<PAGE>
PAINEWEBBER STRATEGY FUND SEMIANNUAL REPORT
PaineWebber
Strategy Fund
Investment Objective:
Long-term capital
appreciation
Portfilio Manager:
T. Kirkham Bailey
Mitchell Hutchins Asset
Management, Inc.
Commencement:
December 2, 1999,
all classes
Dividend Payments:
Annually, if any
May 15, 2000
Dear Shareholder,
This letter is the first semiannual report for PaineWebber Strategy Fund (the
"Fund") for the fiscal period from December 2, 1999 through March 31,
2000.
MARKET REVIEW
--------------------------------------------------------------------------------
Technology was the hot story in the stock market throughout the fiscal period
ended March 31, 2000. The technology-heavy NASDAQ Composite Index gained 48.24%
for the fiscal period, 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 responded with a series of interest rate hikes that raised the Federal
Funds rate to 6.00%.
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" (i.e., "smokestack" America) and the "new economy" stocks
(computer-technology and Internet-related companies). The former were dismissed
as irrelevant in today's Internet economy, while the latter were hailed as the
new wave. In mid-March, however, the "new wave" appeared to have
broken--technology stocks began a sharp correction, while the "old" industrial,
financial and energy stocks enjoyed some renewed interest.
OUTLOOK
In our view, this valuation adjustment is an inevitable and healthy realignment,
and could potentially 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 10-year U.S. Treasury note, have been ranging around six percent.
1
<PAGE>
SEMIANNUAL REPORT
PORTFOLIO REVIEW
--------------------------------------------------------------------------------
TOTAL RETURNS, PERIODS ENDED 3/31/00
3 Months Inception(degree)
Class A* 0.39% 2.60%
Before Deducting Class B** 0.10 2.30
Maximum Sales Charge Class C+ 0.10 2.30
Class Y++ 0.39 2.70
After Deducting Class A* -4.11 -2.01
Maximum Sales Charge Class B** -4.90 -2.70
Class C+ -0.65 1.55
S&P 500 Index 2.29 6.74
Highlighted Stocks(sm) List(1) 2.15 N/A
Lipper Large Cap Core Median 3.56 10.58
Past performance is no guarantee of future performance. Performance results for
the Fund assume reinvestment of all dividends and capital gains. 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. Returns for periods of one year or less are cumulative.
The Highlighted Stocks list is not compiled with any client or product in mind,
including PaineWebber Strategy Fund. Price returns of the Highlighted Stocks
list do not predict the future results of the list or the Fund. Deviations from
the Highlighted Stocks list's price returns will result because those returns do
not reflect the execution of actual purchases or sales. A mutual fund following
the Highlighted Stocks list may not be able to execute purchases and sales at
the prices used to calculate the price returns of the list. Because the
Highlighted Stocks list is a paper portfolio that is not managed to a target
number of stocks, no "rebalancing" of actual investments is done when stocks are
added to or deleted from the list. The Fund also will be subject to daily cash
flow, which will result in ongoing purchases and sales of stocks and
transactional expenses, including brokerage commissions, as well as the advisory
fees and other expenses that the Fund bears. In addition, because the
Highlighted Stocks list does not include a cash component, price returns of the
list are based on a constant 100% investment in the stocks on the list.
(degree) Inception: since commencement of issuance on December 2, 1999 for share
classes A, B, C and Y.
* 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.
Class Y shares do not bear initial or contingent deferred sales charges or
ongoing distribution and service fees.
(1) Price returns of the Highlighted Stocks list are based on the closing price
on the day the Investment Strategy Group announces any additions to (or
deletions from) the list. For the 12 months ended March 31, 2000, the price
return of the Highlighted Stocks list was 16.7% with the S&P 500 Index up
17.93%. The indicated price returns are based on capital appreciation,
excluding dividends and transaction costs such as commissions, markups, fees
and interest charges. Actual transactions adjusted for such transaction costs
will result in different returns. In addition, actual transactions in the
market following the announcement of a change to the list, in most instances,
will occur at different prices than those used to calculate the indicated
price returns of the list, which would result in different price returns. A
complete record of all the recommendations upon which the above price returns
are based (including the stocks involved, as well as the number that advanced
and declined) is available from PaineWebber upon written request.
