<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber Tactical
Allocation Fund (C) and the S&P 500 Index
The graph depicts the performance of PaineWebber Tactical Allocation Fund (C)
versus the S&P 500 Index. It is important to note PaineWebber Tactical
Allocation Fund is a professionally managed mutual fund while the Index is
not available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
[GRAPH]
<TABLE>
<CAPTION>
PaineWebber Tactical Allocation Fund (C) S&P 500 Index
<S> <C> <C>
7/22/92 10000 10000
8/31/92 10100 10196
11/30/92 10550 10702
2/28/93 10868 11073
5/31/93 11040 11328
8/31/93 11374 11743
11/30/93 11361 11781
2/28/94 11516 11994
5/31/94 11278 11809
8/31/94 11767 12384
11/30/94 11249 11904
2/28/95 11974 12875
5/31/95 13115 14189
8/31/95 13834 15037
11/30/95 14945 16300
2/29/96 15789 17338
5/31/96 15519 18220
8/31/96 16119 17852
11/30/96 18739 20839
2/28/97 19565 21872
5/31/97 21011 23584
8/31/97 22277 25104
11/30/97 23653 26778
2/28/98 25979 29524
5/31/98 27071 30814
8/31/98 23723 27142
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Commencement of
One Year Five Years Operations
Ended 8/31/98 Ended 8/31/98 Through 8/31/98****
<S> <C> <C> <C> <C>
Class A* 7.31% 16.70% 16.75%
% Return Without Deducting Class B** 6.49% N/A 17.76%
Maximum Sales Charge Class C*** 6.49% 15.84% 15.17%
Class A* 2.47% 15.62% 15.74%
% Return After Deducting Class B** 1.49% N/A 16.86%
Maximum Sales Charge Class C*** 5.49% 15.84% 15.17%
</TABLE>
* Maximum sales charge for Class A shares is 4.5% of the public
offering price. Class A Shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5%
and is reduced to 0% after six years. Class B Shares bear ongoing 12b-1
service fees.
*** Maximum contingent deferred sales charge for Class C shares is 1%
and is reduced to 0% after one year. Class C Shares bear ongoing 12b-1
service fees.
**** Commencement of issuance was May 10, 1993 for Class A shares,
January 30, 1996 for Class B shares and July 22, 1992 for Class C shares.
The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs sponsored by
PaineWebber that may invest in PaineWebber mutual funds. For the one-year and
five-year periods ended August 31, 1998, and since inception on May 10, 1993
to August 31, 1998, Class Y shares have produced average annual total returns
of 7.62%, 17.00% and 17.06%, respectively. Class Y shares do not bear initial
or contingent deferred sales charges or ongoing distribution and service fees.
The investment return and the principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1
<PAGE>
ANNUAL REPORT October 15, 1998
Dear Shareholder,
We are pleased to present you with the annual report for the PaineWebber
Tactical Allocation Fund (the "Fund") for the fiscal year ended August 31,
1998.
PAINEWEBBER TACTICAL ALLOCATION FUND
FUND PROFILE
[GRAPHIC]Goal:
Total return consisting of long-term capital appreciation and current income
[GRAPHIC]Portfolio Manager:
T. Kirkham Barneby, Mitchell Hutchins Asset Management Inc.
[GRAPHIC]Total Net Assets:
$1,296.0 million as of August 31, 1998
[GRAPHIC]Dividend Payments:
Annually
GENERAL MARKET OVERVIEW
[GRAPHIC]The Fund's fiscal year ended on a tumultuous note as investors
reacted to global uncertainty by pulling money out of the U.S. stock markets.
Concerns about exposure to over-leveraged hedge funds and emerging markets
caused a sell-off in financial stocks as investors backed away from
credit-quality and liquidity problems. Weakness in global markets also hurt
economically sensitive companies in the United States as concern spread about
a potential pullback of consumer spending. Larger-capitalization stocks held
up better than mid- or small-caps, though some of the larger stocks were
affected as well. As stocks became more volatile, investors shifted some of
their assets into bonds, causing yields to fall and prices to rise.
PORTFOLIO REVIEW
PERFORMANCE
[GRAPHIC]The Fund's total return (the net asset value change with dividends
reinvested) for the fiscal year ended August 31, 1998, without deducting
sales charges, was 7.31% for Class A shares, 6.49% for Class B shares, 6.49%
for Class C shares and 7.62% for Class Y shares. All share classes
outperformed the 2.60% median return of their Lipper peer group without
deducting sales charges.
The Fund's total return may be lower for shareowners that purchased or
redeemed shares during the period. After deducting the maximum applicable
sales charges, Class A shares gained 2.47%, Class B shares gained 1.49% and
Class C shares gained 5.49%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS--
Management employs the Tactical Allocation Model (the "Model") to determine
the Fund's asset mix between an equity portion designed to track the
performance of the S&P 500 Index and a fixed-income portion consisting of
either bonds (five-year U.S. Treasury notes) or cash (30-day U.S. Treasury
bills). The Model is a systematic, quantitative approach to calculating the
risk premium-the return advantage-of stocks and bonds. The Model compares
the expected return of the stock market and of bonds with the "risk-free"
asset (the one-year Treasury bill) to determine the equity risk premium (ERP)
and bond risk premium (BRP).
Historically, the ERP has averaged about five percentage points per year. If
the ERP is 5.5% or greater, the Fund is fully invested in stocks. If the ERP
falls below the 5.5% hurdle rate, it indicates that the expected
PAINEWEBBER
TACTICAL
ALLOCATION
FUND
Top 10 Holdings
August 31, 1998(1)
General Electric Co. 3.4%
Microsoft Corp. 3.1%
Coca-Cola Co. 2.1%
Exxon Corp. 2.1%
Merck & Co. Inc. 1.8%
Wal Mart Stores Inc. 1.7%
Intel Corp. 1.6%
Pfizer Inc. 1.6%
International Business Machines 1.4%
Procter & Gamble Co. 1.3%
(1) All portfolio weightings represent
percentages of net assets and are
subject to change.
2
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND ANNUAL REPORT
return of the stock market does not fully compensate investors for the
expected risk of owning stocks. Therefore, some or all of the Fund's assets
would be shifted to bonds or cash, depending on the bond risk premium. For
every 0.5% that the ERP drops below 5.5%, the Model would signal that another
25% of the Fund's assets should be shifted out of stocks.
Historically, the BRP has averaged 0.5%. If this spread is 0.5% or greater,
the fixed-income portion, if any, is invested in bonds; if the spread is less
than 0.5%, any fixed income portion is allocated to cash (the 30-day Treasury
bill).
The Fund's Model attempts to outperform the S&P 500 Index over the long term
with less volatility by shifting assets between stocks and bonds or cash. Of
course, as with all investment disciplines, there is no guarantee the Model
will accurately anticipate significant shifts in the markets and correctly
determine when to move into or out of stocks, bonds or cash.
The Fund was fully invested in stocks included in the S&P 500 Index from the
beginning of the fiscal year until the end of March 1998. On the first
business day of April, the Fund's Model calculated the ERP at 5.43%, below
the 5.5% threshold. This decline triggered a shift in the Fund's allocation
from a full investment in stocks to a 75% weighting in stocks. Since the BRP
was less than 0.5%, the 25% reduction in stocks was allocated to cash (the
30-day Treasury bill).
The reduced stock allocation remained in place through April and May, with a
25% allocation to cash. In June the ERP again rose above 5.5% and the Fund
returned to a fully invested position in stocks. As of August 31, 1998 it
remained 100% invested in stocks. We attribute the increase in the ERP
primarily to the stock market declines and interest-rate declines that
occurred in the latter part of the Fund's fiscal year.
Since the semiannual period ended on February 28, the Fund's weightings in
financial services and technology companies have increased, reflecting
changes in the market weightings of these sectors in the S&P 500 Index (see
chart at right).
PAINEWEBBER
TACTICAL
ALLOCATION
FUND
Top Five Equity Sectors(1)
2/28/98 8/31/98
Financial services 17.20% 18.70%
Technology 13.30% 15.90%
Consumer cyclical 13.00% 13.80%
Healthcare 12.60% 12.30%
Consumer noncyclical 10.50% 10.80%
(1) All portfolio weightings represent
percentages of net assets and are
subject to change.
3
<PAGE>
ANNUAL REPORT
OUTLOOK
[GRAPHIC]
As we enter the next reporting period, key economic indicators--GDP growth,
inflation, corporate profits and long- and short-term interest rates--are
showing declines. The Fund's next move will depend upon the interactions of
the variables in the Model--short-term interest-rate moves, stock valuations
and changes in dividend growth expectations.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued
support and welcome any comments or questions you may have.
