<PAGE>
------------------
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PaineWebber Balanced Fund
PaineWebber Tactical Allocation Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- January 1, 1997
- --------------------------------------------------------------------------------
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 and
maintains a fixed income allocation of at least 25% at all times. PaineWebber
Tactical Allocation Fund follows a disciplined 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 January 1, 1997 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 high total return by
income and stability 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 tax and, by investing mainly in global debt instruments.
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 NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------
Prospectus Page 1
<PAGE>
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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.......................................................... 24
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
<PAGE>
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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
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,
while maintaining a fixed income allocation of at least 25% at all times.
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 debt securities in which the Fund may invest have
speculative characteristics. The debt instruments in which the Fund may invest
are subject to interest rate risk, which means that their prices can be
expected to decrease when interest rates rise. 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 can involve more risk than investing in the securities of
U.S. companies. The Fund also may invest up to 10% of its total assets in high
yield, high risk convertible securities, which are considered predominantly
speculative and involve major risk exposure to adverse conditions. 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 November 30, 1996, the Fund had over $197.8 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 between equity
securities, U.S. Treasury notes or U.S. Treasury bills.
INVESTMENT OBJECTIVE: Total return, consisting of long-term capital
appreciation and current income.
RISKS: Although the Fund seeks total return, it 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 can involve more risk than investing in the
securities of U.S. companies. The U.S. Treasury notes and U.S. Treasury bills
in which the Fund may invest are subject to interest rate risk, which means
that their prices can be expected to decrease when interest rates rise. 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 November 30, 1996, the Fund had over $209.4 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").
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Prospectus Page 3
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
The Funds at a Glance
(Continued)
- -------------------------------------------------------------------------------
MINIMUM INVESTMENT
To open an account, investors need $1,000; to add to an account, investors
need only $100.
WHO SHOULD INVEST
BALANCED FUND is for investors who want high total return with low volatility
through investments in equity securities, investment grade bonds and money
market instruments. 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 between equity securities
included in the S&P 500 Index and U.S. Treasury notes or 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.
* * * *
See page 13 for a summary of the differences between Balanced Fund and
Tactical Allocation Fund.
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
sales charge 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 purchase. 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 purchase. Class C shares never convert to any
other class of shares.
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Prospectus Page 4
<PAGE>
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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
for Tactical Allocation Fund (annualized for the Class B shares) and
annualized expenses for the six months ended August 31, 1996 for Balanced
Fund.
<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
offering price or net asset value at the time of
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....................................... 0.34 0.34 0.34
----- ----- -----
Total Operating Expenses............................. 1.34% 2.09% 2.09%
===== ===== =====
TACTICAL ALLOCATION FUND
Management Fees...................................... 0.50% 0.50% 0.50%
12b-1 Fees........................................... 0.25 1.00 1.00
Other Expenses....................................... 0.42 0.34 0.45
----- ----- -----
Total Operating Expenses............................. 1.17% 1.84% 1.95%
===== ===== =====
</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 an
initial sales charge. However, if such shares are sold within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or
the net asset value of the shares at the time of sale by the shareholder,
whichever is less, is imposed.
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% of the offering price or the net
asset value of the shares at the time of sale, whichever is less, is
imposed.
The exchange fee for Balanced Fund will be eliminated on or before February 1,
1997.
