<PAGE>
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
RECENT PERFORMANCE RESULTS--(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
05/31/95 11/30/94 05/31/94 ENDED 05/31/95 ENDED 05/31/95
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $2.32 $2.25 $2.30 6.69% 6.20%
------------------------------------------------------------------------
Class B Shares 2.32 2.25 2.30 5.81% 5.75%
------------------------------------------------------------------------
Class D Shares 2.32 2.25 2.30 6.10% 5.90%
------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<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%
-----------------------------------------------------------------------------
01/01/95 - 05/31/95 2.25 2.32 -- 0.0517 5.46%
-----------------------------------------------------------------------------
Total: $0.0000 $0.2546
-----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
05/31/95: 3.33%
-----------------------------------------------------------------------------
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%
-----------------------------------------------------------------------------
01/01/95 - 05/31/95 2.25 2.32 -- 0.0443 5.12%
-----------------------------------------------------------------------------
Total: $0.0000 $0.2164
-----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
05/31/95: 1.68%
-----------------------------------------------------------------------------
Performance Summary Class D 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 -- $0.0730 2.14%
-----------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1094 -4.89%
-----------------------------------------------------------------------------
01/01/95 - 05/31/95 2.25 2.32 -- 0.0465 5.23%
-----------------------------------------------------------------------------
Total: $0.0000 $0.2289
-----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
05/31/95: 2.23%
-----------------------------------------------------------------------------
</TABLE>
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
---------------------------------------------------------
CLASS CLASS
---------------------------------------------------------
A* B** D*** A* B** D***
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended
06/30/95 8.64% 7.73% 8.03% 5.36% 4.73% 8.03%
------------------------------------------------------------------------------
Five Years Ended
06/30/95 N/A N/A N/A N/A N/A N/A
------------------------------------------------------------------------------
Commencement of
Operations Through
06/30/95+ 1.55% 0.76% 1.03% 0.08% (0.62)% 1.03%
------------------------------------------------------------------------------
</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 for
Class A and Class B shares if sales charges were included.
* Maximum sales charge for Class A shares is 3.0% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 3.0% and is
reduced to 0% after 4 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
***Class D shares are sold without initial or contingent deferred sales
charges but bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations was May 3, 1993 for Class A, Class B and Class D
shares.
The investment return and principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
1
<PAGE>
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------------- -------------- ------------
Government National Mortgage Association Certificates - 30.66%
<C> <S> <C> <C> <C>
$ 249 GNMA.................... 02/15/23 8.000% $ 255,436
21,677 GNMA.................... 01/15/16 to 09/15/20 10.500 23,749,918
10,284 GNMA.................... 03/15/10 to 01/15/18 11.500 11,556,472
11,031 GNMA ARM................ 05/20/22 6.000 11,057,110
37,444 GNMA ARM................ 06/20/23 6.500 37,956,804
25,000 GNMA ARM................ TBA 7.000 25,593,750
------------
Total Government National Mort-
gage Association Certificates
(cost - $111,017,280)........... 110,169,490
------------
<CAPTION>
Federal Home Loan Mortgage Corporation Certificates - 8.81%
<C> <S> <C> <C> <C>
6,133 FHLMC................... 05/01/16 8.500 6,296,313
984 FHLMC................... 07/01/09 to 02/01/10 9.000 1,017,413
6,487 FHLMC................... 08/01/20 9.500 6,740,446
2,198 FHLMC................... 11/01/16 9.750 2,353,329
