<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
ANNUAL REPORT
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber Growth and
Income Fund (A) and the S&P 500 Index
The graph depicts the performance of PaineWebber Growth and Income Fund (A)
versus the S&P 500 Index. It is important to note PaineWebber Growth and
Income Fund is a professionally managed mutual fund while the Index is not
available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
S&P 500 Index Growth & Income Fund (A)
12/20/83 9948 9547
8/31/84 10375 10288
8/31/85 12252 12033
8/31/86 17064 15769
8/31/87 22953 18332
8/31/88 18865 16365
8/31/89 26256 20952
8/31/90 24945 20815
8/31/91 31641 25731
8/31/92 34146 27733
8/31/93 39329 28607
8/31/94 41476 28441
8/31/95 50359 33644
8/31/96 59786 39498
8/31/97 84074 56253
8/31/98 90902 54279
--S&P 500 Index --Growth and Income Fund (A)
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the
class shown because of differences in sales charges and fees paid by
shareholders investing in different classes.
AVERAGE ANNUAL TOTAL RETURN
One Year Five Years Ten Years Commencement
Ended Ended Ended of Operations Through
8/31/98 8/31/98 8/31/98 8/31/98****
% Return Without Deducting
Maximum Sales Charge
Class A* -3.51% 13.67% 12.74% 12.54%
Class B** -4.28% 12.79% NA 11.25%
Class C*** -4.23% 12.81% NA 11.18%
% Return After Deducting
Maximum Sales Charge
Class A* -7.85% 12.63% 12.22% 12.19%
Class B** -8.67% 12.54% NA 11.25%
Class C*** -5.11% 12.81% NA 11.18%
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A Shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after six years. Class B Shares bear ongoing 12b-1 service
and distribution fees.
*** Maximum contingent deferred sales charge for Class C shares is 1% and is
reduced to 0% after one year. Class C Shares bear ongoing 12b-1 service and
distribution fees.
**** Commencement of issuance was December 20, 1983 for Class A shares,
July 1, 1991 for Class B shares and July 2, 1992 for Class C shares.
The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs sponsored by
PaineWebber and that may invest in PaineWebber mutual funds. Class Y shares
lost 3.24% for the one-year period ended August 31, 1998 and since inception
on February 12, 1992 to August 31, 1998, had an average annual total return
of 10.80%. Class Y shares do not bear initial or contingent deferred sales
charges or ongoing distribution and service fees.
The investment return and the principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1
<PAGE>
ANNUAL REPORT
PAINEWEBBER GROWTH FUND
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber Growth Fund
(A) and the S&P 500 Index
The graph depicts the performance of PaineWebber Growth Fund (A) versus the
S&P 500 Index. It is important to note PaineWebber Growth Fund is a
professionally managed mutual fund while the Index is not available for
investment and is unmanaged. The comparison is shown for illustrative
purposes only.
S&P 500 Index Growth Fund (A)
3/18/85 9991 9551
8/31/85 10614 10125
8/31/86 14783 13247
8/31/87 19885 16927
8/31/88 16344 14325
8/31/89 22747 20070
8/31/90 21611 18655
8/31/91 27413 25561
8/31/92 29582 25342
8/31/93 34073 32178
8/31/94 35933 32928
8/31/95 43629 36643
8/31/96 51796 43396
8/31/97 72838 50274
8/31/98 78753 51969
--S&P 500 Index --Growth and Income Fund (A)
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the
class shown because of differences in sales charges and fees paid by
shareholders investing in different classes.
AVERAGE ANNUAL TOTAL RETURN
One Year Five Years Ten Years Commencement
Ended Ended Ended of Operations Through
8/31/98 8/31/98 8/31/98 8/31/98****
% Return Without Deducting
Maximum Sales Charge
Class A* 3.37% 10.06% 13.75% 13.41%
Class B** 2.55% 9.20% NA 11.41%
Class C*** 2.59% 9.21% NA 11.17%
% Return After Deducting
Maximum Sales Charge
Class A* -1.27% 9.05% 13.23% 13.02%
Class B** -1.21% 8.94% NA 11.41%
Class C*** 1.83% 9.21% NA 11.17%
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A Shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after six years. Class B Shares bear ongoing 12b-1 service and
distribution fees.
*** Maximum contingent deferred sales charge for Class C shares is 1% and is
reduced to 0% after one year. Class C Shares bear ongoing 12b-1 service and
distribution fees.
****Commencement of issuance was March 18, 1985 for Class A shares, July 1,
1991 for Class B shares and July 2, 1992 for Class C shares.
The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs sponsored by
PaineWebber and that may invest in PaineWebber mutual funds. Class Y shares
returned 3.61% for the one-year period ended August 31, 1998 and since
inception on August 26, 1991 to August 31, 1998, had an average annual total
return of 11.31%. Class Y shares do not bear initial or contingent deferred
sales charges or ongoing distribution and service fees.
The investment return and the principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
2
<PAGE>
PAINEWEBBER GROWTH & INCOME/GROWTH FUNDS
ANNUAL REPORT
October 20, 1998
Dear Shareholder,
We are pleased to present you with the annual report for
the PaineWebber Growth and Income Fund and the PaineWebber Growth Fund for
the fiscal year ended August 31, 1998.
PaineWebber Growth and Income Fund
Fund Profile
Goal:
Current income and
Capital growth
Portfolio Manager:
Mark A. Tincher,
Mitchell Hutchins Asset
Management Inc.
Total Net Assets:
$1.24 billion as of
August 31, 1998
Dividend Payments:
Semiannually
GENERAL MARKET OVERVIEW
- -------------------------------------------------------------------------------
The Funds' fiscal year ended on a tumultuous note as investors reacted to
global uncertainty by pulling money out of the U.S. stock markets. Concerns
about exposure to over-leveraged hedge funds and emerging markets caused a
sell-off in financial stocks as investors backed away from credit-quality and
liquidity problems. Weakness in global markets also hurt economically
sensitive companies in the United States as concern spread about a potential
pullback of consumer spending. Larger-capitalization stocks held up better
than mid- or small-caps, though some of the larger stocks were affected as
well. As stocks became more volatile, investors shifted some of their assets
into bonds, causing yields to fall and prices to rise.
PORTFOLIO REVIEWS
- -------------------------------------------------------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
PERFORMANCE--
The Fund's total return consists of the net asset value change
with dividends reinvested. For the fiscal year ended August 31, 1998, without
deducting sales charges, Class A shares lost 3.51%, Class B shares lost
4.28%, Class C shares lost 4.23% and Class Y shares lost 3.24%.
The Fund's total return may be lower for shareowners who purchased or
redeemed shares during the period. After deducting the maximum applicable
sales charges, Class A shares lost 7.85%, Class B shares lost 8.67% and Class
C shares lost 5.11%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS--
In August we took a number of defensive measures to help
protect the Fund. We reduced the Fund's holdings of financial services stocks
(17.7% as of August 31, 1998(1)) and consumer cyclicals (21.0%). Also, we
raised cash reserves to dampen volatility in the Fund's portfolio.
Our models indicate that the stock market has gone from 12-15% overvalued
during April to 3-4% UNDERVALUED in September. We see this as a hopeful sign,
but before we recommit the Fund's reserves to new investments we want to see
clearer evidence of a turnaround.
We hope to see support for the S&P 500 Index in a range around 975 (as of
late October, it was trending upward to around 1050). Perhaps the worst of
the third-quarter earnings disappointments is past, and we will see earnings
expectations stabilize. The most recent infusion of liquidity from the
Federal Reserve could help quell the misgivings of market participants.
PAINEWEBBER
GROWTH AND
INCOME FUND
Top Ten Holdings,
August 31, 1998(1)
Bell South Corporation 1.7%
- ------------------------------------
The Chase Manhattan Corporation 1.6%
- ------------------------------------
Compaq Computer Corporation 1.4%
- ------------------------------------
Schering Plough 1.4%
- ------------------------------------
Tyco International Ltd. 1.4%
- ------------------------------------
Warner Lambert Co. 1.3%
- ------------------------------------
Dell Computer Corporation 1.3%
- ------------------------------------
Phillip Morris Companies
Incorporated 1.3%
- ------------------------------------
Quaker Oats Co. 1.3%
- ------------------------------------
TJX Companies, Inc. 1.3%
- ------------------------------------
(1) Unless otherwise noted, all portfolio weightings represent percentages of
net assets as of August 31, 1998. The Funds are actively managed and all
holdings are subject to change.
3
<PAGE>
ANNUAL REPORT
PAINEWEBBER
GROWTH AND
INCOME FUND
Top Five Sectors,
August 31, 1998(1)
Consumer Cyclicals 21.0%
- -----------------------------
Financial Services 17.7%
- -----------------------------
Technology 11.5%
- -----------------------------
Utilities 9.4%
- -----------------------------
Capital goods 8.6%
- -----------------------------
PAINEWEBBER GROWTH FUND
FUND PROFILE
GOAL:
Long-term capital
appreciation
PORTFOLIO MANAGER:
Ellen R. Harris,
Mitchell Hutchins
Asset Management Inc.
Total Net Assets:
$319.5 million as of
August 31, 1998
Dividend Payments:
Annually
OUTLOOK--
We expect to encounter more volatility over the next six months--emerging
market and hedge fund pressures are unlikely to subside quickly. We intend to
maintain a defensive posture, looking for stocks with lower-than-market
valuations and little or no exposure to emerging markets or hedge funds.
Our models now point to attractive valuations in the technology sector. The
downturn has battered technology harder than most sectors--some stocks have
fallen 50% more than the broad market. We believe these companies are worth
considerably more than their current market values, and we may add to the
Fund's technology holdings now that the sector offers such bargains.
- -------------------------------------------------------------------------------
PAINEWEBBER GROWTH FUND
PERFORMANCE--The Fund's total return (the net asset value change with
dividends reinvested) for the fiscal year ended August 31, 1998, without
deducting sales charges, was 3.37% for Class A shares, 2.55% for Class B
shares, 2.59% for Class C shares and 3.61% for Class Y shares.
The Fund's total return may be lower for shareowners who purchased or
redeemed shares during the period. After deducting the maximum applicable
sales charges, Class A shares lost 1.27%, Class B shares lost 1.21% and Class
C shares gained 1.83%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS--
Over the past year the three biggest impacts on the Fund came
from:
1. Model discipline and stock selection--our commitment to maintaining
that combination in our management approach
2. Stock picks that made big performance contributions
3. Higher market cap profile of the Fund than in
the past
A proprietary growth model creates a universe from which we select
stocks that have above-average growth potential. We generally focus our
stock picks on the "best in class"--those companies that lead their
industries and that can increase their earnings by at least 10% each year.
For the past fiscal year, we found most of our "best-in-class" picks
among technology and consumer cyclical companies.
Our emphasis on technology stocks (21.9% of net assets as of August 31,
1998(1)) helped the Fund's performance during the fiscal year. Dell Computer
Corp. (2.6%), which gained 140% for the fiscal year, made the biggest
contribution. Other contributors were Cisco Systems Inc. (2.3%), the leading
networking and enterprise computing company, and Paychex (1.2%), which provides
payroll and other administrative services to small- and medium-size businesses.
