PAINEWEBBER TACTICAL ALLOCATION FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
- --------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber Tactical
Allocation Fund (Class C) and the S&P 500 Index, from July 22, 1992
through August 31, 1999
The graph depicts the performance of PaineWebber Tactical Allocation Fund (Class
C) versus the S&P 500 Index. It is important to note that 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.
[The following table represents a chart in the printed material]
PaineWebber Tactical
Allocation Fund (Class C) S&P 500 Index
Jul-92 10317 10000
Aug-92 10100 9796
Sep-92 10208 9912
Oct-92 10233 9945
Nov-92 10550 10283
Dec-92 10667 10410
Jan-93 10734 10497
Feb-93 10868 10640
Mar-93 11074 10865
Apr-93 10772 10602
May-93 11040 10885
Jun-93 11053 10916
Jul-93 10986 10873
Aug-93 11374 11285
Sep-93 11277 11198
Oct-93 11488 11430
Nov-93 11361 11321
Dec-93 11482 11458
Jan-94 11856 11848
Feb-94 11516 11527
Mar-94 10997 11025
Apr-94 11117 11166
May-94 11278 11348
Jun-94 10981 11070
Jul-94 11332 11433
Aug-94 11767 11901
Sep-94 11454 11611
Oct-94 11702 11871
Nov-94 11249 11439
Dec-94 11334 11608
Jan-95 11585 11909
Feb-95 11974 12372
Mar-95 12307 12737
Apr-95 12641 13111
May-95 13115 13634
Jun-95 13388 13951
Jul-95 13816 14412
Aug-95 13834 14448
Sep-95 14405 15058
Oct-95 14330 15004
Nov-95 14945 15661
Dec-95 15199 15963
Jan-96 15679 16506
Feb-96 15789 16660
Mar-96 15919 16820
Apr-96 16129 17067
May-96 16519 17505
Jun-96 16559 17572
Jul-96 15799 16795
Aug-96 16119 17150
Sep-96 16999 18113
Oct-96 17449 18613
Nov-96 18739 20019
Dec-96 18340 19622
Jan-97 19455 20847
Feb-97 19565 21011
Mar-97 18732 20150
Apr-97 19836 21351
May-97 21011 22655
Jun-97 21925 23664
Jul-97 23643 25545
Aug-97 22277 24114
Sep-97 23462 25433
Oct-97 22639 24584
Nov-97 23653 25722
Dec-97 24026 26165
Jan-98 24269 26452
Feb-98 25979 28360
Mar-98 27273 29812
Apr-98 27435 30116
May-98 27071 29598
Jun-98 28113 30799
Jul-98 27779 30473
Aug-98 23723 26070
Sep-98 25210 27741
Oct-98 27223 29993
Nov-98 28842 31811
Dec-98 30459 33643
Jan-99 31678 35049
Feb-99 30645 33959
Mar-99 31833 35318
Apr-99 33031 36685
May-99 32205 35819
Jun-99 33940 37807
Jul-99 32845 36627
Aug-99 32639 36444
Past performance is no guarantee of future performance. The performance of the
other classes will vary from the performance of the class shown because of
differences in sales charges and fees paid by shareholders investing in
different classes.
AVERAGE ANNUAL % TOTAL RETURN, PERIODS ENDED 8/31/99
1 Year 5 Years Inceptiono
CLASS A* 38.65 23.56 19.97
Before Deducting CLASS B** 37.61 N/A 22.98
Maximum Sales Charge CLASS C+ 37.58 22.63 18.09
CLASS Y++ 39.03 23.90 20.29
After Deducting CLASS A* 32.41 22.42 19.09
Maximum Sales Charge CLASS B** 32.61 N/A 22.65
CLASS C+ 36.58 22.63 18.09
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.
o Inception: since commencement of issuance on May 10, 1993 for Class A,
January 30, 1996 for Class B, July 22, 1992 for Class C shares and May 10,
1993 for Class Y shares.
* 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
distribution and 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 distribution
and service fees.
++ 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 that may invest in PaineWebber mutual funds, as well as the
trustee of the PaineWebber 401(k) Plus Plan. Class Y shares do not bear
initial or contingent deferred sales charges or ongoing distribution and
service fees.
1
<PAGE>
ANNUAL REPORT
October 15, 1999
PAINEWEBBER
TACTICAL ALLOCATION FUND
FUND PROFILE
as of August 31, 1999
INVESTMENT GOAL:
total return consisting of long-term capital appreciation and
current income.
PORTFOLIO MANAGER:
Kirk Barneby, Mitchell Hutchins Asset Management Inc.
COMMENCEMENT:
May 10, 1993 (Class A); January 30, 1986, (Class B); July 22, 1992
(Class C); May 10, 1993 (Class Y)
DIVIDEND PAYMENTS:
annually
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, 1999.
MARKET REVIEW
- --------------------------------------------------------------------------------
For most of 1998 and the first quarter of 1999 the market was very narrow,
focused primarily on large-capitalization growth companies. This was a highly
unusual situation and we expected conditions to return to normal--i.e., near
parity between growth and value styles. The market did briefly turn around in
the second quarter, but only the most undervalued of the value stocks benefited
before investors got concerned about the surge in commodity prices, and
narrowness returned. However, for the 12 months ended August 31, 1999, the S&P
500 Index gained 39.81%.
Despite gains in the broad market, individual stock performance varied
widely. About two thirds of the stocks traded on the New York Stock Exchange
have actually posted losses year to date. The market weakened at the end of the
Fund's fiscal year, as investors became concerned about the possibility of the
Federal Reserve again raising short-term interest rates. Technology and consumer
cyclicals were the strongest sectors; the weakest sectors included healthcare,
utilities and capital goods.
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
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 expected risk premiums --
the anticipated return advantage -- of stocks and bonds relative to cash. The
decision process 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) and, as a result, the portfolio's
weighting, if any, in stocks and bonds.
2
<PAGE>
ANNUAL REPORT
CHARACTERISTICS*
8/31/99 2/28/99
- --------------------------------------------------------------------------------
Stocks 100% 100%
Bonds 0% 0%
Cash 0% 0%
Total Net Assets ($billion) $2.5 $2.0
Number of Securities 465 465
Equity Risk Premium 5.81 6.28
Bond Risk Premium 0.76 0.10
- --------------------------------------------------------------------------------
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 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 must 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).
TOP FIVE EQUITY SECTORS**
As of 8/31/99 As of 2/28/99
- --------------------------------------------------------------------------------
Technology 25.2 Technology 20.3
Financial Services 16.6 Financial Services 18.2
Consumer Cyclical 12.5 Consumer Cyclical 14.3
Healthcare 11.2 Healthcare 12.5
Utilities 9.7 Utilities 11.0
- --------------------------------------------------------------------------------
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.
* Weightings represent percentages of portfolio assets as of August 31, 1999,
except where noted otherwise.
** Weightings represent percentages of portfolio assets as of August 31, 1999,
except where noted otherwise. Changes in sector weightings and stock holdings
reflect changes in the S&P 500 Index.
3
<PAGE>
ANNUAL REPORT
TOP TEN HOLDINGS*
As of 8/31/99 As of 2/28/99
- --------------------------------------------------------------------------------
Microsoft Corp. 4.4 Microsoft Corp. 3.7
General Electric Co. 3.4 General Electric Co. 3.3
Intel Corp. 2.5 Intel Corp. 2.0
IBM Corp. 2.1 Merck & Co., Inc. 1.9
Cisco Systems, Inc. 2.0 Wal Mart Stores, Inc. 1.9
Wal Mart Stores, Inc. 1.8 Pfizer Inc. 1.7
Lucent Technologies, Inc. 1.8 Exxon Corp. 1.6
Exxon Corp. 1.8 IBM Corp. 1.6
Merck & Co., Inc. 1.5 Coca-Cola Co. 1.6
Citigroup 1.4 Cisco Systems, Inc. 1.5
- --------------------------------------------------------------------------------
OUTLOOK
- --------------------------------------------------------------------------------
The economy continues to have positive momentum. Within the data set that we
use in the Tactical Allocation discipline we have seen upward revisions of
earnings estimates. Inflation as measured by the Consumer Price Index appears to
be low and stable, running about 2.5% year-to-date versus its 30-year average
rate of 5.5%. Short-term interest rates have not risen to a level that could
choke off continued positive growth. In this environment, the equity risk
premium in the Tactical model remains above the 5.5% hurdle rate that we require
for stocks to be attractive to investors. Thus, the Fund continues to be fully
invested in the equity market.