3,222 FHLMC................... 03/01/13 to 09/01/20 11.000 3,469,856
5,423 FHLMC................... 03/01/13 to 06/01/20 11.500 5,867,308
301 FHLMC ARM............... 01/01/23 6.795 310,965
1,409 FHLMC Gold.............. 10/01/20 to 11/01/20 10.500 1,521,256
3,769 FHLMC Gold.............. 05/01/12 to 12/01/20 11.000 4,089,339
------------
Total Federal Home Loan Mortgage
Corporation Certificates
(cost - $31,813,405)............ 31,666,225
------------
<CAPTION>
Federal National Mortgage Association Certificates - 8.05%
<C> <S> <C> <C> <C>
5,522 FNMA.................... 02/01/05 9.000 5,765,581
8,303 FNMA.................... 04/01/10 to 12/01/15 9.250 8,663,996
1,089 FNMA.................... 03/01/06 to 12/01/09 9.500 1,138,965
1,861 FNMA.................... 01/01/13 to 06/01/19 10.250 2,007,339
4,416 FNMA.................... 11/01/10 to 04/01/22 10.500 4,642,074
6,160 FNMA.................... 07/01/13 to 05/01/20 11.000 6,702,701
------------
Total Federal National Mortgage
Association Certificates
(cost - $29,013,307)............ 28,920,656
------------
<CAPTION>
Collateralized Mortgage Obligations - 49.35%
<C> <S> <C> <C> <C>
FHLMC Series 35, Class
19,550 PA..................... 06/17/06 6.750 19,562,343
FHLMC Series 158, Class
14,800 E...................... 05/15/21 9.500 16,618,017
FNMA REMIC Trust 1992-
19,713 213, Class A........... 04/25/18 7.000 19,694,823
Bear Stearns, Series
6,133 1989-1, Class D........ 06/01/17 9.000 6,298,406
2,838 Collateralized Mortgage
Obligation Trust, Se-
ries 28, Class C....... 12/01/10 8.500 2,852,569
17,491 Greenwich Capital Ac-
ceptance Corp.,
Series 1994-LB3, Class
A-1.................... 08/25/24 6.617* 17,687,751
Prudential Bache Mort-
gage Trust, Series 2,
2,597 Class C................ 06/01/18 9.200 2,693,496
Resolution Trust Corp.,
Series 1994-C1, Class
1,882 A2A.................... 06/25/26 6.800 1,884,430
Resolution Trust Corp.,
Series 1994-1, Class
9,077 A2A.................... 09/25/29 7.750 9,043,485
6,791 Ryland Mortgage Accept-
ance Corp., Series 76,
Class B................ 08/01/18 9.000 7,100,309
23,499 Saxon Mortgage Securi-
ties Corp., Series
1994-5,
Class A1............... 05/25/24 6.827* 24,214,866
10,071 Saxon Mortgage Securi-
ties Corp., Series
1994-8,
Class A2............... 07/25/24 7.252* 10,381,829
18,068 Saxon Mortgage Securi-
ties Corp., Series
1994-6,
Class A................ 06/25/24 7.077* 18,629,778
20,105 Saxon Mortgage Securi-
ties Corp., Series
1994-10,
Class A2............... 09/25/24 7.327* 20,628,917
------------
Total Collateralized Mortgage Ob-
ligations
(cost - $173,734,766)........... 177,291,019
------------
</TABLE>
2
<PAGE>
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) MAY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------- -------------- ------------
Agency Backed Obligations - 5.46%
<C> <S> <C> <C> <C>
Federal Home Loan Bank
$10,000 Consolidated Bonds..... 12/30/96 9.500% $ 10,519,400
4,500 Federal Home Loan Mort-
gage Corporation Dis-
count Notes............ 06/20/95 5.870@ 4,486,059
Federal National Mort-
gage Association Dis-
4,600 count Notes............ 06/12/95 5.880@ 4,591,735
------------
Total Agency Backed Obligations
(cost - $19,541,022).............. 19,597,194
------------
Treasury Notes - 0.84%
United States Treasury
Notes (cost -
3,000 $3,013,185)........... 04/30/97 6.500 3,033,750
------------
Commercial Paper - 4.48%
National Rural Utility
4,000 Financial Corporation.. 06/22/95 5.940@ 3,986,140
US West Capital FDG
12,200 Inc. .................. 07/19/95 5.940@ 12,098,215
------------
Total Commercial Paper (cost -
$16,089,516)..................... 16,084,355
------------
Repurchase Agreement - 0.65%
2,341 Repurchase Agreement
dated 05/31/95, with
State Street Bank &
Trust Co., collateral-
ized by $2,385,000
Treasury Notes, 4.625%
due 02/29/96; proceeds
$2,341,358 (cost -
$2,341,000)........... 06/01/95 5.500 2,341,000
------------
Total Investments (cost -
$386,563,481) - 108.30%.......... 389,103,689
Liabilities in excess of other as-
sets - (8.30%).................... (29,819,201)
------------
Net Assets - 100.00%............... $359,284,488
============
</TABLE>
--------------------
* Floating rate mortgage backed security.
@ Yield to maturity.
