<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
11/30/97 05/31/97 11/30/96 ENDED 11/30/97 ENDED 11/30/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 2.37 $ 2.34 $ 2.35 6.67% 4.07%
- ---------------------------------------------------------------------------------
Class B Shares 2.37 2.34 2.35 5.81 3.65
- ---------------------------------------------------------------------------------
Class C Shares 2.37 2.34 2.35 6.05 3.76
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $ 2.50 $ 2.48 -- $0.0812 2.48%
- ---------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1217 (4.39)
- ---------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1357 10.75
- ---------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1360 5.57
- ---------------------------------------------------------------------------------
01/01/97-11/30/97 2.34 2.37 -- 0.1148 6.34
- ---------------------------------------------------------------------------------
Totals: $0.0000 $0.5894
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 21.81%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $ 2.50 $ 2.48 -- $0.0687 1.97%
- ---------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1034 (5.14)
- ---------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1157 9.79
- ---------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1171 4.72
- ---------------------------------------------------------------------------------
01/01/97-11/30/97 2.34 2.37 -- 0.0980 5.59
- ---------------------------------------------------------------------------------
Totals: $0.0000 $0.5029
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 17.43%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends at net asset value on the
payable dates and do not include sales charges; results for each class would
be lower if sales charges were included.
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.
11
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (unaudited) (concluded)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $ 2.50 $ 2.48 -- $ 0.0730 2.14%
- --------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1094 (4.89)
- --------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1217 10.09
- --------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1221 4.94
- --------------------------------------------------------------------------
01/01/97-11/30/97 2.34 2.37 -- 0.1026 5.80
- --------------------------------------------------------------------------
Totals: $ 0.0000 $ 0.5288
- --------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 18.74%
- --------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends 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 November
30, 1997 and since inception, October 20, 1995 through November 30, 1997, Class
Y shares have a total return of 6.87% and 14.92%, respectively. Class Y shares
do not have initial or contingent deferred sales charges or ongoing
distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
12
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
11/30/97 05/31/97 11/30/96 ENDED 11/30/97 ENDED 11/30/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 8.94 $ 8.64 $ 8.86 7.27% 6.62%
- ---------------------------------------------------------------------------------
Class B Shares 8.94 8.65 8.87 6.34 6.09
- ---------------------------------------------------------------------------------
Class C Shares 8.93 8.64 8.86 6.62 6.23
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID/2/ RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.78 -- $ 0.3515 5.95%
- ---------------------------------------------------------------------------------
1985 9.78 10.32 -- 1.2600 19.79
- ---------------------------------------------------------------------------------
1986 10.32 10.21 $0.0053 1.1924 11.18
- ---------------------------------------------------------------------------------
1987 10.21 9.34 0.0027 0.9160 0.59
- ---------------------------------------------------------------------------------
1988 9.34 9.18 -- 0.8718 7.83
- ---------------------------------------------------------------------------------
1989 9.18 9.49 -- 0.7994 12.58
- ---------------------------------------------------------------------------------
1990 9.49 9.57 -- 0.7883 9.67
- ---------------------------------------------------------------------------------
1991 9.57 10.18 -- 0.7683 14.89
- ---------------------------------------------------------------------------------
1992 10.18 10.05 -- 0.7372 6.37
- ---------------------------------------------------------------------------------
1993 10.05 10.03 -- 0.6590 6.48
- ---------------------------------------------------------------------------------
1994 10.03 8.40 -- 0.6014 (10.51)
- ---------------------------------------------------------------------------------
1995 8.40 9.21 -- 0.5807 17.04
- ---------------------------------------------------------------------------------
1996 9.21 8.74 -- 0.5454 0.98
- ---------------------------------------------------------------------------------
01/01/97-11/30/97 8.74 8.94 -- 0.4679 7.90
- ---------------------------------------------------------------------------------
Totals: $0.0080 $10.5393
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 180.58%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 9.59 $10.19 -- $ 0.3535 10.09%
- ---------------------------------------------------------------------------------
1992 10.19 10.05 -- 0.6599 5.31
- ---------------------------------------------------------------------------------
1993 10.05 10.04 -- 0.5821 5.78
- ---------------------------------------------------------------------------------
1994 10.04 8.40 -- 0.5317 (11.28)
- ---------------------------------------------------------------------------------
1995 8.40 9.21 -- 0.5119 16.14
- ---------------------------------------------------------------------------------
1996 9.21 8.74 -- 0.4789 0.22
- ---------------------------------------------------------------------------------
01/01/97-11/30/97 8.74 8.94 -- 0.4100 7.19
- ---------------------------------------------------------------------------------
Totals: $0.0000 $ 3.5280
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 36.10%
- ---------------------------------------------------------------------------------
</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
for each class would be lower if sales charges were included.
/2/ Certain distributions may contain short-term capital gains.
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.
13
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (unaudited) (concluded)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $ 10.13 $ 10.05 -- $ 0.3281 2.16%
- ----------------------------------------------------------------------
1993 10.05 10.02 -- 0.6089 5.85
- ----------------------------------------------------------------------
1994 10.02 8.39 -- 0.5557 (10.97)
- ----------------------------------------------------------------------
1995 8.39 9.20 -- 0.5345 16.46
- ----------------------------------------------------------------------
1996 9.20 8.73 -- 0.5008 0.47
- ----------------------------------------------------------------------
01/01/97-11/30/97 8.73 8.93 -- 0.4293 7.43
- ----------------------------------------------------------------------
Totals: $ 0.0000 $ 2.9573
- ----------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 21.03%
- ----------------------------------------------------------------------
</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,
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the year ended November
30, 1997, and since inception, September 11, 1991 through November 30, 1997,
Class Y shares have a total return of 7.43% and 38.65%, respectively. Class Y
shares do not have initial or contingent deferred sales charges or ongoing
distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
14
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
11/30/97 05/31/97 11/30/96 ENDED 11/30/97 ENDED 11/30/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.85 $10.39 $10.59 9.88% 8.08%
- ---------------------------------------------------------------------------------
Class B Shares 10.85 10.39 10.58 9.17 7.68
- ---------------------------------------------------------------------------------
Class C Shares 10.85 10.39 10.59 9.34 7.81
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.77 -- $ 0.3549 5.88%
- ---------------------------------------------------------------------------------
1985 9.77 10.52 -- 1.3080 22.76
- ---------------------------------------------------------------------------------
1986 10.52 10.75 $ 0.0125 1.2060 14.47
- ---------------------------------------------------------------------------------
1987 10.75 9.55 0.0279 0.9846 (1.51)
- ---------------------------------------------------------------------------------
1988 9.55 9.51 -- 0.8603 8.88
- ---------------------------------------------------------------------------------
1989 9.51 9.77 -- 0.8363 11.98
- ---------------------------------------------------------------------------------
1990 9.77 9.54 -- 0.8284 6.47
- ---------------------------------------------------------------------------------
1991 9.54 10.42 -- 0.8180 18.56
- ---------------------------------------------------------------------------------
1992 10.42 10.50 -- 0.8081 8.87
- ---------------------------------------------------------------------------------
1993 10.50 11.08 -- 0.7920 13.35
- ---------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.7659 (5.59)
- ---------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.7525 19.61
- ---------------------------------------------------------------------------------
1996 10.79 10.46 -- 0.7287 3.98
- ---------------------------------------------------------------------------------
01/01/97-11/30/97 10.46 10.85 -- 0.6476 10.27
- ---------------------------------------------------------------------------------
Totals: $ 0.0404 $ 11.6913
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 260.40%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 9.79 $10.41 -- $ 0.3795 10.39%
- ---------------------------------------------------------------------------------
1992 10.41 10.49 -- 0.7623 8.05
- ---------------------------------------------------------------------------------
1993 10.49 11.08 -- 0.7101 12.63
- ---------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.6894 (6.30)
- ---------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.6742 18.74
- ---------------------------------------------------------------------------------
1996 10.79 10.45 -- 0.6510 3.12
- ---------------------------------------------------------------------------------
01/01/97-11/30/97 10.45 10.85 -- 0.5782 9.66
- ---------------------------------------------------------------------------------
Totals: $ 0.0000 $ 4.4447
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 69.26%
- ---------------------------------------------------------------------------------
</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
for each class 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.
15
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS (unaudited) (concluded)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $ 10.48 $ 10.50 -- $ 0.3377 3.44%
- ----------------------------------------------------------------------
1993 10.50 11.08 -- 0.7383 12.80
- ----------------------------------------------------------------------
1994 11.08 9.70 -- 0.7022 (6.07)
- ----------------------------------------------------------------------
1995 9.70 10.79 -- 0.6999 19.03
- ----------------------------------------------------------------------
1996 10.79 10.46 -- 0.6764 3.46
- ----------------------------------------------------------------------
01/01/97-11/30/97 10.46 10.85 -- 0.6015 9.80
- ----------------------------------------------------------------------
Totals: $ 0.0000 $ 3.7560
- ----------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 48.33%
- ----------------------------------------------------------------------
</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. No Class Y shares
have been issued to date.
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.
16
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS
(unaudited)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
11/30/97 05/31/97 11/30/96 ENDED 11/30/97 ENDED 11/30/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 7.63 $ 7.44 $ 7.35 13.59% 7.13%
- ---------------------------------------------------------------------------------
Class B Shares 7.63 7.44 7.35 12.76 6.74
- ---------------------------------------------------------------------------------
Class C Shares 7.64 7.45 7.36 13.03 6.87
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID/2/ RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.80 $ 0.0100 $ 0.3717 6.46%
- ---------------------------------------------------------------------------------
1985 9.80 10.38 -- 1.4080 21.67
- ---------------------------------------------------------------------------------
1986 10.38 10.36 0.0250 1.4160 14.27
- ---------------------------------------------------------------------------------
1987 10.36 8.88 0.0475 1.3010 (1.98)
- ---------------------------------------------------------------------------------
1988 8.88 8.44 -- 1.2317 9.13
- ---------------------------------------------------------------------------------
1989 8.44 7.26 -- 1.0687 (1.83)
- ---------------------------------------------------------------------------------
1990 7.26 5.70 -- 0.9744 (8.53)
- ---------------------------------------------------------------------------------
1991 5.70 7.23 -- 1.0159 47.02
- ---------------------------------------------------------------------------------
1992 7.23 7.93 -- 0.9698 24.06
- ---------------------------------------------------------------------------------
1993 7.93 8.77 -- 0.8894 22.74
- ---------------------------------------------------------------------------------
1994 8.77 6.96 -- 0.8576 (11.69)
- ---------------------------------------------------------------------------------
1995 6.96 6.92 -- 0.7879 10.96
- ---------------------------------------------------------------------------------
1996 6.92 7.39 -- 0.7001 17.73
- ---------------------------------------------------------------------------------
01/01/97-11/30/97 7.39 7.63 -- 0.5902 11.63
- ---------------------------------------------------------------------------------
Totals: $ 0.0825 $ 13.5824
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 309.90%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 6.85 $ 7.22 -- $ 0.4960 12.92%
- ---------------------------------------------------------------------------------
1992 7.22 7.92 -- 0.9037 23.07
- ---------------------------------------------------------------------------------
1993 7.92 8.77 -- 0.8237 21.97
- ---------------------------------------------------------------------------------
1994 8.77 6.96 -- 0.7969 (12.34)
- ---------------------------------------------------------------------------------
1995 6.96 6.92 -- 0.7344 10.15
- ---------------------------------------------------------------------------------
1996 6.92 7.38 -- 0.6466 16.70
- ---------------------------------------------------------------------------------
01/01/97-11/30/97 7.38 7.63 -- 0.5411 11.06
- ---------------------------------------------------------------------------------
Totals: $ 0.0000 $ 4.9424
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 112.37%
- ---------------------------------------------------------------------------------
</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
for each class would be lower if sales charges were included.
/2/ Certain distributions may contain short-term capital gains.
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.
