<PAGE>
BALANCED FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
08/31/95 02/28/95 08/31/94 ENDED 08/31/95 ENDED 08/31/95
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.96 $ 9.80 $10.74 12.93% 12.70%
- ------------------------------------------------------------------------
Class B Shares 11.07 9.90 10.78 12.01 12.17
- ------------------------------------------------------------------------
Class D Shares 10.97 9.82 10.70 12.06 12.17
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS
COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN/1/
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 -
12/31/91 $10.09 $11.02 -- $0.2293 11.53%
- ---------------------------------------------------------------------------
1992 11.02 11.24 -- 0.3414 5.18
- ---------------------------------------------------------------------------
1993 11.24 11.94 $0.7771 0.2510 15.63
- ---------------------------------------------------------------------------
1994 11.94 9.32 1.2011 0.2311 (9.88)
- ---------------------------------------------------------------------------
01/01/95 -
08/31/95 9.32 10.96 -- 0.0818 18.50
- ---------------------------------------------------------------------------
Totals: $1.9782 $1.1346
- ---------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/95: 44.87%
- ---------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS
COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN/1/
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/12/86 -
12/31/86 $10.00 $ 9.76 -- -- (2.40)%
- ---------------------------------------------------------------------------
1987 9.76 9.27 $0.1687 $0.4407 1.21
- ---------------------------------------------------------------------------
1988 9.27 9.79 -- 0.5225 11.34
- ---------------------------------------------------------------------------
1989 9.79 10.03 0.1124 0.6930 10.84
- ---------------------------------------------------------------------------
1990 10.03 9.60 0.0021 0.6200 1.94
- ---------------------------------------------------------------------------
1991 9.60 11.01 -- 0.3478 18.52
- ---------------------------------------------------------------------------
1992 11.01 11.28 -- 0.2146 4.46
- ---------------------------------------------------------------------------
1993 11.28 12.02 0.7771 0.1173 14.66
- ---------------------------------------------------------------------------
1994 12.02 9.43 1.2011 0.1189 (10.51)
- ---------------------------------------------------------------------------
01/01/95 -
08/31/95 9.43 11.07 -- 0.0337 17.76
- ---------------------------------------------------------------------------
Totals: $2.2614 $3.1085
- ---------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/95: 90.18%
- ---------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS
COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN/1/
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 -
12/31/92 $10.86 $11.25 -- $0.1619 5.08%
- ---------------------------------------------------------------------------
1993 11.25 11.94 $0.7771 0.1728 14.79
- ---------------------------------------------------------------------------
1994 11.94 9.35 1.2011 0.1313 (10.48)
- ---------------------------------------------------------------------------
01/01/95 -
08/31/95 9.35 10.97 -- 0.0438 17.81
- ---------------------------------------------------------------------------
Totals: $1.9782 $0.5098
- ---------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/95: 27.20%
- ---------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date, and do not include sales charges;
results would be lower for Class A and Class B if sales charges were
included.
1
<PAGE>
BALANCED FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (CONCLUDED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN WITHOUT % RETURN AFTER DEDUCTING
SALES CHARGE MAXIMUM SALES CHARGE
------------------- -----------------------------
CLASS CLASS
------------------- -----------------------------
A* B** D*** A* B** D***
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 09/30/95 16.69% 15.72% 15.80% 11.48% 10.72% 15.80%
- --------------------------------------------------------------------------------
Five Years Ended 09/30/95 N/A 9.75% N/A N/A 9.48% N/A
- --------------------------------------------------------------------------------
Commencement of Operations
Through 09/30/95+ 9.29% 7.66% 7.93% 8.11% 7.66% 7.93%
- --------------------------------------------------------------------------------
</TABLE>
* Maximum sales charge for Class A shares is 4.5% of the public offering price.
Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without an initial or contingent deferred sales
charge but bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations were July 1, 1991, December 12, 1986 and July 2,
1992 for Class A, Class B and Class D shares, respectively.
