<PAGE>
ANNUAL REPORT
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber
Financial Services Growth Fund Inc.(A) and the S&P 500 Index, for the
10-year period ended 3/31/99
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
PaineWebber Financial
Services Growth Fund Inc. S&P 500 Index
------------------------- -------------
3/31/89 9,552 10,000
10,310 10,881
9/30/89 11,870 12,044
10,772 12,291
3/31/90 10,238 11,921
10,421 12,670
9/30/90 8,464 10,930
9,444 11,908
3/31/91 11,607 13,635
12,626 13,602
9/30/91 14,401 14,329
15,617 15,528
3/31/92 16,625 15,137
17,957 15,424
9/30/92 18,567 15,910
21,658 16,709
3/31/93 24,238 17,438
23,372 17,521
9/30/93 25,112 17,973
23,893 18,390
3/31/94 23,477 17,693
25,225 17,768
9/30/94 25,170 18,635
23,713 18,631
3/31/95 25,876 20,444
28,795 22,392
9/30/95 32,788 24,170
34,969 25,625
3/31/96 35,972 27,001
37,009 28,211
9/30/96 40,494 29,082
45,095 31,505
3/31/97 46,302 32,352
53,936 37,995
9/30/97 60,364 40,840
65,478 42,013
3/31/98 70,341 47,869
70,529 49,458
9/30/98 59,358 44,552
66,993 54,033
3/31/99 64,848 56,724
Past performance is no guarantee of future performance.
The performance of the other classes will vary from the performance of the
class shown because of differences in sales charges and fees paid by
shareholders investing in different classes.
The graph depicts the performance of PaineWebber Financial Services Growth Fund
Inc.(A) versus the S&P 500 Index. It is important to note PaineWebber Financial
Services Growth Fund Inc. is a professionally managed mutual fund while the
Index is not available for investment and is unmanaged. The comparison is shown
for illustrative purposes only.
AVERAGE ANNUAL TOTAL RETURN, PERIODS ENDED 3/31/99
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life/0/
<S> <C> <C> <C> <C> <C>
Class A/*/ -7.81% 22.53% 21.11% 16.00%
Before Deducting Class B/**/ -8.51% 21.61% N/A 22.80%
Maximum Sales Charge Class C/+/ -8.50% 21.59% N/A 19.84%
Class Y/++/ -7.57% N/A N/A -6.59%
Class A/*/ -11.95% 21.41% 20.56% 15.59%
After Deducting Class B/**/ -13.01% 21.42% N/A 22.80%
Maximum Sales Charge Class C/+/ -9.40% 21.59% N/A 19.84%
</TABLE>
/0/ Life: since commencement of issuance on May 22, 1986 for Class A shares,
July 1,1991 for Class B shares, July 2, 1992 for Class C shares and March
30, 1998 for Class Y shares.
/*/ Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A Shares bear ongoing 12b-1 service fees.
/**/ Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after six years. Class B Shares bear ongoing 12b-1
distribution and service fees.
/+/ Maximum contingent deferred sales charge for Class C shares is 1% and is
reduced to 0% after one year. Class C Shares bear ongoing 12b-1
distribution and service fees.
/++/ The Fund offers Class Y shares to a limited group of eligible
investors, including participants in certain investment programs that are
sponsored by PaineWebber and that may invest in PaineWebber mutual
funds. Class Y shares do not bear initial or contingent deferred sales
charges or ongoing distribution and service fees.
The investment return and the principal value of an investment in the Fund will
fluctuate,so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
1
<PAGE>
ANNUAL REPORT
PAINEWEBBER UTILITY INCOME FUND
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber Utility
Income Fund (A), the S&P 500 Index, and the S&P Utility Index, for the
10-year period ended 3/31/99
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
PaineWebber Utility
Income Fund (A) S&P 500 Index S&P Utility Index
-------------------- -------------- -----------------
7/2/93 9,551 10,000 10,000
9/30/93 9,857 10,258 10,700
9,484 10,496 10,090
3/31/94 8,789 10,098 9,257
8,444 10,141 9,255
9/30/94 8,541 10,635 9,298
8,563 10,633 9,289
3/31/95 9,052 11,668 9,930
9,652 12,780 10,668
9/30/95 10,193 13,795 11,865
11,030 14,625 13,110
3/31/96 10,719 15,410 12,486
11,022 16,101 13,116
9/30/96 10,910 16,598 12,674
11,901 17,981 13,519
3/31/97 11,558 18,465 13,063
12,499 21,685 13,830
9/30/97 13,537 23,309 14,494
14,966 23,978 16,851
3/31/98 16,083 27,321 17,798
15,695 28,228 18,013
9/30/98 15,922 25,427 18,847
16,892 30,838 19,339
3/31/99 16,283 32,374 17,529
Past performance is no guarantee of future performance.
The performance of the other classes will vary from the performance of the
class shown because of differences in sales charges and fees paid by
shareholders investing in different classes.
The graph depicts the performance of PaineWebber Utility Income Fund (A) versus
the S&P 500 Index and the S&P Utility Index. It is important to note PaineWebber
Utility Income Fund is a professionally managed mutual fund while the Indices
are not available for investment and are unmanaged. The comparison is shown for
illustrative purposes only.
AVERAGE ANNUAL TOTAL RETURN, PERIODS ENDED 3/31/99
<TABLE>
<CAPTION>
1 Year 5 Years Life(0)
<S> <C> <C> <C> <C>
Class A(*) 1.24% 13.13% 9.72%
Before Deducting Class B(**) 0.49% 12.26% 8.90%
Maximum Sales Charge Class C(+) 0.44% 12.24% 8.89%
Class Y(++) N/A N/A 10.14%
Class A(*) -3.31% 12.08% 8.85%
After Deducting Class B(**) -4.45% 12.01% 8.79%
Maximum Sales Charge Class C(+) -0.55% 12.24% 8.89%
</TABLE>
(0) Life: since commencement of issuance on July 2, 1993 for Class A, Class B
and Class C shares, and September 10, 1998 for Class Y shares.
(*) Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A Shares bear ongoing 12b-1 service fees.
(**) Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after six years. Class B Shares bear ongoing 12b-1
distribution and service fees.
(+) Maximum contingent deferred sales charge for Class C shares is 1% and is
reduced to 0% after one year. Class C Shares bear ongoing 12b-1
distribution and service fees.
(++) The Fund offers Class Y shares to a limited group of eligible
investors, including participants in certain investment programs that are
sponsored by PaineWebber and that may invest in PaineWebber mutual
funds. Class Y shares do not bear initial or contingent deferred sales
charges or ongoing distribution and service fees.
The investment return and 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.
2
<PAGE>
ANNUAL REPORT
May 20, 1999
Dear Shareholder,
We are pleased to present you with the annual report for the PaineWebber
Financial Services Growth Fund Inc. and the PaineWebber Utility Income Fund for
the fiscal year ended March 31, 1999.
MARKET REVIEW
[GRAPHIC] Russia's currency crisis in August 1998 brought the stock market
down sharply as investors around the world fled stocks and sought the safety of
U.S. Treasury securities. Fears about exposure to over-leveraged hedge funds and
to emerging markets led to a sell-off in financial services stocks. Stock prices
rebounded in the second half of the fiscal year, but endured considerable
volatility along the way.
During the last quarter of the fiscal year, three general trends dominated
the stock market: (1) a small number of stocks accounted for most of the gains
in the S&P 500 Index and in the Dow Jones Industrial Average; (2) value stocks
(as measured by the Russell 1000 Value Index) significantly lagged growth stocks
(as measured by the Russell 1000 Growth Index); and (3) large capitalization
stocks outperformed small and mid cap stocks. As measured by the S&P 500 Index
(the "Index"), the stock market gained 18.49% for the fiscal year ended March
31, 1999.
PAINEWEBBER FINANCIAL SERVICES
GROWTH FUND INC.
PERFORMANCE --
The Fund's total return consists of the change in net asset value with
dividends reinvested. For the fiscal year ended March 31, 1999, without
deducting sales charges, Class A shares lost 7.81%, Class B shares lost 8.51%,
Class C shares lost 8.50% and Class Y shares lost 7.57%.
The Fund's total return may be lower for shareowners who purchased or
redeemed Fund shares during the period. After deducting the maximum applicable
sales charges, Class A shares lost 11.95%, Class B shares lost 13.01% and Class
C shares lost 9.40%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS --
During the first half of the fiscal year the Fund benefited from its
underweightings in companies with large global exposure, such as multinational
banks. During the second half of the fiscal year, Fund performance suffered when
financial services stocks lagged the Index. Companies in all
3
<PAGE>
ANNUAL REPORT
PAINEWEBBER
FINANCIAL SERVICES
GROWTH FUND INC.
FUND PROFILE
o Goal:
Long-term capital
appreciation
o Portfolio Managers:
Mark Tincher-Chief
Investment Officer-Equities
and Andrew Dinnhaupt, Mitchell
Hutchins Asset Management Inc.
o Total Net Assets:
$483.8 million as of March 31, 1999
o Dividend Payments:
Annually
PAINEWEBBER
FINANCIAL
SERVICES
GROWTH FUND INC.
