<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW
DURATION U.S. GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT
GRADE INCOME FUND, PAINEWEBBER HIGH INCOME FUND
Dear Shareholder, July 15, 2000
We are pleased to present you with the semiannual report for PaineWebber U.S.
Government Income Fund, PaineWebber Low Duration U.S. Government Income Fund,
PaineWebber Investment Grade Income Fund and PaineWebber High Income Fund, for
the six months ended May 31, 2000.
MARKET REVIEW
--------------------------------------------------------------------------------
[GRAPHIC]
During the six-month period ended May 31, 2000, the Federal Reserve (the "Fed")
raised the Federal Funds rate one percent in response to boom-like economic
growth. Rising interest rates created difficult conditions for all sectors of
the fixed income market. U.S. Treasurys fared the best, gaining 2.46% as
measured by the Lehman Brothers Government Bond Index. The broad market, as
measured by the Lehman Brothers Aggregate Bond Index, achieved a slight gain of
1.38% for the period. Corporate bonds, mortgage-backed securities and high-yield
bonds all lost ground. The high-yield sector fared the worst, losing 1.84% as
measured by the CS First Boston High Yield Bond Index.
In mid-January the U.S. Treasury announced final plans to buy back Treasury
debt in response to a current fiscal year surplus of about $200 billion. The
size of the buyback--about $30 billion in calendar year 2000--surprised market
participants. Moreover, remarks by Treasury officials indicated that they intend
to reduce the supply of 30-year bonds and make the 10-year Treasury note the new
long-maturity bellwether. The resulting surge in demand for 30-year Treasurys
caused a drastic yield curve inversion, in which 10-year notes yielded more than
30-year Treasurys. As a result, by period-end three-month yields had risen 32
basis points while 30-year yields had declined 28 basis points. (A basis point
equals 1/100th of one percent.)
The market illiquidity engendered by January's yield-curve inversion
plagued the spread sectors. Trading volume remained low. Investors sought to
shed spread-sector overweights, and displayed a marked preference for higher
credit quality. (Spread sectors include high-yield bonds, investment-grade
corporate bonds and mortgage-backed securities, the yields of which are gauged
by their relationship, or spread, to U.S. Treasurys.) Treasury Undersecretary
Gary Gensler compounded the negative sentiment in the market when he challenged
the markets' assumption of an implied Government guarantee for agency debt.
Credit quality became the pervasive theme for the period, and higher-rated debt
generally outperformed lower-rated debt.
Bearish market sentiment appeared to lift toward the end of the period, as
evidence mounted that the economy may be slowing. Market participants saw this
as a sign that the Fed might be approaching the end of its cycle of
interest-rate increases.
1
<PAGE>
SEMIANNUAL REPORT
OUTLOOK
Although the Fed did not raise rates at its meeting on June 28, it did note that
inflation remained a concern. The economy appears to be slowing, although it is
unclear whether the slowdown will be sufficient to prevent another rate
increase. However, we believe that any further Fed actions will impact the
equities markets more seriously than bonds. While we think the economy will
slow, we do not expect it to slip into recession. In such an environment we
think the spread sectors stand a good chance to recover--particularly the
mortgage-backed sector, and to a lesser extent, the corporate sector.
The spread sectors have had to cope with a triple whammy of reduced
Treasury supply, equity-market volatility and rising interest rates. We believe
current valuations are extremely attractive, and these sectors are now
displaying signs of stability. We remain hopeful that spreads can narrow in the
periods ahead.
[SIDENOTE:]
PAINEWEBBER U.S. GOVERNMENT
INCOME FUND
INVESTMENT GOAL:
High current income
consistent with
preservation of capital and
liquidity
PORTFOLIO MANAGERS:
Nirmal Singh
Dennis McCauley
Mitchell Hutchins Asset
Management Inc.
COMMENCEMENT:
August 31, 1984 (Class A)
July 1, 1991 (Class B)
July 2, 1992 (Class C)
September 11, 1991
(Class Y)
DIVIDEND PAYMENTS:
Monthly
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 5/31/00
6 Months 1 Year 5 Years Inception[DEGREE]
<S> <C> <C> <C> <C> <C>
Class A* 1.09% 0.70% 4.70% 7.28%
Before Deducting Class B** 0.68 -0.10 3.88 4.40
Maximum Sales Charge
Class C+ 0.83 0.18 4.16 3.26
Class Y++ 1.24 1.01 5.01 4.82
Class A* -2.90 -3.37 3.85 7.00
After Deducting Class B** -4.22 -4.85 3.55 4.40
Maximum Sales Charge
Class C+ 0.09 -0.54 4.16 3.26
Class Y++ 1.24 1.01 5.01 4.82
LEHMAN BROTHERS GOVERNMENT
BOND INDEX 2.46 2.96 5.99 9.24
Lipper General U.S. Government
Funds Median 1.24 1.08 4.95 7.95
</TABLE>
Past performance is no guarantee of future performance. 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 performance
data quoted assumes reinvestment of all dividends and capital gains.
Lipper peer group data calculated by Lipper Inc.; used with permission. The
Lipper Median is the return of the fund that places in the middle of the peer
group.
[DEGREE] Inception: since commencement of issuance on August 31, 1984 for Class
A shares, July 1, 1991 for Class B shares, July 2, 1992 for Class C shares
and September 11, 1991 for Class Y shares. Index performance is shown as of
inception of oldest share class.
* Maximum sales charge for Class A shares is 4% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after six years. Class B shares bear ongoing 12b-1
distribution and service fees.
+ Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 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, as well as the
trustee of the PaineWebber 401(k) Plus Plan. Class Y shares do not bear
initial or contingent deferred sales charges or ongoing distribution and
service fees.
2
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW DURATION U.S.
GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT GRADE INCOME FUND, PAINEWEBBER
HIGH INCOME FUND
PORTFOLIO REVIEW
The Fund trailed its Lipper peer group and its benchmark for the six
months ended May 31, 2000. The primary cause of the Fund's underperformance was
its above-benchmark allocations to agency debt and mortgage-backed securities,
both of which performed poorly during the period.
The Fund's mid-range duration (about 5.3 years) detracted slightly from
performance as interest rates rose during the period. (Duration is a measure of
a bond portfolio's sensitivity to interest rate changes.)
GOING FORWARD
We recognize there is a degree of uncertainty regarding what is a risk-free
benchmark in an era of reduced Treasury supply. This basic valuation issue may
cause increased spread volatility and wider-than-normal fair value spreads in
the periods to come.
Despite recent setbacks, we continue to find mortgages and agencies
attractive. Rising interest rates have diminished the likelihood that borrowers
will prepay or refinance their mortgages. We continue to believe in the
long-term potential of the spread sectors, and continue to overweight them in
the Fund.
PAINEWEBBER U.S. GOVERNMENT INCOME FUND--PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 5/31/00 11/30/99
-------------------------------------------------------------------------------------
<S> <C> <C>
Net Assets ($mm) $240.3 $276.3
Weighted Avg Maturity 10.0 yrs. 9.7 yrs.
Weighted Avg Duration 5.28 yrs. 5.22 yrs.
Average Quality Agency Agency
-------------------------------------------------------------------------------------
<CAPTION>
SECTOR ALLOCATION* 5/31/00 11/30/99
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgages 65.0% Mortgages 72.7%
U.S. Government & Agency 48.0 U.S. Government & Agency 38.1
Cash & Equivalents 9.8 Cash & Equivalents 14.7
Liabilities in excess of other assets -22.8 Liabilities in excess of other assets -25.5
-------------------------------------------------------------------------------------------------
Total 100.0 Total 100.0
</TABLE>
* Weightings represent percentages of net assets as of the dates indicated. The
Fund's portfolio is actively managed and its composition will vary over time.
3
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER LOW DURATION
U.S. GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND--PORTFOLIO REVIEW
[SIDENOTE]
PAINEWEBBER LOW DURATION
U.S. GOVERNMENT INCOME FUND
INVESTMENT GOAL:
Highest level of income
that is consistent with
preservation of capital and
low NAV volatility
PORTFOLIO MANAGER:
Scott Mather
Pacific Investment
Management Company
COMMENCEMENT:
May 3, 1993 (Classes A, B
and C)
October 20, 1995 (Class Y)
DIVIDEND PAYMENTS:
Monthly
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 5/31/00
6 Months 1 Year 5 Years Inception[DEGREE]
<S> <C> <C> <C> <C> <C>
Class A* 1.04% 2.25% 5.21% 4.13%
Before Deducting Class B** 1.03 1.37 4.34 3.41
Maximum Sales Charge
Class C+ 1.14 1.57 4.56 3.52
Class Y++ 2.02 2.92 N/A 5.31
Class A* -1.93 -0.72 4.59 3.67
After Deducting Class B** -1.93 -1.54 4.34 3.41
Maximum Sales Charge
Class C+ 0.40 0.84 4.56 3.52
Class Y++ 2.02 2.92 N/A 5.31
Merrill Lynch 1-3 Year
U.S. Treasury Index 2.03 4.16 5.66 5.28
Lipper Short U.S. Government
Funds Median 1.77 3.47 4.94 4.68
</TABLE>
Past performance is no guarantee of future performance. 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 performance
data quoted assumes reinvestment of all dividends and capital gains.
Lipper peer group data calculated by Lipper Inc.; used with permission. The
Lipper Median is the return of the fund that places in the middle of the peer
group.
[DEGREE] Inception: since commencement of issuance on May 3, 1993 for Classes A,
B and C shares and October 20, 1995 for Class Y shares. Index performance
is shown as of inception of oldest share classes.
* Maximum sales charge for Class A shares is 3% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 3% and is
reduced to 0% after four years. Class B shares bear ongoing 12b-1
distribution and service fees.
+ Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 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.
4
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW
DURATION U.S. GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT
GRADE INCOME FUND, PAINEWEBBER HIGH INCOME FUND
PORTFOLIO REVIEW
During the period the Fund lagged its benchmark and its peer group. The Fund's
combination of longer-than-index duration and broader-than-index maturity
structure was a strong positive as short rates increased and longer rates
decreased. Sector selection was a negative. In spite of their higher yield
premiums, mortgages underperformed Treasurys due to concerns that the implied
Federal guarantee of Fannie Mae and Freddie Mac would be rescinded. This caused
the prices of the mortgage pass-through securities and debt issued and
guaranteed by these agencies to decline. In contrast, GNMAs which have the "full
faith and credit" backing of the U.S. Government were not adversely affected.
GOING FORWARD
Concerns about a slowing economy and higher inflation continue to dominate our
strategy. We expect the yield curve to remain inverted due to the dwindling
supply of Treasury securities and believe that the Fed may raise the Federal
Funds rate by up to 50 basis points over the next six months in an attempt to
slow the economy and control inflation.
We intend to target duration near the benchmark because extending duration
does not pay a premium due to the inverted yield curve. We intend to focus on
GNMA mortgages because they offer yield premiums of as much as 1.5% over
comparable Treasurys and may benefit from the declining supply of "full faith
and credit" securities, e.g., Treasurys. Also, we intend to maintain the Fund's
exposure to well-structured, collateralized mortgage obligations (CMOs) to
capture their relatively high yields. Lastly, we expect to focus on Treasury
Inflation Protected Securities (TIPS) to take advantage of high real yields and
their inflation protection.
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND--
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 5/31/00 11/30/99
-------------------------------------------------------------------------------------
<S> <C> <C>
Net Assets ($mm) $152.2 $158.9
Weighted Avg Maturity 1.88 yrs. 2.78 yrs.
Weighted Avg Duration 1.6 yrs. 1.76 yrs.
Weighted Avg Coupon 7.12% 6.33%
-------------------------------------------------------------------------------------
<CAPTION>
SECTOR ALLOCATION* 5/31/00 11/30/99
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-Backed Securities 142.1% Mortgage-Backed Securities 70.1%
U.S. Government and Agency 19.0 Cash & Equivalents 38.2
Asset Backed Security 1.5 Commercial Paper 15.6
Cash & Equivalents 7.2 U.S. Government and Agency 6.3
Commercial Paper 0.1 Liabilities in excess of other assets -30.2
Liabilities in excess of other assets -69.9
--------------------------------------------------------------------------------------------------
Total 100.0 Total 100.0
</TABLE>
* Weightings represent percentages of net assets as of the dates indicated. The
Fund's portfolio is actively managed and its composition will vary over time.
5
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER INVESTMENT GRADE INCOME FUND
--------------------------------------------------------------------------------
PAINEWEBBER INVESTMENT GRADE INCOME FUND--PORTFOLIO REVIEW
[SIDENOTE]
PAINEWEBBER INVESTMENT
GRADE INCOME FUND
INVESTMENT GOAL:
High current income
consistent with
preservation of capital and
liquidity
PORTFOLIO MANAGER:
Julieanna Berry
Mitchell Hutchins Asset
Management Inc.
COMMENCEMENT:
August 31, 1984 (Class A)
July 1, 1991 (Class B)
July 2, 1992 (Class C)
February 20, 1998
(Class Y)
DIVIDEND PAYMENTS:
Monthly
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 5/31/00
6 Months 1 Year 5 Years Inception[DEGREE]
<S> <C> <C> <C> <C> <C>
Class A* -1.48% -1.34% 5.06% 8.68%
Before Deducting Class B** -1.77 -2.10 4.27 6.44
Maximum Sales Charge
Class C+ -1.63 -1.83 4.54 5.34
Class Y++ -1.46 -1.27 N/A 0.24
Class A* -5.38 -5.30 4.21 8.40
After Deducting Class B** -6.52 -6.70 3.96 6.44
Maximum Sales Charge
Class C+ -2.34 -2.52 4.54 5.34
Class Y++ -1.46 -1.27 N/A 0.24
Lehman Brothers Corporate
Bond Index -0.37 -0.04 5.64 10.09
Lipper Corporate Debt
BBB-Rated Funds Median -0.02 -0.16 5.29 9.27
</TABLE>
Past performance is no guarantee of future performance. 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 performance
data quoted assumes reinvestment of all dividends and capital gains.
Lipper peer group data calculated by Lipper Inc.; used with permission. The
Lipper Median is the return of the fund that places in the middle of the peer
group.
[DEGREE] Inception: since commencement of issuance on August 31, 1984 for
Class A shares, July 1, 1991 for Class B shares, July 2, 1992 for Class C
shares and February 20, 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% 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 0.75% 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 fund. Class Y shares
do not bear initial or contingent deferred sales charges or ongoing
distribution and service fees.
PORTFOLIO REVIEW
Continued widening of sector spreads hurt Fund performance during the period. By
period-end, the corporate sector had posted its fifth consecutive month of
losses. The Fund maintained a neutral duration position relative to its
benchmark, which helped performance slightly as interest rates rose.
The Fund's strategy continues to focus on credit-driven trading decisions.
The style of exploiting the inefficiencies in the crossover market(1) (focusing
on BBB/BB rated paper) has been less successful during the last few months. In
periods of uncertainty, such as we have seen recently, liquidity becomes of
utmost importance and lower credit quality positions are at a disadvantage.
Further pressuring the corporate sector is heightened event risk in the form of
share repurchases and leveraged buyouts. We felt that some of the severe
widening in specific credits was an overreaction to these risks and continue to
view these scares as potential opportunities. The nature of our bias to
crossover credits causes us to overweight in the intermediate part of the curve,
which hindered performance in the latest period of a run up in long-duration
treasurys. We still believe that the way to add value is by determining the most
attractive part of the credit curve, focusing on both the fundamental analysis
and the technical situation.
(1) Crossover credits are issues rated investment grade quality by one major
ratings agency, and below investment grade by another ratings agency.
6
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW
DURATION U.S. GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT
GRADE INCOME FUND, PAINEWEBBER HIGH INCOME FUND
GOING FORWARD
With most of the Fed tightening out of the way, we believe the corporate market
is positioned to rally. As volatility in the equity market appears to have
stabilized, investors are becoming more comfortable with credit risk. The
technical situation also seems very favorable. Recent investor surveys have
revealed that many investors are neutral to underweighted spread sectors. Cash
positions are large and as markets stabilize, investors may be inclined to
reinvest in the corporate market to enhance yield and generate total return.
The Fed's ability to engineer a soft landing is looking more likely, which
bodes well for the corporate market. As we believe that risks are still present
in this forecast, we will continue to dedicate a portion of the portfolio to the
higher-rated, liquid issuers.
PAINEWEBBER INVESTMENT GRADE INCOME FUND--PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 5/31/00 11/30/99
-----------------------------------------------------------------------------
<S> <C> <C>
Net Assets ($mm) $235.0 $262.1
Weighted Avg Maturity 16.90 yrs. 15.85 yrs.
Weighted Avg Duration 5.55 yrs. 5.66 yrs.
-----------------------------------------------------------------------------
<CAPTION>
TOP FIVE SECTORS* 5/31/00 11/30/99
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance/Banking 14.5% Finance/Banking 16.5%
Mortgage-Backed Securities 14.1 Mortgage-Backed Securities 11.2
U.S. Government and Agency 11.0 U.S. Government and Agency 11.1
Yankee 11.6 Yankee 11.0
Cable/Media 7.8 Cable/Media 8.4
-----------------------------------------------------------------------------------------
Total 59.0 Total 58.2
<CAPTION>
CREDIT QUALITY* 5/31/00 11/30/99
-----------------------------------------------------------------------------
<S> <C> <C>
Cash & Equivalents 11.0% 8.0%
AAA 23.2 20.8
AA 1.4 2.1
A 18.1 24.3
BBB 24.6 22.2
BB 15.7 19.0
B 4.7 2.0
Below B 1.3 1.6
-----------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
* Weightings represent percentages of net assets as of the dates indicated. The
Fund's portfolio is actively managed and its composition will vary over time.
