<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW DURATION U.S.
GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT GRADE INCOME FUND, PAINEWEBBER
HIGH INCOME FUND
SEMIANNUAL REPORT
Dear Shareholder, July 15, 1999
We are pleased to present you with the semiannual report for the PaineWebber
U.S. Government Income Fund, PaineWebber Low Duration 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, 1999.
MARKET REVIEW
- ------------------------------------------------------------------------------
[GRAPHIC]
The bond markets went through a two-phase sell-off during the six-month
period ended May 31, 1999. In January, Brazil was forced to devalue its
currency. This devaluation, while bad news for Brazil, did not cause worldwide
problems, as did Russia's devaluation in August 1998. The highly leveraged
investments that destabilized the markets last August were gone by January 1999
and the sell-off was confined largely to Brazil. The contained response
suggested that other countries' economies and financial markets had bottomed and
might start to recover. At the same time, the consensus forecast of 1999 U.S.
economic growth rose significantly, from 2% at year-end 1998 to 3.5% in January
1999, a portent of higher interest rates. Taking these events together,
investors became bearish on bonds, leading to phase one of the sell-off in
February.
Phase two came in late April, when the markets began operating in post-crisis
mode. Oil prices filtered through the consumer price index to remind investors
that global economic improvement could have inflationary consequences for
commodities. The commodity deflation and U.S. dollar strength that resulted from
the Asian crisis had moderated wage increases in the United States, even though
labor was in short supply. Investors had come to fear that low unemployment
without the offsetting commodity deflation would result in higher wage
increases.
The dominant theme driving bond yields changed from deflation contagion to a
reassessment of inflation risk. The Federal Reserve announced a bias toward
raising short-term interest rates, citing as reasons the rapid growth of
domestic demand, reduced global risk and few apparent offsets to inflation.
Investors took this to mean that the Federal Reserve might raise rates at its
June 29-30 Open Market Committee meeting, and bond yields rose in response. The
yield on the 30-year U.S. Treasury bond rose from 5.07% at the beginning of the
period to 5.82% at period-end. The Federal Reserve did in fact raise interest
rates by a quarter-point on June 30, 1999 and adopted a neutral stance on
short-term interest rates. Investors reacted positively, as they interpreted
this announcement to mean the Fed was not planning to raise rates at its meeting
in August.
As the period commenced, yield premiums to Treasurys stood historically high
among the spread sectors--corporate, asset-backed and mortgage-backed securities
that pay higher yields to compensate for their higher risk. The spread sectors
rebounded strongly in the period despite near-record levels of issuance. Toward
the end of the period spreads widened again in response to:
- - Profit-taking in the corporate and mortgage sectors.
- - Heavy net issuance of corporates, asset-backed securities, commercial
mortgage-backed securities and high-yield bonds.
- - Fears that an aggressive Fed rate increase would disrupt the stock market
and cause a "hard landing" of the economy.
1
<PAGE>
[SIDEBAR]
PAINEWEBBER U.S.
GOVERNMENT INCOME FUND
FUND PROFILE
[GRAPHIC] GOAL:
High current income
consistent with preservation of capital
and liquidity
[GRAPHIC] PORTFOLIO MANAGER:
Nirmal Singh,
Mitchell Hutchins
Asset Management Inc.
[GRAPHIC] TOTAL NET ASSETS:
$308.1 million as of
May 31, 1999
[GRAPHIC] DIVIDEND PAYMENTS:
Monthly
PAINEWEBBER
U.S. GOVERNMENT
INCOME FUND
Portfolio Characteristics*
- --------------------------------------
Weighted Avg Life 9.9 Yrs
Weighted Avg Duration 5.41 Yrs
Credit Quality Agency
- --------------------------------------
Asset Allocations*
- --------------------------------------
Mortgages 56.2%
Treasurys 20.6%
Agencies 23.2%
- --------------------------------------
SEMIANNUAL REPORT
OUTLOOK
Most countries except the United States must solve structural economic problems
before they can hit their full stride. Until the countries solve their problems,
the global economy is likely to improve but grow below trend. That said, global
growth and rising commodity prices represent risks to the bond markets. If
inflation rises, then current historically low inflation-risk premiums also
could rise. Productivity growth in the U.S. has reduced inflation for the last
few years, but may not be able to counter rising wage pressures in the future.
In light of our view, we expect the following over the next six months:
- - Market rates to stay in a trading range, with the long bond yielding
5.75-6.25%.
- - The Federal Reserve to raise the short-term interest rate by 50 basis points
(a basis point equals 1/100th of one percent), an increase that appears to be
discounted in the market already.
- - Corporate bond spreads to tighten, based on the strong economy and improved
corporate profits.
- - Spread sectors to outperform Treasurys in a range-bound interest-rate
environment.
- ------------------------------------------------------------------
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE--TOTAL RETURNS FOR SIX MONTHS ENDED 5/31/99
<TABLE>
<CAPTION>
Before Sales Charges After Maximum Sales Charges
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares -1.76% -5.66%
Class B Shares -2.17% -6.94%
Class C Shares -2.02% -2.74%
Class Y Shares -1.61% -1.61%
Lehman Brothers Government Bond Index -1.85% N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund's total return consists of the change in net asset value with any
dividends reinvested. For shareowners who purchased or redeemed Fund shares
during the period, the Fund's total return may be lower because of applicable
sales charges. Class Y Shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS--
All share classes lost money for the six months ended May 31, 1999. Several
classes nonetheless outperformed the Lehman Brothers Government Bond Index (the
"Index"), which lost 1.85% for the period. We attribute the losses to rising
market yields, which affected the entire bond market, and to the Fund's exposure
to U.S. Treasury securities, which lagged other sectors during the period. We
trimmed the Fund's Treasury holdings (20.6%*) and mortgaged-backed securities
(56.2%) and increased exposure to agencies (23.2%). These moves helped the
Fund's performance relative to the Index but did not completely offset the
market losses.
During the period we rotated between agency pass-throughs and agency
debentures based on relative valuations. We are comfortable with the Fund's
current exposure based on our belief that the Federal Reserve is likely to raise
rates moderately, and that the economy will most likely land softly. Also,
spreads to Treasurys are still wider than average and seem likely to narrow.
Consequently, we expect to maintain the Fund's defensive stance, targeting a
lower than normal level of interest rate risk.
* Weightings represent percentage of net assets as of May 31, 1999. The
Fund's portfolio is actively managed and its composition will vary over time.
2
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW DURATION U.S.
GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT GRADE INCOME FUND, PAINEWEBBER
HIGH INCOME FUND
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE--TOTAL RETURNS FOR SIX MONTHS ENDED 5/31/99
<TABLE>
<CAPTION>
Before Sales Charges After Maximum Sales Charges
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares 0.79% -2.09%
Class B Shares 0.42% -2.53%
Class C Shares 0.47% -0.27%
Class Y Shares 0.92% 0.92%
Merrill Lynch 1-3 Year U.S. Treasury Index 1.21% N/A
- -------------------------------------------------------------------------------------------
</TABLE>
The Fund's total return consists of the change in net asset value with any
dividends reinvested. For shareowners who purchased or redeemed Fund shares
during the period, the Fund's total return may be lower because of applicable
sales charges. Class Y Shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS--
Interest rates rose as much as 100 basis points during the six month
period ended May 31, 1999, as signs that inflation was picking up prompted
concern that the Federal Reserve would tighten monetary policy to cool the
expanding economy. The Fed cut interest rates three times last year to avert
credit squeeze and calm financial markets in the face of global economic
turmoil. Since then, the U.S. economy has proved stronger than expected, labor
markets have tightened, the stock market has continued to rise and previously
slumping economies outside the U.S. have begun to recover. While acknowledging
the potentially inflationary impact of these developments, the Fed refrained
from raising rates during the period as other factors worked to restrain
inflation, such as improving productivity and slowing growth in wage costs.
During the period the Fund modestly outperformed its benchmark, the Merrill
Lynch 1-3 Year Treasury Index, despite the sharp rise in interest rates--which
is typically negative for bond prices and returns. The Fund's duration, or
sensitivity to changes in interest rates, was above that of the benchmark during
the period, and detracted from returns as rates climbed. However, the Fund's
sector allocation, which includes an emphasis on mortgage-backed securities
(73.3%*), more than offset the impact of rising rates. Mortgages outpaced
Treasurys during the period as rising rates made homeowners less inclined to
refinance their mortgages or make prepayments, and allowing the Fund and other
investors to take full advantage of mortgages' higher yields.
* Weightings represent percentages of portfolio assets as of May 31, 1999. The
Fund's portfolio is actively managed and its composition will vary over time.
[SIDEBAR]
PAINEWEBBER LOW DURATION
U.S. GOVERNMENT INCOME FUND
FUND PROFILE
GOAL:
High income with
preservation of capital
and low NAV volatility
PORTFOLIO
MANAGER/SUBADVISER:
William Powers
Pacific Investment
Management Company
TOTAL NET ASSETS:
$135.0 million as of
May 31, 1999
DIVIDEND PAYMENTS:
Monthly
PAINEWEBBER LOW DURATION
U.S. GOVERNMENT INCOME FUND
ASSET ALLOCATION
Mortgage Backed Securities 73.3%
Cash & Cash Equivalents 20.4%
U.S. Gov't and Agency Obligations 6.3%
Portfolio Characteristics*
- ----------------------------------------
Weighted Avg Life 3.53 Yrs
Weighted Avg Duration 2.43 Yrs
Credit Quality AAA
- ----------------------------------------
3
<PAGE>
SEMIANNUAL REPORT
GOING FORWARD--
We think inflation will remain relatively subdued over the next six to nine
months, which should foster a more stable, range-bound interest rate
environment. In this setting, we will target duration modestly above the
benchmark to take advantage of higher yields offered by longer-maturity
securities such as mortgages, which we believe remain the most prudent way to
enhance portfolio yield without adding undue risk. We will continue to focus our
mortgage investments in segments of the market where prepayment risk is
minimized, such as discount coupons and collateralized mortgage obligations
(CMOs). We will also place some focus on U.S. Inflation Protected Bonds to take
advantage of high inflation-adjusted yields.
[SIDEBAR]
PAINEWEBBER INVESTMENT
GRADE INCOME FUND
FUND PROFILE
GOAL:
High current income
consistent with
preservation of capital
and liquidity
PORTFOLIO MANAGERS:
Julieanna Berry,
James F. Keegan
Mitchell Hutchins
Asset Managment Inc.
TOTAL NET ASSETS:
$282.1 million as of
May 31, 1999
DIVIDEND PAYMENTS:
Monthly
PAINWEBBER INVESTMENT GRADE INCOME FUND
Top Five Sectors*
U.S. Government/Agencies 17.3%
Finance/Banking 12.0%
Mortgage-Backed Securities 8.8%
Cable/Media 8.6%
Insurance 7.4%
- --------------------------------------------------------------------------------
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE--TOTAL RETURNS FOR SIX MONTHS ENDED 5/31/99
<TABLE>
<CAPTION>
Before Sales Charges After Maximum Sales Charges
- ------------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares -1.76% -5.70%
Class B Shares -2.13% -6.90%
Class C Shares -2.00% -2.72%
Class Y Shares -1.62% -1.62%
Lehman Brothers Corp Bond Index -1.47% N/A
- ------------------------------------------------------------------------------------
</TABLE>
The Fund's total return consists of the change in net asset value with any
dividends reinvested. For share owners who purchased or redeemed Fund shares
during the period, the Fund's total return may be lower because of applicable
sales charges. Class Y Shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS--
All share classes lost money for the six months ended May 31, 1999,
and lagged the Lehman Brothers Corporate Bond Index (the "Index"). We attribute
the losses to rising interest rates, which affected the entire bond market. The
Fund's positioning within the corporate sector helped performance, but not
enough to offset the negative impact of rising rates.
The yield curve flattened (i.e., the differences between short and long
maturities diminished) as we had expected, which produced gains among the Fund's
holdings of higher-coupon, "off-the-run"1 call-protected bonds. We trimmed some
of those positions at a profit: we reduced News Corp from 3.9% to 3.1%,* sold
off Orion Capital Trust 1 and reduced Tele-Communications Inc. (TCI) from 4.4%
to 2.8%. In the last report we mentioned TCI as a potential credit upgrade
pending its acquisition by AT&T. After the acquisition was completed, the Fund's
TCI holdings were upgraded to A3/A from BA2/BB+, a rare, six-notch rise up the
credit-quality scale. Overall, we reduced the Fund's position in higher-coupon,
off-the-run call-protected bonds from 24.6% on November 30, 1998 to 15.9% on May
31, 1999. We believe these core positions will continue to benefit Fund
performance.
(1) "Off-the-run" refers to bonds issued by lesser-known companies,
which trade less actively than the bonds of well-known issuers.
* Weightings represent percentages of portfolio assets as of May 31, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
4
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW DURATION U.S.
GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT GRADE INCOME FUND, PAINEWEBBER
HIGH INCOME FUND
SEMIANNUAL REPORT
GOING FORWARD--
We think we are still in a maturing credit cycle, and believe that industry
allocation and security selection will be the keys to performance. We expect to
maintain the Fund's defensive orientation with an emphasis on domestic issuers.
The Fund now has a slightly shorter-than-normal duration as a defense against
rising interest rates. (Duration is a measure of interest rate risk.) We intend
to continue making opportunistic use of crossovers2 and the upper tier of the
high-yield market as permitted.
We expect to continue the Fund's emphasis on stable industries with favorable
risk/return characteristics. Our current favorites include*:
- - INDEPENDENT FINANCE COMPANIES (e.g., consumer/commercial lenders)--profit
margins are still wide and credit quality is strong; with no recession in
sight, we expect these companies will outperform.
- - MONOLINE CONSUMER CREDIT COMPANIES (e.g., credit card issuers)--attractive
for the same reasons as independent finance companies.
- - INSURANCE COMPANIES--high credit quality and higher yields vs. comparably
rated banks and industrials make these issuers attractive in most market
environments.
- - CABLE/MEDIA COMPANIES--acquisition targets now, as telecommunications
companies seek direct access into consumers' homes, the last mile of their
business. Also a source of steady, reliable earnings and therefore a sector
of high credit quality.
- ----------------------------------------------------------------------------
PAINEWEBBER HIGH INCOME FUND
REPORT HIGHLIGHTS--
- - Communications remained the Fund's largest sector, with an emphasis on
international long distance companies.*
- - Fund performance was hurt by the two-phase sell-off between 11/30/98 and
5/31/99 and by the Fund's exposure to smaller issues, which generally fared
worse than the overall market. We began reorienting the Fund toward larger
issues.
