<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
SUPPLEMENT TO PROSPECTUS DATED AUGUST 5, 1994
The following replaces the sixth sentence of the second paragraph appearing
under the caption "Other Investment Policies and Risk Factors - Other
Information" on page 19 of the Prospectus:
The Fund may acquire equity securities (including common stocks, rights
and warrants for equity securities, debt securities and commodities) when
attached to fixed income securities or as part of a unit including fixed income
securities, or in connection with a conversion or exchange of fixed income
securities.
The following information replaces the fourth and fifth paragraphs under
"Management" on page 15 and 16 of the Prospectus:
The following replaces the fifth paragraph appearing under the caption
"Management" on page 27 of the Prospectus:
Effective December 20, 1994, Nirmal Singh, a vice president of Mitchell
Hutchins Institutional Investors Inc. ("MHII"), and Craig M. Varrelman, CFA, a
vice president of MHII, are responsible for the day-to-day management of the
U.S. government and investment grade securities sector of the Fund. Prior to
joining MHII in 1993, Mr. Singh was with Merrill Lynch Asset Management, Inc.,
where he was a member of the portfolio management team responsible for managing
several diversified funds, including mortgage-backed securities funds with
assets totaling $8 billion. From 1990 to 1993, Mr. Singh was a senior portfolio
manager at Nomura Mortgage Fund Management Corporation, where he was responsible
for managing $3 billion in mortgage assets. From 1987 to 1990, Mr. Singh was
with the Federal National Mortgage Association. Mr. Varrelman has been with MHII
as a portfolio manager since 1988 and manages fixed income portfolios with
assets totaling approximately $1.5 billion, with an emphasis on U.S. government
securities.
The following sentence replaces the fourth paragraph appearing under the caption
"Management" on page 27:
Effective March 3, 1995, Dennis McCauley, a managing director and chief
investment officer of fixed income of Mitchell Hutchins, is the Fund's
allocation manager. Mr. McCauley has been employed by Mitchell Hutchins since
December 1994 and is responsible for overseeing all active fixed income
investments, including domestic and global taxable and tax-exempt mutual funds.
Prior to joining Mitchell Hutchins, Mr. McCauley worked for IBM Corporation
where he was Director of Fixed Income Investments responsible for developing and
managing investment strategy for all fixed income and cash management
investments of IBM's pension fund and self-insured medical funds. Mr. McCauley
has also served as Vice President of IBM Credit Corporation's mutual funds and
as a member of the Retirement Fund Investment Committee.
Dated: March 14, 1995
This supplement superseded all previous supplements.
<PAGE>
-----------------------------
------------
------------------------------------------------------------------------
PaineWebber Strategic Income Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- August 5, 1994
- --------------------------------------------------------------------------------
PAINEWEBBER STRATEGIC INCOME FUND is a professionally managed mutual fund
seeking a high level of current income and, secondarily, capital appreciation
by strategically allocating its investment portfolio among sectors of the U.S.
and foreign income securities markets.
The Fund is a series of PaineWebber Securities Trust ("Trust"). This Prospectus
concisely sets forth information about the Fund a prospective investor should
know before investing. Please retain this Prospectus for future reference.
The Fund may invest predominantly in lower rated bonds, commonly referred to as
"junk bonds." Bonds of this type are considered to be speculative with respect
to the payment of interest and return of principal. Purchasers should carefully
assess the risks associated with an investment in this Fund.
A Statement of Additional Information dated January 28, 1994, as supplemented
August 5, 1994, (which is incorporated by reference herein) has been filed with
the Securities and Exchange Commission. The Statement of Additional Information
can be obtained without charge, and further inquiries can be made, by
contacting the Fund, your PaineWebber investment executive or PaineWebber's
correspondent firms or by calling toll-free 1-800-647-1568.
An investment in the PaineWebber Strategic Income Fund offers the following
advantages:
. Professional Management
. Dividend and Capital Gain
Reinvestment
. Flexible Pricing/SM/
. Low Minimum Investment
. Automatic Investment Plan
. Systematic Withdrawal Plan
. Exchange Privileges
. Suitable For Retirement Plans
------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus Page 1
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Table of Contents
- --------------------------------------------------------------------------------
-------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 7
Flexible Pricing System.................................................... 8
Investment Objectives and Policies......................................... 9
Purchases.................................................................. 19
Exchanges.................................................................. 22
Redemptions................................................................ 23
Conversion of Class B Shares............................................... 24
Other Services and Information............................................. 24
Dividends and Taxes........................................................ 25
Valuation of Shares........................................................ 27
Management................................................................. 27
Performance Information.................................................... 29
General Information........................................................ 30
Appendix A................................................................. 31
Appendix B................................................................. 34
</TABLE>
Prospectus Page 2
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Prospectus Summary
- --------------------------------------------------------------------------------
-------------
See the body of this Prospectus for more information on the topics discussed in
this summary.
The Fund: PaineWebber Strategic Income Fund ("Fund") is a non-
diversified series of an open-end management invest-
ment company.
Investment Objectives The Fund's primary investment objective is to achieve
and Policies: a high level of current income. As a secondary objec-
tive, the Fund will seek capital appreciation. The
Fund seeks to achieve its investment objectives by in-
vesting in a portfolio of income securities that is
strategically allocated among the following investment
sectors: U.S. government and investment grade securi-
ties, U.S. high yield, high risk securities, and for-
eign and emerging market securities. A portion of the
Fund's assets normally will be invested in each of
these investment sectors, but the Fund has the flexi-
bility at any time to invest all or substantially all
of its assets in any one of these sectors.
Total Net Assets: $85.4 million at July 15, 1994.
Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), manages over
$36.3 billion in assets. See "Management."
Purchases: Shares of beneficial interest are available exclu-
sively through PaineWebber and its correspondent firms
for investors who are clients of PaineWebber or those
firms ("PaineWebber clients") and, for other invest-
ors, through PFPC Inc., the Fund's transfer agent
("Transfer Agent").
Flexible Pricing Investors may select Class A, Class B or Class D
System: shares, each with a public offering price that re-
flects different sales charges and expense levels. See
"Flexible Pricing System," "Purchases," "Redemptions"
and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable sales
charge (maximum is 4% of public offering price).
Class B Shares Offered at net asset value (a maximum contingent de-
ferred sales charge of 5% of redemption proceeds is
imposed on certain redemptions made within six years
of date of purchase). Class B shares automatically
convert into Class A shares (which pay lower ongoing
expenses) approximately six years after purchase.
Class D Shares Offered at net asset value without an initial or con-
tingent deferred sales charge. Class D shares pay
higher ongoing expenses than Class A shares and do not
convert into another Class.
Exchanges: Shares may be exchanged for shares of the correspond-
ing Class of most PaineWebber mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.
Dividends: Declared and paid monthly; net capital gain is dis-
tributed annually. See "Dividends and Taxes."
Prospectus Page 3
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
-------------
Reinvestment: All dividends and capital gain distributions are paid
in Fund shares of the same Class at net asset value
unless the shareholder has requested cash.
Minimum Purchase: $1,000 for the first purchase; $100 for subsequent
purchases.
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial
Systematic withdrawal plan sales charge
Rights of accumulation 365-day reinstatement
privilege
Class B Shares Automatic investment plan Systematic withdrawal plan
Class D Shares Automatic investment plan Systematic withdrawal plan
------------------
WHO SHOULD INVEST. The Fund enables investors to participate in investment
opportunities in three distinct sectors of the fixed income market: (1) U.S.
government securities and investment grade income securities of corporate and
other non-governmental U.S. issuers ("U.S. Government and Investment Grade
Securities"); (2) high yield, high risk income securities of U.S. issuers
("U.S. High Yield Securities"); and (3) government, corporate or other income
securities of non-U.S. issuers ("Foreign and Emerging Market Securities").
Each of these sectors generally reacts differently to interest rate changes and
reacts in different ways or at different times to different economic events.
Data from the Lehman Aggregate Bond Index, the Salomon Brothers High Yield
Index, the Merrill Lynch High Yield Index and the Salomon Brothers World
Government Bond Index indicates that these sectors are not closely correlated.
This means that when one sector underperforms the market as a whole, another
sector may perform at roughly the same level as the market, while the third
sector may outperform the market.
The Fund has the flexibility to strategically allocate its assets among these
investment sectors to attempt to realize a high level of current income and,
secondarily, capital appreciation, based upon economic conditions and interest
rate trends both in the U.S. and around the world. However, the Fund is
designed for investors willing to assume additional risk in return for the
potential for such returns. While the Fund is not intended to provide a
complete or balanced investment program, it can serve as one component of an
investor's long-term program to accumulate assets for retirement, college
tuition or other major goals.
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objectives.
The U.S. High Yield Securities and all or a portion of the Foreign and Emerging
Market Securities in which the Fund invests will be rated below investment
grade (BB or Ba/ba or lower) by Standard & Poor's Ratings Group ("S&P") or
Moody's Investors Service, Inc. ("Moody's"), be comparably rated by another
nationally recognized statistical rating organization ("NRSRO") or, if not
rated, be determined by Mitchell Hutchins to be of comparable quality to such
rated securities. Such securities (commonly known as "junk bonds") are subject
to greater risks of default or price fluctuation than investment grade
securities and are deemed by S&P and Moody's to be predominantly speculative.
High yield, high risk securities are especially subject to adverse changes in
general economic conditions and in the industries in which the issuers are
engaged, to changes in the financial condition of the issuers and to price
fluctuations in response to changes in interest rates.
Prospectus Page 4
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
-------------
Foreign securities, particularly those of issuers located in emerging markets,
involve certain considerations not typically associated with investing in
securities of U.S. companies. These include risks relating to political, social
and economic developments abroad and to the differences between the regulations
to which U.S. and foreign issuers and markets are subject. Individual foreign
economies may differ from the U.S. economy. Investments in sovereign debt of
foreign governments involve special risks. The Fund may invest without limit in
securities denominated in currencies other than the U.S. dollar and may hold
foreign currencies. The value of these investments thus can be adversely
affected by fluctuations in foreign currency values.
Some foreign currencies can be volatile and may be subject to governmental
controls or intervention.
As a "non-diversified" investment company, as defined by the Investment Company
Act of 1940 ("1940 Act"), the Fund may be subject to greater risk with respect
to its portfolio securities than an investment company that is "diversified"
because changes in the financial condition or market assessment of a single
issuer may cause greater fluctuations in the total return and price of the
Fund's shares.
Prospective investors are urged to read "Investment Objectives and Policies"
for more complete information about risk factors.
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to assist
investors in understanding the expenses associated with investing in the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum sales charge on purchases of shares (as a
percentage of public offering price)................. 4% None None
Sales charge on reinvested dividends.................. None None None
Exchange fee.......................................... $5.00 $5.00 $5.00
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds)................... None 5% None
Annual Fund Operating Expenses(2)
(as a percentage of average net assets)
Management fees....................................... 0.75% 0.75% 0.75%
12b-1 fees(3)......................................... 0.25 1.00 0.75
Other expenses (estimated)............................ 0.47 0.47 0.47
----- ----- -----
Total operating expenses.............................. 1.47% 2.22% 1.97%
===== ===== =====
</TABLE>
Example of Effect of Fund Expenses
An investor would directly or indirectly pay the following expenses on a $1,000
investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
-------- -----------
<S> <C> <C>
Class A Shares(4).......................................... $54 $85
Class B Shares:
Assuming a complete redemption at end of period(5)....... $73 $99
Assuming no redemption................................... $23 $69
Class D Shares............................................. $20 $62
</TABLE>
Prospectus Page 5
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
-------------
This Example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under Annual Fund Operating Expenses
remain the same in the years shown. The above tables and the assumption in the
Example of a 5% annual return are required by regulations of the Securities and
Exchange Commission ("SEC") applicable to all mutual funds; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of any Class of the Fund's shares.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each Class of the Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which the Fund incurs variable expenses, such as transfer agency costs.
