<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber U.S. Government
Income Fund (Class A) and the Lehman Brothers Government Bond Index, for the 10
years from November 30, 1989 through November 30, 1999
<TABLE>
<CAPTION>
[GRAPH]
PaineWebber U.S. Government Lehman Brothers Government
Income Fund (Class A) Bond Index
<S> <C> <C>
Nov-89 $9,596 $10,097
Dec-89 $9,681 $10,114
Jan-90 $9,537 $9,971
Feb-90 $9,594 $9,990
Mar-90 $9,613 $9,988
Apr-90 $9,485 $9,901
May-90 $9,795 $10,177
Jun-90 $9,949 $10,338
Jul-90 $10,105 $10,470
Aug-90 $10,001 $10,324
Sep-90 $10,066 $10,424
Oct-90 $10,178 $10,593
Nov-90 $10,398 $10,829
Dec-90 $10,617 $10,996
Jan-91 $10,716 $11,114
Feb-91 $10,810 $11,177
Mar-91 $10,860 $11,234
Apr-91 $10,965 $11,358
May-91 $11,046 $11,402
Jun-91 $11,023 $11,386
Jul-91 $11,199 $11,522
Aug-91 $11,429 $11,789
Sep-91 $11,643 $12,037
Oct-91 $11,783 $12,143
Nov-91 $11,834 $12,264
Dec-91 $12,214 $12,682
Jan-92 $11,975 $12,484
Feb-92 $12,065 $12,533
Mar-92 $12,062 $12,460
Apr-92 $12,126 $12,539
May-92 $12,350 $12,770
Jun-92 $12,503 $12,952
Jul-92 $12,641 $13,279
Aug-92 $12,764 $13,402
Sep-92 $12,841 $13,591
Oct-92 $12,737 $13,395
Nov-92 $12,771 $13,375
Dec-92 $12,975 $13,597
Jan-93 $13,101 $13,886
Feb-93 $13,245 $14,163
Mar-93 $13,294 $14,210
Apr-93 $13,344 $14,319
May-93 $13,277 $14,304
Jun-93 $13,478 $14,621
Jul-93 $13,574 $14,710
Aug-93 $13,848 $15,039
Sep-93 $13,883 $15,096
Oct-93 $13,916 $15,153
Nov-93 $13,714 $14,986
Dec-93 $13,815 $15,045
Jan-94 $13,958 $15,251
Feb-94 $13,685 $14,928
Mar-94 $13,258 $14,592
Apr-94 $12,963 $14,476
May-94 $12,767 $14,458
Jun-94 $12,636 $14,424
Jul-94 $12,738 $14,690
Aug-94 $12,773 $14,693
Sep-94 $12,524 $14,486
Oct-94 $12,450 $14,474
Nov-94 $12,395 $14,448
Dec-94 $12,364 $14,536
Jan-95 $12,523 $14,806
Feb-95 $12,788 $15,125
Mar-95 $12,863 $15,220
Apr-95 $13,028 $15,419
May-95 $13,521 $16,041
Jun-95 $13,623 $16,164
Jul-95 $13,573 $16,105
Aug-95 $13,720 $16,295
Sep-95 $13,836 $16,451
Oct-95 $14,035 $16,701
Nov-95 $14,216 $16,962
Dec-95 $14,471 $17,202
Jan-96 $14,526 $17,307
Feb-96 $14,139 $16,954
Mar-96 $14,006 $16,812
Apr-96 $13,921 $16,704
May-96 $13,880 $16,676
Jun-96 $14,007 $16,891
Jul-96 $14,024 $16,933
Aug-96 $13,949 $16,896
Sep-96 $14,155 $17,176
Oct-96 $14,440 $17,554
Nov-96 $14,698 $17,860
Dec-96 $14,612 $17,678
Jan-97 $14,599 $17,697
Feb-97 $14,608 $17,722
Mar-97 $14,450 $17,534
Apr-97 $14,662 $17,786
May-97 $14,787 $17,939
Jun-97 $14,967 $18,140
Jul-97 $15,388 $18,656
Aug-97 $15,220 $18,471
Sep-97 $15,473 $18,748
Oct-97 $15,689 $19,072
Nov-97 $15,766 $19,170
Dec-97 $15,991 $19,371
Jan-98 $16,172 $19,661
Feb-98 $16,121 $19,608
Mar-98 $16,129 $19,663
Apr-98 $16,185 $19,752
May-98 $16,331 $19,955
Jun-98 $16,524 $20,183
Jul-98 $16,553 $20,213
Aug-98 $16,885 $20,738
Sep-98 $17,297 $21,298
Oct-98 $17,140 $21,226
Nov-98 $17,194 $21,232
Dec-98 $17,255 $21,279
Jan-99 $17,338 $21,402
Feb-99 $16,904 $20,893
Mar-99 $17,005 $20,975
Apr-99 $17,050 $21,023
May-99 $16,891 $20,838
Jun-99 $16,737 $20,796
Jul-99 $16,638 $20,765
Aug-99 $16,587 $20,765
Sep-99 $16,762 $20,933
Oct-99 $16,836 $20,967
Nov-99 $16,826 $20,937
</TABLE>
Past performance is no guarantee of future performance. The performance of the
other classes will vary from the performance of the class shown because of
differences in sales charges and fees paid by shareholders investing in
different classes.
The graph depicts the performance of PaineWebber U.S. Government Income Fund
(Class A) versus the Lehman Brothers Government Bond Index. It is important to
note PaineWebber U.S. Government Income Fund is a professionally managed mutual
fund while the Index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
AVERAGE ANNUAL % TOTAL RETURN, PERIODS ENDED 11/30/99
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS INCEPTION(0)
<S> <C> <C> <C> <C> <C>
Class A* -2.14 6.30 5.78 7.45
Class B** -2.93 5.47 N/A 4.53
Before Deducting
Maximum Sales Charge Class C+ -2.65 5.76 N/A 3.36
Class Y++ -1.84 6.63 N/A 4.96
Class A* -6.02 5.45 5.34 7.16
Class B** -7.55 5.15 N/A 4.53
After Deducting
Maximum Sales Charge Class C+ -3.34 5.76 N/A 3.36
Class Y++ -1.84 6.63 N/A 4.96
Lehman Brothers -1.38 7.71 7.57 9.39
Government Bond Index
</TABLE>
The investment return and the principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
(0) 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.
1
<PAGE>
ANNUAL REPORT PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber Low
Duration U.S. Government Income Fund (Classes A, B and C) and the Merrill Lynch
1-3 Year U.S. Treasury Index, from May 3, 1993 through November 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
PaineWebber Low PaineWebber Low PaineWebber Low
Duration U.S. Government Duration U.S. Government Duration U.S. Government ML 1-3 Year U.S.
Income Fund (Class A) Income Fund (Class B) Income Fund (Class C) Treasury Index
<S> <C> <C> <C> <C> <C>
May-93 $9,651 $9,980 $9,960 $9,972
Jun-93 $9,736 $10,039 $10,042 $10,046
Jul-93 $9,780 $10,079 $10,084 $10,069
Aug-93 $9,824 $10,117 $10,124 $10,156
Sep-93 $9,788 $10,074 $10,083 $10,189
Oct-93 $9,829 $10,110 $10,121 $10,209
Nov-93 $9,872 $10,147 $10,161 $10,212
Dec-93 $9,930 $10,197 $10,114 $10,250
Jan-94 $9,948 $10,213 $10,231 $10,316
Feb-94 $9,950 $10,207 $10,228 $10,250
Mar-94 $9,951 $10,202 $10,225 $10,199
Apr-94 $9,788 $10,029 $10,053 $10,163
May-94 $9,385 $9,610 $9,635 $10,177
Jun-94 $9,221 $9,436 $9,463 $10,208
Jul-94 $9,466 $9,680 $9,710 $10,295
Aug-94 $9,217 $9,420 $9,451 $10,331
Sep-94 $9,467 $9,669 $9,703 $10,308
Oct-94 $9,470 $9,665 $9,701 $10,330
Nov-94 $9,428 $9,615 $9,654 $10,284
Dec-94 $9,494 $9,673 $9,715 $10,308
Jan-95 $9,561 $9,738 $9,761 $10,451
Feb-95 $9,695 $9,867 $9,913 $10,594
Mar-95 $9,745 $9,911 $9,960 $10,653
Apr-95 $9,881 $10,042 $10,223 $10,748
May-95 $10,013 $10,168 $10,223 $10,936
Jun-95 $10,018 $10,166 $10,223 $10,995
Jul-95 $10,066 $10,206 $10,223 $11,040
Aug-95 $10,156 $10,291 $10,354 $11,107
Sep-95 $10,205 $10,334 $10,399 $11,161
Oct-95 $10,300 $10,423 $10,490 $11,255
Nov-95 $10,394 $10,510 $10,580 $11,354
Dec-95 $10,515 $10,620 $10,695 $11,441
Jan-96 $10,585 $10,688 $10,764 $11,538
Feb-96 $10,498 $10,592 $10,670 $11,490
Mar-96 $10,501 $10,590 $10,688 $11,480
Apr-96 $10,504 $10,585 $10,665 $11,489
May-96 $10,506 $10,580 $10,661 $11,513
Jun-96 $10,602 $10,688 $10,753 $11,596
Jul-96 $10,606 $10,665 $10,752 $11,641
Aug-96 $10,658 $10,710 $10,799 $11,681
Sep-96 $10,766 $10,811 $10,903 $11,787
Oct-96 $10,915 $10,954 $11,049 $11,920
Nov-96 $11,066 $11,098 $11,197 $12,012
Dec-96 $11,100 $11,121 $11,223 $12,012
Jan-97 $11,174 $11,144 $11,248 $12,068
Feb-97 $11,184 $11,194 $11,300 $12,096
Mar-97 $11,145 $11,147 $11,255 $12,091
Apr-97 $11,242 $11,237 $11,348 $12,190
May-97 $11,342 $11,329 $11,449 $12,273
Jun-97 $11,393 $11,372 $11,488 $12,358
Jul-97 $11,540 $11,511 $11,631 $12,494
Aug-97 $11,592 $11,555 $11,677 $12,505
Sep-97 $11,695 $11,601 $11,726 $12,600
Oct-97 $11,797 $11,695 $11,823 $12,694
Nov-97 $11,804 $11,743 $11,874 $12,724
Dec-97 $11,883 $11,809 $11,944 $12,811
Jan-98 $11,960 $11,882 $12,019 $12,935
Feb-98 $12,015 $11,930 $12,069 $12,946
Mar-98 $12,077 $11,982 $12,124 $12,999
Apr-98 $12,128 $11,975 $12,119 $13,061
May-98 $12,179 $12,068 $12,215 $13,130
Jun-98 $12,253 $12,131 $12,281 $13,198
Jul-98 $12,312 $12,129 $12,282 $13,260
Aug-98 $12,465 $12,272 $12,429 $13,427
Sep-98 $12,571 $12,420 $12,580 $13,604
Oct-98 $12,526 $12,315 $12,476 $13,671
Nov-98 $12,525 $12,358 $12,521 $13,659
Dec-98 $12,638 $12,407 $12,573 $13,707
Jan-99 $12,677 $12,490 $12,659 $13,761
Feb-99 $12,571 $12,378 $12,546 $13,694
Mar-99 $12,629 $12,426 $12,598 $13,788
Apr-99 $12,686 $12,474 $12,648 $13,833
May-99 $12,625 $12,406 $12,580 $13,824
Jun-99 $12,624 $12,405 $12,519 $13,867
Jul-99 $12,567 $12,348 $12,509 $13,912
Aug-99 $12,617 $12,398 $12,553 $13,952
Sep-99 $12,723 $12,502 $12,651 $14,043
Oct-99 $12,718 $12,497 $12,640 $14,080
Nov-99 $12,775 $12,559 $12,634 $14,107
</TABLE>
Past performance is no guarantee of future performance. The performance of the
other classes will vary from the performance of the class shown because of
differences in sales charges and fees paid by shareholders investing in the
other class.
The graph depicts the performance of PaineWebber Low Duration U.S. Government
Income Fund (Classes A, B and C) versus the Merrill Lynch 1-3 Year U.S. Treasury
Index. It is important to note PaineWebber Low Duration U.S. Government Income
Fund is a professionally managed mutual fund while the Index is not available
for investment and is unmanaged. The comparison is shown for illustrative
purposes only.
AVERAGE ANNUAL % TOTAL RETURN, PERIODS ENDED 11/30/99
<TABLE>
<CAPTION>
1 Year 5 Years Inception(0)
<S> <C> <C> <C> <C>
Class A* 1.99 6.26 4.29
Class B** 0.71 5.30 3.38
Before Deducting
Maximum Sales Charge Class C+ 0.90 5.53 3.62
Class Y++ 1.81 N/A 5.47
Class A* -0.92 5.62 3.79
Class B** -2.18 5.30 3.38
After Deducting Class C+ 0.18 5.53 3.62
Maximum Sales Charge
Class Y++ 1.81 N/A 5.47
Merrill Lynch 1-3 Year 3.28 6.52 5.36
U.S. Treasury Index
</TABLE>
The investment return and the principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
(0) Inception: since commencement of issuance on May 3, 1993 for Classes A, B
and C shares and October 23, 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.
2
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber Investment Grade
Income Fund (Class A) and the Lehman Brothers Corporate Bond Index, for the 10
years from November 30, 1989 through November 30, 1999
<TABLE>
<CAPTION>
[GRAPH]
PaineWebber Investment Grade Income Fund (Class A) Lehman Brothers Corporate Bond Index
<S> <C> <C>
Nov-89 $9,599 $10,000
Dec-89 $9,659 $10,070
Jan-90 $9,552 $10,080
Feb-90 $9,579 $9,955
Mar-90 $9,599 $9,983
Apr-90 $9,518 $9,992
May-90 $9,739 $9,888
Jun-90 $9,891 $10,207
Jul-90 $9,983 $10,382
Aug-90 $9,854 $10,499
Sep-90 $9,880 $10,332
Oct-90 $9,956 $10,380
Nov-90 $10,132 $10,427
Dec-90 $10,284 $10,641
Jan-91 $10,393 $10,791
Feb-91 $10,552 $10,928
Mar-91 $10,693 $11,115
Apr-91 $10,866 $11,252
May-91 $10,938 $11,398
Jun-91 $10,956 $11,477
Jul-91 $11,076 $11,475
Aug-91 $11,328 $11,640
Sep-91 $11,576 $11,903
Oct-91 $11,672 $12,148
Nov-91 $11,771 $12,264
Dec-91 $12,194 $12,384
Jan-92 $12,115 $12,789
Feb-92 $12,171 $12,629
Mar-92 $12,148 $12,750
Apr-92 $12,215 $12,695
May-92 $12,450 $12,759
Jun-92 $12,606 $13,043
Jul-92 $12,943 $13,248
Aug-92 $13,071 $13,602
Sep-92 $13,216 $13,708
Oct-92 $12,913 $13,874
Nov-92 $12,994 $13,627
Dec-92 $13,275 $13,649
Jan-93 $13,518 $13,901
Feb-93 $13,902 $14,225
Mar-93 $13,998 $14,552
Apr-93 $14,094 $14,603
May-93 $14,115 $14,716
Jun-93 $14,420 $14,733
Jul-93 $14,595 $15,091
Aug-93 $14,944 $15,200
Sep-93 $15,004 $15,578
Oct-93 $15,130 $15,616
Nov-93 $14,913 $15,694
Dec-93 $15,047 $15,501
Jan-94 $15,291 $15,592
Feb-94 $14,962 $15,895
Mar-94 $14,406 $15,520
Apr-94 $14,219 $15,043
May-94 $14,044 $14,899
Jun-94 $13,948 $14,844
Jul-94 $14,205 $14,806
Aug-94 $14,223 $15,181
Sep-94 $13,996 $15,198
Oct-94 $13,984 $14,915
Nov-94 $14,019 $14,881
Dec-94 $14,206 $14,857
Jan-95 $14,346 $14,980
Feb-95 $14,706 $15,298
Mar-95 $14,802 $15,738
Apr-95 $15,048 $15,868
May-95 $15,696 $16,136
Jun-95 $15,820 $16,896
Jul-95 $15,747 $17,048
Aug-95 $15,976 $16,973
Sep-95 $16,160 $17,246
Oct-95 $16,426 $17,451
Nov-95 $16,676 $17,678
Dec-95 $16,992 $18,016
Jan-96 $17,042 $18,313
Feb-96 $16,690 $18,432
Mar-96 $16,564 $17,993
Apr-96 $16,422 $17,840
May-96 $16,420 $17,692
Jun-96 $16,639 $17,662
Jul-96 $16,664 $17,922
Aug-96 $16,663 $17,956
Sep-96 $16,966 $17,900
Oct-96 $17,361 $18,280
Nov-96 $17,731 $18,779
Dec-96 $17,669 $19,181
Jan-97 $17,669 $18,916
Feb-97 $17,807 $18,942
Mar-97 $17,575 $19,022
Apr-97 $17,802 $18,725
May-97 $18,027 $19,010
Jun-97 $18,325 $19,225
Jul-97 $18,989 $19,498
Aug-97 $18,761 $20,211
Sep-97 $19,068 $19,912
Oct-97 $19,303 $20,261
Nov-97 $19,484 $20,518
Dec-97 $19,777 $20,633
Jan-98 $19,937 $20,852
Feb-98 $19,916 $21,099
Mar-98 $20,032 $21,093
Apr-98 $20,125 $21,171
May-98 $20,367 $21,304
Jun-98 $20,645 $21,557
Jul-98 $20,577 $21,717
Aug-98 $20,663 $21,697
Sep-98 $20,889 $21,799
Oct-98 $20,377 $22,506
Nov-98 $20,725 $22,159
Dec-98 $20,719 $22,576
Jan-99 $20,858 $22,642
Feb-99 $20,335 $22,865
Mar-99 $20,464 $22,323
Apr-99 $20,538 $22,481
May-99 $20,360 $22,546
Jun-99 $20,252 $22,245
Jul-99 $20,197 $22,129
Aug-99 $20,138 $22,007
Sep-99 $20,293 $21,953
Oct-99 $20,240 $22,192
Nov-99 $20,390 $22,294
</TABLE>
Past performance is no guarantee of future performance. The performance of the
other classes will vary from the performance of the class shown because of
differences in sales charges and fees paid by shareholders investing in
different classes.
The graph depicts the performance of PaineWebber Investment Grade Income Fund
(Class A) versus the Lehman Brothers Corporate Bond Index. It is important to
note PaineWebber Investment Grade Income Fund is a professionally managed mutual
fund while the Index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
AVERAGE ANNUAL % TOTAL RETURN, PERIODS ENDED 11/30/99
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Inception(0)
<S> <C> <C> <C> <C> <C>
Class A* -1.62 7.78 7.82 9.09
Class B** -2.46 6.95 N/A 7.02
Before Deducting
Maximum Sales Charge Class C+ -2.20 7.23 N/A 5.95
Class Y++ -1.43 N/A N/A 1.14
Class A* -5.56 6.91 7.38 8.80
After Deducting Class B** -7.07 6.64 N/A 7.02
Maximum Sales Charge
Class C+ -2.89 7.23 N/A 5.95
Class Y++ -1.43 N/A N/A 1.14
Lehman Brothers -1.14 8.48 8.28 11.91
Corporate Bond Index
</TABLE>
The investment return and the principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
(0) 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.