For a quarterly FUND PROFILE on PaineWebber Tactical Allocation Fund or
another fund in the PaineWebber Family of Funds,2 please contact your
investment executive.
Sincerely,
/s/ MARGO ALEXANDER /s/ T. KIRKHAM BARNEBY
MARGO ALEXANDER T. KIRKHAM BARNEBY
President Managing Director and Chief Investment Officer
Mitchell Hutchins Quantitative Investments
Asset Management Inc. Mitchell Hutchins Asset Management Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended August 31, 1998, and reflects our
views at the time of writing this report. Of course, these views may change
in response to changing circumstances. We encourage you to consult your
investment executive regarding your personal investment program.
(2) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
4
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
---------------------------------- -----------------------------------
12 MONTHS 6 MONTHS
08/31/98 02/28/98 08/31/97 ENDED 08/31/98 ENDED 08/31/98
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Class A Shares $23.55 $25.69 $22.23 7.31% (8.33)%
- ---------------------------------------------------------------------------------------------------------
Class B Shares 23.32 25.55 22.08 6.49 (8.73)
- ---------------------------------------------------------------------------------------------------------
Class C Shares 23.45 25.68 22.18 6.49 (8.68)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
05/10/93-12/31/93 $12.90 $ 13.49 $ 0.0440 $ 0.1980 6.48%
- ---------------------------------------------------------------------------------------------------------------
1994 13.49 12.20 0.9720 0.2340 (0.59)
- ---------------------------------------------------------------------------------------------------------------
1995 12.20 15.16 1.0555 0.2407 35.12
- ---------------------------------------------------------------------------------------------------------------
1996 15.16 18.21 0.0811 0.1358 21.53
- ---------------------------------------------------------------------------------------------------------------
1997 18.21 23.73 0.1769 0.1204 32.00
- ---------------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 23.73 23.55 -- -- (0.76)
- ---------------------------------------------------------------------------------------------------------------
Totals: $ 2.3295 $ 0.9289
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 127.73%
- ---------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
----------------------
CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
1/30/96-12/31/96 $15.54 $ 18.18 $ 0.0811 $ 0.0879 18.06%
- ---------------------------------------------------------------------------------------------------------------
1997 18.18 23.63 0.1769 0.0116 31.05
- ---------------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 23.63 23.32 -- -- (1.31)
- ---------------------------------------------------------------------------------------------------------------
Totals: $ 0.2580 $ 0.0995
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 52.69%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
07/22/92-12/31/92 $12.00 $ 12.72 $ 0.0020 $ 0.0790 6.67%
- ---------------------------------------------------------------------------------------------------------------
1993 12.72 13.51 0.0440 0.1340 7.64
- ---------------------------------------------------------------------------------------------------------------
1994 13.51 12.23 0.9720 0.1300 (1.28)
- ---------------------------------------------------------------------------------------------------------------
1995 12.23 15.20 1.0555 0.1259 34.09
- ---------------------------------------------------------------------------------------------------------------
1996 15.20 18.26 0.0811 0.0008 20.66
- ---------------------------------------------------------------------------------------------------------------
1997 18.26 23.75 0.1661 -- 31.01
- ---------------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 23.75 23.45 -- -- (1.26)
- ---------------------------------------------------------------------------------------------------------------
Totals: $ 2.3207 $0.4697
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 137.23%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and capital gain distributions
at net asset value on the payable dates and do not include sales charges;
results for each class would be lower if sales charges were included.
Note: The Fund offers Class Y shares to a limited group of eligible
investors, including participants in certain investment programs that are
sponsored by PaineWebber and may invest in PaineWebber mutual funds. For the
year ended August 31, 1998 and since inception, May 10, 1993 through August
31, 1998, Class Y shares have a total return of 7.62% and 130.98%,
respectively. Class Y shares do not have initial or contingent deferred sales
charges or ongoing distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
5
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
COMMON STOCKS--100.02%
AGRICULTURE, FOOD & BEVERAGE--5.18%
100,569 Archer-Daniels-Midland Co............... $ 1,508,534
48,950 Bestfoods Co.*.......................... 2,456,678
76,800 Campbell Soup Co........................ 3,868,800
81,000 Conagra, Inc............................ 2,004,750
26,800 General Mills, Inc...................... 1,753,725
61,850 Heinz, H. J. and Co..................... 3,297,378
24,300 Hershey Foods Corp...................... 1,701,000
68,600 Kellogg Co.............................. 2,092,300
252,300 Pepsico, Inc............................ 6,985,557
41,600 Pioneer Hi-Bred International, Inc...... 1,404,000
23,800 Quaker Oats Co.......................... 1,264,375
53,300 Ralston Purina Co....................... 1,402,456
25,200 Supervalue, Inc......................... 511,875
57,300 Sysco Corp.............................. 1,156,744
419,800 The Coca-Cola Co........................ 27,339,475
108,400 Unilever N.V............................ 6,869,850
19,700 Wrigley, Wm. Jr. Co.(1)................. 1,526,750
-------------
67,144,247
-------------
AIRLINES--0.38%
30,700 AMR Corporation*........................ 1,673,150
12,700 Delta Air Lines, Inc.................... 1,295,400
56,600 Southwest Airlines Co.(1)............... 1,008,188
17,200 US Airways Group, Inc.*................. 1,001,900
-------------
4,978,638
-------------
ALCOHOL--0.35%
83,100 Anheuser-Busch Companies, Inc........... 3,832,988
12,000 Brown Forman Corp....................... 720,000
-------------
4,552,988
-------------
APPAREL, RETAIL--0.53%
66,850 Gap, Inc................................ 3,413,528
12,500 Harcourt General, Inc................... 607,031
38,719 Limited, Inc............................ 808,259
26,400 Nordstrom, Inc.......................... 790,350
54,200 TJX Companies, Inc...................... 1,209,338
-------------
6,828,506
-------------
APPAREL, TEXTILES--0.54%
15,100 Fruit of the Loom, Inc.*................ 338,806
12,800 Liz Claiborne, Inc...................... 364,800
48,700 Nike Inc................................ 1,689,282
12,700 Reebok International Ltd.*.............. 205,581
79,300 Sara Lee Corp........................... 3,588,325
21,200 V. F. Corp.............................. 802,950
-------------
6,989,744
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
BANKS--7.70%
118,027 Banc One Corp........................... $ 4,485,026
115,700 BankAmerica Corp........................ 7,412,031
16,600 Bankers Trust New York Corp............. 1,233,587
49,700 Bank of Boston Corp..................... 1,773,669
126,800 Bank of New York Co. Inc................ 3,066,975
47,600 BB & T Corp............................. 1,341,725
76,500 Citicorp................................ 8,271,562
26,900 Comerica, Inc........................... 1,405,525
44,400 Fifth Third Bancorp..................... 2,361,525
48,572 First Chicago Corp...................... 3,078,250
164,304 First Union Corp........................ 7,968,744
47,916 Fleet Financial Group, Inc.............. 3,141,493
36,440 Huntington Bancshares, Inc.............. 829,010
30,200 J.P. Morgan & Co., Inc.................. 2,808,600
74,080 KeyCorp................................. 1,889,040
43,900 Mellon Bank Corp........................ 2,282,800
25,500 Mercantile Bancorporation, Inc.......... 1,120,406
55,500 National City Corp...................... 3,260,625
162,135 NationsBank Corp........................ 9,241,695
19,200 Northern Trust Corp..................... 1,070,400
128,100 Norwest Corp............................ 3,810,975
50,800 PNC Bank Corp........................... 2,184,400
31,300 Regions Financial Corp.................. 1,083,763
18,600 Republic New York Corp.................. 767,250
27,000 State Street Corp....................... 1,405,687
30,400 Summit Bancorp, Inc..................... 1,037,400
35,900 Suntrust Banks, Inc.(1)................. 2,010,400
46,650 Synovus Financial Corp.................. 848,447
144,640 The Chase Manhattan Corp................ 7,665,920
126,645 US Bancorp, Inc......................... 4,321,761
35,100 Wachovia Corp........................... 2,573,269
