<PAGE>
PaineWebber Financial Services Growth Fund Inc. Annual Report
Performance at a Glance
--------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber Financial
Services Growth Fund Inc. (Class A) and the S&P 500 Index, for the 10-year
period ended March 31, 2000.
[LINE GRAPH]
PaineWebber Financial
Services Growth Fund
(Class A) S&P 500 Index
Mar-90 9,546 10,265
9,414 10,009
9,845 10,983
9,717 10,910
9,527 10,875
8,631 9,893
7,892 9,412
7,612 9,372
8,127 9,977
8,806 10,254
9,421 10,699
10,333 11,463
Mar-91 10,823 11,741
11,461 11,769
11,950 12,275
11,773 11,713
12,647 12,259
13,406 12,548
13,429 12,338
13,705 12,504
13,026 12,001
14,563 13,372
14,899 13,123
15,549 13,292
Mar-92 15,502 13,034
15,909 13,416
16,663 13,482
16,744 13,281
17,289 13,823
16,849 13,541
17,313 13,701
17,812 13,747
19,192 14,215
20,195 14,390
21,020 14,510
21,543 14,708
Mar-93 22,601 15,018
21,683 14,655
21,264 15,046
21,794 15,090
22,190 15,029
22,797 15,599
23,416 15,479
22,868 15,799
21,817 15,649
22,280 15,838
23,004 16,377
22,422 15,933
Mar-94 21,891 15,240
22,487 15,435
23,405 15,687
23,522 15,302
23,651 15,804
24,194 16,451
23,470 16,049
23,108 16,409
21,891 15,811
22,112 16,045
22,789 16,461
24,002 17,101
Mar-95 24,128 17,606
24,989 18,124
25,990 18,847
26,850 19,284
28,303 19,922
29,924 19,972
30,573 20,815
30,376 20,740
31,913 21,648
32,607 22,066
32,750 22,816
33,178 23,029
Mar-96 33,543 23,250
33,780 23,591
34,430 24,198
34,510 24,290
34,113 23,216
35,920 23,706
37,759 25,038
39,487 25,729
42,214 27,672
42,049 27,124
43,599 28,816
45,443 29,044
Mar-97 43,174 27,853
44,650 29,513
47,195 31,317
50,293 32,710
53,705 35,311
52,636 33,333
56,287 35,157
55,679 33,982
57,136 35,556
61,056 36,167
59,199 36,565
62,502 39,201
Mar-98 65,590 41,209
65,590 41,629
63,929 40,913
65,766 42,574
64,046 42,123
52,437 36,036
55,349 38,346
57,792 41,459
60,509 43,972
62,468 46,505
60,628 48,449
59,389 46,942
Mar-99 60,469 48,820
63,548 50,709
61,608 49,512
62,208 52,260
59,169 50,630
55,110 50,376
52,010 48,996
59,509 52,097
56,949 53,155
56,584 56,281
52,371 53,455
48,592 52,445
Mar-00 55,097 57,574
The graph depicts the performance of PaineWebber Financial Services Growth Fund
Inc. (Class 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 Returns, periods ended 3/31/00
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years Inception(degree)
<S> <C> <C> <C> <C> <C>
Class A* 5.93% -8.88% 17.96% 19.16% 14.00%
Before Deducting Class B** 5.46 -9.63 17.05 N/A 18.68
Maximum Sales Charge Class C+ 5.51 -9.59 17.05 N/A 15.55
Class Y++ 5.92 -8.76 N/A N/A -7.67
After Deducting Class A* 1.15 -12.97 16.87 18.61 13.62
Maximum Sales Charge Class B** 0.46 -14.01 16.84 N/A 18.68
Class C+ 4.51 -10.46 17.05 N/A 15.55
S&P 500 Index 17.50 17.93 26.75 18.82 17.01
S&P 500 Financial Index 11.17 -1.04 25.86 19.91 14.41
Lipper Financial Services 5.94 -4.73 19.15 19.14 13.96
Funds Median
</TABLE>
1
<PAGE>
PaineWebber Utility Income Fund Annual Report
Performance at a Glance
--------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber Utility Income
Fund (Class A), the S&P 500 Index and the S&P 500 Utility Index, for the period
from Fund inception on July 2, 1993 through March 31, 2000.
[LINE GRAPH]
<TABLE>
<CAPTION>
PaineWebber Utility
Income Growth Fund
(Class A) S&P 500 Index S&P Utility Index
<S> <C> <C> <C>
Jul-93 9,628 10,295 10,462
9,904 10,038 10,704
Sep-93 9,857 11,015 11,222
9,770 10,941 11,194
9,365 10,906 11,174
9,484 9,922 10,610
9,528 9,439 10,555
9,088 9,400 10,624
Mar-94 8,789 10,006 10,024
8,851 10,284 9,684
8,579 10,730 9,927
8,444 11,497 9,658
8,729 11,775 9,682
8,752 11,803 10,007
Sep-94 8,541 12,311 9,977
8,541 11,747 9,729
8,545 12,294 9,805
8,563 12,584 9,664
9,001 12,374 9,719
9,106 12,540 10,476
Mar-95 9,052 12,036 10,456
9,163 13,410 10,390
9,651 13,161 10,779
9,652 13,331 11,114
9,669 13,072 11,162
9,821 13,455 11,448
Sep-95 10,193 13,521 11,682
10,408 13,320 12,414
10,564 13,863 12,678
11,030 13,580 12,816
11,214 13,740 13,717
10,841 13,787 13,896
Mar-96 10,719 14,256 13,352
10,509 14,431 13,063
10,647 14,553 13,219
11,022 14,750 13,190
10,590 15,062 13,722
10,806 14,697 12,835
Sep-96 10,910 15,090 13,134
11,312 15,133 13,260
11,680 15,073 13,919
11,901 15,644 14,231
12,048 15,524 14,144
11,969 15,845 14,213
Mar-97 11,558 15,694 14,094
11,502 15,884 13,667
11,955 16,424 13,437
12,499 15,979 14,036
12,910 15,284 14,470
12,705 15,480 14,785
Sep-97 13,537 15,732 14,539
13,514 15,347 15,165
14,263 15,850 15,297
14,966 16,498 16,400
14,873 16,096 17,632
15,175 16,456 16,907
Mar-98 16,083 15,857 17,506
15,558 16,092 18,622
15,360 16,509 18,248
15,695 17,151 18,177
15,471 17,657 18,848
14,695 18,176 17,890
Sep-98 15,922 18,901 18,203
15,863 19,340 19,721
16,254 19,980 19,374
16,892 20,030 19,649
16,427 20,875 20,237
16,022 20,800 19,302
Mar-99 16,283 21,711 18,613
17,097 22,130 18,343
17,732 22,883 19,944
17,320 23,095 21,173
17,187 23,317 20,472
16,826 23,660 20,222
Sep-99 16,441 24,268 20,477
17,312 24,360 19,492
17,082 23,283 19,781
17,478 23,775 18,265
17,903 25,111 18,441
17,271 25,804 20,405
Mar-00 18,207 27,752 19,258
</TABLE>
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 (Class A)
versus the S&P 500 Index and the S&P 500 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 Returns, periods ended 3/31/00
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years Inception(degree)
<S> <C> <C> <C> <C>
Class A* 10.75% 11.82% 15.00% 10.02%
Before Deducting Class B** 10.22 10.78 14.11 9.27
Maximum Sales Charge Class C+ 10.30 10.92 14.12 9.18
Class Y++ 10.85 12.00 N/A 14.41
After Deducting Class A* 5.76 6.79 13.94 9.28
Maximum Sales Charge Class B** 5.22 5.78 13.88 9.27
Class C+ 9.30 9.92 14.12 9.18
S&P 500 Index 17.50 17.93 26.75 21.95
S&P 500 Utility Index 2.26 8.66 13.92 10.02
Lipper Utility Funds Median 14.67 22.41 19.23 12.86
</TABLE>
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. Six-month and one-year returns are cumulative.
(degree) Inception: 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.
Index performance is shown as of inception of oldest share class.
* 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.
2
<PAGE>
PaineWebber Financial Services Growth Fund Inc. Annual Report
PaineWebber Utility Income Fund
May 15, 2000
Dear Shareholder,
We are pleased to present you with the annual report for PaineWebber
Financial Services Growth Fund Inc. and PaineWebber Utility Income Fund for the
fiscal year ended March 31, 2000.