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
<PAGE>
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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 a 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 $86 $115 $199
Class B (Assuming sale of all shares at end of
period)....................................... $71 $95 $132 $205
Class B (Assuming no sale of shares)........... $21 $65 $112 $205
Class C (Assuming sale of all shares at end of
period)....................................... $31 $65 $112 $242
Class C (Assuming no sale of shares)........... $21 $65 $112 $242
</TABLE>
TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $56 $80 $106 $181
Class B (Assuming sale of all shares at end of
period)....................................... $69 $88 $120 $182
Class B (Assuming no sale of shares)........... $19 $58 $100 $182
Class C (Assuming sale of all shares at end of
period)....................................... $30 $61 $105 $227
Class C (Assuming no sale of shares)........... $20 $61 $105 $227
</TABLE>
ASSUMPTIONS MADE IN THE EXAMPLES
. ALL CLASSES: Reinvestment of all dividends and other 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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Prospectus Page 7
<PAGE>
- ------------------------------===================------------------------------
PaineWebber Balanced Fund Tactical Allocation 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, accompanying notes and the report of
Price Waterhouse LLP, independent accountants, which appear in the Fund's
Annual Report to Shareholders for the fiscal period ended August 31, 1996 and
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 the period March 1, 1996 through August 31, 1996 and 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
-----------------------------------------------------------------------------
FOR THE PERIOD
MARCH 1, FOR THE FOR THE PERIOD
1996 YEAR ENDED FOR THE YEARS ENDED JULY 1, 1991+ TO
THROUGH FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
AUGUST 31, ------------ ------------------------------ ----------------
1996 1996 1995 1994 1993 1992
-------------- ------------ -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period......... $ 10.85 $ 9.80 $ 12.04 $ 11.54 $ 11.01 $10.09
-------- -------- -------- -------- -------- ------
Net investment
income......... 0.12++ 0.27++ 0.26 0.22 0.33 0.19
Net realized and
unrealized
gains (losses)
from investment
transactions... (0.12) 1.84 (1.07) 1.31 0.54 0.96
-------- -------- -------- -------- -------- ------
Net increase
(decrease) from
investment
operations..... 0.00 2.11 (0.81) 1.53 0.87 1.15
-------- -------- -------- -------- -------- ------
Dividends from
net investment
income......... (0.10) (0.31) (0.23) (0.25) (0.34) (0.23)
Distributions
from net
realized gains
from investment
transactions... (0.48) (0.75) (1.20) (0.78) -- --
-------- -------- -------- -------- -------- ------
Total dividends
and
distributions.. (0.58) (1.06) (1.43) (1.03) (0.34) (0.23)
-------- -------- -------- -------- -------- ------
Net asset value,
end of period.. $ 10.27 $ 10.85 $ 9.80 $ 12.04 $ 11.54 $11.01
======== ======== ======== ======== ======== ======
Total investment
return (1)..... 0.03 % 22.08 % (6.02)% 13.57 % 8.09 % 11.43 %
======== ======== ======== ======== ======== ======
Ratios/Supplemental
Data:
Net assets, end
of period
(000's)........ $157,525 $171,609 $174,761 $216,492 $154,594 $ 916
Expenses to
average net
assets......... 1.34 %* 1.29 % 1.26 % 1.21 % 1.18 % 1.30 %*
Net investment
income to
average net
assets......... 2.19 %* 2.55 % 2.41 % 1.74 % 2.52 % 3.43 %*
Portfolio
turnover....... 103 % 188 % 107 % 69 % 33 % 84 %
Average
commission rate
paid per share
on common stock
investments
purchased/sold(3). $ 0.0600 -- -- -- -- --
<CAPTION>
BALANCED FUND
--------------------------------------------------------
CLASS B
--------------------------------------------------------
FOR THE PERIOD
MARCH 1, FOR THE
1996 YEAR ENDED FOR THE YEARS ENDED
THROUGH FEBRUARY 29, FEBRUARY 28,
AUGUST 31, ------------ ----------------------------
1996 1996 1995 1994 1993
-------------- ------------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period......... $ 11.00 $ 9.90 $ 12.10 $ 11.56 $ 10.99
------- ------- ------- ------- --------
Net investment
income......... 0.08++ 0.19++ 0.44 0.26 0.30
Net realized and
unrealized
gains (losses)
from investment
transactions... (0.11) 1.86 (1.32) 1.18 0.48
------- ------- ------- ------- --------
Net increase
(decrease) from
investment
operations..... (0.03) 2.05 (0.88) 1.44 0.78
------- ------- ------- ------- --------
Dividends from
net investment
income......... (0.07) (0.20) (0.12) (0.12) (0.21)
Distributions
from net
realized gains
from investment
transactions... (0.48) (0.75) (1.20) (0.78) --
------- ------- ------- ------- --------
Total dividends
and
distributions.. (0.55) (0.95) (1.32) (0.90) (0.21)
------- ------- ------- ------- --------
Net asset value,
end of period.. $ 10.42 $ 11.00 $ 9.90 $ 12.10 $ 11.56
======= ======= ======= ======= ========
Total investment
return (1)..... (0.30)% 21.20 % (6.68)% 12.62 % 7.25 %
======= ======= ======= ======= ========
Ratios/Supplemental
Data:
Net assets, end
of period
(000's)........ $22,307 $26,627 $37,104 $83,178 $160,115
Expenses to
average net
assets......... 2.09 %* 2.05 % 1.98 % 2.05 % 1.98 %
Net investment
income to
average net
assets......... 1.43 %* 1.81 % 1.60 % 1.00 % 2.02 %
Portfolio
turnover....... 103 % 188 % 107 % 69 % 33 %
Average
commission rate
paid per share
on common stock
investments
purchased/sold(3). $0.0600 -- -- -- --
</TABLE>
- -------
* Annualized.