17
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS (unaudited) (concluded)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $ 7.80 $ 7.94 -- $ 0.4041 7.07%
- -----------------------------------------------------------------------------
1993 7.94 8.79 -- 0.8456 22.22
- -----------------------------------------------------------------------------
1994 8.79 6.97 -- 0.8185 (12.20)
- -----------------------------------------------------------------------------
1995 6.97 6.93 -- 0.7528 10.40
- -----------------------------------------------------------------------------
1996 6.93 7.40 -- 0.6653 17.13
- -----------------------------------------------------------------------------
01/01/97-11/30/97 7.40 7.64 -- 0.5582 11.14
- -----------------------------------------------------------------------------
Totals:$ 0.0000 $ 4.0445
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/97: 65.15%
- -----------------------------------------------------------------------------
</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.
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. No Class Y shares have been
issued to date.
18
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
(000) MATURITY DATES RATES VALUE
--------- -------------------- -------- ------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
CERTIFICATES -- 39.03%
$ 169 GNMA..................... 02/15/23 8.000% $ 174,310
10,117 GNMA..................... 01/15/16 to 09/15/20 10.500 11,128,183
5,431 GNMA..................... 03/15/10 to 05/15/19 11.500 6,119,646
17,648 GNMA II ARM.............. 04/20/26 6.500 17,947,168
4,358 GNMA II ARM.............. 12/20/22 to 12/20/23 6.875 4,460,695
1,731 GNMA II ARM.............. 01/20/18 7.000 1,774,353
10,000 GNMA TBA................. TBA 7.500 10,171,880
------------
Total Government National Mortgage
Association Certificates (cost --
$51,890,695)..................... 51,776,235
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES -- 29.62%
11,309 FHLMC.................... 01/01/23 to 02/01/26 8.000 11,676,111
3,704 FHLMC.................... 05/01/16 8.500 3,863,921
497 FHLMC.................... 07/01/09 to 02/01/10 9.000 529,071
1,256 FHLMC.................... 11/01/16 9.750 1,365,504
868 FHLMC.................... 10/01/20 to 11/01/20 10.500 962,893
3,443 FHLMC.................... 05/01/11 to 12/01/20 11.000 3,886,863
2,616 FHLMC.................... 06/01/04 to 06/01/20 11.500 2,972,098
14,000 FHLMC TBA................ TBA 7.000 14,030,632
------------
Total Federal Home Loan Mortgage
Corporation Certificates (cost --
$38,745,308)..................... 39,287,093
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES -- 60.41%
2,781 FNMA..................... 02/01/05 9.000 2,902,339
4,869 FNMA..................... 04/01/10 to 12/01/15 9.250 5,193,098
639 FNMA..................... 03/01/06 to 12/01/09 9.500 683,680
975 FNMA..................... 04/01/10 to 06/01/19 10.250 1,075,598
2,348 FNMA..................... 11/01/10 to 04/01/22 10.500 2,572,698
3,256 FNMA..................... 07/01/13 to 05/01/20 11.000 3,716,186
3,108 FNMA ARM................. 09/01/15 7.020 3,238,603
8,675 FNMA ARM................. 09/01/26 7.101 8,881,054
42,000 FNMA ARM................. TBA 6.080 41,895,000
10,000 FNMA ARM................. TBA 6.170 9,971,875
------------
Total Federal National Mortgage
Association Certificates (cost --
$79,534,331)..................... 80,130,131
------------
FEDERAL HOUSING ADMINISTRATION
CERTIFICATES -- 2.79%
3,603 FHA (cost -- $3,700,751). 12/20/29 9.680 3,700,753
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 5.49%
Resolution Trust Corpora-
tion, Series 1994-1,
3,038 Class A2A, REMIC......... 09/25/29 7.750 3,054,745
Ryland Mortgage Accept-
ance Corporation, Series
3,991 76, Class B, REMIC....... 08/01/18 9.000 4,229,184
------------
Total Collateralized Mortgage Ob-
ligations (cost -- $6,958,497).... 7,283,929
------------
U.S. GOVERNMENT AGENCY BACKED
NOTES -- 1.20%
Federal National Mortgage
Association Discount
1,600 Notes (cost--$1,594,622). 12/23/97 5.500@ 1,594,622
------------
</TABLE>
19
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL PAPER@ -- 15.61%
Ford Motor Credit Compa-
$ 6,400 ny..................... 01/23/98 5.620% $ 6,346,111
4,200 IBM Credit Corporation.. 01/08/98 5.700 4,174,730
National Rural Utilities
Cooperative Finance
1,900 Corporation............ 12/10/97 5.510 1,896,627
600 New Center Asset Trust.. 12/10/97 5.500 598,957
Wal Mart Stores Incorpo-
1,200 rated.................. 12/01/97 5.500 1,200,000
Wisconsin Electric Power
6,500 Company................ 12/16/97 5.520 6,485,050
------------
Total Commercial Paper (cost --
$20,701,475)................... 20,701,475
------------
REPURCHASE AGREEMENTS -- 5.85%
6,500 Repurchase Agreement
dated 11/26/97 with
Credit Suisse First
Boston Incorporated,
collateralized by
$6,244,000 U.S. Trea-
sury Bonds, 7.125% due
02/15/23 (value --
$7,022,549); proceeds:
$6,505,074............. 12/01/97 5.620 6,500,000
1,265 Repurchase Agreement
dated 11/28/97 with
State Street Bank and
Trust Company,
collateralized by
$945,000 U.S. Treasury
Bonds, 9.250% due
02/15/16 (value --
$1,292,288); proceeds:
$1,265,527............. 12/01/97 5.000 1,265,000
------------
Total Repurchase Agreements
(cost -- $7,765,000)............ 7,765,000
------------
Total Investments (cost --
$210,890,679) -- 160.00%....... 212,239,238
Liabilities in excess of other
assets -- (60.00)%.............. (79,590,128)
------------
Net Assets -- 100.00%............ $132,649,110
============
</TABLE>
- -------
@Yield to maturity for discounted securities
ARM - Adjustable Rate Mortgage Security; the interest rate shown is the
current rate at November 30, 1997.
REMIC -- Real Estate Mortgage Investment Conduit.
TBA - (To Be Assigned) Securities are purchased on a forward commitment
basis with an approximate (generally +/-1.0%) principal amount and
generally stated maturity date. The actual principal amount and maturity
date will be determined upon settlement when the specific mortgage pools
are assigned.
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- ---------------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS --
23.35%
$61,356+ U.S. Treasury Bonds..... 8/15/13 to 2/15/26 6.000 to 13.250% $ 82,045,082
3,909 U.S. Treasury Notes..... 04/30/02 6.625 4,017,721
------------
Total U.S. Government Obligations
(cost -- $82,420,555).............. 86,062,803
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES --
28.17%
36,134 GNMA.................... 1/15/24 to 3/15/26 7.500 36,845,318
5,392 GNMA.................... 11/15/17 8.500 5,741,686
285 GNMA.................... 10/15/16 to 5/15/18 9.000 309,153
130 GNMA.................... 08/15/17 9.500 141,054
1,675 GNMA.................... 06/15/11 to 2/15/16 11.000 1,859,609
12,442 GNMA.................... 09/15/20 11.500 14,020,336
45,000 GNMA II ARM............. 12/01/27 5.500 44,887,500
------------
Total Government National Mortgage
Association Certificates
(cost -- $103,077,416)............. 103,804,656
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES -- 10.20%
325 FHLMC................... 03/01/09 6.500 325,364
179 FHLMC................... 08/01/25 7.000 179,838
13,111 FHLMC................... 04/01/25 9.000 14,075,963
2,257 FHLMC................... 09/01/05 10.000 2,409,329
2,875 FHLMC................... 06/01/04 to 12/01/05 10.500 3,085,500
5,995+ FHLMC................... 01/01/16 11.000 6,717,509
4,856 FHLMC................... 10/01/16 11.500 5,498,122
5,052+ FHLMC ARM............... 10/01/23 7.878 5,297,216
------------
Total Federal Home Loan Mortgage
Corporation Certificates (cost --
$37,301,128)...................... 37,588,841
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES -- 19.75%
4,702 FNMA.................... 02/01/14 to 07/01/25 7.500 4,793,790
11,947 FNMA.................... 09/01/25 8.500 12,640,386
2,497 FNMA.................... 05/01/09 9.000 2,663,845
35,000 FNMA TBA................ TBA 7.500 35,678,125
17,055 FNMA TBA COFI ARM....... TBA 6.089 17,012,362
------------
Total Federal National Mortgage
Association Certificates (cost --
$72,502,082)...................... 72,788,508
------------
U.S. GOVERNMENT AGENCY BACKED
NOTES -- 26.10%
20,000 Federal National
Mortgage Association
Medium Term Note....... 09/04/07 6.970 20,437,820
50,000 Federal National
Mortgage Association
Discount Note.......... 12/11/97 5.600@ 49,922,222
25,405 Federal National
Mortgage Association... 02/11/04 to 02/02/07 6.830 to 7.500 25,797,832
------------
Total U.S. Government Agency Backed
Notes (cost -- $95,214,786)........ 96,157,874
------------
</TABLE>
21
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
---------- -------- -------- ------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 15.40%
$ 5,514 Amresco Commercial Mortgage
Funding I Corporation, Series
1997-C1, Class A1............... 06/17/29 6.730% $ 5,561,676
4,354 CS First Boston Mortgage
Securities Corp., Series 1995-
WF1, Class A1................... 12/21/27 6.452 4,338,553
2,583 CS First Boston Mortgage
Securities Corp., Series 1997-2,
Class A......................... 06/25/20 7.500 2,637,229
213 Collateralized Mortgage
Obligation Trust, Series 14,
Class Z......................... 01/01/17 8.000 215,216
2,870 DLJ Mortgage Acceptance Corp.,
Series 1997-CF1, Class A1A...... 05/15/06 7.400 2,990,405
7,827 DLJ Mortgage Acceptance Corp.,
Series 1994-MFII, Class A1...... 06/18/04 8.100 8,208,682
3,948 FDIC REMIC Trust, 1996-C1, Class
1A.............................. 05/25/26 6.750 3,966,446
7,994 FNMA REMIC Series 1987-2, Class
Z............................... 11/25/17 11.000 9,125,470
1,895 FNMA REMIC Series 1996-M6, Class
E............................... 09/17/19 7.750 1,932,256
5,132 GMAC Commercial Mortgage
Securities, Inc., Series 1996-
C1, Class A2A................... 09/15/03 6.790 5,202,528
6,278 Merrill Lynch Mortgage Investors,
Inc., Series 1996-C1, Class A1.. 04/25/28 7.150 6,444,849
6,056 Morgan Stanley Capital I
Incorporated, Series 1997-WF1,
Class A1........................ 10/15/06 6.830 6,143,170
------------
Total Collateralized Mortgage Obligations
(cost -- $56,090,702)........................ 56,766,480
------------
<CAPTION>
NUMBER
OF OPTIONS
----------
<C> <S> <C> <C> <C>
OPTIONS -- 0.02%
100 CBT U.S. Treasury Bond (Put); par
value $10,000,000; price 117;
expiring Mar 98 ................ 28,125
100 CBT U.S. Treasury Bond (Call);
par value $10,000,000; price
120; expiring Mar 98............ 57,813
------------
Total Options (cost -- $123,075)............. 85,938
------------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT -- 3.25%
$11,976 Repurchase agreement dated
11/28/97 with Salomon Brothers
Incorporated, collateralized by
$12,007,000 U.S. Treasury Notes,
5.875%, due 08/15/98
(value -- $12,220,845);
proceeds: $11,981,689 (cost --
$11,976,000)................... 12/01/97 5.700 11,976,000
------------
Total Investments (cost -- $458,705,744) --
126.24%..................................... 465,231,100
Liabilities in excess of other assets --