* Weightings represent percentages of portfolio assets as of August 31, 1999,
except where noted otherwise. Changes in sector weightings and stock holdings
reflect changes in the S&P 500 Index.
4
<PAGE>
ANNUAL REPORT
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have. For a QUARTERLY REVIEW on
PaineWebber Tactical Allocation Fund or another fund in the PaineWebber Family
of Funds,1 please contact your Financial Advisor.
Sincerely,
/s/MARGO ALEXANDER
- ------------------
MARGO ALEXANDER
Chairman and Chief Executive Officer
Mitchell Hutchins Asset Management Inc.
/s/T. KIRKHAM BARNEBY
- ---------------------
T. KIRKHAM BARNEBY
Managing Director and Chief Investment Officer -
Quantitative Investments,
Mitchell Hutchins Asset Management Inc.
/s/BRIAN M. STORMS
- ------------------
BRIAN M. STORMS
President and Chief Operating Officer
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, 1999, and reflects our views
at the time of its writing. Of course, these views may change in response to
changing circumstances. We encourage you to consult your Financial Advisor
regarding your personal investment program.
1 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.
5
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
<TABLE>
<CAPTION>
PERFORMANCE RESULTS (UNAUDITED)
NET ASSET VALUE TOTAL RETURN1
-------------------------------------------- -----------------------------------
12 MONTHS 6 MONTHS
08/31/99 02/28/99 08/31/98 ENDED 08/31/99 ENDED 08/31/99
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $31.79 $29.73 $23.55 38.65% 6.93%
- ----------------------------------------------------------------------------------------------------------------------------
Class B Shares 31.41 29.50 23.32 37.61 6.47
- ----------------------------------------------------------------------------------------------------------------------------
Class C Shares 31.60 29.67 23.45 37.58 6.50
- ----------------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
NET ASSET VALUE
------------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
- ----------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------
1998 23.73 29.52 0.5825 0.1745 27.77
- ----------------------------------------------------------------------------------------------------------------------------
01/01/99-08/31/99 29.52 31.79 -- -- 7.69
- ----------------------------------------------------------------------------------------------------------------------------
Totals: $ 2.9120 $ 1.1034
- ----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/99: 215.74%
- ----------------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
NET ASSET VALUE
-------------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
- ----------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------
1998 23.63 29.32 0.5825 0.0177 26.77
- ----------------------------------------------------------------------------------------------------------------------------
01/01/99-08/31/99 29.32 31.41 -- -- 7.13
- ----------------------------------------------------------------------------------------------------------------------------
Totals: $ 0.8405 $ 0.1172
- ----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/99: 110.11%
- ----------------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS C SHARES
NET ASSET VALUE
--------------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
- ----------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------
1998 23.75 29.49 0.5825 0.0034 26.78
- ----------------------------------------------------------------------------------------------------------------------------
01/01/99-08/31/99 29.49 31.60 -- -- 7.15
- ----------------------------------------------------------------------------------------------------------------------------
Totals: $ 2.9032 $ 0.4731
- ----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/99: 226.39%
- ----------------------------------------------------------------------------------------------------------------------------
</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. Total
investment return for periods of less than one year has not been annualized.
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, 1999 and since inception, May 10, 1993 through August
31, 1999, Class Y shares have a total return of 39.03% and 221.13%,
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.
6
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999
NUMBER OF
SHARES VALUE
---------- ----------
COMMON STOCKS--100.05%
AGRICULTURE, FOOD & BEVERAGE--3.89%
149,271 Archer-Daniels-Midland Co. .......... $ 1,940,528
66,150 Bestfoods Co. ....................... 3,249,619
102,200 Campbell Soup Co. ................... 4,515,962
576,300 The Coca-Cola Co.(1) ................ 34,469,944
99,800 Coca-Cola Enterprises, Inc.(1) ...... 2,838,063
115,200 Conagra, Inc. ....................... 2,822,400
36,000 General Mills, Inc.(1) .............. 3,015,000
84,150 Heinz, H. J. and Co. ................ 3,928,753
33,200 Hershey Foods Corp.(1) .............. 1,778,275
95,100 Kellogg Co. ......................... 3,381,994
78,400 Nabisco Group Holdings Corp. ........ 1,391,600
345,200 PepsiCo, Inc. ....................... 11,779,950
56,200 Pioneer Hi-Bred International, Inc. . 2,198,825
32,300 Quaker Oats Co. ..................... 2,158,044
213,400 Sara Lee Corp. ...................... 4,734,812
30,100 Supervalue, Inc.(1) ................. 677,250
77,700 Sysco Corp.(1) ...................... 2,534,963
133,638 Unilever N.V ........................ 9,204,317
27,600 Wrigley, Wm. Jr. Co.(1) ............. 2,161,425
---------------
98,781,724
---------------
AIRLINES--0.25%
36,300 AMR Corp.* .......................... 2,128,087
33,100 Delta Air Lines, Inc. ............... 1,681,894
116,650 Southwest Airlines Co. .............. 1,946,597
18,000 US Airways Group, Inc.* ............. 554,625
---------------
6,311,203
---------------
ALCOHOL--0.60%
109,700 Anheuser-Busch Companies, Inc. ...... 8,446,900
16,200 Brown Forman Corp. .................. 951,750
8,800 Coors Adolph Co. .................... 502,150
99,700 Seagram Co. Ltd.(1) ................. 5,290,331
---------------
15,191,131
---------------
APPAREL, RETAIL--0.54%
201,487 Gap, Inc. ........................... 7,883,184
50,619 Limited, Inc. ....................... 1,917,195
16,700 Liz Claiborne, Inc. ................. 613,725
34,600 Nordstrom, Inc. ..................... 979,613
76,100 TJX Companies, Inc. ................. 2,197,387
---------------
13,591,104
---------------
APPAREL, TEXTILES--0.16%
66,900 Nike, Inc. .......................... 3,094,125
30,500 V. F. Corp. ......................... 1,098,000
---------------
4,192,125
---------------
BANKS--7.57%
43,800 Amsouth Bancorporation(1) ........... 958,125
177,300 Bank of New York Co. Inc. ........... 6,338,475
274,343 Bank One Corp. ...................... 11,008,013
407,719 BankAmerica Corp. ................... 24,666,999
69,800 BankBoston Corp. .................... 3,241,338
73,900 BB&T Corp. .......................... 2,475,650
197,340 The Chase Manhattan Corp. ........... 16,514,891
791,140 Citigroup, Inc.(1) .................. 35,156,284
36,900 Comerica, Inc.(1) ................... 1,921,106
62,600 Fifth Third Bancorp(1) .............. 4,147,250
225,704 First Union Corp. ................... 9,366,716
153,800 Firstar Corp.(1) .................... 4,123,762
133,832 Fleet Financial Group, Inc.(1) ...... 5,328,186
55,024 Huntington Bancshares, Inc. ......... 1,647,281
41,600 J.P. Morgan & Co., Inc. ............. 5,374,200
105,780 KeyCorp ............................. 3,067,620
122,000 Mellon Bank Corp. ................... 4,071,750
37,000 Mercantile Bancorporation, Inc. ..... 2,041,938
147,400 National City Corp. ................. 4,071,925
25,900 Northern Trust Corp. ................ 2,196,644
71,000 PNC Bank Corp.(1) ................... 3,714,188
53,700 Regions Financial Corp. ............. 1,896,281
24,800 Republic New York Corp. ............. 1,720,500
41,000 SouthTrust Corp. .................... 1,447,813
37,800 State Street Corp. .................. 2,263,275
42,000 Summit Bancorp, Inc. ................ 1,401,750
75,300 Suntrust Banks, Inc. ................ 4,842,731
64,650 Synovus Financial Corp. ............. 1,220,269
35,100 Union Planters Corp.(1) ............. 1,480,781
170,045 US Bancorp, Inc. .................... 5,250,139
47,400 Wachovia Corp.(1) ................... 3,714,975
385,260 Wells Fargo and Co.(1) .............. 15,338,164
---------------
192,009,019
---------------
CHEMICALS--2.55%
54,300 Air Products & Chemicals, Inc. ...... 1,846,200
19,400 Ashland, Inc. ....................... 748,113
26,900 Avery Dennison Corp. ................ 1,476,137
51,300 Dow Chemical Co. .................... 5,828,962
228,400 DuPont (E.I.) de Nemours & Co. ...... 14,474,850
19,200 Eastman Chemical Co. ................ 891,600
31,400 Ecolab, Inc. ........................ 1,179,463
31,550 Engelhard Corp. ..................... 629,028
7
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
NUMBER OF
SHARES VALUE
---------- ----------
