<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND,
U.S. GOVERNMENT INCOME FUND, INVESTMENT GRADE INCOME FUND
& HIGH INCOME FUND
SEMIANNUAL REPORT
July 15, 1998
Dear Shareholder,
We are pleased to present you with the semiannual report for the PaineWebber Low
Duration U.S. Government Income Fund, the PaineWebber U.S. Government Income
Fund, the PaineWebber Investment Grade Income Fund and the PaineWebber High
Income Fund for the six-month period ended May 31, 1998.
PAINEWEBBER LOW DURATION
U.S. GOVERNMENT INCOME
FUND
FUND PROFILE
- - GOAL:
High income with low
NAV volatility and
preservation of capital
- - PORTFOLIO MANAGER/
SUBADVISER:
William Powers,
Pacific Investment
Management Company
- - TOTAL NET ASSETS:
$146.1 million as of
May 31, 1998
- - DIVIDEND PAYMENTS:
Monthly
PAINEWEBBER
LOW DURATION
U.S. GOVERNMENT
INCOME FUND
Percent of portfolio assets
as of May 31, 1998*
[PIE CHART]
<TABLE>
<S> <C>
Agency Mortgage
Pass-Throughs 42.9%
ARMS 39.6%
Cash & Cash Equivalents 11.9%
CMOs 4.3%
U.S. Treasury Inflation
Index Notes 1.3%
</TABLE>
*Allocations subject to change
GENERAL MARKET OVERVIEW
- --------------------------------------------------------------------------------
[GRAPHIC]
Aided by low inflation, a budget surplus and a strong dollar, interest
rates fell across the yield curve through the six-month period ended May 31,
1998. The 30-year Treasury bond began the period yielding slightly over 6.00%
and ended at 5.80%. The main themes affecting the market were little
inflationary pressure despite a strong domestic economy, and the Asian crisis,
which continued to drive "flight-to-quality" demand for U.S. Treasury debt.
Through most of last year -- as above-trend economic growth persisted --
the Federal Reserve monitored the economy with a "tightening bias," i.e., a
predisposition to raise interest rates if the risk of inflation appeared to
increase. In December the Fed adopted a neutral stance, a sign that it did not
consider inflation an imminent threat. The Fed perceived that the Asian crisis
would slow the U.S. economy by reducing demand for U.S. exports. During the
spring of 1998, strong domestic demand persisted despite the slowing effect of
Asia, and in March the Fed reverted to its tightening bias.
PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
[GRAPHIC]
PERFORMANCE--
The Fund's total return (the net asset value change with dividends
reinvested) for the six-month period ended May 31, 1998, without deducting sales
charges, was 3.18% for Class A shares, 2.77% for Class B shares, 2.88% for Class
C shares and 3.29% for Class Y shares.
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, Class A shares gained 0.22%, Class B shares lost 0.23%
and Class C shares gained 2.13%. Class Y shares are not subject to sales
charges.
PORTFOLIO HIGHLIGHTS--
We remained bullish on bonds during the six months ending May 31, 1998
expecting interest rates to fall. To capture the expected price gain from
falling rates we kept portfolio duration at about 0.5 years above that of its
benchmark, the Merrill Lynch 1-3 Year Treasury Index (the "Index"). This
strategy paid off as interest rates declined.
We focused the portfolio's holdings on high-quality, mortgage-backed
securities, choosing adjustable-rate, lower-coupon and other types of securities
that are less prepayment sensitive -- an important attribute in a declining
interest rate
1
<PAGE>
SEMIANNUAL REPORT
environment. As interest rates drop, homeowners refinance their mortgages, which
increases cash flows to investors in those mortgages. The investors must then
reinvest those cash flows at the prevailing lower market interest rates. By
structuring the Fund's holdings to be less prepayment sensitive we gained the
extra yield from these mortgages while protecting the portfolio from
reinvestment risk.
OUTLOOK--
We intend to maintain portfolio duration about 0.5 year above the benchmark
duration, since we expect that low inflation will cause long-term interest rates
to move lower. In anticipation of an economic slowdown and a potential
steepening of the yield curve, we expect to shift the Fund to a greater
concentration on intermediate maturities (a "bullet" structure). We believe
mortgages remain the most prudent way to enhance yield without adding undue
risk, especially if interest-rate volatility stays low in the coming quarters.
We will focus on discount-coupon mortgages, which offer the most attractive
spreads to Treasury yields.
PAINEWEBBER U.S.
GOVERNMENT INCOME FUND
FUND PROFILE
- - GOAL:
High current income
consistent with
preservation of capital
and liquidity
- - PORTFOLIO MANAGERS:
Nirmal Singh,
Craig Varrelman,
Mitchell Hutchins Asset
Management Inc.
- - TOTAL NET ASSETS:
$344.1 million as of
May 31, 1998
- - DIVIDEND PAYMENTS:
Monthly
PAINEWEBBER
U.S. GOVERNMENT
INCOME FUND
Percent of net assets
as of May 31, 1998*
[PIE CHART]
<TABLE>
<S> <C>
U.S. Treasurys 28.5%
Agency Notes 14.7%
Agency Mortgage
Pass-Throughs 32.8%
Collateralized Mortgage
Obligations 21.6%
Cash & Cash Equivalents 2.4%
</TABLE>
*Allocations subject to change
- --------------------------------------------------------------------------------
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE--
The Fund's total return (the net asset value change with dividends
reinvested) for the six-month period ended May 31, 1998, without deducting sales
charges, was 3.59% for Class A shares, 3.18% for Class B shares, 3.33% for Class
C shares and 3.74% for Class Y shares.
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, Class A shares lost 0.53%, Class B shares lost 1.82%
and Class C shares gained 2.58%. Class Y shares are not subject to sales
charges.
PORTFOLIO HIGHLIGHTS--
During the six-month period, the Fund benefited from its positions in
mortgage-backed securities and U.S. government agency obligations. Both sectors
performed fairly well compared to Treasurys, especially considering the high
rate of mortgage prepayments during the period. Our emphasis on lower-coupon
mortgages and other securities less sensitive to prepayment risk was appropriate
in such an environment.
OUTLOOK--
We are maintaining the Fund's heavy weightings in these sectors, although
our security selections now reflect a bias towards greater convexity to protect
the portfolio from prepayment risk. While the current, high rate of mortgage
prepayments is likely to peak, risks of further acceleration will haunt the
market as long as Treasury yields persist at present levels (i.e., as long as
interest rates remain low).
Our broad strategy is still focused on adding value through yield -- with
the Federal Reserve still on hold there is reason to believe that volatility
will remain subdued. For the present, however, we believe call protections and
convexity are the keys to outperformance.
2
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND,
U.S. GOVERNMENT INCOME FUND, INVESTMENT GRADE INCOME FUND
& HIGH INCOME FUND
SEMIANNUAL REPORT
PAINEWEBBER INVESTMENT
GRADE INCOME FUND
FUND PROFILE
- - GOAL:
High current income
consistent with
preservation of capital
and liquidity
- - PORTFOLIO MANAGERS:
Julieanna Berry,
James Keegan,
Mitchell Hutchins Asset
Management Inc.
- - TOTAL NET ASSETS:
$290.9 million as of
May 31, 1998
- - DIVIDEND PAYMENTS:
Monthly
PAINEWEBBER
INVESTMENT
GRADE INCOME
FUND
Credit quality as percent
of net assets, May 31, 1998*
<TABLE>
<S> <C>
AAA 16.0%
AA 6.1%
A 20.0%
BBB 29.7%
BB 28.2%
</TABLE>
*Allocations subject to change
- --------------------------------------------------------------------------------
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE--
The Fund's total return (the net asset value change with dividends
reinvested) for the six-month period ended May 31, 1998, without deducting sales
charges, was 4.53% for Class A shares, 4.14% for Class B shares and 4.28% for
Class C shares.
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, Class A shares gained 0.37%, Class B shares lost 0.86%
and Class C shares gained 3.53%.
THE WALL STREET JOURNAL Mutual Fund Scorecard has ranked the Fund among the
top 15 BBB-rated bond funds, based on its 12-month returns, for six of the last
nine months ending May 31, 1998.
PORTFOLIO HIGHLIGHTS--
Corporate bond prices fell at the beginning of 1998 in response to record
issuance. Corporates bounced back, however, and finished May as the
top-performing market sector. Within the corporate sector, cable/media and
insurance issues were among the best performers.
Compared to the Lehman Brothers Corporate Bond Index (the "Index"), the
Fund was overweighted in cable/media (9.7% of net assets on May 31, 1998) and
insurance issues (9.6%). The Fund maintained a weighted average duration of six
years, about the same as the Index. In the wake of falling oil prices and an
overvalued sector, we reduced the Fund's energy positions. Credit quality and
security selection remained the Fund's key themes, and both contributed to
performance during the period.
We continue to seek yield in corporate sub-sectors with stable to positive
fundamentals:
- - INSURANCE: We believe consolidation will be a driving force behind
performance. We seek companies with interesting niche strategies and strong
management. Contributors to Fund performance were Prudential Insurance Company
(2.4% of net assets on May 31, 1998) and BBB-rated USF&G Corporation (1.6%),
recently acquired by AA-rated St. Paul Companies. Other strong performers
included Lumberman's Mutual (2.1%) and Markel Corp. (1.2%).
- - CABLE/MEDIA: The Fund benefited from its position in Viacom, which was
placed on an upgrade watch by Standard & Poor's and Moody's after it announced
plans to sell about $4 billion of its publishing assets. We sold the Fund's
Viacom position during the first quarter of 1998. Another good performer was TCI
(2.9% of net assets on May 31, 1998), whose positive earnings announcements and
growth in subscribers led to an upgrade earlier this year.
- - HIGH YIELD/CROSSOVER MARKET: This group contains companies that straddle
the investment-grade and noninvestment-grade sectors of the market. Crossovers
comprised 28% of the Fund's net assets on May 31, 1998. The Fund's holdings
include Mark IV (2.4%), Tenet Healthcare (1.8%) and Fred Meyer (1.7%).
OUTLOOK--
As the business cycle ages and earnings comparisons become tougher, careful
security selection and opportunistic investing take on added significance. Our
investment approach and philosophy emphasize proactive, fundamental credit
research combined with bottom-up security selection in stable-to-improving
sectors. We think our approach will serve the Fund well in the market
environment we foresee: yield spreads between corporates and Treasurys holding
steady to slightly wider. Against the backdrop of slowing but still above-trend
economic growth and low inflationary pressure, we expect the 30-year Treasury
bond to trade within a 5.50-6.00% range.
3
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER HIGH INCOME
FUND
FUND PROFILE
- - GOAL:
High income
- - PORTFOLIO MANAGER:
Thomas Libassi,
Mitchell Hutchins Asset
Management Inc.
- - TOTAL NET ASSETS:
$640.6 million as of
May 31, 1998
- - DIVIDEND PAYMENTS:
Monthly
PAINEWEBBER
HIGH INCOME
FUND
Credit quality as percent
of net assets,
May 31, 1998*
<TABLE>
<S> <C>
BB & Higher 25.0%
B 42.1%
CCC & Lower 8.2%
Nonrated 16.5%
Equity/Preferred 5.9%
Cash & Cash Equivalents 2.3%
</TABLE>
*Allocations subject to change
- --------------------------------------------------------------------------------
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE--
The Fund's total return (the net asset value change with dividends
reinvested) for the six-month period ended May 31, 1998, without deducting sales
charges, was 6.51% for Class A shares, 6.12% for Class B shares and 6.24% for
Class C shares.
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, Class A shares gained 2.22%, Class B shares gained
1.12% and Class C shares gained 5.49%.
PORTFOLIO HIGHLIGHTS--
The high-yield market was the best performing fixed income sector from the
beginning of the six-month period until mid-April. High demand for high-yield
debt created opportunity for issuers, and more than 170 new issuers entered the
market during April and May -- an average of four per day. The resulting supply
bulge dragged down prices, transforming the high-yield sector from a seller's to
a buyer's market. Yield spreads to Treasurys widened from 340 to 385 basis
points. (A basis point equals 1/100 of one percent.)
The Fund began the period underweighted in energy issuers (2.8% of net
assets on November 30, 1997) versus its benchmark, the Credit Suisse First
Boston High Yield Index (the "Index"). As oil prices declined, the sector
cheapened and better-quality names with good fundamentals became more
affordable. By period-end we had increased the Fund's energy holdings to 8.4% of
net assets, an overweighting versus the Index. The Fund's energy holdings
consist entirely of oil-service companies. Among our favorites is Grant
Geophysical (1.2%), which produces 3-D seismic studies that reduce the cost of
oil exploration.
We reduced our media holdings during the period, from 11.2% on November 30,
1997 to 7.7% on May 31, 1998. Our ongoing strategy of reducing exposure to
newspaper companies accounted for part of this reduction. We also eliminated
several positions in Mexican issuers that did not compensate us sufficiently for
the risk of the Mexican market.
OUTLOOK--
We do not plan to change our portfolio strategy over the next six months,
though we may take advantage of tactical opportunities to enhance yield by
increasing the Fund's holdings of B-rated securities.
We are looking to buy the debt of industry consolidators in the belief that
as these companies expand and cut costs their securities will gain value. The
Fund's holdings now include Packaged Ice (1.5% of net assets on May 31, 1998),
the biggest distributor of manufactured ice in the United States, and Verio
(1.1%), an Internet service provider that is reducing expenses by putting
acquired providers on a common Internet backbone.
High-yield prices have gotten low enough that bank loans offer an
attractive alternative to issuing debt. We therefore expect the wave of new
issuance to subside by July as opportunistic issuers drop out of the market. We
believe that yield spreads to Treasurys should tighten again as supply falls.
4
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND,
U.S. GOVERNMENT INCOME FUND, INVESTMENT GRADE INCOME FUND
& HIGH INCOME FUND
SEMIANNUAL REPORT
GENERAL OUTLOOK
- --------------------------------------------------------------------------------
[GRAPHIC]
We remain bullish on bonds despite recent volatility in the marketplace.
The demand for U.S. debt remains high as the "flight to quality" continues. We
believe the Federal Reserve will hold monetary policy steady for the foreseeable
future due to the offsetting forces of a strong domestic economy and weak
international economies, particularly in Asia.
