<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
05/31/97 11/30/96 05/31/96 ENDED 05/31/97 ENDED 05/31/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 2.34 $ 2.35 $ 2.30 7.96% 2.50%
- ---------------------------------------------------------------------------------
Class B Shares 2.34 2.35 2.30 7.09 2.08
- ---------------------------------------------------------------------------------
Class C Shares 2.34 2.35 2.30 7.33 2.20
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $ 2.50 $ 2.48 -- $0.0812 2.48%
- ---------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1217 (4.39)
- ---------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1357 10.75
- ---------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1360 5.57
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 2.34 2.34 -- 0.0505 2.18
- ---------------------------------------------------------------------------------
Total: $0.0000 $0.5251
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 17.05%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $ 2.50 $ 2.48 -- $0.0687 1.97%
- ---------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1034 (5.14)
- ---------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1157 9.79
- ---------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1171 4.72
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 2.34 2.34 -- 0.0434 1.87
- ---------------------------------------------------------------------------------
Total: $0.0000 $0.4483
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 13.29%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends at net asset value on the
payable dates and do not include sales charges; results for each class would
be lower if sales charges were included.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
7
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (unaudited) (concluded)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $ 2.50 $ 2.48 -- $ 0.0730 2.14%
- ----------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1094 (4.89)
- ----------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1217 10.09
- ----------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1221 4.94
- ----------------------------------------------------------------------------
01/01/97-05/31/97 2.34 2.34 -- 0.0454 1.96
- ----------------------------------------------------------------------------
Total:$ 0.0000 $ 0.4716
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 14.43%
- ----------------------------------------------------------------------------
</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 06/30/97 7.46% 6.59% 6.84% 4.30% 3.59% 6.09%
- -----------------------------------------------------------------------
Commencement of Operations Through
06/30/97+ 3.97 3.14 3.39 3.18 3.14 3.39
- -----------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends at net asset value on the
payable dates and do not include sales charges; results would be lower if
sales charges were included.
* 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 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 is May 3, 1993 for Class A, Class B and Class C
shares.
Note:The Fund offers Class Y shares to a limited group of investors, including
INSIGHT Investment Advisory Program participants. For the six months ended May
31, 1997 and since inception, October 20, 1995 through May 31, 1997, Class Y
shares have a total return of 2.60% and 10.32%, respectively. For the twelve
months ended June 30, 1997 and for the period since inception, October 20, 1995
through June 30, 1997, Class Y shares have an average annual return of 7.62%
and 6.25%, respectively. Class Y shares do not have initial or contingent
deferred sales charges or ongoing distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
8
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
05/31/97 11/30/96 05/31/96 ENDED 05/31/97 ENDED 05/31/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 8.64 $ 8.86 $ 8.63 6.54% 0.61%
- ---------------------------------------------------------------------------------
Class B Shares 8.65 8.87 8.63 5.86 0.23
- ---------------------------------------------------------------------------------
Class C Shares 8.64 8.86 8.62 6.13 0.36
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID/2/ RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.78 -- $ 0.3515 5.95%
- ---------------------------------------------------------------------------------
1985 9.78 10.32 -- 1.2600 19.79
- ---------------------------------------------------------------------------------
1986 10.32 10.21 $0.0053 1.1924 11.18
- ---------------------------------------------------------------------------------
1987 10.21 9.34 0.0027 0.9160 0.59
- ---------------------------------------------------------------------------------
1988 9.34 9.18 -- 0.8718 7.83
- ---------------------------------------------------------------------------------
1989 9.18 9.49 -- 0.7994 12.58
- ---------------------------------------------------------------------------------
1990 9.49 9.57 -- 0.7883 9.67
- ---------------------------------------------------------------------------------
1991 9.57 10.18 -- 0.7683 14.89
- ---------------------------------------------------------------------------------
1992 10.18 10.05 -- 0.7372 6.37
- ---------------------------------------------------------------------------------
1993 10.05 10.03 -- 0.6590 6.48
- ---------------------------------------------------------------------------------
1994 10.03 8.40 -- 0.6014 (10.51)
- ---------------------------------------------------------------------------------
1995 8.40 9.21 -- 0.5807 17.04
- ---------------------------------------------------------------------------------
1996 9.21 8.74 -- 0.5454 0.98
- ---------------------------------------------------------------------------------
01/01/97-5/31/97 8.74 8.64 -- 0.2028 1.20
- ---------------------------------------------------------------------------------
Total: $0.0080 $10.2742
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 163.16%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 9.59 $10.19 -- $ 0.3535 10.09%
- ---------------------------------------------------------------------------------
1992 10.19 10.05 -- 0.6599 5.31
- ---------------------------------------------------------------------------------
1993 10.05 10.04 -- 0.5821 5.78
- ---------------------------------------------------------------------------------
1994 10.04 8.40 -- 0.5317 (11.28)
- ---------------------------------------------------------------------------------
1995 8.40 9.21 -- 0.5119 16.14
- ---------------------------------------------------------------------------------
1996 9.21 8.74 -- 0.4789 0.22
- ---------------------------------------------------------------------------------
01/01/97-5/31/97 8.74 8.65 -- 0.1787 1.03
- ---------------------------------------------------------------------------------
Total: $0.0000 $ 3.2967
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 27.96%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included.
/2/ Certain distributions may contain short-term capital gains.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
9
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (unaudited) (concluded)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $ 10.13 $ 10.05 -- $ 0.3281 2.16%
- ----------------------------------------------------------------------
1993 10.05 10.02 -- 0.6089 5.85
- ----------------------------------------------------------------------
1994 10.02 8.39 -- 0.5557 (10.97)
- ----------------------------------------------------------------------
1995 8.39 9.20 -- 0.5345 16.46
- ----------------------------------------------------------------------
1996 9.20 8.73 -- 0.5008 0.47
- ----------------------------------------------------------------------
01/01/97-5/31/97 8.73 8.64 -- 0.1867 1.13
- ----------------------------------------------------------------------
Total: $ 0.0000 $ 2.7147
- ----------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 13.92%
- ----------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL 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 06/30/97 6.86% 6.07% 6.34% 2.59% 1.07% 5.59%
- -----------------------------------------------------------------------
Five Years Ended 06/30/97 3.66 2.86 N/A 2.82 2.50 N/A
- -----------------------------------------------------------------------
Ten Years Ended 06/30/97 6.67 N/A N/A 6.23 N/A N/A
- -----------------------------------------------------------------------
Commencement of Operations Through
06/30/97+ 7.93 4.37 2.86 7.59 4.23 2.86
- -----------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
would be lower if sales charges were included.
* Maximum sales charge for Class A shares is 4% 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% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
Note:The Fund offers Class Y shares to a limited group of investors, including
the trustee of the PaineWebber Savings Investment Plan and INSIGHT Investment
Advisory Program participants. For the six months ended May 31, 1997, and since
inception, September 11, 1991 through May 31, 1997, Class Y shares have a total
return of 0.74% and 30.01%, respectively. For the twelve months ended June 30,
1997 and for the period since inception, September 11, 1991 through June 30,
1997, Class Y shares have an average annual return of 7.16% and 4.83%,
respectively. Class Y shares do not have initial or contingent deferred sales
charges or ongoing distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
10
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
05/31/97 11/30/96 05/31/96 ENDED 05/31/97 ENDED 05/31/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.39 $10.59 $10.16 9.79% 1.67%
- ---------------------------------------------------------------------------------
Class B Shares 10.39 10.58 10.16 8.97 1.38
- ---------------------------------------------------------------------------------
Class C Shares 10.39 10.59 10.16 9.24 1.41
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID/2/ RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.77 -- $ 0.3549 5.88%
- ---------------------------------------------------------------------------------
1985 9.77 10.52 -- 1.3080 22.76
- ---------------------------------------------------------------------------------
1986 10.52 10.75 $ 0.0125 1.2060 14.47
- ---------------------------------------------------------------------------------
1987 10.75 9.55 0.0279 0.9846 (1.51)
- ---------------------------------------------------------------------------------
1988 9.55 9.51 -- 0.8603 8.88
- ---------------------------------------------------------------------------------
1989 9.51 9.77 -- 0.8363 11.98
- ---------------------------------------------------------------------------------
1990 9.77 9.54 -- 0.8284 6.47
- ---------------------------------------------------------------------------------
1991 9.54 10.42 -- 0.8180 18.56
- ---------------------------------------------------------------------------------
1992 10.42 10.50 -- 0.8081 8.87
- ---------------------------------------------------------------------------------
1993 10.50 11.08 -- 0.7920 13.35
- ---------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.7659 (5.59)
- ---------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.7525 19.61
- ---------------------------------------------------------------------------------
1996 10.79 10.46 -- 0.7287 3.98
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 10.46 10.39 -- 0.2791 2.03
- ---------------------------------------------------------------------------------
Total: $ 0.0404 $ 11.3228
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 233.45%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 9.79 $10.41 -- $ 0.3795 10.39%
- ---------------------------------------------------------------------------------
1992 10.41 10.49 -- 0.7623 8.05
- ---------------------------------------------------------------------------------
1993 10.49 11.08 -- 0.7101 12.63
- ---------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.6894 (6.30)
- ---------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.6742 18.74
- ---------------------------------------------------------------------------------
1996 10.79 10.45 -- 0.6510 3.12
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 10.45 10.39 -- 0.2499 1.84
- ---------------------------------------------------------------------------------
Total: $ 0.0000 $ 4.1164
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 56.94%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included.
/2/ Certain distributions may contain short-term capital gains.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
11
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS (unaudited) (concluded)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $ 10.48 $ 10.50 -- $ 0.3377 3.44%
- ----------------------------------------------------------------------
1993 10.50 11.08 -- 0.7383 12.80
- ----------------------------------------------------------------------
1994 11.08 9.70 -- 0.7022 (6.07)
- ----------------------------------------------------------------------
1995 9.70 10.79 -- 0.6999 19.03
- ----------------------------------------------------------------------
1996 10.79 10.46 -- 0.6764 3.46
- ----------------------------------------------------------------------
01/01/97-05/31/97 10.46 10.39 -- 0.2595 1.84
- ----------------------------------------------------------------------
Total: $ 0.0000 $ 3.4140
- ----------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 37.57%
- ----------------------------------------------------------------------
</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 06/30/97 10.13% 9.32% 9.58% 5.69% 4.32% 8.83%
- ------------------------------------------------------------------------
Five Years Ended 06/30/97 7.76 6.97 N/A 6.89 6.66 N/A
- ------------------------------------------------------------------------
Ten Years Ended 06/30/97 8.80 N/A N/A 8.35 N/A N/A
- ------------------------------------------------------------------------
Commencement of Operations Through
06/30/97+ 9.97 8.08 6.93 9.62 7.96 6.93
- ------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
would be lower if sales charges were included.
* Maximum sales charge for Class A shares is 4% 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% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
12
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
05/31/97 11/30/96 05/31/96 ENDED 05/31/97 ENDED 05/31/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 7.44 $ 7.35 $ 7.18 13.94% 6.03%
- ---------------------------------------------------------------------------------
Class B Shares 7.44 7.35 7.17 13.26 5.64
- ---------------------------------------------------------------------------------
Class C Shares 7.45 7.36 7.19 13.37 5.76
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID/2/ RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.80 $ 0.0100 $ 0.3717 6.46%
- ---------------------------------------------------------------------------------
1985 9.80 10.38 -- 1.4080 21.67
- ---------------------------------------------------------------------------------
1986 10.38 10.36 0.0250 1.4160 14.27
- ---------------------------------------------------------------------------------
1987 10.36 8.88 0.0475 1.3010 (1.98)
- ---------------------------------------------------------------------------------
1988 8.88 8.44 -- 1.2317 9.13
- ---------------------------------------------------------------------------------
1989 8.44 7.26 -- 1.0687 (1.83)
- ---------------------------------------------------------------------------------
1990 7.26 5.70 -- 0.9744 (8.53)
- ---------------------------------------------------------------------------------
1991 5.70 7.23 -- 1.0159 47.02
- ---------------------------------------------------------------------------------
1992 7.23 7.93 -- 0.9698 24.06
- ---------------------------------------------------------------------------------
1993 7.93 8.77 -- 0.8894 22.74
- ---------------------------------------------------------------------------------
1994 8.77 6.96 -- 0.8576 (11.69)
- ---------------------------------------------------------------------------------
1995 6.96 6.92 -- 0.7879 10.96
- ---------------------------------------------------------------------------------
1996 6.92 7.39 -- 0.7001 17.73
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 7.39 7.44 -- 0.2545 4.20
- ---------------------------------------------------------------------------------
Total: $ 0.0825 $ 13.2467
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 282.61%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 6.85 $ 7.22 -- $ 0.4960 12.92%
- ---------------------------------------------------------------------------------
1992 7.22 7.92 -- 0.9037 23.07
- ---------------------------------------------------------------------------------
1993 7.92 8.77 -- 0.8237 21.97
- ---------------------------------------------------------------------------------
1994 8.77 6.96 -- 0.7969 (12.34)
- ---------------------------------------------------------------------------------
1995 6.96 6.92 -- 0.7344 10.15
- ---------------------------------------------------------------------------------
1996 6.92 7.38 -- 0.6466 16.70
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 7.38 7.44 -- 0.2340 4.05
- ---------------------------------------------------------------------------------
Total: $ 0.0000 $ 4.6353
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 98.73%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included.
