<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
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 $2.30 $2.34 $2.32 4.92% 1.07%
- ---------------------------------------------------------------------------
Class B Shares 2.30 2.34 2.32 4.04 0.66
- ---------------------------------------------------------------------------
Class C Shares/2/ 2.30 2.34 2.32 4.29 0.76
- ---------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93 - 12/31/93 $2.50 $2.48 -- $0.0812 2.48%
- --------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1217 (4.39)
- --------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1357 10.75
- --------------------------------------------------------------------------------
01/01/96 - 05/31/96 2.35 2.30 -- 0.0482 (0.09)
- --------------------------------------------------------------------------------
Total: $0.0000 $0.3868
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96: 8.42%
- --------------------------------------------------------------------------------
Performance Summary Class B Shares
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93 - 12/31/93 $2.50 $2.48 -- $0.0687 1.97%
- --------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1034 (5.14)
- --------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1157 9.79
- --------------------------------------------------------------------------------
01/01/96 - 05/31/96 2.35 2.30 -- 0.0412 (0.38)
- --------------------------------------------------------------------------------
Total: $0.0000 $0.3290
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96: 5.80%
- --------------------------------------------------------------------------------
Performance Summary Class C Shares/2/
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93 - 12/31/93 $2.50 $2.48 -- $0.0730 2.14%
- --------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1094 (4.89)
- --------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1217 10.09
- --------------------------------------------------------------------------------
01/01/96 - 05/31/96 2.35 2.30 -- 0.0429 (0.31)
- --------------------------------------------------------------------------------
Total: $0.0000 $0.3470
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/96: 6.61%
- --------------------------------------------------------------------------------
</TABLE>
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER
% RETURN DEDUCTING
WITHOUT SALES MAXIMUM SALES
CHARGE CHARGE
---------------- ----------------
CLASS CLASS
---------------- ----------------
A* B** C*** A* B** C***
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 06/30/96 5.83% 4.95% 5.19% 2.72% 1.95% 4.44%
- -----------------------------------------------------------------------
Five Years Ended 06/30/96 N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------
Commencement of Operations Through
05/31/96+ 2.89% 2.07% 2.32% 1.87% 1.46% 2.32%
- -----------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends at net asset value on the
payable dates, and do not include sales charges; results would be lower for
each class if sales charges were included.
/2/Formerly Class D Shares
* Maximum sales charge for Class A shares is 3% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 3% and is
reduced to 0% after 4 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares (formerly Class
D 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 operations was May 3, 1993 for Class A, Class B, and Class C
shares.
Note: The Fund offers Class Y shares to INSIGHT Investment Advisory Program
participants. For the six months ended May 31, 1996 and since inception,
October 20, 1995 through May 31, 1996, Class Y shares had total returns
of 1.18% and 2.02%, respectively. Class Y shares do not have initial or
contingent deferred sales charges or ongoing distribution or 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.
1
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Government National Mortgage
Association
Certificates - 26.81%
$ 214 GNMA.................... 02/15/23 8.000% $ 214,609
16,723 GNMA.................... 01/15/16 10.500 18,442,046
7,764 GNMA.................... 01/15/18 11.500 8,858,167
2,131 GNMA II ARM............. 01/20/18 6.500 2,127,086