The investment return and principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
2
<PAGE>
BALANCED FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS - 50.10%
Agriculture, Food - 0.39%
11,000 Philip Morris Companies, Inc............................ $ 820,875
-----------
Air Transport - 0.33%
10,000 AMR Corporation Delaware*............................... 705,000
-----------
Aluminum - 0.35%
13,000 Aluminum Company of America ............................ 742,625
-----------
Banks - 2.20%
10,000 Bank of New York Incorporated........................... 435,000
14,000 Chemical Banking Corporation............................ 815,500
10,000 Citicorp................................................ 663,750
13,000 NationsBank Corporation................................. 797,875
10,500 Wells Fargo............................................. 1,956,938
-----------
4,669,063
-----------
Beverages - 1.07%
50,000 Pepsico Incorporated.................................... 2,262,500
-----------
Business Machines - 8.55%
50,000 Cisco Systems, Inc.*.................................... 3,281,250
70,000 Compaq Computer Corporation*............................ 3,342,500
40,000 Hewlett-Packard......................................... 3,200,000
7,000 International Business Machines Corporation............. 723,625
90,000 Seagate Technology*..................................... 3,982,500
175,000 Western Digital Corp.*.................................. 3,609,375
-----------
18,139,250
-----------
Chemicals - 3.00%
50,000 Allied-Signal Inc....................................... 2,218,750
13,000 DuPont EI de Nemours & Company.......................... 849,875
40,000 IMC Global Incorporated................................. 2,530,000
18,000 PPG Industries, Inc..................................... 769,500
-----------
6,368,125
-----------
Consumer Durables - 0.09%
3,500 Premark International Incorporated...................... 183,313
-----------
Drugs, Medicine - 0.69%
10,000 Lilly (Eli) & Company................................... 818,750
13,200 Pfizer Incorporated..................................... 651,750
-----------
1,470,500
-----------
</TABLE>
3
<PAGE>
BALANCED FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
Electric Utilities - 0.33%
18,000 FPL Group Incorporated.................................. $ 699,750
-----------
Electronics - 3.81%
2,100 Avnet Incorporated...................................... 108,150
50,000 Intel Corporation....................................... 3,068,750
14,000 Loral Corporation....................................... 766,500
20,000 Micron Technology....................................... 1,537,500
25,000 Motorola, Inc........................................... 1,868,750
22,000 VLSI Technology Incorporated*........................... 726,000
-----------
8,075,650
-----------
Forest Products - 0.43%
50,800 Shorewood Packaging*.................................... 914,400
-----------
Gas Utilities - 0.38%
32,000 Panhandle Eastern Corporation........................... 800,000
-----------
Healthcare (Non-Drug) - 0.37%
14,000 Becton Dickinson & Co. ................................. 789,250
-----------
Hotels, Restaurants - 0.37%
23,000 Mirage Resorts Incorporated*............................ 790,625
-----------
Insurance - 4.58%
20,000 AFLAC, Inc. ............................................ 817,500
50,986 Allstate Corp. ......................................... 1,727,151
11,000 American International Group............................ 886,875
225,000 EMC Corp.* ............................................. 4,612,500
7,000 ITT Corporation......................................... 837,375
12,200 MBIA, Inc. ............................................. 829,600
-----------
9,711,001
-----------
International Oil - 1.14%
17,000 Chevron Corp. .......................................... 822,375
12,000 Exxon Corporation....................................... 825,000
8,000 Mobil Corporation....................................... 762,000
-----------
2,409,375
-----------
Manufacturing - 2.31%
202,375 Albany International Corp. ............................. 4,907,594
-----------