+ 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 each period reported, reinvestment of all dividends and other
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) During the period December 12, 1986 (commencement of issuance of Class B
shares) to February 28, 1987, PaineWebber reimbursed the Fund for a
portion of its operating expenses. If such reimbursement had not been
made, the annualized ratio of expenses to average net assets and the
annualized ratio of net investment income to average net assets would have
been 2.10% and 2.73%, respectively.
(3) Disclosure effective for fiscal years beginning on or after September 1,
1995.
- -------------------------------=================--------------------------------
Prospectus Page 8
<PAGE>
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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 PERIOD MARCH 1, 1996 FOR THE FOR THE FOR THE PERIOD
DECEMBER 12, 1986+ THROUGH YEAR ENDED YEARS ENDED JULY 2, 1992+ TO
FOR THE YEARS ENDED FEBRUARY 28 OR 29, TO FEBRUARY 28, AUGUST 31, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
- ------------------------------------------------ ------------------ -------------- ------------ ---------------- ----------------
1992 1991 1990 1989 1988 1987 1996 1996 1995 1994 1993
- -------- -------- -------- -------- -------- ------------------ -------------- ------------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.21 $ 9.86 $ 9.92 $ 10.18 $ 10.40 $ 10.00 $ 10.88 $ 9.82 $12.03 $ 11.54 $10.86
- -------- -------- -------- -------- -------- -------- ------- ------ ------ ------- ------
0.35 0.59 0.65 0.54 0.48 0.04 0.08++ 0.19++ 0.19 0.14 0.13
0.78 0.38 0.10 (0.28) (0.09) 0.36 (0.12) 1.84 (1.07) 1.30 0.71
- -------- -------- -------- -------- -------- -------- ------- ------ ------ ------- ------
1.13 0.97 0.75 0.26 0.39 0.40 (0.04) 2.03 (0.88) 1.44 0.84
- -------- -------- -------- -------- -------- -------- ------- ------ ------ ------- ------
(0.35) (0.62) (0.70) (0.52) (0.44) -- (0.07) (0.22) (0.13) (0.17) (0.16)
-- -- (0.11) -- (0.17) -- (0.48) (0.75) (1.20) (0.78) --
- -------- -------- -------- -------- -------- -------- ------- ------ ------ ------- ------
(0.35) (0.62) (0.81) (0.52) (0.61) -- (0.55) (0.97) (1.33) (0.95) (0.16)
- -------- -------- -------- -------- -------- -------- ------- ------ ------ ------- ------
$ 10.99 $ 10.21 $ 9.86 $ 9.92 $ 10.18 $ 10.40 $ 10.29 $10.88 $ 9.82 $ 12.03 $11.54
======== ======== ======== ======== ======== ======== ======= ====== ====== ======= ======
11.24% 10.29% 7.53% 2.73% 4.31% 4.00% (0.38)% 21.12% (6.69)% 12.75% 7.78%
======== ======== ======== ======== ======== ======== ======= ====== ====== ======= ======
$346,290 $403,557 $557,646 $651,003 $715,771 $613,024 $6,979 $7,469 $8,525 $12,916 $7,058
2.02% 1.83% 1.84% 1.94% 1.98% 2.03%*(2) 2.09%* 2.08% 2.01% 1.96% 1.95%*
3.25% 5.46% 6.04% 5.37% 5.01% 2.80%*(2) 1.44%* 1.77% 1.62% 0.97% 1.91%*
84% 169% 327% 159% 129% 25% 103% 188% 107% 69% 33%
-- -- -- -- -- -- $0.0600 -- -- -- --
</TABLE>
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Prospectus Page 9
<PAGE>
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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, accompanying notes and the report of
Ernst & Young LLP, independent auditors, which appear in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1996, and 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 each of the two fiscal years ended August 31, 1996
and 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.