7
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER HIGH INCOME FUND
--------------------------------------------------------------------------------
PAINEWEBBER HIGH INCOME FUND--PORTFOLIO REVIEW
[SIDENOTE]
PAINEWEBBER HIGH INCOME FUND
INVESTMENT GOAL:
High Income
PORTFOLIO MANAGER:
James F. Keegan
Mitchell Hutchins Asset
Management Inc.
COMMENCEMENT:
August 31, 1984 (Class A)
July 1, 1991 (Class B)
July 2, 1992 (Class C)
February 20, 1998
(Class Y)
DIVIDEND PAYMENTS:
Monthly
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 5/31/00
6 Months 1 Year 5 Years Inception[DEGREE]
<S> <C> <C> <C> <C> <C>
Class A* -14.05% -15.24% 2.46% 8.17%
Before Deducting Class B** -14.43 -16.08 1.67 6.72
Maximum Sales Charge
Class C+ -14.27 -15.81 1.91 4.05
Class Y++ -13.97 -15.19 N/A -8.90
Class A* -17.55 -18.59 1.63 7.89
After Deducting Class B** -18.49 -19.86 1.42 6.72
Maximum Sales Charge
Class C+ -14.88 -16.37 1.91 4.05
Class Y++ -13.97 -15.19 N/A -8.90
CS First Boston -1.84 -2.53 5.56 N/A
High Yield Bond Index
Lipper High Current -2.16 -1.98 6.22 9.66
Yield Funds Median
</TABLE>
Past performance is no guarantee of future performance. 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 performance
data quoted assumes reinvestment of all dividends and capital gains.
Lipper peer group data calculated by Lipper Inc.; used with permission. The
Lipper Median is the return of the fund that places in the middle of the peer
group.
[DEGREE] Inception: since commencement of issuance on August 31, 1984 for Class
A shares, July 1, 1991 for Class B shares, July 2, 1992 for Class C shares
and February 20, 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% 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 0.75% 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.
PORTFOLIO REVIEW
During the period, the adverse conditions that impacted the broad fixed
income market hit the high-yield sector particularly hard. Fund performance
reflected these adverse market conditions, and was exacerbated by losses among
several of the Fund's small-capitalization holdings. As a result, the Fund
underperformed its benchmark and its Lipper peer group for the period.
8
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW
DURATION U.S. GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT
GRADE INCOME FUND, PAINEWEBBER HIGH INCOME FUND
MANAGEMENT CHANGES
Effective February 2000, James F. (Jim) Keegan, Managing Director and
head of the Taxable Credit Group, assumed management responsibility for the
Fund.
Previously, the Fund had focused on high income potential, emphasizing
lower-rated, smaller securities that provided higher yields. While the Fund will
continue to seek high income, the portfolio management team seeks to lower the
Fund's volatility and improve portfolio credit quality. Over the past several
months, adverse market conditions and redemptions have impeded management's
efforts to increase the Fund's exposure to larger-cap, more liquid and
higher-rated issues and to place a smaller emphasis on smaller-cap names. Those
efforts will continue, consistent with market conditions and the interests of
long-term shareholders. In selecting holdings for the Fund, management will seek
to add companies that appear to offer the best relative values based on its
analysis of cash flow, leverage and other balance sheet and income statement
factors.
GOING FORWARD
The new-issue calendar for the high-yield market appears light ($57 billion
run rate for 2000 vs. $100 billion in 1999) and is likely to continue to be
dominated by the cable and fixed-communication sectors. Corporate profits
continue to surprise on the upside, economic growth remains strong and inflation
seems under control. We believe the high-yield market may stabilize once the Fed
is largely through raising interest rates.
Against this favorable backdrop of good economic news and dwindling supply,
we believe the high-yield sector is attractive and still offers potential to
income-oriented investors with a long-term perspective.
PAINEWEBBER HIGH INCOME FUND--PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 5/31/00 11/30/99
------------------------------------------------------------------------------------
<S> <C> <C>
Net Assets ($mm) $268.1 $409.3
Weighted Avg Duration 4.82 yrs. 4.60 yrs.
Weighted Avg Maturity 7.81 yrs. 7.09 yrs.
------------------------------------------------------------------------------------
<CAPTION>
CREDIT QUALITY* 5/31/00 11/30/99
------------------------------------------------------------------------------------
<S> <C> <C>
Cash & Equivalents 9.2% 8.1%
BB & Higher 21.5 20.8
B 47.3 46.0
CCC & Lower 5.1 4.2
Non-Rated 10.6 13.2
Equity/Preferred 6.3 7.7
------------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
* Weightings represent percentages of net assets as of the dates indicated. The
Fund's portfolio is actively managed and its composition will vary over time.
9
<PAGE>
SEMIANNUAL REPORT
<TABLE>
<CAPTION>
TOP FIVE SECTORS* 5/31/00 11/30/99
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Communications (fixed) 22.6% Communications (fixed) 19.1%
Cable 11.7 Cable 11.0
Service 7.0 Service 8.6
Energy 5.8 Technology 8.0
Retail 4.5 General Industrial 5.4
--------------------------------------------------------------------------------
Total 51.6 Total 52.1
</TABLE>
* Weightings represent percentages of net assets as of the dates indicated. The
Fund's portfolio is actively managed and its composition will vary over time.
10
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW
DURATION U.S. GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT
GRADE INCOME FUND, PAINEWEBBER HIGH 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 U.S. Government Income Fund, PaineWebber Low Duration U.S.
Government Income Fund, PaineWebber Investment Grade Income Fund and PaineWebber
High Income Fund, or another fund in the PaineWebber Family of Funds(1), please
contact your Financial Advisor.
<TABLE>
<S><C>
Sincerely,
/s/ Margo Alexander /s/ Brian M. Storms /s/ Dennis L. McCauley
MARGO ALEXANDER BRIAN M. STORMS DENNIS L. McCAULEY
Chairman and President and Chief Investment Officer -
Chief Executive Officer Chief Operating Officer Fixed Income
Mitchell Hutchins Asset Mitchell Hutchins Asset Mitchell Hutchins Asset
Management Inc. Management Inc. Management Inc.
Portfolio Manager, PaineWebber
U.S. Government Income Fund
/s/ Scott Mather /s/ Nirmal Singh /s/ Julieanna M. Berry
SCOTT MATHER NIRMAL SINGH JULIEANNA M. BERRY
Pacific Investment Management Portfolio Manager Portfolio Manager
Company PaineWebber U.S. Government PaineWebber Investment Grade
Portfolio Manager, PaineWebber Income Fund Income Fund
Low Duration U.S. Government
Income Fund
/s/ James F. Keegan
JAMES F. KEEGAN
Portfolio Manager
PaineWebber High Income Fund
</TABLE>
This letter is intended to assist shareholders in understanding how the
funds performed during the six-month period ended May 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.
(1) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses,
and should be read carefully before investing.
11
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
------------------------------------------- -------------------------------------------
12 MONTHS 6 MONTHS
05/31/00 11/30/99 05/31/99 ENDED 05/31/00 ENDED 05/31/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $8.34 $8.51 $8.79 0.70% 1.09%
---------------------------------------------------------------------------------------------------------------------------
Class B Shares 8.34 8.51 8.79 (0.10) 0.68
---------------------------------------------------------------------------------------------------------------------------
Class C Shares 8.33 8.50 8.78 0.18 0.83
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID(2) TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.78 -- $0.3515 5.95%
---------------------------------------------------------------------------------------------------------------------------
1985 9.78 10.32 -- 1.2600 19.79
---------------------------------------------------------------------------------------------------------------------------
1986 10.32 10.21 $0.0053 1.1924 11.18
---------------------------------------------------------------------------------------------------------------------------
1987 10.21 9.34 0.0027 0.9160 0.59
---------------------------------------------------------------------------------------------------------------------------
1988 9.34 9.18 -- 0.8718 7.83
---------------------------------------------------------------------------------------------------------------------------
1989 9.18 9.49 -- 0.7994 12.58
---------------------------------------------------------------------------------------------------------------------------
1990 9.49 9.57 -- 0.7883 9.67
---------------------------------------------------------------------------------------------------------------------------
1991 9.57 10.18 -- 0.7683 14.89
---------------------------------------------------------------------------------------------------------------------------
1992 10.18 10.05 -- 0.7372 6.37
---------------------------------------------------------------------------------------------------------------------------
1993 10.05 10.03 -- 0.6590 6.48
---------------------------------------------------------------------------------------------------------------------------
1994 10.03 8.40 -- 0.6014 (10.51)
---------------------------------------------------------------------------------------------------------------------------
1995 8.40 9.21 -- 0.5807 17.04
---------------------------------------------------------------------------------------------------------------------------
1996 9.21 8.74 -- 0.5454 0.98
---------------------------------------------------------------------------------------------------------------------------
1997 8.74 9.00 -- 0.5355 9.44
---------------------------------------------------------------------------------------------------------------------------
1998 9.00 9.18 -- 0.5128 7.91
---------------------------------------------------------------------------------------------------------------------------
1999 9.18 8.42 -- 0.4966 (2.91)
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 8.42 8.34 -- 0.2083 1.53
---------------------------------------------------------------------------------------------------------------------------
Total: $0.0080 $11.8246
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 202.71%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 9.59 $10.19 -- $0.3535 10.09%
---------------------------------------------------------------------------------------------------------------------------
1992 10.19 10.05 -- 0.6599 5.31
---------------------------------------------------------------------------------------------------------------------------
1993 10.05 10.04 -- 0.5821 5.78
---------------------------------------------------------------------------------------------------------------------------
1994 10.04 8.40 -- 0.5317 (11.28)
---------------------------------------------------------------------------------------------------------------------------
1995 8.40 9.21 -- 0.5119 16.14
---------------------------------------------------------------------------------------------------------------------------
1996 9.21 8.74 -- 0.4789 0.22
---------------------------------------------------------------------------------------------------------------------------
1997 8.74 9.00 -- 0.4687 8.61
---------------------------------------------------------------------------------------------------------------------------
1998 9.00 9.18 -- 0.4379 7.03
---------------------------------------------------------------------------------------------------------------------------
1999 9.18 8.42 -- 0.4263 (3.69)
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 8.42 8.34 -- 0.1812 1.21
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $4.6321
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 46.83%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included. Total
investment return for periods less than one year has not been annualized.
(2) Certain distributions may contain short-term capital gains.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
12
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $10.13 $10.05 -- $0.3281 2.16%
---------------------------------------------------------------------------------------------------------------------------
1993 10.05 10.02 -- 0.6089 5.85
---------------------------------------------------------------------------------------------------------------------------
1994 10.02 8.39 -- 0.5557 (10.97)
---------------------------------------------------------------------------------------------------------------------------
1995 8.39 9.20 -- 0.5345 16.46
---------------------------------------------------------------------------------------------------------------------------
1996 9.20 8.73 -- 0.5008 0.47
---------------------------------------------------------------------------------------------------------------------------
1997 8.73 8.99 -- 0.4910 8.90
---------------------------------------------------------------------------------------------------------------------------
1998 8.99 9.17 -- 0.4660 7.36
---------------------------------------------------------------------------------------------------------------------------
1999 9.17 8.41 -- 0.4513 (3.42)
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 8.41 8.33 -- 0.1909 1.32
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $4.1272
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 28.88%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN(1)
<TABLE>
<CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
----------------------------------- -----------------------------------
CLASS CLASS
----------------------------------- -----------------------------------
A* B** C*** A* B** C***
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 06/30/00 3.57% 2.73% 3.02% (0.56)% (2.15)% 2.29%
---------------------------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/00 4.94 4.11 4.40 4.09 3.79 4.40
---------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 06/30/00 5.71 N/A N/A 5.28 N/A N/A
---------------------------------------------------------------------------------------------------------------------------
Commencement of Operations Through 06/30/00+ 7.37 4.58 3.46 7.09 4.58 3.46
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
would be lower if sales charges were included. Total Investment return for
periods less than one year has not been annualized.
* Maximum sales charge for Class A shares is 4% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and July
2, 1992 for Class A, Class B and Class C shares, respectively.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the six months ended May
31, 2000 and since inception, September 11, 1991 through May 31, 2000, Class Y
shares have a total return of 1.24% and 50.76%, respectively. For the twelve
months ended June 30, 2000, the five years ended June 30, 2000 and for the
period since inception through June 30, 2000, Class Y shares have an average
annual total return of 3.89%, 5.25% and 5.00%, 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 LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
------------------------------------------- -------------------------------------------
12 MONTHS 6 MONTHS
05/31/00 11/30/99 05/31/99 ENDED 05/31/00 ENDED 05/31/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $2.27 $2.31 $2.34 2.25% 1.04%
---------------------------------------------------------------------------------------------------------------------------
Class B Shares 2.27 2.30 2.34 1.37 1.03
---------------------------------------------------------------------------------------------------------------------------
Class C Shares 2.27 2.30 2.34 1.57 1.14
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $2.50 $2.48 -- $0.0812 2.48%
---------------------------------------------------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1217 (4.39)
---------------------------------------------------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1357 10.75
---------------------------------------------------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1360 5.57
---------------------------------------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1307 7.05
---------------------------------------------------------------------------------------------------------------------------
1998 2.37 2.39 -- 0.1272 6.36
---------------------------------------------------------------------------------------------------------------------------
1999 2.39 2.30 -- 0.1173 1.19
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 2.30 2.27 -- 0.0516 0.94
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $0.9014
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 33.22%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $2.50 $2.48 -- $0.0687 1.97%
---------------------------------------------------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1034 (5.14)
---------------------------------------------------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1157 9.79
---------------------------------------------------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1171 4.72
---------------------------------------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1115 6.19
---------------------------------------------------------------------------------------------------------------------------
1998 2.37 2.38 -- 0.1077 5.06
---------------------------------------------------------------------------------------------------------------------------
1999 2.38 2.29 -- 0.0978 0.38
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 2.29 2.27 -- 0.0433 1.02
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $0.7652
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 26.84%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends at net asset value on the
payable dates and do not include sales charges; results for each class
would be lower if sales charges were included. Total investment return for
periods 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.
14
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $2.50 $2.48 -- $0.0730 2.14%
---------------------------------------------------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1094 (4.89)
---------------------------------------------------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1217 10.09
---------------------------------------------------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1221 4.94
---------------------------------------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1167 6.43
---------------------------------------------------------------------------------------------------------------------------
1998 2.37 2.38 -- 0.1124 5.27
---------------------------------------------------------------------------------------------------------------------------
1999 2.38 2.29 -- 0.1022 0.52
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 2.29 2.27 -- 0.0452 1.10
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $0.8027
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 27.78%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN(1)
<TABLE>
<CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
----------------------------------- -----------------------------------
CLASS CLASS
----------------------------------- -----------------------------------
A* B** C*** A* B** C***
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 06/30/00 3.78% 2.87% 3.08% 0.76% (0.08)% 2.34%
---------------------------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/00 5.52 4.55 4.77 4.89 4.55 4.77
---------------------------------------------------------------------------------------------------------------------------
Commencement of Operations Through 06/30/00+ 4.30 3.59 3.62 3.84 3.59 3.62
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends at net asset value on the
payable dates and do not include sales charges; results would be lower if
sales charges were included. Total investment return for periods less than
one year has not been annualized.
* Maximum sales charge for Class A shares is 3% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 3% and is
reduced to 0% after 4 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations is May 3, 1993 for Class A, Class B and Class C
shares.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the six months ended May
31, 2000 and since inception, October 20, 1995 through May 31, 2000, Class Y
shares have a total return of 2.02% and 26.97%, respectively. For the twelve
months ended June 30, 2000 and for the period since inception through June 30,
2000, Class Y shares have an average annual total return of 3.99% and 5.45%,
respectively. Class Y shares do not have initial or contingent deferred sales
charges or ongoing distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
15
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
------------------------------------------- -------------------------------------------
12 MONTHS 6 MONTHS
05/31/00 11/30/99 05/31/99 ENDED 05/31/00 ENDED 05/31/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $9.46 $9.95 $10.28 (1.34)% (1.48)%
---------------------------------------------------------------------------------------------------------------------------
Class B Shares 9.46 9.94 10.28 (2.10) (1.77)
---------------------------------------------------------------------------------------------------------------------------
Class C Shares 9.46 9.94 10.28 (1.83) (1.63)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.77 -- $0.3549 5.88%
---------------------------------------------------------------------------------------------------------------------------
1985 9.77 10.52 -- 1.3080 22.76
---------------------------------------------------------------------------------------------------------------------------
1986 10.52 10.75 $0.0125 1.2060 14.47
---------------------------------------------------------------------------------------------------------------------------
1987 10.75 9.55 0.0279 0.9846 (1.51)
---------------------------------------------------------------------------------------------------------------------------
1988 9.55 9.51 -- 0.8603 8.88
---------------------------------------------------------------------------------------------------------------------------
1989 9.51 9.77 -- 0.8363 11.98
---------------------------------------------------------------------------------------------------------------------------
1990 9.77 9.54 -- 0.8284 6.47
---------------------------------------------------------------------------------------------------------------------------
1991 9.54 10.42 -- 0.8180 18.56
---------------------------------------------------------------------------------------------------------------------------
1992 10.42 10.50 -- 0.8081 8.87
---------------------------------------------------------------------------------------------------------------------------
1993 10.50 11.08 -- 0.7920 13.35
---------------------------------------------------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.7659 (5.59)
---------------------------------------------------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.7525 19.61
---------------------------------------------------------------------------------------------------------------------------
1996 10.79 10.46 -- 0.7287 3.98
---------------------------------------------------------------------------------------------------------------------------
1997 10.46 10.92 -- 0.7403 11.93
---------------------------------------------------------------------------------------------------------------------------
1998 10.92 10.72 -- 0.7104 4.77
---------------------------------------------------------------------------------------------------------------------------
1999 10.72 9.87 -- 0.6734 (1.66)
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 9.87 9.46 -- 0.2749 (1.41)
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0404 $13.4427
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 271.56%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $9.79 $10.41 -- $0.3795 10.39%
---------------------------------------------------------------------------------------------------------------------------
1992 10.41 10.49 -- 0.7623 8.05
---------------------------------------------------------------------------------------------------------------------------
1993 10.49 11.08 -- 0.7101 12.63
---------------------------------------------------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.6894 (6.30)
---------------------------------------------------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.6742 18.74
---------------------------------------------------------------------------------------------------------------------------
1996 10.79 10.45 -- 0.6510 3.12
---------------------------------------------------------------------------------------------------------------------------
1997 10.45 10.92 -- 0.6602 11.20
---------------------------------------------------------------------------------------------------------------------------
1998 10.92 10.71 -- 0.6280 3.88
---------------------------------------------------------------------------------------------------------------------------
1999 10.71 9.86 -- 0.5951 (2.42)
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 9.86 9.46 -- 0.2448 (1.61)
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $5.9946
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 74.50%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included. Total
investment return for periods 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.