Medical & Medical Services - 1.15%
94,000 Sunrise Medical, Inc.* ................................. 2,432,250
-----------
</TABLE>
4
<PAGE>
BALANCED FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
Miscellaneous Finance - 0.78%
20,000 American Express Company............................... $ 807,500
15,000 Household International, Inc. ......................... 841,875
-----------
1,649,375
-----------
Misc. Metals, Mining - 1.84%
100,000 Belden, Inc............................................ 2,775,000
20,000 Potash Corporation Saskatchewan Inc. .................. 1,137,500
-----------
3,912,500
-----------
Oil Refining, Distribution - 1.86%
125,000 Repsol, S.A. .......................................... 3,953,125
-----------
Paper - 0.81%
12,000 Champion International Corporation..................... 679,500
10,000 International Paper Company............................ 818,750
5,000 Westvaco Corporation................................... 220,625
-----------
1,718,875
-----------
Pollution Control - 0.66%
23,000 Lockheed Martin Corporation............................ 1,400,125
-----------
Producers' Goods - 2.82%
17,000 AGCO Corporation....................................... 826,625
12,000 Caterpillar Incorporated............................... 805,500
10,000 Deere & Company........................................ 855,000
15,000 Green Tree Acceptance.................................. 873,750
9,800 Material Sciences Corporation*......................... 188,650
12,000 Textron Incorporated................................... 822,000
10,000 TRW Incorporated....................................... 778,750
10,000 United Technologies Corporation........................ 833,750
-----------
5,984,025
-----------
Railroads, Transit - 2.12%
65,000 Burlington Northern.................................... 4,501,250
-----------
Retail - Food - 0.74%
27,000 American Stores Company................................ 793,125
24,000 Kroger Co.*............................................ 783,000
-----------
1,576,125
-----------
Retail (All other) - 3.70%
230,400 Arbor Drugs, Inc....................................... 4,320,000
28,000 Rite-Aid Corporation................................... 784,000
60,000 Sears, Roebuck & Company............................... 1,942,500
13,000 Tandy Corporation...................................... 807,625
-----------
7,854,125
-----------
Services - 2.48%
120,000 Ceridian Corp.*........................................ 5,250,000
-----------
Soaps, Hardwares - 0.37%
33,000 Dial Corp.*............................................ 792,000
-----------
</TABLE>
5
<PAGE>
BALANCED FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONCLUDED)
Transportation - 0.38%
12,000 Consolidated Rail Corp................................. $ 807,000
------------
Total Common Stocks (cost - $91,803,750).......................... 106,289,671
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
--------- -------------------- --------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - 3.96%
Auto, Trucks - 0.75%
$ 1,600 Ford Motor Co. ......... 02/26/98 6.250% 1,598,000
------------
Banking - 0.74%
1,600 M&T Bank................ 07/01/05 7.000 1,572,000
------------
Credit - 0.34%
700 Commercial Credit....... 03/15/02 7.375 721,875
------------
Finance - 0.53%
1,160 Santander Financial..... 07/15/05 6.800 1,129,550
------------
Freight & Shipping - 0.86%
1,600 United Parcel Service... 04/01/20 8.375 1,824,000
------------
Publishing - 0.74%
1,600 News America Holdings... 02/01/24 7.750 1,554,000
------------
Total Corporate Bonds (cost -
$8,397,269)...................... 8,399,425
------------
U.S. GOVERNMENT OBLIGATIONS -
42.26%
15,000 U.S. Treasury Bills..... 09/07/95 to 09/21/95 5.240 to 5.390@ 14,978,474
64,990 U.S. Treasury Notes..... 11/30/96 to 08/15/05 6.375 to 7.250 66,392,961
7,550 U.S. Treasury Bonds..... 11/15/24 7.500 8,287,634
------------
Total U.S. Government Obligations
(cost - $88,775,793).............. 89,659,069
------------
REPURCHASE AGREEMENT - 2.80%
5,929 Repurchase Agreement
dated 08/31/95 with
Salomon Brothers, Inc,
collateralized by
$5,660,000 U.S.