ARM - Adjustable Rate Mortgage Security. The interest rate shown is the
current rate as of May 31, 1995.
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced.
See accompanying notes to financial statements
3
<PAGE>
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost - $386,563,481)........ $389,103,689
Receivable for investments sold.................................. 94,764,688
Interest receivable.............................................. 3,179,803
Receivable for shares of beneficial interest sold................ 69,828
Deferred organizational costs.................................... 137,319
Other assets..................................................... 78,100
------------
Total assets..................................................... 487,333,427
------------
Liabilities
Payable for investments purchased................................ 122,130,923
Payable for shares of beneficial interest repurchased............ 4,813,995
Dividends payable................................................ 750,555
Payable to affiliates............................................ 341,079
Accrued expenses and other liabilities........................... 12,387
------------
Total liabilities................................................ 128,048,939
------------
Net Assets
Beneficial interest - $0.001 par value (unlimited amount
authorized)..................................................... 477,062,320
Overdistributed net investment income............................ (1,179,730)
Accumulated net realized losses from investment transactions..... (119,138,310)
Net unrealized appreciation of investments....................... 2,540,208
------------
Net assets applicable to shares outstanding...................... $359,284,488
============
Class A:
Net assets....................................................... $132,662,498
------------
Shares outstanding............................................... 57,187,885
------------
Net asset and redemption value per share......................... $2.32
=====
Maximum offering price per share (net asset value plus sales
charge of 3.00% of offering price).............................. $2.39
=====
Class B:
Net assets....................................................... $ 10,240,903
------------
Shares outstanding............................................... 4,415,142
------------
Net asset value and offering price per share..................... $2.32
=====
Class D:
Net assets....................................................... $216,381,087
------------
Shares outstanding............................................... 93,328,825
------------
Net asset value, offering price and redemption value per share... $2.32
=====
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
MAY 31, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income:
Interest........................................................... $13,989,402
-----------
Expenses:
Investment advisory and administration............................. 993,254
Service fees - Class A............................................. 179,608
Service and distribution fees - Class B............................ 55,922
Service and distribution fees - Class D............................ 909,114
Transfer agency and service fees................................... 224,902
Custody and accounting............................................. 199,720
Reports and notices to shareholders................................ 103,944
Legal and audit.................................................... 102,960
Federal and state registration fees................................ 74,136
Amortization of organizational expense............................. 24,284
Trustees' fees..................................................... 2,730
Other expenses..................................................... 33,299
-----------
2,903,873
-----------
Net investment income.............................................. 11,085,529
-----------
Realized and unrealized gains from investment activities:
Net realized gains from investment transactions.................... 392,312
Net change in unrealized appreciation/depreciation of investments.. 10,904,126
-----------
Net realized and unrealized gains from investment activities....... 11,296,438
-----------
Net increase in net assets resulting from operations............... $22,381,967
===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
MAY 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1994
------------ ------------------
<S> <C> <C>
From operations:
Net investment income........................ $ 11,085,529 $ 53,831,622
Net realized gains (losses) from investment
transactions................................ 392,312 (122,429,696)
Net change in unrealized
appreciation/depreciation of investments.... 10,904,126 (10,439,486)
------------ ---------------
Net increase (decrease) in net assets
resulting from operations................... 22,381,967 (79,037,560)
------------ ---------------
Dividends to shareholders from:
Net investment income - Class A.............. (4,277,146) (18,507,294)
Net investment income - Class B.............. (284,695) (1,132,692)
Net investment income - Class D.............. (6,524,190) (34,050,034)
------------ ---------------
(11,086,031) (53,690,020)
------------ ---------------
From beneficial interest transactions:
Net proceeds from the sale of beneficial
interest.................................... 14,538,499 659,981,986
Cost of beneficial interest repurchased...... (141,259,877) (1,881,729,023)
Proceeds from dividends reinvested........... 6,434,328 37,606,736
------------ ---------------
Net decrease in net assets from beneficial
interest transactions....................... (120,287,050) (1,184,140,301)
------------ ---------------
Contribution to capital from adviser......... -- 16,014,012
------------ ---------------
Net decrease in net assets................... (108,991,114) (1,300,853,869)
Net assets:
Beginning of period.......................... 468,275,602 1,769,129,471
------------ ---------------
End of period................................ $359,284,488 $ 468,275,602
============ ===============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Short-Term U.S. Government Income Fund (the "Fund"), a series of
PaineWebber Managed Investments Trust (the "Trust"), is registered 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: the Fund, as well as PaineWebber U.S. Government
Income Fund, PaineWebber Investment Grade Income Fund, PaineWebber High Income
Fund, PaineWebber Short-Term U.S. Government Income Fund for Credit Unions, and
PaineWebber Utility Income Fund, which are not presented in these financial
statements.