- - With spreads above average and issuance likely to tail off, we think the
high-yield sector is poised to outperform.
PERFORMANCE--TOTAL RETURNS OF SIX MONTHS ENDED 5/31/99
<TABLE>
<CAPTION>
Before Sales Charges After Maximum Sales Charges
- --------------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares 3.86% -0.33%
Class B Shares 3.63% -1.31%
Class C Shares 3.61% 2.87%
Class Y Shares 4.15% 4.15%
CS First Boston High Yield Index 2.53% N/A
- ---------------------------------------------------------------------------------------
</TABLE>
The Fund's total return consists of the change in net asset value with any
dividends reinvested. For shareowners who purchased or redeemed Fund shares
during the period, the Fund's total return may be lower because of applicable
sales charges. Class Y Shares are not subject to sales charges.
(2) Companies that straddle the investment-grade and noninvestment-grade
sectors of the market.
* Weightings represent percentages of portfolio assets as of May 31, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
[SIDEBAR]
PAINEWEBBER
INVESTMENT GRADE
INCOME FUND
Portfolio Quality*
AAA 24.3% BB 17.2%
AA 7.5% B 1.7%
A 24.6% Below B 1.6%
BBB 21.8% Cash 1.3%
PAINEWEBBER HIGH
INCOME FUND
FUND PROFILE
GOAL:
High income
PORTFOLIO MANAGER/SUBADVISER:
Thomas J. Libassi,
Mitchell Hutchins Asset
Management Inc.
TOTAL NET ASSETS:
$497.7 million as of May 31, 1999
DIVIDEND PAYMENTS:
Monthly
5
<PAGE>
SEMIANNUAL REPORT
[SIDEBAR]
PAINWEBBER
HIGH INCOME FUND
Credit Quality*
22.5% BB & Higher 15.0% Non-Rated
49.7% B 2.2% Cash
4.6% CCC & Lower 6.0% Equity/Preferred
TOP FIVE SECTORS*
Communications (fixed) 16.3%
Cable 9.5%
Service 9.2%
Technology 7.4%
Food & Beverage 5.0%
PORTFOLIO STATISTICS*
- ------------------------------------
Weighted Avg Life 7.79 Yrs
Weighted Avg Duration 5.01 Yrs
Weighted Avg Price $84.51
- ------------------------------------
HIGHLIGHTS--
Smaller issues can still be attractive, though we now demand a higher
return to compensate for the higher risk of owning them. Mostly we are
looking at secondary market purchases, where the bonds may be available at
discounts to face value and may include enhancements such as equity
participation. Because of our higher demands, the Fund's allocation to
smaller issues dropped from 48.9% in July 1998 to 41.7% as of May 31, 1999.*
The Fund's largest sector weighting remains fixed communications (16.3%),
where we are emphasizing international long distance companies. Two companies
we like are Viatel (3.1%), which is building a European fiber optic network,
and Barak (0.7%), a competitive long distance carrier in Israel. In the U.S.
we continue to focus on companies with extensive fiber optic networks such as
Metromedia Fiber (1.4%) and Northeast Optic Network (0.6%). While we still
find competitive local exchange carriers attractive, we are opting to take
profits given their significant price appreciation. In cable, the second
largest sector weighting, we favor new entrants that offer integrated voice
data and video, such as RCN Corporation (1.0%).
The entire healthcare sector has suffered because of the distress in one
of its sub-sectors, long-term healthcare. As a result, we think other
sub-sectors offer attractive prices without the distress. The Fund is
underweighted in the sector overall (2.9%), but we are opportunistically
buying bonds from sub-sectors such as acute-care hospitals, which we believe
are cheap yet still have strong fundamentals. The Fund recently purchased
bonds issued by Triad Hospitals (0.6%), a new issuer in the market. The Triad
bonds were offered at some of the best prices we've seen in the healthcare
sector in a long time.
We are applying the same opportunistic sub-sector strategy in the energy
sector (5.0%), where we favor oil service companies over exploration and
production companies. For example, the Fund purchased Pride International
(0.5%), an offshore services company that focuses on deepwater operations.
Deepwater work is more expensive and requires rig operators to make
longer-term commitments to the service companies--which makes the oil service
companies' interest payments more reliable.
As a result of the interest rate backup at the end of May, high-yield
spreads have widened somewhat. In light of this widening we intend to focus more
on BB-rated bonds, which now yield around 9%. We expect new bond issuance to
remain lighter through 1999 than it was in 1998--in fact, we think we may be
seeing this year's surge of issuance now, as borrowers rush to market ahead of
year-end and potential Y2K problems. If supply diminishes later in the year, we
believe spreads will tighten again, so this seems like a good time to take
advantage of the attractive yields in BB credits.
GOING FORWARD--
Our 1999 outlook is for gross domestic product growth of about 3% and
inflation around 2%. We do not see any signs of recession. High-yield spreads
are still well above the 15-year average of 491 basis points and new issuance
continues at a rate below the 1998 level despite the increase in April and May.
We expect the high-yield sector to outperform against a backdrop of range-bound
interest rates. Solid fundamentals and slowly improving technicals should also
help support the market. Credit analysis of individual companies remains
critical, however, since quality and price vary so greatly in the high-yield
market.
* Weightings represent percentages of portfolio assets as of May 31, 1999. The
Fund's portfolio is actively managed and its composition will vary over time.
6
<PAGE>
SEMIANNUAL REPORT
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
REVIEW on the PaineWebber U.S. Government Income Fund, the PaineWebber Low
Duration U.S. Government Income Fund, the PaineWebber Investment Grade Income
Fund, the PaineWebber High Income Fund, or another fund in the PaineWebber
Family of Funds,3 please contact your Financial Advisor.
Sincerely,
/s/ Margo Alexander /s/ Brian M. Storms /s/ Dennis l. McCauley
MARGO ALEXANDER BRIAN M. STORMS DENNIS L. MCCAULEY
Chairman and President and Chief Investment Officer -
Chief Executive Officer Chief Operating Officer Fixed Income
Mitchell Hutchins Mitchell Hutchins Mitchell Hutchins
Asset Management Inc. Asset Management Inc. Asset Management Inc.
/s/ Nirmal Singh /s/ William C. Powers /s/ Julieanna M. Berry
NIRMAL SINGH WILLIAM C. POWERS JULIEANNA M. BERRY
Portfolio Manager, Managing Director, Pacific Portfolio Manager,
PaineWebber U.S. Investment Management PaineWebber Investment
Government Income Fund Company Porfolio Manager, Grade Income Fund
PaineWebber Low Duration
U.S. Government Income Fund
/s/ James F. Keegan /s/ Thomas J. Libassi
JAMES F. KEEGAN THOMAS J. LIBASSI
Portfolio Manager, Portfolio Manager,
PaineWebber Investment PaineWebber High
Grade 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, 1999, and reflects
our views at the time of its writing. Of course, these views may change in
response to changing circumstances. We encourage you to consult your
Financial Advisor regarding your personal investment program.
(3) 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.
7
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
---------------------------------------- -----------------------------------
12 MONTHS ENDED 6 MONTHS
05/31/99 11/30/98 05/31/98 05/31/99 ENDED 05/31/99
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Class A Shares $8.79 $9.20 $9.00 3.43% (1.76)%
- ---------------------------------------------------------------------------------------------------------------
Class B Shares 8.79 9.20 9.00 2.56 (2.17)
- ---------------------------------------------------------------------------------------------------------------
Class C Shares 8.78 9.19 8.99 2.88 (2.02)
- ---------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------
1998 9.00 9.18 -- 0.5128 7.91
- ---------------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 9.18 8.79 -- 0.1986 (2.11)
- ---------------------------------------------------------------------------------------------------------------
Total: $0.0080 $11.3183
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 200.60%
- ---------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------
1998 9.00 9.18 -- 0.4379 7.03
- ---------------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 9.18 8.79 -- 0.1697 (2.43)
- ---------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $4.1943
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 45.81%
- ---------------------------------------------------------------------------------------------------------------
</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. Total return
for periods of less than one year has not been annualized.
(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.
8
<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
- ----------------------------------------------------------------------------------------------------------
1998 8.99 9.17 -- 0.4660 7.36
- ----------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 9.17 8.78 -- 0.1801 (2.31)
- ----------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 3.6651
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 28.66%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN(1)
<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 06/30/99 1.29% 0.46% 0.77% (2.79)% (4.33)% 0.05%
- -----------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/99 5.78 4.96 5.22 4.92 4.64 5.22
- -----------------------------------------------------------------------------------------------------------
Ten Years Ended 06/30/99 6.18 N/A N/A 5.75 N/A N/A
- -----------------------------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/99+ 7.63 4.70 3.52 7.33 4.70 3.52
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
would be lower if sales charges were included. Total return for periods of
less than one year has not been annualized.
* 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, 1999 and since inception, September 11, 1991 through May 31, 1999, Class Y
shares have a total return of (1.61)% and 49.25%, respectively. For the twelve
months ended June 30, 1999, the five years ended June 30, 1999 and for the
period since inception through June 30, 1999, Class Y shares have an average
annual total return of 1.61%, 6.08% and 5.14%, 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.
9
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
----------------------------------- -------------------------------
12 MONTHS 6 MONTHS
05/31/99 11/30/98 05/31/98 ENDED 05/31/99 ENDED 05/31/99
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Class A Shares $ 2.34 $ 2.38 $ 2.38 3.66% 0.79%
- ------------------------------------------------------------------------------------------------------
Class B Shares 2.34 2.38 2.38 2.84 0.42
- ------------------------------------------------------------------------------------------------------
Class C Shares 2.34 2.38 2.38 2.99 0.47
- ------------------------------------------------------------------------------------------------------
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 -- 0.1307 7.05
- ------------------------------------------------------------------------------------------------------
1998 2.37 2.39 -- 0.1272 6.36
- ------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 2.39 2.34 -- 0.0476 (0.11)
- ------------------------------------------------------------------------------------------------------
Totals: $0.0000 $ 0.7801
- ------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 30.29%
- ------------------------------------------------------------------------------------------------------
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 -- 0.1115 6.19
- ------------------------------------------------------------------------------------------------------
1998 2.37 2.38 -- 0.1077 5.06
- ------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 2.38 2.34 -- 0.0400 0.03
- ------------------------------------------------------------------------------------------------------
Totals: $0.0000 $ 0.6641
- ------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 24.11%
- ------------------------------------------------------------------------------------------------------
</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. Total return for periods of less
than one year has not been annualized.
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 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 -- 0.1167 6.43
- -----------------------------------------------------------------------------------------------------------
1998 2.37 2.38 -- 0.1124 5.27
- -----------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 2.38 2.34 -- 0.0415 0.06
- -----------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 0.6968
- -----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 25.80%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN(1)
<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 06/30/99 3.03% 1.80% 1.94% 0.09% (1.12)% 1.21%
- --------------------------------------------------------------------------------------
Five Years Ended 06/30/99 6.48 5.53 5.76 5.83 5.53 5.76
- --------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/99+ 4.38 3.57 3.71 3.85 3.57 3.71
- --------------------------------------------------------------------------------------
</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. Total return for periods of less than one year
has not been annualized.
* 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, 1999 and since inception, October 20, 1995 through May 31, 1999, Class Y
shares have a total return of 0.92% and 23.36%, respectively. For the twelve
months ended June 30, 1999 and for the period since inception through June 30,
1999, Class Y shares have an average annual return of 3.29% and 5.86%,
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.
11
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
---------------------------------------- -------------------------------
12 MONTHS 6 MONTHS
05/31/99 11/30/98 05/31/98 ENDED 05/31/99 ENDED 05/31/99
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Class A Shares $ 10.28 $ 10.79 $10.97 (0.04)% (1.76)%
- ----------------------------------------------------------------------------------------------------------
Class B Shares 10.28 10.79 10.97 (0.80) (2.13)
- ----------------------------------------------------------------------------------------------------------
Class C Shares 10.28 10.79 10.97 (0.54) (2.00)
- ----------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------
1998 10.92 10.72 -- 0.7104 4.77
- ----------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 10.72 10.28 -- 0.2572 (1.73)
- ----------------------------------------------------------------------------------------------------------
Totals: $ 0.0404 $ 12.7516
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 276.60%
- ----------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------
1998 10.92 10.71 -- 0.6280 3.88
- ----------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 10.71 10.28 -- 0.2257 (1.93)
- ----------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $5.3804
- ----------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 76.87%
- ----------------------------------------------------------------------------------------------------------
</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. Total return
for periods of less than one year has not been annualized.
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 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
- ------------------------------------------------------------------------------------------------------------
1998 10.92 10.72 -- 0.6568 4.25
- ------------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 10.72 10.28 -- 0.2369 (1.92)
- ------------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 4.7354
- ------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 53.84%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN(1)
<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 06/30/99 (1.91)% (2.55)% (2.38)% (5.83)% (7.16)% (3.07)%
- -------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/99 7.74 6.94 7.21 6.88 6.63 7.21
- -------------------------------------------------------------------------------------------------------
Ten Years Ended 06/30/99 8.19 N/A N/A 7.74 N/A N/A
- -------------------------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/99+ 9.31 7.31 6.26 9.01 7.31 6.26
- -------------------------------------------------------------------------------------------------------
</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. Total return for periods of
less than one year has not been annualized.
* 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, 1999 and since inception, February 20, 1998 through May 31, 1999, Class Y
shares have a total return of (1.62)% and 1.83%, respectively. For the twelve
months ended June 30, 1999 and for the period since inception through June 30,
1999, Class Y shares have an average annual return of (1.53)% and 0.97%,
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.
13
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
-------------------------------------- --------------------------------
12 MONTHS ENDED 6 MONTHS
05/31/99 11/30/98 05/31/98 05/31/99 ENDED 05/31/99
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Class A Shares $6.56 $6.66 $7.80 (6.83)% 3.86%
- --------------------------------------------------------------------------------------------------------
Class B Shares 6.56 6.65 7.80 (7.55) 3.63
- --------------------------------------------------------------------------------------------------------
Class C Shares 6.57 6.67 7.81 (7.28) 3.61
- --------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------
1998 7.64 6.54 -- 0.6627 (6.22)
- --------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 6.54 6.56 -- 0.2730 4.54
- --------------------------------------------------------------------------------------------------------
Totals: $0.0825 $ 14.6006
- --------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 306.77%
- --------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------
1998 7.64 6.53 -- 0.6071 (7.06)
- --------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 6.53 6.56 -- 0.2532 4.39
- --------------------------------------------------------------------------------------------------------
Totals: $0.0000 $5.8779
- --------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 110.74%
- --------------------------------------------------------------------------------------------------------
</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. Total return
for periods of less than one year has not been annualized.