Asset Allocation(*)
Banks 30.0%
Insurance 27.9%
Financial Services 18.4%
Cash Equivalents 11.1%
Thrift Institutions 6.4%
Business Services 3.1%
Real Property 2.9%
Rights and Warrants 0.2%
sectors of the financial services industry were hit hard for missing earnings
estimates or lowering their growth rate forecasts. For the fiscal year ended
March 31, 1999, the financial services sector as measured by the S&P Financial
Index gained 6.56%. As in the broader market, the largest companies contributed
most of the sector's gains.
New purchases in the Fund generally helped its performance during the
latter half of the fiscal year. We focused the Fund's purchases on the specialty
finance group, where we felt that valuations were attractive and risks were
overstated. Continuing economic growth, diminishing unemployment and low
inflation stimulated consumer spending, which in turn boosted the earnings of
specialty finance firms such as credit card issuers. The Fund bought Providian
Corp. (2.3%*) and Capital One Financial Corp. (2.7%) at what we believe to be
attractive prices. Although both stocks had suffered when the bond markets
became volatile in the latter part of the fiscal year, our research indicated
that the stock prices had discounted too deeply the risks to the companies'
earnings.
Our focus on specialty services extended to the insurance sector, where the
Fund emphasized life insurance companies such as Nationwide Financial Services
Inc. (2.0%) and Hartford Financial Services Group, Inc. (2.0%). Both companies
reported good sales momentum during the fiscal year.
GOING FORWARD --
Even if economic growth in the remainder of 1999 turns out to be a little slower
than expected, we do not think it will impact the financial services sector more
than any other sector of the market. We continue to believe that long-term
consolidation in the financial services sector will be a positive for investors.
We think aging baby boomers in the U.S. and abroad will demand more savings and
investment products and set the stage for continued growth in financial
services.
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
Top Ten Stocks(*)
- -------------------------------------------------------------
Capital One Financial Corp. 2.7%
American International Group Inc. 2.5
Providian Corp. 2.3
Associates First Capital Corp. 2.2
Ambac Financial Group Inc. 2.0
Hartford Financial Services Group, Inc. 2.0
Nationwide Financial Services Inc. 2.0
Zions BanCorp 2.0
Travelers Property Casualty Corp. 1.9
Bank One Corp. 1.8
- -------------------------------------------------------------
(*) Weightings represent percentages of portfolio assets as of March 31, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
4
<PAGE>
ANNUAL REPORT
We like globally oriented insurance companies, whose stock prices have
shown signs of stabilizing; larger, better-capitalized firms that are able to
diversify into different channels of distribution, information, customer service
or products; and larger money-center banks.
We believe that the Fund holds companies with strong fundamentals and
attractive valuations. We will stick to our investment discipline and not chase
the latest fad. We firmly believe that the value in our holdings will be
recognized over the long term.
PAINE WEBBER UTILITY INCOME FUND
[GRAPHIC] PERFORMANCE --
The Fund's total return consists of the change in net asset value with
dividends reinvested. For the fiscal year ended March 31, 1999, without
deducting sales charges, Class A shares gained 1.24%, Class B shares gained
0.49% and Class C shares gained 0.44%. For the same period, the Fund's
benchmark, the S&P Utility Index, lost 1.51%. Class Y shares gained 10.14% for
the 6 1/2-month period ended March 31, 1999.
The Fund's total return may be lower for shareowners who purchased or
redeemed Fund shares during the period. After deducting the maximum applicable
sales charges, Class A shares lost 3.31%, Class B shares lost 4.45% and Class C
shares lost 0.55%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS --
During the third quarter of the Fund's fiscal year we profitably sold
several of the Fund's holdings of appreciated electric utility stocks. In the
last quarter of the fiscal year, rising interest rates caused electric utility
stock prices to fall. (Electric utilities are particularly sensitive to interest
rate increases because they depend heavily on borrowing to finance their
operations.) This correction in the electric utility group gave us the
opportunity to research and eventually purchase some undervalued stocks such as
Duke Energy Corp. (0.7%), Unicom Corp. (1.0%) and New Century Energies Inc.
(1.3%).(*)
The Fund held positions in several real estate investment trusts (REITs) at
fiscal year-end. REIT prices declined throughout 1998. By early 1999 their low
valuations and high dividend yields made them attractive again.
We are looking at ways to increase the Fund's overall dividend yield and at
the same time add more growth potential. To achieve these goals we seek to
balance the Fund's holdings between those with potential for income generation
and those with potential for capital gains.
We regard electric utility and real estate stocks as potentially
stabilizing Fund holdings that may provide high dividend income. These stocks
now look attractive-with estimated earnings
PAINEWEBBER UTILITY
INCOME FUND
FUND PROFILE
o Goal:
Current Income and
capital appreciation
o Portfolio Manager:
Mark Tincher-Chief
Investment Officer-Equities,
Christopher Solmssen,
Julieanna Berry and Jim Keegan,
Mitchell Hutchins Asset
Management Inc.
o Total net Assets:
$34.5 million as of
March 31, 1999
o Dividend Payments:
Quarterly
PAINE WEBBER
UTILITY INCOME
FUND
Asset Allocation(*)
[THE FOLLOWING DATA WAS REPRESENTED BY A PIE CHART]
Stocks 72.5%
Bonds 18.7%
Cash & Cash Equivalents 8.8%
(*) Weightings represent percentages of portfolio assets as of March 31, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
5
<PAGE>
ANNUAL REPORT
PAINEWEBBER
UTILITY INCOME
FUND
Top Five Stock Sectors(*)
Utilities 75.0%
Consumer Cyclical 8.8%
Financial Services 2.4%
Capital Goods 1.6%
Energy 1.6%
PAINEWEBBER
UTILITY INCOME
FUND
Top Five Stocks(*)
MCI WorldCom Inc. 2.9%
Century Telephone Enterprises, Inc. 2.8%
PECO Energy Co. 2.7%
Qwest Communications International Inc. 2.6%
Cilcorp Inc. 2.4%
growth of 5-8% and projected dividend yields of 4-8%, we believe they offer
significant total return potential.
To give the Fund greater upside potential we have added more fast-growing
telecommunications stocks. As e-commerce develops, we see strong growth
potential for the companies that provide the cables and wires over which that
commerce travels. The Fund owns AT&T Corp. (0.9%), MCI WorldCom Inc. (2.9%) and
a variety of regional bell operating companies. We believe these companies are
well positioned to benefit from the growing demand for data transmission,
international calling and Internet access.
The Fund also owns emerging carriers such as Global Crossing Ltd. (1.5%),
Qwest Communications International Inc. (2.6%) and Level 3 Communications Inc.
(1.9%). In addition, it holds Covad Communications Group Inc. (0.2%), one of
three companies in the United States that sell digital subscriber line (DSL)
service, a new technology that increases the bandwidth capacity of existing
copper lines. Since DSL avoids the cost of laying fiberoptic cable or new wires,
we think it will gain a significant share of the market for high-speed Internet
access.
GOING FORWARD --
We are analyzing a number of prospective investments related to our focus
on electric utilities and telecommunications, and expect to increase the Fund's
positions in both sectors. As market conditions permit, we intend to continue
paring the Fund's holdings of slower-growth, low-yielding stocks.
Consolidation is still a major factor in both the power and
telecommunications industries, and represents potential added value for some of
the Fund's holdings. We believe telecommunications will benefit the most, and we
look for global consolidations in that sector over the next few years.
OUTLOOK
[GRAPHIC] Our 1999 expectations are for economic growth (real gross domestic
product) of about 3.5%, inflation below 2% and corporate earnings growth of
5-7%. In our view, market valuations fully reflect this positive, broad economic
picture.
Our outlook is cautious over the near term. We are concerned that in this
highly priced market long bond yields above 5.60% may lead to a correction. We
remain cautious about Latin America--Brazil's currency has stabilized but it
must still cope with recession.
Also, we are cautious about Europe's prospects because of the conflict in
Kosovo. In this environment, stock picking will be key to outperformance.
(*) Weightings represent percentages of portfolio assets as of March 31, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
6
<PAGE>
ANNUAL 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 PaineWebber Financial Services Growth Fund Inc.,
PaineWebber Utility Income Fund or another fund in the PaineWebber Family of
Funds,(1) please contact your Financial Advisor.
Sincerely,
/s/ Margo Alexander
Margo Alexander
Chairman and Chief Executive Officer
Mitchell Hutchins Asset Management Inc.
/s/ Brian M. Storms
Brian M. Storms
President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc.
/s/ Mark A. Tincher
Mark A. Tincher
Managing Director and Chief Investment Officer -
Equities
Portfolio Manager, PaineWebber Financial Services
Growth Fund and PaineWebber Utility Income Fund
/s/ Andrew B. Dinnhaupt
Andrew B. Dinnhaupt
Vice President
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber Financial Services
Growth Fund
/s/ Christopher T. Solmssen
Christopher T. Solmssen
Vice President
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber Utility Income Fund
/s/ Julieanna M. Berry
Julieanna M. Berry
First Vice President
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber Utility Income Fund
/s/ James F. Keegan
James F. Keegan
Senior Vice President
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber Utility Income Fund
(1) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
This letter is intended to assist shareholders in understanding how the
Funds performed during the fiscal year ended March 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.