5,728 GNMA II ARM............. 12/20/22 to 12/20/23 7.000 5,748,967
29,771 GNMA II ARM............. 06/20/23 7.375 29,955,571
------------
Total Government National Mort-
gage Association Certificates
(cost - $66,244,158)............ 65,346,446
------------
Federal Home Loan Mortgage
Corporation
Certificates - 41.52%
42,344 FHLMC................... 01/01/26 to 04/01/26 6.000 38,122,758
13,474 FHLMC................... 01/01/23 to 02/01/26 8.000 13,503,219
5,067 FHLMC................... 05/01/16 8.500 5,176,590
781 FHLMC................... 07/01/09 to 02/01/10 9.000 811,391
1,741 FHLMC................... 11/01/16 9.750 1,867,679
1,121 FHLMC................... 10/01/20 to 11/01/20 10.500 1,222,904
5,293 FHLMC................... 05/01/11 to 12/01/20 11.000 5,854,650
3,927 FHLMC................... 06/01/04 to 06/01/20 11.500 4,392,088
2,667 FHLMC ARM............... 09/01/24 7.678 2,725,051
2,678 FHLMC ARM............... 06/01/17 8.000 2,723,835
26,000 FHLMC Gold TBA.......... TBA 7.000 24,797,500
------------
Total Federal Home Loan Mortgage
Corporation Certificates
(cost - $102,888,043)........... 101,197,665
------------
Federal National Mortgage
Association
Certificates - 13.74%
4,113 FNMA.................... 02/01/05 9.000 4,293,288
6,858 FNMA.................... 04/01/10 to 12/01/15 9.250 7,203,587
943 FNMA.................... 03/01/06 to 12/01/09 9.500 1,000,203
1,481 FNMA.................... 04/01/10 to 06/01/14 10.250 1,600,157
3,608 FNMA.................... 11/01/10 to 04/01/22 10.500 3,969,128
5,019 FNMA.................... 07/01/13 to 05/01/20 11.000 5,586,911
3,964 FNMA ARM................ 09/01/15 7.016 4,040,568
5,612 FNMA ARM................ 01/01/31 7.717 5,789,566
------------
Total Federal National Mortgage
Association Certificates
(cost - $33,182,461)............ 33,483,408
------------
Collateralized Mortgage
Obligations - 27.53%
3,013 FHLMC REMIC Series 35,
Class PA............... 06/17/06 6.750 3,005,601
3,335 Bear Stearns, Series
1989-1, Class D........ 06/01/17 9.000 3,387,551
538 Collateralized Mortgage
Obligation Trust,
REMIC Series 28, Class
C...................... 12/01/10 8.500 537,896
9,184 Greenwich Capital Ac-
ceptance Corp.,
Series 1994-LB3, Class
A1..................... 08/25/24 8,230* 9,368,149
1,999 Prudential Bache Mort-
gage Trust Series 2,
Class C................ 06/01/18 9.200 2,034,934
6,325 Resolution Trust Corp.,
Series 1994-1, Class
A2A.................... 09/25/29 7.750 6,337,200
5,494 Ryland Mortgage Accept-
ance Corp., Series 76,
Class B................ 08/01/18 9.000 5,620,478
12,024 Saxon Mortgage Securi-
ties Corp., Series
1994-6, Class A........ 06/25/24 8.186* 12,281,841
7,795 Saxon Mortgage Securi-
ties Corp., Series
1994-8
Class A2............... 07/25/24 8.017* 7,951,172
16,169 Saxon Mortgage Securi-
ties Corp., Series
1994-10 Class A2....... 09/25/24 8.216* 16,573,596
------------
Total Collateralized Mortgage Ob-
ligations
(cost - $66,235,186)............ 67,098,418
------------
</TABLE>
2
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------- -------------- ------------
<S> <C> <C> <C>
Commercial Paper - 0.65%
$1,600 Hewlett Packard Co. (cost
$1,579,273)............. 08/29/96 5.240%@ $ 1,578,400
------------
Repurchase Agreement - 1.00%
2,449 Repurchase Agreement
dated 5/31/96, with
State Street Bank &
Trust Co.,
collateralized by
$1,975,000 Treasury
Bond, 10.375% due
11/15/12; proceeds:
$2,449,969 (cost -
$2,449,000)............ 06/03/96 4.750 2,449,000
------------
Total Investments (cost -
$272,578,121) - 111.25%........ 271,153,337
Liabilities in excess of other
assets - (11.25%)............... (27,416,028)
------------
Net Assets - 100.00%............. $243,737,309
============
</TABLE>
- --------------------
* Floating rate mortgage backed security
@ Yield to maturity for discounted securities
ARM - Adjustable Rate Mortgage Security; the interest rate shown is the
current rate at May 31, 1996.
REMIC - Real Estate Mortgage Investment Conduit
TBA - (To Be Assigned) Securities are purchased on a forward commitment
basis with an approximate (generally +/-2.5%) principal amount and
generally stated maturity date. The actual principal amount and
maturity date will be determined upon settlement when the specific
mortgage pools are assigned.