(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.
14
<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
- ---------------------------------------------------------------------------------------------------------
1998 7.65 6.55 -- 0.6269 (6.66)
- ---------------------------------------------------------------------------------------------------------
01/01/99-05/31/99 6.55 6.57 -- 0.2604 4.34
- ---------------------------------------------------------------------------------------------------------
Totals: $ 0.0000 $ 5.0096
- ---------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/99: 62.68%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN(1)
<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 06/30/99 (5.90)% (6.49)% (6.35)% (9.61)% (10.74)% (6.99)%
- ----------------------------------------------------------------------------------------
Five Years Ended 06/30/99 5.89 5.13 5.37 5.03 4.87 5.37
- ----------------------------------------------------------------------------------------
Ten Years Ended 06/30/99 9.53 N/A N/A 9.08 N/A N/A
- ----------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/99+ 9.98 9.88 7.33 9.68 9.88 7.33
- ----------------------------------------------------------------------------------------
</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. Total return for periods of
less than one year has not been annualized.
* 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, 1999 and since inception, February 20, 1998 through May 31, 1999, Class Y
shares have a total return of 4.15% and (4.63)%, respectively. For the twelve
months ended June 30, 1999 and for the period since inception through June 30,
1999, Class Y shares have an average annual total return of (5.54)% and (2.80)%,
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.
15
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1999(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------------- ----------------- -----------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--43.78%
$ 18,915 FHLMC Medium Term Notes....... 03/18/08 6.220% $ 18,511,297
26,800(1) FNMA.......................... 01/15/09 5.250 24,996,065
28,500(1) FNMA Medium Term Notes........ 04/29/09 6.500 28,038,044
34,200(1) United States Treasury
Bonds........................ 08/15/13 to 02/15/29 5.250 to 12.000 41,163,476
15,400* United States Treasury
Bonds........................ 11/15/14 11.750 22,161,570
-----------------
134,870,452
Total U.S. Government and Agency
Obligations (cost--$139,507,574).......
-----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--3.97%
5,605 GNMA.......................... 04/15/19 8.250 5,923,717
4,784 GNMA.......................... 08/15/09 9.000 5,157,058
1,033 GNMA.......................... 06/15/11 to 02/15/16 11.000 1,148,456
-----------------
Total Government National Mortgage 12,229,231
Association Certificates
(cost--$12,172,910)....................
-----------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--20.44%
2,762* FHLMC CMT ARM................. 10/01/23 7.283 2,856,808
8,444 FHLMC......................... 04/01/25 9.000 9,103,943
1,260 FHLMC......................... 06/01/04 to 12/01/05 10.500 1,348,198
3,700* FHLMC......................... 01/01/16 11.000 4,049,824
6,500 FHLMC Gold 30 Year TBA........ TBA 7.000 6,512,187
40,000 FHLMC Gold 30 Year TBA........ TBA 6.500 39,112,480
-----------------
Total Federal Home Loan Mortgage 62,983,440
Corporation Certificates
(cost--$63,403,022)....................
-----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--19.63%
12,013 FNMA.......................... 08/01/28 to 04/01/29 6.000 11,419,238
10,884 FNMA.......................... 09/01/12 to 11/01/13 6.500 10,843,978
2,372 FNMA.......................... 05/01/24 to 07/01/25 7.500 2,421,492
6,212 FNMA.......................... 9/1/25 8.500 6,562,590
1,779 FNMA.......................... 05/01/09 9.000 1,886,458
28,000 FNMA 30 year TBA.............. TBA 6.500 27,352,500
-----------------
60,486,256
Total Federal National Mortgage
Association Certificates
(cost--$61,040,131)....................
-----------------
COLLATERALIZED MORTGAGE OBLIGATIONS--18.41%
4,599 Amresco Commercial Mortgage
Funding I Corp., Series
1997-C1, Class A1............ 06/17/29 6.730 4,638,656
1,713 CS First Boston Mortgage
Securities Corp., Series
1997-2, Class A.............. 06/25/20 7.500 1,699,267
5,000 CS First Boston Mortgage
Securities Corp., Series
1998-C2, Class A2............ 11/11/30 6.300 4,862,700
3,892 DLJ Commercial Mortgage Corp.
Series 1998-CF2, Class A1A... 11/12/31 5.880 3,777,252
1,873 FDIC REMIC Trust, 1996-C1,
Class 1A..................... 05/25/26 6.750 1,862,214
4,602 FNMA REMIC Series 1987-2,
Class Z...................... 11/25/17 11.000 5,064,528
5,000 FNMA REMIC Series 1993-87,
Class J...................... 04/25/22 6.250 4,835,578
712 FNMA REMIC Series 1996-M6,
Class E...................... 09/17/19 7.750 711,490
3,773 FNMA REMIC Series 1998-7,
Class Z...................... 04/25/18 9.250 3,975,833
</TABLE>
16
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------------- ----------------- -----------------
<C> <S> <C> <C> <C>
</TABLE>
COLLATERALIZED MORTGAGE OBLIGATIONS (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$ 4,537 GMAC Commercial Mortgage
Securities, Inc., Series
1996-C1, Class A2A........... 09/15/03 6.790% $ 4,575,920
6,805 LB Commercial Conduit Mortgage
Trust, Series 1998-C4, Class
A1A.......................... 10/15/35 5.870 6,636,861
4,000 Morgan Stanley Capital I,
Series 1997-AL1C, Class
A1B.......................... 11/15/02 6.440 3,996,840
5,084 Morgan Stanley Capital I,
Series 1997-WFI, Class A1+... 10/15/06 6.830 5,169,280
4,935 Mortgage Capital Funding, Inc.
Series 1998-MCI, Class A2.... 01/18/08 6.663 4,919,949
-----------------
Total Collateralized Mortgage Obligations
(cost--$57,409,321).................... 56,726,368
-----------------
SHORT-TERM U.S. GOVERNMENT OBLIGATIONS--19.45%
60,000 Federal Home Loan Mortgage
Discount Notes
(cost--$59,929,500).......... 06/10/99 4.700@ 59,929,500
-----------------
REPURCHASE AGREEMENT--2.16%
6,636 Repurchase Agreement dated
05/28/99 with SG Warburg,
collateralized by $5,248,000
U.S. Treasury Bonds, 10.375%
due 11/15/12
(value--$6,769,920);
proceeds: $6,639,539 (cost--
$6,636,000).................. 06/01/99 4.800 6,636,000
-----------------
Total Investments
(cost--$400,098,458)--127.84%.......... 393,861,247
Liabilities in excess of other
assets--(27.84)%....................... (85,771,562)
-----------------
Net Assets--100.00%...................... $ 308,089,685
-----------------
-----------------
</TABLE>
- ---------------
@ Yield to maturity for discounted securities.
+ Security exempt from registration under 144A of the Securities Act of 1933.
These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ARM Adjustable Rate Mortgage Security--The interest rates shown are the current
rates at May 31, 1999.
CMT Constant Maturity Treasury.
FDIC Federal Deposit Insurance Corporation.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned) Securities are purchased on a forward commitment with an
approximate principal amount (generally +/- 1.0%) and generally stated
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
* Entire or partial amount pledged as collateral for futures transactions.
(1) Security, or portion thereof, was on loan at May 31, 1999.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF IN EXPIRATION APPRECIATION
CONTRACTS EXCHANGE FOR DATE (DEPRECIATION)
- ---------- ------------- ---------- ---------------
<C> <S> <C> <C> <C>
Contracts to Deliver--2 year
262 U.S. Treasury Notes.......... $54,512,375 Sept 99 $ 106,438
Contracts to Deliver--5 year
441 U.S. Treasury Notes.......... 48,062,109 Sept 99 220,766
Contracts to Deliver--10 year
196 U.S. Treasury Notes.......... 21,860,125 Sept 99 186,000
Contracts to Receive--30 year
385 U.S. Treasury Bonds.......... 45,225,469 Sept 99 (185,072)
---------------
$ 328,132
---------------
---------------
</TABLE>
See accompanying notes to financial statements
17
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1999(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------------- ----------------- -----------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY CORPORATION OBLIGATIONS--25.72%
$ 25,200 Federal Home Loan Mortgage
Discount Notes@.............. 06/04/99 to 06/21/99 4.690 to 4.770% $ 25,173,642
10 U.S. Treasury Bills@.......... 06/24/99 4.490 9,966
9,716 U.S. Treasury Inflation Index
Notes........................ 07/15/02 to 01/15/09 3.375 to 3.875 9,545,551
-----------------
Total U.S. Government and Agency
Obligations (cost--$34,668,025)........ 34,729,159
-----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--26.06%
100 GNMA.......................... 02/15/23 8.000 103,438
5,681 GNMA.......................... 01/15/16 to 09/15/20 10.500 6,275,787
3,176 GNMA.......................... 03/15/10 to 05/15/19 11.500 3,583,739
2,876 GNMA II ARM................... 12/20/22 to 12/20/23 6.125 2,922,242
1,285 GNMA II ARM................... 01/20/18 6.375 1,313,463
7,039 GNMA II ARM................... 04/20/26 6.875 7,152,773
10,000 GNMA TBA...................... TBA 6.000 9,465,620
4,500 GNMA TBA...................... TBA 6.500 4,381,875
-----------------
Total Government National Mortgage
Association Certificates
(cost--$35,537,081).................... 35,198,937
-----------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--6.27%
76 FHLMC......................... 01/01/23 8.000 78,934
2,218 FHLMC......................... 05/01/16 8.500 2,326,478
272 FHLMC......................... 07/01/09 to 02/01/10 9.000 288,390
721 FHLMC......................... 11/01/16 9.750 772,677
764 FHLMC......................... 10/01/20 to 11/01/20 10.500 834,009
2,076 FHLMC......................... 05/01/11 to 12/01/20 11.000 2,287,313
1,624 FHLMC......................... 06/01/04 to 07/01/19 11.500 1,799,094
80 FHLMC TBA..................... TBA 6.000 76,000
-----------------
Total Federal Home Loan Mortgage
Corporation Certificates
(cost--$8,360,204)..................... 8,462,895
-----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--22.93%
931 FNMA.......................... 06/25/09 6.500 928,016
3,038 FNMA.......................... 04/20/27 7.500 3,007,783
1,547 FNMA.......................... 02/01/05 9.000 1,593,410
3,194 FNMA.......................... 04/01/10 to 12/01/15 9.250 3,397,433
410 FNMA.......................... 03/01/06 to 12/01/09 9.500 437,248
584 FNMA.......................... 04/01/10 to 06/01/19 10.250 627,794
1,368 FNMA.......................... 11/01/10 to 04/01/22 10.500 1,483,306
2,026 FNMA.......................... 07/01/13 to 05/01/20 11.000 2,241,126
3,472 FNMA ARM...................... 11/01/27 6.548 3,510,733
2,232 FNMA ARM...................... 09/01/15 6.902 2,272,833
3,373 FNMA ARM...................... 09/01/26 7.045 3,456,751
8,000 FNMA Medium Term Notes........ 10/23/00 to 12/19/00 4.840 to 6.030 8,011,244
-----------------
Total Federal National Mortgage
Association Certificates
(cost--$31,091,738).................... 30,967,677
-----------------
</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>
COLLATERALIZED MORTGAGE OBLIGATIONS--26.83%
$ 4,967 Citicorp Mortgage Securities
Incorporated, Series 1998-8,
Class A3..................... 09/25/28 6.750% $ 4,836,283
5,000 CMC Securities Corporation,
Series 1994-G, Class A4...... 09/25/24 7.000 4,887,700
2,315 Money Store Home Equity Trust,
Series 1997-D, Class AF3..... 11/15/21 6.345 2,323,879
1,809 Nationsbanc Montgomery Funding
Corporation, Series 1998-4,
Class A2..................... 10/25/28 6.250 1,599,709
6,000 Norwest Asset Securities
Corporation, Series 1998-30,
Class A17.................... 12/25/28 6.250 5,594,640
11,500 PNC Mortgage Securities
Corporation, Series 1998-9,
Class 1A3.................... 10/25/28 to 11/25/28 6.750 11,186,160
3,500 Prudential Securities CMO
Trust, Series 18, Class E.... 09/25/20 7.000 3,506,569
2,202 Ryland Mortgage Acceptance
Corporation, Series 76, Class
B, REMIC..................... 08/01/18 9.000 2,294,626
-----------------
Total Collateralized Mortgage Obligations
(cost--$37,270,380).......................... 36,229,566
-----------------
COMMERCIAL PAPER--0.96%
500 Coca Cola Company............. 06/11/99 4.790 499,154
800 Ford Motor Credit
Corporation.................. 06/03/99 4.790 799,787
-----------------
Total Commercial Paper (cost--$1,299,122)...... 1,298,941
-----------------
<CAPTION>
NUMBER OF
OPTIONS
- --------------
<C> <S> <C> <C> <C>
OPTIONS--0.01%
53 U.S. Treasury Notes, strike 414
price $96.25, expiring June
1999+........................
56 U.S. Treasury Notes, strike 7,438
price $94.42, expiring June
1999+........................
-----------------
Total Options (cost--$86,187).................. 7,852
-----------------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
- --------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--3.21%
$ 4,334 Repurchase Agreement dated
05/28/99 with State Street
Bank & Trust Company,
collateralized by $4,645,000
U.S. Treasury Bonds, 4.750%
due 05/25/00
(value--$4,424,363);
proceeds: $4,335,926
(cost--$4,334,000)........... 06/01/99 4.000 4,334,000
-----------------
Total Investments
(cost--$152,646,737)--111.99%................ 151,229,027
Liabilities in excess of other
assets--(11.99)%............................. (16,186,263)
-----------------
Net Assets--100.00%............................ $ 135,042,764
-----------------
-----------------
</TABLE>
- ---------------
@ Yield to maturity for discounted securities.
+ Illiquid securities representing 0.01% of net assets.
ARM Adjustable Rate Mortgage Security, the interest rate shown is the current
rate at May 31, 1999.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with an approximate principal amount (generally +/- 1.0%) and generally
stated maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(1) Security, or a portion thereof, was on loan at May 31, 1999.