(26.24%).................................... (96,715,884)
------------
Net Assets -- 100.00%........................ $368,515,216
============
</TABLE>
- ---------
@ Yield to maturity for discounted securities
+ Security, or portion thereof, was pledged as collateral for futures and
written options transactions
ARM Adjustable Rate Mortgage Security, the interest rate shown is the current
rate at November 30, 1997
CBT Chicago Board of Trade
COFI Eleventh District Federal Home Loan Bank Cost of Funds Index
REMIC Real Estate Mortgage Investment Conduit
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with approximately (generally +/-1.0%) principal amount and generally
stated maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
22
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
WRITTEN OPTIONS
<TABLE>
<CAPTION>
NUMBER EXPIRATION EXERCISE
OF OPTIONS UNDERLYING CONTRACT DATE PRICE VALUE
---------- ---------------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Put..................... 400 CBT U.S. Treasury Bond Mar 98 $112.00 $ 87,500
Put..................... 200 CBT U.S. Treasury Bond Jan 98 116.00 28,125
Call.................... 400 CBT U.S. Treasury Bond Mar 98 120.00 662,500
Call.................... 200 CBT U.S. Treasury Bond Jan 98 121.00 59,375
--------
Total Written Options
(Premiums Received--
$983,425).............. $837,500
========
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS EXCHANGE FOR DATE APPRECIATION
--------- ------------ ---------- ------------
<C> <S> <C> <C> <C>
Contract to Deliver-5 year
100 U.S. Treasury Notes.......... $10,822,563 Mar 98 $ 13,188
Contract to Receive-30 year
80 U.S. Treasury Bonds.......... 9,415,000 Mar 98 107,500
Contract to Receive-30 year
297 U.S. Treasury Bonds.......... 33,559,188 Dec 97 1,839,500
----------
$1,960,188
==========
</TABLE>
SECURITY SOLD SHORT "AGAINST THE BOX"
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
--------- -----------
<C> <S> <C>
$35,990 GNMA TBA 7.500% (proceeds -- $36,706,056) ............. $36,698,571
===========
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 83.53%
AIRLINES -- 3.05%
$ 6,500 Delta Air Lines Incorporated...... 12/15/22 10.375% $ 8,744,086
------------
BANKING -- 15.52%
8,000 BT Institutional Capital Trust A.. 12/01/26 8.090 8,388,600
6,000 Chase Manhattan Corporation....... 08/01/04 7.875 6,130,668
5,000 Citicorp.......................... 11/01/04 8.625 5,204,520
3,000 Greenpoint Capital Trust I........ 06/01/27 9.100 3,266,391
8,000 MBNA Corporation.................. 12/01/26 8.278 8,398,800
7,000 Providian Capital I............... 02/01/27 9.525 7,719,117
5,000 Southtrust Bank Alabama........... 05/15/25* 7.690 5,371,115
------------
44,479,211
------------
BROKER/DEALER -- 4.00%
5,000 Donaldson Lufkin & Jenrette
Securities Corporation............ 11/01/05 6.875 5,043,550
5,800 Lehman Brothers Incorporated...... 05/01/07 8.500 6,405,091
------------
11,448,641
------------
BUSINESS MACHINES -- 0.96%
2,500 Digital Equipment Corporation..... 11/01/12 8.625 2,745,995
------------
CABLE/COMMUNICATIONS -- 4.76%
7,000 TCI Communications Incorporated... 03/31/27 9.650 8,075,368
5,000 TKR Cable Incorporated............ 10/30/07 10.500 5,560,455
------------
13,635,823
------------
DIVERSIFIED/INDUSTRIAL -- 2.68%
2,500 Hawk Corporation.................. 12/01/03 10.250 2,643,750
5,000 Mark IV Industries Incorporated... 09/01/07 7.500 5,039,255
------------
7,683,005
------------
FOOD & BEVERAGES -- 2.61%
7,000 Phillip Morris Companies
Incorporated...................... 01/15/27 7.750 7,487,179
------------
</TABLE>
24
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
HEALTHCARE -- 4.47%
$ 3,500 Columbia/HCA Healthcare
Corporation............ 02/10/10 8.700% $ 3,850,417
5,000 MedPartners
Incorporated........... 09/01/00 6.875 4,917,880
4,000 Tenet Healthcare
Corporation............ 01/15/03 7.875 4,025,000
------------
12,793,297
------------
HOMEBUILDERS -- 0.69%
2,000 Kaufman & Broad Home
Corporation............ 10/15/04 7.750 1,965,000
------------
HOTELS/GAMING -- 4.12%
3,443 Circus Circus
Enterprises
Incorporated........... 07/15/03 6.750 3,398,506
4,000 GNS Finance Corporation. 03/15/03 9.250 4,189,632
4,000 HMH Properties
Incorporated........... 05/15/05 9.500 4,210,000
------------
11,798,138
------------
INSURANCE -- 10.04%
2,000 Berkley (W.R.)
Corporation............ 12/15/45 8.197 2,063,098
1,600 Chubb Corporation....... 11/15/99 8.750 1,615,398
8,055 Lumbermans Mutual
Casualty Company....... 07/01/26 to 12/01/37 8.300 to 9.150 8,822,285
3,000 Markel Capital Trust.... 01/01/46 8.710 3,232,275
3,000 Orion Capital Trust I... 01/01/37 8.730 3,264,501
3,000 Prudential Insurance
Company of America..... 07/01/25 8.300 3,288,924
4,000 USF&G Corporation....... 07/01/46 8.312 4,342,204
2,000 Zurich Capital Trust.... 06/01/37 8.376 2,143,076
------------
28,771,761
------------
LEISURE -- 1.35%
3,800 Royal Caribbean Cruises
Limited................ 10/15/27 7.500 3,872,713
------------
MEDIA -- 3.37%
6,000 News America Holdings
Incorporated........... 10/15/12 to 12/01/95 7.900 to 10.125 6,749,844
3,000 Viacom Incorporated..... 01/15/16 7.625 2,900,616
------------
9,650,460
------------
OIL/GAS -- 4.70%
2,500 Barrett Resources
Corporation............ 02/01/07 7.550 2,573,730
1,500 Clark Oil & Refining.... 11/15/07 8.375 1,500,000
2,500 Gulf Canada Resources
Limited................ 03/15/17 8.250 2,706,250
2,500 Newfield Exploration
Company................ 10/15/07 7.450 2,507,775
3,750 Occidental Petroleum
Corporation............ 06/01/19 11.125 4,190,812
------------
13,478,567
------------
PRINTING/PUBLISHING -- 1.24%
3,450 Valassis Inserts
Incorporated........... 03/15/99 9.375 3,542,943
------------
</TABLE>
25
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONCLUDED)
RETAIL -- 3.20%
$ 5,950 May Department Stores
Company................ 06/15/21 9.875% $ 6,795,197
2,000 Shopko Stores........... 03/15/22 9.250 2,383,596
-----------
9,178,793
-----------
TELEPHONE COMPANIES &
TELECOMMUNICATIONS -- 1.88%
5,000 Pacific Bell............ 08/15/31 8.500 5,389,665
-----------
UTILITIES -- 7.60%
5,000 Commonwealth Edison
Company................ 06/15/20 9.875 5,819,585
7,000 Cooperative Utilities... 03/15/19 9.520 7,404,894
5,000 Louisiana Power & Light
Company................ 07/01/22 8.500 5,135,635
3,000 Texas Utilities Electric
Company................ 05/01/21 9.750 3,409,623
-----------
21,769,737
-----------
YANKEE -- 7.29%
5,000 Loewen Group
International
Incorporated........... 10/15/03 8.250 5,281,115
5,000 Quebec Province, Canada. 07/15/23 7.500 5,307,650
5,000 Rogers Cantel
Incorporated........... 06/01/08 9.375 5,250,000
5,000 Socgen Real Estate LLC.. 12/29/49 7.640 5,036,910
-----------
20,875,675
-----------
Total Corporate Bonds (cost --
$226,862,553)..................... 239,310,689
-----------
U.S. GOVERNMENT OBLIGATIONS --
6.77%
19,225+ United States Treasury
Notes (cost --
$19,337,980).......... 09/30/00 to 08/15/07 5.875 to 6.125 19,393,835
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES -- 3.97%
11,364 FNMA (cost --
$11,214,365).......... 08/01/27 to 10/01/27 7.000 11,381,272
-----------
<CAPTION>
NUMBER OF
SHARES
---------
<C> <S> <C> <C> <C>
PREFERRED STOCK -- 1.48%
FINANCE -- 1.48%
160,000 California Federal
Preferred Capital
Corporation (cost --
$4,000,000)........... 9.125 4,250,000
-----------
</TABLE>
26
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT -- 2.84%
$ 8,128 Repurchase Agreement dated 11/28/97
with HSBC Securities Incorporated,
collateralized by $6,353,000 U.S.
Treasury Bonds, 8.500% due 2/15/20
(value -- $8,290,665); proceeds:
$8,131,861 (cost -- $8,128,000)... 12/01/97 5.700% $ 8,128,000
------------
Total Investments (cost -- $269,542,898) --
98.59%....................................... 282,463,796
Other assets in excess of liabilities --
1.41%........................................ 4,040,786
------------
Net Assets -- 100.00%......................... $286,504,582
============
</TABLE>
- ---------
* Maturity date reflects earliest date bonds can be put back to issuer
+ Security, or portion thereof, was pledged as collateral for futures
transactions
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO DELIVER EXCHANGE FOR DATE APPRECIATION
--------- ------------------------------ ------------ ---------- ------------
<C> <S> <C> <C> <C>
260 5 year U.S. Treasury Notes.... $28,138,688 Mar 98 $34,313
=======
</TABLE>
See accompanying notes to financial statements
27
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 85.13%
AIRLINES -- 0.63%
$ 3,500 Airplane Pass Through Trust....... 03/15/19 10.875% $ 3,937,500
------------
CABLE -- 8.39%
5,000 Cablevision Systems Corporation**. 08/15/09 8.125 5,087,500
6,435 Echostar Satellite Broadcast
Corporation...................... 03/15/04 13.125+ 5,308,875
5,000 Fundy Cable....................... 11/15/05 11.000 5,400,000
9,500 International CableTel
Incorporated..................... 02/01/06 11.500+ 7,148,750
14,000# Knology Holdings Incorporated**... 10/15/07 11.875+ 7,210,000
4,000 Pratama Datakom Asia B.V.**....... 07/15/05 12.750 3,320,000
9,125 Telewest PLC...................... 10/01/06 9.625 9,444,375
3,325 Tevecap S.A. de C.V............... 11/26/04 12.625 2,992,500
10,000 UIH Australia Pacific
Incorporated..................... 05/15/06 14.000+ 6,500,000
------------
52,412,000
------------
COMMUNICATIONS -- 14.46%
5,305 American Communications Services.. 11/01/05 13.000+ 3,952,225
6,300 Barak I.T.C International**....... 11/15/07 12.500+ 3,480,750
9,000# Colt Telecom Group PLC............ 12/15/06 12.000+ 6,840,000
5,000 Comcast Cellular Holdings
Incorporated..................... 05/01/07 9.500 5,175,000
5,000 Crown Castle International
Corporation**.................... 11/15/07 10.625+ 3,050,000
3,750 Globalstar L.P.................... 02/15/04 11.375 3,778,125
11,215 GST Equipment Funding
Incorporated..................... 05/01/07 13.250 12,897,250
8,500 Hyperion Telecommunications
Incorporated..................... 04/15/03 13.000+ 5,822,500
5,000 ITC Deltacom Incorporated......... 06/01/07 11.000 5,362,500
15,750 McCaw International Limited....... 04/15/07 13.000+ 9,253,125
19,000 Nextel Communications
Incorporated..................... 08/15/04 9.750+ 16,387,500
5,750 RCN Corporation**................. 10/15/07 11.125+ 3,378,125
3,500# Verio Incorporated**.............. 06/15/04 13.500 4,130,000
9,000 Viatel Incorporated............... 01/15/05 15.000+ 6,840,000
------------
90,347,100
------------
CONSUMER MANUFACTURING -- 5.02%
7,515 Apparel Ventures Incorporated..... 12/31/00 12.250 7,289,550
4,606 Chattem Incorporated.............. 06/15/04 12.750 5,181,750
5,000 CLN Holdings Incorporated......... 05/15/01 17.004* 2,750,000
8,000 Commemorative Brands Incorporated. 01/15/07 11.000 8,080,000
3,500 Desa International Incorporated**. 12/15/07 9.875 3,500,000
4,375 EKCO Group Incorporated........... 04/01/06 9.250 4,528,125
------------
31,329,425
------------
</TABLE>
28
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
ENERGY -- 2.83%
$ 4,400 Crown Central Petroleum