Highlighted Stocks is a service mark of PaineWebber Incorporated.
2
<PAGE>
PAINEWEBBER STRATEGY FUND SEMIANNUAL REPORT
PORTFOLIO HIGHLIGHTS
During the period since inception, the Fund lagged the market as measured by the
S&P 500 Index. The Fund commenced operations on December 2, 1999 and thus was
not fully invested during the month of December. As a result, the Fund missed
several days of market exposure early in that month, which significantly boosted
the performance of the S&P 500. During the quarter ended March 31, 2000, the
Fund lagged the Highlighted Stocks list primarily due to fund operating expenses
and the impact of pricing differences on selected securities. We believe that
over time the impact of such pricing differences is unlikely to be substantial.
The Investment Strategy Group made several changes to the Highlighted Stocks
list during the period:
Additions and Deletions, 12/2/99-3/31/00
Date Addition Symbol Deletion Symbol
------------------------------------------------------------------------
1/3/00 Amgen AMGN Chase CMB
1/3/00 Hughes Electronics GMH Illinois Tool Works ITW
1/3/00 Oracle ORCL Medtronic MDT
1/7/00 Tiffany & Co. TIF
------------------------------------------------------------------------
Investment themes and the stocks on the Highlighted Stocks list are subject to
change. The Fund's portfolio changes as names on the list change.
The Fund invests in the stocks included on the PaineWebber Highlighted Stocks
list maintained by Ed Kerschner, PaineWebber Chief Investment Strategist, and
the PaineWebber Investment Strategy Group. Stocks are usually added to or
deleted from the Highlighted Stocks list at the beginning of the month, though
revisions may be made at any time, as the Tiffany example illustrates. The
Highlighted Stocks list is comprised of stocks that PaineWebber's Investment
Strategy Group believes are well positioned to benefit from emerging economic,
social and political themes before they are widely recognized. Current
investment themes include The American Age of Affluence, The Information
Revolution Wars and Muted Cycle Cyclicals. Of course, investment themes and the
stocks comprising each theme are subject to change.
THE AMERICAN AGE OF AFFLUENCE
Thanks to a muted business cycle, benign deflation and the consumer comeback,
Americans are more affluent than ever. Nevertheless, many experts warn that
boomers face a bleak future when they retire, unless they sharply increase their
savings rate. We disagree. The savings rate is unlikely to surge because boomers
don't want to save much more, nor do they need to. But, although the savings
rate won't surge, the amount of savings will soar. Although their savings rate
may rise moderately, boomers--who have been champion consumers throughout their
3
<PAGE>
PAINEWEBBER STRATEGY FUND
lives--are not going to quit spending now. Highlighted Stocks: America Online,
AXA Financial, Amgen, Bank of New York, Bed, Bath & Beyond, Carnival Corp.,
Costco, Delta Air Lines, Gap, Gateway, Hewlett-Packard, Home Depot, IBM, MCI
WorldCom, Microsoft, Motorola, Nextel, Schering-Plough, Tandy, Tiffany & Co.,
Time Warner, Wal-Mart and Warner-Lambert.
INFORMATION REVOLUTION WARS
The quantity of global GDP (gross domestic product) that ultimately will be
"digitizable" is likely to surpass today's wildest speculation. Major
technological revolutions are always bigger than anyone ever thinks. The first
and second industrial revolutions were violent upheavals marked by many
simultaneous "wars" among competing interests, technologies and business models.
The information revolution too will witness many wars in which some firms perish
while others flourish. Highlighted Stocks: America Online, Bank of New York,
Carnival Corp., Cisco Systems, Clear Channel, Electronic Data Systems, Gap,
Gateway, Hewlett-Packard, Home Depot, Hughes Electronics, IBM, Lucent
Technologies, MCI WorldCom, Microsoft, Motorola, Nextel, Oracle, Tandy, Time
Warner and Wal-Mart.
MUTED CYCLE CYCLICALS
"Benign deflation" and the muting of the business cycle--infrequent and less
severe recessions--have altered the old sector rotation. Although the domestic
economy has become less volatile as a result, the "new profit pattern" has two
other elements: industry mini-recessions and global recession rotation.
Highlighted Stocks: Smurfit-Stone Container and Weyerhaeuser.