19
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
NUMBER EXPIRATION EXERCISE
OF OPTIONS UNDERLYING CONTRACT DATE PRICE VALUE
---------- ----------------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
WRITTEN OPTIONS
Call..................... 89 U.S. Treasury Bonds June 99 $97.27 $ 9,039
Call..................... 94 U.S. Treasury Notes June 99 96.53 21,297
--------
Total Written Options
(Premiums
Received--$85,914)....... $ 30,336
--------
--------
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1999(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ---------- --------------------- ------------------ ------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--13.29%
$ 6,900 U.S. Treasury Bonds........... 08/15/13 to 02/15/21 7.875 to 12.000% $ 8,937,105
18,370 U.S. Treasury Notes(1)........ 09/30/00 to 08/15/05 5.250 to 6.500 18,574,673
10,000 Federal Home Loan Mortgage
Discount Notes............... 06/16/99 4.700@ 9,980,417
------------------
Total U.S. Government and Agency
Obligations (cost--$38,070,744).......... 37,492,195
------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--1.59%
4,274 GNMA (cost--$4,512,031)....... 06/15/17 to 11/15/17 8.000 4,499,614
------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--2.47%
7,480 FHLMC (cost--$7,327,829)...... 10/15/08 5.125 6,979,595
------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--8.58%
3,000 FNMA(1)....................... 01/15/09 5.250 2,798,067
22,500 FNMA TBA...................... TBA 6.000 21,396,105
------------------
Total Federal National Mortgage Association
Certificates (cost--$24,606,704)......... 24,194,172
------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--1.72%
5,000 CS First Boston Mortgage
Securities Corporation,
Series 1998-C2, Class A2
(cost--$5,071,735)........... 11/15/08 6.300 4,862,700
------------------
CORPORATE BONDS--69.47%
AIRLINES--1.13%
2,500 Delta Air Lines
Incorporated................. 12/15/22 10.375 3,185,588
------------------
AUTOMOTIVE MANUFACTURING--1.73%
5,000 Lear Corporation.............. 05/15/05 7.960 4,885,020
------------------
BANKING--7.15%
5,000 Citigroup..................... 11/01/04 8.625 5,065,075
3,000 GS Escrow Corporation......... 08/01/05 7.125 2,914,194
7,000 Providian Capital I........... 02/01/27 9.525 6,852,258
5,000 Southtrust Bank Alabama....... 05/15/25 7.690 5,350,955
------------------
20,182,482
------------------
BROKER-DEALER--5.39%
5,695 Donaldson Lufkin & Jenrette... 04/01/02 5.875 5,600,651
5,000 Lehman Brothers Holdings
Incorporated................. 04/01/04 6.625 4,917,530
5,000 Merrill Lynch & Company
Incorporated................. 02/17/09 6.000 4,694,050
------------------
15,212,231
------------------
CABLE--5.88%
3,050 CSC Holdings Incorporated..... 07/15/18 7.625 2,931,812
</TABLE>
21
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ---------- --------------------- ------------------ ------------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONTINUED)
CABLE (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$ 7,000 TCI Communications
Incorporated................. 03/31/27 9.650% $ 8,319,108
5,000 TKR Cable Incorporated........ 10/30/07 10.500 5,345,000
------------------
16,595,920
------------------
CHEMICALS--2.63%
4,000 Equistar Chemical............. 02/15/04 8.500 4,060,984
3,335 Lyondell Chemical Company..... 05/01/07 9.875 3,351,675
------------------
7,412,659
------------------
DIVERSIFIED INDUSTRIES--1.00%
3,000 Mark IV Industries
Incorporated................. 09/01/07 7.500 2,809,728
------------------
FINANCIAL SERVICES--5.65%
5,000 AT&T Capital Corporation
Medium Term Note(1).......... 11/15/00 7.500 5,057,100
3,000 Associates Corporation North
America...................... 11/01/08 6.250 2,895,588
2,000 Household International
Netherlands B V.............. 12/01/03 6.200 1,963,468
3,750 Macsaver Financial Services
Incorporated................. 02/15/02 7.400 3,112,500
3,000 MBNA Corporation.............. 12/01/26 8.278 2,922,117
------------------
15,950,773
------------------
FOREST PRODUCTS--0.71%
2,000 Tembec Industries
Incorporated................. 06/30/09 8.625 2,010,000
------------------
HEALTHCARE--3.22%
4,500 Columbia/HCA Healthcare
Corporation.................. 03/30/04 to 02/10/10 7.150 to 8.700 4,269,529
5,000 Tenet Healthcare
Corporation.................. 12/01/08 8.125 4,825,000
------------------
9,094,529
------------------
HOTELS/GAMING--3.49%
3,443 Circus Circus Enterprises
Incorporated................. 07/15/03 6.750 3,270,909
3,000 Isle of Capri Casinos
Incorporated................. 04/15/09 8.750 2,835,000
4,000 MGM Grand Incorporated........ 02/01/05 6.950 3,751,460
------------------
9,857,369
------------------
INDUSTRIAL PRODUCTS & SERVICES--2.11%
1,000 Owens Corning................. 08/01/18 7.500 953,217
5,000 Tyco International Group SA... 06/15/01 6.125 4,989,595
------------------
5,942,812
------------------
INSURANCE--7.88%
800 Chubb Corporation............. 11/15/99 8.750 800,000
5,000 Hartford Financial Services
Group Incorporated........... 11/01/08 6.375 4,881,380
7,000 Lumbermans Mutual Casualty
Company...................... 07/01/26 9.150 7,482,902
3,000 Markel Capital Trust.......... 01/01/46 8.710 2,740,851
4,000 USF&G Corporation............. 07/01/46 8.312 4,231,856
</TABLE>
22
<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% $ 2,083,302
------------------
22,220,291
------------------
MEDIA--3.31%
8,700 News America Holdings
Incorporated................. 10/15/12 to 10/17/96 7.900 to 10.125 9,324,871
------------------
OIL & GAS--1.40%
3,750 Occidental Petroleum
Corporation.................. 06/01/19 11.125 3,949,313
------------------
RETAIL--4.18%
5,950 May Department Stores
Company...................... 06/15/21 9.875 6,573,203
3,000 Saks Incorporated............. 12/01/04 7.250 3,011,286
2,000 Shopko Stores................. 03/15/22 9.250 2,191,472
------------------
11,775,961
------------------
TELEPHONE--1.68%
5,000 US West Capital Funding
Incorporated................. 07/15/08 to 07/15/28 6.375 to 6.875 4,741,599
------------------
TOBACCO--4.25%
5,500 Imperial Tobacco Overseas B
V............................ 04/01/09 7.125 5,324,363
4,000 Phillip Morris Companies
Incorporated................. 07/01/08 to 01/15/27 7.650 to 7.750 4,142,429
2,560 RJ Reynolds Tobacco........... 05/15/03 7.375 2,535,352
------------------
12,002,144
------------------
UTILITIES--2.03%
5,000 Commonwealth Edison Company... 06/15/20 9.875 5,735,175
------------------
YANKEE--4.65%
7,300 Loewen Group International
Incorporated(1).............. 10/15/03 to 06/01/08 7.600 to 8.250 4,453,000
1,565 Metronet Communications
Corporation.................. 08/15/07 12.000 1,799,750
2,000 Rogers Cantel Incorporated.... 06/01/08 9.375 2,100,000
5,000 Socgen Real Estate LLC........ 12/29/49 7.640 4,751,085
------------------
13,103,835
------------------
Total Corporate Bonds
(cost--$201,346,531)..................... 195,992,300
------------------
</TABLE>
23
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES MATURITY DATES INTEREST RATES VALUE
- ---------- --------------------- ------------------ ------------------
<C> <S> <C> <C> <C>
PREFERRED STOCK--3.64%
160,000 California Federal Preferred 9.125% $ 4,300,000
Capital Corporation..........
5,500 Centaur Funding............... 9.080 5,957,189
------------------
Total Preferred Stock (cost--$9,500,000)... 10,257,189
------------------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
- ----------
<C> <S> <C> <C> <C>
</TABLE>
<TABLE>
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS--5.58%
$ 7,000 Repurchase Agreement dated
05/28/99 with Dresdner Bank,
collateralized by $6,924,000
U.S. Treasury Notes, 5.625%
due 11/30/99
(value--$7,140,375);
proceeds: $7,003,733........ 06/01/99 4.800 7,000,000
8,742 Repurchase Agreement dated
05/28/99 with State Street
Bank & Trust Company,
collateralized by $6,965,000
U.S. Treasury Bonds, 8.750%
due 05/15/17
(value--$8,961,169);
proceeds: $8,746,653........ 06/01/99 4.790 8,742,000
------------------
15,742,000
Total Repurchase Agreements
(cost--$15,742,000)......................
------------------
300,019,765
Total Investments
(cost--$306,177,574)--106.34%............
(17,888,393)
Liabilities in excess of other
assets--(6.34)%..........................
------------------
$ 282,131,372
Net Assets--100.00%........................
------------------
------------------
</TABLE>
- ---------------
@ Yield to maturity for discounted securities.
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with an approximate principal amount (generally +/- 1.0%) and generally
stated maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(1) Security, or a portion thereof, was on loan at May 31, 1999
See accompanying notes to financial statements
24
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1999(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ---------- -------------- ------------------ ------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--88.08%
AUTOMOTIVE--1.69%
$ 2,500 Federal-Mogul Corporation**... 01/15/09 7.500% $ 2,334,275
3,000 HDA Parts Systems
Incorporated**............... 08/01/05 12.000 2,910,000
3,150 JL French Automotive
Casting**.................... 06/01/09 11.500 3,181,500
------------------
8,425,775
------------------
CABLE--9.29%
11,850 @Entertainment Incorporated... 07/15/08 14.500+ 5,688,000
2,650 @Entertainment
Incorporated**............... 02/01/09 14.500+ 1,272,000
2,875 EchoStar DBS Corporation**.... 02/01/09 9.375 2,925,313
17,000 Knology Holdings
Incorporated................. 10/15/07 11.875+ 10,200,000
5,000 NTL Incorporated**............ 10/01/08 11.500 5,550,000
9,500 Park 'N View Incorporated..... 05/15/08 13.000 2,850,000
7,250 RCN Corporation............... 10/15/07 11.125+ 4,785,000
12,750 21st Century Telecom Group
Incorporated................. 02/15/08 12.250+ 5,865,000
10,000 UIH Australia Pacific
Incorporated................. 05/15/06 14.000+ 7,100,000
------------------
46,235,313
------------------
CHEMICALS--0.97%
4,800 Lyondell Chemical Company**... 05/01/07 9.875 4,824,000
------------------
COMMUNICATIONS-FIXED--14.21%
8,313 Alestra S.A.**................ 05/15/06 12.125 7,938,915
4,500 Allegiance Telecom
Incorporated................. 05/15/08 12.875 4,860,000
6,300 Barak ITC..................... 11/15/07 12.500+ 3,622,500
4,750 Esprit Telecom Group PLC...... 06/15/08 10.875 4,999,375
3,750 Facilicom International
Incorporated................. 01/15/08 10.500 2,925,000
2,000 Flag Limited.................. 01/30/08 8.250 1,900,000
8,215 GST Equipment Funding
Incorporated................. 05/01/07 13.250 8,872,200
4,050 Hyperion Telecommunications
Incorporated................. 09/01/04 12.250 4,252,500
2,000 Hyperion Telecommunications
Incorporated**............... 11/01/07 12.000 2,040,000
6,500 Metromedia Fiber Network
Incorporated................. 11/15/08 10.000 6,776,250
4,125 NEXTLINK Communications
Incorporated................. 06/01/09 10.750 4,125,000
3,000 NorthEast Optic Network
Incorporated................. 08/15/08 12.750 3,090,000
6,750 Pathnet Incorporated.......... 04/15/08 12.250 3,780,000
3,500# Tele1 Europe BV**............. 05/15/09 13.000 3,535,000
12,250 Viatel Incorporated........... 04/15/08 12.500+ 7,993,125
------------------
70,709,865
------------------
COMMUNICATIONS-MOBILE--3.23%
5,750# ICO Global Communications
Limited...................... 08/01/05 15.000 2,990,000
19,750 Nextel International
Incorporated................. 04/15/08 12.125+ 10,072,500
5,250 Spectrasite Holdings
Incorporated**............... 04/15/09 11.250+ 2,992,500
------------------
16,055,000
------------------
CONSUMER MANUFACTURING--3.10%
4,490 Apparel Ventures
Incorporated(a).............. 12/31/00 12.250 898,000
6,000 Commemorative Brands
Incorporated................. 01/15/07 11.000 4,020,000
</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 (CONTINUED)
CONSUMER MANUFACTURING (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$ 4,000 Decora Industries
Incorporated................. 05/01/05 11.000% $ 3,845,000
3,750 Jafra Cosmetics International
Incorporated................. 05/01/08 11.750 3,225,000
3,500 Westpoint Stevens
Incorporated................. 06/15/08 7.875 3,456,250
------------------
15,444,250
------------------
ENERGY--4.94%
7,500 Grant Geophysical
Incorporated................. 02/15/08 9.750 3,975,000
4,000 GulfMark Offshore
Incorporated................. 06/01/08 8.750 3,770,000
3,625# Key Energy Services