See accompanying notes to financial statements
3
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost - $272,578,121)....... $ 271,153,337
Interest receivable............................................. 1,859,111
Receivable for investments sold................................. 419,419
Receivable for shares of beneficial interest sold............... 151,844
Deferred organizational expenses................................ 91,038
Other assets.................................................... 57,991
-------------
Total assets.................................................... 273,732,740
-------------
Liabilities
Payable for investments purchased............................... 25,203,750
Payable for shares of beneficial interest repurchased........... 3,380,236
Dividends payable............................................... 502,151
Payable to affiliate............................................ 235,325
Accrued expenses and other liabilities.......................... 673,969
-------------
Total liabilities............................................... 29,995,431
-------------
Net Assets
Beneficial interest - $0.001 par value (unlimited amount
authorized).................................................... 367,117,547
Distributions in excess of net investment income................ (735,163)
Accumulated net realized losses from investment transactions.... (121,220,291)
Net unrealized depreciation of investments...................... (1,424,784)
-------------
Net assets...................................................... $ 243,737,309
=============
Class A:
Net assets...................................................... $ 88,901,053
-------------
Shares outstanding.............................................. 38,686,307
-------------
Net asset value and redemption value per share.................. $2.30
=====
Maximum offering price per share (net asset value plus sales
charge of 3.00% of offering price)............................. $2.37
=====
Class B:
Net assets...................................................... $ 9,041,692
-------------
Shares outstanding.............................................. 3,935,991
-------------
Net asset value and offering price per share.................... $2.30
=====
Class C:
Net assets...................................................... $ 145,488,493
-------------
Shares outstanding.............................................. 63,353,501
-------------
Net asset value and offering price value per share.............. $2.30
=====
Class Y:
Net assets...................................................... $ 306,071
-------------
Shares outstanding.............................................. 133,148
-------------
Net asset value, offering price and redemption value per share.. $2.30
=====
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
FOR THE SIX MONTHS ENDED
STATEMENT OF OPERATIONS MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income:
Interest.......................................................... $10,022,756
-----------
Expenses:
Investment advisory and administration............................ 710,156
Service fees - Class A............................................ 139,683
Service and distribution fees - Class B........................... 47,495
Service and distribution fees - Class C........................... 609,370
Transfer agency and service fees.................................. 291,614
Custody and accounting............................................ 193,218
Reports and notices to shareholders............................... 137,781
Interest expense.................................................. 108,831
Legal and audit................................................... 80,083
State registration fees........................................... 50,344
Amortization of organizational expense............................ 23,565
Trustees' fees.................................................... 4,026
Other expenses.................................................... 216,709
-----------
2,612,875
-----------
Net investment income ............................................ 7,409,881
-----------
Realized and unrealized losses from investment activities:
Net realized losses from investment transactions.................. (52,684)
Net change in unrealized appreciation/depreciation
of investments................................................... (4,844,382)
-----------
Net realized and unrealized losses from investment activities .... (4,897,066)
-----------
Net increase in net assets resulting from operations ............. $ 2,512,815
===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED
MAY 31, 1996 NOVEMBER 30,
(UNAUDITED) 1995
------------------ -------------
<S> <C> <C>
From operations:
Net investment income........................ $ 7,409,881 $ 20,155,215
Net realized gains (losses) from investment
transactions................................ (52,684) 2,426,285
Net change in unrealized
appreciation/depreciation of investments.... (4,844,382) 11,673,716
------------ -------------
Net increase in net assets resulting from
operations.................................. 2,512,815 34,255,216
------------ -------------
Dividends to shareholders from:
Net investment income - Class A.............. (3,135,289) (7,943,582)
Net investment income - Class B.............. (224,184) (531,437)
Net investment income - Class C.............. (4,040,026) (11,679,163)
Net investment income - Class Y.............. (9,299) (2,104)
------------ -------------
(7,408,798) (20,156,286)
------------ -------------
From beneficial interest transactions:
Net proceeds from the sale of shares of
beneficial interest......................... 19,830,072 20,692,668
Proceeds from shares issued in connection
with the acquisition of Mitchell
Hutchins/Kidder, Peabody Adjustable Rate
Government Fund............................. -- 23,768,145
Cost of shares of beneficial interest
repurchased................................. (92,998,791) (220,493,522)
Proceeds from dividends reinvested........... 4,204,363 11,255,825
------------ -------------
Net decrease in net assets from beneficial
interest transactions....................... (68,964,356) (164,776,884)
------------ -------------
Net decrease in net assets................... (73,860,339) (150,677,954)
Net assets:
Beginning of period.......................... 317,597,648 468,275,602
------------ -------------
End of period................................ $243,737,309 $ 317,597,648
============ =============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Low Duration U.S. Government Income Fund (the "Fund"), a series of
PaineWebber Managed Investments Trust (the "Trust"), is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as an open-end, diversified investment company. The Trust is a series
mutual fund with five funds: the Fund, as well as PaineWebber U.S. Government
Income Fund, PaineWebber Investment Grade Income Fund, PaineWebber High Income
Fund and PaineWebber Utility Income Fund, which are not presented in these
financial statements.