Corporation....................... 02/01/05 10.875% $ 4,598,000
8,000 Petroleos Mexicanos................ 09/15/27 9.500 7,800,000
6,500 Transamerican Energy Corporation**. 06/15/02 13.000+ 5,281,250
------------
17,679,250
------------
ENTERTAINMENT -- 1.72%
4,250 Discovery Zone Incorporated**...... 08/01/02 13.500 4,420,000
6,332 United Artists Theatre Circuit..... 07/01/15 9.300 6,331,829
------------
10,751,829
------------
FINANCE -- 1.96%
3,650 Emergent Group**................... 09/15/04 10.750 3,613,500
2,750 Metris Companies Incorporated**.... 11/01/04 10.000 2,777,500
6,000 Olympic Financial Limited.......... 03/15/07 11.500 5,880,000
------------
12,271,000
------------
FOOD & BEVERAGE -- 4.99%
7,000 American Rice Incorporated......... 07/31/02 13.000 6,720,000
5,000 Cuddy International Corporation**.. 12/01/07 10.750 4,962,500
7,000 Iowa Select Farms L.P. **.......... 12/01/05 10.750 7,096,250
5,000 Nuco2 Incorporated++............... 10/31/04 12.000 5,000,000
7,250 Packaged Ice Incorporated.......... 04/15/04 12.000 7,395,000
------------
31,173,750
------------
GAMING -- 0.62%
2,000 Ameristar Casinos Incorporated**... 08/01/04 10.500 1,975,000
1,750 Casino America Incorporated........ 08/01/03 12.500 1,896,563
------------
3,871,563
------------
GENERAL INDUSTRIAL -- 5.79%
3,000 Continental Global Group
Incorporated...................... 04/01/07 11.000 3,195,000
4,250 Goss Graphic Systems Incorporated.. 10/15/06 12.000 4,791,875
8,500 Jordan Telecommunication
Products**........................ 08/01/07 9.875 8,627,500
5,000 Poindexter J.B. Incorporated....... 05/15/04 12.500 5,037,500
7,350 Polysindo International Finance
Company B.V....................... 06/15/06 11.375 7,368,375
3,000 Roller Bearing Company America
Incorporated**.................... 06/15/07 9.625 3,022,500
4,000 W.R. Carpenter North America
Incorporated**.................... 06/15/07 10.625 4,140,000
------------
36,182,750
------------
</TABLE>
29
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
HEALTHCARE -- 0.65%
$ 4,050 Integrated Health Services
Incorporated**.................... 01/15/08 9.250% $ 4,039,875
------------
HOTELS & LODGING -- 1.27%
4,000 Club Regina Resorts Incorporated**. 12/01/04 13.000 4,000,000
3,750 HMH Properties Incorporated........ 05/15/05 9.500 3,946,875
------------
7,946,875
------------
MEDIA -- 8.88%
7,500 Fox Kids Worldwide Incorporated**.. 11/01/07 9.250 7,143,750
4,200 Grupo Televisa S.A. de C.V......... 05/15/06 11.875 4,662,000
4,500 Grupo Televisa S.A. de C.V......... 05/15/08 13.250+ 3,352,500
7,500 Hollinger International Publishing. 02/01/06 9.250 7,725,000
7,000 Source Media Incorporated**........ 11/01/04 12.000 6,860,000
5,000 Sullivan Graphics Incorporated..... 08/01/05 12.750 5,100,000
5,175 Sun Media Corporation.............. 05/15/07 9.500 5,511,375
4,500 T.V. Azteca S.A. de C. V.**........ 02/15/07 10.500 4,680,000
10,500 Viacom Incorporated................ 07/07/06 8.000 10,423,770
------------
55,458,395
------------
METALS & MINING -- 2.95%
2,125 AEI Holding Incorporated**......... 11/15/07 10.000 2,151,563
3,500 Commonwealth Aluminum Corporation.. 10/01/06 10.750 3,762,500
2,950 Easco Corporation.................. 03/15/01 10.000 3,031,125
5,250 Murrin Murrin Holdings Party
Limited**......................... 08/31/07 9.375 5,250,000
4,100 WCI Steel Incorporated............. 12/01/04 10.000 4,243,500
------------
18,438,688
------------
PACKAGING -- 6.13%
4,000 Bear Island Paper**................ 12/01/07 10.000 4,030,000
1,750 Doman Industries Limited........... 03/15/04 8.750 1,728,125
4,000 Four M Corporation................. 06/01/06 12.000 4,260,000
4,500 FSW International Finance Company
B.V............................... 11/01/06 12.500 4,050,000
4,500 Indah Kiat International Finance
Company B.V....................... 06/15/06 12.500 4,691,250
6,000 Pindo Deli Finance Mauritius
Limited**......................... 10/01/07 10.750 5,550,000
3,000 Portola Packaging Incorporated..... 10/01/05 10.750 3,120,000
4,500 Tjiwi Kimia Finance Maurities
Limited**......................... 08/01/04 10.000 4,095,000
6,250 Vicap, S.A. de C.V.**.............. 05/15/07 11.375 6,781,250
------------
38,305,625
------------
REAL ESTATE AND BUILDINGS-- 1.97%
4,125 D.R. Horton Incorporated........... 06/15/04 8.375 4,145,625
4,000 Ryland Group Incorporated.......... 07/01/06 10.500 4,380,000
3,750 US Home Corporation................ 08/15/07 8.880 3,806,250
------------
12,331,875
------------
</TABLE>
30
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- ---------------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONCLUDED)
RETAIL -- 4.96%
$ 5,500 Barry's Jewelers
Incorporated........... 12/22/00 11.000%(a) $ 3,025,000
4,750 Big 5 Corporation**..... 11/15/07 10.875 4,702,500
5,500 Chief Auto Parts
Incorporated........... 05/15/05 10.500 5,390,000
6,875 CSK Auto Incorporated... 11/01/06 11.000 7,356,250
6,000 Great American Cookie
Incorporated........... 01/15/01 10.875 6,120,000
4,375 Mrs. Fields Original**.. 12/01/04 10.125 4,375,000
------------
30,968,750
------------
SUPERMARKETS & DRUGSTORES -- 1.12%
4,000 Jitney Jungle Stores of
America Incorporated**. 09/15/07 10.375 4,140,000
3,000 Pueblo Xtra
International
Incorporated........... 08/01/03 9.500 2,857,500
------------
6,997,500
------------
TECHNOLOGY -- 2.57%
12,200 Electronic Retailing
Systems International.. 02/01/04 13.250+ 8,418,000
19,500 InterAct Systems
Incorporated........... 08/01/03 14.000+ 7,605,000
------------
16,023,000
------------
TRANSPORTATION NON-AIR -- 5.98%
3,750 Atlantic Express
Transportation
Corporation **......... 02/01/04 10.750 3,937,500
5,500 Equimar Shipholdings
Limited**.............. 07/01/07 9.875 5,170,000
6,000 Greater Bejing First
Expressways**.......... 06/15/07 9.500 5,340,000
5,000 Guangzhou Shen
Superhighway**......... 08/15/07 10.250 4,600,000
6,750# Navigator Gas Transport
PLC**.................. 06/30/07 10.500 to 12.000 7,265,000
4,750 Stena Shipping.......... 12/15/05 to 06/15/07 8.750 to 10.500 4,993,750
9,750 TFM, S.A. de C.V........ 06/15/09 11.750+ 6,069,375
------------
37,375,625
------------
UTILITIES -- 2.24%
2,250 AES Corporation**....... 11/01/07 8.500 2,210,625
5,750 Calpine Corporation..... 02/01/04 9.250 5,850,625
5,589 Panda Funding
Corporation............ 08/20/12 11.625 5,951,804
------------
14,013,054
------------
Total Corporate Bonds (cost --
$524,446,450)..................... 531,855,429
------------
</TABLE>
31
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- -----------
<C> <S> <C> <C> <C>
CONVERTIBLE BONDS -- 0.71%
CABLE -- 0.43%
$ 2,750 International Cabletel
Incorporated........... 06/15/08 7.000% $ 2,695,000
-----------
COMMUNICATIONS -- 0.28%
1,925 GST Telecommunications
Incorporated........... 12/15/05 13.875+ 1,732,500
-----------
Total Convertible Bonds (cost --
$4,026,406)....................... 4,427,500
-----------
<CAPTION>
NUMBER OF
SHARES
---------
<C> <S> <C> <C> <C>
COMMON STOCK(A) -- 3.20%
CABLE -- 0.04%
11,282 Pegasus Communications Corporation......... 248,909
-----------
COMMUNICATIONS -- 0.55%
25,175 Nextel Communications Incorporated......... 635,669
38,955 PageMart Nationwide Incorporated........... 389,550
27,600 PageMart Wireless Incorporated............. 272,550
337,616 Viatel Incorporated........................ 2,110,100
-----------
3,407,869
-----------
FOOD & BEVERAGE -- 0.00%
240,000 Specialty Foods Corporation................ 24,000
-----------
GAMING -- 1.30%
744,101 Casino America Incorporated................ 2,139,290
768,570 Colorado Gaming & Entertainment Company.... 4,227,135
541,666 Hollywood Casino Corporation............... 1,320,311
364,322 Lady Luck Gaming Corporation............... 409,862
-----------
8,096,598
-----------
GENERAL INDUSTRIAL -- 0.03%
1,400 Communications & Power++................... 210,000
-----------
MEDIA -- 0.19%
12,000 Affiliated Newspaper Investments........... 1,200,000
-----------
RETAIL -- 0.84%
201,289 Barry's Jewelers Incorporated.............. 56,613
346,224 Signet Group PLC........................... 5,193,360
-----------
5,249,973
-----------
SUPERMARKETS & DRUGSTORES -- 0.01%
53,581 Duane Reade Corporation.................... 53,581
-----------
TECHNOLOGY -- 0.24%
594,328 Ampex Corporation.......................... 1,522,966
-----------
Total Common Stock (cost -- $14,514,836)............. 20,013,896
-----------
</TABLE>
32
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- -----------
<C> <S> <C> <C> <C>
PREFERRED STOCK --
5.67%
FINANCE -- 2.11%
140,000 California Federal
Preferred Capital
Corporation............ $ 3,718,750
5,500 Signet Capital Trust
I**.................... 5,417,500
4,000 Superior National
Insurance Group**...... 4,040,000
-----------
13,176,250
-----------
GENERAL
INDUSTRIAL -- 0.68%
27,155 Communications &
Power++(a)............. 2,851,245
1,250 Jordan
Telecommunication
Products(a)............ 1,425,000
-----------
4,276,245
-----------
HEALTHCARE -- 0.79%
4,750 Fresenius Medical Care
Capital Trust.......... 4,916,250
-----------
MEDIA -- 2.09%
80 Source Media
Incorporated(a)........ 2,000,000
9,700 Time Warner
Incorporated(a)........ 11,058,000
-----------
13,058,000
-----------
Total Preferred Stock (cost --
$32,226,104)...................... 35,426,745
-----------
<CAPTION>
NUMBER OF
WARRANTS
----------
<C> <S> <C> <C> <C>
WARRANTS(A) --
0.90%
AEROSPACE --
0.01%
8,400 SabreLiner Corporation.. 84,000
-----------
COMMUNICATIONS --
0.21%
3,750 Globalstar
Telecommunications..... 450,000
15,750 McCaw International
Limited................ 19,687
9,000 RSL Communications
Limited................ 855,000
-----------
1,324,687
-----------
CONSUMER
MANUFACTURING --
0.36%
8,350 AVI Holdings
Incorporated........... 41,750
11,000 Chattem Incorporated.... 462,000
14,000 IFA Capital
Incorporated........... 1,750,000
-----------
2,253,750
-----------
FINANCE -- 0.02%
6,000 Olympic Financial
Limited................ 120,000
-----------
FOOD & BEVERAGE --
0.12%
109,290 Nuco2 Incorporated++.... 1,093
7,250 Packaged Ice
Incorporated........... 725,000
-----------
726,093
-----------
</TABLE>
33
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
--------- ------------
<C> <S> <C> <C> <C>
WARRANTS(A) (CONCLUDED)
GAMING -- 0.05%
76,848 Casino America Incorporated........................... $ 138,326
10,075 HDA Management Corporation............................ 201,500
------------
339,826
------------
RETAIL -- 0.00%
1,080 Cookies USA Incorporated.............................. 5,400
------------
TECHNOLOGY--0.13%
12,200 Electronic Retailing Systems International............ 732,000
19,500 InterAct Systems Incorporated......................... 48,750
------------
780,750
------------
Total Warrants (cost -- $1,884,685)............................. 5,634,506
------------
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
--------- -------- --------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT -- 2.41%
$15,038 Repurchase Agreement dated 11/28/97
with First Chicago National Bank,
collateralized by $14,485,000 U.S.