<TABLE>
<CAPTION>
TACTICAL ALLOCATION FUND
-------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
---------------------------------------- -------------- -----------------------------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FOR THE YEARS MAY 10, JANUARY 30, FOR THE YEARS JULY 22,
ENDED 1993+ 1996+ TO ENDED 1992+
AUGUST 31, TO AUGUST 31, AUGUST 31, AUGUST 31, TO AUGUST 31,
------------------------ -------------- -------------- ------------------------------------- --------------
1996 1995** 1994 1993 1996 1996 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.......... 0.18 0.22 0.24 0.08 0.02 0.06 0.12 0.13 0.18 0.03
Net realized and
unrealized gains
from investment
transactions.... 2.31 2.05 0.32 0.59 0.57 2.32 2.06 0.33 1.34 0.09
------- ------ ------ ------ ------- ------- ------- ------- -------- -------
Net increase
from investment
operations...... 2.49 2.27 0.56 0.67 0.59 2.38 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... $ 16.15 $14.86 $13.78 $13.50 $ 16.13 $ 16.12 $ 14.87 $ 13.78 $ 13.49 $ 12.12
======= ====== ====== ====== ======= ======= ======= ======= ======== =======
Total investment
return(1)....... 17.35% 18.43% 4.21% 5.17% 3.80% 16.52% 17.57% 3.46% 12.61% 0.98%
======= ====== ====== ====== ======= ======= ======= ======= ======== =======
Ratios/Supplemental
Data:
Net assets, end
of period
(000's)......... $23,551 $1,944 $1,801 $3,007 $28,495 $73,630 $48,105 $62,970 $107,761 $50,222
Expenses to
average net
assets.......... 1.17% 1.46% 1.13% 1.06%* 1.84%* 1.95% 2.22% 1.88% 1.73% 1.75%*
Net investment
income to
average net
assets.......... 1.12% 1.60% 1.64% 1.71%* 0.47%* 0.35% 0.86% 0.89% 1.04% 2.42%*
Portfolio
turnover........ 6% 53% 4% 0% 6% 6% 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.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
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. See the summary on page
13 for the differences between Balanced Fund and Tactical Allocation Fund.
BALANCED FUND
Balanced Fund's investment objective is 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;
. 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 below investment grade and 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 allocates its
assets between common stocks, U.S. Treasury notes or 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.
The Fund seeks to achieve total return during all economic and financial
market cycles, with lower volatility 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 bear market, prolonged
downturn in stock prices or significant loss in value.
* * * *
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
of investors have been fully discounted by the market. Mitchell Hutchins also
believes that 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 key investment advisors 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 the outlooks for key
economic variables 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 U.S.
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, 1996, the Fund's assets were allocated as follows: equity
securities, 54.3%; bonds, 39.5%; and cash, 6.2%. 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 between stocks and either bonds
or cash, based on the Tactical Allocation Model's quantitative assessment of
the projected rates of return of each asset class. The Tactical Allocation
Model embraces the concept that incremental return to the S&P 500 Index can be
achieved through the tactical allocation of portfolio assets across three main
asset classes--stocks, bonds and cash. This disciplined approach to investing
in stocks attempts to shift the asset mix in anticipation of, not in response
to, changing market trends. The emphasis of this Model is to avoid or reduce
exposure to the stock market during down cycles and to track the S&P 500 Index
in periods of strongly positive market performance. In contrast to a typical
S&P 500 Index fund that maintains a 100% allocation to the Index at all times,
the Fund is designed to take a more defensive posture when the Tactical
Allocation Model signals a potential bear market, prolonged downturn in stock
prices or significant loss in value.
The basic premise of the Tactical Allocation Model is that investors accept
the risk of owning stocks, measured as volatility of return, because they
expect a
----------
Prospectus Page 12
<PAGE>
- -------------------------------------------------------------------------------
-------------------
PaineWebber Tactical Allocation Fund
Balanced Fund
return advantage. This expected return advantage of owning stocks is called
the equity risk premium ("ERP"). The Model projects the stock market's
expected ERP based on several factors including:
. current price of stocks and their expected future dividends;
. three to five-year, "bottom-up" company earnings projections; and
. yield-to-maturity of the one-year U.S. Treasury bill.
When the stock market's ERP is high, the Tactical Allocation Model signals the
Fund to invest 100% in stocks. Conversely, when the ERP decreases below
certain threshold levels, the Model signals the Fund to reduce its exposure to
stocks. The Model can recommend stock allocations of 100%, 75%, 50%, 25% or
0%.