Organizational Matters - Prior to commencing its operations, the Fund had no
activities other than organizational matters and activities related to the
initial public offering and the issuance, at net asset value, of 1 Class A
share, 1 Class B share and 1 Class D share of the Fund to Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of
PaineWebber Incorporated ("PaineWebber") and investment adviser and
administrator of the Fund. Costs of $235,000 incurred by the Fund in connection
with its organization and the registration of its shares have been deferred and
are being amortized, using the straight-line method over a period not to exceed
five years from the commencement of operations of the Fund.
On May 3, 1993 the Fund commenced operations for Class A, B and D shares. Each
class represents interests in the same assets of the Fund and the classes are
identical except for differences in their sales charge structures, ongoing
distribution charges and certain transfer agency expenses. In addition, Class B
shares and all corresponding dividend reinvested 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 distribution plan.
Valuation of Investments - Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect, in the judgment of Mitchell Hutchins, the fair value of the
securities. When market quotations are not readily available, securities are
valued based upon appraisals derived from information concerning those
securities or similar securities received from recognized dealers in those
securities. All other securities are valued at fair value as determined in good
faith by or under the direction of the Trust's board of trustees. The amortized
cost method of valuation, which approximates market value, is used to value
debt obligations with 60 days or less remaining to maturity, unless the Trust's
board of trustees determines that this does not represent fair value.
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments, including those
particular to a specific industry or region.
7
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income
is recorded on an accrual basis. Discounts are accreted and premiums are
amortized as adjustments to interest income and the identified cost of
investments. The Fund may enter into transactions in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date (the "roll period"). During the roll period the Fund
foregoes principal and interest paid on the securities. The Fund is compensated
by the interest 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
(after 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, the Fund
is required to pledge to a broker an amount of cash and/or U.S. Government
securities 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 Fund is subject to a number of guidelines which reduce this risk by seeking
to ensure that financial futures contracts are used for hedging purposes as
well as to manage the average duration of the Fund's portfolio and not for
leverage. However, imperfect correlations between futures contracts and the
portfolio securities being hedged, or market disruptions, do not normally
permit full control of these risks at all times. As of May 31, 1995 there were
no open futures contracts.
Option Writing - When the 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,
8
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
the Fund realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related
to such option is extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a capital gain or loss (long-term or short-term,
depending on the holding period of the underlying security) from the sale of
the underlying security and the proceeds from the sale are increased by the
premium originally received. If a put option which a Fund has written is
exercised, the amount of the premium originally received reduces the cost of
the security which the Fund purchases upon exercise of the option. At May 31,
1995 the Fund held no unexpired options.
Repurchase Agreements - The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings.
Federal Tax Status - The Fund intends to distribute all of its taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, the Fund intends not to be subject to a federal
excise tax.
Dividends and Distributions to Shareholders - Dividends and distributions to
shareholders are recorded on the ex-dividend date. The Fund declares dividends
on a daily basis from net investment income. The amount of dividends and
distributions are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These
"book/tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
9
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and
Administration Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, the Fund pays Mitchell Hutchins
an investment advisory and administration fee, which is accrued daily and paid
monthly, at the annual rate of 0.50% of the Fund's average daily net assets. At
May 31, 1995, the Fund owed Mitchell Hutchins $155,029 in investment advisory
and administration fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the six months ended
May 31, 1995, no reimbursements were required pursuant to the above limitation
for the Fund.