The U.S. economy has grown significantly above trend in the first half of
1998, while the Asian turmoil has kept inflation in check. Recent declines in
Asia could slow U.S. growth but we still think U.S. gross domestic product will
grow above trend, perhaps 2.0-2.5% for the second half of the year. Inflation
still is likely to remain low, particularly in the manufacturing sector where
Asian goods now hold a price advantage over U.S. goods.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have.
For a quarterly FUND PROFILE on the PaineWebber Low Duration U.S.
Government Income Fund, the PaineWebber U.S. Government Income Fund, the
PaineWebber Investment Grade Income Fund, the PaineWebber High Income Fund or
other funds in the PaineWebber Family of Funds,(1) please contact your
investment executive.
Sincerely,
/s/ Margo Alexander /s/ Julieanna M. Berry /s/ James F. Keegan
MARGO ALEXANDER JULIEANNA M. BERRY JAMES F. KEEGAN
President Portfolio Manager Portfolio Manager
Mitchell Hutchins PaineWebber Investment PaineWebber Investment
Asset Management Inc. Grade Income Fund Grade Income Fund
(1) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
5
<PAGE>
SEMIANNUAL REPORT
/s/ Thomas J. Libassi /s/ William C. Powers
THOMAS J. LIBASSI WILLIAM C. POWERS
Portfolio Manager Managing Director
PaineWebber Pacific Investment
High Income Fund Management Company
Portfolio Manager
PaineWebber Low Duration
U.S. Government Income Fund
/s/ Nirmal Singh /s/ Craig M. Varrelman
NIRMAL SINGH CRAIG M. VARRELMAN
Portfolio Manager Portfolio Manager
PaineWebber U.S. Government PaineWebber U.S. Government
Income Fund Income Fund
This letter is intended to assist shareholders in understanding how the
Funds performed during the six-month period ended May 31, 1998, and reflects our
views at the time we are writing this report. Of course, these views may change
in response to changing circumstances. We encourage you to consult your
investment executive regarding your personal investment program.
6
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
---------------------------------------- -----------------------------------
12 MONTHS ENDED 6 MONTHS
05/31/98 11/30/97 05/31/97 05/31/98 ENDED 05/31/98
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Class A Shares $9.00 $8.94 $8.64 10.44% 3.59%
- ---------------------------------------------------------------------------------------------------------------
Class B Shares 9.00 8.94 8.65 9.47 3.18
- ---------------------------------------------------------------------------------------------------------------
Class C Shares 8.99 8.93 8.64 9.77 3.33
- ---------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------
1997 8.74 9.00 -- 0.5355 9.44
- ---------------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 9.00 9.00 -- 0.1903 2.13
- ---------------------------------------------------------------------------------------------------------------
Total: $0.0080 $10.7972
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 190.64%
- ---------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
---------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED 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
- ---------------------------------------------------------------------------------------------------------------
1997 8.74 9.00 -- 0.4687 8.61
- ---------------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 9.00 9.00 -- 0.1638 1.83
- ---------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $3.7505
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 40.98%
- ---------------------------------------------------------------------------------------------------------------
</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.
7
<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
- ----------------------------------------------------------------------------------------------------------
1997 8.73 8.99 -- 0.4910 8.90
- ----------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 8.99 8.99 -- 0.1732 1.94
- ----------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 3.1922
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 25.05%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
----------------------------------- -----------------------------------
CLASS CLASS
----------------------------------- -----------------------------------
A* B** C*** A* B** C***
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Twelve Months Ended 06/30/98 10.40% 9.52% 9.84% 6.02% 4.52% 9.09%
- -----------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/98 4.16 3.36 3.63 3.32 3.05 3.63
- -----------------------------------------------------------------------------------------------------------
Ten Years Ended 06/30/98 7.04 N/A N/A 6.60 N/A N/A
- -----------------------------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/98+ 8.10 5.20 3.99 7.79 5.20 3.99
- -----------------------------------------------------------------------------------------------------------
</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
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the six months ended May
31, 1998 and since inception, September 11, 1991 through May 31, 1998, Class Y
shares have a total return of 3.74% and 43.83%, respectively. For the twelve
months ended June 30, 1998 and for the period since inception, September 11,
1991 through June 30, 1998, Class Y shares have an average annual total return
of 10.73% and 5.67%, 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 LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
----------------------------------- -------------------------------
12 MONTHS 6 MONTHS
05/31/98 11/30/97 05/31/97 ENDED 05/31/98 ENDED 05/31/98
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Class A Shares $ 2.38 $ 2.37 $ 2.34 7.37% 3.18%
- ------------------------------------------------------------------------------------------------------
Class B Shares 2.38 2.37 2.34 6.52 2.77
- ------------------------------------------------------------------------------------------------------
Class C Shares 2.38 2.37 2.34 6.75 2.88
- ------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<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 -- $ 0.0812 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
- ------------------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1201 7.05
- ------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 2.37 2.38 -- 0.0486 2.49
- ------------------------------------------------------------------------------------------------------
Totals: $0.0000 $ 0.6433
- ------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 25.68%
- ------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<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 -- $ 0.0687 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
- ------------------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1025 6.19
- ------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 2.37 2.38 -- 0.0416 2.19
- ------------------------------------------------------------------------------------------------------
Totals: $0.0000 $ 0.5490
- ------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 20.68%
- ------------------------------------------------------------------------------------------------------
</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.
9
<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
- -----------------------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1073 6.43
- -----------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 2.37 2.38 -- 0.0434 2.27
- -----------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 0.5769
- -----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 22.15%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
% RETURN WITHOUT SALES % RETURN AFTER DEDUCTING
CHARGE MAXIMUM SALES CHARGE
------------------------ --------------------------
CLASS CLASS
------------------------ --------------------------
A* B** C*** A* B** C***
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Twelve Months Ended 06/30/98 7.55% 6.67% 7.01% 4.42% 3.67% 6.26%
- --------------------------------------------------------------------------------------
Five Years Ended 06/30/98 4.70 3.86 4.13 4.05 3.86 4.13
- --------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/98+ 4.65 3.81 4.08 4.01 3.81 4.08
- --------------------------------------------------------------------------------------
</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
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the six months ended May
31, 1998 and since inception, October 20, 1995 through May 31, 1998, Class Y
shares have a total return of 3.29% and 18.70%, respectively. For the six months
ended June 30, 1998 and for the period since inception, October 20, 1995 through
June 30, 1998, Class Y shares have an average annual return of 3.29% and 6.79%,
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
05/31/98 11/30/97 05/31/97 ENDED 05/31/98 ENDED 05/31/98
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Class A Shares $ 10.97 $ 10.85 $10.39 12.98% 4.53%
- ----------------------------------------------------------------------------------------------------------
Class B Shares 10.97 10.85 10.39 12.14 4.14
- ----------------------------------------------------------------------------------------------------------
Class C Shares 10.97 10.85 10.39 12.43 4.28
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
----------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID 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
- ----------------------------------------------------------------------------------------------------------
1997 10.46 10.92 -- 0.7403 11.93
- ----------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 10.92 10.97 -- 0.2729 2.99
- ----------------------------------------------------------------------------------------------------------
Totals: $ 0.0404 $ 12.0569
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 276.73%
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
----------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED 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
- ----------------------------------------------------------------------------------------------------------
1997 10.45 10.92 -- 0.6602 11.20
- ----------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 10.92 10.97 -- 0.2422 2.70
- ----------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 4.7689
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 76.93%
- ----------------------------------------------------------------------------------------------------------
</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
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.
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
- ------------------------------------------------------------------------------------------------------------
1997 10.46 10.92 -- 0.6872 11.37
- ------------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 10.92 10.97 -- 0.2530 2.80
- ------------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 4.0947
- ------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 54.67%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
--------------------------------- ----------------------------------
CLASS CLASS
--------------------------------- ----------------------------------
A* B** C*** A* B** C***
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Twelve Months Ended 06/30/98 12.66% 11.70% 12.10% 8.13% 6.70% 11.35%
- -------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/98 7.44 6.64 6.93 6.57 6.33 6.93
- -------------------------------------------------------------------------------------------------------
Ten Years Ended 06/30/98 9.52 N/A N/A 9.08 N/A N/A
- -------------------------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/98+ 10.16 8.70 7.77 9.84 8.70 7.77
- -------------------------------------------------------------------------------------------------------
</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
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. Since inception, February 20,
1998 through May 31, 1998 and since inception through June 30, 1998, Class Y
shares had a total return of 1.57% and 2.89%, 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.
12
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
-------------------------------------- -------------------------------
12 MONTHS 6 MONTHS
05/31/98 11/30/97 05/31/97 ENDED 05/31/98 ENDED 05/31/98
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Class A Shares $7.80 $7.63 $7.44 14.10% 6.51%
- -------------------------------------------------------------------------------------------------------
Class B Shares 7.80 7.63 7.44 13.27 6.12
- -------------------------------------------------------------------------------------------------------
Class C Shares 7.81 7.64 7.45 13.54 6.24
- -------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------
1997 7.39 7.64 -- 0.6727 12.98
- -------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 7.64 7.80 -- 0.2375 5.23
- -------------------------------------------------------------------------------------------------------
Totals: $0.0825 $ 13.9024
- -------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 336.58%
- -------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
--------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED 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
- -------------------------------------------------------------------------------------------------------
1997 7.38 7.64 -- 0.6163 12.31
- -------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 7.64 7.80 -- 0.2160 4.95
- -------------------------------------------------------------------------------------------------------
Totals: $0.0000 $5.2336
- -------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 126.19%
- -------------------------------------------------------------------------------------------------------
</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
- ---------------------------------------------------------------------------------------------------------
1997 7.40 7.65 -- 0.6360 12.42
- ---------------------------------------------------------------------------------------------------------
01/01/98-05/31/98 7.65 7.81 -- 0.2236 5.04
- ---------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 4.3459
- ---------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/98: 75.46%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
% RETURN WITHOUT SALES % RETURN AFTER DEDUCTING
CHARGE MAXIMUM SALES CHARGE
--------------------------- -------------------------
CLASS CLASS
--------------------------- -------------------------
A* B** C*** A* B** C***
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Twelve Months Ended 06/30/98 11.74% 10.76% 11.18% 7.32% 5.76% 10.43%
- ----------------------------------------------------------------------------------------
Five Years Ended 06/30/98 8.07 7.27 7.53 7.19 6.99 7.53
- ----------------------------------------------------------------------------------------
Ten Years Ended 06/30/98 10.75 N/A N/A 10.31 N/A N/A
- ----------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/98+ 11.23 12.34 9.79 10.90 12.34 9.79
- ----------------------------------------------------------------------------------------
</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
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. Since inception, February 20,
1998 through May 31, 1998, and since inception through June 30, 1998, Class Y
shares had a total return of 1.96% and 1.86%, 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.
14
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------------- ----------------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--28.44%
$ 65,186+ U.S. Treasury Bonds........... 05/15/04 to 11/15/24 7.500 to 12.375% $ 85,052,807
12,815 U.S. Treasury Notes........... 12/31/99 to 01/31/03 5.500 to 5.625 12,815,071
------------
Total U.S. Government Obligations
(cost--$96,089,645)..................... 97,867,878
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--5.63%
4,719 GNMA.......................... 11/15/17 8.500 5,037,143
240 GNMA.......................... 10/15/16 to 05/15/18 9.000 259,746
85 GNMA.......................... 08/15/17 9.500 92,552
1,457 GNMA.......................... 4/15/15 11.000 1,613,247
10,730 GNMA.......................... 09/15/20 11.500 12,064,453
302 GNMA 30 year TBA.............. TBA 7.500 310,604
------------
Total Government National Mortgage
Association Certificates
(cost--$19,070,490)..................... 19,377,745
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--8.79%
296 FHLMC......................... 03/01/09 6.500 298,848
158 FHLMC......................... 08/01/25 7.000 160,104
11,365 FHLMC......................... 04/01/25 9.000 12,204,308
2,303 FHLMC......................... 12/01/05 10.500 2,468,813
5,197+ FHLMC......................... 01/01/16 11.000 5,850,549
4,109 FHLMC......................... 10/01/16 11.500 4,672,224
4,411+ FHLMC CMT ARM................. 10/01/23 7.851 4,594,421
------------
Total Federal Home Loan Mortgage
Corporation Certificates
(cost--$29,993,767)..................... 30,249,267
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATIONS--18.33%
9,878 FNMA.......................... 09/01/25 8.500 10,421,025
2,297 FNMA.......................... 05/01/09 9.000 2,448,088
11,200 FNMA 30 year TBA COFI ARM..... TBA 6.100 11,263,000
34,985 FNMA 30 year TBA.............. TBA 6.500 34,766,346
102 FNMA 15 year TBA.............. TBA 7.500 105,227
3,952 FNMA 30 year TBA.............. TBA 7.500 4,062,178
------------
Total Federal National Mortgage
Association Certificates
(cost--$62,660,388)..................... 63,065,864
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--21.62%
5,387 Amresco Commercial Mortgage
Funding I Corporation,
Series 1997-C1, Class A1.... 06/17/29 6.730 5,434,854
190 Collateralized Mortgage
Obligation Trust, Series 14,
Class Z..................... 01/01/17 8.000 190,956
773 CS First Boston Mortgage
Securities Corp., Series
1995-WF1, Class A1.......... 12/21/27 6.452 775,160
2,371 CS First Boston Mortgage
Securities Corp. Series
1997-2A..................... 06/01/20 7.500 2,439,447
2,782 DLJ Mortgage Acceptance Corp.,
Series 1997-CF1, Class
A1A......................... 05/15/06 7.400 2,912,896
3,302 FDIC REMIC Trust, 1996-C1,
Class 1A.................... 05/25/26 6.750 3,330,339
6,734 FNMA REMIC Series 1987-2,
Class Z..................... 11/25/17 11.000 7,574,571
5,000 FNMA REMIC Series 1993-87,
Class J..................... 04/25/22 6.250 4,934,048
1,171 FNMA REMIC Series 1996-M6,
Class E..................... 09/17/19 7.750 1,180,270
5,057 GMAC Commercial Mortgage
Securities, Inc., Series
1996-C1, Class A2A.......... 09/15/03 6.790 5,170,588
6,640 GMAC Commercial Mortgage
Securities, Inc., Series
1997-C2, Class A1........... 12/15/04 6.451 6,735,964
6,133 Merrill Lynch Mortgage
Investors, Inc., Series
1996-C1, Class A1........... 04/25/28 7.150 6,321,606
5,790 Morgan Stanley Capital I
Incorporated, Series
1997-WF1, Class A1.......... 10/15/06 6.830 5,952,610
4,000 Morgan Stanley Capital I
Series 1997-ALIC, Class
A1B......................... 11/05/02 6.440 4,052,200
</TABLE>
15
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------------- ----------------- ------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (CONCLUDED)
$ 4,935 Mortgage Capital Funding,
Inc., Series 1998-MC1, Class
A2.......................... 01/18/08 6.663 % $ 5,063,002
12,000 Nomura Asset Securities
Corporation Series 1998-D6,
Class A1B................... 03/15/30 6.590 12,303,720
------------
Total Collateralized Mortgage Obligations
(cost--$73,233,836)..................... 74,372,231
------------
U.S. GOVERNMENT AGENCY BACKED NOTES--20.55%
18,915 Federal Home Loan Mortgage
Corporation................. 03/18/08 6.220 18,882,542
11,000 Federal National Mortgage
Association................. 02/11/04 6.830 11,168,894
20,000 Federal National Mortgage
Association Discount
Notes....................... 06/01/98 5.450 @ 20,000,000
20,000 Federal National Mortgage
Association Medium Term
Note........................ 09/04/07 6.970 20,666,360
------------
Total U.S. Government Agency Backed Notes
(cost--$69,722,102)..................... 70,717,796
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF
OPTIONS
- ---------
<C> <S> <C> <C> <C>
OPTIONS--0.02%
300 CBT U.S. Treasury 5 year Note
(Call); par value
$30,000,000;
exercise price 109.50;
expiring June 1998,
(cost--$53,363)............. 06/19/98 0.000 65,625
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)
- ---------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS--9.57%
$ 16,428 Repurchase Agreement dated
05/29/98 with Dresdner Bank,
collateralized by
$15,746,000 U.S. Treasury
Notes, 7.750% due 12/31/99
(value-- $16,758,468);
proceeds: $16,435,557....... 06/01/98 5.520 16,428,000
16,500 Repurchase Agreement dated
05/29/98 with Salomon
Brothers Incorporated,
collateralized by
$12,204,000 U.S. Treasury
Bonds, 8.875% due 02/15/19
(value--$16,837,249);
proceeds: $16,507,604....... 06/01/98 5.530 16,500,000
------------
Total Repurchase Agreements
(cost--$32,928,000)..................... 32,928,000
------------
Total Investments (cost--$383,751,591)
112.95%................................. 388,644,406
Liabilities in excess of other
assets--(12.95)%........................ (44,576,537)
------------
Net Assets--100.00%....................... $344,067,869
------------
------------
</TABLE>
- -----------------
@ Yield to maturity for discounted securities.