PORTFOLIO STATISTICS
Characteristics* 3/31/00
-----------------------------------------------------------------
Median Market Capitalization ($bln) $53.0
Average Market Capitalization ($bln) $105.6
Dividend Yield 0.41%
Net Assets ($bln) $2.0
Number of Securities 31
Stocks 100%
Cash 0%
-----------------------------------------------------------------
* Weightings represent percentages of portfolio assets. The composition of the
Fund's portfolio will vary over time.
4
<PAGE>
PAINEWEBBER STRATEGY FUND SEMIANNUAL REPORT
Top Five Sectors* 3/31/00
-------------------------------------------------------
Consumer Cyclical 36.8%
Technology 30.3
Healthcare 9.1
Financial Services 7.2
Basic Materials 6.9
-------------------------------------------------------
Total 90.3
Top Ten Holdings* 3/31/00
-------------------------------------------------------
Bed, Bath & Beyond, Inc. 4.1%
Tandy Corp. 3.9
Tiffany & Co. 3.8
Bank of New York Co., Inc. 3.7
Smurfit-Stone Container Corp. 3.7
AXA Financial, Inc. 3.5
Microsoft Corp. 3.5
Time Warner, Inc. 3.5
Cisco Systems, Inc. 3.4
Delta Air Lines, Inc. 3.4
-------------------------------------------------------
Total 36.5
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
Strategy 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/ Brian M. Storms
BRIAN M. STORMS
President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc.
/s/ T. Kirkham Barneby
T. KIRKHAM BARNEBY
Managing Director and
Chief Investment Officer--
Quantitative Investments
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber Strategy Fund
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal period 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.
* Weightings represent percentages of portfolio assets. The composition of the
Fund's portfolio will vary over time.
(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.
5
<PAGE>
PAINEWEBBER STRATEGY FUND
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (unaudited)
Number of
Shares Value
------ -----
COMMON STOCKS--100.10%
Airlines--3.44%
1,272,493 Delta Air Lines, Inc. ....................... $ 67,760,252
--------------
Apparel, Retail--3.04%
1,201,706 Gap, Inc. ................................... 59,859,980
--------------
Banks--3.69%
1,746,181 Bank of New York Co., Inc. .................. 72,575,648
--------------
Computer Hardware--8.63%
878,330 Cisco Systems, Inc.* ........................ 67,905,888
844,463 Gateway, Inc.* .............................. 44,756,539
431,593 Hewlett-Packard Co. ......................... 57,213,047
--------------
169,875,474
--------------
Computer Software--9.99%
564,946 IBM Corp. ................................... 66,663,628
649,494 Microsoft Corp.* ............................ 69,008,737
781,977 Oracle Systems Corp.* ....................... 61,043,080
--------------
196,715,445
--------------
Diversified Retail--6.48%
1,169,812 Costco Wholesale Corp.* ..................... 61,488,243
1,190,867 Wal-Mart Stores, Inc. ....................... 66,093,119
--------------
127,581,362
--------------
Drugs & Medicine--9.11%
851,475 Amgen, Inc.* ................................ 52,259,278
1,658,828 Schering-Plough Corp. ....................... 60,961,929
678,542 Warner-Lambert Co. .......................... 66,157,845
--------------
179,379,052
--------------
Electrical Equipment--5.45%
975,804 Lucent Technologies, Inc. (1). .............. 59,280,093
337,456 Motorola, Inc. (1) .......................... 48,045,298
--------------
107,325,391
--------------
Entertainment--2.54%
2,015,080 Carnival Corp. .............................. 49,999,173
--------------
Forest Products, Paper--3.28%
1,131,564 Weyerhaeuser Co. ............................ $ 64,499,148
--------------
Information & Computer Services--6.30%
985,061 America Online, Inc.* ....................... 66,245,353
900,044 Electronic Data Systems Corp. ............... 57,771,574
--------------
124,016,927
--------------
Life Insurance--3.53%
1,939,277 AXA Financial, Inc. ......................... 69,571,562
--------------
Long Distance & Phone Companies--3.00%
1,301,070 MCI WorldCom, Inc.* ......................... 58,954,734
--------------
Manufacturing-General--3.67%
4,261,173 Smurfit-Stone Container Corp.* .............. 72,173,618
--------------
Media--9.56%
871,432 Clear Channel Communications* (1) ........... 60,183,273
479,846 General Motors Corp.-Class H
(Hughes Electronics Corp.)* (1) ............. 59,740,827
681,077 Time Warner, Inc. ........................... 68,107,700
--------------
188,031,800
--------------
Specialty Retail--15.19%
2,045,988 Bed, Bath & Beyond, Inc.* ................... 80,560,777
1,009,704 Home Depot, Inc. ............................ 65,125,908
1,527,824 Tandy Corp. (1) ............................. 77,537,068
907,096 Tiffany & Co. ............................... 75,855,903
--------------
299,079,656
--------------
Wireless Telecommunications--3.20%
424,600 Nextel Communications, Inc.* (1) ............ 62,946,950
--------------
Total Common Stocks (cost--$1,907,306,992) 1,970,346,172
--------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Date Rate
---------- ---------- ----------
<S> <C> <C> <C>
Repurchase Agreement--0.03%
$630 Repurchase Agreement dated 03/31/00 with State Street Bank & Trust Co.,
collateralized by $616,304 U.S. Treasury Notes, 7.500% due 11/15/01
(value--$643,268); proceeds: $630,249; (cost--$630,000) 04/03/00 4.750% 630,000
---------------
Total Investments (cost--$1,907,936,992)--100.13% 1,970,976,172
Liabilities in excess of other assets--(0.13)% (2,598,108)
---------------
Net Assets--100.00% $1,968,378,064
===============
</TABLE>
---------
* Non-income producing security.
(1) Security, or a portion thereof, was on loan at March 31, 2000.
See accompanying notes to financial statements
6
<PAGE>