Market Review
--------------------------------------------------------------------------------
Technology was the hot story in the stock market throughout the fiscal year
ended March 31, 2000. The technology-heavy NASDAQ Composite Index gained 85.78%
for the fiscal year, far ahead of the other major market indices. The economy
continued to grow at a rate well above its long-term trend, and the Federal
Reserve (the "Fed") responded with a series of interest rate hikes that raised
the Federal Funds rate to 6.00% from 4.75%. As a result, many financial service
stocks sustained losses for the fiscal year.
The new century began as the old one concluded, with momentum investors
driving technology stock prices ever higher and value investors awaiting their
turn. The market's valuation bifurcation was captured by popular reference to
the "old economy" and the "new economy" stocks. The former were dismissed as
irrelevant in today's Internet economy, while the latter were hailed as the new
wave. By fiscal year-end, however, the "new wave" appeared to have
broken--technology stocks began a sharp correction and industrial, financial and
energy stocks enjoyed renewed interest.
Outlook
In our view, this valuation adjustment is an inevitable and healthy
realignment, and may lead to a long-anticipated broadening of the stock market.
As the market completes its adjustment, investors are likely to turn their
attention to earnings. Consensus expectations suggest that overall earnings
growth rates this year will be healthy, in the 12-15% range.
The economic fundamentals appear favorable. The consensus estimate of real
GDP growth in 2000 stands at about 3.4%; early estimates for real GDP growth in
2001 stand at about 3.5%. It seems likely that the economy will remain healthy,
with tolerable inflation of around 2.5% per year. Long-term interest rates, as
gauged by the 30-year U.S. Treasury bond, have been ranging around six percent.
3
<PAGE>
PaineWebber Financial Services Growth Fund Inc. Annual Report
PaineWebber Utility Income Fund
PaineWebber Financial Services
Growth Fund Inc.
--------------------------------------------------------------------------------
PaineWebber Financial Services Growth Fund Inc.
Investment Goal:
Long-term capital appreciation
Portfolio Managers:
Andrew Dinnhaupt,
Mark Tincher, Chief Investment Officer of Equities
Mitchell Hutchins Asset Management Inc.
Commencement:
May 22, 1986 (Class A)
July 1, 1991 (Class B)
July 2, 1992 (Class C)
March 30, 1998 (Class Y)
Dividend Payments:
Annually
Performance
During the fiscal year, rising interest rates and earnings disappointments
battered the financial services sector. The sector, as measured by the S&P
Financial Index, lost 1.04% for the 12 months ended March 31, 2000. The broad
market, as measured by the S&P 500 Index, gained 17.93% for the period. Like the
broad market, gains in the financial sector were limited to a small number of
large-capitalization stocks. Mid- to small-capitalization stocks generally
sustained losses.
Portfolio Highlights
During the second half of the Fund's fiscal year we worked to resolve some of
the difficulties the Fund faced during the first half. In the last report as of
September 30, 1999, we cited the Fund's overweighting in small-capitalization
companies as one of the main causes of its underperformance. At that time we had
begun to increase the Fund's median market cap in an effort to bring the Fund
more into line with its competition. During the past six months we continued
that process, increasing the Fund's median market cap from $13.1 billion on
September 30, 1999 to $25.9 billion on March 31, 2000. This move helped Fund
performance during the period.
We continue to believe that the larger capitalization companies in the
financial sector have the strongest fundamentals and the greatest earnings
prospects.
A second cause of the Fund's underperformance was its low exposure to
brokerage-company stocks, which performed strongly from October 1998 to February
1999. We began to add select brokerage stocks to the portfolio in February 1999,
and by fiscal year-end the Fund's exposure had reached about 29%. Fund
performance benefited as a result. During the final two weeks of the fiscal
year, however, bank stocks rallied and beat out brokerage stocks, which hurt the
Fund's performance compared to competitors that had taken larger positions in
banks.
During the second half of the fiscal year we reduced the Fund's exposure to
life and property/casualty insurers, cutting the total insurance weighting to
about 16% by March 31, 2000.
4
<PAGE>
PaineWebber Financial Services Growth Fund Inc. Annual Report
PaineWebber Utility Income Fund
Going Forward
Investors are likely to return to the financial services sector once the Fed
nears the end of its interest-rate-tightening cycle. The regional bank rally at
the end of the fiscal year does not seem sustainable to us; we expect those
banks to announce earnings disappointments in the coming months. We intend to
maintain the Fund's current exposures--we look for better performance among the
brokers, asset managers and money-center banks for the rest of 2000. In keeping
with the pattern over the last fiscal year, we believe that the largest
companies with the best-known names will be the strongest performers.
PaineWebber Financial Services Growth Fund Inc.
--Portfolio Statistics
Characteristics* 3/31/00 9/30/99
--------------------------------------------------------------------------------
Net Assets ($mm) $258.8 $321.3
Beta(1) 1.36 0.86
Dividend Yield 0.95% 1.58%
Number of Securities 49 57
Stocks 95.1% 92.0%
Cash & Equivalents 4.9% 8.0%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sector Allocation* 3/31/00 9/30/99
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brokerage & Asset Management 29.0% Banks 35.1%
Banks 24.7 Insurance 25.9
Financial Services 18.5 Financial Services 15.7
Insurance 15.7 Cash & Equivalents 8.0
Business Services 7.2 Thrift Institutions 6.5
Cash & Equivalents 4.9 Brokerage & Asset Management 5.3
Business Services 3.5
----------------------------------------------------------------------------------------
Total 100.0 Total 100.0
</TABLE>
* Weightings represent percentages of portfolio assets as of the dates
indicated. The Fund's portfolio is actively managed and its composition
will vary over time.
(1) Beta is a measure of a stock portfolio's risk relative to the overall
market, as measured by the S&P 500 Index. The market has a Beta of 1. If a
portfolio has a Beta greater than 1, it is riskier than the market; if it
has a Beta less than 1, it is less risky than the market.
5
<PAGE>
PaineWebber Financial Services Growth Fund Inc. Annual Report
PaineWebber Utility Income Fund
<TABLE>
<CAPTION>
Top Ten Holdings* 3/31/00 9/30/99
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chase Manhattan Corp. 4.7% American International Group Inc. 3.6%
AMBAC Financial Group Inc. 4.7 AXA Financial Inc. 3.5
Lehman Brothers Holdings, Inc. 4.5 Bank of New York Company Inc. 3.2
AXA Financial Inc. 4.4 AMBAC Financial Group Inc. 3.0
Kansas City Southern Industries, Inc. 4.3 Nationwide Financial Services Inc. 2.9
Travelers Property Casualty Corp. 4.3 Firstar Corp. 2.9
Citigroup, Inc. 3.9 Associates First Capital Corp. 2.9
Capital One Financial Corp. 3.9 Travelers Property Casualty Corp. 2.7
Affiliated Managers Group Inc. 3.7 UnionBanCal Corp. 2.6
Wells Fargo & Co. 3.5 Federal Home Loan Mortgage Corp. 2.6
-----------------------------------------------------------------------------------------
Total 41.9 Total 29.9
</TABLE>
* Weightings represent percentages of portfolio assets as of the dates
indicated. The Fund's portfolio is actively managed and its composition
will vary over time.
6
<PAGE>
PaineWebber Financial Services Growth Fund Inc. Annual Report
PaineWebber Utility Income Fund
PaineWebber Utility Income Fund
--------------------------------------------------------------------------------
PaineWebber Utility Income Fund
Investment Goal:
Current income and capital appreciation
Portfolio Managers:
Equity Component--
Mark Tincher, Chief Investment Officer of Equities
Christopher Solmssen
Mitchell Hutchins Asset Management Inc.
Fixed Income Component--
Julieanna Berry
James F. Keegan
Mitchell Hutchins Asset Management Inc.
Commencement:
July 2, 1993 (Classes A, B and C)
September 10, 1998 (Class Y)
Dividend Payments:
Quarterly
Performance
For the fiscal year ended March 31, 2000, the Fund lagged the Lipper Utility
Median and the S&P 500 Index. The Fund outperformed the S&P 500 Utility Index
before deducting sales charges. Fund performance lagged for the first half of
the fiscal year, because the Fund's value-oriented investment style under-
performed growth-oriented styles and because the entire utility sector performed
poorly. The utility sector experienced a dramatic turnaround in the first three
months of 2000 and the Fund's investment style fared better as well. The
second-half boost lifted Fund performance for the fiscal year.
Portfolio Highlights
During the second half of the fiscal year we continued to increase the Fund's
exposure to the "new utility" companies and to telecommunications companies.