+ Security, or portion thereof, was pledged as collateral for futures and
written options transactions.
ARM Adjustable Rate Mortgage Security, the interest rate shown is the current
rate at May 31, 1998.
CBT Chicago Board of Trade.
COFI Eleventh District Federal Home Loan Bank Cost of Funds Index.
CMT Constant Maturity Treasury.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with approximately (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.
16
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
WRITTEN OPTIONS
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION EXERCISE
OPTIONS UNDERLYING CONTRACT DATE PRICE VALUE
--------- ---------------------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Call (Premiums
Received--$49,400).......... 100 CBT U.S. Treasury Bond July 98 $122.00 $64,063
-------
-------
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO RECEIVE EXCHANGE FOR DATE APPRECIATION
- --------- ---------------------------------------- ------------ ---------- ------------
<C> <S> <C> <C> <C>
481 5 year U.S. Treasury Notes.............. $52,478,406 Sept 98 $ 63,328
100 30 year U.S. Treasury Bonds............. 12,125,782 Sept 98 24,219
------------
$ 87,547
------------
------------
</TABLE>
See accompanying notes to financial statements
17
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--1.71%
$2,532 U.S. Treasury Inflation Index Notes
(cost--$2,530,316).............................. 07/15/02 3.625% $2,502,503
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--24.18%
147 GNMA.............................................. 02/15/23 8.000 152,432
8,702 GNMA.............................................. 01/15/16 to 09/15/20 10.500 9,542,484
4,748 GNMA.............................................. 03/15/10 to 05/15/19 11.500 5,338,590
14,391 GNMA II ARM....................................... 04/20/26 6.500 14,654,151
1,594 GNMA II ARM....................................... 01/20/18 6.875 1,632,923
3,913 GNMA II ARM....................................... 12/20/22 to 12/20/23 7.000 4,007,103
-------------
Total Government National Mortgage Association Certificates
(cost--$35,461,703).............................................. 35,327,683
-------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--34.05%
9,835 FHLMC............................................. 01/01/23 to 02/01/26 8.000 10,204,219
3,202 FHLMC............................................. 05/01/16 8.500 3,343,765
427 FHLMC............................................. 07/01/09 to 02/01/10 9.000 453,305
1,157 FHLMC............................................. 11/01/16 9.750 1,255,458
814 FHLMC............................................. 10/01/20 to 11/01/20 10.500 900,735
2,675 FHLMC............................................. 05/01/11 to 12/01/20 11.000 3,025,725
2,073 FHLMC............................................. 06/01/04 to 07/01/19 11.500 2,365,147
29,000 FHLMC 30 year TBA................................. TBA 6.000 28,193,452
-------------
Total Federal Home Loan Mortgage Corporation Certificates
(cost--$49,100,584).............................................. 49,741,806
-------------
FEDERAL HOUSING ADMINISTRATION CERTIFICATES--2.45%
3,487 FHA (cost--$3,581,611)............................ 10/01/28 9.680 3,573,777
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--47.61%
2,358 FNMA.............................................. 02/01/05 9.000 2,470,582
4,186 FNMA.............................................. 04/01/10 to 12/01/15 9.250 4,453,229
538 FNMA.............................................. 03/01/06 to 12/01/09 9.500 575,078
875 FNMA.............................................. 04/01/10 to 06/01/19 10.250 962,744
2,048 FNMA.............................................. 11/01/10 to 04/01/22 10.500 2,241,102
2,867 FNMA.............................................. 07/01/13 to 05/01/20 11.000 3,258,911
4,071 FNMA ARM.......................................... 07/01/18 to 03/01/29 6.218 4,104,469
7,233 FNMA ARM.......................................... 08/01/26 to 05/01/36 6.237 7,267,050
1,034 FNMA ARM.......................................... 08/01/24 6.239 1,044,898
15,786 FNMA ARM.......................................... 05/01/36 6.240 15,881,950
2,647 FNMA ARM.......................................... 09/01/15 7.023 2,761,230
6,318 FNMA ARM.......................................... 09/01/26 7.100 6,424,629
18,000 FNMA COFI ARM 30 year TBA......................... TBA 6.200 18,101,250
-------------
Total Federal National Mortgage Association Certificates
(cost--$68,844,922).............................................. 69,547,122
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS--5.63%
3,000 Money Store Home Equity Trust, Series 1997-D,
Class AF3....................................... 11/15/21 6.345 3,012,240
1,599 Resolution Trust Corporation, Series 1994-1, Class
A2A, REMIC...................................... 09/25/29 7.750 1,601,919
3,406 Ryland Mortgage Acceptance Corporation, Series 76,
Class B, REMIC.................................. 08/01/18 9.000 3,613,871
-------------
Total Collateralized Mortgage Obligations (cost--$7,939,005)....... 8,228,030
-------------
</TABLE>
18
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY BACKED NOTES--5.47%
$2,100 Federal Home Loan Mortgage Discount Notes......... 06/10/98 5.400 to 5.440% $2,097,159
5,900 Federal National Mortgage Association Discount
Notes........................................... 06/10/98 5.450 5,891,961
-------------
Total U.S. Government Agency Backed Notes (cost--$7,989,120)....... 7,989,120
-------------
COMMERCIAL PAPER @--5.12%
900 American Express Credit Corporation............... 06/10/98 5.520 898,758
1,100 Bellsouth Telecommunications Incorporated......... 06/18/98 5.500 1,097,143
600 Dupont E. I. De Nemours & Company................. 06/03/98 5.480 599,817
600 Emerson Electric.................................. 06/15/98 5.490 598,719
2,400 Ford Motor Credit Company......................... 06/04/98 to 07/02/98 5.500 2,393,351
700 General Motors Acceptance Corporation............. 06/03/98 to 06/10/98 5.510 699,250
1,200 IBM Credit Corporation............................ 06/10/98 5.500 1,198,350
-------------
Total Commercial Paper (cost--$7,485,804).......................... 7,485,388
-------------
SHORT-TERM U.S. GOVERNMENT OBLIGATIONS @--0.01%
10 U.S. Treasury Bills (cost $9,928)................. 07/23/98 5.010 9,928
-------------
REPURCHASE AGREEMENT--5.06%
3,500 Repurchase Agreement dated 5/29/98 with Credit
Suisse First Boston
Incorporated, collateralized by $3,457,000
U.S. Treasury Notes, 6.25%
due 05/31/99 (value--$3,586,522); proceeds
$3,501,590...................................... 06/01/98 5.450 3,500,000
3,000 Repurchase Agreement dated 5/29/98 with Daiwa
Securities America
Incorporated, collateralized by $2,939,000
U.S. Treasury
Notes, 6.25% due 05/31/00 (value--$3,067,483);
proceeds: $3,001,382.......................... 06/01/98 5.530 3,000,000
896 Repurchase Agreement dated 5/29/98 with State
Street Bank & Trust
Company, collateralized by $670,000 U.S.
Treasury Bonds,
8.875% due 08/15/17 (value--$913,986);
proceeds: $896,373.............................. 06/01/98 5.000 896,000
-------------
Total Repurchase Agreement (cost--$7,396,000)...................... 7,396,000
-------------
Total Investments (cost--$190,338,993)--131.29%.................... 191,801,357
Liabilities in excess of other assets--(31.29)%.................... (45,713,360)
-------------
Net Assets--100.00%................................................ $ 146,087,997
-------------
-------------
</TABLE>
- -----------------
@ Yield to maturity for discounted securities.
ARM Adjustable Rate Mortgage Security; the interest rate shown is the current
rate at May 31, 1998.
REMIC Real Estate Mortgage Investment Conduit.
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.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO DELIVER EXCHANGE FOR DATE DEPRECIATION
- --------- -------------------------------------------------- ------------ ------------ ------------
<C> <S> <C> <C> <C>
2 5 year U.S. Treasury Notes........................ 218,727 Sept. 98 $258
------------
------------
</TABLE>
19
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--83.21%
AIRLINES--2.47%
$5,200 Delta Air Lines
Incorporated................ 12/15/22 10.375% $7,188,111
-------------
BANKING--11.29%
8,000 BT Institutional Capital Trust
A........................... 12/01/26 8.090 8,473,584
5,000 Citicorp...................... 11/01/04 8.625 5,167,335
5,000 Greenpoint Capital Trust I.... 06/01/27 9.100 5,616,735
7,000 Providian Capital I........... 02/01/27 9.525 7,889,084
5,000 Southtrust Bank Alabama....... 05/15/25* 7.690 5,702,795
-------------
32,849,533
-------------
BROKER/DEALER--5.05%
3,000 Credit Suisse First Boston.... 05/01/08 6.500 3,002,493
5,000 Donaldson Lufkin & Jenrette
Securities Corporation...... 11/01/05 6.875 5,132,210
5,800 Lehman Brothers
Incorporated................ 05/01/07 8.500 6,565,838
-------------
14,700,541
-------------
BUILDING PRODUCTS/CEMENT--1.75%
5,000 Owens Corning................. 05/01/08 7.700 5,099,905
-------------
CABLE/COMMUNICATIONS--4.75%
7,000 TCI Communications
Incorporated................ 03/31/27 9.650 8,328,040
5,000 TKR Cable Incorporated........ 10/30/07 10.500 5,496,665
-------------
13,824,705
-------------
DIVERSIFIED/MANUFACTURING--2.41%
7,000 Mark IV Industries
Incorporated................ 09/01/07 7.500 7,022,694
-------------
FINANCIAL SERVICES--4.19%
3,750 Macsaver Financial Services
Incorporated................ 02/15/02 7.400 3,645,773
8,000 MBNA Corporation.............. 12/01/26 8.278 8,530,704
-------------
12,176,477
-------------
HEALTHCARE--5.29%
3,500 Columbia/HCA Healthcare
Corporation................. 02/10/10 8.700 3,722,957
7,000 MedPartners Incorporated...... 09/01/00 6.875 6,573,868
5,000 Tenet Healthcare
Corporation................. 01/15/03 7.875 5,100,000
-------------
15,396,825
-------------
HOTELS/GAMING--4.25%
3,443 Circus Circus Enterprises
Incorporated................ 07/15/03 6.750 3,318,253
4,000 HMH Properties Incorporated... 05/15/05 9.500 4,320,000
4,700 MGM Grand Incorporated........ 02/01/05 6.950 4,713,179
-------------
12,351,432
-------------
INSURANCE--9.61%
1,600 Chubb Corporation............. 11/15/99 8.750 1,620,258
5,000 Lumbermans Mutual Casualty
Company..................... 07/01/26 9.150 5,994,060
3,000 Markel Capital Trust.......... 01/01/46 8.710 3,340,488
3,000 Orion Capital Trust I......... 01/01/37 8.730 3,225,855
6,000 Prudential Insurance Company
of America.................. 07/01/25 8.300 6,900,300
4,000 USF&G Corporation............. 07/01/46 8.312 4,658,580
</TABLE>
20
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONCLUDED)
INSURANCE (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$ 2,000 Zurich Capital Trust.......... 06/01/37 8.376% $ 2,203,902
-------------
27,943,443
-------------
MEDIA--4.97%
10,000 News America Holdings
Incorporated................ 10/15/12 to 10/17/96 7.900 to 10.125 11,264,720
3,000 Time Warner Incorporated...... 01/15/08 7.480 3,202,479
-------------
14,467,199
-------------
OIL/GAS--1.42%
3,750 Occidental Petroleum
Corporation................. 06/01/19 11.125 4,122,075
-------------
OPTICAL--1.37%
4,000 Sola International
Incorporated................ 03/15/08 6.875 3,978,756
-------------
PAPER & PAPER PRODUCTS--1.05%
3,000 Abitibi Consolidated
Incorporated................ 04/01/28 7.500 3,061,581
-------------
PRINTING/PUBLISHING--1.21%
3,450 Valassis Inserts
Incorporated................ 03/15/99 9.375 3,514,756
-------------
RETAIL--4.91%
5,000 Fred Meyer Incorporated....... 03/01/05 7.375 5,046,600
5,950 May Department Stores
Company..................... 06/15/21 9.875 6,784,011
2,000 Shopko Stores................. 03/15/22 9.250 2,444,890
-------------
14,275,501
-------------
TELEPHONE COMPANIES & TELECOMMUNICATIONS--1.86%
5,000 Pacific Bell.................. 08/15/31 8.500 5,399,745
-------------
TOBACCO/FOOD--2.57%
7,000 Phillip Morris Companies
Incorporated................ 01/15/27 7.750 7,464,709
-------------
UTILITIES--4.57%
5,000 Commonwealth Edison Company... 06/15/20 9.875 5,884,630
7,000 Cooperative Utilities......... 03/15/19 9.520 7,397,453
-------------
13,282,083
-------------
YANKEE--8.22%
10,300 Loewen Group International
Incorporated................ 10/15/03 to 06/01/08 7.600 to 8.250 10,526,455
5,000 Rogers Cantel Incorporated.... 06/01/08 9.375 5,162,500
4,065 Royal Caribbean Cruises
Limited..................... 10/15/27 7.500 4,217,722
4,000 Socgen Real Estate LLC........ 12/29/49 7.640 4,012,548
-------------
23,919,225
-------------
Total Corporate Bonds (cost--$229,287,424)..... 242,039,296
-------------
U.S. GOVERNMENT OBLIGATIONS--8.15%
23,265 United States Treasury Notes
(cost--$23,554,323)+(1)..... 09/30/00 to 05/15/05 5.875 to 6.500 23,719,304
-------------
</TABLE>
21
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--1.50%
$ 4,500 FNMA 30 year TBA
(cost--$4,331,250).......... TBA 6.000% $ 4,366,409
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--2.16%
5,952 GNMA (cost--$6,282,854)....... 06/15/17 to 11/15/17 8.000 6,270,266
-------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -------------
<C> <S> <C> <C> <C>
PREFERRED STOCK--1.50%
FINANCE--1.50%
160,000 California Federal Preferred
Capital Corporation
(cost--$4,000,000).......... 9.125 4,360,000
-------------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
- -------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--3.84%
$ 11,187 Repurchase Agreement dated
05/29/98 with State Street
Bank & Trust Company,
collateralized by $9,955,000
U.S. Treasury Bonds, 8.375%
due 08/15/08
(value--$11,410,919);
proceeds: $11,192,127
(cost--$11,187,000)......... 06/01/98 5.500 11,187,000
-------------
Total Investments
(cost--$278,642,851)--100.36%................ 291,942,275
(1,051,215)
Liabilities in excess of other
assets--(0.36)%................................