7
<PAGE>
[This Page Intentionally Blank]
8
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
Performance Results
(unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return/1/
-------------------------------- -----------------------------
12 Months 6 Months
03/31/99 09/30/98 03/31/98 Ended 03/31/99 Ended 03/31/99
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $30.24 $28.32 $33.56 (7.81)% 9.25%
- ---------------------------------------------------------------------------------
Class B Shares 29.35 27.42 32.62 (8.51) 8.84
- ---------------------------------------------------------------------------------
Class C Shares 29.28 27.37 32.56 (8.50) 8.85
- ---------------------------------------------------------------------------------
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>
05/22/86-12/31/86 $9.25 $8.31 -- -- (10.16)%
- ---------------------------------------------------------------------------------
1987 8.31 6.88 $0.2265 $0.3703 (11.05)
- ---------------------------------------------------------------------------------
1988 6.88 7.70 -- 0.2375 15.38
- ---------------------------------------------------------------------------------
1989 7.70 9.08 -- 0.2900 21.71
- ---------------------------------------------------------------------------------
1990 9.08 7.73 -- 0.2410 (12.33)
- ---------------------------------------------------------------------------------
1991 7.73 12.55 -- 0.2070 65.37
- ---------------------------------------------------------------------------------
1992 12.55 17.38 -- 0.0237 38.68
- ---------------------------------------------------------------------------------
1993 17.38 17.22 1.8425 0.0820 10.32
- ---------------------------------------------------------------------------------
1994 17.22 15.68 1.2660 0.1345 (0.75)
- ---------------------------------------------------------------------------------
1995 15.68 20.57 2.2099 0.2942 47.46
- ---------------------------------------------------------------------------------
1996 20.57 22.80 3.3870 0.2300 28.96
- ---------------------------------------------------------------------------------
1997 22.80 31.24 1.5895 0.2068 45.20
- ---------------------------------------------------------------------------------
1998 31.24 31.24 0.4139 0.2780 2.31
- ---------------------------------------------------------------------------------
01/01/99-03/31/99 31.24 30.24 -- -- (3.20)
- ---------------------------------------------------------------------------------
Totals: $10.9353 $2.5950
- ---------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/99: 575.55%
- ---------------------------------------------------------------------------------
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 $10.24 $12.56 -- $0.0640 23.30%
- ---------------------------------------------------------------------------------
1992 12.56 17.31 -- -- 37.82
- ---------------------------------------------------------------------------------
1993 17.31 17.04 $1.8425 0.0571 9.57
- ---------------------------------------------------------------------------------
1994 17.04 15.47 1.2660 0.0344 (1.53)
- ---------------------------------------------------------------------------------
1995 15.47 20.21 2.2099 0.1766 46.36
- ---------------------------------------------------------------------------------
1996 20.21 22.32 3.3870 0.0592 28.00
- ---------------------------------------------------------------------------------
1997 22.32 30.42 1.5895 0.0884 44.10
- ---------------------------------------------------------------------------------
1998 30.42 30.38 0.4139 0.0755 1.55
- ---------------------------------------------------------------------------------
01/01/99-03/31/99 30.38 29.35 -- -- (3.39)
- ---------------------------------------------------------------------------------
Totals: $10.7088 $0.5552
- ---------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/99: 391.89%
- ---------------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gain 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.
9
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
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 $14.61 $17.32 -- $0.0359 18.80%
- ---------------------------------------------------------------------
1993 17.32 17.03 $1.8425 0.0691 9.52
- ---------------------------------------------------------------------
1994 17.03 15.48 1.2660 0.0209 (1.50)
- ---------------------------------------------------------------------
1995 15.48 20.21 2.2099 0.1819 46.30
- ---------------------------------------------------------------------
1996 20.21 22.29 3.3870 0.0861 27.99
- ---------------------------------------------------------------------
1997 22.29 30.37 1.5895 0.0938 44.09
- ---------------------------------------------------------------------
1998 30.37 30.31 0.4139 0.0944 1.55
- ---------------------------------------------------------------------
01/01/99-03/31/99 30.31 29.28 -- -- (3.40)
- ---------------------------------------------------------------------
Totals: $10.7088 $0.5821
- ---------------------------------------------------------------------
Cumulative Total Return as of 03/31/99: 239.24%
- ---------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gain 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.
Note: The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs that are sponsored by
PaineWebber and may invest in PaineWebber mutual funds. For the year ended
March 31, 1999 and since inception, March 30, 1998 through March 31, 1999,
Class Y shares have a total return of (7.57)% and (6.62)%, respectively. Class
Y shares do not have initial or contingent deferred sales charges or ongoing
distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
10
<PAGE>
PaineWebber Utility Income Fund
Performance Results
(unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return/1/
-------------------------------- -----------------------------
12 Months 6 Months
03/31/99 09/30/98 03/31/98 Ended 03/31/99 Ended 03/31/99
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $13.60 $13.43 $13.79 1.24% 2.27%
- ---------------------------------------------------------------------------------
Class B Shares 13.60 13.43 13.79 0.49 1.89
- ---------------------------------------------------------------------------------
Class C Shares 13.58 13.41 13.78 0.44 1.89
- ---------------------------------------------------------------------------------
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>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2340 (0.70)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4829 (9.71)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.4662 28.82
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.3530 7.90
- ---------------------------------------------------------------------------------
1997 10.56 12.90 -- 0.3299 25.75
- ---------------------------------------------------------------------------------
1998 12.90 14.17 -- 0.3709 12.87
- ---------------------------------------------------------------------------------
01/01/99-03/31/99 14.17 13.60 -- 0.0597 (3.60)
- ---------------------------------------------------------------------------------
Totals: $0.0000 $2.2966
- ---------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/99: 70.48%
- ---------------------------------------------------------------------------------
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>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2010 (1.02)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4169 (10.40)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.3980 27.87
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.2756 7.06
- ---------------------------------------------------------------------------------
1997 10.56 12.90 -- 0.2427 24.78
- ---------------------------------------------------------------------------------
1998 12.90 14.17 -- 0.2689 12.03
- ---------------------------------------------------------------------------------
01/01/99-03/31/99 14.17 13.60 -- 0.0335 (3.79)
- ---------------------------------------------------------------------------------
Totals: $0.0000 $1.8366
- ---------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/99: 63.30%
- ---------------------------------------------------------------------------------
Performance Summary Class C Shares
<CAPTION>
Net Asset Value
------------------ Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2020 (1.01)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4158 (10.41)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.3970 27.86
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.2766 7.07
- ---------------------------------------------------------------------------------
1997 10.56 12.89 -- 0.2459 24.72
- ---------------------------------------------------------------------------------
1998 12.89 14.15 -- 0.2728 12.00
- ---------------------------------------------------------------------------------
01/01/99-03/31/99 14.15 13.58 -- 0.0345 (3.79)
- ---------------------------------------------------------------------------------
Totals: $0.0000 $1.8446
- ---------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/99: 63.17%
- ---------------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sale charges; results
would be lower if sales charges were included.
Note: The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs that are sponsored by
PaineWebber and may invest in PaineWebber mutual funds. For the period
September 10, 1998 (commencement of issuance) through March 31, 1999, Class Y
shares had a total return of 10.14%. 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 Financial Services Growth Fund Inc.