3
<PAGE>
ANNUAL REPORT PAINEWEBBER HIGH INCOME FUND
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in PaineWebber High Income Fund
(Class A) and the Credit Suisse First Boston High Yield Bond Index, for the 10
years from November 30, 1989 through November 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
PaineWebber High Income Fund (A) CS First Boston High Yield Bond Index
<S> <C> <C>
Nov-89 $9,602 $10,020
Dec-89 $9,485 $9,975
Jan-90 $9,104 $9,624
Feb-90 $8,803 $9,446
Mar-90 $8,899 $9,718
Apr-90 $8,902 $9,759
May-90 $9,235 $9,962
Jun-90 $9,457 $10,275
Jul-90 $9,752 $10,607
Aug-90 $9,233 $10,117
Sep-90 $8,675 $9,346
Oct-90 $8,328 $9,111
Nov-90 $8,358 $9,294
Dec-90 $8,676 $9,338
Jan-91 $8,900 $9,594
Feb-91 $9,841 $10,421
Mar-91 $10,407 $11,068
Apr-91 $10,807 $11,527
May-91 $10,838 $11,584
Jun-91 $11,164 $11,888
Jul-91 $11,596 $12,290
Aug-91 $11,817 $12,513
Sep-91 $12,026 $12,798
Oct-91 $12,573 $13,221
Nov-91 $12,630 $13,327
Dec-91 $12,756 $13,424
Jan-92 $13,413 $13,971
Feb-92 $13,794 $14,310
Mar-92 $14,074 $14,523
Apr-92 $14,166 $14,536
May-92 $14,458 $14,734
Jun-92 $14,606 $14,880
Jul-92 $14,938 $15,109
Aug-92 $15,302 $15,318
Sep-92 $15,525 $15,417
Oct-92 $15,307 $15,257
Nov-92 $15,534 $15,486
Dec-92 $15,825 $15,661
Jan-93 $16,177 $16,088
Feb-93 $16,556 $16,407
Mar-93 $16,903 $16,753
Apr-93 $17,134 $16,848
May-93 $17,685 $17,094
Jun-93 $18,050 $17,404
Jul-93 $18,201 $17,585
Aug-93 $18,377 $17,734
Sep-93 $18,512 $17,835
Oct-93 $18,883 $18,162
Nov-93 $19,090 $18,391
Dec-93 $19,424 $18,622
Jan-94 $20,035 $18,954
Feb-94 $20,293 $18,982
Mar-94 $19,831 $18,424
Apr-94 $19,325 $18,177
May-94 $19,102 $18,281
Jun-94 $18,803 $18,158
Jul-94 $18,547 $18,244
Aug-94 $18,097 $18,375
Sep-94 $17,903 $18,449
Oct-94 $17,750 $18,461
Nov-94 $17,333 $18,247
Dec-94 $17,154 $18,441
Jan-95 $17,174 $18,634
Feb-95 $17,742 $19,093
Mar-95 $17,966 $19,308
Apr-95 $18,471 $19,737
May-95 $18,635 $20,290
Jun-95 $18,570 $20,424
Jul-95 $19,005 $20,740
Aug-95 $19,117 $20,798
Sep-95 $19,283 $21,037
Oct-95 $19,296 $21,271
Nov-95 $18,895 $21,371
Dec-95 $19,035 $21,642
Jan-96 $19,394 $22,054
Feb-96 $19,716 $22,170
Mar-96 $19,739 $22,111
Apr-96 $20,162 $22,230
May-96 $20,492 $22,410
Jun-96 $20,500 $22,459
Jul-96 $20,597 $22,662
Aug-96 $20,943 $22,909
Sep-96 $21,415 $23,303
Oct-96 $21,518 $23,498
Nov-96 $22,022 $23,865
Dec-96 $22,409 $24,318
Jan-97 $22,553 $24,496
Feb-97 $22,970 $24,956
Mar-97 $22,533 $24,677
Apr-97 $22,675 $24,896
May-97 $23,349 $25,397
Jun-97 $23,813 $25,742
Jul-97 $24,436 $26,288
Aug-97 $24,358 $26,430
Sep-97 $25,127 $26,953
Oct-97 $24,812 $26,951
Nov-97 $25,015 $27,142
Dec-97 $25,318 $27,389
Jan-98 $25,736 $27,855
Feb-98 $26,076 $28,072
Mar-98 $26,632 $28,212
Apr-98 $26,670 $28,424
May-98 $26,642 $28,504
Jun-98 $26,608 $28,567
Jul-98 $26,736 $28,767
Aug-98 $23,780 $26,814
Sep-98 $23,522 $26,811
Oct-98 $22,568 $26,278
Nov-98 $23,900 $27,610
Dec-98 $23,745 $27,547
Jan-99 $24,098 $27,806
Feb-99 $23,862 $27,747
Mar-99 $24,118 $28,000
Apr-99 $25,122 $28,619
May-99 $24,823 $28,309
Jun-99 $25,039 $28,324
Jul-99 $25,013 $28,338
Aug-99 $24,636 $28,086
Sep-99 $24,275 $27,869
Oct-99 $23,856 $27,733
Nov-99 $24,479 $28,110
</TABLE>
Past performance is no guarantee of future performance. The performance of the
other classes will vary from the performance of the class shown because of
differences in sales charges and fees paid by shareholders investing in
different classes.
The graph depicts the performance of PaineWebber High Income Fund (Class A)
versus the Credit Suisse First Boston High Yield Bond Index. It is important to
note PaineWebber High Income Fund is a professionally managed mutual fund while
the Index is not available for investment and is unmanaged. The comparison is
shown for illustrative purposes only.
AVERAGE ANNUAL % TOTAL RETURN, PERIODS ENDED 11/30/99
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Inception(0)
<S> <C> <C> <C> <C> <C>
Class A* 2.42 7.15 9.81 9.53
Class B** 1.63 6.31 N/A 9.07
Before Deducting
Maximum Sales Charge Class C+ 1.75 6.58 N/A 6.52
Class Y++ 2.68 N/A N/A -3.41
Class A* 1.71 6.27 9.37 9.24
Class B** 2.97 6.04 N/A 9.07
After Deducting
Maximum Sales Charge Class C+ 1.06 6.58 N/A 6.52
Class Y++ 2.68 N/A N/A -3.41
CS First Boston High 1.81 9.04 10.87 N/A
Yield Bond Index
</TABLE>
The investment return and the principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
(0) 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.
4
<PAGE>
ANNUAL REPORT
Dear Shareholder, January 15, 2000
We are pleased to present you with the annual 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 fiscal year ended November 30, 1999.
MARKET REVIEW
- --------------------------------------------------------------------------------
Less than a year ago, the world seemed on the brink of a precipice. It all
began in August 1998 with a Russian devaluation and ensuing default, which
exposed the excessive leverage in the system (hedge funds and dealers). A global
margin call caused the capital markets to seize up and a massive
"flight-to-quality" into on-the-run U.S. Treasurys occurred. Investors braced
for a global recession or depression marked by rampant deflation. In January of
1999, fears of deflation turned to fears of inflation as evidence mounted that
the global economy was not collapsing but actually rebounding. With the
resumption of global growth and the continuation of one of the longest U.S.
expansions on record, interest rates began to rise, creating difficult
conditions for the bond markets.
Faced with an extremely tight labor market and accelerating global growth,
the Federal Reserve (the Fed) raised the Federal Funds rate three times during
the fiscal year, by 25 basis points each time (bps; a basis point equals one
one-hundredth of one percent). These increases reversed the 75 bps of emergency
easings engineered in late 1998 to stave off the global financial crisis. The
30-year Treasury bond's yield increased from 5.07% on November 30, 1998 to 6.29%
on November 30, 1999, one of its worst performances ever. At the same time,
short-term rates rose significantly, with 90-day T-bills moving from a yield
equivalent of 4.49% at the beginning of the fiscal year, to a yield of 5.30% at
its close.
U.S. TREASURY YIELD CURVES; 11/30/98 TO 11/30/99
<TABLE>
<CAPTION>
11/30/98 11/30/99
<S> <C> <C>
3M 4.49% 5.30%
6M 4.60% 5.55%
1Y 4.50% 5.67%
2Y 4.52% 6.01%
5Y 4.48% 6.11%
10Y 4.72% 6.19%
30Y 5.07% 6.29%
</TABLE>
Mortgage "spreads" to Treasurys narrowed for most of the year, benefiting
portfolios with mortgage exposure. (The spread is the difference in yield or
income securities must pay to compensate for their greater risk relative to U.S.
Treasurys.) High-yield bonds achieved modest gains for the fiscal year, gaining
1.81% as measured by the Credit Suisse First Boston High Yield Bond Index.
Corporate bonds suffered from a temporary oversupply in the middle of the year
but rallied into year-end on strong fundamentals and improved technicals.
Corporate bonds outperformed U.S. Treasurys, but higher interest rates resulted
in a loss of 1.14% as measured by the Lehman Brothers Corporate Bond Index.
Despite the fact that such spreads to Treasurys
5
<PAGE>
ANNUAL REPORT
narrowed, these sectors did not return to their levels before the Russian debt
crisis of August 1998.
OUTLOOK
Although the Fed did not adopt a tightening bias at its December Open Market
Committee meeting, it is likely that it is inclined to raise rates further. With
the evidence so far suggesting that Y2K-related problems have largely been
avoided, the Fed will focus initially on its near-term chore of mopping up the
flood of liquidity it provided to the banking system ahead of the year-end
changeover. Beyond that, however, is the more enduring question of just how much
growth the economy can enjoy without reigniting inflation. While sympathetic to
the argument for a new, inflation-free economy driven by productivity gains and
excess global capacity, the Fed remains cautious. Interest rates appear headed
higher, with unemployment at 30-year lows, consumer confidence near record
highs, equity markets ebullient and economic expansion underway around much of
the globe. In particular, the deflationary impacts of dormant commodity prices
and a strong dollar are beginning to reverse. In the first half of 2000, we
expect an active Federal Reserve and rising rates across the yield curve. We
look for moderating economic growth in the second half of the year, and believe
interest rates will recede in response to slowing growth and the absence of real
inflationary pressure. In this environment, we believe the spread
sectors--mortgages, agencies, investment-grade corporate and high-yield
bonds--will perform well.
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO REVIEW
The Fund's mid-range duration (about 5.3 years) resulted in a negative return
for the fiscal year as interest rates rose. (Duration is a measure of a bond
portfolio's sensitivity to interest rate changes.) The incremental yield of the
Fund's mortgage and agency holdings, as well as from the spread contraction in
those sectors, benefited the Fund, moderately offsetting the negative impact of
rising rates.
Mortgage spreads to Treasurys remained historically wide and volatile
throughout the Fund's fiscal year. Such market behavior typically occurs during
periods of economic dislocation. During the recession of the late 1980s and
early 1990s, for example, problems in the real estate, banking and insurance
industries led to spread widening equivalent to current levels. In contrast,
today's wide spreads seem to arise from market technical factors such as heavy
issuance of securities and reduced liquidity related to Y2K concerns.
Throughout the fiscal year the Fund maintained a significant allocation to
agency and mortgage securities (see table below). Fund performance also
benefited from our rotation between agencies and mortgages to take advantage of
arbitrage opportunities caused by market volatility.
PaineWebber U.S. Government Income Fund
PROFILE
INVESTMENT GOAL:
High current income consistent with preservation of capital and liquidity
PORTFOLIO MANAGER:
Nirmal Singh, 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
6
<PAGE>
ANNUAL REPORT
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW DURATION U.S.
GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT GRADE INCOME FUND,
PAINEWEBBER HIGH INCOME FUND
PAINEWEBBER U.S. GOVERNMENT INCOME FUND--SECTOR ALLOCATION*
<TABLE>
<CAPTION>
11/30/99 5/31/99 11/30/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgages 58.0% 56.2% 59.1%
Treasurys 17.4 20.6 25.0
Agencies 23.9 23.2 15.5
Cash 0.7 0.0 0.4
- --------------------------------------------------------------------------------
Total 100.0 100.0 100.0
</TABLE>
GOING FORWARD
Despite recent spread tightening, we continue to find mortgages and agency
debentures attractive. Rising interest rates have diminished the likelihood that
borrowers will prepay or refinance their mortgages. In addition, "implied
volatility" in the options markets has subsided to its historical average.
(Volatility, actual and implied, negatively impacts the performance of
mortgage-backed securities given the prepayment options embedded in the
underlying mortgages.) Technically positive is the recent equilibrium between
mortgage supply and demand, notwithstanding the continuing vigor in housing
markets and historically high mortgage originations.
The Fund's spread-sector allocations generally represent high quality and
high liquidity in the mortgage and agency sectors. As the U.S. Treasury
continues to retire debt, we believe buyers looking for investment alternatives
will increasingly turn to high-quality agencies and mortgages, which in turn
will boost the performance of these securities. We believe the Fund is well
positioned to benefit from the incremental income and performance expected in
these sectors.
PAINEWEBBER U.S. GOVERNMENT INCOME FUND--CHARACTERISTICS*
<TABLE>
<CAPTION>
11/30/99 5/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 5.22 yrs 5.41 yrs
Weighted Average Life 9.7 yrs 9.9 yrs
Average Quality Agency Agency
Leverage 11.1% 16.7%
Net Assets ($mm) $276.3 $308.1
- --------------------------------------------------------------------------------
</TABLE>
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. TheFund's portfolio is actively managed and its
composition will vary over time.
7
<PAGE>
ANNUAL REPORT
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
- ----------------------------------------------------
PORTFOLIO REVIEW
Market interest rates rose as much as 160 basis points as concern about global
financial turmoil and deflation early in the period was replaced by worries
about renewed inflation. The Fed raised the federal funds rate three times
during the period, taking back three rate cuts of the previous year that were
designed to avert a credit squeeze and calm financial markets. The Fed's main
concern in tightening monetary policy was that the economy was growing faster
than its potential, with unemployment at a 29-year low increasing the risks of
wage inflation. Helping restrain interest rate increases, however, was continued
good news about gains in productivity, which reassured investors that growth in
inflation would be modest.
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND--SECTOR ALLOCATION*
<TABLE>
<CAPTION>
As of 11/30/99 As of 5/31/99
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-Backed Securities 53.8% Mortgage-Backed Securities 73.3%
Cash & Equivalents 15.0 Cash & Equivalents 20.4
U.S. Gov't and Agency 31.2 U.S. Gov't and Agency 6.3
- -------------------------------------------------------------------------------------------
Total 100.0 Total 100.0
</TABLE>
PORTFOLIO HIGHLIGHTS
During the period the Fund modestly lagged its benchmark, the Merrill Lynch 1-3
Year Treasury Index. The Fund's above-index duration, or sensitivity to interest
rate changes, hurt performance as rates rose substantially. The Fund's
longer-than-index maturity distribution also detracted from performance as
interest rates climbed most in the intermediate portion of the yield curve. In
contrast, sector allocation was a positive--the Fund benefited from its emphasis
on mortgage-backed securities when mortgages outperformed Treasurys. Higher
interest rates reduced the risk of homeowners prepaying their mortgages, which
typically has an adverse impact on the mortgage market. This allowed investors
to benefit from mortgages' yield advantage relative to Treasurys.
GOING FORWARD
Over the next six to nine months, we expect the economy to expand more slowly as
higher borrowing costs temper growth in consumer and investment spending.
Inflation is likely to increase because of wage pressures, increases in
commodity prices and a weaker dollar. To restrain inflation, the Fed may raise
short-term interest rates modestly in 2000.
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
PaineWebber Low Duration U.S. Government Income Fund
PROFILE
INVESTMENT GOALS:
High income with preservation of capital and low NAV volatility
Portfolio Manager:
William Powers, Pacific Investment Management Company
COMMENCEMENT:
May 3, 1993 (Classes A, B and C), October 23, 1995 (Class Y)
DIVIDEND PAYMENTS:
Monthly
8
<PAGE>
ANNUAL REPORT
PAINEWEBBER U.S. GOVERNMENT INCOME FUND, PAINEWEBBER LOW DURATION U.S.
GOVERNMENT INCOME FUND, PAINEWEBBER INVESTMENT GRADE INCOME FUND,
PAINEWEBBER HIGH INCOME FUND
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND--CHARACTERISTICS*
<TABLE>
<CAPTION>
11/30/99 5/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 1.76 yrs 3.53 yrs
Weighted Average Life 2.78 yrs 2.43 yrs
Average Quality AAA AAA
Weighted Average Coupon 6.33% 7.47%
Derivatives 38% 23%
Net Assets ($mm) $158.9 $135.0
- --------------------------------------------------------------------------------
</TABLE>
We intend to target Fund duration slightly above its benchmark, seeking to
benefit from the higher yields offered by longer maturity securities. Investing
in mortgages still seems to us the most prudent way to enhance portfolio yield
without adding undue risk. We expect to maintain the Fund's exposure to
higher-coupon mortgages, which offer attractive yields and less risk now that
prepayment concerns have abated. 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 place some focus on U.S.
inflation-protected bonds to take advantage of high inflation-adjusted yields.
PAINEWEBBER INVESTMENT GRADE INCOME FUND
- --------------------------------------------------------------------------------
PERFORMANCE ATTRIBUTION
The fiscal year ended November 30, 1999 was a
challenging period for fixed income investors, as higher interest rates resulted
in negative returns for most sectors of the bond market. The performance
differential between the Fund and the Index was primarily a function of the
Fund's yield curve positioning at the end of fiscal 1998. At that time the Fund
was overweighted relative to the Index in long-maturity (30 years or longer)
corporate bonds, which underperformed their short-to-intermediate counterparts
as the Fed was easing to counteract the seizing up of the capital markets and
worsening credit crunch. With the prospect for additional emergency
interest-rate easings--given the fears of deflation and global recession--the
Fund neutralized its yield-curve exposure by selling some of those long-duration
positions at wide spread levels.
By mid-fiscal year, as global healing gave way to global growth, the Fund
shifted its duration to slightly shorter than the Index. (Duration is a measure
of a bond portfolio's sensitivity to interest rate changes.) The Fund's shorter
duration helped performance in the latter half of the fiscal year and partially
offset the losses at the beginning of fiscal 1999. During the same period, we
also reduced the Fund's U.S. government/agency allocation as interest rates
began to rise.
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
PaineWebber Investment Grade Income Fund
PROFILE
INVESTMENT GOAL:
High current income consistent with preservation of capital and liquidity
PORTFOLIO MANAGERS:
Julieanna Berry, James F. Keegan, Mitchell Hutchins Asset Management Inc.