-------------
Net Assets--100.00%............................ $ 290,891,060
-------------
-------------
</TABLE>
- -----------------
* Maturity date reflects earliest date bonds can be put back to issuer
+ Security, or portion thereof, was pledged as collateral for futures
transtions
(1) Security, or portion thereof, was on loan at May 31, 1998
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO DELIVER EXCHANGE FOR DATE DEPRECIATION
- ---------- ------------------------------ ------------ ------------ ------------
<C> <S> <C> <C> <C>
48 30 year U.S. Treasury Bonds... $ 5,772,000 Sept 98 $ 60,000
------------
------------
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--80.56%
AIRLINES--1.04%
$6,000 Airplane Pass Through Trust... 03/15/19 10.875% $6,690,000
-------------
CABLE--6.21%
17,000# Knology Holdings
Incorporated................ 10/15/07 11.875+ 10,030,000
9,250 NTL Incorporated**............ 04/01/08 9.750+ 6,000,938
5,750# Park N View Incorporated**.... 05/15/08 13.000 5,793,125
5,750 RCN Corporation............... 10/15/07 11.125+ 3,780,625
12,750 21st Century
Telecommunications
Group**..................... 02/15/08 12.250+ 7,299,375
10,000 UIH Australia Pacific
Incorporated................ 05/15/06 14.000+ 6,900,000
-------------
39,804,063
-------------
CHEMICALS--0.48%
3,000 American Pacific
Corporation**............... 03/01/05 9.250 3,097,500
-------------
COMMUNICATIONS--14.25%
8,500# Allegiance Telecom
Incorporated**.............. 02/15/08 11.750+ 4,717,500
6,300 Barak I.T.C. International
Telecom**................... 11/15/07 12.500+ 3,780,000
9,000 Colt Telecom Group PLC........ 12/15/06 12.000+ 7,110,000
5,305 E. Spire Communications
Incorporated................ 11/01/05 13.000+ 4,376,624
3,750 Facilicom International
Incorporated**.............. 01/15/08 10.500 3,731,250
11,215 GST Equipment Funding
Incorporated................ 05/01/07 13.250 12,897,250
8,500 Hyperion Telecommunications
Incorporated................ 04/15/03 13.000+ 6,247,500
5,095 ITC Deltacom Incorporated..... 03/01/08 8.875 5,222,374
950 Mastec Incorporated**......... 02/01/08 7.750 897,750
2,750 Nextel Communications
Incorporated**.............. 02/15/08 9.950+ 1,735,937
19,750 Nextel International
Incorporated**.............. 04/15/08 12.125+ 11,800,625
6,750# Pathnet Incorporated**........ 04/15/08 12.250 7,357,500
2,100 PSI Net Incorporated**........ 02/15/05 10.000 2,131,500
06/15/04 and
5,000 Verio Incorporated**.......... 04/01/05 10.375 and 13.500 5,620,000
12,250# Viatel Incorporated........... 04/15/08 12.500+ 7,288,750
10,000# Wam! Net Incorporated**....... 03/01/05 13.250+ 6,400,000
-------------
91,314,560
-------------
CONSUMER MANUFACTURING--4.84%
3,365 Apparel Ventures
Incorporated................ 12/31/00 12.250 3,331,350
6,000 Commemorative Brands
Incorporated................ 01/15/07 11.000 6,180,000
4,000 Decora Industries
Incorporated**.............. 05/01/05 11.000 3,905,000
3,500 Desa International
Incorporated**.............. 12/15/07 9.875 3,543,750
3,980 EKCO Group Incorporated....... 04/01/06 9.250 4,179,000
1,250 IHF Holdings Inc.............. 11/15/04 15.000+ 1,012,500
3,750 Phillips Van-Heusen
Corporation**............... 05/01/08 9.500 3,745,313
17,000 Sunbeam Corporation**......... 03/25/03* 5.000(b) 5,121,250
-------------
31,018,163
-------------
ENERGY--7.17%
2,250 American Eco Corporation**.... 05/15/08 9.625 2,266,875
7,500 Grant Geophysical
Incorporated**.............. 02/15/08 9.750 7,462,500
4,625 Hvide Marine Incorporated..... 02/15/08 8.375 4,497,813
5,500 Northern Offshore ASA**....... 05/15/05 10.000 5,445,000
</TABLE>
23
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONTINUED)
ENERGY (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$8,000 Petroleos Mexicanos........... 09/15/27 9.500% $7,680,000
6,500 Transamerican Energy
Corporation................. 06/15/02 13.000+ 5,395,000
6,600# Transamerican Refining
Corporation**............... 06/30/03 16.000 6,930,000
6,250 Trico Marine Services
Incorporated................ 08/01/05 8.500 6,250,000
-------------
45,927,188
-------------
ENTERTAINMENT--2.22%
4,250 Discovery Zone Incorporated... 08/01/02 13.500 3,825,000
4,000 Silver Cinemas
Incorporated**.............. 04/15/05 10.500 4,040,000
6,270 United Artists Theatre
Circuit..................... 07/01/15 9.300 6,364,537
-------------
14,229,537
-------------
FINANCE--2.09%
900 Emergent Group
Incorporated**.............. 09/15/04 10.750 756,000
2,750 Metris Companies
Incorporated................ 11/01/04 10.000 2,873,750
3,750 Nationwide Credit
Incorporated**.............. 01/15/08 10.250 3,806,250
6,000 Olympic Financial Limited..... 03/15/07 11.500 5,970,000
-------------
13,406,000
-------------
FOOD & BEVERAGE--4.36%
5,000 Cuddy International
Corporation**............... 12/01/07 10.750 4,875,000
9,500 Iowa Select Farms L. P.**..... 12/01/05 10.750 9,500,000
5,000 Nuco2 Incorporated++.......... 10/31/04 12.000 4,975,000
8,500 Packaged Ice Incorporated**... 02/01/05 9.750 8,585,000
-------------
27,935,000
-------------
GENERAL INDUSTRIAL--2.77%
6,500 Jordan Telecommunication
Products.................... 08/01/07 9.875 6,662,500
5,750 Poindexter J.B.
Incorporated................ 05/15/04 12.500 5,893,750
3,000 Roller Bearing Company America
Incorporated................ 06/15/07 9.625 3,067,500
2,000 W.R. Carpenter North America
Incorporated................ 06/15/07 10.625 2,125,000
-------------
17,748,750
-------------
HEALTHCARE--0.78%
2,900 Integrated Health Services
Incorporated................ 01/15/08 9.250 2,972,500
2,000 Mediq Incorporated**.......... 06/01/08 11.000 2,035,000
-------------
5,007,500
-------------
HOTELS & LODGING--1.72%
5,000# Club Regina Resorts
Incorporated**.............. 12/01/04 13.000 5,400,000
5,750 Silverleaf Resorts
Incorporated................ 04/01/08 10.500 5,635,000
-------------
11,035,000
-------------
MEDIA--5.22%
7,500 Fox Family Worldwide
Incorporated................ 11/01/07 9.250 7,312,500
4,000 Globo Communicacoes
Participation**............. 12/05/08 10.625 3,860,000
5,000 Hollinger International
Publishing.................. 02/01/06 9.250 5,200,000
4,750 Impac Group Incorporated**.... 03/15/08 10.125 4,750,000
</TABLE>
24
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONTINUED)
MEDIA (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$7,000 Source Media Incorporated..... 11/01/04 12.000% $7,070,000
5,000 Sullivan Graphics
Incorporated................ 08/01/05 12.750 5,225,000
-------------
33,417,500
-------------
METALS & MINING--2.91%
4,125 AEI Holding Incorporated**.... 11/15/07 10.000 4,135,313
5,125 Metal Management
Incorporated**.............. 05/15/08 10.000 5,086,563
5,250 Murrin Murrin Holdings Party
Limited..................... 08/31/07 9.375 5,197,500
4,100 WCI Steel Incorporated........ 12/01/04 10.000 4,202,500
-------------
18,621,876
-------------
PACKAGING--3.19%
6,250 Bear Island Paper Company
LLC......................... 12/01/07 10.000 6,453,125
4,000 Four M Corporation............ 06/01/06 12.000 4,160,000
3,000 Portola Packaging
Incorporated................ 10/01/05 10.750 3,150,000
6,250 Vicap, S.A. de C.V.**......... 05/15/07 11.375 6,687,500
-------------
20,450,625
-------------
REAL ESTATE AND BUILDINGS--3.12%
6,500 American Architectural
Products**.................. 12/01/07 11.750+ 6,841,250
4,125 D.R. Horton Incorporated...... 06/15/04 8.375 4,166,250
3,875 Forest City Enterprises
Incorporated................ 03/15/08 8.500 3,875,000
5,000 U.S. Home Corporation......... 08/15/07 8.880 5,100,000
-------------
19,982,500
-------------
RESTAURANTS--0.47%
3,000 American Restaurant Group
Incorporated**.............. 02/15/03 11.500 3,000,000
-------------
RETAIL--5.50%
2,000 Advance Holding
Corporation**............... 04/15/09 12.875+ 1,160,000
3,250 Advance Stores Company
Incorporated**.............. 04/15/08 10.250 3,347,500
5,500 Barry's Jewelers
Incorporated................ 12/22/00 11.000(a) 3,300,000
4,750 Big 5 Corporation............. 11/15/07 10.875 4,940,000
4,750 Great American Cookie
Incorporated................ 01/15/01 10.875 4,916,250
3,750 Jafra Cosmetics International
Incorporated**.............. 05/01/08 11.750 3,750,000
5,000 Mrs. Fields Original**........ 12/01/04 10.125 4,912,500
5,000 Musicland Group
Incorporated**.............. 03/15/08 9.875 5,000,000
3,750 Tuesday Morning Corporation... 12/15/07 11.000 3,918,750
-------------
35,245,000
-------------
TECHNOLOGY--3.66%
3,000 Ampex Corporation**++......... 03/15/03 12.000 3,150,000
13,700 Electronic Retailing Systems
International............... 02/01/04 13.250+ 6,987,000
19,500 InterAct Systems
Incorporated................ 08/01/03 14.000+ 8,775,000
4,750 Samsung Electronics America
Incorporated**.............. 05/01/03 9.750 4,500,625
-------------
23,412,625
-------------
TRANSPORTATION, NON-AIR--6.68%
3,750 Atlantic Express
Transportation
Corporation................. 02/01/04 10.750 3,993,750
</TABLE>
25
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONCLUDED)
TRANSPORTATION, NON-AIR (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$7,000 Equimar Shipholdings
Limited..................... 07/01/07 9.875% $6,475,000
6,000 Greater Beijing First
Expressways**............... 06/15/04 9.250 4,380,000
5,000 Guangzhou Shen Superhighway... 08/15/07 10.250 3,762,500
4,000 Navigator Gas Transport
PLC**....................... 06/30/07 10.500 4,200,000
2,750# Navigator Gas Transport
PLC**....................... 06/30/07 12.000 3,148,750
3,500 Navistar International
Corporation................. 02/01/08 8.000 3,508,750
6,250 Stena AB...................... 06/15/07 8.750 6,375,000
10,540 TFM S.A. de C.V............... 06/15/09 11.750+ 6,930,050
-------------
42,773,800
-------------
UTILITIES--1.88%
5,750 Calpine Corporation........... 02/01/04 9.250 5,922,500
5,589 Panda Funding Corporation..... 08/20/12 11.625 6,091,518
-------------
12,014,018
-------------
Total Corporate Bonds (cost--$515,610,671)..... 516,131,205
-------------
CONVERTIBLE BONDS--2.90%
COMMUNICATIONS--0.40%
1,925 GST Telecommunciations
Incorporated................ 12/15/05 13.875+ 2,598,750
-------------
ENERGY--0.64%
5,075 Key Energy Group
Incorporated................ 09/15/04 5.000 4,110,750
-------------
GENERAL INDUSTRIAL--1.86%
5,450 Corporate Express
Incorporated................ 07/01/00 4.500 4,986,750
6,750 Waste Systems International
Incorporated**.............. 05/13/05 7.000 6,918,750
-------------
11,905,500
-------------
Total Convertible Bonds (cost--$17,280,904).... 18,615,000
-------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -------------
<C> <S> <C> <C> <C>
COMMON STOCK(A)--4.35%
COMMUNICATIONS--0.78%
50,175 Nextel Communications Incorporated....................................... 1,182,248
110,000 PSI Net Incorporated..................................................... 1,182,500
337,616 Viatel Incorporated...................................................... 2,616,524
-------------
4,981,272
-------------
FOOD & BEVERAGE--0.00%
240,000 Specialty Foods Corporation.............................................. 12,000
-------------
GAMING--1.39%
744,101 Casino America Incorporated.............................................. 2,976,404
768,570 Colorado Gaming & Entertainment Company.................................. 4,419,278
</TABLE>
26
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
COMMON STOCK(A) (CONCLUDED)
GAMING (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
541,666 Hollywood Casino Corporation............................................. $1,049,478
364,322 Lady Luck Gaming Corporation............................................. 455,402
-------------
8,900,562
-------------
GENERAL INDUSTRIAL--0.63%
1,400 Communications & Power................................................... 210,000
1,250 Jordan Telecommunication Products........................................ 312,500
390,963 Waste Systems International Incorporated................................. 3,518,667
-------------
4,041,167
-------------
MEDIA--0.23%
12,000 Affiliated Newspaper Investments......................................... 1,500,000
20,000 Tuesday Morning Corporation.............................................. 200
-------------
1,500,200
-------------
RETAIL--1.08%
201,289 Barry's Jewelers Incorporated............................................ 56,361
296,224 Signet Group PLC ADR..................................................... 6,850,180
-------------
6,906,541
-------------
SUPERMARKETS & DRUGSTORES--0.03%
6,435 Duane Reade Incorporated................................................. 162,886
-------------
TECHNOLOGY--0.21%
594,328 Ampex Corporation++...................................................... 1,337,238
-------------
Total Common Stock (cost--$17,984,910).................................................... 27,841,866
-------------
</TABLE>
<TABLE>
<C> <S> <C> <C> <C>
PREFERRED STOCK--8.55%
CABLE--0.17%
1,000 21st Century Telecommunications Group Incorporated**(a).................. 1,095,000
-------------
ENERGY--0.55%
75,000 EVI Incorporated(a)...................................................... 3,506,250
-------------
FINANCE--2.37%
5,500 Signet Capital Trust I................................................... 5,582,500
9,000 Superior National Insurance Group........................................ 9,585,000
-------------
15,167,500
-------------
FOOD & BEVERAGE--0.65%
41,125 Nebco Evans Holding Company**(a)......................................... 4,174,188
-------------
GENERAL INDUSTRIAL--0.94%
29,087 Communications & Power................................................... 3,185,026
1,250 Jordan Telecommunications Products(a).................................... 1,325,000
2,383 Waste Systems Service**(a)............................................... 1,525,118
-------------
6,035,144
-------------
</TABLE>
27
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
PREFERRED STOCK (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
HEALTHCARE--1.03%
6,750 Fresenius Medical Care Capital Trust**................................... $6,615,000
-------------
MEDIA--2.10%
85,491 Source Media Incorporated(a)............................................. 2,137,274
9,948 Time Warner Incorporated................................................. 11,290,980
-------------
13,428,254
-------------
RESTAURANTS--0.40%
2,500 American Restaurant Group Incorporated**(a).............................. 2,550,000
-------------
RETAIL--0.34%
20,559 Tuesday Morning Corporation(a)........................................... 2,184,441
-------------
Total Preferred Stock (cost--$49,396,871)................................................. 54,755,777
-------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS
- -------------
<C> <S> <C> <C> <C>
WARRANTS(A)--1.32%
AEROSPACE--0.02%
8,400 SabreLiner Corporation................................................... 126,000
-------------
CABLE--0.01%
10,000 UIH Australia Pacific Incorporated....................................... 50,000
-------------
COMMUNICATIONS--0.60%
9,000 Colt Telecom Group PLC................................................... 1,935,000
3,750 Globalstar Telecommunications............................................ 525,000
15,750 McCaw International Limited.............................................. 59,063
28,000 Verio Incorporated....................................................... 1,330,000
-------------
3,849,063
-------------
CONSUMER MANUFACTURING--0.23%
8,350 AVI Holdings Incorporated................................................ 41,750
14,000 IFA Capital Incorporated................................................. 1,400,000
-------------
1,441,750
-------------
ENTERTAINMENT--0.04%
4,250 Discovery Zone Incorporated.............................................. 255,000
-------------
FINANCE--0.01%
6,000 Olympic Financial Limited................................................ 60,000
-------------
FOOD & BEVERAGE--0.19%
109,290 Nuco2 Incorporated++..................................................... 450,820
7,250 Packaged Ice Incorporated................................................ 797,500
-------------
1,248,320
-------------
GAMING--0.04%
76,848 Casino America Incorporated.............................................. 76,848
</TABLE>
28
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
- ------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
WARRANTS(A) (CONCLUDED)
GAMING (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
10,075 HDA Management Corporation............................................... $201,500
-------------
278,348
-------------
MEDIA--0.10%
44,700 Source Media Incorporated................................................ 664,913
-------------
RETAIL--0.00%