During the year ended August 31, 1998, the Fund's technology weighting averaged
about 24%.
Consumer cyclical stocks made the second most important contribution during
the fiscal year. These companies tend to thrive under the economic conditions
the United States has been enjoying: high employment, low inflation and
stable growth. Our consumer cyclical stock picks also focused on the
"best in class."
Within consumer cyclicals we emphasized two sectors: media,
entertainment and cable companies (17.2%), and specialty retailers as broadly
defined (13.2%). Cable and media holdings included Liberty Media Group
(1.2%), Time Warner (2.3%), Tele-Communications Inc. (1.3%) and Comcast Corp.
(0.9%).
(1) Unless otherwise noted, all portfolio weightings represent percentages of
net assets as of August 31, 1998. The Funds are actively managed and all
holdings are subject to change.
4
<PAGE>
PAINEWEBBER GROWTH AND INCOME/GROWTH FUNDS ANNUAL REPORT
Technological changes are enabling these companies to provide more in-home
entertainment more cost-effectively and to offer Internet access and
telephony. Among specialty retailers we chose Staples Inc. (1.7%), the
"superstar" office supply chain, and Home Depot Inc. (1.8%), which dominates
the do-it-yourself home improvement market and is also a major supplier of
building materials to contractors.
Watson Pharmaceuticals, Inc. (2.8%)--the Fund's largest holding--has proven a
successful investment in the pharmaceuticals sector. We bought Watson during
its initial public offering when its market capitalization was less than $1
billion. The company was generating healthy profits from small-market generic
drugs by dominating selected niches. Watson has grown into a sizable
proprietary and generic drugmaker with major distribution capabilities, and
now has a market capitalization of almost $5 billion.
In the last semiannual report we described how we had increased the market
capitalization profile of the Fund and how that increase had improved
performance. The Fund's average market capitalization increased from about $2
billion in March 1997 to more than $7 billion in early 1998. For the fiscal
year ended August 31, 1998 the Fund's market cap averaged $10-12 billion.
OUTLOOK--
We believe that current economic conditions--slow growth, low inflation and
low interest rates--will continue into the coming year. We do not expect to
see stocks repeat their dynamic price gains of recent years, but instead look
for slower, steadier growth.
We think the biggest winners will be those companies that gain investor
confidence by providing sustainable earnings growth. Our focus will remain on
companies that we believe can sustain earnings growth of at least 10% per
year. We still believe that most such companies will appear in the technology
and consumer cyclical sectors.
We are underweighted in economically sensitive and inflation-sensitive
industries. For example, by the end of the fiscal year we had reduced the
Fund's energy position to zero. We believe that global economic instability
will make energy prices fluctuate unpredictably, and that energy companies'
earnings will become unpredictable as a result.
PAINEWEBBER
GROWTH FUND
Top Five Sectors,
August 31, 1998
Technology 21.9%
- --------------------------------
Media & Entertainment 17.2%
- --------------------------------
Retail 13.9%
- --------------------------------
Financial Services 13.8%
- --------------------------------
Healthcare 7.2%
- --------------------------------
Top Ten Holdings,
August 31, 1998(1)
- --------------------------------
Watson Pharmaceuticals 2.8%
- --------------------------------
Dell Computer Corporation 2.6%
- --------------------------------
Cisco Systems Inc. 2.3%
- --------------------------------
Time Warner Inc. 2.3%
- --------------------------------
Clear Channel
Communications 2.1%
- --------------------------------
Outdoor Systems Inc. 2.1%
- --------------------------------
Worldcom Inc. 2.0%
- --------------------------------
Safeway Inc. 2.0%
- --------------------------------
Home Depot Inc. 1.8%
- --------------------------------
At&T Corp. 1.7%
- --------------------------------
5
<PAGE>
ANNUAL REPORT
- -------------------------------------------------------------------------------
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and
welcome any comments or questions you may have.
For a quarterly FUND PROFILE on the PaineWebber Growth and Income Fund, the
PaineWebber Growth Fund or another fund in the PaineWebber Family of Funds,(2)
please contact your investment executive.
Sincerely,
MARGO ALEXANDER MARK A. TINCHER ELLEN R. HARRIS
President Managing Director and Chief Managing Director
Mitchell Hutchins Investment Officer--Equities Mitchell Hutchins
Asset Management Inc. Mitchell Hutchins Asset Management Inc.
Asset Management Inc. Portfolio Manager,
Portfolio Manager, PaineWebber Growth Fund
PaineWebber Growth
and Income Fund
This letter is intended to assist shareholders in understanding how the Funds
performed during the fiscal year ended August 31, 1998, and reflects our
views at the time of writing this report. Of course, these views may change
in response to changing circumstances. We encourage you to consult your
investment executive regarding your personal investment program.
(2) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses,
and should be read carefully before investing.
6
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
--------------------------------------- TOTAL RETURN(1)
12 MONTHS 6 MONTHS
08/31/98 02/28/98 08/31/97 ENDED 08/31/98 ENDED 08/31/98
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Class A Shares $26.92 $31.70 $30.60 (3.51)% (14.85)%
- -----------------------------------------------------------------------------------------------------------
Class B Shares 26.77 31.56 30.46 (4.28) (15.18)
- -----------------------------------------------------------------------------------------------------------
Class C Shares 26.82 31.61 30.53 (4.23) (15.15)
- -----------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
---------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
12/20/83-12/31/84 $12.65 $13.21 -- $1.0800 13.72%
- -----------------------------------------------------------------------------------------------------------
1985 13.21 14.97 $0.1950 0.8850 22.36
- -----------------------------------------------------------------------------------------------------------
1986 14.97 15.04 1.1380 0.6830 12.68
- -----------------------------------------------------------------------------------------------------------
1987 15.04 12.05 2.3027 0.7366 (3.16)
- -----------------------------------------------------------------------------------------------------------
1988 12.05 13.67 -- 0.5120 17.83
- -----------------------------------------------------------------------------------------------------------
1989 13.67 16.32 0.1675 0.5178 24.59
- -----------------------------------------------------------------------------------------------------------
1990 16.32 15.85 -- 0.3030 (1.01)
- -----------------------------------------------------------------------------------------------------------
1991 15.85 21.17 -- 0.2526 35.34
- -----------------------------------------------------------------------------------------------------------
1992 21.17 21.74 -- 0.2432 3.90
- -----------------------------------------------------------------------------------------------------------
1993 21.74 20.86 0.0310 0.2818 (2.59)
- -----------------------------------------------------------------------------------------------------------
1994 20.86 18.18 1.2111 0.2417 (5.87)
- -----------------------------------------------------------------------------------------------------------
1995 18.18 22.39 1.5085 0.2475 33.21
- -----------------------------------------------------------------------------------------------------------
1996 22.39 24.37 3.0247 0.2584 23.46
- -----------------------------------------------------------------------------------------------------------
1997 24.37 29.29 2.6664 0.2064 31.86
- -----------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 29.29 26.92 -- 0.0864 (7.84)
- -----------------------------------------------------------------------------------------------------------
Totals: $12.2449 $6.5354
- -----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 468.54%
- -----------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
---------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
07/01/91-12/31/91 $18.04 $21.14 -- $0.1074 17.85%
- -----------------------------------------------------------------------------------------------------------
1992 21.14 21.69 -- 0.0992 3.09
- -----------------------------------------------------------------------------------------------------------
1993 21.69 20.82 $0.0310 0.1193 (3.31)
- -----------------------------------------------------------------------------------------------------------
1994 20.82 18.15 1.2111 0.0768 (6.62)
- -----------------------------------------------------------------------------------------------------------
1995 18.15 22.35 1.5085 0.0715 32.18
- -----------------------------------------------------------------------------------------------------------
1996 22.35 24.32 3.0247 0.0643 22.55
- -----------------------------------------------------------------------------------------------------------
1997 24.32 29.20 2.6508 0.0044 30.79
- -----------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 29.20 26.77 -- -- (8.32)
- -----------------------------------------------------------------------------------------------------------
Totals: $8.4261 $0.5429
- -----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 114.93%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1)Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results would
be lower if sales charges were included.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
7
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
<TABLE>
<CAPTION>
PERFORMANCE SUMMARY CLASS C SHARES
NET ASSET VALUE
---------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $19.96 $21.75 -- $0.1160 9.58%
- -----------------------------------------------------------------------------------------------------------
1993 21.75 20.87 $0.0310 0.1308 (3.30)
- -----------------------------------------------------------------------------------------------------------
1994 20.87 18.20 1.2111 0.0756 (6.61)
- -----------------------------------------------------------------------------------------------------------
1995 18.20 22.42 1.5085 0.0728 32.21
- -----------------------------------------------------------------------------------------------------------
1996 22.42 24.39 3.0247 0.0781 22.55
- -----------------------------------------------------------------------------------------------------------
1997 24.39 29.24 2.6664 0.0318 30.77
- -----------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 29.24 26.82 -- -- (8.28)
- -----------------------------------------------------------------------------------------------------------
Totals: $8.4417 $0.5051
- -----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 92.31%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results would
be lower if sales charges were included.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the year ended August 31,
1998, and since inception, February 12, 1992 through August 31 1998, Class Y
shares had a total return of (3.24)% and 95.89%, respectively.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
8
<PAGE>
PAINEWEBBER GROWTH FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
-------------------------------------- --------------------------------
12 MONTHS 6 MONTHS
08/31/98 02/28/98 08/31/97 ENDED 08/31/98 ENDED 08/31/98
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Class A Shares $20.08 $23.29 $25.94 3.37% (13.78)%
- ----------------------------------------------------------------------------------------------------------
Class B Shares 18.44 21.48 24.51 2.55 (14.15)
- ----------------------------------------------------------------------------------------------------------
Class C Shares 18.65 21.72 24.71 2.59 (14.13)
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE CAPITAL
---------------------- GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
03/18/85-12/31/85 $9.15 $10.55 -- $0.1275 16.87%
- ----------------------------------------------------------------------------------------------------------
1986 10.55 10.86 $0.4064 0.1042 7.64
- ----------------------------------------------------------------------------------------------------------
1987 10.86 9.81 1.4051 0.0847 4.34
- ----------------------------------------------------------------------------------------------------------
1988 9.81 11.87 -- 0.1011 22.05
- ----------------------------------------------------------------------------------------------------------
1989 11.87 14.79 1.1520 -- 34.27
- ----------------------------------------------------------------------------------------------------------
1990 14.79 12.98 0.4625 0.1625 (7.72)
- ----------------------------------------------------------------------------------------------------------
1991 12.98 18.53 0.6003 0.0072 47.61
- ----------------------------------------------------------------------------------------------------------
1992 18.53 18.66 0.6235 -- 4.15
- ----------------------------------------------------------------------------------------------------------
1993 18.66 21.14 1.0734 -- 19.17
- ----------------------------------------------------------------------------------------------------------
1994 21.14 18.81 0.0258 -- (10.90)
- ----------------------------------------------------------------------------------------------------------
1995 18.81 23.12 1.8440 -- 33.02
- ----------------------------------------------------------------------------------------------------------
1996 23.12 24.24 2.1056 -- 14.11
- ----------------------------------------------------------------------------------------------------------
1997 24.24 21.24 6.7819 -- 17.01
- ----------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 21.24 20.08 -- -- (5.46)
- ----------------------------------------------------------------------------------------------------------
Totals: $16.4805 $0.5872
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 444.12%
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE CAPITAL
---------------------- GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
07/01/91-12/31/91 $15.63 $18.47 $0.6003 $0.0037 22.18%
- ----------------------------------------------------------------------------------------------------------
1992 18.47 18.44 0.6235 -- 3.30
- ----------------------------------------------------------------------------------------------------------
1993 18.44 20.71 1.0734 -- 18.26
- ----------------------------------------------------------------------------------------------------------
1994 20.71 18.28 0.0258 -- (11.61)
- ----------------------------------------------------------------------------------------------------------
1995 18.28 22.22 1.8440 -- 31.95
- ----------------------------------------------------------------------------------------------------------
1996 22.22 23.02 2.1056 -- 13.24
- ----------------------------------------------------------------------------------------------------------
1997 23.02 19.62 6.7819 -- 16.17
- ----------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 19.62 18.44 -- -- (6.01)
- ----------------------------------------------------------------------------------------------------------
Totals: $13.0545 $0.0037
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 117.07%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1)Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results would
be lower if sales charges were included.
