<PAGE>
U.S. GOVERNMENT INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- --------------------------------
12 MONTHS 6 MONTHS
05/31/96 11/30/95 05/31/95 ENDED 05/31/96 ENDED 05/31/96
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
Shares $8.63 $9.12 $8.95 2.66% (2.37)%
- ---------------------------------------------------------------------------------
Class B
Shares 8.63 9.12 8.95 1.87 (2.74)
- ---------------------------------------------------------------------------------
Class C
Shares/3/ 8.62 9.11 8.94 2.13 (2.62)
- ---------------------------------------------------------------------------------
Performance Summary Class A Shares
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS 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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 9.21 8.63 -- 0.2084 (4.08)
- ---------------------------------------------------------------------------------
Total: $0.0080 $9.7344
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 147.02%
- ---------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 9.21 8.63 -- 0.1828 (4.35)
- ---------------------------------------------------------------------------------
Total: $0.0000 $2.8219
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 20.87%
- ---------------------------------------------------------------------------------
Performance Summary Class C Shares/3/
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS 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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 9.20 8.62 -- 0.1911 (4.27)
- ---------------------------------------------------------------------------------
Total: $0.0000 $2.2183
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 7.34%
- --------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains 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.
/3/ Formerly Class D shares
1
<PAGE>
U.S. GOVERNMENT INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (CONCLUDED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
--------------------------------------------------------
CLASS CLASS
--------------------------------------------------------
A* B** C*** A* B** C***
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended
06/30/96 2.81% 2.02% 2.28% (1.25)% (2.97)% 1.53%
- -----------------------------------------------------------------------------
Five Years Ended
06/30/96 4.90 N/A N/A 4.05 N/A N/A
- -----------------------------------------------------------------------------
Ten Years Ended
06/30/96 6.59 N/A N/A 6.15 N/A N/A
- -----------------------------------------------------------------------------
Commencement of
Operations Through
06/30/96+ 8.02 4.03 2.01 7.65 3.69 2.01
- -----------------------------------------------------------------------------
</TABLE>
* Maximum sales charge for Class A shares is 4.0% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
Note: The Fund offers Class Y (formerly Class C) shares to the trustee of the
PaineWebber Savings Investment Plan and INSIGHT Investment Advisory
Program participants. For the six months ended May 31, 1996, and since
inception, September 11, 1991 through May 31, 1996, Class Y shares have a
total return of (2.23)% and 21.55%, respectively. For the twelve months
ended June 30, 1996 and for the period since inception, September 11,
1991 through June 30, 1996, Class Y shares have an average annual return
of 3.13% and 4.35%, 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.
2
<PAGE>
INVESTMENT GRADE INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- --------------------------------
12 MONTHS 6 MONTHS
05/31/96 11/30/95 05/31/95 ENDED 05/31/96 ENDED 05/31/96
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
Shares $10.16 $10.68 $10.41 4.61% (1.53)%
- ---------------------------------------------------------------------------------
Class B
Shares 10.16 10.67 10.41 3.85 (1.80)
- ---------------------------------------------------------------------------------
Class C
Shares/3/ 10.16 10.68 10.41 4.10 (1.78)
- ---------------------------------------------------------------------------------
Performance Summary Class A Shares
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID/2/ 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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 10.79 10.16 -- 0.2720 (3.36)
- ---------------------------------------------------------------------------------
Total: $0.0404 $10.5870
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 203.73%
- ---------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 10.79 10.16 -- 0.2429 (3.63)
- ---------------------------------------------------------------------------------
Total: $0.0000 $3.4584
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 44.03%
- ---------------------------------------------------------------------------------
Performance Summary Class C Shares/3/
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS 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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 10.79 10.16 -- 0.2523 (3.54)
- ---------------------------------------------------------------------------------
Total: $0.0000 $2.7304
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 25.83%
- --------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains 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.
/3/ Formerly Class D shares
3
<PAGE>
INVESTMENT GRADE INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (CONCLUDED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
------------------------------------------------------------
CLASS CLASS
------------------------------------------------------------
A* B** C*** A* B** C***
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months
Ended 06/30/96 5.17% 4.39% 4.64% 1.01% (0.60)% 3.89%
- ------------------------------------------------------------------------------
Five Years Ended
06/30/96 8.41 N/A N/A 7.53 N/A N/A
- ------------------------------------------------------------------------------
Ten Years Ended
06/30/96 8.17 N/A N/A 7.72 N/A N/A
- ------------------------------------------------------------------------------
Commencement of
Operations
Through
06/30/96+ 9.96 7.83 6.25 9.58 7.53 6.25
- ------------------------------------------------------------------------------
</TABLE>
* Maximum sales charge for Class A shares is 4.0% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
4
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- --------------------------------
12 MONTHS 6 MONTHS
05/31/96 11/30/95 05/31/95 ENDED 05/31/96 ENDED 05/31/96
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
Shares $7.18 $6.96 $7.24 9.97% 8.46%
- ---------------------------------------------------------------------------------
Class B
Shares 7.17 6.95 7.23 9.16 8.06
- ---------------------------------------------------------------------------------
Class C
Shares/3/ 7.19 6.97 7.25 9.42 8.18
- ---------------------------------------------------------------------------------
Performance Summary Class A Shares
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS 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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 6.92 7.18 -- 0.2614 7.66
- ---------------------------------------------------------------------------------
Total: $0.0825 $12.5535
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 235.80%
- ---------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 6.92 7.17 -- 0.2418 7.22
- ---------------------------------------------------------------------------------
Total: $0.0000 $3.9965
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 75.47%
- ---------------------------------------------------------------------------------
Performance Summary Class C Shares/3/
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS 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
- ---------------------------------------------------------------------------------
01/01/96-
05/31/96 6.93 7.19 -- 0.2486 7.45
- ---------------------------------------------------------------------------------
Total: $0.0000 $3.0696
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96 : 36.31%
- --------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains 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.
/3/ Formerly Class D shares
5
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (CONCLUDED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
-------------------------------------------------------------
CLASS CLASS
-------------------------------------------------------------
A* B** C*** A* B** C***
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months
Ended 06/30/96 10.37% 9.71% 9.81% 5.93% 4.72% 9.07%
- -------------------------------------------------------------------------------
Five Years Ended
06/30/96 12.91 N/A N/A 11.98 N/A N/A
- -------------------------------------------------------------------------------
Ten Years Ended
06/30/96 8.84 N/A N/A 8.40 N/A N/A
- -------------------------------------------------------------------------------
Commencement of
Operations
Through
06/30/96+ 10.78 11.91 8.05 10.40 11.66 8.05
- -------------------------------------------------------------------------------
</TABLE>
* Maximum sales charge for Class A shares is 4.0% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
6
<PAGE>
U.S. GOVERNMENT INCOME FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -
30.34%
$72,700 U.S. Treasury Bonds+.... 05/15/05 to 02/15/25 7.500 to 12.000% $ 80,928,807
67,546 U.S. Treasury Notes..... 05/31/97 to 05/15/06 5.750 to 7.875 68,466,871
------------
Total U.S. Government Obligations
(cost - $155,902,868)............. 149,395,678
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES -
12.63%
39,013 GNMA.................... 01/15/26 7.500 38,110,671
365 GNMA.................... 10/15/16 to 05/15/18 9.000 384,687
157 GNMA.................... 08/15/17 9.500 169,555
2,676 GNMA.................... 06/15/11 11.000 3,004,869
18,010 GNMA.................... 09/15/20 11.500 20,548,643
------------
Total Government National Mortgage
Association Certificates
(cost - $62,716,958).............. 62,218,425
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES -
8.88%
398 FHLMC................... 03/01/09 6.500 384,550
202 FHLMC................... 08/01/25 7.000 193,050
16,762 FHLMC................... 04/01/25 9.000 17,593,303
3,385 FHLMC................... 09/01/05 10.000 3,592,558
4,997 FHLMC................... 12/01/05 10.500 5,288,988
8,492 FHLMC................... 01/01/16 11.000 9,388,357
6,479 FHLMC................... 08/01/16 11.500 7,265,413
------------
Total Federal Home Loan Mortgage
Corporation Certificates
(cost - $44,113,916).............. 43,706,219
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES - 24.91%
33,466 FNMA.................... 07/01/17 to 05/01/24 7.000 31,900,730
26,700 FNMA TBA................ TBA 7.000 25,448,438
5,334 FNMA.................... 02/01/14 to 06/01/24 7.500 5,223,268
37,500 FNMA TBA................ TBA 7.500 36,703,125
20,000 FNMA TBA................ TBA 8.000 19,950,000
3,309 FNMA.................... 05/01/09 9.000 3,437,487
------------
Total Federal National Mortgage
Association Certificates
(cost - $122,667,447)............. 122,663,048
------------
AGENCY BACKED NOTES - 31.16%
50,000 Federal Home Loan Bank
Discount Notes......... 06/13/96 5.240* 49,912,667
26,500 Federal Home Loan
Mortgage Corporation... 09/23/99 to 09/08/04 7.420 to 7.980 26,655,993
48,000 Federal Home Loan
Mortgage Discount
Notes.................. 06/10/96 to 06/13/96 5.210 to 5.240* 47,921,768
31,530 Federal National
Mortgage Association... 12/10/03 to 02/02/06 5.800 to 5.875 28,954,287
------------
Total Agency Backed Notes (cost -
$153,690,115).................... 153,444,715
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS - 6.28%
10,959 FNMA REMIC, Trust 1987-
2, Class Z............. 11/25/17 11.000 11,968,547
5,010 FNMA REMIC, Trust 1994-
M5, Class C............ 02/25/09 8.400 5,309,034
2,785 Aetna Commercial
Mortgage Trust, Series
1995-C5, Class A2...... 12/26/30 6.590 2,663,156
284 Collateralized Mortgage
Obligation Trust,
Series 14, Class Z..... 01/01/17 8.000 288,174
2,818 CS First Boston Mortgage
Securities Corp.,
Series 1995-WF1, Class
A1..................... 12/21/27 6.452 2,725,053
3,750 Salomon Brothers
Mortgage Securities,
Series 1996-C1, Class
A2..................... 03/20/06 6.780 3,615,820
4,550 Structured Asset
Securities Corporation,
Series 1995-C4, Class
A-1B................... 06/25/26 6.890 4,369,423
------------
Total Collateralized Mortgage
Obligations (cost - $31,392,925).. 30,939,207
------------
</TABLE>
7
<PAGE>
U.S. GOVERNMENT INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
--------- -------------- ---------- ------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT - 2.14%
$10,562 Repurchase Agreement
dated 5/31/96, with
Morgan Stanley Group
Inc., collateralized by
$10,605,000 U.S.