1,080 Cookies USA Incorporated................................................. 5,400
-------------
TECHNOLOGY--0.08%
102,000 Ampex Corporation++...................................................... 178,500
13,700 Electronic Retailing Systems International............................... 274,000
19,500 InterAct Systems Incorporated............................................ 48,750
-------------
501,250
-------------
Total Warrants (cost--$1,829,610)......................................................... 8,480,044
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATE INTEREST RATE
- ------------- -------------------- -----------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--0.23%
$1,447 Repurchase agreement dated
05/29/98, with State Street
Bank and Trust Company,
collaterized by $1,290,000
U.S. Treasury Bonds, 8.375%
due 08/15/08
(value--$1,478,663);
proceeds: $1,447,663
(cost--$1,447,000).......... 06/01/98 5.500% 1,447,000
-------------
Total Investments
(cost--$603,549,966)--97.91%................. 627,270,892
13,373,189
Other assets in excess of liabilities--2.09%...
-------------
Net Assets--100.00%............................ $ 640,644,081
-------------
-------------
</TABLE>
- -----------------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock
++ Illiquid securities respesenting 1.6% 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.
* Maturity date reflects earliest date bond can be put back to issuer.
(b) Yield to put date on zero coupon bond
ADR American Depositary Receipt
See accompanying notes to financial statements
29
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1998(UNAUDITED)
<TABLE>
<CAPTION>
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost--$383,751,591,
$190,338,993, $278,642,851 and $603,549,966, respectively)...... $ 388,644,406 $ 191,801,357 $ 291,942,275 $ 627,270,892
Investments of cash collateral for securities loaned, at value... -- -- 5,337,500 --
Cash............................................................. -- 753 19,547 --
Receivable for investments sold.................................. 4,014,375 10,272,747 5,019,929 6,108,375
Dividends and interest receivable................................ 3,673,700 1,506,195 5,762,005 12,179,706
Receivable for shares of beneficial interest sold................ 77,159 402,711 617,059 944,163
Variation margin receivable...................................... 51,938 125 -- --
Other assets..................................................... 44,833 49,377 67,829 41,283
------------- --------------- -------------- --------------
Total assets..................................................... 396,506,411 204,033,265 308,766,144 646,544,419
------------- --------------- -------------- --------------
LIABILITIES
Payable for investments purchased................................ 49,885,719 56,385,626 9,943,995 712,500
Payable for shares of beneficial interest repurchased............ 901,251 839,537 1,107,432 2,061,146
Dividends payable................................................ 858,836 321,397 825,389 2,149,192
Payable to custodian............................................. 432,297 -- -- --
Payable to affiliates............................................ 246,196 127,028 222,528 612,396
Outstanding options written...................................... 64,063 -- -- --
Payable for cash collateral on securities loaned................. -- -- 5,337,500 --
Variation margin payable......................................... -- -- 10,500 --
Accrued expenses and other liabilities........................... 50,180 271,680 427,740 365,104
------------- --------------- -------------- --------------
Total liabilities................................................ 52,438,542 57,945,268 17,875,084 5,900,338
------------- --------------- -------------- --------------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount
authorized)..................................................... 432,071,029 262,452,238 302,238,584 779,625,460
Undistributed (distributions in excess of) net investment
income.......................................................... (927,493) (292,974) (523,626) 1,582,201
Accumulated net realized losses from investments, futures and
options transactions............................................ (92,041,366) (117,533,373) (24,063,322) (164,284,506)
Net unrealized appreciation of investments, futures and
options......................................................... 4,965,699 1,462,106 13,239,424 23,720,926
------------- --------------- -------------- --------------
Net assets....................................................... $ 344,067,869 $ 146,087,997 $ 290,891,060 $ 640,644,081
------------- --------------- -------------- --------------
------------- --------------- -------------- --------------
CLASS A:
Net assets....................................................... $ 280,852,681 $ 53,377,458 $ 218,887,544 $ 279,251,785
------------- --------------- -------------- --------------
Shares outstanding............................................... 31,198,085 22,424,675 19,955,003 35,793,130
------------- --------------- -------------- --------------
Net asset value and redemption value per share................... $9.00 $2.38 $10.97 $7.80
------------- --------------- -------------- --------------
------------- --------------- -------------- --------------
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).................................................... $9.38 $2.45 $11.43 $8.13
------------- --------------- -------------- --------------
------------- --------------- -------------- --------------
CLASS B:
Net assets....................................................... $ 27,699,201 $ 7,358,249 $ 40,316,007 $ 235,075,286
------------- --------------- -------------- --------------
Shares outstanding............................................... 3,076,472 3,094,881 3,676,447 30,154,212
------------- --------------- -------------- --------------
Net asset value and offering price per share..................... $9.00 $2.38 $10.97 $7.80
------------- --------------- -------------- --------------
------------- --------------- -------------- --------------
CLASS C:
Net assets....................................................... $ 25,172,836 $ 82,796,084 $ 30,393,991 $ 124,453,999
------------- --------------- -------------- --------------
Shares outstanding............................................... 2,798,890 34,816,553 2,771,017 15,929,567
------------- --------------- -------------- --------------
Net asset value and offering price per share..................... $8.99 $2.38 $10.97 $7.81
------------- --------------- -------------- --------------
------------- --------------- -------------- --------------
CLASS Y:
Net assets....................................................... $ 10,343,151 $ 2,556,206 $ 1,293,518 $ 1,863,011
------------- --------------- -------------- --------------
Shares outstanding............................................... 1,150,061 1,073,833 117,838 239,040
------------- --------------- -------------- --------------
Net asset value, offering price and redemption value per share... $8.99 $2.38 $10.98 $7.79
------------- --------------- -------------- --------------
------------- --------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements
30
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
---------------------------------------------------------
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and dividends................................................ $12,120,791 $ 4,493,768 $11,046,052 $30,787,059
------------ --------------- ------------ ------------
EXPENSES:
Investment advisory and administration................................ 895,807 336,568 725,305 1,613,454
Service fees--Class A................................................. 361,204 48,820 271,587 357,728
Service and distribution fees--Class B................................ 168,088 36,263 213,078 1,188,332
Service and distribution fees--Class C................................ 99,500 327,377 111,928 453,706
Transfer agency fees.................................................. 169,620 77,831 111,769 217,330
Custody and accounting................................................ 96,300 34,445 73,533 108,096
Legal and audit....................................................... 58,095 35,346 28,892 58,097
State registration fees............................................... 51,943 25,988 40,164 68,216
Reports and notices to shareholders................................... 74,119 15,636 36,784 67,977
Trustees' fees........................................................ 5,250 5,250 5,250 5,250
Amortization of organizational expense................................ -- 20,343 -- --
Interest.............................................................. -- 149,058 -- --
Other expenses........................................................ 26,181 2,720 3,795 35,883
------------ --------------- ------------ ------------
2,006,107 1,115,645 1,622,085 4,174,069
------------ --------------- ------------ ------------
Net investment income................................................. 10,114,684 3,378,123 9,423,967 26,612,990
------------ --------------- ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from:
Investment transactions............................................. 3,959,690 641,854 3,186,346 9,320,979
Futures contracts................................................... 1,715,135 146 (244,471) --
Options written..................................................... 430,339 -- -- --
Net change in unrealized appreciation/depreciation of:
Investments......................................................... (1,640,025) 113,289 378,526 3,461,331
Futures............................................................. (1,872,641) 258 (94,313) --
Options written..................................................... (160,588) -- -- --
------------ --------------- ------------ ------------
Net realized and unrealized gains from investment activities.......... 2,431,910 755,547 3,226,088 12,782,310
------------ --------------- ------------ ------------
Net increase in net assets resulting from operations.................. $12,546,594 $ 4,133,670 $12,650,055 $39,395,300
------------ --------------- ------------ ------------
------------ --------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements
31
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR
ENDED ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 10,114,684 $ 23,828,507
Net realized gains from investment,
futures and options transactions...... 6,105,164 751,897
Net change in unrealized
appreciation/depreciation of
investments, futures and options...... (3,673,254) 1,124,530
-------------- --------------
Net increase in net assets resulting
from operations....................... 12,546,594 25,704,934
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (8,307,204) (18,906,488)
Net investment income--Class B.......... (833,131) (2,738,447)
Net investment income--Class C.......... (695,614) (1,784,185)
Net investment income--Class Y.......... (278,682) (399,385)
-------------- --------------
Total dividends to shareholders......... (10,114,631) (23,828,505)
-------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 19,575,763 18,010,872
Cost of shares repurchased.............. (52,193,772) (114,604,633)
Proceeds from dividends reinvested...... 5,738,699 13,273,684
-------------- --------------
Net decrease in net assets from
beneficial interest transactions...... (26,879,310) (83,320,077)
-------------- --------------
Net decrease in net assets.............. (24,447,347) (81,443,648)
NET ASSETS:
Beginning of period..................... 368,515,216 449,958,864
-------------- --------------
End of period........................... $ 344,067,869 $ 368,515,216
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements
32
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR
ENDED ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 3,378,123 $ 8,613,452
Net realized gains from investments and
futures transactions.................. 642,000 2,277,620
Net change in unrealized
appreciation/depreciation of
investments and futures............... 113,547 (1,371,009)
-------------- --------------
Net increase in net assets resulting
from operations....................... 4,133,670 9,520,063
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (1,060,637) (2,934,509)
Net investment income--Class B.......... (168,430) (353,643)
Net investment income--Class C.......... (2,119,812) (5,305,663)
Net investment income--Class Y.......... (28,618) (20,260)
-------------- --------------
Total dividends to shareholders......... (3,377,497) (8,614,075)
-------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 119,489,476 278,839,540
Cost of shares repurchased.............. (108,948,961) (354,526,498)
Proceeds from dividends reinvested...... 2,142,199 4,961,994
-------------- --------------
Net increase (decrease) in net assets
from beneficial interest
transactions.......................... 12,682,714 (70,724,964)
-------------- --------------
Net increase (decrease) in net assets... 13,438,887 (69,818,976)
NET ASSETS:
Beginning of period..................... 132,649,110 202,468,086
-------------- --------------
End of period........................... $ 146,087,997 $ 132,649,110
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements
33
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR
ENDED ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income................... $ 9,423,967 $ 20,187,261
Net realized gains from investments,
futures and options transactions...... 2,941,875 4,482,892
Net change in unrealized
appreciation/depreciation of
investments, futures and options...... 284,213 2,014,325
-------------- --------------
Net increase in net assets resulting
from operations....................... 12,650,055 26,684,478
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (7,272,905) (15,134,222)
Net investment income--Class B.......... (1,261,011) (3,079,256)
Net investment income--Class C.......... (923,655) (1,925,784)
Net investment income--Class Y.......... (13,659) --
-------------- --------------
Total dividends to shareholders......... (9,471,230) (20,139,262)
-------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 25,061,787 17,100,249
Cost of shares repurchased.............. (28,746,928) (67,140,065)
Proceeds from dividends reinvested...... 4,892,794 10,181,074
-------------- --------------
Net increase (decrease) in net assets
from beneficial interest
transactions.......................... 1,207,653 (39,858,742)
-------------- --------------
Net increase (decrease) in net assets... 4,386,478 (33,313,526)
NET ASSETS:
Beginning of period..................... 286,504,582 319,818,108
-------------- --------------
End of period........................... $ 290,891,060 $ 286,504,582
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements
34
<PAGE>
PAINEWEBBER HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR
ENDED ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 26,612,990 $ 51,511,747
Net realized gain (loss) from investment
transactions.......................... 9,320,979 (12,530,231)
Net change in unrealized
appreciation/depreciation of
investments........................... 3,461,331 33,236,309
-------------- --------------
Net increase in net assets resulting
from operations....................... 39,395,300 72,217,825
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (11,768,235) (23,042,879)
Net investment income--Class B.......... (8,884,669) (18,695,781)
Net investment income--Class C.......... (4,670,867) (8,733,394)
Net investment income--Class Y.......... (22,356) --
-------------- --------------
Total dividends to shareholders......... (25,346,127) (50,472,054)
-------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 85,092,336 188,961,439
Cost of shares repurchased.............. (94,605,621) (161,226,504)
Proceeds from dividends reinvested...... 11,370,939 21,755,402
-------------- --------------
Net increase in net assets from
beneficial interest transactions...... 1,857,654 49,490,337
-------------- --------------
Net increase in net assets.............. 15,906,827 71,236,108
NET ASSETS:
Beginning of period..................... 624,737,254 553,501,146
-------------- --------------
End of period (including undistributed
net investment income of $1,582,201
and $315,338, respectively)........... $ 640,644,081 $ 624,737,254
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Managed Investments Trust (the "Trust") was organized under
Massachusetts law by a Declaration of Trust dated November 21, 1986 and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, as an open-end, diversified investment company.