The data above represents past performance of the Fund's shares which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
9
<PAGE>
PAINEWEBBER GROWTH FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
<TABLE>
<CAPTION>
PERFORMANCE SUMMARY CLASS C SHARES
NET ASSET VALUE CAPITAL
---------------------- GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $17.04 $18.57 $0.6235 -- 12.73%
- ----------------------------------------------------------------------------------------------------------
1993 18.57 20.85 1.0734 -- 18.19
- ----------------------------------------------------------------------------------------------------------
1994 20.85 18.41 0.0258 -- (11.58)
- ----------------------------------------------------------------------------------------------------------
1995 18.41 22.40 1.8440 -- 32.00
- ----------------------------------------------------------------------------------------------------------
1996 22.40 23.21 2.1056 -- 13.18
- ----------------------------------------------------------------------------------------------------------
1997 23.21 19.83 6.7819 -- 16.13
- ----------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 19.83 18.65 -- -- (5.95)
- ----------------------------------------------------------------------------------------------------------
Totals: $12.4542 --
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 92.22%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results would
be lower if sales charges were included.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the year ended August 31,
1998 and since inception, August 26, 1991 through August 31, 1998, Class Y
shares had a total return of 3.61% and 112.20%, respectively.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
10
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
COMMON STOCKS--88.34%
AGRICULTURE, FOOD & BEVERAGE--1.26%
294,600 Quaker Oats Co. .............. $ 15,650,625
-------------
AIRLINES--1.95%
100,000 Alaska Air Group Inc.*........ 3,893,750
142,200 AMR Corp.*.................... 7,749,900
100,000 UAL Corp.*.................... 6,031,250
110,800 US Airways Group, Inc.*....... 6,454,100
-------------
24,129,000
-------------
APPAREL, RETAIL--1.26%
700,000 TJX Companies, Inc. .......... 15,618,750
-------------
APPAREL, TEXTILES--0.81%
175,000 Warnaco Group Inc., Class A... 4,768,750
176,000 Westpoint Stevens Inc.*....... 5,214,000
-------------
9,982,750
-------------
BANKS--5.35%
275,000 Banc One Corp. ............... 10,450,000
145,000 BankAmerica Corp. ............ 9,289,062
297,400 Bank of New York Co. Inc. .... 7,193,363
150,000 BB & T Corp. ................. 4,228,125
125,000 Mellon Bank Corp. ............ 6,500,000
356,200 Norwest Corp. ................ 10,596,950
341,200 The Chase Manhattan Corp. .... 18,083,600
-------------
66,341,100
-------------
CHEMICALS--0.35%
75,300 DuPont (E.I.) de Nemours &
Co. ........................ 4,343,869
-------------
COMPUTER HARDWARE--3.74%
150,000 Cisco Systems, Inc.*.......... 12,281,250
637,500 Compaq Computer Corp. ........ 17,810,156
162,500 Dell Computer Corp.*.......... 16,250,000
-------------
46,341,406
-------------
COMPUTER SOFTWARE--3.82%
400,000 Autodesk, Inc. (1)............ 9,350,000
150,000 BMC Software Inc.*............ 6,346,875
373,200 Cadence Design Systems
Inc.*....................... 7,883,850
150,000 Compuware Corp.*.............. 6,815,625
211,750 Network Associates Inc.*...... 6,828,937
170,000 Peoplesoft Inc.*.............. 4,781,250
260,000 Sterling Software Inc.*....... 5,346,250
-------------
47,352,787
-------------
CONSTRUCTION, REAL PROPERTY--1.26%
65,000 Chelsea GCA Realty Inc. ...... 2,242,500
160,000 Crescent Real Estate
Equities.................... 3,680,000
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
CONSTRUCTION, REAL PROPERTY (CONCLUDED)
<TABLE>
<C> <S> <C>
127,500 Equity Residential Properties
Trust....................... $ 5,092,031
161,000 Lafarge Corp. ................ 4,598,563
-------------
15,613,094
-------------
CONSUMER DURABLES--2.25%
207,700 Furniture Brands International
Inc.*....................... 4,647,288
188,000 HON Industries Inc. .......... 4,042,000
384,600 Interface Inc. ............... 4,711,350
247,500 Maytag Corp. ................. 10,673,437
185,800 Miller Herman Inc. ........... 3,808,900
-------------
27,882,975
-------------
DEFENSE/AEROSPACE--2.98%
306,200 Allied-Signal, Inc. .......... 10,506,487
194,320 Boeing Co. ................... 6,011,775
148,000 Cordant Technologies Inc. .... 5,272,500
130,000 Lockheed Martin Corp. ........ 11,366,875
100,000 Precision Castparts Corp. .... 3,768,750
-------------
36,926,387
-------------
DIVERSIFIED RETAIL--3.27%
399,250 Dayton Hudson Corp. .......... 14,373,000
412,300 Family Dollar Stores Inc. .... 5,231,056
200,000 Federated Department Stores,
Inc.*....................... 8,712,500
179,400 Fred Meyer Inc.*.............. 7,052,663
200,000 Proffitts Inc.*............... 5,100,000
-------------
40,469,219
-------------
DRUGS & MEDICINE--6.29%
300,000 American Home Products
Corp. ...................... 15,037,500
78,800 Amerisource Health Corp.*..... 3,708,525
118,200 Biogen Inc.*.................. 5,466,750
75,000 Bristol-Myers Squibb Co. ..... 7,340,625
100,000 Pharmacia & Upjohn Inc. ...... 4,156,250
200,000 Schering-Plough Corp. ........ 17,200,000
250,000 Warner Lambert Co. ........... 16,312,500
192,000 Watson Pharmaceuticals,
Inc.*....................... 8,652,000
-------------
77,874,150
-------------
ELECTRIC UTILITIES--2.15%
200,000 AES Corp. .................... 5,450,000
170,000 Consolidated Edison Co. of New
York, Inc. ................. 8,043,125
110,500 Energy East Corp.*............ 4,972,500
100,000 Pinnacle West Capital
Corp. ...................... 4,318,750
111,000 Utilicorp United Inc. ........ 3,822,563
-------------
26,606,938
-------------
</TABLE>
11
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
ELECTRICAL EQUIPMENT--1.73%
100,000 Honeywell, Inc. .............. $ 6,250,000
126,000 Johnson Controls, Inc. ....... 5,394,375
425,000 SCI Systems Inc.* (1)......... 9,748,437
-------------
21,392,812
-------------
ENERGY RESERVES & PRODUCTION--0.62%
170,000 Amoco Corp. .................. 7,703,125
-------------
ENTERTAINMENT--0.75%
187,500 Viacom, Inc., Class B*........ 9,304,688
-------------
ENVIRONMENTAL SERVICES--0.97%
160,200 Republic Services Inc.* ...... 2,583,225
214,500 Waste Management Inc.*........ 9,464,813
-------------
12,048,038
-------------
FINANCIAL SERVICES--1.73%
43,800 American Express Co. ......... 3,416,400
102,198 Associates First Capital
Corp. ...................... 6,042,457
200,000 CIT Group Inc. ............... 5,137,500
84,800 General Electric Co. ......... 6,784,000
-------------
21,380,357
-------------
FOREST PRODUCTS, PAPER--1.59%
350,000 Fort James Corp. ............. 10,193,750
161,400 United Stationers Inc.*....... 9,562,950
-------------
19,756,700
-------------
FOOD RETAIL--1.92%
295,000 Food Lion Inc.*............... 3,042,187
200,000 Kroger Co.*................... 9,000,000
196,000 Safeway Inc.*................. 7,717,500
98,000 Whole Foods Market Inc.*...... 4,054,750
-------------
23,814,437
-------------
FREIGHT, AIR, SEA & LAND--0.63%
400,000 Airborne Freight Corp. ....... 7,800,000
-------------
GAS UTILITY--0.75%
187,500 Columbia Gas Energy Group .... 9,328,125
-------------
HOUSEHOLD PRODUCTS--0.25%
147,800 Viad Corp. ................... 3,066,850
-------------
INDUSTRIAL PARTS--5.32%
117,000 American Standard Companies,
Inc.*....................... 4,577,625
112,000 Black & Decker Corp. ......... 4,662,000
150,000 Crane Co. .................... 6,037,500
305,800 Ingersoll Rand Co. ........... 12,155,550
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
INDUSTRIAL PARTS (CONCLUDED)
<TABLE>
<C> <S> <C>
200,000 Lucasvarity Plc, ADR.......... $ 7,025,000
358,700 Mettler-Toledo International
Inc.*....................... 6,053,062
170,400 Parker-Hannifin Corp. ........ 4,941,600
117,300 SPX Corp. (1)................. 5,835,675
200,700 United Technologies Corp. .... 14,563,294
-------------
65,851,306
-------------
INDUSTRIAL SERVICES/SUPPLIES--1.69%
250,000 Avis Rent A Car Inc.*......... 3,921,875
308,050 Tyco International Ltd........ 17,096,775
-------------
21,018,650
-------------
INFORMATION & COMPUTER SERVICES--0.24%
98,300 Valassis Communications
Inc.*....................... 2,930,569
-------------
LIFE INSURANCE--2.71%
155,300 American General Corp. ....... 9,978,025
255,000 Conseco Inc. ................. 7,044,375
175,000 Protective Life Corp. ........ 5,403,125
200,000 Reliastar Financial Corp. .... 7,850,000
53,500 SunAmerica Inc. .............. 3,313,656
-------------
33,589,181
-------------
LONG DISTANCE & PHONE COMPANIES--6.26%
300,000 Bell Atlantic Corp. .......... 13,237,500
300,300 BellSouth Corp. .............. 20,589,319
100,000 Century Telephone Enterprises,
Inc. ....................... 4,537,500
300,000 GTE Corp. .................... 15,000,000
400,000 SBC Communications, Inc. ..... 15,200,000
218,800 WorldCom, Inc.*............... 8,957,125
-------------
77,521,444
-------------
MEDIA--0.06%
24,500 Young & Rubicam Inc.*......... 748,781
-------------
MEDICAL PROVIDERS--1.74%
221,700 HEALTHSOUTH Corp.*............ 4,198,444
200,000 Lincare Holdings Inc.*........ 6,787,500
202,500 Tenet Healthcare Corp.*....... 5,227,031
100,000 Wellpoint Health Networks
Inc.*....................... 5,337,500
-------------
21,550,475
-------------
MINING & METALS--0.58%
118,200 Martin Marietta Materials
Inc. ....................... 5,038,275
152,900 Wyman Gordon Co.*............. 2,140,600
-------------
7,178,875
-------------
</TABLE>
12
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
MOTOR VEHICLES AND PARTS--2.40%
197,800 Borg Warner Automotive
Inc. ....................... $ 8,010,900
288,500 Chrysler Corp. ............... 12,874,312
84,700 Ford Motor Co. ............... 3,726,800
125,000 Lear Corp.*................... 5,070,313
-------------
29,682,325
-------------
OIL REFINING--1.19%
78,800 British Petroleum, Plc ADR
(1)......................... 5,762,250
200,000 Coastal Corp. ................ 5,200,000
98,000 K N Energy Inc. .............. 3,834,250
-------------
14,796,500
-------------
OIL SERVICES--1.27%
150,000 Ensco International Inc. ..... 1,575,000
63,000 EVI Weatherford Inc.*......... 960,750
250,000 Halliburton Co. .............. 6,640,625
150,000 Schlumberger Ltd. ............ 6,571,875
-------------
15,748,250
-------------
OTHER INSURANCE--5.12%
279,600 ACE Ltd. ..................... 8,108,400
401,942 Allstate Corp. ............... 15,072,825
127,500 Ambac Inc. ................... 6,016,406
128,250 American International Group
Inc. ....................... 9,915,328
55,500 CIGNA Corp. .................. 3,229,406
111,000 Everest Reinsurance Holdings