PAINEWEBBER STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2000 (unaudited)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost--$1,907,936,992) ...................... $ 1,970,976,172
Investments of cash collateral received for securities loaned,
at value (cost--$31,782,100) .................................................. 31,782,100
Cash ............................................................................ 2,734
Receivable for investments sold ................................................. 5,247,108
Dividends and interest receivable ............................................... 318,362
Receivable for shares of beneficial interest sold ............................... 80,228
Deferred offering costs ......................................................... 270,889
Other assets .................................................................... 485,246
---------------
Total assets .................................................................... 2,009,162,839
---------------
Liabilities
Collateral for securities loaned ................................................ 31,782,100
Payable for shares of beneficial interest repurchased ........................... 6,498,007
Payable to affiliates ........................................................... 2,381,989
Accrued expenses and other liabilities .......................................... 122,679
---------------
Total liabilities ............................................................... 40,784,775
---------------
Net assets
Beneficial interest--$0.001 par value (unlimited number authorized) ............. 1,930,608,130
Accumulated net investment loss ................................................. (6,702,510)
Accumulated net realized loss from investment and futures transactions .......... (18,566,736)
Net unrealized appreciation of investments ...................................... 63,039,180
---------------
Net assets ...................................................................... $ 1,968,378,064
---------------
Class A:
Net assets ...................................................................... $ 613,060,295
---------------
Shares outstanding .............................................................. 59,758,757
---------------
Net asset value and redemption value per share .................................. $10.26
======
Maximum offering price per share (net asset value plus sales charge
of 4.50% of offering price) ................................................... $10.74
======
Class B:
Net assets ...................................................................... $ 772,119,064
---------------
Shares outstanding .............................................................. 75,454,139
---------------
Net asset value and offering price per share .................................... $10.23
======
Class C:
Net assets ...................................................................... $ 550,708,389
---------------
Shares outstanding .............................................................. 53,815,679
---------------
Net asset value and offering price per share .................................... $10.23
======
Class Y:
Net assets ...................................................................... $32,490,316
---------------
Shares outstanding .............................................................. 3,164,020
---------------
Net asset value, offering price and redemption value per share .................. $10.27
======
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
PAINEWEBBER STRATEGY FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
December 2, 1999+
through
March 31, 2000
(unaudited)
---------------
<S> <C>
Investment income:
Dividends and interest .......................................................... $ 3,976,265
---------------
Expenses:
Investment advisory and administration .......................................... 4,914,595
Service fees--Class A ........................................................... 529,029
Service and distribution fees--Class B .......................................... 2,503,554
Service and distribution fees--Class C .......................................... 1,824,546
Transfer agency and service fees ................................................ 455,980
Amortization of offering costs .................................................. 179,111
Custody and accounting .......................................................... 131,056
Reports and notices to shareholders ............................................. 49,704
Legal and audit ................................................................. 48,829
State registration .............................................................. 35,935
Trustees' fees .................................................................. 5,250
Other expenses .................................................................. 2,921
---------------
10,680,510
Less: Fee waivers from adviser .................................................. (1,735)
---------------
Net expenses .................................................................... 10,678,775
---------------
Net investment loss ............................................................. (6,702,510)
---------------
Realized and unrealized gains (losses) from investment activities:
Net realized losses from:
Investment transactions ....................................................... (13,401,416)
Futures contracts ............................................................. (5,165,320)
Net change in unrealized appreciation/depreciation of investments ............... 63,039,180
---------------
Net realized and unrealized gains from investment activities .................... 44,472,444
---------------
Net increase in net assets resulting from operations ............................ $ 37,769,934
===============
</TABLE>
-----------------
+ Commencement of operations.