The Fund offers Class A, Class B, Class C and Class Y shares. Each class
represents interests in the same assets of the Fund and the classes are
identical except for differences in their sales charge structures, ongoing
distribution charges and certain transfer agency expenses. In addition, Class B
shares and all corresponding dividend reinvested shares automatically convert
to Class A shares approximately six years after issuance. All classes of shares
have equal voting privileges, except that each class has exclusive voting
rights with respect to its distribution plan.
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 thereby, 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 and
administrator of the Fund. 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 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.
7
<PAGE>
PAINEWEBBER
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income
is recorded on an accrual basis. Discounts are accreted and premiums are
amortized as adjustments to interest income and the identified cost of
investments. The Fund may enter into transactions in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date (the "roll period"). During the roll period the Fund
forgoes principal and interest paid on the securities. The Fund is compensated
by the interest earned on the cash proceeds of the initial sale and by fee
income or a lower repurchase price.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
Reverse Repurchase Agreement - The Trust enters into reverse repurchase
agreements with qualified, third party broker-dealers as determined by, and
under the direction of, the Trust's board of directors. Interest on the value
of reverse repurchase agreements issued and outstanding is based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it establishes and maintains a segregated
account with the Trust's custodian containing liquid high grade securities
having a value not less than the repurchase price, including accrued interest,
of the reverse repurchase agreement.
The average monthly balance of reverse repurchase agreements outstanding during
the six months ended May 31, 1996 was $2,965,833 at a weighted average interest
rate of 5.37%. The maximum amount of reverse repurchase agreements outstanding
at any month-end during the six months was $17,795,000 as of April 30, 1996
which was 6.90% of total assets.
Dividends and Distributions to Shareholders - 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 ability of the issuers of the debt securities including mortgage- and
asset-backed securities held by the Trust to meet their obligations may be
affected by economic developments, including those particular to a specific
issuer, industry or region.
8
<PAGE>
PAINEWEBBER
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.
ACQUISITION
Effective as of the close of business on October 20, 1995, the Fund acquired
all the net assets of Mitchell Hutchins/Kidder, Peabody Adjustable Rate
Government Fund ("MH/KP Adjustable Rate Government Fund") pursuant to a plan of
reorganization approved by MH/KP Adjustable Rate Government Fund shareholders
on October 19, 1995. The acquisition was accomplished by a tax-free exchange of
9,170,754 Class A, 892,249 Class D (currently Class C) and 140,324 Class C
(currently Class Y) shares of Low Duration U.S. Government Income Fund for
1,890,961 Class A, 183,977 Class B, and 28,934 Class C shares, respectively, of
MH/KP Adjustable Rate Government Fund outstanding on October 20, 1995. MH/KP
Adjustable Rate Government Fund's net assets at that date, valued at
$23,768,145, including accumulated net realized losses of $4,063,268 and net
unrealized appreciation on investments of $109,800, were combined with those of
the 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
Fund. In accordance with the Advisory Contract, the Fund pays Mitchell Hutchins
an investment advisory and administration fee, which is accrued daily and paid
monthly, at the annual rate of 0.50% of the Fund's average daily net assets. At
May 31, 1996, the Fund owed Mitchell Hutchins $106,863 in investment advisory
and administration fees.
Under a separate contract with Mitchell Hutchins ("Sub-Advisory Contract"),
Pacific Investment Management Company ("PIMCO") serves as the Trust's sub-
adviser. Under the Sub-Advisory Contract, Mitchell Hutchins (not the Fund) pays
PIMCO a fee, computed weekly and payable monthly, in an amount equal to one-
half of the advisory fee received by Mitchell Hutchins from the Fund.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the six months ended
May 31, 1996, no reimbursements were required pursuant to the above limitation
for the Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate
9
<PAGE>
PAINEWEBBER
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% and 0.50% of the
average daily net assets of Class B shares and Class C shares, respectively. At
May 31, 1996, the Fund owed Mitchell Hutchins $122,548 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 the Fund
that for the six months ended May 31, 1996, it earned $111,734 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 May 31, 1996, PaineWebber
earned $38,188 and was owed $5,914 at May 31, 1996 in shareholder service fees
from the Fund.
