<PAGE>
ANNUAL REPORT--OCTOBER 15, 1996
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER,
We are pleased to present you with the semiannual
report for PaineWebber Utility Income Fund (the
"Fund") for the six months ended September 30,
1996.
GENERAL MARKET OVERVIEW
Early in the year, government reports showing
higher-than-expected economic growth prompted a
shift in market sentiment, which in turn caused a
sharp drop in bond prices and ensuing stock
market volatility. Several factors helped move
stocks higher despite this volatility, including
an overall positive environment for corporate
earnings and profit growth as well as strong cash
flows into equity mutual funds. Then, in July, a
spate of disappointing earnings announcements
helped contribute to the first meaningful overall
stock market correction since 1994. This was
short-lived, however, and in August the market
retraced much of the ground it had lost. By
mid-September, as investor confidence grew, money
returning to the equity markets propelled the
Standard & Poor's 500, a commonly used measure of
stock market performance, to a new record high (a
circumstance which underscores the hazards of
market timing). The Federal Reserve Board (the
"Fed") echoed investor confidence when it chose,
as it did during the May and July 1996 Federal
Open Market Committee meetings, to keep key
interest rates unchanged at the September 1996
meeting. The Fed's decision to do so suggested
that officials continued to discount the
potential for an overheating economy or
accelerating inflation.
<PAGE>
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PORTFOLIO REVIEW
Going forward, we believe that the current
environment of stable economic growth will
continue into the first half of 1997, and that
the Fed will not move on interest rates any time
soon. We also believe that although the stock
market is at the upper end of the fair value
range, continued investor demand, as seen in the
returning flow of individual investor dollars
into equity mutual funds, will serve as
underlying support to the market.
PORTFOLIO REVIEW
The Fund's total return (the net asset value
change with dividends reinvested) for the six
month period ended September 30, 1996, without
deducting sales charges, was 1.78% for Class A
shares, 1.50% for Class B shares and 1.49% for
Class C shares. For shareowners who purchased or
redeemed Fund shares during the period, the
Fund's total return for the period may be lower;
for example, after deducting the maximum
applicable sales charges, the Fund's total return
for the period was (2.80)% for Class A shares,
(3.50)% for Class B shares and 0.49% for Class C
shares.
At the start of the six month period, a decision
was made to decrease the Fund's bond weighting
(15.86% of net assets as of March 31, 1996 versus
14.50% of net assets as of September 30, 1996), a
move designed to further bring the Fund in line
with our strategy of maximizing total return.
Nearly all of the assets shifted out of the bond
sector were invested in real estate investment
trusts (REITs), vehicles which we believe offer
exceptional capital appreciation potential, as
well as attractive dividend yields. Moreover, we
are optimistic about the growth of select sectors
within the real estate industry, including
premium hotels and commercial real estate, and
have invested the Fund's portfolio accordingly.
Starwood Lodging Trust (1.84% of net assets as of
September 30, 1996) and Crescent Real Estate
(1.86%) are both representative of holdings
within these respective sectors. Ultimately, the
decision to move into REITs had a positive impact
on Fund performance, as evidenced by the Fund's
subsequent move into, and current position
within, the top half of the Lipper Utility Funds
peer group for the six months ended September 30,
1996.
2
<PAGE>
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PORTFOLIO REVIEW
PAINEWEBBER UTILITY INCOME FUND (% OF NET ASSETS
ON SEPTEMBER 30, 1996)
<TABLE>
<CAPTION>
TOP FIVE FIXED INCOME HOLDINGS TOP FIVE EQUITY HOLDINGS
<S> <C> <C> <C>
TCI Communications Inc. 2.2% NICOR Inc. 2.7%
MCI Communications Corp. 2.2% MCN Corp. 2.4%
Illinois Power Co. 2.2% Duke Power Co. 2.4%
News America Holdings Corp. 2.0% Baltimore Gas & Electric Co. 2.4%
Duquesne Light Co. 1.7% PECO Energy Co. 2.3%
</TABLE>
Also benefiting the Fund throughout the period
were sweeping regulatory changes occurring within
the telecommunications industry (16.45% of net
assets as of September 30, 1996). As discussed in
the annual report for the year ended March 31,
1996, deregulation is effectively expanding
diversification opportunities for all
telecommunications providers, including allowing
previously excluded long distance companies to
enter the local telephone business. Such changes
are having far-reaching effects and creating
investment opportunities, as well. For example,
WorldCom, a fast growing long distance
competitor, surprised the investment community in
August when its executives announced its decision
to acquire MFS Communications Company, an
entrepreunerial local telecommunications
provider. The Fund benefited from this news due
to its position in MFS preferred shares at the
time. Conversely, we reduced the Fund's weighting
in regional Bell operating companies (9.57% of
net assets on March 31, 1996 versus 8.28% on
September 30, 1996), given our concerns about
their competitive prospects in an environment of
deregulation. In general, the stocks of the
regional Bells have underperformed as investors
begin to realize the difficulties these companies
are facing in the local telecommunications arena.