Inc. ....................... 3,885,000
73,900 Exel Ltd. Hamilton............ 4,937,444
73,900 Fremont General Corp. ........ 3,159,225
45,000 Loews Corp. .................. 3,796,875
165,450 Old Republic International
Corp. ...................... 3,691,603
42,400 Orion Capital Corp. .......... 1,579,400
-------------
63,391,912
-------------
PUBLISHING--0.77%
111,000 Meredith Corp. ............... 3,725,438
200,000 New York Times Co., Class A... 5,800,000
-------------
9,525,438
-------------
RAILROADS--0.23%
93,500 Trinity Industries Inc. ...... 2,828,375
-------------
RESTAURANTS--0.73%
300,000 Outback Steakhouse Inc.*...... 9,018,750
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
SECURITIES & ASSET MANAGEMENT--1.33%
150,000 Morgan Stanley Dean Witter &
Co. ........................ $ 8,709,375
175,600 Travelers Group Inc. ......... 7,792,250
-------------
16,501,625
-------------
SEMICONDUCTOR--1.24%
350,000 Applied Materials, Inc.*...... 8,596,875
170,000 Uniphase Corp.*............... 6,789,375
-------------
15,386,250
-------------
SPECIALTY RETAIL--4.63%
199,500 99 Cents Only Stores*......... 7,007,438
224,700 Claire's Stores Inc. ......... 3,370,500
274,168 Dollar General Corp. ......... 7,368,265
225,000 Home Depot Inc. .............. 8,662,500
360,400 Office Depot Inc.*............ 9,190,200
234,000 Office Max Inc.*.............. 2,457,000
343,700 Staples, Inc.*................ 9,322,862
247,000 Williams Sonoma Inc.*......... 6,298,500
160,000 Zale Corp.*................... 3,680,000
-------------
57,357,265
-------------
THRIFT--1.89%
116,795 Ahmanson, H F & Co. .......... 6,226,633
300,500 Dime Bancorp Inc. ............ 5,709,500
250,000 Greenpoint Financial Corp. ... 6,296,875
127,500 Texas Industries Capital Trust
I........................... 5,163,750
-------------
23,396,758
-------------
TOBACCO--1.26%
375,000 Philip Morris Companies
Inc. ....................... 15,585,938
-------------
Total Common Stocks (cost--$1,043,907,192)..... 1,094,336,849
-------------
PREFERRED STOCKS--1.00%
INDUSTRIAL PARTS--0.78%
158,000 Federal Mogul Financing
Trust#...................... 9,736,750
-------------
OIL REFINING--0.22%
60,000 Tosco Financing Trust#........ 2,692,500
-------------
Total Preferred Stocks (cost--$10,900,000)..... 12,429,250
-------------
</TABLE>
13
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------- ------------- ------------- -------------
<C> <S> <C> <C> <C>
CONVERTIBLE BONDS--2.18%
ELECTRIC UTILITIES--0.26%
$ 3,900 AES Corp. .................... 08/15/05 4.500% $ 3,159,000
-------------
FINANCIAL SERVICES--0.96%
980 Bell Atlantic Financial
Services Inc................ 04/01/03 5.750 984,900
11,100 Bell Atlantic Financial
Services Inc.#.............. 09/15/05 4.250 10,878,000
-------------
11,862,900
-------------
MEDICAL PROVIDERS--0.40%
4,700 Omnicare, Inc.#............... 12/01/07 5.000 4,970,250
-------------
SPECIALTY RETAIL--0.56%
4,000 Home Depot Inc. .............. 10/01/01 3.250 6,955,000
-------------
Total Convertible Bonds (cost--$24,680,000).... 26,947,150
-------------
REPURCHASE AGREEMENT--7.63%
47,000 Repurchase agreement dated
08/31/98 with Salomon
Brothers, Inc.,
collateralized by
$44,692,000 U.S. Treasury
Notes, 6.625% due 04/30/02
(value--$47,960,773);
proceeds: $47,007,442....... 09/01/98 5.70 47,000,000
47,529 Repurchase agreement dated
08/31/98 with Deutsche Bank,
collateralized by
$47,835,000 U.S. Treasury
Notes, 5.875% due 02/15/00
(value--$48,479,337);
proceeds: $47,536,552....... 09/01/98 5.72 47,529,000
--------------
Total Repurchase Agreements (cost--$94,529,000)................................. 94,529,000
--------------
Total Investments (cost--$1,174,016,192)--99.15%................................ 1,228,242,249
10,489,449
Other assets in excess of liabilities--0.85%....................................
--------------
Net Assets--100.00%............................................................. $1,238,731,698
--------------
--------------
</TABLE>
- -------------
* Non-Income producing security
(1) Security, or portion thereof, was on loan at August 31, 1998.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
ADR American Depositary Receipt
See accompanying notes to financial statements
14
<PAGE>
PAINEWEBBER GROWTH FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
COMMON STOCKS--89.52%
AIRLINES--1.67%
36,000 AMR Corp.*.................... $ 1,962,000
87,000 Alaska Air Group Inc.*........ 3,387,563
-------------
5,349,563
-------------
APPAREL, RETAIL--0.53%
76,000 TJX Companies, Inc. .......... 1,695,750
-------------
APPAREL, TEXTILES--0.43%
50,000 Warnaco Group Inc., Class A... 1,359,375
-------------
BANKS--1.74%
20,000 The Chase Manhattan Corp. .... 1,060,000
35,000 Banc One Corp. ............... 1,343,125
22,500 Fifth Third Bancorp........... 1,198,125
37,500 Mellon Bank Corp. ............ 1,950,000
-------------
5,551,250
-------------
CHEMICALS--1.13%
60,000 Aptargroup Inc. .............. 1,695,000
20,000 Carlisle Companies Inc. ...... 765,000
35,000 Valspar Corp. ................ 1,163,750
-------------
3,623,750
-------------
COMPUTER HARDWARE--7.47%
90,000 Cisco Systems Inc.*........... 7,368,750
97,500 Compaq Computer Corp. ........ 2,717,813
84,000 Dell Computer Corp.*.......... 8,400,000
100,000 EMC Corp.*.................... 4,537,500
123,700 Maxtor Corp.*................. 842,706
-------------
23,866,769
-------------
COMPUTER SOFTWARE--6.19%
65,000 Autodesk, Inc. ............... 1,519,375
60,000 BMC Software Inc.*............ 2,542,500
100,000 Cadence Design Systems Inc.*
(1)......................... 2,112,500
40,000 Compuware Corp.*.............. 1,817,500
30,000 Microsoft Corp.*.............. 2,876,250
60,450 Network Associates Inc.*
(1)......................... 1,949,512
120,000 Peoplesoft Inc.* (1).......... 3,375,000
109,000 Sterling Commerce Inc.*....... 3,597,000
-------------
19,789,637
-------------
CONSUMER DURABLES--0.70%
30,000 HON Industries Inc. .......... 645,000
70,000 Masco Corp. .................. 1,610,000
-------------
2,255,000
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
DEFENSE/AEROSPACE--0.53%
45,000 Precision Castparts Corp. .... $ 1,695,938
-------------
DIVERSIFIED RETAIL--2.71%
50,000 Dayton Hudson Corp. .......... 1,800,000
30,000 Federated Department Stores,
Inc.*....................... 1,306,875
80,000 Proffitts Inc.*............... 2,040,000
60,000 Wal Mart Stores, Inc. ........ 3,525,000
-------------
8,671,875
-------------
DRUGS & MEDICINE--5.39%
45,000 Hoechst AG, ADR............... 1,780,312
70,000 Pharmacyclics Inc.*........... 1,028,125
40,000 Schering-Plough Corp. ........ 3,440,000
30,000 Warner Lambert Co. ........... 1,957,500
200,000 Watson Pharmaceuticals,
Inc.*....................... 9,012,500
-------------
17,218,437
-------------
ELECTRICAL EQUIPMENT--1.66%
45,000 Global Crossing Ltd.*......... 759,375
30,000 Lucent Technologies Inc. ..... 2,128,125
50,000 SCI Systems Inc.*............. 1,146,875
30,000 Tellabs, Inc.* (1)............ 1,267,500
-------------
5,301,875
-------------
ENTERTAINMENT--5.99%
100,000 Carnival Corp. ............... 2,887,500
200,000 Cinar Films Inc.*............. 3,200,000
83,334 N2K Inc.* (2)................. 656,664
90,000 Time Warner Inc. ............. 7,233,750
100,000 USA Networks, Inc.*........... 1,962,500
65,000 Viacom, Inc., Class B*........ 3,225,625
-------------
19,166,039
-------------
ENVIRONMENTAL SERVICES--1.05%
98,100 Republic Services Inc.*....... 1,581,862
40,000 Waste Management Inc.*........ 1,765,000
-------------
3,346,862
-------------
FINANCIAL SERVICES--4.97%
40,000 American Express Co. (1)...... 3,120,000
30,000 Associates First Capital
Corp. ...................... 1,786,875
61,000 CIT Group, Inc. .............. 1,563,125
80,000 Federal Home Loan Mortgage
Corp. ...................... 3,160,000
50,000 Federal National Mortgage
Association................. 2,840,625
70,000 MBNA Corp. ................... 1,645,000
48,800 SLM Holding Corp. ............ 1,750,700
-------------
15,866,325
-------------
</TABLE>
15
<PAGE>
PAINEWEBBER GROWTH FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONTINUED)
<TABLE>
<C> <S> <C>
FOOD RETAIL--2.32%
25,000 Kroger Co.*................... $ 1,125,000
160,000 Safeway Inc.*................. 6,300,000
-------------
7,425,000
-------------
FREIGHT, AIR, SEA & LAND--0.46%
75,000 Airborne Freight Corp. ....... 1,467,188
-------------
HOTELS--0.34%
125,000 Extended Stay America Inc.*... 1,093,750
-------------
INDUSTRIAL PARTS--2.07%
60,000 Illinois Tool Works, Inc. .... 2,906,250
90,000 Mettler Toledo International
Inc.*....................... 1,518,750
30,000 United Technologies Corp. .... 2,176,875
-------------
6,601,875
-------------
INDUSTRIAL SERVICES/SUPPLIES--3.84%
200,000 Career Blazers Inc.* (2)...... 1,300,000
100,500 Cendant Corp.*................ 1,162,031
45,000 Ingersoll Rand Co. ........... 1,800,000
150,000 Republic Industries Inc.*..... 2,653,125
96,266 Tyco International Ltd. (1)... 5,342,763
-------------
12,257,919
-------------
INFORMATION & COMPUTER SERVICES--5.19%
25,000 America Online Inc.*.......... 2,050,000
180,000 HBO & Co. .................... 3,825,000
130,000 Keane Inc.*................... 5,460,000
100,000 Paychex, Inc. ................ 3,800,000
48,800 Valassis Communications
Inc.*....................... 1,454,850
-------------
16,589,850
-------------
LIFE INSURANCE--1.37%
30,000 American General Corp. ....... 1,927,500
44,000 Conseco Inc. ................. 1,215,500
20,000 SunAmerica Inc. .............. 1,238,750
-------------
4,381,750
-------------
LONG DISTANCE & PHONE COMPANIES--3.73%
108,445 AT&T Corp. ................... 5,557,806
155,000 WorldCom Inc.* (1)............ 6,345,313
-------------
11,903,119
-------------
MEDIA--10.30%
112,500 Capstar Broadcasting Corp.*... 1,905,469
27,000 Chancellor Media Corp.*....... 963,563
152,000 Clear Channel
Communications*............. 6,840,000
80,000 Comcast Corp., Class A........ 3,000,000
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
MEDIA (CONCLUDED)
<TABLE>
<C> <S> <C>
120,000 Liberty Media Group*.......... $ 3,915,000
125,000 News Corp. Ltd., ADR.......... 2,625,000
40,000 Omnicom Group Inc. ........... 1,905,000
281,250 Outdoor Systems Inc.* (1)..... 6,539,062
122,715 Tele-Communications, Inc.
Class A*.................... 4,049,595
38,000 Young & Rubicam Inc.*......... 1,161,375
-------------
32,904,064
-------------
MEDICAL PRODUCTS--0.95%
50,000 Guidant Corp. ................ 3,050,000
-------------
MEDICAL PROVIDERS--0.85%
80,000 Service Corp. International
(1)......................... 2,710,000
-------------
MOTOR VEHICLES--0.32%
25,000 Lear Corp.*................... 1,014,063
-------------
OTHER INSURANCE--2.18%
60,000 Allstate Corp. ............... 2,250,000
38,250 American International Group
Inc. ....................... 2,957,203