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.
At May 31, 1996, the components of the net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross depreciation (investments having an excess of cost
over value)...................................................... $(3,156,405)
Gross appreciation (investments having an excess of value
over cost)....................................................... 1,731,621
-----------
Net unrealized depreciation of investments........................ $(1,424,784)
===========
</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>
<S> <C>
Purchases.......................................................... $468,345,991
Sales.............................................................. $567,256,998
</TABLE>
FEDERAL INCOME TAX STATUS
The Fund intends to distribute all of its taxable income and to comply with the
other requirements of the Internal Revenue Code applicable to regulated
investment companies. Accordingly, no provision for federal income taxes is
required. In addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other amounts, if
any, the Fund intends not to be subject to a federal excise tax.
10
<PAGE>
PAINEWEBBER
At November 30, 1995, the Fund had a net capital loss carryforward of
$121,081,702. The capital loss carryforward includes capital losses acquired by
the Fund pursuant to its reorganization with MH/KP Adjustable Rate Government
Fund (which was effected during fiscal year 1995) in the amount of $4,063,268.
The loss carryforward will expire between November 30, 2001 and November 30,
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.
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 CLASS Y
------------------------- ----------------------- -------------------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ----------- ----------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
MAY 31, 1996:
Shares sold........... 5,969,481 $ 13,828,943 767,564 $ 1,796,517 1,777,717 $ 4,154,727 21,367 $ 49,885
Shares repurchased.... (22,454,360) (52,183,469) (794,011) (1,848,582) (16,671,991) (38,899,838) (28,728) (66,902)
Shares converted from
Class B to Class A... 6,808 15,884 (6,808) (15,884) -- -- -- --
Dividends reinvested.. 498,280 1,162,301 60,951 142,105 1,239,591 2,891,652 3,561 8,305
----------- ------------ ---------- ----------- ----------- ------------- ------- --------
Net increase/decrease. (15,979,791) $(37,176,341) 27,696 $ 74,156 (13,654,683) $ (31,853,459) (3,800) $ (8,712)
=========== ============ ========== =========== =========== ============= ======= ========
YEAR ENDED
NOVEMBER 30, 1995:
Shares sold........... 3,414,851 $ 7,851,777 916,721 $ 2,108,569 4,678,309 $ 10,731,253 448 $ 1,069
Shares issued in
connection with the
acquisition of
Mitchell Hutchins/
Kidder, Peabody
Adjustable Rate
Government Fund...... 9,170,754 21,362,365 -- -- 892,249 2,078,777 140,324 327,003
Shares repurchased.... (29,451,783) (67,685,410) (3,100,165) (7,087,519) (63,802,261) (145,710,456) (4,340) (10,137)
Dividends reinvested.. 1,076,029 2,468,585 150,283 344,937 3,681,087 8,441,101 516 1,202
----------- ------------ ---------- ----------- ----------- ------------- ------- --------
Net increase/decrease. (15,790,149) $(36,002,683) (2,033,161) $(4,634,013) (54,550,616) $(124,459,325) 136,948 $319,137
=========== ============ ========== =========== =========== ============= ======= ========
</TABLE>
11
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------
FOR THE FOR THE YEARS
SIX MONTHS ENDED FOR THE PERIOD
ENDED NOVEMBER 30, MAY 3, 1993#
MAY 31, 1996 ------------------ TO NOVEMBER 30,
(UNAUDITED) 1995 1994 1993
------------ -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 2.34 $ 2.25 $ 2.48 $ 2.50
------- -------- -------- --------
Net investment income...... 0.06 0.13 0.12 0.07
Net realized and unrealized
gains (losses) from
investment, futures and
options transactions...... (0.04) 0.09 (0.29) (0.02)
------- -------- -------- --------
Net increase (decrease) in
net asset value from
operations................ 0.02 0.22 (0.17) 0.05
------- -------- -------- --------
Dividends from net
investment income......... (0.06) (0.13) (0.12) (0.07)
------- -------- -------- --------
Contribution to capital
from adviser.............. -- -- .06 --
------- -------- -------- --------
Net asset value, end of
period.................... $ 2.30 $ 2.34 $ 2.25 $ 2.48
======= ======== ======== ========
Total investment return(1). 1.07% 10.25% (4.50%)** 1.88%
======= ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period
(000's)................... $88,901 $127,961 $158,712 $551,243
Expenses to average net
assets(2)................. 1.46%* 1.15% 0.84% 0.81%*
Net investment income to
average net assets(2)..... 5.61%* 5.89% 5.16% 4.85%*
Portfolio turnover rate.... 147% 242% 246% 97%
</TABLE>
- ----------
# Commencement of issuance of shares
* Annualized
** Net of $0.06 contribution of capital from adviser. If such contribution had
not been made the total investment returns would have been (7.02)% for
Class A, (7.74)% for Class B and (7.50)% for Class C (formerly Class D).