Deregulation is also occurring within the
electric utility sector (38.40% of net assets as
of September 30, 1996), albeit at a slower pace
given that electric utility regulations vary
state by state. Early in the period, investor
apprehension over deregulation adversely affected
the sector. As individual states began to enact
deregulation measures, however, investor fears
diminished upon the realization that the measures
were less onerous than anticipated. As a result,
electric utility stocks gained strength,
benefiting Fund performance. In the future, we
expect to see an increase in mergers as
deregulation gradually becomes reality. The Fund
has already benefited from consolidation activity
in this sector,
3
<PAGE>
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PORTFOLIO REVIEW
including the August merger of electric utility
Houston Industries and natural gas provider Noram
Energy. The Fund's position in Noram was sold
when shares rose 25% on the deal announcement.
Finally, in conjunction with our focus on total
return, on July 24, 1996, the Fund's Board
approved changing the Fund's dividend payment
policy from monthly to quarterly. We believe that
the Fund's total return potential will increase
with the implementation of a quarterly dividend
payment, while providing a more consistent stream
of income. The Fund will commence paying
quarterly distributions in December 1996; the
last monthly distribution occurred in September
1996.
Going forward, we expect that deregulation in the
industry will be an evolutionary process subject
to outside influences, particularly as the
general intent of the legislation is interpreted
at a practical level. We believe well-managed
companies will be in a better position to
implement adaptive responses and differentiate
their performance from weaker competitors.
Therefore, our goal is to identify and position
the Fund in those high-quality companies that we
believe are likely to be the successful survivors
of deregulation and which demonstrate the agility
to capitalize on new found growth opportunities
created by the changing regulatory landscape.
Our ultimate objective in managing your
investments is to help you successfully meet your
financial goals. We thank you for your continued
support, and welcome any comments or questions
you may have.
Sincerely,
MARGO N. ALEXANDER KAREN L. FINKEL
President, First Vice President,
Mitchell Hutchins Asset Mitchell Hutchins Asset
Management Inc. Management Inc.
Portfolio Manager,
PaineWebber Utility Income Fund
JULIANNA M. BERRY JAMES F. KEEGAN
Vice President, Senior Vice President,
Mitchell Hutchins Asset Mitchell Hutchins Asset
Management Inc. Management Inc.
Portfolio Manager, Portfolio Manager,
PaineWebber Utility Income Fund PaineWebber Utility Income Fund
4
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
TOTAL RETURN(1)
NET ASSET VALUE --------------------------
------------------------------------------ 6 MONTHS
12 MONTHS ENDED
09/30/96 03/31/96 11/30/95 ENDED 09/30/96 09/30/96
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Class A Shares $ 9.77 $ 9.76 $9.77 7.03% 1.78%
- --------------------------------------------------------------------------------------------
Class B Shares 9.77 9.75 9.77 6.23 1.50
- --------------------------------------------------------------------------------------------
Class C Shares 9.77 9.75 9.77 6.33 1.49
- --------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
07/02/93 -
12/31/93 $10.00 $ 9.70 -- $0.2340 (0.70)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4829 (9.71)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.4662 28.82
- ---------------------------------------------------------------------------------
01/01/96 -
09/30/96 10.14 9.77 -- 0.2566 (1.09)
- ---------------------------------------------------------------------------------
Total: $0.0000 $1.4397
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/96: 14.22%
- ---------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
07/02/93 -
12/31/93 $10.00 $9.70 -- $0.2010 (1.02)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4169 (10.40)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.3980 27.87
- ---------------------------------------------------------------------------------
01/01/96 -
09/30/96 10.14 9.77 -- 0.2032 (1.63)
- ---------------------------------------------------------------------------------
Total: $0.0000 $1.2191
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/96: 11.55%
- ---------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
07/02/93 -
12/31/93 $10.00 $9.70 -- $0.2020 (1.01)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4158 (10.41)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.3970 27.86
- ---------------------------------------------------------------------------------
01/01/96 -
09/30/96 10.14 9.77 -- 0.2023 (1.64)
- ---------------------------------------------------------------------------------
Total: $0.0000 $1.2171
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/96: 11.53%
- ---------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
------------------------------- -------------------------------
CLASS CLASS
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
A* B** C*** A* B** C***
- ------------------------------------------------------------------------------------------------
Twelve Months Ended 09/30/96 7.03% 6.23% 6.33% 2.19% 1.23% 5.33%
- ------------------------------------------------------------------------------------------------
Commencement of Operations
Through 09/30/96+ 4.18% 3.42% 3.41% 2.72% 2.85% 3.41%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AT
NET ASSET VALUE ON THE PAYABLE DATES AND DO NOT INCLUDE SALES CHARGES;
RESULTS FOR EACH CLASS WOULD BE LOWER IF SALES CHARGES WERE INCLUDED.
* MAXIMUM SALES CHARGE FOR CLASS A SHARES IS 4.5% OF THE PUBLIC OFFERING
PRICE. CLASS A SHARES BEAR ONGOING 12B-1 SERVICE FEES.
** MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS B SHARES IS 5.0% 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 1.00% AND IS
REDUCED TO 0% AFTER 1 YEAR. CLASS C SHARES BEAR ONGOING 12B-1 DISTRIBUTION
AND SERVICE FEES.