/2/ Certain distributions may contain short-term capital gains.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
13
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS (unaudited) (concluded)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $ 7.80 $ 7.94 -- $ 0.4041 7.07%
- ----------------------------------------------------------------------------
1993 7.94 8.79 -- 0.8456 22.22
- ----------------------------------------------------------------------------
1994 8.79 6.97 -- 0.8185 (12.20)
- ----------------------------------------------------------------------------
1995 6.97 6.93 -- 0.7528 10.40
- ----------------------------------------------------------------------------
1996 6.93 7.40 -- 0.6653 17.13
- ----------------------------------------------------------------------------
01/01/97-05/31/97 7.40 7.45 -- 0.2411 4.00
- ----------------------------------------------------------------------------
Total:$ 0.0000 $3.7274
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 54.53%
- ----------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER
DEDUCTING
% RETURN WITHOUT MAXIMUM SALES
SALES CHARGE CHARGE
------------------- -------------------
CLASS CLASS
------------------- -------------------
A* B** C*** A* B** C***
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 06/30/97 16.16% 15.31% 15.58% 11.46% 10.31% 14.83%
- -----------------------------------------------------------------------------
Five Years Ended 06/30/97 10.26 9.49 N/A 9.36 9.21 N/A
- -----------------------------------------------------------------------------
Ten Years Ended 06/30/97 9.71 N/A N/A 9.26 N/A N/A
- -----------------------------------------------------------------------------
Commencement of Operations Through
06/30/97+ 11.19 12.47 9.52 10.83 12.38 9.52
- -----------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
would be lower if sales charges were included.
* Maximum sales charge for Class A shares is 4% 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% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
14
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
(000) MATURITY DATES RATES VALUE
--------- -------------------- --------------- -----------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES --
46.80%
$ 185 GNMA ................... 02/15/23 8.000% $ 188,177
12,090 GNMA ................... 01/15/16 to 09/15/20 10.500 13,325,560
5,930 GNMA ................... 03/15/10 to 05/15/19 11.500 6,692,154
19,081 GNMA II ARM............. 04/20/26 5.500 18,856,537
4,852 GNMA II ARM............. 12/20/22 to 12/20/23 6.875 4,968,169
1,901 GNMA II ARM............. 01/20/18 7.000 1,949,686
32,000 GNMA TBA ............... TBA 8.000 32,580,000
-----------
Total Government National Mort-
gage Association Certificates
(cost -- $79,093,291)........... 78,560,283
-----------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES --
16.27%
12,321 FHLMC .................. 01/01/23 to 02/01/26 8.000 12,556,057
4,098 FHLMC .................. 05/01/16 8.500 4,242,906
538 FHLMC .................. 07/01/09 to 02/01/10 9.000 566,496
1,343 FHLMC .................. 11/01/16 9.750 1,457,031
971 FHLMC .................. 10/01/20 to 11/01/20 10.500 1,069,073
3,835 FHLMC .................. 05/01/11 to 12/01/20 11.000 4,275,497
2,805 FHLMC .................. 06/01/04 to 06/01/20 11.500 3,149,924
-----------
Total Federal Home Loan Mortgage
Corporation Certificates
(cost -- $27,078,863)........... 27,316,984
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES --
24.68%
3,167 FNMA.................... 02/01/05 9.000 3,290,373
5.641 FNMA.................... 04/01/10 to 12/01/15 9.250 5,990,641
683 FNMA.................... 03/01/06 to 12/01/09 9.500 733,655
1,101 FNMA.................... 04/01/10 to 06/01/19 10.250 1.195,092
2,882 FNMA.................... 11/01/10 to 04/01/22 10.500 3,171,016
3,774 FNMA.................... 07/01/13 to 05/01/20 11.000 4,226,614
9,672 FNMA ARM................ 09/01/26 7.089 9,818,984
3,394 FNMA ARM................ 09/01/15 7.393 3,531,476
9,330 FNMA ARM................ 05/01/25 7.590 9,472,956
-----------
Total Federal National Mortgage
Association Certificates
(cost -- $40,916,537)........... 41,430,807
-----------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 5.78%
Bear Stearns, Series
904 1989-1, Class D ....... 06/01/17 9.000 905,119
Resolution Trust Corpo-
ration, Series 1994-1,
4,134 Class A2A ............. 09/25/29 7.750 4,158,874
Ryland Mortgage Accept-
ance Corporation, Se-
4,464 ries 76, Class B ...... 08/01/18 9.000 4,642,454
-----------
Total Collateralized Mortgage Ob-
ligations (cost -- $9,424,805).. 9,706,447
-----------
U.S. GOVERNMENT AGENCY BACKED
NOTES -- 11.03%
Federal Home Loan Bank
Consolidated Discount
100 Note .................. 07/10/97 5.500@ 99,404
Federal Home Loan Mort-
12,200 gage Discount Notes ... 06/02/97 to 07/18/97 5.400 to 5.500@ 12,156,625
Federal National Mort-
gage Association Dis-
6,300 count Notes............ 06/16/97 to 07/21/97 5.390 to 5.530@ 6,270,091
-----------
Total U.S. Government Agency
Backed Notes (cost --
$18,526,120)................... 18,526,120
-----------
</TABLE>
15
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
(000) MATURITY DATES RATES VALUE
--------- -------------- -------- ------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER -- 12.88%
$ 2,000 National Rural Utilities
Cooperative Finance Corporation...................... 06/23/97 5.540%@ $ 1,993,229
5,000 Ford Motor Credit Company............................ 06/16/97 5.560@ 4,988,417
5,500 Gillette Company..................................... 06/02/97 5.650@ 5,499,137
9,200 New Center Asset Trust............................... 07/09/97 5.620@ 9,142,055
------------
Total Commercial Paper (cost -- $21,622,838).................. 21,622,838
------------
<CAPTION>
REPURCHASE AGREEMENT -- 1.86%
<C> <S> <C> <C> <C>
3,117 Repurchase Agreement dated 05/30/97, with State
Street Bank and Trust Company, collateralized by
$2,235,000 U.S. Treasury Bonds, 12.000% due
08/15/13; proceeds $3,118,299 (cost -- $3,117,000). 06/02/97 5.000 3,117,000
------------
Total Investments (cost -- $199,779,454) -- 119.30%........... 200,280,479
Liabilities in excess of other assets -- (19.30)%............. (32,402,707)
------------
Net Assets -- 100.00%......................................... $167,877,772
------------
</TABLE>
- -------
@Yield to maturity for discounted securities
ARM - Adjustable Rate Mortgage Security; the interest rate shown is the
current rate at May 31, 1997
TBA - (To Be Assigned) Securities are purchased on a forward commitment
basis with an approximate (generally +/-1.0%) principal amount and
generally stated maturity date. The actual principal amount and maturity
date will be determined upon settlement when the specific mortgage pools
are assigned.
See accompanying notes to financial statements
16
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- ---------------- ------------
<C> <S> <C> <C> <C>
U. S. GOVERNMENT OBLIGATIONS --
23.13%
$65,765 United States Treasury
Bonds+................. 08/15/13 to 11/15/24 7.500 to 12.000% $ 81,171,165
8,778 United States Treasury
Notes.................. 09/30/01 6.375 8,734,110
------------
Total U. S. Government Obligations
(cost -- $90,762,371).............. 89,905,275
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES -- 17.25%
37,534 GNMA.................... 01/15/24 to 03/15/26 7.500 37,392,933
5,868 GNMA.................... 11/15/17 8.500 6,171,328
328 GNMA.................... 10/15/16 to 05/15/18 9.000 350,307
144 GNMA.................... 08/15/17 9.500 155,651
2,027 GNMA.................... 06/15/11 to 02/15/16 11.000 2,253,635
13,935 GNMA.................... 09/15/20 11.500 15,725,089
5,010 GNMA TBA................ TBA 7.500 4,991,213
------------
Total Government National Mortgage
Association Certificates
(cost -- $67,178,089).............. 67,040,156
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES -- 10.68%
350 FHLMC................... 03/01/09 6.500 343,909
189 FHLMC................... 08/01/25 7.000 184,259
14,218 FHLMC................... 04/01/25 9.000 15,184,088
2,562 FHLMC................... 09/01/05 10.000 2,742,120
3,552 FHLMC................... 06/01/04 to 12/01/05 10.500 3,808,251
6,511 FHLMC+.................. 01/01/16 11.000 7,211,346
5,362 FHLMC................... 10/01/16 11.500 6,020,810
5,762 FHLMC ARM+.............. 10/01/23 7.853 6,016,014
------------
Total Federal Home Loan Mortgage
Corporation Certificates (cost --
$41,443,600)...................... 41,510,797
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES -- 22.74%
31,246 FNMA.................... 07/01/17 to 02/01/25 7.000 30,398,636
4,998 FNMA.................... 02/01/14 to 07/01/25 7.500 4,979,145
12,904 FNMA.................... 09/01/25 8.500 13,450,038
2,780 FNMA.................... 05/01/09 9.000 2,922,769
37,055 FNMA TBA COFI ARM....... TBA 6.089 36,626,552
------------
Total Federal National Mortgage
Association Certificates (cost --
$87,563,288)...................... 88,377,140
------------
U.S. GOVERNMENT AGENCY BACKED
NOTES -- 23.61%
26,500 Federal Home Loan
Mortgage
Corporation+(1)........ 09/23/99 to 09/08/04 7.420 to 7.980 26,590,022
40,000 Federal Home Loan
Mortgage Discount
Notes.................. 06/12/97 to 06/24/97 5.375 to 5.390@ 39,880,268