Stocks added or increased during the second half included Calpine (CPN), the
high-growth power generation company; and Qwest Communications (Q), which moved
into the Fund's top ten holdings. Recent sales include the holdings in American
Water Works (AWK) and Texas Utilities (TXU). Both of these stocks were sold to
raise cash.
The Fund remains true to its utility discipline while maintaining a focus on
income. We strive to balance the Fund's dual goals of maintaining a dividend
yield of 3%, or at least twice the dividend yield of the S&P 500, and
participating in the higher growth sectors of the utility industry. We seek to
achieve the Fund's goal of low risk and high income through investments in
electric utilities and some fixed income securities. The growth segment of the
portfolio consists primarily of telecommuni-cations, gas utility and media
stocks. The overall Beta of the Fund is less than one, signifying lower risk
than the overall market.
Merger Proposal
On February 10, 2000, the Board of Trustees unanimously approved the merger
of the PaineWebber Utility Income Fund into the PaineWebber Balanced Fund.
Pending approval by shareholders of record (as of the close of business on March
31, 2000) at a special meeting to be held on or about June 12, 2000, the merger
would become effective on June 23, 2000.
7
<PAGE>
PaineWebber Financial Services Growth Fund Inc. Annual Report
PaineWebber Utility Income Fund
PaineWebber Utility Income Fund--Portfolio Statistics
Characteristics* 3/31/00 9/30/99
--------------------------------------------------------------------------------
Net Assets ($mm) $29.7 $31.8
Beta(1) 0.33 0.20
Dividend Yield 2.43% 3.02%
Number of Securities 44 53
Stocks 94.6% 94.2%
Bonds 4.5% 5.4%
Cash & Equivalents 0.9% 0.4%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Top Five Sectors* 3/31/00 9/30/99
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Distance & Phone 47.0% Utilities 74.9%
Utilities 38.4 Energy 7.3
Consumer Cyclicals 9.5 Technology 5.1
Energy 4.2 Consumer Cyclicals 1.1
Cash & Equivalents 0.9 Basic Materials 0.8
--------------------------------------------------------------------------------------------------
Total 100.0 Total 89.2
</TABLE>
<TABLE>
<CAPTION>
Top Ten Equity Holdings* 3/31/00 9/30/99
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NTL Inc. 5.5% NTL Inc. 4.0%
Calpine Corp. 4.8 MCI Worldcom Inc. 3.4
Qwest Communications Int'l Inc. 4.4 Bell Atlantic Corp. 3.2
Dynegy Inc. 4.2 BellSouth Corp. 3.1
Univision Communications, Inc. 3.8 CMS Energy Corp. 3.1
U.S. West, Inc. 3.7 Century Telephone Enterprises, Inc. 2.9
Level 3 Communications Inc. 3.6 American Water Works Co. Inc. 2.7
BellSouth Corp. 3.5 U.S. West, Inc. 2.7
MCI Worldcom Inc. 3.4 New Century Energies Inc. 2.6
SBC Communications Inc. 3.3 Univision Communications, Inc. 2.5
--------------------------------------------------------------------------------------------------
Total 40.2 Total 30.2
</TABLE>
* Weightings represent percentages of portfolio assets as of the dates
indicated. The Fund's portfolio is actively managed and its composition
will vary over time.
(1) Beta is a measure of a stock portfolio's risk relative to the overall
market, as measured by the S&P 500 Index. The market has a Beta of 1. If a
portfolio has a Beta greater than 1, it is riskier than the market; if it
has a Beta less than 1, it is less risky than the market.
8
<PAGE>
PaineWebber Financial Services Growth Fund Inc. Annual Report
PaineWebber Utility Income Fund
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,2 please contact your
Financial Advisor.
Sincerely,
/s/ Margo Alexander
MARGO ALEXANDER
Chairman and Chief Executive 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 Inc. and PaineWebber
Utility Income Fund
/s/ Christopher T. Solmssen
CHRISTOPHER T. SOLMSSEN
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
/s/ Brian M. Storms
BRIAN M. STORMS
President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc.
/s/ Andrew B. Dinnhaupt
ANDREW B. DINNHAUPT
Vice President
Mitchell Hutchins Asset Management Inc.
Lead Portfolio Manager, PaineWebber
Financial Services Growth Fund Inc.
/s/ Julieanna M. Berry
JULIEANNA M. BERRY
First Vice President
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber
Utility Income Fund
This letter is intended to assist shareholders in understanding how the Funds
performed during the fiscal year ended March 31, 2000, 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.
(2) 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.
9
<PAGE>
[This Page Intentionally Left Blank]
10
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
Performance Results (unaudited)
<TABLE>
<CAPTION>
Total Return(1)
-----------------------------------
Net Asset Value 12 Months 6 Months
------------------------------------ -----------------------------------
03/31/00 09/30/99 03/31/99 Ended 03/31/00 Ended 03/31/00
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $26.68 $26.01 $30.24 (8.88)% 5.93%
----------------------------------------------------------------------------------------------------------------
Class B Shares 25.73 25.15 29.35 (9.63) 5.46
----------------------------------------------------------------------------------------------------------------
Class C Shares 25.68 25.09 29.28 (9.59) 5.51
----------------------------------------------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
Net Asset Value
---------------------- Capital Gains Total
Period Covered Beginning Ending Distributed Dividends 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
----------------------------------------------------------------------------------------------------------------
1999 31.24 27.40 0.7891 0.0779 (9.42)
----------------------------------------------------------------------------------------------------------------
01/01/00 - 03/31/00 27.40 26.68 -- -- (2.63)
----------------------------------------------------------------------------------------------------------------
Totals: $11.7244 $2.6729
----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/00: 515.53%
----------------------------------------------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
Net Asset Value
---------------------- Capital Gains Total
Period Covered Beginning Ending Distributed Dividends Paid Return(1)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $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
----------------------------------------------------------------------------------------------------------------
1999 30.38 26.49 0.7891 -- (10.12)
----------------------------------------------------------------------------------------------------------------
01/01/00-03/31/00 26.49 25.73 -- -- (2.87)
----------------------------------------------------------------------------------------------------------------
Totals: $11.4979 $0.5552
----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/00: 348.19%
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and capital gains
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 investment 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.
11
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
Performance Results (unaudited) (concluded)
Performance Summary Class C Shares
<TABLE>
<CAPTION>
Net Asset Value
---------------------- Capital Gains Total
Period Covered Beginning Ending Distributed Dividends Paid Return(1)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/92-12/31/92 $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
----------------------------------------------------------------------------------------------------------------
1999 30.31 26.43 0.7891 -- (10.11)
----------------------------------------------------------------------------------------------------------------
01/01/00-03/31/00 26.43 25.68 -- -- (2.84)
----------------------------------------------------------------------------------------------------------------
Totals: $11.4979 $0.5821
----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/00: 206.72%
----------------------------------------------------------------------------------------------------------------
</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 investment
return for periods of less than one year has not been annualized.