Under a separate contract with Mitchell Hutchins, ("Sub-Advisory Contract"),
Pacific Investment Management Company ("PIMCO") serves as the Fund's sub-
advisor. Under the Sub-Advisory Contract, Mitchell Hutchins (not the Fund) will
pay PIMCO a fee, computed weekly and payable monthly, in an amount equal to
one-half of the advisory fee received by Mitchell Hutchins from the Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to the Class A, Class B, and Class D
shares, the Fund pays Mitchell Hutchins monthly service fees at the annual rate
of 0.25% of the average daily net assets of each Class of shares and monthly
distribution fees at the annual rate of 0.75% and 0.50% of the average daily
net assets of Class B shares and Class D shares, respectively. At May 31, 1995,
the Fund owed Mitchell Hutchins $177,270 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
deferred sales charges paid by the shareholders upon certain redemptions of
Class B shares. Mitchell Hutchins has informed the Fund that for the six months
ended May 31, 1995, it earned the following amounts in sales charges:
<TABLE>
<S> <C>
Initial sales charges - Class A........................................ $ 4,102
Contingent deferred sales charges - Class B............................ $52,855
</TABLE>
10
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services for the six months ended May 31, 1995, PaineWebber
earned $62,041 and was owed $8,780 at May 31, 1995 in shareholder service fees
from the Fund.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1995
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1995, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value
over cost)....................................................... $ 5,160,975
Gross depreciation (investments having an excess of cost
over value)...................................................... (2,620,767)
-----------
Net unrealized appreciation of investments........................ $ 2,540,208
===========
</TABLE>
For the six months ended May 31, 1995, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases.......................................................... $336,004,771
Sales.............................................................. $408,171,799
</TABLE>
FEDERAL INCOME TAX STATUS
At November 30, 1994, the Fund had a net capital loss carryforward of
$119,530,622. The loss carryforward is available as a reduction, to the extent
provided in the regulations, of future net realized capital gains, and will
expire between November 30, 2001 and November 30, 2002.
11
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONCLUDED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest, were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
--------------------------- ------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED MAY 31,
1995 (UNAUDITED):
Shares sold............. 1,953,026 $ 5,586,062 459,011 $ 1,143,883 2,505,508 $ 7,808,554
Shares repurchased...... (15,840,543) (37,202,497) (2,068,412) (4,789,148) (42,864,300) (99,268,232)
Dividends reinvested in
additional Fund shares. 619,155 1,407,717 83,087 188,941 2,128,817 4,837,670
------------ ------------- ----------- ------------ ------------ --------------
Net decrease............ (13,268,362) $ (30,208,718) (1,526,314) $ (3,456,324) (38,229,975) $ (86,622,008)
============ ============= =========== ============ ============ ==============
YEAR ENDED NOVEMBER 30,
1994:
Shares sold............. 110,055,565 $ 270,928,898 6,067,397 $ 14,888,683 152,025,632 $ 374,164,405
Shares repurchased...... (266,619,181) (638,103,042) (13,249,406) (30,880,652) (511,209,002) (1,212,745,329)
Dividends reinvested in
additional Fund shares. 4,302,214 10,296,539 315,736 746,713 11,154,830 26,563,484
------------ ------------- ----------- ------------ ------------ --------------
Net decrease............ (152,261,402) $(356,877,605) (6,866,273) $(15,245,256) (348,028,540) $ (812,017,440)
============ ============= =========== ============ ============ ==============
</TABLE>
CAPITAL CONTRIBUTION FROM MITCHELL HUTCHINS
On September 23, 1994, the Fund recorded a capital contribution from Mitchell
Hutchins in the amount of $16.0 million or $0.06 per Fund share. An additional
$16.8 million that was paid directly to certain shareholders who had redeemed
Fund shares prior to September 23, 1994. These amounts were paid by Mitchell
Hutchins in connection with the settlement of certain class action litigation.
The payments reflected losses that had been incurred by the Fund by reason of
its investments in non-planned amortization class interest-only and principal-
only (I/O and P/O) securities.
AFFILIATED TRANSACTIONS
PaineWebber Capital Inc., a wholly owned subsidiary of PaineWebber Group Inc.,
purchased certain of the Fund's I/O and P/O securities on June 8, 1994 for an
aggregate purchase price of $50.4 million and purchased the Fund's certain
structured floating rate securities on August 25, 1994 for an aggregate
purchase price of $179.7 million. The purchases of those securities by
PaineWebber Capital Inc. were made at prices equal to the securities' then
current fair values, and thus did not affect the Fund's net asset value.