Portfolio of Investments March 31, 1999
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----------
<C> <S> <C>
Common Stocks -- 93.96%
Banks -- 31.71%
155,000 Bank of New York Co., Inc. ............................ $ 5,570,312
169,000 Bank One Corp.......................................... 9,305,562
80,000 BB & T Corp. (1)....................................... 2,895,000
130,000 CCB Financial Corp. ................................... 7,028,125
120,000 Comerica, Inc. ........................................ 7,492,500
84,000 Commerce Bancorp, Inc. ................................ 3,465,000
150,000 Community First Bankshares Incorporated ............... 3,000,000
125,000 Cullen Frost Bankers Inc. ............................. 5,992,187
110,000 Fifth Third Bancorp.................................... 7,253,125
140,000 First American Corp. of Tennessee...................... 5,162,500
105,000 First Security Corp. .................................. 2,027,813
167,375 HUBCO Inc. ............................................ 5,617,523
17,000 M & T Bank Corp........................................ 8,143,000
82,500 Marshall and Ilsley Corp. ............................. 4,573,594
125,000 Mellon Bank Corp. ..................................... 8,796,875
75,000 Northern Trust Corp. (1)............................... 6,660,937
99,974 Old Kent Financial Corp. .............................. 4,223,902
125,000 Prosperity Bancshares Incorporated..................... 1,531,250
75,000 Seacoast Banking Corp. of Florida...................... 2,006,250
125,000 Summit Bancorp, Inc. .................................. 4,875,000
155,000 Texas Regional Bankshares Inc. ........................ 4,185,000
150,000 Unionbancal Corp. ..................................... 5,109,375
200,000 US Bancorp, Inc. ...................................... 6,812,500
50,000 Wachovia Corp. ........................................ 4,059,375
130,000 Wells Fargo and Co..................................... 4,558,125
110,000 West Coast Bancorp Oregon.............................. 2,055,625
250,000 Westamerica Bancorporation............................. 7,906,250
55,000 Wilmington Trust Corp. ................................ 3,141,875
150,000 Zions Bancorporation................................... 9,975,000
-----------
153,423,580
-----------
Business Services -- 3.31%
125,000 Deluxe Corp............................................ 3,640,625
160,000 First Data Corp........................................ 6,840,000
180,000 Sterling Commerce Inc.*(1)............................. 5,535,000
-----------
16,015,625
-----------
Financial Services -- 19.49%
30,000 American Express Co. .................................. 3,525,000
250,000 Associates First Capital Corp. (1)..................... 11,250,000
90,000 Capital One Financial Corp. ........................... 13,590,000
300,000 CIT Group, Inc. ....................................... 9,168,750
225,000 Conning Corp. ......................................... 3,360,937
140,000 Countrywide Credit Industries, Inc. ................... 5,250,000
120,000 Equitable Companies Incorporated ...................... 8,400,000
150,000 Federal Home Loan Mortgage Corp. ...................... 8,568,750
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ------------
<C> <S> <C>
Financial Services (continued)
160,000 Finova Group Inc. (1)................................. $ 8,300,000
110,000 Household International, Inc. ........................ 5,018,750
55,000 Lehman Brothers Holdings, Inc. ....................... 3,286,250
30,000 Morgan Stanley, Dean Witter & Co. .................... 2,998,125
105,000 Providian Corp. ...................................... 11,550,000
------------
94,266,562
------------
Insurance -- 29.59%
270,000 ACE Ltd. ............................................. 8,420,625
100,000 AFLAC Incorporated.................................... 5,443,750
190,000 Ambac Financial Group Inc. ........................... 10,260,000
62,500 American General Corp. (1)............................ 4,406,250
104,125 American International Group Inc. .................... 12,560,078
135,000 AON Corp. ............................................ 8,538,750
300,000 Enhance Financial Services Group Inc.................. 6,825,000
100,000 Fremont General Corp. ................................ 1,906,250
180,000 Hartford Financial Services Group, Inc................ 10,226,250
70,000 Hartford Life Inc..................................... 3,850,000
100,000 MBIA, Inc. ........................................... 5,800,000
165,000 Mutual Risk Management Ltd. (1)....................... 6,311,250
240,000 Nationwide Financial Services Inc..................... 10,080,000
240,000 Protective Life Corp. ................................ 9,090,000
187,500 Reinsurance Group of America, Inc. (1)................ 7,980,469
170,000 Reliastar Financial Corp. ............................ 7,246,250
253,500 Scottish Annuity & Life............................... 2,471,625
120,000 Torchmark, Inc........................................ 3,795,000
275,000 Travelers Property Casualty Corp...................... 9,831,250
170,000 UNUM Corp. ........................................... 8,085,625
------------
143,128,422
------------
Real Property -- 3.06%
160,000 Cabot Industrial Trust................................ 3,020,000
125,000 Carramerica Realty Corp. ............................. 2,757,813
125,000 Manufactured Home Communities Inc. ................... 3,000,000
156,000 New Plan Excel Realty Trust Inc. (1).................. 2,993,250
175,000 Westfield America Inc. ............................... 3,051,563
------------
14,822,626
------------
Thrift Institutions -- 6.80%
264,500 Charter One Financial Inc. ........................... 7,633,305
35,000 Commercial Federal Corporation........................ 814,601
345,000 Dime Bancorp, Inc..................................... 7,999,687
184,300 Golden State Bancorp Inc.*(1)......................... 4,100,675
200,000 Greenpoint Financial Corp. ........................... 6,950,000
150,000 PBOC Holdings Inc. ................................... 1,350,000
</TABLE>
12
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
See accompanying notes to financial statements
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ------------
<C> <S> <C>
Common Stocks (concluded)
Thrift Institutions (concluded)
150,000 Queens County Bancorp Inc. ........................... $ 4,050,000
------------
32,898,268
------------
Total Common Stocks (cost -- $381,317,667)....................... 454,555,083
------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Rights and
Warrants Value
---------- --------
<C> <S> <C>
Rights and Warrants -- 0.16%
20,000 Coast Federal Litigation Contingent Payment Rights...... $118,750
135,000 Golden State Bancorp Inc. Litigation Tracking Warrants.. 653,906
--------
Total Rights and Warrants (cost -- $770,102)........................ 772,656
--------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates
--------- -------- --------
<C> <S> <C> <C> <C>
U.S. Government Obligation -- 4.12%
$20,000 United States Treasury Bills
(cost -- $19,962,356)........... 04/15/99 4.840%@ 19,962,356
------------
Repurchase Agreements -- 7.68%
17,146 Repurchase Agreement dated
03/31/99 with Salomon Smith Bar-
ney, Inc., collateralized by
$16,845,000 U.S. Treasury Notes,
6.250% due 08/31/02 (value--
$17,497,744); proceeds;
$17,148,334..................... 04/01/99 4.900 17,146,000
20,000 Repurchase Agreement dated
03/31/99 with SG Cowen Corp.,
collateralized by $19,066,000
U.S. Treasury Notes, 6.500% due
08/15/05 (value--$20,400,620);
proceeds; $20,002,722........... 04/01/99 4.900 20,000,000
------------
Total Repurchase Agreements (cost --
$37,146,000).............................. 37,146,000
------------
Total Investments (cost -- $439,196,125) --
105.92%................................... 512,436,095
Liabilities in excess of other assets --
(5.92)%................................... (28,649,131)
------------
Net Assets (100.00%)........................ $483,786,964
============
</TABLE>
- ---------
*Non-income producing security
(1)Security, or portion thereof, was on loan at March 31, 1999.
@Yield to maturity at date of purchase
13
<PAGE>
PaineWebber Utility Income Fund
Portfolio of Investments March 31, 1999
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----------
<C> <S> <C>
Common Stocks -- 79.79%
Electric Utilities -- 36.02%
12,500 Allegheny Energy Inc................................... $ 368,750
17,500 BEC Energy............................................. 643,125
20,000 Baltimore Gas & Electric Co............................ 507,500
14,000 CMS Energy Corp........................................ 560,875
15,000 Cilcorp Inc............................................ 900,937
37,500 DPL Inc................................................ 618,750
20,000 DQE Inc................................................ 767,500
5,000 Duke Energy Corp....................................... 273,125
20,000 El Paso Energy Corp.................................... 653,750
15,000 Energy East Corp....................................... 788,437
15,000 First Energy Corp...................................... 419,063
11,500 FPL Group, Inc......................................... 612,375
15,000 Illinova Corp.......................................... 317,813
15,000 Interstate Energy Corp................................. 397,500
15,000 New Century Energies Inc............................... 510,938
24,000 NIPSCO Industries Inc.................................. 648,000
22,500 PECO Energy Co......................................... 1,040,625
30,000 Public Service Co. of New Mexico....................... 510,000
20,000 Puget Sound Power & Light Co........................... 461,250
21,000 SCANA Corp............................................. 455,438
17,500 Sierra Pacific Resources............................... 615,781
10,000 Unicom Corp............................................ 365,625
-----------
12,437,157
-----------
Electrical Equipment -- 1.61%
12,000 Global Crossing Ltd.*(1)............................... 555,000
-----------
Financial Services -- 0.41%
9,300 Medallion Financial Corp............................... 140,081
-----------
Gas Utility -- 6.48%
30,000 AGL Resources Inc...................................... 526,875
17,000 Coastal Corp........................................... 561,000
10,000 Columbia Energy Group.................................. 522,500
17,500 NICOR Inc.............................................. 628,906
-----------
2,239,281
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares Value
--------- -----------
<C> <S> <C>
Long Distance & Phone Companies -- 25.23%
8,000 Ameritech Corp......................................... $ 463,000
4,500 AT&T Corp.............................................. 359,156
15,376 Bell Atlantic Corp..................................... 794,747
22,000 BellSouth Corp......................................... 881,375
15,000 Century Telephone Enterprises, Inc..................... 1,053,750
1,000 Covad Communications Group, Inc.*...................... 65,750
10,000 GTE Corp............................................... 605,000
20,000 ITC Deltacom*.......................................... 436,250
10,000 Level 3 Communications Inc.*........................... 728,125
12,463 MCI WorldCom Inc.*..................................... 1,103,754
13,500 Qwest Communications International Inc.*............... 973,266
9,000 SBC Communications Inc................................. 424,125
15,000 US West, Inc........................................... 825,938
-----------
8,714,236
-----------
Media -- 1.45%
10,000 Univision Communications Inc.*......................... 500,000
-----------
Real Property -- 6.07%
33,000 New Plan Excel Realty Trust Inc........................ 633,187
10,000 Storage USA Inc........................................ 283,750
18,000 Sun Communities........................................ 571,500
10,000 Vornado Realty Trust................................... 345,000
15,000 Westfield America Inc.................................. 261,563
-----------
2,095,000
-----------
Water -- 2.52%
30,000 American Water Works Co. Inc........................... 871,875
-----------
Total Common Stocks (cost -- $19,216,874)......................... 27,552,630
-----------
</TABLE>
14
<PAGE>
PaineWebber Utility Income Fund
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Date Rates Value
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
Corporate Bonds -- 6.47%
Beverages & Tobacco -- 0.55%
$190 Seagram (Joseph) & Sons,
Inc..................... 12/15/05 6.625% $ 189,452
-----------
Cable -- 1.99%
550 TCI Communications,
Inc..................... 03/31/27 9.650 686,178
-----------
Electric Utilities -- 1.42%
500 Texas Utilities Electric
Capital................. 01/30/37 8.175 491,419
-----------
Entertainment -- 0.63%
200 Time Warner Inc......... 01/15/08 7.480 215,703
-----------
Publishing -- 1.88%
610 News America Holdings
Inc..................... 12/01/95 to 10/17/96 7.900 to 8.250 650,405
-----------
Total Corporate Bonds (cost --
$2,071,924)....................... 2,233,157
-----------
Convertible Bond -- 3.15%
Cable -- 3.15%
500 International Cabletel
Inc.+ (cost --
$500,000).............. 06/15/08 7.000 1,088,125
-----------
U.S. Government Obligation -- 8.67%
3,000 United States Treasury
Bills (cost --
$2,994,354)............ 04/15/99 4.840@ 2,994,354
-----------
Repurchase Agreements -- 11.90%
1,500 Repurchase Agreement
dated 03/31/99 with
Deutsche Bank,
collateralized by
$1,500,000 U.S.