The Trust is a series mutual fund with six funds: PaineWebber U.S. Government
Income Fund ("U.S. Government Income Fund"), PaineWebber Low Duration U.S.
Government Income Fund ("Low Duration 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 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. 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 distribution charges and certain transfer agency expenses.
In addition, Class B shares and all corresponding reinvested dividend shares
automatically convert to Class A shares approximately six years after issuance.
All classes of shares have equal voting privileges except that each class has
exclusive voting rights with respect to its service and/or distribution plan.
Class Y shares have no service or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
VALUATION OF INVESTMENTS--Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect the fair value of the securities, in the judgment of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser
and administrator of the Funds. When market quotations are not readily
available, securities are valued based upon appraisals derived from information
concerning those securities or similar securities received from recognized
dealers in those securities. All other securities are valued at fair value as
determined in good faith by or under the direction of the Trust's board of
trustees ("board"). The amortized cost method of valuation, which approximates
market value, generally is used to value short-term debt instruments with sixty
days or less remaining to maturity, unless the board determines that this does
not represent fair value.
REPURCHASE AGREEMENTS--The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, each Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. Each of the Funds occasionally participates in joint
repurchase agreement transactions with other funds managed by Mitchell Hutchins.
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized (with the exception of
U.S. Government Income Fund) as adjustments to interest income and the
identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
DOLLAR ROLLS--Low Duration U.S. Government Income Fund and U.S. Government
Income Fund may enter into transactions in which these Funds sell securities for
delivery in the current month and simultaneously contract to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date (the "roll period"). During the roll period the Funds forego
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 income or a
lower repurchase price.
FUTURES CONTRACTS--Upon entering into a financial futures contract, a Fund is
required to pledge to a broker an amount of cash and/or U.S. Government
securities equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation margin,"
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying financial futures contracts. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss until the financial futures contract is closed, at which
time the net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Funds (except High Income Fund) primarily use financial futures contracts
for hedging or to manage the average duration of the Fund's portfolio. However,
imperfect correlations between futures contracts and the portfolio securities
being hedged, or market disruptions, do not normally permit full control of
these risks at all times.
OPTION WRITING--When 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 purchase
transaction exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a call option which the
Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from the
sale are increased by the premium originally received. If a put option which a
Fund has written is exercised, the amount of the premium originally received
reduces the cost of the security which the Fund purchases upon exercise of the
option. The U.S. Government Income Fund primarily used written options for the
enhancement of income to the Funds.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
REVERSE REPURCHASE AGREEMENTS--Each of the Funds may enter into reverse
repurchase agreements with qualified third party broker-dealers as determined
by, and under the direction of, the Funds' board of trustees. Interest on the
value of reverse repurchase agreements issued and outstanding is based upon
competitive market rates at the time of issuance. At the time the Fund enters
into a reverse repurchase agreement, it establishes and maintains a segregated
account with the Fund's custodian containing liquid securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement.
For the six months ended May 31, 1998, the Low Duration U.S. Government Income
Fund is the only Fund which engaged in reverse repurchase agreements. The
average monthly balance of reverse repurchase agreements outstanding during the
six months ended May 31, 1998 was $2,648,460 at a weighted average interest rate
of 5.63%.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and
distributions from realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities including mortgage- and
asset-backed securities held by the Funds to meet their obligations may be
affected by economic developments, including those particular to a specific
industry or region. Mortgage- and asset-backed securities may decrease in value
as a result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayments.
WRITTEN OPTION ACTIVITY
Transactions in options written for the six months ended May 31, 1998 were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME
FUND
------------------------
NUMBER OF
OPTIONS PREMIUMS
----------- -----------
<S> <C> <C>
Options outstanding at November 30, 1997................................................... 1,200 $ 983,425
Options written............................................................................ 6,300 1,829,388
Options terminated in closing purchase transactions........................................ (5,700) (2,389,238)
Options expired............................................................................ (1,700) (374,175)
----------- -----------
Options outstanding at May 31, 1998........................................................ 100 $ 49,400
----------- -----------
----------- -----------
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and
Administration Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Funds. In accordance with the Advisory Contract, each Fund pays Mitchell
Hutchins an investment advisory and administration fee, which is accrued daily
and paid monthly, at the annual rate of 0.50% of each Fund's average daily net
assets. At May 31, 1998, U.S. Government Income Fund, Low Duration U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund owed
Mitchell Hutchins $146,592, $58,348, $123,027 and $272,997, respectively, in
investment advisory and administration fees.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
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 Mitchell
Hutchins from the Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of 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,
respectively. At May 31, 1998, U.S. Government Income Fund, Low Duration U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund owed
Mitchell Hutchins $99,604, $68,680, $99,501 and $339,399, respectively, in
service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by the shareholders upon the purchase of Class A shares and the contingent
deferred sales charges paid by the shareholders upon certain redemptions of
Class A, Class B and Class C shares. Mitchell Hutchins has informed each Fund
that for the six months ended May 31, 1998, it earned $54,767, $58,530, $138,286
and $580,740 in sales charges for the U.S. Government Income Fund, Low Duration
U.S. Government Income Fund, Investment Grade Income Fund and High Income Fund,
respectively.
SECURITY LENDING
Each Fund may lend securities up to 33 1/3% of its total assets to qualified
institutions. 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 and dividends, determined on a daily basis and
adjusted accordingly. Each Fund will regain record ownership of loaned
securities to exercise certain beneficial 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 financially. Each Fund receives compensation,
which is included in interest income, for lending its securities from interest
earned on the cash or U.S. government 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 compensation for the six
months ended May 31, 1998 from the following Funds:
<TABLE>
<S> <C>
U.S. Government Income Fund....................................... $ 1,578
Investment Grade Income Fund...................................... $ 9,700
</TABLE>
At May 31, 1998, the Investment Grade Income Fund owed PaineWebber $1,233 in
security lending fees.
At May 31, 1998, the Investment Grade Income Fund's custodian held cash and/or
cash equivalents having an aggregate value of $5,337,500 as collateral for
portfolio securities loaned having a market value of $5,250,000 which was
invested in the following money market funds:
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
5,335,850 Liquid Assets Portfolio....... $ 5,335,850
1,650 TempFund Portfolio............ 1,650
-------------
$ 5,337,500
-------------
-------------
</TABLE>
No other Funds had portfolio securities on loan at May 31, 1998.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
BANK LINE OF CREDIT
Each Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for temporary
financing until the settlement of sale or purchase of portfolio securities, the
repurchase or redemption of shares of the Funds at the request of the
shareholders and other temporary or emergency purposes. In connection therewith,
each Fund has agreed to pay a commitment fee, pro rata, based on the relative
asset size of the Funds in the Facility. Interest is charged to each Fund at
rates based on prevailing market rates in effect at the time of borrowings. For
the six months ended May 31, 1998, the Funds did not borrow under the Facility.
TRANSFER AGENCY SERVICE FEES
PaineWebber provides transfer agency related services to each Fund pursuant to
a delegation of authority from PFPC Inc., each Funds' transfer agent, and is
compensated for these services by PFPC Inc., not the Funds. For the six months
ended May 31, 1998, PaineWebber received from PFPC Inc., not the Funds,
approximately 52%, 55%, 52% and 51% of the total transfer agency fees collected
by PFPC Inc. from the U.S. Government Income Fund, Low Duration U.S. Government
Income Fund, Investment Grade Income Fund and High Income Fund, respectively.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1998
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1998, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. 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)......................................................... $5,002,082 $ 1,877,927 $13,853,971 $ 39,972,161
Gross depreciation (investments having an excess of cost over
value)........................................................ (109,267) (415,563) (554,547) (16,251,235)
------------ --------------- ------------ ------------
Net unrealized appreciation of investments...................... $4,892,815 $ 1,462,364 $13,299,424 $ 23,720,926
------------ --------------- ------------ ------------
------------ --------------- ------------ ------------
</TABLE>
For the six months ended May 31, 1998, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Purchases.................................................... $ 631,436,002 $ 294,531,832 $ 207,310,591 $ 564,912,455
Sales........................................................ $ 701,407,264 $ 307,893,323 $ 203,697,364 $ 556,449,726
</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
investment companies. Accordingly, no provision for federal income taxes is
required. In addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other amounts, if
any, each Fund intends not to be subject to a federal excise tax.
At November 30, 1997, U.S. Government Income Fund, Low Duration U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund had
net capital loss carryforwards of $96,018,216, $118,175,373, $26,939,638
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
and $170,835,309, respectively. These loss carryforwards are available as
reductions, to the extent provided in the regulations, of future net realized
capital gains, and will expire between November 30, 1998 and November 30, 2005.
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.
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized for each Fund. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
--------------------------- ------------------------ ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT INCOME
FUND
SIX MONTHS ENDED MAY
31, 1998:
Shares sold............ 145,048 $ 1,305,668 317,380 $ 2,870,856 319,488 $ 2,882,315 1,392,380 $ 12,516,924
Shares repurchased..... (3,310,429) (29,799,141) (735,911) (6,634,082) (718,568) (6,472,511) (1,034,043) (9,288,038)
Shares converted from
Class B to Class A.... 1,265,652 11,396,757 (1,265,652) (11,396,757) -- -- -- --
Dividends reinvested... 504,791 4,551,339 53,785 485,111 49,149 442,747 28,811 259,502
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ (1,394,938) $ (12,545,377) (1,630,398) $(14,674,872) (349,931) $ (3,147,449) 387,148 $ 3,488,388
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
YEAR ENDED NOVEMBER 30,
1997:
Shares sold............ 448,305 $ 3,915,986 476,566 $ 4,168,910 513,532 $ 4,489,464 620,112 $ 5,436,512
Shares repurchased..... (8,440,372) (73,719,107) (2,295,981) (20,006,468) (1,756,331) (15,337,064) (633,559) (5,541,994)
Shares converted from
Class B to Class A.... 638,153 5,617,512 (638,038) (5,617,512) -- -- -- --
Dividends reinvested... 1,161,115 10,151,112 185,612 1,622,016 128,773 1,124,426 43,054 376,130
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ (6,192,799) $ (54,034,497) (2,271,841) $(19,833,054) (1,114,026) $ (9,723,174) 29,607 $ 270,648
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
LOW DURATION U.S.