COMMON STOCKS--(CONTINUED)
CHEMICALS--(CONCLUDED)
8,300 FMC Corp.* .......................... $ 483,475
37,400 Goodyear Tire & Rubber Co.(1) ....... 2,099,075
14,700 Great Lakes Chemical Corp. .......... 605,456
26,200 Hercules, Inc. ...................... 853,138
58,600 Illinois Tool Works, Inc.(1) ........ 4,567,137
21,385 Kerr-McGee Corp. .................... 1,197,560
93,500 Minnesota Mining &
Manufacturing Co. ................. 8,835,750
148,300 Monsanto Co.(1) ..................... 6,089,569
15,600 Nalco Chemical Co. .................. 801,450
41,000 PPG Industries, Inc.(1) ............. 2,462,562
37,400 Praxair, Inc. ....................... 1,757,800
49,720 Rohm & Haas Co. ..................... 1,858,285
19,613 Sealed Air Corp.*(1) ................ 1,152,264
41,400 Sherwin-Williams Co. ................ 1,009,125
45,100 Tenneco, Inc. ....................... 907,638
31,700 Union Carbide Corp. ................. 1,802,937
24,800 Vulcan Matls Company ................ 1,057,100
---------------
64,614,674
---------------
COMPUTER HARDWARE--8.80%
37,700 Apple Computer, Inc.*(1) ............ 2,459,925
42,100 Cabletron Systems, Inc.* ............ 707,806
747,450 Cisco Systems, Inc.* ................ 50,686,453
398,962 Compaq Computer Corp. ............... 9,250,931
593,500 Dell Computer Corp.*(1) ............. 28,970,219
236,800 EMC Corp.*(1) ....................... 14,208,000
36,800 Gateway, Inc.*(1) ................... 3,567,300
237,600 Hewlett-Packard Co. ................. 25,037,100
424,600 IBM Corp. ........................... 52,889,237
37,400 Ikon Office Solutions, Inc. ......... 416,075
30,400 Lehman Brothers Holdings, Inc. ...... 1,634,000
30,400 Lexmark International Group, Inc.* .. 2,394,000
17,200 Network Appliance, Inc.* ............ 1,129,825
63,200 Pitney Bowes, Inc. .................. 3,728,800
53,000 Seagate Technology, Inc.* ........... 1,758,938
47,000 Silicon Graphics, Inc.* ............. 537,563
180,900 Sun Microsystems, Inc.*(1) .......... 14,381,550
85,700 3Com Corp.* ......................... 2,126,431
155,200 Xerox Corp.(1) ...................... 7,410,800
---------------
223,294,953
---------------
COMPUTER SOFTWARE--5.66%
14,500 Adobe Systems, Inc. ................. 1,444,562
55,500 BMC Software, Inc.* ................. 2,986,594
125,862 Computer Associates
International, Inc. ............... 7,111,203
86,600 Compuware Corp.* .................... 2,614,237
1,194,000 Microsoft Corp.* .................... 110,519,625
79,500 Novell, Inc.* ....................... 1,883,156
336,968 Oracle Systems Corp.*(1) ............ 12,299,332
65,000 Parametric Technology Corp.* ........ 910,000
58,300 Peoplesoft, Inc.*(1) ................ 823,488
66,900 Unisys Corp.* ....................... 2,876,700
---------------
143,468,897
---------------
CONSTRUCTION--0.18%
11,300 Armstrong World Industries, Inc.(1) . 548,756
16,200 Centex Corp. ........................ 455,625
19,400 Fluor Corp. ......................... 802,675
80,700 Masco Corp. ......................... 2,284,819
15,500 Owens-Corning (ADR) ................. 435,938
---------------
4,527,813
---------------
CONSUMER DURABLES--0.19%
21,700 Black & Decker Corp. ................ 1,141,963
22,700 Grainger, W.W., Inc. ................ 988,869
20,800 Maytag Corp. ........................ 1,302,600
18,200 Whirlpool Corp. ..................... 1,286,512
---------------
4,719,944
---------------
DEFENSE/AEROSPACE--1.12%
128,700 Allied-Signal, Inc.(1) .............. 7,882,875
227,378 Boeing Co. .......................... 10,303,066
47,200 General Dynamics Corp. .............. 2,973,600
26,400 Goodrich, B.F. Co. .................. 975,150
93,660 Lockheed Martin Corp. ............... 3,465,420
16,800 Northrop Grumman Corp.(1) ........... 1,218,000
28,600 TRW Inc. ............................ 1,558,700
---------------
28,376,811
---------------
DIVERSIFIED RETAIL--2.68%
103,600 Dayton Hudson Corp. ................. 6,008,800
27,100 Dillards Inc. ....................... 636,850
49,400 Federated Department
Stores, Inc.*(1) .................. 2,272,400
118,600 K Mart Corp.*(1) .................... 1,489,913
38,000 Kohls Corp.* ........................ 2,707,500
78,150 May Department Stores Co. ........... 3,052,734
62,500 Penney (J.C.), Inc.(1) .............. 2,265,625
89,900 Sears Roebuck & Co. ................. 3,371,250
1,040,300 Wal Mart Stores, Inc.(1) ............ 46,098,294
---------------
67,903,366
---------------
DRUGS & MEDICINE--7.59%
15,700 Allergan, Inc. ...................... 1,568,038
8
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
NUMBER OF
SHARES VALUE
---------- ----------
COMMON STOCKS--(CONTINUED)
DRUGS & MEDICINE--(CONCLUDED)
305,800 American Home Products Corp. ........ $ 12,690,700
119,700 Amgen, Inc.* ........................ 9,957,544
463,600 Bristol-Myers Squibb Co. ............ 32,625,850
64,050 Cardinal Health, Inc. ............... 4,083,187
257,360 Lilly, Eli & Co. .................... 19,205,490
65,649 McKesson HBOC, Inc.(1) .............. 2,043,325
551,900 Merck & Co., Inc. ................... 37,080,781
908,200 Pfizer, Inc. ........................ 34,284,550
118,690 Pharmacia & Upjohn, Inc. ............ 6,201,552
343,900 Schering-Plough Corp. ............... 18,076,244
24,800 Sigma-Aldrich Corp. ................. 799,800
198,500 Warner Lambert Co. .................. 13,150,625
23,400 Watson Pharmaceuticals, Inc.* ....... 839,475
---------------
192,607,161
---------------
ELECTRIC UTILITIES--2.18%
44,200 AES Corp.(1) ........................ 2,682,387
32,700 Ameren Corp.(1) ..................... 1,310,044
46,400 American Electric Power, Inc.(1) .... 1,684,900
36,900 Carolina Power & Light Co. .......... 1,342,237
50,900 Central & South West Corp. .......... 1,151,612
37,625 Cinergy Corp. ....................... 1,142,859
28,200 CMS Energy Corp.(1) ................. 1,115,663
52,400 Consolidated Edison Inc.(1) ......... 2,305,600
35,300 Constellation Energy Group, Inc. .... 1,045,763
44,800 Dominion Resources, Inc. ............ 2,072,000
34,300 DTE Energy Co. ...................... 1,352,706
84,106 Duke Energy Corp. ................... 4,836,095
80,200 Edison International, Inc. .......... 2,035,075
57,700 Entergy Corp. ....................... 1,720,181
55,000 FirstEnergy Corp. ................... 1,570,937
24,100 Florida Progress Corp. .............. 1,129,688
42,100 FPL Group, Inc. ..................... 2,273,400
30,900 GPU Inc. ............................ 1,054,463
28,000 New Century Energies, Inc. .......... 1,011,500
48,900 Niagara Mohawk Holdings, Inc.* ...... 739,613
37,500 Northern States Power Co. ........... 883,594
70,800 PacifiCorp .......................... 1,446,975
43,900 PECO Energy Co.(1) .................. 1,783,437
38,300 PP&L Resources Inc. ................. 1,072,400
87,900 PG&E Corp.(1) ....................... 2,664,469
50,600 Public Service Enterprise
Group, Inc. ....................... 2,074,600
68,994 Reliant Energy, Inc. ................ 1,910,271
27,500 Sonat, Inc. ......................... 993,438
162,300 Southern Co.(1) ..................... 4,392,244
65,452 Texas Utilities Co. ................. 2,646,715
51,100 Unicom Corp. ........................ 1,973,737
---------------
55,418,603
---------------
ELECTRICAL EQUIPMENT--4.61%
32,200 ADC Telecommunications Inc.* ........ 1,193,413
57,200 Corning, Inc. ....................... 3,803,800
33,800 Danaher Corp. ....................... 1,985,750
51,000 Dover Corp. ......................... 1,973,063
17,300 Eaton Corp.(1) ...................... 1,695,400
40,700 General Instrument Corp.* ........... 2,001,931
20,700 Harris Corp. ........................ 543,375
29,800 Honeywell, Inc. ..................... 3,382,300
20,400 Johnson Controls, Inc. .............. 1,394,850
20,900 KLA-Tencor Corp.* ................... 1,312,781
711,430 Lucent Technologies, Inc.(1) ........ 45,575,984
11,500 Millipore Corp. ..................... 434,125
141,500 Motorola, Inc. ...................... 13,053,375
310,880 Nortel Networks Corp.(1) ............ 12,765,510
24,300 PE Corp. ............................ 1,672,144
35,300 Qualcomm Incorporated*(1) ........... 6,784,219
79,000 Raytheon Co. ........................ 5,381,875
18,000 Scientific-Atlanta, Inc. ............ 922,500
62,800 Solectron Corp.* .................... 4,914,100
91,800 Tellabs, Inc.* ...................... 5,467,837
40,400 Thermo Electron Corp.* .............. 641,350
---------------
116,899,682
---------------
ELECTRICAL POWER--0.49%
23,600 Cooper Industries, Inc. ............. 1,224,250
10,600 Cummins Engine Co., Inc. ............ 628,050
102,200 Emerson Electric Co. ................ 6,400,275
14,700 Phelps Dodge Corp. .................. 822,281
44,900 Rockwell International Corp. ........ 2,654,713
15,100 Thomas & Betts Corp. ................ 679,500
---------------
12,409,069
---------------
ENERGY RESERVES & PRODUCTION--5.09%
22,700 Amerada Hess Corp. .................. 1,408,819
29,700 Anadarko Petroleum Corp. ............ 1,009,800
27,100 Apache Corp. ........................ 1,233,050
75,700 Atlantic Richfield Co. .............. 6,656,869