Note: The Fund offers Class Y shares to a limited group of elegible
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, 2000 and since inception, March 30, 1998 through
March 31, 2000, Class Y shares have a total return of (8.76)% and (14.80)%,
respectively. Class Y shares do not have initial or contingent deferred
sales charges or ongoing distribution and service fees.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
12
<PAGE>
PaineWebber Utility Income Fund
Performance Results (unaudited)
<TABLE>
<CAPTION>
Total Return(1)
----------------------------------
Net Asset Value 12 Months 6 Months
------------------------------------ -------------------------------------
03/31/00 09/30/99 03/31/99 Ended 03/31/00 Ended 03/31/00
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $14.97 $13.58 $13.60 11.82% 10.75%
----------------------------------------------------------------------------------------------------------------
Class B Shares 14.96 13.60 13.60 10.78 10.22
----------------------------------------------------------------------------------------------------------------
Class C Shares 14.92 13.56 13.58 10.92 10.30
----------------------------------------------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
Net Asset Value
---------------------- Capital Gains Total
Period Covered Beginning Ending Distributed Dividends 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
----------------------------------------------------------------------------------------------------------------
1999 14.17 14.37 -- 0.2805 3.47
----------------------------------------------------------------------------------------------------------------
01/01/00-03/31/00 14.37 14.97 -- -- 4.18
----------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $2.5174
----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/00: 90.63%
----------------------------------------------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
Net Asset Value
---------------------- Capital Gains Total
Period Covered Beginning Ending Distributed Dividends 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
----------------------------------------------------------------------------------------------------------------
1999 14.17 14.40 -- 0.1321 2.59
----------------------------------------------------------------------------------------------------------------
01/01/00-03/31/00 14.40 14.96 -- -- 3.89
----------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $1.9352
----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/00: 82.01%
----------------------------------------------------------------------------------------------------------------
</TABLE>
Performance Summary Class C Shares
<TABLE>
<CAPTION>
Net Asset Value
---------------------- Capital Gains Total
Period Covered Beginning Ending Distributed Dividends 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
----------------------------------------------------------------------------------------------------------------
1999 14.15 14.36 -- 0.1676 2.71
----------------------------------------------------------------------------------------------------------------
01/01/00-03/31/00 14.36 14.92 -- -- 3.90
----------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $1.9777
----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 03/31/00: 80.98%
----------------------------------------------------------------------------------------------------------------
</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
investment 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, 2000 and since inception, September 10, 1998
through March 31, 2000, Class Y shares have a total return of 12.00% and
23.36%, respectively. Class Y shares do not have initial or contingent
deferred sales charges or ongoing distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
13
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
Portfolio of Investments March 31, 2000
Number of
Shares Value
--------- -------
COMMON STOCKS--95.38%
Banks--24.79%
210,000 Bank of New York Company Inc. .................... $8,728,125
140,000 Chase Manhattan Corp. ............................ 12,206,250
170,000 Citigroup, Inc. .................................. 10,083,125
220,000 Cullen Frost Bankers Inc. ........................ 5,816,250
255,470 Firstar Corp. .................................... 5,859,843
100,000 FleetBoston Financial Corp. ...................... 3,650,000
100,000 Imperial Bankcorp ................................ 3,100,000
125,000 Prosperity Bancshares Inc. ....................... 1,843,750
110,000 Texas Regional Bankshares Inc. ................... 2,798,125
220,000 Wells Fargo & Co. ................................ 9,006,250
25,000 Zions BanCorp .................................... 1,040,625
----------------
64,132,343
----------------
Brokerage & Asset Management--29.09%
200,000 Affiliated Managers Group Inc. ................... 9,500,000
100,000 BlackRock Inc.* .................................. 2,025,000
130,000 Charles Schwab Corp. (1) ......................... 7,385,625
100,000 Donaldson, Lufkin & Jenrette Inc. ................ 5,175,000
150,000 Federated Investors Inc. ......................... 4,096,875
80,000 Franklin Resource, Inc. .......................... 2,675,000
130,000 Kansas City Southern Industries, Inc. ............ 11,171,875
30,000 Legg Mason Inc. .................................. 1,297,500
120,000 Lehman Brothers Holdings, Inc. ................... 11,640,000
80,000 Merrill Lynch & Co., Inc. ........................ 8,400,000
` 60,000 Morgan Stanley, Dean Witter & Co. ................ 4,893,750
135,000 T. Rowe Price & Associates, Inc. (1) ............. 5,332,500
40,000 Waddell & Reed Financial Inc. .................... 1,692,500
----------------
75,285,625
----------------
Number of
Shares Value
--------- -------
Business Services--7.21%
30,000 Checkfree Holdings Corp.* ........................ $2,115,000
42,000 Comdisco Inc. .................................... 1,853,250
180,000 First Data Corp. (1) ............................. 7,965,000
30,000 Intuit Inc. ...................................... 1,631,250
55,000 Official Payments Corp. .......................... 2,310,000
15,000 S1 Corp. ......................................... 1,285,313
10,000 Versign Inc. ..................................... 1,495,000
----------------
18,654,813
----------------
Financial Services--18.56%
125,000 Allied Capital Corp. ............................. 2,179,687
30,000 American Express Co. ............................. 4,468,125
210,000 Capital One Financial Corp. ...................... 10,066,875
110,000 Compucredit Corp. ................................ 3,980,625
50,000 Federal Home Loan Mortgage Corp. ................. 2,209,375
10,000 Federal National Mortgage Assn. .................. 564,375
150,000 Household International, Inc. .................... 5,596,875
350,000 MBNA Corp. ....................................... 8,925,000
80,000 Metris Company, Inc. ............................. 3,110,000
80,000 Providian Financial Corp. ........................ 6,930,000
----------------
48,030,937
----------------
Insurance--15.73%
240,000 AMBAC Financial Group Inc. (1) ................... 12,090,000
50,156 American International Group Inc. ................ 5,492,082
315,000 AXA Financial Inc. ............................... 11,300,625
20,000 Lincoln National Corp. ........................... 670,000
270,000 Travelers Property Casualty Corp. ................ 11,137,500
----------------
40,690,207
----------------
Total Common Stocks (cost--$213,310,204) ..................... 246,793,925
----------------
14
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
----- ----- ----- -----
<S> <C> <C> <C>
REPURCHASE AGREEMENTs--4.88%
$ 10,000 Repurchase Agreement dated 03/31/00 with Dresdner Bank,
collateralized by $10,156,000 U.S. Treasury Notes, 5.750% due 04/30/03
(value--$10,199,671); proceeds: $10,004,917 ............................. 04/03/00 5.900% $10,000,000
2,636 Repurchase Agreement dated 03/31/00 with Merrill Lynch & Co., Inc.
collateralized by $2,580,000 U.S. Treasury Notes, 7.500% due 11/15/01
(value--$2,692,875); proceeds: $2,637,296 ............................... 04/03/00 5.900 2,636,000
-------------
Total Repurchase Agreements (cost--$12,636,000) ....................................... 12,636,000
-------------
Total Investments (cost--$225,946,204)--100.26% ....................................... 259,429,925
Liabilities in excess of other assets--(0.26%) ........................................ (669,516)
-------------
Net Assets--100.00% ................................................................... $258,760,409
-------------
</TABLE>
----------------
*Non-income producing security.
(1) Security, or portion thereof, was on loan at March 31, 2000.
See accompanying notes to financial statements
15
<PAGE>
PaineWebber Utility Income Fund
Portfolio of Investments March 31, 2000
Number of
Shares Value
--------- -------
COMMON STOCKS--94.58%
Construction--0.80%
5,000 Martin Marietta Materials, Inc. .................. $ 237,500
----------------
Electric Utilities--33.94%
20,000 Allegheny Energy Inc. ............................ 551,250
15,000 Alliant Corp. .................................... 456,563
15,000 Calpine Corp.* ................................... 1,410,000
20,000 CH Energy Group Inc. ............................. 607,500
20,000 Constellation Energy Group, Inc. ................. 637,500
37,500 DPL Inc. ......................................... 832,031
10,000 DQE Inc. ......................................... 455,000
30,000 Energy East Corp. ................................ 594,375
25,000 New Century Energies, Inc. ....................... 751,562
24,000 Nisource Inc. .................................... 405,000
17,500 Nstar ............................................ 735,000
10,000 PECO Energy Co. .................................. 368,750
20,000 Puget Sound Power & Light Co. .................... 443,750
25,000 RGS Energy Group Inc. ............................ 531,250
25,000 SCANA Corp. ...................................... 614,063
25,200 Sierra Pacific Resources ......................... 315,000
10,000 Unicom Corp. ..................................... 365,000
----------------
10,073,594
----------------
Gas Utility--7.55%
3,000 Columbia Energy Group ............................ 177,750
20,000 Dynegy Inc. ...................................... 1,255,000
20,000 El Paso Energy Corp. ............................. 807,500
----------------
2,240,250
----------------
Number of
Shares Value
--------- -------
Long Distance & Phone Companies--46.97%
15,000 AT&T Corp. ....................................... $ 843,750
15,376 Bell Atlantic Corp. .............................. 939,858
22,000 BellSouth Corp. .................................. 1,034,000
20,000 Century Telephone Enterprises, Inc. .............. 742,500
3,000 Covad Communications Group, Inc.* ................ 217,500
9,825 Global Crossing Ltd.* ............................ 402,211
11,000 Global Telesystems Group Inc.* ................... 225,500
10,000 GTE Corp. ........................................ 710,000
25,000 ITC Deltacom* .................................... 890,625
10,000 Level 3 Communications Inc. ...................... 1,057,500
22,500 MCI WorldCom Inc.* ............................... 1,019,531
10,000 Northpoint Communications Holding* ............... 230,625
17,500 NTL Inc.* ........................................ 1,624,219
27,000 Qwest Communications International Inc. .......... 1,309,500
23,160 SBC Communications Inc. .......................... 972,720
10,000 Sprint Corp. ..................................... 630,000
15,000 US West, Inc. .................................... 1,089,375
----------------
13,939,414
----------------
Media--5.32%
15,000 Fox Entertainment Group Inc.* .................... 449,062
10,000 Univision Communications Inc.* ................... 1,130,000
----------------
1,579,062
----------------
Total Common Stocks (cost--$17,131,147) .......... 28,069,820
----------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates
--------- -------- ---------
<S> <C> <C> <C>
Corporate Bonds--4.48%
Cable--2.10%
$ 550 TCI Communications, Inc.* ........................ 03/31/27 9.650% 623,219
-----------
Electric Utilities--1.14%
350 Texas Utilities Electric Capital ................. 01/30/37 8.175 336,302
-----------
Publishing--1.24%
410 News America Holdings Inc. ....................... 12/01/95 to 10/17/96 7.900 to 8.250 368,842
-----------
Total Corporate Bonds (cost--$1,305,073) ..................... 1,328,363
-----------
Repurchase Agreement--0.91%
270 Repurchase Agreement dated 03/31/00 with State
Street Bank & Trust Co., collateralized by
$264,130 U.S. Treasury Notes, 7.500% due
11/15/01 (value--$281,813); proceeds:
$270,107 (cost--$270,000) ...................... 04/03/00 4.750 270,000
-----------
Total Investments (cost--$18,706,220)--99.97% ................ 29,668,183
Other assets in excess of liabilities--0.03% ................. 10,070
-----------
Net Assets--100.00% .......................................... $29,678,253
===========
</TABLE>
* Non-Income producing security.