- -------
(1) Sales charge waivers are available for Class A and Class B shares, reduced
sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent
deferred sales charge on Class B shares applies to redemptions during the
first year after purchase; the charge generally declines by 1% annually
thereafter, reaching zero after six years. See "Purchases."
(2) See "Management" for additional information. The management fee payable to
Mitchell Hutchins is greater than the management fee paid by most funds.
"Other expenses" have been estimated for the current fiscal year based on
the actual expenses incurred from February 7, 1994 (commencement of
operations) to April 30, 1994.
(3) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees.................................. 0.25% 0.25% 0.25%
12b-1 distribution fees............................. 0.00 0.75 0.50
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class D shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers, Inc.
(4) Assumes deduction at the time of purchase of the maximum 4% initial sales
charge.
(5) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
Prospectus Page 6
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Financial Highlights
- --------------------------------------------------------------------------------
-------------
The table below provides selected per share data and ratios (unaudited) for one
Class A share, one Class B share and one Class D share for the period shown.
This information is supplemented by the financial statements for such period
and the accompanying notes (unaudited) included in the Fund's Statement of
Additional Information, which can be obtained by shareholders upon request.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 7, 1994# TO
APRIL 30, 1994
---------------------------
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period............. $10.00 $10.00 $10.00
------- ------- -------
Net income from operations:
Net investment income.......................... 0.12 0.10 0.11
Net realized and unrealized losses from invest-
ment transactions............................. (0.56) (0.56) (0.57)
------- ------- -------
Net decrease in net asset value from operations.. (0.44) (0.46) (0.46)
------- ------- -------
Less distributions:
Dividends from net investment income........... (0.07) (0.06) (0.06)
------- ------- -------
Total distributions............................ (0.07) (0.06) (0.06)
------- ------- -------
Net asset value, end of period................... $ 9.49 $ 9.48 $9.48
======= ======= =======
Total investment return (1)...................... (4.46)% (4.66)% (4.63)%
======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's).............. $14,957 $44,875 $28,012
Expenses to average net assets*................ 1.47% 2.22% 1.96%
Net investment income to average net assets*... 5.80% 5.12% 5.37%
Portfolio turnover rate........................ 12.00% 12.00% 12.00%
</TABLE>
- -------
#Commencement of operations.
*Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the period, reinvestment of all dividends and other
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of the period. The figures do not include sales
charges; results for Class A and Class B would be lower if sales charges
were included. Total investment returns have not been annualized.
Prospectus Page 7
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Flexible Pricing System
- --------------------------------------------------------------------------------
-------------
DIFFERENCES AMONG THE CLASSES
The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------ ------------------------ ----------------------
<C> <S> <C> <C>
Class A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 4% of the pub- waived or reduced for
lic offering price certain purchases
Class B Maximum contingent de- Service fee of 0.25%; Shares convert to
ferred sales charge of distribution fee of Class A shares
5% of redemption pro- 0.75% approximately six
ceeds; declines to zero years after issuance
after six years
Class D None Service fee of 0.25%; --
distribution fee of
0.50%
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES
In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the ongoing annual expenses
described below, as well as any other relevant facts and circumstances.
SALES CHARGES. Class A shares are sold at net asset value plus an initial sales
charge of up to 4% of the public offering price. Because of this initial sales
charge, not all of a Class A shareholder's purchase price is invested in the
Fund. Class B shares are sold with no initial sales charge, but a contingent
deferred sales charge of up to 5% of the redemption proceeds applies to
redemptions made within six years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.
WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$100,000 and Class A share purchases made under the Fund's reduced sales charge
plan may be made at a reduced sales charge. In considering the combined cost of
sales charges and ongoing annual expenses, investors should take into account
any reduced sales charges on Class A shares for which they may be eligible.
The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class D shares, investors eligible for complete waivers
should purchase Class A shares.
ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of 0.25% of average daily net assets. Class B shares pay an annual
12b-1 distribution fee of 0.75% of average daily net assets. Class D shares pay
an annual 12b-1 distribution fee of 0.50% of average daily net assets. Annual
12b-1 distribution fees are a form of asset-based sales charge. An investor
should consider both ongoing annual expenses and initial or contingent deferred
sales charges in estimating the costs of investing in the
Prospectus Page 8
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
respective Classes of Fund shares over various time periods.
For example, assuming a constant net asset value, the cumulative distribution
fees on the Fund's Class B or Class D shares would approximate the expenses of
the 4% maximum initial sales charge on the Class A shares if the shares were
held for approximately 5 1/2 years in the case of the Class B shares and
approximately 8 years in the case of the Class D shares. Class B shares convert
to Class A shares (which do not bear the expense of ongoing distribution fees)
approximately six years after purchase. The cumulative distribution fees on the
Fund's Class D shares would approximate the cumulative distribution fees on the
Class B shares if the shares were held for 9 years. Thus, an investor who would
be subject to the maximum initial sales charge on Class A shares and who
expects to hold shares of the Fund for less than 8 years generally should
expect to pay the lowest cumulative expenses by purchasing Class D shares.
The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net
asset value of Fund shares, which will affect the actual amount of expenses
paid. Expenses borne by Classes may differ slightly because of the allocation
of other Class-specific expenses. The "Example of Effect of Fund Expenses"
under "Prospectus Summary" shows the cumulative expenses an investor would pay
over time on a hypothetical investment in each Class of Fund shares, assuming
an annual return of 5%.
OTHER INFORMATION
PaineWebber investment executives may receive different levels of compensation
for selling one particular Class of Fund shares rather than another. Investors
should understand that distribution fees and initial and contingent deferred
sales charges all are intended to compensate Mitchell Hutchins for distribution
services.
See "Purchases," "Redemptions" and "Management" for a more complete description
of the initial and contingent deferred sales charges, service fees and
distribution fees for the three Classes of shares in the Fund. See also
"Conversion of Class B Shares," "Dividends and Taxes," "Valuation of Shares"
and "General Information" for other differences among the three Classes.
- --------------------------------------------------------------------------------
Investment Objectives and Policies
- --------------------------------------------------------------------------------
The Fund's primary investment objective is to achieve a high level of current
income. As a secondary objective, the Fund will seek capital appreciation. The
Fund seeks to achieve its investment objectives by investing in a portfolio of
income securities that is strategically allocated among U.S. Government and
Investment Grade Securities, U.S. High Yield Securities and Foreign and
Emerging Market Securities. Mitchell Hutchins will allocate the Fund's assets
among these investment sectors based on its assessment of relative values,
currency and interest rate trends and economic, credit and political
conditions. Mitchell Hutchins believes that the relative investment
opportunities and risks presented by securities in these sectors will vary so
that, over time, securities in one or more of the Fund's three sectors will
become undervalued relative to the risks presented. Accordingly, the relative
investment performance of these investment sectors will change over time, and
the best performing sector frequently will change from year to year.
Mitchell Hutchins will seek to take advantage of these changes in relative
performance by allocating a greater proportion of the Fund's assets in those
investment sectors that it believes are undervalued. A portion of the Fund's
assets normally will be invested in each of these investment sectors, which
should reduce the risks associated with investing only in any one sector.
However, the Fund has the flexibility at any time to invest all or
substantially all of its assets in any one sector. If successful, the Fund's
strategic allocation should enable the Fund to achieve a higher level of
investment return over time than if the Fund invested exclusively in any one
Prospectus Page 9
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
investment sector or allocated a fixed proportion of its assets to each
investment sector. The Fund is, however, more dependent on the ability of
Mitchell Hutchins to successfully evaluate the relative values of the Fund's
three investment sectors than is the case with a fund that does not seek to
adjust market sector allocations over time. The Fund is not intended to be a
complete investment program and is designed for investors willing to assume
additional risk in return for the potential for high current income and,
secondarily, capital appreciation.
Allocations among the Fund's three investment sectors and investment decisions
with respect to the assets allocated to each sector are made by an investment
management team comprised of Nimrod Fachler, who acts as the Fund's allocation
manager, and the Fund's three sector managers, Edward M. Rosenzweig, Thomas J.
Libassi and Stuart Waugh. Determinations as to percentage allocations for each
sector are made by Mr. Fachler, based upon advice from each sector manager as
to the market considerations applicable to their respective sectors. Decisions
as to investments within each sector are made by the respective sector managers
based on market outlook, investment research, geographic analysis and forecasts
regarding currencies and interest rates.
There can be no assurance that the Fund will achieve its investment objectives.
The Fund's investment objectives and certain investment limitations as
described in the Statement of Additional Information are fundamental policies
that may not be changed without shareholder approval. All other investment
policies may be changed by the Trust's board of trustees without shareholder
approval.
U.S. GOVERNMENT AND INVESTMENT GRADE SECURITIES. The U.S. Government and
Investment Grade Securities in which the Fund may invest include (1) U.S.
Treasury obligations and mortgage-backed and other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities ("U.S.
government securities") and (2) mortgage-backed and asset-backed securities,
bonds and other fixed and variable rate income securities that are issued by
corporate and other non-governmental U.S. issuers and that at the time of
purchase are rated BBB or higher by S&P or Baa/baa or higher by Moody's, are
comparably rated by another NRSRO or, if not rated, are determined by Mitchell
Hutchins to be comparable to such rated securities. In selecting U.S.
Government and Investment Grade Securities for the Fund's portfolio, Mitchell
Hutchins will consider factors such as the general level of interest rates,
changes in the perceived creditworthiness of the issuers, the prepayment
outlook for the mortgage market and changes in general economic conditions and
business conditions affecting the issuers and their respective industries.
The Fund may invest in U.S. government securities that are backed by the full
faith and credit of the U.S. government, such as U.S. Treasury obligations,
securities that are supported primarily or solely by the creditworthiness of
the government-related issuer, such as securities issued by the Resolution
Funding Corporation, the Student Loan Marketing Association, the Federal Home
Loan Banks and the Tennessee Valley Authority, and securities that are
supported primarily or solely by specific pools of assets and the
creditworthiness of a U.S. government-related issuer, such as U.S. government
mortgage-backed securities. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. For more information
concerning the types of mortgage-backed securities in which the Fund may
invest, see Appendix B.
Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first lien mortgage
loans or interests therein, but include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts or special purpose corporations. Payments or
distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution
unaffiliated with the issuer or other credit enhancements may be present.
The yield characteristics of the mortgage-backed and asset-backed securities in
which the Fund may
Prospectus Page 10
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
invest differ from those of traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently
on mortgage- and asset-backed securities, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other
assets generally may be prepaid at any time. See "--Other Investment Policies
and Risk Factors" herein and "Investment Policies and Restrictions" in the
Statement of Additional Information.
U.S. HIGH YIELD SECURITIES. The U.S. High Yield Securities in which the Fund
may invest include bonds, debentures, notes, mortgage-backed and asset-backed
securities, convertible debt and preferred stock that are issued by corporate
and other non-governmental U.S. issuers and that at the time of purchase are
rated BB or lower by S&P or Ba/ba or lower by Moody's, are comparably rated by
another NRSRO or, if not rated, are determined by Mitchell Hutchins to be
comparable to such rated securities. Such securities are commonly referred to
as "junk bonds" and involve a high degree of risk. The U.S. High Yield
Securities in which the Fund may invest may be rated as low as D by S&P or C by
Moody's or be comparable, unrated securities. Such obligations are highly
speculative and may be in default in the payment of interest and the repayment
of principal. See "--Other Investment Policies and Risk Factors." For further
information regarding S&P and Moody's ratings, see Appendix A.