50,000 Everest Reinsurance Holdings
Inc. ....................... 1,750,000
-------------
6,957,203
-------------
PUBLISHING--0.88%
30,000 Gannett Inc. ................. 1,770,000
75,000 Getty Images Inc.* (1)........ 1,040,625
-------------
2,810,625
-------------
SECURITIES & ASSET MANAGEMENT--2.31%
50,000 Franklin Resources Inc. (1)... 1,612,500
25,000 Morgan Stanley Dean Witter &
Co. ........................ 1,451,562
97,500 Travelers Group Inc. ......... 4,320,469
-------------
7,384,531
-------------
SEMICONDUCTOR--0.87%
80,000 Applied Materials, Inc.*...... 1,965,000
20,000 Uniphase Corp.*............... 800,000
-------------
2,765,000
-------------
SPECIALTY RETAIL--8.38%
50,000 99 Cents Only Stores*......... 1,756,250
55,000 Barnes & Noble Inc.*.......... 1,478,125
60,000 Borders Group Inc.*........... 1,121,250
30,000 CDW Computer Centers Inc.*.... 1,155,000
80,000 Costco Companies, Inc.*....... 3,765,000
125,000 General Nutrition Companies,
Inc.* (1)................... 1,664,062
150,000 Home Depot Inc. (1)........... 5,775,000
50,000 Lowe's Companies Inc. ........ 1,753,125
</TABLE>
16
<PAGE>
PAINEWEBBER GROWTH FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS (CONCLUDED)
SPECIALTY RETAIL (CONCLUDED)
<TABLE>
<C> <S> <C>
35,000 Office Depot Inc.* (1)........ $ 892,500
195,000 Staples, Inc.* (1)............ 5,289,375
55,000 Walgreen Co. ................. 2,117,500
-------------
26,767,187
-------------
THRIFTS--1.00%
75,000 Dime Bancorp Inc. ............ 1,425,000
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
</TABLE>
THRIFTS (CONCLUDED)
<TABLE>
<C> <S> <C>
70,000 Greenpoint Financial Corp. ... $ 1,763,125
-------------
3,188,125
-------------
Total Common Stocks (cost--$213,099,005)....... 286,029,694
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY INTEREST
AMOUNT (000) DATES RATES VALUE
- ------------- ------------- ------------- -------------
REPURCHASE AGREEMENTS--9.84%
<C> <S> <C> <C> <C>
$ 15,000 Repurchase Agreement dated
08/31/98 with Deutsche Bank,
collateralized by
$15,070,000 U.S. Treasury
Notes, 5.625% due 11/30/98
(value--$15,299,968)
proceeds: $15,002,383....... 09/01/98 5.720% 15,000,000
16,426 Repurchase Agreement dated
08/31/98 with Dresdner Bank
AG, collateralized by
$16,436,000 U.S. Treasury
Notes, 4.750% due 09/30/98
(value--$16,754,530)
proceeds: $16,428,610....... 09/01/98 5.720 16,426,000
-------------
Total Repurchase Agreements
(cost--$31,426,000).......................... 31,426,000
-------------
Total Investments
(cost--$244,525,005)--99.36%................. 317,455,694
Other assets in excess of liabilities--0.64%... 2,044,335
-------------
Net Assets--100.00%............................ $ 319,500,029
-------------
-------------
</TABLE>
- -----------------
* Non-income producing security
ADR American Depositary Receipts
(1) Security, or portion thereof, was on loan at August 31, 1998.
(2) Illiquid securities representing 0.61% of net assets.
See accompanying notes to financial statements
17
<PAGE>
PAINEWEBBER
STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 1998
<TABLE>
<CAPTION>
GROWTH
& INCOME GROWTH
FUND FUND
--------------- ---------------
<S> <C> <C>
ASSETS
Investments in securities, at value
(cost--$1,174,016,192 and
$244,525,005, respectively)........... $ 1,228,242,249 $ 317,455,694
Investments of Cash Collateral Received
for Securities Loaned, at value
(cost--$40,850,900 for Growth Fund)... -- 40,850,900
Receivable for investments sold......... 9,929,303 3,028,204
Receivable for shares of beneficial
interest sold......................... 2,711,233 108,072
Dividends and interest receivable....... 1,668,252 121,703
Deferred organizational expenses........ -- 5,854
Other assets............................ 78,558 122,471
--------------- ---------------
Total assets............................ 1,242,629,595 361,692,898
--------------- ---------------
LIABILITIES
Payable for investments purchased....... 534,281 241,911
Collateral for securities loaned........ -- 40,850,900
Payable to affiliates................... 1,482,253 380,950
Payable for shares of beneficial
interest repurchased.................. 1,589,687 409,494
Accrued expenses and other
liabilities........................... 291,676 309,614
--------------- ---------------
Total liabilities....................... 3,897,897 42,192,869
--------------- ---------------
NET ASSETS
Beneficial interest--$0.001 par value
(unlimited amount authorized)......... 1,086,043,023 211,322,745
Undistributed net investment income..... 442,229 --
Accumulated net realized gains from
investment transactions and options... 98,020,389 35,246,595
Net unrealized appreciation of
investments........................... 54,226,057 72,930,689
--------------- ---------------
Net assets.............................. $ 1,238,731,698 $ 319,500,029
--------------- ---------------
--------------- ---------------
CLASS A:
Net assets.............................. $ 670,606,010 $ 202,253,046
--------------- ---------------
Shares outstanding...................... 24,909,061 10,071,283
--------------- ---------------
Net asset value and redemption value per
share................................. $26.92 $20.08
--------------- ---------------
--------------- ---------------
Maximum offering price per share (net
asset value plus sales charge of 4.50%
of offering price).................... $28.19 $21.03
--------------- ---------------
--------------- ---------------
CLASS B:
Net assets.............................. $ 353,149,612 $ 74,093,515
--------------- ---------------
Shares outstanding...................... 13,190,602 4,017,107
--------------- ---------------
Net asset value and offering price per
share................................. $26.77 $18.44
--------------- ---------------
--------------- ---------------
CLASS C:
Net assets.............................. $ 149,458,040 $ 21,713,840
--------------- ---------------
Shares outstanding...................... 5,573,361 1,164,470
--------------- ---------------
Net asset value and offering price per
share................................. $26.82 $18.65
--------------- ---------------
--------------- ---------------
CLASS Y:
Net assets.............................. $ 65,518,036 $ 21,439,628
--------------- ---------------
Shares outstanding...................... 2,433,907 1,037,151
--------------- ---------------
Net asset value, offering price and
redemption value per share............ $26.92 $20.67
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements
18
<PAGE>
PAINEWEBBER
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
GROWTH
& INCOME FUND GROWTH FUND
------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding
tax).................................. $ 14,661,124 $ 1,314,365
Interest................................ 7,832,309 1,733,781
------------- -------------
22,493,433 3,048,146
------------- -------------
EXPENSES:
Investment advisory and
administration........................ 8,823,952 2,858,153
Service fees -- Class A................. 1,500,561 527,772
Service and distribution fees -- Class
B..................................... 4,063,846 1,023,937
Service and distribution fees -- Class
C..................................... 1,378,915 261,217
Transfer agency and service fees........ 705,143 302,871
Custody and accounting.................. 756,339 234,320
Reports and notices to shareholders..... 212,480 72,358
Legal and audit......................... 82,018 85,526
Federal and state registration.......... 99,697 72,639
Amortization of organizational
expenses.............................. -- 34,482
Trustees' fees.......................... 13,500 13,500
Other expenses.......................... 11,649 11,145
------------- -------------
17,648,100 5,497,920
------------- -------------
Net investment income (loss)............ 4,845,333 (2,449,774)
------------- -------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENT TRANSACTIONS:
Net realized gains from:
Investment transactions............. 109,059,945 55,757,294
Options written..................... 103,796 --
Net change in unrealized
appreciation/depreciation of:
Investments......................... (198,547,739) (37,036,941)
------------- -------------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) FROM INVESTMENT
TRANSACTIONS.......................... (89,383,998) 18,720,353
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $(84,538,665) $ 16,270,579
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
19
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED AUGUST 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 4,845,333 $ 3,826,898
Net realized gains from investment and
options transactions.................. 109,163,741 91,716,177
Net change in unrealized
appreciation/depreciation of
investments and options............... (198,547,739) 169,641,210
------------- -------------
Net increase (decrease) in net assets
resulting from operations............. (84,538,665) 265,184,285
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income -- Class A........ (4,317,455) (3,008,034)
Net investment income -- Class B........ -- (590,718)
Net investment income -- Class C........ (62,373) (144,038)
Net investment income -- Class Y........ (565,972) (369,653)
Net realized gain from investment
transactions -- Class A............... (42,191,521) (34,230,420)
Net realized gain from investment
transactions -- Class B............... (32,083,048) (34,198,889)
Net realized gain from investment
transactions -- Class C............... (8,161,061) (5,668,031)
Net realized gain from investment
transactions -- Class Y............... (4,314,878) (3,062,641)
------------- -------------
Total dividends and distributions to
shareholders.......................... (91,696,308) (81,272,424)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 784,608,161 213,997,367
Cost of shares repurchased.............. (405,755,914) (143,307,215)
Proceeds from dividends reinvested...... 85,907,754 75,746,185
------------- -------------
Net increase in net assets from
beneficial interest transactions...... 464,760,001 146,436,337
------------- -------------
Net increase in net assets.............. 288,525,028 330,348,198
NET ASSETS:
Beginning of year....................... 950,206,670 619,858,472
------------- -------------
End of year (including undistributed net
investment income of $442,229 and
$567,948, respectively)............... $1,238,731,698 $ 950,206,670
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED AUGUST 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss..................... $ (2,449,774) $ (2,480,387)
Net realized gains from investment
transactions.......................... 55,757,294 77,089,105
Net change in unrealized
appreciation/depreciation of
investments........................... (37,036,941) (18,680,184)
------------- -------------