If the Tactical Allocation Model recommends a stock allocation of less than
100%, the Model also recommends a fixed income allocation for the remainder of
the Fund's assets. The Model will recommend either bonds (five-year U.S.
Treasury notes) or cash (30-day U.S. Treasury bills), but not both. To make
this determination, the Model calculates the risk premium available for the
notes. This "bond risk premium" ("BRP") is calculated based on the yield-to-
maturity of the five-year U.S. Treasury note and the one-year U.S. Treasury
bill.
Asset reallocations are made on the first business day of each month. In
addition to any reallocation of assets dictated by the Tactical Allocation
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.
The Fund deviates from the recommendations of the Tactical Allocation 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 by
Fund investors; and
. Qualify as a regulated investment company for federal income tax purposes.
See "Dividends & Taxes."
As a result, even if the Tactical Allocation Model does not recommend an
allocation to cash, the Fund still may hold cash.
As of August 31, 1996, 100% of the Fund's assets were allocated to stocks and
as of February 29, 1996, the Fund's assets were allocated as follows: 99% to
stocks, 0% to bonds and 1% to cash.
DIFFERENCES BETWEEN BALANCED FUND AND TACTICAL ALLOCATION FUND
<TABLE>
-------------------------------------------------------------------------
<CAPTION>
BALANCED FUND TACTICAL ALLOCATION FUND
<S> <C> <C>
Investment Objective High total return with low Total return, consisting of long-
volatility. term capital appreciation and
current income.
- ---------------------------------------------------------------------------------------------
Asset Allocation Based on Mitchell Hutchins' Based on the Mitchell Hutchins
Decision fundamental valuations for each Tactical Allocation Model.
asset class using its consensus
forecast for certain economic
variables.
- ---------------------------------------------------------------------------------------------
Asset Mix Fixed income allocation: at least Tactical Allocation Model signals
25% at all times. a stock segment of 100%, 75%,
50%, 25% or 0% and selects bonds
or cash for balance. Fund may
deviate from Model only to pay
its expenses, dividends and other
obligations.
- ---------------------------------------------------------------------------------------------
Stock Selection Discretionary, based on the When there is a stock allocation,
Mitchell Hutchins Factor invests in about 450 of the 500
Valuation Model, which evaluates common stocks that make up the
companies' potential for rapid S&P 500 Index.
earnings growth.
- ---------------------------------------------------------------------------------------------
Fixed Income Discretionary, may select from When there is a bond allocation,
Selection broad range of debt securities five-year U.S. Treasury notes.
with government or private When there is a cash allocation,
issuers. Aims for a dollar- 30-day U.S. Treasury bills.
weighted average maturity of
three to ten years.
</TABLE>
----------
Prospectus Page 13
<PAGE>
- -------------------------------------------------------------------------------
-------------------
PaineWebber Tactical Allocation Fund
Balanced Fund
Performance
- -------------------------------------------------------------------------------
These charts show the total returns for the Funds. Sales charges have not been
deducted from total returns shown in the charts. Returns would be lower if
sales charges were deducted. Past results are not a guarantee of future
results.
Total returns, both before and after deducting the maximum sales charges, are
shown below in the tables that follow the performance charts.
BALANCED FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ------- ------- -------
<S> <C> <C>
1991...... 18.52% 12/12/86 - 12/31/86....... -2.40% 1992...... 5.08%
1992...... 4.46% 1987...................... 1.21% 1993...... 14.79%
1993...... 14.66% 1988...................... 11.34% 1994...... -10.48%
1994...... -10.51% 1989...................... 10.84% 1995...... 22.18%
1995...... 22.27% 1990...................... 1.94% 1996...... 13.86%
1996...... 13.81% 1991...................... 11.53%
1992...................... 5.18%
1993...................... 15.63%
1994...................... -9.88%
1995...................... 23.16%
1996...................... 14.74%
</TABLE>
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.