In selecting U.S. High Yield Securities for the Fund's portfolio, Mitchell
Hutchins will seek to identify issuers and industries that Mitchell Hutchins
believes are more likely to experience stable or improving financial
conditions. Many corporations are in the process of strengthening, or have
recently improved, their financial positions through cost-cutting,
restructuring or refinancing with lower cost debt. Mitchell Hutchins expects
that, at times when the U.S. economy is improving, these factors and others may
lead many issuers to experience financial improvement and possible credit
upgrades. Mitchell Hutchins will seek to identify these issuers through
detailed credit research. Mitchell Hutchins' analysis may include consideration
of general industry trends, the issuer's experience and managerial strength,
changing financial conditions, borrowing requirements or debt maturity
schedules, the issuer's responsiveness to changes in business conditions and
interest rates, and other terms and conditions. Mitchell Hutchins may also
consider relative values based on anticipated cash flow, interest or dividend
coverage, asset coverage and earnings prospects.
FOREIGN AND EMERGING MARKET SECURITIES. The Foreign and Emerging Market
Securities in which the Fund may invest include (1) Brady Bonds and other debt
securities issued or guaranteed by governments, their agencies,
instrumentalities or political subdivisions located in foreign countries,
including industrialized countries and emerging market countries, or by central
banks located in such countries (collectively, "Sovereign Debt") and debt
securities issued by multilateral institutions such as the World Bank and the
International Monetary Fund ("IMF"); (2) debt securities and preferred stock
issued by corporations, banks and other business entities located in foreign
countries, including industrialized countries and emerging market countries, or
securities denominated in or indexed to the currencies of foreign countries;
and (3) interests in issuers organized and operated for the purpose of
securitizing or restructuring the investment characteristics of any of the
foregoing. The Fund may invest without limit in securities of issuers located
in any country in the world, including both industrialized and emerging market
countries.
Mitchell Hutchins will selectively invest the Fund's assets allocated to
Foreign and Emerging Market Securities in securities of issuers in countries
where the combination of income market yields, the price appreciation potential
of income securities and, with respect to non-U.S. dollar-denominated
securities, currency exchange rate movements present opportunities for high
current income and, secondarily, capital appreciation. Determinations as to the
foreign markets in which the Fund will invest will be based on an evaluation of
total debt levels, currency reserve levels, net exports/imports, overall
economic growth, level of inflation, currency fluctuation, political and social
climate and payment history of the country in which the issuer is located.
Particular securities will be selected based upon credit risk analysis of
potential issuers, the characteristics of the security and interest rate
sensitivity of the various issues by a single issuer, analysis of volatility
and liquidity of these particular instruments, and the
Prospectus Page 11
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
tax implications of various instruments to the Fund. While the Fund generally
is not restricted in the portion of its assets which may be invested in a
single country or region, under normal conditions the Fund's assets will be
invested in issuers located in at least three countries. No more than 25% of
the Fund's total assets will be invested in securities issued or guaranteed by
any single foreign government.
The Foreign and Emerging Market Securities in which the Fund may invest will
not be required to meet any minimum credit rating standard and may not be rated
by any NRSRO. All or a substantial portion of the Fund's investments in Foreign
and Emerging Market Securities may be rated below investment grade or may be
unrated securities with credit characteristics that are comparable to
securities that are rated below investment grade. The Fund may invest without
limit in securities of issuers in emerging market countries and in non-U.S.
dollar-denominated income securities, including securities denominated in the
local currencies of emerging market countries. See "--Other Investment Policies
and Risk Factors" herein and "Investment Policies and Restrictions" in the
Statement of Additional Information.
OTHER INVESTMENT POLICIES AND RISK FACTORS
RISKS OF INCOME SECURITIES. The value of the corporate, government and other
income securities held by the Fund, and thus the net asset value of the Fund's
shares, generally will fluctuate with (1) movements in interest rates, (2)
changes in the perceived creditworthiness of the issuers of those securities,
and (3) with respect to non-U.S. dollar-denominated securities, changes in the
relative values of the currencies in which the Fund's investments are
denominated with respect to the U.S. dollar. The extent of the fluctuation of
the Fund's net asset value will depend on various other factors, such as the
average maturity of the Fund's investments, the extent to which the Fund holds
instruments denominated in foreign currencies and the extent to which the Fund
hedges its interest rate, credit and currency exchange rate risks. There are no
limitations on the maturities of the income securities in which the Fund may
invest or on the average maturity of the Fund's portfolio.
RISKS OF HIGH YIELD, HIGH RISK SECURITIES. The U.S. High Yield Securities and
all or a portion of the Foreign and Emerging Market Securities in which the
Fund invests will be high yield, high risk securities that are rated below
investment grade or will be comparable, unrated securities. Debt securities
rated below investment grade are deemed by S&P and Moody's to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal and may involve major risk exposures to adverse conditions.
The high yield, high risk securities in which the Fund may invest include
securities having the lowest ratings assigned by S&P or Moody's and, together
with comparable unrated securities, may include securities that are in default
or that face the risk of default with respect to the payment of principal or
interest. Such securities are generally unsecured and are often subordinated to
other creditors of the issuer. To the extent the Fund is required to seek
recovery upon a default in the payment of principal or interest on its
portfolio holdings, the Fund may incur additional expenses and may have limited
legal recourse in the event of a default.
Ratings of income securities represent the rating agencies' opinions regarding
their quality, are not a guarantee of quality and may be reduced after the Fund
has acquired the security. Mitchell Hutchins will consider such an event in
determining whether the Fund should continue to hold the security but is not
required to dispose of it. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security. Also, NRSROs may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
High yield, high risk income securities generally offer a higher current yield
than that available from higher grade issues, but they involve higher risks in
that they are especially subject to adverse changes in general economic
conditions and in the industries in which the issuers are engaged, to changes
in the financial condition of the issuers and to price fluctuations in response
to changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress, which
could adversely affect their ability to make payments of principal and interest
and increase the possibility of default. Certain emerging
Prospectus Page 12
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
market governments that issue high yield, high risk debt securities are among
the largest debtors to commercial banks, foreign governments and supranational
organizations such as the World Bank and may not be able or willing to make
principal or interest payments as they come due.
The market for high yield, high risk securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many high yield, high risk income securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on such securities rose
dramatically. Such higher yields did not reflect the value of the income stream
that holders of such securities expected, but rather the risk that holders of
such securities could lose a substantial portion of their value as a result of
the issuers' financial restructuring or default. There can be no assurance that
such declines will not recur. The market for high yield, high risk securities
generally is thinner and less active than that for higher quality securities,
which may limit the Fund's ability to sell such securities at fair value in
response to changes in the economy or the financial markets. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
also decrease the values and liquidity of high yield, high risk securities,
especially in a thinly traded market.
Although Mitchell Hutchins will attempt to minimize the speculative risks
associated with investments in high yield, high risk securities through
securities selection, credit analysis and attention to current trends in
interest rates and other factors, investors should consider their ability to
assume these investment risks before making an investment in the Fund.
RISKS OF FOREIGN AND EMERGING MARKET SECURITIES. The Foreign and Emerging
Market Securities in which the Fund may invest involve risks relating to
political, social and economic developments abroad, as well as risks resulting
from the differences between the regulations to which U.S. and foreign issuers
and markets are subject. These risks may include nationalization,
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of Fund assets and political or
social instability or diplomatic developments, including armed conflict. Such
events have occurred in the past in countries in which the Fund will invest and
could adversely affect the Fund's assets should these conditions or events
recur. While Mitchell Hutchins intends to manage the Fund's portfolio in a
manner that will reduce the exposure to such risks, there can be no assurance
that such events will not cause the Fund to suffer a loss of interest or
principal on any of its holdings. Investors should consider their ability to
assume these investment risks before making an investment in the Fund.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Securities of many foreign companies may be less liquid and
their prices more volatile than securities of comparable U.S. companies. While
the Fund generally invests only in securities that are traded on recognized
exchanges or in over-the-counter ("OTC") markets, foreign securities may from
time to time be difficult to liquidate rapidly without significantly depressing
the price of such securities. There may be less publicly available information
concerning foreign issuers of securities held by the Fund than is available
concerning U.S. companies. Transactions in foreign securities may be subject to
less efficient settlement practices. Legal remedies for defaults and disputes
may have to be pursued in foreign courts, whose procedures differ substantially
from those of U.S. courts.
The risks of investing in foreign securities may be greater with respect to
securities of issuers in, or denominated in the currencies of, emerging market
countries. The Fund may invest in such securities without limit. The economies
of emerging market countries generally are heavily dependent upon international
trade and, accordingly, have been and may continue to be adversely affected by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
Foreign investment in foreign debt securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain securities and increase the costs and expenses of
the Fund.
Prospectus Page 13
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
Certain countries require governmental approval prior to investments by foreign
persons, limit the amount of investment by foreign persons in a particular
issuer, limit the investment by foreign persons only to a specific class of
securities of an issuer that may have less advantageous rights than the classes
available for purchase by domiciliaries of the countries and impose additional
taxes on foreign investors. Foreign countries may require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in a
foreign country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental
approval for repatriation of capital, as well as by the application to the Fund
of any restrictions on investments. Investing in local markets, particularly in
emerging market countries, may require the Fund to adopt special procedures,
seek local government approvals or take other actions, each of which may
involve additional costs to the Fund.
Investments in Sovereign Debt involve special risks. Certain foreign countries,
particularly emerging market countries, have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and
trade difficulties and extreme poverty and unemployment. The issuer of the debt
or the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance with
the terms of such debt, and the Fund may have limited legal recourse in the
event of default.
Sovereign Debt also includes income securities of "quasi-governmental agencies"
and income securities denominated in multinational currency units of an issuer
(including supranational issuers). An example of a multinational currency unit
is the European Currency Unit, which represents specified amounts of the
currencies of certain member states of the European Community. Income
securities of quasi-governmental agencies are issued by entities owned by
either a national, state or equivalent government or are obligations of a
political unit that is not backed by the national government's full faith and
credit and general taxing powers.
The Fund may invest without limit in non-U.S. dollar-denominated securities.
Accordingly, changes in foreign currency exchange rates will affect the Fund's
net asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income to be distributed
to shareholders by the Fund. If the value of a foreign currency rises against
the U.S. dollar, the value of Fund assets denominated in that currency will
increase; correspondingly, if the value of a foreign currency declines against
the U.S. dollar, the value of Fund assets denominated in that currency will
decrease. The exchange rates between the U.S. dollar and other currencies are
determined by factors such as supply and demand in the currency exchange
markets, international balances of payments, speculation and other economic and
political conditions. In addition, some foreign currency values may be volatile
and there is the possibility of governmental controls on currency exchange or
governmental intervention in currency markets. Any of these factors could
adversely affect the Fund.
RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The yield characteristics
of the mortgage-backed and asset-backed securities in which the Fund may invest
differ from those of traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently on mortgage-
and asset-backed securities, usually monthly, and that principal may be prepaid
at any time because the underlying mortgage loans or other assets generally may
be prepaid at any time. As a result, if the Fund purchases these securities at
a premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if the Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to
maturity. Amounts available for reinvestment by the Fund are likely to be
greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates than during a period of rising
interest rates. Accelerated prepayments on securities purchased by the Fund at
a premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the
Prospectus Page 14
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for U.S.
government mortgage-backed securities.
The market value of derivative securities, such as stripped mortgage-backed
securities ("SMBS"), generally is more sensitive to changes in prepayment and
interest rates than is the case with traditional mortgage-backed and asset-
backed securities, and in some cases such market value may be extremely
volatile. With respect to certain derivative securities, such as interest only
("IO") and principal only ("PO") SMBS classes, a rate of prepayment that is
faster or slower than anticipated may result in the Fund's failing to recover
all or a portion of its investment, even though the securities are rated
investment grade. Mitchell Hutchins believes that IOs and POs created from
planned amortization class ("PAC") mortgage-backed securities are not as
sensitive to prepayments as IOs and POs created from other mortgage-backed
securities. See Appendix B. The Fund will not invest more than 5% of its total
assets in IO and PO SMBS classes that are not created from PAC mortgage-backed
securities, and it has no present intention of investing in any non-PAC IOs or
POs.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities, including certain cover for OTC options and securities
whose disposition is restricted under the federal securities laws (other than
"Rule 144A" securities Mitchell Hutchins has determined to be liquid under
procedures approved by the Trust's board of trustees). Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
("1933 Act"). Institutional markets for restricted securities have developed as
a result of Rule 144A, providing both readily ascertainable values for
restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held
by a Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
HEDGING AND RELATED INCOME STRATEGIES. The Fund may use options (both exchange-
traded and OTC), futures contracts and forward currency contracts to attempt to
enhance income and to reduce the overall risk of its investments (hedge).