Treasury Bonds, 7.250%
due 05/15/16; proceeds:
$10,566,638 (cost -
$10,562,000).......... 06/03/96 5.270% $ 10,562,000
------------
Total investments (cost -
$581,046,229) - 116.34%.......... 572,929,292
Liabilities in excess of other
assets - (16.34)%................. (80,462,650)
------------
Net Assets - 100.00%............... $492,466,642
============
</TABLE>
- -------
+ Entire or partial amount pledged as collateral for futures transactions.
* Interest rates shown are discount rates at date of purchase.
REMIC - Real Estate Mortgage Investment Conduit
TBA - (To Be Assigned) Securities are purchased on a forward committment basis
with approximated (generally +/-2.50%) principal amount and generally stated
maturity date. The actual principal amount and specific maturity date will
be determined upon settlement when mortgage pools are assigned.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO DELIVER EXCHANGE FOR DATE APPRECIATION
--------- -------------------- ------------ ---------- ------------
<C> <S> <C> <C> <C>
200 30 year Treasury Bonds......... $21,875,781 Jun 96 $369,531
========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
INVESTMENT GRADE INCOME FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- ---------- -----------
<C> <S> <C> <C> <C>
CORPORATE BONDS - 84.76%
Airlines - 4.49%
$ 6,500 Delta Airlines Inc. ............. 12/15/22 10.375% $ 7,780,305
4,000 Delta Airlines Inc. ............. 04/30/16 10.500 4,714,880
2,000 United Airlines Inc. ............ 07/15/21 10.250 2,323,830
-----------
14,819,015
-----------
Auto - 2.17%
5,000 Auburn Hills..................... 05/01/20 12.000 7,160,335
-----------
Banking - 4.95%
6,000 Chase Manhattan Corp. ........... 08/01/04 7.875 5,966,322
5,000 Citicorp......................... 11/01/04 8.625 5,212,445
5,000 Southtrust Bank Alabama.......... 05/15/05* 7.690 5,145,930
-----------
16,324,697
-----------
Broker/Dealer - 2.47%
Donaldson Lufkin & Jenrette
5,000 Securities Corp. ............... 11/01/05 6.875 4,711,275
3,500 Lehman Brothers Inc. ............ 06/01/06 7.625 3,439,027
-----------
8,150,302
-----------
Business Machines - 1.36%
4,500 Digital Equipment Corp. ......... 11/01/12 8.625 4,469,391
-----------
Cable/Communications - 4.65%
2,000 Continental Cablevision Inc. .... 06/01/07 11.000 2,232,500
5,000 Tele Communications Inc. ........ 02/01/12 9.800 5,385,895
7,000 TKR Cable Inc. .................. 10/30/07 10.500 7,707,910
-----------
15,326,305
-----------
Diversified/Industrial - 9.92%
4,000 American Standard Inc. .......... 05/15/04 11.375 4,330,000
6,000 HMH Properties Inc. ............. 05/15/05 9.500 5,805,000
5,000 Joy Technologies Inc. ........... 09/01/03 10.250 5,487,500
5,000 Mark IV Industries Inc. ......... 04/01/26 7.750 4,674,020
2,000 Ogden Corp. ..................... 03/01/22 9.250 2,211,464
5,000 Owens-Illinois Inc. ............. 12/01/03 11.000 5,425,000
4,750 Valassis Inserts Inc. ........... 03/15/99 9.375 4,786,547
-----------
32,719,531
-----------
Food & Beverage - 1.43%
5,000 Nabisco Inc. .................... 06/15/15 7.550 4,708,815
-----------
Healthcare - 1.54%
5,000 Tenet Healthcare Corp. .......... 12/01/03 8.625 5,075,000
-----------
Hotel/Gaming - 2.86%
5,000 Bally's Grand Inc. .............. 12/15/03 10.375 5,187,500
4,000 GNS Finance Corp. ............... 03/15/03 9.250 4,240,000
-----------
9,427,500
-----------
</TABLE>
9
<PAGE>
INVESTMENT GRADE INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Insurance - 10.18%
$ 7,000 American Re Corp. ...... 09/15/04 10.875% $ 7,629,020
4,265 CNA Financial Corp. .... 11/15/23 7.250 3,833,263
3,200 Chubb Corp. ............ 11/15/99 8.750 3,298,678
Equitable Life
10,000 Assurance.............. 12/01/05 6.950 9,494,910
Leucadia National
5,000 Corp. ................. 06/15/02 10.375 5,331,525
Prudential Insurance
4,000 Company of America..... 07/01/25 8.300 3,964,896
------------
33,552,292
------------
Media - 6.28%
News America Holdings
6,000 Inc. .................. 07/15/24 9.500 6,593,856
News America Holdings
4,000 Inc. .................. 10/15/12 10.125 4,478,320
5,000 Time Warner Inc. ....... 01/15/13 9.125 5,188,965
5,000 Viacom Inc. ............ 01/15/16 7.625 4,457,010
------------
20,718,151
------------
Oil & Gas - 2.92%
Occidental Petroleum
3,750 Corp. ................. 06/01/19 11.125 4,309,444
5,000 Orxy Energy Co. ........ 11/01/99 to 04/01/01 9.500 to 10.000 5,321,492
------------
9,630,936
------------
Retail/Drug Stores - 4.98%
4,500 Hook SuperX Inc. ....... 06/01/02 10.125 4,820,765
Mays Department Stores
5,950 Co. ................... 06/15/21 9.875 6,524,496
5,000 Shopko Stores........... 03/15/22 9.250 5,092,400
------------
16,437,661
------------
Retail/All Other - 2.96%
Federated Department
5,000 Stores Inc. ........... 06/15/03 8.500 4,987,500
5,000 Price Costco Inc. ...... 06/15/05 7.125 4,783,415
------------
9,770,915
------------
Telephone Companies &
Telecommunications - 3.07%
5,000 Pacific Bell............ 08/15/31 8.500 5,126,500
Rogers Cantel Mobile
5,000 Inc. .................. 06/01/08 9.375 4,987,500
------------
10,114,000
------------
Utilities - 11.28%
Arizona Public Service
3,400 Co. ................... 08/01/23 7.250 3,017,697
Columbia Gas Systems
4,500 Inc. .................. 11/28/25 7.625 4,177,224
Commonwealth Edison
5,000 Co. ................... 06/15/20 9.875 5,516,255
7,000 Cooperative Utilities... 03/15/19 9.520 7,612,017
7,750 Duke Power Co. ......... 03/01/21 8.750 7,962,962
Louisiana Power & Light
5,000 Co. ................... 07/01/22 8.500 4,845,600
New York State Electric
769 & Gas Co. ............. 02/01/20 9.875 815,028
Texas Utilities Electric
3,000 Co. ................... 05/01/21 9.750 3,231,045
------------
37,177,828
------------
</TABLE>
10
<PAGE>
INVESTMENT GRADE INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- ---------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - (CONCLUDED)
Yankee - 7.25%
Banca Commerziale
$ 9,500 Italiana............... 07/15/07 8.250% $ 9,706,397
5,300 Philips Electronics..... 05/15/07* 7.125 5,168,422
5,000 Quebec Prov CDA......... 07/15/23 7.500 4,694,895
Santander Financial
5,000 Issuances.............. 02/15/11 6.375 4,344,260
------------
23,913,974
------------
Total Corporate Bonds (cost -
$280,816,661).................... 279,496,648
------------
U.S. GOVERNMENT OBLIGATIONS - 4.04%
United States Treasury
6,000 Bills.................. 06/27/96 4.900@ 5,978,768
United States Treasury
3,500 Notes.................. 09/30/00 6.125 3,434,375
United States Treasury
4,000 Notes.................. 08/15/05 6.500 3,895,000
------------
Total U.S. Government Obligations
(cost - $13,701,761)............... 13,308,143
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES - 3.53%
FNMA (cost -
12,223 $11,959,504).......... 07/01/25 to 04/01/26 7.000 11,650,106
------------
REPURCHASE AGREEMENTS - 6.27%
10,000 Repurchase agreement
dated 05/31/96, with
Morgan Guaranty Trust
Company, collateralized
by $8,000,000 U.S.