16
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $10.48 $10.50 -- $0.3377 3.44%
---------------------------------------------------------------------------------------------------------------------------
1993 10.50 11.08 -- 0.7383 12.80
---------------------------------------------------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.7022 (6.07)
---------------------------------------------------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.6999 19.03
---------------------------------------------------------------------------------------------------------------------------
1996 10.79 10.46 -- 0.6764 3.46
---------------------------------------------------------------------------------------------------------------------------
1997 10.46 10.92 -- 0.6872 11.37
---------------------------------------------------------------------------------------------------------------------------
1998 10.92 10.72 -- 0.6568 4.25
---------------------------------------------------------------------------------------------------------------------------
1999 10.72 9.87 -- 0.6230 (2.14)
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 9.87 9.46 -- 0.2555 (1.60)
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $5.3770
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 51.03%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN(1)
<TABLE>
<CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
----------------------------------- -----------------------------------
CLASS CLASS
----------------------------------- -----------------------------------
A* B** C*** A* B** C***
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 06/30/00 1.68% 0.88% 1.17% (2.35)% (3.85)% 0.46%
---------------------------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/00 5.41 4.62 4.89 4.57 4.31 4.89
---------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 06/30/00 7.61 N/A N/A 7.17 N/A N/A
---------------------------------------------------------------------------------------------------------------------------
Commencement of Operations Through 06/30/00+ 8.81 6.67 5.61 8.53 6.67 5.61
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
would be lower if sales charges were included. Total investment return for
periods less than one year has not been annualized.
* Maximum sales charge for Class A shares is 4% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and
July 2, 1992 for Class A, Class B and Class C shares, respectively.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the six months ended May
31, 2000 and since inception, February 20, 1998 through May 31, 2000, Class Y
shares have a total return of (1.46)% and 0.54%, respectively. For the twelve
months ended June 30, 2000 and for the period since inception through June 30,
2000, Class Y shares have an average annual total return of 1.85% and 1.34%,
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.
17
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
------------------------------------------- -------------------------------------------
12 MONTHS 6 MONTHS
05/31/00 11/30/99 05/31/99 ENDED 05/31/00 ENDED 05/31/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $4.97 $6.12 $6.56 (15.24)% (14.05)%
---------------------------------------------------------------------------------------------------------------------------
Class B Shares 4.96 6.11 6.56 (16.08) (14.43)
---------------------------------------------------------------------------------------------------------------------------
Class C Shares 4.97 6.12 6.57 (15.81) (14.27)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID(2) TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.80 $0.0100 $0.3717 6.46%
---------------------------------------------------------------------------------------------------------------------------
1985 9.80 10.38 -- 1.4080 21.67
---------------------------------------------------------------------------------------------------------------------------
1986 10.38 10.36 0.0250 1.4160 14.27
---------------------------------------------------------------------------------------------------------------------------
1987 10.36 8.88 0.0475 1.3010 (1.98)
---------------------------------------------------------------------------------------------------------------------------
1988 8.88 8.44 -- 1.2317 9.13
---------------------------------------------------------------------------------------------------------------------------
1989 8.44 7.26 -- 1.0687 (1.83)
---------------------------------------------------------------------------------------------------------------------------
1990 7.26 5.70 -- 0.9744 (8.53)
---------------------------------------------------------------------------------------------------------------------------
1991 5.70 7.23 -- 1.0159 47.02
---------------------------------------------------------------------------------------------------------------------------
1992 7.23 7.93 -- 0.9698 24.06
---------------------------------------------------------------------------------------------------------------------------
1993 7.93 8.77 -- 0.8894 22.74
---------------------------------------------------------------------------------------------------------------------------
1994 8.77 6.96 -- 0.8576 (11.69)
---------------------------------------------------------------------------------------------------------------------------
1995 6.96 6.92 -- 0.7879 10.96
---------------------------------------------------------------------------------------------------------------------------
1996 6.92 7.39 -- 0.7001 17.73
---------------------------------------------------------------------------------------------------------------------------
1997 7.39 7.64 -- 0.6727 12.98
---------------------------------------------------------------------------------------------------------------------------
1998 7.64 6.54 -- 0.6627 (6.22)
---------------------------------------------------------------------------------------------------------------------------
1999 6.54 6.37 -- 0.6975 8.55
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 6.37 4.97 -- 0.2653 (18.37)
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0825 $15.2904
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 244.78%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $6.85 $7.22 -- $0.4960 12.92%
---------------------------------------------------------------------------------------------------------------------------
1992 7.22 7.92 -- 0.9037 23.07
---------------------------------------------------------------------------------------------------------------------------
1993 7.92 8.77 -- 0.8237 21.97
---------------------------------------------------------------------------------------------------------------------------
1994 8.77 6.96 -- 0.7969 (12.34)
---------------------------------------------------------------------------------------------------------------------------
1995 6.96 6.92 -- 0.7344 10.15
---------------------------------------------------------------------------------------------------------------------------
1996 6.92 7.38 -- 0.6466 16.70
---------------------------------------------------------------------------------------------------------------------------
1997 7.38 7.64 -- 0.6163 12.31
---------------------------------------------------------------------------------------------------------------------------
1998 7.64 6.53 -- 0.6071 (7.06)
---------------------------------------------------------------------------------------------------------------------------
1999 6.53 6.36 -- 0.6473 7.71
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 6.36 4.96 -- 0.2463 (18.67)
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $6.5183
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 78.63%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included. Total
investment return for periods less than one year has not been annualized.
(2) Certain distributions may contain short-term capital gains.
The data above represents past performance of the Fund's shares, which is
no guarantee of future results. The principal value of an investment in the
Fund will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
18
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $7.80 $7.94 -- $0.4041 7.07%
---------------------------------------------------------------------------------------------------------------------------
1993 7.94 8.79 -- 0.8456 22.22
---------------------------------------------------------------------------------------------------------------------------
1994 8.79 6.97 -- 0.8185 (12.20)
---------------------------------------------------------------------------------------------------------------------------
1995 6.97 6.93 -- 0.7528 10.40
---------------------------------------------------------------------------------------------------------------------------
1996 6.93 7.40 -- 0.6653 17.13
---------------------------------------------------------------------------------------------------------------------------
1997 7.40 7.65 -- 0.6360 12.42
---------------------------------------------------------------------------------------------------------------------------
1998 7.65 6.55 -- 0.6269 (6.66)
---------------------------------------------------------------------------------------------------------------------------
1999 6.55 6.38 -- 0.6658 8.01
---------------------------------------------------------------------------------------------------------------------------
01/01/00-05/31/00 6.38 4.97 -- 0.2535 (18.67)
---------------------------------------------------------------------------------------------------------------------------
Totals: $0.0000 $5.6685
---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/00: 36.97%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN(1)
<TABLE>
<CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
----------------------------------- -----------------------------------
CLASS CLASS
----------------------------------- -----------------------------------
A* B** C*** A* B** C***
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 06/30/00 (14.88)% (15.57)% (15.29)% (18.25)% (19.36)% (15.86)%
---------------------------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/00 2.79 2.05 2.29 1.95 1.79 2.29
---------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 06/30/00 8.46 N/A N/A 8.02 N/A N/A
---------------------------------------------------------------------------------------------------------------------------
Commencement of Operations Through 06/30/00+ 8.21 6.80 4.20 7.93 6.80 4.20
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
would be lower if sales charges were included. Total return for periods
less than one year has not been annualized.
* Maximum sales charge for Class A shares is 4% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are August 31, 1984, July 1, 1991 and July
2, 1992 for Class A, Class B and Class C shares, respectively.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the six months ended May
31, 2000 and since inception, February 20, 1998 through May 31, 2000, Class Y
shares have a total return of (13.97)% and (19.12)%, respectively. For the
twelve months ended June 30, 2000 and for the period since inception through
June 30, 2000, Class Y shares have an average annual total return of (14.66)%
and (8.01)%, 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.
19
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
----------- ------------------ ------------------ ---------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--47.98%
$ 18,915 FHLMC Medium Term Notes ................................ 03/18/08 6.220% $ 17,271,268
31,800 FNMA(1) ................................................ 01/15/09 5.250 27,230,658
12,000 FNMA Medium Term Notes ................................. 04/29/09 6.500 10,992,228
30,230 United States Treasury Bonds(1) ........................ 08/15/13 to 08/15/21 8.125 to 12.000 38,884,747
15,400 United States Treasury Bonds(1)* ....................... 11/15/14 11.750 20,891,070
-------------
Total U. S. Government and Agency Obligations (cost--$126,567,116) 115,269,971
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--3.84%
4,434 GNMA ................................................... 04/15/19 8.250 4,481,501
3,767 GNMA ................................................... 08/15/09 9.000 3,878,339
774 GNMA ................................................... 06/15/11 to 02/15/16 11.000 845,011
15 GNMA 30 Year TBA ....................................... TBA 11.000 15,848
-------------
Total Government National Mortgage Association
Certificates (cost--$9,580,474) .................................. 9,220,699
-------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--20.37%
9,978 FHLMC .................................................. 06/01/29 to 04/01/30 6.500 9,249,360
6,489 FHLMC .................................................. 08/01/25 to 03/01/30 7.000 6,167,440
6,072 FHLMC .................................................. 04/01/25 9.000 6,293,016
620 FHLMC .................................................. 06/01/04 to 12/01/05 10.500 651,778
2,841 FHLMC* ................................................. 01/01/16 11.000 3,037,545
2,184 FHLMC CMT ARM* ......................................... 10/01/23 7.244 2,240,493
23,000 FHLMC Gold 30 Year TBA ................................. TBA 6.500 21,296,574
-------------
Total Federal Home Loan Mortgage Corporation Certificates
(cost--$49,206,855) .............................................. 48,936,206
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--26.31%
11,402 FNMA ................................................... 08/01/28 to 04/01/29 6.000 10,249,428
9,384 FNMA ................................................... 09/01/12 to 11/01/13 6.500 8,923,250
2,055 FNMA ................................................... 05/01/24 to 07/01/25 7.500 1,996,747
4,965 FNMA ................................................... 09/01/25 8.500 5,034,792
1,385 FNMA ................................................... 05/01/09 9.000 1,418,105
38,500 FNMA 30 Year TBA ....................................... TBA 6.500 35,600,488
-------------
Total Federal National Mortgage Association Certificates
(cost--$64,516,362) .............................................. 63,222,810
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS--14.51%
1,194 CS First Boston Mortgage Securities Corp., Series
1997-2, Class A + ...................................... 06/25/20 7.500 1,166,440
5,000 CS First Boston Mortgage Securities Corp., Series
1998-C2, Class A2 ...................................... 11/15/08 6.300 4,526,650
3,632 DLJ Commercial Mortgage Corp. Series 1998-CF2,
Class A1A .............................................. 11/12/31 5.880 3,368,529
1,176 FDIC REMIC Trust, Series 1996-C1, Class 1A ............. 05/25/26 6.750 1,147,292
3,229 FNMA REMIC Series 1987-2, Class Z ...................... 11/25/17 11.000 3,449,823
64 FNMA REMIC Series 1996-M6, Class E ..................... 09/17/19 7.750 64,085
2,674 FNMA REMIC Series 1998-7, Class Z ...................... 04/25/18 9.250 2,774,525
6,414 LB Commercial Conduit Mortgage Trust, Series 1998-C4,
Class A1A .............................................. 08/15/06 5.870 6,032,586
3,582 Morgan Stanley Capital I, Series 1997-ALIC, Class A1B .. 11/15/02 6.440 3,510,822
4,342 Morgan Stanley Capital I, Series 1997-WF1, Class A1 + .. 10/15/06 6.830 4,244,051
4,935 Mortgage Capital Funding, Inc., Series 1998-MCI,
Class A2 ............................................... 01/18/08 6.663 4,590,438
-------------
Total Collateralized Mortgage Obligations (cost--$36,962,383) .... 34,875,241
-------------
</TABLE>
20
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
----------- ------------------ ------------------ ---------
<S> <C> <C> <C>
SHORT-TERM U.S. AGENCY OBLIGATIONS--9.14%
$ 22,000 Federal Home Loan Mortgage Corp. Discount Notes
(cost--$21,969,444) .................................... 06/09/00 6.250%@ $ 21,969,444
-------------
REPURCHASE AGREEMENT--0.67%
1,621 Repurchase Agreement dated 05/31/00 with Dresdner
Bank, AG collateralized by $1,701,000 U.S.
Treasury Bonds, 6.125% due 11/15/27
(value--$1,654,223); proceeds: $1,621,286
(cost--$1,621,000) ................................... 06/01/00 6.350 1,621,000
-------------
Total Investments (cost--$310,423,634)--122.82% .................. 295,115,371
Liabilities in excess of other assets--(22.82)% .................. (54,833,669)
-------------
Net Assets--100.00% .............................................. $240,281,702
-------------
-------------
</TABLE>
------------------
@ Yield to maturity for discounted securities.
+ Security exempt from registration under 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
ARM Adjustable Rate Mortgage Security--The interest rates shown are the
current rates at May 31, 2000.
CMT Constant Maturity Treasury.
FDIC Federal Deposit Insurance Corporation.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned) Securities are purchased on a forward commitment with an
approximate principal amount (generally +/- 1.0%) and generally stated
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
* Entire or partial amount pledged as collateral for futures transactions.