GOVERNMENT INCOME FUND
SIX MONTHS ENDED MAY
31, 1998:
Shares sold............ 46,302,774 $ 110,033,657 1,052,304 $ 2,501,052 1,787,875 $ 4,249,955 1,137,861 $ 2,704,811
Shares repurchased..... (38,539,827) (91,609,718) (709,475) (1,686,327) (6,366,609) (15,125,417) (221,642) (527,498)
Shares converted from
Class B to Class A.... 237,934 565,737 (238,013) (565,737) -- -- -- --
Dividends reinvested... 213,319 507,705 51,877 123,234 627,187 1,489,773 9,031 21,487
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ 8,214,200 $ 19,497,381 156,693 $ 372,222 (3,951,547) $ (9,385,689) 925,250 $ 2,198,800
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
YEAR ENDED NOVEMBER 30,
1997:
Shares sold............ 113,760,103 $ 267,296,194 1,233,865 $ 2,895,645 3,650,806 $ 8,554,742 39,524 $ 92,959
Shares repurchased..... (130,737,967) (307,187,448) (1,200,248) (2,819,918) (18,934,893) (44,424,090) (40,520) (95,042)
Shares converted from
Class B to Class A.... 481,142 1,132,233 (481,142) (1,132,233) -- -- -- --
Dividends reinvested... 409,516 960,304 101,318 237,798 1,596,762 3,745,544 7,819 18,348
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ (16,087,206) $ (37,798,717) (346,207) $ (818,708) (13,687,325) $(32,123,804) 6,823 $ 16,265
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
</TABLE>
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
SHARES OF BENEFICIAL INTEREST (CONCLUDED)
<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>
INVESTMENT GRADE INCOME
FUND
SIX MONTHS ENDED MAY
31, 1998:
Shares sold............ 1,039,688 $ 11,369,952 678,827 $ 7,413,160 453,209 $ 4,949,877 121,734 $ 1,328,797
Shares repurchased..... (1,645,399) (17,973,668) (564,307) (6,158,015) (417,591) (4,562,631) (4,807) (52,616)
Shares converted from
Class B to Class A.... 630,005 6,880,398 (630,231) (6,880,398) -- -- -- --
Dividends reinvested... 344,552 3,769,133 58,631 641,199 43,194 472,520 911 9,942
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ 368,846 $ 4,045,815 (457,080) $ (4,984,054) 78,812 $ 859,766 117,838 $ 1,286,123
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
YEAR ENDED NOVEMBER 30,
1997:
Shares sold............ 542,798 $ 5,735,184 621,479 $ 6,583,886 450,938 $ 4,781,179
Shares repurchased..... (4,130,806) (43,486,178) (1,346,645) (14,139,975) (904,683) (9,513,912)
Shares converted from
Class B to Class A.... 802,509 8,484,160 (802,826) (8,484,160) -- --
Dividends reinvested... 728,494 7,676,225 146,738 1,544,887 91,141 959,962
------------ ------------- ---------- ------------ ----------- ------------
Net decrease........... (2,057,005) $ (21,590,609) (1,381,254) $(14,495,362) (362,604) $ (3,772,771)
------------ ------------- ---------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------
HIGH INCOME FUND
SIX MONTHS ENDED MAY
31, 1998:
Shares sold............ 3,232,202 $ 25,123,272 4,541,471 $ 35,297,647 2,918,571 $ 22,760,158 243,797 $ 1,911,259
Shares repurchased..... (5,806,884) (45,381,688) (3,858,455) (30,032,738) (2,453,741) (19,137,864) (6,794) (53,331)
Shares converted from
Class B to Class A.... 2,004,841 15,582,304 (2,005,318) (15,582,304) -- -- -- --
Dividends reinvested... 686,873 5,345,047 450,930 3,505,861 321,321 2,504,036 2,037 15,995
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ 117,032 $ 668,935 (871,372) $ (6,811,534) 786,151 $ 6,126,330 239,040 $ 1,873,923
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
YEAR ENDED NOVEMBER 30,
1997:
Shares sold............ 8,419,577 $ 63,247,235 10,328,507 $ 77,493,859 6,393,414 $ 48,220,345
Shares repurchased..... (9,189,251) (69,169,822) (7,627,276) (57,048,223) (4,666,813) (35,008,459)
Shares converted from
Class B to Class A.... 1,959,816 14,783,489 (1,960,888) (14,783,489) -- --
Dividends reinvested... 1,353,574 10,173,912 952,658 7,153,842 588,027 4,427,648
------------ ------------- ---------- ------------ ----------- ------------
Net increase........... 2,543,716 $ 19,034,814 1,693,001 $ 12,815,989 2,314,628 $ 17,639,534
------------ ------------- ---------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------
</TABLE>
42
<PAGE>
(This page has been left blank intentionally.)
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 MAY FOR THE YEARS ENDED NOVEMBER 30,
31, 1998 --------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 8.94 $ 8.86 $ 9.12 $ 8.50 $ 10.03 $ 9.98
----- ----- ----- ---------- ---------- ----------
Net investment income................... 0.26 0.54 0.55 0.58 0.60 0.67
Net realized and unrealized gains
(losses) from investments,
futures and options.................... 0.06 0.08 (0.26) 0.62 (1.53) 0.05
----- ----- ----- ---------- ---------- ----------
Net increase (decrease) from investment
operations............................. 0.32 0.62 0.29 1.20 (0.93) 0.72
----- ----- ----- ---------- ---------- ----------
Dividends from net investment income.... (0.26) (0.54) (0.55) (0.58) (0.60) (0.67)
----- ----- ----- ---------- ---------- ----------
Net asset value, end of period.......... $ 9.00 $ 8.94 $ 8.86 $ 9.12 $ 8.50 $ 10.03
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
Total investment return(1).............. 3.59% 7.27% 3.39% 14.70% (9.62)% 7.38%
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
Ratios/Supplemental data:
Net assets, end of period (000's)....... $280,853 $291,470 $343,836 $430,285 $428,722 $648,923
Expenses to average net assets.......... 1.02%* 0.94% 0.94% 1.03%(2) 0.95% 0.91%
Net investment income to average net
assets................................. 5.75%* 6.15% 6.24% 6.65%(2) 6.48% 6.60%
Portfolio turnover rate................. 184% 322% 359% 206% 358% 83%
</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. 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 MAY FOR THE YEARS ENDED NOVEMBER 30,
31, 1998 --------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 8.94 $ 8.87 $ 9.12 $ 8.50 $ 10.03 $ 9.98
----- ----- ----- ---------- ---------- ----------
0.22 0.47 0.48 0.51 0.53 0.60
0.06 0.07 (0.25) 0.63 (1.53) 0.05
----- ----- ----- ---------- ---------- ----------
0.28 0.54 0.23 1.14 (1.00) 0.65
----- ----- ----- ---------- ---------- ----------
(0.22) (0.47) (0.48) (0.52) (0.53) (0.60)
----- ----- ----- ---------- ---------- ----------
$ 9.00 $ 8.94 $ 8.87 $ 9.12 $ 8.50 $ 10.03
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
3.18% 6.34% 2.72% 13.81% (10.31)% 6.57%
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
$27,699 $42,097 $61,873 $82,469 $99,581 $161,158
1.80%* 1.69% 1.70% 1.81%(2) 1.72% 1.66%
4.96%* 5.40% 5.47% 5.88%(2) 5.71% 5.79%
184% 322% 359% 206% 358% 83%
<CAPTION>
CLASS C
-----------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED MAY FOR THE YEARS ENDED NOVEMBER 30,
31, 1998 --------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 8.93 $ 8.86 $ 9.11 $ 8.49 $ 10.02 $ 9.98
----- ----- ----- ---------- ---------- ----------
0.23 0.49 0.50 0.53 0.55 0.62
0.06 0.07 (0.25) 0.63 (1.53) 0.04
----- ----- ----- ---------- ---------- ----------
0.29 0.56 0.25 1.16 (0.98) 0.66
----- ----- ----- ---------- ---------- ----------
(0.23) (0.49) (0.50) (0.54) (0.55) (0.62)
----- ----- ----- ---------- ---------- ----------
$ 8.99 $ 8.93 $ 8.86 $ 9.11 $ 8.49 $ 10.02
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
3.33% 6.62% 2.98% 14.12% (10.08)% 6.75%
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
$25,173 $28,132 $37,754 $53,832 $68,400 $143,473
1.52%* 1.44% 1.45% 1.55%(2) 1.45% 1.40%
5.24%* 5.66% 5.74% 6.17%(2) 5.99% 6.08%
184% 322% 359% 206% 358% 83%
</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 MAY FOR THE YEARS ENDED NOVEMBER 30,
31, 1998 --------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 8.93 $ 8.86 $ 9.11 $ 8.49 $ 10.02 $ 9.97
----- -------- -------- -------- -------- --------
Net investment income................... 0.27 0.56 0.57 0.61 0.62 0.70
Net realized and unrealized gains
(losses) from investments,
futures and options.................... 0.06 0.07 (0.25) 0.62 (1.53) 0.05
----- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................. 0.33 0.63 0.32 1.23 (0.91) 0.75
----- -------- -------- -------- -------- --------
Dividends from net investment income.... (0.27) (0.56) (0.57) (0.61) (0.62) (0.70)
----- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.99 $ 8.93 $ 8.86 $ 9.11 $ 8.49 $ 10.02
----- -------- -------- -------- -------- --------
----- -------- -------- -------- -------- --------
Total investment return(1).............. 3.74% 7.43% 3.81% 15.06% (9.37)% 7.69%
----- -------- -------- -------- -------- --------
----- -------- -------- -------- -------- --------
Ratios/Supplemental data:
Net assets, end of period (000's)....... $10,343 $6,816 $6,495 $7,957 $4,955 $6,232
Expenses to average net assets.......... 0.71%* 0.67% 0.64% 0.71%(2) 0.65% 0.62%
Net investment income to average net
assets................................. 6.05%* 6.41% 6.53% 6.96%(2) 6.76% 6.87%
Portfolio turnover rate................. 184% 322% 359% 206% 358% 83%
</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 acquisition expenses of 0.03%.
46
<PAGE>
(This page has been left blank intentionally.)
47
<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
ENDED PERIOD
MAY 31, FOR THE YEARS ENDED NOVEMBER 30, MAY 3, 1993#
1998 ------------------------------------------------ TO NOVEMBER 30,
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ------------ --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.50
----- ----- --------- --------- --------- -----
Net investment income................... 0.05 0.13 0.14 0.13 0.12 0.07
Net realized and unrealized gains
(losses) from investments, futures and
options................................ 0.01 0.02 0.01 0.09 (0.29) (0.02)
----- ----- --------- --------- --------- -----
Net increase (decrease) in net asset
value from operations.................. 0.06 0.15 0.15 0.22 (0.17) (0.05)
----- ----- --------- --------- --------- -----
Dividends from net investment income.... (0.05) (0.13) (0.14) (0.13) (0.12) (0.07)
----- ----- --------- --------- --------- -----
Contribution to capital from adviser.... -- -- -- -- 0.06 --
----- ----- --------- --------- --------- -----
Net asset value, end of period.......... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48
----- ----- --------- --------- --------- -----
----- ----- --------- --------- --------- -----
Total investment return(1).............. 3.18% 6.67% 6.46% 10.25% (4.50)%** 1.88%
----- ----- --------- --------- --------- -----
----- ----- --------- --------- --------- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $55,377 $33,648 $71,216 $127,961 $158,712 $551,243
Expenses to average net assets(2)....... 1.22%*+ 1.04% 1.21% 1.15% 0.84% 0.81%*
Net investment income to average net
assets(2).............................. 5.43%*+ 5.72% 5.84% 5.89% 5.16% 4.85%*
Portfolio turnover rate................. 157% 359% 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.
+ Includes 0.22% of interest expense related to the reverse repurchase
agreement entered into during the period.
(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
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.
48
<PAGE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------
FOR THE
SIX MONTHS FOR THE
ENDED PERIOD
MAY 31, FOR THE YEARS ENDED NOVEMBER 30, MAY 3, 1993#
1998 ------------------------------------------------ TO NOVEMBER 30,
(UNAUDITED) 1997 1996 1995 1994 1993
--------------- -------- -------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.50
----- -------- -------- -------- --------- -----
Net investment income................... 0.05 0.11 0.12 0.11 0.10 0.06
Net realized and unrealized gains
(losses) from investments, futures and
options................................ 0.01 0.02 0.01 0.09 (0.29) (0.02)
----- -------- -------- -------- --------- -----
Net increase (decrease) in net asset
value from operations.................. 0.06 0.13 0.13 0.20 (0.19) 0.04
----- -------- -------- -------- --------- -----
Dividends from net investment income.... (0.05) (0.11) (0.12) (0.11) (0.10) (0.06)
----- -------- -------- -------- --------- -----
Contribution to capital from adviser.... -- -- -- -- 0.06 --
----- -------- -------- -------- --------- -----
Net asset value, end of period.......... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48
----- -------- -------- -------- --------- -----
----- -------- -------- -------- --------- -----
Total investment return(1).............. 2.77% 5.81% 5.60% 9.30% (5.24)%** 1.47%
----- -------- -------- -------- --------- -----
----- -------- -------- -------- --------- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $7,358 $6,949 $7,716 $9,147 $13,382 $31,706
Expenses to average net assets.......... 2.03%*+ 1.87% 2.03% 2.02% 1.62% 1.62%*
Net investment income to average net
assets................................. 4.65%*+ 4.80% 4.99% 5.03% 4.40% 4.31%*
Portfolio turnover rate................. 157% 359% 210% 242% 246% 97%
<CAPTION>
CLASS C
---------------------------------------------------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED MAY 3, 1993#
MAY 31, FOR THE YEARS ENDED NOVEMBER 30, TO NOVEMBER
1998 ------------------------------------------------ 30,
(UNAUDITED) 1997 1996 1995 1994 1993
--------------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.47 $ 2.50
----- --------- ----- ----- ----- -----
Net investment income................... 0.05 0.12 0.12 0.12 0.11 0.06
Net realized and unrealized gains
(losses) from investments, futures and
options................................ 0.01 0.02 0.01 0.09 (0.28) (0.03)
----- --------- ----- ----- ----- -----
Net increase (decrease) in net asset
value from operations.................. 0.06 0.14 0.13 0.21 (0.17) 0.03
----- --------- ----- ----- ----- -----
Dividends from net investment income.... (0.05) (0.12) (0.12) (0.12) (0.11) (0.06)
----- --------- ----- ----- ----- -----
Contribution to capital from adviser.... -- -- -- -- 0.06 --
----- --------- ----- ----- ----- -----
Net asset value, end of period.......... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.47
----- --------- ----- ----- ----- -----
----- --------- ----- ----- ----- -----
Total investment return(1).............. 2.88% 6.05% 5.82% 9.60% (4.99)%** 1.20%
----- --------- ----- ----- ----- -----
----- --------- ----- ----- ----- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $82,796 $91,700 $123,203 $180,169 $296,182 $1,186,181
Expenses to average net assets.......... 1.83%*+ 1.64% 1.80% 1.75% 1.36% 1.35%*
Net investment income to average net
assets................................. 4.86%*+ 5.05% 5.22% 5.31% 4.65% 4.52%*
Portfolio turnover rate................. 157% 359% 210% 242% 246% 97%
</TABLE>
49
<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 Y
-------------------------------------------------------
FOR THE FOR THE
SIX MONTHS FOR THE PERIOD
ENDED YEARS ENDED OCTOBER 20,
MAY 31, NOVEMBER 30, 1995#
1998 --------------------- TO NOVEMBER 30,
(UNAUDITED) 1997 1996 1995
------------ --------- --------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.37 $ 2.35 $ 2.34 $ 2.33
----- --------- --------- -----
Net investment income................... 0.06 0.14 0.14 0.01
Net realized and unrealized gains
(losses) from investments, futures and
options............................... 0.01 0.02 0.01 0.01
----- --------- --------- -----
Net increase (decrease) in net asset
value from operations................. 0.07 0.16 0.15 0.02
----- --------- --------- -----
Dividends from net investment income.... (0.06) (0.14) (0.14) (0.01)
----- --------- --------- -----
Contribution to capital from adviser.... -- -- -- --
----- --------- --------- -----
Net asset value, end of period.......... $ 2.38 $ 2.37 $ 2.35 $ 2.34
----- --------- --------- -----
----- --------- --------- -----
Total investment return(1).............. 3.29% 6.87% 6.64% 0.83%
----- --------- --------- -----
----- --------- --------- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $2,556 $ 352 $ 333 $ 321
Expenses to average net assets.......... 0.97%*+ 0.86% 0.99% 0.99%*
Net investment income to average net
assets................................ 5.62%*+ 5.82% 6.00% 5.87%*
Portfolio turnover rate................. 157% 359% 210% 242%
</TABLE>
- ---------------
# Commencement of issuance of shares
* Annualized
+ Includes 0.22% of interest expense related to the reverse repurchase
agreement transaction entered into during the period.