COMMENCEMENT:
August 31, 1984 (Class A), July 1, 1991 (Class B), July 2, 1992 (Class C) and
February 20, 1998 (Class Y)
DIVIDEND PAYMENTS:
Monthly
9
<PAGE>
ANNUAL REPORT
PAINEWEBBER INVESTMENT GRADE INCOME FUND--CHARACTERISTICS*
<TABLE>
<CAPTION>
11/30/99 5/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 5.66 yrs 5.76 yrs
Weighted Average Life 15.85 yrs 16.00 yrs
Net Assets ($mm) $262.1 $282.1
- --------------------------------------------------------------------------------
</TABLE>
PORTFOLIO HIGHLIGHTS
Yankee bank bonds--the Fund accumulated Japanese and European bank positions at
very wide spreads in both Tier I capital securities and 10-year subordinated
debt during the second half of the fiscal year. The rationale for these
investments related to the acceleration of global growth, the bottoming of the
Japanese economy and the anticipated consolidation within these respective
markets.
Crossovers (bonds whose ratings straddle the investment grade and
noninvestment grade sectors) and high yield bonds in the gaming and chemical
sectors were positive contributors to performance.
Current positions of note include the following.
Lumberman's Mutual Casualty Company (Baa1/A-) (2.5%), * a property/casualty
insurer, seems poised for a rebound, since it is currently among the most deeply
discounted issuers in the investment-grade market. The Fund's holdings include
Lumberman's surplus notes, which we believe will benefit as investors look for
value in down-in-structure debt (e.g., surplus notes and capital securities).
Saks Incorporated (Baa3/BB+) (2.0%), had a negative earnings surprise in 1999
and was unduly penalized by the market, given the fact that the credit ratings
were never at risk. In our opinion, Saks' shorter-term debt is attractive given
the current environment where the credit curve is so flat. (If the credit curve
steepened, Saks' longer-term debt would become more attractive.)
Columbia/HCA Healthcare Corporation (1.5%) has spun off several hospitals
that were losing money and is near a final settlement of its long-running
dispute with the Federal government. The bonds have rallied recently and may
have further upside once the settlement cloud is lifted.
MGM Grand Incorporated (1.6%) was upgraded to investment grade by Moody's and
is now rated Baa3/BBB-. We believe the credit has further upside potential.
PAINEWEBBER INVESTMENT GRADE INCOME FUND--TOP FIVE SECTORS*
<TABLE>
<CAPTION>
As of 11/30/99 As of 5/31/99
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance/Banking 15.6% U.S. Gov't and Agency 17.3%
Mortgage-Backed Securities 10.6 Finance/Banking 12.0
U.S. Gov't and Agency 10.4 Mortgage-Backed Securities 8.8
Yankee 10.3 Cable/Media 8.6
Cable/Media 7.9 Insurance 7.4
- -----------------------------------------------------------------------------------------------
Total 54.8 Total 54.1
</TABLE>
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
10
<PAGE>
ANNUAL 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 Y2K behind us, and as global healing gives way to accelerating global
growth in 2000, investors will be less risk averse, in our opinion. Assuming
incremental credit and liquidity risk will be more acceptable, particularly in
an environment characterized by reduced supply. In our view of the world,
investors increasingly will turn to "off-the-run" sectors and issues.
(Off-the-run refers to bonds that are traded less frequently or in smaller lots,
making them less liquid.) We have positioned the Fund to benefit from this
trend. Moreover, the incremental yield available in off-the-run securities
provides a cushion in a rising rate environment.
Another area that we believe is poised to do well in this environment is
"subordinated" structures, e.g., subordinated debt, capital securities and
preferred stock. The subordinated components of the capital structure of several
investment-grade issuers now have the most favorable risk/return
characteristics. We expect to continue adding opportunistically to the Fund's
"subordinated" structures, in issues that have positive credit momentum.
Sectors viewed favorably include: cyclicals such as chemical companies;
consumer credit companies; cable and media companies, especially those that own
the "last mile" into customers' homes and the content providers. The recently
announced merger of America Online and Time Warner is likely to encourage more
such mergers, and result in further spread tightening in this sector. The Fund
owns News America Holdings Incorporated (3.1%) and Liberty Media Corporation
(0.7%), two companies that could benefit in such consolidations. Another sector
that represents potential opportunity is the utility sector, which is evolving
in response to deregulation. Utility companies are rapidly changing their
strategies to become more competitive, and could emerge as a new growth
opportunity in the years ahead. As always, crossovers remain an area of
opportunity due to the inefficiencies in this market sector.
PAINEWEBBER INVESTMENT GRADE INCOME FUND--CREDIT QUALITY*
<TABLE>
<CAPTION>
11/30/99 5/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash & Equivalents 7.5% 1.3%
AAA 20.9 24.3
AA 2.1 7.5
A 24.5 24.6
BBB 22.3 21.8
BB 19.1 17.2
B 2.0 1.7
BELOW B 1.6 1.6
- --------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
Our investment process emphasizes bottom-up, proactive, fundamental credit
research, which we consider essential in a market that severely penalizes
companies for inconsistent results. With each passing year of the expansion,
security selection becomes more important, and we believe careful bond picking
once again will be the key to investment success in 2000.
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
11
<PAGE>
ANNUAL REPORT
PAINEWEBBER HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO REVIEW
For the fiscal year ended November 30, 1999, Class A and Class Y shares
outperformed the Credit Suisse First Boston High Yield Bond Index before
deducting sales charges (see page 4). Sector allocation made the greatest
contribution to Fund performance during the fiscal year.
PAINEWEBBER HIGH INCOME FUND--TOP FIVE SECTORS*
<TABLE>
<CAPTION>
As of 11/30/99 As of 5/31/99
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Communications (fixed) 19.4% Communications (fixed) 16.3%
Cable 11.2 Cable 9.5
Service 8.7 Service 9.2
Technology 8.1 Technology 7.4
General Industrial 5.5 Foods/Beverages 5.0
- ------------------------------------------------------------------------------------------
Total 52.9 Total 47.4
</TABLE>
The Fund's top sector remained fixed communications (conventional telephone
systems), emphasizing companies that own fiber optic networks, such as
Metromedia Fiber (1.3%) and Northeast Optic Network (0.8%).* We believe these
companies will benefit as the standard for telecommunications service shifts to
a combination of voice and data transmission. In cable, we favor new entrants
that offer integrated voice, data and video, such as RCN Corporation (1.2%) and
Knology Holdings (2.0%) in the U.S., and United Pan Europe overseas (1.3%).
PAINEWEBBER HIGH INCOME FUND--CREDIT QUALITY*
<TABLE>
<CAPTION>
11/30/99 5/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash 2.8% 2.2%
BB & Higher 18.7 22.5
B 50.4 49.7
CCC & Lower 10.0 4.6
Non-Rated 9.7 15.0
Equity/Preferred 8.4 6.0
- --------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
PaineWebber High Income Fund
PROFILE
INVESTMENT GOAL:
High income
PORTFOLIO MANAGER:
Thomas J. Libassi, Mitchell Hutchins Asset Management Inc.
COMMENCEMENT:
August 31, 1984 (Class A), July 1, 1991 (Class B), July 2, 1992 (Class C) and
February 20, 1998 (Class Y)
DIVIDEND PAYMENTS:
Monthly
12
<PAGE>
ANNUAL 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
We see the greatest opportunity in the high end of the single-B sector, where
yields of up to 13% are available with what we believe to be less credit risk
than some CCC-rated bonds. We expect to maintain our focus on high single-B
credits going forward.
The high yield sector has been in a bear market since August 1998, after
Russia devalued the ruble. As of mid-November, the CS First Boston High Yield
Bond Index spread to Treasurys is 628 basis points--still well above its average
of 506 bps since the end of the last recession in 1992.
With Y2K behind us and apparently a complete non-event, we think the
high-yield market can solidify the gains it made toward the end of the fiscal
year. We believe the Fund is well positioned to benefit from any rebound--we
think overall credit quality is good and the portfolio is well diversified.
PAINEWEBBER HIGH INCOME FUND--CHARACTERISTICS*
<TABLE>
<CAPTION>
11/30/99 5/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 4.60 yrs 5.01 yrs
Weighted Average Life 7.09 yrs 7.79 yrs
Net Assets ($mm) $409.3 $497.7
- --------------------------------------------------------------------------------
</TABLE>
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
13
<PAGE>
ANNUAL REPORT
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have. For a QUARTERLY REVIEW on
PaineWebber U.S. Government Income Fund, PaineWebber Low Duration U.S.
Government 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.
SINCERELY,
/s/ Margo Alexander
MARGO ALEXANDER
Chairman and
Chief Executive Officer
Mitchell Hutchins
Asset Management Inc.
/s/ Julieanna M. Berry
JULIEANNA M. BERRY
Portfolio Manager,
PaineWebber Investment
Grade Income Fund
/s/ William C. Powers
WILLIAM C. POWERS
Managing Director, Pacific
Investment Management Company
Porfolio Manager, PaineWebber
Low Duration U.S. Government
Income Fund
/s/ Brian M. Storms
BRIAN M. STORMS
President and
Chief Operating Officer
Mitchell Hutchins
Asset Management Inc.
/s/ James F. Keegan
JAMES F. KEEGAN
Portfolio Manager,
PaineWebber Investment
Grade Income Fund
/s/ Nirmal Singh
NIRMAL SINGH
Portfolio Manager,
PaineWebber U.S. Government
Income Fund
/s/ Dennis L. McCauley
Dennis L. McCauley
Chief Investment Officer -
Fixed Income
Mitchell Hutchins
Asset Management Inc.
/s/ Thomas J. Libassi
Thomas J. Libassi
Portfolio Manager,
PaineWebber High
Income Fund
This letter is intended to assist shareholders in understanding how the funds
performed during the fiscal year ended November 30, 1999, and reflects our views
at the time of its writing. Of course, these views may change in response to
changing circumstances. We encourage you to consult your Financial Advisor
regarding your personal investment program.
(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.
14
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
----------------------------------- ------------------------------
12 MONTHS 6 MONTHS
11/30/99 05/31/99 11/30/98 ENDED 11/30/99 ENDED 11/30/99
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Class A Shares $8.51 $8.79 $9.20 (2.14)% (0.38)%
- ----------------------------------------------------------------------------------------------------
Class B Shares 8.51 8.79 9.20 (2.93) (0.78)
- ----------------------------------------------------------------------------------------------------
Class C Shares 8.50 8.78 9.19 (2.65) (0.65)
- ----------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID(2) RETURN(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.78 -- $0.3515 5.95%
- -----------------------------------------------------------------------------------------------------
1985 9.78 10.32 -- 1.2600 19.79
- -----------------------------------------------------------------------------------------------------
1986 10.32 10.21 $0.0053 1.1924 11.18
- -----------------------------------------------------------------------------------------------------
1987 10.21 9.34 0.0027 0.9160 0.59
- -----------------------------------------------------------------------------------------------------
1988 9.34 9.18 -- 0.8718 7.83
- -----------------------------------------------------------------------------------------------------
1989 9.18 9.49 -- 0.7994 12.58
- -----------------------------------------------------------------------------------------------------
1990 9.49 9.57 -- 0.7883 9.67
- -----------------------------------------------------------------------------------------------------
1991 9.57 10.18 -- 0.7683 14.89
- -----------------------------------------------------------------------------------------------------
1992 10.18 10.05 -- 0.7372 6.37
- -----------------------------------------------------------------------------------------------------
1993 10.05 10.03 -- 0.6590 6.48
- -----------------------------------------------------------------------------------------------------
1994 10.03 8.40 -- 0.6014 (10.51)
- -----------------------------------------------------------------------------------------------------
1995 8.40 9.21 -- 0.5807 17.04
- -----------------------------------------------------------------------------------------------------
1996 9.21 8.74 -- 0.5454 0.98
- -----------------------------------------------------------------------------------------------------
1997 8.74 9.00 -- 0.5355 9.44
- -----------------------------------------------------------------------------------------------------
1998 9.00 9.18 -- 0.5128 7.91
- -----------------------------------------------------------------------------------------------------
01/01/99-11/30/99 9.18 8.51 -- 0.4436 (2.49)
- -----------------------------------------------------------------------------------------------------
Total: $0.0080 $11.5633
- -----------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 199.45%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 9.59 $10.19 -- $0.3535 10.09%
- -----------------------------------------------------------------------------------------------------
1992 10.19 10.05 -- 0.6599 5.31
- -----------------------------------------------------------------------------------------------------
1993 10.05 10.04 -- 0.5821 5.78
- -----------------------------------------------------------------------------------------------------
1994 10.04 8.40 -- 0.5317 (11.28)
- -----------------------------------------------------------------------------------------------------
1995 8.40 9.21 -- 0.5119 16.14
- -----------------------------------------------------------------------------------------------------
1996 9.21 8.74 -- 0.4789 0.22
- -----------------------------------------------------------------------------------------------------
1997 8.74 9.00 -- 0.4687 8.61
- -----------------------------------------------------------------------------------------------------
1998 9.00 9.18 -- 0.4379 7.03
- -----------------------------------------------------------------------------------------------------
01/01/99-11/30/99 9.18 8.51 -- 0.3803 (3.19)
- -----------------------------------------------------------------------------------------------------
Totals: $0.0000 $4.4049
- -----------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 45.25%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at
net asset value on the payable dates and do not include sales charges;
results for each class would be lower if sales charges were included.
Total return for periods of less than one year has not been annualized.
(2) Certain distributions may contain short-term capital gains.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
15
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS(UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
07/02/92-12/31/92 $10.13 $10.05 -- $0.3281 2.16%
- --------------------------------------------------------------------------------------------------
1993 10.05 10.02 -- 0.6089 5.85
- --------------------------------------------------------------------------------------------------
1994 10.02 8.39 -- 0.5557 (10.97)
- --------------------------------------------------------------------------------------------------
1995 8.39 9.20 -- 0.5345 16.46
- --------------------------------------------------------------------------------------------------
1996 9.20 8.73 -- 0.5008 0.47
- --------------------------------------------------------------------------------------------------
1997 8.73 8.99 -- 0.4910 8.90
- --------------------------------------------------------------------------------------------------
1998 8.99 9.17 -- 0.4660 7.36
- --------------------------------------------------------------------------------------------------
01/01/99-11/30/99 9.17 8.50 -- 0.4029 (2.94)
- --------------------------------------------------------------------------------------------------
Totals: $0.0000 $3.8879
- --------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 27.83%
- --------------------------------------------------------------------------------------------------
</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 would be lower if sales charges were included. Total return for
periods of less than one year has not been annualized.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the year ended
November 30, 1999 and since inception, September 11, 1991 through November 30,
1999, Class Y shares have a total return of (1.84%) and 48.86%, respectively.
Class Y shares do not have initial or contingent deferred sales charges or
ongoing distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
16
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
-------------------------------- ------------------------------
12 MONTHS 6 MONTHS
11/30/99 05/31/99 11/30/98 ENDED 11/30/99 ENDED 11/30/99
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Class A Shares $2.31 $2.34 $2.38 1.99% 1.19%
- ------------------------------------------------------------------------------------------------
Class B Shares 2.30 2.34 2.38 0.71 0.33
- ------------------------------------------------------------------------------------------------
Class C Shares 2.30 2.34 2.38 0.90 0.43
- ------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $2.50 $2.48 -- $0.0812 2.48%
- --------------------------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1217 (4.39)
- --------------------------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1357 10.75
- --------------------------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1360 5.57
- --------------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1307 7.05
- --------------------------------------------------------------------------------------------------
1998 2.37 2.39 -- 0.1272 6.36
- --------------------------------------------------------------------------------------------------
01/01/99-11/30/99 2.39 2.31 -- 0.1050 1.08
- --------------------------------------------------------------------------------------------------
Totals: $0.0000 $0.8375
- --------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 31.84%
- --------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/03/93-12/31/93 $2.50 $2.48 -- $0.0687 1.97%
- --------------------------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1034 (5.14)
- --------------------------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1157 9.79
- --------------------------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1171 4.72
- --------------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1115 6.19
- --------------------------------------------------------------------------------------------------
1998 2.37 2.38 -- 0.1077 5.06
- --------------------------------------------------------------------------------------------------
01/01/99-11/30/99 2.38 2.30 -- 0.0876 0.32
- --------------------------------------------------------------------------------------------------
Totals: $0.0000 $0.7117
- --------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 24.47%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends at net asset value on the
payable dates and do not include sales charges; results for each class
would be lower if sales charges were included. Total return for periods of
less than one year has not been annualized.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
17
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PERFORMANCE RESULTS(UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
05/03/93-12/31/93 $2.50 $2.48 -- $0.0730 2.14%
- -----------------------------------------------------------------------------------------------
1994 2.48 2.25 -- 0.1094 (4.89)
- -----------------------------------------------------------------------------------------------
1995 2.25 2.35 -- 0.1217 10.09
- -----------------------------------------------------------------------------------------------
1996 2.35 2.34 -- 0.1221 4.94
- -----------------------------------------------------------------------------------------------
1997 2.34 2.37 -- 0.1167 6.43
- -----------------------------------------------------------------------------------------------
1998 2.37 2.38 -- 0.1124 5.27
- -----------------------------------------------------------------------------------------------
01/01/99-11/30/99 2.38 2.30 -- 0.0914 0.49
- -----------------------------------------------------------------------------------------------
Totals: $0.0000 $0.7467
- -----------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 26.34%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends at net asset value on the
payable dates and do not include sales charges; results would be lower if
sales charges were included. Total return for periods of less than one
year has not been annualized.
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 year ended
November 30, 1999 and since inception, October 20, 1995 through November 30,
1999, Class Y shares have a total return of 1.81% and 24.45%, respectively.
Class Y shares do not have intial 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.
18
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL RETURN(1)
NET ASSET VALUE ------------------------------
-------------------------------- 12 MONTHS 6 MONTHS
11/30/99 05/31/99 11/30/98 ENDED 11/30/99 ENDED 11/30/99
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Class A Shares $ 9.95 $10.28 $ 10.79 (1.62)% 0.15%
- -----------------------------------------------------------------------------------------------
Class B Shares 9.94 10.28 10.79 (2.46) (0.34)
- -----------------------------------------------------------------------------------------------
Class C Shares 9.94 10.28 10.79 (2.20) (0.20)
- -----------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.77 -- $ 0.3549 5.88%
- -------------------------------------------------------------------------------------------------
1985 9.77 10.52 -- 1.3080 22.76
- -------------------------------------------------------------------------------------------------
1986 10.52 10.75 $0.0125 1.2060 14.47
- -------------------------------------------------------------------------------------------------
1987 10.75 9.55 0.0279 0.9846 (1.51)
- -------------------------------------------------------------------------------------------------
1988 9.55 9.51 -- 0.8603 8.88
- -------------------------------------------------------------------------------------------------
1989 9.51 9.77 -- 0.8363 11.98
- -------------------------------------------------------------------------------------------------
1990 9.77 9.54 -- 0.8284 6.47
- -------------------------------------------------------------------------------------------------
1991 9.54 10.42 -- 0.8180 18.56
- -------------------------------------------------------------------------------------------------
1992 10.42 10.50 -- 0.8081 8.87
- -------------------------------------------------------------------------------------------------
1993 10.50 11.08 -- 0.7920 13.35
- -------------------------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.7659 (5.59)
- -------------------------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.7525 19.61
- -------------------------------------------------------------------------------------------------
1996 10.79 10.46 -- 0.7287 3.98
- -------------------------------------------------------------------------------------------------
1997 10.46 10.92 -- 0.7403 11.93
- -------------------------------------------------------------------------------------------------
1998 10.92 10.72 -- 0.7104 4.77
- -------------------------------------------------------------------------------------------------
01/01/99-11/30/99 10.72 9.95 -- 0.6009 (1.59)
- -------------------------------------------------------------------------------------------------
Totals: $0.0404 $13.0953
- -------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 277.15%
- -------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $ 9.79 $10.41 -- $0.3795 10.39%
- -------------------------------------------------------------------------------------------------
1992 10.41 10.49 -- 0.7623 8.05
- -------------------------------------------------------------------------------------------------
1993 10.49 11.08 -- 0.7101 12.63
- -------------------------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.6894 (6.30)
- -------------------------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.6742 18.74
- -------------------------------------------------------------------------------------------------
1996 10.79 10.45 -- 0.6510 3.12
- -------------------------------------------------------------------------------------------------
1997 10.45 10.92 -- 0.6602 11.20
- -------------------------------------------------------------------------------------------------
1998 10.92 10.71 -- 0.6280 3.88
- -------------------------------------------------------------------------------------------------
01/01/99-11/30/99 10.71 9.94 -- 0.5305 (2.26)
- -------------------------------------------------------------------------------------------------
Totals: $0.0000 $5.6852
- -------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 77.13%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at
net asset value on the payable dates and do not include sales charges;
results for each class would be lower if sales charges were included.