Treasury Notes, 7.500% due
11/15/01 (value -- $15,339,180);
proceeds: $15,045,143 (cost --
$15,038,000)..................... 12/01/97 5.700% 15,038,000
------------
Total Investments (cost -- $592,136,481) --
98.02%....................................... 612,396,076
Other assets in excess of liabilities --
1.98%........................................ 12,341,178
------------
Net Assets -- 100.00%......................... $624,737,254
============
</TABLE>
- -------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++Illiquid securities representing 1.3% of portfolio assets
(a) Non-income producing security
+ Denotes a step-up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
** 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.
* Yield to maturity at purchase date on zero coupon bond
See accompanying notes to financial statements
34
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1997
<TABLE>
<CAPTION>
LOW DURATION
U.S. U.S. INVESTMENT
GOVERNMENT GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in
securities, at value
(cost -- $210,890,679,
$458,705,744,
$269,542,898 and
$592,136,481,
respectively).......... $ 212,239,238 $465,231,100 $282,463,796 $ 612,396,076
Cash.................... -- -- -- 4,678,446
Receivable for
investments sold....... 30,854,999 36,706,056 -- 31,305,457
Dividends and interest
receivable............. 830,310 3,320,630 6,129,638 10,219,949
Receivable for shares of
beneficial interest
sold................... 212,164 228,133 183,913 1,481,704
Variation margin
receivable............. -- 45,656 20,313 --
Deferred organizational
expenses............... 20,343 -- -- --
Other assets............ 63,045 66,923 91,590 82,677
------------- ------------ ------------ -------------
Total assets............ 244,220,099 505,598,498 288,889,250 660,164,309
------------- ------------ ------------ -------------
LIABILITIES
Payable for investments
purchased.............. 110,396,892 97,575,433 -- 31,189,602
Payable for shares of
beneficial interest
repurchased............ 383,695 746,896 866,821 1,045,641
Dividends payable....... 294,361 927,546 851,209 2,226,471
Payable to affiliates... 127,832 264,760 215,752 574,009
Security sold short, at
value (proceeds --
$36,706,056).......... -- 36,698,571 -- --
Outstanding options
written................ -- 837,500 -- --
Accrued expenses and
other liabilities...... 368,209 32,576 450,886 391,332
------------- ------------ ------------ -------------
Total liabilities....... 111,570,989 137,083,282 2,384,668 35,427,055
------------- ------------ ------------ -------------
NET ASSETS
Beneficial interest --
$0.001 par value
(unlimited amount
authorized)............ 249,769,524 458,950,339 301,030,931 777,767,806
Undistributed
(distributions in
excess of) net
investment income...... (293,600) (927,546) (476,363) 315,338
Accumulated net realized
losses from investment,
futures and options
transactions........... (118,175,373) (98,146,530) (27,005,197) (173,605,485)
Net unrealized
appreciation of
investments, futures
and option............. 1,348,559 8,638,953 12,955,211 20,259,595
------------- ------------ ------------ -------------
Net assets.............. $ 132,649,110 $368,515,216 $286,504,582 $ 624,737,254
============= ============ ============ =============
CLASS A:
Net assets.............. $ 33,648,124 $291,469,659 $212,472,177 $ 272,324,722
------------- ------------ ------------ -------------
Shares outstanding...... 14,210,476 32,593,023 19,586,157 35,676,098
------------- ------------ ------------ -------------
Net asset value and
redemption value per
share.................. $2.37 $8.94 $10.85 $7.63
===== ===== ====== =====
Maximum offering price
per share (net asset
value plus sales charge
of 4.00% of offering
price -- 3.00% for Low
Duration U.S.
Government Income
Fund).................. $2.44 $9.31 $11.30 $7.95
===== ===== ====== =====
CLASS B:
Net assets.............. $ 6,949,119 $ 42,096,904 $ 44,828,530 $ 236,656,015
------------- ------------ ------------ -------------
Shares outstanding...... 2,938,187 4,706,870 4,133,528 31,025,584
------------- ------------ ------------ -------------
Net asset value and
offering price per
share.................. $2.37 $8.94 $10.85 $7.63
===== ===== ====== =====
CLASS C:
Net assets.............. $ 91,700,290 $ 28,132,229 $ 29,203,875 $ 115,756,517
------------- ------------ ------------ -------------
Shares outstanding...... 38,768,100 3,148,821 2,692,205 15,143,416
------------- ------------ ------------ -------------
Net asset value and
offering price per
share.................. $2.37 $8.93 $10.85 $7.64
===== ===== ====== =====
CLASS Y:
Net assets.............. $ 351,577 $ 6,816,424
------------- ------------
Shares outstanding...... 148,583 762,913
------------- ------------
Net asset value,
offering price and
redemption value per
share.................. $2.37 $8.93
===== =====
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1997
---------------------------------------------------
LOW DURATION
U.S. U.S. INVESTMENT
GOVERNMENT GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and dividends.... $11,004,815 $28,056,895 $23,721,042 $59,437,330
----------- ----------- ----------- -----------
EXPENSES:
Investment advisory and
administration........... 819,616 1,979,329 1,464,164 2,918,855
Service fees -- Class A... 128,460 768,384 536,444 637,875
Service and distribution
fees -- Class B.......... 73,444 507,496 489,317 2,259,154
Service and distribution
fees -- Class C.......... 786,357 236,516 220,481 770,294
Transfer agency and
service fees............. 179,024 302,658 263,424 469,013
Custody and accounting.... 95,282 201,436 172,061 302,934
Legal and audit........... 94,714 56,066 130,208 161,379
State registration fees... 62,007 47,033 85,740 122,178
Reports and notices to
shareholders............. 59,995 112,928 140,420 178,541
Amortization of
organizational expense... 47,130 -- -- --
Trustees' fees............ 10,500 10,500 10,500 10,500
Other expenses............ 34,834 6,042 21,022 94,860
----------- ----------- ----------- -----------
2,391,363 4,228,388 3,533,781 7,925,583
----------- ----------- ----------- -----------
Net investment income..... 8,613,452 23,828,507 20,187,261 51,511,747
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED
GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES:
Net realized gains
(losses) from:
Investment transactions.. 2,277,620 1,801,942 5,313,144 (12,530,231)
Futures contracts........ -- (1,156,882) (871,546) --
Options written.......... -- 106,837 41,294 --
Net change in unrealized
appreciation/depreciation
of:
Investments.............. (1,371,009) (1,299,494) 1,792,456 33,236,309
Futures ................. -- 1,854,313 34,313 --
Options written.......... -- 569,711 187,556 --
----------- ----------- ----------- -----------
NET REALIZED AND
UNREALIZED GAINS FROM
INVESTMENT ACTIVITIES.... 906,611 1,876,427 6,497,217 20,706,078
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $ 9,520,063 $25,704,934 $26,684,478 $72,217,825
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................ $ 8,613,452 $ 13,878,583
Net realized gains from investment transactions.. 2,277,620 714,614
Net change in unrealized
appreciation/depreciation of investments........ (1,371,009) (698,960)
------------- -------------
Net increase in net assets resulting from
operations...................................... 9,520,063 13,894,237
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income -- Class A................. (2,934,509) (5,708,538)
Net investment income -- Class B................. (353,643) (442,330)
Net investment income -- Class C................. (5,305,663) (7,717,388)
Net investment income -- Class Y................. (20,260) (17,499)
------------- -------------
Total dividends to shareholders.................. (8,614,075) (13,885,755)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............. 278,839,540 85,715,637
Cost of shares repurchased....................... (354,526,498) (208,663,857)
Proceeds from dividends reinvested............... 4,961,994 7,810,176
------------- -------------
Net decrease in net assets from beneficial
interest transactions........................... (70,724,964) (115,138,044)
------------- -------------
Net decrease in net assets....................... (69,818,976) (115,129,562)
NET ASSETS:
Beginning of year................................ 202,468,086 317,597,648
------------- -------------
End of year...................................... $ 132,649,110 $ 202,468,086
============= =============
</TABLE>
See accompanying notes to financial statements
37
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................ $ 23,828,507 $ 30,669,358
Net realized gains (losses) from investment,
futures and option transactions................. 751,897 (5,634,876)
Net change in unrealized
appreciation/depreciation of investments,
futures and options............................. 1,124,530 (11,158,030)
------------- -------------
Net increase in net assets resulting from
operations...................................... 25,704,934 13,876,452
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income -- Class A................. (18,906,488) (23,685,897)
Net investment income -- Class B................. (2,738,447) (3,913,989)
Net investment income -- Class C................. (1,784,185) (2,575,319)
Net investment income -- Class Y................. (399,385) (494,153)
------------- -------------
Total dividends to shareholders.................. (23,828,505) (30,669,358)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............. 18,010,872 12,039,829
Cost of shares repurchased....................... (114,604,633) (137,034,365)
Proceeds from dividends reinvested............... 13,273,684 17,203,944
------------- -------------
Net decrease in net assets from beneficial
interest transactions........................... (83,320,077) (107,790,592)
------------- -------------
Net decrease in net assets....................... (81,443,648) (124,583,498)
NET ASSETS:
Beginning of year................................ 449,958,864 574,542,362
------------- -------------
End of year...................................... $ 368,515,216 $ 449,958,864
============= =============
</TABLE>
See accompanying notes to financial statements
38
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.............................. $ 20,187,261 $ 22,996,094
Net realized gains from investments, futures and
options transactions.............................. 4,482,892 3,056,319
Net change in unrealized appreciation/depreciation
of investments, futures and options............... 2,014,325 (7,097,681)
------------ ------------
Net increase in net assets resulting from opera-
tions............................................. 26,684,478 18,954,732
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income -- Class A................... (15,134,222) (16,762,230)
Net investment income -- Class B................... (3,079,256) (3,992,202)
Net investment income -- Class C................... (1,925,784) (2,241,662)
------------ ------------
Total dividends to shareholders.................... (20,139,262) (22,996,094)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............... 17,100,249 19,750,042
Cost of shares repurchased......................... (67,140,065) (77,068,314)
Proceeds from dividends reinvested................. 10,181,074 11,757,555
------------ ------------
Net decrease in net assets from beneficial interest
transactions...................................... (39,858,742) (45,560,717)
------------ ------------
Net decrease in net assets......................... (33,313,526) (49,602,079)
NET ASSETS:
Beginning of year.................................. 319,818,108 369,420,187
------------ ------------
End of year........................................ $286,504,582 $319,818,108
============ ============
</TABLE>
See accompanying notes to financial statements
39
<PAGE>
PAINEWEBBER HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................. $ 51,511,747 $ 51,630,478
Net realized losses from investment transactions.. (12,530,231) (16,654,074)
Net change in unrealized appreciation/depreciation
of investments................................... 33,236,309 44,869,407
------------ -------------
Net increase in net assets resulting from
operations....................................... 72,217,825 79,845,811
------------ -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income -- Class A.................. (23,042,879) (23,043,268)
Net investment income -- Class B.................. (18,695,781) (18,655,102)
Net investment income -- Class C.................. (8,733,394) (8,790,237)
------------ -------------
Total dividends to shareholders................... (50,472,054) (50,488,607)
------------ -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.............. 188,961,439 109,863,618
Cost of shares repurchased........................ (161,226,504) (172,117,268)
Proceeds from dividends reinvested................ 21,755,402 20,920,719
------------ -------------
Net increase (decrease) in net assets from
beneficial interest transactions................. 49,490,337 (41,332,931)
------------ -------------
Net increase (decrease) in net assets............. 71,236,108 (11,975,727)
NET ASSETS:
Beginning of year................................. 553,501,146 565,476,873
------------ -------------
End of year (including undistributed net
investment income of $315,338 at November 30,
1997)............................................ $624,737,254 $ 553,501,146
============ =============
</TABLE>
See accompanying notes to financial statements
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Managed Investments Trust (the "Trust") was organized under Massa-
chusetts law by a Declaration of Trust dated November 21, 1986 and is regis-
tered with the Securities and Exchange Commission under the Investment Company
Act of 1940, as amended, as an open-end, diversified investment company. The
Trust is a series mutual fund with six funds: PaineWebber Low Duration U.S.