+ COMMENCEMENT OF OPERATIONS WAS JULY 2, 1993 FOR CLASS A, CLASS B AND CLASS C
SHARES.
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.
5
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
PORTFOLIO OF INVESTMENTS September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- ------------
<C> <S> <C>
COMMON STOCKS - 79.50%
ELECTRIC UTILITY - 38.40%
26,000 Allegheny Power Systems Incorporated................ $ 754,000
40,000 Baltimore Gas & Electric Company.................... 1,045,000
20,000 Boston Edison Company............................... 442,500
23,000 Carolina Power & Light.............................. 793,500
15,000 CILCORP Incorporated................................ 596,250
24,000 CMS Energy Corporation.............................. 723,000
25,000 DPL Incorporated.................................... 584,375
35,000 DQE Incorporated.................................... 975,625
25,000 DTE Energy Company.................................. 700,000
22,500 Duke Power Company.................................. 1,049,062
50,000 Edison International Incorporated................... 893,750
17,000 FPL Group Incorporated.............................. 735,250
23,000 NIPSCO Industries Incorporated...................... 822,250
30,000 Ohio Edison Company................................. 581,250
42,500 PECO Energy Company................................. 1,009,375
22,500 Public Service Company of Colorado.................. 798,750
30,000 Public Service Company of New Mexico................ 585,000
21,000 SCANA Corporation................................... 551,250
20,000 Sierra Pacific Resources............................ 517,500
35,000 Southern Company.................................... 791,875
30,000 TNP Enterprises Incorporated........................ 742,500
20,000 Unicom Corporation.................................. 502,500
30,000 Wisconsin Energy Corporation........................ 810,000
------------
17,004,562
------------
GAS UTILITY - 10.38%
30,000 AGL Resources Incorporated.......................... 573,750
25,000 CMS Energy Corporation, Class G..................... 437,500
10,000 El Paso Natural Gas Company......................... 440,000
40,000 MCN Corporation..................................... 1,075,000
35,000 NICOR Incorporated.................................. 1,181,250
15,000 Panenergy Corporation............................... 519,375
20,000 Public Service Company of North Carolina............ 367,500
------------
4,594,375
------------
LONG DISTANCE & PHONE COMPANIES - 16.45%
12,000 Alltel Corporation.................................. 334,500
14,000 Ameritech Corporation............................... 736,750
8,500 Bell Atlantic Corporation........................... 508,938
20,000 BellSouth Corporation............................... 740,000
23,000 Frontier Corporation................................ 612,375
20,000 GTE Corporation..................................... 770,000
26,000 MCI Communications Corporation...................... 666,250
11,000 NYNEX Corporation................................... 478,500
12,000 SBC Communications Incorporated..................... 577,500
15,000 Sprint Corporation.................................. 583,125
20,000 Telco Communications Group Incorporated*............ 370,000
12,000 Teleport Communications Group Incorporated*......... 283,500
21,000 US West Communications Incorporated................. 624,750
------------
7,286,188
------------
</TABLE>
6
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- ------------
<C> <S> <C>
COMMON STOCKS - (CONCLUDED)
MEDIA - 1.75%
20,000 Comcast Corporation*................................ $ 307,500
20,000 Tele-Communications Incorporated*................... 298,750
5,000 Univision Communications Incorporated*.............. 167,500
------------
773,750
------------
REAL PROPERTY - 10.57%
25,000 Ambassador Apartments Incorporated.................. 446,875
20,000 Cousins Properties Incorporated..................... 440,000
20,000 Crescent Real Estate Equities....................... 822,500
37,000 Franchise Finance Corporation America............... 869,500
15,000 Spieker Properties Incorporated..................... 440,625
19,500 Starwood Lodging Trust.............................. 816,563
10,000 Storage USA Incorporated............................ 332,500
18,000 Sun Communities..................................... 513,000
------------
4,681,563
------------
WATER UTILITY - 1.95%
40,000 American Water Works Company Incorporated........... 865,000
------------
Total Common Stocks (cost--$32,755,450).......................... 35,205,438
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
- ----------- --------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - 14.50%
ELECTRIC UTILITY - 6.75%
$ 800 Duquesne Light Company................................................. 06/15/04 6.625 % 759,289
750 Georgia Power Company.................................................. 02/01/23 7.950 749,054
1,000 Illinois Power Company................................................. 08/01/03 6.500 959,996
500 Texas Utilities Electric Company....................................... 06/01/02 8.000 521,624
----------
2,989,963
----------
LONG DISTANCE & PHONE COMPANIES - 4.41%
1,000 MCI Communications Corporation......................................... 03/15/24 7.750 975,172
1,000 TCI Communications, Incorporated....................................... 08/01/05 8.000 977,340
----------
1,952,512
----------
MEDIA - 1.36%
650 International Cabeltel Incorporated.................................... 06/15/08 7.000 601,250
----------
PUBLISHING - 1.98%
800 News America Holdings Corporation...................................... 02/01/13 9.250 876,978
----------
Total Corporate Bonds (cost--$6,715,193)............................................ 6,420,703
----------
</TABLE>
7
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ----------- --------- ------------ ----------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS - 6.16%
$ 1,500 Repurchase agreement dated 09/30/96 with Dresdner Securities (USA),
Inc., collateralized by $1,519,000 U.S. Treasury Notes, 5.500%, due
07/31/97;
proceeds: $1,500,238................................................. 10/01/96 5.700 % $1,500,000
1,229 Repurchase agreement dated 09/30/96 with First Chicago Capital Markets,
collateralized by $1,220,000 U.S. Treasury Notes, 6.750%, due
06/30/99;
proceeds: $1,229,195................................................. 10/01/96 5.700 1,229,000
----------
Total Repurchase Agreements (cost--$2,729,000)...................................... 2,729,000
----------
Total Investments (cost--$42,199,643)--100.16%...................................... 44,355,141
Liabilities in excess of other assets--(0.16)%...................................... (69,143)
----------
Net Assets--100.00%................................................................. $44,285,998
----------
----------
</TABLE>
- ---------------
* Non-income producing
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 1996
(unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $42,199,643)............................................... $44,355,141
Dividends and interest receivable.................................................................... 216,491
Deferred organizational expenses..................................................................... 49,349
Other assets......................................................................................... 107,938
----------
Total assets......................................................................................... 44,728,919