(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 less than one year
has not been annualized.
50
<PAGE>
(This page has been left blank intentionally.)
51
<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
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1998 -----------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.85 $ 10.59 $ 10.68 $ 9.67 $ 11.08 $ 10.38
------ ----------- --------- --------- --------- ---------
Net investment income................... 0.36 0.74 0.73 0.76 0.77 0.79
Net realized and unrealized gains
(losses) from investments, futures and
options................................ 0.12 0.26 (0.09) 1.01 (1.41) 0.70
------ ----------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. 0.48 1.00 0.64 1.77 (0.64) 1.49
------ ----------- --------- --------- --------- ---------
Dividends from net investment income.... (0.36) (0.74) (0.73) (0.76) (0.77) (0.79)
------ ----------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 10.97 $ 10.85 $ 10.59 $ 10.68 $ 9.67 $ 11.08
------ ----------- --------- --------- --------- ---------
------ ----------- --------- --------- --------- ---------
Total investment return(1).............. 4.53% 9.88% 6.33% 18.95% (5.99)% 14.77%
------ ----------- --------- --------- --------- ---------
------ ----------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $218,888 $212,472 $229,117 $258,898 $271,553 $204,418
Expenses to average net assets.......... 0.96%* 1.03% 0.94% 0.95% 0.97% 0.96%
Net investment income to average net
assets................................. 6.66%* 7.07% 7.02% 7.42% 7.50% 7.24%
Portfolio turnover rate................. 73% 109% 115% 149% 142% 27%
</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, 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, B and C would be lower if sales charges were included. Total investment
return for periods of less than one year has not been annualized.
52
<PAGE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1998 ---------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.85 $ 10.58 $ 10.67 $ 9.67 $ 11.07 $ 10.38
------ --------- --------- --------- --------- ---------
Net investment income................... 0.32 0.66 0.65 0.68 0.69 0.71
Net realized and unrealized gains
(losses) from investments, futures and
options................................ 0.12 0.27 (0.09) 1.00 (1.40) 0.69
------ --------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. 0.44 0.93 0.56 1.68 (0.71) 1.40
------ --------- --------- --------- --------- ---------
Dividends from net investment income.... (0.32) (0.66) (0.65) (0.68) (0.69) (0.71)
------ --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 10.97 $ 10.85 $ 10.58 $ 10.67 $ 9.67 $ 11.07
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Total investment return(1).............. 4.14% 9.17% 5.54% 17.97% (6.60)% 13.81%
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $40,316 $44,829 $58,364 $71,372 $69,359 $52,301
Expenses to average net assets.......... 1.71%* 1.78% 1.68% 1.70% 1.72% 1.70%
Net investment income to average net
assets................................. 5.89%* 6.31% 6.27% 6.67% 6.73% 6.40%
Portfolio turnover rate................. 73% 109% 115% 149% 142% 27%
<CAPTION>
CLASS C CLASS Y
------------------------------------------------------------------------ --------------
FOR THE FOR THE PERIOD
SIX MONTHS FEBRUARY 20,
ENDED 1998
MAY 31, FOR THE YEARS ENDED NOVEMBER 30, THROUGH
1998 --------------------------------------------------------- MAY 31,
(UNAUDITED) 1997 1996 1995 1994 1993 1998+
------------ --------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.85 $ 10.59 $ 10.68 $ 9.67 $ 11.08 $ 10.38 $ 10.97
------ --------- --------- --------- --------- --------- ------
Net investment income................... 0.34 0.69 0.68 0.70 0.72 0.74 0.21
Net realized and unrealized gains
(losses) from investments, futures and
options................................ 0.12 0.26 (0.09) 1.01 (1.41) 0.70 0.01
------ --------- --------- --------- --------- --------- ------
Net increase (decrease) from investment
operations............................. 0.46 0.95 0.59 1.71 (0.69) 1.44 0.22
------ --------- --------- --------- --------- --------- ------
Dividends from net investment income.... (0.34) (0.69) (0.68) (0.70) (0.72) (0.74) (0.21)
------ --------- --------- --------- --------- --------- ------
Net asset value, end of period.......... $ 10.97 $ 10.85 $ 10.59 $ 10.68 $ 9.67 $ 11.08 $ 10.98
------ --------- --------- --------- --------- --------- ------
------ --------- --------- --------- --------- --------- ------
Total investment return(1).............. 4.28% 9.34% 5.80% 18.37% (6.40)% 14.21% 1.57%
------ --------- --------- --------- --------- --------- ------
------ --------- --------- --------- --------- --------- ------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $30,394 $29,204 $32,337 $39,150 $45,473 $47,527 $ 1,294
Expenses to average net assets.......... 1.45%* 1.53% 1.44% 1.45% 1.45% 1.44% 0.61%*
Net investment income to average net
assets................................. 6.16%* 6.57% 6.51% 6.95% 6.99% 6.61% 6.82%*
Portfolio turnover rate................. 73% 109% 115% 149% 142% 27% 73%
</TABLE>
53
<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
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1998 ---------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 7.63 $ 7.35 $ 6.96 $ 7.14 $ 8.73 $ 7.92
--------- --------- --------- --------- --------- ---------
Net invesment income.................... 0.33 0.69 0.72 0.79 0.86 0.89
Net realized and unrealized gain
(losses) from investments.............. 0.16 0.27 0.37 (0.17) (1.59) 0.83
--------- --------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. 0.49 0.96 1.09 0.62 (0.73) 1.72
--------- --------- --------- --------- --------- ---------
Dividends from net investment income.... (0.32) (0.68) (0.70) (0.80) (0.86) (0.91)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 7.80 $ 7.63 $ 7.35 $ 6.96 $ 7.14 $ 8.73
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Total investment return(1).............. 6.51% 13.59% 16.55% 9.01% (9.20)% 22.89%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Ratios/Supplemental data:
Net assets, end of period (000's)....... $279,252 $272,325 $243,564 $248,619 $268,397 $360,281
Expenses to average net assets.......... 0.92%* 0.98% 0.96% 0.93% 0.91% 0.93%
Net investment income to average net
assets................................. 8.62%* 9.21% 10.10% 11.17% 10.43% 10.61%
Portfolio turnover rate................. 89% 160% 142% 94% 156% 182%
</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 for class A, B and C if sales charges were included. Total investment
return for periods of less than one year has not been annualized.
54
<PAGE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 1998 ---------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 7.63 $ 7.35 $ 6.95 $ 7.14 $ 8.72 $ 7.91
------ --------- --------- --------- --------- ---------
Net invesment income.................... 0.30 0.63 0.66 0.74 0.80 0.83
Net realized and unrealized gain
(losses) from investments.............. 0.16 0.27 0.39 (0.18) (1.58) 0.82
------ --------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. 0.46 0.90 1.05 0.56 (0.78) 1.65
------ --------- --------- --------- --------- ---------
Dividends from net investment income.... (0.29) (0.62) (0.65) (0.75) (0.80) (0.84)
------ --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 7.80 $ 7.63 $ 7.35 $ 6.95 $ 7.14 $ 8.72
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Total investment return(1).............. 6.12% 12.76% 15.86% 8.05% (9.77)% 21.89%
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Ratios/Supplemental data:
Net assets, end of period (000's)....... $235,075 $236,656 $215,492 $212,946 $235,480 $286,525
Expenses to average net assets.......... 1.67%* 1.73% 1.71% 1.68% 1.64% 1.66%
Net investment income to average net
assets................................. 7.86%* 8.45% 9.34% 10.42% 9.66% 9.69%
Portfolio turnover rate................. 89% 160% 142% 94% 156% 182%
<CAPTION>
CLASS Y
------------
CLASS C FOR THE
------------------------------------------------------------------------ PERIOD
FOR THE FEBRUARY 20,
SIX MONTHS 1998+
ENDED FOR THE YEARS ENDED NOVEMBER 30, THROUGH
MAY 31, 1998 --------------------------------------------------------- MAY 31, 1998
(UNAUDITED) 1997 1996 1995 1994 1993 (UNAUDITED)
------------ --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 7.64 $ 7.36 $ 6.97 $ 7.15 $ 8.74 $ 7.92 $ 7.79
------ --------- --------- --------- --------- --------- -----
Net invesment income.................... 0.31 0.65 0.68 0.76 0.82 0.85 0.19
Net realized and unrealized gain
(losses) from investments.............. 0.16 0.27 0.38 (0.18) (1.59) 0.82 (0.01)
------ --------- --------- --------- --------- --------- -----
Net increase (decrease) from investment
operations............................. 0.47 0.92 1.06 0.58 (0.77) 1.67 0.18
------ --------- --------- --------- --------- --------- -----
Dividends from net investment income.... (0.30) (0.64) (0.67) (0.76) (0.82) (0.85) (0.18)
------ --------- --------- --------- --------- --------- -----
Net asset value, end of period.......... $ 7.81 $ 7.64 $ 7.36 $ 6.97 $ 7.15 $ 8.74 $ 7.79
------ --------- --------- --------- --------- --------- -----
------ --------- --------- --------- --------- --------- -----
Total investment return(1).............. 6.24% 13.03% 15.96% 8.45% (9.62)% 22.19% 1.96%
------ --------- --------- --------- --------- --------- -----
------ --------- --------- --------- --------- --------- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $124,454 $115,757 $94,445 $103,911 $115,196 $176,161 $1,863
Expenses to average net assets.......... 1.42%* 1.48% 1.47% 1.44% 1.38% 1.39% 0.64%*
Net investment income to average net
assets................................. 8.11%* 8.66% 9.60% 10.63% 9.91% 9.81% 8.66%*
Portfolio turnover rate................. 89% 160% 142% 94% 156% 182% 89%
</TABLE>
55
<PAGE>
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- --------------------------------------------------------------------------------
TRUSTEES
E. Garrett Bewkes, Jr.
CHAIRMAN
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander
PRESIDENT
Victoria E. Schonfeld
VICE PRESIDENT
Dianne E. O'Donnell
VICE PRESIDENT AND SECRETARY
Paul H. Schubert
VICE PRESIDENT AND TREASURER
Julieanna Berry
VICE PRESIDENT
James F. Keegan
VICE PRESIDENT
Thomas J. Libassi
VICE PRESIDENT
Nirmal Singh
VICE PRESIDENT
Craig M. Varrelman
VICE PRESIDENT
Dennis McCauley
VICE PRESIDENT
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
SUB-INVESTMENT ADVISER
(PaineWebber Low Duration U.S. Government Income Fund)
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR ANY OF THE FUNDS LISTED ON
THE BACK COVER CAN BE OBTAINED FROM A PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM.
READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
THE FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE FUNDS
WITHOUT EXAMINATION BY INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN OPINION
THEREON.
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE OFFERING OF SHARES OF THE
FUNDS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
- -----
- -----
PaineWebber offers a family of 26 funds which
encompass a diversified range of investment goals.
BOND FUNDS
- - High Income Fund
- - Investment Grade Income Fund
- - Low Duration U.S. Government Income Fund
- - Strategic Income Fund
- - U.S. Government Income Fund
TAX-FREE BOND FUNDS
- - California Tax-Free Income Fund
- - Municipal High Income Fund
- - National Tax-Free Income Fund
- - New York Tax-Free Income Fund
STOCK FUNDS
- - Financial Services Growth Fund
- - Growth Fund
- - Growth and Income Fund
- - Mid Cap Fund
- - Small Cap Fund
- - S&P 500 Index Fund
- - Utility Income Fund
ASSET ALLOCATION FUNDS
- - Balanced Fund
- - Tactical Allocation Fund
GLOBAL FUNDS
- - Asia Pacific Growth Fund
- - Emerging Markets Equity Fund
- - Global Equity Fund
- - Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
- - Aggressive Portfolio
- - Moderate Portfolio
- - Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PAINEWEBBER
-C-1998 PaineWebber Incorporated
Member SIPC
[GRAPHIC]
S E M I A N N U A L R E P O R T
PAINEWEBBER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOND FUNDS
U.S. GOVERNMENT
INCOME FUND
LOW DURATION
U.S. GOVERNMENT
INCOME FUND
INVESTMENT GRADE
INCOME FUND
HIGH INCOME FUND
MAY 31, 1998