Government Income Fund ("Low Duration U.S. Government Income Fund"),
PaineWebber U.S. Government Income Fund ("U.S. Government Income Fund"),
PaineWebber Investment Grade Income Fund ("Investment Grade Income Fund"),
PaineWebber High Income Fund ("High Income Fund") (collectively, the "Funds"),
PaineWebber Utility Income Fund and PaineWebber Asia Pacific Growth Fund. The
financial statements for PaineWebber Utility Income Fund and PaineWebber Asia
Pacific Growth Fund are not included herein.
Costs incurred by Low Duration U.S. Government Income Fund in connection with
its organization have been deferred and are being amortized using the straight-
line method not to exceed sixty months from the commencement of operations.
Currently, each Fund offers Class A, Class B, Class C and Class Y shares. Only
Low Duration U.S. Government Income Fund and U.S. Government Income Fund had
Class Y shares outstanding during the period. 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 distribu-
tion 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. Class Y shares have no service
or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. Actual results could differ from those estimates. The following is a
summary of significant accounting policies:
Valuation of Investments--Where market quotations are readily available, port-
folio securities are valued thereon, provided such quotations adequately re-
flect the fair value of the securities, in the judgment of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser
and administrator of the Funds. When market quotations are not readily avail-
able, securities are valued based upon appraisals derived from information con-
cerning those securities or similar securities received from recognized dealers
in those securities. All other securities are valued at fair value as deter-
mined in good faith by or under the direction of the Trust's board of trustees
("board"). The amortized cost method of valuation, which approximates market
value, generally is used to value short-term debt instruments with sixty days
or less remaining to maturity, unless the board determines that this does not
represent fair value.
Repurchase Agreements--The Funds' 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 ac-
crued interest, is at least equal to the repurchase price. In the event of de-
fault of the obligation to repurchase, each Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under cer-
tain 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 of the Funds occasionally participates in joint repur-
chase agreement transactions with other funds managed by Mitchell Hutchins.
Investment Transactions and Investment Income--Investment transactions are re-
corded on the trade date. Realized gains and losses from investment transac-
tions are calculated using the identified cost method. Interest income is re-
corded
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS
on an accrual basis. Dividend income is recorded on the ex-dividend date. Dis-
counts are accreted and premiums are amortized (with the exception of U.S. Gov-
ernment Income Fund) as adjustments to interest income and the identified cost
of investments.
Dollar Rolls--Low Duration U.S. Government Income Fund and U.S. Government In-
come Fund may enter into transactions in which these Funds sell securities for
delivery in the current month and simultaneously contract to repurchase sub-
stantially similar (same type, coupon and maturity) securities on a specified
future date (the "roll period"). During the roll period the Funds forego prin-
cipal and interest paid on the securities. The Funds are compensated by the in-
terest earned on the cash proceeds of the initial sale and by fee income or a
lower repurchase price.
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 (af-
ter adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
Futures Contracts--Upon entering into a financial futures contract, a Fund is
required to pledge to a broker an amount of cash and/or U.S. Government securi-
ties equal to a certain percentage of the contract amount. This amount is known
as the "initial margin." Subsequent payments, known as "variation margin," are
made or received by the Fund each day, depending on the daily fluctuations in
the value of the underlying financial futures contracts. Such variation margin
is recorded for financial statement purposes on a daily basis as unrealized
gain or loss until the financial futures contract is closed, at which time the
net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The U.S. Government Income Fund and Investment Grade Income Fund primarily use
financial futures contracts to manage the average duration of the Fund's port-
folio. However, imperfect correlations between futures contracts and the port-
folio securities being hedged, or market disruptions, do not normally permit
full control of these risks at all times.
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 pur-
chase 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 se-
curity) 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.
The U.S. Government Income Fund and Investment Grade Income Fund primarily use
written options for the enhancement of income to the Funds.
Short Sales "Against the Box"--Each Fund may engage in short sales of securi-
ties it owns (short sales "against the box"). To make delivery to the purchaser
in a short sale, the executing broker borrows the securities being sold short
on behalf of a Fund, and that Fund is obligated to replace the securities bor-
rowed at a date in the future. When a Fund sells
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS
short, it establishes a margin account with the broker effecting the short
sale, and deposits collateral with the broker. In addition, that Fund maintains
with its custodian, in a segregated account, the securities that could be used
to cover the short sale. Each Fund will incur transaction costs, including in-
terest expense, in connection with opening, maintaining and closing short sales
against the box.
The Funds might make a short sale "against the box" in order to hedge against
market risks when Mitchell Hutchins believes that the price of a security may
decline, thereby causing a decline in the value of a security owned by a Fund
or a security convertible into or exchangeable for a security owned by a Fund.
In such case, any loss in a Fund's long position after the short sale should be
reduced by a corresponding gain in the short position. Conversely, any gain in
the long position after the short sale should be reduced by a corresponding
loss in the short position. The extent to which gains or losses in the long po-
sition are reduced will depend upon the amount of the securities sold short
relative to the amount of the securities a Fund owns either directly or indi-
rectly, and in the case where a Fund owns convertible securities, changes in
the investment values or conversion premiums of such securities.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and dis-
tributions from realized capital gains are determined in accordance with fed-
eral 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 fed-
eral tax-basis treatment; temporary differences do not require reclassifica-
tion.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities including mortgage- and as-
set-backed securities held by the Funds to meet their obligations may be af-
fected by economic developments, including those particular to a specific in-
dustry or region. Mortgage- and asset-backed securities may decrease in value
as a result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayments.
WRITTEN OPTION ACTIVITY
Transactions in options written for the year ended November 30, 1997 were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INVESTMENT GRADE
INCOME FUND INCOME FUND
--------------------- --------------------
NUMBER OF NUMBER OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding at November
30, 1996......................... 1,425 $ 823,092 400 $ 249,944
Options written .................. 6,525 3,299,750 -- --
Options terminated in closing
purchase transactions............ (4,450) (2,080,411) (400) (249,944)
Options expired................... (2,300) (1,059,006) -- --
------ ---------- ---- ---------
Options outstanding at November
30, 1997......................... 1,200 $ 983,425 0 $ 0
====== ========== ==== =========
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and Adminis-
tration Contract ("Advisory Contract") with Mitchell Hutchins, under which
Mitchell Hutchins serves as investment adviser and administrator of the Funds.
In accordance with the Advisory Contract, each Fund pays Mitchell Hutchins an
investment advisory and administration fee,
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
which is accrued daily and paid monthly, at the annual rate of 0.50% of each
Fund's average daily net assets. At November 30, 1997, Low Duration U.S. Gov-
ernment Income Fund, U.S. Government Income Fund, Investment Grade Income Fund
and High Income Fund owed Mitchell Hutchins $57,033, $152,217, $117,647 and
$254,310, respectively, in investment advisory and administration fees.
Under a separate contract with Mitchell Hutchins ("Sub-Advisory Contract"),
Pacific Investment Management Company ("PIMCO") serves as the sub-adviser for
Low Duration U.S. Government Income Fund. Under the Sub-Advisory Contract,
Mitchell Hutchins (not the Fund) pays PIMCO a fee, computed daily and payable
monthly, in an amount equal to one-half of the advisory fee received by Mitch-
ell Hutchins from the Fund.
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 sepa-
rate plans of service and/or distribution pertaining to the Class A, Class B
and Class C shares, each Fund pays Mitchell Hutchins monthly service fees at
the annual rate of 0.25% of the average daily net assets of Class A, Class B
and Class C shares and monthly distribution fees at the annual rate of 0.75%
and 0.50% of the average daily net assets of Class B and Class C shares, re-
spectively. At November 30, 1997, Low Duration U.S. Government Income Fund,
U.S. Government Income Fund, Investment Grade Income Fund and High Income Fund
owed Mitchell Hutchins $70,799, $112,543, $98,105 and $319,699, respectively,
in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by the shareholders upon the purchase of Class A shares and the contingent de-
ferred sales charges paid by the shareholders upon certain redemptions of Class
A, Class B and Class C shares. Mitchell Hutchins has informed each Fund that
for the year ended November 30, 1997, it earned $38,493, $166,478, $184,685 and
$1,026,868 in sales charges for the Low Duration U.S. Government Income Fund,
U.S. Government Income Fund, Investment Grade Income Fund and High Income 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 se-
curities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted accord-
ingly. Each Fund will regain record ownership of loaned securities to exercise
certain beneficial rights, however, each Fund may bear the risk of delay in re-
covery of, or even loss of rights in, the securities loaned should the borrower
fail financially. Each Fund receives compensation, which is included in inter-
est 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 bor-
rower plus reasonable administrative and custody fees. Each Fund's lending
agent is PaineWebber, who received $672 in compensation from the U.S. Govern-
ment Income Fund for the year ended November 30, 1997. At November 30, 1997,
the Funds did not have securities loaned.
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 tempo-
rary financing until the settlement of sale or purchase of portfolio securi-
ties, the repurchase or redemption of shares of the Funds at the request of the
shareholders and other temporary or emergency purposes. In connection there-
with, each Fund has agreed to pay a commitment fee, pro rata, based on the rel-
ative 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 November 30, 1997, the Funds did not borrow under the Facil-
ity.
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS
TRANSFER AGENCY SERVICE FEES
Prior to August 1, 1997, each Fund paid PaineWebber an annual fee of $4.00 per
active PaineWebber shareholder account, plus certain out-of-pocket expenses,
for certain services not provided by the Fund's transfer agent. For these serv-
ices for the period ended July 31, 1997, PaineWebber earned $36,963, $73,833,
$48,036, and $81,517 from Low Duration U.S. Government Income Fund, U.S. Gov-
ernment Income Fund, Investment Grade Income Fund and High Income Fund, respec-
tively.
Subsequent to August 1, 1997, PaineWebber provides transfer agency related
services to each Fund pursuant to a delegation of authority from PFPC, Inc.,
each Funds transfer agent, and is compensated for these services by PFPC, Inc.,
not the Funds.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at November 30,
1997 was substantially the same as the cost of securities for financial state-
ment purposes.
At November 30, 1997, the components of the net unrealized appreciation of in-
vestments were as follows:
<TABLE>
<CAPTION>
LOW DURATION U.S. INVESTMENT
U.S. GOVERNMENT GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Gross appreciation
(investments having an
excess of value over
cost)................. $1,753,141 $6,763,402 $13,064,637 $ 33,934,499
Gross depreciation
(investments having an
excess of cost over
value)................ (404,582) (238,046) (143,739) (13,674,904)
---------- ---------- ----------- ------------
Net unrealized
appreciation of
investments........... $1,348,559 $6,525,356 $12,920,898 $ 20,259,595
========== ========== =========== ============
</TABLE>
For the year ended November 30, 1997, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
LOW DURATION U.S. INVESTMENT
U.S. GOVERNMENT GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Purchases............. $607,236,428 $1,223,606,955 $306,444,632 $926,342,679
Sales................. $623,574,176 $1,257,938,876 $350,850,682 $905,563,289
</TABLE>
FEDERAL TAX STATUS
Each Fund intends to distribute all of its taxable income and to comply with
the other requirements of the Internal Revenue Code applicable to regulated in-
vestment companies. Accordingly, no provision for federal income taxes is re-
quired. 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 a federal excise tax.