43,200 Burlington Resources, Inc. .......... 1,806,300
152,900 Chevron Corp. ....................... 14,105,025
567,100 Exxon Corp. ......................... 44,730,012
182,700 Mobil Corp. ......................... 18,703,912
84,300 Occidental Petroleum Corp. .......... 1,828,256
59,800 Phillips Petroleum Co.(1) ........... 3,049,800
501,600 Royal Dutch Petroleum Co. ADR ....... 31,036,500
60,736 Union Pacific Resources
Group, Inc. ....................... 1,089,452
57,100 Unocal Corp. ........................ 2,391,063
---------------
129,048,858
---------------
9
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
NUMBER OF
SHARES VALUE
---------- ----------
COMMON STOCKS--(CONTINUED)
ENTERTAINMENT--0.55%
143,000 Carnival Corp. ...................... $ 6,390,312
17,500 King World Productions, Inc.* ....... 667,188
161,598 Viacom, Inc., Class B*(1) ........... 6,797,216
---------------
13,854,716
---------------
ENVIRONMENTAL SERVICES--0.15%
45,500 Allied Waste Industries Inc.* ....... 580,125
143,257 Waste Management, Inc. .............. 3,124,793
---------------
3,704,918
---------------
FINANCIAL SERVICES--6.15%
105,500 American Express Co.(1) ............. 14,506,250
59,950 AON Corp. ........................... 2,000,831
170,490 Associates First Capital Corp. ...... 5,849,938
23,000 Block, H&R, Inc.(1) ................. 1,279,375
46,300 Capital One Financial Corp. ......... 1,747,825
175,821 Cendant Corp.*(1) ................... 3,153,789
27,500 Countrywide Credit Industries, Inc. . 883,438
161,600 Federal Home Loan
Mortgage Corp.(1) ................. 8,322,400
239,100 Federal National Mortgage
Association ......................... 14,854,087
764,700 General Electric Co. ................ 85,885,369
112,345 Household International, Inc. ....... 4,241,024
61,250 Marsh & McLennan Cos., Inc. ......... 4,459,766
187,350 MBNA Corp. .......................... 4,625,203
33,150 Providian Financial Corp. ........... 2,573,269
38,400 SLM Holding Corp.(1) ................ 1,696,800
---------------
156,079,364
---------------
FOOD RETAIL--0.63%
98,682 Albertson's, Inc. ................... 4,730,568
194,200 Kroger Co.* ......................... 4,490,875
116,400 Safeway, Inc.* ...................... 5,419,875
36,000 Winn Dixie Stores, Inc. ............. 1,224,000
---------------
15,865,318
---------------
FOREST PRODUCTS, PAPER--0.95%
13,700 Bemis, Inc. ......................... 519,744
14,700 Boise Cascade Corp. ................. 534,712
23,400 Champion International Corp.(1) ..... 1,287,000
52,400 Fort James Corp.(1) ................. 1,689,900
40,800 Georgia-Pacific Group(1) ............ 1,688,100
96,528 International Paper Co.(1) .......... 4,542,849
124,520 Kimberly Clark Corp. ................ 7,089,857
29,100 Louisiana Pacific Corp. ............. 538,350
24,300 Mead Corp. .......................... 906,694
13,700 Temple-Inland, Inc. ................. 849,400
25,700 Westvaco Corp. ...................... 673,019
47,500 Weyerhaeuser Co.(1) ................. 2,671,875
26,800 Willamette Industries, Inc.(1) ...... 1,061,950
---------------
24,053,450
---------------
FREIGHT, AIR, SEA & LAND--0.14%
70,100 FDX Corp.* .......................... 2,974,869
87,500 Laidlaw, Inc. ....................... 546,875
---------------
3,521,744
---------------
GAS UTILITY--0.17%
19,700 Columbia Energy Group ............... 1,163,531
22,900 Consolidated Natural Gas Co. ........ 1,458,444
12,800 NICOR, Inc. ......................... 495,200
57,311 Sempra Energy(1) .................... 1,278,752
---------------
4,395,927
---------------
HEAVY MACHINERY--0.12%
18,000 Case Corp. .......................... 888,750
55,600 Deere & Co. ......................... 2,161,450
---------------
3,050,200
---------------
HOTELS--0.16%
31,250 Harrah's Entertainment, Inc.* ....... 703,125
62,700 Hilton Hotels Corp. ................. 768,075
58,700 Marriott International, Inc. ........ 2,010,475
48,900 Mirage Resorts, Inc.* ............... 638,756
---------------
4,120,431
---------------
HOUSEHOLD PRODUCTS--2.51%
15,900 Alberto Culver Co. .................. 404,456
61,600 Avon Products, Inc. ................. 2,702,700
55,600 Clorox Co. .......................... 2,515,900
136,900 Colgate-Palmolive Co. ............... 7,324,150
40,100 Fortune Brands, Inc.(1) ............. 1,503,750
259,600 Gillette Co. ........................ 12,103,850
26,100 International Flavors
and Fragrances .................... 1,063,575
12,500 National Service Industries, Inc. ... 400,000
66,857 Newell Rubbermaid, Inc.(1) .......... 2,741,137
310,400 Procter & Gamble Co.(1) ............. 30,807,200
77,400 Ralston Purina Co.(1) ............... 2,128,500
---------------
63,695,218
---------------
INDUSTRIAL PARTS--0.91%
83,400 Caterpillar, Inc.(1) ................ 4,722,525
17,900 Crane Co. ........................... 430,719
44,050 Genuine Parts Co.(1) ................ 1,271,944
10
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
NUMBER OF
SHARES VALUE
---------- ----------
COMMON STOCKS--(CONTINUED)
INDUSTRIAL PARTS--(CONCLUDED)
39,550 Ingersoll Rand Co. .................. $ 2,516,368
23,900 ITT Industries, Inc. ................ 808,119
32,566 Pall Corp. .......................... 647,249
26,000 Parker-Hannifin Corp. ............... 1,137,500
17,750 Snap-On, Inc. ....................... 600,172
23,200 Stanley Works ....................... 611,900
35,400 Textron, Inc.(1) .................... 2,858,550
112,800 United Technologies Corp.(1) ........ 7,458,900
---------------
23,063,946
---------------
INDUSTRIAL SERVICES/SUPPLIES--0.89%
134,178 Delphi Automotive Systems Corp. ..... 2,515,838
19,500 Ryder Systems, Inc. ................. 430,219
193,676 Tyco International Ltd. ............. 19,621,844
---------------
22,567,901
---------------
INFORMATION & COMPUTER SERVICES--2.18%
254,100 America Online Inc.* ................ 23,202,506
143,500 Automatic Data Processing, Inc. ..... 5,641,344
34,600 Ceridian Corp.* ..................... 968,800
37,300 Computer Sciences Corp.* ............ 2,580,694
39,200 Dun & Bradstreet Corp. .............. 1,026,550
114,900 Electronic Data Systems Corp.(1) .... 6,448,762
34,700 Equifax, Inc. ....................... 1,058,350
101,100 First Data Corp. .................... 4,448,400
74,600 IMS Health, Inc. .................... 2,060,825
65,700 Interpublic Group Co., Inc.(1) ...... 2,603,363
41,700 Omnicom Group, Inc. ................. 3,143,137
57,750 Paychex, Inc. ....................... 1,700,016
6,900 Shared Medical System Corp. ......... 387,694
---------------
55,270,441
---------------
LEISURE--0.37%
23,100 Brunswick Corp. ..................... 590,494
76,300 Eastman Kodak Co. ................... 5,603,281
47,150 Hasbro, Inc. ........................ 1,152,228
99,083 Mattel, Inc.(1) ..................... 2,111,707
---------------
9,457,710
---------------
LIFE INSURANCE--0.82%
33,397 Aetna Life & Casualty Co. ........... 2,596,617
62,400 AFLAC, Inc. ......................... 2,804,100
58,588 American General Corp. .............. 4,159,748
48,500 CIGNA Corp. ......................... 4,355,906
76,962 Conseco, Inc. ....................... 1,847,088
47,100 Lincoln National Corp. .............. 2,207,813
32,400 Torchmark, Inc. ..................... 923,400
55,957 Unumprovident Corp. ................. 2,017,949
---------------
20,912,621
---------------
LONG DISTANCE & PHONE COMPANIES--7.12%
256,100 Ameritech Corp. ..................... 16,166,312
744,597 AT&T Corp.(1) ....................... 33,506,865
362,504 Bell Atlantic Corp. ................. 22,203,370
441,800 BellSouth Corp. ..................... 19,991,450
33,450 Centurytel Inc. ..................... 1,315,003
41,000 Frontier Corp. ...................... 1,719,438
226,900 GTE Corp. ........................... 15,571,012
435,387 MCI WorldCom, Inc.*(1) .............. 32,980,565
459,202 SBC Communications, Inc.(1) ......... 22,041,696
202,300 Sprint Corp. ........................ 8,977,063
118,371 U.S. West, Inc. ..................... 6,184,885
---------------
180,657,659
---------------
MEDIA--2.42%
167,300 CBS Corp.*(1) ....................... 7,863,100
77,600 Clear Channel Communications*(1) .... 5,436,850
173,900 Comcast Corp., Class A(1) ........... 5,673,487
482,600 Disney, Walt Co.(1) ................. 13,392,150
141,800 Mediaone Group, Inc.*(1) ............ 9,323,350
13,700 Meredith Corp. ...................... 475,219
278,300 Time Warner, Inc.(1) ................ 16,506,669
27,900 Tribune Co. ......................... 2,603,419
---------------
61,274,244
---------------
MEDICAL PRODUCTS--3.02%
354,800 Abbott Laboratories ................. 15,389,450
24,200 Alza Corp.* ......................... 1,219,075
12,700 Bard, C.R., Inc. .................... 592,138
13,800 Bausch & Lomb, Inc. ................. 911,662
68,300 Baxter International, Inc. .......... 4,580,369
59,000 Becton, Dickinson & Co. ............. 1,659,375
26,800 Biomet, Inc. ........................ 958,100
92,800 Boston Scientific Corp.* ............ 3,149,400
70,600 Guidant Corp. ....................... 4,143,337