Incorporated**............... 01/15/09 14.000 3,706,563
5,500 Northern Offshore ASA......... 05/15/05 10.000 2,805,000
2,500 Orion Refining
Corporation**................ 12/01/03 15.000 2,475,000
2,700 Pride International
Incorporated................. 06/01/09 10.000 2,716,875
5,750 R & B Falcon Corporation**.... 12/15/08 9.500 5,117,500
------------------
24,565,938
------------------
FINANCE--4.71%
6,000 Airplanes Pass-Through
Trust........................ 03/15/19 10.875 5,880,000
6,000 Olympic Financial Limited..... 03/15/07 11.500 5,100,000
5,500 Signet Capital Trust I........ 08/15/07 9.500 3,850,000
9,000 Superior National Insurance
Group........................ 12/01/17 10.750 8,640,000
------------------
23,470,000
------------------
FOOD & BEVERAGE--4.89%
9,500 Iowa Select Farms L.P.**...... 12/01/05 10.750 7,932,500
6,625# Mrs. Field's Holding Company
Incorporated**............... 12/01/05 14.000+ 3,279,375
5,000 Mrs. Field's Original Cookies
Incorporated................. 12/01/04 10.125 4,700,000
8,500 Packaged Ice Incorporated..... 02/01/05 9.750 8,415,000
------------------
24,326,875
------------------
GAMING--1.01%
3,000 Hollywood Casino
Corporation**................ 05/01/07 11.250 2,992,500
2,125 Park Place Entertainment
Corporation.................. 12/15/05 7.875 2,040,000
------------------
5,032,500
------------------
GENERAL INDUSTRIAL--3.78%
2,000 Coltec Industries
Incorporated................. 04/15/08 7.500 1,980,000
2,000 Indesco International
Incorporated................. 04/15/08 9.750 1,520,000
5,000 J.B. Poindexter & Company
Incorporated................. 05/15/04 12.500 4,750,000
3,850 Jordan Telecommunication
Products..................... 08/01/07 9.875 3,869,250
2,650 Jordan Telecommunication
Products..................... 08/01/07 11.750+ 2,252,500
5,000 Sabreliner Corporation**...... 06/15/08 11.000 4,425,000
------------------
18,796,750
------------------
HEALTHCARE--2.86%
6,860 Fresenius Medical Care Capital
Trust........................ 02/01/08 7.875 6,551,300
2,000 InSight Health Services
Corporation.................. 06/15/08 9.625 2,010,000
3,000 Tenet Healthcare
Corporation**................ 12/01/08 8.125 2,895,000
</TABLE>
26
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ---------- -------------- ------------------ ------------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONTINUED)
HEALTHCARE (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$ 2,700 Triad Hospitals Holdings
Incorporated**............... 05/15/09 11.000% $ 2,760,750
------------------
14,217,050
------------------
HOTELS & LODGING--3.16%
5,150 Host Marriott LP**............ 02/15/06 8.375 4,995,500
5,000 Raintree Resorts International
Incorporated................. 12/01/04 13.000 3,200,000
2,875 Signature Resorts
Incorporated................. 05/15/06 9.250 2,760,000
5,750 Silverleaf Resorts
Incorporated................. 04/01/08 10.500 4,772,500
------------------
15,728,000
------------------
MEDIA--2.71%
19,500 Inter Act Systems
Incorporated................. 08/01/03 14.000+ 8,190,000
7,000 Source Media Incorporated..... 11/01/04 12.000 5,320,000
------------------
13,510,000
------------------
METALS--1.13%
5,125 Metal Management
Incorporated................. 05/15/08 10.000 4,074,375
1,500 National Steel
Corporation**................ 03/01/09 9.875 1,530,000
------------------
5,604,375
------------------
PAPER & PACKAGING--1.27%
3,125 Packaging Corporation of
America**.................... 04/01/09 9.625 3,191,406
3,000 Portola Packaging
Incorporated................. 10/01/05 10.750 3,120,000
------------------
6,311,406
------------------
REAL ESTATE--2.28%
6,500 American Architectural
Products Corporation......... 12/01/07 11.750 5,070,000
3,550 D.R. Horton Incorporated...... 02/01/09 8.000 3,425,750
2,875 Forest City Enterprise
Incorporated................. 03/15/08 8.500 2,875,000
------------------
11,370,750
------------------
RESTAURANTS--0.45%
2,500 American Restaurant Group
Incorporated................. 02/15/03 11.500 2,256,250
------------------
RETAIL--2.77%
3,000 Advance Holding Corporation... 04/15/09 12.875+ 1,792,500
3,250 Advance Stores Company
Incorporated................. 04/15/08 10.250 3,233,750
5,000 Ames Department Stores
Incorporated**............... 04/15/06 10.000 4,925,000
565 Big 5 Corporation............. 11/15/07 10.875 589,013
3,105 Tuesday Morning Corporation... 12/15/07 11.000 3,229,200
------------------
13,769,463
------------------
SERVICE--6.96%
5,500 American Eco Corporation...... 05/15/08 9.625 3,300,000
6,000 Ameriserve Food Distribution
Incorporated................. 07/15/07 10.125 5,160,000
2,750 Atlantic Express
Transportation Corporation... 02/01/04 10.750 2,784,375
5,250 Budget Group Incorporated**... 04/01/06 9.125 5,040,000
</TABLE>
27
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ---------- -------------- ------------------ ------------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONCLUDED)
SERVICE (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$ 3,750 Nationwide Credit
Incorporated................. 01/15/08 10.250% $ 2,643,750
5,000 Nuco2 Incorporated++.......... 10/31/04 12.000 4,975,000
4,250 Premier Graphics
Incorporated**............... 12/01/05 11.500 4,165,000
5,250 Protection One
Incorporated**............... 01/15/09 8.125 5,066,250
1,500# Waste Systems International
Incorporated**............... 01/15/06 11.500 1,500,000
------------------
34,634,375
------------------
TECHNOLOGY--6.05%
3,000 Ampex Corporation++........... 03/15/03 12.000 3,120,000
13,700 Electronic Retailing Systems
International Incorporated... 02/01/04 13.250+ 4,384,000
4,250 Fairchild Semiconductor
Corporation.................. 03/15/07 10.125 4,239,375
2,000 Rhythms NetConnections
Incorporated**............... 04/15/09 12.750 1,880,000
4,750 Samsung Electronics America
Incorporated**............... 05/01/03 9.750 4,845,000
5,250 Verio Incorporated**.......... 12/01/08 11.250 5,538,750
10,000 Wam! Net Incorporated......... 03/01/05 13.250+ 6,100,000
------------------
30,107,125
------------------
TRANSPORTATION--4.72%
2,015 American Reefer Company
Limited...................... 03/01/08 10.250 1,269,450
7,000 Equimar Shipholdings
Limited...................... 07/01/07 9.875 4,760,000
3,000 Millenium Seacarriers
Incorporated................. 07/15/05 12.000 1,860,000
2,750# Navigator Gas Transport
PLC**........................ 06/30/07 12.000 1,072,500
4,000 Navigator Gas Transport
PLC**........................ 06/30/07 10.500 2,440,000
6,250 Stena AB...................... 06/15/07 8.750 5,812,500
10,540 TFM S.A. de C.V............... 06/15/09 11.750+ 6,271,300
------------------
23,485,750
------------------
UTILITIES--1.90%
3,825 Calpine Corporation........... 04/01/08 7.875 3,777,188
5,589 Panda Funding Corporation..... 08/20/12 11.625 5,700,318
------------------
9,477,506
------------------
Total Corporate Bonds 438,358,316
(cost--$505,052,293).....................
------------------
CONVERTIBLE BONDS--1.47%
COMMUNICATIONS-FIXED--0.52%
1,925 GST Telecommunications
Incorporated................. 12/15/05 13.875+ 2,579,500
------------------
SERVICE--0.95%
5,381 Waste Systems International
Incorporated**............... 05/13/05 7.000 4,734,864
------------------
Total Convertible Bonds 7,314,364
(cost--$6,908,737).......................
------------------
</TABLE>
28
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -------------
<C> <S> <C>
COMMON STOCK(A)--5.59%
COMMUNICATIONS-FIXED--1.45%
160,919 Viatel Incorporated..................... $ 7,241,336
-------------
COMMUNICATIONS-MOBILE--0.00%
100 ICO Global Communications Limited....... 850
-------------
FOOD & BEVERAGE--0.09%
74,223 Packaged Ice Incorporated............... 426,782
-------------
GAMING--0.18%
541,666 Hollywood Casino Corporation............ 914,061
-------------
GENERAL INDUSTRIAL--0.09%
1,400 Communications & Power.................. 210,000
1,250 Jordan Telecommunication Products....... 250,000
-------------
460,000
-------------
MEDIA--0.36%
12,000 Affiliated Newspaper Investments
Incorporated........................... 1,800,000
-------------
RETAIL--1.13%
666,011 Samuels Jewelers Incorporated++......... 2,747,295
140,000 Tuesday Morning Corporation............. 2,870,000
-------------
5,617,295
-------------
SERVICE--1.17%
854,550 Waste Systems International
Incorporated........................... 5,821,622
-------------
TECHNOLOGY--1.12%
696,328 Ampex Corporation++..................... 3,089,956
44,700 Source Media Incorporated............... 737,550
31,792 Verio Incorporated...................... 1,724,716
-------------
5,552,222
-------------
Total Common Stock (cost--$14,880,888)............... 27,834,168
-------------
PREFERRED STOCK--2.28%
CABLE--0.12%
1,184 21st Century Telecom Group
Incorporated**......................... 615,867
-------------
ENERGY--0.02%
103,736 Orion(a)................................ 70,852
443,370 TCR Holdings(a)......................... 26,355
-------------
97,207
-------------
GENERAL INDUSTRIAL--1.05%
33,377 Communications & Power.................. 3,604,681
</TABLE>
29
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -------------
<C> <S> <C>
</TABLE>
PREFERRED STOCK (CONCLUDED)
GENERAL INDUSTRIAL (CONCLUDED)
<TABLE>
<C> <S> <C>
1,571 Jordan Telecommunications Products...... $ 1,602,420
-------------
5,207,101
-------------
MEDIA--0.37%
97,632 Source Media Incorporated............... 1,855,008
-------------
PAPER & PACKAGING--0.16%
7,500 Packaging Corporation of America**(a)... 783,750
-------------
RESTAURANTS--0.56%
2,800 American Restaurant Group
Incorporated........................... 2,800,000
-------------
Total Preferred Stock (cost--$9,662,537)............. 11,358,933
-------------
<CAPTION>
NUMBER OF
WARRANTS
- ----------
<C> <S> <C>
WARRANTS(a)--0.37%
CABLE--0.06%
58,000 @Entertainment Incorporated............. 221,700
17,000 Knology Holdings Incorporated........... 42,500
9,500 Park 'N View Incorporated............... 95
1,000 21st Century Telecom Group
Incorporated........................... 20,000
10,000 UIH Australia Pacific Incorporated...... 10,000
-------------
294,295
-------------
COMMUNICATIONS-FIXED--0.01%
6,750 Pathnet Incorporated.................... 67,500
-------------
COMMUNICATIONS-MOBILE--0.01%
15,750 McCaw International Limited............. 39,375
-------------
CONSUMER MANUFACTURING--0.00%
8,718 AVI Holdings Incorporated............... 87
-------------
FINANCIAL SERVICES--0.00%
6,000 Olympic Financial Limited............... 6,000
-------------
GENERAL INDUSTRIAL--0.02%
8,400 Sabreliner Corporation.................. 84,000
-------------
HOTELS & LODGING--0.00%
5,000 Club Regina Resorts Incorporated........ 5,000
-------------
MEDIA--0.02%
19,500 Inter Act Systems Incorporated.......... 117,000
-------------
</TABLE>
30
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
- ---------- -------------
<C> <S> <C>
WARRANTS(a)--(CONCLUDED)
RESTAURANTS--0.00%
2,500 Amercian Restaurant Group
Incorporated........................... $ 25
-------------
RETAIL--0.00%
13,146 Samuels Jewelers Incorporated++......... 131
-------------
SERVICE--0.10%
109,290 NuCo2 Incorporated++.................... 450,821
22,500 Waste Systems International
Incorporated**......................... 22,500
-------------
473,321
-------------
TECHNOLOGY--0.15%
13,700 Electronic Retailing Systems
International Incorporated............. 68,500
30,000 Wam! Net Incorporated................... 682,500
-------------
751,000
-------------
TRANSPORTATION--0.00%
3,000 Millenium Seacarriers Incorporated...... 375
-------------
Total Warrants (cost--$606,188)...................... 1,838,109
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATE INTEREST RATE
- ---------- ------------- ------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--1.50%
$ 7,460 Repurchase Agreement dated
05/28/99 with SG Cowen
Securities Corporation,
collaterized by $6,957,000
U.S. Treasury notes, 7.000%
due 07/15/06
(value--$7,609,219);
proceeds: $7,463,979
(cost--$7,460,000)........... 06/01/99 4.800% 7,460,000
------------------
Total Investments 494,163,890
(cost--$544,570,643)--99.29%...............
Other assets in excess of 3,509,331
liabilities--0.71%.........................
------------------
Net Assets--100.00%........................ $ 497,673,221
------------------
------------------
</TABLE>
- ---------------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities representing 2.9% of net assets
+ 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.
(a) Non-income producing security.