Hedging strategies may be used in an attempt to manage the Fund's average
duration, foreign currency exposure and other risks of the Fund's investments,
which can affect fluctuations in the Fund's net asset value. The Fund's ability
to use these strategies may be limited by market conditions, regulatory limits
and tax considerations. The Statement of Additional Information contains
further information on these strategies.
The Fund may purchase and sell call and put options on securities indices and
on individual securities for hedging purposes or to enhance income. The Fund
also may purchase and sell interest rate and currency futures contracts and
options thereon, may purchase and sell covered straddles on securities, bond
indices or currencies or options on such futures contracts. The Fund may enter
into options, futures contracts and forward currency contracts under which up
to 100% of the Fund's portfolio is at risk.
The Fund may enter into forward currency contracts for the purchase or sale of
a specified currency at a specified future date, either with respect to
specific transactions or with respect to its portfolio positions. For example,
when Mitchell Hutchins anticipates making a currency exchange transaction in
connection with the purchase or sale of a security, the Fund may enter into a
forward contract in order to set the exchange rate at which the transaction
will be made. The Fund also may enter into a forward contract to sell an amount
of a foreign currency approximating the value of some or all of the Fund's
securities positions denominated in such currency. The Fund may use forward
contracts in one currency or a basket of currencies to hedge against
fluctuations in the value of another currency when Mitchell Hutchins
anticipates there will be a correlation between the two and may use forward
currency contracts to shift the Fund's exposure to foreign currency
fluctuations from one country to another. The purpose of entering into these
contracts is to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. and foreign currencies. The Fund may also
purchase and sell foreign currency futures contracts, options thereon and
options on foreign currencies to hedge against the risk of fluctuations in
market value of foreign securities the Fund holds in its portfolio, or that it
intends to purchase, resulting from changes in foreign exchange rates. In
addition, the Fund may
Prospectus Page 15
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
purchase and sell options on foreign currencies to enhance income.
The Fund may enter into interest rate protection transactions, including
interest rate swaps, caps, collars and floors, to preserve a return or spread
on a particular investment or portion of its portfolio or to protect against
any increase in the price of securities the Fund anticipates purchasing at a
later date. The Fund will enter into interest rate protection transactions only
with banks and recognized securities dealers believed by Mitchell Hutchins to
present minimal credit risks in accordance with guidelines established by the
Trust's board of trustees.
The Fund might not employ any of the strategies described above, and no
assurance can be given that any strategy used will succeed. If Mitchell
Hutchins incorrectly forecasts interest or currency exchange rates, market
values or other economic factors in utilizing a strategy for the Fund, the Fund
would be in a better position if it had not entered into the transaction. The
use of these strategies involves certain special risks, including (1) the fact
that skills needed to use hedging instruments are different from those needed
to select the Fund's securities, (2) possible imperfect correlation, or even no
correlation, between price movements of hedging instruments and price movements
of the investments being hedged, (3) the fact that, while hedging strategies
can reduce the risk of loss, they can also reduce the opportunity for gain, or
even result in losses, by offsetting favorable priced movements in hedged
investments and (4) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions and the possible
inability of the Fund to close out or to liquidate its hedged position. Only a
limited market, if any, currently exists for hedging instruments relating to
securities or currencies in most emerging market countries. Accordingly, under
present circumstances, the Fund does not anticipate that it will be able to
effectively hedge its currency exposure or investment in such markets.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment objectives and regulatory and tax considerations.
REPURCHASE AGREEMENTS. The Fund may use repurchase agreements. Repurchase
agreements are transactions in which the Fund purchases securities from a bank
or recognized securities dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or maturity of the
purchased securities. Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible decline in the market
value of the underlying securities and delays and costs to the Fund if the
other party to the repurchase agreement becomes insolvent. The Fund intends to
enter into repurchase agreements only with banks and dealers in transactions
believed by Mitchell Hutchins to present minimum credit risks in accordance
with guidelines established by the Trust's board of trustees.
ARBITRAGED DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS. The Fund may enter
into dollar rolls, in which the Fund sells mortgage-backed or other securities
for delivery in the current month and simultaneously contracts to purchase
substantially similar securities on a specified future date. In the case of
dollar rolls involving mortgage-backed securities, the mortgage-backed
securities that are purchased will be of the same type and will have the same
interest rate and maturity as those sold, but will be supported by different
pools of mortgages. The Fund forgoes principal and interest paid during the
roll period on the securities sold, but the Fund is compensated by the
difference between the current sales price and the lower price for the future
purchase as well as by any interest earned on the proceeds of the securities
sold. The Fund also could be compensated through the receipt of fee income
equivalent to a lower forward price. At the time the Fund enters into a dollar
roll, an approved custodian will segregate cash or liquid, high-grade debt
securities having a value not less than the forward price.
The Fund may also enter into reverse repurchase agreements in which the Fund
sells securities to a bank or dealer and agrees to repurchase them at a
mutually agreed date and price. At the time the Fund enters into a reverse
repurchase agreement, an approved custodian will segregate cash or liquid,
high-grade debt securities having a value not less than the repurchase price
(including accrued interest). The market value of securities
Prospectus Page 16
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
sold under reverse repurchase agreements typically is greater than the proceeds
of the sale, and, accordingly, the market value of the securities sold is
likely to be greater than the value of the securities in which the Fund invests
those proceeds. Thus, reverse repurchase agreements involve the risk that the
buyer of the securities sold by the Fund might be unable to deliver them when
the Fund seeks to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's obligation to repurchase the securities, and the
Fund's use of the proceeds of the reverse repurchase agreement may effectively
be restricted pending such decision.
The dollar rolls and reverse repurchase agreements entered into by the Fund
normally will be arbitrage transactions in which the Fund will maintain an
offsetting position in U.S. Government and Investment Grade Securities or
repurchase agreements involving U.S. Government and Investment Grade Securities
that mature on or before the settlement date of the related dollar roll or
reverse repurchase agreement. Since the Fund will receive interest on the
securities or repurchase agreements in which it invests the transaction
proceeds, such transactions may involve leverage. However, since such U.S.
Government and Investment Grade Securities or repurchase agreements will mature
on or before the settlement date of the dollar roll or reverse repurchase
agreement, Mitchell Hutchins believes that such arbitrage transactions do not
present the risks to the Fund that are associated with other types of leverage.
Dollar rolls and reverse repurchase agreements will be considered to be
borrowings and, accordingly, will be subject to the Fund's limitations on
borrowings, which will restrict the aggregate of such transactions to 33 1/3%
of the Fund's total assets. The Fund will not enter into dollar rolls or
reverse repurchase agreements, other than in arbitrage transactions as
described above, in an aggregate amount in excess of 5% of the Fund's total
assets. The Fund has no present intention to enter into dollar rolls other than
in such arbitrage transactions, and it has no present intention to enter into
reverse repurchase agreements other than in such arbitrage transactions or for
temporary or emergency purposes. The Fund may borrow money for temporary
purposes, but not in excess of 10% of its total assets.
ZERO COUPON, OTHER ORIGINAL ISSUE DISCOUNT AND PAYMENT-IN-KIND SECURITIES. The
Fund may invest up to 35% of its total assets in zero coupon securities. It
also may invest without limit in other securities that are issued with original
issue discount ("OID") and in payment-in-kind ("PIK") securities. Federal tax
law requires that a holder of a security with OID accrue a portion of the OID
on the security as income each year, even though the holder may receive no
interest payment on the security during the year. Accordingly, although the
Fund will receive no payments on its zero coupon securities prior to their
maturity or disposition, it will have income attributable to such securities.
Similarly, while PIK securities may pay interest in the form of additional
securities rather than cash, that interest must be included in the Fund's
annual income.
Federal tax law requires that companies such as the Fund, which seek to qualify
for pass-through federal income tax treatment as regulated investment
companies, distribute substantially all of their net investment income each
year, including non-cash income. Accordingly, the Fund will be required, in
order to maintain the desired tax treatment, to include in its dividends an
amount equal to the income attributable to its zero coupon, other OID and PIK
securities. See "Taxes" in the Statement of Additional Information. Those
dividends will be paid from the cash assets of the Fund or by liquidation of
portfolio securities, if necessary, at a time when the Fund otherwise would not
have done so. Zero coupon and PIK securities usually trade at a substantial
discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest in cash.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Fund may invest in fixed and floating
rate loans ("Loans") arranged through private negotiations between a U.S. or
foreign borrower and one or more financial institutions ("Lenders"). The Fund's
investments in Loans are expected in most instances to be in the form of
participations in Loans ("Participations") and assignments of all or a portion
of Loans ("Assignments") from third parties. Participations typically will
result in the Fund's having a contractual relationship only with the Lender,
not with the borrower. The Fund will
Prospectus Page 17
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
have the right to receive payments of principal, interest and any fees to which
it is entitled only from the Lender selling the Participation and only upon
receipt by the Lender of the payments from the borrower. In connection with
purchasing Participations, the Fund generally has no direct right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan ("Loan Agreement"), nor any rights of set-off against the borrower, and
the Fund may not directly benefit from any collateral supporting the Loan in
which it has purchased the Participation. As a result, the Fund will assume the
credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. The Fund
will acquire Participations only if the Lender interpositioned between the Fund
and the borrower is determined by Mitchell Hutchins to be creditworthy. When
the Fund purchases Assignments from Lenders, the Fund will acquire direct
rights against the borrower on the Loan. However, since Assignments are
arranged through private negotiations between potential assignees and
assignors, the rights and obligations acquired by the Fund as the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase securities
on a "when-issued" basis or may purchase or sell securities on a "delayed
delivery" basis, i.e., for issuance or delivery to the Fund later than the
normal settlement date for such securities at a stated price and yield. The
Fund generally would not pay for such securities or start earning interest on
them until they are received. However, when the Fund undertakes a when-issued
or delayed delivery obligation, it immediately assumes the risks of ownership,
including the risk of price fluctuation. When the Fund agrees to purchase
securities on a when-issued or delayed delivery basis, its custodian will set
aside in a segregated account cash, U.S. government securities or other liquid,
high grade debt securities, marked to market daily, in an amount at least equal
to the amount of the commitment. Failure of the issuer to deliver a security
purchased by the Fund on a when-issued or delayed delivery basis may result in
the Fund's incurring a loss or missing an opportunity to make an alternative
investment. Depending on market conditions, the Fund's when-issued and delayed
delivery purchase commitments could cause its net asset value per share to be
more volatile, because such securities may increase the amount by which the
Fund's total assets, including the value of when-issued and delayed delivery
securities held by the Fund, exceed its net assets.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, which
are bonds, debentures, notes, preferred stocks or other securities that may be
converted into or exchanged for a specified amount of common stock of the same
or a different issuer within a particular period of time at a specified price
or formula. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases. Most convertible securities currently
are issued by U.S. companies, although a substantial Eurodollar convertible
securities market has developed, and the markets for convertible securities
denominated in local currencies are increasing.