314,200 Johnson & Johnson(1) ................ 32,126,950
18,100 Mallinckrodt Group, Inc. ............ 580,331
136,200 Medtronic, Inc. ..................... 10,657,650
20,500 St. Jude Medical, Inc.* ............. 743,125
---------------
76,710,962
---------------
MEDICAL PROVIDERS--0.43%
133,227 Columbia/HCA Healthcare Corp. ....... 3,280,715
27,700 HCR Manor Care, Inc.* ............... 541,881
99,200 HEALTHSOUTH Corp.* .................. 812,200
42,600 Humana, Inc.* ....................... 386,062
65,200 Service Corp. International(1) ...... 900,575
74,100 Tenet Healthcare Corp.* ............. 1,292,119
11
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
NUMBER OF
SHARES VALUE
---------- ----------
COMMON STOCKS--(CONTINUED)
MEDICAL PROVIDERS--(CONCLUDED)
40,700 United Healthcare Corp.(1) .......... $ 2,475,069
15,800 Wellpoint Health Networks, Inc.* .... 1,151,425
---------------
10,840,046
---------------
MINING & METALS--0.56%
55,400 Alcan Aluminum Ltd.(1) .............. 1,821,275
86,600 Alcoa, Inc. ......................... 5,591,112
48,580 Allegheny Teldyne, Inc. ............. 907,839
31,700 Crown Cork & Seal, Inc. ............. 842,031
26,900 Cyprus Amax Minerals Co. ............ 455,619
46,800 Inco Ltd. ........................... 959,400
21,500 Nucor Corp.(1) ...................... 1,001,094
38,200 Owens Illinois, Inc.* ............... 945,450
16,300 Reynolds Metals Co. ................. 1,031,994
25,300 USX-U.S. Steel Group, Inc. .......... 683,100
---------------
14,238,914
---------------
MOTOR VEHICLES--1.13%
20,800 Cooper Tire & Rubber Co. ............ 395,200
39,800 DANA Corp.(1) ....................... 1,733,788
283,700 Ford Motor Co. ...................... 14,787,862
152,000 General Motors Corp. ................ 10,051,000
16,000 Navistar International Corp.* ....... 778,000
18,730 Paccar, Inc. ........................ 1,032,491
---------------
28,778,341
---------------
OIL REFINING--1.12%
50,200 Coastal Corp. ....................... 2,174,288
152,500 Conoco Incorporated ................. 4,098,437
163,600 Enron Corp. ......................... 6,850,750
23,792 Sunoco, Inc. ........................ 774,727
125,500 Texaco, Inc.(1) ..................... 7,969,250
73,000 USX-Marathon Group .................. 2,272,125
100,800 Williams Co., Inc.(1) ............... 4,158,000
---------------
28,297,577
---------------
OIL SERVICES--0.66%
76,860 Baker Hughes, Inc. .................. 2,613,240
103,200 Halliburton Co. ..................... 4,785,900
16,000 McDermott International, Inc. ....... 361,000
21,700 Rowan Co., Inc.* .................... 404,162
128,500 Schlumberger Ltd. ................... 8,577,375
---------------
16,741,677
---------------
OTHER INSURANCE--2.24%
188,384 Allstate Corp. ...................... 6,181,350
361,178 American International Group, Inc. .. 33,476,686
41,500 Chubb Corp. ......................... 2,373,281
39,200 Cincinnati Financial Corp. .......... 1,553,300
53,200 Hartford Financial Services
Group, Inc. ....................... 2,417,275
24,625 Jefferson-Pilot Corp. ............... 1,643,719
26,900 Loews Corp. ......................... 2,111,650
23,800 MBIA Inc. ........................... 1,234,625
25,700 MGIC Investment Corp. ............... 1,116,344
33,200 SAFECO Corp. ........................ 1,182,750
54,664 St. Paul Co., Inc. .................. 1,752,664
17,000 The Progressive Corp. ............... 1,734,000
---------------
56,777,644
---------------
PRECIOUS METALS--0.18%
89,800 Barrick Gold Corp. .................. 1,739,875
38,500 Freeport-McMoran
Copper & Gold, Inc. ................. 618,406
65,000 Homestake Mining Co. ................ 552,500
40,576 Newmont Mining Corp. ................ 829,272
78,500 Placer Dome, Inc. ................... 814,438
---------------
4,554,491
---------------
PUBLISHING--0.57%
17,600 American Greetings Corp., Class A ... 487,300
19,800 Deluxe Corp. ........................ 674,438
32,300 Donnelley, R.R. & Sons Co. .......... 1,013,412
22,100 Dow Jones & Co., Inc. ............... 1,110,525
64,800 Gannett, Inc.(1) .................... 4,402,350
18,200 Harcourt General, Inc. .............. 797,388
19,000 Knight Ridder, Inc.(1) .............. 1,024,812
46,100 McGraw-Hill Companies, Inc. ......... 2,382,794
41,900 New York Times Co., Class A ......... 1,636,719
17,700 Times Mirror Co.(1) ................. 1,022,175
---------------
14,551,913
---------------
RAILROADS--0.47%
111,066 Burlington Northern Santa Fe, Inc. .. 3,220,914
51,500 CSX Corp.(1) ........................ 2,249,906
26,700 Kansas City Southern
Industries, Inc. .................... 1,236,544
88,700 Norfolk Southern Corp. .............. 2,322,831
58,200 Union Pacific Corp. ................. 2,833,613
---------------
11,863,808
---------------
RESTAURANTS--0.63%
32,900 Darden Restaurants, Inc. ............ 514,063
316,100 McDonalds Corp.(1) .................. 13,078,637
36,220 Tricon Global Restaurants, Inc.* .... 1,471,437
29,900 Wendy's International, Inc. ......... 837,200
---------------
15,901,337
---------------
12
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
NUMBER OF
SHARES VALUE
---------- ----------
COMMON STOCKS--(CONCLUDED)
SECURITIES & ASSET MANAGEMENT--1.16%
31,645 Bear Stearns Co., Inc.(1) ........... $ 1,317,223
192,500 Charles Schwab Corp.(1) ............. 7,603,750
62,200 Franklin Resources, Inc.(1) ......... 2,235,313
88,100 Merrill Lynch & Co., Inc. ........... 6,574,463
135,000 Morgan Stanley Dean Witter & Co. .... 11,584,687
---------------
29,315,436
---------------
SEMICONDUCTOR--3.68%
36,900 Advanced Micro Devices, Inc.* ....... 763,369
87,600 Applied Materials, Inc.* ............ 6,225,075
776,500 Intel Corp.(1) ...................... 63,818,593
33,900 LSI Logic Corp.* .................... 1,923,825
58,900 Micron Technology, Inc.* ............ 4,391,731
40,100 National Semiconductor Corp.* ....... 1,130,319
183,500 Texas Instruments, Inc. ............. 15,058,469
---------------
93,311,381
---------------
SPECIALTY RETAIL--2.12%
36,400 Autozone, Inc.*(1) .................. 866,775
47,800 Best Buy Company Inc.* .............. 3,357,950
47,200 Circuit City Stores, Inc. ........... 2,029,600
26,700 Consolidated Stores Corp.* .......... 430,537
51,408 Costco Wholesale Corporation(1) ..... 3,842,748
92,100 CVS Corp. ........................... 3,839,419
52,093 Dollar General Corp.(1) ............. 1,354,418
346,200 Home Depot, Inc.(1) ................. 21,161,475
87,100 Lowe's Companies, Inc. .............. 3,941,275
89,200 Office Depot Inc.* .................. 931,025
62,100 Rite Aid Corp.(1) ................... 1,148,850
109,400 Staples Inc.* ....................... 2,379,450
45,400 Tandy Corp.(1) ...................... 2,145,150
60,500 Toys R Us, Inc.* .................... 835,656
234,000 Walgreen Co.(1) ..................... 5,425,875
---------------
53,690,203
---------------
THRIFT--0.22%
13,500 Golden West Financial Corp. ......... $ 1,225,969
137,775 Washington Mutual, Inc.(1) .......... 4,374,356
---------------
5,600,325
---------------
TOBACCO--0.88%
562,600 Philip Morris Co., Inc. ............. 21,062,337
42,100 UST Inc. ............................ 1,334,044
---------------
22,396,381
---------------
WIRELESS TELECOMMUNICATIONS--0.59%
71,800 Alltel Corp. ........................ 4,855,475
69,700 Nextel Communications, Inc.*(1) ..... 4,029,531
103,200 Sprint Corp.*(1) .................... 6,166,200
---------------
15,051,206
---------------
Total Common Stocks
(cost--$1,982,135,503)--100.05% ......................... 2,537,533,587
Liabilities in excess of other assets--(0.05)% ........... (1,346,603)
---------------
Net Assets--100.00% ...................................... $ 2,536,186,984
---------------
- ----------
* Non-Income producing security.
(1) Security, or a portion thereof, was on loan at August 31, 1999.
ADR American Depositary Receipt.
See accompanying notes to financial statements
13
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost--$1,982,135,503) .................................................. $2,537,533,587
Investments of cash collateral received for securities loaned, at value (cost--$418,693,932) ................ 418,693,932
Receivable for shares of beneficial interest sold ........................................................... 8,314,169
Dividends and interest receivable ........................................................................... 5,262,401
Receivable for investments sold ............................................................................. 430,745
Other assets ................................................................................................ 133,065
---------------
Total assets ................................................................................................ 2,970,367,899
---------------
LIABILITIES
Collateral for securities loaned ............................................................................ 418,693,932
Payable for investments purchased ........................................................................... 6,269,634