Treasury Notes, 6.000%
due 08/15/00 (value--
$1,530,000); proceeds:
$1,500,204............. 04/01/99 4.900 1,500,000
1,500 Repurchase Agreement
dated 03/31/99 with
Salomon Smith Barney,
Inc., collateralized by
$1,590,000 U.S.
Treasury Bills, due
01/06/00 (value--
$1,535,145); proceeds:
$1,500,204............. 04/01/99 4.900 1,500,000
1,110 Repurchase Agreement
dated 03/31/99 with
State Street Bank &
Trust Co.,
collateralized by
$775,000 U.S. Treasury
Bonds, 12.000% due
08/15/13 (value--
$1,138,352); proceeds:
$1,100,150............. 04/01/99 4.870 1,110,000
-----------
Total Repurchase Agreements
(cost -- $4,110,000)............... 4,110,000
-----------
Total Investments (cost --
$28,893,152) -- 109.98%........... 37,978,266
Liabilities in excess of other as-
sets -- (9.98)%.................... (3,446,215)
-----------
Net Assets -- 100.00%.............. $34,532,051
===========
</TABLE>
- ---------
*Non-Income producing security.
+ Security exempt from registration under 144A of the Securities Act of 1933.
This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
(1) Security, or portion thereof, was on loan at March 31, 1999.
@ Yield to maturity at date of purchase.
See accompanying notes to financial statements
15
<PAGE>
PaineWebber
Statement of Assets and Liabilities March 31, 1999
<TABLE>
<CAPTION>
Financial Utility
Services Income
Growth Fund Fund
------------ -----------
<S> <C> <C>
Assets
Investments in securities, at value (cost--
$402,050,125 and $24,783,152, respectively)......... $475,290,095 $33,868,266
Repurchase agreements (cost--$37,146,000 and
$4,110,000 respectively)............................ 37,146,000 4,110,000
Investments of cash collateral received for
securities loaned at value (cost--$42,014,500 and
$0, respectively)................................... 42,014,500 --
Cash................................................. 2,752,680 27,352
Dividends and interest receivable.................... 820,533 120,838
Receivable for fund shares sold...................... 772,980 29,125
Receivable for investments sold...................... 366,352 --
Other assets......................................... 75,812 58,249
------------ -----------
Total assets......................................... 559,238,952 38,213,830
------------ -----------
Liabilities
Collateral for securities loaned..................... 42,014,500 --
Payable for investments purchased.................... 30,818,892 3,487,918
Payable for fund shares repurchased.................. 1,903,050 20,775
Payable to affiliates................................ 574,953 46,060
Accrued expenses and other liabilities............... 140,593 127,026
------------ -----------
Total liabilities.................................... 75,451,988 3,681,779
------------ -----------
Net Assets
Capital Stock/Beneficial Interest shares of $0.001
par value outstanding............................... 400,649,451 27,609,875
Accumulated net investment income.................... 1,100,359 36,132
Accumulated net realized gains (losses) from
investment transactions............................. 8,797,184 (2,199,070)
Net unrealized appreciation of investments........... 73,239,970 9,085,114
------------ -----------
Net assets........................................... $483,786,964 $34,532,051
============ ===========
Class A:
Net assets........................................... $204,433,019 $ 7,307,608
------------ -----------
Shares outstanding................................... 6,760,980 537,404
------------ -----------
Net asset value and redemption value per share....... $30.24 $13.60
====== ======
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price)....... $31.66 $14.24
====== ======
Class B:
Net assets........................................... $195,392,336 $19,484,175
------------ -----------
Shares outstanding................................... 6,657,721 1,432,421
------------ -----------
Net asset value and offering price per share......... $29.35 $13.60
====== ======
Class C:
Net assets........................................... $ 78,669,581 $ 7,700,362
------------ -----------
Shares outstanding................................... 2,686,595 566,900
------------ -----------
Net asset value and offering price per share......... $29.28 $13.58
====== ======
Class Y:
Net assets........................................... $ 5,292,028 $ 39,906
------------ -----------
Shares outstanding................................... 175,085 2,946
------------ -----------
Net asset value, offering price and redemption value
per share........................................... $30.23 $13.55
====== ======
</TABLE>
See accompanying notes to financial statements
16
<PAGE>
PaineWebber
Statement of Operations For the Year Ended March 31, 1999
<TABLE>
<CAPTION>
Financial Utility
Services Income
Growth Fund Fund
------------ -----------
<S> <C> <C> <C>
Investment income:
Dividends ..................................... $ 8,420,897 $ 1,192,048
Interest....................................... 2,874,371 386,032
------------ -----------
11,295,268 1,578,080
------------ -----------
Expenses:
Investment advisory and administration......... 3,553,490 245,628
Service fees -- Class A........................ 534,765 18,972
Service and distribution fees -- Class B....... 2,106,616 198,885
Service and distribution fees -- Class C....... 798,910 75,985
Transfer agency and service.................... 384,320 34,635
Custody and accounting......................... 324,585 23,213
Federal and state registration fees............ 192,444 54,908
Reports and notices to shareholders............ 86,540 21,571
Legal and audit................................ 77,050 71,616
Directors/Trustees' fees....................... 10,500 10,500
Other expenses................................. 73,158 10,122
------------ -----------
8,142,378 766,035
------------ -----------
Net investment income.......................... 3,152,890 812,045
------------ -----------
Realized and unrealized gains (losses) from
investment transactions:
Net realized gains from investment
transactions.................................. 10,373,374 1,659,180
Net change in unrealized appreciation of
investments................................... (60,166,139) (2,311,090)
------------ -----------
Net realized and unrealized losses from
investments................................... (49,792,765) (651,910)
------------ -----------
Net increase (decrease) in net assets resulting
from operations............................... $(46,639,875) $ 160,135
============ ===========
</TABLE>
See accompanying notes to financial statements
17
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended
March 31,
---------------------------
1999 1998
------------ -------------
<S> <C> <C>
From operations:
Net investment income............................. $ 3,152,890 $ 1,940,220
Net realized gains from investment transactions... 10,373,374 14,829,192
Net change in unrealized appreciation/depreciation
of investments................................... (60,166,139) 91,444,229
------------ -------------
Net increase (decrease) in net assets resulting
from operations.................................. (46,639,875) 108,213,641
------------ -------------
Dividends and distributions to shareholders from:
Net investment income--Class A.................... (1,912,147) (1,011,267)
Net investment income--Class B.................... (548,684) (359,882)
Net investment income--Class C.................... (265,951) (124,042)
Net investment income--Class Y.................... (48,437) --
Net realized gains from investment transactions--
Class A.......................................... (2,846,899) (7,772,773)
Net realized gains from investment transactions--
Class B.......................................... (3,007,950) (6,470,964)
Net realized gains from investment transactions--
Class C.......................................... (1,166,071) (2,101,970)
Net realized gains from investment transactions--
Class Y.......................................... (54,597) --
------------ -------------
Total dividends and distributions to shareholders. (9,850,736) (17,840,898)
------------ -------------
From capital stock transactions:
Net proceeds from the sale of shares.............. 424,377,598 400,986,234
Cost of shares repurchased........................ (365,190,187) (174,767,137)
Proceeds from dividends reinvested................ 8,988,686 15,912,449
------------ -------------
Net increase in net assets from capital stock
transactions..................................... 68,176,097 242,131,546
------------ -------------
Net increase in net assets........................ 11,685,486 332,504,289
Net Assets:
Beginning of year................................. 472,101,478 139,597,189
------------ -------------
End of year (including undistributed net
investment income of
$1,100,359 and $886,107, respectively)........... $483,786,964 $ 472,101,478
============ =============
</TABLE>
See accompanying notes to financial statements
18
<PAGE>
PaineWebber Utility Income Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended
March 31,
-------------------------
1999 1998
----------- ------------
<S> <C> <C>
From operations:
Net investment income............................... $ 812,045 $ 701,190
Net realized gains from investment transactions..... 1,659,180 1,915,598
Net change in unrealized appreciation/depreciation
of investments..................................... (2,311,090) 8,396,302
----------- ------------
Net increase in net assets resulting from
operations......................................... 160,135 11,013,090
----------- ------------
Dividends to shareholders from:
Net investment income--Class A...................... (201,569) (191,756)
Net investment income--Class B...................... (375,035) (438,848)
Net investment income--Class C...................... (148,781) (159,880)
Net Investment income--Class Y...................... (492) --
----------- ------------
Total dividends to shareholders..................... (725,877) (790,484)
----------- ------------
From beneficial interest transactions:
Net proceeds from the sale of shares................ 5,043,771 15,590,114
Cost of shares repurchased.......................... (7,642,154) (23,344,027)
Proceeds from dividends reinvested.................. 541,936 667,446
----------- ------------
Net decrease in net assets from beneficial interest
transactions....................................... (2,056,447) (7,086,467)
----------- ------------
Net increase (decrease) in net assets............... (2,622,189) 3,136,139
Net Assets:
Beginning of year................................... 37,154,240 34,018,101
----------- ------------
End of year (including undistributed net investment
income of $36,132 at March 31, 1999)............... $34,532,051 $ 37,154,240
=========== ============
</TABLE>
See accompanying notes to financial statements
19
<PAGE>
Notes to Financial Statements
Organization and Significant Accounting Policies
PaineWebber Financial Services Growth Fund Inc. ("Financial Services Growth
Fund") and PaineWebber Utility Income Fund ("Utility Income Fund") (collective-
ly, the "Funds") are registered with the Securities and Exchange Commission un-
der the Investment Company Act of 1940, as amended, as diversified open-end
management investment companies. Financial Services Growth Fund was incorpo-
rated in the state of Maryland on February 13, 1986 and Utility Income Fund is
a series of PaineWebber Managed Investments Trust (collectively, the "Trusts")
which was organized under Massachusetts law by a Declaration of Trust dated Au-
gust 9, 1991 and November 21, 1986, respectively. Organizational costs have
been deferred and amortized using the straight line method over a period not to
exceed 60 months from the date the Funds commenced operations.