14,466 Wells Fargo and Co...................... 4,077,604
-------------
99,829,564
-------------
CHEMICALS--2.64%
38,500 Air Products & Chemicals, Inc........... 1,176,656
14,100 Ashland, Inc............................ 642,431
19,400 Avery Dennison Corp..................... 1,041,537
37,900 Dow Chemical Co......................... 2,956,200
190,500 DuPont (E.I.) de Nemours & Co........... 10,989,469
13,400 Eastman Chemical Co..................... 690,938
27,650 Engelhard Corp.......................... 508,069
7,900 FMC Corp.*.............................. 408,825
14,900 Goodrich, B.F. Co....................... 403,231
11,700 Great Lakes Chemical Corp............... 457,763
16,800 Hercules, Inc........................... 429,450
18,000 International Flavors and Fragrances.... 697,500
10,700 Kerr-Mcgee Corp......................... 413,288
101,100 Monsanto Co............................. 5,528,906
</TABLE>
6
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
CHEMICALS (CONCLUDED)
<TABLE>
<C> <S> <C>
24,000 Morton International, Inc............... $ 534,000
12,700 Nalco Chemical Co....................... 367,506
63,500 Occidental Petroleum Corp............... 1,174,750
29,200 PPG Industries, Inc..................... 1,483,725
26,100 Praxair, Inc............................ 936,337
9,900 Rohm & Haas Co.......................... 854,494
29,500 Sherwin Williams Co..................... 704,313
28,600 Tenneco, Inc............................ 906,262
22,700 Union Carbide Corp...................... 912,256
-------------
34,217,906
-------------
COMPUTER HARDWARE--6.05%
59,800 3Com Corp.*............................. 1,416,513
23,800 Apple Computer, Inc.*................... 742,263
33,200 Cabletron Systems, Inc.*................ 232,400
173,150 Cisco Systems, Inc.*(1)................. 14,176,656
279,462 Compaq Computer Corp.................... 7,807,470
109,100 Dell Computer Corp.*.................... 10,910,000
84,200 EMC Corp.*.............................. 3,804,787
26,300 Gateway 2000 Incorporated............... 1,244,319
175,100 Hewlett-Packard Co...................... 8,503,294
159,500 International Business Machines......... 17,963,687
46,300 Pitney Bowes, Inc....................... 2,297,637
41,800 Seagate Technology, Inc.*............... 731,500
37,000 Silicon Graphics, Inc.*................. 335,313
64,100 Sun Microsystems Inc.*.................. 2,539,962
43,400 Unisys Corp.*........................... 778,488
55,700 Xerox Corp.(1).......................... 4,891,156
-------------
78,375,445
-------------
COMPUTER SOFTWARE--3.69%
13,400 Adobe Systems, Inc...................... 351,750
92,062 Computer Associates International
Inc................................... 2,485,674
417,900 Microsoft Corp.*........................ 40,092,281
64,200 Novell, Inc.*........................... 609,900
164,212 Oracle Systems Corp.*................... 3,273,977
47,500 Parametric Technology Corp.*............ 486,875
28,100 Thermo Electron Corp.*.................. 456,625
-------------
47,757,082
-------------
CONSTRUCTION, REAL PROPERTY--0.22%
9,600 Armstrong World Industries, Inc......... 460,800
13,600 Centex Corp............................. 481,100
16,400 Fluor Corp.............................. 648,825
57,100 Masco Corp.............................. 1,313,300
-------------
2,904,025
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
CONSUMER DURABLES--0.11%
16,600 Maytag Corp............................. $ 715,875
13,300 Whirlpool Corp.......................... 660,013
-------------
1,375,888
-------------
DEFENSE/AEROSPACE--1.36%
95,500 Allied-Signal, Inc...................... 3,276,844
171,078 Boeing Co............................... 5,292,726
22,200 General Dynamics Corp................... 1,055,887
33,230 Lockheed Martin Corp.................... 2,905,548
11,700 Northrop Grumman Corp................... 741,487
57,600 Raytheon Co.(1)......................... 2,628,000
27,800 Textron Inc............................. 1,744,450
-------------
17,644,942
-------------
DIVERSIFIED RETAIL--2.91%
74,500 Dayton Hudson Corp...................... 2,682,000
18,600 Dillard Department Stores, Inc.......... 537,075
35,600 Federated Department Stores, Inc.*(1)... 1,550,825
82,300 K Mart Corp.*........................... 1,049,325
26,800 Kohls Corp.*(1)......................... 1,217,725
39,000 May Department Stores Co................ 2,193,750
26,200 Meyer (Fred) Incorporated Inc.(1)....... 1,029,987
42,700 Penney, J.C., Inc....................... 2,116,319
65,900 Sears Roebuck & Co...................... 2,994,331
380,300 Wal Mart Stores, Inc.................... 22,342,625
-------------
37,713,962
-------------
DRUGS & MEDICINE--8.77%
12,400 Allergan, Inc........................... 585,900
16,900 Alza Corp.*............................. 608,400
221,900 American Home Products Corp............. 11,122,738
42,800 Amgen, Inc.*............................ 2,605,450
169,100 Bristol-Myers Squibb Co................. 16,550,663
22,400 Cardinal Health Inc..................... 1,960,000
187,560 Lilly, Eli & Co......................... 12,285,180
202,600 Merck & Co., Inc........................ 23,488,937
221,800 Pfizer, Inc............................. 20,627,400
85,590 Pharmacia & Upjohn Inc.................. 3,557,334
124,500 Schering-Plough Corp.................... 10,707,000
17,900 Sigma Aldrich Corp...................... 496,725
138,900 Warner Lambert Co....................... 9,063,225
-------------
113,658,952
-------------
ELECTRIC UTILITIES--2.89%
23,600 Ameren Corp............................. 933,675
32,500 American Electric Power, Inc............ 1,470,625
25,300 Baltimore Gas & Electric Co............. 779,556
25,700 Carolina Power & Light Co............... 1,106,706
</TABLE>
7
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES (CONCLUDED)
<TABLE>
<C> <S> <C>
36,800 Central & South West Corp............... $ 961,400
26,625 Cinergy Corp............................ 925,219
40,200 Consolidated Edison Co. of New York,
Inc................................... 1,901,963
33,500 Dominion Resources, Inc................. 1,396,531
25,100 DTE Energy Co.(1)....................... 1,057,338
60,606 Duke Energy Co.......................... 3,780,299
60,600 Edison International, Inc............... 1,723,313
42,100 Entergy Corp............................ 1,213,006
39,400 Firstenergy Corp........................ 1,137,675
31,600 FPL Group, Inc.......................... 2,103,375
21,700 General Public Utilities Corp........... 815,106
50,094 Houston Industries, Inc................. 1,443,333
40,100 Niagara Mohawk Power Corp.*............. 621,550
25,400 Northern States Power Co................ 673,100
49,600 PacifiCorp.............................. 1,119,100
38,500 PECO Energy Co.......................... 1,318,625
28,900 Pennsylvania Power & Light Co.(1)....... 680,956
64,700 PG&E Corp............................... 2,078,488
39,400 Public Service Enterprise Group,
Inc.(1)............................... 1,443,025
119,200 Southern Co............................. 3,352,500
47,352 Texas Utilities Co...................... 2,012,460
37,800 Unicom Corp............................. 1,346,625
-------------
37,395,549
-------------
ELECTRICAL EQUIPMENT--2.43%
12,900 Eaton Corp.............................. 755,456
25,500 General Instrument Corp.*............... 506,813
15,400 Harris Corp............................. 490,875
21,300 Honeywell, Inc.......................... 1,331,250
15,200 Johnson Controls, Inc................... 650,750
15,400 KLA-Tencor Corp.*....................... 327,250
222,260 Lucent Technologies Inc.(1)............. 15,752,677
100,700 Motorola Inc............................ 4,336,394
110,340 Northern Telecommunications Ltd......... 5,268,735
9,300 Perkin Elmer Corp....................... 538,237
11,300 Tektronix, Inc.......................... 171,619
32,700 Tellabs, Inc.*(1)....................... 1,381,575
-------------
31,511,631
-------------
ELECTRICAL POWER--4.17%
36,484 AMP, Inc................................ 1,302,023
17,500 Andrew Corp.*........................... 259,219
21,000 Cooper Industries, Inc.................. 893,812
73,800 Emerson Electric Co..................... 4,206,600
553,500 General Electric Co..................... 44,280,000
9,700 General Signal Corp..................... 356,475
17,000 Grainger,W.W., Inc...................... 666,187
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
ELECTRICAL POWER (CONCLUDED)
<TABLE>
<C> <S> <C>
16,300 Raychem Corp............................ $ 472,700
32,500 Rockwell International Corp............. 1,178,125
11,100 Thomas & Betts Corp..................... 378,094
-------------
53,993,235
-------------
ENERGY RESERVES & PRODUCTION--6.21%
161,000 Amoco Corp.............................. 7,295,313
22,700 Anadarko Petroleum Corp................. 652,625
19,800 Apache Corp............................. 452,925
53,600 Atlantic Richfield Co................... 3,108,800
31,200 Burlington Resources, Inc............... 922,350
110,000 Chevron Corp............................ 8,146,875
413,800 Exxon Corp.............................. 27,078,038