(1) Security, or portion thereof, was on loan at May 31, 2000.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF IN EXPIRATION APPRECIATION
CONTRACTS EXCHANGE FOR DATE (DEPRECIATION)
------------- ------------ ---------- --------------
<S> <C> <C> <C>
1,037 Contracts to Deliver--5 year U.S. Treasury Notes ................ $101,204,719 Sept 00 $(701,125)
153 Contracts to Deliver--10 year U.S. Treasury Notes ............... 14,807,531 Sept 00 (210,221)
293 Contracts to Receive--30 year U.S. Treasury Bonds ............... 28,018,125 Sept 00 620,391
-------------
$(290,955)
-------------
-------------
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
----------- ------------------ ------------------ ---------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--18.97%
$ 28,967 U.S. Treasury Inflation Index Notes .................... 07/15/02 3.625% $ 28,713,190
155 U.S. Treasury Notes .................................... 08/31/00 5.125 154,661
-------------
Total U. S. Government Obligations (cost--$28,824,760) ........... 28,867,851
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--92.11%
20,863 GNMA ................................................... 06/20/22 to 02/20/28 6.375 20,702,752
6,729 GNMA ................................................... 07/20/17 to 08/20/27 6.750 6,690,105
1,146 GNMA ................................................... 11/20/22 7.125 1,145,538
78 GNMA ................................................... 02/15/23 8.000 77,909
3,945 GNMA ................................................... 01/15/16 to 09/15/20 10.500 4,262,041
2,321 GNMA ................................................... 03/15/10 to 05/15/19 11.500 2,558,148
516 GNMA II ................................................ 01/20/28 7.375 513,289
20,000 GNMA II ................................................ 05/20/30 7.000 19,813,210
6,038 GNMA II ARM ............................................ 04/20/26 to 01/20/18 6.375 5,970,979
25,000 GNMA II 30 Yr TBA ...................................... TBA 8.000 25,039,050
5,000 GNMA II 30 Yr TBA ...................................... TBA 8.500 5,048,437
30,000 GNMA II 30 Yr TBA ARM .................................. TBA 6.500 29,493,750
19,000 GNMA II 30 Yr TBA ARM .................................. TBA 7.000 18,863,437
-------------
Total Government National Mortgage Association Certificates
(cost--$140,958,766) ............................................. 140,178,645
-------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--14.56%
56 FHLMC .................................................. 01/01/23 8.000 55,859
1,640 FHLMC .................................................. 05/01/16 8.500 1,660,392
186 FHLMC .................................................. 07/01/09 to 02/01/10 9.000 190,414
533 FHLMC .................................................. 11/01/16 9.750 557,493
541 FHLMC .................................................. 10/01/20 to 11/01/20 10.500 583,207
1,683 FHLMC .................................................. 05/01/11 to 12/01/20 11.000 1,823,655
1,132 FHLMC .................................................. 06/01/04 to 07/01/19 11.500 1,235,886
4,780 FHLMC ARM .............................................. 01/01/30 5.930 4,793,851
3,000 FHLMC ARM .............................................. 12/01/29 6.468 3,014,851
4,783 FHLMC ARM .............................................. 11/01/27 6.706 4,791,693
2,962 FHLMC ARM .............................................. 07/15/28 6.870 2,887,333
566 FHLMC ARM .............................................. 10/01/29 6.907 557,912
-------------
Total Federal Home Loan Mortgage Corporation Certificates
(cost--$22,245,999) .............................................. 22,152,546
-------------
FEDERAL HOUSING ADMINISTRATION CERTIFICATES--7.32%
11,424 FHA (cost--$11,517,649) ................................ 02/01/20 to 03/01/41 8.375 to 8.800 11,145,936
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--20.96%
2,998 FNMA ................................................... 04/01/07 7.250 2,997,975
1,094 FNMA ................................................... 02/01/05 9.000 1,126,289
2,179 FNMA ................................................... 04/01/10 to 12/01/15 9.250 2,248,343
284 FNMA ................................................... 03/01/06 to 12/01/09 9.500 294,753
1,719 FNMA ................................................... 08/01/19 10.000 1,787,169
</TABLE>
22
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
----------- ------------------ ------------------ ---------
<S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--(CONCLUDED)
$ 453 FNMA ................................................... 07/01/10 to 06/01/19 10.250% $ 479,834
949 FNMA ................................................... 02/01/12 to 04/01/22 10.500 1,024,023
1,657 FNMA ................................................... 07/01/13 to 05/01/20 11.000 1,806,018
2,000 FNMA ARM ............................................... 10/23/00 6.030 1,996,104
4,707 FNMA ARM ............................................... 02/01/30 6.062 4,628,439
3,003 FNMA ARM ............................................... 02/01/29 6.299 3,025,982
2,120 FNMA ARM ............................................... 02/01/26 6.406 2,167,350
1,890 FNMA ARM ............................................... 09/01/15 6.531 1,897,141
3,997 FNMA ARM ............................................... 03/01/07 6.820 4,013,399
2,351 FNMA ARM ............................................... 09/01/26 7.027 2,409,048
-------------
Total Federal National Mortgage Association Certificates
(cost--$32,000,188) .............................................. 31,901,867
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS--7.21%
510 Cityscape Home Equity Loan Trust, Series 1997-B,
Class A5 ................................................ 09/25/19 7.480 506,175
987 FHLMC REMIC, Series 1552, Class EA ...................... 01/15/17 5.850 983,943
645 Money Store Home Equity Trust, Series 1997-D,
Class AF3 ............................................... 11/15/21 6.345 637,035
2,672 Prudential Securities Trust, Series 18, Class E ......... 09/25/20 7.000 2,619,330
4,609 Residential Accredit Loans Inc., Series 2000-QS3C,
Class A1 ................................................ 03/25/30 7.750 4,570,391
1,624 Ryland Mortgage Acceptance Corp. REMIC, Series 76,
Class B ................................................. 08/01/18 9.000 1,649,958
-------------
Total Collateralized Mortgage Obligations (cost--$11,232,711) ..... 10,966,832
-------------
ASSET BACKED SECURITY--1.48%
2,286 3EWCourt Receivables Asset Trust, Series 1997-1,
Class A4 (cost--$2,086,874) .............................. 05/20/05 6.193 2,261,354
-------------
COMMERCIAL PAPER--0.07%
100 Associates Corporation NA (cost--$99,277) ............... 07/12/00 6.650@ 99,236
SHORT-TERM U.S. AGENCY OBLIGATIONS--0.92%
900 Federal Home Loan Mortgage Discount Notes ............... 06/15/00 to 06/29/00 5.980 to 6.265@ 896,235
500 Federal National Mortgage Association Discount Notes .... 06/01/00 6.320@ 500,000
-------------
Total Short-Term U.S. Agency Obligations (cost--$1,396,498) ....... 1,396,235
-------------
</TABLE>
23
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATE INTEREST RATE VALUE
----------- ------------------ ------------------ ---------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--6.34%
$ 9,646 Repurchase Agreement dated 05/31/00 with State
Street Bank & Trust Company, collateralized
by $9,780,000 U.S. Treasury Notes, 5.375% due
02/15/01 (value--$9,841,125); proceeds:
$9,647,340 (cost--$9,646,000) ........................ 06/01/00 5.000% $ 9,646,000
-------------
Total Investments (cost--$260,008,722)--169.94% .................. 258,616,502
Liabilities in excess of other assets--(69.94)% .................. (106,431,238)
-------------
Net Assets--100.00% .............................................. $ 152,185,264
-------------
-------------
</TABLE>
-------------------
@ Yield to maturity for discounted securities.
ARM Adjustable Rate Mortgage Security, the interest rate shown is the current
rate at May 31, 2000.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned) Securities are purchased on a forward commitment with
an approximate principal amount (generally +/- 1.0%) and generally stated
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
WRITTEN OPTIONS
<TABLE>
<CAPTION>
NUMBER EXPIRATION EXERCISE
OF OPTIONS UNDERLYING CONTRACT DATE PRICE VALUE
---------- --------------------------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Call (premium received--$113,281) ........... 250 Government National Mortgage Assn. June 00 $99.22 $258,250
</TABLE>
24 See accompanying notes to financial statements
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------- -------------- -----
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--11.03%
$ 9,100 U.S. Treasury Bonds(1) ............................... 08/15/13 to 02/15/21 7.875 to 12.000% $ 11,113,517
14,800 U.S. Treasury Notes(1) ............................... 11/30/01 to 07/15/06 5.250 to 7.000 14,811,755
-------------
Total U.S. Government Obligations (cost--$26,930,924) .......... 25,925,272
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--1.50%
3,498 GNMA (cost--$3,692,279) .............................. 06/15/17 to 11/15/17 8.000 3,530,086
-------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--2.18%
920 FHLMC ................................................ 03/15/09 5.750 815,276
4,535 FHLMC 30 Year TBA .................................... TBA 7.000 4,306,835
-------------
Total Federal Home Loan Mortgage Corporation Certificates
(cost--$5,092,404) .......................................... 5,122,111
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--8.52%
3,540 FNMA ................................................. 08/15/04 6.500 3,425,329
18,500 FNMA 30 Year TBA ..................................... TBA 6.000 16,597,978
-------------
Total Federal National Mortgage Association Certificates
(cost--$19,890,110) ......................................... 20,023,307
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS--1.93%
5,000 CS First Boston Mortgage Securities Corporation,
Series 1998-C2, Class A2 (cost--$5,065,341) ....... 11/15/08 6.300 4,526,650
-------------
CORPORATE BONDS--67.61%
AIRLINES--1.12%
2,500 Delta Air Lines Incorporated ......................... 12/15/22 10.375 2,629,192
-------------
AUTO PARTS--1.76%
4,500 Lear Corporation ..................................... 05/15/05 7.960 4,142,416
-------------
BANKING--6.69%
3,000 GS Escrow Corporation ................................ 08/01/05 7.125 2,616,681
3,000 MBNA Corporation ..................................... 12/01/26 8.278 2,320,836
7,000 Providian Capital l+ ................................. 02/01/27 9.525 5,830,279
5,000 Southtrust Bank Alabama .............................. 05/15/25 7.690 4,959,540
-------------
15,727,336
-------------
CABLE--3.63%
3,550 CSC Holdings Incorporated ............................ 07/15/09 to 07/15/18 7.625 to 8.125 3,185,576
5,000 TCI Communications Incorporated ...................... 03/31/27 9.650 5,352,230
-------------
8,537,806
-------------
25
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------- -------------- -----
<S> <C> <C> <C>
CORPORATE BONDS--(CONTINUED)
CHEMICALS--2.95%
$ 4,000 Equistar Chemicals ................................... 02/15/04 8.500% $ 3,884,732
1,145 Huntsman ICI Chemicals LLC ........................... 07/01/09 10.125 1,116,375
2,000 Lyondell Chemical Company ............................ 05/01/07 9.875 1,930,000
-------------
6,931,107
-------------
COMMUNICATIONS-FIXED--1.49%
3,500 Williams Communications Group ........................ 10/01/09 10.875 3,500,000
-------------
ENERGY--2.11%
950 Dynegy Holdings Incorporated ......................... 03/15/05 8.125 944,885
1,958 Occidental Petroleum Corporation ..................... 06/01/19 11.125 1,959,684
2,000 Pioneer Natural Resources Company .................... 04/01/10 9.625 2,047,500
-------------
4,952,069
-------------
ENVIRONMENTAL SERVICES--0.87%
2,600 Allied Waste Incorporated NA ......................... 08/01/09 10.000 2,054,000
-------------
FINANCIAL SERVICES--6.37%
2,355 CIT Finance .......................................... 03/15/03 7.375 2,316,404
1,830 FMR Corporation+ ..................................... 06/15/29 7.570 1,666,252
2,000 Household International Netherlands BV ............... 12/01/03 6.200 1,905,544
6,600 Lehman Brothers Holdings Incorporated ................ 04/01/04 to 01/15/05 6.625 to 7.750 6,356,012
3,750 Macsaver Financial Services Incorporated ............. 02/15/02 7.400 2,737,500
-------------
14,981,712
-------------
FOREST PRODUCTS--0.80%
2,000 Tembec Industries Incorporated ....................... 06/30/09 8.625 1,875,000
-------------
HEALTHCARE--2.93%
4,500 Columbia/HCA Healthcare Corporation .................. 03/30/04 to 02/10/10 7.150 to 8.700 4,196,248
3,000 Tenet Healthcare Corporation ......................... 12/01/08 8.125 2,692,500
-------------
6,888,748
-------------
HOTELS/GAMING--4.49%
3,000 HMH Properties Incorporated .......................... 12/01/08 8.450 2,655,000
3,000 Isle of Capri Casinos Incorporated ................... 04/15/09 8.750 2,677,500
5,500 MGM Grand Incorporated ............................... 02/01/05 to 06/01/07 6.950 to 9.750 5,225,304
-------------
10,557,804
-------------
INDUSTRIAL PRODUCTS & SERVICES--0.33%
1,000 Owens Corning ........................................ 08/01/18 7.500 770,350
-------------
INSURANCE--5.66%
7,000 Lumbermen's Mutual Casualty Company+ ................. 07/01/26 9.150 5,891,781
3,000 Markel Capital Trust ................................. 01/01/46 8.710 2,378,898
3,300 Principal Financial Group+ ........................... 08/15/09 8.200 3,246,870
2,000 Zurich Capital Trust+ ................................ 06/01/37 8.376 1,797,960
-------------
13,315,509
-------------
26
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------- -------------- -----
<S> <C> <C> <C>
CORPORATE BONDS--(CONCLUDED)
MEDIA--4.16%
$ 2,000 Liberty Media Corporation ............................ 07/15/09 7.875% $ 1,857,044
8,700 News America Holdings Incorporated ................... 10/15/12 to 10/17/96 7.900 to 10.125 7,916,614
-------------
9,773,658
-------------
REAL ESTATE--0.53%
1,245 EOP Operating LP(1) .................................. 03/15/06 8.375 1,238,880
-------------
RETAIL--5.35%
4,500 K-Mart Corporation ................................... 12/01/04 8.375 4,294,827
5,950 May Department Stores Company ........................ 06/15/21 9.875 6,305,572
2,000 Shopko Stores ........................................ 03/15/22 9.250 1,971,718
-------------
12,572,117
-------------
TELECOMMUNICATIONS--1.38%
2,000 US West Capital Funding Incorporated ................. 07/15/08 6.375 1,770,554
1,485 Worldcom Incorporated ................................ 05/15/06 8.000 1,485,719
-------------
3,256,273
-------------
TOBACCO--0.85%
2,365 Phillip Morris Companies Incorporated ................ 01/15/27 7.750 1,990,050
-------------
TRANSPORTATION SERVICES--0.24%
2,400 Laidlaw Incorporated ................................. 05/15/06 7.650 564,000
-------------
UTILITIES--2.29%
5,000 Commonwealth Edison Company .......................... 06/15/20 9.875 5,377,000
-------------
YANKEE--11.61%
2,318 Abbey National Capital ............................... 06/30/30* 8.963 2,162,251
4,000 Fuji JGB Investment LLC+ ............................. 06/30/08* 9.870 3,840,708
2,225 HSBC Capital Funding LLP ............................. 06/30/30* 10.176 2,239,692
3,500 Imperial Tobacco Overseas BV(1) ...................... 04/01/09 7.125 3,028,295
7,300 Loewen Group International Incorporated(2) ........... 10/15/03 to 06/01/08 7.600 to 8.250 2,722,000
1,565 Metronet Communications Corporation .................. 08/15/07 12.000 1,753,152
3,000 Petroleum Geo-Services ............................... 07/15/29 8.150 2,627,031
2,000 Rogers Cantel Incorporated ........................... 06/01/08 9.375 2,030,000
2,000 Royal Bank Scotland Group PLC ........................ 03/31/05* 8.817 2,025,090
4,000 Socgen Real Estate LLC+ .............................. 09/30/07* 7.640 3,557,240
1,285 Trinidad & Tobago Republic ........................... 10/01/09 9.875 1,297,850
-------------
27,283,309
-------------
Total Corporate Bonds (cost--$178,713,241) ..................... 158,918,336
-------------
27
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------------
<S> <C>
PREFERRED STOCK--2.92%
BANKING--1.47%
160,000 California Federal Preferred Capital Corporation ..... $ 3,450,000
-------------
TELEPHONE--1.45%
3,500 Centaur Funding+ ..................................... 3,411,408
-------------
Total Preferred Stock (cost--$7,500,000) ....................... 6,861,408
-------------
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES
----------- -------------- --------------
<S> <C> <C> <C>
SHORT-TERM U.S. AGENCY OBLIGATIONS--7.65%
$ 18,000 Federal Home Loan Bank Discount Notes
(cost--$17,974,800) 06/09/00 6.300%@ 17,974,800
-------------
REPURCHASE AGREEMENT--3.38%
7,958 Repurchase Agreement dated 05/31/00 with Societe Generale,
collatralized by $8,037,000 U.S. Treasury Notes, 6.375% due
08/15/02 (value--$8,117,370); proceeds: $7,959,408
(cost--$7,958,000) 06/01/00 6.370 7,958,000
-------------
Total Investments (cost--$272,817,099)--106.72% ............................... 250,839,970
Liabilities in excess of other assets--(6.72)% ................................ (15,800,961)
-------------
Net Assets--100.00% ........................................................... $235,039,009
=============
</TABLE>
----------
* Maturity date shown is the callable date for perpetual rewriting
securities.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold n transactions exempt from
registration, normally to qualified institutional buyers.
@ Yield to maturity for discounted securities.
TBA (To be Assigned) Securities are purchased on a forward commitment basis
with an appropriate principal amount (generally +/- 1.0%) and generally
stated maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(1) Security or a portion thereof, was on loan at May 31, 2000.
(2) Non interest paying security.