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER STRATEGY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
December 2, 1999+
through
March 31, 2000
(unaudited)
---------------
<S> <C>
From operations:
Net investment loss ............................................................. $ (6,702,510)
Net realized loss from investment and futures transactions ...................... (18,566,736)
Net change in unrealized appreciation/depreciation of investments ............... 63,039,180
---------------
Net increase in net assets resulting from operations ............................ 37,769,934
---------------
From beneficial interest transactions:
Net proceeds from the sale of shares ............................................ 2,112,469,514
Cost of shares repurchased ...................................................... (181,861,394)
---------------
Net increase in net assets from beneficial interest transactions ................ 1,930,608,120
---------------
Net increase in net assets ...................................................... 1,968,378,054
---------------
Net assets:
Beginning of period ............................................................. 10
---------------
End of period ................................................................... $ 1,968,378,064
===============
</TABLE>
-----------------
+ Commencement of operations.
See accompanying notes to financial statements
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Strategy Fund (the "Fund")is a diversified series of PaineWebber
Managed Investments Trust (the "Trust"). The Trust was organized as a
Massachusetts business trust and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund's investment objective is to seek
long-term capital appreciation. Offering costs have been deferred and are being
amortized using the straight line method through the first fiscal period end,
September 30, 2000. Prior to the commencement of operations on December 2, 1999,
the Fund had no activity other than the sale of one Class A share to Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), the investment adviser,
administrator and distributor, and a wholly owned asset management subsidiary of
PaineWebber Incorporated ("PaineWebber").
Currently, the Fund offers Class A, Class B, Class C and Class Y shares. Each
class represents interests in the same assets of the 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 rights except that Class A, Class B and
Class C shares have exclusive voting rights with respect to their service and/or
distribution plan. Class Y shares have no service or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
Valuation of Investments--The Fund calculates its net asset value based on the
current market value for the portfolio securities. The Fund normally obtains
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-the-counter ("OTC") market
and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at
the last sale price on Nasdaq prior to valuation. Other OTC securities are
valued at the last bid price available prior to valuation. Securities which are
listed on U.S. and foreign stock exchanges normally are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by Mitchell Hutchins. 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 Trust's
board of trustees (the "board"). The amortized cost method of valuation, which
approximates market value, generally is used to value short-term debt
instruments with sixty days or less remaining to maturity, unless the board
determines that this does not represent fair value.
Repurchase Agreements--The 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, the 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. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to
interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.
Futures Contracts--Upon entering into a financial futures contract, the Fund
is required to deposit in a segregated account with its custodian, in the name
of the futures broker through which the transaction was effected, an amount of
cash and/or U.S. securities equal to a certain percentage of the contract
amount. This amount is known as the "initial margin." Subsequent payments, known
as "variation margin" are made or received by the Fund each day, depending on
the daily fluctuations in the value of the underlying financial futures
contracts. Such variation margin is recorded for financial statement purposes on
a daily basis as unrealized gain or loss until the financial futures contract is
closed, at which time the net gain or loss is reclassified to realized.
Variation margin calls could be substantial in the event of adverse price
movements.