131,400 Mobil Corp.............................. 9,083,025
25,100 Oryx Energy Co.*........................ 312,181
11,100 Pennzoil Co............................. 396,825
43,300 Phillips Petroleum Co.(1)............... 1,767,181
362,100 Royal Dutch Petroleum Co................ 14,393,475
91,100 Texaco, Inc............................. 5,061,744
48,036 Union Pacific Resources Group Inc....... 411,308
42,500 Unocal Corp............................. 1,330,781
-------------
80,413,446
-------------
ENTERTAINMENT--1.99%
121,500 CBS Corp.*.............................. 3,159,000
345,700 Disney, Walt Co......................... 9,485,144
14,300 King World Productions, Inc.*........... 300,300
58,200 Seagram Co. Ltd......................... 1,796,925
100,000 Time Warner Inc......................... 8,037,500
60,149 Viacom, Inc., Class B*.................. 2,984,894
-------------
25,763,763
-------------
ENVIRONMENTAL SERVICES--0.44%
30,600 Browning Ferris Industries, Inc......... 994,500
63,600 Laidlaw Inc............................. 548,550
95,357 Waste Management Inc.................... 4,207,628
-------------
5,750,678
-------------
FINANCIAL SERVICES--2.81%
78,200 American Express Co..................... 6,099,600
28,600 AON Corp................................ 1,789,288
58,595 Associates First Capital Corp........... 3,464,429
11,300 Capital One Financial Corp.............. 988,750
18,500 Countrywide Credit Industries, Inc...... 692,594
30,300 Dun & Bradstreet Corporation Corp....... 712,050
115,100 Federal Home Loan Mortgage Corp......... 4,546,450
175,800 Federal National Mortgage Association... 9,987,637
</TABLE>
8
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (CONCLUDED)
<TABLE>
<C> <S> <C>
82,645 Household International, Inc............ $ 3,052,700
43,450 Marsh & McLennan Companies, Inc......... 2,107,325
84,100 MBNA Corp............................... 1,976,350
28,600 SLM Holding Corp........................ 1,026,025
-------------
36,443,198
-------------
FOREST PRODUCTS, PAPER--1.03%
11,200 Bemis, Inc.............................. 401,800
16,500 Boise Cascade Corp...................... 403,219
20,400 Champion International Corp............. 673,200
37,300 Fort James Corp......................... 1,086,362
17,900 Georgia-Pacific Corp.................... 767,462
27,600 Ikon Office Solutions Inc............... 153,525
50,000 International Paper Co.................. 1,850,000
92,220 Kimberly Clark Corp..................... 3,515,887
26,700 Louisiana Pacific Corp.................. 503,963
23,400 Mead Corp............................... 640,575
12,000 Temple-Inland, Inc...................... 537,750
15,500 Union Camp Corp......................... 574,469
22,300 Westvaco Corp........................... 468,300
32,700 Weyerhaeuser Co......................... 1,228,294
24,500 Willamette Industries, Inc.............. 603,313
-------------
13,408,119
-------------
FOOD RETAIL--0.49%
41,900 Albertson's, Inc........................ 2,118,569
47,000 American Stores Co...................... 1,363,000
43,800 Kroger Co.*............................. 1,971,000
25,500 Winn Dixie Stores, Inc.................. 949,875
-------------
6,402,444
-------------
FREIGHT, AIR, SEA & LAND--0.10%
24,700 FDX Corp.*.............................. 1,236,544
-------------
GAS UTILITY--0.26%
14,100 Columbia Energy Group................... 701,475
15,700 Consolidated Natural Gas Co............. 687,856
10,900 NICOR, Inc.............................. 423,056
41,011 Sempra Energy........................... 1,043,217
21,000 Sonat, Inc.............................. 568,313
-------------
3,423,917
-------------
HEAVY MACHINERY--0.41%
19,200 Brunswick Corp.......................... 286,800
15,300 Case Corp............................... 413,100
61,100 Caterpillar, Inc........................ 2,577,657
9,900 Cummins Engine Co., Inc................. 402,806
41,100 Deere & Co.............................. 1,353,731
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
HEAVY MACHINERY (CONCLUDED)
<TABLE>
<C> <S> <C>
14,800 McDermott International, Inc............ $ 296,925
-------------
5,331,019
-------------
HOTELS--0.22%
19,550 Harrah's Entertainment Inc.*............ 282,253
40,700 Hilton Hotels Corp...................... 844,525
43,000 Marriott International, Inc............. 1,206,688
32,200 Mirage Resorts, Inc.*................... 478,975
-------------
2,812,441
-------------
HOUSEHOLD PRODUCTS--2.74%
11,800 Alberto Culver Co....................... 236,000
22,300 Avon Products Inc....................... 1,402,112
17,700 Clorox Co............................... 1,706,944
50,000 Colgate-Palmolive Co.................... 3,606,250
29,100 Fortune Brands Inc...................... 802,069
190,000 Gillette Co............................. 7,813,750
26,800 Newell Co............................... 1,279,700
13,200 Owens-Corning Fiberglass................ 462,825
226,800 Procter & Gamble Co..................... 17,350,200
25,100 Rubbermaid, Inc......................... 638,481
13,200 Tupperware Corp......................... 249,150
-------------
35,547,481
-------------
INDUSTRIAL PARTS--0.88%
16,400 Black & Decker Corp..................... 682,650
9,800 Crane Co................................ 394,450
38,200 Dover Corp.............................. 1,040,950
29,850 Genuine Parts Co........................ 934,678
41,700 Illinois Tool Works, Inc................ 2,019,844
28,550 Ingersoll Rand Co....................... 1,134,862
24,966 Pall Corp............................... 511,803
20,600 Parker-Hannifin Corp.................... 597,400
12,150 Snap-On, Inc............................ 318,938
16,800 Stanley Works........................... 661,500
14,100 Timken Co............................... 256,444
39,000 United Technologies Corp................ 2,829,937
-------------
11,383,456
-------------
INDUSTRIAL SERVICES/SUPPLIES--0.27%
142,921 Cendant Corp.*.......................... 1,652,524
22,400 Ecolab, Inc............................. 623,000
8,400 National Service Industries, Inc........ 312,900
17,300 Ryder Systems, Inc...................... 407,631
14,413 Sealed Air Corp.(1)..................... 518,868
-------------
3,514,923
-------------
</TABLE>
9
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
INFORMATION & COMPUTER SERVICES--1.49%
32,600 Ascend Communications Inc.*............. $ 1,141,000
50,900 Automatic Data Processing, Inc.......... 3,244,875
17,400 Block, H&R, Inc......................... 680,775
13,000 Ceridian Corp.*......................... 630,500
26,400 Computer Sciences Corp.*................ 1,493,250
16,500 Dow Jones & Co., Inc.................... 821,906
82,900 Electronic Data Systems Corp............ 2,777,150
25,300 Equifax Inc............................. 901,313
74,600 First Data Corp......................... 1,543,287
72,500 HBO & Co................................ 1,540,625
27,600 IMS Health Inc.......................... 1,518,000
23,100 Interpublic Group Companies, Inc........ 1,316,700
28,800 Omnicom Group........................... 1,371,600
5,500 Shared Medical System Corp.............. 293,563
-------------
19,274,544
-------------
LEISURE--0.53%
54,600 Eastman Kodak Co........................ 4,265,625
22,300 Hasbro, Inc............................. 698,269
49,283 Mattel Inc.(1).......................... 1,595,537
9,700 Polaroid Corp........................... 272,812
-------------
6,832,243
-------------
LIFE INSURANCE--1.10%
24,197 Aetna Life & Casualty Co................ 1,456,357
42,988 American General Corp................... 2,761,979
51,962 Conseco Inc............................. 1,435,450
18,025 Jefferson-Pilot Corp.................... 1,022,919
17,300 Lincoln National Corp................... 1,487,800
16,200 Providian Corp.......................... 1,039,837
33,150 SunAmerica Inc.......................... 2,053,228
23,600 Torchmark, Inc.......................... 843,700
10,700 Transamerica Corp....................... 1,097,419
23,300 UNUM Corp............................... 1,025,200
-------------
14,223,889
-------------
LONG DISTANCE & PHONE COMPANIES--6.82%
46,200 Alltel Corp............................. 2,084,775
186,300 Ameritech Corp.......................... 8,779,388
307,200 AT&T Corp............................... 15,398,400
262,604 Bell Atlantic Corp...................... 11,587,401
167,900 BellSouth Corp.......................... 11,511,644
30,200 Frontier Corp........................... 917,325
162,900 GTE Corp................................ 8,145,000
122,500 MCI Communications Corp................. 6,125,000
311,502 SBC Communications, Inc.(1)............. 11,837,076
72,800 Sprint Corp............................. 4,882,150
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
LONG DISTANCE & PHONE COMPANIES (CONCLUDED)
<TABLE>
<C> <S> <C>
174,400 WorldCom, Inc.*(1)...................... $ 7,139,500
-------------
88,407,659
-------------
MEDIA--0.67%
42,300 Clear Channel Communications*........... 1,903,500
62,800 Comcast Corp., Class A Special.......... 2,347,150
15,800 Scientific-Atlanta, Inc................. 279,462