Treasury Bonds, 11.125%
due 08/15/03; proceeds
$10,004,383............ 06/03/96 5.260 10,000,000
10,679 Repurchase agreement
dated 05/31/96, with
State Street Bank and
Trust Company
collateralized by
$10,695,000 U.S.
Treasury Notes, 7.375%
due 11/15/97; proceeds
$10,683,681............ 06/03/96 5.260 10,679,000
------------
Total Repurchase Agreements (cost-
$20,679,000)...................... 20,679,000
------------
Total Investments (cost -
$327,156,926) - 98.60%........... 325,133,897
Other assets in excess of
liabilities - 1.40%............... 4,611,220
------------
Net Assets - 100.00%............... $329,745,117
============
</TABLE>
- -------
* Maturity date reflects earliest date bonds can be put back to issuer.
@ Interest rate shown is discount rate at date of purchase.
See accompanying notes to financial statements
11
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- ----------------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - 87.40%
Aerospace - 2.03%
SabreLiner Corp. Series
$ 6,150 A...................... 04/15/03 12.500% $ 5,381,250
5,000 Wyman Gordon............ 03/15/03 10.750 5,300,000
------------
10,681,250
------------
Airlines - 0.70%
Airplane Pass Through
3,500 Trust.................. 03/15/19 10.875 3,666,250
USAfrica Airways,
8,500# Inc.++................. 05/31/99 12.000(a) 0
------------
3,666,250
------------
Cable - 7.36%
6,150# Australis Media Ltd. ... 05/15/03 14.000+ 3,843,750
7,000 Diamond Cable........... 09/30/04 to 12/15/05 11.750+ to 13.250+ 4,547,500
10,250 Echostar Communications. 03/15/04 13.125+ 6,816,250
5,000 Fundy Cable............. 11/15/05 11.000 5,050,000
International CableTel
9,500 Inc. .................. 02/01/06 11.500 5,557,500
13,000 Telewest PLC............ 10/01/07 11.000+ 7,735,000
10,000 UIH Australia Pacific**. 05/15/06 14.000+ 5,300,000
------------
38,850,000
------------
Communications - 10.21%
Clearnet Communications
10,000 Inc. .................. 12/15/05 14.750+ 6,325,000
14,000 Comcast Cellular........ 03/05/00 0.000 9,730,000
GST Telecommunications
1,925(1) Inc.**................. 12/15/05 13.875+ 10,876,250
Intelcom Group USA,
8,000 Inc. .................. 09/15/05 13.500+ 4,880,000
IXC Communications
5,500 Inc.**................. 10/01/05 13.000 5,802,500
5,250 People's Telephone...... 07/15/02 12.250 5,092,500
8,000 Shared Technologies**... 03/01/06 12.250+ 6,040,000
9,250 Viatel Inc. ............ 01/15/05 15.000+ 5,087,500
------------
53,833,750
------------
Consumer Manufacturing - 3.90%
3,150 American Safety Razor... 08/01/05 9.875 3,197,250
7,515 Apparel Ventures, Inc. . 12/31/00 12.250 5,711,400
4,606 Chattem Inc. ........... 06/15/04 12.750 4,606,000
8,500 Decorative Home Accents. 06/30/02 13.000 7,055,000
------------
20,569,650
------------
Energy - 5.43%
4,000 Cliffs Drilling......... 05/15/03 10.250 4,020,000
6,000 Crown Central Petroleum. 02/01/05 10.875 6,120,000
8,500 Empire Gas Corp. ....... 07/15/04 12.875+ 7,522,500
8,000 Pemex**................. 12/01/23 8.625 6,080,000
5,000 TransTexas Gas Corp. ... 06/15/02 11.500 4,900,000
------------
28,642,500
------------
</TABLE>
12
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------- ---------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Entertainment - 2.41%
$ 6,000 Alamo Rent A Car Inc. .... 01/31/06 11.750% $ 6,120,000
2,500 Cobb Theaters**........... 03/01/03 10.625 2,562,500
United Artists Theatre
4,500 Circuit**................ 07/01/15 9.300 4,050,000
------------
12,732,500
------------
Financial Services - 3.21%
American Life Holding
4,700 Co. ..................... 09/15/04 11.250 4,935,000
Imperial Credit
7,000 Industries............... 01/15/04 9.750 6,510,000
Reliance Group Holdings
5,500 Inc. .................... 11/15/00 9.000 5,472,500
------------
16,917,500
------------
Food & Beverage - 8.96%
6,000 American Rice Inc. ....... 07/31/02 13.000 5,400,000
4,015 Flagstar Corp. ........... 12/01/02 10.875 3,593,425
Fresh Delmonte Produce
4,500 N.V. .................... 05/01/03 10.000 4,230,000
42,000 Iowa Select Farms++....... 02/15/04 17.250+ 22,419,600
Specialty Equipment
6,250 Companies Inc. .......... 12/01/03 11.375 6,515,625
TLC Beatrice
5,000 International............ 10/01/05 11.500 5,100,000
------------
47,258,650
------------
Gaming - 3.96%
El Comandante Capital
6,575 Corp. ................... 12/15/03 11.750 6,114,750
3,500 Fitzgeralds Gaming Corp. . 12/31/02 13.000 3,080,000
Grand Palais Casino,
9,401# Inc.++................... 11/01/97 18.250(a) 0
25,892# Hemmeter Enterprises**.... 12/15/00 12.000(a) 1,916,026
8,000 PRT Funding Inc. ......... 04/15/04 11.625 6,880,000
Sam Houston Race Park
7,005 Ltd. .................... 09/01/01 11.000 2,907,275
------------
20,898,051
------------
General Industrial - 7.83%
5,000 Alpine Group.............. 07/15/03 12.250 5,000,000
5,125 Avondale Mills**.......... 05/01/06 10.250 5,048,125
2,500 Dominion Textile USA...... 04/01/06 9.250 2,465,625
6,200 Jordan Industries......... 08/01/05 11.750+ 4,309,000
Kindercare Learning
5,000 Centers.................. 06/01/01 10.375 5,175,000
7,000 Owens-Illinois Inc. ...... 12/01/03 11.000 7,595,000
6,000 Poindexter JB Inc. ....... 05/15/04 12.500 5,070,000
5,000 Sullivan Graphics......... 08/01/05 12.750 4,650,000
2,000 Westpoint Stevens Inc. ... 12/15/01 8.750 1,960,000
------------
41,272,750
------------
Healthcare - 1.10%
Mariner Health Group
6,000 Inc. .................... 04/01/06 9.500 5,820,000
------------
Homebuilding - 1.39%
7,210 Trizec Finance............ 10/15/05 10.875 7,336,175
------------
</TABLE>
13
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- ---------------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Hotels & Lodging - 0.67%
$ 3,750 HMC Acquisition Corp.**. 12/15/07 9.000% $ 3,506,250
------------
Media - 7.07%
10,000 Affiliated Newspapers... 07/01/06 13.250+ 6,750,000
11,000 Grupo Televisa S.A.**... 05/15/08 13.250+ 5,912,500
4,000 Hollinger International. 02/01/06 9.250 3,740,000
KIII Communications
4,500 Corp. ................. 02/01/06 8.500 4,185,000
5,500 NeoData Services Inc. .. 05/01/03 12.000 5,568,750
5,750 Newsquest Capital PLC**. 05/01/06 11.000 5,764,375
5,000 Pegasus Media........... 07/01/05 12.500 5,350,000
------------
37,270,625
------------
Packaging - 4.41%
3,400 Doman Industries Ltd. .. 03/15/04 8.750 3,128,000
Indah Kiat
5,000 International.......... 06/15/02 to 06/15/06 11.875 to 12.500 5,310,000
4,000 Indah Kiat Paper & Pulp. 11/01/00 8.875 3,850,000
2,950 Quno Corp. ............. 05/15/05 9.125 2,891,000
5,000 RePap Wisconsin......... 05/01/06 9.875 4,400,000
4,000 Tembec Finance Corp. ... 09/30/05 9.875 3,690,000
------------
23,269,000
------------
Retail - 7.45%
9,500 Apparel Retailers Inc. . 08/15/05 12.750+ 7,125,000
6,000 Big Five Holdings....... 09/15/02 13.625 5,400,000
5,250 County Seat............. 10/01/02 12.000 4,672,500
Great American Cookie
6,000 Inc. .................. 01/15/01 10.875 4,620,000
6,750 Pantry Inc. ............ 11/15/00 12.000 5,940,000
Petro PSC Properties
7,406 L.P. .................. 06/01/02 12.500 7,109,760
5,805 Wickes Lumber Co. ...... 12/15/03 11.625 4,440,825
------------
39,308,085
------------
Supermarkets & Drugstores - 2.97%
4,367 Di Giorgio Corp. ....... 02/15/03 12.000 4,104,980
20,540 Farm Fresh Holdings..... 10/01/02 14.250 6,470,205
5,000 Smiths Food & Drug...... 05/15/07 11.250 5,100,000
------------
15,675,185
------------
Transport Non-Air - 4.23%
4,000 Gearbulk Holding Ltd. .. 12/01/04 11.250 4,180,000
3,250 Stena Shipping.......... 12/15/05 10.500 3,217,500
TNT Transport Europe
4,000 PLC.................... 04/15/04 11.500 4,160,000
Viking Star Shipping
6,700 Inc. .................. 07/15/03 9.625 6,767,000
4,000 Walbro Corp. ........... 07/15/05 9.875 3,980,000
------------
22,304,500
------------
</TABLE>
14
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------- ---------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - (CONCLUDED)
Utilities - 2.11%
$ 5,750 Calpine Corp. ............ 02/01/04 9.250% $ 5,405,000
6,000 Cleveland Electric........ 05/15/05 9.500 5,739,060
------------
11,144,060
------------
Total Corporate Bonds (cost -
$495,472,207)...................... 460,956,731
------------
CONVERTIBLE BONDS - 0.36%
Cable - 0.36%
International CableTel
Inc. (cost -
1,500 $1,639,104)**........... 04/15/05 7.250 1,905,000
------------
<CAPTION>
NUMBER OF
SHARES
---------
<C> <S> <C>
COMMON STOCK (A) - 3.52%
Communications - 0.31%
38,955 PageMart Nationwide Inc. .............................. 379,811
333,925 Viatel Inc. ........................................... 1,268,915
------------
1,648,726
------------
Food & Beverage - 0.02%
240,000 Specialty Foods Acquisition Corp. ..................... 120,000
------------
Gaming - 1.39%
345,843 Casino America Inc. ................................... 3,242,275
506,666 Hollywood Casino Corp. ................................ 2,469,997
364,322 Lady Luck Gaming Corp. ................................ 1,189,739
1,968 SHRP Equity Inc. ...................................... 452,640
------------
7,354,651
------------
General Industrial - 0.03%
1,400 Communications & Power................................. 140,000
------------
Packaging - 0.18%
73,437 Data Documents Inc. ................................... 936,322
------------
Supermarkets & Drugstores - 0.13%
21,787 Duane Reade Corp. ..................................... 193,911
40,000 Farm Fresh Holdings.................................... 480,000