25,405 Federal National
Mortgage Association... 02/11/04 to 02/02/07 6.830 to 7.500 25,289,790
------------
Total U.S. Government Agency Backed
Notes (cost -- $91,505,965)........ 91,760,080
------------
</TABLE>
17
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
---------- -------- -------- ------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 9.91%
$ 4,649 FDIC Remic Trust, 1996-C1, Class
1A.............................. 05/25/26 6.750% $ 4,618,099
3,750 FNMA REMIC, Trust 1987-2, Class
Z............................... 11/25/17 11.000 9,825,803
1,909 FNMA REMIC, Trust 1996-M6 Class
E............................... 09/17/19 7.750 1,934,231
7,459 CS First Boston Mortgage
Securities Corp., Series 1995-
WF1, Class A1................... 12/21/27 6.452 4,381,736
2,772 CS First Boston Mortgage
Securities Corp., Series 1997-Z,
Class A......................... 06/01/20 7.500 2,758,463
233 Collateralized Mortgage
Obligation Trust, Series 14,
Class Z......................... 01/01/17 8.000 235,834
2,955 DLJ Mortgage Acceptance Corp.,
Series 1997-CF1, Class A1A...... 05/15/06 7.400 3,012,253
5,292 GMAC Commercial Mortgage
Securities, Inc., Series 1996-
C1, Class A2A................... 09/15/03 6.790 5,259,086
6,417 Merrill Lynch Mortgage Investors,
Inc., Series 1996-C1, Class A1.. 04/25/28 7.150 6,459,422
------------
Total Collateralized Mortgage Obligations
(cost -- $38,435,025)........................ 38,484,927
------------
CALL OPTIONS -- 0.03%
<CAPTION>
NUMBER
OF OPTIONS
----------
<C> <S> <C>
100 CBT Treasury Bonds; par value
$10,000,000; price 107.812;
expiring Aug 97 (cost --
$124,038)........................ 107,813
------------
REPURCHASE AGREEMENT -- 2.67%
<CAPTION>
PRINCIPAL
AMOUNT
(000)
----------
<C> <S> <C> <C> <C>
10,365 Repurchase agreement dated
05/30/97 with First Chicago
Capital Markets, Inc.,
collateralized by $10,595,000
U.S. Treasury Notes, 6.375%, due
03/31/01; proceeds: $10,369,768
(cost -- $10,365,000).......... 06/02/97 5.520 10,365,000
------------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES
LOANED -- 0.09%
MONEY MARKET FUNDS - 0.09%
<CAPTION>
NUMBER
OF SHARES
(000)
----------
<C> <S> <C>
20 Liquid Assets Portfolio.......... 19,719
344 TempFund Portfolio............... 344,281
------------
Total Investments of Cash Collateral for
Securities Loaned (cost -- $364,000)......... 364,000
------------
Total Investments (cost -- $427,741,376) --
110.11%..................................... 427,915,188
Liabilities in excess of other assets --
(10.11)%.................................... (39,293,243)
------------
Net Assets -- 100.00%........................ $388,621,945
============
</TABLE>
- ---------
@ Yield to maturity for discounted securities
+ Security, or portion thereof, was pledged as collateral for futures and
written options transactions
(1) Security, or portion thereof, was on loan at May 31, 1997
ARM Adjustable Rate Mortgage Security; the interest rate shown is the current
rate at May 31, 1997
CBT Chicago Board of Trade
COFI Eleventh District Federal Home Loan Bank Cost of Funds index
REMIC Real Estate Mortgage Investment Conduit
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with approximated (generally +/-1.0%) principal amount and generally
stated maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
WRITTEN OPTIONS
<TABLE>
<CAPTION>
NUMBER EXPIRATION EXERCISE
OF OPTIONS UNDERLYING CONTRACT DATE PRICE VALUE
---------- ------------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Put................ 200 CBT Treasury Bond Aug 97 $106.00 $109,375
========
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF IN EXPIRATION APPRECIATION
CONTRACTS EXCHANGE FOR DATE (DEPRECIATION)
--------- --------------------------- ------------ ---------- --------------
<C> <S> <C> <C> <C>
340 Contract to Deliver--10
year Notes................. $136,804,375 Sept 97 $ (63,750)
900 Contract to Deliver--5 year
Notes...................... 94,673,047 Sept 97 (150,391)
920 Contract to Receive--
Treasury Bonds............. 100,477,500 Sept 97 377,500
---------
$ 163,359
=========
</TABLE>
See accompanying notes to financial statements
18
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 85.96%
AGRICULTURE, FOOD & BEVERAGE --
1.68%
$5,000 Phillip Morris Companies
Incorporated........... 01/15/27 7.750% $ 4,816,835
-----------
AIRLINES -- 4.21%
6,500 Delta Air Lines
Incorporated........... 12/15/22 10.375 8,056,522
4,000 Northwest Airlines
Incorporated........... 03/15/04 to 03/15/07 8.375 to 8.700 3,996,450
-----------
12,052,972
-----------
BANKING -- 13.88%
10,000 BT Institutional Capital
Trust A................ 12/01/26 8.090 9,600,480
6,000 Chase Manhattan
Corporation............ 08/01/04 7.875 6,040,752
5,000 Citicorp................ 11/01/04 8.625 5,213,680
3,500 Greenpoint Capital Trust
I...................... 06/01/27 9.100 3,532,550
7,000 Providian Capital I..... 02/01/27 9.525 7,235,774
5,000 Southtrust Bank Alabama. 05/15/25* 7.690 5,204,190
3,000 St. Paul Bancorp. ...... 02/15/04 7.125 2,937,435
-----------
39,764,861
-----------
BROKER/DEALER -- 4.95%
5,000 Donaldson Lufkin &
Jenrette Securities
Corporation............ 11/01/05 6.875 4,807,655
8,800 Lehman Brothers
Incorporated........... 05/01/07 8.500 9,370,258
-----------
14,177,913
-----------
BUSINESS MACHINES -- 1.60%
4,500 Digital Equipment
Corporation............ 11/01/12 8.625 4,570,425
-----------
CABLE/COMMUNICATIONS -- 6.21%
5,000 Comcast Cable
Communications......... 05/01/27 8.500 5,181,305
7,000 TCI Communications
Incorporated........... 03/31/27 9.650 7,101,787
5,000 TKR Cable Incorporated.. 10/30/07 10.500 5,494,990
-----------
17,778,082
-----------
DIVERSIFIED/INDUSTRIAL -- 2.38%
2,000 Hawk Corporation........ 12/01/03 10.250 2,045,000
5,000 Mark IV Industries
Incorporated........... 04/01/06 7.750 4,781,430
-----------
6,826,430
-----------
HEALTHCARE -- 2.11%
6,000 Tenet Healthcare
Corporation............ 01/15/03 7.875 6,030,000
-----------
HOTELS/GAMING -- 3.65%
4,000 GNS Finance Corporation. 03/15/03 9.250 4,234,908
6,000 HMH Properties
Incorporated........... 05/15/05 9.500 6,210,000
-----------
10,444,908
-----------
</TABLE>
19
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONCLUDED)
INSURANCE -- 8.90%
$ 2,400 Chubb Corporation....... 11/15/99 8.750% $ 2,449,786
5,000 Lumbermans Mutual
Casualty Company....... 07/01/26 9.150 5,359,120
5,000 Markel Capital Trust.... 01/01/46 8.710 4,976,895
5,000 Orion Capital Trust I... 01/01/37 8.730 5,021,620
5,700 Trenwick Capital Trust
I...................... 02/01/37 8.820 5,649,190
2,000 Zurich Capital Trust.... 06/01/37 8.376 2,019,920
------------
25,476,531
------------
MEDIA -- 4.79%
9,000 News America Holdings
Incorporated........... 10/15/12 to 12/01/95 7.900 to 10.125 9,116,154
5,000 Viacom Incorporated..... 01/15/16 7.625 4,597,250
------------
13,713,404
------------
METALS -- 1.77%
5,000 Ryerson Tull
Incorporated........... 07/15/01 8.500 5,071,660
------------
OIL/GAS -- 3.83%
1,700 Chesapeake Energy
Corporation............ 03/15/12 8.500 1,678,750
5,000 Gulf Canada Resources
Limited................ 03/15/17 8.250 5,047,500
3,750 Occidental Petroleum
Corporation............ 06/01/19 11.125 4,239,720
------------
10,965,970
------------
PRINTING/PUBLISHING -- 1.24%
3,450 Valassis Inserts
Incorporated........... 03/15/99 9.375 3,558,896
------------
RETAIL -- 4.15%
5,950 May Department Stores
Company................ 06/15/21 9.875 6,702,068
5,000 Shapko Stores........... 03/15/22 9.250 5,190,645
------------
11,892,713
------------
TELEPHONE COMPANIES &
TELECOMMUNICATIONS -- 1.80%
5,000 Pacific Bell............ 08/15/31 8.500 5,164,965
------------
UTILITIES -- 11.88%
5,000 Commonwealth Edison
Company................ 06/15/20 9.875 5,586,520
7,000 Cooperative Utilities... 03/15/19 9.520 7,491,267
7,750 Duke Power Company...... 03/01/21 8.750 8,043,702
5,000 Louisiana Power & Light
Company................ 07/01/22 8.500 4,860,540
7,745 Texas Utilities Electric
Company................ 05/01/21 to 01/30/37 8.175 to 9.750 8,044,746
------------
34,026,775
------------
YANKEE -- 6.93%
4,500 Banca Commerciale
Italiana............... 07/15/07 8.250 4,725,927
5,000 Loewen Group
International
Incorporated........... 10/15/03 8.250 5,077,965
5,000 Quebec Province, Canada. 07/15/23 7.500 4,846,645
5,000 Rogers Cantel
Incorporated........... 06/01/08 9.375 5,187,500
------------
19,838,037
------------
Total Corporate Bonds (cost --
$243,129,043)..................... 246,171,377
------------
</TABLE>
20
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS --
2.94%
8,500 United States Treasury
Notes+ (cost --
$8,454,468)........... 09/30/00 6.125 $ 8,428,277
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES -- 3.99%
11,749 FNMA (cost --
$11,495,327).......... 07/01/25 to 04/01/26 7.000 11,429,234
------------
<CAPTION>
NUMBER
OF SHARES
---------
<C> <S> <C> <C>
PREFERRED STOCK -- 1.43%
160,000 California Federal
Preferred Capital
Corporation (cost --
$4,000,000)........... 9.125 4,080,000
------------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
---------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT -- 3.80%
10,893 Repurchase Agreement
dated 05/30/97, with
Salomon Brothers
Incorporated,
collateralized by
$11,065,000 U.S.