Net increase in net assets resulting
from operations....................... 16,270,579 55,928,534
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain from investment
transactions -- Class A............... (52,257,695) (17,185,494)
Net realized gain from investment
transactions -- Class B............... (28,007,650) (12,089,644)
Net realized gain from investment
transactions -- Class C............... (6,619,090) (2,625,574)
Net realized gain from investment
transactions -- Class Y............... (4,929,080) (1,819,441)
------------- -------------
Total distributions to shareholders..... (91,813,515) (33,720,153)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from sale of shares........ 49,298,324 41,330,087
Cost of shares repurchased.............. (102,850,579) (128,802,696)
Proceeds from dividends reinvested...... 86,299,182 31,795,483
------------- -------------
Net increase (decrease) in net assets
from beneficial interest
transactions.......................... 32,746,927 (55,677,126)
------------- -------------
Net decrease in net assets.............. (42,796,009) (33,468,745)
NET ASSETS:
Beginning of year....................... 362,296,038 395,764,783
------------- -------------
End of year............................. $ 319,500,029 $ 362,296,038
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Growth & Income Fund ("Growth & Income Fund") and PaineWebber
Growth Fund ("Growth Fund") (collectively, the "Funds") are diversified series
of PaineWebber America Fund and PaineWebber Olympus Fund (the "Trusts"),
respectively. The two Trusts were organized under separate Declarations of Trust
and are registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, as diversified open-end investment
companies.
Currently, each Fund offers Class A, Class B, Class C and Class Y shares. Each
class represents interests in the same assets of the applicable Fund, and the
classes are identical except for differences in their sales charge structures,
ongoing service and distribution charges and certain transfer agency expenses.
In addition, Class B shares and all corresponding reinvested dividend shares
automatically convert to Class A shares approximately six years after issuance.
All classes of shares have equal voting privileges except that each class has
exclusive voting rights with respect to its service and/or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
VALUATION OF INVESTMENTS--Securities which are listed on stock exchanges are
valued at the last sale price on the day the securities are being valued or,
lacking any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser, administrator and distributor of the
Funds. Securities traded in the over-the-counter ("OTC") market and listed on
the Nasdaq Stock Market, Inc. ("Nasdaq") are valued at the last available sale
price, or last bid price available if no sale occurs, on Nasdaq prior to the
time of valuation. Where market quotations are readily available, debt
securities are valued thereon, provided such quotations adequately reflect the
fair value of the securities in the judgment of Mitchell Hutchins. When market
quotations are not readily available, securities are valued based upon
appraisals derived from information concerning those securities or similar
securities received from recognized dealers in those securities. All other
securities are valued at fair value as determined in good faith by, or under the
direction of, each Trust's board of trustees. The amortized cost method of
valuation is used to value short-term debt securities with sixty days or less
remaining to maturity, unless each Trust's board of trustees determines that
this does not represent fair value.
REPURCHASE AGREEMENTS--Each Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, each Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. Each Fund occasionally
participates in joint repurchase agreement transactions with other funds managed
by Mitchell Hutchins.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to
interest income and identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class specific expenses are charged directly to the applicable class
of shares.
OPTION WRITING--When a Fund writes a call or a put option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. If an option which the Fund has written either expires on
its stipulated expiration date or the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a call option which the
Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from the
sale are increased by the premium originally received. If a put option which a
Fund has written is exercised, the amount of the premium originally received
reduces the cost of the security which the Fund purchases upon exercise of the
option.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
WRITTEN OPTION ACTIVITY
Transactions in options written for the year ended August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
GROWTH & INCOME FUND
--------------------------------------------
NUMBER OF REALIZED
OPTIONS PREMIUMS COST GAINS
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding at August 31, 1997.............................................. -- -- -- --
Options written..................................................................... 1,870 $ 719,581 -- --
Options terminated in closing purchase transactions................................. (850) (435,721) $ 331,925 $ 103,796
Options expired..................................................................... -- -- -- --
Options exercised................................................................... (1,020) (283,860) -- --
----- --------- --------- ---------
Options outstanding at August 31, 1998.............................................. 0 $ 0 $ 331,925 $ 103,796
----- --------- --------- ---------
----- --------- --------- ---------
</TABLE>
There were no options written for the Growth Fund during the year ended August
31, 1998.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESTMENT ADVISER AND ADMINISTRATOR
Each Trust's board of trustees has approved an Investment Advisory and
Administration Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Funds. In accordance with the Advisory Contracts, Growth & Income Fund and
Growth Fund pay Mitchell Hutchins an investment advisory and administration fee,
which is accrued daily and paid monthly, at the annual rate of 0.70% and 0.75%,
respectively, of each Funds' average daily net assets. At August 31, 1998,
Growth & Income Fund and Growth Fund owed Mitchell Hutchins $839,391 and
$238,250, respectively, in investment advisory and administration fees.
For the year ended August 31, 1998, Growth & Income Fund and Growth Fund paid
$51,462 and $43,380, respectively, in brokerage commissions to PaineWebber for
transactions executed on behalf of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of service and/or distribution pertaining to Class A, Class B and Class C
shares, the Funds pay Mitchell Hutchins monthly service fees at the annual rate
of up to 0.25% of the average daily net assets of Class A, Class B and Class C
shares and monthly distribution fees at the annual rate of 0.75% of the average
daily net assets on Class B and Class C shares. At August 31, 1998, Growth &
Income Fund and Growth Fund owed Mitchell Hutchins $634,575 and $141,584,
respectively, in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charges
paid by shareholders upon certain redemptions of Class A, Class B and Class C
shares, Mitchell Hutchins has informed each Fund that for the year ended August
31, 1998, it earned $3,836,061 and $209,702 in sales charges for the Growth &
Income Fund and Growth Fund, respectively.
SECURITY LENDING
Each Fund may lend securities up to 33 1/3% of its total assets to qualified
institutions. The loans are secured at all times by cash or U.S. government
securities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted
accordingly. Each Fund will regain record ownership of loaned securities to
exercise certain beneficial rights, however, each Fund may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower fail financially. Each Fund receives compensation, which is
included in interest income, for lending its securities from interest earned on
the cash or U.S. government securities held as collateral, net of fee rebates
paid to the borrower plus reasonable administrative and custody fees. Each
Fund's lending agent is PaineWebber, who received $57,530 and $82,147 for Growth
& Income Fund and Growth Fund, respectively, in compensation from the Funds in
that capacity for the year ended August 31, 1998. At August 31, 1998, Growth &
Income Fund and Growth Fund owed PaineWebber $8,287 and $1,116, respectively, in
compensation.
At August 31, 1998, the Growth & Income Fund held U.S. Government Securities
having an aggregate value of $21,292,665 as collateral for portfolio securities
loaned having a market value of $19,847,900.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
At August 31, 1998, the Growth Fund held cash and/or cash equivalents
(invested as listed below) having an aggregate value of $40,850,900 as
collateral for portfolio securities loaned having a market value of $35,568,919.
<TABLE>
<CAPTION>
NUMBER OF
SHARES/
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- -----------
<C> <S> <C>
GROWTH FUND
502,187 TempFund Portfolio..................................................................................... $ 502,187
8,348,713 Liquid Assets Portfolio................................................................................ 8,348,713
$15,000,000 Repurchase Agreement with Dresdner Bank, AG dated 08/31/98, 5.730% due 09/01/98 (collateralized by
$12,831,000 U.S. Treasury Bonds, 6.875% due 08/15/25, value $15,300,968)............................. 15,000,000
$17,000,000 Repurchase Agreement with Dresdner Bank, AG dated 08/31/98, 5.750% due 09/01/98 (collateralized by
$10,558,000 U.S. Treasury Bonds, 11.250% due 02/15/15, value $17,341,515)............................ 17,000,000
-----------
Total Investments of Cash Collateral Received for Securities Loaned (cost--$40,850,900)............................. $40,850,900
-----------
-----------
</TABLE>
BANK LINE OF CREDIT
Each Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for temporary
financing until the settlement of sale or purchase of portfolio securities, the
repurchase or redemption of shares of each Fund at the request of the
shareholders and other temporary or emergency purposes. In connection therewith,
each Fund has agreed to pay a commitment fee, pro rata, based on the relative
asset size of the Funds in the Facility. Interest is charged to each Fund at
rates based on prevailing market rates in effect at the time of borrowings. For
the year ended August 31, 1998, the Funds did not borrow under the Facility.