See accompanying notes to financial statements
28
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------- -------------- -----
<S> <C> <C> <C>
CORPORATE BONDS--84.59%
AUTOMOTIVE--2.24%
$ 3,500 J.L. French Automotive Castings ...................... 06/01/09 11.500% $ 3,255,000
3,000 Lear Corporation ..................................... 05/15/05 7.960 2,761,611
-------------
6,016,611
-------------
CABLE--11.11%
2,000 Charter Communications Holdings** .................... 04/01/09 10.000 1,830,000
10,900 Knology Holdings Incorporated ........................ 10/15/07 11.875+ 6,758,000
4,000 NTL Incorporated ..................................... 10/01/08 11.500 4,020,000
10,800 Park `N View Incorporated++ .......................... 05/15/08 13.000+ 3,132,000
6,750 RCN Corporation ...................................... 10/15/07 11.125+ 3,915,000
7,250 UIH Australia Pacific Incorporated ................... 05/15/06 14.000+ 6,235,000
8,375 United Pan Europe Communications ..................... 08/01/09 12.500+ 3,894,375
-------------
29,784,375
-------------
CHEMICALS--3.52%
2,000 Avecia Group PLC ..................................... 07/01/09 11.000 1,970,000
2,200 Huntsman ICI Chemicals LLC ........................... 07/01/09 10.125 2,145,000
5,500 Lyondell Chemical Company ............................ 05/01/07 to 05/01/09 9.875 to 10.875 5,307,500
-------------
9,422,500
-------------
COMMUNICATIONS-FIXED--21.23%
3,000 Alestra S.A. ......................................... 05/15/06 12.125 2,670,000
4,500 Allegiance Telecom Incorporated ...................... 05/15/08 12.875 4,860,000
3,020 Barak ITC ............................................ 11/15/07 12.500+ 1,510,000
3,925 Esprit Telecom Group PLC ............................. 06/15/08 10.875 3,061,500
2,500 Flag Telecom Holdings Limited** ...................... 03/30/10 11.625 2,300,000
2,000 Global Crossing Holdings Limited** ................... 11/15/09 9.500 1,880,000
5,000 Globenet Communications Group ........................ 07/15/07 13.000 4,987,500
2,000 Globix Corporation** ................................. 02/01/10 12.500 1,740,000
2,000 Hyperion Telecommunications Incorporated ............. 11/01/07 12.000 1,905,000
2,000 KMC Telecom Holdings Incorporated .................... 05/15/09 13.500 1,820,000
2,000 Level 3 Communications Incorporated** ................ 03/15/08 11.000 1,895,000
3,000 Metromedia Fiber Network Incorporated ................ 11/15/08 10.000 2,857,500
4,125 NEXTLINK Communications Incorporated ................. 06/01/09 10.750 3,960,000
3,000 NorthEast Optic Network Incorporated ................. 08/15/08 12.750 2,820,000
6,400 Pathnet Incorporated ................................. 04/15/08 12.250 3,776,000
3,500 Tele1 Europe BV ...................................... 05/15/09 13.000 3,430,000
2,500 Verio Incorporated ................................... 12/01/08 11.250 2,781,250
5,500 Viatel Incorporated .................................. 04/15/08 12.500+ 2,805,000
2,500 Williams Communications Group ........................ 10/01/09 10.875 2,500,000
3,750 World Access Incorporated ............................ 01/15/08 13.250 3,356,250
-------------
56,915,000
-------------
COMMUNICATIONS-MOBILE--0.59%
2,550 Nextel International Incorporated .................... 04/15/08 12.125+ 1,581,000
-------------
CONSUMER MANUFACTURING--1.75%
4,000 Decora Industries Incorporated ....................... 05/01/05 11.000 1,640,000
29
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------- -------------- -----
<S> <C> <C> <C>
CORPORATE BONDS--(CONTINUED)
CONSUMER MANUFACTURING--(CONCLUDED)
$ 4,000 Desa International Incorporated ...................... 12/15/07 9.875% $ 3,040,000
-------------
4,680,000
-------------
ENERGY--5.72%
2,000 Cheasapeake Energy ................................... 05/01/05 9.625 1,910,000
3,625 Key Energy Services Incorporated ..................... 01/15/09 14.000 3,915,000
3,000 Orion Refining Corporation**++ ....................... 11/15/04 10.000+ 1,500,130
1,500 Pioneer Natural Resources Company .................... 04/01/10 9.625 1,535,625
2,700 Pride International Incorporated ..................... 06/01/09 10.000 2,713,500
3,750 R & B Falcon Corporation ............................. 12/15/08 9.500 3,750,000
-------------
15,324,255
-------------
FINANCE--2.62%
4,939 Airplanes Pass-Through Trust ......................... 03/15/19 10.875 4,000,185
3,000 HSBC Capital Funding LP** ............................ 06/30/30 10.176 3,019,809
9,000 Superior National Insurance Group(b)++ ............... 12/01/17 10.750 0
-------------
7,019,994
-------------
FOOD & BEVERAGE--1.76%
8,875 Mrs. Field's Holdings Company Incorporated**#++ ...... 12/01/05 14.000+ 3,106,250
1,955 Packaged Ice Incorporated ............................ 02/01/05 9.750 1,622,650
-------------
4,728,900
-------------
GAMING--0.55%
1,500 MGM Grand Incorporated ............................... 06/01/07 9.750 1,485,000
-------------
GENERAL INDUSTRIAL--2.91%
2,250 Blount Incorporated .................................. 08/01/09 13.000 2,227,500
1,750 J.B. Poindexter & Company Incorporated ............... 05/15/04 12.500 1,610,000
5,000 Sabreliner Corporation** ............................. 06/15/08 11.000 3,975,000
-------------
7,812,500
-------------
HEALTHCARE--1.00%
3,000 Tenet Healthcare Corporation ......................... 12/01/08 8.125 2,692,500
-------------
HOTELS & LODGING--1.07%
3,150 Host Marriott L.P. ................................... 02/15/06 8.375 2,866,500
-------------
MEDIA--2.73%
10,334 Inter Act Systems Incorporated**++(b) ................ 08/01/03 14.000+ 2,376,705
8,750 Wam! Net Incorporated ................................ 03/01/05 13.250+ 4,943,750
-------------
7,320,455
-------------
METALS--2.30%
5,125 Metal Management Incorporated ........................ 05/15/08 10.000 3,587,500
2,750 National Steel Corporation ........................... 03/01/09 9.875 2,585,000
-------------
6,172,500
-------------
30
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------- -------------- -----
<S> <C> <C> <C>
CORPORATE BONDS--(CONCLUDED)
Paper & Packaging--1.92%
$ 2,750 Packaging Corporation of America ..................... 04/01/09 9.625% $ 2,688,125
2,625 Tembec Industry Incorporated ......................... 06/30/09 8.625 2,460,938
-------------
5,149,063
-------------
REAL ESTATE--1.11%
3,550 D.R. Horton Incorporated ............................. 02/01/09 8.000 2,982,000
-------------
RETAIL--3.40%
1,650 Advance Holding Corporation .......................... 04/15/09 12.875+ 627,000
2,300 Advance Stores Company Incorporated .................. 04/15/08 10.250 1,794,000
3,000 Ames Department Stores Incorporated .................. 04/15/06 10.000 2,370,000
5,000 Saks Incorporated .................................... 07/15/04 7.000 4,308,950
-------------
9,099,950
-------------
SERVICE--5.91%
5,000 Allied Waste North America Incorporated .............. 08/01/09 10.000 3,950,000
5,500 American Eco Corporation++(b) ........................ 05/15/08 9.625 990,000
3,750 Atlantic Express Transportation Corporation .......... 02/01/04 10.750 3,225,000
2,000 Budget Group Incorporated ............................ 04/01/06 9.125 1,400,000
2,250 Nationwide Credit Incorporated ....................... 01/15/08 10.250 1,530,000
5,000 Nuco2 Incorporated++ ................................. 10/31/04 12.000 4,500,000
4,250 Premier Graphics Incorporated(b) ..................... 12/01/05 11.500 255,000
-------------
15,850,000
-------------
SUPERMARKETS & DRUGSTORES--0.75%
2,165 The Pantry Incorporated .............................. 10/15/07 10.250 2,013,450
-------------
TECHNOLOGY--4.21%
3,500 Chippac International Limited** ...................... 08/01/09 12.750 3,675,000
6,000 Earthwatch Incorporated**#++ ......................... 07/15/07 13.000+ 3,420,000
4,250 Fairchild Semiconductor Corporation .................. 03/15/07 10.125 4,186,250
-------------
11,281,250
-------------
TRANSPORTATION--3.80%
7,000 Equimar Shipholdings Limited ......................... 07/01/07 9.875 2,520,000
2,750 Stena AB ............................................. 06/15/07 8.750 2,365,000
8,540 TFM S.A. de C.V. ..................................... 06/15/09 11.750+ 5,294,800
-------------
10,179,800
-------------
UTILITIES--2.39%
4,250 AES Corporation ...................................... 06/01/09 9.500 4,090,795
2,440 Panda Funding Corporation ............................ 08/20/12 11.625 2,318,073
-------------
6,408,868
-------------
Total Corporate Bonds (cost--$289,420,153) ..................... 226,786,471
-------------
31
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<CAPTION>
NUMBER OF
SHARES/WARRANTS VALUE
---------------- -------------
<S> <C>
COMMON STOCK(a)--2.91%
CABLE--0.50%
17,000 Knology Holdings Incorporated ................................................................. $ 76,500
79,417 Park `N View Incorporated ..................................................................... 203,505
45,922 RCN Corporation ............................................................................... 1,059,078
-------------
1,339,083
-------------
COMMUNICATIONS-FIXED--0.67%
61,644 Tele1 Europe BV ............................................................................... 708,906
44,000 Viatel Incorporated ........................................................................... 1,097,250
-------------
1,806,156
-------------
FOOD & BEVERAGE--0.10%
74,223 Packaged Ice Incorporated ..................................................................... 259,781
-------------
GENERAL INDUSTRIAL--0.08%
1,400 Communications & Power++ ...................................................................... 210,000
-------------
RETAIL--1.12%
666,011 Samuels Jewelers Incorporated++ ............................................................... 2,997,050
-------------
SERVICE--0.44%
726,350 Waste Systems International Incorporated++ .................................................... 1,180,319
-------------
Total Common Stock (cost--$12,262,628) .................................................................. 7,792,389
-------------
PREFERRED STOCK(a)--2.94%
COMMUNICATIONS-FIXED--0.66%
2,142 ICG Holdings Incorporated ..................................................................... 1,756,809
-------------
ENERGY--0.02%
1,652 Orion Refining Corporation++ .................................................................. 66,974
-------------
GENERAL INDUSTRIAL--0.97%
38,299 Communications & Power++ ...................................................................... 2,604,342
-------------
MEDIA--0.73%
19,500 Inter Act Systems Incorporated**++ ............................................................ 1,950,000
-------------
SERVICE--0.56%
5,428 Waste Systems International Incorporated++ .................................................... 1,492,700
-------------
Total Preferred Stock (cost--$15,305,559) ............................................................... 7,870,825
-------------
WARRANTS(a)--0.40%
CABLE--0.06%
10,000 UIH Australia Pacific Incorporated ............................................................ 150,000
-------------
COMMUNICATIONS-FIXED--0.02%
6,275 Pathnet Incorporated .......................................................................... 62,750
-------------
32
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<CAPTION>
NUMBER OF
WARRANTS VALUE
---------------- -------------
<S> <C>
WARRANTS(a)--(CONCLUDED)
COMMUNICATIONS-MOBILE--0.02%
15,750 McCaw International Limited ................................................................... $ 43,313
-------------
ENERGY--0.07%
3,250 Key Energy Services Incorporated .............................................................. 178,750
-------------
FINANCIAL SERVICES--0.00%
6,000 Olympic Financial Limited ..................................................................... 0
-------------
GENERAL INDUSTRIAL--0.03%
8,400 Sabreliner Corporation ........................................................................ 75,600
-------------
MEDIA--0.14%
19,500 Inter Act Electronic Marketing Incorporated++ ................................................. 195
19,500 Inter Act Systems Incorporated++ .............................................................. 97,500
26,250 Wam! Net Incorporated ......................................................................... 288,750
-------------
386,445
-------------
RETAIL--0.00%
13,146 Samuels Jewelers Incorporated++ ............................................................... 131
-------------
SERVICE--0.06%
109,290 Nuco2 Incorporated++ .......................................................................... 160,656
-------------
TECHNOLOGY--0.00%
13,700 Electronic Retailing Systems International Incorporated ....................................... 13,700
-------------
Total Warrants (cost--$529,766) ......................................................................... 1,071,345
-------------
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES
----------- -------------- --------------
<S> <C> <C> <C>
SHORT TERM U.S. AGENCY OBLIGATIONS--5.58%
$ 15,000 Federal Home Loan Bank Discount Notes (cost--$14,960,625) ....... 06/16/00 6.300%@ 14,960,625
-------------
REPURCHASE AGREEMENT--2.29%
6,136 Repurchase agreement, dated 05/31/00 with Societe Generale,
collateralized by $6,571,000 U.S. Treasury Notes, 5.500% due
02/15/02 (value--$6,258,878);
proceeds: $6,137,086 (cost--$6,136,000) ....................... 06/01/00 6.370 6,136,000
-------------
Total Investments (cost--$338,614,731)--98.71% ............................ 264,617,655
Other assets in excess of liabilities--1.29% .............................. 3,465,460
-------------
Net Assets--100.00% ....................................................... $268,083,115
=============
</TABLE>
----------
@ Yield to maturity for discounted securities.
# Security represents a unit which is comprised of the stated bond with
attached warrants or common stock.
++ Illiquid securities representing 11.72% of net assets.
+ Denotes a step up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(a) Non-income producing security.
(b) Bond interest in default.
See accompanying notes to financial statements
33
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2000 (unaudited)
<TABLE>
<CAPTION>
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost--$310,423,634, $260,008,722,
$272,817,099 and $338,614,731 respectively) .......................... $295,115,371 $258,616,502 $250,839,970 $264,617,655
Investment of cash collateral received for securities loaned, at value . 35,368,500 -- 22,825,250 --
Receivable for investments sold ........................................ 5,495,625 29,588,110 -- 1,219,588
Dividends and interest receivable ...................................... 2,749,586 2,125,406 5,985,774 5,956,935
Receivable for shares of beneficial interest sold ...................... 1,923 23,120 3,639 19,494
Other assets ........................................................... 110,800 23,692 31,652 11,951
------------ ------------ ------------ ------------
Total assets ........................................................... 338,841,805 290,376,830 279,686,285 271,825,623
------------ ------------ ------------ ------------
LIABILITIES
Payable for investments purchased ...................................... 61,865,313 136,685,607 20,693,369 1,215,760
Payable for cash collateral for securities loaned ...................... 35,368,500 -- 22,825,250 --
Payable for shares of beneficial interest repurchased .................. 362,860 462,849 294,421 1,588,842
Dividends payable ...................................................... 245,606 160,525 275,219 501,871
Payable to affiliates .................................................. 163,018 121,822 173,296 235,703
Due to custodian ....................................................... -- 390,679 -- --
Variation margin payable ............................................... 156,295 -- -- --
Outstanding options written, at value .................................. -- 258,250 -- --
Accrued expenses and other liabilities ................................. 398,511 111,834 385,721 200,332
------------ ------------ ------------ ------------
Total liabilities ...................................................... 98,560,103 138,191,566 44,647,276 3,742,508
------------ ------------ ------------ ------------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount authorized) .... 350,093,657 275,011,812 281,761,068 536,845,645
Undistributed (distributions in excess of) net investment income ....... (169,475) (42,696) (300,317) 1,489,585
Accumulated net realized losses from investments, futures
and options transactions ............................................. (94,043,262) (121,246,663) (24,444,613) (196,255,039)
Net unrealized depreciation of investments, futures and options ........ (15,599,218) (1,537,189) (21,977,129) (73,997,076)
------------ ------------ ------------ ------------
Net assets ............................................................. $240,281,702 $152,185,264 $235,039,009 $268,083,115
============ ============ ============ ============
CLASS A:
Net assets ............................................................. $206,803,970 $ 95,275,543 $188,208,507 $163,373,782
------------ ------------ ------------ ------------
Shares outstanding ..................................................... 24,809,319 41,927,931 19,899,170 32,897,843
------------ ------------ ------------ ------------
Net asset value and redemption value per share ......................... $8.34 $2.27 $9.46 $4.97
===== ===== ===== =====
Maximum offering price per share (net asset value plus sales charge of
4.00% of offering price--3.00% for Low Duration U.S. Government
Income Fund) ......................................................... $8.69 $2.34 $9.85 $5.18
===== ===== ===== =====
CLASS B:
Net assets ............................................................. $ 7,876,531 $ 4,263,719 $ 19,185,415 $ 51,914,792
------------ ------------ ------------ ------------
Shares outstanding ..................................................... 944,722 1,879,014 2,028,860 10,462,371
------------ ------------ ------------ ------------
Net asset value and offering price per share ........................... $8.34 $2.27 $9.46 $4.96
===== ===== ===== =====
CLASS C:
Net assets ............................................................. $ 16,481,451 $ 51,898,289 $ 24,468,017 $ 52,003,720
------------ ------------ ------------ ------------
Shares outstanding ..................................................... 1,979,088 22,860,173 2,587,035 10,457,531
------------ ------------ ------------ ------------
Net asset value and offering price per share ........................... $8.33 $2.27 $9.46 $4.97
===== ===== ===== =====
CLASS Y:
Net assets ............................................................. $ 9,119,750 $ 747,713 $ 3,177,070 $ 790,821
------------ ------------ ------------ ------------
Shares outstanding ..................................................... 1,095,062 328,429 335,741 159,331
------------ ------------ ------------ ------------
Net asset value, offering price and redemption value per share ......... $8.33 $2.28 $9.46 $4.96
===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements
34
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MAY 31, 2000 (UNAUDITED)
-------------------------------------------------------------
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and dividends........................................... $ 9,126,763 $ 5,108,786 $ 10,103,359 $ 19,925,600
----------- ----------- ------------ ------------
EXPENSES:
Investment advisory and administration........................... 637,543 393,019 623,858 888,684
Service fees--Class A............................................ 271,383 118,443 246,318 260,329
Service and distribution fees--Class B........................... 50,352 22,872 111,135 374,005
Service and distribution fees--Class C........................... 68,074 211,444 100,629 266,276
Transfer agency and service fees................................. 138,421 63,787 132,025 179,171
Custody and accounting........................................... 69,754 40,376 64,196 85,107
Reports and notices to shareholders.............................. 28,350 28,223 32,733 55,801
Legal and audit.................................................. 23,320 34,078 25,753 56,492
State registration fees.......................................... 14,672 19,049 13,700 30,536
Trustees' fees................................................... 5,250 5,250 5,250 5,250
Other expenses................................................... 6,469 4,722 2,508 27,412
----------- ----------- ------------ ------------
1,313,588 941,263 1,358,105 2,229,063
Less: Fee waivers from adviser................................... (6,770) -- (2,189) --
----------- ----------- ------------ ------------
Net expenses..................................................... 1,306,818 941,263 1,355,916 2,229,063
----------- ----------- ------------ ------------
Net investment income............................................ 7,819,945 4,167,523 8,747,443 17,696,537
----------- ----------- ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from:
Investment transactions........................................ (4,555,313) (1,346,602) (3,238,234) (56,706,422)
Futures contracts.............................................. 2,241,857 273,774 -- --
Options written................................................ -- (71,876) -- --
Net change in unrealized appreciation/depreciation of:
Investments.................................................... (2,265,011) (1,003,100) (9,249,421) (7,039,067)
Options........................................................ -- (144,969) -- --
Futures........................................................ (785,789) (3,087) -- --
----------- ----------- ------------ ------------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES.... (5,364,256) (2,295,860) (12,487,655) (63,745,489)
----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.. $ 2,455,689 $ 1,871,663 $ (3,740,212) $(46,048,952)
=========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MAY 31, 2000 FOR THE YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1999
------------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income .................................................................. $ 7,819,945 $ 17,138,406
Net realized losses from investments, futures and options transactions ................. (2,313,456) (6,420,229)
Net change in unrealized appreciation/depreciation of investments, futures and options . (3,050,800) (17,806,645)
------------ ------------
Net increase (decrease) in net assets resulting from operations ........................ 2,455,689 (7,088,468)
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A ......................................................... (6,719,048) (14,406,509)
Net investment income--Class B ......................................................... (270,591) (826,543)
Net investment income--Class C ......................................................... (515,693) (1,167,824)
Net investment income--Class Y ......................................................... (314,518) (737,274)
------------ ------------
Total dividends to shareholders ........................................................ (7,819,850) (17,138,150)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ................................................... 19,794,364 92,941,317
Cost of shares repurchased ............................................................. (55,038,736) (140,760,215)
Proceeds from dividends reinvested ..................................................... 4,572,414 9,939,179
------------ ------------
Net decrease in net assets from beneficial interest transactions ....................... (30,671,958) (37,879,719)
------------ ------------
Net decrease in net assets ............................................................. (36,036,119) (62,106,337)
NET ASSETS:
Beginning of period .................................................................... 276,317,821 338,424,158
------------ ------------
End of period .......................................................................... $240,281,702 $276,317,821
============ ============
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MAY 31, 2000 FOR THE YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1999
------------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income .................................................................. $ 4,167,523 $ 6,269,480
Net realized losses from investments, futures and options transactions ................. (1,144,704) (3,611,938)
Net change in unrealized appreciation/depreciation of investments, futures and options . (1,151,156) (852,638)
------------ ------------
Net increase in net assets resulting from operations ................................... 1,871,663 1,804,904
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A ......................................................... (2,638,106) (2,677,276)
Net investment income--Class B ......................................................... (106,649) (299,808)
Net investment income--Class C ......................................................... (1,380,943) (3,107,776)
Net investment income--Class Y ......................................................... (41,825) (184,622)
------------ ------------
Total dividends to shareholders ........................................................ (4,167,523) (6,269,482)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ................................................... 54,233,720 212,615,459
Cost of shares repurchased ............................................................. (62,034,954) (205,924,759)
Proceeds from dividends reinvested ..................................................... 3,408,983 4,638,117
------------ ------------
Net increase (decrease) in net assets from beneficial interest transactions ............ (4,392,251) 11,328,817
------------ ------------
Net increase (decrease) in net assets .................................................. (6,688,111) 6,864,239
NET ASSETS:
Beginning of period .................................................................... 158,873,375 152,009,136
------------ ------------
End of period .......................................................................... $152,185,264 $158,873,375
============ ============
</TABLE>
See accompanying notes to financial statements
37
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MAY 31, 2000 FOR THE YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1999
------------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income .................................................................. $ 8,747,443 $ 17,743,821
Net realized losses from investments and futures transactions .......................... (3,238,234) (2,351,042)
Net change in unrealized appreciation/depreciation of investments and futures .......... (9,249,421) (20,694,030)
------------ ------------
Net decrease in net assets resulting from operations ................................... (3,740,212) (5,301,251)
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A ......................................................... (6,981,564) (13,633,333)
Net investment income--Class B ......................................................... (699,994) (1,912,697)
Net investment income--Class C ......................................................... (883,260) (1,980,821)
Net investment income--Class Y ......................................................... (125,777) (266,757)
------------ ------------
Total dividends to shareholders ........................................................ (8,690,595) (17,793,608)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ................................................... 20,566,717 57,811,186
Cost of shares repurchased ............................................................. (40,118,312) (77,144,688)
Proceeds from dividends reinvested ..................................................... 4,968,145 9,816,308
------------ ------------
Net decrease in net assets from beneficial interest transactions ....................... (14,583,450) (9,517,194)
------------ ------------
Net decrease in net assets ............................................................. (27,014,257) (32,612,053)
------------ ------------
NET ASSETS:
Beginning of period .................................................................... 262,053,266 294,665,319
------------ ------------
End of period .......................................................................... $235,039,009 $262,053,266
============ ============
</TABLE>
See accompanying notes to financial statements
38
<PAGE>
PAINEWEBBER HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MAY 31, 2000 FOR THE YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1999
------------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ............................................................... $ 17,696,537 $ 50,613,396
Net realized losses from investment transactions .................................... (56,706,422) (19,041,784)
Net change in unrealized appreciation/depreciation of investments ................... (7,039,067) (19,675,123)
------------ ------------
Net increase (decrease) in net assets resulting from operations ..................... (46,048,952) 11,896,489
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A ...................................................... (11,563,700) (26,526,311)
Net investment income--Class B ...................................................... (3,846,232) (14,276,554)
Net investment income--Class C ...................................................... (3,757,920) (9,573,976)
Net investment income--Class Y ...................................................... (79,519) (298,107)
------------ ------------
Total dividends to shareholders ..................................................... (19,247,371) (50,674,948)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ................................................ 26,640,370 164,783,645
Cost of shares repurchased .......................................................... (110,668,469) (276,858,175)
Proceeds from dividends reinvested .................................................. 8,090,028 22,999,869
------------ ------------
Net decrease in net assets from beneficial interest transactions .................... (75,938,071) (89,074,661)
------------ ------------
Net decrease in net assets .......................................................... (141,234,394) (127,853,120)
NET ASSETS:
Beginning of period ................................................................. 409,317,509 537,170,629
------------ ------------
End of period (including undistributed net investment income of $1,489,585 and
$3,040,419, respectively) ....................................................... $268,083,115 $409,317,509
============ ============
</TABLE>
See accompanying notes to financial statements
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Managed Investments Trust (the "Trust") was organized under
Massachusetts law by a Declaration of Trust dated November 21, 1986 and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, as an open-end, diversified investment company.