Each Fund currently 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,
if any.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. Actual results could differ from those estimates. The following is a
summary of significant accounting policies:
Valuation of Investments--Securities which are listed on stock exchanges are
valued at the last sales price on the day the securities are being 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 Man-
agement Inc. ("Mitchell Hutchins"), a wholly owned asset management subsidiary
of PaineWebber Incorporated ("PaineWebber") and investment adviser, administra-
tor and distributor of the Funds. Securities traded in the over-the-counter
("OTC") market and listed on the Nasdaq Stock Market, Inc. ("Nasdaq") are val-
ued at the last available sales price, or last bid price available if no sale
occurs on Nasdaq prior to the time of valuation. Where market quotations are
readily available, debt securities are valued thereon, provided such quotations
adequately reflect the fair values of the securities in the judgment of Mitch-
ell Hutchins. When market quotations are not readily available, securities are
valued based upon appraisals derived from information concerning those securi-
ties or similar securities received from recognized dealers in those securi-
ties. The amortized cost method of valuation is used to value short-term debt
instruments with sixty days or less remaining to maturity. Securities for which
market quotations are not readily available including restricted securities
subject to limitations as to their sale are valued at fair value as determined
in good faith by, or under the direction of, the Fund's/Trusts' Board of
Directors/Trustees.
Repurchase Agreements--Each Fund's custodian takes possession of the collat-
eral pledged for investments in repurchase agreements. The underlying collat-
eral is valued daily on a mark-to-market basis to ensure that the value, in-
cluding 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
20
<PAGE>
Notes to Financial Statements
the proceeds in satisfaction of the obligation. Under certain circumstances, in
the event of default or bankruptcy by the other party to the agreement, reali-
zation and/or retention of the collateral may be subject to legal proceedings.
Each Fund occasionally participates in joint repurchase agreement transactions
with other funds managed by Mitchell Hutchins.
Investment Transactions and Investment Income--Investment transactions are re-
corded on the trade date. Realized gains and losses from investment transac-
tions are calculated using the identified cost method. Interest income is re-
corded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to in-
terest 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 (af-
ter adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex- dividend date. The amount of dividends and distributions is
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 differ-
ences 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
Financial Services Growth Fund invests primarily in equity securities of fi-
nancial services companies and Utility Income Fund invests primarily in securi-
ties of utility companies. Economic, legislative and regulatory developments
impacting those industries may affect the market value of each Fund's invest-
ments. In addition, each Fund's ability to invest in U.S. dollar-denominated
foreign equity securities and ability to use options and futures contracts also
entail special risks.
Investment Adviser and Administrator
Each Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins, under which Mitchell Hutchins serves as in-
vestment adviser and administrator of the Funds. In accordance with the Advi-
sory Contracts, Financial Services Growth Fund and Utility Income Fund pay
Mitchell Hutchins an investment advisory and administration fee, which is ac-
crued daily and paid monthly, at the annual rate of 0.70% of each Fund's aver-
age daily net assets. At March 31, 1999, Financial Services Growth Fund and
Utility Income Fund owed Mitchell Hutchins $292,521 and $20,830, respectively,
in investment advisory and administration fees.
For the year ended March 31, 1999, Financial Services Growth Fund and the
Utility Income Fund paid $66,432 and $0, respectively, in brokerage commissions
to PaineWebber for transactions executed on behalf of the Funds.
21
<PAGE>
Notes to Financial Statements
Distribution Plans
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under sepa-
rate plans of service and/or distribution pertaining to Class A, Class B and
Class C shares, the Funds pay Mitchell Hutchins monthly service fees at an an-
nual rate of 0.25% of the average daily net assets of Class A, Class B and
Class C shares and monthly distribution fees at the annual rate of 0.75% of the
average daily net assets of Class B and Class C shares. At March 31, 1999, Fi-
nancial Services Growth Fund and Utility Income Fund owed Mitchell Hutchins
$281,699 and $24,978, respectively, in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed each Fund that for the year
ended March 31, 1999, it earned $2,677,286 and $22,513, in sales charges for
the Financial Services Growth Fund and Utility 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 se-
curities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted accord-
ingly. Each Fund will regain record ownership of loaned securities to exercise
certain beneficial rights, however, each Fund may bear the risk of delay in re-
covery of, or even loss of rights in, the securities loaned should the borrower
fail financially. Each Fund receives compensation, which is included in inter-
est 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 bor-
rower plus reasonable administrative and custody
fees. For the year ended March 31, 1999, Financial Services Growth Fund and
Utility Income Fund earned $41,864 and $8,606, respectively, for lending secu-
rities. Each Fund's lending agent is PaineWebber, which received compensation
from the Funds for the year ended March 31, 1999 as follows:
<TABLE>
<S> <C>
Financial Services Growth Fund............ $14,067
Utility Income Fund....................... $ 2,868
</TABLE>
At March 31, 1999, Financial Services Growth Fund and the Utility Income Fund
owed PaineWebber $733 and $252, respectively, in compensation as security lend-
ing agent.
22
<PAGE>
Notes to Financial Statements
As of March 31, 1999, the Financial Services Growth Fund's custodian held cash
and/or cash equivalents having an aggregate value of $42,014,500 as collateral
for portfolio securities loaned having a market value of $40,196,444. The cash
collateral was invested in a time deposit and money market funds:
<TABLE>
<CAPTION>
Number of
Shares/
Principal
Amount Market
(000) Value
--------- -----------
<C> <S> <C>
Dresdner Bank AG, Cayman Island Time Deposit, 5.063%,
$25,000 due 04/01/99.......................................... $25,000,000
1,118 Janus Investment Money Market Fund.................... 1,117,698
15,897 MH Money Market Fund LLC.............................. 15,896,802
-----------
Total investments of cash collateral received for securities
loaned (cost -- $42,014,500).................................... $42,014,500
===========
</TABLE>
As of March 31, 1999, the Utility Income Fund held the following securities as
non-cash collateral for portfolio securities loaned having a market value of
$499,500:
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest Market
(000) Date Rate Value
--------- -------- -------- --------
<C> <S> <C> <C> <C>
$580 U.S. Treasury Note....................... 08/15/03 5.750% $591,194
</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 tempo-
rary financing until the settlement of sale or purchase of portfolio securi-
ties, the repurchase or redemption of shares of each Fund at the request of the
shareholders and other temporary or emergency purposes. In connection there-
with, each Fund has agreed to pay a commitment fee, pro rata, based on the rel-
ative 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 year ended March 31, 1999, the Funds did not borrow under the Facility.