------------
673,911
------------
Technology - 1.46%
568,328 Ampex Inc. ............................................ 7,672,428
------------
Total Common Stock (cost - $16,927,634).......................... 18,546,038
------------
PREFERRED STOCK - 4.88%
Cable - 0.58%
30,654 Cablevision System Corp. (a)........................... 3,046,954
------------
Communications - 0.68%
3,500 Intelcom Group USA, Inc. (a)........................... 3,622,500
------------
</TABLE>
15
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ ------------
<S> <C>
PREFERRED STOCK -
(CONCLUDED)
Entertainment -
1.87%
Time Warner
10,000 Inc. (a).......... $ 9,850,000
------------
General
Industrial - 0.42%
Communications &
22,091 Power............. 2,240,029
------------
Retail - 1.33%
70 Signet Group (a)... 7,000,000
------------
Total Preferred Stock (cost -
$27,233,852)................. 25,759,483
------------
<CAPTION>
NUMBER OF
WARRANTS
------------
<S> <C>
WARRANTS (A) -
1.00%
Aerospace - 0.01%
8,400 SabreLiner Corp. .. 42,000
------------
Communications -
0.10%
Intelcom Group
26,400 USA, Inc. ........ 298,730
PageMart
27,600 Nationwide Inc. .. 241,500
------------
540,230
------------
Consumer
Manufacturing -
0.34%
11,000 Chattem Inc. ...... 63,250
Decorative Home
8,500 Accents........... 59,500
Icon Health &
14,000 Fitness........... 1,680,000
------------
1,802,750
------------
Energy - 0.08%
11,730 Empire Gas Corp. .. 61,582
Transamerican
183,754 Refining Corp. ... 367,508
------------
429,090
------------
Food & Beverage -
0.12%
Iowa Select
420,000 Farms++........... 630,000
------------
Gaming - 0.17%
HDA Management
10,075 Corp. ............ 511,810
Casino America
76,848 Inc. ............. 368,871
------------
880,681
------------
Homebuilding -
0.01%
Capital Pacific
39,500 Holdings Inc. .... 59,250
------------
Media - 0.12%
Affiliated
12,000 Newspapers........ 360,000
AVI Holdings
8,350 Inc. ............. 41,750
500 Pegasus Media...... 250,000
------------
651,750
------------
</TABLE>
16
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
--------- ------------
<C> <S> <C>
WARRANTS (A) - (CONCLUDED)
Retail - 0.05%
1,080 Cookies USA Inc. ...................................... $ 10,800
8,000 County Seat............................................ 4,000
7,406 Petro PSC Properties L.P. ............................. 244,398
------------
259,198
------------
Total Warrants (cost - $6,606,342)............................... 5,294,949
------------
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
--------- -------- --------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT - 0.67%
$3,522 Repurchase Agreement dated 05/31/96,
with State Street Bank and Trust
Company, collateralized by
$3,530,000 U.S. Treasury Notes,
7.375% due 11/15/97; proceeds:
$3,523,544 (cost - $3,522,000)..... 06/03/96 5.260% 3,522,000
------------
Total Investments (cost - $551,401,139) -
97.83%....................................... 515,984,201
Other assets in excess of liabilities - 2.17%.. 11,429,549
------------
Net Assets - 100.00%........................... $527,413,750
============
</TABLE>
- -------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++Illiquid securities representing 4.5% of portfolio assets
(a) Non-income producing securities
+ Denotes a step-up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
(1) Represents 110 units. Each unit consists of eight senior discount notes and
one convertible senior subordinated discount note.
** 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.
See accompanying notes to financial statements
17
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. INVESTMENT
GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND
------------- ------------ -------------
<S> <C> <C> <C>
Assets
Investments in securities, at
value (cost--$581,046,229,
$327,156,926 and $551,401,139,
respectively).................... $ 572,929,292 $325,133,897 $ 515,984,201
Dividends and interest receivable. 4,847,812 6,871,234 10,632,339
Variation margin receivable....... 193,750 -- --
Receivable for investments sold... -- -- 14,926,616
Receivable for shares of
beneficial interest sold......... 124,459 137,772 344,203
Other assets...................... 282,830 60,103 --
------------- ------------ -------------
Total assets...................... 578,378,143 332,203,006 541,887,359
------------- ------------ -------------
Liabilities
Payable for investments purchased. 82,183,313 -- 10,194,679
Payable for shares of beneficial
interest repurchased............. 1,326,380 813,639 1,380,827
Dividends payable................. 1,304,890 977,698 2,110,538
Payable to affiliate.............. 391,032 279,613 513,834
Accrued expenses and other
liabilities...................... 705,886 386,939 273,731
------------- ------------ -------------
Total liabilities................. 85,911,501 2,457,889 14,473,609
------------- ------------ -------------
Net Assets
Beneficial interest--$0.001 par
value (unlimited amount
authorized)...................... 783,743,373 427,605,137 827,317,880
Distributions in excess of net
investment income................ (1,474,464) (540,279) (1,316,406)
Accumulated net realized losses
from investment, option and
futures transactions............. (282,054,861) (95,296,712) (263,170,786)
Net unrealized depreciation of
investments and futures
contracts........................ (7,747,406) (2,023,029) (35,416,938)
------------- ------------ -------------
Net assets........................ $ 492,466,642 $329,745,117 $ 527,413,750
============= ============ =============
Class A:
Net assets........................ $ 370,640,264 $233,160,444 $ 233,087,123
------------- ------------ -------------
Shares outstanding................ 42,969,736 22,945,789 32,473,727
------------- ------------ -------------
Net asset value and redemption
value per share.................. $8.63 $10.16 $7.18
===== ====== =====
Maximum offering price per share
(net asset value plus sales
charge of 4.00% of offering
price)........................... $8.99 $10.58 $7.48
===== ====== =====
Class B:
Net assets........................ $ 70,657,317 $ 62,584,854 $ 201,952,199
------------- ------------ -------------
Shares outstanding................ 8,190,649 6,160,798 28,153,514
------------- ------------ -------------
Net asset value and offering price
per share........................ $8.63 $10.16 $7.17
===== ====== =====
Class C:
Net assets........................ $ 43,598,741 $ 33,999,819 $ 92,374,428
------------- ------------ -------------
Shares outstanding................ 5,059,366 3,346,169 12,850,476
------------- ------------ -------------
Net asset value and offering price
per share........................ $8.62 $10.16 $7.19
===== ====== =====
Class Y:
Net assets........................ $ 7,570,320
-------------
Shares outstanding................ 878,422
-------------
Net asset value, offering price
and redemption value per share... $8.62
=====
</TABLE>
See accompanying notes to financial statements
18
<PAGE>
PAINEWEBBER
FOR THE SIX MONTHS ENDED
STATEMENT OF OPERATIONS MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. INVESTMENT
GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND
------------ ------------ -----------
<S> <C> <C> <C>
Investment Income:
Interest and dividends................. $ 19,425,034 $ 13,752,720 $30,063,914
------------ ------------ -----------
Expenses:
Investment advisory and administration. 1,345,517 882,508 1,342,950
Service fees-Class A................... 505,315 310,953 294,455
Service and distribution fees-Class B.. 385,825 339,594 1,029,973
Service and distribution fees-Class C.. 183,063 136,204 358,580
Transfer agency and service fees....... 194,172 58,769 220,863
Reports and notices to shareholders.... 117,670 57,925 91,152
Custody and accounting................. 100,777 31,041 102,606
Legal and audit........................ 51,365 30,938 58,048
State registration..................... 50,333 6,564 30,334
Trustees' fees......................... 3,125 3,125 3,125
Other expenses......................... 29,202 5,236 37,784
------------ ------------ -----------
2,966,364 1,862,857 3,569,870
------------ ------------ -----------
Net investment income.................. 16,458,670 11,889,863 26,494,044
------------ ------------ -----------
Realized and unrealized gains (losses)
from investment activities:
Net realized gains (losses) from:
Investment transactions............... 338,094 3,004,893 (6,366,671)
Futures contracts..................... (2,434,739) -- --
Options............................... (675,271) -- --
Net change in unrealized
appreciation/depreciation of:
Investment transactions............... (26,753,140) (20,061,596) 22,429,183
Futures contracts..................... 333,281 -- --
------------ ------------ -----------
Net realized and unrealized gains
(losses) from investment activities... (29,191,775) (17,056,703) 16,062,512
------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations............. $(12,733,105) $ (5,166,840) $42,556,556
============ ============ ===========
</TABLE>
See accompanying notes to financial statements
19
<PAGE>
PAINEWEBBER
FOR THE SIX MONTHS ENDED
STATEMENT OF CHANGES IN NET ASSETS MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. INVESTMENT
GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND
------------- ------------- -------------
<S> <C> <C> <C>
From operations:
Net investment income............. $ 16,458,670 $ 11,889,863 $ 26,494,044
Net realized gains (losses) from
investment transactions.......... 338,094 3,004,893 (6,366,671)
Net realized losses from futures
contracts........................ (2,434,739) -- --
Net realized losses from options
contracts........................ (675,271) -- --
Net change in unrealized
appreciation/depreciation of
investments...................... (26,753,140) (20,061,596) 22,429,183
Net change in unrealized
appreciation/depreciation of
futures contracts................ 333,281 -- --
------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations. (12,733,105) (5,166,840) 42,556,556
------------- ------------- -------------
Dividends to shareholders from:
Net investment income-Class A..... (12,670,259) (8,621,233) (11,812,099)
Net investment income-Class B..... (2,119,961) (2,100,393) (9,562,345)
Net investment income-Class C..... (261,527) (1,168,237) (4,560,150)
Net investment income-Class Y..... (1,406,923) -- --
------------- ------------- -------------
Total dividends to shareholders... (16,458,670) (11,889,863) (25,934,594)
------------- ------------- -------------
From beneficial interest
transactions:
Net proceeds from the sale of
shares........................... 8,312,235 11,765,160 47,893,633
Cost of shares repurchased........ (70,432,300) (40,461,668) (113,380,061)
Proceeds from dividends
reinvested....................... 9,236,120 6,078,141 10,801,343
------------- ------------- -------------
Net decrease in net assets from
beneficial interest transactions. (52,883,945) (22,618,367) (54,685,085)
------------- ------------- -------------
Net decrease in net assets........ (82,075,720) (39,675,070) (38,063,123)
Net assets:
Beginning of period............... 574,542,362 369,420,187 565,476,873
------------- ------------- -------------
End of period..................... $ 492,466,642 $ 329,745,117 $ 527,413,750
============= ============= =============
FOR THE YEAR ENDED NOVEMBER 30, 1995
From operations:
Net investment income............. $ 36,064,828 $ 27,324,143 $ 65,779,842
Net realized gains (losses) from
investment transactions.......... (2,337,197) 5,724,646 (36,987,965)
Net realized gains from futures
contracts........................ 1,104,974 -- --
Net change in unrealized
appreciation/depreciation of
investments...................... 40,607,371 31,522,859 21,627,563
Net change in unrealized
appreciation/depreciation of
futures contracts................ 36,250 -- --
------------- ------------- -------------
Net increase in net assets
resulting from operations........ 75,476,226 64,571,648 50,419,440
------------- ------------- -------------
Dividends to shareholders from:
Net investment income--Class A.... (26,985,748) (19,623,343) (29,457,620)
Net investment income--Class B.... (5,310,026) (4,818,171) (24,398,534)
Net investment income--Class C.... (3,591,061) (2,882,641) (12,058,241)
Net investment income--Class Y.... (357,072) -- --
------------- ------------- -------------
Total dividends to shareholders... (36,243,907) (27,324,155) (65,914,395)
------------- ------------- -------------
From beneficial interest
transactions:
Net proceeds from the sale of
shares........................... 20,857,803 39,567,386 163,583,471
Proceeds from shares issued in
connection with the acquisition
of Mitchell Hutchins/Kidder,
Peabody Intermediate Fixed Income
Fund............................. 17,397,551 -- --
Proceeds from shares issued in
connection with the acquisition
of Mitchell Hutchins/Kidder,
Peabody Government Income Fund... 43,064,945 -- --
Cost of shares repurchased........ (167,328,659) (107,864,824) (230,082,157)
Proceeds from dividends
reinvested....................... 19,660,388 14,085,541 28,397,685
------------- ------------- -------------
Net decrease in net assets from
beneficial interest transactions. (66,347,972) (54,211,897) (38,101,001)
------------- ------------- -------------
Net decrease in net assets........ (27,115,653) (16,964,404) (53,595,956)
Net assets:
Beginning of year................. 601,658,015 386,384,591 619,072,829
------------- ------------- -------------
End of year....................... $ 574,542,362 $ 369,420,187 $ 565,476,873
============= ============= =============
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS - (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Managed Investments Trust (the "Trust") was organized under
Massachusetts law by a Declaration of Trust dated November 21, 1986 and 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 five funds: 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 Low Duration
U.S. Government Income Fund and PaineWebber Utility Income Fund. The financial
statements for PaineWebber Low Duration U.S. Government Income Fund and
PaineWebber Utility Income Fund are not included herein.
Currently, each Fund offers Class A, Class B and Class C shares. U.S.
Government Income Fund also offers Class Y shares. Each class represents
interests in the same assets of the applicable Fund, and the classes are
identical except for differences in their sales charge structures, distribution
charges and certain transfer agency expenses. In addition, Class B shares and
all corresponding reinvested dividend shares automatically convert to Class A
shares approximately six years after issuance. All classes of shares have equal
voting privileges except that each class has exclusive voting rights with
respect to its distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is
a summary of significant accounting policies:
Valuation of Investments -- Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect, in the judgment of Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser and administrator of the Funds, 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, generally
is used to value short-term debt instruments with sixty days or less remaining
to maturity, unless the Trust's board of trustees 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 accrued
21
<PAGE>
PAINEWEBBER
interest, is at least equal to the repurchase price. In the event of default of
the obligation to repurchase, each Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. Each of the Funds occasionally participates in joint
repurchase agreement transactions with other funds managed by Mitchell
Hutchins.
Investment Transactions and Investment Income -- Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income
is recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to
interest income and the identified cost of investments.
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, a 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 U.S. Government Income Fund primarily used financial futures contracts for
hedging purposes as well as to manage the average duration of a Fund's
portfolio. 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.
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
22
<PAGE>
PAINEWEBBER
stipulated expiration date or the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a call option which
the Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from the
sale are increased by the premium originally received. If a put option which a
Fund has written is exercised, the amount of the premium originally received
reduces the cost of the security which the Fund purchases upon exercise of the
option.
Dividends and Distributions -- Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and
distributions from realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification.
WRITTEN OPTION ACTIVITY
Transactions in options written for the U.S. Government Income Fund for the six
months ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PREMIUMS
--------- --------
<S> <C> <C>
Options outstanding at November 30, 1995.................... 0 $ 0
Options written ............................................ 1,700 410,112
Options terminated in closing purchase transactions......... (700) (275,487)
Options expired............................................. (1,000) (134,625)
Options exercised........................................... -- --
------ --------
Options outstanding at May 31, 1996......................... 0 $ 0
====== ========
</TABLE>
CONCENTRATION OF RISK
The ability of the issuers of the debt securities held by the Funds to meet
their obligations may be affected by economic developments, including those
particular to a specific industry 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.
23
<PAGE>
PAINEWEBBER
ACQUISITIONS
Acquisition of Mitchell Hutchins/Kidder, Peabody Government Income Fund ("MH/KP
Government Income Fund") -- Effective as of the close of business on October
20, 1995, U.S. Government Income Fund acquired all the net assets of MH/KP
Government Income Fund pursuant to a plan of reorganization approved by MH/KP
Government Income Fund shareholders on October 19, 1995. The acquisition was
accomplished by a tax-free exchange of 4,290,119 Class A, 138,273 Class D
(currently Class C) and 342,128 Class C (currently Class Y) shares of U.S.
Government Income Fund for 2,722,402 Class A, 87,710 Class B, and 217,018 Class
C shares, respectively, of MH/KP Government Income Fund outstanding on October
20, 1995. MH/KP Government Income Fund's net assets at that date, valued at
$43,064,945, including accumulated net realized losses of $9,283,707 and net
unrealized appreciation of investments of $763,982, were combined with those of
the U.S. Government Income Fund.