----------
LIABILITIES
Payable for shares of beneficial interest repurchased................................................ 135,927
Payable for investments purchased.................................................................... 115,000
Payable to affiliate................................................................................. 59,632
Accrued expenses and other liabilities............................................................... 132,362
----------
Total liabilities.................................................................................... 442,921
----------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount authorized).................................. 49,205,026
Undistributed net investment income.................................................................. 37,892
Accumulated net realized losses from investment transactions......................................... (7,112,418)
Net unrealized appreciation of investments........................................................... 2,155,498
----------
Net assets........................................................................................... $44,285,998
----------
----------
CLASS A:
Net assets........................................................................................... $7,346,167
----------
Shares outstanding................................................................................... 751,781
----------
Net asset value and redemption value per share....................................................... $9.77
----------
----------
Maximum offering price per share (net asset value plus sales charge of 4.50% of offering price)...... $10.23
----------
----------
CLASS B:
Net assets........................................................................................... $28,068,689
----------
Shares outstanding................................................................................... 2,873,241
----------
Net asset value and offering price per share......................................................... $9.77
----------
----------
CLASS C:
Net assets........................................................................................... $8,871,142
----------
Shares outstanding................................................................................... 908,202
----------
Net asset value and offering price per share......................................................... $9.77
----------
----------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
STATEMENT OF OPERATIONS For the Six Months Ended September
30, 1996 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................................................................. $ 934,400
Interest.............................................................................................. 371,696
----------
1,306,096
----------
EXPENSES:
Investment advisory and administration................................................................ 171,009
Service fees--Class A................................................................................. 10,229
Service and distribution fees--Class B................................................................ 153,943
Service and distribution fees--Class C................................................................ 49,440
Reports and notices to shareholders................................................................... 73,739
Legal and audit....................................................................................... 55,241
Transfer agency and service fees...................................................................... 40,848
State registration.................................................................................... 35,503
Custody and accounting................................................................................ 30,227
Amortization of organizational expenses............................................................... 14,135
Trustees' fees........................................................................................ 3,125
Other expenses........................................................................................ 27,274
----------
664,713
Less: Fee waivers from investment adviser............................................................. (30,480)
----------
Net expenses.......................................................................................... 634,233
----------
Net investment income................................................................................. 671,863
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions....................................................... 2,274,492
Net change in unrealized appreciation/depreciation of investments..................................... (2,343,301)
----------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT ACTIVITIES........................................... (68,809)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $ 603,054
----------
----------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FOR THE
SEPTEMBER 30, 1996 FOUR MONTHS ENDED YEAR ENDED
(UNAUDITED) MARCH 31, 1996 NOVEMBER 30, 1995
------------------ ------------------ -----------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income................................. $ 671,863 $ 725,940 $ 2,812,246
Net realized gains (losses) from investment
transactions........................................ 2,274,492 (120,140) (248,279)
Net change in unrealized appreciation/depreciation of
investments......................................... (2,343,301) 246,922 10,159,054
------------------ ------------------ -----------------
Net increase in net assets resulting from
operations.......................................... 603,054 852,722 12,723,021
------------------ ------------------ -----------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A........................ (135,772) (160,776) (569,343)
Net investment income--Class B........................ (394,409) (486,821) (1,637,731)
Net investment income--Class C........................ (125,721) (156,103) (559,933)
------------------ ------------------ -----------------
Total dividends to shareholders....................... (655,902) (803,700) (2,767,007)
------------------ ------------------ -----------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.................. 1,054,336 3,128,944 13,428,355
Cost of shares repurchased............................ (12,442,080) (9,026,092) (28,464,756)
Proceeds from dividends reinvested.................... 473,766 575,298 1,996,330
------------------ ------------------ -----------------
Net decrease in net assets from beneficial interest
transactions........................................ (10,913,978) (5,321,850) (13,040,071)
------------------ ------------------ -----------------
Net decrease in net assets............................ (10,966,826) (5,272,828) (3,084,057)
NET ASSETS:
Beginning of period................................... 55,252,824 60,525,652 63,609,709
------------------ ------------------ -----------------
End of period (including accumulated undistributed net
investment income of $37,892, $21,931 and $99,691,
respectively)....................................... $ 44,285,998 $ 55,252,824 $60,525,652
------------------ ------------------ -----------------
------------------ ------------------ -----------------
</TABLE>
See accompanying notes to financial statements
11
<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 Utility Income Fund (the "Fund"), PaineWebber U.S.