Transfer Agency Service Fees
PaineWebber provides certain transfer agency related services to each Fund
pursuant to a delegation of authority from PFPC, Inc., the Fund's transfer
agent, and is compensated for these services by PFPC, Inc., not the Funds. For
the year ended March 31, 1999, PaineWebber received from PFPC, Inc., not the
Funds, approximately 53% and 49% of the total transfer agency service fees col-
lected by PFPC, Inc. from Financial Services Growth Fund and Utility Income
Fund, respectively.
Investments in Securities
For federal income tax purposes, the cost of securities owned at March 31,
1999 was substantially the same as the cost of securities for financial state-
ment purposes.
23
<PAGE>
Notes to Financial Statements
At March 31, 1999, the components of net unrealized appreciation of invest-
ments were as follows:
<TABLE>
<CAPTION>
Financial
Services Utility
Growth Income
Fund Fund
------------ ----------
<S> <C> <C>
Gross appreciation (investments having an excess of
value over cost).................................... $ 84,226,303 $9,731,231
Gross depreciation (investments having an excess of
cost over value).................................... (10,986,333) (646,117)
------------ ----------
Net unrealized appreciation of investments........... $ 73,239,970 $9,085,114
============ ==========
</TABLE>
For the year ended March 31, 1999, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
Financial
Services Utility
Growth Income
Fund Fund
------------ -----------
<S> <C> <C>
Purchases.............................................. $352,424,857 $ 6,814,388
Sales.................................................. $266,718,233 $11,525,495
</TABLE>
Federal Tax Status
Each Fund intend to distribute substantially all of their 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 sub-
stantially all of their net investment income, capital gains and certain other
amounts, if any, the Funds intend not to be subject to a federal excise tax.
To reflect reclassifications for the Financial Services Growth Fund arising
from permanent "book/tax" differences for the year ended March 31, 1999, undis-
tributed net investment income was decreased by $163,419, accumulated net real-
ized gains from investment transactions were increased by $53,103 and capital
stock was increased by $110,316.
To reflect reclassifications for the Utility Income Fund arising from perma-
nent "book/tax" differences for the year ended March 31, 1999, accumulated net
investment income was decreased by $28,237 and beneficial interest increased by
$28,237.
At March 31, 1999, Utility Income Fund had a net capital loss carryforward of
$2,185,162 which will expire by March 31, 2004. To the extent such losses are
used, as provided in the regulations, to offset future net realized capital
gains, it is probable these gains will not be distributed.
24
<PAGE>
Notes to Financial Statements
Capital Stock/Beneficial Interest
There are 300 million shares of $0.001 par value common stock authorized for
the Financial Services Growth Fund. Transactions in common stock were as fol-
lows:
<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> <C> <C>
Financial Services Growth Fund
For the Year Ended
March 31, 1999
Shares sold..... 7,542,064 $ 234,602,858 3,209,931 $ 99,463,482 2,728,837 $ 83,914,734 202,297 $6,396,524
Shares
repurchased.... (7,526,690) (231,874,337) (2,387,230) (70,678,092) (2,048,835) (61,701,102) (30,708) (936,656)
Shares converted
from Class B to
Class A........ 351,974 11,009,415 (362,660) (11,009,415) -- -- -- --
Dividends
reinvested..... 141,796 4,241,108 112,654 3,277,100 47,112 1,367,649 3,442 102,829
---------- ------------- ---------- ------------ ---------- ------------ -------- ----------
Net increase.... 509,144 $ 17,979,044 572,695 $ 21,053,075 727,114 $ 23,581,281 175,031 $5,562,697
========== ============= ========== ============ ========== ============ ======== ==========
For the Year
Ended March 31, 1998
Shares sold..... 5,407,560 $ 158,699,017 5,117,213 $148,855,573 3,254,668 $ 93,429,844 54 $1,800
Shares
repurchased.... (3,295,366) (96,214,614) (827,002) (23,973,587) (1,909,873) (54,578,936) - -
Shares converted
from Class B to
Class A........ 230,973 6,872,851 (237,222) (6,872,851) - - - -
Dividends
reinvested..... 249,050 7,491,415 213,881 6,266,712 73,652 2,154,322 - -
---------- ------------- ---------- ------------ ---------- ------------ -------- ----------
Net increase.... 2,592,217 $ 76,848,669 4,266,870 $124,275,847 1,418,447 $ 41,005,230 54 $1,800
========== ============= ========== ============ ========== ============ ======== ==========
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized for the Utility Income Fund. Transactions in shares of beneficial
interest were as follows:
<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> <C> <C>
Utility Income
Fund
For the Year
Ended March 31,
1999
Shares sold..... 18,839 $ 254,264 153,918 $ 2,071,525 198,842 $ 2,678,220 2,964 $ 39,762
Shares
repurchased.... (112,877) (1,521,717) (254,192) (3,414,583) (201,958) (2,705,118) (53) (736)
Shares converted
from Class B to
Class A........ 50,414 680,729 (50,459) (680,729) -- -- -- --
Dividends
reinvested..... 11,343 154,177 20,004 271,487 8,546 115,780 35 492
---------- ------------- ---------- ------------ ---------- ------------ -------- ----------
Net increase
(decrease)..... (32,281) $ (432,547) (130,729) $ (1,752,300) 5,430 $ 88,882 2,946 $ 39,518
========== ============= ========== ============ ========== ============ ======== ==========
For the Year
Ended March 31,
1998
Shares sold..... 98,175 $ 1,159,314 124,629 $ 1,530,954 1,084,440 $ 12,899,846
Shares
repurchased.... (198,661) (2,252,444) (594,162) (6,745,575) (1,211,968) (14,346,008)
Shares converted
from Class B to
Class A........ 63,785 757,256 (63,778) (757,256) -- --
Dividends
reinvested..... 14,319 167,830 31,301 364,143 11,616 135,473
---------- ------------- ---------- ------------ ---------- ------------
Net decrease.... (22,382) $ (168,044) (502,010) $ (5,607,734) (115,912) $ (1,310,689)
========== ============= ========== ============ ========== ============
</TABLE>
25
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
Financial Highlights
Selected data for a share of capital stock outstanding throughout each period
is presented below:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------
For the Years Ended March 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $33.56 $23.41 $21.16 $17.11 $16.92
-------- -------- ------- ------- -------
Net investment income...... 0.33@ 0.20 0.18 0.30 0.25
Net realized and unrealized
gains (losses) from
investments............... (2.96)@ 11.75 5.69 6.25 1.34
-------- -------- ------- ------- -------
Net increase (decrease)
from investment
operations................ (2.63) 11.95 5.87 6.55 1.59
-------- -------- ------- ------- -------
Dividends from net
investment income......... (0.28) (0.21) (0.23) (0.29) (0.13)
Distributions from net
realized gains from
investment transactions... (0.41) (1.59) (3.39) (2.21) (1.27)
-------- -------- ------- ------- -------
Total dividends and
distributions............. (0.69) (1.80) (3.62) (2.50) (1.40)
-------- -------- ------- ------- -------
Net asset value, end of
period.................... $30.24 $33.56 $23.41 $21.16 $17.11
======== ======== ======= ======= =======
Total investment return
(1)....................... (7.81)% 51.92% 28.72% 39.02% 10.22%
======== ======== ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period
(000's)................... $204,433 $209,818 $85,661 $64,003 $49,295
Expenses to average net
assets.................... 1.17% 1.17% 1.52% 1.37% 1.45%
Net investment income to
average net assets........ 1.07% 1.12% 0.90% 1.50% 1.40%
Portfolio turnover rate.... 59% 23% 40% 53% 14%
</TABLE>
- ---------
* Annualized.
+ Commencement of issuance of shares.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges or program fees; results would be lower if sales
charges or program fees were included. Total investment return for periods
less than one year has not been annualized.
@ Calculated using the average monthly shares outstanding for the year.