Total return for periods of less than one year has not been annualized.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
19
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PERFORMANCE RESULTS(UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
07/02/92-12/31/92 $10.48 $10.50 -- $0.3377 3.44%
- -----------------------------------------------------------------------------------------------
1993 10.50 11.08 -- 0.7383 12.80
- -----------------------------------------------------------------------------------------------
1994 11.08 9.70 -- 0.7022 (6.07)
- -----------------------------------------------------------------------------------------------
1995 9.70 10.79 -- 0.6999 19.03
- -----------------------------------------------------------------------------------------------
1996 10.79 10.46 -- 0.6764 3.46
- -----------------------------------------------------------------------------------------------
1997 10.46 10.92 -- 0.6872 11.37
- -----------------------------------------------------------------------------------------------
1998 10.92 10.72 -- 0.6568 4.25
- -----------------------------------------------------------------------------------------------
01/01/99-11/30/99 10.72 9.94 -- 0.5557 (2.12)
- -----------------------------------------------------------------------------------------------
Totals: $0.0000 $5.0542
- -----------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 53.54%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at
net asset value on the payable dates and do not include sales charges;
results would be lower if sales charges were included. Total return for
periods of less than one year has not been annualized.
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 year ended
November 30, 1999 and since inception, February 18, 1998 through November 30,
1999, Class Y shares have a total return of (1.43)% and 2.04%, respectively.
Class Y shares do not have initial or contingent deferred sales charge 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.
20
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
-------------------------------- ------------------------------
12 MONTHS 6 MONTHS
11/30/99 05/31/99 11/30/98 ENDED 11/30/99 ENDED 11/30/99
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Class A Shares $6.12 $6.56 $6.66 2.42% (1.39)%
- ----------------------------------------------------------------------------------------------
Class B Shares 6.11 6.56 6.65 1.63 (1.93)
- ----------------------------------------------------------------------------------------------
Class C Shares 6.12 6.57 6.67 1.75 (1.79)
- ----------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID(2) RETURN(1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/84-12/31/84 $ 9.57 $ 9.80 $0.0100 $ 0.3717 6.46%
- ------------------------------------------------------------------------------------------------
1985 9.80 10.38 -- 1.4080 21.67
- ------------------------------------------------------------------------------------------------
1986 10.38 10.36 0.0250 1.4160 14.27
- ------------------------------------------------------------------------------------------------
1987 10.36 8.88 0.0475 1.3010 (1.98)
- ------------------------------------------------------------------------------------------------
1988 8.88 8.44 -- 1.2317 9.13
- ------------------------------------------------------------------------------------------------
1989 8.44 7.26 -- 1.0687 (1.83)
- ------------------------------------------------------------------------------------------------
1990 7.26 5.70 -- 0.9744 (8.53)
- ------------------------------------------------------------------------------------------------
1991 5.70 7.23 -- 1.0159 47.02
- ------------------------------------------------------------------------------------------------
1992 7.23 7.93 -- 0.9698 24.06
- ------------------------------------------------------------------------------------------------
1993 7.93 8.77 -- 0.8894 22.74
- ------------------------------------------------------------------------------------------------
1994 8.77 6.96 -- 0.8576 (11.69)
- ------------------------------------------------------------------------------------------------
1995 6.96 6.92 -- 0.7879 10.96
- ------------------------------------------------------------------------------------------------
1996 6.92 7.39 -- 0.7001 17.73
- ------------------------------------------------------------------------------------------------
1997 7.39 7.64 -- 0.6727 12.98
- ------------------------------------------------------------------------------------------------
1998 7.64 6.54 -- 0.6627 (6.22)
- ------------------------------------------------------------------------------------------------
01/01/99-11/30/99 6.54 6.12 -- 0.6240 3.09
- ------------------------------------------------------------------------------------------------
Totals: $0.0825 $14.9516
- ------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 301.12%
- ------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $6.85 $7.22 -- $0.4960 12.92%
- ------------------------------------------------------------------------------------------------
1992 7.22 7.92 -- 0.9037 23.07
- ------------------------------------------------------------------------------------------------
1993 7.92 8.77 -- 0.8237 21.97
- ------------------------------------------------------------------------------------------------
1994 8.77 6.96 -- 0.7969 (12.34)
- ------------------------------------------------------------------------------------------------
1995 6.96 6.92 -- 0.7344 10.15
- ------------------------------------------------------------------------------------------------
1996 6.92 7.38 -- 0.6466 16.70
- ------------------------------------------------------------------------------------------------
1997 7.38 7.64 -- 0.6163 12.31
- ------------------------------------------------------------------------------------------------
1998 7.64 6.53 -- 0.6071 (7.06)
- ------------------------------------------------------------------------------------------------
01/01/99-11/30/99 6.53 6.11 -- 0.5793 2.38
- ------------------------------------------------------------------------------------------------
Totals: $0.0000 $6.2040
- ------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 107.82%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at
net asset value on the payable dates and do not include sales charges;
results for each class would be lower if sales charges were included.
Total return for periods of less than one year has not been annualized.
(2) Certain distributions may contain short-term capital gains.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
21
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PERFORMANCE RESULTS(UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
07/02/92-12/31/92 $7.80 $7.94 -- $0.4041 7.07%
- -----------------------------------------------------------------------------------------------
1993 7.94 8.79 -- 0.8456 22.22
- -----------------------------------------------------------------------------------------------
1994 8.79 6.97 -- 0.8185 (12.20)
- -----------------------------------------------------------------------------------------------
1995 6.97 6.93 -- 0.7528 10.40
- -----------------------------------------------------------------------------------------------
1996 6.93 7.40 -- 0.6653 17.13
- -----------------------------------------------------------------------------------------------
1997 7.40 7.65 -- 0.6360 12.42
- -----------------------------------------------------------------------------------------------
1998 7.65 6.55 -- 0.6269 (6.66)
- -----------------------------------------------------------------------------------------------
01/01/99-11/30/99 6.55 6.12 -- 0.5957 2.47
- -----------------------------------------------------------------------------------------------
Totals: $0.0000 $5.3449
- -----------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 11/30/99: 59.77%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at
net asset value on the payable dates and do not include sales charges;
results would be lower if sales charges were included. Total return for
periods of less than one year has not been annualized.
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 year ended
November 30, 1999 and since inception, February 20, 1998 through November 30,
1999, Class Y shares have a total return of 2.68% and (5.98%), respectively.
Class Y shares do not have intial or contigent 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.
22
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--38.05%
$18,915 FHLMC Medium Term Notes................................ 03/18/08 6.220% $ 17,831,889
28,500 FNMA Medium Term Notes(1).............................. 04/29/09 6.500 26,984,512
30,230 United States Treasury Bonds(1)........................ 08/15/13 to 08/15/21 8.125 to 12.000 39,096,669
15,400 United States Treasury Bonds(1)*....................... 11/15/14 11.750 21,213,500
------------
Total U.S. Government and Agency Obligations
(cost--$113,441,128)............................................ 105,126,570
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--3.74%
4,834 GNMA................................................... 04/15/19 8.250 5,000,410
4,171 GNMA................................................... 08/15/09 9.000 4,397,483
856 GNMA 30 Year TBA....................................... TBA 11.000 940,840
------------
Total Government National Mortgage Association Certificates
(cost--$10,508,542)............................................. 10,338,733
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--21.22%
6,966 FHLMC.................................................. 04/01/25 9.000 7,373,169
921 FHLMC.................................................. 06/01/04 to 12/01/05 10.500 975,612
3,142 FHLMC.................................................. 01/01/16 11.000 3,382,003
2,396 FHLMC CMT ARM*......................................... 10/01/23 6.976 2,410,558
40,000 FHLMC Gold 30 Year TBA................................. TBA 6.500 38,150,000
6,500 FHLMC Gold 30 Year TBA................................. TBA 7.000 6,353,750
------------
Total Federal Home Loan Mortgage Corporation Certificates
(cost--$59,277,181)............................................. 58,645,092
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--29.23%
26,800 FNMA................................................... 01/15/09 5.250 24,022,904
11,694 FNMA................................................... 08/01/28 to 04/01/29 6.000 10,845,222
10,013 FNMA................................................... 09/01/12 to 11/01/13 6.500 9,800,101
2,150 FNMA................................................... 05/01/24 to 07/01/25 7.500 2,145,011
5,426 FNMA................................................... 09/01/25 8.500 5,620,694
1,560 FNMA................................................... 05/01/09 9.000 1,632,837
28,000 FNMA 30 Year TBA....................................... TBA 6.500 26,687,500
------------
Total Federal National Mortgage Association Certificates
(cost--$83,005,633)............................................. 80,754,269
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--18.53%
4,498 Amresco Commercial Mortgage Funding I Corp.,
Series 1997-C1, Class A1............................... 06/17/29 6.730 4,456,187
1,345 CS First Boston Mortgage Securities Corp., Series
1997-2, Class A+....................................... 06/25/20 7.500 1,344,314
5,000 CS First Boston Mortgage Securities Corp., Series
1998-C2, Class A2...................................... 11/15/08 6.300 4,708,200
3,768 DLJ Commercial Mortgage Corp., Series 1998-CF2,Class
A1A.................................................... 11/12/31 5.880 3,582,664
1,414 FDIC REMIC Trust, 1996-C1, Class 1A.................... 05/25/26 6.750 1,396,491
3,741 FNMA REMIC Series 1987-2, Class Z...................... 11/25/17 11.000 4,011,635
5,000 FNMA REMIC Series 1993-87, Class J..................... 04/25/22 6.250 4,674,175
74 FNMA REMIC Series 1996-M6, Class E..................... 09/17/19 7.750 74,665
3,007 FNMA REMIC Series 1998-7, Class Z...................... 04/25/18 9.250 3,158,022
4,173 GMAC Commercial Mortgage Securities, Inc.,
Series 1996-C1, Class A2A.............................. 09/15/03 6.790 4,162,031
</TABLE>
23
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--(CONCLUDED)
$ 6,619 LB Commercial Conduit Mortgage Trust, Series 1998-C4,
Class A1A.............................................. 8/15/06 5.870% $ 6,338,745
3,654 Morgan Stanley Capital I, Series 1997-ALIC, Class
A1B.................................................... 11/15/02 6.440 3,623,771
4,934 Morgan Stanley Capital I, Series 1997-WF1, Class A1+... 10/15/06 6.830 4,911,041
4,935 Mortgage Capital Funding, Inc., Series 1998-MCI,
Class A2............................................... 01/18/08 6.663 4,770,220
------------
Total Collateralized Mortgage Obligations (cost--$52,887,594)..... 51,212,161
------------
SHORT-TERM U.S. AGENCY OBLIGATIONS--13.72%
38,000 Federal Home Loan Mortgage Corp. Discount Notes (cost--
$37,920,200)........................................... 12/15/99 5.400@ 37,920,200
------------
REPURCHASE AGREEMENT--0.96%
2,648 Repurchase Agreement dated 11/30/99 with Dresdner Bank
AG,
collateralized by $2,650,000 U.S. Treasury Notes,
6.500% due
10/15/06 (value--$2,701,675); proceeds: $2,648,416
(cost--
$2,648,000)............................................ 12/01/99 5.650 2,648,000
------------
Total Investments (cost--$359,688,278)--125.45%................... 346,645,025
Liabilities in excess of other assets--(25.45)%................... (70,327,204)
------------
Net Assets--100.00%............................................... $276,317,821
============
</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 November 30, 1999.
CMT Constant Maturity Treasury.
FDIC Federal Deposit Insurance Corporation.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with an approximate principal amount (generally +/- 1.0%) and generally
stated maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
* Entire or partial amount pledged as collateral for futures transactions.
(1) Security, or portion thereof, was on loan at November 30, 1999.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
NUMBER IN EXPIRATION APPRECIATION
OF CONTRACTS EXCHANGE FOR DATE (DEPRECIATION)
- ------------ ------------ ----------- --------------
<C> <S> <C> <C> <C>
876 Contracts to Deliver--5 year U.S. Treasury
Notes............................................. $94,046,813 Dec 99 $727,437
196 Contracts to Deliver--10 year U.S. Treasury
Notes............................................. 21,413,000 Dec 99 101,500
293 Contracts to Receive--30 year U.S. Treasury
Bonds............................................. 27,267,313 Mar 00 (334,102)
--------
$494,835
========
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--6.31%
$ 3,857 U.S. Treasury Bonds.................................... 04/15/29 3.875% $ 3,697,169
6,554 U.S. Treasury Inflation Index Notes.................... 07/15/02 to 01/15/07 3.375 to 3.625 6,337,071
------------
Total U.S. Government Obligations (cost--$9,978,409).............. 10,034,240
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--39.07%
85 GNMA................................................... 02/15/23 8.000 86,463
4,862 GNMA................................................... 01/15/16 to 09/15/20 10.500 5,291,627
2,609 GNMA................................................... 03/15/10 to 05/15/19 11.500 2,900,064
6,693 GNMA II ARM............................................ 01/20/18 to 04/20/26 6.375 6,730,708
5,000 GNMA ARM TBA........................................... TBA 6.000 4,978,125
41,500 GNMA TBA............................................... TBA 8.000 42,083,573
------------
Total Government National Mortgage Association Certificates
(cost--$62,540,315)............................................. 62,070,560
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--4.41%
65 FHLMC.................................................. 01/01/23 8.000 66,095
1,878 FHLMC.................................................. 05/01/16 8.500 1,935,733
205 FHLMC.................................................. 07/01/09 to 02/01/10 9.000 214,247
638 FHLMC.................................................. 11/01/16 9.750 679,751
578 FHLMC.................................................. 10/01/20 to 11/01/20 10.500 626,044
1,834 FHLMC.................................................. 05/01/11 to 12/01/20 11.000 2,001,356
1,276 FHLMC.................................................. 06/01/04 to 07/01/19 11.500 1,398,444
80 FHLMC TBA.............................................. TBA 7.500 79,700
------------
Total Federal Home Loan Mortgage Corporation Certificates
(cost--$6,995,363).............................................. 7,001,370
------------
FEDERAL HOUSING ADMINISTRATION CERTIFICATES--6.09%
9,484 FHA (cost--$9,560,679)................................. 02/01/20 to 04/01/31 8.375 to 8.430 9,668,039
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--14.29%
1,272 FNMA................................................... 02/01/05 9.000 1,312,361
2,602 FNMA................................................... 04/01/10 to 12/01/15 9.250 2,746,282
338 FNMA................................................... 03/01/06 to 12/01/09 9.500 358,199
535 FNMA................................................... 07/01/10 to 06/01/19 10.250 572,491
1,114 FNMA................................................... 02/01/12 to 05/01/23 10.500 1,197,175
1,760 FNMA................................................... 07/01/13 to 05/01/20 11.000 1,926,525
2,007 FNMA ARM............................................... 09/01/15 6.530 2,024,203
9,915 FNMA ARM............................................... 08/01/29 6.704 9,775,425
2,770 FNMA ARM............................................... 09/01/26 7.020 2,790,768
------------
Total Federal National Mortgage Association Certificates
(cost--$22,765,605)............................................. 22,703,429
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--6.23%
3,521 ]FHLMC, Series, 1552 Class EA.......................... 01/15/17 5.850 3,506,338
1,364 Money Store Home Equity Trust, Series 1997-D,
Class AF3.............................................. 11/15/21 6.345 1,355,350
3,190 Prudential Securities CMO Trust, Series 18, Class E.... 09/25/20 7.000 3,165,782
</TABLE>
25
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--(CONCLUDED)
$ 1,824 Ryland Mortgage Acceptance Corporation, Series 76,
Class B, REMIC......................................... 08/01/18 9.000% $ 1,876,325
------------
Total Collateralized Mortgage Obligations (cost--9,911,220)....... 9,903,795
------------
COMMERCIAL PAPER @--15.60%
7,000 AT&T Capital Corporation............................... 12/06/99 5.500 6,994,906
7,000 Becton Dickinson & Company............................. 12/02/99 5.280 6,998,973
6,200 Campbell Soup Company.................................. 12/02/99 5.750 6,199,096
1,700 Monsanto Company, Series B............................. 12/02/99 5.410 1,699,751
2,900 Wisconsin Electric Power Company....................... 12/06/99 5.280 2,897,873
------------
Total Commercial Paper (cost--$24,790,599)........................ 24,790,599
------------
SHORT-TERM U.S. GOVERNMENT AND AGENCY OBLIGATIONS @--34.29%
200 Federal Agricultural Mortgage Corporation Discount
Notes.................................................. 12/01/99 5.380 200,000
52,300 Federal Home Loan Mortgage Discount Notes.............. 12/02/99 to 12/15/99 5.200 to 5.550 52,255,940
2,000 Federal National Mortgage Association Medium Term
Note................................................... 10/23/00 6.030 1,998,896
15 U.S. Treasury Bills+................................... 02/17/00 4.940 14,818
------------
Total Short-Term U.S. Government and Agency Obligations
(cost--54,488,616).............................................. 54,469,654
------------
REPURCHASE AGREEMENT--3.86%
6,134 Repurchase Agreement dated 11/30/99 with State Street
Bank & Trust Company, collateralized by $6,205,000 U.S.
Treasury Notes, 5.50% due 05/31/03 (value--$6,259,294);
proceeds: $6,134,767 (cost--$6,134,000)................ 12/01/99 4.500 6,134,000
------------
Total Investments (cost--$207,164,806)--130.15%................... 206,775,686
Liabilities in excess of other assets--(30.15)%................... (47,902,311)
------------
Net Assets--100.00%............................................... $158,873,375
============
</TABLE>
- ---------------
@ Yield to maturity for discounted securities.
+ Entire or partial amount pledged as collateral for futures transactions.