OTHER SECURITIES. The Fund may invest up to 10% of its total assets in
preferred stock of U.S. and foreign companies. Preferred stock generally has a
preference as to dividends and upon liquidation over an issuer's common stock
but ranks junior to debt securities in an issuer's capital structure. Preferred
stock generally pays dividends in cash (or other shares of preferred stock) at
a defined rate but, unlike interest payments on debt securities, preferred
stock dividends are payable only if declared by the issuer's board of
directors. Dividends on preferred stock may be cumulative, meaning that, in the
event the issuer fails to make one or more dividend payments on the preferred
stock, no dividends may be paid on the issuer's common stock until all unpaid
preferred stock dividends have been paid. Preferred stock also may provide
that, in the event the issuer fails to make a specified number of dividend
payments, the
Prospectus Page 18
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
holders of the preferred stock will have the right to elect a specified number
of directors to the issuer's board. Preferred stock also may be subject to
optional or mandatory redemption provisions.
The Fund may invest in debt securities issued by banks and other business
entities that are indexed to specific foreign currency exchange rates. The
terms of such securities provide that their principal amount is adjusted
upwards or downwards (but not below zero) at maturity to reflect changes in the
exchange rate between two currencies while the obligations are outstanding.
While such securities offer the potential for an attractive rate of return,
they also entail the risk of loss of principal. New forms of such securities
continue to be developed. The Fund may invest in such securities to the extent
consistent with its investment objectives. The Fund may acquire warrants for
equity securities, debt securities and commodities that are acquired as units
with income securities. The Fund also may invest in certificates of deposit
issued by banks and savings associations and in banker's acceptances. Under
normal circumstances, the Fund will invest at least 65% of its total assets in
income producing securities, including zero coupon and payment-in-kind
securities.
OTHER INFORMATION. The Fund may implement various temporary defensive
strategies at times when Mitchell Hutchins determines that conditions in the
markets make pursuing the Fund's basic investment strategy inconsistent with
the best interests of its shareholders. The Fund may commit all or any portion
of its assets to cash, denominated in U.S. dollars or foreign currencies, or
money market instruments of U.S. or foreign issuers, including repurchase
agreements, for such temporary, defensive purposes or for liquidity purposes,
such as clearance of portfolio transactions, the payment of dividends and
expenses and redemptions.
The Fund is "non-diversified," as defined in the 1940 Act, but intends to
qualify as a regulated investment company for federal income tax purposes. See
"Taxes" in the Statement of Additional Information. This means, in general,
that more than 5% of the Fund's total assets may be invested in securities of
one issuer but only if, at the close of each quarter of the Fund's taxable
year, the aggregate amount of such holdings does not exceed 50% of the value of
its total assets and no more than 25% of the value of its total assets is
invested in the securities of a single issuer. To the extent that the Fund's
portfolio at times may include the securities of a smaller number of issuers
than if it were "diversified" (as defined in the 1940 Act), the Fund will at
such times be subject to greater risk with respect to its portfolio securities
than an investment company that invests in a broader range of securities,
because changes in the financial condition or market assessment of a single
issuer may cause greater fluctuations in the net asset value of the Fund's
shares.
- --------------------------------------------------------------------------------
Purchases
- --------------------------------------------------------------------------------
GENERAL. Class A shares of the Fund are sold to investors subject to an initial
sales charge. Class B shares of the Fund are sold without an initial sales
charge but are subject to higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares and
do not convert into another Class. See "Flexible Pricing System" and
"Conversion of Class B Shares."
Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the
Transfer Agent. Investors may contact a local PaineWebber office to open an
account. The minimum initial investment for the Fund is $1,000 and the minimum
for additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, certain pension
plans and retirement accounts and participants in the Fund's automatic
investment plan. Purchase orders will be priced at the net asset value per
share next determined (see "Valuation of Shares") after the order is received
by PaineWebber's New York City offices or by the Transfer Agent, plus any
applicable sales charge for Class A shares. The Fund and Mitchell Hutchins
reserve the right to reject any purchase order and to suspend the offering of
Fund shares for a period of time.
Prospectus Page 19
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
When placing purchase orders, investors should specify whether the order is for
Class A, Class B or Class D shares. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.
PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million.
Investment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
pay for purchases with checks drawn on U.S. banks or with funds held in
brokerage accounts at PaineWebber or its correspondent firms. Payment is due on
the fifth Business Day after the order is received at PaineWebber's New York
City offices. A "Business Day" is any day, Monday through Friday, on which the
New York Stock Exchange, Inc. ("NYSE") is open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber clients
may purchase shares of the Fund through the Transfer Agent. Shares of the Fund
may be purchased, and an account with the Fund established, by completing and
signing the purchase application at the end of this Prospectus and mailing it,
together with a check to cover the purchase, to the Transfer Agent: PFPC Inc.,
Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware 19899.
Subsequent investments need not be accompanied by an application.
INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the following
table:
INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGES AS A
PERCENTAGE OF DISCOUNT TO
---------------------------------------- SELECTED
NET AMOUNT DEALERS AS A
INVESTED PERCENTAGE
OFFERING (NET ASSET OF OFFERING
AMOUNT OF PURCHASE PRICE VALUE) PRICE
------------------ -------- ---------- ------------
<S> <C> <C> <C>
Less than$100,000 4.00% 4.17% 3.75%
$100,000 to$249,999 3.00 3.09 2.75
$250,000 to$499,999 2.25 2.30 2.00
$500,000 to$999,999 1.75 1.78 1.50
$1,000,000 and over(1) None None 1.00
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources.
Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown above.
To the extent PaineWebber or any dealer receives 90% or more of the sales
charge, it may be deemed an "underwriter" under the Securities Act of 1933.
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are available
without a sales charge through exchanges for Class A shares of most other
PaineWebber mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge, and exchanges of any Class of shares made
without the $5.00 exchange fee, by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber funds, their spouses, parents and children and advisory clients of
Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if the purchase is
made through a PaineWebber investment executive who formerly was employed as a
broker with another firm registered as a broker-dealer with the SEC, provided
(1) the purchaser was the investment executive's client at the competing
brokerage firm, (2) within 90 days of the purchase of Class A shares the
purchaser redeemed shares of one or more mutual funds for which that competing
firm or its affiliates was principal underwriter, provided the purchaser either
paid a sales charge to invest in those funds, paid a contingent deferred sales
charge upon redemption or held shares of those funds for the period required
not to pay the otherwise applicable contingent deferred sales charge and (3)
the total amount of shares of all PaineWebber funds purchased under this sales
charge waiver does not exceed the amount of the purchaser's redemption proceeds
from the competing firm's funds. To take advantage of this waiver, an investor
must provide satisfactory evidence that all the above-noted conditions are met.
Qualifying investors should contact their PaineWebber investment executives for
more information.
Certificate holders of unit investment trusts ("UITs") sponsored by PaineWebber
may acquire Class A shares of the Fund without regard to minimum investment
requirements and without sales charges by electing to have dividends and other
distributions from their UIT investment automatically invested in Class A
shares.
REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group of
related Fund
Prospectus Page 20
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
investors purchases Class A shares of the Fund concurrently with Class A shares
of other PaineWebber mutual funds, the purchases may be combined to take
advantage of the reduced sales charge applicable to larger purchases. In
addition, the right of accumulation permits a Fund investor or eligible group
of related Fund investors to pay the lower sales charge applicable to larger
purchases by basing the sales charge on the dollar amount of Class A shares
currently being purchased, plus the net asset value of the investor's or
group's total existing Class A shareholdings in other PaineWebber mutual funds.
An "eligible group of related Fund investors" includes an individual, the
individual's spouse, parents and children, the individual's individual
retirement account ("IRA"), certain companies controlled by the individual and
employee benefit plans of those companies, and trusts or Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act accounts created by the individual
or eligible group of individuals for the benefit of the individual and/or the
individual's spouse, parents or children. The term also includes a group of
related employers and one or more qualified retirement plans of such employers.
For more information, an investor should consult the Statement of Additional
Information or contact a PaineWebber investment executive or correspondent firm
or the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price of
the Class B shares of the Fund is the next determined net asset value, and no
initial sales charge is imposed. A contingent deferred sales charge, however,
is imposed upon certain redemptions of Class B shares.
Class B shares that are redeemed will not be subject to a contingent deferred
sales charge to the extent that the value of such shares represents (1) capital
appreciation of Fund assets, (2) reinvestment of dividends or capital gain
distributions or (3) shares redeemed more than six years after their purchase.
Otherwise, redemption of Class B shares of the Fund will be subject to a
contingent deferred sales charge. The amount of any applicable contingent
deferred sales charge will be calculated by multiplying the net asset value of
such shares at the time of redemption by the applicable percentage shown in the
table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF NET
REDEMPTION ASSET VALUE AT
DURING REDEMPTION
---------- -------------------
<S> <C>
1stYear Since Purchase..................................... 5%
2ndYear Since Purchase..................................... 4
3rdYear Since Purchase..................................... 3
4thYear Since Purchase..................................... 2
5thYear Since Purchase..................................... 2
6thYear Since Purchase..................................... 1
7thYear Since Purchase..................................... None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares acquired through an exchange with another PaineWebber mutual fund will
be calculated from the date that the Class B shares were initially acquired in
one of the other PaineWebber funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. This will result
in any contingent deferred sales charge being imposed at the lowest possible
rate. The amount of any contingent deferred sales charge will be paid to
Mitchell Hutchins.
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge will
be waived for exchanges, as described below, and for redemptions in connection
with the Fund's systematic withdrawal plan. The contingent deferred sales
charge will be waived for a total or partial redemption made within one year of
the death of the shareholder. The contingent deferred sales charge waiver is
available where the decedent is either the sole shareholder or owns the shares
with his or her spouse as a joint tenant with right of survivorship. This
waiver applies only to redemption of shares held at the time of death. The
contingent deferred sales charge will also be waived in connection with a lump-
sum or other distribution in the case of an IRA, a self-employed individual
retirement plan (so-called "Keogh Plan") or a custodial account under Section
403(b) of the Internal Revenue Code following attainment of age 59 1/2; a total
or partial redemption resulting from a distribution
Prospectus Page 21
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
following retirement in the case of a tax-qualified retirement plan; and a
redemption resulting from a tax-free return of an excess contribution to an
IRA.
Contingent deferred sales charge waivers will be granted subject to
confirmation (by PaineWebber in the case of shareholders who are PaineWebber
clients or by the Transfer Agent in the case of all other shareholders) of the
shareholders' status or holdings, as the case may be.
PURCHASE OF CLASS D SHARES. The public offering price of the Class D shares of
the Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.
- --------------------------------------------------------------------------------
Exchanges
- --------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of the corresponding Class of
the PaineWebber mutual funds listed below, or may be acquired through an
exchange of shares of the corresponding Class of those funds. No initial sales
charge is imposed on the shares acquired, and no contingent deferred sales
charge is imposed on the shares being disposed of, through an exchange.
However, contingent deferred sales charges may apply to redemptions of Class B
shares acquired through an exchange. A $5.00 exchange fee is charged for each
exchange, and exchanges may be subject to minimum investment requirements of
the fund into which exchanges are made.
Exchanges are permitted among the other PaineWebber funds, including:
PAINEWEBBER INCOME FUNDS
. Global Income Fund
. High Income Fund
. Investment Grade Income Fund
. Short-Term U.S. Government Income Fund
. Short-Term U.S. Government Income Fund for Credit Unions
. U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
. Atlas Global Growth Fund
. Blue Chip Growth Fund
. Capital Appreciation Fund
. Communications & Technology Growth Fund
. Europe Growth Fund
. Growth Fund
. Regional Financial Growth Fund
. Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
. Asset Allocation Fund
. Dividend Growth Fund
. Global Energy Fund
. Global Growth and Income Fund
. Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms. Shareholders who are not
PaineWebber clients must place exchange orders in writing with the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. All exchanges will be effected based on the relative net asset
values per share next determined after the exchange order is received at
PaineWebber's New York City offices or by the Transfer Agent. See "Valuation of
Shares." Shares of the Fund purchased through PaineWebber or its correspondent
firms may be exchanged only after the settlement date has passed and payment
for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange offer may be modified or terminated
at any time, upon at least 60 days' notice when such notice is required by SEC
rules. See the Statement of Additional Information for further details. This
exchange privilege is available only in those
Prospectus Page 22
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
jurisdictions where the sale of the PaineWebber fund shares to be acquired may
be legally made. Before making any exchange, shareholders should contact their
PaineWebber investment executives or correspondent firms or the Transfer Agent
to obtain more information and prospectuses of the PaineWebber funds to be
acquired through the exchange.