Acquisition of Mitchell Hutchins/Kidder, Peabody Intermediate Fixed Income Fund
("MH/KP Intermediate Fixed Income Fund") -- Effective as of the close of
business on October 20, 1995, U.S. Government Income Fund acquired all the net
assets of MH/KP Intermediate Fixed Income Fund pursuant to a plan of
reorganization approved by MH/KP Intermediate Fixed Income Fund shareholders on
October 19, 1995. The acquisition was accomplished by a tax-free exchange of
1,619,680 Class A, 209,318 Class D (currently Class C) and 98,013 Class C
(currently Class Y) shares of U.S. Government Income Fund for 1,199,812 Class
A, 154,885 Class B and 72,584 Class C shares, respectively, of MH/KP
Intermediate Fixed Income Fund outstanding on October 20, 1995. MH/KP
Intermediate Fixed Income Fund's net assets at that date, valued at
$17,397,551, including accumulated net realized losses of $2,284,311 and net
unrealized appreciation of investments of $444,710, were combined with those of
the U.S. Government Income Fund.
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
Funds. In accordance with the Advisory Contract, each 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 each Fund's average daily net
assets. At May 31, 1996, U.S. Government Income Fund, Investment Grade Income
Fund and High Income Fund owed Mitchell Hutchins $211,442, $140,759 and
$223,394, respectively, in investment advisory and administration fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse each Fund if and to the extent that the aggregate operating expenses
in any fiscal
24
<PAGE>
PAINEWEBBER
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 each 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, 1996, no reimbursements were required pursuant to the above limitation
for any of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of 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 shares and Class C shares,
respectively. At May 31, 1996, U.S. Government Income Fund, Investment Grade
Income Fund and High Income Fund owed Mitchell Hutchins $168,478, $125,054 and
$279,498, 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
deferred 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 six months ended May 31, 1996, it earned $131,141, $121,271 and
$706,678 in sales charges for the U.S. Government Income Fund, Investment Grade
Income Fund and High Income Fund, respectively.
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Funds' transfer
agent. For these services for the six months ended May 31, 1996, PaineWebber
earned $69,634, $58,769 and $68,555 in transfer agency service fees from U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund,
respectively. At May 31, 1996, U.S. Government Income Fund, Investment Grade
Income Fund and High Income Fund owed PaineWebber $11,112, $13,800 and $10,942,
respectively, for transfer agency service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1996
was substantially the same as the cost of securities for financial statement
purposes.
25
<PAGE>
PAINEWEBBER
At May 31, 1996, the components of the net unrealized depreciation of
investments were as follows:
<TABLE>
<CAPTION>
U.S. INVESTMENT
GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND
------------ ----------- ------------
<S> <C> <C> <C>
Gross depreciation (investments having
an excess of cost over value)........ $(10,213,124) $(6,434,577) $(68,570,944)
Gross appreciation (investments having
an excess of value over cost)........ 2,096,187 4,411,548 33,154,006
------------ ----------- ------------
Net unrealized depreciation of
investments.......................... $ (8,116,937) $(2,023,029) $(35,416,938)
============ =========== ============
</TABLE>
For the six months ended May 31, 1996, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
U.S. INVESTMENT
GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------
<S> <C> <C> <C>
Purchases................................ $545,138,893 $244,088,645 $418,124,450
Sales.................................... $624,363,837 $263,021,864 $474,017,832
</TABLE>
FEDERAL INCOME 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
investment companies. Accordingly, no provision for federal income taxes is
required. In addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other amounts, if
any, each Fund intends not to be subject to a federal excise tax.
At November 30, 1995, U.S. Government Income Fund, Investment Grade Income Fund
and High Income Fund had net capital loss carryforwards of $278,666,740,
$98,174,733 and $256,601,184, respectively. These loss carryforwards are
available as reductions, to the extent provided in the regulations, of future
net realized capital gains, and will expire between November 30, 1996 and
November 30, 2003. To the extent that such losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed.
The capital loss carryforward for U.S. Government Income Fund includes capital
losses acquired pursuant to its reorganizations with MH/KP Government Income
Fund and MH/KP Intermediate Fixed Income Fund in the amounts of $9,286,109 and
$2,239,627, respectively. The capital loss carryforward for Investment Grade
Income Fund includes capital losses acquired during the fiscal year ended
November 30, 1995 pursuant to its reorganization with the PaineWebber Income
Fund of $36,695,472.
26
<PAGE>
PAINEWEBBER
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>
U.S. Government Income Fund
Six Months Ended May 31,
1996:
Shares sold..... 154,295 $ 1,381,769 364,459 $ 3,276,265 159,304 $ 1,432,941 251,800 $ 2,221,260
Shares
repurchased.... (5,139,650) (45,993,309) (1,344,645) (12,045,526) (1,114,151) (10,004,111) (274,359) (2,389,354)
Shares converted
from Class B to
Class A........ 10,883 98,664 (10,883) (98,664) -- -- -- --
Dividends
reinvested..... 758,754 6,798,208 139,204 1,247,175 105,370 943,649 27,613 247,088
----------- ------------ ----------- ------------ ----------- ------------ -------- -----------
Net increase
(decrease)..... (4,215,718) $(37,714,668) (851,865) $ (7,620,750) (849,477) $ (7,627,521) 5,054 $ 78,994
=========== ============ =========== ============ =========== ============ ======== ===========
Year Ended November 30,
1995:
Shares sold..... 567,868 $ 4,893,780 1,041,362 $ 9,030,263 617,760 $ 5,366,938 178,845 $ 1,566,822
Shares issued in
connection with
the acquisition
of Mitchell
Hutchins/Kidder,
Peabody
Intermediate
Fixed Income
Fund........... 1,619,680 14,625,152 -- -- 209,318 1,888,044 98,013 884,355
Shares issued in
connection with
the acquisition
of Mitchell
Hutchins/Kidder,
Peabody
Government
Income Fund.... 4,290,119 38,732,028 -- -- 138,273 1,247,330 342,128 3,085,587
Shares
repurchased.... (11,424,195) (99,775,829) (3,971,731) (34,673,089) (3,397,945) (29,578,351) (369,283) (3,301,390)
Shares converted
from Class B to
Class A........ 113,269 977,788 (113,269) (977,788) -- -- -- --
Dividends
reinvested..... 1,554,471 13,634,365 365,906 3,205,239 282,504 2,470,539 39,956 350,245
----------- ------------ ----------- ------------ ----------- ------------ -------- -----------
Net increase
(decrease)..... (3,278,788) $(26,912,716) (2,677,732) $(23,415,375) (2,150,090) $(18,605,500) 289,659 $ 2,585,619
=========== ============ =========== ============ =========== ============ ======== ===========
Investment Grade Income Fund
Six Months Ended May 31,
1996:
Shares sold..... 374,746 $ 3,955,795 487,145 $ 5,151,032 253,517 $ 2,658,333
Shares
repurchased.... (2,170,935) (22,805,432) (1,041,891) (10,972,520) (633,056) (6,683,716)
Shares converted
from Class B to
Class A........ 74,117 780,122 (74,117) (780,122) -- --
Dividends
reinvested..... 417,214 4,386,602 102,481 1,077,565 58,388 613,974
----------- ------------ ----------- ------------ ----------- ------------
Net decrease.... (1,304,858) $(13,682,913) (526,382) $ (5,524,045) (321,151) $ (3,411,409)
=========== ============ =========== ============ =========== ============
Year ended November 30,
1995:
Shares sold..... 1,118,498 $ 11,245,387 1,602,309 $ 16,080,209 1,203,107 $ 12,241,790
Shares
repurchased.... (6,102,145) (61,730,284) (2,170,282) (22,050,209) (2,382,752) (24,084,331)
Shares converted
from Class B to
Class A........ 166,181 1,661,858 (166,181) (1,661,858) -- --
Dividends
reinvested..... 992,104 10,085,704 248,368 2,525,239 145,268 1,474,598
----------- ------------ ----------- ------------ ----------- ------------
Net decrease.... (3,825,362) $(38,737,335) (485,786) $ (5,106,619) (1,034,377) $(10,367,943)
=========== ============ =========== ============ =========== ============
High Income Fund
Six Months Ended May 31,
1996:
Shares sold..... 1,465,473 $ 10,284,695 3,549,841 $ 24,917,283 1,801,721 $ 12,691,655
Shares
repurchased.... (5,527,485) (38,720,639) (6,432,058) (45,154,083) (4,200,569) (29,505,339)
Shares converted
from Class B to
Class A........ 66,669 470,985 (66,726) (470,985) -- --
Dividends
reinvested..... 730,041 5,127,886 472,806 3,319,612 334,591 2,353,845
----------- ------------ ----------- ------------ ----------- ------------
Net decrease.... (3,265,302) $(22,837,073) (2,476,137) $(17,388,173) (2,064,257) $(14,459,839)
=========== ============ =========== ============ =========== ============
Year Ended November 30,
1995:
Shares sold..... 4,193,138 $ 29,947,530 10,325,456 $ 73,506,514 8,404,914 $ 60,129,427
Shares
repurchased.... (8,121,352) (57,873,371) (13,672,291) (97,254,677) (10,508,559) (74,954,109)
Shares converted
from Class B to
Class A........ 265,832 1,888,065 (266,021) (1,888,065) -- --
Dividends
reinvested..... 1,814,578 12,966,608 1,246,815 8,905,265 911,864 6,525,812
----------- ------------ ----------- ------------ ----------- ------------
Net decrease.... (1,847,804) $(13,071,168) (2,366,041) $(16,730,963) (1,191,781) $ (8,298,870)
=========== ============ =========== ============ =========== ============
</TABLE>
27
<PAGE>
U.S. GOVERNMENT INCOME FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
For the Six
Months Ended For the Years Ended November 30,
May 31, 1996 ----------------------------------------------------
(unaudited) 1995 1994 1993 1992 1991
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.12 $ 8.50 $10.03 $ 9.98 $ 9.97 $ 9.47
-------- -------- -------- -------- -------- --------
Net investment income... 0.28 0.58 0.60 0.67 0.75 0.77
Net realized and
unrealized gains
(losses) from
investment, option and
futures transactions... (0.49) 0.62 (1.53) 0.05 0.01 0.49
-------- -------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. (0.21) 1.20 (0.93) 0.72 0.76 1.26
-------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.28) (0.58) (0.60) (0.67) (0.75) (0.76)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 8.63 $9.12 $ 8.50 $10.03 $ 9.98 $ 9.97
======== ======== ======== ======== ======== ========
Total investment return
(1).................... (2.37)% 14.70% (9.62)% 7.38% 7.92% 13.80%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $370,640 $430,285 $428,722 $648,923 $703,198 $737,189
Expenses to average net
assets................. 0.95%* 1.03%(2) 0.95% 0.91% 0.93% 0.87%
Net investment income to
average
net assets............. 6.27%* 6.65%(2) 6.48% 6.60% 7.42% 7.94%
Portfolio turnover rate. 103% 206% 358% 83% 28% 71%
</TABLE>
- -------
# Commencement of issuance of shares
* Annualized
(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 of Class A and Class B shares would be lower if sales charges were
included. Total investment return for periods of less than one year has not
been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.03% for each
class of shares.