Using financial futures contracts involves various market risks. If the Fund
were unable to liquidate a futures position due to the absence of a liquid
secondary market or the imposition of price limits, it could incur substantial
losses. The Fund would continue to be subject to market risk with respect to the
position. In addition, the Fund would continue to be required to make variation
margin payments and might be required to maintain the position being hedged or
to maintain cash or securities in a segregated account. Furthermore, certain
characteristics of the futures market might increase the risk that movements in
the prices of futures contracts might not correlate perfectly with movements in
the prices of the investments being hedged, including temporary price
distortions.
There were no outstanding futures contracts at March 31, 2000.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board has approved an Investment Advisory and Administration
Contract ("Advisory Contract") with Mitchell Hutchins, under which Mitchell
Hutchins serves as investment adviser and administrator of the Fund. In
accordance with the Advisory Contract, the Fund pays Mitchell Hutchins an
investment advisory and administration fee, which is accrued daily and paid
monthly, at an annual rate of 0.75% of the Fund's average daily net assets. At
March 31, 2000, the Fund owed Mitchell Hutchins $1,189,443 in investment
advisory and administration fees. For the period December 2, 1999 through March
31, 2000, Mitchell Hutchins waived $1,735 of its investment advisory and
administration fees in connection with the Fund's investment of cash collateral
from security lending in the Mitchell Hutchins Private Money Market Fund LLC.
For the period December 2, 1999 through March 31, 2000, the Fund paid no
brokerage commissions to PaineWebber because no transactions with PaineWebber
were executed on behalf of the Fund.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the 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 Fund pays Mitchell Hutchins monthly service fees at the annual rate
of 0.25% of the average daily net assets of Class A, Class B and Class C shares
and monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B and Class C shares (Class Y shares have no service or
distribution plan). At March 31, 2000, the Fund owed Mitchell Hutchins
$1,189,883 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed the Fund that for the period
December 2, 1999 through March 31, 2000, it earned $17,742,912 in sales charges.
TRANSFER AGENCY SERVICE FEES
PaineWebber provides transfer agency related services to the 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 Fund. For the period
December 2, 1999 through March 31, 2000, PaineWebber received from PFPC, Inc.,
not the Fund, approximately 57% of the total transfer agency and related service
fees collected by PFPC, Inc. from the Fund.
SECURITY LENDING
The 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, U.S. government
securities or irrevocable letters of credit that meet certain guidelines
established by Mitchell Hutchins, 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. The Fund will regain record ownership of loaned
securities to exercise certain beneficial rights. However, the Fund may bear the
risk of delay in recovery of, or even loss of rights in, the securities loaned
should the borrower fail financially. The Fund receives compensation 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 period December 2, 1999 through March
31, 2000, the Fund earned $14,597 for lending securities. The Fund's lending
agent is PaineWebber, who earned $6,484 in compensation from the Fund in that
capacity for the period December 2, 1999 through March 31, 2000. At March 31,
2000, the Fund owed PaineWebber $2,663 in compensation.
As of March 31, 2000, the Fund held cash and/or cash equivalents having an
aggregate value of $31,782,100 as collateral for portfolio securities loaned
having a market value of $30,585,063 which was invested in the following money
market funds:
<TABLE>
<CAPTION>
Number of
Shares Value
------ -----
<S> <C> <C>
7,904,615 Liquid Assets Portfolio ............................................................. $ 7,904,615
19,440,444 Mitchell Hutchins Private Money Market Fund LLC ..................................... 19,440,444
4,437,041 Scudder Institutional Fund Inc. ..................................................... 4,437,041
---------------
Total investments of cash collateral received for securities on loan (cost--$31,782,100) .... $ 31,782,100
===============
</TABLE>
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
BANK LINE OF CREDIT
The Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for temporary
financing until the settlement of sales or purchases of portfolio securities,
the repurchase or redemption of shares of the Fund at the request of the
shareholders and other temporary or emergency purposes. In connection therewith,
the 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 the Fund at
rates based on prevailing market rates in effect at the time of borrowings. For
the period December 2, 1999 through March 31, 2000, the Fund did not borrow
under the Facility.