AVERAGE ANNUAL RETURNS
As of August 31, 1996
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
Inception Date.................... 7/1/91 12/12/86 7/2/92
ONE YEAR
Before deducting maximum sales
charges......................... 8.33% 7.70% 7.54%
After deducting maximum sales
charges......................... 3.42% 2.70% 6.54%
FIVE YEARS
Before deducting maximum sales
charges......................... 8.51% 7.71% N/A
After deducting maximum sales
charges......................... 7.51% 7.41% N/A
LIFE
Before deducting maximum sales
charges......................... 9.10% 7.63% 7.80%
After deducting maximum sales
charges......................... 8.13% 7.63% 7.80%
</TABLE>
----------
Prospectus Page 14
<PAGE>
- -------------------------------------------------------------------------------
-------------------
PaineWebber Tactical Allocation Fund
Balanced Fund
TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ------- ------- -------
<S> <C> <C>
1993...... 6.48% 7/22/92 - 12/31/92...... 6.67%
1994...... -0.59% 1996...... 16.98% 1993.................... 7.64%
1995...... 35.12% 1994.................... -1.28%
1996...... 21.53% 1995.................... 34.09%
1996.................... 20.66%
</TABLE>
The inception date of Class A shares was May 10, 1993; thus, the 1993 return
represents the period from May 10, 1993 through December 31, 1993. The Class B
shares commenced operations on January 30, 1996; thus, the 1996 return for
Class B shares represents the period from January 30, 1996 through December
31, 1996. 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. Investment advisory functions for the Fund were
transferred from Kidder Peabody Asset Management, Inc. to Mitchell Hutchins on
February 13, 1995.
AVERAGE ANNUAL RETURNS
As of August 31, 1996
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
Inception Date.................... 5/10/93 1/30/96 7/22/92
ONE YEAR
Before deducting maximum sales
charges......................... 17.35% N/A 16.52%
After deducting maximum sales
charges......................... 12.07% N/A 15.52%
LIFE
Before deducting maximum sales
charges......................... 13.56% 3.80% 12.31%
After deducting maximum sales
charges......................... 11.99% -1.20% 12.31%
</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 a Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for Class A
shares 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. If so, returns will be shown
for the period since inception. Total return calculations assume reinvestment
of dividends and other distributions.
The Funds may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average
annual rates, actual year-by-year rates or any combination thereof. Non-
standardized return does not reflect initial or contingent deferred sales
charges and would be lower if such charges were deducted.
Total return information reflects past performance and does not 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 to Shareholders, 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.
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 U.S. 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 U.S. 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.
When interest rates rise, mortgage-backed bonds may be paid off more slowly
than originally expected.
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 represent underlying
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 security 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).
Because zero coupon securities bear no interest and holders do not receive
interest payments, they are
----------
Prospectus Page 16
<PAGE>
- -------------------------------------------------------------------------------
-------------------
Paine Webber Tactical Allocation Fund
Balanced Fund
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 securities 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
in 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. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential compared to other types of investments. However, their prices
generally fluctuate more than other securities, reflecting changes in a
company's financial condition and in overall market and economic conditions.
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 a Fund may experience a substantial or complete loss on an
individual equity 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 can
include 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 can involve 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.
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 interest only and principal
only classes of securities. 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.
COUNTERPARTIES. The Funds may be exposed to the risk of financial failure or
insolvency of another party. To help lessen those risks, Mitchell Hutchins,
subject to the supervision of the board of each Fund, monitors and evaluates
the creditworthiness of the parties with which each Fund does business.
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 investment grade bonds.
Investment grade quality means that the securities are rated within the four
highest categories by S&P or Moody's. Moody's fourth highest category (Baa)
includes securities which, in its opinion, have speculative features.
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.
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-
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Prospectus Page 18
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
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 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 long term capital appreciation and current income, in
following its asset
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Prospectus Page 19
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
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 Tactical
Allocation Model. See "Dividends & Taxes." In addition, the Fund is also
subject to the risk that the Tactical Allocation Model may not correctly
predict the appropriate times to shift the Fund's assets from one type of
investment to another.
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 S&P 500 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 interest rate swap agreements and
certain other 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 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, a
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 a Fund is unable to close out or liquidate its
position.
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.
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Prospectus Page 20
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
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.
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 PricingSM
- -------------------------------------------------------------------------------
Each Fund offers through this Prospectus 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' offering price or
the net asset value at the time of sale by the shareholder, 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.
(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.
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Prospectus Page 21
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
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.