28
<PAGE>
U.S. GOVERNMENT INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B
- -------------------------------------------------------------------------------
For the Six For the Period
Months Ended For the Years Ended November 30, July 1, 1991#
May 31, 1996 ---------------------------------------------- to November 30,
(unaudited) 1995 1994 1993 1992 1991
- ------------ ------- ------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
$ 9.12 $ 8.50 $10.03 $ 9.98 $ 9.98 $ 9.59
------- ------- ------- -------- -------- -------
0.24 0.51 0.53 0.60 0.67 0.29
(0.49) 0.63 (1.53) 0.05 0.01 0.39
------- ------- ------- -------- -------- -------
(0.25) 1.14 (1.00) 0.65 0.68 0.68
------- ------- ------- -------- -------- -------
(0.24) (0.52) (0.53) (0.60) (0.68) (0.29)
------- ------- ------- -------- -------- -------
$ 8.63 $ 9.12 $ 8.50 $10.03 $ 9.98 $ 9.98
======= ======= ======= ======== ======== =======
(2.74)% 13.81% (10.31)% 6.57% 6.98% 6.78%
======= ======= ======= ======== ======== =======
$70,657 $82,469 $99,581 $161,158 $132,357 $23,532
1.72%* 1.81%(2) 1.72% 1.66% 1.67% 1.68%*
5.50%* 5.88%(2) 5.71% 5.79% 6.38% 6.40%*
103% 206% 358% 83% 28% 71%
</TABLE>
29
<PAGE>
U.S. GOVERNMENT INCOME FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS C**
-----------------------------------------------------------
For the
For the Six Years Ended For the Period
Months Ended November 30, July 2, 1992#
May 31, 1996 ----------------------------- to November 30,
(unaudited) 1995 1994 1993 1992
------------ ------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.11 $ 8.49 $10.02 $ 9.98 $10.13
------- ------- ------- -------- --------
Net investment income... 0.26 0.53 0.55 0.62 0.25
Net realized and
unrealized gains
(losses) from
investment, option and
futures transactions... (0.49) 0.63 (1.53) 0.04 (0.15)
------- ------- ------- -------- --------
Net increase (decrease)
from investment
operations............. (0.23) 1.16 (0.98) 0.66 0.10
------- ------- ------- -------- --------
Dividends from net
investment income...... (0.26) (0.54) (0.55) (0.62) (0.25)
------- ------- ------- -------- --------
Net asset value, end of
period................. $ 8.62 $ 9.11 $ 8.49 $10.02 $ 9.98
======= ======= ======= ======== ========
Total investment return
(1).................... (2.62)% 14.12% (10.08)% 6.75% 0.62%
======= ======= ======= ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $43,599 $53,832 $68,400 $143,473 $127,026
Expenses to average net
assets................. 1.47%* 1.55%(2) 1.45% 1.40% 1.44%*
Net investment income to
average net assets..... 5.77%* 6.17%(2) 5.99% 6.06% 6.13%*
Portfolio turnover rate. 103% 206% 358% 83% 28%
</TABLE>
- -------
# Commencement of issuance of shares
* Annualized
** Formerly Class D
*** Formerly 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 C would be lower if sales charges were included. Total
investment return for periods of less than one year has not been
annualized.
(2) These ratios include non-recurring reorganization expenses of 0.03% for
each class of shares.
30
<PAGE>
U.S. GOVERNMENT INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS Y***
- -----------------------------------------------------------------------------
For the
For the Six Years Ended For the Period
Months Ended November 30, September 11, 1991#
May 31, 1996 ---------------------------------------- to November 30,
(unaudited) 1995 1994 1993 1992 1991
- ------------ ------ ------ ------ ------ -------------------
<S> <C> <C> <C> <C> <C>
$ 9.11 $ 8.49 $10.02 $ 9.97 $ 9.97 $ 9.88
------ ------ ------ ------ ------ ------
0.29 0.61 0.62 0.70 0.77 0.18
(0.49) 0.62 (1.53) 0.05 0.01 0.09
------ ------ ------ ------ ------ ------
(0.20) 1.23 (0.91) 0.75 0.78 0.27
------ ------ ------ ------ ------ ------
(0.29) (0.61) (0.62) (0.70) (0.78) (0.18)
------ ------ ------ ------ ------ ------
$ 8.62 $ 9.11 $ 8.49 $10.02 $ 9.97 $ 9.97
====== ====== ====== ====== ====== ======
(2.23)% 15.06% (9.37)% 7.69% 8.13% 2.37%
====== ====== ====== ====== ====== ======
$7,570 $7,957 $4,955 $6,232 $5,517 $4,514
0.65%* 0.71%(2) 0.65% 0.62% 0.63% 0.72%*
6.56%* 6.96%(2) 6.76% 6.87% 7.70% 8.36%*
103% 206% 358% 83% 28% 71%
</TABLE>
31
<PAGE>
INVESTMENT GRADE INCOME FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
For the Six
Months Ended For the Years Ended November 30,
May 31, 1996 ------------------------------------------------
(unaudited) 1995 1994 1993 1992 1991
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $10.68 $ 9.67 $11.08 $10.38 $10.17 $ 9.50
-------- -------- -------- -------- -------- --------
Net investment income... 0.36 0.76 0.77 0.79 0.81 0.82
Net realized and
unrealized gains
(losses) from
investment
transactions........... (0.52) 1.01 (1.41) 0.70 0.22 0.66
-------- -------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. (0.16) 1.77 (0.64) 1.49 1.03 1.48
-------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.36) (0.76) (0.77) (0.79) (0.82) (0.81)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $10.16 $10.68 $ 9.67 $11.08 $10.38 $10.17
======== ======== ======== ======== ======== ========
Total investment return
(1).................... (1.53)% 18.95% (5.99)% 14.77% 10.39% 16.17%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $233,160 $258,898 $271,553 $204,418 $197,795 $220,216
Expenses to average net
assets................. 0.86%* 0.95% 0.97% 0.96% 1.01% 0.91%
Net investment income to
average
net assets............. 6.91%* 7.42% 7.50% 7.24% 7.81% 8.32%
Portfolio turnover rate. 76% 149% 142% 27% 44% 46%
</TABLE>
- -------
# Commencement of issuance of shares
* Annualized
** Formerly Class D
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, 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 each
class would be lower if sales charges were included. Total investment
return for periods of less than one year has not been annualized.