86,500 Tele-Communications, Inc. Class A*(1)... 2,854,500
20,900 Tribune Co.............................. 1,346,744
-------------
8,731,356
-------------
MEDICAL PRODUCTS--3.88%
261,000 Abbott Laboratories..................... 10,048,500
11,900 Bard, C.R. Inc.......................... 389,725
10,400 Bausch & Lomb, Inc.(1).................. 440,050
47,000 Baxter International, Inc............... 2,502,750
41,600 Becton, Dickinson & Co.................. 1,385,800
19,900 Biomet, Inc............................. 534,812
32,700 Boston Scientific Corp.*................ 2,264,475
25,500 Guidant Corp............................ 1,574,625
228,000 Johnson & Johnson(1).................... 15,732,000
14,500 Mallinckrodt Group, Inc................. 331,687
79,400 Medtronic, Inc.......................... 4,079,175
67,800 Minnesota Mining & Manufacturing
Co.(1)................................ 4,644,300
15,900 St. Jude Medical, Inc................... 350,794
98,400 Tyco International Ltd.(1).............. 5,461,200
13,700 U.S. Surgical Corp...................... 547,144
-------------
50,287,037
-------------
MEDICAL PROVIDERS--0.73%
108,627 Columbia/HCA Healthcare Corp............ 2,450,897
38,400 Corning, Inc............................ 945,600
70,700 HEALTHSOUTH Corp.*...................... 1,338,881
28,900 Humana Inc.*............................ 375,700
12,900 Manor Care, Inc......................... 309,600
43,600 Service Corp. International............. 1,476,950
52,200 Tenet Healthcare Corp.*................. 1,347,412
32,000 United Healthcare Corp.................. 1,156,000
-------------
9,401,040
-------------
MINING & METALS--0.58%
42,800 Alcan Aluminum Ltd...................... 813,200
30,800 Aluminum Co. of America................. 1,844,150
21,300 Crown Cork & Seal, Inc.................. 697,575
35,100 Freeport-McMoran Copper & Gold, Inc..... 408,037
41,200 Inco Ltd................................ 345,050
</TABLE>
10
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
MINING & METALS (CONCLUDED)
<TABLE>
<C> <S> <C>
16,400 Nucor Corp.............................. $ 589,375
26,100 Owens Illinois Inc.*(1)................. 813,994
12,200 Phelps Dodge Corp....................... 545,950
14,800 Reynolds Metals Co...................... 709,475
21,900 USX-U.S. Steel Group, Inc............... 458,531
23,600 Worthington Industries, Inc.(1)......... 306,800
-------------
7,532,137
-------------
MOTOR VEHICLES AND PARTS--1.97%
109,200 Chrysler Corp........................... 4,873,050
17,100 Cooper Tire & Rubber Co................. 273,600
27,300 DANA Corp............................... 1,069,819
205,500 Ford Motor Co........................... 9,042,000
112,600 General Motors Corp..................... 6,502,650
26,000 Goodyear Tire & Rubber Co............... 1,274,000
23,000 ITT Industries Inc...................... 692,875
14,800 Navistar International Corp.*........... 310,800
14,230 Paccar, Inc............................. 583,430
21,200 TRW, Inc................................ 908,950
-------------
25,531,174
-------------
OIL REFINING--0.59%
17,800 Amerada Hess Corp....................... 874,425
35,200 Coastal Corp............................ 915,200
55,200 Enron Corp.............................. 2,335,650
17,792 Sun Co., Inc............................ 588,248
48,000 USX-Marathon Group...................... 1,248,000
71,300 Williams Companies, Inc................. 1,639,900
-------------
7,601,423
-------------
OIL SERVICES--0.52%
65,960 Baker Hughes, Inc....................... 1,203,770
30,000 Dresser Industries, Inc................. 766,875
43,300 Halliburton Co.(1)...................... 1,150,156
83,100 Schlumberger Ltd........................ 3,640,819
-------------
6,761,620
-------------
OTHER INSURANCE--2.70%
141,884 Allstate Corp........................... 5,320,650
178,150 American International Group Inc........ 13,773,222
28,200 Chubb Corp.............................. 1,762,500
36,100 CIGNA Corp.............................. 2,100,569
28,400 Cincinnati Financial Corp............... 954,950
12,900 General Re Corp......................... 2,676,750
39,700 Hartford Financial Services Group Inc... 1,776,575
19,000 Loews Corp.............................. 1,603,125
16,500 MBIA Inc................................ 926,063
19,100 MGIC Investment Corp.................... 792,650
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
OTHER INSURANCE (CONCLUDED)
<TABLE>
<C> <S> <C>
23,500 SAFECO Corp............................. $ 954,687
38,864 St. Paul Companies, Inc................. 1,187,781
12,200 The Progressive Corp.................... 1,188,737
-------------
35,018,259
-------------
PRECIOUS METALS--0.16%
63,000 Barrick Gold Corp.(1)................... 819,000
46,700 Homestake Mining Co..................... 414,462
28,776 Newmont Mining Corp..................... 393,872
53,700 Placer Dome, Inc........................ 432,956
-------------
2,060,290
-------------
PUBLISHING--0.68%
12,900 American Greetings Corp., Class A(1).... 472,463
14,600 Deluxe Corp............................. 423,400
24,100 Donnelley, R.R. & Sons Co............... 873,625
48,000 Gannett Inc............................. 2,832,000
13,600 Knight Ridder, Inc...................... 647,700
17,000 McGraw-Hill Companies, Inc.............. 1,296,250
10,500 Meredith Corp........................... 352,406
32,700 New York Times Co., Class A............. 948,300
15,800 Times Mirror Co......................... 903,562
-------------
8,749,706
-------------
RAILROADS--0.56%
26,422 Burlington Northern Santa Fe, Inc....... 2,458,897
36,300 CSX Corp................................ 1,370,325
63,000 Norfolk Southern Corp................... 1,775,813
41,200 Union Pacific Corp.(1).................. 1,640,275
-------------
7,245,310
-------------
RESTAURANTS--0.65%
28,200 Darden Restaurants, Inc................. 437,100
116,300 McDonalds Corp.......................... 6,520,069
26,620 Tricon Global Restaurants Inc.*......... 986,604
23,300 Wendy's International, Inc.............. 467,456
-------------
8,411,229
-------------
SECURITIES & ASSET MANAGEMENT--1.74%
19,100 Bear Stearns Company Inc................ 705,506
44,900 Charles Schwab Corp.(1)................. 1,341,387
42,300 Franklin Resources Inc.(1).............. 1,364,175
19,900 Lehman Brothers Holdings Inc............ 783,563
58,500 Merrill Lynch & Co., Inc.(1)............ 3,861,000
101,600 Morgan Stanley Dean Witter & Co......... 5,899,150
194,677 Travelers Group Inc..................... 8,638,792
-------------
22,593,573
-------------
</TABLE>
11
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONCLUDED)
<TABLE>
<C> <S> <C>
SEMICONDUCTOR--2.11%
25,300 Advanced Micro Devices, Inc.*........... $ 333,644
36,580 Allegheny Teldyne, Inc.................. 550,986
61,100 Applied Materials, Inc.*................ 1,500,769
286,700 Intel Corp.............................. 20,409,456
24,000 LSI Logic Corp.*........................ 294,000
35,500 Micron Technology, Inc.................. 807,625
30,200 National Semiconductor Corp.*........... 275,575
65,700 Texas Instruments, Inc.................. 3,133,069
-------------
27,305,124
-------------
SPECIALTY RETAIL--1.95%
26,100 Autozone Inc.*.......................... 676,969
17,900 Circuit City Stores, Inc................ 552,663
19,700 Consolidated Stores Corp.*.............. 620,550
36,608 Costco Companies, Inc.*................. 1,722,864
65,500 CVS Corp................................ 2,382,562
24,800 Dollar General Corp..................... 666,500
249,100 Home Depot, Inc.(1)..................... 9,590,350
59,400 Lowe's Companies Inc.................... 2,082,712
44,100 Rite Aid Corp.(1)....................... 1,595,869
17,900 Tandy Corp.............................. 976,669
47,400 Toys R Us, Inc.*........................ 879,862
29,100 Venator Group Inc....................... 263,719
84,700 Walgreen Co............................. 3,260,950
-------------
25,272,239
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
THRIFT--0.29%
18,500 Ahmanson, H F & Co...................... $ 986,281
9,800 Golden West Financial Corp.............. 746,025
64,895 Washington Mutual, Inc.(1).............. 2,076,640
-------------
3,808,946
-------------
TOBACCO--1.38%
411,300 Phillip Morris Cos. Inc................. 17,094,656
30,900 UST, Inc................................ 807,263
-------------
17,901,919
-------------
WIRELESS TELECOMMUNICATIONS--1.15%
96,700 Airtouch Communications, Inc.*.......... 5,439,375
103,300 Mediaone Group Inc...................... 4,235,300
45,600 Nextel Communications Incorporated(1)... 823,650
85,171 US West Inc............................. 4,428,892
-------------
14,927,217
-------------
Total Common Stocks (cost--$1,230,658,552)-- 100.02%..... 1,296,181,667
Liabilities in excess of other assets--(0.02)%........... (229,483)
-------------
Net Assets--100.00%...................................... $1,295,952,184
-------------
-------------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Non-Income producing security
(1) Security, or portion thereof, was on loan at August 31,
1998.