12
<PAGE>
PAINEWEBBER SHORT-TERM 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 CLASS B
--------------------------------------- --------------------------------------
FOR THE FOR THE
PERIOD MAY 3, PERIOD MAY 3,
FOR THE 1993 FOR THE 1993
SIX MONTHS FOR THE (COMMENCEMENT SIX MONTHS FOR THE (COMMENCEMENT
ENDED YEAR OF ENDED YEAR OF
MAY 31, ENDED OPERATIONS) MAY 31, ENDED OPERATIONS)
1995 NOVEMBER TO NOVEMBER 1995 NOVEMBER TO NOVEMBER
(UNAUDITED) 30, 1994 30, 1993 (UNAUDITED) 30, 1994 30, 1993
----------- -------- ------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 2.25 $ 2.48 $ 2.50 $ 2.25 $ 2.48 $ 2.50
-------- -------- -------- ------- ------- -------
Net increase
(decrease) from
investment
operations:
Net investment
income.......... 0.07 0.12 0.07 0.06 0.10 0.06
Net realized and
unrealized gains
(losses) from
investment,
futures and
options
transactions.... 0.07 (0.29) (0.02) 0.07 (0.29) (0.02)
-------- -------- -------- ------- ------- -------
Net increase
(decrease) in
net asset value
from operations. 0.14 (0.17) 0.05 0.13 (0.19) 0.04
-------- -------- -------- ------- ------- -------
Less
distributions:
Dividends from
net investment
income.......... (0.07) (0.12) (0.07) (0.06) (0.10) (0.06)
-------- -------- -------- ------- ------- -------
Contribution to
capital from
adviser......... -- .06 -- -- .06 --
-------- -------- -------- ------- ------- -------
Net asset value,
end of period... $ 2.32 $ 2.25 $ 2.48 $ 2.32 $ 2.25 $ 2.48
======== ======== ======== ======= ======= =======
Total investment
return(1)....... 6.20% (4.50%)** 1.88% 5.75% (5.24%)** 1.47%
======== ======== ======== ======= ======= =======
Ratios/Supplemental data:
Net assets, end
of period (000
omitted)........ $132,662 $158,712 $551,243 $10,241 $13,382 $31,706
Ratio of
expenses to
average net
assets(2)....... 1.07%* 0.84% 0.81%* 1.94%* 1.62% 1.62%*
Ratio of net
investment
income to
average net
assets(2)....... 5.95%* 5.16% 4.85%* 5.09%* 4.40% 4.31%*
Portfolio
turnover rate... 64.83% 246.34% 96.60% 64.81% 246.34% 96.60%
-----------------
<CAPTION>
CLASS D
----------------------------------------
FOR THE
PERIOD MAY 3,
FOR THE 1993
SIX MONTHS FOR THE (COMMENCEMENT
ENDED YEAR OF
MAY 31, ENDED OPERATIONS)
1995 NOVEMBER TO NOVEMBER
(UNAUDITED) 30, 1994 30, 1993
------------ ------------ --------------
<S> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 2.25 $ 2.47 $ 2.50
------------ ------------ --------------
Net increase
(decrease) from
investment
operations:
Net investment
income.......... 0.06 0.11 0.06
Net realized and
unrealized gains
(losses) from
investment,
futures and
options
transactions.... 0.07 (0.28) (0.03)
------------ ------------ --------------
Net increase
(decrease) in
net asset value
from operations. 0.13 (0.17) 0.03
------------ ------------ --------------
Less
distributions:
Dividends from
net investment
income.......... (0.06) (0.11) (0.06)
------------ ------------ --------------
Contribution to
capital from
adviser......... -- .06 --
------------ ------------ --------------
Net asset value,
end of period... $ 2.32 $ 2.25 $ 2.47
============ ============ ==============
Total investment
return(1)....... 5.90% (4.99%)** 1.20%
============ ============ ==============
Ratios/Supplemental data:
Net assets, end
of period (000
omitted)........ $216,381 $296,182 $1,186,181
Ratio of
expenses to
average net
assets(2)....... 1.67%* 1.36% 1.35%*
Ratio of net
investment
income to
average net
assets(2)....... 5.38%* 4.65% 4.52%*
Portfolio
turnover rate... 64.81% 246.34% 96.60%
-----------------
</TABLE>
* 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 D.
(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 and Class B would be lower if sales charges were
included. Total investment returns for periods less than one year have 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 D.
13