ARM Adjustable Rate Mortgage Security. The interest rate shown is the current
rate at November 30, 1999.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned). Securities are purchased on a forward commitment basis
with an approximate principal amount (generally +/- 1.0%) and generally
stated maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER IN EXPIRATION UNREALIZED
OF CONTRACTS EXCHANGE FOR DATE APPRECIATION
- ------------ ------------ ----------- ------------
<C> <S> <C> <C> <C>
Contracts to Deliver--90 day
13....... Eurodollar.................... 3,038,912 Sept. 2000 $1,950
Contracts to Deliver--90 day
13....... Eurodollar.................... 3,033,875 Dec. 2000 1,137
------
$3,087
======
</TABLE>
See accompanying notes to financial statements
26
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--11.08%
$ 7,000 Federal Home Loan Bank Consolidated Discount Note@..... 02/02/00 5.500% $ 6,932,625
5,280 Federal Home Loan Mortgage Corporation................. 10/15/08 to 03/15/09 5.125 to 5.750 4,890,740
4,100 U.S. Treasury Bonds.................................... 08/15/13 to 02/15/21 7.875 to 12.000 5,311,104
11,800 U.S. Treasury Notes(1)................................. 11/30/01 to 07/15/06 5.250 to 7.000 11,910,625
------------
Total U.S. Government and Agency Obligations
(cost--$29,947,502)............................................. 29,045,094
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--1.47%
3,755 GNMA (cost--$3,964,168)................................ 06/15/17 to 11/15/17 8.000 3,866,549
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--7.96%
22,500 FNMA TBA (cost--$21,062,813)........................... TBA 6.000 20,854,687
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--1.80%
5,000 CS First Boston Mortgage Securities Corporation,
Series 1998-C2, Class A2 (cost--$5,071,733)............ 11/15/08 6.300 4,708,200
------------
CORPORATE BONDS--73.16%
AEROSPACE--0.96%
2,540 Lockheed Martin Corporation............................ 12/01/05 7.950 2,525,423
------------
AIRLINES--1.15%
2,500 Delta Air Lines Incorporated........................... 12/15/22 10.375 3,001,640
------------
AUTO PARTS--1.11%
3,000 Lear Corporation+...................................... 05/15/05 7.960 2,901,723
------------
BANKING--6.23%
3,000 GS Escrow Corporation.................................. 08/01/05 7.125 2,745,171
3,000 MBNA Corporation....................................... 12/01/26 8.278 2,724,465
7,000 Providian Capital I+................................... 02/01/27 9.525 5,826,352
5,000 Southtrust Bank Alabama................................ 05/15/25 7.690 5,026,295
------------
16,322,283
------------
CABLE--4.30%
3,550 CSC Holdings Incorporated.............................. 07/15/09 to 07/15/18 7.625 to 8.125 3,422,125
7,000 TCI Communications Incorporated........................ 03/31/27 9.650 7,839,356
------------
11,261,481
------------
CHEMICALS--3.39%
4,000 Equistar Chemical...................................... 02/15/04 8.500 3,997,464
2,745 Huntsman ICI Chemicals Incorporated+................... 07/01/09 10.125 2,841,075
2,000 Lyondell Chemical Company.............................. 05/01/07 9.875 2,055,000
------------
8,893,539
------------
</TABLE>
27
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--(CONTINUED)
COMMUNICATIONS-FIXED--1.40%
$ 3,500 Williams Communications Group.......................... 10/01/09 10.875% $ 3,657,500
------------
DIVERSIFIED INDUSTRIES--1.05%
3,000 Mark IV Industries Incorporated........................ 09/01/07 7.500 2,764,104
------------
FINANCIAL SERVICES--8.91%
5,000 AT&T Capital Corporation Medium Term Note.............. 11/15/00 7.500 5,036,815
3,000 Finova Capital Corporation............................. 11/08/04 7.250 2,989,218
4,070 FMR Corporation+....................................... 06/15/29 7.570 4,009,589
2,000 Household International Netherlands BV................. 12/01/03 6.200 1,939,872
7,000 Lehman Brothers Holdings Incorporated(1)............... 04/01/04 to 11/01/09 6.625 to 7.875 6,857,760
3,750 Macsaver Financial Services Incorporated............... 02/15/02 7.400 2,531,250
------------
23,364,504
------------
FOREST PRODUCTS--0.77%
2,000 Tembec Industries Incorporated......................... 06/30/09 8.625 2,030,000
------------
HEALTHCARE--3.37%
4,500 Columbia/HCA Healthcare Corporation.................... 03/30/04 to 02/10/10 7.150 to 8.700 4,230,447
5,000 Tenet Healthcare Corporation........................... 12/01/08 8.125 4,600,000
------------
8,830,447
------------
HOTELS/GAMING--5.08%
3,443 Circus Circus Enterprises Incorporated................. 07/15/03 6.750 3,189,079
3,000 HMH Properties Incorporated............................ 12/01/08 8.450 2,782,500
3,000 Isle of Capri Casinos Incorporated..................... 04/15/09 8.750 2,782,500
4,900 MGM Grand Incorporated................................. 02/01/05 6.950 4,563,566
------------
13,317,645
------------
INDUSTRIAL PRODUCTS & SERVICES--2.20%
1,000 Owens Corning.......................................... 08/01/18 7.500 839,326
5,000 Tyco International Group SA............................ 06/15/01 6.125 4,920,330
------------
5,759,656
------------
INSURANCE--5.59%
7,000 Lumbermen's Mutual Casualty Company+................... 07/01/26 9.150 6,825,735
3,000 Markel Capital Trust................................... 01/01/46 8.710 2,503,416
3,300 Principal Financial Group+............................. 08/15/09 8.200 3,365,330
2,000 Zurich Capital Trust+.................................. 06/01/37 8.376 1,949,016
------------
14,643,497
------------
MEDIA--4.09%
2,000 Liberty Media Corporation+............................. 07/15/09 7.875 2,000,712
8,700 News America Holdings Incorporated..................... 10/15/12 to 10/17/96 7.900 to 10.125 8,711,023
------------
10,711,735
------------
</TABLE>
28
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--(CONCLUDED)
OIL & GAS--0.79%
$ 1,958 Occidental Petroleum Corporation....................... 06/01/19 11.125% $ 2,061,559
------------
RETAIL--5.44%
5,950 May Department Stores Company.......................... 06/15/21 9.875 6,430,343
6,000 Saks Incorporated...................................... 07/15/04 to 12/01/04 7.000 to 7.250 5,681,109
2,000 Shopko Stores.......................................... 03/15/22 9.250 2,137,318
------------
14,248,770
------------
TELEPHONE--1.06%
3,000 US West Capital Funding Incorporated................... 07/15/08 6.375 2,784,342
------------
TOBACCO--2.41%
4,000 Phillip Morris Companies Incorporated.................. 07/01/08 to 01/15/27 7.650 to 7.750 3,712,256
2,740 RJ Reynolds Tobacco.................................... 05/15/03 7.375 2,603,137
------------
6,315,393
------------
UTILITIES--2.87%
5,000 Commonwealth Edison Company............................ 06/15/20 9.875 5,547,015
2,000 Edison International................................... 09/15/04 6.875 1,971,066
------------
7,518,081
------------
YANKEE--10.99%
5,000 Fuji JGB Investment LLC+............................... 06/30/08* 9.870 5,037,500
3,500 Imperial Tobacco Overseas B V(1)....................... 04/01/09 7.125 3,212,384
3,300 KBC Bank Funding Trust III+............................ 11/02/09* 9.860 3,441,544
7,300 Loewen Group International Incorporated(2)............. 10/15/03 to 06/01/08 7.600 to 8.250 4,076,250
1,565 Metronet Communications Corporation.................... 08/15/07 12.000 1,819,312
4,500 Petroleum Geo-Services................................. 07/15/29 8.150 4,486,860
2,000 Rogers Cantel Incorporated............................. 06/01/08 9.375 2,132,500
5,000 Socgen Real Estate LLC+................................ 09/30/07* 7.640 4,594,485
------------
28,800,835
------------
Total Corporate Bonds (cost--$202,578,304)........................ 191,714,157
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES
- ----------
<C> <S> <C> <C> <C>
PREFERRED STOCK--2.75%
BANKING--1.40%
160,000 California Federal Preferred Capital Corporation....... -- 9.125 3,660,000
------------
TELEPHONE--1.35%
3,500 Centaur Funding+....................................... -- 9.080 3,548,125
------------
Total Preferred Stock (cost--$7,500,000)........................... 7,208,125
------------
</TABLE>
29
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ---------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS--7.98%
$10,000 Repurchase Agreement dated 11/30/99 with State Street
Bank & Trust Company, collateralized by $10,190,000
U.S. Treasury Notes, 5.75% due 11/15/00
(value--$10,202,738); proceeds: $10,001,561............ 12/01/99 5.620% $ 10,000,000
10,910 Repurchase Agreement dated 11/30/99 with SG Warburg,
collateralized by $10,474,000 U.S. Treasury Bonds,
7.25% due 05/15/16 (value--$11,128,625); proceeds:
$10,911,715............................................ 12/01/99 5.660 10,910,000
------------
Total Repurchase Agreements (cost--$20,910,000).................... 20,910,000
------------
Total Investments (cost--$291,034,520)--106.20%.................... 278,306,812
------------
Liabilities in excess of other assets--(6.20)%..................... (16,253,546)
------------
Net Assets--100.00%................................................ $262,053,266
============
</TABLE>
- ---------------
@ Yield to maturity for discounted securities
* 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 in transactions exempt from
registration, normally to qualified institutional buyers.
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 November 30, 1999.
(2) Non interest paying security.
See accompanying notes to financial statements
30
<PAGE>
PAINEWEBBER HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--82.14%
CABLE--10.57%
$13,000 Knology Holdings Incorporated..................... 10/15/07 11.875%+ $ 8,060,000
5,000 NTL Incorporated.................................. 10/01/08 11.500 5,425,000
10,800 Park 'N View Incorporated......................... 05/15/08 13.000 8,100,000
6,750 RCN Corporation................................... 10/15/07 11.125+ 4,792,500
12,750 21st Century Telecom Group Incorporated........... 02/15/08 12.250+ 5,865,000
7,250 UIH Australia/Pacific Incorporated................ 05/15/06 14.000+ 5,872,500
8,950 United Pan Europe**............................... 08/01/09 12.500+ 5,146,250
------------
43,261,250
------------
CHEMICALS--1.21%
4,800 Lyondell Chemical Company......................... 05/01/07 9.875 4,932,000
------------
COMMUNICATIONS-FIXED--17.36%
6,313 Alestra S.A.**.................................... 05/15/06 12.125 6,226,196
4,500 Allegiance Telecom Incorporated................... 05/15/08 12.875 4,995,000
6,300 Barak ITC......................................... 11/15/07 12.500+ 3,402,000
3,925 Esprit Telecom Group PLC.......................... 06/15/08 10.875 3,944,625
3,750 Facilicom International Incorporated.............. 01/15/08 10.500 3,300,000
2,250 Flag Limited...................................... 01/30/08 8.250 2,025,000
2,000 Global Crossing Holdings Limited**................ 11/15/09 9.500 1,970,000
5,000 Globenet Communications Group**................... 07/15/07 13.000 5,050,000
5,215 GST Equipment Funding Incorporated................ 05/01/07 13.250 5,215,000
6,050 Hyperion Telecommunications Incorporated.......... 09/01/04 to 11/01/07 12.000 to 12.250 6,413,375
5,000 Metromedia Fiber Network Incorporated............. 11/15/08 10.000 5,050,000
4,125 NEXTLINK Communications Incorporated.............. 06/01/09 10.750 4,228,125
3,000 NorthEast Optic Network Incorporated.............. 08/15/08 12.750 3,180,000
6,750 Pathnet Incorporated.............................. 04/15/08 12.250 4,320,000
3,500 Tele1 Europe BV**................................. 05/15/09 13.000 3,552,500
10,000 Viatel Incorporated............................... 04/15/08 12.500+ 6,100,000
2,000 Williams Communications Group..................... 10/01/09 10.875 2,090,000
------------
71,061,821
------------
COMMUNICATIONS-MOBILE--3.22%
5,750 ICO Global Communications Limited(b)#............. 08/01/05 15.000 2,875,000
18,750 Nextel International Incorporated................. 04/15/08 12.125+ 10,312,500
------------
13,187,500
------------
CONSUMER MANUFACTURING--2.51%
6,000 Commemorative Brands Incorporated................. 01/15/07 11.000 4,080,000
4,000 Decora Industries Incorporated.................... 05/01/05 11.000 3,440,000
3,000 Jafra Cosmetics International Incorporated........ 05/01/08 11.750 2,760,000
------------
10,280,000
------------
ENERGY--4.41%
3,625 Key Energy Services Incorporated.................. 01/15/09 14.000 3,951,250
5,500 Northern Offshore ASA............................. 05/15/05 10.000 3,300,000
2,673 Orion Refining Corporation**...................... 12/01/03 15.000 2,378,894
</TABLE>
31
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--(CONTINUED)
$ 2,700 Pride International Incorporated.................. 06/01/09 10.000% $ 2,740,500
5,750 R & B Falcon Corporation.......................... 12/15/08 9.500 5,678,125
------------
18,048,769
------------
FINANCIAL SERVICES--4.46%
5,000 Airplanes Pass-Through Trust...................... 03/15/19 10.875 4,450,000
6,000 Olympic Financial Limited......................... 03/15/07 11.500 6,090,000
5,500 Signet Capital Trust I............................ 08/15/27 9.500 2,750,000
9,000 Superior National Insurance Group................. 12/01/17 10.750 4,950,000
------------
18,240,000
------------
FOOD & BEVERAGE--4.87%
9,500 Iowa Select Farms L.P.**.......................... 12/01/05 10.750 5,130,000
9,125 Mrs. Field's Holdings Company Incorporated**#..... 12/01/05 14.000+ 4,745,000
5,000 Mrs. Field's Original Cookies Incorporated........ 12/01/04 10.125 4,050,000
7,000 Packaged Ice Incorporated......................... 02/01/05 9.750 6,020,000
------------
19,945,000
------------
GAMING--0.76%
3,000 Hollywood Casino Corporation...................... 05/01/07 11.250 3,105,000
------------
GENERAL INDUSTRIAL--4.12%
2,250 Blount Incorporated**............................. 08/01/09 13.000 2,356,875
5,000 J.B. Poindexter & Company Incorporated............ 05/15/04 12.500 4,725,000
3,850 Jordan Telecommunication Products................. 08/01/07 9.875 3,773,000
2,650 Jordan Telecommunication Products................. 08/01/07 11.750+ 2,305,500
5,000 Sabreliner Corporation**.......................... 06/15/08 11.000 3,712,500
------------
16,872,875
------------
HEALTHCARE--1.11%
5,000 Fresenius Medical Care Capital Trust.............. 02/01/08 7.875 4,550,000
------------
HOTELS & LODGING--2.76%
5,150 Host Marriott L.P................................. 02/15/06 8.375 4,892,500
2,875 Signature Resorts Incorporated.................... 05/15/06 9.250 2,673,750
5,750 Silverleaf Resorts Incorporated................... 04/01/08 10.500 3,737,500
------------
11,303,750
------------
MEDIA--1.24%
19,500 Inter Act Systems Incorporated**(b)............... 08/01/03 14.000 5,070,000
------------
METALS--0.90%
5,125 Metal Management Incorporated..................... 05/15/08 10.000 3,690,000
------------
REAL ESTATE--1.40%
6,500 American Architectural Products Corporation....... 12/01/07 11.750 2,470,000
3,550 D.R. Horton Incorporated.......................... 02/01/09 8.000 3,266,000
------------
5,736,000
------------
</TABLE>
32
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------ -----------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--(CONCLUDED)
RESTAURANTS--0.85%
$ 4,480 American Restaurant Group Incorporated............ 02/15/03 11.500% $ 3,494,400
------------
RETAIL--2.59%
3,000 Advance Holding Corporation....................... 04/15/09 12.875+ 1,455,000
4,950 Advance Stores Company Incorporated............... 04/15/08 10.250 4,257,000
5,000 Ames Department Stores Incorporated............... 04/15/06 10.000 4,900,000
------------
10,612,000
------------
SERVICE--6.46%
5,000 Allied Waste North America Incorporated**......... 08/01/09 10.000 4,568,750
5,500 American Eco Corporation.......................... 05/15/08 9.625 3,025,000
6,000 Ameriserve Food Distribution Incorporated......... 07/15/07 10.125 1,920,000
3,750 Atlantic Express Transportation Corporation....... 02/01/04 10.750 3,637,500
2,000 Budget Group Incorporated......................... 04/01/06 9.125 1,780,000
3,750 Nationwide Credit Incorporated.................... 01/15/08 10.250 2,137,500
5,000 Nuco2 Incorporated++.............................. 10/31/04 12.000 4,975,000
4,250 Premier Graphics Incorporated..................... 12/01/05 11.500 2,975,000
1,500 Waste Systems International Incorporated#......... 01/15/06 11.500 1,410,000
------------
26,428,750
------------
TECHNOLOGY--7.07%
3,000 Ampex Corporation++............................... 03/15/03 12.000 3,000,000
3,500 Chippac International Limited**................... 08/01/09 12.750 3,587,500
6,000 Earthwatch Incorporated**......................... 07/15/07 13.000+ 4,200,000
13,700 Electronic Retailing Systems International
Incorporated...................................... 02/01/04 13.250+ 2,192,000
4,250 Fairchild Semiconductor Corporation............... 03/15/07 10.125 4,250,000
5,250 Verio Incorporated................................ 12/01/08 11.250 5,486,250
10,000 Wam! Net Incorporated............................. 03/01/05 13.250+ 6,200,000
------------
28,915,750
------------
TRANSPORTATION--3.67%
7,000 Equimnar Shipholdings Limited..................... 07/01/07 9.875 4,340,000
3,000 Millenium Seacarriers Incorporated................ 07/15/05 12.000 1,650,000
2,750 Navigator Gas Transport PLC**#.................... 06/30/07 12.000 247,500
4,000 Stena AB.......................................... 06/15/07 8.750 3,420,000
8,540 TFM S.A. de C.V................................... 06/15/09 11.750+ 5,380,200
------------
15,037,700
------------
UTILITIES--0.60%
2,455 Panda Funding Corporation......................... 08/20/12 11.625 2,455,254
------------
Total Corporate Bonds (cost--$412,932,002)................... 336,227,819
------------
CONVERTIBLE BONDS--1.49%
COMMUNICATIONS-FIXED--0.45%
1,925 GST Telecommunciations Incorporated............... 12/15/05 13.875+ 1,828,750
------------
SERVICE--1.04%
5,381 Waste Systems International Incorporated**........ 05/13/05 7.000 4,250,616
------------
Total Convertible Bonds (cost--$7,002,197)................... 6,079,366
------------
</TABLE>
33
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- --------- -------------
<C> <S> <C>
COMMON STOCK(A)--5.46%
COMMUNICATIONS-FIXED--1.24%
3,500 Tele1 Europe BV**............................................................................. $ 297,500
113,480 Viatel Incorporated........................................................................... 4,766,160
-------------
5,063,660
-------------
FOOD & BEVERAGE--0.06%
74,223 Packaged Ice Incorporated..................................................................... 259,781
-------------
GAMING--0.45%
541,666 Hollywood Casino Corporation.................................................................. 1,828,123
-------------
GENERAL INDUSTRIAL--0.11%
1,400 Communications & Power........................................................................ 210,000
1,250 Jordan Telecommunication Products............................................................. 250,000
-------------
460,000
-------------
MEDIA--0.59%
12,000 Affiliated Newspaper Investments Incorporated................................................. 2,400,000
-------------
RETAIL--1.30%
666,011 Samuels Jewelers Incorporated++............................................................... 3,829,563
60,000 Tuesday Morning Corporation................................................................... 1,500,000
-------------
5,329,563
-------------
SERVICE--0.94%
854,550 Waste Systems International Incorporated...................................................... 3,845,475
-------------
TECHNOLOGY--0.77%
696,328 Ampex Corporation++........................................................................... 3,176,997
-------------
Total Common Stock (cost--$14,749,497)................................................................... 22,363,599
-------------
PREFERRED STOCK(A)--2.08%
CABLE--0.15%
1,266 21st Century Telecommunications Group Incorporated**.......................................... 633,000
-------------
ENERGY--0.02%
103,736 Orion Refining Corporation.................................................................... 70,852
-------------
GENERAL INDUSTRIAL--1.12%
35,753 Communications & Power........................................................................ 2,895,993
1,677 Jordan Telecommunications Products............................................................ 1,677,000
-------------
4,572,993
-------------
</TABLE>
34
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- --------- -------------
<C> <S> <C>
PREFERRED STOCK(A)--(CONCLUDED)
PAPER & PACKAGING--0.21%
7,935 Packaging Corporation of America.............................................................. $ 872,850
-------------
RESTAURANTS--0.58%
2,968 American Restaurant Group Incorporated........................................................ 2,374,400
-------------