Treasury Notes, 5.875%
due 2/15/00; proceeds:
$10,897,947 (cost --
$10,893,000).......... 06/02/97 5.450 10,893,000
------------
Total Investments (cost --
$277,971,838) -- 98.12%........... 281,001,888
Other assets in excess of
liabilities -- 1.88%............... 5,388,675
------------
Net Assets 100.00%................. $286,390,563
============
</TABLE>
- ---------
* Maturity date reflects earliest date bonds can be put back to issuer
+ Security, or portion thereof, was pledged as collateral for futures
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO DELIVER EXCHANGE FOR DATE DEPRECIATION
--------- ------------------------------ ------------ ---------- ------------
<C> <S> <C> <C> <C>
260 5 year Treasury Notes......... $27,292,313 Sept 97 $(101,125)
=========
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--85.44%
AEROSPACE -- 1.08%
$ 6,150 SabreLiner Corporation Series A... 04/15/03 12.500% $ 6,180,750
------------
AIRLINES -- 0.67%
3,500 Airplane Pass Through Trust....... 03/15/19 10.875 3,850,000
------------
CABLE -- 8.64%
5,000 Comcast Corporation............... 05/15/05 9.375 5,175,000
5,000 Fundy Cable....................... 11/15/05 11.000 5,337,500
9,500 International CableTel
Incorporated..................... 02/01/06 11.500+ 6,436,250
2,000 International CableTel
Incorporated**................... 02/15/07 10.000 2,010,000
5,000 Multi Canal S.A. de C.V.**........ 02/01/07 10.500 5,175,000
11,250 TCI Satellite Entertainment
Incorporated**................... 02/15/07 12.250+ 6,412,500
8,000 Telewest PLC...................... 10/01/06 9.625 8,160,000
5,000 Tevecap S.A....................... 11/26/04 12.625 5,312,500
10,000 UIH Australia Pacific
Incorporated..................... 05/15/06 14.000+ 5,675,000
------------
49,693,750
------------
CHEMICALS -- 0.60%
3,250 Texas Petrochemical Corporation... 07/01/06 11.125 3,445,000
------------
COMMUNICATIONS -- 12.09%
11,000 Colt Telecom Group PLC............ 12/15/06 12.000+ 6,985,000
5,000 Comcast Cellular Holdings
Incorporated**................... 05/01/07 9.500 5,006,250
3,750# Globalstar L.P. .................. 02/15/04 11.375 3,796,875
3,000 GST Equipment Funding
Incorporated**................... 05/01/07 13.250 3,105,000
8,130 GST USA Incorporated.............. 12/15/05 13.875+ 4,756,050
5,000 ITC Deltacom Incorporated**....... 06/01/07 11.000 5,100,000
15,750 McCaw International Limited**..... 04/15/07 13.000+ 7,599,375
16,250 Nextel Communications
Incorporated..................... 08/15/04 9.750+ 12,350,000
5,250 People's Telecommunications
Company.......................... 07/15/02 12.250 5,591,250
9,000 RSL Communications Limited........ 11/15/06 12.250 9,090,000
9,250 Viatel Incorporated............... 01/15/05 15.000+ 6,151,250
------------
69,531,050
------------
CONSUMER MANUFACTURING -- 4.59%
7,515 Apparel Ventures Incorporated..... 12/31/00 12.250 6,538,050
4,606 Chattem Incorporated.............. 06/15/04 12.750 5,095,387
5,000 Coleman Escrow Corporation**...... 05/15/01 13.190* 3,025,000
3,750 Commemorative Brands Incorporated. 01/15/07 11.000 3,946,875
3,750 EKCO Group Incorporated........... 04/01/06 9.250 3,787,500
7,500 Icon Health & Fitness Corporation. 11/15/06 14.000+ 4,012,500
------------
26,405,312
------------
ENERGY -- 2.18%
4,400 Crown Central Petroleum
Corporation...................... 02/01/05 10.875 4,554,000
8,000 Petroleos Mexicanos............... 12/01/23 8.625 6,960,000
1,000 Pride Petroleum Services
Incorporated..................... 05/01/07 9.375 1,042,500
------------
12,556,500
------------
</TABLE>
22
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
ENTERTAINMENT -- 1.60%
$ 2,875 Cobb Theatres................... 03/01/03 10.625% $ 3,004,375
6,390 United Artists Theatre Circuit.. 07/01/15 9.300 6,166,786
------------
9,171,161
------------
FINANCE -- 1.55%
3,000 Imperial Credit Industries
Incorporated................... 01/15/07 9.875 2,970,000
6,000 Olympic Financial Limited....... 03/15/07 11.500 5,940,000
------------
8,910,000
------------
FOOD & BEVERAGE -- 7.16%
7,000 American Rice Incorporated...... 07/31/02 13.000 7,175,000
31,420 Iowa Select Farms++............. 02/15/04 17.500+ 21,073,393
4,250 Packaged Ice Incorporated**..... 04/15/04 12.000 4,335,000
5,000 TLC Beatrice International
Holdings Incorporated.......... 10/01/05 11.500 5,562,500
3,000 Windy Hill Pet Food
Incorporated**................. 05/15/07 9.750 3,030,000
------------
41,175,893
------------
GAMING -- 0.66%
3,750 Casino America Incorporated..... 08/01/03 12.500 3,815,625
9,401# Grand Palais Casino
Incorporated++................. 11/01/97 18.250(a) 0
------------
3,815,625
------------
GENERAL INDUSTRIAL -- 5.54%
5,125 Avondale Mills.................. 05/01/06 10.250 5,342,813
3,000 Continental Global Group
Incorporated**................. 04/01/07 11.000 3,150,000
5,500 Dominion Textile USA............ 04/01/06 9.250 5,692,500
4,250 Goss Graphic Systems
Incorporated................... 10/15/06 12.000 4,632,500
6,000 Poindexter J.B. Incorporated.... 05/15/04 12.500 5,970,000
6,500 Polysindo International Finance
Company B.V. .................. 06/15/06 11.375 7,068,750
------------
31,856,563
------------
HEALTHCARE -- 0.75%
1,625 Integrated Health Services
Incorporated**................. 09/15/07 9.500 1,673,750
2,500 Quest Diagnostics Incorporated.. 12/15/06 10.750 2,662,500
------------
4,336,250
------------
HOMEBUILDING -- 2.57%
1,375 American Builders and
Contractors**.................. 05/15/07 10.625 1,392,188
3,250 K Hovnanian Enterprises
Incorporated................... 04/15/02 11.250 3,347,500
4,000 Ryland Group Incorporated....... 07/01/06 10.500 4,240,000
5,228 Trizec Finance.................. 10/15/05 10.875 5,803,080
------------
14,782,768
------------
HOTELS & LODGING -- 0.68%
3,750 HMH Properties Incorporated..... 05/15/05 9.500 3,900,000
------------
</TABLE>
23
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- ---------------- -----
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
MEDIA -- 10.59%
$ 8,000 Affiliated Newspaper
Investments............ 07/01/06 13.250%+ $ 7,020,000
4,200 Grupo Televisa S.A. de
C.V. .................. 05/15/06 11.875 4,725,000
4,500 Grupo Televisa S.A. de
C.V.................... 05/15/08 13.250+ 3,161,250
7,500 Hollinger International
Publishing............. 02/01/06 9.250 7,575,000
5,750 Newsquest Capital PLC... 05/01/06 11.000 6,195,625
5,000 Pegasus Communications
Corporation............ 07/01/05 12.500 5,487,500
2,375 Petersen Publishing
Company LLC............ 11/15/06 11.125 2,624,375
5,000 Sullivan Graphics
Incorporated........... 08/01/05 12.750 5,150,000
5,175 Sun Media Corporation**. 05/15/07 9.500 5,175,000
3,500 T.V. Azteca S.A. de
C.V.**................. 02/15/07 10.500 3,591,875
10,500 Viacom Incorporated..... 07/07/06 8.000 10,211,250
-----------
60,916,875
-----------
METALS & MINING -- 2.81%
5,000 Altos Hornos de Mexico
S.A. de C.V.**......... 04/30/02 to 04/30/04 11.375 to 11.875 5,268,750
3,500 Commonwealth Aluminum
Corporation............ 10/01/06 10.750 3,675,000
2,950 Easco Corporation....... 03/15/01 10.000 2,979,500
4,100 WCI Steel Incorporated.. 12/01/04 10.000 4,223,000
-----------
16,146,250
-----------
PACKAGING -- 7.33%
4,000 Asia Pulp and Paper**... 12/29/49 12.000+ 4,020,000
3,400 Doman Industries
Limited................ 03/15/04 8.750 3,221,500
4,000 Four M Corporation...... 06/01/06 12.000 4,020,000
3,500 FSW International
Finance Company B.V. .. 11/01/06 12.500 3,517,500
2,500 Grupo Industrial Durango
S.A. de C.V. .......... 08/01/03 12.625 2,796,875
4,000 Indah Kiat International
Finance Company B.V. .. 06/15/06 12.500 4,500,000
3,000 Portola Packaging
Incorporated........... 10/01/05 10.750 3,030,000
2,250 Printpack Incorporated.. 08/15/06 10.625 2,370,938
3,000 Stone Container
Corporation............ 04/01/02 12.250 3,075,000
4,500 Uniforet Incorporated... 10/15/06 11.125 4,095,000
7,250 Vicap, S.A. de C.V.**... 05/15/02 to 05/15/07 10.250 to 11.375 7,515,000
-----------
42,161,813
-----------
RETAIL -- 4.93%
5,500 Barry's Jewelers,
Incorporated........... 12/22/00 11.000(a) 3,300,000
6,000 Big Five Holdings
Incorporated........... 09/15/02 13.625 6,330,000
5,500 Chief Auto Parts
Incorporated........... 05/15/05 10.500 5,555,000
6,875 CSK Auto Incorporated**. 11/01/06 11.000 7,201,563
6,000 Great American Cookie
Incorporated........... 01/15/01 10.875 5,970,000
-----------
28,356,563
-----------
SUPERMARKETS & DRUGSTORES -- 2.74%
4,367 Di Giorgio Corporation.. 02/15/03 12.000 4,629,020
23,572 Farm Fresh Holdings
Corporation............ 10/01/02 14.250 1,826,799
6,750 Pantry Incorporated..... 11/15/00 12.000 6,783,750
2,625 Pueblo Xtra
International
Incorporated**......... 08/01/03 9.500 2,506,875
-----------
15,746,444
-----------
</TABLE>
24
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (CONCLUDED)
TECHNOLOGY -- 2.16%
$ 12,200 Electronic Retailing Systems
International**.................. 02/01/04 13.250%+ $ 8,357,000
9,000 InterAct Systems Incorporated..... 08/01/03 14.000+ 4,050,000
------------
12,407,000
------------
TRANSPORTATION NON-AIR -- 2.50%
2,250 Atlantic Express Transportation
Corporation**.................... 02/01/04 10.750 2,340,000
4,000 Gearbulk Holding Limited.......... 12/01/04 11.250 4,400,000
3,250 Stena Shipping.................... 12/15/05 10.500 3,522,188
4,000 Walbro Corporation................ 07/15/05 9.875 4,140,000
------------
14,402,188
------------
UTILITIES -- 2.02%
5,750 Calpine Corporation............... 02/01/04 9.250 5,850,625
5,589 Panda Funding Corporation......... 08/20/12 11.625 5,784,148
------------
11,634,773
------------
Total Corporate Bonds (cost -- $503,901,999). 491,382,528
------------
CONVERTIBLE BONDS -- 1.65%
CABLE -- 0.43%
2,750 International CableTel
Incorporated..................... 06/15/08 7.000 2,461,250
------------
COMMUNICATIONS -- 0.25%
1,925 GST Telecommunciations
Incorporated..................... 12/15/05 13.875+ 1,443,750
------------
GENERAL INDUSTRIAL -- 0.46%
3,000 Corporate Express Incorporated.... 07/01/00 4.500 2,625,000
------------
TECHNOLOGY -- 0.51%
3,750 Softkey International
Incorporated..................... 11/01/00 5.500 2,943,750
------------
Total Convertible Bonds (cost--$9,801,837)... 9,473,750
------------
<CAPTION>
NUMBER OF
SHARES
---------
<C> <S> <C> <C> <C>
COMMON STOCK(A) -- 2.45%
COMMUNICATIONS -- 0.32%
38,955 PageMart Nationwide Incorporated..................... 228,861
9,000 RSL Communications Limited........................... 180,000
222,616 Viatel Incorporated.................................. 1,447,003
------------
1,855,864
------------
FOOD & BEVERAGE -- 0.01%
240,000 Specialty Foods Corporation.......................... 60,000
------------
</TABLE>
25
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCK(A) (CONCLUDED)
GAMING -- 1.35%
744,101 Casino America Incorporated............................ $ 1,743,987
768,570 Colorado Gaming & Entertainment Company................ 3,458,564
541,666 Hollywood Casino Corporation........................... 1,861,977
364,322 Lady Luck Gaming Corporation........................... 683,104
-----------
7,747,632
-----------
GENERAL INDUSTRIAL -- 0.04%
1,400 Communications & Power++............................... 210,000
-----------
RETAIL -- 0.01%
201,289 Barry's Jewelers, Incorporated......................... 81,774
-----------
SUPERMARKETS & DRUGSTORES -- 0.05%
21,787 Duane Reade Corporation................................ 183,010
40,000 Farm Fresh Holdings Corporation........................ 80,000
-----------
263,010
-----------
TECHNOLOGY -- 0.67%
594,328 Ampex Corporation...................................... 3,825,987
-----------
Total Common Stock (cost -- $11,560,566).......................... 14,044,267
-----------
PREFERRED STOCK -- 6.55%
CABLE -- 0.57%
34,321 Cablevision Systems Corporation(a)..................... 3,286,786
-----------
FINANCE -- 0.62%
140,000 California Federal Preferred Capital Corporation....... 3,570,000
-----------
GENERAL INDUSTRIAL -- 0.49%
25,349 Communications & Power++(a)............................ 2,792,800
-----------
HEALTHCARE -- 0.84%
4,750 Fresenius Medical Care Capital Trust................... 4,856,875
-----------
MEDIA -- 2.62%
3,000 Pegasus Communications Corporation(a).................. 2,910,000
11,029 Time Warner Incorporated(a)............................ 12,159,472
-----------
15,069,472
-----------
RETAIL -- 1.41%
60 Signet Group PLC(a).................................... 8,100,000
-----------
Total Preferred Stock (cost -- $30,502,578)....................... 37,675,933
-----------
<CAPTION>
NUMBER OF
WARRANTS
---------
<C> <S> <C>
WARRANTS(A) -- 0.92%
AEROSPACE -- 0.01%
8,400 SabreLiner Corporation................................. 63,000
-----------
</TABLE>
26
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
--------- ------------
<C> <S> <C>
WARRANTS(A) (CONCLUDED)
COMMUNICATIONS -- 0.07%
14,025 Clearnet Communications Incorporated.................. $ 98,175
26,400 Intelcom Group USA Incorporated....................... 132,000
27,600 Pagemart Wireless Incorporated........................ 158,700
------------
388,875
------------
CONSUMER MANUFACTURING -- 0.34%
8,350 AVI Holdings Incorporated............................. 41,750
11,000 Chattem Incorporated.................................. 134,750
14,000 Icon Health & Fitness Corporation..................... 1,750,000
------------
1,926,500
------------
FOOD & BEVERAGE -- 0.18%
420,000 Iowa Select Farms++................................... 1,050,000
------------
GAMING -- 0.09%
76,848 Casino America Incorporated........................... 138,326
10,075 HDA Management Corporation............................ 395,545
------------
533,871
------------
MEDIA -- 0.23%
12,000 Affiliated Newspaper Investments...................... 1,200,000
11,282 Pegasus Communications Corporation.................... 117,051
------------
1,317,051
------------
RETAIL -- 0.00%
1,080 Cookies USA Incorporated.............................. 10,800
------------
TECHNOLOGY--0.00%
9,000 InterAct Systems Incorporated......................... 22,500
------------
Total Warrants (cost -- $6,592,243).............................. 5,312,597
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