See accompanying notes to financial statements
16
<PAGE>
[This Page Intentionally Left Blank]
17
<PAGE>
PaineWebber
Statement of Assets and Liabilities March 31, 2000
<TABLE>
<CAPTION>
Financial Utility
Services Income
Growth Fund Fund
----------- ----
<S> <C> <C>
Assets
Investments in securities, at value (cost--$225,946,204 and
$18,706,220, respectively) ............................................... $259,429,925 $29,668,183
Investments of cash collateral received for securities loaned,
at value (cost--$9,084,900 and $0, respectively) ......................... 9,084,900 --
Cash ....................................................................... 133 4,806
Receivable for investments sold ............................................ 3,114,634 265,151
Dividends and interest receivable .......................................... 218,202 76,260
Receivable for fund shares sold ............................................ 173,677 1,377
Other assets ............................................................... 23,259 17,844
------------- -----------
Total assets ............................................................... 272,044,730 30,033,621
------------- -----------
Liabilities
Collateral for securities loaned ........................................... 9,084,900 --
Payable for investments purchased .......................................... 2,868,068 --
Payable for Fund Shares Repurchased ........................................ 924,052 227,113
Payable to affiliates ...................................................... 278,853 33,686
Accrued expenses and other liabilities ..................................... 128,448 94,569
------------- -----------
Total liabilities .......................................................... 13,284,321 355,368
------------- -----------
Net Assets
Capital Stock/Beneficial Interest shares of $0.001 par value outstanding ... 223,484,687 19,518,587
Accumulated net investment loss ............................................ -- --
Accumulated net realized gains (losses) from investment transactions ....... 1,792,001 (802,297)
Net unrealized apppreciation of investments ................................ 33,483,721 10,961,963
------------- -----------
Net assets ................................................................. $ 258,760,409 $29,678,253
============= ===========
Class A:
Net assets ................................................................. $ 126,334,373 $18,062,301
------------- -----------
Shares outstanding ......................................................... 4,735,639 1,206,672
------------- -----------
Net asset value and redemption value per share ............................. $ 26.68 $ 14.97
======= =======
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) ................................................ $ 27.94 $ 15.68
======= =======
Class B:
Net assets. ................................................................ $ 91,642,608 $4,803,866
------------- -----------
Shares outstanding ......................................................... 3,561,367 321,025
------------- -----------
Net asset value and offering price per share ............................... $ 25.73 $ 14.96
======= =======
Class C:
Net assets. ................................................................ $ 38,281,802 $6,688,510
------------ -----------
Shares outstanding ......................................................... 1,490,965 448,236
------------ -----------
Net asset value and offering price per share ............................... $ 25.68 $ 14.92
======= =======
Class Y:
Net assets. ................................................................ $ 2,501,626 $ 123,576
------------ -----------
Shares outstanding ......................................................... 93,782 8,281
------------ -----------
Net asset value, offering price and redemption value per share ............. $ 26.67 $ 14.92
======= =======
</TABLE>
See accompanying notes to financial statements
18
<PAGE>
PaineWebber
Statement of Operations For the Year Ended March 31, 2000
<TABLE>
<CAPTION>
Financial Utility
Services Income
Growth Fund Fund
----------- ----
<S> <C> <C>
Investment income:
Dividends .................................................................. $ 4,721,943 $ 906,162
Interest ................................................................... 1,014,402 207,556
------------- ----------
........................................................................... 5,736,345 1,113,718
------------- ----------
Expenses:
Investment advisory and administration ..................................... 2,541,366 233,717
Service fees--Class A ...................................................... 407,951 39,659
Service and distribution fees--Class B ..................................... 1,398,523 97,789
Service and distribution fees--Class C ..................................... 561,488 76,558
Transfer agency and service ................................................ 371,786 34,235
Custody and accounting ..................................................... 292,832 22,010
Federal and state registration fees ........................................ 167,895 37,926
Reports and notices to shareholders ........................................ 74,416 27,979
Legal and audit ............................................................ 77,220 74,438
Directors/Trustees' fees ................................................... 10,500 10,500
Other expenses ............................................................. 88,891 9,746
------------- ----------
5,992,868 664,557
Less: Fee waiver from adviser .............................................. (4,398) --
------------- ----------
Net expenses ............................................................... 5,988,470 664,557
------------- ----------
Net investment income (loss) ............................................... (252,125) 449,161
------------- ----------
Realized and unrealized gains (losses) from investment transactions:
Net realized gains from investment transactions ............................ 1,358,327 1,216,188
Net change in unrealized appreciation/depreciation of investments .......... (39,756,249) 1,876,849
------------- ----------
Net realized and unrealized gains (losses) from transactions ............... (38,397,922) 3,093,037
------------- ----------
Net increase (decrease) in net assets resulting from operations ............ $ (38,650,047) $3,542,198
============= ==========
</TABLE>
See accompanying notes to financial statements
19
<PAGE>
PaineWebber Financial Services Growth Fund Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
From operations:
Net investment income (loss) ............................................... $ (252,125) $3,152,890
Net realized gains from investment transactions ............................ 1,358,327 10,373,374
Net change in unrealized appreciation/depreciation of investments .......... (39,756,249) (60,166,139)
----------- -----------
Net decrease in net assets resulting from operations ....................... (38,650,047) (46,639,875)
----------- -----------
Dividends and distributions to shareholders from:
Net investment income--Class A ............................................. (415,492) (1,912,147)
Net investment income--Class B ............................................. -- (548,684)
Net investment income--Class C ............................................. -- (265,951)
Net investment income--Class Y ............................................. (11,800) (48,437)
Net realized gains from investment transactions--Class A ................... (4,208,795) (2,846,899)
Net realized gains from investment transactions--Class B ................... (3,471,055) (3,007,950)
Net realized gains from investment transactions--Class C ................... (1,409,862) (1,166,071)
Net realized gains from investment transactions--Class Y ................... (80,615) (54,597)
----------- -----------
Total dividends and distributions to shareholders .......................... (9,597,619) (9,850,736)
----------- -----------
From capital stock transactions:
Net proceeds from the sale of shares ....................................... 189,272,936 424,377,598
Cost of shares repurchased ................................................. (374,535,641) (365,190,187)
Proceeds from dividends reinvested ......................................... 8,483,816 8,988,686
----------- -----------
Net increase (decrease) in net assets from capital stock transactions ...... (176,778,889) 68,176,097
----------- -----------
Net increase (decrease) in net assets ...................................... (225,026,555) 11,685,486
Net assets:
Beginning of year .......................................................... 483,786,964 472,101,478
----------- -----------
End of year (including undistributed net investment income of $1,100,359
at March 31, 1999) ....................................................... $258,760,409 $483,786,964
============ ============
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
PaineWebber Utility Income Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
From operations:
Net investment income ...................................................... $ 449,161 $ 812,045
Net realized gains from investment transactions ............................ 1,216,188 1,659,180
Net change in unrealized appreciation/depreciation of investments .......... 1,876,849 (2,311,090)
----------- -----------
Net increase in net assets resulting from operations ....................... 3,542,198 160,135
----------- -----------
Dividends to shareholders from:
Net investment income--Class A ............................................. (257,333) (201,569)
Net investment income--Class B ............................................. (61,226) (375,035)
Net investment income--Class C ............................................. (73,519) (148,781)
Net investment income--Class Y ............................................. (1,469) (492)
----------- -----------
Total dividends to shareholders ............................................ (393,547) (725,877)
----------- -----------
From beneficial interest transactions:
Net proceeds from the sale of shares ....................................... 8,041,784 5,043,771
Cost of shares repurchased ................................................. (16,334,617) (7,642,154)
Proceeds from dividends reinvested ......................................... 290,384 541,936
----------- -----------
Net decrease in net assets from beneficial interest transactions ........... (8,002,449) (2,056,447)
----------- -----------
Net decrease in net assets ................................................. (4,853,798) (2,622,189)
Net assets:
Beginning of year .......................................................... 34,532,051 37,154,240
----------- -----------
End of year (including undistributed net investment income of $36,132 at
March 31, 1999) .......................................................... $29,678,253 $34,532,051
=========== ===========
</TABLE>
See accompanying notes to financial statements
21
<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")
(collectively, the "Funds") are registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as diversified
open-end management investment companies. Financial Services Growth Fund was
incorporated in the state of Maryland on February 13, 1986 and Utility Income
Fund is a series of PaineWebber Managed Investments Trust (the "Trust") which
was organized under Massachusetts law by a Declaration of Trust dated August 9,
1991 and November 21, 1986, respectively.