Payable for shares of beneficial interest repurchased ....................................................... 3,576,351
Payable to affiliates ....................................................................................... 2,554,366
Due to custodian ............................................................................................ 1,046,370
Accrued expenses and other liabilities ...................................................................... 2,040,262
---------------
Total liabilities ........................................................................................... 434,180,915
---------------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount authorized) ......................................... 1,957,435,222
Distributions in excess of net investment income ............................................................ (3,585)
Accumulated net realized gains from investment transactions ................................................. 23,357,263
Net unrealized appreciation of investments .................................................................. 555,398,084
---------------
Net assets .................................................................................................. $ 2,536,186,984
---------------
CLASS A:
Net assets .................................................................................................. $ 702,579,645
---------------
Shares outstanding .......................................................................................... 22,102,625
---------------
Net asset value and redemption value per share .............................................................. $31.79
---------------
Maximum offering price per share (net asset value plus sales charge of 4.50% of offering price) ............. $33.29
---------------
CLASS B:
Net assets .................................................................................................. $ 964,933,386
---------------
Shares outstanding .......................................................................................... 30,716,349
---------------
Net asset value and offering price per share ................................................................ $31.41
---------------
CLASS C:
Net assets .................................................................................................. $ 738,780,500
---------------
Shares outstanding .......................................................................................... 23,378,341
---------------
Net asset value and offering price per share ................................................................ $31.60
---------------
CLASS Y:
Net assets .................................................................................................. $ 129,893,453
---------------
Shares outstanding .......................................................................................... 4,059,915
---------------
Net asset value, offering price and redemption value per share .............................................. $31.99
---------------
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED
AUGUST 31, 1999
---------------
INVESTMENT INCOME:
Dividends and interest (net of foreign
withholding tax of $341,492) .............................. $ 28,175,771
-------------
EXPENSES:
Investment advisory and administration ...................... 9,214,743
Service fees--Class A ....................................... 1,365,214
Service and distribution fees--Class B ...................... 7,645,352
Service and distribution fees--Class C ...................... 6,022,973
Transfer agency ............................................. 1,043,774
Custody and accounting ...................................... 957,031
Federal and state registration .............................. 310,712
Reports and notices to shareholders ......................... 209,947
Legal and audit ............................................. 116,892
Interest expense ............................................ 111,275
Trustees' fees .............................................. 13,500
Other expenses .............................................. 40,268
-------------
27,051,681
Less: Fee waiver from adviser ............................... (74,037)
-------------
Net expenses ................................................ 26,977,644
-------------
Net investment income ....................................... 1,198,127
-------------
REALIZED AND UNREALIZED GAINS
FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions ............. 35,156,348
Net change in unrealized appreciation of investments ........ 489,874,969
-------------
NET REALIZED AND UNREALIZED GAINS
FROM INVESTMENT ACTIVITIES ................................ 525,031,317
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................. $ 526,229,444
-------------
See accompanying notes to financial statements
15
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED AUGUST 31,
-----------------------------------
1999 1998
--------------- ----------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income ........................................................................ $ 1,198,127 $ 2,567,936
Net realized gains from investment transactions .............................................. 35,156,348 24,149,522
Net change in unrealized appreciation/depreciation of investments ............................ 489,874,969 (37,398,869)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations .............................. 526,229,444 (10,681,411)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A ............................................................... (2,724,561) (1,100,266)
Net investment income--Class B ............................................................... (401,698) (149,598)
Net investment income--Class C ............................................................... (61,213) --
Net investment income--Class Y ............................................................... (774,047) (333,893)
Net realized gains from investment transactions--Class A ..................................... (9,094,882) (1,616,587)
Net realized gains from investment transactions--Class B ..................................... (13,219,722) (2,281,367)
Net realized gains from investment transactions--Class C ..................................... (10,487,215) (1,955,927)
Net realized gains from investment transactions--Class Y ..................................... (1,917,018) (357,325)
--------------- ---------------
Total dividends and distributions to shareholders ............................................ (38,680,356) (7,794,963)
--------------- ---------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ......................................................... 1,246,391,035 883,807,510
Cost of shares repurchased ................................................................... (530,096,507) (256,918,262)
Proceeds from dividends reinvested ........................................................... 36,391,184 7,433,176
--------------- ---------------
Net increase in net assets from beneficial interest transactions ............................. 752,685,712 634,322,424
--------------- ---------------
Net increase in net assets ................................................................... 1,240,234,800 615,846,050
NET ASSETS:
Beginning of year ............................................................................ 1,295,952,184 680,106,134
--------------- ---------------
End of year (including undistributed net investment income of $2,320,658
at August 31, 1998) ........................................................................ $ 2,536,186,984 $ 1,295,952,184
--------------- ---------------
</TABLE>
See accompanying notes to financial statements
16
<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--The Fund calculates net asset values based on the
current market value for its portfolio's securities. The Fund normally obtains
market values for its securities from independent pricing sources. Independent
pricing sources may use reported last sale prices, current market quotations or
valuations from computerized "matrix" systems that derive values based on
comparable securities. Securities traded in the over-the-counter ("OTC") market
and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at
the last sale price on Nasdaq prior to valuation. Other OTC securities are
valued at the last bid price available prior to valuation. Securities which are
listed on U.S. and foreign stock exchanges normally are valued at the last sale
price on the day the securities are 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 as the
primary market by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"),
a wholly owned asset management subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser and administrator of the Fund. If a
market value is not available from an independent pricing source for a
particular security, that security is valued at fair value as determined in good
faith by or under the direction of the Trust's board of trustees (the "board").