--------- -------- --------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT -- 2.26%
$13,021 Repurchase Agreement dated
05/30/97, with Salomon Brothers
Incorporated, collateralized by
$13,225,000 U.S. Treasury Notes,
5.875% due 02/15/00; proceeds:
$13,026,914 (cost --
$13,021,000).................... 06/02/97 5.450% 13,021,000
------------
Total Investments (cost -- $575,380,223) --
99.27%..................................... 570,910,075
Other assets in excess of liabilities --
0.73%...................................... 4,213,379
------------
Net Assets -- 100.00%........................ $575,123,454
============
</TABLE>
- ---------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities representing 4.2% of portfolio assets
(a) Non-income producing security
+ Denotes a step-up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
* Yield to maturity at purchase date
See accompanying notes to financial statements
27
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1997(UNAUDITED)
<TABLE>
<CAPTION>
LOW DURATION
U.S. U.S. INVESTMENT
GOVERNMENT GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in
securities, at value
(cost -- $199,779,454,
$427,741,376,
$277,971,838 and
$575,380,223,
respectively).......... $ 200,280,479 $ 427,915,188 $281,001,888 $ 570,910,075
Receivable for
investments sold....... 163,410 263,551 4,708,862 18,219,491
Interest receivable..... 966,119 4,410,554 6,059,437 9,439,444
Receivable for shares of
beneficial interest
sold................... 1,753 112,721 263,675 1,578,585
Variation margin
receivable............. -- 114,375 -- --
Deferred organizational
expenses............... 43,908 -- -- --
Other assets............ 53,099 122,211 87,467 42,941
------------- ------------- ------------ -------------
Total assets............ 201,508,768 432,938,600 292,121,329 600,190,536
------------- ------------- ------------ -------------
LIABILITIES
Payable for investments
purchased.............. 32,445,000 41,577,746 3,495,030 20,939,544
Payable for shares of
beneficial interest
repurchased............ 497,176 868,667 746,234 1,378,356
Dividends payable....... 313,533 965,076 786,302 2,020,293
Payable to affiliates... 158,231 302,710 230,807 547,582
Collateral for
securities loaned...... -- 364,000 -- --
Outstanding options
written................ -- 109,375 -- --
Variation margin
payable................ -- -- 97,500 --
Accrued expenses and
other liabilities...... 217,056 129,081 374,893 181,307
------------- ------------- ------------ -------------
Total liabilities....... 33,630,996 44,316,655 5,730,766 25,067,082
------------- ------------- ------------ -------------
NET ASSETS
Beneficial interest --
$0.001 par value
(unlimited amount
authorized)............ 287,146,820 521,048,162 324,970,724 790,347,208
Undistributed
(distributions in
excess of) net
investment income...... (361,702) (1,124,170) (442,620) 817,459
Accumulated net realized
losses from
investments, futures
and options
transactions........... (119,408,371) (131,659,893) (41,066,466) (211,571,065)
Net unrealized
appreciation
(depreciation) of
investments, futures
and options............ 501,025 357,846 2,928,925 (4,470,148)
------------- ------------- ------------ -------------
Net assets.............. $ 167,877,772 $ 388,621,945 $286,390,563 $ 575,123,454
============= ============= ============ =============
CLASS A:
Net assets.............. $ 56,240,101 $ 301,710,295 $210,002,360 $ 251,374,517
------------- ------------- ------------ -------------
Shares outstanding...... 24,075,886 34,902,932 20,208,950 33,770,779
------------- ------------- ------------ -------------
Net asset value and
redemption value per
share.................. $2.34 $8.64 $10.39 $7.44
===== ===== ====== =====
Maximum offering price
per share (net asset
value plus sales charge
of 4.00% of offering
price -- 3.00% for Low
Duration U.S.
Government Income
Fund).................. $2.41 $9.00 $10.82 $7.75
===== ===== ====== =====
CLASS B:
Net assets.............. $ 7,121,700 $ 49,427,884 $ 47,626,466 $ 223,120,252
------------- ------------- ------------ -------------
Shares outstanding...... 3,049,267 5,717,345 4,584,427 29,996,152
------------- ------------- ------------ -------------
Net asset value and
offering price per
share.................. $2.34 $8.65 $10.39 $7.44
===== ===== ====== =====
CLASS C:
Net assets.............. $ 104,178,923 $ 31,504,352 $ 28,761,737 $ 100,628,685
------------- ------------- ------------ -------------
Shares outstanding...... 44,609,585 3,647,964 2,767,941 13,499,905
------------- ------------- ------------ -------------
Net asset value and
offering price per
share.................. $2.34 $8.64 $10.39 $7.45
===== ===== ====== =====
CLASS Y:
Net assets.............. $ 337,048 $ 5,979,414
------------- -------------
Shares outstanding...... 144,261 692,326
------------- -------------
Net asset value,
offering price and
redemption value per
share.................. $2.34 $8.64
===== =====
</TABLE>
See accompanying notes to financial statements
28
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
----------------------------------------------------
LOW DURATION
U.S. U.S. INVESTMENT
GOVERNMENT GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and dividends.... $ 6,031,584 $ 14,779,182 $12,270,551 $30,195,086
----------- ------------ ----------- -----------
EXPENSES:
Investment advisory and
administration........... 444,819 1,030,110 744,265 1,388,315
Service fees -- Class A... 73,547 396,514 270,555 304,495
Service and distribution
fees -- Class B.......... 36,396 276,634 256,824 1,081,993
Service and distribution
fees -- Class C.......... 417,975 124,744 112,666 357,494
Custody and accounting.... 54,218 89,915 91,121 155,453
Transfer agency and
service fees............. 39,259 101,792 163,300 224,527
Amortization of
organizational expense... 23,565 -- -- --
Reports and notices to
shareholders............. 20,169 58,253 71,005 83,481
Legal and audit........... 15,832 25,826 45,500 70,404
State registration fees... 15,529 28,984 38,272 43,611
Trustees' fees............ 6,125 6,125 6,125 6,125
Other expenses............ 4,080 6,077 9,617 39,644
----------- ------------ ----------- -----------
1,151,514 2,144,974 1,809,250 3,755,542
----------- ------------ ----------- -----------
Net investment income..... 4,880,070 12,634,208 10,461,301 26,439,544
----------- ------------ ----------- -----------
REALIZED AND UNREALIZED
GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES:
Net realized gains
(losses) from:
Investment transactions.. 1,044,622 (2,163,508) 2,001,390 (3,057,735)
Futures contracts........ -- (1,808,584) 61,522 --
Options.................. -- 84,193 41,294 --
Net change in unrealized
appreciation/depreciation
of:
Investments.............. (2,218,543) (7,658,522) (8,098,392) 8,506,566
Futures ................. -- 57,484 (101,125) --
Options written.......... -- 444,461 187,556 --
----------- ------------ ----------- -----------
NET REALIZED AND
UNREALIZED GAINS (LOSSES)
FROM INVESTMENT
ACTIVITIES............... (1,173,921) (11,044,476) (5,907,755) 5,448,831
----------- ------------ ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $ 3,706,149 $ 1,589,732 $ 4,553,546 $31,888,375
=========== ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
29
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1997 ENDED
(UNAUDITED) NOVEMBER 30, 1996
------------------ -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 4,880,070 $ 13,878,583
Net realized gains from investment
transactions............................. 1,044,622 714,614
Net change in unrealized
appreciation/depreciation of investments. (2,218,543) (698,960)
------------- -------------
Net increase in net assets resulting from
operations............................... 3,706,149 13,894,237
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income -- Class A.......... (1,715,369) (5,708,538)
Net investment income -- Class B.......... (179,954) (442,330)
Net investment income -- Class C.......... (2,893,864) (7,717,388)
Net investment income -- Class Y.......... (10,460) (17,499)
------------- -------------
Total dividends to shareholders........... (4,799,647) (13,885,755)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares...... 119,790,626 85,715,637
Cost of shares repurchased................ (156,072,429) (208,663,857)
Proceeds from dividends reinvested........ 2,784,987 7,810,176
------------- -------------
Net decrease in net assets from beneficial
interest transactions.................... (33,496,816) (115,138,044)
------------- -------------
Net decrease in net assets................ (34,590,314) (115,129,562)
NET ASSETS:
Beginning of period....................... 202,468,086 317,597,648
------------- -------------
End of period............................. $ 167,877,772 $ 202,468,086
============= =============
</TABLE>
See accompanying notes to financial statements
30
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1997 ENDED
(UNAUDITED) NOVEMBER 30, 1996
------------------ -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 12,634,208 $ 30,669,358
Net realized losses from investments,
futures and options transactions......... (3,887,899) (5,634,876)
Net change in unrealized
appreciation/depreciation of investments,
futures and options...................... (7,156,577) (11,158,030)
------------ -------------
Net increase in net assets resulting from
operations............................... 1,589,732 13,876,452
------------ -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income -- Class A.......... (9,943,550) (23,685,897)
Net investment income -- Class B.......... (1,525,867) (3,913,989)
Net investment income -- Class C.......... (960,802) (2,575,319)
Net investment income -- Class Y.......... (203,976) (494,153)
------------ -------------
Total dividends to shareholders........... (12,634,195) (30,669,358)
------------ -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares...... 9,286,937 12,039,829
Cost of shares repurchased................ (66,655,742) (137,034,365)
Proceeds from dividends reinvested........ 7,076,349 17,203,944
------------ -------------
Net decrease in net assets from beneficial
interest transactions.................... (50,292,456) (107,790,592)
------------ -------------
Net decrease in net assets................ (61,336,919) (124,583,498)
NET ASSETS:
Beginning of period....................... 449,958,864 574,542,362
------------ -------------
End of period............................. $388,621,945 $ 449,958,864
============ =============
</TABLE>
See accompanying notes to financial statements
31
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1997 ENDED
(UNAUDITED) NOVEMBER 30, 1996
------------------ -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 10,461,301 $ 22,996,094
Net realized gains from investments,
futures and options transactions......... 2,104,206 3,056,319
Net change in unrealized
appreciation/depreciation of investments,
futures and options...................... (8,011,961) (7,097,681)
------------ ------------
Net increase in net assets resulting from
operations............................... 4,553,546 18,954,732
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income -- Class A.......... (7,733,281) (16,762,230)
Net investment income -- Class B.......... (1,639,132) (3,992,202)
Net investment income -- Class C.......... (997,043) (2,241,662)
------------ ------------
Total dividends to shareholders........... (10,369,456) (22,996,094)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares...... 7,184,762 19,750,042
Cost of shares repurchased................ (40,095,912) (77,068,314)
Proceeds from dividends reinvested........ 5,299,515 11,757,555
------------ ------------
Net decrease in net assets from beneficial
interest transactions.................... (27,611,635) (45,560,717)
------------ ------------
Net decrease in net assets................ (33,427,545) (49,602,079)
NET ASSETS:
Beginning of period....................... 319,818,108 369,420,187
------------ ------------
End of period............................. $286,390,563 $319,818,108
============ ============
</TABLE>
See accompanying notes to financial statements
32
<PAGE>
PAINEWEBBER HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1997 ENDED
(UNAUDITED) NOVEMBER 30, 1996
------------------ -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 26,439,544 $ 51,630,478
Net realized losses from investment
transactions............................. (3,057,735) (16,654,074)
Net change in unrealized
appreciation/depreciation of investments. 8,506,566 44,869,407
------------ -------------
Net increase in net assets resulting from
operations............................... 31,888,375 79,845,811
------------ -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income -- Class A.......... (11,329,798) (23,043,268)
Net investment income -- Class B.......... (9,244,978) (18,655,102)
Net investment income -- Class C.......... (4,187,608) (8,790,237)
------------ -------------
Total dividends to shareholders........... (24,762,384) (50,488,607)
------------ -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares...... 87,479,917 109,863,618
Cost of shares repurchased................ (83,624,934) (172,117,268)
Proceeds from dividends reinvested........ 10,641,334 20,920,719
------------ -------------
Net increase (decrease) in net assets from
beneficial interest transactions......... 14,496,317 (41,332,931)
------------ -------------
Net increase (decrease) in net assets..... 21,622,308 (11,975,727)
NET ASSETS:
Beginning of period....................... 553,501,146 565,476,873
------------ -------------
End of period (including undistributed net
investment income of $817,459 at May 31,
1997).................................... $575,123,454 $ 553,501,146
============ =============
</TABLE>
See accompanying notes to financial statements
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Managed Investments Trust (the "Trust") was organized under Massa-
chusetts law by a Declaration of Trust dated November 21, 1986 and is regis-
tered with the Securities and Exchange Commission under the Investment Company
Act of 1940, as amended, as an open-end, diversified investment company. The
Trust is a series mutual fund with six funds: PaineWebber Low Duration U.S.