Government Income Fund, PaineWebber Investment Grade Income
Fund, PaineWebber High Income Fund and PaineWebber Low Duration
U.S. Government Income Fund.
Currently, the Fund offers Class A, Class B, Class C and Class
Y shares (no Class Y shares were outstanding during the
period). Each class represents interests in the same assets of
the Fund, the classes are identical except for differences in
their sales charge structure, ongoing service/distribution
charges and certain transfer agency expenses. In addition,
Class B shares and all corresponding dividend reinvested shares
automatically convert to Class A shares approximately six years
after initial issuance. All classes of shares have equal voting
privileges, except that Class A, Class B, and Class C shares
have exclusive voting rights with respect to its service and/or
distribution plan. Organizational costs have been deferred and
are being amortized using the straight line method over a
period not to exceed 60 months from the date the costs were
incurred.
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 the fair value of the
securities in the judgment of Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and
investment adviser, administrator and distributor of the Fund.
Such quotations are based on the last sales price, or if no
sales price, at the closing bid price. When market quotations
are not readily available, securities are valued based upon
appraisals derived from information concerning those securities
or similar securities received from recognized dealers in those
securities. All other securities are valued at fair value as
determined in good faith by or under the direction of the
Trust's board of trustees. The amortized cost method of
valuation, which approximates market value, is used to value
debt obligations with 60 days or less remaining to maturity,
unless the Trust's board of trustees determines that this does
not represent fair value.
REPURCHASE AGREEMENTS - The Fund's custodian takes possession
of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a
mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In
the event of default of the
12
<PAGE>
PAINEWEBBER
obligation to repurchase, the Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in
joint repurchase agreement transactions with other funds
managed by Mitchell Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME - Investment
transactions are recorded on trade date. Realized gains and
losses from investment transactions are calculated using the
identified cost method. Interest income is recorded on an
accrual basis and 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.
DIVIDENDS AND DISTRIBUTIONS - Dividends and distributions to
shareholders are recorded on the ex-dividend date. The amount
of dividends and distributions are determined in accordance
with federal income tax regulations, which may differ from
generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital
accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
CONCENTRATION OF RISK
The Fund follows an investment policy of investing primarily in
securities of utility companies. Economic, legislative and
regulatory developments impacting those industries may affect
the market value of the Fund's investments.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment
Advisory and Administration Contract ("Advisory Contract") with
Mitchell Hutchins, under which Mitchell Hutchins serves as
investment adviser and administrator of the Fund. In accordance
with the Advisory Contract, the Fund pays Mitchell Hutchins an
investment advisory and administration fee, which is accrued
daily and paid monthly, at the annual rate of 0.70% of the
Fund's average daily net assets. At September 30, 1996, the
Fund owed Mitchell Hutchins $25,838 in investment advisory and
administration fees. Mitchell Hutchins voluntarily waived
$30,480 of its investment advisory and administration fee for
the six months ended September 30, 1996.
13
<PAGE>
PAINEWEBBER
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and
has appointed PaineWebber as the exclusive dealer for the sale
of those shares. Under separate plans of distribution
pertaining to the Class A, Class B, and Class C shares, the
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% of the average daily net assets of Class B
and Class C shares. At September 30, 1996, the Fund owed
Mitchell Hutchins $32,338 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial
sales charges paid by shareholders upon the purchase of Class A
shares and the contingent deferred sales charges paid by
shareholders upon certain redemptions of Class A, Class B and
Class C shares. Mitchell Hutchins has informed the Fund that,
for the six months ended September 30, 1996, it earned
approximately $78,706 in sales charges.
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active
PaineWebber shareholder account for certain services not
provided by the Fund's transfer agent. For these services for
the six months ended September 30, 1996, PaineWebber earned
$9,388. At September 30, 1996, the Fund owed PaineWebber $1,456
for shareholder service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned
at September 30, 1996 was substantially the same as the cost of
securities for financial statement purposes.
At September 30, 1996, the components of the net unrealized
appreciation of investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over
cost)....................................................... $3,570,067
Gross depreciation (investments having an excess of cost over
value)...................................................... (1,414,569)
----------
Net unrealized appreciation of investments.................... $2,155,498
----------
----------
</TABLE>
For the six months ended September 30, 1996, total aggregate
purchases and sales of portfolio securities, excluding
short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases.................................................... $10,621,495
Sales........................................................ $20,446,067
</TABLE>
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable
income and to comply with the other requirements of the
Internal Revenue Code applicable to regulated investment
companies. Accordingly, no provision for federal income taxes
is
14
<PAGE>
PAINEWEBBER
required. In addition, by distributing during each calendar
year substantially all of its net investment income, capital
gains and certain other amounts, if any, the Fund intends not
to be subject to a federal excise tax.