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>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ........ $ 196,847,825
Gross depreciation (investments having an excess of cost over value) ........ (133,808,645 )
---------------
Net unrealized appreciation of investments .................................. $ 63,039,180
===============
</TABLE>
For the period December 2, 1999 through March 31, 2000, total aggregate
purchases and sales of portfolio securities, excluding short-term securities,
were as follows:
<TABLE>
<S> <C>
Purchases ................................................................... $ 2,762,219,238
Sales ....................................................................... $ 841,510,053
</TABLE>
FEDERAL TAX STATUS
The 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 its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
BENEFICIAL INTEREST
There is an unlimited number of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------- --------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
For the Period December 2, 1999 +
through March 31, 2000:
Shares sold ......................... 69,579,142 $695,684,878 79,524,249 $795,181,176 58,679,541 $586,747,065
Shares repurchased .................. (9,820,386) (93,728,067) (4,070,110) (38,655,379) (4,863,862) (46,386,537)
------------ ------------ ------------ ------------ ------------ ------------
Net increase ........................ 59,758,756 $601,956,811 75,454,139 $756,525,797 53,815,679 $540,360,528
============ ============ ============ ============ =========== ============
<CAPTION>
Class Y
---------------------------
Shares Amount
------------ ------------
<S> <C> <C>
For the Period December 2, 1999 +
through March 31, 2000:
Shares sold ......................... 3,485,592 $ 34,856,395
Shares repurchased .................. (321,572) (3,091,411)
------------ ------------
Net increase ........................ 3,164,020 $ 31,764,984
============ ============
</TABLE>
----------------
+ Commencement of operations.
13
<PAGE>
PAINEWEBBER STRATEGY FUND
FINANCIAL HIGHLIGHTS (unaudited)
Selected data for a share of beneficial interest outstanding throughout the
period is presented below:
<TABLE>
<CAPTION>
For the Period December 2, 1999+ through March 31, 2000
-------------------------------------------------------------
Class A Class B Class C Class Y
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............................. $ 10.00 $ 10.00 $ 10.00 $ 10.00
---------- ---------- ---------- ----------
Net investment loss .............................................. (0.02) (0.04) (0.04) (0.01)
Net realized and unrealized gains from investments and futures ... 0.28 0.27 0.27 0.28
---------- ---------- ---------- ----------
Total increase from investment operations ........................ 0.26 0.23 0.23 0.27
---------- ---------- ---------- ----------
Net asset value, end of period ................................... $ 10.26 $ 10.23 $ 10.23 $ 10.27
========== ========== ========== ==========
Total investment return (1) ...................................... 2.60% 2.30% 2.30% 2.70%
========== ========== ========== ==========
Ratios/Supplemental Data:
Net assets, end of period (000's) ................................ $ 613,060 $ 772,119 $ 550,708 $ 32,490
Expenses to average net assets, net of waivers from adviser (2) .. 1.12%* 1.90%* 1.89%* 0.86%*
Net investment loss to average net assets, net of
waivers from adviser (2) ....................................... (0.51)%* (1.30)%* (1.29)%* (0.25)%*
Portfolio turnover rate .......................................... 42% 42% 42% 42%
</TABLE>
------------------
+ Commencement of operations.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of the period reported. The figures do
not include sales charges; results would be lower if sales charges were
included. Total investment return for the period has not been annualized.
(2) For the Period December 2, 1999 through 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%.
14
<PAGE>
TRUSTEES
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman
George W. Gowen
Margo N. Alexander Frederic V. Malek
Richard Q. Armstrong Carl W. Schafer
Richard R. Burt Brian M. Storms
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
President Vice President and Treasurer
Dianne E. O'Donnell T. Kirkham Barneby
Vice President and Secretary Vice President
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, New York 10019
A prospectus containing more complete information for any of the funds listed on
the back cover can be obtained from a PaineWebber Financial Advisor or
correspondent firm. Read the prospectus carefully before investing.
The financial information included herein is taken from the records of the Fund
without examination by independent auditors who do not express an opinion
thereon.
This report is not to be used in conjunction with the offering of shares of the
Fund unless accompanied or preceded by an effective prospectus.
<PAGE>
[PAINEWEBBER LOGO]
STRATEGY FUND
Semiannual Report
MARCH 31, 2000
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
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All Rights Reserved
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