26
<PAGE>
<TABLE>
<CAPTION>
Class B Class C Class Y
- --- ---------------------------------------------- ------------------------------------------ --------------------------------
For the Years Ended March 31, For the Years Ended March 31, For the Year For the Period
- --- ---------------------------------------------- ------------------------------------------ Ended March 30, 1998+
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995 March 31, 1999 to March 31, 1998
- --- -------- -------- ------- ------- ------- ------- ------- ------- ------ ------ -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$32.62 $22.87 $20.75 $16.85 $16.71 $ 32.56 $22.84 $20.75 $16.86 $16.71 $33.56 $33.22
-------- -------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
0.09@ 0.09 0.04 0.13 0.11 0.08@ 0.12 0.06 0.12 0.11 0.34@ 0.00
(2.87)@ 11.34 5.53 6.16 1.33 (2.86)@ 11.28 5.51 6.16 1.33 (2.89)@ 0.34
-------- -------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
(2.78) 11.43 5.57 6.29 1.44 (2.78) 11.40 5.57 6.28 1.44 (2.55) 0.34
-------- -------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
(0.08) (0.09) (0.06) (0.18) (0.03) (0.09) (0.09) (0.09) (0.18) (0.02) (0.37) --
(0.41) (1.59) (3.39) (2.21) (1.27) (0.41) (1.59) (3.39) (2.21) (1.27) (0.41) --
-------- -------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
(0.49) (1.68) (3.45) (2.39) (1.30) (0.50) (1.68) (3.48) (2.39) (1.29) (0.78) --
-------- -------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
$29.35 $32.62 $22.87 $20.75 $16.85 $ 29.28 $32.56 $22.84 $20.75 $16.86 $30.23 $33.56
======== ======== ======= ======= ======= ======= ======= ======= ====== ====== ====== ======
(8.51)% 50.80% 27.74% 37.97% 9.37% (8.50)% 50.76% 27.74% 37.92% 9.34% (7.57)% 1.02%
======== ======== ======= ======= ======= ======= ======= ======= ====== ====== ====== ======
$195,392 $198,473 $41,579 $28,147 $16,368 $78,670 $63,809 $12,357 $6,989 $4,160 $5,292 $2
1.94% 1.92% 2.27% 2.12% 2.22% 1.94% 1.92% 2.28% 2.14% 2.23% 0.90% 0.80%*
0.29% 0.37% 0.15% 0.74% 0.67% 0.27% 0.36% 0.15% 0.72% 0.61% 1.22% 0.00%*
59% 23% 40% 53% 14% 59% 23% 40% 53% 14% 59% 23%
</TABLE>
27
<PAGE>
PaineWebber Utility Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------
For the For the For the
Years Ended Four Months Years Ended
March 31, Ended November 30,
---------------------- March 31, -----------------
1999 1998 1997 1996 1995 1994
------ ------ ------ ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $13.79 $10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66
------ ------ ------ ------ ------- -------
Net investment income... 0.39 0.33 0.34 0.15 0.47 0.48
Net realized and
unrealized gains
(losses) from
investments............ (0.22) 3.61 0.41 -- 1.44 (1.31)
------ ------ ------ ------ ------- -------
Net increase (decrease)
from investment
operations............. 0.17 3.94 0.75 0.15 1.91 (0.83)
------ ------ ------ ------ ------- -------
Dividends from net
investment income...... (0.36) (0.35) (0.31) (0.16) (0.45) (0.52)
------ ------ ------ ------ ------- -------
Net asset value, end of
period................. $13.60 $13.79 $10.20 $ 9.76 $ 9.77 $ 8.31
====== ====== ====== ====== ======= =======
Total investment return
(1).................... 1.24% 39.15% 7.83% 1.46% 23.64% (8.76)%
====== ====== ====== ====== ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $7,308 $7,856 $6,039 $9,416 $10,750 $12,532
Expenses to average net
assets, net of waivers
from adviser........... 1.59% 1.92% 1.93% 1.09%* 1.49% 1.58%
Expenses to average net
assets, before waivers
from adviser........... 1.59% 1.92% 2.00% 1.44%* 1.49% 1.58%
Net investment income to
average net assets, net
of waivers from
adviser................ 2.90% 2.77% 3.27% 4.26%* 5.13% 5.49%
Net investment income to
average net assets,
before waivers from
adviser................ 2.90% 2.77% 3.20% 3.91%* 5.13% 5.49%
Portfolio turnover rate. 21% 10% 41% 21% 30% 92%
</TABLE>
- ---------
* Annualized.
+ Commencement of issuance of shares.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges or program fees; results would be lower if sales
changes or program fees were included. Total investment return for periods
of less than one year has not been annualized.
28
<PAGE>
<TABLE>
<CAPTION>
Class B Class C Class Y
- ------------------------------------------------------- ---------------------------------------------------- --------------
For the For the For the Years For the For the For the Years
Years Ended Four Months Ended Years Ended Four Months Ended For the Period
March 31, Ended November 30, March 31, Ended November 30, September 10,
- ------------------------- March 31, ---------------- ---------------------- March 31, ---------------- 1998+ to
1999 1998 1997 1996 1995 1994 1999 1998 1997 1996 1995 1994 March 31, 1999
- ------- ------- ------- ----------- ------- ------- ------ ------ ------ ----------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$13.79 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $13.78 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $12.55
- ------ ------- ------- ------- ------- ------- ------ ------ ------ ------- ------- ------- ------
0.29 0.25 0.26 0.12 0.40 0.42 0.28 0.23 0.25 0.12 0.40 0.42 0.24
(0.23) 3.60 0.42 (0.01) 1.45 (1.31) (0.22) 3.61 0.43 (0.01) 1.45 (1.31) 1.03
- ------ ------- ------- ------- ------- ------- ------ ------ ------ ------- ------- ------- ------
0.06 3.85 0.68 0.11 1.85 (0.89) 0.06 3.84 0.68 0.11 1.85 (0.89) 1.27
- ------ ------- ------- ------- ------- ------- ------ ------ ------ ------- ------- ------- ------
(0.25) (0.26) (0.23) (0.13) (0.39) (0.45) (0.26) (0.26) (0.23) (0.13) (0.39) (0.45) (0.27)
- ------ ------- ------- ------- ------- ------- ------ ------ ------ ------- ------- ------- ------
$13.60 $13.79 $10.20 $ 9.75 $ 9.77 $ 8.31 $13.58 $13.78 $10.20 $ 9.75 $ 9.77 $ 8.31 $13.55
====== ======= ======= ======= ======= ======= ====== ====== ====== ======= ======= ======= ======
0.49% 38.13% 7.05% 1.10% 22.73% (9.35)% 0.44% 38.09% 7.06% 1.10% 22.71% (9.36)% 10.14%
====== ======= ======= ======= ======= ======= ====== ====== ====== ======= ======= ======= ======
$19,484 $21,562 $21,071 $34,765 $37,554 $37,156 $7,700 $7,736 $6,909 $11,072 $12,222 $13,922 $40
2.35% 2.68% 2.69% 1.85%* 2.23% 2.33% 2.35% 2.68% 2.70% 1.85%* 2.24% 2.32% 1.25%*
2.35% 2.68% 2.76% 2.20%* 2.23% 2.33% 2.35% 2.68% 2.76% 2.20%* 2.24% 2.32% 1.25%*
2.16% 2.05% 2.51% 3.51%* 4.37% 4.72% 2.13% 1.99% 2.51% 3.50%* 4.37% 4.69% 2.57%*
2.16% 2.05% 2.44% 3.16%* 4.37% 4.72% 2.13% 1.99% 2.44% 3.15%* 4.37% 4.69% 2.57%*
21% 10% 41% 21% 30% 92% 21% 10% 41% 21% 30% 92% 21%
</TABLE>
29
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER UTILITY INCOME FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Boards of Trustees/Directors and Shareholders
We have audited the accompanying statement of assets and liabilities, includ-
ing the portfolios of investments, of PaineWebber Financial Services Growth
Fund, Inc., and PaineWebber Utility Income Fund as of March 31, 1999, and the
related statement of operations for the year then ended and the statements of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated therein. These fi-
nancial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these finan-
cial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
investments owned at March 31, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber Financial Services Growth Fund, Inc. and PaineWebber Utility Income
Fund at March 31, 1999, the results of their operations for the year then ended
and the changes in their net assets for each of the two years in the period
then ended and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
New York, New York
May 14, 1999
30
<PAGE>
PaineWebber Financial Services Growth Fund Inc. PaineWebber Utility Income Fund
Tax Information (unaudited)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end (March 31,
1999) as to federal tax status of distributions received by shareholders during
such fiscal year. Accordingly, we are advising you that the following distribu-
tions paid during the fiscal year by the Funds were derived from the following
sources:
<TABLE>
<CAPTION>
Financial
Services Utility
Growth Income
Per Share Data: Fund Fund
- --------------- --------- -------
<S> <C> <C>
Net investment income*
Class A................................................... $0.2780 $0.3578
Class B................................................... 0.0755 0.2547
Class C................................................... 0.0944 0.2577
Class Y................................................... 0.3672 0.2735
Short-term capital gains*................................. 0.0290 --
Long-term capital gains................................... 0.3849 --
Percentage of ordinary income dividends qualifying for the
dividends received deduction available to corporate
shareholders............................................. 93.49% 100.00%
</TABLE>
*Taxable as ordinary income
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information re-
porting.
Since each Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1999. Such notifications, which will
reflect the amount to be used by calendar year taxpayers on their federal in-
come tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 2000. Shareholders are advised to consult their own tax ad-
visers with respect to the tax consequences of their investment in each of the
Funds.
31
<PAGE>
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32
<PAGE>
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33
<PAGE>
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34
<PAGE>
ANNUAL REPORT
DIRECTORS / 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 M. Berry
Vice President
James F. Keegan
Vice President
Mark A. Tincher
Vice President
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
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.
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.
<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
PaineWebber
(C)1999 PaineWebber Incorporated
Member SIPC
PaineWebber
==========================
FINANCIAL
SERVICES
GROWTH FUND INC.
UTILITY
INCOME FUND
ANNUAL REPORT
MARCH 31, 1999