The Trust is a series mutual fund with seven funds: PaineWebber U.S. Government
Income Fund ("U.S. Government Income Fund"), PaineWebber Low Duration U.S.
Government Income Fund ("Low Duration U.S. Government Income Fund"), PaineWebber
Investment Grade Income Fund ("Investment Grade Income Fund"), PaineWebber High
Income Fund ("High Income Fund") (collectively, the "Funds"), PaineWebber Asia
Pacific Growth Fund, PaineWebber Tax-Managed Equity Fund and PaineWebber
Strategy Fund. The financial statements for PaineWebber Asia Pacific Growth
Fund, PaineWebber Tax-Managed Equity Fund and PaineWebber Strategy Fund are not
included herein.
Currently, each Fund offers Class A, Class B, Class C and Class Y shares.
Each class represents interests in the same assets of the applicable Fund, and
the classes are identical except for differences in their sales charge
structures, ongoing service and distribution charges and certain transfer agency
expenses. In addition, Class B shares and all corresponding reinvested dividend
shares automatically convert to Class A shares approximately six years after
issuance. All classes of shares have equal voting privileges except that each
class has exclusive voting rights with respect to its service and/or
distribution plan. Class Y shares have no service or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
VALUATION OF INVESTMENTS--The Funds calculate their net asset value based on
the current market value for the portfolio securities. The Funds normally obtain
market values for their 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 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 Trust's board of trustees (the "Board").
The amortized cost method of valuation, which approximates market value,
generally is used to value short-term debt instruments with sixty days or less
remaining to maturity, unless the board determines that this does not represent
fair value.
REPURCHASE AGREEMENTS--The Funds' custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
repurchase, each Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances, in the
event of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings. Each of
the Funds occasionally participates in joint repurchase agreement transactions
with other funds managed by Mitchell Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized (with the exception of
U.S. Government Income Fund) as adjustments to interest income and the
identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.
DOLLAR ROLLS--Low Duration U.S. Government Income Fund and U.S. Government
Income Fund may enter into transactions in which these Funds sell securities for
delivery in the current month and simultaneously contract to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date (the "roll period"). During the roll period, the Funds forego
principal and interest paid on the securities. The Funds are compensated by the
interest earned on the cash proceeds of the initial sale and by fee income or a
lower repurchase price.
FUTURES CONTRACTS--Upon entering into a financial futures contract, a Fund is
required to pledge to a broker an amount of cash and/or U.S. Government
securities equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation margin,"
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying financial futures contracts. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss until the financial futures contract is closed, at which
time the net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Funds (except High Income Fund) primarily use financial futures contracts
for hedging or to manage the average duration of the Fund's portfolio. However,
imperfect correlations between futures contracts and the portfolio securities
being hedged, or market disruptions, do not normally permit full control of
these risks at all times.
OPTION WRITING--When a Fund writes a call or a put option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. If an option which the Fund has written either expires on
its stipulated expiration date or the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a call option which the
Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security)
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
from the sale of the underlying security and the proceeds from the sale are
increased by the premium originally received. If a put option which a Fund has
written is exercised, the amount of the premium originally received reduces the
cost of the security which the Fund purchases upon exercise of the option. The
U.S. Government Income Fund and Low Duration U.S. Government Income Fund
primarily used written options for the enhancement of income to the Funds.
REVERSE REPURCHASE AGREEMENTS--Each of the Funds may enter into reverse
repurchase agreements with qualified third party broker-dealers as determined
by, and under the direction of, the board. Interest on the value of reverse
repurchase agreements issued and outstanding is based upon competitive market
rates at the time of issuance. At the time the Fund enters into a reverse
repurchase agreement, it establishes and maintains a segregated account with the
Fund's custodian containing liquid securities having a value not less than the
repurchase price, including accrued interest, of the reverse repurchase
agreement. For the six months ended May 31, 2000, no fund entered into reverse
repurchase agreements.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and
distributions from realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities, including mortgage- and
asset-backed securities held by the Funds to meet their obligations, may be
affected by economic developments, including those particular to a specific
industry or region. Mortgage- and asset-backed securities may decrease in value
as a result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayments.
WRITTEN OPTION ACTIVITY
Transactions in options written for the six months ended May 31, 2000 were as
follows:
<TABLE>
<CAPTION>
LOW DURATION U.S.
GOVERNMENT INCOME FUND
-----------------------
NUMBER OF
OPTIONS PREMIUMS
---------- ---------
<S> <C> <C>
Options outstanding at November 30, 1999 ...................... 0 $ 0
Options written ............................................... 950 335,937
Options terminated in closing purchase transactions ........... (500) (158,594)
Options expired ............................................... (200) (64,062)
------- ---------
Options outstanding at May 31, 2000 ........................... 250 $ 113,281
======= =========
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
The board has approved an Investment Advisory and Administration Contract
("Advisory Contract") with Mitchell Hutchins, under which Mitchell Hutchins
serves as investment adviser and administrator of the Funds. In accordance with
the Advisory Contract, each Fund pays Mitchell Hutchins an investment advisory
and administration fee, which is accrued daily and paid monthly, at the annual
rate of 0.50% of each Fund's average daily net assets. At May 31, 2000,
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
U.S. Government Income Fund, Low Duration U.S. Government Income Fund,
Investment Grade Income Fund and High Income Fund owed Mitchell Hutchins
$100,821, $64,784, $99,662 and $118,606, respectively, in investment advisory
and administration fees. Mitchell Hutchins waived a portion of its investment
advisory and administration fees in connection with the U.S. Government Income
Fund's and Investment Grade Income Fund's investment of cash collateral from
security lending in the Mitchell Hutchins Private Money Market Fund LLC. For the
six months ended May 31, 2000, Mitchell Hutchins waived $6,770 and $2,189,
respectively.
Under a separate contract with Mitchell Hutchins ("Sub-Advisory Contract"),
Pacific Investment Management Company ("PIMCO") serves as the sub-adviser for
Low Duration U.S. Government Income Fund. Under the Sub-Advisory Contract,
Mitchell Hutchins (not the Fund) pays PIMCO a fee, computed daily and payable
monthly, in an amount equal to one-half of the advisory fee received by Mitchell
Hutchins from the Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of service and/or distribution pertaining to the Class A, Class B and
Class C shares, each Fund pays Mitchell Hutchins monthly service fees at the
annual rate of 0.25% of the average daily net assets of Class A, Class B and
Class C shares and monthly distribution fees at the annual rate of 0.75% and
0.50% of the average daily net assets of Class B and Class C shares,
respectively. At May 31, 2000, U.S. Government Income Fund, Low Duration U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund owed
Mitchell Hutchins $61,021, $57,038, $72,370 and $117,097, respectively, in
service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges
paid by the shareholders upon the purchase of Class A shares and the contingent
deferred sales charges paid by the shareholders upon certain redemptions of
Class A, Class B and Class C shares. Mitchell Hutchins has informed each Fund
that for the six months ended May 31, 2000, it earned $42,515, $295,965, $61,645
and $275,970 in sales charges for the U.S. Government Income Fund, Low Duration
U.S. Government Income Fund, Investment Grade Income Fund and High Income Fund,
respectively.
SECURITY LENDING
Each Fund may lend securities up to 331/3% of its total assets to qualified
institutions. The loans are secured at all times by cash or U.S. government
securities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted
accordingly. Each Fund will regain record ownership of loaned securities to
exercise certain beneficial rights; however, each Fund may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower fail financially. Each Fund receives compensation, which is
included in interest income, for lending its securities from interest earned on
the cash or U.S. government securities held as collateral, net of fee rebates
paid to the borrower plus reasonable administrative and custody fees. Each
Fund's lending agent is PaineWebber, who received compensation for the six
months ended May 31, 2000 from the U.S. Government Income Fund and Investment
Grade Income Fund of $13,660 and $4,507, respectively.
For the six months ended May 31, 2000, the U.S. Government Income Fund and
Investment Grade Income Fund earned compensation of $40,979 and $12,977,
respectively, net of fees, rebates and expenses from securities lending
transactions. At May 31, 2000, the U.S. Government Income Fund and the
Investment Grade Income Fund owed PaineWebber $1,176 and $1,264, respectively,
in security lending fees.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
At May 31, 2000, each Fund held cash and/or cash equivalents as collateral
for securities loaned as follows:
<TABLE>
<CAPTION>
MARKET
COLLATERAL FOR VALUES OF
SECURITIES SECURITIES
LOANED LOANED
-------------- -----------
<S> <C> <C>
U.S. Government Income Fund ..................................... $35,368,500 $34,019,964
Investment Grade Income Fund .................................... $22,825,250 $21,862,037
</TABLE>
At May 31, 2000 the Funds invested the collateral in the following money
market funds:
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C>
U.S. Government Income Fund
6,592,734 AIM Liquid Assets Portfolio .............................................................. $ 6,592,734
28,002,023 Mitchell Hutchins Private Money Market Fund LLC .......................................... 28,002,023
558 Provident Prime Portfolio ................................................................ 558
773,185 Scudder Institutional Fund Inc. .......................................................... 773,185
-----------
Total investments of cash collateral received for securities on loan (cost--$35,368,500).. $35,368,500
-----------
-----------
Investment Grade Income Fund
2,005,693 AIM Liquid Assets Portfolio .............................................................. $ 2,005,693
20,784,478 Mitchell Hutchins Private Money Market Fund LLC .......................................... 20,784,478
35,079 Scudder Institutional Fund Inc. .......................................................... 35,079
-----------
Total investments of cash collateral received for securities on loan (cost--$22,825,250).. $22,825,250
-----------
-----------
</TABLE>
BANK LINE OF CREDIT
Each Fund may participate with other funds managed by Mitchell Hutchins
in a $200 million committed credit facility ("Facility") to be utilized for
temporary financing until the settlement of sales or purchases of portfolio
securities, the repurchase or redemption of shares of the Funds at the request
of the shareholders and other temporary or emergency purposes. In connection
therewith, each Fund has agreed to pay a commitment fee, pro rata, based on the
relative asset size of the Funds in the Facility. Interest is charged to each
Fund at rates based on prevailing market rates in effect at the time of
borrowings. For the six months ended May 31, 2000, the Funds did not borrow
under the Facility.
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
TRANSFER AGENCY SERVICE FEES
PaineWebber provides transfer agency related services to each Fund pursuant
to a delegation of authority from PFPC Inc., each Fund's transfer agent, and is
compensated for these services by PFPC Inc., not the Funds. For the six months
ended May 31, 2000, PaineWebber received from PFPC Inc. (not the Funds)
approximately 51%, 51%, 41% and 49% of the total transfer agency fees collected
by PFPC Inc. from the U.S. Government Income Fund, Low Duration U.S. Government
Income Fund, Investment Grade Income Fund and High Income Fund, respectively.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 2000
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 2000, the components of the net unrealized depreciation of
investments were as follows:
<TABLE>
<CAPTION>
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Gross appreciation (investments having an excess of value over cost)... $ 854,404 $ 796,318 $ 871,675 $ 4,164,354
Gross depreciation (investments having an excess of cost over value)... (16,162,667) (2,188,538) (22,848,804) (78,161,430)
------------ --------------- ------------ ------------
Net unrealized depreciation of investments ............................ $(15,308,263) $(1,392,220) $(21,977,129) $(73,997,076)
------------ --------------- ------------ ------------
------------ --------------- ------------ ------------
For the six months ended May 31, 2000, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<CAPTION>
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Purchases ............................................................. $407,053,607 $579,950,896 $199,601,980 $ 84,161,919
Sales ................................................................. $427,877,032 $453,815,584 $212,266,669 $163,705,782
</TABLE>
FEDERAL TAX STATUS
Each Fund intends to distribute all of its taxable income and to comply with
the other requirements of the Internal Revenue Code applicable to regulated
investment companies. Accordingly, no provision for federal income taxes is
required. In addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other amounts, if
any, each Fund intends not to be subject to a federal excise tax.
At November 30, 1999, U.S. Government Income Fund, Low Duration U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund had
net capital loss carryforwards of $91,234,915, $120,026,542, $21,205,818 and
$136,312,190, respectively. These loss carryforwards are available as
reductions, to the extent provided in the regulations, of future net realized
capital gains, and will expire between November 30, 2000 and November 30, 2007.
To the extent that such losses are used to offset future net realized capital
gains, it is probable that these gains will not be distributed.