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
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies:
Valuation of Investments--The Funds calculate net asset values based on the
current market value for its portfolio's securities. The Funds normally obtain
market values for its securities from independent pricing sources. Independent
pricing sources may use reported last sale prices, current market quotations or
valuations from computerized "matrix" systems that derive values based on
comparable securities. Securities traded in the over-thecounter ("OTC") market
and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at
the last sale price on Nasdaq prior to valuation. Other OTC securities are
valued at the last bid price available prior to valuation. Securities which are
listed on U.S. and foreign stock exchanges normally are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"),
a wholly owned asset management subsidiary of PaineWebber Incorporated
(PaineWebber), and investment adviser and administrator of the Funds. If a
market value is not available from an independent pricing source for a
particular security, that security is valued at fair value as determined in good
faith by or under the direction of the Fund's/Trust's Board of
Directors/Trustees (the "board"). The amortized cost method of valuation, which
approximates market value, generally is used to value short-term debt
instruments with sixty days or less remaining to maturity, unless each
Fund's/Trust's board determines that this does not represent fair value.
Repurchase Agreements--Each Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, each Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. Each Fund occasionally
participates in joint repurchase agreement transactions with other funds managed
by Mitchell Hutchins.
Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to
interest income and the identified cost of investments.
22
<PAGE>
Notes to Financial Statements
Income, expenses (excluding class-specific expenses) and
realized/unrealized gains/losses are allocated proportionately to each class of
shares based upon the relative net asset value of outstanding shares (or the
value of dividend-eligible shares, as appropriate) of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). Class-specific expenses are charged directly to the
applicable class of shares.
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 differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification.
Concentration of Risk
Financial Services Growth Fund invests primarily in equity securities of
financial services companies and Utility Income Fund invests primarily in
securities of utility companies. Economic, legislative and regulatory
developments impacting those industries may affect the market value of each
Fund's investments. 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
investment adviser and administrator of the Funds. In accordance with the
Advisory Contracts, Financial Services Growth Fund and Utility Income Fund pay
Mitchell Hutchins an investment advisory and administration fee, which is
accrued daily and paid monthly, at the annual rate of 0.70% of each Fund's
average daily net assets. At March 31, 2000, Financial Services Growth Fund and
Utility Income Fund owed Mitchell Hutchins $147,205 and $18,059, respectively,
in investment advisory and administration fees. Mitchell Hutchins waived a
portion of its investment advisory and administration fees in connection with
the Financial Services Growth Fund's and Utility Income Fund's investment of
cash collateral from security lending in the Mitchell Hutchins Private Money
Market Fund LLC. For the year ended March 31, 2000, Mitchell Hutchins waived
$4,398 and $0, respectively.
For the year ended March 31, 2000, Financial Services Growth Fund and
Utility Income Fund paid $66,672 and $0, respectively, in brokerage commissions
to PaineWebber for transactions executed on behalf of the Funds.
Distribution Plans
Mitchell Hutchins is the distributor of each Fund's shares and has
appointed PaineWebber as the exclusive dealer for the sale of those shares.
Under separate plans of service and/or distribution pertaining to Class A, Class
B and Class C shares, the Funds pay Mitchell Hutchins monthly service fees at an
annual rate of 0.25% of the average daily net assets of Class A, Class B and
Class C shares and monthly distribution fees at the annual rate of 0.75% of the
average daily net assets of Class B and Class C shares. At March 31, 2000,
Financial Services Growth Fund and Utility Income Fund owed Mitchell Hutchins
$131,388 and $14,058, respectively, in service and distribution fees.
23
<PAGE>
Notes to Financial Statements
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 earned $1,673,081 and $23,397, in
sales charges for the Financial Services Growth Fund and Utility Income Fund,
respectively, for the year March 31, 2000.
Security Lending
Each Fund may lend securities up to 33 1/3% of its total assets to
qualified institutions. The loans are secured at all times by cash or U.S.
government securities in an amount at least equal to the market value of the
securities loaned, plus accrued interest, determined on a daily basis and
adjusted accordingly. Each Fund will regain record ownership of loaned
securities to exercise certain beneficial rights, however, each Fund may bear
the risk of delay in recovery of, or even loss of rights in, the securities
loaned should the borrower fail financially. Each Fund receives compensation,
which is included in interest income, for lending its securities from interest
earned on the cash or U.S. government securities held as collateral, net of fee
rebates paid to the borrower plus reasonable administrative and custody fees.
For the year ended March 31, 2000, Financial Services Growth Fund and Utility
Income Fund earned $40,884 and $17,319, respectively, for lending securities.
Financial Services Growth Fund's and Utility Income Fund's lending agent is
PaineWebber, which received compensation from the Funds for the year ended March
31, 2000 of $13,851 and $5,773, respectively.
At March 31, 2000, Financial Services Growth Fund and Utility Income Fund
owed PaineWebber $447 and $1,569, respectively, in compensation as security
lending agent.
As of March 31, 2000, the Financial Services Growth Fund's custodian held
cash and/or cash equivalents having an aggregate value of $9,084,900 as
collateral for portfolio securities loaned having a market value of $8,666,531.
The cash collateral was invested in the following money market funds:
<TABLE>
<CAPTION>
Number Market
of Shares Value
--------- ------------
<S> <C>
2,422,216 Liquid Assets Money Market Portfolio ......................... $ 2,422,216
6,657,066 Mitchell Hutchins Private Money Market Fund LLC .............. 6,657,066
5,618 Prime Money Market Portfolio ................................. 5,618
------------
Total investments of cash collateral received for securities
loaned (cost--$9,084,900) ............................................. $ 9,084,900
============
</TABLE>
24
<PAGE>
Notes to Financial Statements
Bank Line of Credit
Each Fund may participate with other funds managed by Mitchell Hutchins in
a $200 million committed credit facility ("Facility") to be utilized for
temporary financing until the settlement of sale or purchase of portfolio
securities, the repurchase or redemption of shares of each Fund at the request
of the shareholders and other temporary or emergency purposes. In connection
therewith, each Fund has agreed to pay a commitment fee, pro rata, based on the
relative asset size of the Funds in the Facility. Interest is charged to each
Fund at rates based on prevailing market rates in effect at the time of
borrowings. For the year ended March 31, 2000, 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, 2000, PaineWebber received from PFPC, Inc., not the
Funds, approximately 51% and 47% of the total transfer agency service fees
collected 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,
2000 was substantially the same as the cost of securities for financial
statement purposes.
At March 31, 2000, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
Financial Utility
Services Income
Growth Fund Fund
----------- ----
<S> <C> <C>
Gross appreciation (investment having an excess of value over cost) ........ $36,715,008 $11,784,104
Gross depreciation (investment having an excess of cost over value) ........ (3,231,287) (822,141)
---------- --------
Net unrealized appreciation of investments ................................. $33,483,721 $10,961,963
=========== ===========
</TABLE>
For the year ended March 31, 2000, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
Financial Utility
Services Income
Growth Fund Fund
----------- ----
<S> <C> <C>
Purchases ......................... $420,791,074 $9,475,490
Sales ............................. $590,927,083 $14,044,256
</TABLE>
25
<PAGE>
Notes to Financial Statements
Federal Tax Status
Each Fund intends to distribute substantially all of its taxable income and
to comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year
substantially all of 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, 2000,
undistributed net investment income was decreased by $420,942, accumulated net
realized gains from investment transactions were increased by $806,817 and
capital stock was decreased by $385,875.