TRANSFER AGENCY SERVICE FEES
PaineWebber provides transfer agency related services to the Funds pursuant to
a delegation of authority from PFPC, Inc., the Funds transfer agent, and is
compensated for these services by PFPC, Inc., not the Funds. For the year ended
August 31, 1998, PaineWebber received approximately 57% and 56% of the total
transfer agency service fees collected by PFPC, Inc. from Growth & Income Fund
and Growth Fund, respectively.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1998 was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1998, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
GROWTH &
INCOME FUND GROWTH FUND
------------- ------------
<S> <C> <C>
Gross appreciation (investments having an excess of value over cost)................... $ 187,584,456 $ 93,228,085
Gross depreciation (investments having an excess of cost over value)................... (133,358,399) (20,297,396)
------------- ------------
Net unrealized appreciation of investments............................................. $ 54,226,057 $ 72,930,689
------------- ------------
------------- ------------
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the year ended August 31, 1998, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
GROWTH &
INCOME FUND GROWTH FUND
-------------- -------------
<S> <C> <C>
Purchases............................................................................ $1,033,176,174 $ 182,363,675
Sales................................................................................ $ 688,101,919 $ 244,563,152
</TABLE>
FEDERAL TAX STATUS
Each Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year,
substantially all of its net investment income, capital gains and certain other
amounts, if any, each Fund intends not to be subject to any federal excise tax.
To reflect reclassifications for the Growth and Income Fund arising from
permanent "book/tax" differences for the year ended August 31, 1998,
undistributed net investment income was decreased by $25,252, accumulated net
realized gains from investment transactions were increased by $25,175, and
beneficial interest was increased by $77.
To reflect reclassifications for the Growth Fund arising from permanent
"book/tax" differences for the year ended August 31, 1998, undistributed net
investment income was increased by $2,449,774, accumulated net realized gains
from investment transactions were decreased by $2,198,030 and beneficial
interest was reduced by $251,744.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------------------------ ------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH & INCOME FUND
YEAR ENDED AUGUST 31,
1998:
Shares sold............. 12,026,995 $384,579,894 7,040,942 $219,400,226 3,720,225 $116,019,841 2,051,111 $ 64,608,200
Shares repurchased...... (8,401,975) (271,585,856) (1,741,560) (55,665,850) (1,191,640) (37,412,993) (1,306,458) (41,091,215)
Shares converted from
Class B to Class A.... 5,402,974 170,099,068 (5,473,938) (170,099,068) -- -- -- --
Dividends reinvested.... 1,444,371 43,459,036 991,533 29,715,205 262,925 7,880,006 161,288 4,853,507
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Net increase............ 10,472,365 $326,552,142 816,977 $ 23,350,513 2,791,510 $ 86,486,854 905,941 $ 28,370,492
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
YEAR ENDED AUGUST 31,
1997:
Shares sold............. 2,307,087 $ 63,242,666 2,807,435 $ 76,060,602 1,388,741 $ 37,797,944 1,382,504 $ 36,896,155
Shares repurchased...... (1,745,153) (47,397,276) (2,056,896) (54,631,207) (603,592) (16,266,546) (935,476) (25,012,186)
Shares converted from
Class B to Class A.... 1,132,783 32,163,441 (1,136,920) (32,163,441) -- -- -- --
Dividends reinvested.... 1,407,846 34,708,280 1,311,787 32,133,297 223,078 5,482,050 138,659 3,422,558
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Net increase............ 3,102,563 $ 82,717,111 925,406 $ 21,399,251 1,008,227 $ 27,013,448 585,687 $ 15,306,527
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
GROWTH FUND
YEAR ENDED AUGUST 31,
1998:
Shares sold............. 250,025 $ 6,168,232 293,191 $ 6,570,230 932,368 $ 22,361,890 564,489 $ 14,197,972
Shares repurchased...... (1,634,676) (40,028,657) (1,037,642) (23,385,942) (1,095,911) (25,896,378) (531,157) (13,539,602)
Shares converted from
Class B to Class A.... 1,252,439 30,472,358 (1,350,669) (30,472,358) -- -- -- --
Dividends reinvested.... 2,428,222 49,098,643 1,398,245 26,119,234 325,859 6,152,224 237,204 4,929,081
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)............ 2,296,010 $ 45,710,576 (696,875) $(21,168,836) 162,316 $ 2,617,736 270,536 $ 5,587,451
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
YEAR ENDED AUGUST 31,
1997:
Shares sold............. 284,051 $ 7,129,522 230,498 $ 5,496,399 729,264 $ 17,622,338 440,829 $ 11,081,828
Shares repurchased...... (2,091,384) (51,703,276) (1,484,421) (34,935,483) (1,110,236) (26,634,743) (614,496) (15,529,194)
Shares converted from
Class B to Class A.... 535,032 13,178,357 (563,869) (13,178,357) -- -- -- --
Dividends reinvested.... 679,736 16,198,119 499,211 11,302,141 108,492 2,475,783 74,998 1,819,440
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Net decrease............ (592,565) $(15,197,278) (1,318,581) $(31,315,300) (272,480) $ (6,536,622) (98,669) $ (2,627,926)
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
</TABLE>
27
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $ 30.60 $ 24.35 $ 22.52 $ 20.43 $ 20.86
---------- -------- -------- -------- --------
Net investment income......................... 0.19 0.23 0.22 0.24 0.28
Net realized and unrealized gains (losses)
from investments and options................ (0.99) 9.29 3.46 3.18 (0.41)
---------- -------- -------- -------- --------
Total increase (decrease) from investment
operations.................................. (0.80) 9.52 3.68 3.42 (0.13)
---------- -------- -------- -------- --------
Dividends from net investment income.......... (0.21) (0.25) (0.34) (0.12) (0.27)
Distributions from net realized gain from
investment transactions..................... (2.67) (3.02) (1.51) (1.21) (0.03)
---------- -------- -------- -------- --------
Total dividends and distributions to
shareholders................................ (2.88) (3.27) (1.85) (1.33) (0.30)
---------- -------- -------- -------- --------
Net asset value, end of year.................. $ 26.92 $ 30.60 $ 24.35 $ 22.52 $ 20.43
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Total investment return (1)................... (3.51)% 42.42% 17.40% 18.30% (0.58)%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Ratios/Supplemental data:
Net assets, end of year (000's)............... $ 670,606 $441,699 $276,016 $187,057 $222,432
Expenses to average net assets................ 1.07% 1.15% 1.20%(2) 1.19% 1.20%
Net investment income (loss) to average net
assets...................................... 0.71% 0.88% 0.98%(2) 1.07% 1.29%
Portfolio turnover rate....................... 62% 70% 112% 111% 94%
</TABLE>
________________________________________________________________________________
- -----------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each year reported. The figures do not
include sales charges; results for each class would be lower if sales
charges were included.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
28
<PAGE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $ 30.46 $ 24.26 $ 22.37 $ 20.37 $ 20.78
---------- -------- ------------ -------- --------
Net investment income......................... (0.02) 0.04 0.04 0.06 0.10
Net realized and unrealized gains (losses)
from investments and options................ (1.02) 9.23 3.45 3.18 (0.37)
---------- -------- ------------ -------- --------
Total increase (decrease) from investment
operations.................................. (1.04) 9.27 3.49 3.24 (0.27)
---------- -------- ------------ -------- --------
Dividends from net investment income.......... -- (0.05) (0.09) (0.03) (0.11)
Distributions from net realized gain from
investment transactions..................... (2.65) (3.02) (1.51) (1.21) (0.03)
---------- -------- ------------ -------- --------
Total dividends and distributions to
shareholders................................ (2.65) (3.07) (1.60) (1.24) (0.14)
---------- -------- ------------ -------- --------
Net asset value, end of year.................. $ 26.77 $ 30.46 $ 24.26 $ 22.37 $ 20.37
---------- -------- ------------ -------- --------
---------- -------- ------------ -------- --------
Total investment return (1)................... (4.28)% 41.33% 16.49% 17.38% (1.31)%
---------- -------- ------------ -------- --------
---------- -------- ------------ -------- --------
Ratios/Supplemental data:
Net assets, end of year (000's)............... $ 353,150 $376,840 $ 277,753 $247,543 $289,290
Expenses to average net assets................ 1.87% 1.93% 1.99%(2) 1.97% 1.97%
Net investment income (loss) to average net
assets...................................... (0.08)% 0.11% 0.17%(2) 0.29% 0.51%
Portfolio turnover rate....................... 62% 70% %112 111% 94%
<CAPTION>
CLASS C
-------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $ 30.53 $ 24.33 $ 22.43 $ 20.42 $ 20.83
------------- ------- ------- -------- -------
Net investment income......................... 0.01 0.05 0.05 0.06 0.11
Net realized and unrealized gains (losses)
from investments and options................ (1.03) 9.24 3.46 3.19 (0.38)
------------- ------- ------- -------- -------
Total increase (decrease) from investment
operations.................................. (1.02) 9.29 3.51 3.25 (0.27)
------------- ------- ------- -------- -------
Dividends from net investment income.......... (0.02) (0.07) (0.10) (0.03) (0.11)
Distributions from net realized gain from
investment transactions..................... (2.67) (3.02) (1.51) (1.21) (0.03)
------------- ------- ------- -------- -------
Total dividends and distributions to
shareholders................................ (2.69) (3.09) (1.61) (1.24) (0.14)
------------- ------- ------- -------- -------
Net asset value, end of year.................. $ 26.82 $ 30.53 $ 24.33 $ 22.43 $ 20.42
------------- ------- ------- -------- -------
------------- ------- ------- -------- -------
Total investment return (1)................... (4.23)% 41.30% 16.52% 17.37% (1.29)%
------------- ------- ------- -------- -------
------------- ------- ------- -------- -------
Ratios/Supplemental data:
Net assets, end of year (000's)............... $ 149,458 $84,922 $43,148 $ 30,468 $37,287
Expenses to average net assets................ 1.85% 1.92% 1.99%(2) 1.98% 1.94%
Net investment income (loss) to average net
assets...................................... (0.07)% 0.10% 0.18%(2) 0.28% 0.54%
Portfolio turnover rate....................... 62% 70% 112% 111% 94%
</TABLE>
________________________________________________________________________________
- -----------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each year reported. The figures do not
include sales charges; results for each class would be lower if sales
charges were included.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
29
<PAGE>
PAINEWEBBER GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $ 30.59 $ 24.35 $ 22.54 $ 20.42 $ 20.86
--------- -------- -------- -------- --------
Net investment income............................. 0.30 0.32 0.30 0.30 0.33
Net realized and unrealized gains (losses) from
investments and options.......................... (1.02) 9.26 3.45 3.18 (0.40)
--------- -------- -------- -------- --------
Total increase (decrease) from investment
operations....................................... (0.72) 9.58 3.75 3.48 (0.07)
--------- -------- -------- -------- --------
Dividends from net investment income.............. (0.28) (0.32) (0.43) (0.15) (0.34)
Distributions from net realized gain from
investment transactions.......................... (2.67) (3.02) (1.51) (1.21) (0.03)
--------- -------- -------- -------- --------
Total dividends and distributions to
shareholders..................................... (2.95) (3.34) (1.94) (1.36) (0.37)
--------- -------- -------- -------- --------
Net asset value, end of year...................... $ 26.92 $ 30.59 $ 24.35 $ 22.54 $ 20.42
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Total investment return (1)....................... (3.24)% 42.74% 17.77% 18.66% (0.31)%
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Ratios/Supplemental data:
Net assets, end of year (000's)................... $ 65,518 $ 46,745 $ 22,942 $ 14,680 $ 14,690
Expenses to average net assets.................... 0.80% 0.88% 0.92%(2) 0.89% 0.90%
Net investment income to average net assets....... 0.99% 1.14% 1.26%(2) 1.39% 1.60%
Portfolio turnover rate........................... 62% 70% 112% 111% 94%
</TABLE>
- -----------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net asset
value on the last day of each year reported.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
30
<PAGE>
(This Page Intentionally Left Blank.)