+ 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 A, Class B and Class C would be lower if sales charges
were included. Total investment returns for periods less than one year have
not been annualized.
(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 0.88% and 5.12%
for Class A, 1.66% and 4.35% for Class B, and 1.39% and 4.61% for Class C
(formerly Class D).
12
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
CLASS B CLASS C+
- ------------------------------------------------- ---------------------------------------------------
FOR THE FOR THE YEARS FOR THE FOR THE YEARS
SIX MONTHS ENDED FOR THE PERIOD SIX MONTHS ENDED FOR THE PERIOD
ENDED NOVEMBER 30, MAY 3, 1993# ENDED NOVEMBER 30, MAY 3, 1993 /#
MAY 31, 1996 --------------- TO NOVEMBER 30, MAY 31, 1996 ------------------ TO NOVEMBER 30,
(UNAUDITED) 1995 1994 1993 (UNAUDITED) 1995 1994 1993
- ------------ ------ ------- --------------- ------------ -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2.34 $ 2.25 $ 2.48 $ 2.50 $ 2.34 $ 2.25* $ 2.47 $ 2.50
------ ------ ------- ------- -------- -------- -------- ----------
0.06 0.11 0.10 0.06 0.06 0.12 0.11 0.06
(0.04) 0.09 (0.29) (0.02) (0.04) 0.09 (0.28) (0.03)
------ ------ ------- ------- -------- -------- -------- ----------
0.02 0.20 (0.19) 0.04 0.02 0.21 (0.17) 0.03
------ ------ ------- ------- -------- -------- -------- ----------
(0.06) (0.11) (0.10) (0.06) (0.06) (0.12) (0.11) (0.06)
------ ------ ------- ------- -------- -------- -------- ----------
-- -- 0.06 -- -- -- .06 --
------ ------ ------- ------- -------- -------- -------- ----------
$ 2.30 $ 2.34 $ 2.25 $ 2.48 $ 2.30 $ 2.34 $ 2.25 $ 2.47
====== ====== ======= ======= ======== ======== ======== ==========
0.66% 9.30% (5.24%)** 1.47% 0.76% 9.60% (4.99)%** 1.20%
====== ====== ======= ======= ======== ======== ======== ==========
$9,042 $9,147 $13.382 $31,706 $145,488 $180,169 $296,182 $1,186,181
2.32%* 2.02% 1.62% 1.62%* 2.07%* 1.75% 1.36% 1.35%*
4.72%* 5.03% 4.40% 4.31%* 4.96%* 5.31% 4.65% 4.52%*
147% 242% 246% 97% 147% 242% 246% 97%
<CAPTION>
CLASS B CLASS Y++
- ------------- -------------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS FOR THE PERIOD
ENDED ENDED OCTOBER 20, 1995#
MAY 31, 1996 MAY 31, 1996 TO NOVEMBER 30,
(UNAUDITED) (UNAUDITED) 1995
- ------------- ------------ -----------------
<S> <C> <C>
$ 2.34 $2.34 $2.33
- ------------- ------------ -----------------
0.06 0.07 0.01
(0.04) (0.04) 0.01
- ------------- ------------ -----------------
0.02 0.03 0.02
- ------------- ------------ -----------------
(0.06) (0.07) (0.01)
- ------------- ------------ -----------------
-- -- --
- ------------- ------------ -----------------
$ 2.30 $2.30 $2.34
============= ============ =================
0.66% 1.18% 0.83%
============= ============ =================
$9,042 $ 306 $ 321
2.32%* 1.20%* 0.99%*
4.72%* 5.82%* 5.87%*
147% 147% 242%
</TABLE>
13
<PAGE>
PAINEWEBBER
SHAREHOLDER INFORMATION
A Special Meeting of Shareholders was held on April 15, 1996, at which the
following proposals were approved for the Fund:
<TABLE>
<CAPTION>
SHARES FOR
SHARES AS A % OF SHARES