See accompanying notes to financial statements
31
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1999(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--$400,098,458,
$152,646,737, $306,177,574
and $544,570,643,
respectively)............... $ 393,861,247 $ 151,229,027 $ 300,019,765 $ 494,163,890
Investments of cash collateral
received for securities
loaned, at value............ 83,213,125 -- 9,758,505 --
Cash.......................... 477 899 -- 82,591
Receivable for investments
sold........................ 18,293,808 14,066,655 -- 1,151,448
Dividends and interest
receivable.................. 3,319,869 1,003,821 5,229,075 10,557,486
Receivable for shares of
beneficial interest sold.... 278,461 1,683,127 272,053 327,098
Variation margin receivable... 75,328 -- -- --
Other assets.................. 49,543 24,315 52,237 27,436
------------- ---------------- -------------- --------------
Total assets.................. 499,091,858 168,007,844 315,331,635 506,309,949
------------- ---------------- -------------- --------------
LIABILITIES
Payable for investments
purchased................... 105,837,349 32,273,620 21,626,406 6,126,657
Payable for cash collateral on
securities loaned........... 83,213,125 -- 9,758,505 --
Payable for shares of
beneficial interest
repurchased................. 855,556 236,671 893,884 946,496
Dividends payable............. 305,560 126,855 332,387 938,488
Payable to affiliates......... 219,885 120,608 216,054 468,120
Outstanding options written... -- 30,336 -- --
Payable to custodian.......... -- -- 124,005 --
Accrued expenses and other
liabilities................. 570,698 176,990 249,022 156,967
------------- ---------------- -------------- --------------
Total liabilities............. 191,002,173 32,965,080 33,200,263 8,636,728
------------- ---------------- -------------- --------------
NET ASSETS
Beneficial interest--$0.001
par value (unlimited amount
authorized)................. 402,883,889 253,545,094 307,288,187 674,406,760
Undistributed (distributions
in excess of) net investment
income...................... (357,056) (53,767) (432,247) 3,149,448
Accumulated net realized
losses from investments,
futures and options
transactions................ (88,528,069) (117,086,431) (18,566,759) (129,476,234)
Net unrealized depreciation of
investments, futures and
options..................... (5,909,079) (1,362,132) (6,157,809) (50,406,753)
------------- ---------------- -------------- --------------
Net assets.................... $ 308,089,685 $ 135,042,764 $ 282,131,372 $ 497,673,221
------------- ---------------- -------------- --------------
------------- ---------------- -------------- --------------
CLASS A:
Net assets.................... $ 256,152,135 $ 49,506,902 $ 210,910,593 $ 240,723,053
------------- ---------------- -------------- --------------
Shares outstanding............ 29,136,237 21,152,492 20,508,441 36,675,626
------------- ---------------- -------------- --------------
Net asset value and redemption
value per share............. $8.79 $ 2.34 $ 10.28 $ 6.56
----- ----- ------ -----
----- ----- ------ -----
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)................ $9.16 $ 2.41 $ 10.71 $ 6.83
----- ----- ------ -----
----- ----- ------ -----
CLASS B:
Net assets.................... $ 17,308,549 $ 7,443,175 $ 33,875,294 $ 158,712,094
------------- ---------------- -------------- --------------
Shares outstanding............ 1,968,457 3,184,950 3,294,839 24,202,538
------------- ---------------- -------------- --------------
Net asset value and offering
price per share............. $8.79 $ 2.34 $ 10.28 $ 6.56
----- ----- ------ -----
----- ----- ------ -----
CLASS C:
Net assets.................... $ 22,830,380 $ 73,229,603 $ 33,527,014 $ 95,645,283
------------- ---------------- -------------- --------------
Shares outstanding............ 2,599,297 31,321,663 3,260,228 14,553,257
------------- ---------------- -------------- --------------
Net asset value and offering
price per share............. $8.78 $ 2.34 $ 10.28 $ 6.57
----- ----- ------ -----
----- ----- ------ -----
CLASS Y:
Net assets.................... $ 11,798,621 $ 4,863,084 $ 3,818,471 $ 2,592,791
------------- ---------------- -------------- --------------
Shares outstanding............ 1,343,379 2,077,479 371,037 395,459
------------- ---------------- -------------- --------------
Net asset value, offering
price and redemption value
per share................... $8.78 $ 2.34 $ 10.29 $ 6.56
----- ----- ------ -----
----- ----- ------ -----
</TABLE>
See accompanying notes to financial statements
32
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MAY 31, 1999 (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........ $ 10,673,230 $ 4,192,176 $ 10,163,478 $29,659,288
------------ ---------------- -------------- -------------
EXPENSES:
Investment advisory and
administration.............. 808,604 352,553 723,547 1,281,360
Service fees--Class A......... 335,210 67,119 267,353 312,306
Service and distribution
fees--Class B............... 97,715 38,833 187,941 819,910
Service and distribution
fees--Class C............... 90,512 285,227 129,992 361,044
Transfer agency fees.......... 200,040 67,971 107,402 185,769
Custody and accounting........ 105,860 36,183 60,670 127,830
Legal and audit............... 43,363 42,413 38,795 35,087
State registration fees....... 42,809 20,477 21,016 29,325
Reports and notices to
shareholders................ 33,264 24,390 31,084 40,961
Trustees' fees................ 5,250 5,250 5,250 5,250
Other expenses................ 29,983 5,494 1,325 17,414
------------ ---------------- -------------- -------------
1,792,610 945,910 1,574,375 3,216,256
------------ ---------------- -------------- -------------
Net investment income......... 8,880,620 3,246,266 8,589,103 26,443,032
------------ ---------------- -------------- -------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains (losses)
from:
Investment transactions... (2,550,958) (641,472) 288,579 (4,117,942)
Futures contracts......... (862,298) 27,627 -- --
Options written........... 7,064 6,651 -- --
Net change in unrealized
appreciation/depreciation
of:
Investments............... (11,035,384) (1,793,583) (14,124,131) (3,123,867)
Futures................... (131,922) (90,732) -- --
Options written........... -- 55,578 -- --
------------ ---------------- -------------- -------------
NET REALIZED AND UNREALIZED
LOSSES FROM INVESTMENT
ACTIVITIES.................. (14,573,498) (2,435,931) (13,835,552) (7,241,809)
------------ ---------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ (5,692,878) $ 810,335 $ (5,246,449) $19,201,223
------------ ---------------- -------------- -------------
------------ ---------------- -------------- -------------
</TABLE>
See accompanying notes to financial statements
33
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1999 ENDED
(UNAUDITED) NOVEMBER 30, 1998
------------------- ---------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 8,880,620 $ 19,576,582
Net realized gain (loss) from
investments, futures and options
transactions.......................... (3,406,192) 13,098,352
Net change in unrealized (depreciation)
of investments, futures and options... (11,167,306) (3,380,726)
------------------- ---------------------
Net increase (decrease) in net assets
resulting from operations............. (5,692,878) 29,294,208
------------------- ---------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (7,467,308) (16,195,457)
Net investment income--Class B.......... (461,768) (1,439,609)
Net investment income--Class C.......... (610,049) (1,345,864)
Net investment income--Class Y.......... (341,025) (597,497)
------------------- ---------------------
Total dividends to shareholders......... (8,880,150) (19,578,427)
------------------- ---------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 30,346,281 38,402,796
Cost of shares repurchased.............. (51,259,789) (89,609,394)
Proceeds from dividends reinvested...... 5,152,063 11,399,759
------------------- ---------------------
Net decrease in net assets from
beneficial interest transactions...... (15,761,445) (39,806,839)
------------------- ---------------------
Net decrease in net assets.............. (30,334,473) (30,091,058)
NET ASSETS:
Beginning of period..................... 338,424,158 368,515,216
------------------- ---------------------
End of period........................... $308,089,685 $338,424,158
------------------- ---------------------
------------------- ---------------------
</TABLE>
See accompanying notes to financial statements
34
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1999 ENDED
(UNAUDITED) NOVEMBER 30, 1998
------------------- ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 3,246,266 $ 7,056,302
Net realized gain (loss) from
investments, futures and options
transactions.......................... (607,194) 1,721,327
Net change in unrealized
appreciation/depreciation of
investments, futures and options...... (1,828,737) (881,954)
------------------- ------------------
Net increase in net assets resulting
from operations....................... 810,335 7,895,675
------------------- ------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (1,339,200) (2,595,938)
Net investment income--Class B.......... (162,047) (339,772)
Net investment income--Class C.......... (1,652,052) (4,024,907)
Net investment income--Class Y.......... (92,967) (95,059)
------------------- ------------------
Total dividends to shareholders......... (3,246,266) (7,055,676)
------------------- ------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 53,988,715 162,076,404
Cost of shares repurchased.............. (70,949,407) (148,445,808)
Proceeds from dividends reinvested...... 2,430,251 4,889,431
------------------- ------------------
Net increase (decrease) in net assets
from beneficial interest
transactions.......................... (14,530,441) 18,520,027
------------------- ------------------
Net increase (decrease) in net assets... (16,966,372) 19,360,026
NET ASSETS:
Beginning of period..................... 152,009,136 132,649,110
------------------- ------------------
End of period........................... $135,042,764 $ 152,009,136
------------------- ------------------
------------------- ------------------
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1999 ENDED
(UNAUDITED) NOVEMBER 30, 1998
------------------- ---------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 8,589,103 $ 18,614,816
Net realized gains from investments and
futures transactions.................. 288,579 3,442,068
Net change in unrealized
appreciation/depreciation of
investments and futures............... (14,124,131) (4,988,889)
------------------- ---------------------
Net increase (decrease) in net assets
resulting from operations............. (5,246,449) 17,067,995
------------------- ---------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (6,583,178) (14,293,057)
Net investment income--Class B.......... (1,011,026) (2,398,710)
Net investment income--Class C.......... (979,286) (1,897,687)
Net investment income--Class Y.......... (106,000) (77,963)
------------------- ---------------------
Total dividends to shareholders......... (8,679,490) (18,667,417)
------------------- ---------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 36,742,354 56,988,242
Cost of shares repurchased.............. (40,085,936) (57,228,784)
Proceeds from dividends reinvested...... 4,735,574 10,000,701
------------------- ---------------------
Net increase in net assets from
beneficial interest transactions...... 1,391,992 9,760,159
------------------- ---------------------
Net increase (decrease) in net assets... (12,533,947) 8,160,737
NET ASSETS:
Beginning of period..................... 294,665,319 286,504,582
------------------- ---------------------
End of period........................... $282,131,372 $294,665,319
------------------- ---------------------
------------------- ---------------------
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
PAINEWEBBER HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1999 ENDED
(UNAUDITED) NOVEMBER 30, 1998
------------------- ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 26,443,032 $ 52,937,390
Net realized losses from investment
transactions.......................... (4,117,942) (10,507,346)
Net change in unrealized
appreciation/depreciation of
investments........................... (3,123,867) (67,542,481)
------------------- ------------------
Net increase (decrease) in net assets
resulting from operations............. 19,201,223 (25,112,437)
------------------- ------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (13,281,785) (24,137,016)
Net investment income--Class B.......... (8,091,034) (17,410,119)
Net investment income--Class C.......... (4,878,574) (9,462,206)
Net investment income--Class Y.......... (133,000) (120,615)
------------------- ------------------
Total dividends to shareholders......... (26,384,393) (51,129,956)
------------------- ------------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 92,823,986 199,547,214
Cost of shares repurchased.............. (137,503,186) (234,206,542)
Proceeds from dividends reinvested...... 12,364,962 23,335,096
------------------- ------------------
Net decrease in net assets from
beneficial interest transactions...... (32,314,238) (11,324,232)
------------------- ------------------
Net decrease in net assets.............. (39,497,408) (87,566,625)
NET ASSETS:
Beginning of period..................... 537,170,629 624,737,254
------------------- ------------------
End of period (including undistributed
net investment income of $3,149,448
and $3,090,809, respectively)......... $ 497,673,221 $ 537,170,629
------------------- ------------------
------------------- ------------------
</TABLE>
See accompanying notes to financial statements
37
<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 seven 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, PaineWebber Asia Pacific Growth Fund and PaineWebber
Tax-Managed Equity Fund. The financial statements for PaineWebber Utility Income
Fund, PaineWebber Asia Pacific Growth Fund and PaineWebber Tax-Managed Equity
Fund are not included herein.
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--The Funds calculate their net asset value based on
the current market value for the portfolio securities. The Funds normally obtain
market quotations for their securities from independent pricing services and
broker-dealers. Independent pricing services use reported last sale prices,
current market quotations or valuations from computerized "matrix" systems that
derive values based on comparable securities. A matrix system incorporates
parameters such as security quality, maturity and coupon, and/or research and
evaluations by its staff, including review of broker-dealer market price
quotations, if available, in determining the valuation of the portfolio
securities. Securities traded in the over-the-counter ("OTC") market and listed
on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at the last sale
price on Nasdaq prior to valuation. Other OTC securities are valued at the last
bid price available prior to valuation. Securities which are listed on U.S. and
foreign stock exchanges normally are valued at the last sale price on the day
the securities are valued or, lacking any sales on such day, at the last
available bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by 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.
Securities and assets for which market quotations are not readily available, are
valued at fair value as determined in good faith by or under the direction of
the Trust's board of trustees (the "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,
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
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.
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
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
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 and Low Duration U.S. Government Income Fund primarily
used written options for the enhancement of income to the Funds.
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 board. 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, 1999, no fund had used reverse
repurchase agreements.
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, 1999 were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME LOW DURATION U.S.
FUND GOVERNMENT INCOME FUND
----------------------- -----------------------
NUMBER OF NUMBER OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Options outstanding at November 30, 1998............. 0 $ 0 0 $ 0
Options written...................................... 1,210 595,006 216 92,565
Options terminated in closing purchase
transactions....................................... (1,210) (595,006) 0 0
Options expired...................................... 0 0 (33) (6,651)
---------- ----------- ---------- -----------
Options outstanding at May 31, 1999.................. 0 $ 0 183 $ 85,914
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
The board 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, 1999,
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
U.S. Government Income Fund, Low Duration U.S. Government Income Fund,
Investment Grade Income Fund and High Income Fund owed Mitchell Hutchins
$132,404, $57,053, $120,182 and $216,787, respectively, in investment advisory
and administration fees.
Under a separate contract with Mitchell Hutchins ("Sub-Advisory Contract"),
Pacific Investment Management Company ("PIMCO") serves as the sub-adviser for
Low Duration U.S. Government Income Fund. Under the Sub-Advisory Contract,
Mitchell Hutchins (not the Fund) pays PIMCO a fee, computed daily and payable
monthly, in an amount equal to one-half of the advisory fee received by 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, 1999, U.S. Government Income Fund, Low Duration U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund owed
Mitchell Hutchins $84,454, $63,555, $95,401 and $251,333, 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, 1999, it earned $39,169, $25,324, $75,544
and $414,729 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, 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, 1999 from the following Funds:
<TABLE>
<S> <C>
U.S. Government Income Fund....................................... $ 3,457
Investment Grade Income Fund...................................... $ 6,102
</TABLE>
At May 31, 1999, the U.S. Government Income Fund and the Investment Grade
Income Fund owed PaineWebber $3,027 and $471, respectively, in security lending
fees.
For the six months ended May 31, 1999, the U.S. Government Income Fund and
Investment Grade Income Fund earned compensation of $10,382 and $18,292 net of
fees, rebates and expenses from securities lending transactions.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
As of May 31, 1999, each Fund held cash and/or cash equivalents as collateral
for securities loaned as follows:
<TABLE>
<CAPTION>
COLLATERAL MARKET
FOR VALUES OF
SECURITIES SECURITIES
LOANED LOANED
------------ -----------
<S> <C> <C>
U.S. Government Income Fund................................................ $83,213,125 $80,014,109
Investment Grade Income Fund............................................... $9,758,505 $ 9,431,207
</TABLE>
As of May 31, 1999 the Funds invested the collateral in the following money
market funds:
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -----------
<C> <S> <C>
U.S. Government Income Fund
15,663,897 Janus Investment Fund...................................................... $15,663,897
7,059,256 Liquid Assets Portfolio.................................................... 7,059,256
60,489,972 MH Private Money Market Fund LLC........................................... 60,489,972
-----------
Total investments of cash collateral received for securities on loan
(cost--$83,213,125)...................................................... $83,213,125
-----------
-----------
</TABLE>
Investment Grade Income Fund
<TABLE>
<C> <S> <C>
2,768,538 Janus Investment Fund............................................. $2,768,538
420,332 Liquid Assets Portfolio........................................... 420,332
6,569,635 MH Private Money Market Fund LLC.................................. 6,569,635
----------
Total investments of cash collateral received for securities on
loan (cost--$9,758,505)......................................... $9,758,505
----------
----------
</TABLE>
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 sales or purchases 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, 1999, 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, 1999, PaineWebber received from PFPC Inc., not the Funds,
approximately 54%, 55%, 54% and 50% 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.
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1999
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1999, the components of the net unrealized depreciation 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)......................................................... $ 440,959 $ 695,183 $3,328,671 $ 24,028,663
Gross depreciation (investments having an excess of cost over
value)........................................................ (6,678,170) (2,112,893) (9,486,480) (74,435,416)
------------ --------------- ------------ ------------
Net unrealized depreciation of investments...................... $(6,237,211) $ (1,417,710) $(6,157,809) $(50,406,753)
------------ --------------- ------------ ------------
------------ --------------- ------------ ------------
</TABLE>
For the six months ended May 31, 1999, 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..................................................... $ 780,112,882 $ 180,521,855 $ 283,334,434 $ 192,457,663
Sales......................................................... $ 773,344,736 $ 255,824,943 $ 279,838,040 $ 219,795,876
</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, 1998, 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 $84,620,234, $116,388,503, $18,781,340 and
$122,502,193, 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, 1999 and November 30, 2006.