The amortized cost method of valuation, which approximates market value,
generally is used to value short-term debt-instruments with sixty days or less
remaining to maturity, unless the Trust's board 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.
17
<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 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, 1999, the Fund owed Mitchell
Hutchins $957,372 in investment advisory and administration fees. Mitchell
Hutchins waived a portion of its investment advisory and administration fees in
connection with the Fund's investment of cash collateral from security lending
in the Mitchell Hutchins Private Money Market Fund LLC. For the year ended
August 31, 1999, Mitchell Hutchins waived $74,037.
For the year ended August 31, 1999, the Fund paid $3,571 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 an 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, 1999, the Fund owed
Mitchell Hutchins $1,579,414 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, 1999, it earned $7,097,653 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, 1999, PaineWebber received from PFPC, Inc., not the Fund,
approximately 55% 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 331/3% 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
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
interest, determined on a daily basis and adjusted accordingly. The Fund will
regain record ownership of 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. For the year ended August 31, 1999, the Fund
earned $371,252 for lending its securities and PaineWebber earned $176,811 in
compensation as the Fund's lending agent. At August 31, 1999, the Fund owed
PaineWebber $17,580 in compensation.
As of August 31, 1999, the Fund held cash and/or cash equivalents having an
aggregate value of $418,693,932 as collateral for portfolio securities loaned
having a market value of $403,252,113. The cash collateral was invested in the
following money market funds and time deposits:
<TABLE>
<CAPTION>
NUMBER OF
SHARES/
PRINCIPAL
AMOUNT
(000) VALUE
---------- -------------
<S> <C>
$ 75,000 Dresdner Bank AG, Cayman Island Time Deposit, 5.500%, due 09/01/99 ............................. $ 75,000,000
11 Janus Money Market Institutional Shares ........................................................ 11,728
44,085 Liquid Assets Portfolio ........................................................................ 44,084,892
274,530 Mitchell Hutchins Private Money Market Fund LLC ................................................ 274,530,064
67 Prime Money Market Portfolio ................................................................... 67,248
25,000 State Street Bank &Trust Co., Cayman Island Time Deposit, 5.563%, due 09/01/99 ................. 25,000,000
------------
Total investments of cash collateral received for securities loaned (cost-- $418,693,932) ...................... $418,693,932
------------
</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, 1999, the Fund
did not borrow under the Facility and had an average daily amount of borrowing
outstanding under the Line of Credit of $2,498,080 with a related weighted
average annualized interest rate of 5.79%.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1999 was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1999, the components of net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having an excess
of value over cost) ................................ $619,956,261
Gross depreciation (investments having an excess
of cost over value) ................................ (64,558,177)
------------
Net unrealized appreciation of investments ........... $555,398,084
------------
For the year ended August 31, 1999, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
Purchases ............................................ $844,522,763
Sales ................................................ $128,202,155
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 Tactical Allocation Fund arising from
permanent "book/tax" differences for the year ended August 31, 1999,
distributions in excess of net investment income was decreased by $439,149,
accumulated net realized gains from investment transactions were decreased by
$432,247 and beneficial interest was decreased by $6,902.
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
YEAR ENDED ----------------------------- ------------------------------
AUGUST 31, 1999: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ............... 12,182,274 $ 368,812,546 15,261,028 $ 456,532,117
Shares repurchased ........ (5,539,275) (165,933,961) (5,108,195) (152,010,284)
Shares converted from
Class B to Class A ...... 604,844 18,219,358 (610,505) (18,219,358)
Dividends reinvested ...... 404,414 11,287,184 461,158 12,787,918
------------- ------------- ------------- -------------
Net increase .............. 7,652,257 $ 232,385,127 10,003,486 $ 299,090,393
------------- ------------- ------------- -------------
Shares sold ............... 9,221,547 $ 238,313,556 12,709,779 $ 325,991,212
Shares repurchased ........ (3,202,931) (81,610,480) (2,322,552) (60,350,902)
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
------------- ------------- ------------- -------------
Net increase .............. 6,768,429 $ 174,261,886 9,853,044 $ 252,937,436
------------- ------------- ------------- -------------
CLASS C CLASS Y
YEAR ENDED ----------------------------- ------------------------------
AUGUST 31, 1998: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold ............... 11,064,843 $ 332,735,375 2,872,510 $ 88,310,997
Shares repurchased ........ (5,015,265) (149,378,433) (2,051,185) (62,773,829)
Shares converted from
Class B to Class A ...... -- -- -- --
Dividends reinvested ...... 364,581 10,171,796 76,472 2,144,286
------------- ------------- ------------- -------------
Net increase .............. 6,414,159 $ 193,528,738 897,797 $ 27,681,454
------------- ------------- ------------- -------------
Shares sold ......... 9,692,236 $ 251,254,120 2,647,231 $ 68,248,622
Shares repurchased .. (3,317,661) (85,764,520) (1,148,127) (29,192,360)
Shares converted from
Class B to Class A -- -- -- --
Dividends reinvested 82,162 1,888,083 29,898 689,157
------------- ------------- ------------- -------------
Net increase ........ 6,456,737 $ 167,377,683 1,529,002 $ 39,745,419
------------- ------------- ------------- -------------
</TABLE>
20
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
(This page has been left blank intentionally.)