VOTED TOTAL SHARES WITHHOLD
TO VOTE FOR OR AGAINST THE FOR VOTED AUTHORITY
ELECTION OF TRUSTEES ---------- ------------ ---------
<S> <C> <C> <C>
Margo N. Alexander............................ 56,008,203 87.29% 8,153,851
Richard Q. Armstrong.......................... 56,008,203 87.29% 8,153,851
E. Garrett Bewkes, Jr. ....................... 56,008,203 87.29% 8,153,851
Richard Burt.................................. 56,008,203 87.29% 8,153,851
Mary C. Farrell............................... 56,008,203 87.29% 8,153,851
Meyer Feldberg................................ 56,008,203 87.29% 8,153,851
George W. Gowen............................... 56,008,203 87.29% 8,153,851
Frederic V. Malek............................. 56,008,203 87.29% 8,153,851
Carl W. Schafer............................... 56,008,203 87.29% 8,153,851
John R. Torell III............................ 56,008,203 87.29% 8,153,851
</TABLE>
<TABLE>
<CAPTION>
SHARES FOR
SHARES AS A % OF SHARES
VOTED TOTAL SHARES VOTED SHARES
FOR VOTED AGAINST ABSTAIN
---------- ------------ ------- ---------
<S> <C> <C> <C> <C>
To vote for or against the
ratification of the selection of
Ernst & Young LLP as the Fund's
independent auditors for the
fiscal year ending November 30,
1996. 56,154,466 87.52% 203,085 7,804,503
</TABLE>
<TABLE>
<CAPTION>
TO VOTE FOR OR AGAINST THE FOLLOWING
CHANGES TO THE FUND'S FUNDAMENTAL SHARES FOR
INVESTMENT RESTRICTIONS AND POLICIES SHARES AS A % OF SHARES
(THE ENUMERATION BELOW FOLLOWS VOTED TOTAL SHARES VOTED SHARES
THAT USED IN THE RELATED PROXY FOR VOTED AGAINST ABSTAIN
STATEMENT): ---------- ------------ ------- ---------
<S> <C> <C> <C> <C>
1a. Modification of Fundamental
Restriction on Portfolio
Diversification for Diversified
Funds........................... 55,532,432 86.55% 672,577 7,957,045
2. Modification of Fundamental
Restriction on Concentration.... 55,532,432 86.55% 672,577 7,957,045
3. Modification of Fundamental
Restriction on Senior Securities
and Borrowing................... 55,532,432 86.55% 672,577 7,957,045
4. Modification of Fundamental
Restriction on Making Loans..... 55,532,432 86.55% 672,577 7,957,045
5. Modification of Fundamental
Restriction on Underwriting
Securities...................... 55,532,432 86.55% 672,577 7,957,045
6. Modification of Fundamental
Restriction on Real Estate
Investments..................... 55,532,432 86.55% 672,577 7,957,045
7. Modification of Fundamental
Restriction on Investing in
Commodities..................... 55,532,432 86.55% 672,577 7,957,045
8. Elimination of Fundamental
Restriction on Margin
Transactions.................... 55,532,432 86.55% 672,577 7,957,045
9. Elimination of Fundamental
Restriction on Short Sales...... 55,532,432 86.55% 672,577 7,957,045
10. Elimination of Fundamental
Restriction on Investments in
Oil, Gas and Mineral Leases and
Programs........................ 55,532,432 86.55% 672,577 7,957,045
11. Elimination of Fundamental
Restriction on Investments in
Other Investment Companies...... 55,532,432 86.55% 672,577 7,957,045
</TABLE>
(Broker non-votes and abstentions are included within the "Shares Abstain"
totals.)
14