Government Income Fund ("Low Duration U.S. Government Income Fund"),
PaineWebber U.S. Government Income Fund ("U.S. Government Income Fund"),
PaineWebber Investment Grade Income Fund ("Investment Grade Income Fund"),
PaineWebber High Income Fund ("High Income Fund") (collectively, the "Funds"),
PaineWebber Utility Income Fund and the newly created PaineWebber Asia Pacific
Growth Fund. The financial statements for PaineWebber Utility Income Fund and
PaineWebber Asia Pacific Growth Fund are not included herein.
Costs incurred by Low Duration U.S. Government Income Fund in connection with
its organization have been deferred and are being amortized using the straight-
line method not to exceed sixty months from the commencement of operations.
Currently, each Fund offers Class A, Class B, Class C and Class Y shares. Only
Low Duration U.S. Government Income Fund and U.S. Government Income Fund had
Class Y shares outstanding during the period. Each class represents interests
in the same assets of the applicable Fund, and the classes are identical except
for differences in their sales charge structures, ongoing service and distribu-
tion charges and certain transfer agency expenses. In addition, Class B shares
and all corresponding reinvested dividend shares automatically convert to Class
A shares approximately six years after issuance. All classes of shares have
equal voting privileges except that each class has exclusive voting rights with
respect to its service and/or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. Actual results could differ from those estimates. The following is a
summary of significant accounting policies:
Valuation of Investments--Where market quotations are readily available, port-
folio securities are valued thereon, provided such quotations adequately re-
flect the fair value of the securities, in the judgment of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of
PaineWebber Incorporated ("PaineWebber") and investment adviser and administra-
tor of the Funds. When market quotations are not readily available, securities
are valued based upon appraisals derived from information concerning those se-
curities or similar securities received from recognized dealers in those secu-
rities. All other securities are valued at fair value as determined in good
faith by or under the direction of the Trust's board of trustees. The amortized
cost method of valuation, which approximates market value, generally is used to
value short-term debt instruments with sixty days or less remaining to maturi-
ty, unless the Trust's board of trustees determines that this does not repre-
sent fair value.
Repurchase Agreements--The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including ac-
crued interest, is at least equal to the repurchase price. In the event of de-
fault of the obligation to repurchase, each Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under cer-
tain circumstances, in the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be subject to
legal proceedings. Each of the Funds occasionally participates in joint repur-
chase agreement transactions with other funds managed by Mitchell Hutchins.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Investment Transactions and Investment Income--Investment transactions are re-
corded on the trade date. Realized gains and losses from investment transac-
tions are calculated using the identified cost method. Interest income is re-
corded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized (with the exception of
U.S. Government Income Fund) as adjustments to interest income and the identi-
fied cost of investments. Low Duration U.S. Government Income Fund and U.S.
Government Income Fund may enter into transactions in which the Funds sell se-
curities for delivery in the current month and simultaneously contract to re-
purchase substantially similar (same type, coupon and maturity) securities on a
specified future date (the "roll period"). During the roll period the Fund for-
goes principal and interest paid on the securities. The Funds are compensated
by the interest earned on the cash proceeds of the initial sale and by fee in-
come or a lower repurchase price.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day (af-
ter adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
Futures Contracts--Upon entering into a financial futures contract, a Fund is
required to pledge to a broker an amount of cash and/or U.S. Government securi-
ties equal to a certain percentage of the contract amount. This amount is known
as the "initial margin." Subsequent payments, known as "variation margin," are
made or received by the Fund each day, depending on the daily fluctuations in
the value of the underlying financial futures contracts. Such variation margin
is recorded for financial statement purposes on a daily basis as unrealized
gain or loss until the financial futures contract is closed, at which time the
net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The U.S. Government Income Fund primarily used financial futures contracts to
manage the average duration of the Fund's portfolio. However, imperfect corre-
lations between futures contracts and the portfolio securities being hedged, or
market disruptions, do not normally permit full control of these risks at all
times.
Option Writing--When a Fund writes a call or a put option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. If an option which the Fund has written either expires
on its stipulated expiration date or the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing pur-
chase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a call option which
the Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying se-
curity) from the sale of the underlying security and the proceeds from the sale
are increased by the premium originally received. If a put option which a Fund
has written is exercised, the amount of the premium originally received reduces
the cost of the security which the Fund purchases upon exercise of the option.
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and dis-
tributions from realized capital gains are determined in accordance with fed-
eral income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their fed-
eral tax-basis treatment; temporary differences do not require reclassifica-
tion.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities including mortgage- and as-
set-backed securities held by the Funds to meet their obligations may be af-
fected by economic developments, including those particular to a specific in-
dustry or region. Mortgage- and asset-backed securities may decrease in value
as a result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayments.
WRITTEN OPTION ACTIVITY
Transactions in options written for the six months ended May 31, 1997 for the
were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INVESTMENT GRADE
INCOME FUND INCOME FUND
---------------------- -------------------
NUMBER OF NUMBER OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
--------- ----------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding at November
30, 1996......................... 1,425 $ 823,092 400 $249,944
Options written .................. 3,425 1,629,763 -- --
Options terminated in closing
purchase transactions............ (2,850) (1,464,853) (400) (249,944)
Options expired................... (1,800) (857,952) -- --
------ ----------- ---- --------
Options outstanding at May 31,
1997............................. 200 $ 130,050 0 $ 0
====== =========== ==== ========
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and Adminis-
tration Contract ("Advisory Contract") with Mitchell Hutchins, under which
Mitchell Hutchins serves as investment adviser and administrator of the Funds.
In accordance with the Advisory Contract, each Fund pays Mitchell Hutchins an
investment advisory and administration fee, which is accrued daily and paid
monthly, at the annual rate of 0.50% of each Fund's average daily net assets.
At May 31, 1997, Low Duration U.S. Government Income Fund, U.S. Government In-
come Fund, Investment Grade Income Fund and High Income Fund owed Mitchell
Hutchins $69,822, $166,286, $121,650 and $238,574, respectively, in investment
advisory and administration fees.
Under a separate contract with Mitchell Hutchins ("Sub-Advisory Contract"),
Pacific Investment Management Company ("PIMCO") serves as the sub-adviser for
Low Duration U.S. Government Income Fund. Under the Sub-Advisory Contract,
Mitchell Hutchins (not the Fund) pays PIMCO a fee, computed daily and payable
monthly, in an amount equal to one-half of the advisory fee received by Mitch-
ell Hutchins from the Fund.
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under sepa-
rate plans of service and/or distribution pertaining to the Class A, Class B
and Class C shares, each Fund pays Mitchell Hutchins monthly service fees at
the annual rate of 0.25% of the average daily net assets of Class A, Class B
and Class C shares and monthly distribution fees at the annual rate of 0.75%
and 0.50% of the average daily net assets of Class B and Class C shares, re-
spectively. At May 31, 1997, Low Duration U.S. Government Income Fund, U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund owed
Mitchell Hutchins $83,983, $127,494, $103,300 and $298,883, respectively, in
service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by the shareholders upon the purchase of Class A shares and the contingent de-
ferred sales charges paid by the shareholders upon certain redemptions of Class
A, Class B and Class C shares. Mitchell Hutchins has informed each Fund that
for the six months ended May 31, 1997, it earned $15,287, $105,236, $107,800
and $493,553 in sales charges for the Low Duration U.S. Government Income Fund,
U.S. Government Income Fund, Investment Grade Income Fund and High Income Fund,
respectively.
SECURITY LENDING
Each Fund may lend up to 33 1/3% of its total assets to qualified institu-
tions. The loans are secured at all times by cash or U.S. government securities
in an amount at least equal to the market value of the securities loaned, plus
accrued interest, determined on a daily basis and adjusted accordingly. Each
Fund will regain record ownership of loaned securities to exercise certain ben-
eficial rights, however, each Fund may bear the risk of delay in recovery of,
or even loss of rights in, the securities loaned should the borrower fail fi-
nancially. Each Fund receives compensation, which is included in interest in-
come, for lending its securities from interest earned on the cash or U.S. gov-
ernment securities held as collateral, net of fee rebates paid to the borrower
plus reasonable administrative and custody fees. Each Fund's lending agent is
PaineWebber, who received $495 in compensation from the U.S. Government Income
Fund for the six months ended May 31, 1997.
As of May 31, 1997, U.S. Government Income Fund's custodian held cash and cash
equivalents having an aggregate value of $364,000 as collateral for portfolio
securities loaned having a market value of $352,670 for the U.S. Government In-
come Fund.
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Funds' transfer
agent. For these services for the six months ended May 31, 1997, PaineWebber
earned $28,308, $56,406, $36,634 and $61,239 in transfer agency service fees
from Low Duration U.S. Government Income Fund, U.S. Government Income Fund, In-
vestment Grade Income Fund and High Income Fund, respectively. At May 31, 1997,
Low Duration U.S. Government Income Fund, U.S. Government Income Fund, Invest-
ment Grade Income Fund and High Income Fund owed PaineWebber $4,426, $8,930,
$5,857 and $10,125, respectively, for transfer agency service fees.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1997
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1997, the components of the net unrealized appreciation (deprecia-
tion) of investments were as follows:
<TABLE>
<CAPTION>
LOW DURATION U.S. INVESTMENT
U.S. GOVERNMENT GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Gross appreciation
(investments having an
excess of value over
cost)................. $1,346,343 $ 2,106,162 $ 5,128,965 $ 40,484,311
Gross depreciation
(investments having an
excess of cost over
value)................ (845,318) (1,932,350) (2,098,915) (44,954,459)
---------- ----------- ----------- ------------
Net unrealized
appreciation
(depreciation) of
investments........... $ 501,025 $ 173,812 $ 3,030,050 $ (4,470,148)
========== =========== =========== ============
</TABLE>
For the six months ended May 31, 1997, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
LOW DURATION U.S. INVESTMENT
U.S. GOVERNMENT GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Purchases................ $310,715,308 $618,820,566 $143,450,267 $399,340,137
Sales.................... $349,476,797 $668,488,092 $179,172,381 $395,949,441
</TABLE>
FEDERAL TAX STATUS
Each Fund intends to distribute all of its taxable income and to comply with
the other requirements of the Internal Revenue Code applicable to regulated in-
vestment companies. Accordingly, no provision for federal income taxes is re-
quired. In addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other amounts, if
any, each Fund intends not to be subject to a federal excise tax.