32
<PAGE>
INVESTMENT GRADE INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS C**
- ------------------------------------------------------------------ --------------------------------------------------------
For the For the
For the Six Years Ended For the Period For the Six Years Ended For the Period
Months Ended November 30, July 1, 1991# Months Ended November 30, July 2, 1992 #
May 31, 1996 ----------------------------------- to November 30, May 31, 1996 -------------------------- to November 30,
(unaudited) 1995 1994 1993 1992 1991 (unaudited) 1995 1994 1993 1992
- ------------ ------- ------- ------- ------- --------------- ------------ ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.67 $ 9.67 $ 11.07 $ 10.38 $ 10.17 $ 9.79 $ 10.68 $ 9.67 $ 11.08 $ 10.38 $ 10.48
------- ------- ------- ------- ------- ------ ------- ------- ------- ------- -------
0.32 0.68 0.69 0.71 0.73 0.31 0.34 0.70 0.72 0.74 0.28
(0.51) 1.00 (1.40) 0.69 0.22 0.38 (0.52) 1.01 (1.41) 0.70 (0.10)
------- ------- ------- ------- ------- ------ ------- ------- ------- ------- -------
(0.19) 1.68 (0.71) 1.40 0.95 0.69 (0.18) 1.71 (0.69) 1.44 0.18
------- ------- ------- ------- ------- ------ ------- ------- ------- ------- -------
(0.32) (0.68) (0.69) (0.71) (0.74) (0.31) (0.34) (0.70) (0.72) (0.74) (0.28)
------- ------- ------- ------- ------- ------ ------- ------- ------- ------- -------
$ 10.16 $ 10.67 $ 9.67 $ 11.07 $ 10.38 $10.17 $ 10.16 $ 10.68 $ 9.67 $ 11.08 $ 10.38
======= ======= ======= ======= ======= ====== ======= ======= ======= ======= =======
(1.80)% 17.97% (6.60)% 13.81% 9.56% 6.76% (1.78)% 18.37% (6.40)% 14.21% 1.32%
======= ======= ======= ======= ======= ====== ======= ======= ======= ======= =======
$62,585 $71,372 $69,359 $52,301 $20,862 $5,368 $34,000 $39,150 $45,473 $47,527 $16,067
1.60%* 1.70% 1.72% 1.70% 1.74% 1.67%* 1.36%* 1.45% 1.45% 1.44% 1.49%*
6.17%* 6.67% 6.73% 6.40% 6.88% 6.87%* 6.42%* 6.95% 6.99% 6.61% 6.83%*
76% 149% 142% 27% 44% 46% 76% 149% 142% 27% 44%
</TABLE>
33
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
For the Six
Months Ended For the Years Ended November 30,
May 31, 1996 ------------------------------------------------
(unaudited) 1995 1994 1993 1992 1991
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 6.96 $ 7.14 $ 8.73 $ 7.92 $ 7.30 $ 5.61
-------- -------- -------- -------- -------- --------
Net investment income... 0.36 0.79 0.86 0.89 0.98 0.98
Net realized and
unrealized gains
(losses) from
investment
transactions........... 0.21 (0.17) (1.59) 0.83 0.61 1.69
-------- -------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. 0.57 0.62 (0.73) 1.72 1.59 2.67
-------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.35) (0.80) (0.86) (0.91) (0.97) (0.98)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 7.18 $ 6.96 $ 7.14 $ 8.73 $ 7.92 $ 7.30
======== ======== ======== ======== ======== ========
Total investment return
(1).................... 8.46% 9.01% (9.20)% 22.89% 22.99% 51.11%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $233,087 $248,619 $268,397 $360,281 $279,685 $243,210
Expenses to average net
assets................. 0.95%* 0.93% 0.91% 0.93% 0.98% 1.05%
Net investment income to
average
net assets............. 10.24%* 11.17% 10.43% 10.61% 12.68% 15.12%
Portfolio turnover rate. 80% 94% 156% 182% 185% 117%
</TABLE>
- -------
# Commencement of issuance of shares
* Annualized
** Formerly Class D
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, 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 each
class would be lower if sales charges were included. Total investment
return for periods of less than one year has not been annualized.
34
<PAGE>
HIGH INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS C**
- --------------------------------------------------------------------- -----------------------------------------------------------
For the For the
For the Six Years Ended For the Period For the Six Years Ended For the Period
Months Ended November 30, July 1, 1991# Months ended November 30, July 2, 1992 #
May 31, 1996 -------------------------------------- to November 30, May 31, 1996 ----------------------------- to November 30,
(unaudited) 1995 1994 1993 1992 1991 (unaudited) 1995 1994 1993 1992
- ------------ -------- -------- -------- ------- --------------- ------------ -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6.95 $ 7.14 $ 8.72 $ 7.91 $ 7.29 $ 6.85 $ 6.97 $ 7.15 $ 8.74 $ 7.92 $ 7.80
-------- -------- -------- -------- ------- ------- ------- -------- -------- -------- -------
0.33 0.74 0.80 0.83 0.92 0.41 0.34 0.76 0.82 0.85 0.33
0.22 (0.18) (1.58) 0.82 0.61 0.44 0.22 (0.18) (1.59) 0.82 0.11
-------- -------- -------- -------- ------- ------- ------- -------- -------- -------- -------
0.55 0.56 (0.78) 1.65 1.53 0.85 0.56 0.58 (0.77) 1.67 0.44
-------- -------- -------- -------- ------- ------- ------- -------- -------- -------- -------
(0.33) (0.75) (0.80) (0.84) (0.91) (0.41) (0.34) (0.76) (0.82) (0.85) (0.32)
-------- -------- -------- -------- ------- ------- ------- -------- -------- -------- -------
$ 7.17 $ 6.95 $ 7.14 $ 8.72 $ 7.91 $ 7.29 $ 7.19 $ 6.97 $ 7.15 $ 8.74 $ 7.92
======== ======== ======== ======== ======= ======= ======= ======== ======== ======== =======
8.06% 8.05% (9.77)% 21.89% 22.07% 11.93% 8.18% 8.45% (9.62)% 22.19% 5.21%
======== ======== ======== ======== ======= ======= ======= ======== ======== ======== =======
$201,952 $212,946 $235,480 $286,525 $99,645 $18,274 $92,374 $103,911 $115,196 $176,161 $35,992
1.70%* 1.68% 1.64% 1.66% 1.70% 1.73%* 1.46%* 1.44% 1.38% 1.39% 1.45%*
9.49%* 10.42% 9.66% 9.69% 11.42% 12.43%* 9.75%* 10.63% 9.91% 9.81% 10.67%*
80% 94% 156% 182% 185% 117% 80% 94% 156% 182% 185%
</TABLE>
35
<PAGE>
PAINEWEBBER
SHAREHOLDER INFORMATION
A Special Meeting of Shareholders was held on April 15, 1996, at
which the following proposals were approved for the Funds:
PROPOSAL 1
<TABLE>
<CAPTION>
FUNDS VOTING TOGETHER
----------------------
SHARES
SHARES VOTED WITHHOLD
FOR AUTHORITY
------------ ---------
<S> <C> <C>
To elect ten members of its Board of Trustees:
Margo N. Alexander..................................... 84,957,433 4,306,604
Richard Q. Armstrong................................... 84,959,854 4,304,183
E. Garrett Bewkes, Jr. ................................ 84,959,854 4,304,183
Richard Burt........................................... 84,959,854 4,304,183
Mary C. Farrell........................................ 84,959,854 4,304,183
Meyer Feldberg......................................... 84,959,775 4,304,262
George W. Gowen........................................ 84,957,433 4,306,604
Frederic V. Malek...................................... 84,957,433 4,306,604
Carl W. Schafer........................................ 84,957,433 4,306,604
John R. Torell III..................................... 84,957,433 4,306,604
</TABLE>
PROPOSAL 2
To vote for or against the ratification of the selection of Ernst & Young LLP
as the independent accountants for the Funds' fiscal year ending November 30,
1996:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED
FOR AGAINST SHARES ABSTAIN
------------ ------------ --------------
<S> <C> <C> <C>
High Income Fund....................... 37,373,285 89,670 2,090,598
Investment Grade Income Fund........... 17,801,043 40,056 581,886
U.S. Government Income Fund............ 29,608,740 44,951 1,633,808
</TABLE>
PROPOSAL 3
To vote for or against the following changes to each Fund's fundamental
investment restrictions and policies.
Modification of fundamental restriction on portfolio diversification for
diversified funds:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED
FOR AGAINST SHARES ABSTAIN
------------ ------------ --------------
<S> <C> <C> <C>
High Income Fund....................... 36,925,576 322,345 2,305,632
Investment Grade Income Fund........... 17,390,942 263,911 768,132
U.S. Government Income Fund............ 29,015,054 368,570 1,903,875
</TABLE>
36
<PAGE>
PAINEWEBBER
Modification of fundamental restriction on concentration;
Modification of fundamental restriction on senior securities and borrowing;
Modification of fundamental restriction on making loans;
Modification of fundamental restriction on underwriting securities;
Modification of fundamental restriction on real estate investments;
Modification of fundamental restriction on investing in commodities;
Elimination of fundamental restriction on margin transactions;
Elimination of fundamental restriction on short sales;
Elimination of fundamental restriction on investments in oil, gas and mineral
leases and programs;
Elimination of fundamental restriction on investments in other investment
companies;
For each of the proposals listed above the votes were as follows:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED
FOR AGAINST SHARES ABSTAIN
------------ ------------ --------------
<S> <C> <C> <C>
High Income Fund....................... 36,476,842 597,796 2,478,915
Investment Grade Income Fund........... 17,390,942 263,911 768,132
U.S. Government Income Fund............ 29,015,054 368,570 1,903,875
</TABLE>
PROPOSAL 4
To vote for or against a change to the investment objective:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED
FOR AGAINST SHARES ABSTAIN
------------ ------------ --------------
<S> <C> <C> <C>
High Income Fund....................... 36,129,513 715,963 2,708,077
</TABLE>
- -------
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" or "Shares Abstain" totals.)
37