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value
(cost--$1,230,658,552).................................... $1,296,181,667
Investments of cash collateral received for securities
loaned, at value (cost--$100,800,500)..................... 100,800,500
Receivable for shares of beneficial interest sold........... 12,496,924
Dividends and interest receivable........................... 2,580,342
Receivable for investments sold............................. 465,384
Other assets................................................ 111,991
--------------
Total assets................................................ 1,412,636,808
--------------
LIABILITIES
Collateral for securities loaned............................ 100,800,500
Payable for investments purchased........................... 4,288,070
Due to custodian............................................ 5,976,976
Payable for shares of beneficial interest repurchased....... 3,491,196
Payable to affiliates....................................... 1,508,688
Accrued expenses and other liabilities...................... 619,194
--------------
Total liabilities........................................... 116,684,624
--------------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount
authorized)............................................... 1,204,756,412
Undistributed net investment income......................... 2,320,658
Accumulated net realized gains from investment
transactions.............................................. 23,351,999
Net unrealized appreciation of investments.................. 65,523,115
--------------
Net assets.................................................. $1,295,952,184
--------------
--------------
CLASS A:
Net assets.................................................. $ 340,245,039
--------------
Shares outstanding.......................................... 14,450,368
--------------
Net asset value and redemption value per share.............. $23.55
--------------
--------------
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price)........................ $24.66
--------------
--------------
CLASS B:
Net assets.................................................. $ 483,067,565
--------------
Shares outstanding.......................................... 20,712,863
--------------
Net asset value and offering price per share................ $23.32
--------------
--------------
CLASS C:
Net assets.................................................. $ 397,767,229
--------------
Shares outstanding.......................................... 16,964,182
--------------
Net asset value and offering price per share................ $23.45
--------------
--------------
CLASS Y:
Net assets.................................................. $ 74,872,351
--------------
Shares outstanding.......................................... 3,162,118
--------------
Net asset value, offering price and redemption value per
share..................................................... $23.68
--------------
--------------
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
AUGUST 31,
1998
-------------
<S> <C>
INVESTMENT INCOME:
Dividends and interest (net of foreign withholding tax)..... $ 17,929,551
-------------
EXPENSES:
Investment advisory and administration...................... 4,895,190
Service fees--Class A....................................... 688,221
Service and distribution fees--Class B...................... 3,844,046
Service and distribution fees--Class C...................... 3,395,234
Transfer agency............................................. 810,227
Custody and accounting...................................... 742,125
Reports and notices to shareholders......................... 284,010
Federal and state registration.............................. 313,175
Legal and audit............................................. 144,200
Interest expense............................................ 123,330
Amortization of organizational expenses..................... 6,902
Trustees' fees.............................................. 13,500
Other expenses.............................................. 101,455
-------------
15,361,615
-------------
NET INVESTMENT INCOME....................................... 2,567,936
-------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT
ACTIVITIES:
Net realized gain from investment transactions.............. 24,149,522
Net change in unrealized appreciation/depreciation of
investments............................................... (37,398,869)
-------------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT
ACTIVITIES................................................ (13,249,347)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(10,681,411)
-------------
-------------
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED AUGUST 31,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income....................................... $ 2,567,936 $ 1,298,142
Net realized gains from investment transactions............. 24,149,522 6,528,545
Net change in unrealized appreciation/depreciation of
investments............................................... (37,398,869) 86,240,937
--------------- ---------------
Net increase (decrease) in net assets resulting from
operations................................................ (10,681,411) 94,067,624
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A.............................. (1,100,266) (334,066)
Net investment income--Class B.............................. (149,598) (260,230)
Net investment income--Class C.............................. -- (4,451)
Net investment income--Class Y.............................. (333,893) (118,419)
Net realized gains from investment transactions--Class A.... (1,616,587) (199,505)
Net realized gains from investment transactions--Class B.... (2,281,367) (240,097)
Net realized gains from investment transactions--Class C.... (1,955,927) (451,261)
Net realized gains from investment transactions--Class Y.... (357,325) (64,412)
--------------- ---------------
Total dividends and distributions to shareholders........... (7,794,963) (1,672,441)
--------------- ---------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares........................ 883,807,510 550,623,261
Cost of shares repurchased.................................. (256,918,262) (102,944,924)
Proceeds from dividends reinvested.......................... 7,433,176 1,553,373
--------------- ---------------
Net increase in net assets from beneficial interest
transactions.............................................. 634,322,424 449,231,710
--------------- ---------------
Net increase in net assets.................................. 615,846,050 541,626,893
NET ASSETS:
Beginning of year........................................... 680,106,134 138,479,241
--------------- ---------------
End of year (including undistributed net investment of
income of $2,320,658 and
$1,084,753, respectively)................................. $1,295,952,184 $ 680,106,134
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Tactical Allocation Fund (the "Fund") is a series of PaineWebber
Investment Trust (the "Trust") and is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as an
open-end, diversified management investment company.
Currently, the Fund offers Class A, Class B, Class C and Class Y shares. Each
class represents interests in the same assets of the Fund, and the classes are
identical except for differences in their sales charge structures, ongoing
service and distribution charges and certain transfer agency expenses. In
addition, Class B shares and all corresponding reinvested dividend shares
automatically convert to Class A shares approximately six years after issuance.
All classes of shares have equal voting privileges except that Class A, Class B,
and Class C shares each have exclusive voting rights with respect to their
respective service and/or distribution plans. Class Y shares have no service or
distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
VALUATION OF INVESTMENTS--Securities that are listed on stock exchanges are
valued at the last sale price on the day the securities are being valued or,
lacking any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser, administrator and distributor of the
Fund. Securities traded in the over-the-counter ("OTC") market and listed on the
Nasdaq Stock Market, Inc. ("Nasdaq") are valued at the last available sale
price, or last bid price available if no sale occurs, on Nasdaq prior to the
time of valuation. Where market quotations are readily available, debt
securities are valued thereon, provided such quotations adequately reflect the
fair value of the securities in the judgment of Mitchell Hutchins. When market
quotations are not readily available, securities are valued based upon
appraisals derived from information concerning those securities or similar
securities received from recognized dealers in those securities. All other
securities are valued at fair value as determined in good faith by, or under the
direction of, the Trust's board of trustees. The amortized cost method of
valuation is used to value short-term debt securities with sixty days or less
remaining to maturity, unless the Trust's board of trustees determines that this
does not represent fair value.
REPURCHASE AGREEMENTS--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/ or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to
interest income and the identified cost of investments.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and
Administration Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, the Fund pays Mitchell Hutchins
an investment advisory and administration fee, which is accrued daily and paid
monthly, at an annual rate of 0.50% of the Fund's average daily net assets up to
$250 million and 0.45% thereafter. At August 31, 1998, the Fund owed Mitchell
Hutchins $606,300 in investment advisory and administration fees.