Treasury Notes, 8.250%,
due 07/15/98; proceeds:
$5,929,950 (cost -
$5,929,000)........... 09/01/95 5.770 5,929,000
------------
Total Investments (cost -
$194,905,812) - 99.12%........... 210,277,165
Other assets in excess of
liabilities - 0.88%............... 1,866,288
------------
Net Assets - 100.00%............... $212,143,453
============
</TABLE>
- -------
* Non-Income Producing Security
@ Yield to maturity
See accompanying notes to financial statements
6
<PAGE>
BALANCED FUND
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost - $194,905,812)......... $210,277,165
Cash.............................................................. 731
Receivable for investments sold .................................. 57,174,055
Dividends and interest receivable................................. 1,379,620
Receivable for fund shares sold................................... 24,375
Other assets...................................................... 11,208
------------
Total assets...................................................... 268,867,154
------------
Liabilities
Payable for investments purchased................................. 55,337,396
Payable for fund shares repurchased............................... 898,819
Payable to affiliates............................................. 212,517
Accrued expenses and other liabilities............................ 274,969
------------
Total liabilities................................................. 56,723,701
------------
Net Assets
Capital stock - $0.001 par value.................................. 182,649,115
Accumulated undistributed net investment income................... 2,579,397
Accumulated net realized gains from investment transactions....... 11,543,588
Net unrealized appreciation of investments........................ 15,371,353
------------
Net assets........................................................ $212,143,453
============
Class A:
Net assets........................................................ $173,863,511
------------
Shares outstanding................................................ 15,866,980
------------
Net asset value and redemption value per share.................... $10.96
======
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price)............................... $11.48
======
Class B:
Net assets........................................................ $ 30,911,591
------------
Shares outstanding................................................ 2,792,914
------------
Net asset value and offering price per share...................... $11.07
======
Class D:
Net assets........................................................ $ 7,368,351
------------
Shares outstanding................................................ 671,557
------------
Net asset value, offering price and redemption value per share.... $10.97
======
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
BALANCED FUND
PAINEWEBBER
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Interest........................................................... $ 3,820,304
Dividends (net of withholding taxes)............................... 563,800
-----------
4,384,104
-----------
Expenses:
Investment advisory and administration............................. 814,860
Service fees--Class A.............................................. 219,978
Service and distribution fees--Class B............................. 167,692
Service and distribution fees--Class D............................. 38,869
Transfer agency and service fees................................... 113,525
Reports and notices to shareholders................................ 81,925
Custody and accounting............................................. 68,646
Legal and audit.................................................... 60,873
State registration fees............................................ 46,241
Directors' fees.................................................... 5,250
Other expenses..................................................... 21,348
-----------
1,639,207
-----------
Net investment income.............................................. 2,744,897
-----------
Realized and unrealized gains from investment transactions:
Net realized gains from investment transactions.................... 16,302,995
Net change in unrealized appreciation/depreciation of investments.. 6,430,731
-----------
Net realized and unrealized gains from investment transactions..... 22,733,726
-----------
Net increase in net assets resulting from operations............... $25,478,623
===========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
BALANCED FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1995 FEBRUARY 28,
(UNAUDITED) 1995
---------------- ------------
<S> <C> <C>
From operations:
Net investment income........................... $ 2,744,897 $ 5,651,243
Net realized gains from investment transactions. 16,302,995 10,999,295
Net change in unrealized
appreciation/depreciation of investments....... 6,430,731 (38,246,529)
------------ ------------
Net increase (decrease) in net assets resulting
from operations................................ 25,478,623 (21,595,991)
------------ ------------
Dividends and distributions to shareholders
from:
Net investment income--Class A.................. (1,349,543) (3,995,697)
Net investment income--Class B.................. (101,026) (522,731)
Net investment income--Class D.................. (30,922) (116,414)
Net realized gains from investment
transactions--Class A.......................... -- (21,142,649)
Net realized gains from investment
transactions--Class B.......................... -- (6,016,319)
Net realized gains from investment
transactions--Class D.......................... -- (1,164,682)
------------ ------------
(1,481,491) (32,958,492)
------------ ------------
From capital stock transactions:
Net proceeds from the sale of shares............ 2,632,354 11,684,195
Cost of shares repurchased...................... (36,210,131) (79,584,476)
Proceeds from dividends reinvested.............. 1,334,920 30,257,775
------------ ------------
Net decrease in net assets resulting from share
transactions................................... (32,242,857) (37,642,506)
------------ ------------
Net decrease in net assets...................... (8,245,725) (92,196,989)
Net Assets:
Beginning of period............................. 220,389,178 312,586,167
------------ ------------
End of period (including undistributed net
investment income of
$2,579,397 and $1,315,991, respectively)....... $212,143,453 $220,389,178
============ ============
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
PAINEWEBBER
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Master Series, Inc. ("Master Series") is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as an open-end, diversified series investment company which currently
offers two series of shares: PaineWebber Balanced Fund (the "Fund") (formerly
PaineWebber Asset Allocation) and PaineWebber Money Market Fund. The financial
statements for PaineWebber Money Market Fund are not included herein.