At March 31, 1996, the Fund had a net capital loss carryforward
of $9,266,770 which will expire between March 31, 2001 and
March 31, 2003. To the extent such losses are used, as provided
in the regulations, to offset future net realized capital
gains, it is probable these gains will not be distributed.
In accordance with Treasury Regulations, the Fund has elected
to defer $120,140 of realized capital losses arising after
October 31, 1995. Such losses have been treated for tax
purposes as arising on April 1, 1996.
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of
beneficial interest authorized. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- ---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED SEPTEMBER 30, 1996:
Shares sold........................................ 18,160 $ 175,373 74,608 $ 719,691 16,534 $ 159,272
Shares repurchased................................. (252,123) (2,435,865) (782,992) (7,550,441) (254,058) (2,455,774)
Dividends reinvested............................... 10,073 97,351 28,466 274,993 10,502 101,422
Shares converted from Class B to Class A........... 10,722 104,286 (10,727) (104,286) -- --
--------- ---------- --------- ----------- --------- ----------
Net decrease....................................... (213,168) $(2,058,855) (690,645) $(6,660,043) (227,022) $(2,195,080)
--------- ---------- --------- ----------- --------- ----------
--------- ---------- --------- ----------- --------- ----------
FOUR MONTHS ENDED MARCH 31, 1996:
Shares sold........................................ 31,380 $ 312,020 200,178 $ 2,022,789 79,126 $ 794,135
Shares repurchased................................. (179,206) (1,801,015) (513,198) (5,128,898) (207,611) (2,096,179)
Dividends reinvested............................... 11,257 112,880 33,769 338,597 12,349 123,821
Shares converted from Class B to Class A........... 1,409 14,346 (1,410) (14,346) -- --
--------- ---------- --------- ----------- --------- ----------
Net decrease....................................... (135,160) $(1,361,769) (280,661) $(2,781,858) (116,136) $(1,178,223)
--------- ---------- --------- ----------- --------- ----------
--------- ---------- --------- ----------- --------- ----------
YEAR ENDED NOVEMBER 30, 1995:
Shares sold........................................ 202,622 $1,796,027 1,035,911 $ 9,257,241 267,682 $2,375,087
Shares repurchased................................. (677,777) (5,988,235) (1,767,458) (15,877,641) (740,795) (6,598,880)
Dividends reinvested............................... 44,624 400,419 128,806 1,156,031 49,070 439,880
Shares converted from Class B to Class A........... 23,499 218,286 (23,473) (218,286) -- --
--------- ---------- --------- ----------- --------- ----------
Net decrease....................................... (407,032) $(3,573,503) (626,214) $(5,682,655) (424,043) $(3,783,913)
--------- ---------- --------- ----------- --------- ----------
--------- ---------- --------- ----------- --------- ----------
</TABLE>
15
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding
throughout each period is presented below:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
FOR THE
SIX MONTHS FOR THE YEARS FOR THE
ENDED FOR THE PERIOD JULY 2,
SEPTEMBER 30, FOUR MONTHS ENDED NOVEMBER 30, 1993+ TO
1996 ENDED MARCH ------------------ NOVEMBER 30,
(UNAUDITED) 31, 1996 1995 1994 1993
------------- ------------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 9.76 $ 9.77 $ 8.31 $ 9.66 $10.00
------------- ------------- ------- ------- -------
Net investment income................ 0.17 0.15 0.47 0.48 0.20
Net realized and unrealized gains
(losses) from investment
transactions....................... -- -- 1.44 (1.31) (0.39)
------------- ------------- ------- ------- -------
Net increase (decrease) from
investment operations.............. 0.17 0.15 1.91 (0.83) (0.19)
------------- ------------- ------- ------- -------
Dividends from net investment
income............................. (0.16) (0.16) (0.45) (0.52) (0.15)
------------- ------------- ------- ------- -------
Net asset value, end of period....... $ 9.77 $ 9.76 $ 9.77 $ 8.31 $ 9.66
------------- ------------- ------- ------- -------
------------- ------------- ------- ------- -------
Total investment return (1).......... 1.78% 1.46% 23.64% (8.76)% (1.95)%
------------- ------------- ------- ------- -------
------------- ------------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period
(000's).......................... $ 7,346 $ 9,416 $10,750 $12,532 $16,224
Expenses, net of waivers from
adviser, to average net assets... 1.97%* 1.09%* 1.49% 1.58% 1.55%*
Expenses, before waivers from
investment adviser, to average
net assets....................... 2.09%* 1.44%* 1.49% 1.58% 1.55%*
Net investment income, net of
waivers from investment adviser,
to average net assets............ 3.38%* 4.26%* 5.13% 5.49% 5.38%*
Net investment income, before
waivers from investment adviser,
to average net assets............ 3.26%* 3.91%* 5.13% 5.49% 5.38%*
Portfolio turnover rate............ 23% 21% 30% 92% 13%
Average commission rate paid per
share of common stock investments
purchased/sold (2)............... $ 0.0600 $ 0.0600 -- -- --
</TABLE>
- ---------------
* Annualized
+ Commencement of issuance of shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each 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.