For the year ended August 31, 1998, the Fund paid $5,496 in brokerage
commissions to PaineWebber for transactions executed on behalf of the Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of service and/or distribution pertaining to Class A, Class B and Class C
shares, the Fund pays Mitchell Hutchins monthly service fees at the annual rate
of 0.25% of the average daily net assets of Class A, Class B and Class C shares
and monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B and Class C shares. At August 31, 1998, the Fund owed
Mitchell Hutchins $902,388 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed the Fund that for the year
ended August 31, 1998, it earned $4,524,609 in sales charges.
TRANSFER AGENCY SERVICE FEES
PaineWebber provides transfer agency related services to the Fund pursuant to
a delegation of authority from PFPC, Inc., the Fund's transfer agent, and is
compensated for the services by PFPC, Inc., not the Fund. For the year ended
August 31, 1998, PaineWebber received from PFPC, Inc., not the Fund,
approximately 58% of the total transfer agency and related service fees
collected by PFPC, Inc. from the Fund.
SECURITY LENDING
The Fund may lend securities up to 33 1/3% of its total assets to qualified
institutions. The loans are secured at all times by cash or U.S. government
securities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted
accordingly. The Fund will regain record ownership of
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
loaned securities to exercise certain beneficial rights, however, the Fund may
bear the risk of delay in recovery of, or even loss of rights in, the securities
loaned should the borrower fail financially. The Fund receives compensation,
which is included in interest income, for lending its securities from interest
earned on the cash or U.S. government securities held as collateral, net of fee
rebates paid to the borrower plus reasonable administrative and custody fees.
The Fund's lending agent is PaineWebber, who received $134,065 in compensation
in that capacity from the Fund for the year ended August 31, 1998. At August 31,
1998, the Fund owed PaineWebber $20,368 in compensation.
As of August 31, 1998, the Fund held cash and/or cash equivalents having an
aggregate value of $100,800,500 as collateral for portfolio securities loaned
having a market value of $88,005,598. The cash collateral was invested in the
following money market fund and repurchase agreements.
<TABLE>
<CAPTION>
NUMBER OF
SHARES/
PRINCIPAL
AMOUNT VALUE
- ----------- -------------
<C> <S> <C>
20,800,500 Liquid Assets Portfolio............................................................................... $ 20,800,500
50,000,000 Repurchase Agreement with Societe Generale dated 08/31/98, 5.75% due 09/01/98,
collateralized by $31,051,000 U.S. Treasury Bonds, 11.25% due 02/15/15 (value $51,001,267);
proceeds: $50,007,986............................................................................... 50,000,000
30,000,000 Repurchase Agreement with SG Warburg dated 08/31/98, 5.73% due 09/01/98,
collateralized by $20,165,000 U.S. Treasury Bonds, 9.875% due 11/15/15 (value $30,600,388);
proceeds: $30,004,775............................................................................... 30,000,000
-------------
Total Investments of Cash Collateral Received for Securities Loaned (cost--$100,800,500)........................... $ 100,800,500
-------------
-------------
</TABLE>
BANK LINE OF CREDIT
The Fund may borrow up to $10 million under a short-term unsecured line of
credit with the Fund's custodian ("Line of Credit") and may participate with
other funds managed by Mitchell Hutchins in a $200 million committed credit
facility ("Facility") to be utilized for, temporary financing until the
settlement of sale or purchase of portfolio securities, the repurchase or
redemption of shares of the Fund at the request of the shareholders and other
temporary or emergency purposes.
Under the Facility arrangement, the Fund has agreed to pay a commitment fee,
pro rata, based on the relative asset size of the funds in the Facility.
Interest is charged to the Fund at rates based on prevailing market rates in
effect at the time of borrowings. For the year ended August 31, 1998, the Fund
did not borrow under the Facility and had an average daily amount of borrowing
outstanding under the Line of Credit arrangement of $1,147,482 with a related
weighted average annualized interest rate of 6.28%.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1998 was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1998, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over
cost)............................................................... $ 146,413,005
Gross depreciation (investments having an excess of cost over
value).............................................................. (80,889,890)
-------------
Net unrealized appreciation of investments............................ $ 65,523,115
-------------
-------------
</TABLE>
For the year ended August 31, 1998, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases............................................................. $ 961,591,708
Sales................................................................. $ 332,532,872
</TABLE>
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year,
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
To reflect reclassifications for the Fund arising from permanent "book/tax"
differences for the year ended August 31, 1998, undistributed net investment
income was increased by $251,726, accumulated net realized gains from investment
transactions were decreased by $244,981 and beneficial interest was decreased by
$6,745.
BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 31, 1998:
Shares sold................... 9,221,547 $238,313,556 12,709,779 $325,991,212 9,692,236 $251,254,120
Shares repurchased............ (3,202,931) (81,610,480) (2,322,552) (60,350,902) (3,317,661) (85,764,520)
Shares converted from Class B
to Class A.................. 637,860 14,988,357 (634,160) (14,988,357) -- --
Dividends reinvested.......... 111,953 2,570,453 99,977 2,285,483 82,162 1,888,083
----------- ------------ ----------- ------------ ----------- ------------
Net increase.................. 6,768,429 $174,261,886 9,853,044 $252,937,436 6,456,737 $167,377,683
----------- ------------ ----------- ------------ ----------- ------------
----------- ------------ ----------- ------------ ----------- ------------
Year ended August 31, 1997:
Shares sold................... 8,395,445 $168,990,356 10,195,130 $207,328,762 7,474,383 $151,185,931
Shares repurchased............ (2,197,019) (44,557,135) (1,127,432) (22,990,205) (1,559,610) (31,328,880)
Dividends reinvested.......... 25,482 470,393 25,089 462,390 23,737 439,368
----------- ------------ ----------- ------------ ----------- ------------
Net increase.................. 6,223,908 $124,903,614 9,092,787 $184,800,947 5,938,510 $120,296,419
----------- ------------ ----------- ------------ ----------- ------------
----------- ------------ ----------- ------------ ----------- ------------
<CAPTION>
CLASS Y
-------------------------
SHARES AMOUNT
----------- ------------
<S> <C> <C>
Year Ended August 31, 1998:
Shares sold................... 2,647,231 $ 68,248,622
Shares repurchased............ (1,148,127) (29,192,360)
Shares converted from Class B
to Class A.................. -- --
Dividends reinvested.......... 29,898 689,157
----------- ------------
Net increase.................. 1,529,002 $ 39,745,419
----------- ------------
----------- ------------
Year ended August 31, 1997:
Shares sold................... 1,018,316 $ 23,118,212
Shares repurchased............ (185,400) (4,068,704)
Dividends reinvested.......... 9,790 181,222
----------- ------------
Net increase.................. 842,706 $ 19,230,730
----------- ------------
----------- ------------
</TABLE>
19
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------- ---------------------------------------------
FOR THE
FOR THE YEARS PERIOD
FOR THE YEARS ENDED JANUARY 30,
ENDED AUGUST 31, AUGUST 31, 1996+ TO
------------------------------------------------- ------------------------------- AUGUST 31,
1998 1997 1996 1995** 1994 1998 1997 1996
------------ -------- -------- ------ ------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 22.23 $ 16.15 $ 14.86 $13.78 $13.50 $ 22.08 $ 16.13 $ 15.54
------------ -------- -------- ------ ------ -------------- -------------- -----------
Net investment income......... 0.15 0.18@ 0.18 0.22 0.24 0.00 0.03@ 0.02
Net realized and unrealized
gains from investments...... 1.47 6.12@ 2.31 2.05 0.32 1.43 6.09@ 0.57
------------ -------- -------- ------ ------ -------------- -------------- -----------
Net increase from investment
operations.................. 1.62 6.30 2.49 2.27 0.56 1.43 6.12 0.59
------------ -------- -------- ------ ------ -------------- -------------- -----------
Dividends from net investment
income...................... (0.12) (0.14) (0.14) (0.22) (0.24) (0.01) (0.09) --
Distributions from net
realized gains from
investment transactions..... (0.18) (0.08) (1.06) (0.97) (0.04) (0.18) (0.08) --
------------ -------- -------- ------ ------ -------------- -------------- -----------
Total dividends and
distributions to
shareholders................ (0.30) (0.22) (1.20) (1.19) (0.28) (0.19) (0.17) --
------------ -------- -------- ------ ------ -------------- -------------- -----------
Net asset value, end of
period...................... $ 23.55 $ 22.23 $ 16.15 $14.86 $13.78 $ 23.32 $ 22.08 $ 16.13
------------ -------- -------- ------ ------ -------------- -------------- -----------
------------ -------- -------- ------ ------ -------------- -------------- -----------
Total investment return(1).... 7.31% 39.26% 17.35% 18.43% 4.21% 6.49% 38.14% 3.80%
------------ -------- -------- ------ ------ -------------- -------------- -----------
------------ -------- -------- ------ ------ -------------- -------------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's)..................... $ 340,245 $170,759 $ 23,551 $1,944 $1,801 $ 483,068 $ 239,836 $28,495
Expenses to average net
assets...................... 0.95% 0.99% 1.17% 1.46% 1.13% 1.71% 1.74% 1.84%*
Net investment income (loss)
to average net assets....... 0.74% 0.88% 1.12% 1.60% 1.64% (0.02)% 0.13% 0.47%*
Portfolio turnover rate....... 33% 6% 6% 53% 4% 33% 6% 6%
</TABLE>
- -----------------
+ Commencement of issuance of shares.