To reflect reclassifications for the Utility Income Fund arising from
permanent "book/tax" differences for the year ended March 31, 2000, accumulated
net investment income was decreased by $91,746, accumulated net realized gains
from investment transactions were increased by $180,585 and beneficial interest
was decreased by $88,839.
At March 31, 2000, Utility Income Fund had a net capital loss carryforward
of $802,297 which will expire by March 31, 2003. To the extent such losses are
used, as provided in the regulations, to offset future net realized capital
gains, it is probable these gains will not be distributed.
26
<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
follows:
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------------------------- -------------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------- ----------- ------------- ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Services
Growth Fund
For the Year Ended
March 31, 2000:
Shares sold ......... 4,659,804 $ 135,090,999 516,161 $ 14,047,614 1,416,379 $ 38,470,701 58,581 $ 1,663,622
Shares repurchased .. (7,239,977) (207,821,936) (3,315,872) (89,858,005) (2,663,184) (72,777,596) (143,320) (4,078,104)
Shares converted from
Class B to Class A 405,494 11,626,177 (418,960) (11,626,177) -- -- -- --
Dividends reinvested 149,338 3,954,469 122,317 3,131,318 51,175 1,307,005 3,436 91,024
--------- ------------- ---------- ------------ --------- ------------ -------- -----------
Net decrease ........ (2,025,341) $ (57,150,291) (3,096,354) $(84,305,250) (1,195,630) $(32,999,890) (81,303) $(2,323,458)
========== ============= ========== ============ ========== ============ ======== ===========
<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>
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
========== ============= ========== ============ ========== ============ ======== ===========
</TABLE>
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:
<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>
Utility Income Fund
For the Year Ended
March 31, 2000:
Shares sold ........... 13,686 $ 199,399 46,168 $ 667,970 487,578 $ 7,063,266 7,830 $ 111,149
Shares repurchased .... (315,115) (4,558,610) (203,454) (2,922,336) (610,252) (8,816,600) (2,600) (37,071)
Shares converted from
Class B to Class A .. 957,151 13,820,102 (957,209) (13,820,102) -- -- -- --
Dividends reinvested .. 13,546 189,388 3,099 43,492 4,010 56,035 105 1,469
--------- ------------- ---------- ------------ ------- ------------ ------ ----------
Net increase (decrease) 669,268 $ 9,650,279 (1,111,396) $(16,030,976) (118,664) $(1,697,299) 5,335 $ 75,547
========== ============= ========== ============ ========== ============ ======== ===========
<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>
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
========== ============ ========= ============ ========== =========== ======= ===========
</TABLE>
27
<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 Class B
----------------------------------------------- ------------------------------------------------
For the Years Ended March 31, For the Years Ended March 31,
----------------------------------------------- ------------------------------------------------
2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.......... $30.24 $33.56 $23.41 $21.16 $17.11 $29.35 $32.62 $22.87 $20.75 $16.85
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income (loss)... 0.10@ 0.33@ 0.20 0.18 0.30 (0.12)@ 0.09@ 0.09 0.04 0.13
Net realized and unrealized
gains (losses) from
investments ................. (2.79)@ (2.96)@ 11.75 5.69 6.25 (2.71)@ (2.87)@ 11.34 5.53 6.16
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease) from
investment operations ....... (2.69) (2.63) 11.95 5.87 6.55 (2.83) (2.78) 11.43 5.57 6.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Dividends from net investment
income ...................... (0.08) (0.28) (0.21) (0.23) (0.29) -- (0.08) (0.09) (0.06) (0.18)
Distributions from net realized
gains from investment
transactions ................ (0.79) (0.41) (1.59) (3.39) (2.21) (0.79) (0.41) (1.59) (3.39) (2.21)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions ............... (0.87) (0.69) (1.80) (3.62) (2.50) (0.79) (0.49) (1.68) (3.45) (2.39)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period ...................... $26.68 $30.24 $33.56 $23.41 $21.16 $25.73 $29.35 $32.62 $22.87 $20.75
====== ====== ======= ====== ====== ====== ====== ====== ====== ======
Total investment return (1) ... (8.88)% (7.81)% 51.92% 28.72% 39.02% (9.63)% (8.51)% 50.80% 27.74% 37.97%
====== ====== ======= ====== ====== ====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of period
(000's) ..................... $126,334 204,433 $209,818 $85,661 $64,003 $91,643 $195,392 $198,473 $41,579 $28,147
Expenses to average net assets
net of waivers from
adviser (2).................. 1.23% 1.17% 1.17% 1.52% 1.37% 2.02% 1.94% 1.92% 2.27% 2.12%
Net investment income (loss) to
average net assets net
of waivers from adviser(2).. 0.35% 1.07% 1.12% 0.90% 1.50% (0.44)% 0.29% 0.37% 0.15% 0.74%
Portfolio turnover rate ....... 122% 59% 23% 40% 53% 122% 59% 23% 40% 53%
</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 other
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
of less than one year has not been annualized.
(2) During the year ended March 31, 2000 Mitchell Hutchins waived a portion of
its advisory and administration fees. The ratios excluding the waiver are
the same since the fee waiver represents less than 0.005%.
@ Calculated using the average monthly shares outstanding for the year.
28
<PAGE>
<TABLE>
<CAPTION>
Class C Class Y
----------------------------------------------- ------------------------------------------------
For the Years Ended March 31, For the Years Ended March 31, For the Period
----------------------------------------------- ----------------------------- March 30, 1998+
2000 1999 1998 1997 1996 2000 1999 to March 31, 1998
------ ------ ------ ------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.......... $29.28 $32.56 $22.84 $20.75 $16.86 $30.23 $33.56 $33.22
------ ------ ------ ------ ------ ------ ------ ------
Net investment income (loss)... (0.12)@ 0.08@ 0.12 0.06 0.12 0.17@ 0.34@ --
Net realized and unrealized
gains (losses) from
investments ................. (2.69)@ (2.86)@ 11.28 5.51 6.16 (2.82)@ (2.89)@ 0.34
------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease) from
investment operations ....... (2.81) (2.78) 11.40 5.57 6.28 (2.65) (2.55) 0.34
------ ------ ------ ------ ------ ------ ------ ------
Dividends from net investment
income ...................... -- (0.09) (0.09) (0.09) (0.18) (0.12) (0.37) --
------ ------ ------ ------ ------ ------ ------ ------
Distributions from net realized
gains from investment
transactions ................ (0.79) (0.41) (1.59) (3.39) (2.21) (0.79) (0.41) --
------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions ............... (0.79) (0.50) (1.68) (3.48) (2.39) (0.91) (0.78) 0.00
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period ...................... $25.68 $29.28 $32.56 $22.84 $20.75 $26.67 $30.23 $33.56
====== ====== ====== ====== ====== ====== ====== ======
Total investment return (1) ... (9.59)% (8.50)% 50.76% 27.74% 37.92% (8.76)% (7.57)% 1.02%
====== ====== ====== ====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of period
(000's) ..................... $38,282 $78,670 $63,809 $12,357 $6,989 $2,502 $5,292 $2
Expenses to average net assets
net of waivers from
adviser (2).................. 2.01% 1.94% 1.92% 2.28% 2.14% 1.00% 0.90% 0.80%*
Net investment income (loss) to
average net assets net
of waivers from adviser(2)... (0.43)% 0.27% 0.36% 0.15% 0.72% 0.58% 1.22% 0.00%*
Portfolio turnover rate ....... 122% 59% 23% 40% 53% 122% 59% 23%
</TABLE>
29
<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
Four Months For the
For the Years Ended March 31, Ended Year Ended
---------------------------------------- March 31, November 30,
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $13.60 $13.79 $10.20 $ 9.76 $9.77 $8.31
------ ------ ------ ------ ----- -----
Net investment income ........................ 0.26 0.39 0.33 0.34 0.15 0.47
Net realized and unrealized gains (losses)
from investments ........................ 1.33 (0.22) 3.61 0.41 -- 1.44
------ ------ ------ ------ ----- -----
Net increase from
investment operations ................... 1.59 0.17 3.94 0.75 0.15 1.91
------ ------ ------ ------ ----- -----
Dividends from net investment income ......... (0.22) (0.36) (0.35) (0.31) (0.16) (0.45)
------ ------ ------ ------ ----- -----
Net asset value, end of period ............... $14.97 $13.60 $13.79 $10.20 $9.76 $9.77
====== ====== ====== ====== ===== =====
Total investment return (1) .................. 11.82% 1.24% 39.15% 7.83% 1.46% 23.64%
====== ====== ====== ====== ===== =====
Ratios/Supplemental data:
Net assets, end of period (000's) ............ $18,062 $7,308 $7,856 $6,039 $9,416 $10,750
Expenses to average net assets, net of
waivers from adviser .................... 1.56% 1.59% 1.92% 1.93% 1.09%* 1.49%
Expenses to average net assets, before
waivers from adviser .................... 1.56% 1.59% 1.92% 2.00% 1.44%* 1.49%
Net investment income to average net assets,
net of waivers from adviser ............. 1.72% 2.90% 2.77% 3.27% 4.26%* 5.13%
Net investment income to average net assets,
before waivers from adviser ............. 1.72% 2.90% 2.77% 3.20% 3.91%* 5.13%
Portfolio turnover rate ...................... 29% 21% 10% 41% 21% 30%
</TABLE>
----------------
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends 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
of less than one year has not been annualized.