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.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized for each Fund. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
--------------------------- ------------------------ ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT INCOME
FUND
SIX MONTHS ENDED MAY 31, 1999:
Shares sold............ 1,317,640 $ 11,724,126 340,922 $ 3,060,221 394,778 $ 3,590,972 1,332,131 $ 11,970,962
Shares repurchased..... (3,567,254) (32,012,173) (286,422) (2,583,860) (569,018) (5,154,480) (1,282,141) (11,509,276)
Shares converted from
Class B to Class A.... 648,966 5,865,846 (648,843) (5,865,846) -- -- -- --
Dividends reinvested... 461,181 4,161,678 28,182 254,522 44,794 403,739 36,879 332,124
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ (1,139,467) $ (10,260,523) (566,161) $ (5,134,963) (129,446) $ (1,159,769) 86,869 $ 793,810
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
YEAR ENDED NOVEMBER 30, 1998:
Shares sold............ 505,416 $ 4,607,694 954,146 $ 8,719,746 636,935 $ 5,801,537 2,133,805 $ 19,273,819
Shares repurchased..... (5,910,608) (53,488,228) (1,135,313) (10,275,294) (1,153,391) (10,446,958) (1,704,454) (15,398,914)
Shares converted from
Class B to Class A.... 2,084,528 18,889,153 (2,084,528) (18,889,153) -- -- -- --
Dividends reinvested... 1,003,345 9,097,712 93,443 846,696 96,378 873,028 64,246 582,323
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ (2,317,319) $ (20,893,669) (2,172,252) $(19,598,005) (420,078) $ (3,772,393) 493,597 $ 4,457,228
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
LOW DURATION U.S.
GOVERNMENT INCOME FUND
SIX MONTHS ENDED MAY 31, 1999:
Shares sold............ 16,518,704 $ 38,991,566 1,247,569 $ 2,955,093 3,350,810 $ 7,953,479 1,725,500 $ 4,088,577
Shares repurchased..... (23,137,072) (54,751,383) (694,256) (1,644,879) (5,688,921) (13,496,307) (445,460) (1,056,838)
Shares converted from
Class B to Class A.... 639,802 1,511,291 (639,802) (1,511,291) -- -- -- --
Dividends reinvested... 440,484 1,044,335 48,391 114,667 498,666 1,181,659 37,830 89,590
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ (5,538,082) $ (13,204,191) (38,098) $ (86,410) (1,839,445) $ (4,361,169) 1,317,870 $ 3,121,329
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
YEAR ENDED NOVEMBER 30, 1998:
Shares sold............ 60,572,974 $ 144,153,539 2,117,211 $ 5,048,319 3,615,697 $ 8,612,728 1,791,809 $ 4,261,818
Shares repurchased..... (49,261,371) (117,238,751) (1,462,663) (3,479,225) (10,439,963) (24,828,123) (1,218,491) (2,899,709)
Shares converted from
Class B to Class A.... 476,836 1,135,207 (476,915) (1,135,207) -- -- -- --
Dividends reinvested... 691,659 1,648,506 107,228 255,055 1,217,274 2,896,014 37,708 89,856
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ 12,480,098 $ 29,698,501 284,861 $ 688,942 (5,606,992) $(13,319,381) 611,026 $ 1,451,965
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
</TABLE>
44
<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, 1999:
Shares sold............ 1,861,715 $ 19,606,691 506,583 $ 5,362,563 927,458 $ 9,888,420 178,586 $ 1,884,680
Shares repurchased..... (2,351,059) (24,790,656) (471,681) (4,966,034) (907,032) (9,635,887) (65,742) (693,359)
Shares converted from
Class B to Class A.... 605,359 6,401,459 (605,472) (6,401,459) -- -- -- --
Dividends reinvested... 339,073 3,576,171 53,495 564,321 46,585 491,414 9,837 103,668
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ 455,088 $ 4,793,665 (517,075) $ (5,440,609) 67,011 $ 743,947 122,681 $ 1,294,989
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
YEAR ENDED NOVEMBER 30, 1998:
Shares sold............ 2,041,843 $ 22,290,767 1,696,765 $ 18,472,491 1,184,652 $ 12,935,515 302,126 $ 3,289,469
Shares repurchased..... (3,390,614) (37,003,109) (1,020,396) (11,101,156) (775,320) (8,463,655) (60,627) (660,864)
Shares converted from
Class B to Class A.... 1,114,869 12,177,257 (1,115,095) (12,177,257) -- -- -- --
Dividends reinvested... 701,098 7,648,985 117,112 1,277,379 91,680 999,801 6,857 74,536
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ 467,196 $ 5,113,900 (321,614) $ (3,528,543) 501,012 $ 5,471,661 248,356 $ 2,703,141
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
HIGH INCOME FUND
SIX MONTHS ENDED MAY 31, 1999:
Shares sold............ 7,781,328 $ 50,754,151 3,866,909 $ 25,401,037 2,357,656 $ 15,502,110 176,862 $ 1,166,688
Shares repurchased..... (13,531,828) (88,869,582) (4,152,758) (27,220,872) (3,059,271) (20,129,996) (197,649) (1,282,736)
Shares converted from
Class B to Class A.... 2,645,786 17,352,357 (2,647,605) (17,352,357) -- -- -- --
Dividends reinvested... 936,293 6,146,205 522,703 3,427,890 404,420 2,658,265 20,234 132,602
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ (2,168,421) $ (14,616,869) (2,410,751) $(15,744,302) (297,195) $ (1,969,621) (553) $ 16,554
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
YEAR ENDED NOVEMBER 30, 1998:
Shares sold............ 13,694,125 $ 97,142,363 8,040,949 $ 59,468,319 5,202,992 $ 38,470,183 594,839 $ 4,466,349
Shares repurchased..... (16,000,259) (117,628,189) (9,418,944) (69,303,434) (6,199,014) (45,640,962) (214,727) (1,633,957)
Shares converted from
Class B to Class A.... 3,996,052 30,045,750 (3,997,285) (30,045,750) -- -- -- --
Dividends reinvested... 1,478,031 10,911,350 962,985 7,113,261 703,058 5,198,786 15,900 111,699
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)............ 3,167,949 $ 20,471,274 (4,412,295) $(32,767,604) (292,964) $ (1,971,993) 396,012 $ 2,944,091
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
------------ ------------- ---------- ------------ ----------- ------------ ----------- ------------
</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 A
-----------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1999 -------------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 9.20 $ 8.94 $ 8.86 $ 9.12 $ 8.50 $ 10.03
----- ----- ----- ----------- ----------- -----------
Net investment income................... 0.25 0.51 0.54 0.55 0.58 0.60
Net realized and unrealized gains
(losses) from investments,
futures and options.................... (0.41) 0.26 0.08 (0.26) 0.62 (1.53)
----- ----- ----- ----------- ----------- -----------
Net increase (decrease) from investment
operations............................. (0.16) 0.77 0.62 0.29 1.20 (0.93)
----- ----- ----- ----------- ----------- -----------
Dividends from net investment income.... (0.25) (0.51) (0.54) (0.55) (0.58) (0.60)
----- ----- ----- ----------- ----------- -----------
Net asset value, end of period.......... $ 8.79 $ 9.20 $ 8.94 $ 8.86 $ 9.12 $ 8.50
----- ----- ----- ----------- ----------- -----------
----- ----- ----- ----------- ----------- -----------
Total investment return(1).............. (1.76)% 9.06% 7.27% 3.39% 14.70% (9.62)%
----- ----- ----- ----------- ----------- -----------
----- ----- ----- ----------- ----------- -----------
Ratios/Supplemental data:
Net assets, end of period (000's)....... $256,152 $278,483 $291,470 $343,836 $430,285 $428,722
Expenses to average net assets.......... 1.03%* 1.03% 0.94% 0.94% 1.03%(2) 0.95%
Net investment income to average net
assets................................. 5.57%* 5.69% 6.15% 6.24% 6.65%(2) 6.48%
Portfolio turnover rate................. 225% 370% 322% 359% 206% 358%
</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%.
46
<PAGE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED MAY FOR THE YEARS ENDED NOVEMBER 30,
31, 1999 --------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 9.20 $ 8.94 $ 8.87 $ 9.12 $ 8.50 $ 10.03
----- ----- ----- ---------- ---------- ----------
0.21 0.44 0.47 0.48 0.51 0.53
(0.41) 0.26 0.07 (0.25) 0.63 (1.53)
----- ----- ----- ---------- ---------- ----------
(0.20) 0.70 0.54 0.23 1.14 (1.00)
----- ----- ----- ---------- ---------- ----------
(0.21) (0.44) (0.47) (0.48) (0.52) (0.53)
----- ----- ----- ---------- ---------- ----------
$ 8.79 $ 9.20 $ 8.94 $ 8.87 $ 9.12 $ 8.50
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
(2.17)% 8.16% 6.34% 2.72% 13.81% (10.31)%
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
$17,309 $23,318 $42,097 $61,873 $82,469 $99,581
1.85%* 1.83% 1.69% 1.70% 1.81%(2) 1.72%
4.73%* 4.87% 5.40% 5.47% 5.88%(2) 5.71%
225% 370% 322% 359% 206% 358%
<CAPTION>
CLASS C
-----------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED MAY FOR THE YEARS ENDED NOVEMBER 30,
31, 1999 --------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49 $ 10.02
----- ---------- ----- ---------- ---------- ----------
0.23 0.47 0.49 0.50 0.53 0.55
(0.41) 0.26 0.07 (0.25) 0.63 (1.53)
----- ---------- ----- ---------- ---------- ----------
(0.18) 0.73 0.56 0.25 1.16 (0.98)
----- ---------- ----- ---------- ---------- ----------
(0.23) (0.47) (0.49) (0.50) (0.54) (0.55)
----- ---------- ----- ---------- ---------- ----------
$ 8.78 $ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49
----- ---------- ----- ---------- ---------- ----------
----- ---------- ----- ---------- ---------- ----------
(2.02)% 8.50% 6.62% 2.98% 14.12% (10.08)%
----- ---------- ----- ---------- ---------- ----------
----- ---------- ----- ---------- ---------- ----------
$22,830 $25,076 $28,132 $37,754 $53,832 $68,400
1.55%* 1.54% 1.44% 1.45% 1.55%(2) 1.45%
5.06%* 5.17% 5.66% 5.74% 6.17%(2) 5.99%
225% 370% 322% 359% 206% 358%
</TABLE>
47
<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, 1999 --------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49 $ 10.02
----- -------- -------- -------- -------- --------
Net investment income................... 0.26 0.54 0.56 0.57 0.61 0.62
Net realized and unrealized gains
(losses) from investments,
futures and options.................... (0.41) 0.26 0.07 (0.25) 0.62 (1.53)
----- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................. (0.15) 0.80 0.63 0.32 1.23 (0.91)
----- -------- -------- -------- -------- --------
Dividends from net investment income.... (0.26) (0.54) (0.56) (0.57) (0.61) (0.62)
----- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.78 $ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49
----- -------- -------- -------- -------- --------
----- -------- -------- -------- -------- --------
Total investment return(1).............. (1.61)% 9.41% 7.43% 3.81% 15.06% (9.37)%
----- -------- -------- -------- -------- --------
----- -------- -------- -------- -------- --------
Ratios/Supplemental data:
Net assets, end of period (000's)....... $11,799 $11,547 $6,816 $6,495 $7,957 $4,955
Expenses to average net assets.......... 0.71%* 0.71% 0.67% 0.64% 0.71%(2) 0.65%
Net investment income to average net
assets................................. 5.88%* 5.99% 6.41% 6.53% 6.96%(2) 6.76%
Portfolio turnover rate................. 225% 370% 322% 359% 206% 358%
</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 program fees, results would
be lower if program fees 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%.
48
<PAGE>
(This page has been left blank intentionally.)
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 A
----------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1999 -------------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ------------ --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48
----- ----- --------- --------- --------- -----
Net investment income................... 0.06 0.13 0.13 0.14 0.13 0.12
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.04) 0.01 0.02 0.01 0.09 (0.29)
----- ----- --------- --------- --------- -----
Net increase (decrease) in net asset
value from operations.................. 0.02 0.14 0.15 0.15 0.22 (0.17)
----- ----- --------- --------- --------- -----
Dividends from net investment income.... (0.06) (0.13) (0.13) (0.14) (0.13) (0.12)
----- ----- --------- --------- --------- -----
Contribution to capital from adviser.... -- -- -- -- -- 0.06
----- ----- --------- --------- --------- -----
Net asset value, end of period.......... $ 2.34 $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
----- ----- --------- --------- --------- -----
----- ----- --------- --------- --------- -----
Total investment return(1).............. 0.79% 6.11% 6.67% 6.46% 10.25% (4.50)%**
----- ----- --------- --------- --------- -----
----- ----- --------- --------- --------- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $49,507 $63,606 $33,648 $71,216 $127,961 $158,712
Expenses to average net assets(2)....... 0.96%* 1.07%+ 1.04% 1.21% 1.15% 0.84%
Net investment income to average net
assets(2).............................. 4.99%* 5.37%+ 5.72% 5.84% 5.89% 5.16%
Portfolio turnover rate................. 115% 411% 359% 210% 242% 246%
</TABLE>
- ---------------
* 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 0.13% of interest expense related to the reverse repurchase
agreement entered into during the year.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year 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 year reported. The figures do not include sales charges; results would
be lower if sales charges were included.
(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.