(2) Disclosure effective for fiscal years beginning on or after September 1,
1995.
16
<PAGE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
FOR THE FOR THE
SIX MONTHS FOUR FOR THE YEARS ENDED FOR THE
ENDED MONTHS PERIOD JULY 2,
SEPTEMBER 30, ENDED NOVEMBER 30, 1993+ TO
1996 MARCH ------------------- NOVEMBER 30,
(UNAUDITED) 31, 1996 1995 1994 1993
-------------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 9.75 $ 9.77 $ 8.31 $ 9.65 $ 10.00
------- -------- -------- -------- -------
Net investment income.......................... 0.13 0.12 0.40 0.42 0.17
Net realized and unrealized gains (losses) from
investment transactions........................ 0.01 (0.01) 1.45 (1.31) (0.39)
------- -------- -------- -------- -------
Net increase (decrease) from investment
operations..................................... 0.14 0.11 1.85 (0.89) (0.22)
------- -------- -------- -------- -------
Dividends from net investment income........... (0.12) (0.13) (0.39) (0.45) (0.13)
------- -------- -------- -------- -------
Net asset value, end of period................. $ 9.77 $ 9.75 $ 9.77 $ 8.31 $ 9.65
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Total investment return (1).................... 1.50% 1.10% 22.73% (9.35)% (2.29)%
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's)............ $28,069 $34,765 $ 37,554 $ 37,156 $45,382
Expenses, net of waivers from adviser, to
average net assets......................... 2.72%* 1.85%* 2.23% 2.33% 2.29%*
Expenses, before waivers from investment
adviser, to average net assets............. 2.84%* 2.20%* 2.23% 2.33% 2.29%*
Net investment income, net of waivers from
investment adviser, to average net
assets..................................... 2.62%* 3.51%* 4.37% 4.72% 4.67%*
Net investment income, before waivers from
investment adviser, to average net
assets..................................... 2.50%* 3.16%* 4.37% 4.72% 4.67%*
Portfolio turnover rate...................... 23% 21% 30% 92% 13%
Average commission rate paid per share of
common stock investments purchased/ sold
(2)........................................ $0.0600 $0.0600 -- -- --
<CAPTION>
CLASS C
-----------------------------------------------------------------
FOR THE FOR THE
SIX MONTHS FOUR FOR THE YEARS ENDED FOR THE
ENDED MONTHS PERIOD JULY 2,
SEPTEMBER 30, ENDED NOVEMBER 30, 1993+ TO
1996 MARCH -------------------- NOVEMBER 30,
(UNAUDITED) 31, 1996 1995 1994 1993
-------------- -------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 9.75 $ 9.77 $ 8.31 $ 9.65 $ 10.00
------- -------- --------- -------- -------
Net investment income.......................... 0.13 0.12 0.40 0.42 0.16
Net realized and unrealized gains (losses) from
investment transactions........................ 0.01 (0.01) 1.45 (1.31) (0.38)
------- -------- --------- -------- -------
Net increase (decrease) from investment
operations..................................... 0.14 0.11 1.85 (0.89) (0.22)
------- -------- --------- -------- -------
Dividends from net investment income........... (0.12) (0.13) (0.39) (0.45) (0.13)
------- -------- --------- -------- -------
Net asset value, end of period................. $ 9.77 $ 9.75 $ 9.77 $ 8.31 $ 9.65
------- -------- --------- -------- -------
------- -------- --------- -------- -------
Total investment return (1).................... 1.49% 1.10% 22.71% (9.36)% (2.28)%
------- -------- --------- -------- -------
------- -------- --------- -------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's)............ $ 8,871 $11,072 $ 12,222 $ 13,922 $17,866
Expenses, net of waivers from adviser, to
average net assets......................... 2.73%* 1.85%* 2.24% 2.32% 2.29%*
Expenses, before waivers from investment
adviser, to average net assets............. 2.85%* 2.20%* 2.24% 2.32% 2.29%*
Net investment income, net of waivers from
investment adviser, to average net
assets..................................... 2.62%* 3.50%* 4.37% 4.69% 4.67%*
Net investment income, before waivers from
investment adviser, to average net
assets..................................... 2.50%* 3.15%* 4.37% 4.69% 4.67%*
Portfolio turnover rate...................... 23% 21% 30% 92% 13%
Average commission rate paid per share of
common stock investments purchased/ sold
(2)........................................ $0.0600 $0.0600 -- -- --
</TABLE>
17
<PAGE>
PAINEWEBBER
SHAREHOLDER INFORMATION
A special meeting of shareholders of the Fund was held on April
15, 1996. At the meeting the following proposals were approved.
(Shareholders of the Trust, comprised of the Fund and four
other series, voted together as a single class with respect to
the election of board members; other matters noted below were
approved by shareholders of the Fund.)