30
<PAGE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------
For the
Four Months For the
For the Years Ended March 31, Ended Year Ended
---------------------------------------- March 31, November 30,
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $13.60 $13.79 $ 10.20 $ 9.75 $ 9.77 $ 8.31
------ ------ ------ ------ ----- -----
Net investment income ........................ 0.14 0.29 0.25 0.26 0.12 0.40
Net realized and unrealized gains (losses)
from investments ........................ 1.32 (0.23) 3.60 0.42 (0.01) 1.45
------ ------ ------ ------ ----- -----
Net increase from
investment operations ................... 1.46 0.06 3.85 0.68 0.11 1.85
------ ------ ------ ------ ----- -----
Dividends from net investment income ......... (0.10) (0.25) (0.26) (0.23) (0.13) (0.39)
------ ------ ------ ------ ----- -----
Net asset value, end of period ............... $14.96 $ 13.60 $ 13.79 $ 10.20 $ 9.75 $ 9.77
====== ====== ====== ====== ===== =====
Total investment return (1) .................. 10.78% 0.49% 38.13% 7.05% 1.10% 22.73%
====== ====== ====== ====== ===== =====
Ratios/Supplemental data:
Net assets, end of period (000's) ............ $4,804 $19,484 $21,562 $21,071 $34,765 $37,554
Expenses to average net assets, net of
waivers from adviser .................... 2.41% 2.35% 2.68% 2.69% 1.85%* 2.23%
Expenses to average net assets, before
waivers from adviser .................... 2.41% 2.35% 2.68% 2.76% 2.20%* 2.23%
Net investment income to average net assets,
net of waivers from adviser ............. 1.03% 2.16% 2.05% 2.51% 3.51%* 4.37%
Net investment income to average net assets,
before waivers from adviser ............. 1.03% 2.16% 2.05% 2.44% 3.16%* 4.37%
Portfolio turnover rate ...................... 29% 21% 10% 41% 21% 30%
</TABLE>
31
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class C Class Y
--------------------------------------------------------- -------------------------
For the For the Period
Four Months For the For the September 10
For the Years Ended March 31, Ended Year Ended Year Ended 1998+ to
--------------------------------- March 31, November 30, March 31, March 31,
2000 1999 1998 1997 1996 1995 2000 1999
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $13.58 $13.78 $10.20 $9.75 $9.77 $8.31 $13.55 $12.55
------ ------ ------ ----- ----- ----- ------ ------
Net investment income ................... 0.14 0.28 0.23 0.25 0.12 0.40 0.27 0.24
Net realized and unrealized gains
(losses) from investments .............. 1.33 (0.22) 3.61 0.43 (0.01) 1.45 1.34 1.03
------ ------ ------ ----- ----- ----- ------ ------
Net increase from
investment operations ................. 1.47 0.06 3.84 0.68 0.11 1.85 1.61 1.27
------ ------ ------ ----- ----- ----- ------ ------
Dividends from net investment income .... (0.13) (0.26) (0.26) (0.23) (0.13) (0.39) (0.24) (0.27)
------ ------ ------ ------ ----- ----- ------ ------
Net asset value, end of period .......... $14.92 $13.58 $13.78 $10.20 $9.75 $9.77 $14.92 $13.55
====== ====== ====== ====== ===== ===== ====== ======
Total investment return (1) ............. 10.92% 0.44% 38.09% 7.06% 1.10% 22.71% 12.00% 10.14%
====== ====== ====== ====== ===== ===== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ....... $6,689 $7,700 $7,736 $6,909 $11,072 $12,222 $124 $40
Expenses to average net assets, net
of waivers from adviser .............. 2.36% 2.35% 2.68% 2.70% 1.85%* 2.24% 1.38% 1.25%*
Expenses to average net assets,
before waivers from adviser .......... 2.36% 2.35% 2.68% 2.76% 2.20%* 2.24% 1.38% 1.25%*
Net investment income to average net
assets, net of waivers from adviser... 0.97% 2.13% 1.99% 2.51% 3.50%* 4.37% 1.91% 2.57%*
Net investment income to average net
assets, before waivers from adviser... 0.97% 2.13% 1.99% 2.44% 3.15%* 4.37% 1.91% 2.57%*
Portfolio turnover rate ................. 29% 21% 10% 41% 21% 30% 29% 21%
</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
of less than one year has not been annualized.
32
<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, including
the portfolios of investments, of PaineWebber Financial Services Growth Fund,
Inc. and PaineWebber Utility Income Fund as of March 31, 2000, and the related
statement of operations for the year then ended, 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 financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and dislosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of March 31, 2000, 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 financial 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, 2000, the results of their operations for the year then ended,
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 accounting principles generally accepted in the United States.
/s/ Ernst & Yount LLP
New York, New York
May 25, 2000
33
<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,
2000) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the following
distributions paid during the fiscal year by the Funds were derived from the
following sources:
<TABLE>
<CAPTION>
Financial Utility
Services Income
Per Share Data: Growth Fund Fund
--------------- ----------- ----
<S> <C> <C>
Net investment income*
Class A .................................................................... $0.0779 $0.2208
Class B .................................................................... -- 0.0986
Class C .................................................................... -- 0.1330
Class Y .................................................................... 0.1155 0.2382
Long-term capital gains .................................................... 0.7891 --
Percentage of ordinary income dividends qualifying for
the dividends received deduction available to corporate shareholders .... 93.49% 100.00%
</TABLE>
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 reporting.
Since each Fund's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 2000. Such
notifications, which will reflect the amount to be used by calendar year
taxpayers on their federal income tax returns, will be made in conjunction with
Form 1099 DIV and will be mailed in January 2001. Shareholders are advised to
consult their own tax advisers with respect to the tax consequences of their
investment in each of the Funds.
34
<PAGE>
--------------------------------------------------------------------------------
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
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 Advisor,
Administrator and Distributor
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, New York 10019
This report is not to be used in connection with the offering of shares of the
Fund 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
corresponding 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
o High Income Fund
o Investment Grade Income Fund
o Low Duration U.S. Government Income Fund
o Strategic Income Fund
o U.S. Government Income Fund
Tax-Free Bond Funds
o California Tax-Free Income Fund
o Municipal High Income Fund
o National Tax-Free Income Fund
o New York Tax-Free Income Fund
Stock Funds
o Enhanced S&P 500 Fund
o Enhanced Nasdaq-100 Fund
o Financial Services Growth Fund
o Growth Fund
o Growth and Income Fund
o Mid Cap Fund
o Small Cap Fund
o S&P 500 Index Fund
o Strategy Fund
o Tax-Managed Equity Fund
o Utility Income Fund
Asset Allocation Funds
o Balanced Fund
o Tactical Allocation Fund
Global Funds
o Asia Pacific Growth Fund
o Emerging Markets Equity Fund
o Global Equity Fund
o Global Income Fund
PaineWebber Money Market Fund
[LOGO]
(C)2000 PaineWebber Incorporated
All rights reserved.
Member SIPC
--------------------------------------------------------------------------------
[LOGO]
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Financial Services
Growth Fund Inc.
Utility
Income Fund
March 31, 2000
Annual Report