At November 30, 1996, Low Duration U.S. Government Income Fund, U.S. Govern-
ment Income Fund, Investment Grade Income Fund and High Income Fund had net
capital loss carryforwards of $120,452,991, $127,715,208 $43,150,005 and
$208,319,708, respectively. These loss carryforwards are available as reduc-
tions, to the extent provided in the regulations, of future net realized capi-
tal gains, and will expire between November 30, 1997 and November 30, 2004. To
the extent that such losses are used to offset future net realized capital
gains, it is probable that these gains will not be distributed.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized for each Fund. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
-------------------------- ------------------------- ------------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------ ----------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOW DURATION
U.S. GOVERNMENT
INCOME FUND
SIX MONTHS ENDED
MAY 31, 1997:
Shares sold..... 48,897,318 $ 114,095,099 507,973 $ 1,185,977 1,903,699 $ 4,433,040 32,573 $ 76,510
Shares
repurchased.... (55,546,371) (129,695,626) (615,899) (1,439,957) (10,637,754) (24,856,858) (34,159) (79,988)
Shares converted
from Class B to
Class A........ 178,470 416,603 (178,470) (416,603) -- -- -- --
Dividends
reinvested..... 248,787 581,074 51,269 119,744 888,215 2,074,624 4,087 9,545
----------- ------------- ----------- ------------ ----------- ------------ -------- -----------
Net increase
(decrease)..... (6,221,796) $ (14,602,850) (235,127) $ (550,839) (7,845,840) $(18,349,194) 2,501 $ 6,067
=========== ============= =========== ============ =========== ============ ======== ===========
YEAR ENDED
NOVEMBER 30,
1996:
Shares sold..... 33,345,282 $ 77,185,738 1,056,888 $ 2,465,649 2,528,030 $ 5,896,920 71,997 $ 167,330
Shares
repurchased.... (58,723,622) (136,218,122) (1,671,128) (3,877,425) (29,435,054) (68,397,449) (73,823) (170,861)
Shares converted
from Class B to
Class A........ 131,800 304,321 (131,800) (304,321) -- -- -- --
Dividends
reinvested..... 878,124 2,041,079 122,139 283,662 2,354,265 5,470,009 6,638 15,426
----------- ------------- ----------- ------------ ----------- ------------ -------- -----------
Net increase
(decrease)..... (24,368,416) $ (56,686,984) (623,901) $ (1,432,435) (24,552,759) $(57,030,520) 4,812 $ 11,895
=========== ============= =========== ============ =========== ============ ======== ===========
U.S. GOVERNMENT
INCOME FUND
SIX MONTHS ENDED
MAY 31, 1997:
Shares sold..... 323,926 $ 2,813,509 235,895 $ 2,042,891 252,126 $ 2,178,967 260,164 $ 2,251,570
Shares
repurchased.... (4,949,154) (42,936,474) (1,477,521) (12,787,614) (937,883) (8,130,301) (323,490) (2,801,353)
Shares converted
from Class B to
Class A........ 125,156 1,085,409 (125,156) (1,085,409) -- -- -- --
Dividends
reinvested..... 617,182 5,353,639 105,416 914,747 70,874 614,334 22,346 193,629
----------- ------------- ----------- ------------ ----------- ------------ -------- -----------
Net decrease.... (3,882,890) $ (33,683,917) (1,261,366) $(10,915,385) (614,883) $ (5,337,000) (40,980) $ (356,154)
=========== ============= =========== ============ =========== ============ ======== ===========
YEAR ENDED
NOVEMBER 30,
1996:
Shares sold..... 306,752 $ 2,704,540 497,410 $ 4,426,086 256,396 $ 2,270,244 299,365 $ 2,638,959
Shares
repurchased.... (10,215,853) (89,963,321) (2,756,327) (24,279,586) (2,095,274) (18,501,139) (492,959) (4,290,319)
Shares converted
from Class B to
Class A........ 68,275 595,688 (68,267) (595,688) -- -- -- --
Dividends
reinvested..... 1,441,194 12,708,998 263,381 2,322,854 192,882 1,700,766 53,532 471,326
----------- ------------- ----------- ------------ ----------- ------------ -------- -----------
Net decrease.... (8,399,632) $ (73,954,095) (2,063,803) $(18,126,334) (1,645,996) $(14,530,129) (140,062) $(1,180,034)
=========== ============= =========== ============ =========== ============ ======== ===========
</TABLE>
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SHARES OF BENEFICIAL INTEREST (concluded)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT GRADE INCOME
FUND
SIX MONTHS ENDED MAY 31,
1997:
Shares sold............. 334,988 $ 3,496,888 197,105 $ 2,047,061 157,780 $ 1,640,813
Shares repurchased...... (2,438,822) (25,405,805) (918,470) (9,559,395) (493,498) (5,130,712)
Shares converted from
Class B to Class A..... 289,230 3,004,748 (289,230) (3,004,748) 0 0
Dividends reinvested.... 380,392 3,956,641 80,240 834,707 48,850 508,167
---------- ------------ ---------- ------------ ---------- ------------
Net decrease............ (1,434,212) $(14,947,528) (930,355) $ (9,682,375) (286,868) $ (2,981,732)
========== ============ ========== ============ ========== ============
YEAR ENDED NOVEMBER 30,
1996:
Shares sold............. 694,833 $ 7,241,666 790,259 $ 8,263,221 407,391 $ 4,245,155
Shares repurchased...... (4,369,069) (45,365,354) (1,914,223) (19,907,506) (1,132,379) (11,795,454)
Shares converted from
Class B to Class A..... 244,309 2,526,391 (244,394) (2,526,391) -- --
Dividends reinvested.... 822,442 8,550,479 195,960 2,037,499 112,477 1,169,577
---------- ------------ ---------- ------------ ---------- ------------
Net decrease............ (2,607,485) $(27,046,818) (1,172,398) $(12,133,177) (612,511) $ (6,380,722)
========== ============ ========== ============ ========== ============
HIGH INCOME FUND
SIX MONTHS ENDED MAY 31,
1997:
Shares sold............. 3,988,986 $ 29,338,040 5,190,272 $ 38,257,185 2,688,300 $ 19,884,692
Shares repurchased...... (4,577,782) (33,848,178) (4,455,993) (32,782,799) (2,303,033) (16,993,957)
Shares converted from
Class B to Class A..... 552,851 4,071,692 (553,302) (4,071,692) -- --
Dividends reinvested.... 674,342 4,973,518 482,592 3,557,022 285,850 2,110,794
---------- ------------ ---------- ------------ ---------- ------------
Net increase............ 638,397 $ 4,535,072 663,569 $ 4,959,716 671,117 $ 5,001,529
========== ============ ========== ============ ========== ============
YEAR ENDED NOVEMBER 30,
1996:
Shares sold............. 3,790,332 $ 27,178,599 8,214,718 $ 58,501,093 3,392,556 $ 24,183,926
Shares repurchased...... (8,288,303) (58,543,490) (9,936,550) (70,304,426) (6,108,246) (43,269,352)
Shares converted from
Class B to Class A..... 496,614 3,557,693 (496,939) (3,557,693) -- --
Dividends reinvested.... 1,394,710 9,900,817 921,703 6,543,700 629,745 4,476,202
---------- ------------ ---------- ------------ ---------- ------------
Net decrease............ (2,606,647) $(17,906,381) (1,297,068) $ (8,817,326) (2,085,945) $(14,609,224)
========== ============ ========== ============ ========== ============
</TABLE>
40
<PAGE>
[This Page Intentionally Left Blank]
41
<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
SIX MONTHS FOR THE YEARS ENDED FOR THE PERIOD
ENDED NOVEMBER 30, MAY 3, 1993#
MAY 31, 1997 --------------------------- TO NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993
------------ ------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.50
------ ------ ------ ------ ------
Net investment income... 0.07 0.14 0.13 0.12 0.07
Net realized and
unrealized gains
(losses) from
investments,
futures and options.... (0.01) 0.01 0.09 (0.29) (0.02)
------ ------ ------ ------ ------
Net increase (decrease)
in net asset value from
operations............. 0.06 0.15 0.22 (0.17) 0.05
------ ------ ------ ------ ------
Dividends from net
investment income...... (0.07) (0.14) (0.13) (0.12) (0.07)
------ ------ ------ ------ ------
Contribution to capital
from adviser........... -- -- -- 0.06 --
------ ------ ------ ------ ------
Net asset value, end of
period................. $ 2.34 $ 2.35 $ 2.34 $ 2.25 $ 2.48
====== ====== ====== ====== ======
Total investment
return(1).............. 2.50% 6.46% 10.25% (4.50)%** 1.88%
====== ====== ====== ====== ======
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $56,240 $71,216 $127,961 $158,712 $551,243
Expenses to average net
assets(2).............. 0.89%* 1.21% 1.15% 0.84% 0.81%*
Net investment income to
average net assets(2).. 5.93%* 5.84% 5.89% 5.16% 4.85%*
Portfolio turnover rate. 177% 210% 242% 246% 97%
</TABLE>
- ---------
# Commencement of issuance of shares
* Annualized
** Net of $0.06 contribution of capital from adviser. If such contribution had
not been made the total investment returns would have been (7.02)% for Class
A, (7.74)% for Class B and (7.50)% for Class C.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, reinvestment of all dividends at net asset value
on the payable dates and a sale at net asset value on the last day of each
period reported. The figures do not include sales charges; results for
Class A, Class B and Class C would be lower if sales charges were included.
Total investment return for periods less than one year has not been
annualized.
(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 0.88% and 5.12%
for Class A, 1.66% and 4.35% for Class B, and 1.39% and 4.61% for Class C.