For the year ended November 30, 1997, the reclassifications arising from per-
manent "book/tax" differences resulting in increases (decreases) to the compo-
nents of net assets as follows:
<TABLE>
<CAPTION>
UNDISTRIBUTED (DISTRIBUTIONS ACCUMULATED
IN EXCESS OF) NET INVESTMENT NET REALIZED BENEFICIAL
INCOME GAINS (LOSSES) INTEREST
---------------------------- -------------- -----------
<S> <C> <C> <C>
Low Duration U.S.
Government Income Fund. $149,148 -- $ (149,148)
U.S. Government Income
Fund................... 196,635 $28,873,567 (29,070,202)
Investment Grade Income
Fund................... 10,103 11,682,583 (11,692,686)
High Income Fund........ 135,346 47,438,076 (47,573,422)
</TABLE>
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Permanent "book/tax" differences are primarily attributable to the expiration
of capital loss carryforwards.
At November 30, 1997, Low Duration U.S. Government Income Fund, U.S. Govern-
ment Income Fund, Investment Grade Income Fund and High Income Fund had net
capital loss carryforwards of $118,175,373, $96,018,216, $26,939,638 and
$170,835,309, respectively. These loss carryforwards are available as reduc-
tions, to the extent provided in the regulations, of future net realized capi-
tal gains, and will expire between November 30, 1998 and November 30, 2005. To
the extent that such losses are used to offset future net realized capital
gains, it is probable that these gains will not be distributed.
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized for each Fund. 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>
LOW DURATION
U.S. GOVERNMENT
INCOME FUND
YEAR ENDED
NOVEMBER 30,
1997:
Shares sold..... 113,760,103 $ 267,296,194 1,233,865 $ 2,895,645 3,650,806 $ 8,554,742 39,524 $ 92,959
Shares
repurchased.... (130,737,967) (307,187,448) (1,200,248) (2,819,918) (18,934,893) (44,424,090) (40,520) (95,042)
Shares converted
from Class B to
Class A........ 481,142 1,132,233 (481,142) (1,132,233) -- -- -- --
Dividends
reinvested..... 409,516 960,304 101,318 237,798 1,596,762 3,745,544 7,819 18,348
------------ ------------- ----------- ------------ ----------- ------------ -------- -----------
Net increase
(decrease)..... (16,087,206) $ (37,798,717) (346,207) $ (818,708) (13,687,325) $(32,123,804) 6,823 $ 16,265
============ ============= =========== ============ =========== ============ ======== ===========
YEAR ENDED
NOVEMBER 30,
1996:
Shares sold..... 33,345,282 $ 77,185,738 1,056,888 $ 2,465,649 2,528,030 $ 5,896,920 71,997 $ 167,330
Shares
repurchased.... (58,723,622) (136,218,122) (1,671,128) (3,877,425) (29,435,054) (68,397,449) (73,823) (170,861)
Shares converted
from Class B to
Class A........ 131,800 304,321 (131,800) (304,321) -- -- -- --
Dividends
reinvested..... 878,124 2,041,079 122,139 283,662 2,354,265 5,470,009 6,638 15,426
------------ ------------- ----------- ------------ ----------- ------------ -------- -----------
Net increase
(decrease)..... (24,368,416) $ (56,686,984) (623,901) $ (1,432,435) (24,552,759) $(57,030,520) 4,812 $ 11,895
============ ============= =========== ============ =========== ============ ======== ===========
U.S. GOVERNMENT
INCOME FUND
YEAR ENDED
NOVEMBER 30,
1997:
Shares sold..... 448,305 $ 3,915,986 476,566 $ 4,168,910 513,532 $ 4,489,464 620,112 $ 5,436,512
Shares
repurchased.... (8,440,372) (73,719,107) (2,295,981) (20,006,468) (1,756,331) (15,337,064) (633,559) (5,541,994)
Shares converted
from Class B to
Class A........ 638,153 5,617,512 (638,038) (5,617,512) -- -- -- --
Dividends
reinvested..... 1,161,115 10,151,112 185,612 1,622,016 128,773 1,124,426 43,054 376,130
------------ ------------- ----------- ------------ ----------- ------------ -------- -----------
Net increase
(decrease)..... (6,192,799) $ (54,034,497) (2,271,841) $(19,833,054) (1,114,026) $ (9,723,174) 29,607 $ 270,648
============ ============= =========== ============ =========== ============ ======== ===========
YEAR ENDED
NOVEMBER 30,
1996:
Shares sold..... 306,752 $ 2,704,540 497,410 $ 4,426,086 256,396 $ 2,270,244 299,365 $ 2,638,959
Shares
repurchased.... (10,215,853) (89,963,321) (2,756,327) (24,279,586) (2,095,274) (18,501,139) (492,959) (4,290,319)
Shares converted
from Class B to
Class A........ 68,275 595,688 (68,267) (595,688) -- -- -- --
Dividends
reinvested..... 1,441,194 12,708,998 263,381 2,322,854 192,882 1,700,766 53,532 471,326
------------ ------------- ----------- ------------ ----------- ------------ -------- -----------
Net decrease.... (8,399,632) $ (73,954,095) (2,063,803) $(18,126,334) (1,645,996) $(14,530,129) (140,062) $(1,180,034)
============ ============= =========== ============ =========== ============ ======== ===========
</TABLE>
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SHARES OF BENEFICIAL INTEREST
(concluded)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT GRADE INCOME
FUND
YEAR ENDED NOVEMBER 30,
1997:
Shares sold............. 542,798 $ 5,735,184 621,479 $ 6,583,886 450,938 $ 4,781,179
Shares repurchased...... (4,130,806) (43,486,178) (1,346,645) (14,139,975) (904,683) (9,513,912)
Shares converted from
Class B to Class A..... 802,509 8,484,160 (802,826) (8,484,160) -- --
Dividends reinvested.... 728,494 7,676,225 146,738 1,544,887 91,141 959,962
----------- ------------ ----------- ------------ ----------- ------------
Net decrease............ $(2,057,005) $(21,590,609) $(1,381,254) $(14,495,362) $ (362,604) $ (3,772,771)
=========== ============ =========== ============ =========== ============
YEAR ENDED NOVEMBER 30,
1996:
Shares sold............. 694,833 $ 7,241,666 790,259 $ 8,263,221 407,391 $ 4,245,155
Shares repurchased...... (4,369,069) (45,365,354) (1,914,223) (19,907,506) (1,132,379) (11,795,454)
Shares converted from
Class B to Class A..... 244,309 2,526,391 (244,394) (2,526,391) -- --
Dividends reinvested.... 822,442 8,550,479 195,960 2,037,499 112,477 1,169,577
----------- ------------ ----------- ------------ ----------- ------------
Net decrease............ (2,607,485) $(27,046,818) (1,172,398) $(12,133,177) (612,511) $ (6,380,722)
=========== ============ =========== ============ =========== ============
HIGH INCOME FUND
YEAR ENDED NOVEMBER 30,
1997:
Shares sold............. 8,419,577 $ 63,247,235 10,328,507 $ 77,493,859 6,393,414 $ 48,220,345
Shares repurchased...... (9,189,251) (69,169,822) (7,627,276) (57,048,223) (4,666,813) (35,008,459)
Shares converted from
Class B to Class A..... 1,959,816 14,783,489 (1,960,888) (14,783,489) -- --
Dividends reinvested.... 1,353,574 10,173,912 952,658 7,153,842 588,027 4,427,648
----------- ------------ ----------- ------------ ----------- ------------
Net increase............ 2,543,716 $ 19,034,814 1,693,001 $ 12,815,989 2,314,628 $ 17,639,534
=========== ============ =========== ============ =========== ============
YEAR ENDED NOVEMBER 30,
1996:
Shares sold............. 3,790,332 $ 27,178,599 8,214,718 $ 58,501,093 3,392,556 $ 24,183,926
Shares repurchased...... (8,288,303) (58,543,490) (9,936,550) (70,304,426) (6,108,246) (43,269,352)
Shares converted from
Class B to Class A..... 496,614 3,557,693 (496,939) (3,557,693) -- --
Dividends reinvested.... 1,394,710 9,900,817 921,703 6,543,700 629,745 4,476,202
----------- ------------ ----------- ------------ ----------- ------------
Net decrease............ (2,606,647) $(17,906,381) (1,297,068) $ (8,817,326) (2,085,945) $(14,609,224)
=========== ============ =========== ============ =========== ============
</TABLE>
47
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED NOVEMBER 30, MAY 3, 1993#
------------------------------------ TO NOVEMBER 30,
1997 1996 1995 1994 1993
------- ------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.50
------ ------ ------ ------ ------
Net investment income... 0.13 0.14 0.13 0.12 0.07
Net realized and
unrealized gains
(losses) from
investments,
futures and options.... 0.02 0.01 0.09 (0.29) (0.02)
------ ------ ------ ------ ------
Net increase (decrease)
in net asset value from
operations............. 0.15 0.15 0.22 (0.17) 0.05
------ ------ ------ ------ ------
Dividends from net
investment income...... (0.13) (0.14) (0.13) (0.12) (0.07)
------ ------ ------ ------ ------
Contribution to capital
from adviser........... -- -- -- 0.06 --
------ ------ ------ ------ ------
Net asset value, end of
period................. $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48
====== ====== ====== ====== ======
Total investment
return(1).............. 6.67% 6.46% 10.25% (4.50)%** 1.88%
====== ====== ====== ====== ======
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $33,648 $71,216 $127,961 $158,712 $551,243
Expenses to average net
assets(2).............. 1.04% 1.21% 1.15% 0.84% 0.81%*
Net investment income to
average net assets(2).. 5.72% 5.84% 5.89% 5.16% 4.85%*
Portfolio turnover rate. 359% 210% 242% 246% 97%
</TABLE>
- ---------
# Commencement of issuance of shares
* Annualized
** Net of $0.06 contribution of capital from adviser. If such contribution had
not been made the total investment returns would have been (7.02)% for Class
A, (7.74)% for Class B and (7.50)% for Class C.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results for Class A, Class B and Class C would be lower if sales charges
were included. Total investment return for periods less than one year has
not been annualized.
(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 0.88% and 5.12%
for Class A, 1.66% and 4.35% for Class B, and 1.39% and 4.61% for Class C.