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.001 par value shares of beneficial
interest authorized for each Fund. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT
INCOME FUND
SIX MONTHS ENDED MAY 31, 2000:
Shares sold ........................ 1,960,797 $ 16,449,691 49,751 $ 418,134
Shares repurchased ................. (5,067,047) (42,611,311) (424,671) (3,569,267)
Shares converted from
Class B to Class A ............... 260,283 2,194,748 (260,209) (2,194,748)
Dividends reinvested ............... 446,345 3,750,578 19,932 167,524
---------- ------------- ----------- -----------
Net decrease ....................... (2,399,622) $ (20,216,294) (615,197) $(5,178,357)
========== ============= =========== ===========
YEAR ENDED NOVEMBER 30, 1999:
Shares sold ........................ 7,031,019 $ 60,739,242 689,705 $ 6,053,726
Shares repurchased ................. (12,054,086) (104,852,709) (667,932) (5,858,579)
Shares converted from
Class B to Class A ............... 1,048,968 9,307,137 (1,048,781) (9,307,137)
Dividends reinvested ............... 907,336 7,987,103 52,309 461,448
---------- ------------- ----------- -----------
Net increase (decrease) ............ (3,066,763) $ (26,819,227) (974,699) $(8,650,542)
========== ============= =========== ===========
LOW DURATION U.S.
GOVERNMENT INCOME FUND
SIX MONTHS ENDED MAY 31, 2000:
Shares sold ........................ 21,818,835 $ 50,108,910 553,648 $ 1,263,794
Shares repurchased ................. (18,957,706) (43,506,861) (867,386) (1,984,604)
Shares converted from
Class B to Class A ............... 268,952 616,123 (268,952) (616,123)
Dividends reinvested ............... 1,004,661 2,303,722 33,562 76,780
---------- ------------- ----------- -----------
Net increase (decrease) ............ 4,134,742 $ 9,521,894 (549,128) $(1,260,153)
========== ============= =========== ===========
YEAR ENDED NOVEMBER 30, 1999:
Shares sold ........................ 80,259,489 $ 186,412,759 1,757,169 $ 4,134,549
Shares repurchased ................. (71,208,112) (165,961,016) (1,463,372) (3,423,339)
Shares converted from
Class B to Class A ............... 1,180,032 2,761,865 (1,180,032) (2,761,865)
Dividends reinvested ............... 871,206 2,040,471 91,329 213,931
---------- ------------- ----------- -----------
Net increase (decrease) ............ 11,102,615 $ 25,254,079 (794,906) $(1,836,724)
========== ============= =========== ===========
<CAPTION>
CLASS C CLASS Y
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT
INCOME FUND
SIX MONTHS ENDED MAY 31, 2000:
Shares sold ........................ 110,317 $ 928,963 237,682 $ 1,997,576
Shares repurchased ................. (526,961) (4,427,215) (526,169) (4,430,943)
Shares converted from
Class B to Class A ............... -- -- -- --
Dividends reinvested ............... 41,036 344,437 36,912 309,875
---------- ------------ ---------- ------------
Net decrease ....................... (375,608) $ (3,153,815) (251,575) $ (2,123,492)
========== ============ ========== ============
YEAR ENDED NOVEMBER 30, 1999:
Shares sold ........................ 577,920 $ 5,161,090 2,385,567 $ 20,987,259
Shares repurchased ................. (1,040,037) (9,188,494) (2,377,192) (20,860,433)
Shares converted from
Class B to Class A ............... -- -- -- --
Dividends reinvested ............... 88,070 774,343 81,752 716,285
---------- ------------ ---------- ------------
Net increase (decrease) ............ (374,047) $ (3,253,061) 90,127 $ 843,111
========== ============ ========== ============
LOW DURATION U.S.
GOVERNMENT INCOME FUND
SIX MONTHS ENDED MAY 31, 2000:
Shares sold ........................ 695,126 $ 1,595,252 549,810 $ 1,265,764
Shares repurchased ................. (5,652,897) (12,950,957) (1,567,327) (3,592,532)
Shares converted from
Class B to Class A ............... -- -- -- --
Dividends reinvested ............... 431,025 986,261 18,385 42,220
---------- ------------ ---------- ------------
Net increase (decrease) ............ (4,526,746) $(10,369,444) (999,132) $ (2,284,548)
========== ============ ========== ============
YEAR ENDED NOVEMBER 30, 1999:
Shares sold ........................ 4,425,998 $ 10,445,726 4,973,305 $ 11,622,425
Shares repurchased ................. (11,143,910) (26,125,554) (4,479,319) (10,414,850)
Shares converted from
Class B to Class A ............... -- -- -- --
Dividends reinvested ............... 943,723 2,210,501 73,966 173,214
---------- ------------ ---------- ------------
Net increase (decrease) ............ (5,774,189) $(13,469,327) 567,952 $ 1,380,789
========== ============ ========== ============
</TABLE>
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
SHARES OF BENEFICIAL INTEREST(CONCLUDED)
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT GRADE
INCOME FUND
SIX MONTHS ENDED MAY 31, 2000:
Shares sold ........................ 1,721,272 $ 16,849,929 155,337 $ 1,518,595
Shares repurchased ................. (2,872,200) (27,990,330) (444,277) (4,341,227)
Shares converted from
Class B to Class A ............... 378,862 3,713,199 (378,862) (3,713,199)
Dividends reinvested ............... 414,119 4,032,630 39,877 388,736
---------- ------------- ----------- -----------
Net decrease ....................... (357,947) $ (3,394,572) (627,925) $ (6,147,095)
========== ============= =========== ===========
YEAR ENDED NOVEMBER 30, 1999:
Shares sold ........................ 3,007,963 $ 31,130,739 757,173 $ 7,888,019
Shares repurchased ................. (4,615,505) (47,584,539) (933,978) (9,613,270)
Shares converted from
Class B to Class A ............... 1,081,307 11,200,176 (1,081,604) (11,200,176)
Dividends reinvested ............... 729,999 7,505,558 103,279 1,064,756
---------- ------------- ----------- -----------
Net increase (decrease) ............ 203,764 $ 2,251,934 (1,155,130) $(11,860,671)
========== ============= =========== ===========
HIGH INCOME FUND
SIX MONTHS ENDED MAY 31, 2000:
Shares sold ........................ 2,491,163 $ 18,510,879 655,501 $ 3,916,363
Shares repurchased ................. (10,718,520) (64,154,535) (3,465,731) (23,284,227)
Shares converted from
Class B to Class A ............... 2,229,868 10,322,173 (2,231,588) (10,322,173)
Dividends reinvested ............... 829,594 4,817,718 221,521 1,290,299
---------- ------------- ----------- -----------
Net decrease ....................... (5,167,895) $ (30,503,765) (4,820,297) $(28,399,738)
========== ============= =========== ===========
YEAR ENDED NOVEMBER 30, 1999:
Shares sold ........................ 16,234,296 $ 104,312,639 5,419,044 $ 35,346,423
Shares repurchased ................. (24,429,499) (158,179,372) (12,058,749) (77,592,777)
Shares converted from
Class B to Class A ............... 5,592,768 36,187,733 (5,598,612) (36,187,733)
Dividends reinvested ............... 1,824,126 11,743,507 907,696 5,872,521
---------- ------------- ----------- -----------
Net decrease ....................... (778,309) $ (5,935,493) (11,330,621) $(72,561,566)
========== ============= =========== ===========
<CAPTION>
CLASS C CLASS Y
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
INVESTMENT GRADE
INCOME FUND
SIX MONTHS ENDED MAY 31, 2000:
Shares sold ........................ 101,770 $ 992,447 123,236 $ 1,205,746
Shares repurchased ................. (530,289) (5,187,373) (264,038) (2,599,382)
Shares converted from
Class B to Class A ............... -- -- -- --
Dividends reinvested ............... 43,221 421,137 12,882 125,642
---------- ------------ ---------- ------------
Net decrease ....................... (385,298) $ (3,773,789) (127,920) $(1,267,994)
========== ============ ========== ============
YEAR ENDED NOVEMBER 30, 1999:
Shares sold ........................ 1,155,322 $ 12,187,153 648,010 $ 6,605,275
Shares repurchased ................. (1,472,093) (15,317,509) (458,002) (4,629,370)
Shares converted from
Class B to Class A ............... -- -- -- --
Dividends reinvested ............... 95,887 987,099 25,297 258,895
---------- ------------ ---------- ------------
Net increase (decrease) ............ (220,884) $ (2,143,257) 215,305 $ 2,234,800
========== ============ ========== ============
HIGH INCOME FUND
SIX MONTHS ENDED MAY 31, 2000:
Shares sold ........................ 637,326$ 3,925,164 47,818 $ 287,964
Shares repurchased ................. (3,725,624) (21,705,224) (252,624) (1,524,483)
Shares converted from
Class B to Class A ............... -- -- -- --
Dividends reinvested ............... 326,611 1,901,893 13,539 80,118
---------- ------------ ---------- ------------
Net decrease ....................... (2,761,687) $(15,878,167) (191,267) $(1,156,401)
========== ============ ========== ============
YEAR ENDED NOVEMBER 30, 1999:
Shares sold ........................ 3,375,141 $ 21,986,584 486,084 $ 3,137,999
Shares repurchased ................. (5,795,558) (37,436,947) (577,517) (3,649,079)
Shares converted from
Class B to Class A ............... -- -- -- --
Dividends reinvested ............... 789,183 5,089,006 46,019 294,835
---------- ------------ ---------- ------------
Net decrease ....................... (1,631,234) $(10,361,357) (45,414) $ (216,245)
========== ============ ========== ============
</TABLE>
47
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............................. $ 8.51 $ 9.20 $ 8.94 $ 8.86 $ 9.12 $ 8.50
------ ------ ------ ------ ------ ------
Net investment income ............................................. 0.26 0.50 0.51 0.54 0.55 0.58
Net realized and unrealized gains (losses) from investments,
futures and options ............................................. (0.17) (0.69) 0.26 0.08 (0.26) 0.62
------ ------ ------ ------ ------ ------
Net increase (decrease) from investment operations ................ 0.09 (0.19) 0.77 0.62 0.29 1.20
------ ------ ------ ------ ------ ------
Dividends from net investment income .............................. (0.26) (0.50) (0.51) (0.54) (0.55) (0.58)
------ ------ ------ ------ ------ ------
Net asset value, end of period .................................... $ 8.34 $ 8.51 $ 9.20 $ 8.94 $ 8.86 $ 9.12
====== ====== ====== ====== ====== ======
Total investment return (1) ....................................... 1.09% (2.14)% 9.06% 7.27% 3.39% 14.70%
====== ====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ................................. $206,804 $231,569 $278,483 $291,470 $343,836 $430,285
Expenses to average net assets, net of waivers from advisers (3) .. 0.97%* 1.01% 1.03% 0.94% 0.94% 1.03%(2)
Net investment income to average net assets,
net of waivers from advisers (3) ................................ 6.19%* 5.65% 5.69% 6.15% 6.24% 6.65%(2)
Portfolio turnover rate ........................................... 140% 375% 370% 322% 359% 206%
</TABLE>
------------------
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results would be lower if they were included. Total investment return for
periods less than one year has not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
(3) During the six months ended May 31, 2000 and the year ended November 30,
1999, Mitchell Hutchins waived a portion of its advisory and administration
fees. The ratios excluding the waiver are the same since the waiver
represents less than 0.005%.
48
<PAGE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- ---------- --------- --------- --------
<S> <S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............................. $ 8.51 $ 9.20 $ 8.94 $ 8.87 $ 9.12 $ 8.50
------ ------ ------ ------ ------ ------
Net investment income ............................................. 0.21 0.43 0.44 0.47 0.48 0.51
Net realized and unrealized gains (losses) from investments,
futures and options ............................................. (0.17) (0.69) 0.26 0.07 (0.25) 0.63
------ ------ ------ ------ ------ ------
Net increase (decrease) from investment operations ................ 0.04 (0.26) 0.70 0.54 0.23 1.14
------ ------ ------ ------ ------ ------
Dividends from net investment income .............................. (0.21) (0.43) (0.44) (0.47) (0.48) (0.52)
------ ------ ------ ------ ------ ------
Net asset value, end of period .................................... $ 8.34 $ 8.51 $ 9.20 $ 8.94 $ 8.87 $ 9.12
====== ====== ====== ====== ====== ======
Total investment return (1) ....................................... 0.68% (2.93)% 8.16% 6.34% 2.72% 13.81%
====== ====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ................................. $7,877 $13,278 $23,318 $42,097 $61,873 $82,469
Expenses to average net assets, net of waivers from advisers (3) .. 1.78%* 1.82% 1.83% 1.69% 1.70% 1.81%(2)
Net investment income to average net assets,
net of waivers from advisers (3) ................................ 5.37%* 4.81% 4.87% 5.40% 5.47% 5.88%(2)
Portfolio turnover rate ........................................... 140% 375% 370% 322% 359% 206%
<CAPTION>
CLASS C
------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 ------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............................. $ 8.50 $ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49
------ ------ ------ ------ ------ ------
Net investment income ............................................. 0.23 0.45 0.47 0.49 0.50 0.53
Net realized and unrealized gains (losses) from investments,
futures and options ............................................. (0.17) (0.69) 0.26 0.07 (0.25) 0.63
------ ------ ------ ------ ------ ------
Net increase (decrease) from investment operations ................ 0.06 (0.24) 0.73 0.56 0.25 1.16
------ ------ ------ ------ ------ ------
Dividends from net investment income .............................. (0.23) (0.45) (0.47) (0.49) (0.50) (0.54)
------ ------ ------ ------ ------ ------
Net asset value, end of period .................................... $ 8.33 $ 8.50 $ 9.19 $ 8.93 $ 8.86 $ 9.11
====== ====== ====== ====== ====== ======
Total investment return (1) ....................................... 0.83% (2.65)% 8.50% 6.62% 2.98% 14.12%
====== ====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ................................. $16,481 $20,021 $25,076 $28,132 $37,754 $53,832
Expenses to average net assets, net of waivers from advisers (3) .. 1.49%* 1.53% 1.54% 1.44% 1.45% 1.55%(2)
Net investment income to average net assets,
net of waivers from advisers (3) ................................ 5.68%* 5.13% 5.17% 5.66% 5.74% 6.17%(2)
Portfolio turnover rate ........................................... 140% 375% 370% 322% 359% 206%
</TABLE>
49
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS Y
-------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............................. $ 8.50 $ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49
------ ------ ------ ------ ------ ------
Net investment income ............................................. 0.27 0.52 0.54 0.56 0.57 0.61
Net realized and unrealized gains (losses) from investments,
futures and options ............................................. (0.17) (0.69) 0.26 0.07 (0.25) 0.62
------ ------ ------ ------ ------ ------
Net increase (decrease) from investment operations ................ 0.10 (0.17) 0.80 0.63 0.32 1.23
------ ------ ------ ------ ------ ------
Dividends from net investment income .............................. (0.27) (0.52) (0.54) (0.56) (0.57) (0.61)
------ ------ ------ ------ ------ ------
Net asset value, end of period .................................... $ 8.33 $ 8.50 $ 9.19 $ 8.93 $ 8.86 $ 9.11
====== ====== ====== ====== ====== ======
Total investment return (1) ....................................... 1.24% (1.84)% 9.41% 7.43% 3.81% 15.06%
====== ====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ................................. $9,120 $11,450 $11,547 $6,816 $6,495 $7,957
Expenses to average net assets, net of waivers from advisers (3) .. 0.65%* 0.69% 0.71% 0.67% 0.64% 0.71%(2)
Net investment income to average net assets,
net of waivers from advisers (3) ................................ 6.49%* 5.97% 5.99% 6.41% 6.53% 6.96%(2)
Portfolio turnover rate ........................................... 140% 375% 370% 322% 359% 206%
</TABLE>
------------------
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include program fees;
results would be lower if they were included. Total investment return for
periods less than one year has not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
(3) During the six months ended May 31, 2000 and the year ended November 30,
1999 Mitchell Hutchins waived a portion of its advisory and administration
fees. The ratios excluding the waiver are the same since the waiver
represents less than 0.005%.
50
<PAGE>
(This page has been left blank intentionally.)
51
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $ 2.31 $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
------ ------ ------ ------ ------ ------
Net investment income .......................................... 0.06 0.12 0.13 0.13 0.14 0.13
Net realized and unrealized gains (losses) from investments,
futures and options .......................................... (0.04) (0.07) 0.01 0.02 0.01 0.09
------ ------ ------ ------ ------ ------
Net increase in net asset value from operations ................ 0.02 0.05 0.14 0.15 0.15 0.22
------ ------ ------ ------ ------ ------
Dividends from net investment income ........................... (0.06) (0.12) (0.13) (0.13) (0.14) (0.13)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................................. $ 2.27 $ 2.31 $ 2.38 $ 2.37 $ 2.35 $ 2.34
====== ====== ====== ====== ====== ======
Total investment return (1) .................................... 1.04% 1.99% 6.11% 6.67% 6.46% 10.25%
====== ====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) .............................. $95,276 $87,142 $63,606 $33,648 $71,216 $127,961
Expenses to average net assets ................................. 0.93%* 0.96% 1.07%+ 1.04% 1.21% 1.15%
Net investment income to average net assets .................... 5.57%* 4.95% 5.37%+ 5.72% 5.84% 5.89%
Portfolio turnover rate ........................................ 233% 270% 411% 359% 210% 242%
</TABLE>
------------------
* Annualized.
+ Includes 0.13% of interest expense related to the reverse repurchase
agreement entered into during the year.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results would be lower if they were included. Total investment return for
periods less than one year has not been annualized.
52
<PAGE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
------ ------ ------ ------ ------ ------
Net investment income .......................................... 0.05 0.10 0.11 0.11 0.12 0.11
Net realized and unrealized gains (losses) from investments,
futures and options .......................................... (0.03) (0.08) 0.01 0.02 0.01 0.09
------ ------ ------ ------ ------ ------
Net increase in net asset value from operations ................ 0.02 0.02 0.12 0.13 0.13 0.20
------ ------ ------ ------ ------ ------
Dividends from net investment income ........................... (0.05) (0.10) (0.11) (0.11) (0.12) (0.11)
------ ------ ------ ------ ------ ------
Net asset value, end of period .................................