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
. 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, including a salary reduction plan qualified under section 401(k), or
section 403(b) 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 through an investment program that is not sponsored
by PaineWebber or its affiliates and that charges participants a fee for
program services, provided that the program sponsor has entered into a
written agreement with PaineWebber permitting the sale of Class A shares at
net asset value to that program. For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested. For
subsequent investments or exchanges made to supplement a rebalancing feature
of such an investment program, the minimum subsequent investment requirement
and $5 exchange fee (if applicable) also are waived.
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. Investors must provide satisfactory information
to PaineWebber or the Fund if they seek any of these waivers.
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
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Prospectus Page 22
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
the offering price (net asset value of the shares at the time of purchase) or
the net asset value of the shares at the time of sale by the shareholder,
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.
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 offering price (net asset
value of at the time of purchase) or net asset value of the shares at the time
of sale by the shareholder, 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.
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Prospectus Page 23
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
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 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, unaffiliated
investment programs 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. For 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 (this fee will be eliminated for all PaineWebber funds on or
before February 1, 1997). 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
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Prospectus Page 24
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
. 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 acquired 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 is
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.
- -------------------------------------------------------------------------------
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."
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Prospectus Page 25
<PAGE>
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PaineWebber Tactical Allocation Fund
Balanced Fund
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 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.
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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).
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 November 30, 1996, Mitchell Hutchins was adviser
or sub-adviser of 30 investment companies with 64 separate portfolios and
aggregate assets of approximately $32 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.
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Prospectus Page 26
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PaineWebber Tactical Allocation Fund
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 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 Ryan is responsible for the day-to-day management of the portion of
Balanced Fund's assets invested in money market instruments. Ms. Ryan 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.
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.
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.
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Prospectus Page 27
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PaineWebber Tactical Allocation Fund
Balanced Fund
. 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 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 each Plan and Mitchell Hutchins' corresponding expenses
for each class separately from the Plans and expenses of the other classes.
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Determining the Shares' Net Asset Value
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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 market quotations are 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.
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Dividends & Taxes
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DIVIDENDS
Balanced Fund pays dividends semiannually from its net investment income and
also may distribute net short-term capital gains, if any, with a periodic
dividend. Tactical Allocation Fund pays an annual dividend from its net
investment income and short-term capital gain, if any. 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. Each Fund may make additional distributions if
necessary to avoid income or excise taxes. While a Fund will not declare any
distribution in excess of the amount of its net investment income and net
short-term capital gain available at the time of declaration, it is possible
that net capital losses sustained after that time could convert a portion of
such a distribution to a non-taxable return of capital.
Dividends and other distributions paid on each class of shares of a Fund are
calculated at the same time and in the same manner. Dividends on Class B and
Class C shares of a Fund are expected to be lower than those on its Class A
shares because Class B and Class C
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Prospectus Page 28
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PaineWebber Tactical Allocation Fund
Balanced Fund
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."
A Fund's dividends and other 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 other
distributions in cash, either mailed to the shareholder by check or credited
to the shareholder's PaineWebber account, should contact their investment
executive at PaineWebber or one of its correspondent firms or complete the
appropriate section of the account application.
TAXES
Each 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 its shareholders
as ordinary income. Distributions of each Fund's net capital gain (whether
paid in cash or in additional Fund shares) are taxable to its 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 distributions from the Funds.
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 also is required from
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
When shareholders sell (redeem) shares, the sale 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 any
loss would be decreased, by the amount of the sales charge paid when those
shares were bought, and that amount would increase the basis of the
PaineWebber mutual fund shares subsequently acquired.
No gain or loss will be recognized to a shareholder as a result of conversion
of Class B shares into Class A shares.
* * * *
Because the foregoing only summarizes some of the important federal income tax
considerations affecting the Funds and their shareholders, please see the
further discussion in the Statement of Additional Information. Prospective
shareholders are urged to consult their tax advisors.
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Prospectus Page 29
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PaineWebber Tactical Allocation Fund
Balanced Fund
General Information
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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. Shares of one other series have
been authorized.
TACTICAL ALLOCATION FUND
Tactical Allocation Fund is a diversified 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.
SHARES
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 a 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
higher 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 its board members. The shares of
a Fund will be voted together 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. The shares of each series of
the Corporation or the Trust will be voted separately, except when an
aggregate vote of all the securities is required by law.
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 semiannual
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.
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Prospectus Page 30
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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.
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Prospectus Page 31
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PaineWebber Balanced Fund
PaineWebber Tactical Allocation Fund
Prospectus -- January 1, 1997
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. 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 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.
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