42
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ----------------------------------------------------- ----------------------------------------------------------
FOR THE SIX FOR THE FOR THE SIX FOR THE
MONTHS PERIOD MONTHS PERIOD
ENDED FOR THE YEARS ENDED MAY 3, 1993# ENDED FOR THE YEARS ENDED MAY 3, 1993#
MAY 31, NOVEMBER 30, TO MAY 31, NOVEMBER 30, TO
1997 ----------------------- NOVEMBER 30, 1997 ---------------------------- NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993 (UNAUDITED) 1996 1995 1994 1993
- ----------- ------ ------ ------- ------------ ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.50 $ 2.35 $ 2.34 $ 2.25 $ 2.47 $ 2.50
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.06 0.12 0.11 0.10 0.06 0.06 0.12 0.12 0.11 0.06
(0.01) 0.01 0.09 (0.29) (0.02) (0.01) 0.01 0.09 (0.28) (0.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.05 0.13 0.20 (0.19) 0.04 0.05 0.13 0.21 (0.17) 0.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.06) (0.12) (0.11) (0.10) (0.06) (0.06) (0.12) (0.12) (0.11) (0.06)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
-- -- -- 0.06 -- -- -- -- 0.06 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 2.34 $ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.34 $ 2.35 $ 2.34 $ 2.25 $ 2.47
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
2.08% 5.60% 9.30% (5.24)%** 1.47% 2.20% 5.82% 9.60% (4.99)%** 1.20%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$7,122 $7,716 $9,147 $13,382 $31,706 $104,179 $123,203 $180,169 $296,182 $1,186,181
1.71%* 2.03% 2.02% 1.62% 1.62%* 1.48%* 1.80% 1.75% 1.36% 1.35%*
5.03%* 4.99% 5.03% 4.40% 4.31%* 5.28%* 5.22% 5.31% 4.65% 4.52%*
177% 210% 242% 246% 97% 177% 210% 242% 246% 97%
<CAPTION>
CLASS Y
- ----------------------------------------
FOR THE SIX
MONTHS FOR THE PERIOD
ENDED FOR THE YEAR OCTOBER 20,
MAY 31, ENDED 1995# TO
1997 NOVEMBER 30, NOVEMBER 30,
(UNAUDITED) 1996 1995
----------- ------------ --------------
<C> <C> <C>
$ 2.35 $ 2.34 $ 2.33
------ ------ ------
0.07 0.14 0.01
(0.01) 0.01 0.01
------ ------ ------
0.06 0.15 0.02
------ ------ ------
(0.07) (0.14) (0.01)
------ ------ ------
-- -- --
------ ------ ------
$ 2.34 $ 2.35 $ 2.34
====== ====== ======
2.60% 6.64% 0.83%
====== ====== ======
$ 337 $ 333 $ 321
0.70%* 0.99% 0.99%*
6.05%* 6.00% 5.87%*
177% 210% 242%
</TABLE>
43
<PAGE>
PAINEWEBBER 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
SIX MONTHS
ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 1997 ----------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 8.86 $ 9.12 $ 8.50 $ 10.03 $ 9.98 $ 9.97
-------- -------- -------- -------- -------- --------
Net investment income... 0.27 0.55 0.58 0.60 0.67 0.75
Net realized and
unrealized gains
(losses) from
investments............ (0.22) (0.26) 0.62 (1.53) 0.05 0.01
-------- -------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. 0.05 0.29 1.20 (0.93) 0.72 0.76
-------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.27) (0.55) (0.58) (0.60) (0.67) (0.75)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 8.64 $ 8.86 $ 9.12 $ 8.50 $ 10.03 $ 9.98
======== ======== ======== ======== ======== ========
Total investment
return(1).............. 0.61% 3.39% 14.70% (9.62)% 7.38% 7.92%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $301,710 $343,836 $430,285 $428,722 $648,923 $703,198
Expenses to average net
assets................. 0.90%* 0.94% 1.03%(2) 0.95% 0.91% 0.93%
Net investment income to
average net assets..... 6.27%* 6.24% 6.65%(2) 6.48% 6.60% 7.42%
Portfolio turnover rate. 157% 359% 206% 358% 83% 28%
</TABLE>
- ---------
# Commencement of issuance of shares
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results would be lower if sales charges were included. Total investment
return for periods of less than one year has not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
44
<PAGE>
<TABLE>
<CAPTION>
CLASS B
- --------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 1997 ------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
- ------------ ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
$8.87 $ 9.12 $ 8.50 $ 10.03 $ 9.98 $ 9.98
----- ------ ------ ------- ------ ------
0.24 0.48 0.51 0.53 0.60 0.67
(0.22) (0.25) 0.63 (1.53) 0.05 0.01
----- ------ ------ ------- ------ ------
0.02 0.23 1.14 (1.00) 0.65 0.68
----- ------ ------ ------- ------ ------
(0.24) (0.48) (0.52) (0.53) (0.60) (0.68)
----- ------ ------ ------- ------ ------
$8.65 $ 8.87 $ 9.12 $ 8.50 $10.03 $ 9.98
===== ====== ====== ======= ====== ======
0.23% 2.72% 13.81% (10.31)% 6.57% 6.98%
===== ====== ====== ======= ====== ======
$49,428 $61,873 $82,469 $99,581 $161,158 $132,357
1.66%* 1.70% 1.81%(2) 1.72% 1.66% 1.67%
5.52%* 5.47% 5.88%(2) 5.71% 5.79% 6.38%
157% 359% 206% 358% 83% 28%
<CAPTION>
CLASS C
- ----------------------------------------------------
FOR THE
SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEARS ENDED NOVEMBER 30, JULY 2, 1992#
MAY 31,1997 ---------------------------------------- TO NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993 1992
- ----------- -------- ----------- --------- --------- ---------------
<C> <C> <C> <C> <C> <C>
$8.86 $ 9.11 $ 8.49 $10.02 $ 9.98 $10.13
----- ------ ------ ------ ------ ------
0.25 0.50 0.53 0.55 0.62 0.25
(0.22) (0.25) 0.63 (1.53) 0.04 (0.15)
----- ------ ------ ------ ------ ------
0.03 0.25 1.16 (0.98) 0.66 0.10
----- ------ ------ ------ ------ ------
(0.25) (0.50) (0.54) (0.55) (0.62) (0.25)
----- ------ ------ ------ ------ ------
$ 8.64 $ 8.86 $ 9.11 $ 8.49 $10.02 $ 9.98
===== ====== ====== ====== ====== ======
0.36% 2.98% 14.12% (10.08)% 6.75% 0.62%
===== ====== ====== ====== ====== ======
$31,504 $37,754 $53,832 $68,400 $143,473 $127,026
1.40%* 1.45% 1.55%(2) 1.45% 1.40% 1.44%*
5.78%* 5.74% 6.17%(2) 5.99% 6.06% 6.13%*
157% 359% 206% 358% 83% 28%
</TABLE>
45
<PAGE>
PAINEWEBBER 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 Y
------------------------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 1997 -----------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $8.86 $ 9.11 $ 8.49 $10.02 $ 9.97 $ 9.97
----- ------ ------ ------ ------ ------
Net investment income... 0.28 0.57 0.61 0.62 0.70 0.77
Net realized and
unrealized gains
(losses) from
investments............ (0.22) (0.25) 0.62 (1.53) 0.05 0.01
----- ------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations............. 0.06 0.32 1.23 (0.91) 0.75 0.78
----- ------ ------ ------ ------ ------
Dividends from net
investment income...... (0.28) (0.57) (0.61) (0.62) (0.70) (0.78)
----- ------ ------ ------ ------ ------
Net asset value, end of
period................. $8.64 $ 8.86 $ 9.11 $ 8.49 $10.02 $ 9.97
===== ====== ====== ====== ====== ======
Total investment
return(1).............. 0.74% 3.81% 15.06% (9.37)% 7.69% 8.13%
===== ====== ====== ====== ====== ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $5,979 $6,495 $7,957 $4,955 $6,232 $5,517
Expenses to average net
assets................. 0.63%* 0.64% 0.71%(2) 0.65% 0.62% 0.63%
Net investment income to
average net assets..... 6.54%* 6.53% 6.96%(2) 6.76% 6.87% 7.70%
Portfolio turnover rate. 157% 359% 206% 358% 83% 28%
</TABLE>
- ---------
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. Total investment return for periods of less
than one year has not been annualized.
(2) These ratios include non-recurring reorganization expenses of 0.03%.
46
<PAGE>
[This Page Intentionally Left Blank]
47
<PAGE>
PAINEWEBBER INVESTMENT GRADE 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
ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 1997 ------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $10.59 $10.68 $ 9.67 $11.08 $10.38 $10.17
------ ------ ------ ------ ------ ------
Net investment income... 0.37 0.73 0.76 0.77 0.79 0.81
Net realized and
unrealized gains
(losses) from
investments............ (0.20) (0.09) 1.01 (1.41) 0.70 0.22
------ ------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations............. 0.17 0.64 1.77 (0.64) 1.49 1.03
------ ------ ------ ------ ------ ------
Dividends from net
investment income...... (0.37) (0.73) (0.76) (0.77) (0.79) (0.82)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $10.39 $10.59 $10.68 $ 9.67 $11.08 $10.38
====== ====== ====== ====== ====== ======
Total investment
return(1).............. 1.67% 6.33% 18.95% (5.99)% 14.77% 10.39%
====== ====== ====== ====== ====== ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $210,002 $229,117 $258,898 $271,553 $204,418 $197,795
Expenses to average net
assets................. 1.03%* 0.94% 0.95% 0.97% 0.96% 1.01%
Net investment income to
average net assets..... 7.20%* 7.02% 7.42% 7.50% 7.24% 7.81%
Portfolio turnover rate. 50% 115% 149% 142% 27% 44%
</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, 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 would be
lower if sales charges were included. Total investment return for periods
of less than one year has not been annualized.
48
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ---------------------------------------------------------- --------------------------------------------------------------------
FOR THE FOR THE FOR THE PERIOD
SIX MONTHS SIX MONTHS JULY 2, 1992#
ENDED FOR THE YEARS ENDED NOVEMBER 30, ENDED FOR THE YEARS ENDED NOVEMBER 30, TO
MAY 31, 1997 -------------------------------------------- MAY 31, 1997 --------------------------------------- NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993 1992 (UNAUDITED) 1996 1995 1994 1993 1992
- ------------ ------- ------- ------- ------- ------- ------------ -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.58 $10.67 $ 9.67 $11.07 $10.38 $10.17 $10.59 $10.68 $ 9.67 $11.08 $10.38 $10.48
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.33 0.65 0.68 0.69 0.71 0.73 0.34 0.68 0.70 0.72 0.74 0.28
(0.19) (0.09) 1.00 (1.40) 0.69 0.22 (0.20) (0.09) 1.01 (1.41) 0.70 (0.10)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.14 0.56 1.68 (0.71) 1.40 0.95 0.14 0.59 1.71 (0.69) 1.44 0.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.33) (0.65) (0.68) (0.69) (0.71) (0.74) (0.34) (0.68) (0.70) (0.72) (0.74) (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$10.39 $10.58 $10.67 $ 9.67 $11.07 $10.38 $10.39 $10.59 $10.68 $ 9.67 $11.08 $10.38
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
1.38% 5.54% 17.97% (6.60)% 13.81% 9.56% 1.41% 5.80% 18.37% (6.40)% 14.21% 1.32%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$47,626 $58,364 $71,372 $69,359 $52,301 $20,862 $28,762 $32,337 $39,150 $45,473 $47,527 $16,067
1.79%* 1.68% 1.70% 1.72% 1.70% 1.74% 1.54%* 1.44% 1.45% 1.45% 1.44% 1.49%*
6.44%* 6.27% 6.67% 6.73% 6.40% 6.88% 6.70%* 6.51% 6.95% 6.99% 6.61% 6.83%*
50% 115% 149% 142% 27% 44% 50% 115% 149% 142% 27% 44%
</TABLE>
49
<PAGE>
PAINEWEBBER HIGH 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
ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 1997 -------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 7.35 $ 6.96 $ 7.14 $ 8.73 $ 7.92 $ 7.30
------ ------ ------ ------ ------ ------
Net investment income... 0.36 0.72 0.79 0.86 0.89 0.98
Net realized and
unrealized gains
(losses) from
investments............ 0.07 0.37 (0.17) (1.59) 0.83 0.61
------ ------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations............. 0.43 1.09 0.62 (0.73) 1.72 1.59
------ ------ ------ ------ ------ ------
Dividends from net
investment income...... (0.34) (0.70) (0.80) (0.86) (0.91) (0.97)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $ 7.44 $ 7.35 $ 6.96 $ 7.14 $ 8.73 $ 7.92
====== ====== ====== ====== ====== ======
Total investment
return(1).............. 6.03% 16.55% 9.01% (9.20)% 22.89% 22.99%
====== ====== ====== ====== ====== ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $251,375 $243,564 $248,619 $268,397 $360,281 $279,685
Expenses to average net
assets................. 0.97%* 0.96% 0.93% 0.91% 0.93% 0.98%
Net investment income to
average net assets..... 9.90%* 10.10% 11.17% 10.43% 10.61% 12.68%
Portfolio turnover rate. 73% 142% 94% 156% 182% 185%
</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, 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 would be
lower if sales charges were included. Total investment return for periods
of less than one year has not been annualized.
50
<PAGE>
<TABLE>
<CAPTION>
CLASS B
- --------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 1997 ------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
- ------------ -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
$ 7.35 $ 6.95 $ 7.14 $ 8.72 $ 7.91 $ 7.29
----- ----- ----- ----- ----- -----
0.34 0.66 0.74 0.80 0.83 0.92
0.06 0.39 (0.18) (1.58) 0.82 0.61
----- ----- ----- ----- ----- -----
0.40 1.05 0.56 (0.78) 1.65 1.53
----- ----- ----- ----- ----- -----
(0.31) (0.65) (0.75) (0.80) (0.84) (0.91)
----- ----- ----- ----- ----- -----
$ 7.44 $ 7.35 $ 6.95 $ 7.14 $ 8.72 $ 7.91
===== ===== ===== ===== ===== =====
5.64% 15.86% 8.05% (9.77)% 21.89% 22.07%
===== ===== ===== ===== ===== =====
$223,120 $215,492 $212,946 $235,480 $286,525 $99,645
1.72%* 1.71% 1.68% 1.64% 1.66% 1.70%
9.14%* 9.34% 10.42% 9.66% 9.69% 11.42%
73% 142% 94% 156% 182% 185%
<CAPTION>
CLASS C
- ----------------------------------------------------
FOR THE
SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEARS ENDED NOVEMBER 30, JULY 2, 1992#
MAY 31, 1997 --------------------------------------- TO NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993 1992
- ------------ -------- --------- ---------- --------- ---------------
<C> <C> <C> <C> <C> <C>
$ 7.36 $ 6.97 $ 7.15 $ 8.74 $ 7.92 $ 7.80
----- ----- ----- ----- ----- -----
0.34 0.68 0.76 0.82 0.85 0.33
0.07 0.38 (0.18) (1.59) 0.82 0.11
----- ----- ----- ----- ----- -----
0.41 1.06 0.58 (0.77) 1.67 0.44
----- ----- ----- ----- ----- -----
(0.32) (0.67) (0.76) (0.82) (0.85) (0.32)
----- ----- ----- ----- ----- -----
$ 7.45 $ 7.36 $ 6.97 $ 7.15 $ 8.74 $ 7.92
===== ===== ===== ===== ===== =====
5.76% 15.96% 8.45% (9.62)% 22.19% 5.21%
===== ===== ===== ===== ===== =====
$100,629 $94,445 $103,911 $115,196 $176,161 $35,992
1.48%* 1.47% 1.44% 1.38% 1.39% 1.45%*
9.38%* 9.60% 10.63% 9.91% 9.81% 10.67%*
73% 142% 94% 156% 182% 185%
</TABLE>
51