31
<PAGE>
PAINEWEBBER GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected data for a beneficial interest outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 25.94 $ 24.37 $ 22.27 $ 20.04 $ 20.60
---------- --------- --------- --------- ---------
Net investment income (loss)............ (0.09) (0.08)+ (0.12) 0.01 --
Net realized and unrealized gains from
investments........................... 1.01 3.76+ 4.06 2.25 0.51
---------- --------- --------- --------- ---------
Total increase from investment
operations............................ 0.92 3.68 3.94 2.26 0.51
---------- --------- --------- --------- ---------
Distributions from net realized gain
from investment transactions.......... (6.78) (2.11) (1.84) (0.03) (1.07)
---------- --------- --------- --------- ---------
Net asset value, end of year............ $ 20.08 $ 25.94 $ 24.37 $ 22.27 $ 20.04
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Total investment return (1)............. 3.37% 15.85% 18.43% 11.28% 2.33%
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Ratios/Supplemental data:
Net assets, end of year (000's)......... $202,253 $ 201,725 $ 203,882 $ 183,958 $ 141,342
Expenses to average net assets.......... 1.19% 1.27% 1.28% 1.28%(2) 1.21%
Net investment income (loss) to average
net assets............................ (0.39)% (0.32)% (0.49)% 0.19%(2) 0.06%
Portfolio turnover...................... 52% 86% 60% 36% 24%
</TABLE>
- -----------------
+ Calculated using the average shares outstanding for the year
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each year reported. The figures do not
include sales charges: results for each class would be lower if sales
charges were included.
(2) These ratios include non-recurring acquisition expenses of 0.06%.
32
<PAGE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 24.51 $ 23.30 $ 21.53 $ 19.53 $ 20.25
---------- -------- -------- ------- -------
Net investment income (loss)............ (0.30) (0.26)+ (0.39) (0.02) (0.06)
Net realized and unrealized gains from
investments........................... 1.01 3.58+ 4.00 2.05 0.41
---------- -------- -------- ------- -------
Total increase from investment
operations............................ 0.71 3.32 3.61 2.03 0.35
---------- -------- -------- ------- -------
Distributions from net realized gain
from investment transactions.......... (6.78) (2.11) (1.84) (0.03) (1.07)
---------- -------- -------- ------- -------
Net asset value, end of year............ $ 18.44 $ 24.51 $ 23.30 $ 21.53 $ 19.53
---------- -------- -------- ------- -------
---------- -------- -------- ------- -------
Total investment return (1)............. 2.55% 14.98% 17.48% 10.40% 1.55%
---------- -------- -------- ------- -------
---------- -------- -------- ------- -------
Ratios/Supplemental data:
Net assets, end of year (000's)......... $ 74,094 $115,529 $140,551 $152,357 $97,272
Expenses to average net assets.......... 1.99% 2.06% 2.06% 2.06%(2) 2.00%
Net investment income (loss) to average
net assets............................ (1.18)% (1.12)% (1.27)% (0.60)%(2) (0.66)%
Portfolio turnover...................... 52% 86% 60% 36% 24%
<CAPTION>
CLASS C
-----------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 24.71 $ 23.48 $ 21.68 $ 19.67 $ 20.38
---------- -------- -------- -------- --------
Net investment income (loss)............ (0.27) (0.27)+ (0.34) (0.10) (0.08)
Net realized and unrealized gains from
investments........................... 0.99 3.61+ 3.98 2.14 0.44
---------- -------- -------- -------- --------
Total increase from investment
operations............................ 0.72 3.34 3.64 2.04 0.36
---------- -------- -------- -------- --------
Distributions from net realized gain
from investment transactions.......... (6.78) (2.11) (1.84) (0.03) (1.07)
---------- -------- -------- -------- --------
Net asset value, end of year............ $ 18.65 $ 24.71 $ 23.48 $ 21.68 $ 19.67
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Total investment return (1)............. 2.59% 14.95% 17.50% 10.37% 1.59%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Ratios/Supplemental data:
Net assets, end of year (000's)......... $ 21,714 $ 24,760 $ 29,923 $ 30,608 $ 28,561
Expenses to average net assets.......... 1.99% 2.07% 2.07% 2.05%(2) 1.98%
Net investment income (loss) to average
net assets............................ (1.19)% (1.13)% (1.28)% (0.57)%(2) (0.65)%
Portfolio turnover...................... 52% 86% 60% 36% 24%
</TABLE>
- -----------------
+ Calculated using the average shares outstanding for the year
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each year reported. The figures do not
include sales charges: results for each class would be lower if sales
charges were included.
(2) These ratios include non-recurring acquisition expenses of 0.06%.
33
<PAGE>
PAINEWEBBER GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected data for a beneficial interest outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 26.46 $ 24.74 $ 22.53 $ 20.22 $ 20.71
---------- --------- --------- --------- ---------
Net investment income (loss)............ (0.03) (0.01)+ (0.02) 0.24 0.03
Net realized and unrealized gains from
investments............................ 1.02 3.84+ 4.07 2.10 0.55
---------- --------- --------- --------- ---------
Total increase from investment
operations............................. 0.99 3.83 4.05 2.34 0.58
---------- --------- --------- --------- ---------
Distributions from net realized gain
from investment transactions........... (6.78) (2.11) (1.84) (0.03) (1.07)
---------- --------- --------- --------- ---------
Net asset value, end of year............ $ 20.67 $ 26.46 $ 24.74 $ 22.53 $ 20.22
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Total investment return (1)............. 3.61% 16.24% 18.72% 11.58% 2.67%
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Ratios/Supplemental data:
Net assets, end of year (000's)......... $21,440 $ 20,281 $ 21,409 $ 20,948 $ 30,521
Expenses to average net assets.......... 0.91% 1.00% 1.02% 0.97%(2) 0.94%
Net investment income (loss) to average
net assets............................. (0.12)% (0.05)% (0.23)% 0.53%(2) 0.40%
Portfolio turnover...................... 52% 86% 60% 36% 24%
</TABLE>
- -----------------
+ Calculated using the average shares outstanding for the year
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net asset
value on the last day of each year reported.
(2) These ratios include non-recurring acquisition expenses of 0.05%.
34
<PAGE>
PAINEWEBBER
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
PaineWebber Growth & Income Fund
PaineWebber Growth Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of the PaineWebber Growth & Income Fund
and PaineWebber Growth Fund as of August 31, 1998, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1998, by correspondence with the custodians and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber Growth & Income Fund and PaineWebber Growth Fund at August 31, 1998,
and the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and their
financial highlights for each of the indicated periods, in conformity with
generally accepted accounting principles.
[SIGNATURE]
/s/ Ernst & Young LLP
New York, New York
October 16, 1998
35
<PAGE>
PAINEWEBBER
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end (August 31,
1998) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the following
distributions paid during the fiscal year by the Funds were derived from the
following sources:
<TABLE>
<CAPTION>
GROWTH
&
INCOME GROWTH
PER SHARE DATA: FUND FUND
- ------------------------------------------------------------ ------- -------
<S> <C> <C>
Net investment income
Class A................................................. $0.2070 --
Class B................................................. $0.0000 --
Class C................................................. $0.0162 --
Class Y................................................. $0.2796 --
Short-term capital gains*............................... $0.8994 $0.5374
Long-term capital gains
Taxable at a 20% maximum rate....................... $0.7868 $3.3032
Taxable at a 28% maximum rate....................... $0.9802 $2.9413
Percentage of ordinary income dividends qualifying for
the dividends received deduction available to corporate
shareholders........................................... 91.79 % 18.96%
</TABLE>
- -----------------
* Taxable as ordinary income. Class A, C and Y received short-term gains of
$0.8994 and Class B received gains of $0.8838 (per share).
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since each Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1999. Such notifications, which will
reflect the amount to be used by calendar year taxpayers on their federal income
tax returns, will be made in conjunction with Form 1099 DIV and will be mailed
in January 1999. Shareholders are advised to consult their own tax advisers with
respect to the tax consequences of their investment in each of the Funds.
36
<PAGE>
- ----------------------------------------------------------
TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
CHAIRMAN
Meyer Feldberg
Margo N. Alexander
George W. Gowen
Richard Q. Armstrong
Frederic V. Malek
Richard R. Burt
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
PRESIDENT VICE PRESIDENT AND TREASURER
Victoria E. Schonfeld Mark A. Tincher
VICE PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell Ellen R. Harris
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE OFFERING OF SHARES OF
THE FUNDS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR ANY OF THE FUNDS LISTED
ON THE BACK COVER CAN BE OBTAINED FROM A PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
<PAGE>
PaineWebber offers a family of 27 funds which
encompass a diversified range of investment goals
BOND FUNDS [GRAPHIC]
PaineWebber
// High Income Fund
// Investment Grade Income Fund
// Low Duration U.S. Government Income Fund
// Strategic Income Fund
// U.S. Government Income Fund
TAX-FREE BOND FUNDS
// California Tax-Free Income Fund
// Municipal High Income Fund
// National Tax-Free Income Fund
// New York Tax-Free Income Fund
-------------------------
STOCK FUNDS
GROWTH AND
// Financial Services Growth Fund INCOME FUND
// Growth Fund
// Growth and Income Fund GROWTH FUND
// Mid Cap Fund
// Small Cap Fund
// S&P 500 Index Fund
// Tax-Managed Equity Fund
// Utility Income Fund
ASSET ALLOCATION FUNDS
// Balanced Fund
// Tactical Allocation Fund
GLOBAL FUNDS
// Asia Pacific Growth Fund
// Emerging Markets Equity Fund
// Global Equity Fund
// Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
// Aggressive Portfolio
// Moderate Portfolio
// Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PAINEWEBBER
- -COPYRIGHT- 1998 PaineWebber Incorporated
Member SIPC
August 31, 1998