50
<PAGE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1999 --------------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
--------------- -------- -------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48
----- -------- -------- -------- --------- -----
Net investment income................... 0.05 0.11 0.11 0.12 0.11 0.10
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.04) 0.01 0.02 0.01 0.09 (0.29)
----- -------- -------- -------- --------- -----
Net increase (decrease) in net asset
value from operations.................. 0.01 0.12 0.13 0.13 0.20 (0.19)
----- -------- -------- -------- --------- -----
Dividends from net investment income.... (0.05) (0.11) (0.11) (0.12) (0.11) (0.10)
----- -------- -------- -------- --------- -----
Contribution to capital from adviser.... -- -- -- -- -- 0.06
----- -------- -------- -------- --------- -----
Net asset value, end of period.......... $ 2.34 $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
----- -------- -------- -------- --------- -----
----- -------- -------- -------- --------- -----
Total investment return(1).............. 0.42% 5.24% 5.81% 5.60% 9.30% (5.24)%**
----- -------- -------- -------- --------- -----
----- -------- -------- -------- --------- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $7,443 $7,670 $6,949 $7,716 $9,147 $13,382
Expenses to average net assets.......... 1.77%* 1.91%+ 1.87% 2.03% 2.02% 1.62%
Net investment income to average net
assets................................. 4.17%* 4.58%+ 4.80% 4.99% 5.03% 4.40%
Portfolio turnover rate................. 115% 411% 359% 210% 242% 246%
<CAPTION>
CLASS C
---------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1999 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
--------------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.47
----- --------- ----- ----- ----- -----
Net investment income................... 0.05 0.12 0.12 0.12 0.12 0.11
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.04) 0.01 0.02 0.01 0.09 (0.28)
----- --------- ----- ----- ----- -----
Net increase (decrease) in net asset
value from operations.................. 0.01 0.13 0.14 0.13 0.21 (0.17)
----- --------- ----- ----- ----- -----
Dividends from net investment income.... (0.05) (0.12) (0.12) (0.12) (0.12) (0.11)
----- --------- ----- ----- ----- -----
Contribution to capital from adviser.... -- -- -- -- -- 0.06
----- --------- ----- ----- ----- -----
Net asset value, end of period.......... $ 2.34 $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
----- --------- ----- ----- ----- -----
----- --------- ----- ----- ----- -----
Total investment return(1).............. 0.47% 5.46% 6.05% 5.82% 9.60% (4.99)%**
----- --------- ----- ----- ----- -----
----- --------- ----- ----- ----- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $73,230 $78,923 $91,700 $123,203 $180,169 $296,182
Expenses to average net assets.......... 1.60%* 1.72%+ 1.64% 1.80% 1.75% 1.36%
Net investment income to average net
assets................................. 4.34%* 4.78%+ 5.05% 5.22% 5.31% 4.65%
Portfolio turnover rate................. 115% 411% 359% 210% 242% 246%
</TABLE>
51
<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 PERIOD
ENDED FOR THE YEARS ENDED NOVEMBER 30, OCTOBER 20,
MAY 31, 1995#
1999 --------------------------------- TO NOVEMBER 30,
(UNAUDITED) 1998 1997 1996 1995
------------ --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.33
----- --------- --------- --------- -----
Net investment income................... 0.06 0.14 0.14 0.14 0.01
Net realized and unrealized gains
(losses) from investments, futures and
options............................... (0.04) 0.01 0.02 0.01 0.01
----- --------- --------- --------- -----
Net increase (decrease) in net asset
value from operations................. 0.02 0.15 0.16 0.15 0.02
----- --------- --------- --------- -----
Dividends from net investment income.... (0.06) (0.14) (0.14) (0.14) (0.01)
----- --------- --------- --------- -----
Net asset value, end of period.......... $ 2.34 $ 2.38 $ 2.37 $ 2.35 $ 2.34
----- --------- --------- --------- -----
----- --------- --------- --------- -----
Total investment return(1).............. 0.92% 6.37% 6.87% 6.64% 0.83%
----- --------- --------- --------- -----
----- --------- --------- --------- -----
Ratios/Supplemental data:
Net assets, end of period (000's)....... $4,863 $1,810 $ 352 $ 333 $ 321
Expenses to average net assets.......... 0.70%* 0.79%+ 0.86% 0.99% 0.99%*
Net investment income to average net
assets................................ 5.31%* 5.60%+ 5.82% 6.00% 5.87%*
Portfolio turnover rate................. 115% 411% 359% 210% 242%
</TABLE>
- ---------------
# Commencement of issuance of shares
* Annualized
+ Includes 0.13% 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. The figures do not include program fees, results would
be lower if program fees were included. Total investment return for periods
less than one year has not been annualized.
52
<PAGE>
(This page has been left blank intentionally.)
53
<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,
1999 -----------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.79 $ 10.85 $ 10.59 $ 10.68 $ 9.67 $ 11.08
------ ----------- --------- --------- --------- ---------
Net investment income................... 0.32 0.74 0.74 0.73 0.76 0.77
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.51) (0.06) 0.26 (0.09) 1.01 (1.41)
------ ----------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. (0.19) 0.68 1.00 0.64 1.77 (0.64)
------ ----------- --------- --------- --------- ---------
Dividends from net investment income.... (0.32) (0.74) (0.74) (0.73) (0.76) (0.77)
------ ----------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 10.28 $ 10.79 $ 10.85 $ 10.59 $ 10.68 $ 9.67
------ ----------- --------- --------- --------- ---------
------ ----------- --------- --------- --------- ---------
Total investment return(1).............. (1.76)% 6.37% 9.88% 6.33% 18.95% (5.99)%
------ ----------- --------- --------- --------- ---------
------ ----------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $210,911 $216,402 $212,472 $229,117 $258,898 $271,553
Expenses to average net assets.......... 0.93%* 0.93% 1.03% 0.94% 0.95% 0.97%
Net investment income to average net
assets................................. 6.09%* 6.56% 7.07% 7.02% 7.42% 7.50%
Portfolio turnover rate................. 100% 173% 109% 115% 149% 142%
</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 or program fees,
results would be lower if sales charges or program fees 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
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1999 ---------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.79 $ 10.85 $ 10.58 $ 10.67 $ 9.67 $ 11.07
------ --------- --------- --------- --------- ---------
Net investment income................... 0.28 0.65 0.66 0.65 0.68 0.69
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.51) (0.06) 0.27 (0.09) 1.00 (1.40)
------ --------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. (0.23) 0.59 0.93 0.56 1.68 (0.71)
------ --------- --------- --------- --------- ---------
Dividends from net investment income.... (0.28) (0.65) (0.66) (0.65) (0.68) (0.69)
------ --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 10.28 $ 10.79 $ 10.85 $ 10.58 $ 10.67 $ 9.67
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Total investment return(1).............. (2.13)% 5.56% 9.17% 5.54% 17.97% (6.60)%
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $33,875 $41,124 $44,829 $58,364 $71,372 $69,359
Expenses to average net assets.......... 1.69%* 1.69% 1.78% 1.68% 1.70% 1.72%
Net investment income to average net
assets................................. 5.32%* 5.79% 6.31% 6.27% 6.67% 6.73%
Portfolio turnover rate................. 100% 173% 109% 115% 149% 142%
<CAPTION>
CLASS C
------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
1999 ---------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ --------- --------- --------- --------- ---------
<S> <C> <C>
Net asset value, beginning of period.... $ 10.79 $ 10.85 $ 10.59 $ 10.68 $ 9.67 $ 11.08
------ --------- --------- --------- --------- ---------
Net investment income................... 0.30 0.68 0.69 0.68 0.70 0.72
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.51) (0.06) 0.26 (0.09) 1.01 (1.41)
------ --------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. (0.21) 0.62 0.95 0.59 1.71 (0.69)
------ --------- --------- --------- --------- ---------
Dividends from net investment income.... (0.30) (0.68) (0.69) (0.68) (0.70) (0.72)
------ --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 10.28 $ 10.79 $ 10.85 $ 10.59 $ 10.68 $ 9.67
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Total investment return(1).............. (2.00)% 5.84% 9.34% 5.80% 18.37% (6.40)%
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $33,527 $34,457 $29,204 $32,337 $39,150 $45,473
Expenses to average net assets.......... 1.43%* 1.42% 1.53% 1.44% 1.45% 1.45%
Net investment income to average net
assets................................. 5.59%* 6.04% 6.57% 6.51% 6.95% 6.99%
Portfolio turnover rate................. 100% 173% 109% 115% 149% 142%
<CAPTION>
CLASS Y
-----------------------------
FOR THE FOR THE PERIOD
SIX MONTHS FEBRUARY 18,
ENDED 1998+
MAY 31, THROUGH
1999 NOVEMBER 30,
(UNAUDITED) 1998
------------ --------------
Net asset value, beginning of period.... $ 10.80 $ 10.99
------ ------
Net investment income................... 0.34 0.57
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.51) (0.19)
------ ------
Net increase (decrease) from investment
operations............................. (0.17) 0.38
------ ------
Dividends from net investment income.... (0.34) (0.57)
------ ------
Net asset value, end of period.......... $ 10.29 $ 10.80
------ ------
------ ------
Total investment return(1).............. (1.62)% 3.51%
------ ------
------ ------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $3,818 $2,682
Expenses to average net assets.......... 0.66%* 0.62%*
Net investment income to average net
assets................................. 6.38%* 6.71%*
Portfolio turnover rate................. 100% 173%
</TABLE>
55
<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 FOR THE YEARS ENDED NOVEMBER 30,
31, 1999 --------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 6.66 $ 7.63 $ 7.35 $ 6.96 $ 7.14 $ 8.73
----- ----- ----- ---------- ---------- ----------
Net investment income................... 0.35 0.67 0.69 0.72 0.79 0.86
Net realized and unrealized gains
(losses) from investments.............. (0.10) (0.99) 0.27 0.37 (0.17) (1.59)
----- ----- ----- ---------- ---------- ----------
Net increase (decrease) from investment
operations............................. 0.25 (0.32) 0.96 1.09 0.62 (0.73)
----- ----- ----- ---------- ---------- ----------
Dividends from net investment income.... (0.35) (0.65) (0.68) (0.70) (0.80) (0.86)
----- ----- ----- ---------- ---------- ----------
Net asset value, end of period.......... $ 6.56 $ 6.66 $ 7.63 $ 7.35 $ 6.96 $ 7.14
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
Total investment return(1).............. 3.86% (4.46)% 13.59% 16.55% 9.01% (9.20)%
----- ----- ----- ---------- ---------- ----------
----- ----- ----- ---------- ---------- ----------
Ratios/Supplemental data:
Net assets, end of period (000's)....... $240,723 $258,559 $272,325 $243,564 $248,619 $268,397
Expenses to average net assets.......... 0.92%* 0.91% 0.98% 0.96% 0.93% 0.91%
Net investment income to average net
assets................................. 10.65%* 9.10% 9.21% 10.10% 11.17% 10.43%
Portfolio turnover rate................. 39% 161% 160% 142% 94% 156%
</TABLE>
- -----------------
* Annualized
+ Commencement of issuance of shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends 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 or program
fees, results would be lower if sales charges or program fees were included.
Total investment return for periods of less than one year has not been
annualized.
56
<PAGE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED MAY FOR THE YEARS ENDED NOVEMBER 30,
31, 1999 -------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ -------- -------- -------- ----------- ----------
<C> <C> <C> <C> <C> <C>
$ 6.65 $ 7.63 $ 7.35 $ 6.95 $ 7.14 $ 8.72
----- -------- -------- -------- ----------- -----
0.33 0.63 0.63 0.66 0.74 0.80
(0.10) (1.01) 0.27 0.39 (0.18) (1.58)
----- -------- -------- -------- ----------- -----
0.23 (0.38) 0.90 1.05 0.56 (0.78)
----- -------- -------- -------- ----------- -----
(0.32) (0.60) (0.62) (0.65) (0.75) (0.80)
----- -------- -------- -------- ----------- -----
$6.56 $ 6.65 $ 7.63 $ 7.35 $ 6.95 $ 7.14
----- -------- -------- -------- ----------- -----
----- -------- -------- -------- ----------- -----
3.63% (5.32)% 12.76% 15.86% 8.05% (9.77)%
----- -------- -------- -------- ----------- -----
----- -------- -------- -------- ----------- -----
$158,712 $176,997 $236,656 $215,492 $212,946 $235,480
1.68%* 1.66% 1.73% 1.71% 1.68% 1.64%
9.89%* 8.30% 8.45% 9.34% 10.42% 9.66%
39% 161% 160% 142% % 94 156%
<CAPTION>
CLASS C
------------------------------------------------------------- CLASS Y
---------------------------
FOR THE FOR THE
SIX FOR THE PERIOD
MONTHS SIX MONTHS FEBRUARY 20,
ENDED MAY FOR THE YEARS ENDED NOVEMBER 30, ENDED MAY 1998+ THROUGH
31, 1999 ------------------------------------------------- 31, 1999 NOVEMBER 30,
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED) 1998
--------- ------- -------- ------- -------- ------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 6.67 $ 7.64 $ 7.36 $ 6.97 $ 7.15 $ 8.74 $ 6.65 $ 7.79
--------- ------- -------- ------- -------- ------- ----------- -----
0.33 0.64 0.65 0.68 0.76 0.82 0.36 0.53
(0.10) (0.99) 0.27 0.38 (0.18) (1.59) (0.09) (1.14)
--------- ------- -------- ------- -------- ------- ----------- -----
0.23 (0.35) 0.92 1.06 0.58 (0.77) 0.27 (0.61)
--------- ------- -------- ------- -------- ------- ----------- -----
(0.33) (0.62) (0.64) (0.67) (0.76) (0.82) (0.36) (0.53)
--------- ------- -------- ------- -------- ------- ----------- -----
$ 6.57 $ 6.67 $ 7.64 $ 7.36 $ 6.97 $ 7.15 $ 6.56 $ 6.65
--------- ------- -------- ------- -------- ------- ----------- -----
--------- ------- -------- ------- -------- ------- ----------- -----
3.61% (4.92)% 13.03% 15.96% 8.45% (9.62)% 4.15% (8.43)%
--------- ------- -------- ------- -------- ------- ----------- -----
--------- ------- -------- ------- -------- ------- ----------- -----
$95,645 $98,982 $115,757 $94,445 $103,911 $115,196 $2,593 $2,633
1.42%* 1.41% 1.48% 1.47% 1.44% 1.38% 0.66%* 0.63%*
10.16%* 8.58% 8.66% 9.60% 10.63% 9.91% 10.96%* 9.78%*
39% 161% 160% 142% 94% 156% 39% 161%
</TABLE>
57
<PAGE>
- -----------------------------------------------------------------
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
Brian M. Storms
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
Dennis McCauley
VICE PRESIDENT
Nirmal Singh
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 FINANCIAL ADVISOR 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 27 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
- - Tax-Managed Equity 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
PAINWEBBER
- -------------------------------
BOND FUNDS
U.S. GOVERNMENT INCOME FUND
LOW DURATION
U.S. GOVERNMENT
INCOME FUND
INVESTMENT GRADE
INCOME FUND
HIGH INCOME FUND
SEMIANNUAL REPORT
- -C-1999 PAINEWEBBER INCORPORATED
MEMBER SIPC
MAY 31, 1999