48
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ------------------------------------------------ ------------------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE YEARS ENDED MAY 3, 1993# MAY 3, 1993#
NOVEMBER 30, TO FOR THE YEARS ENDED NOVEMBER 30, TO
- ------------------------------- NOVEMBER 30, ------------------------------------- NOVEMBER 30,
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------ ------ ------ ------- ------------ ------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.50 $ 2.35 $ 2.34 $ 2.25 $ 2.47 $ 2.50
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.11 0.12 0.11 0.10 0.06 0.12 0.12 0.12 0.11 0.06
0.02 0.01 0.09 (0.29) (0.02) 0.02 0.01 0.09 (0.28) (0.03)
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.13 0.13 0.20 (0.19) 0.04 0.14 0.13 0.21 (0.17) 0.03
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.11) (0.12) (0.11) (0.10) (0.06) (0.12) (0.12) (0.12) (0.11) (0.06)
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
-- -- -- 0.06 -- -- -- -- 0.06 --
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.47
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
5.81% 5.60% 9.30% (5.24)%** 1.47% 6.05% 5.82% 9.60% (4.99)%** 1.20%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$6,949 $7,716 $9,147 $13,382 $31,706 $91,700 $123,203 $180,169 $296,182 $1,186,181
1.87% 2.03% 2.02% 1.62% 1.62%* 1.64% 1.80% 1.75% 1.36% 1.35%*
4.80% 4.99% 5.03% 4.40% 4.31%* 5.05% 5.22% 5.31% 4.65% 4.52%*
359% 210% 242% 246% 97% 359% 210% 242% 246% 97%
<CAPTION>
CLASS Y
- ------------------------------------------------
FOR THE YEARS FOR THE PERIOD
ENDED OCTOBER 20
NOVEMBER 30, 1995# TO
- ------------------------- NOVEMBER 30,
1997 1996 1995
- ------- ------- --------------
<S> <C> <C>
$ 2.35 $ 2.34 $ 2.33
- ------ ------ ------
0.14 0.14 0.01
0.02 0.01 0.01
- ------ ------ ------
0.16 0.15 0.02
- ------ ------ ------
(0.14) (0.14) (0.01)
- ------ ------ ------
-- -- --
- ------ ------ ------
$ 2.37 $ 2.35 $ 2.34
====== ====== ======
6.87% 6.64% 0.83%
====== ====== ======
$ 352 $ 333 $ 321
0.86% 0.99% 0.99%*
5.82% 6.00% 5.87%*
359% 210% 242%
</TABLE>
49
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year....... $ 8.86 $ 9.12 $ 8.50 $ 10.03 $ 9.98
-------- -------- -------- -------- --------
Net investment income.... 0.54 0.55 0.58 0.60 0.67
Net realized and
unrealized gains
(losses) from
investments, futures and
options................. 0.08 (0.26) 0.62 (1.53) 0.05
-------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations.............. 0.62 0.29 1.20 (0.93) 0.72
-------- -------- -------- -------- --------
Dividends from net
investment income....... (0.54) (0.55) (0.58) (0.60) (0.67)
-------- -------- -------- -------- --------
Net asset value, end of
year.................... $ 8.94 $ 8.86 $ 9.12 $ 8.50 $ 10.03
======== ======== ======== ======== ========
Total investment
return(1)............... 7.27% 3.39% 14.70% (9.62)% 7.38%
======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of year
(000's)................. $291,470 $343,836 $430,285 $428,722 $648,923
Expenses to average net
assets.................. 0.94% 0.94% 1.03%(2) 0.95% 0.91%
Net investment income to
average net assets...... 6.15% 6.24% 6.65%(2) 6.48% 6.60%
Portfolio turnover rate.. 322% 359% 206% 358% 83%
</TABLE>
- ---------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends 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 would
be lower if sales charges were included.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
50
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ----------------------------------------------- ------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30, FOR THE YEARS ENDED NOVEMBER 30,
- ----------------------------------------------- ------------------------------------------------
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------- ------- ------- ------- -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.87 $ 9.12 $ 8.50 $ 10.03 $ 9.98 $ 8.86 $ 9.11 $ 8.49 $10.02 $ 9.98
----- ------ ------ ------- ------ ----- ------ ------ ------ ------
0.47 0.48 0.51 0.53 0.60 0.49 0.50 0.53 0.55 0.62
0.07 (0.25) 0.63 (1.53) 0.05 0.07 (0.25) 0.63 (1.53) 0.04
----- ------ ------ ------- ------ ----- ------ ------ ------ ------
0.54 0.23 1.14 (1.00) 0.65 0.56 0.25 1.16 (0.98) 0.66
----- ------ ------ ------- ------ ----- ------ ------ ------ ------
(0.47) (0.48) (0.52) (0.53) (0.60) (0.49) (0.50) (0.54) (0.55) (0.62)
----- ------ ------ ------- ------ ----- ------ ------ ------ ------
$ 8.94 $ 8.87 $ 9.12 $ 8.50 $10.03 $ 8.93 $ 8.86 $ 9.11 $ 8.49 $10.02
===== ====== ====== ======= ====== ===== ====== ====== ====== ======
6.34% 2.72% 13.81% (10.31)% 6.57% 6.62% 2.98% 14.12% (10.08)% 6.75%
===== ====== ====== ======= ====== ===== ====== ====== ====== ======
$42,097 $61,873 $82,469 $99,581 $161,158 $28,132 $37,754 $53,832 $68,400 $143,473
1.69% 1.70% 1.81%(2) 1.72% 1.66% 1.44% 1.45% 1.55%(2) 1.45% 1.40%
5.40% 5.47% 5.88%(2) 5.71% 5.79% 5.66% 5.74% 6.17%(2) 5.99% 6.06%
322% 359% 206% 358% 83% 322% 359% 206% 358% 83%
</TABLE>
51
<PAGE>
PAINEWEBBER U.S. GOVERNMENT 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 NOVEMBER 30,
-----------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $8.86 $ 9.11 $ 8.49 $10.02 $ 9.97
----- ------ ------ ------ ------
Net investment income............... 0.56 0.57 0.61 0.62 0.70
Net realized and unrealized gains
(losses) from investments, futures
and options........................ 0.07 (0.25) 0.62 (1.53) 0.05
----- ------ ------ ------ ------
Net increase (decrease) from
investment operations.............. 0.63 0.32 1.23 (0.91) 0.75
----- ------ ------ ------ ------
Dividends from net investment
income............................. (0.56) (0.57) (0.61) (0.62) (0.70)
----- ------ ------ ------ ------
Net asset value, end of year........ $8.93 $ 8.86 $ 9.11 $ 8.49 $10.02
===== ====== ====== ====== ======
Total investment return(1).......... 7.43% 3.81% 15.06% (9.37)% 7.69%
===== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year (000's)..... $6,816 $6,495 $7,957 $4,955 $6,232
Expenses to average net assets...... 0.67% 0.64% 0.71%(2) 0.65% 0.62%
Net investment income to average net
assets............................. 6.41% 6.53% 6.96%(2) 6.76% 6.87%
Portfolio turnover rate............. 322% 359% 206% 358% 83%
</TABLE>
- ---------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends 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 reorganization expenses of 0.03%.
52
<PAGE>
[This Page Intentionally Left Blank]
53
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year....... $10.59 $10.68 $ 9.67 $11.08 $10.38
------ ------ ------ ------ ------
Net investment income.... 0.74 0.73 0.76 0.77 0.79
Net realized and
unrealized gains
(losses) from
investments, futures and
options................. 0.26 (0.09) 1.01 (1.41) 0.70
------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations.............. 1.00 0.64 1.77 (0.64) 1.49
------ ------ ------ ------ ------
Dividends from net
investment income....... (0.74) (0.73) (0.76) (0.77) (0.79)
------ ------ ------ ------ ------
Net asset value, end of
year.................... $10.85 $10.59 $10.68 $ 9.67 $11.08
====== ====== ====== ====== ======
Total investment
return(1)............... 9.88% 6.33% 18.95% (5.99)% 14.77%
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of year
(000's)................. $212,472 $229,117 $258,898 $271,553 $204,418
Expenses to average net
assets.................. 1.03% 0.94% 0.95% 0.97% 0.96%
Net investment income to
average net assets...... 7.07% 7.02% 7.42% 7.50% 7.24%
Portfolio turnover rate.. 109% 115% 149% 142% 27%
</TABLE>
- ---------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year, reinvestment of all dividends 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 would be
lower if sales charges were included.
54
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- -------------------------------------------- --------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30, FOR THE YEARS ENDED NOVEMBER 30,
- -------------------------------------------- --------------------------------------------
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.58 $10.67 $ 9.67 $11.07 $10.38 $10.59 $10.68 $ 9.67 $11.08 $10.38
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.66 0.65 0.68 0.69 0.71 0.69 0.68 0.70 0.72 0.74
0.27 (0.09) 1.00 (1.40) 0.69 0.26 (0.09) 1.01 (1.41) 0.70
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.93 0.56 1.68 (0.71) 1.40 0.95 0.59 1.71 (0.69) 1.44
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.66) (0.65) (0.68) (0.69) (0.71) (0.69) (0.68) (0.70) (0.72) (0.74)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$10.85 $10.58 $10.67 $ 9.67 $11.07 $10.85 $10.59 $10.68 $ 9.67 $11.08
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
9.17% 5.54% 17.97% (6.60)% 13.81% 9.34% 5.80% 18.37% (6.40)% 14.21%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$44,829 $58,364 $71,372 $69,359 $52,301 $29,204 $32,337 $39,150 $45,473 $47,527
1.78% 1.68% 1.70% 1.72% 1.70% 1.53% 1.44% 1.45% 1.45% 1.44%
6.31% 6.27% 6.67% 6.73% 6.40% 6.57% 6.51% 6.95% 6.99% 6.61%
109% 115% 149% 142% 27% 109% 115% 149% 142% 27%
</TABLE>
55
<PAGE>
PAINEWEBBER HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
-------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year.................... $ 7.35 $ 6.96 $ 7.14 $ 8.73 $ 7.92
------ ------ ------ ------ ------
Net investment income....... 0.69 0.72 0.79 0.86 0.89
Net realized and unrealized
gains (losses) from
investments................ 0.27 0.37 (0.17) (1.59) 0.83
------ ------ ------ ------ ------
Net increase (decrease) from
investment operations...... 0.96 1.09 0.62 (0.73) 1.72
------ ------ ------ ------ ------
Dividends from net
investment income.......... (0.68) (0.70) (0.80) (0.86) (0.91)
------ ------ ------ ------ ------
Net asset value, end of
year....................... $ 7.63 $ 7.35 $ 6.96 $ 7.14 $ 8.73
====== ====== ====== ====== ======
Total investment return(1).. 13.59% 16.55% 9.01% (9.20)% 22.89%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year
(000's).................... $272,325 $243,564 $248,619 $268,397 $360,281
Expenses to average net
assets..................... 0.98% 0.96% 0.93% 0.91% 0.93%
Net investment income to
average net assets......... 9.21% 10.10% 11.17% 10.43% 10.61%
Portfolio turnover rate..... 160% 142% 94% 156% 182%
</TABLE>
- -------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year, reinvestment of all dividends 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 would be
lower if sales charges were included.
56
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ------------------------------------------------- ------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30, FOR THE YEARS ENDED NOVEMBER 30,
- ------------------------------------------------- ------------------------------------------------
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -------- -------- -------- -------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7.35 $ 6.95 $ 7.14 $ 8.72 $ 7.91 $ 7.36 $ 6.97 $ 7.15 $ 8.74 $ 7.92
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
0.63 0.66 0.74 0.80 0.83 0.65 0.68 0.76 0.82 0.85
0.27 0.39 (0.18) (1.58) 0.82 0.27 0.38 (0.18) (1.59) 0.82
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
0.90 1.05 0.56 (0.78) 1.65 0.92 1.06 0.58 (0.77) 1.67
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(0.62) (0.65) (0.75) (0.80) (0.84) (0.64) (0.67) (0.76) (0.82) (0.85)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
$ 7.63 $ 7.35 $ 6.95 $ 7.14 $ 8.72 $ 7.64 $ 7.36 $ 6.97 $ 7.15 $ 8.74
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
12.76% 15.86% 8.05% (9.77)% 21.89% 13.03% 15.96% 8.45% (9.62)% 22.19%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
$236,656 $215,492 $212,946 $235,480 $286,525 $115,757 $94,445 $103,911 $115,196 $176,161
1.73% 1.71% 1.68% 1.64% 1.66% 1.48% 1.47% 1.44% 1.38% 1.39%
8.45% 9.34% 10.42% 9.66% 9.69% 8.66% 9.60% 10.63% 9.91% 9.81%
160% 142% 94% 156% 182% 160% 142% 94% 156% 182%
</TABLE>
57
<PAGE>
PAINEWEBBER
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
PaineWebber Managed Investments Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of PaineWebber Low Duration U.S.
Government Income Fund, PaineWebber U.S. Government Income Fund, PaineWebber
Investment Grade Income Fund and PaineWebber High Income Fund (four of the
portfolios of PaineWebber Managed Investments Trust) (the "Funds") as of
November 30, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned at November 30, 1997, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber Low Duration U.S. Government Income Fund, PaineWebber U.S.
Government Income Fund, PaineWebber Investment Grade Income Fund and
PaineWebber High Income Fund at November 30, 1997, 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 the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
LOGO
New York, New York
January 23, 1998
58
<PAGE>
PAINEWEBBER
TAX INFORMATION
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 (November
30, 1997) as to the federal tax status of distributions received by
shareholders during such fiscal year from each Fund. Accordingly, we are
advising you that all of the distributions paid by PaineWebber Low Duration
U.S. Government Income Fund, PaineWebber U.S. Government Income Fund,
PaineWebber Investment Grade Income Fund and PaineWebber High Income Fund
during the fiscal year were derived from net investment income and are taxable
as ordinary income. Additionally, 2.80% of the distributions paid by
PaineWebber High Income Fund qualify for the dividend received deduction
available for corporate shareholders.
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 reporting.
Because each Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1997. The second notification, which
will reflect the amounts to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and is
mailed in January 1998. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each Fund.
59