Proposal 1
To elect ten members of its Board of Directors:
<TABLE>
<CAPTION>
SHARES
SHARES WITHHOLD
VOTED FOR AUTHORITY
---------- ---------
<S> <C> <C>
Margo N. Alexander................................................. 143,912,650 12,564,156
Richard Q. Armstrong............................................... 143,949,982 12,526,824
E. Garrett Bewkes, Jr.............................................. 143,930,194 12,546,612
Richard R. Burt.................................................... 143,950,977 12,525,828
Mary C. Farrell.................................................... 143,952,308 12,524,498
Meyer Feldberg..................................................... 143,498,148 12,528,658
George W. Gowen.................................................... 143,937,755 12,539,051
Frederic V. Malek.................................................. 143,946,305 12,530,501
Carl W. Schafer.................................................... 143,947,584 12,529,222
John R. Torell III................................................. 143,943,674 12,533,132
</TABLE>
Proposal 2
<TABLE>
<CAPTION>
SHARES SHARES SHARES
VOTED FOR AGAINST ABSTAIN
----------- ----------- -----------
<S> <C> <C> <C>
Ratification of the selection of Ernst & Young LLP as the
independent auditors for its current fiscal year: 2,943,197 1,640 105,878
</TABLE>
Proposal 3
Approval of the proposed changes to the Fund's fundamental
investment restrictions and policies:
<TABLE>
<CAPTION>
SHARES SHARES SHARES
VOTED FOR AGAINST ABSTAIN
----------- ----------- -----------
<S> <C> <C> <C>
Modification of fundamental restriction on portfolio
diversification: 2,878,985 30,682 141,048
Modification of fundamental restriction on concentration: 2,878,985 30,682 141,048
Modification of fundamental restriction on senior securities
and borrowing: 2,878,985 30,682 141,048
Modification of fundamental restriction on making loans: 2,878,985 30,682 141,048
Modification of fundamental restriction on underwriting
securities: 2,878,985 30,682 141,048
Modification of fundamental restriction on real estate
investments: 2,878,985 30,682 141,048
Modification of fundamental restriction on investing in
commodities: 2,878,985 30,682 141,048
Elimination of fundamental restriction on margin
transactions: 2,878,985 30,682 141,048
Elimination of fundamental restriction on short sales: 2,878,985 30,682 141,048
Elimination of fundamental restriction on investments in oil,
gas and mineral leases and programs: 2,878,985 30,682 141,048
</TABLE>
(BROKER NON-VOTES AND ABSTENTIONS ARE INCLUDED WITHIN THE
"SHARES WITHHOLD AUTHORITY" AND "SHARES ABSTAIN" TOTALS.)
18
<PAGE>
-----------------------------------------------------------------
BOARD OF TRUSTEES
TRUSTEES
E. Garrett Bewkes, Jr. Meyer Feldberg
CHAIRMAN
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
Mary C. Farrell John R. Torell III
PRINCIPAL OFFICERS
Margo N. Alexander Karen L. Finkel
PRESIDENT VICE PRESIDENT
Victoria E. Schonfeld Julianna M. Berry
VICE PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell James F. Keegan
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
Julian F. Sluyters
VICE PRESIDENT AND TREASURER
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR
ANY OF THE FUNDS LISTED ON THE BACK COVER CAN BE
OBTAINED FROM A PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM. READ THE PROSPECTUS CAREFULLY BEFORE
INVESTING.
THE FINANCIAL INFORMATION HEREIN IS TAKEN FROM THE
RECORDS OF THE FUND WITHOUT EXAMINATION BY INDEPENDENT
AUDITORS WHO DO NOT EXPRESS AN OPINION THEREON.
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE
OFFERING OF SHARES OF THE FUND UNLESS ACCOMPANIED OR
PRECEDED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
PAINEWEBBER OFFERS A FAMILY OF 21 FUNDS WHICH ENCOMPASS A DIVERSIFIED RANGE
OF INVESTMENT GOALS. INVESTORS MAY EXCHANGE THEIR FUND SHARES WITH OTHER
FUNDS WITHIN THE FAMILY FOR A $5 EXCHANGE FEE.
Bond Funds
/ / High Income Fund
/ / Investment Grade Income Fund
/ / Low Duration U.S. Government Income Fund
/ / Strategic Income Fund
/ / U.S. Government Income Fund
Tax-Free Bond Funds
/ / California Tax-Free Income Fund
/ / Municipal High Income Fund
/ / National Tax-Free Income Fund
/ / New York Tax-Free Income Fund
Stock Funds
/ / Capital Appreciation Fund
/ / Financial Services Growth Fund
/ / Growth Fund
/ / Growth and Income Fund
/ / Small Cap Fund
/ / Utility Income Fund
Asset Allocation Funds
/ / Balanced Fund
/ / Tactical Allocation Fund
Global Funds
/ / Emerging Markets Equity Fund
/ / Global Equity Fund
/ / Global Income Fund
[LOGO]
-C-1996 PaineWebber Incorporated
Member SIPC
[LOGO]
-----------------------------------------------
P A I N E W E B B E R
M O N E Y M A R K E T
F U N D
U T I L I T Y I N C O M E
F U N D
SEPTEMBER 30, 1996
<PAGE>
SEMI-ANNUAL REPORT
