income Fund
STOCK FUNDS
- - Capital Appreciation Fund
- - Financial Services Growth Fund
- - Growth Fund
- - Growth and Income Fund
- - Small Cap Fund
- - Utility Income Fund
ASSET ALLOCATION FUNDS
- - Balanced Fund
- - Tactical Allocation Fund
GLOBAL FUNDS
- - Asia Pacific Growth Fund
- - Emerging Markets Equity Fund
- - Global Equity Fund
- - Global Income Fund
PAINEWEBBER MONEY MARKET FUND
PAINEWEBBER
- -copyright-1997 PaineWebber Incorporated
Member SIPC
PAINEWEBBER
TACTICAL
ALLOCATION FUND
ANNUAL REPORT
AUGUST 31, 1997