Total Preferred Stock (cost--$7,740,939)................................................................. 8,524,095
-------------
<CAPTION>
NUMBER OF
WARRANTS
- ---------
<C> <S> <C>
WARRANTS(a)--0.69%
CABLE--0.31%
17,000 Knology Holdings Incorporated................................................................. 85,000
11,800 Park 'N View Incorporated..................................................................... 885,000
1,000 21st Century Telecommunications Group Incorporated............................................ 10,000
10,000 UIH Australia Pacific Incorporated............................................................ 300,000
-------------
1,280,000
-------------
COMMUNICATIONS-FIXED--0.02%
6,750 Pathnet Incorporated.......................................................................... 67,500
-------------
COMMUNICATIONS-MOBILE--0.01%
15,750 McCaw International Limited................................................................... 47,250
-------------
ENERGY--0.02%
3,625 Key Energy Services Incorporated.............................................................. 90,625
-------------
FINANCIAL SERVICES--0.00%
6,000 Olympic Financial Limited..................................................................... 6,000
-------------
GENERAL INDUSTRIAL--0.02%
8,400 Sabreliner Corporation........................................................................ 84,000
-------------
MEDIA--0.03%
19,500 Inter Act Systems Incorporated................................................................ 97,500
-------------
RESTAURANTS--0.00%
2,500 American Restaurant Group Incorporated........................................................ 25
-------------
RETAIL--0.00%
13,146 Samuels Jewelers Incorporated++............................................................... 131
-------------
SERVICE--0.11%
109,290 Nuco2 Incorporated++.......................................................................... 437,160
22,500 Waste Systems International Incorporated**.................................................... 16,875
-------------
454,035
-------------
TECHNOLOGY--0.17%
13,700 Electronic Retailing Systems International Incorporated....................................... 13,700
</TABLE>
35
<PAGE>
PAINEWEBBER HIGH INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
- --------- -------------
<C> <S> <C>
WARRANTS(a)--(concluded)
TECHNOLOGY--(CONCLUDED)
30,000 Wam! Net Incorporated......................................................................... $ 682,500
-------------
696,200
-------------
TRANSPORTATION--0.00%
3,000 Millenium Seacarriers Incorporated............................................................ 376
-------------
Total Warrants (cost--$529,857).......................................................................... 2,823,642
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES
- --------- --------------------- ------------------
<C> <S> <C> <C> <C>
SHORT TERM U.S. GOVERNMENT OBLIGATIONS--3.66%
$15,000 United States Treasury Notes
(cost--$14,984,538)............................... 10/31/01 5.875% 14,962,500
------------
REPURCHASE AGREEMENT--2.79%
11,438 Repurchase Agreement, dated 11/30/99 with SG
Warburg Securities Corporation, collateralized
by $11,696,000 U.S. Treasury Bonds, 6.375% due
08/15/27 (value--$11,666,760);
proceeds: $11,439,798 (cost--$11,438,000)....... 12/01/99 5.660 11,438,000
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total Investments (cost--$469,377,030)--98.31%.............. 402,419,021
Other assets in excess of liabilities--1.69%................ 6,898,488
------------
Net Assets-100.00%.......................................... $409,317,509
============
</TABLE>
- ---------------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities representing 3.8% 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
36
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1999
<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--$359,688,278,
$207,164,806, $291,034,520
and $469,377,030,
respectively)............... $ 346,645,025 $ 206,775,686 $ 278,306,812 $ 402,419,021
Investments of cash collateral
received for securities
loaned, at value............ 43,485,500 -- 17,440,336 --
Cash.......................... 5,652 47 554 63,976
Receivable for investments
sold........................ -- 299,423 -- 1,003,750
Dividends and interest
receivable.................. 2,957,030 659,603 5,915,097 9,619,408
Receivable for shares of
beneficial interest sold.... 17,030 10,030,000 42,441 114,554
Variation margin receivable... -- 1,787 -- --
Other assets.................. 109,321 9,403 20,125 8,361
------------- ------------- ------------- -------------
Total assets.................. 393,219,558 217,775,949 301,725,365 413,229,070
------------- ------------- ------------- -------------
LIABILITIES
Payable for investments
purchased................... 71,822,500 58,349,987 21,062,812 1,065,769
Payable for cash collateral on
securities loaned........... 43,485,500 -- 17,440,336 --
Payable for shares of
beneficial interest
repurchased................. 403,496 81,118 401,953 1,378,318
Dividends payable............. 319,213 162,024 357,164 934,153
Payable to affiliates......... 188,663 121,876 196,250 359,886
Variation margin payable...... 69,844 -- -- --
Accrued expenses and other
liabilities................. 612,521 187,569 213,584 173,435
------------- ------------- ------------- -------------
Total liabilities............. 116,901,737 58,902,574 39,672,099 3,911,561
------------- ------------- ------------- -------------
NET ASSETS
Beneficial interest--$0.001
par value (unlimited amount
authorized)................. 380,765,615 279,404,063 296,344,518 612,783,716
Undistributed (distributions
in excess of) net investment
income...................... (169,570) (42,696) (357,165) 3,040,419
Accumulated net realized
losses from investments,
futures and options
transactions................ (91,729,806) (120,101,959) (21,206,379) (139,548,617)
Net unrealized depreciation of
investments, futures and
options..................... (12,548,418) (386,033) (12,727,708) (66,958,009)
------------- ------------- ------------- -------------
Net assets.................... $ 276,317,821 $ 158,873,375 $ 262,053,266 $ 409,317,509
============= ============= ============= =============
CLASS A:
Net assets.................... $ 231,568,439 $ 87,141,916 $ 201,464,851 $ 232,824,956
------------- ------------- ------------- -------------
Shares outstanding............ 27,208,941 37,793,189 20,257,117 38,065,738
------------- ------------- ------------- -------------
Net asset value and redemption
value per share............. $8.51 $2.31 $9.95 $6.12
============= ============= ============= =============
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)................ $8.86 $2.38 $10.36 $6.38
============= ============= ============= =============
CLASS B:
Net assets.................... $ 13,278,280 $ 5,589,173 $ 26,415,402 $ 93,390,065
------------- ------------- ------------- -------------
Shares outstanding............ 1,559,919 2,428,142 2,656,784 15,282,668
------------- ------------- ------------- -------------
Net asset value and offering
price per share............. $8.51 $2.30 $9.94 $6.11
============= ============= ============= =============
CLASS C:
Net assets.................... $ 20,021,130 $ 63,083,229 $ 29,559,723 $ 80,960,752
------------- ------------- ------------- -------------
Shares outstanding............ 2,354,696 27,386,919 2,972,333 13,219,218
------------- ------------- ------------- -------------
Net asset value and offering
price per share............. $8.50 $2.30 $9.94 $6.12
============= ============= ============= =============
CLASS Y:
Net assets.................... $ 11,449,972 $ 3,059,057 $ 4,613,290 $ 2,141,736
------------- ------------- ------------- -------------
Shares outstanding............ 1,346,637 1,327,561 463,661 350,598
------------- ------------- ------------- -------------
Net asset value, offering
price and redemption value
per share................... $8.50 $2.30 $9.95 $6.11
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
37
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1999
----------------------------------------------------------
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........ $ 20,472,582 $ 8,091,753 $ 20,808,561 $56,675,502
------------ ------------ ------------ -----------
EXPENSES:
Investment advisory and
administration.............. 1,537,271 683,166 1,402,342 2,408,964
Service fees--Class A......... 637,848 135,190 524,546 610,271
Service and distribution
fees--Class B............... 172,005 72,407 336,809 1,425,449
Service and distribution
fees--Class C............... 170,768 538,438 248,190 693,522
Transfer agency fees.......... 342,873 132,538 218,334 387,622
Custody and accounting........ 198,726 69,897 142,516 239,685
Legal and audit............... 76,958 80,726 59,056 98,407
Reports and notices to
shareholders................ 77,694 38,887 56,885 91,700
State registration fees....... 63,058 42,255 53,258 60,820
Trustees' fees................ 10,500 10,500 10,500 10,500
Other expenses................ 59,986 18,269 14,360 35,166
------------ ------------ ------------ -----------
3,347,687 1,822,273 3,066,796 6,062,106
Less: fee waivers from
adviser..................... (13,511) -- (2,056) --
------------ ------------ ------------ -----------
Net expenses.................. 3,334,176 1,822,273 3,064,740 6,062,106
------------ ------------ ------------ -----------
Net investment income......... 17,138,406 6,269,480 17,743,821 50,613,396
------------ ------------ ------------ -----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains (losses)
from:
Investment transactions... (5,018,353) (3,645,943) (2,351,042) (19,041,784)
Futures contracts......... (1,408,940) 27,627 -- --
Options written........... 7,064 6,378 -- --
Net change in unrealized
appreciation/depreciation
of:
Investments and purchased
options................. (17,841,426) (764,993) (20,694,030) (19,675,123)
Futures................... 34,781 (87,645) -- --
------------ ------------ ------------ -----------
NET REALIZED AND UNREALIZED
LOSSES FROM INVESTMENT
ACTIVITIES.................. (24,226,874) (4,464,576) (23,045,072) (38,716,907)
------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ (7,088,468) $ 1,804,904 $ (5,301,251) $11,896,489
============ ============ ============ ===========
</TABLE>
See accompanying notes to financial statements
38
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
NOVEMBER 30,
---------------------------
1999 1998
------------ -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 17,138,406 $ 19,576,582
Net realized gains (losses) from
investments, futures and options
transactions.......................... (6,420,229) 13,098,352
Net change in unrealized
appreciation/depreciation of
investments, futures and options...... (17,806,645) (3,380,726)
------------ -------------
Net increase (decrease) in net assets
resulting from operations............. (7,088,468) 29,294,208
------------ -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (14,406,509) (16,195,457)
Net investment income--Class B.......... (826,543) (1,439,609)
Net investment income--Class C.......... (1,167,824) (1,345,864)
Net investment income--Class Y.......... (737,274) (597,497)
------------ -------------
Total dividends to shareholders......... (17,138,150) (19,578,427)
------------ -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 92,941,317 38,402,796
Cost of shares repurchased.............. (140,760,215) (89,609,394)
Proceeds from dividends reinvested...... 9,939,179 11,399,759
------------ -------------
Net decrease in net assets from
beneficial interest transactions...... (37,879,719) (39,806,839)
------------ -------------
Net decrease in net assets.............. (62,106,337) (30,091,058)
NET ASSETS:
Beginning of year....................... 338,424,158 368,515,216
------------ -------------
End of year............................. $276,317,821 $ 338,424,158
============ =============
</TABLE>
See accompanying notes to financial statements
39
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
NOVEMBER 30,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 6,269,480 $ 7,056,302
Net realized gains (losses) from
investments, futures and options
transactions.......................... (3,611,938) 1,721,327
Net change in unrealized
appreciation/depreciation of
investments, futures and options...... (852,638) (881,954)
------------- -------------
Net increase in net assets resulting
from operations....................... 1,804,904 7,895,675
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (2,677,276) (2,595,938)
Net investment income--Class B.......... (299,808) (339,772)
Net investment income--Class C.......... (3,107,776) (4,024,907)
Net investment income--Class Y.......... (184,622) (95,059)
------------- -------------
Total dividends to shareholders......... (6,269,482) (7,055,676)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 212,615,459 162,076,404
Cost of shares repurchased.............. (205,924,759) (148,445,808)
Proceeds from dividends reinvested...... 4,638,117 4,889,431
------------- -------------
Net increase in net assets from
beneficial interest transactions...... 11,328,817 18,520,027
------------- -------------
Net increase in net assets.............. 6,864,239 19,360,026
NET ASSETS:
Beginning of year....................... 152,009,136 132,649,110
------------- -------------
End of year............................. $ 158,873,375 $ 152,009,136
============= =============
</TABLE>
See accompanying notes to financial statements
40
<PAGE>
PAINEWEBBER INVESTMENT GRADE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
NOVEMBER 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 17,743,821 $ 18,614,816
Net realized gains (losses) from
investments and futures
transactions.......................... (2,351,042) 3,442,068
Net change in unrealized
appreciation/depreciation of
investments and futures............... (20,694,030) (4,988,889)
------------ ------------
Net increase (decrease) in net assets
resulting from operations............. (5,301,251) 17,067,995
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (13,633,333) (14,293,057)
Net investment income--Class B.......... (1,912,697) (2,398,710)
Net investment income--Class C.......... (1,980,821) (1,897,687)
Net investment income--Class Y.......... (266,757) (77,963)
------------ ------------
Total dividends to shareholders......... (17,793,608) (18,667,417)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 57,811,186 56,988,242
Cost of shares repurchased.............. (77,144,688) (57,228,784)
Proceeds from dividends reinvested...... 9,816,308 10,000,701
------------ ------------
Net increase (decrease) in net assets
from beneficial interest
transactions.......................... (9,517,194) 9,760,159
------------ ------------
Net increase (decrease) in net assets... (32,612,053) 8,160,737
NET ASSETS:
Beginning of year....................... 294,665,319 286,504,582
------------ ------------
End of year............................. $262,053,266 $294,665,319
============ ============
</TABLE>
See accompanying notes to financial statements
41
<PAGE>
PAINEWEBBER HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
NOVEMBER 30,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 50,613,396 $ 52,937,390
Net realized losses from investment
transactions.......................... (19,041,784) (10,507,346)
Net change in unrealized
appreciation/depreciation of
investments........................... (19,675,123) (67,542,481)
------------- -------------
Net increase (decrease) in net assets
resulting from operations............. 11,896,489 (25,112,437)
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A.......... (26,526,311) (24,137,016)
Net investment income--Class B.......... (14,276,554) (17,410,119)
Net investment income--Class C.......... (9,573,976) (9,462,206)
Net investment income--Class Y.......... (298,107) (120,615)
------------- -------------
Total dividends to shareholders......... (50,674,948) (51,129,956)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 164,783,645 199,547,214
Cost of shares repurchased.............. (276,858,175) (234,206,542)
Proceeds from dividends reinvested...... 22,999,869 23,335,096
------------- -------------
Net decrease in net assets from
beneficial interest transactions...... (89,074,661) (11,324,232)
------------- -------------
Net decrease in net assets.............. (127,853,120) (87,566,625)
NET ASSETS:
Beginning of year....................... 537,170,629 624,737,254
------------- -------------
End of year (including undistributed net
investment income of $3,040,419 and
$3,090,809, respectively)............. $ 409,317,509 $ 537,170,629
============= =============
</TABLE>
See accompanying notes to financial statements
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 eight funds: PaineWebber U.S. Government
Income Fund ("U.S. Government Income Fund"), PaineWebber Low Duration U.S.
Government Income Fund ("Low Duration U.S. Government Income Fund"), PaineWebber
Investment Grade Income Fund ("Investment Grade Income Fund"), PaineWebber High
Income Fund ("High Income Fund") (collectively, the "Funds"), PaineWebber
Utility Income Fund, PaineWebber Asia Pacific Growth Fund PaineWebber Tax-
Managed Equity Fund and PaineWebber Strategy Fund. The financial statements for
PaineWebber Utility Income Fund, PaineWebber Asia Pacific Growth Fund,
PaineWebber Tax-Managed Equity Fund are not included herein.
Currently, each Fund offers Class A, Class B, Class C and Class Y shares. Each
class represents interests in the same assets of the applicable Fund, and the
classes are identical except for differences in their sales charge structures,
ongoing service and distribution charges and certain transfer agency expenses.
In addition, Class B shares and all corresponding reinvested dividend shares
automatically convert to Class A shares approximately six years after issuance.
All classes of shares have equal voting privileges except that each class has
exclusive voting rights with respect to its service and/or distribution plan.
Class Y shares have no service or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
VALUATION OF INVESTMENTS--The Funds calculate their net asset value based on
the current market value for the portfolio securities. The Funds normally obtain
market values for their securities from independent pricing sources. Independent
pricing sources 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 repurchase, each Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Under certain circumstances, in the event of default or bankruptcy by the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. Each of the Funds occasionally participates in
joint repurchase agreement transactions with other funds managed by Mitchell
Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized (with the exception of
U.S. Government Income Fund) as adjustments to interest income and the
identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.
DOLLAR ROLLS--Low Duration U.S. Government Income Fund and U.S. Government
Income Fund may enter into transactions in which these Funds sell securities for
delivery in the current month and simultaneously contract to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date (the "roll period"). During the roll period, the Funds forego
principal and interest paid on the securities. The Funds are compensated by the
interest earned on the cash proceeds of the initial sale and by fee income or a
lower repurchase price.
FUTURES CONTRACTS--Upon entering into a financial futures contract, a Fund is
required to pledge to a broker an amount of cash and/or U.S. Government
securities equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation margin,"
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying financial futures contracts. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss until the financial futures contract is closed, at which
time the net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Funds (except High Income Fund) primarily use financial futures contracts
for hedging or to manage the average duration of the Fund's portfolio. However,
imperfect correlations between futures contracts and the portfolio securities
being hedged, or market disruptions, do not normally permit full control of
these risks at all times.
OPTION WRITING--When a Fund writes a call or a put option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. If an option which the Fund has written either expires on
its stipulated expiration date or the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a call option which the
Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from the
sale are increased by the premium originally received. If a put
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 year ended November 30, 1999, 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 year ended November 30, 1999 were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT LOW DURATION U.S.