$ 2.27 $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34
Total investment return (1) .................................... ====== ====== ====== ====== ====== ======
1.03% 0.71% 5.24% 5.81% 5.60% 9.30%
Ratios/Supplemental data: ====== ====== ====== ====== ====== ======
Net assets, end of period (000's) .............................. $4,264 $5,589 $7,670 $6,949 $7,716 $9,147
Expenses to average net assets ................................. 1.80%* 1.78% 1.91%+ 1.87% 2.03% 2.02%
Net investment income to average net assets .................... 4.65%* 4.14% 4.58%+ 4.80% 4.99% 5.03%
Portfolio turnover rate ........................................ 233% 270% 411% 359% 210% 242%
<CAPTION>
CLASS C
-------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
------ ------ ------ ------ ------ ------
Net investment income .......................................... 0.06 0.10 0.12 0.12 0.12 0.12
Net realized and unrealized gains (losses) from investments,
futures and options .......................................... (0.03) (0.08) 0.01 0.02 0.01 0.09
------ ------ ------ ------ ------ ------
Net increase in net asset value from operations ................ 0.03 0.02 0.13 0.14 0.13 0.21
------ ------ ------ ------ ------ ------
Dividends from net investment income ........................... (0.06) (0.10) (0.12) (0.12) (0.12) (0.12)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................................. $ 2.27 $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34
====== ====== ====== ====== ====== ======
Total investment return (1) .................................... 1.14% 0.90% 5.46% 6.05% 5.82% 9.60%
====== ====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) .............................. $51,898 $63,083 $78,923 $91,700 $123,203 $180,169
Expenses to average net assets ................................. 1.61%* 1.60% 1.72%+ 1.64% 1.80% 1.75%
Net investment income to average net assets .................... 4.89%* 4.33% 4.78%+ 5.05% 5.22% 5.31%
Portfolio turnover rate ........................................ 233% 270% 411% 359% 210% 242%
</TABLE>
53
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS Y
----------------------------------------------------------------------
FOR THE
SIX MONTHS FOR THE
ENDED PERIOD
MAY 31, FOR THE YEARS ENDED NOVEMBER 30, OCTOBER 20, 1995#
2000 -------------------------------------- TO NOVEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
----------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.33
------- ------ ------ ------ ------ ------
Net investment income ....................................... 0.07 0.12 0.14 0.14 0.14 0.01
Net realized and unrealized gains (losses) from investments,
futures and options ....................................... (0.02) (0.08) 0.01 0.02 0.01 0.01
------- ------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations .. 0.05 0.04 0.15 0.16 0.15 0.02
------- ------ ------ ------ ------ ------
Dividends from net investment income ........................ (0.07) (0.12) (0.14) (0.14) (0.14) (0.01)
------- ------ ------ ------ ------ ------
Net asset value, end of period .............................. $ 2.28 $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34
======= ====== ====== ====== ====== ======
Total investment return (1) ................................. 2.02% 1.81% 6.37% 6.87% 6.64% 0.83%
======= ====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $ 748 $3,059 $1,810 $ 352 $ 333 $ 321
Expenses to average net assets .............................. 0.72%* 0.70% 0.79%+ 0.86% 0.99% 0.99%*
Net investment income to average net assets ................. 5.78%* 5.24% 5.60%+ 5.82% 6.00% 5.87%*
Portfolio turnover rate ..................................... 233% 270% 411% 359% 210% 242%
</TABLE>
------------
# Commencement of issuance of shares
* Annualized
+ Includes 0.13% of interest expense related to the reverse repurchase
agreement transaction entered into during the period.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include program fees;
results would be lower if they were included. Total investment return for
periods less than one year has not been annualized.
54
<PAGE>
(This page has been left blank intentionally.)
55
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 9.95 $ 10.79 $ 10.85 $ 10.59 $ 10.68 $ 9.67
--------- --------- --------- --------- --------- ---------
Net investment income ....................................... 0.35 0.67 0.74 0.74 0.73 0.76
Net realized and unrealized gains (losses) from investments,
futures and options ....................................... (0.49) (0.84) (0.06) 0.26 (0.09) 1.01
--------- --------- --------- --------- --------- ---------
Net increase (decrease) from investment operations .......... (0.14) (0.17) 0.68 1.00 0.64 1.77
--------- --------- --------- --------- --------- ---------
Dividends from net investment income ........................ (0.35) (0.67) (0.74) (0.74) (0.73) (0.76)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period .............................. $ 9.46 $ 9.95 $ 10.79 $ 10.85 $ 10.59 $ 10.68
========= ========= ========= ========= ========= =========
Total investment return (1) ................................. (1.48)% (1.62)% 6.37% 9.88% 6.33% 18.95%
========= ========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $ 188,209 $ 201,465 $ 216,402 $ 212,472 $ 229,117 $ 258,898
Expenses to average net assets net of waivers
from adviser (2) .......................................... 0.97%* 0.95% 0.93% 1.03% 0.94% 0.95%
Net investment income to average net assets net
of waivers from adviser (2) ............................... 7.17%* 6.48% 6.56% 7.07% 7.02% 7.42%
Portfolio turnover rate ..................................... 85% 195% 173% 109% 115% 149%
</TABLE>
--------------------
+ Commencement of issuance of shares.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, reinvestment of all dividends at net asset value
on the payable dates and a sale at net asset value on the last day of each
period reported. The figures do not include sales charges or program fees;
results would be lower if they were included. Total investment return for
periods less than one year has not been annualized.
(2) During the six months ended May 31, 2000 and the year ended November 30,
1999 Mitchell Hutchins waived a portion of its advisory and administration
fees. The ratios excluding the waiver are the same since the waiver
represents less than 0.005%.
56
<PAGE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 9.94 $ 10.79 $ 10.85 $ 10.58 $ 10.67 $ 9.67
--------- --------- --------- --------- --------- ---------
Net investment income ....................................... 0.31 0.58 0.65 0.66 0.65 0.68
Net realized and unrealized gains (losses) from investments,
futures and options ....................................... (0.48) (0.84) (0.06) 0.27 (0.09) 1.00
--------- --------- --------- --------- --------- ---------
Net increase (decrease) from investment operations .......... (0.17) (0.26) 0.59 0.93 0.56 1.68
--------- --------- --------- --------- --------- ---------
Dividends from net investment income ........................ (0.31) (0.59) (0.65) (0.66) (0.65) (0.68)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period .............................. $ 9.46 $ 9.94 $ 10.79 $ 10.85 $ 10.58 $ 10.67
========= ========= ========= ========= ========= =========
Total investment return (1) ................................. (1.77)% (2.46)% 5.56% 9.17% 5.54% 17.97%
========= ========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $ 19,185 $ 26,415 $ 41,124 $ 44,829 $ 58,364 $ 71,372
Expenses to average net assets net of waivers
from adviser (2) .......................................... 1.75%* 1.70% 1.69% 1.78% 1.68% 1.70%
Net investment income to average net assets net
of waivers from adviser (2) ............................... 6.38%* 5.67% 5.79% 6.31% 6.27% 6.67%
Portfolio turnover rate ..................................... 85% 195% 173% 109% 115% 149%
<CAPTION>
CLASS C
------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 9.94 $ 10.79 $ 10.85 $ 10.59 $ 10.68 $ 9.67
--------- --------- --------- --------- --------- ---------
Net investment income ....................................... 0.32 0.61 0.68 0.69 0.68 0.70
Net realized and unrealized gains (losses) from investments,
futures and options ....................................... (0.48) (0.84) (0.06) 0.26 (0.09) 1.01
--------- --------- --------- --------- --------- ---------
Net increase (decrease) from investment operations .......... (0.16) (0.23) 0.62 0.95 0.59 1.71
--------- --------- --------- --------- --------- ---------
Dividends from net investment income ........................ (0.32) (0.62) (0.68) (0.69) (0.68) (0.70)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period .............................. $ 9.46 $ 9.94 $ 10.79 $ 10.85 $ 10.59 $ 10.68
========= ========= ========= ========= ========= =========
Total investment return (1) ................................. (1.63)% (2.20)% 5.84% 9.34% 5.80% 18.37%
========= ========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $ 24,468 $ 29,560 $ 34,457 $ 29,204 $ 32,337 $ 39,150
Expenses to average net assets net of waivers
from adviser (2) .......................................... 1.48%* 1.44% 1.42% 1.53% 1.44% 1.45%
Net investment income to average net assets net
of waivers from adviser (2) ............................... 6.67%* 5.97% 6.04% 6.57% 6.51% 6.95%
Portfolio turnover rate ..................................... 85% 195% 173% 109% 115% 149%
<CAPTION>
CLASS Y
-----------------------------------------------
FOR THE FOR THE PERIOD
SIX MONTHS FEBRUARY 18,
ENDED FOR THE YEAR 1998+
MAY 31, ENDED THROUGH
2000 NOVEMBER 30, NOVEMBER 30,
(UNAUDITED) 1999 1998
------------- ------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period ........................ $ 9.95 $ 10.80 $ 10.99
------- ------- -------
Net investment income ....................................... 0.36 0.69 0.57
Net realized and unrealized gains (losses) from investments,
futures and options ....................................... (0.49) (0.84) (0.19)
------- ------- -------
Net increase (decrease) from investment operations .......... (0.13) (0.15) 0.38
------- ------- -------
Dividends from net investment income ........................ (0.36) (0.70) (0.57)
------- ------- -------
Net asset value, end of period .............................. $ 9.46 $ 9.95 $ 10.80
======= ======= =======
Total investment return (1) ................................. (1.46)% (1.43)% 3.51%
======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $ 3,177 $ 4,613 $ 2,682
Expenses to average net assets net of waivers
from adviser (2) .......................................... 0.71%* 0.66% 0.62%*
Net investment income to average net assets net
of waivers from adviser (2) ............................... 7.45%* 6.84% 6.71%*
Portfolio turnover rate ..................................... 85% 195% 173%
</TABLE>
57
<PAGE>
PAINEWEBBER HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 6.12 $ 6.66 $ 7.63 $ 7.35 $ 6.96 $ 7.14
-------- -------- -------- -------- -------- --------
Net investment income ....................................... 0.31** 0.71** 0.67 0.69 0.72 0.79
Net realized and unrealized gains (losses) from investments.. (1.14)** (0.55)** (0.99) 0.27 0.37 (0.17)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations .......... (0.83) 0.16 (0.32) 0.96 1.09 0.62
-------- -------- -------- -------- -------- --------
Dividends from net investment income ........................ (0.32) (0.70) (0.65) (0.68) (0.70) (0.80)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............................. $ 4.97 $ 6.12 $ 6.66 $ 7.63 $ 7.35 $ 6.96
======== ======== ======== ======== ======== ========
Total investment return (1) ................................. (14.05)% 2.42% (4.46)% 13.59% 16.55% 9.01%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $163,374 $232,825 $258,559 $272,325 $243,564 $248,619
Expenses to average net assets............................... 0.99%* 0.94% 0.91% 0.98% 0.96% 0.93%
Net investment income to average net assets.................. 10.24%* 10.83% 9.10% 9.21% 10.10% 11.17%
Portfolio turnover rate ..................................... 26% 62% 161% 160% 142% 94%
</TABLE>
--------------------
* Annualized.
** Calculated using average daily shares outstanding for the period.
+ Commencement of issuance of shares.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges or
program fees; results would be lower if they were included. Total
investment return for periods less than one year has not been annualized.
58
<PAGE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 6.11 $ 6.65 $ 7.63 $ 7.35 $ 6.95 $ 7.14
-------- -------- -------- -------- -------- --------
Net investment income ....................................... 0.28** 0.66** 0.63 0.63 0.66 0.74
Net realized and unrealized gains (losses) from investments.. (1.13)** (0.55)** (1.01) 0.27 0.39 (0.18)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations .......... (0.85) 0.11 (0.38) 0.90 1.05 0.56
-------- -------- -------- -------- -------- --------
Dividends from net investment income ........................ (0.30) (0.65) (0.60) (0.62) (0.65) (0.75)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............................. $ 4.96 $ 6.11 $ 6.65 $ 7.63 $ 7.35 $ 6.95
======== ======== ======== ======== ======== ========
Total investment return (1) ................................. (14.43)% 1.63% (5.32)% 12.76% 15.86% 8.05%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $ 51,915 $ 93,390 $176,997 $236,656 $215,492 $212,946
Expenses to average net assets............................... 1.77%* 1.70% 1.66% 1.73% 1.71% 1.68%
Net investment income to average net assets ................. 9.37%* 10.03% 8.30% 8.45% 9.34% 10.42%
Portfolio turnover rate ..................................... 26% 62% 161% 160% 142% 94%
<CAPTION>
CLASS C
------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
MAY 31, FOR THE YEARS ENDED NOVEMBER 30,
2000 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 6.12 $ 6.67 $ 7.64 $ 7.36 $ 6.97 $ 7.15
-------- -------- -------- -------- -------- --------
Net investment income ....................................... 0.29** 0.67** 0.64 0.65 0.68 0.76
Net realized and unrealized gains (losses) from investments.. (1.13)** (0.55)** (0.99) 0.27 0.38 (0.18)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations .......... (0.84) 0.12 (0.35) 0.92 1.06 0.58
-------- -------- -------- -------- -------- --------
Dividends from net investment income ........................ (0.31) (0.67) (0.62) (0.64) (0.67) (0.76)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............................. $ 4.97 $ 6.12 $ 6.67 $ 7.64 $ 7.36 $ 6.97
======== ======== ======== ======== ======== ========
Total investment return (1) ................................. (14.20)% 1.75% (4.92)% 13.03% 15.96% 8.45%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $ 52,003 $ 80,961 $ 98,982 $115,757 $ 94,445 $103,911
Expenses to average net assets .............................. 1.50%* 1.44% 1.41% 1.48% 1.47% 1.44%
Net investment income to average net assets ................. 9.72%* 10.34% 8.58% 8.66% 9.60% 10.63%
Portfolio turnover rate ..................................... 26% 62% 161% 160% 142% 94%
<CAPTION>
CLASS Y
-----------------------------------------------
FOR THE FOR THE PERIOD
SIX MONTHS FEBRUARY 20,
ENDED FOR THE YEAR 1998+
MAY 31, ENDED THROUGH
2000 NOVEMBER 30, NOVEMBER 30,
(UNAUDITED) 1999 1998
------------- ------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period ........................ $ 6.11 $ 6.65 $ 7.79
------- ------- -------
Net investment income ....................................... 0.33** 0.72** 0.53
Net realized and unrealized gains (losses) from investments.. (1.15)** (0.54)** (1.14)
------- ------- -------
Net increase (decrease) from investment operations .......... (0.82) 0.18 (0.61)
------- ------- -------
Dividends from net investment income ........................ (0.33) (0.72) (0.53)
------- ------- -------
Net asset value, end of period .............................. $ 4.96 $ 6.11 $ 6.65
======= ======= =======
Total investment return (1) ................................. (13.97)% 2.68% (8.43)%
======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................... $791 $2,142 $ 2,633
Expenses to average net assets .............................. 0.74%* 0.68% 0.63%*
Net investment income to average net assets ................. 10.29%* 11.16% 9.78%*
Portfolio turnover rate ..................................... 26% 62% 161%
</TABLE>
59
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
<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 James F. Keegan
PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell Dennis L. McCauley
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
Paul H. Schubert Nirmal Singh
VICE PRESIDENT AND TREASURER VICE PRESIDENT
Julieanna Berry
VICE PRESIDENT
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, New York 10019
SUB-ADVISER
(PaineWebber Low Duration U.S. Government Income Fund)
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR ANY OF THE FUNDS LISTED ON
THE BACK COVER CAN BE OBTAINED FROM A PAINEWEBBER FINANCIAL ADVISOR OR
CORRESPONDENT FIRM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
THE FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE FUNDS
WITHOUT EXAMINATION BY INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN OPINION
THEREON.
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE OFFERING OF SHARES OF THE
FUNDS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
PaineWebber offers a family of 26 funds which
encompass a diversified range of investment goals.
BOND FUNDS
- High Income Fund
- Investment Grade Income Fund
- Low Duration U.S. Government Income Fund
- Strategic Income Fund
- U.S. Government Income Fund
TAX-FREE BOND FUNDS
- California Tax-Free Income Fund
- Municipal High Income Fund
- National Tax-Free Income Fund
- New York Tax-Free Income Fund
STOCK FUNDS
- Enhanced S&P 500 Fund
- Enhanced Nasdaq 100 Fund
- Financial Services Growth Fund
- Growth Fund
- Growth and Income Fund
- Mid Cap Fund
- Small Cap Fund
- S&P 500 Index Fund
- Strategy Fund
- Tax-Managed Equity Fund
ASSET ALLOCATION FUNDS
- Balanced Fund
- Tactical Allocation Fund
GLOBAL FUNDS
- Asia Pacific Growth Fund
- Emerging Markets Equity Fund
- Global Equity Fund
- Global Income Fund
PAINE WEBBER MONEY MARKET FUND
PAINEWEBBER
-C-2000 PaineWebber Incorporated
All rights reserved
Member SIPC
PAINEWEBBER
----------------------------------------
SEMIANNUAL REPORT
BOND FUNDS
U.S. GOVERNMENT
INCOME FUND
LOW DURATION
U.S. GOVERNMENT
INCOME FUND
INVESTMENT GRADE
INCOME FUND
HIGH INCOME FUND
MAY 31, 2000