- --------------------------------------------------------------------------------
Redemptions
- --------------------------------------------------------------------------------
As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid within seven days of the receipt of a redemption request.
PaineWebber clients may redeem shares through PaineWebber or its correspondent
firms; all other shareholders must redeem through the Transfer Agent. If a
redeeming shareholder owns shares of more than one Class, the shares will be
redeemed in the following order unless the shareholder specifically requests
otherwise: Class D shares, then Class A shares, and finally Class B shares.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients may
submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within seven days, repurchase
proceeds (less any applicable contingent deferred sales charge) will be paid by
check or credited to the shareholder's brokerage account at the election of the
shareholder. PaineWebber investment executives and correspondent firms are
responsible for promptly forwarding redemption requests to PaineWebber's New
York City offices.
PaineWebber reserves the right not to honor any redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients must redeem their shares through the Transfer Agent by
mail; other shareholders also may redeem Fund shares through the Transfer
Agent. Shareholders should mail redemption requests directly to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. A redemption request will be executed at the net asset value
next computed after it is received in "good order." "Good order" means that the
request must be accompanied by the following: (1) a letter of instruction or a
stock assignment specifying number of shares or amount of investment to be
redeemed (or that all shares credited to the Fund account be redeemed), signed
by all registered owners of the shares in the exact names in which they are
registered, (2) a guarantee of the signature of each registered owner by an
eligible institution acceptable to the Transfer Agent and in accordance with
SEC rules, such as a commercial bank, trust company or member of a recognized
stock exchange and (3) other supporting legal documents for estates, trusts,
guardianships, custodianships, partnerships and corporations. Shareholders are
responsible for ensuring that a request for redemption is received in "good
order."
ADDITIONAL INFORMATION ON REDEMPTIONS. Redemption proceeds of $1 million or
more may be wired to the shareholder's PaineWebber brokerage account or a
commercial bank account designated by the shareholder. Questions about this
option, or redemption requirements generally, should be referred to the
shareholder's PaineWebber investment executive or correspondent firm, or to the
Transfer Agent if the shares are not held in a PaineWebber brokerage account.
If a shareholder requests redemption of shares that were purchased recently,
the Fund may delay payment until it is assured that good payment has been
received. In the case of purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $500 net asset value. If the Fund elects to do
so, it will notify the shareholder and provide the
Prospectus Page 23
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
shareholder the opportunity to increase the amount invested to $500 or more
within 60 days of the notice. The Fund will not redeem accounts that fall below
$500 solely as a result of a reduction in net asset value per share.
Shareholders who have redeemed Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount redeemed by purchasing Class A
shares within 365 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their PaineWebber investment
executive or correspondent firm at the time the privilege is exercised.
- --------------------------------------------------------------------------------
Conversion of Class B Shares
- --------------------------------------------------------------------------------
A shareholder's Class B shares will automatically convert to Class A shares in
the Fund approximately six years after the date of issuance, together with a
pro rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so
converted will no longer be subject to the higher expenses borne by Class B
shares. The conversion will be effected at the relative net asset values per
share of the two Classes on the first Business Day of the month in which the
sixth anniversary of the issuance of the Class B shares occurs. See "Valuation
of Shares." If a shareholder effects one or more exchanges among Class B shares
of the PaineWebber mutual funds during the six-year period the holding periods
for the shares so exchanged will be counted toward the six-year period.
- --------------------------------------------------------------------------------
Other Services and Information
- --------------------------------------------------------------------------------
Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund through
an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost
averaging." When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period. Of course, investing
through the automatic investment plan does not assure a profit or protect
against loss in declining markets. Additionally, since the automatic investment
plan involves continuous investing regardless of price levels, an investor
should consider his or her financial ability to continue purchases through the
periods of low price levels.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own Class A or Class D shares of
the Fund with a value of $5,000 or more or Class B shares of the Fund with a
value of $20,000 or more may have PaineWebber redeem a portion of their shares
monthly, quarterly or semi-annually under the systematic withdrawal plan. No
contingent deferred sales charge will be imposed on such withdrawals for Class
B shares. The minimum amount for all withdrawals of Class A or Class D shares
is $100, and minimum monthly, quarterly and semi-annual withdrawal amounts for
Class B shares are $200, $400 and $600, respectively. Quarterly withdrawals are
made in March, June, September and December. A Class B shareholder of the Fund
may not withdraw an amount exceeding 12% annually of his or her "Initial
Account Balance," a term that means the value of the Fund account at the time
the shareholder
Prospectus Page 24
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
elects to participate in the systematic withdrawal plan. A Class B
shareholder's participation in the systematic withdrawal plan will terminate
automatically if the Initial Account Balance (plus the net asset value on the
date of purchase of Fund shares acquired after the election to participate in
the systematic withdrawal plan), less aggregate redemptions made other than
pursuant to the systematic withdrawal plan, is less than $20,000. Shareholders
who receive dividends or other distributions in cash may not participate in the
systematic withdrawal plan. Purchases of additional shares of the Fund
concurrent with withdrawals are ordinarily disadvantageous to shareholders
because of tax liabilities and, for Class A shares, sales charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Fund may be purchased through
IRAs available through the Fund. In addition, a Self-Directed IRA is available
through PaineWebber under which investments may be made in the Fund as well as
in other investments available through PaineWebber. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS. If a shareholder holding shares of the Fund in a
PaineWebber brokerage account transfers his or her brokerage account to another
firm, the Fund shares normally will be transferred to an account with the
Transfer Agent. However, if the other firm has entered into a selected dealer
agreement with Mitchell Hutchins relating to the Fund, the shareholder may be
able to hold Fund shares in an account with the other firm.
- --------------------------------------------------------------------------------
Dividends and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS. Dividends from the Fund's net investment income are declared and
paid monthly. In addition, the Fund may (but is not required to) distribute
with its monthly dividends all or a portion of any net realized gains from
foreign currency transactions and net short-term capital gain, if any. The Fund
distributes annually substantially all of its net capital gain (the excess of
net long-term capital gain over net short-term capital loss). The Fund may make
additional distributions if necessary to avoid a 4% excise tax on certain
undistributed income and capital gain.
The Fund anticipates that a monthly dividend may, from time to time, represent
more or less than the amount of net investment income earned by the Fund in the
period to which the dividend relates. Any undistributed net investment income,
short-term capital gain and net realized gains from foreign currency
transactions ("undistributed income") would be available to supplement future
dividends, which might otherwise have been reduced by reason of a decrease in
the Fund's monthly net income. Undistributed income will be reflected in the
Fund's net asset value, and correspondingly, distributions from undistributed
income will reduce the Fund's net asset value. The dividend rate on Fund shares
will be adjusted from time to time and will vary as a result of the performance
of the Fund.
If the Fund's dividends exceed its taxable income in any year, which may result
from currency-related losses, all or a portion of its dividends may be treated
as a return of capital to shareholders for tax purposes.
Dividends and other distributions paid on all Classes of Fund shares are
calculated at the same time and in the same manner. Dividends on Class B and
Class D shares of the Fund are expected to be lower than those for its Class A
shares because of the higher expenses resulting from distribution fees borne by
the Class B and Class D shares. For the same reason, dividends on Class B
shares are expected to be lower than those for Class D shares. Dividends on
each Class also might be affected differently by the allocation of Class-
specific expenses. See "Valuation of Shares."
Dividends and capital gain distributions are paid in additional Fund shares of
the same Class at net asset value unless the shareholder has requested cash
payments. Shareholders who wish to receive dividends and/or capital gain
distributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their PaineWebber
investment executives or correspondent firms or complete the appropriate
section of the application form.
Prospectus Page 25
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
TAXES. The Fund intends to qualify for treatment as a regulated investment
company under the Internal Revenue Code so that it will be relieved of federal
income tax on that part of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) and net capital gain that is
distributed to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or in additional shares) generally are taxable to its shareholders, other
than shareholders that are not subject to tax on their income, as ordinary
income. Distributions of the Fund's net capital gain (whether paid in cash or
in additional shares) are taxable to those shareholders as long-term capital
gain, regardless of how long they have held their Fund shares. Shareholders not
subject to tax on their income generally will not be required to pay tax on
amounts distributed to them.
The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends and
capital gain distributions also is required for shareholders who otherwise are
subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds payable to the
shareholder are more or less than the shareholder's adjusted basis for the
redeemed shares (which normally includes any initial sales charge paid on Class
A shares). An exchange of Fund shares for shares of another PaineWebber fund
generally will have similar tax consequences. However, special tax rules apply
when a shareholder (1) disposes of Class A shares through a redemption or
exchange within 90 days of purchase and (2) subsequently acquires Class A
shares of a PaineWebber fund without paying a sales charge due to the 365-day
reinstatement privilege or exchange privilege. In these cases, any gain on the
disposition of the Fund's Class A shares would be increased, or loss decreased,
by the amount of the sales charge paid when the shares were acquired, and that
amount will increase the basis of the PaineWebber fund shares subsequently
acquired. In addition, if shares of the Fund are purchased within 30 days
before or after redeeming Fund shares (regardless of Class) at a loss, that
loss will not be deductible to the extent the redemption proceeds are
reinvested and instead will increase the basis of the newly purchased shares.
No gain or loss will be recognized by a shareholder as a result of a conversion
of Class B shares into Class A shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be
other federal, state or local tax considerations applicable to a particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers.
Prospectus Page 26
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
Valuation of Shares
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined
separately for each Class as of the close of regular trading on the NYSE
(currently 4:00 p.m., eastern time) each Business Day. The Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund plus any cash or other assets minus all liabilities by the total
number of Fund shares outstanding.
The Fund values its assets based on their current market value when market
quotations are readily available. If such value cannot be established, assets
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
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless the board of trustees determines that this does not represent
fair value. All investments denominated in foreign currencies are valued daily
in U.S. dollars based on the then-prevailing exchange rate. It should be
recognized that judgment plays a greater role in valuing foreign or high yield,
high risk income securities because there is less reliable, objective data
available.
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's day-
to-day management. Mitchell Hutchins, investment adviser and administrator of
the Fund, makes and implements all investment decisions and supervises all
aspects of the Fund's operations. Mitchell Hutchins receives a monthly fee for
these services at the annual rate of 0.75% of the average daily net assets of
the Fund. The Fund's advisory fee is higher than those paid by most funds, but
Mitchell Hutchins believes the fee is justified by the global nature of the
Fund's investment activities. Brokerage transactions for the Fund may be
conducted through Mitchell Hutchins or its affiliates, including PaineWebber.
The Trust's board of trustees has adopted procedures to ensure that all
brokerage commissions paid to Mitchell Hutchins and its affiliates are fair and
reasonable.
The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. The Fund also incurs other expenses in its operations, such as custody
and transfer agency fees, brokerage commissions, professional fees, expenses of
board and shareholder meetings, fees and expenses relating to registration of
its shares, taxes and governmental fees, fees and expenses of the trustees,
costs of obtaining insurance, expenses of printing and distributing shareholder
materials, organizational expenses and extraordinary expenses, including costs
or losses in any litigation.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn wholly
owned by Paine Webber Group Inc., a publicly owned financial services holding
company. As of June 30, 1994, Mitchell Hutchins was adviser or subadviser of 30
investment companies with 56 separate portfolios and aggregate assets of over
$23.9 billion.
Nimrod Fachler, a managing director and the chief investment officer-
international of Mitchell Hutchins, is the Fund's allocation manager. Mr.
Fachler has been employed by Mitchell Hutchins since 1986. Mr. Fachler directs
the management of eleven globally oriented funds with aggregate assets as of
June 30, 1994 of $3.3 billion.