INCOME FUND GOVERNMENT INCOME FUND
------------------------- ------------------------
NUMBER OF NUMBER OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding at November 30,
1998.................................. 0 $ 0 0 $ 0
Options written......................... 1,210 595,006 216 92,565
Options terminated in closing purchase
transactions.......................... (1,210) (595,006) 0 0
Options expired......................... 0 0 (216) (92,565)
------ --------- ---- --------
Options outstanding at November 30,
1999.................................. 0 $ 0 0 $ 0
====== ========= ==== ========
</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 November 30, 1999,
U.S. Government Income Fund, Low Duration U.S. Government Income Fund,
Investment Grade Income Fund and High Income Fund owed Mitchell Hutchins
$112,385, $61,534, $108,456 and $167,101, respectively, in investment advisory
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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
year ended November 30, 1999, Mitchell Hutchins waived $13,511 and $2,056,
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.
SERVICING AGREEMENT
The board of U.S. Government Income Fund, Low Duration U.S. Government Income
Fund, Investment Grade Income Fund and High Income Fund have approved a
Servicing Agreement ("Servicing Agreement") with Mitchell Hutchins and the
Mitchell Hutchins Portfolios (comprising, respectively, the Aggressive
Portfolio, Moderate Portfolio and the Conservative Portfolio) (each a
"Portfolio") pursuant to an exemptive order from the Securities and Exchange
Commission that permits the Funds to reimburse each Portfolio for certain
expenses to the extent a Fund realizes savings from each Portfolio. The savings
to a Fund result from the elimination of separate shareholder accounts for each
Portfolio's investors, who otherwise might invest directly in the Fund. For the
year ended November 30, 1999, U.S. Government Income Fund, Low Duration U.S.
Government Income Fund, Investment Grade Income Fund and High Income Fund
incurred $7,429, $5,224, $12,775 and $11,486, respectively, under the Servicing
Agreement, which is included in other expenses in the Statement of Operations.
At November 30, 1999, U.S. Government Income Fund, Low Duration U.S. Government
Income Fund, Investment Grade Income Fund and High Income Fund owed the
Portfolios $3,019, $579, $5,347 and $4,241, respectively under the Servicing
Agreement.
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 November 30, 1999, U.S. Government Income Fund, Low Duration
U.S. Government Income Fund, Investment Grade Income Fund and High Income Fund
owed Mitchell Hutchins $71,445, $59,763, $82,098 and $188,544, 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 year ended November 30, 1999, it earned $75,781, $156,081, $143,645
and $350,445 in sales charges for the U.S. Government Income Fund, Low Duration
U.S. Government Income Fund, Investment Grade Income Fund and High Income Fund,
respectively.
SECURITY LENDING
Each Fund may lend securities up to 33 1/3% of its total assets to qualified
institutions. The loans are secured at all times by cash or U.S. government
securities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted
accordingly. Each Fund will regain record ownership of loaned securities to
exercise certain beneficial rights; however, each Fund may bear the risk of
delay in recovery of, or
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 year ended November 30,
1999 from the following Funds:
<TABLE>
<S> <C>
U.S. Government Income Fund............................. $37,641
Investment Grade Income Fund............................ $ 8,655
</TABLE>
At November 30, 1999, the U.S. Government Income Fund and the Investment Grade
Income Fund owed PaineWebber $1,814 and $349, respectively, in security lending
fees.
For the year ended November 30, 1999, the U.S. Government Income Fund and
Investment Grade Income Fund earned compensation of $112,936 and $25,952,
respectively, net of fees, rebates and expenses from securities lending
transactions.
At November 30, 1999, 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................................. $43,485,500 $41,520,150
Investment Grade Income Fund................................ $17,440,336 $16,670,641
</TABLE>
At November 30, 1999 the Funds invested the collateral in the following money
market funds:
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------- -----------
<C> <S> <C>
U.S. Government Income Fund
8,204,671 Liquid Assets Portfolio..................................... $ 8,204,671
34,538,966 Mitchell Hutchins Private Money Market Fund LLC............. 34,538,966
741,863 Prime Portfolio............................................. 741,863
-----------
Total investments of cash collateral received for securities
on loan (cost--$43,485,500)............................... $43,485,500
===========
</TABLE>
Investment Grade Income Fund
<TABLE>
<C> <S> <C>
4,083,737 Liquid Assets Portfolio..................................... $ 4,083,737
13,354,342 Mitchell Hutchins Private Money Market Fund LLC............. 13,354,342
2,257 Prime Portfolio............................................. 2,257
-----------
Total investments of cash collateral received for securities
on loan (cost--$17,440,336)............................... $17,440,336
===========
</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 year ended November 30, 1999, the Funds did not borrow under the Facility.
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS
TRANSFER AGENCY SERVICE FEES
PaineWebber provides transfer agency related services to each Fund pursuant to
a delegation of authority from PFPC Inc., each Funds' transfer agent, and is
compensated for these services by PFPC Inc., not the Funds. For the year ended
November 30, 1999, PaineWebber received from PFPC Inc., not the Funds,
approximately 53%, 54%, 43% and 50% of the total transfer agency fees collected
by PFPC Inc. from the U.S. Government Income Fund, Low Duration U.S. Government
Income Fund, Investment Grade Income Fund and High Income Fund, respectively.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at November 30,
1999 was substantially the same as the cost of securities for financial
statement purposes.
At November 30, 1999, the components of the net unrealized depreciation of
investments were as follows:
<TABLE>
<CAPTION>
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Gross appreciation (investments having an excess of
value over cost)...................................... $ 59,541 $ 511,820 $ 2,341,648 $ 18,341,661
Gross depreciation (investments having an excess of cost
over value)........................................... (13,102,794) (900,940) (15,069,356) (85,299,670)
------------ --------- ------------ ------------
Net unrealized depreciation of investments.............. $(13,043,253) $(389,120) $(12,727,708) $(66,958,009)
============ ========= ============ ============
</TABLE>
For the year ended November 30, 1999, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
U.S. LOW DURATION INVESTMENT
GOVERNMENT U.S. GOVERNMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Purchases............................................ $1,235,901,929 $361,604,261 $528,014,375 $287,370,965
Sales................................................ $1,241,324,989 $448,289,618 $536,488,293 $389,939,764
</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.
For the year ended November 30, 1999, the reclassifications arising from
permanent "book/tax" differences resulting in increases (decreases) to the
components of net assets were as follows:
<TABLE>
<CAPTION>
UNDISTRIBUTED
(DISTRIBUTIONS
IN EXCESS
OF) NET ACCUMULATED
INVESTMENT NET REALIZED BENEFICIAL
INCOME GAINS (LOSSES) INTEREST
-------------- -------------- ------------
<S> <C> <C> <C>
U.S. Government Income Fund................................. $187,700 $ (187,700) $ --
Low Duration U.S. Government Income Fund.................... 11,073 (10,784) (289)
Investment Grade Income Fund................................ 34,483 -- (34,483)
High Income Fund............................................ 11,162 4,851,459 (4,862,621)
</TABLE>
The reclassifications for High Income were primarily the result of capital
losses of $4,849,952 expiring at November 30, 1999.
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
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 CLASS C CLASS Y
--------------------------- -------------------------- -------------------------- -----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------------ ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT INCOME
FUND
YEAR ENDED NOVEMBER 30, 1999:
Shares sold............ 7,031,019 $ 60,739,242 689,705 $ 6,053,726 577,920 $ 5,161,090 2,385,567
Shares repurchased..... (12,054,086) (104,852,709) (667,932) (5,858,579) (1,040,037) (9,188,494) (2,377,192)
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 88,070 774,343 81,752
------------ ------------- ----------- ------------- ----------- ------------- -----------
Net increase
(decrease)............ (3,066,763) $ (26,819,227) (974,699) $ (8,650,542) (374,047) $ (3,253,061) 90,127
============ ============= =========== ============= =========== ============= ===========
YEAR ENDED NOVEMBER 30, 1998:
Shares sold............ 505,416 $ 4,607,694 954,146 $ 8,719,746 636,935 $ 5,801,537 2,133,805
Shares repurchased..... (5,910,608) (53,488,228) (1,135,313) (10,275,294) (1,153,391) (10,446,958) (1,704,454)
Shares converted from
Class B to Class A.... 2,084,528 18,889,153 (2,084,528) (18,889,153) -- -- --
Dividends reinvested... 1,003,345 9,097,712 93,443 846,696 96,378 873,028 64,246
------------ ------------- ----------- ------------- ----------- ------------- -----------
Net increase
(decrease)............ (2,317,319) $ (20,893,669) (2,172,252) $ (19,598,005) (420,078) $ (3,772,393) 493,597
============ ============= =========== ============= =========== ============= ===========
LOW DURATION U.S.
GOVERNMENT INCOME FUND
YEAR ENDED NOVEMBER 30, 1999:
Shares sold............ 80,259,489 $ 186,412,759 1,757,169 $ 4,134,549 4,425,998 $ 10,445,726 4,973,305
Shares repurchased..... (71,208,112) (165,961,016) (1,463,372) (3,423,339) (11,143,910) (26,125,554) (4,479,319)
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 91,329 213,931 943,723 2,210,501 73,966
------------ ------------- ----------- ------------- ----------- ------------- -----------
Net increase
(decrease)............ 11,102,615 $ 25,254,079 (794,906) $ (1,836,724) (5,774,189) $ (13,469,327) 567,952
============ ============= =========== ============= =========== ============= ===========
YEAR ENDED NOVEMBER 30, 1998:
Shares sold............ 60,572,974 $ 144,153,539 2,117,211 $ 5,048,319 3,615,697 $ 8,612,728 1,791,809
Shares repurchased..... (49,261,371) (117,238,751) (1,462,663) (3,479,225) (10,439,963) (24,828,123) (1,218,491)
Shares converted from
Class B to Class A.... 476,836 1,135,207 (476,915) (1,135,207) -- -- --
Dividends reinvested... 691,659 1,648,506 107,228 255,055 1,217,274 2,896,014 37,708
------------ ------------- ----------- ------------- ----------- ------------- -----------
Net increase
(decrease)............ 12,480,098 $ 29,698,501 284,861 $ 688,942 (5,606,992) $ (13,319,381) 611,026
============ ============= =========== ============= =========== ============= ===========
<CAPTION>
CLASS Y
------------
AMOUNT
------------
<S> <C>
U.S. GOVERNMENT INCOME
FUND
YEAR ENDED NOVEMBER 30,
Shares sold............ $ 20,987,259
Shares repurchased..... (20,860,433)
Shares converted from
Class B to Class A.... --
Dividends reinvested... 716,285
------------
Net increase
(decrease)............ $ 843,111
============
YEAR ENDED NOVEMBER 30,
Shares sold............ $ 19,273,819
Shares repurchased..... (15,398,914)
Shares converted from
Class B to Class A.... --
Dividends reinvested... 582,323
------------
Net increase
(decrease)............ $ 4,457,228
============
LOW DURATION U.S.
GOVERNMENT INCOME FUND
YEAR ENDED NOVEMBER 30,
Shares sold............ $ 11,622,425
Shares repurchased..... (10,414,850)
Shares converted from
Class B to Class A.... --
Dividends reinvested... 173,214
------------
Net increase
(decrease)............ $ 1,380,789
============
YEAR ENDED NOVEMBER 30,
Shares sold............ $ 4,261,818
Shares repurchased..... (2,899,709)
Shares converted from
Class B to Class A.... --
Dividends reinvested... 89,856
------------
Net increase
(decrease)............ $ 1,451,965
============
</TABLE>
49
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SHARES OF BENEFICIAL INTEREST (CONCLUDED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
--------------------------- -------------------------- -------------------------- -----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------------ ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT GRADE
INCOME FUND
YEAR ENDED NOVEMBER 30, 1999:
Shares sold............ 3,007,963 $ 31,130,739 757,173 $ 7,888,019 1,155,322 $ 12,187,153 648,010
Shares repurchased..... (4,615,505) (47,584,539) (933,978) (9,613,270) (1,472,093) (15,317,509) (458,002)
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 95,887 987,099 25,297
------------ ------------- ----------- ------------- ----------- ------------- -----------
Net increase
(decrease)............ 203,764 $ 2,251,934 (1,155,130) $ (11,860,671) (220,884) $ (2,143,257) 215,305
============ ============= =========== ============= =========== ============= ===========
YEAR ENDED NOVEMBER 30, 1998:
Shares sold............ 2,041,843 $ 22,290,767 1,696,765 $ 18,472,491 1,184,652 $ 12,935,515 302,126
Shares repurchased..... (3,390,614) (37,003,109) (1,020,396) (11,101,156) (775,320) (8,463,655) (60,627)
Shares converted from
Class B to Class A.... 1,114,869 12,177,257 (1,115,095) (12,177,257) -- -- --
Dividends reinvested... 701,098 7,648,985 117,112 1,277,379 91,680 999,801 6,857
------------ ------------- ----------- ------------- ----------- ------------- -----------
Net increase
(decrease)............ 467,196 $ 5,113,900 (321,614) $ (3,528,543) 501,012 $ 5,471,661 248,356
============ ============= =========== ============= =========== ============= ===========
HIGH INCOME FUND
YEAR ENDED NOVEMBER 30, 1999:
Shares sold............ 16,234,296 $ 104,312,639 5,419,044 $ 35,346,423 3,375,141 $ 21,986,584 486,084
Shares repurchased..... (24,429,499) (158,179,372) (12,058,749) (77,592,777) (5,795,558) (37,436,947) (577,517)
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 5,872,521 789,183 5,089,006 46,019
------------ ------------- ----------- ------------- ----------- ------------- -----------
Net decrease........... (778,309) $ (5,935,493) (11,330,621) $ (72,561,566) (1,631,234) $ (10,361,357) (45,414)
============ ============= =========== ============= =========== ============= ===========
YEAR ENDED NOVEMBER 30, 1998:
Shares sold............ 13,694,125 $ 97,142,363 8,040,949 $ 59,468,319 5,202,992 $ 38,470,183 594,839
Shares repurchased..... (16,000,259) (117,628,189) (9,418,944) (69,303,434) (6,199,014) (45,640,962) (214,727)
Shares converted from
Class B to Class A.... 3,996,052 30,045,750 (3,997,285) (30,045,750) -- -- --
Dividends reinvested... 1,478,031 10,911,350 962,985 7,113,261 703,058 5,198,786 15,900
------------ ------------- ----------- ------------- ----------- ------------- -----------
Net increase
(decrease)............ 3,167,949 $ 20,471,274 (4,412,295) $ (32,767,604) (292,964) $ (1,971,993) 396,012
============ ============= =========== ============= =========== ============= ===========
<CAPTION>
CLASS Y
------------
AMOUNT
------------
<S> <C>
INVESTMENT GRADE
INCOME FUND
YEAR ENDED NOVEMBER 30,
Shares sold............ $ 6,605,275
Shares repurchased..... (4,629,370)
Shares converted from
Class B to Class A.... --
Dividends reinvested... 258,895
------------
Net increase
(decrease)............ $ 2,234,800
============
YEAR ENDED NOVEMBER 30,
Shares sold............ $ 3,289,469
Shares repurchased..... (660,864)
Shares converted from
Class B to Class A.... --
Dividends reinvested... 74,536
------------
Net increase
(decrease)............ $ 2,703,141
============
HIGH INCOME FUND
YEAR ENDED NOVEMBER 30,
Shares sold............ $ 3,137,999
Shares repurchased..... (3,649,079)
Shares converted from
Class B to Class A.... --
Dividends reinvested... 294,835
------------
Net decrease........... $ (216,245)
============
YEAR ENDED NOVEMBER 30,
Shares sold............ $ 4,466,349
Shares repurchased..... (1,633,957)
Shares converted from
Class B to Class A.... --
Dividends reinvested... 111,699
------------
Net increase
(decrease)............ $ 2,944,091
============
</TABLE>
50
<PAGE>
(This page has been left blank intentionally.)
51
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 9.20 $ 8.94 $ 8.86 $ 9.12 $ 8.50
-------- -------- -------- -------- --------
Net investment income.................................. 0.50 0.51 0.54 0.55 0.58
Net realized and unrealized gains (losses) from
investments,
futures and options................................... (0.69) 0.26 0.08 (0.26) 0.62
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations..... (0.19) 0.77 0.62 0.29 1.20
-------- -------- -------- -------- --------
Dividends from net investment income................... (0.50) (0.51) (0.54) (0.55) (0.58)
-------- -------- -------- -------- --------
Net asset value, end of year........................... $ 8.51 $ 9.20 $ 8.94 $ 8.86 $ 9.12
======== ======== ======== ======== ========
Total investment return(1)............................. (2.14)% 9.06% 7.27% 3.39% 14.70%
======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of year (000's)........................ $231,569 $278,483 $291,470 $343,836 $430,285
Expenses to average net assets, net of waivers from
advisers (3).......................................... 1.01% 1.03% 0.94% 0.94% 1.03%(2)
Net investment income to average net assets, net of
waivers from advisers (3)............................. 5.65% 5.69% 6.15% 6.24% 6.65%(2)
Portfolio turnover rate................................ 375% 370% 322% 359% 206%
</TABLE>
- -----------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends at net asset
value on the payable dates and a sale at net asset value on the last day of
each year reported. The figures do not include sales charges; results would
be lower if sales charges were included.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
(3) During 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%.
52
<PAGE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 9.20 $ 8.94 $ 8.87 $ 9.12 $ 8.50
---------- -------- -------- -------- --------
0.43 0.44 0.47 0.48 0.51
(0.69) 0.26 0.07 (0.25) 0.63
---------- -------- -------- -------- --------
(0.26) 0.70 0.54 0.23 1.14
---------- -------- -------- -------- --------
(0.43) (0.44) (0.47) (0.48) (0.52)
---------- -------- -------- -------- --------
$ 8.51 $ 9.20 $ 8.94 $ 8.87 $ 9.12
========== ======== ======== ======== ========
(2.93)% 8.16% 6.34% 2.72% 13.81%
========== ======== ======== ======== ========
$13,278 $23,318 $42,097 $61,873 $82,469
1.82% 1.83% 1.69% 1.70% 1.81%(2)
4.81% 4.87% 5.40% 5.47% 5.88%(2)
375% 370% 322% 359% 206%
<CAPTION>
CLASS C
--------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49
---------- -------- -------- -------- --------
0.45 0.47 0.49 0.50 0.53
(0.69) 0.26 0.07 (0.25) 0.63
---------- -------- -------- -------- --------
(0.24) 0.73 0.56 0.25 1.16
---------- -------- -------- -------- --------
(0.45) (0.47) (0.49) (0.50) (0.54)
---------- -------- -------- -------- --------
$ 8.50 $ 9.19 $ 8.93 $ 8.86 $ 9.11
========== ======== ======== ======== ========
(2.65)% 8.50% 6.62% 2.98% 14.12%
========== ======== ======== ======== ========
$20,021 $25,076 $28,132 $37,754 $53,832
1.53% 1.54% 1.44% 1.45% 1.55%(2)
5.13% 5.17% 5.66% 5.74% 6.17%(2)
375% 370% 322% 359% 206%
</TABLE>
53
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49
---------- ------ ------ ------ ------
Net investment income.................................. 0.52 0.54 0.56 0.57 0.61
Net realized and unrealized gains (losses) from
investments,
futures and options................................... (0.69) 0.26 0.07 (0.25) 0.62
---------- ------ ------ ------ ------
Net increase (decrease) from investment operations..... (0.17) 0.80 0.63 0.32 1.23
---------- ------ ------ ------ ------
Dividends from net investment income................... (0.52) (0.54) (0.56) (0.57) (0.61)
---------- ------ ------ ------ ------
Net asset value, end of year........................... $ 8.50 $ 9.19 $ 8.93 $ 8.86 $ 9.11
========== ====== ====== ====== ======
Total investment return(1)............................. (1.84)% 9.41% 7.43% 3.81% 15.06%
========== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year (000's)........................ $11,450 $11,547 $6,816 $6,495 $7,957
Expenses to average net assets, net of waivers from
adviser (3)........................................... 0.69% 0.71% 0.67% 0.64% 0.71%(2)
Net investment income to average net assets, net of
waivers from adviser (3).............................. 5.97% 5.99% 6.41% 6.53% 6.96%(2)
Portfolio turnover rate................................ 375% 370% 322% 359% 206%
</TABLE>
- -----------------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends at net asset
value on the payable dates and a sale at net asset value on the last day of
each year reported. The figures do not include program fees, results would
be lower if program fees were included.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
(3) During 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%.