* Annualized.
** Investment advisory functions for the Fund were transferred from Kidder,
Peabody Asset Management, Inc. to Mitchell Hutchins on February 13, 1995.
@ Calculated using the average shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A, Class B and Class C would be
lower if sales charges were included. Total investment return for periods
of less than one year has not been annualized.
20
<PAGE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------
FOR THE YEARS
ENDED AUGUST 31,
----------------------------------------------------
1998 1997 1996 1995** 1994
-------------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 22.18 $ 16.12 $ 14.87 $ 13.78 $ 13.49
-------------- -------- ------- ------- -------
Net investment income......... (0.01) 0.03@ 0.06 0.12 0.13
Net realized and unrealized
gains from investments...... 1.45 6.11@ 2.32 2.06 0.33
-------------- -------- ------- ------- -------
Net increase from investment
operations.................. 1.44 6.14 2.38 2.18 0.46
-------------- -------- ------- ------- -------
Dividends from net investment
income...................... -- -- (0.07) (0.12) (0.13)
Distributions from net
realized gains from
investment transactions..... (0.17) (0.08) (1.06) (0.97) (0.04)
-------------- -------- ------- ------- -------
Total dividends and
distributions to
shareholders................ (0.17) (0.08) (1.13) (1.09) (0.17)
-------------- -------- ------- ------- -------
Net asset value, end of
period...................... $ 23.45 $ 22.18 $ 16.12 $ 14.87 $ 13.78
-------------- -------- ------- ------- -------
-------------- -------- ------- ------- -------
Total investment return(1).... 6.49% 38.20% 16.52% 17.57% 3.46%
-------------- -------- ------- ------- -------
-------------- -------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period
(000's)..................... $ 397,767 $233,044 $73,630 $48,105 $62,970
Expenses to average net
assets...................... 1.70% 1.75% 1.95% 2.22% 1.88%
Net investment income (loss)
to average net assets....... (0.01)% 0.14% 0.35% 0.86% 0.89%
Portfolio turnover rate....... 33% 6% 6% 53% 4%
<CAPTION>
CLASS Y
-----------------------------------------------
FOR THE YEARS
ENDED AUGUST 31,
-----------------------------------------------
1998 1997 1996 1995** 1994
------------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 22.33 $ 16.20 $ 14.88 $13.79 $13.52
------------ ------- ------- ------ ------
Net investment income......... 0.21 0.23@ 0.30 0.23 0.25
Net realized and unrealized
gains from investments...... 1.49 6.13@ 2.24 2.09 0.33
------------ ------- ------- ------ ------
Net increase from investment
operations.................. 1.70 6.36 2.54 2.32 0.58
------------ ------- ------- ------ ------
Dividends from net investment
income...................... (0.17) (0.15) (0.16) (0.26) (0.27)
Distributions from net
realized gains from
investment transactions..... (0.18) (0.08) (1.06) (0.97) (0.04)
------------ ------- ------- ------ ------
Total dividends and
distributions to
shareholders................ (0.35) (0.23) (1.22) (1.23) (0.31)
------------ ------- ------- ------ ------
Net asset value, end of
period...................... $ 23.68 $ 22.33 $ 16.20 $14.88 $13.79
------------ ------- ------- ------ ------
------------ ------- ------- ------ ------
Total investment return(1).... 7.62% 39.55% 17.70% 18.79% 4.41%
------------ ------- ------- ------ ------
------------ ------- ------- ------ ------
Ratios/supplemental data:
Net assets, end of period
(000's)..................... $ 74,872 $36,467 $12,803 $2,506 $3,880
Expenses to average net
assets...................... 0.67% 0.74% 0.95% 1.23% 0.88%
Net investment income (loss)
to average net assets....... 1.03% 1.16% 1.38% 1.86% 1.90%
Portfolio turnover rate....... 33% 6% 6% 53% 4%
</TABLE>
- -----------------
+ Commencement of issuance of shares.
* Annualized.
** Investment advisory functions for the Fund were transferred from Kidder,
Peabody Asset Management, Inc. to Mitchell Hutchins on February 13, 1995.
@ Calculated using the average shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A, Class B and Class C would be
lower if sales charges were included. Total investment return for periods
of less than one year has not been annualized.
21
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of
PaineWebber Tactical Allocation Fund
We have audited the accompanying statement of assets and liabilities of
PaineWebber Tactical Allocation Fund, including the portfolio of investments, as
of August 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the four years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended August 31, 1994 was audited
by other auditors whose report dated October 14, 1994 expressed an unqualified
opinion on the financial highlights.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at August 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber Tactical Allocation Fund at August 31, 1998, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the four years in the period then ended, in conformity with generally accepted
accounting principles.
[SIGNATURE]
New York, New York
October 16, 1998
22
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (August 31,
1998) as to federal tax status of distributions received by shareholders during
such fiscal year. Accordingly, we are advising you that the following
distributions paid during the fiscal year are taxable and are derived from the
following sources:
<TABLE>
<CAPTION>
PER SHARE DATA: CLASS A CLASS B CLASS C CLASS Y
- ------------------------------------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net investment income*...................................... $0.1204 $0.0116 $0.0000 $0.1653
Short-term capital gains*................................... 0.0157 0.0157 0.0049 0.0157
Long-term capital gains**................................... 0.1612 0.1612 0.1612 0.1612
Percentage of ordinary income dividends qualifying for the
dividends received deduction available to corporate
shareholders.............................................. 96.33% 96.33% 96.33% 96.33%
</TABLE>
- -----------------
* Taxable as ordinary income
** The amount of distributions taxed at a 28% rate was $0.0659 per share.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1998. The second notification, which
will reflect the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1999. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund.
23
<PAGE>
[GRAPHIC]
- ------------------------------------------------------------------
TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
CHAIRMAN
Meyer Feldberg
Margo N. Alexander
George W. Gowen
Richard Q. Armstrong
Frederic V. Malek
Richard R. Burt
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
PRESIDENT VICE PRESIDENT AND TREASURER
Victoria E. Schonfeld T. Kirkham Barneby
VICE PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell
VICE PRESIDENT AND SECRETARY
INVESTMENT ADVISER,
ADMINISTRATOR AND
DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE OFFERING OF SHARES OF
THE FUND UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR ANY OF THE FUNDS LISTED
ON THE BACK COVER CAN BE OBTAINED FROM A PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
<PAGE>
[GRAPHIC]
PaineWebber offers a family of 27 funds which
encompass a diversified range of investment goals.
BOND FUNDS PAINEWEBBER
/ / High Income Fund
/ / Investment Grade Income Fund
/ / Low Duration U.S. Government Income Fund
/ / Strategic Income Fund
/ / U.S. Government Income Fund
TAX-FREE BOND FUNDS ------------------
/ / California Tax-Free Income Fund
/ / Municipal High Income Fund TACTICAL
/ / National Tax-Free Income Fund
/ / New York Tax-Free Income Fund ALLOCATION
STOCK FUNDS FUND
/ / Financial Services Growth Fund
/ / Growth Fund
/ / Growth and Income Fund
/ / Mid Cap Fund
/ / Small Cap Fund
/ / S&P 500 Index Fund
/ / Utility Income Fund
A U G U S T 3 1 , 1 9 9 8
ASSET ALLOCATION FUNDS
/ / Balanced Fund
/ / Tactical Allocation Fund
GLOBAL FUNDS
/ / Asia Pacific Growth Fund
/ / Emerging Markets Equity Fund
/ / Global Equity Fund
/ / Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
/ / Aggressive Portfolio
/ / Moderate Portfolio
/ / Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PAINEWEBBER
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Member SIPC