Edward M. Rosenzweig, a senior vice president and portfolio manager of Mitchell
Hutchins, is the
Prospectus Page 27
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
sector manager responsible for the day-to-day management of the Fund's U.S.
Government and Investment Grade Securities. Mr. Rosenzweig has been employed by
Mitchell Hutchins since January 1993. He is a portfolio manager for PaineWebber
U.S. Government Income Fund, PaineWebber Short-Term U.S. Government Income
Fund, PaineWebber Short-Term U.S. Government Income Fund for Credit Unions and
PaineWebber Series Trust - Government Portfolio, with aggregate assets as of
June 30, 1994 of approximately $1.6 billion. From January 1992 to January 1993,
Mr. Rosenzweig was a portfolio manager at Gabelli O'Connor Fixed Income. Prior
to January 1992, he was the director of portfolio management at the Rockefeller
Group Inc.
Thomas J. Libassi, a senior vice president and portfolio manager of Mitchell
Hutchins, is the sector manager responsible for the day-to-day management of
the Fund's U.S. High Yield Securities. Mr. Libassi has been employed by
Mitchell Hutchins since May 1994. He is portfolio manager for PaineWebber High
Income Fund, PaineWebber Offshore High Income Fund, PaineWebber Premier High
Income Trust Inc., and the high yield portions of All-American Term Trust Inc.
with aggregate assets as of June 30, 1994 of approximately $1 billion. Prior to
May 1994 Mr. Libassi was a vice president and portfolio manager of Keystone
Custodian Funds Inc.
Stuart Waugh, a managing director and portfolio manager of Mitchell Hutchins
responsible for global fixed income and currency trading, is the sector manager
responsible for the day-to-day management of the Fund's Foreign and Emerging
Market Securities. Mr. Waugh has been employed by Mitchell Hutchins since 1984.
He is a portfolio manager of Strategic Global Income Fund, Inc., Global Income
Plus Fund, Inc., PaineWebber Global Income Fund, Global High Income Dollar Fund
Inc. and PaineWebber Series Trust - Global Income Portfolio with aggregate
assets as of June 30, 1994 of approximately $2.5 billion.
DISTRIBUTION ARRANGEMENTS. 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 distribution pertaining to the Class A
shares, the Class B shares and Class D shares ("Class A Plan," "Class B Plan"
and "Class D Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins
monthly service fees at the annual rate of 0.25% of the average daily net
assets of each Class of shares and monthly distribution fees at the annual rate
of 0.75% of the average daily net assets of the Class B shares and 0.50% of the
average daily net assets of the Class D shares.
Under all three Plans, Mitchell Hutchins uses the service fees primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of
the aggregate investment amounts maintained in the Fund by PaineWebber clients.
PaineWebber passes on a portion of these fees to its investment executives to
compensate them for shareholder servicing that they perform and retains the
remainder to offset its own expenses in servicing and maintaining shareholder
accounts. These expenses may include costs of the PaineWebber branch office in
which the investment executive is based, such as rent, communications
equipment, employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fees under the Class B and Class D
Plans to offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class D shares. PaineWebber passes on to its investment executives
a portion of these commissions and retains the remainder to offset its expenses
in selling Class B and Class D shares. These expenses may include the branch
office costs noted above. In addition, Mitchell Hutchins uses the distribution
fees under the Class B and Class D Plans to offset the Fund's marketing costs
attributable to such Classes, such as preparation of sales literature,
advertising and printing and distributing prospectuses and other shareholder
materials to prospective investors. Mitchell Hutchins also may use the
distribution fees to pay additional compensation to PaineWebber and other costs
allocated to Mitchell Hutchins' and PaineWebber's distribution activities,
including employee salaries, bonuses and other overhead expenses.
Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class D shares of the Fund. If PaineWebber makes such
payments, it will retain the service and distribution fees on Class D shares
until it has been reimbursed and thereafter will pass a portion of the service
and distribution fees on Class D shares on to its investment executives.
Prospectus Page 28
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions, and may use these proceeds for any of the
distribution expenses described above. See "Purchases."
During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of shares ("Distribution Contracts")
obligate the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses
exceed its service or distribution fees for the Fund, it will not be obligated
to pay more than those fees and, if Mitchell Hutchins' expenses are less than
such fees, it will retain its full fees and realize a profit. The Fund will pay
the service and distribution fees to Mitchell Hutchins until either the
applicable Plan or Distribution Contract for the Fund is terminated or not
renewed. In that event, Mitchell Hutchins' expenses in excess of service and
distribution fees received or accrued through the termination date will be
Mitchell Hutchins' sole responsibility and not obligations of the Fund. In
their annual consideration of the continuation of the Fund's Plans, the
trustees will review the Plan and Mitchell Hutchins' corresponding expenses for
each Class separately from the Plans and corresponding expenses for the other
two Classes.
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
The Fund performs a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for the Class
A shares of the Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of the Fund reflects deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. One-, five- and
ten-year periods will be shown, unless the Class has been in existence for a
shorter period. Total return calculations assume reinvestment of dividends and
other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.
The Fund also may advertise its yield. Yield reflects investment income net of
expenses over a 30-day (or one-month) period on a Fund share, expressed as an
annualized percentage of the maximum offering price per share for Class A
shares and net asset value per share for Class B shares and Class D shares at
the end of the period. Yield computations differ from other accounting methods
and therefore may differ from dividends actually paid or reported net income.
The Fund will include performance data for all three Classes of Fund shares in
any advertisements or promotional materials including Fund performance data.
Total return information reflects past performance and does not necessarily
indicate future results. Investment return and principal values will fluctuate,
and proceeds upon redemption may be more or less than a shareholder's cost.
Prospectus Page 29
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
ORGANIZATION. PaineWebber Securities Trust is a Massachusetts business trust
that is registered with the SEC as an open-end management investment company.
The Trust was organized under a Declaration of Trust dated December 3, 1992.
The trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series, par value $.001 per share, of the
Trust. In addition to the Fund, shares of one other series have been
authorized.
The shares of beneficial interest of the Fund are divided into three Classes,
designated Class A shares, Class B shares and Class D shares. Each Class
represents interests in the same assets of the Fund. The Classes differ as
follows: (1) each Class of shares has exclusive voting rights on matters
pertaining to its plan of distribution, (2) Class A shares are subject to an
initial sales charge, (3) Class B shares bear ongoing distribution fees, are
subject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance,
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class and (5) each Class may bear differing amounts of certain Class-specific
expenses. The Trust's board of trustees does not anticipate that there will be
any conflicts among the interests of the holders of the different Classes of
Fund shares. On an ongoing basis, the board of trustees will consider whether
any such conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees of the Trust holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of the outstanding shares of
the Trust may remove a trustee by votes cast in person or by proxy at a meeting
called for that purpose. The trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when so requested in writing by shareholders of record holding at least
10% of the Trust's outstanding shares. Each share of the Fund has equal voting
rights, except as noted above. Each share of the Fund is entitled to
participate equally in dividends and other distributions and the proceeds of
any liquidation, except that, due to the differing expenses borne by the three
Classes, such dividends and liquidation proceeds of Class B and Class D shares
are likely to be lower than for the Class A shares. The shares of each series
of the Trust will be voted separately except when an aggregate vote of all
series is required by the 1940 Act.
To avoid additional operating costs and for investor convenience, the Fund does
not issue share certificates. Ownership of shares of the Fund is recorded on a
stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, Massachusetts 02171 is custodian for the Fund.
PFPC, Inc., a subsidiary of PNC Bank, National Association, whose business
address is 400 Bellevue Parkway, Wilmington, Delaware 19809, is the Fund's
transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of shares of the Fund. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.
Prospectus Page 30
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Appendix A
Ratings
- --------------------------------------------------------------------------------
-------------
DESCRIPTION OF MOODY'S RATINGS FOR CORPORATE AND CONVERTIBLE BONDS
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
aaa. An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks; aa. An issue which
is rated aa is considered a high-grade preferred stock. This rating indicates
that there is reasonable assurance that earnings and asset protection will
remain relatively well-maintained in the foreseeable future; a. An issue which
is rated a is considered to be an upper-medium grade preferred stock. While
risks are judged to be somewhat greater than in the aaa and aa classifications,
earnings
Prospectus Page 31
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
and asset protection are, nevertheless, expected to be maintained at adequate
levels; baa. An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time; ba. An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class; b. An
issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of
the issue over any long period of time may be small; caa. An issue which is
rated caa is likely to be in arrears on dividend payments. This rating
designation does not purport to indicate the future status of payment; ca. An
issue which is rated ca is speculative in a high degree and is likely to be in
arrears on dividends with little likelihood of eventual payments; c. This is
the lowest rated class of preferred or preference stock. Issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa/aa to B/b. The modifier 1 indicates that the company
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the company
ranks in the lower end of its generic rating category.
DESCRIPTION OF S&P RATINGS FOR CORPORATE AND CONVERTIBLE DEBT SECURITIES
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B. Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC. Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
Prospectus Page 32
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
CC. The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C. The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
DESCRIPTION OF S&P PREFERRED STOCK RATINGS
AAA. This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations; AA. A preferred stock issue rated AA also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA; A. An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effect of changes in circumstances and economic conditions; BBB. An issue rated
BBB is regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to make payments for a preferred stock in this category
than for issues in the A category; BBB, B, CCC. Preferred stocks rated BB, B,
and CCC are regarded, on balance, as predominantly speculative with respect to
the issuer's capacity to pay preferred stock obligations. BB indicates the
lowest degree of speculation and CCC the highest degree of speculation. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions; CC. The rating CC is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is currently paying;
C. A preferred stock rated C is a non-paying issue; D. A preferred stock rated
D is a non-paying issue with issuer in default on debt instruments.
NR. NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-). The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Prospectus Page 33
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
Appendix B
Mortgage-Backed Securities
- --------------------------------------------------------------------------------
-------------
The U.S. government securities in which the Fund may invest include mortgage-
backed securities issued or guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie
Mae"), or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Other
mortgage-backed securities in which the Fund may invest will be issued by
private issuers, generally originators of and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities (collectively, "Private Mortgage
Lenders"). Such private mortgage-backed securities may be supported by pools of
mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any government guarantee of
the underlying mortgage assets but with some form of non-government credit
enhancement. New types of mortgage-backed securities are developed and marketed
from time to time and, consistent with its investment limitations, the Fund
expects to invest in those new types of mortgage-backed securities that
Mitchell Hutchins believes may assist the Fund in achieving its investment
objectives. Similarly, the Fund may invest in mortgage-backed securities issued
by new or existing governmental or private issuers other than those identified
herein.
GINNIE MAE CERTIFICATES
Ginnie Mae guarantees certain mortgage pass-through certificates ("Ginnie Mae
certificates") that are issued by Private Mortgage Lenders and that represent
ownership interests in individual pools of residential mortgage loans. These
securities are designed to provide monthly payments of interest and principal
to the investor. Timely payment of interest and principal is backed by the full
faith and credit of the U.S. government. Each mortgagor's monthly payments to
his lending institution on his residential mortgage are "passed through" to
certificateholders such as the Fund. Mortgage pools consist of whole mortgage
loans or participations in loans. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools.
Lending institutions that originate mortgages for the pools are subject to
certain standards, including credit and other underwriting criteria for
individual mortgages included in the pools.
FANNIE MAE CERTIFICATES
Fannie Mae facilitates a national secondary market in residential mortgage
loans insured or guaranteed by U.S. government agencies and in privately
insured or uninsured residential mortgage loans (sometimes referred to as
"conventional mortgage loans" or "conventional loans") through its mortgage
purchase and mortgage-backed securities sales activities. Fannie Mae issues
guaranteed mortgage pass-through certificates ("Fannie Mae certificates"),
which represent pro rata shares of all interest and principal payments made and
owed on the underlying pools. Fannie Mae guarantees timely payment of interest
and principal on Fannie Mae certificates. The Fannie Mae guarantee is not
backed by the full faith and credit of the U.S. government.