54
<PAGE>
(This page has been left blank intentionally.)
55
<PAGE>
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
-------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
------ ------ ------- ------- --------
Net investment income................... 0.12 0.13 0.13 0.14 0.13
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.07) 0.01 0.02 0.01 0.09
------ ------ ------- ------- --------
Net increase (decrease) in net asset
value from operations.................. 0.05 0.14 0.15 0.15 0.22
------ ------ ------- ------- --------
Dividends from net investment income.... (0.12) (0.13) (0.13) (0.14) (0.13)
------ ------ ------- ------- --------
Net asset value, end of year............ $ 2.31 $ 2.38 $ 2.37 $ 2.35 $ 2.34
====== ====== ======= ======= ========
Total investment return(1).............. 1.99% 6.11% 6.67% 6.46% 10.25%
====== ====== ======= ======= ========
Ratios/Supplemental data:
Net assets, end of year (000's)......... $87,142 $63,606 $33,648 $71,216 $127,961
Expenses to average net assets.......... 0.96% 1.07%+ 1.04% 1.21% 1.15%
Net investment income to average net
assets................................. 4.95% 5.37%+ 5.72% 5.84% 5.89%
Portfolio turnover rate................. 270% 411% 359% 210% 242%
</TABLE>
- ---------------
+ Includes 0.13% of interest expense related to the reverse repurchase
agreement entered into during the year.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends at net asset
value on the payable dates and a sale at net asset value on the last day of
each year reported. The figures do not include sales charges; results would
be lower if sales charges were included.
56
<PAGE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
------- ------ ------ ------ -------
Net investment income................... 0.10 0.11 0.11 0.12 0.11
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.08) 0.01 0.02 0.01 0.09
------- ------ ------ ------ -------
Net increase (decrease) in net asset
value from operations.................. 0.02 0.12 0.13 0.13 0.20
------- ------ ------ ------ -------
Dividends from net investment income.... (0.10) (0.11) (0.11) (0.12) (0.11)
------- ------ ------ ------ -------
Net asset value, end of year............ $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34
======= ====== ====== ====== =======
Total investment return(1).............. 0.71% 5.24% 5.81% 5.60% 9.30%
======= ====== ====== ====== =======
Ratios/Supplemental data:
Net assets, end of year (000's)......... $5,589 $7,670 $6,949 $7,716 $9,147
Expenses to average net assets.......... 1.78% 1.91%+ 1.87% 2.03% 2.02%
Net investment income to average net
assets................................. 4.14% 4.58%+ 4.80% 4.99% 5.03%
Portfolio turnover rate................. 270% 411% 359% 210% 242%
<CAPTION>
CLASS C
-------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
------- ------- -------- -------- --------
Net investment income................... 0.10 0.12 0.12 0.12 0.12
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.08) 0.01 0.02 0.01 0.09
------- ------- -------- -------- --------
Net increase (decrease) in net asset
value from operations.................. 0.02 0.13 0.14 0.13 0.21
------- ------- -------- -------- --------
Dividends from net investment income.... (0.10) (0.12) (0.12) (0.12) (0.12)
------- ------- -------- -------- --------
Net asset value, end of year............ $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34
======= ======= ======== ======== ========
Total investment return(1).............. 0.90% 5.46% 6.05% 5.82% 9.60%
======= ======= ======== ======== ========
Ratios/Supplemental data:
Net assets, end of year (000's)......... $63,083 $78,923 $91,700 $123,203 $180,169
Expenses to average net assets.......... 1.60% 1.72%+ 1.64% 1.80% 1.75%
Net investment income to average net
assets................................. 4.33% 4.78%+ 5.05% 5.22% 5.31%
Portfolio turnover rate................. 270% 411% 359% 210% 242%
</TABLE>
57
<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
PERIOD
FOR THE YEARS ENDED NOVEMBER 30, OCTOBER 20, 1995#
--------------------------------------------- TO NOVEMBER 30,
1999 1998 1997 1996 1995
------------ --------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.33
---------- ------ ------ ------ ----------
Net investment income................... 0.12 0.14 0.14 0.14 0.01
Net realized and unrealized gains
(losses) from investments, futures and
options............................... (0.08) 0.01 0.02 0.01 0.01
---------- ------ ------ ------ ----------
Net increase (decrease) in net asset
value from operations................. 0.04 0.15 0.16 0.15 0.02
---------- ------ ------ ------ ----------
Dividends from net investment income.... (0.12) (0.14) (0.14) (0.14) (0.01)
---------- ------ ------ ------ ----------
Net asset value, end of period.......... $ 2.30 $ 2.38 $ 2.37 $ 2.35 $ 2.34
========== ====== ====== ====== ==========
Total investment return(1).............. 1.81% 6.37% 6.87% 6.64% 0.83%
========== ====== ====== ====== ==========
Ratios/Supplemental data:
Net assets, end of period (000's)....... $3,059 $1,810 $ 352 $ 333 $ 321
Expenses to average net assets.......... 0.70% 0.79%+ 0.86% 0.99% 0.99%*
Net investment income to average net
assets................................ 5.24% 5.60%+ 5.82% 6.00% 5.87%*
Portfolio turnover rate................. 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 program fees were included. Total investment
return for periods less than one year has not been annualized.
58
<PAGE>
(This page has been left blank intentionally.)
59
<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 YEARS ENDED NOVEMBER 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.79 $ 10.85 $ 10.59 $ 10.68 $ 9.67
-------- -------- -------- -------- --------
Net investment income................... 0.67 0.74 0.74 0.73 0.76
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.84) (0.06) 0.26 (0.09) 1.01
-------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................. (0.17) 0.68 1.00 0.64 1.77
-------- -------- -------- -------- --------
Dividends from net investment income.... (0.67) (0.74) (0.74) (0.73) (0.76)
-------- -------- -------- -------- --------
Net asset value, end of period.......... $ 9.95 $ 10.79 $ 10.85 $ 10.59 $ 10.68
======== ======== ======== ======== ========
Total investment return(1).............. (1.62)% 6.37% 9.88% 6.33% 18.95%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $201,465 $216,402 $212,472 $229,117 $258,898
Expenses to average net assets net of
waivers from adviser (2)............... 0.95% 0.93% 1.03% 0.94% 0.95%
Net investment income to average net
assets net of waivers from
adviser (2)............................ 6.48% 6.56% 7.07% 7.02% 7.42%
Portfolio turnover rate................. 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 sales charges or program fees were included. Total
investment return for periods of less than one year has not been annualized.
(2) During the year ended 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%.
60
<PAGE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.79 $ 10.85 $ 10.58 $ 10.67 $ 9.67
-------- -------- -------- -------- --------
Net investment income................... 0.58 0.65 0.66 0.65 0.68
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.84) (0.06) 0.27 (0.09) 1.00
-------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................. (0.26) 0.59 0.93 0.56 1.68
-------- -------- -------- -------- --------
Dividends from net investment income.... (0.59) (0.65) (0.66) (0.65) (0.68)
-------- -------- -------- -------- --------
Net asset value, end of period.......... $ 9.94 $ 10.79 $ 10.85 $ 10.58 $ 10.67
======== ======== ======== ======== ========
Total investment return(1).............. (2.46)% 5.56% 9.17% 5.54% 17.97%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $26,415 $41,124 $44,829 $58,364 $71,372
Expenses to average net assets net of
waivers from adviser (2)............... 1.70% 1.69% 1.78% 1.68% 1.70%
Net investment income to average net
assets net of waivers from
adviser (2)............................ 5.67% 5.79% 6.31% 6.27% 6.67%
Portfolio turnover rate................. 195% 173% 109% 115% 149%
<CAPTION>
CLASS C
--------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.79 $ 10.85 $ 10.59 $ 10.68 $ 9.67
---------- -------- -------- -------- --------
Net investment income................... 0.61 0.68 0.69 0.68 0.70
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.84) (0.06) 0.26 (0.09) 1.01
---------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................. (0.23) 0.62 0.95 0.59 1.71
---------- -------- -------- -------- --------
Dividends from net investment income.... (0.62) (0.68) (0.69) (0.68) (0.70)
---------- -------- -------- -------- --------
Net asset value, end of period.......... $ 9.94 $ 10.79 $ 10.85 $ 10.59 $ 10.68
========== ======== ======== ======== ========
Total investment return(1).............. (2.20)% 5.84% 9.34% 5.80% 18.37%
========== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $29,560 $34,457 $29,204 $32,337 $39,150
Expenses to average net assets net of
waivers from adviser (2)............... 1.44% 1.42% 1.53% 1.44% 1.45%
Net investment income to average net
assets net of waivers from
adviser (2)............................ 5.97% 6.04% 6.57% 6.51% 6.95%
Portfolio turnover rate................. 195% 173% 109% 115% 149%
<CAPTION>
CLASS Y
-----------------------------
FOR THE
PERIOD
FEBRUARY 18,
FOR THE YEAR 1998+
ENDED THROUGH
NOVEMBER 30, NOVEMBER 30,
1999 1998
------------- --------------
<S> <C> <C>
Net asset value, beginning of period.... $ 10.80 $ 10.99
---------- ----------
Net investment income................... 0.69 0.57
Net realized and unrealized gains
(losses) from investments, futures and
options................................ (0.84) (0.19)
---------- ----------
Net increase (decrease) from investment
operations............................. (0.15) 0.38
---------- ----------
Dividends from net investment income.... (0.70) (0.57)
---------- ----------
Net asset value, end of period.......... $ 9.95 $ 10.80
========== ==========
Total investment return(1).............. (1.43)% 3.51%
========== ==========
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $4,613 $2,682
Expenses to average net assets net of
waivers from adviser (2)............... 0.66% 0.62%*
Net investment income to average net
assets net of waivers from
adviser (2)............................ 6.84% 6.71%*
Portfolio turnover rate................. 195% 173%
</TABLE>
61
<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 YEARS ENDED NOVEMBER 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 6.66 $ 7.63 $ 7.35 $ 6.96 $ 7.14
---------- -------- -------- -------- --------
Net investment income................... 0.71** 0.67 0.69 0.72 0.79
Net realized and unrealized gains
(losses) from investments.............. (0.55)** (0.99) 0.27 0.37 (0.17)
---------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................. 0.16 (0.32) 0.96 1.09 0.62
---------- -------- -------- -------- --------
Dividends from net investment income.... (0.70) (0.65) (0.68) (0.70) (0.80)
---------- -------- -------- -------- --------
Net asset value, end of period.......... $ 6.12 $ 6.66 $ 7.63 $ 7.35 $ 6.96
========== ======== ======== ======== ========
Total investment return(1).............. 2.42% (4.46)% 13.59% 16.55% 9.01%
========== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period (000's)....... $232,825 $258,559 $272,325 $243,564 $248,619
Expenses to average net assets.......... 0.94% 0.91% 0.98% 0.96% 0.93%
Net investment income to average net
assets................................. 10.83% 9.10% 9.21% 10.10% 11.17%
Portfolio turnover rate................. 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 sales charges or program fees were
included. Total investment return for periods of less than one year has not
been annualized.
62
<PAGE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
----------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$ 6.65 $ 7.63 $ 7.35 $ 6.95 $ 7.14
------- -------- -------- -------- --------
0.66** 0.63 0.63 0.66 0.74
(0.55)** (1.01) 0.27 0.39 (0.18)
------- -------- -------- -------- --------
0.11 (0.38) 0.90 1.05 0.56
------- -------- -------- -------- --------
(0.65) (0.60) (0.62) (0.65) (0.75)
------- -------- -------- -------- --------
$ 6.11 $ 6.65 $ 7.63 $ 7.35 $ 6.95
======= ======== ======== ======== ========
1.63% (5.32)% 12.76% 15.86% 8.05%
======= ======== ======== ======== ========
$93,390 $176,997 $236,656 $215,492 $212,946
1.70% 1.66% 1.73% 1.71% 1.68%
10.03% 8.30% 8.45% 9.34% 10.42%
62% 161% 160% 142% 94%
<CAPTION>
CLASS C CLASS Y
------------------------------------------------------ ----------------------------
FOR THE
PERIOD
FOR THE FEBRUARY 20,
YEAR 1998+
FOR THE YEARS ENDED NOVEMBER 30, ENDED THROUGH
------------------------------------------------------ NOVEMBER 30, NOVEMBER 30,
1999 1998 1997 1996 1995 1999 1998
-------- ------- -------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6.67 $ 7.64 $ 7.36 $ 6.97 $ 7.15 $ 6.65 $ 7.79
------- ------- -------- ------- -------- ------ ------
0.67** 0.64 0.65 0.68 0.76 0.72** 0.53
(0.55)** (0.99) 0.27 0.38 (0.18) (0.54)** (1.14)
------- ------- -------- ------- -------- ------ ------
0.12 (0.35) 0.92 1.06 0.58 0.18 (0.61)
------- ------- -------- ------- -------- ------ ------
(0.67) (0.62) (0.64) (0.67) (0.76) (0.72) (0.53)
------- ------- -------- ------- -------- ------ ------
$ 6.12 $ 6.67 $ 7.64 $ 7.36 $ 6.97 $ 6.11 $ 6.65
======= ======= ======== ======= ======== ====== ======
1.75% (4.92)% 13.03% 15.96% 8.45% 2.68% (8.43)%
======= ======= ======== ======= ======== ====== ======
$80,961 $98,982 $115,757 $94,445 $103,911 $2,142 $2,633
1.44% 1.41% 1.48% 1.47% 1.44% 0.68% 0.63%*
10.34% 8.58% 8.66% 9.60% 10.63% 11.16% 9.78%*
62% 161% 160% 142% 94% 62% 161%
</TABLE>
63
<PAGE>
PAINEWEBBER
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
PaineWebber Managed Investments Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of PaineWebber U.S. Government Income
Fund, PaineWebber Low Duration U.S. Government Income Fund, PaineWebber
Investment Grade Income Fund and PaineWebber High Income Fund (four of the
portfolios of PaineWebber Managed Investments Trust) (the "Funds") as of
November 30, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned at November 30, 1999, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber U.S. Government Income Fund, PaineWebber Low Duration U.S. Income
Fund, PaineWebber Investment Grade Income Fund and PaineWebber High Income Fund
at November 30, 1999, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
[LOGO]
New York, New York
January 14, 2000
64
<PAGE>
PAINEWEBBER
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end
(November 30, 1999) as to the federal tax status of distributions received by
shareholders during such fiscal year from each Fund. Accordingly, we are
advising you that all of the distributions paid by PaineWebber U.S. Government
Income Fund, PaineWebber Low Duration U.S. Government Income Fund, PaineWebber
Investment Grade Income Fund and PaineWebber High Income Fund during the fiscal
year were derived from net investment income and are taxable as ordinary income.
Additionally, 1.02% of the distributions paid by PaineWebber High Income Fund
qualify for the dividend received deduction available for corporate
shareholders.
Dividends received by tax-exempt recipients (e.g. IRAs and Keoghs) need not be
reported as taxable income. Some retirement trusts (e.g., corporate, Keogh and
403(b)(7) plans) may need this information for their annual reporting.
Because each Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1999. The second notification, which
will reflect the amounts to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and is mailed
in January 2000. Some states exempt interest earned on direct obligations of the
federal government from state and local taxes. A portion of the distribution
paid by the PaineWebber U.S. Government Income Fund and PaineWebber Low Duration
U.S. Government Income Fund qualified as exempt-interest dividends and
therefore, are not subject to state and local income taxes. Shareholders are
advised to consult their own tax advisers with respect to the tax consequences
of their investment in each Fund.
65
<PAGE>
TRUSTEES
E. Garrett Bewkes, Jr.
CHAIRMAN
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
Brian M. Storms
PRINCIPAL OFFICERS
Margo N. Alexander
PRESIDENT
Victoria E. Schonfeld
VICE PRESIDENT
Dianne E. O'Donnell
VICE PRESIDENT AND SECRETARY
Paul H. Schubert
VICE PRESIDENT AND TREASURER
Julieanna Berry
VICE PRESIDENT
James F. Keegan
VICE PRESIDENT
Thomas J. Libassi
VICE PRESIDENT
Dennis McCauley
VICE PRESIDENT
Nirmal Singh
VICE PRESIDENT
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, New York 10019
SUB-INVESTMENT ADVISER
(PaineWebber Low Duration U.S. Government Income Fund)
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR
ANY OF THE FUNDS LISTED ON THE BACK COVER CAN BE OBTAINED FROM A PAINEWEBBER
FINANCIAL ADVISOR OR CORRESPONDENT FIRM.
READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
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 28 funds which encompass a diversified range of
investment goals.
BOND FUNDS
- - High Income Fund
- - Investment Grade Income Fund
- - Low Duration U.S. Government Income Fund
- - Strategic Income Fund
- - U.S. Government Income Fund
TAX-FREE BOND FUNDS
- - California Tax-Free Income Fund
- - Municipal High Income Fund
- - National Tax-Free Income Fund
- - New York Tax-Free Income Fund
STOCK FUNDS
- - Financial Services Growth Fund
- - Growth Fund
- - Growth and Income Fund
- - Mid Cap Fund
- - Small Cap Fund
- - S&P 500 Index Fund
- - Strategy Fund
- - Tax-Managed Equity Fund
- - Utility Income Fund
ASSET ALLOCATION FUNDS
- - Balanced Fund
- - Tactical Allocation Fund
GLOBAL FUNDS
- - Asia Pacific Growth Fund
- - Emerging Markets Equity Fund
- - Global Equity Fund
- - Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
- - Aggressive Portfolio
- - Moderate Portfolio
- - Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
[LOGO]
BOND FUNDS
U.S. GOVERNMENT INCOME FUND
LOW DURATION
U.S. GOVERNMENT
INCOME FUND
INVESTMENT GRADE
INCOME FUND
HIGH INCOME FUND
Annual Report
November 30, 1999
(C)2000 PaineWebber Incorporated
Member SIPC
All Rights Reserved