21
<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
------------------------------------------------------------
FOR THE YEARS
ENDED AUGUST 31,
------------------------------------------------------------
1999 1998 1997 1996 1995**
-------- -------- -------- -------- --------
Net asset value,
<S> <C> <C> <C> <C> <C>
beginning of period ...... $ 23.55 $ 22.23 $ 16.15 $ 14.86 $ 13.78
-------- -------- -------- -------- --------
Net investment income
(loss) ................... 0.15 0.15 0.18@ 0.18 0.22
Net realized and
unrealized gains from
investments .............. 8.84 1.47 6.12@ 2.31 2.05
-------- -------- -------- -------- --------
Net increase from
investment operations .... 8.99 1.62 6.30 2.49 2.27
-------- -------- -------- -------- --------
Dividends from net
investment income ........ (0.17) (0.12) (0.14) (0.14) (0.22)
Distributions from net
realized gains from
investments
transactions ............. (0.58) (0.18) (0.08) (1.06) (0.97)
-------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders ............. (0.75) (0.30) (0.22) (1.20) (1.19)
-------- -------- -------- -------- --------
Net asset value, end of
period ................... $ 31.79 $ 23.55 $ 22.23 $ 16.15 $ 14.86
-------- -------- -------- -------- --------
Total investment
return(1) ................ 38.65% 7.31% 39.26% 17.35% 18.43%
-------- -------- -------- -------- --------
Ratios/supplemental
data:
Net assets, end of period
(000's) ................. $702,580 $340,245 $170,759 $ 23,551 $ 1,944
$397,767 .................... $233,044 $ 73,630 $ 48,105 $129,893 $ 74,872
Expenses to average net
assets, net of waivers
from adviser(2) .......... 0.84% 0.95% 0.99% 1.17% 1.46%
Net investment income
(loss) to average net
assets, net of waivers
from adviser(2) .......... 0.56% 0.74% 0.88% 1.12% 1.60%
Portfolio turnover rate ..... 6% 33% 6% 6% 53%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
FOR THE
PERIOD
FOR THE YEARS JANUARY 30,
ENDED 1996+ TO
AUGUST 31, AUGUST 31,
----------------------------------
1999 1998 1997 1996
-------- -------- -------- ----------
Net asset value,
<S> <C> <C> <C> <C>
beginning of period ...... $ 23.32 $ 22.08 $ 16.13 $ 15.54
-------- -------- -------- ----------
Net investment income
(loss) ................... (0.04) 0.00 0.03@ 0.02
Net realized and
unrealized gains from
investments .............. 8.73 1.43 6.09@ 0.57
-------- -------- -------- ----------
Net increase from
investment operations .... 8.69 1.43 6.12 0.59
-------- -------- -------- ----------
Dividends from net
investment income ........ (0.02) (0.01) (0.09) --
Distributions from net
realized gains from
investments
transactions ............. (0.58) (0.18) (0.08) --
-------- -------- -------- ----------
Total dividends and
distributions to
shareholders ............. (0.60) (0.19) (0.17) 0.00
-------- -------- -------- ----------
Net asset value, end of
period ................... $ 31.41 $ 23.32 $ 22.08 $ 16.13
-------- -------- -------- ----------
Total investment
return(1) ................ 37.61% 6.49% 38.14% 3.80%
-------- -------- -------- ----------
Ratios/supplemental
data:
Net assets, end of period
(000's) ................. $964,933 $483,068 $239,836 $ 28,495
Expenses to average net
assets, net of waivers
from adviser(2) .......... 1.59% 1.71% 1.74% 1.84%*
Net investment income
(loss) to average net
assets, net of waivers
from adviser(2) .......... (0.20)% (0.02)% 0.13% 0.47%*
Portfolio turnover rate ..... 6% 33% 6% 6%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
FOR THE YEARS
ENDED AUGUST 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995**
------- -------- -------- -------- --------
Net asset value,
<S> <C> <C> <C> <C> <C>
beginning of period ...... $ 23.45 $ 22.18 $ 16.12 $ 14.87 $ 13.78
------- -------- -------- -------- --------
Net investment income
(loss) ................... (0.06) (0.01) 0.03@ 0.06 0.12
Net realized and
unrealized gains from
investments .............. 8.79 1.45 6.11@ 2.32 2.06
------- -------- -------- -------- --------
Net increase from
investment operations .... 8.73 1.44 6.14 2.38 2.18
------- -------- -------- -------- --------
Dividends from net
investment income ........ (0.00)# -- -- (0.07) (0.12)
Distributions from net
realized gains from
investments
transactions ............. (0.58) (0.17) (0.08) (1.06) (0.97)
------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders ............. (0.58) (0.17) (0.08) (1.13) (1.09)
------- -------- -------- -------- --------
Net asset value, end of
period ................... $ 31.60 $ 23.45 $ 22.18 $ 16.12 $ 14.87
------- -------- -------- -------- --------
Total investment
return(1) ................ 37.58% 6.49% 38.20% 16.52% 17.57%
------- -------- -------- -------- --------
Ratios/supplemental
data:
Net assets, end of period
(000's) ................. $738,781 $397,767 $233,044 $ 73,630 $ 48,105
Expenses to average net
assets, net of waivers
from adviser(2) .......... 1.60% 1.70% 1.75% 1.95% 2.22%
Net investment income
(loss) to average net
assets, net of waivers
from adviser(2) .......... (0.20)% (0.01)% 0.14% 0.35% 0.86%
Portfolio turnover rate ..... 6% 33% 6% 6% 53%
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
-----------------------------------------------------------------
FOR THE YEARS
ENDED AUGUST 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995**
--------- -------- -------- -------- ---------
Net asset value,
<S> <C> <C> <C> <C> <C>
beginning of period ...... $ 23.68 $ 22.33 $ 16.20 $ 14.88 $ 13.79
-------- -------- -------- -------- --------
Net investment income
(loss) ................... 0.22 0.21 0.23@ 0.30 0.23
Net realized and
unrealized gains from
investments .............. 8.91 1.49 6.13@ 2.24 2.09
-------- -------- -------- -------- --------
Net increase from
investment operations .... 9.13 1.70 6.36 2.54 2.32
-------- -------- -------- -------- --------
Dividends from net
investment income ........ (0.24) (0.17) (0.15) (0.16) (0.26)
Distributions from net
realized gains from
investments
transactions ............. (0.58) (0.18) (0.08) (1.06) (0.97)
-------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders ............. (0.82) (0.35) (0.23) (1.22) (1.23)
-------- -------- -------- -------- --------
Net asset value, end of
period ................... $ 31.99 $ 23.68 $ 22.33 $ 16.20 $ 14.88
-------- -------- -------- -------- --------
Total investment
return(1) ................ 39.03% 7.62% 39.55% 17.70% 18.79%
-------- -------- -------- -------- --------
Ratios/supplemental
data:
Net assets, end of period
(000's) ................. $129,893 $ 74,872 $ 36,467 $ 12,803 $ 2,506
Expenses to average net
assets, net of waivers
from adviser(2) .......... 0.58% 0.67% 0.74% 0.95% 1.23%
Net investment income
(loss) to average net
assets, net of waivers
from adviser(2) .......... 0.82% 1.03% 1.16% 1.38% 1.86%
Portfolio turnover rate ..... 6% 33% 6% 6% 53%
</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 or program fees; results would be lower if sales
charges or program fees were included. Total investment return for periods
of less than one year has not been annualized.
(2) During the year ended August 31, 1999, Mitchell Hutchins waived a portion
of its advisory and administration fees. The ratios excluding the waiver
would be the same since the fee waiver represents less than 0.005%.
# Actual amount is less than $0.005.
23
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Shareholders and Trustees 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, 1999, 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 five 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.
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, 1999, 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, 1999, 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 five years in the period then ended, in conformity with generally accepted
accounting principles.
New York, New York /s/Ernst & Young LLP
October 14, 1999
24
<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,
1999) 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* .......................... $0.1745 $0.0177 $0.0034 $0.2352
Short-term capital gains* ....................... 0.3243 0.3243 0.3243 0.3243
Long-term capital gains ......................... 0.2582 0.2582 0.2582 0.2582
Percentage of ordinary income
dividends qualifying for the
dividends received deduction
available to corporate shareholders ........... 73% 73% 73% 73%
</TABLE>
- -----------
* Taxable as ordinary income.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1999. 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 2000. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund.
25
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
(This page has been left blank intentionally.)
26
<PAGE>
PAINEWEBBER TACTICAL ALLOCATION FUND
- --------------------------------------------------------------------------------
TRUSTEES
E. Garrett Bewkes, Jr. Meyer Feldberg
CHAIRMAN George W. Gowen
Margo N. Alexander Frederic V. Malek
Richard Q. Armstrong Carl W. Schafer
Richard R. Burt Brian M. Storms
Mary C. Farrell
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.
51 West 52nd Street
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 FINANCIAL ADVISOR OR
CORRESPONDENT FIRM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
27
<PAGE>
- ------------------
PaineWebber offers a family of 28 funds which
encompass a diversified range of investment goals.
BOND FUNDS
|_| High Income Fund
|_| Investment Grade Income Fund
|_| Low Duration U.S. Government Income Fund
|_| Strategic Income Fund
|_| U.S. Government Income Fund
TAX-FREE BOND FUNDS
|_| California Tax-Free Income Fund
|_| Municipal High Income Fund
|_| National Tax-Free Income Fund
|_| New York Tax-Free Income Fund
STOCK FUNDS
|_| Financial Services Growth Fund
|_| Growth Fund
|_| Growth and Income Fund
|_| Mid Cap Fund
|_| Small Cap Fund
|_| S&P 500 Index Fund
|_| Strategy Fund
|_| Tax-Managed Equity Fund
|_| Utility Income Fund
ASSET ALLOCATION FUNDS
|_| Balanced Fund
|_| Tactical Allocation Fund
GLOBAL FUNDS
|_| Asia Pacific Growth Fund
|_| Emerging Markets Equity Fund
|_| Global Equity Fund
|_| Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
|_| Aggressive Portfolio
|_| Moderate Portfolio
|_| Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PaineWebber
(C)1999 PaineWebber Incorporated
Member SIPC
PaineWebber
- --------------------------------------------------------------------------------
TACTICAL
ALLOCATION
FUND
ANNUAL REPORT
AUGUST 31, 1999