FREDDIE MAC CERTIFICATES
Freddie Mac also facilitates a national secondary market for conventional
residential and U.S. government-insured mortgage loans through its mortgage
purchase and mortgage-backed securities sales activities. Freddie Mac issues
two types of mortgage pass-through securities: mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). Each PC
represents a pro rata share of all interest and principal payments made and
owed on the underlying pool. Freddie Mac generally guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal, but it also
has a PC program under which it guarantees timely payment of both principal and
interest. GMCs also represent a pro rata interest in a pool of mortgages. These
instruments, however, pay interest semi-annually and return principal once a
year in guaranteed minimum payments. The Freddie Mac guarantee is not backed by
the full faith and credit of the U.S. government.
Prospectus Page 34
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES
Mortgage-backed securities issued by Private Mortgage Lenders are structured
similarly to the pass-through certificates and CMOs issued or guaranteed by
Ginnie Mae, Fannie Mae and Freddie Mac. Such mortgage-backed securities may be
supported by pools of U.S. government or agency insured or guaranteed mortgage
loans or by other mortgage-backed securities issued by a government agency or
instrumentality, but they generally are supported by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
mortgage-backed securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, they normally are
structured with one or more types of credit enhancement. See "--Types of Credit
Enhancement."
The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
government in connection with the savings and loan crisis, holds assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquires such assets in its corporate capacity. These
assets include, among other things, single family and multifamily mortgage
loans, as well as commercial mortgage loans. In order to dispose of such assets
in an orderly manner, RTC has established a vehicle registered with the SEC
through which it sells mortgage-backed securities. RTC mortgage-backed
securities represent pro rata interests in pools of mortgage loans that RTC
holds or has acquired, as described above, and are supported by one or more of
the types of private credit enhancements used by Private Mortgage Lenders.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS
Collateralized Mortgage Obligations ("CMOs") are debt obligations that are
collateralized either by mortgage loans or mortgage pass-through securities
(such collateral collectively being called "Mortgage Assets"). CMOs may be
issued by Private Mortgage Lenders or by government entities such as Fannie Mae
or Freddie Mac. Multi-class mortgage pass-through securities are interests in
trusts that are comprised of Mortgage Assets and that have multiple classes
similar to those in CMOs. Unless the context indicates otherwise, references
herein to CMOs include multi-class mortgage pass-through securities. Payments
of principal and interest on the Mortgage Assets (and, in the case of CMOs, any
reinvestment income thereon) provide the funds to pay debt service on the CMOs
or to make scheduled distributions on the multi-class mortgage pass-through
securities.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMO, also referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO (other than any principal
only ("PO") class) on a monthly, quarterly or semiannual basis. The principal
and interest on the Mortgage Assets may be allocated among the several classes
of a CMO in many ways. In one structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of a
CMO in the order of their respective stated maturities or final distribution
dates so that no payment of principal will be made on any class of the CMO
until all other classes having an earlier stated maturity or final distribution
date have been paid in full. In some CMO structures, all or a portion of the
interest attributable to one or more of the CMO classes may be added to the
principal amounts attributable to such classes, rather than passed through to
certificateholders on a current basis, until other classes of the CMO are paid
in full.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier. Planned
amortization class mortgage-backed securities ("PAC Bonds") are a form of
parallel pay CMO. PAC Bonds are designed to provide relatively predictable
payments of principal provided that, among other things, the actual prepayment
experience on the underlying mortgage loans falls within a contemplated range.
If the actual prepayment experience on the underlying mortgage loans is at a
rate faster or slower than the contemplated range, or if deviations from other
assumptions occur, principal payments on a PAC Bond may be greater or smaller
than predicted. The magnitude of the contemplated range varies from one PAC
Bond to another; a narrower range increases the risk that prepayments will be
greater or smaller than contemplated.
Prospectus Page 35
<PAGE>
---------------------
-----------------------------
PAINEWEBBER STRATEGIC INCOME FUND
-------------
ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES
ARM mortgage-backed securities are mortgage-backed securities that represent a
right to receive interest payments at a rate that is adjusted to reflect the
interest earned on a pool of mortgage loans bearing variable or adjustable
rates of interest (such mortgage loans are referred to as "ARMs"). Floating
rate mortgage-backed securities are classes of mortgage-backed securities that
have been structured to represent the right to receive interest payments at
rates that fluctuate in accordance with an index but that generally are
supported by pools comprised of fixed-rate mortgage loans. Because the interest
rates on ARM and floating rate mortgage-backed securities are reset in response
to changes in a specified market index, the values of such securities tend to
be less sensitive to interest rate fluctuations than the values of fixed-rate
securities.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are classes of mortgage-backed
securities that receive different proportions of the interest and principal
distributions from the underlying pool of Mortgage Assets. SMBS may be issued
by agencies or instrumentalities of the U.S. government or by Private Mortgage
Lenders. In the most extreme case, one class will be entitled to receive all or
a portion of the interest but none of the principal from the Mortgage Assets
(the interest only or "IO" class) and one class will be entitled to receive all
or a portion of the principal but none of the interest (the "PO" class).
The yields on IO and PO classes created from mortgage-backed securities that
are not PAC Bonds generally are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying Mortgage Assets.
Accordingly, the market values of such SMBS are more volatile than is the case
for traditional mortgage-backed securities. If the underlying Mortgage Assets
of such an IO class experience greater than anticipated prepayments of
principal, an investor may fail to recoup fully its initial investment even if
the securities are rated in the highest rating category.
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets to make
payments, mortgage-backed securities may contain elements of credit
enhancement. Such credit enhancement falls into two categories; (1) liquidity
protection and (2) protection against losses resulting after default by an
obligor on the underlying assets and collection of all amounts recoverable
directly from the obligor and through liquidation of the collateral. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pool of assets (usually the bank, savings association or
mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting after default and
liquidation ensures ultimate payment of the obligations on at least a portion
of the assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor, from
third parties, through various means of structuring the transaction or through
a combination of such approaches. The Fund will not pay any additional fees for
such credit enhancement, although the existence of credit enhancement may
increase the price of a security.
Examples of credit enhancement arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
"spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets, are held in
reserve against future losses) and "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceed
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in such a security.
Prospectus Page 36
<PAGE>
Application Form
THE PAINEWEBBER PAINEWEBBER STRATEGIC [_][_]-[_][_][_][_]-[_][_]
MUTUAL FUNDS INCOME FUND PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN
ACCOUNT).
ALSO, DO NOT USE THIS FORM TO OPEN A Return this completed
RETIREMENT PLAN ACCOUNT. FOR form to:
RETIREMENT PLAN FORMS OR FOR PFPC Inc.
ASSISTANCE IN COMPLETING THIS FORM P.O. Box 8950
CONTACT PFPC INC. AT 1-800-647-1568. Wilmington, Delaware 19899
ATTN: PaineWebber Mutual
Funds
PLEASE PRINT
- --------------------------------------------------------------------------------
1 INITIAL INVESTMENT ($1,000 MINIMUM)
ENCLOSED IS A CHECK FOR $ ___ (payable to "PaineWebber Stra-
tegic Income Fund") to purchase
Class A [_] Class B [_] or Class D [_] shares.
(Check one Class; if no Class is specified Class A shares will
be purchased)
2 ACCOUNT REGISTRATION
Not valid 1. Individual _______________ _______________ _____/__/____
without First Name Last Name MI Soc. Sec. No.
signature and
Soc. Sec. or 2. Joint Tenancy ____________ _______________ _____/__/____
Tax ID # on First Name Last Name MI Soc. Sec. No.
accompanying ("Joint Tenants with Rights of Survivorship"
Form W-9. unless otherwise specified)
- --As joint
tenants use 3. Gifts to Minors __________________________ _____/__/____
Lines 1 and Minor's Name Soc. Sec. No.
2.
- --As custodian Under the __________________ Uniform Gifts Uniform Trans-
for a minor, State of Residence to Minors Act / fers to Minors
use Lines 1 of Minor Act
and 3.
- --In the name 4. Other Registrations ______________________ ______________
of a Name Tax Ident. No.
corporation,
trust or 5. If Trust, Date of Trust Instrument: _____________________
other
organization
or any
fiduciary
capacity,
use Line 4.
3 ADDRESS
____________________________ U.S. Citizen [_] YES [_] NO*
Street
____________________________ ____________________________
City State Zip Code *Country of Citizenship
4 DISTRIBUTION OPTIONS (See Prospectus)
Please select one of the following:
[_] Reinvest both dividends and capital gain distributions in
additional shares.
[_] Pay dividends to my address above; reinvest capital gain
distributions.
[_] Pay both dividends and capital gain distributions in cash
to my address above.
[_] Reinvest dividends and pay capital gain distributions in
cash to my address above.
NOTE: If a selection is not made, both dividends and capi-
tal gain distributions will be paid in additional Fund
shares of the same Class.
<PAGE>
5 SPECIAL OPTIONS (For More Information--Check Appropriate Box)
[_] Automatic Investment Plan [_] Prototype IRA Application
[_] Systematic Withdrawal Plan
6 RIGHTS OF ACCUMULATION--CLASS A SHARES (See Prospectus)
Indicate here any other account(s) in the group of funds that would
qualify for the cumulative quantity discount as outlined in the
Prospectus.
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
7 PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
"Affiliated" persons are defined as officers,
directors/trustees and employees of the PaineWebber funds,
PaineWebber or its affiliates, and their parents, spouses
and children.
-------------------------------------------------
Nature of Relationship
8 SIGNATURE(S) AND TAX CERTIFICATION(S)
I warrant that I have full authority and am of legal age
to purchase shares of the Fund(s) specified and have
received and read a current Prospectus of the Fund and
agree to its terms. The Fund and its Transfer Agent will
not be liable for acting upon instructions or inquiries
believed genuine. Under penalties of perjury, I certify
that (1) my taxpayer identification number provided in
this application is correct and (2) I am not subject to
backup withholding because (i) I have not been notified
that I am subject to backup withholding as a result of
failure to report interest or dividends or (ii) the IRS
has notified me that I am no longer subject to backup
withholding (strike out clause (2) if incorrect).
---------------------- ------------------------- ----------
Individual (or Custodian) Joint Registrant (if any) Date
----------------------------------------- -------- ----------
Corporate Officer, Partner, Trustee, etc. Title Date
9 INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By Invest-
ment Executive Only)
---------------------------- ----------------------------
Broker No./Name Branch Wire Code
( )
---------------------------- ----------------------------
Branch Address Telephone
10 CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Correspon-
dent Firm Only)
---------------------------- ----------------------------
Name Address
---------------------------- ----------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECUTIVE
OR CORRESPONDENT FIRM OR TO PFPC INC., P.O. BOX 8950,
WILMINGTON, DELAWARE 19899.
<PAGE>
Shares of the Fund can be exchanged for shares of the following PaineWebber
Mutual Funds:
PAINEWEBBER INCOME FUNDS
. Global Income Fund
. High Income Fund
. Investment Grade Income Fund
. Short-Term U.S. Government Income Fund
. Short-Term U.S. Government Income Fund for Credit Unions
. U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
. Atlas Global Growth Fund
. Blue Chip Growth Fund
. Capital Appreciation Fund
. Communications & Technology Growth Fund
. Europe Growth Fund
. Growth Fund
. Regional Financial Growth Fund
. Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
. Asset Allocation Fund
. Dividend Growth Fund
. Global Energy Fund
. Global Growth and Income Fund
. Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
---------------
A prospectus containing more complete information for any of the above funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Read it carefully before investing.
(C) 1994 PaineWebber Incorporated
LOGO Recycled Paper
PaineWebber
Strategic Income
Fund
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
PROSPECTUS
August 5, 1994