Effective August 18, 1995, PaineWebber Blue Chip Growth Fund, formerly also a
portfolio of the Master Series, was reorganized into the PaineWebber Growth
Fund which is a series of the PaineWebber Olympus Fund.
Organizational Matters - Prior to commencing its operations, the Fund had no
activities other than organizational matters and activities related to the
initial public offering and the issuance, at net asset value, of one Class B
share of the Fund to PaineWebber Incorporated ("PaineWebber").
The Fund offers Class A, Class B and Class D shares. Each class represents
interests in the same assets of the Fund, and the Classes are identical except
for differences in their sales charge structures, ongoing service and
distribution charges and transfer agency expenses. In addition, Class B shares
automatically convert to Class A shares approximately six years after initial
issuance. All Classes of shares have equal rights as to voting privileges,
except that each Class has exclusive voting rights with respect to its service
and/or distribution plan.
Valuation of Investments - Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect, in the judgment of Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber and investment adviser,
administrator and distributor of Master Series, the fair value of the
securities. When market quotations are not readily available, securities are
valued based upon appraisals derived from information concerning those
securities or similar securities received from recognized dealers in those
securities. All other assets are valued at fair value as determined in good
faith by or under the direction of Master Series' Board of Directors. The
amortized cost method of valuation, which approximates market value, generally
is used to value debt obligations with 60 days or less remaining to maturity,
unless Master Series' Board of Directors determines that this does not
represent fair value.
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments, including those
particular to a specific industry, country or region.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
PAINEWEBBER
Repurchase Agreements - The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or insolvency by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
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. Dividend income
is recorded on the ex-dividend date and interest income is recorded on an
accrual basis. Discounts are accreted and premiums are amortized on a yield to
maturity basis 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.
Federal Tax Status - The Fund intends to distribute substantially all of its
taxable income and to comply with the other requirements of the Internal
Revenue Code applicable to regulated investment companies. Accordingly, no
provision for federal income taxes is required. In addition, by distributing
during each calendar year substantially all of its net investment income,
capital gains and certain other amounts, if any, the Fund intends not to be
subject to a federal excise tax.
During the fiscal year ended February 28, 1994, Balanced Fund utilized all the
prior fiscal years' carryover losses of $1,265,204 to offset a portion of net
realized gains during the year.
Dividends and Distributions - Dividends and distributions to shareholders are
recorded on the ex-date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
PAINEWEBBER
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 reclassifications. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
INVESTMENT ADVISER AND ADMINISTRATOR
The Board of Directors of Master Series has approved an investment advisory and
administration contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, Mitchell Hutchins receives
compensation from the Fund, computed daily and paid monthly, in accordance with
the following schedule:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
- ------------------------
<S> <C>
Up to $500 million....................................................... 0.750%
In excess of $500 million up to $1.0 billion............................. 0.725
In excess of $1.0 billion up to $1.5 billion............................. 0.700
In excess of $1.5 billion up to $2.0 billion............................. 0.675
Over $2.0 billion........................................................ 0.650
</TABLE>
At August 31, 1995, the Fund owed Mitchell Hutchins $136,179 in investment
advisory and administration fees.
For the six months ended August 31, 1995 the Fund paid no brokerage commissions
to PaineWebber for transactions executed on behalf of the Fund.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, interest, brokerage fees, distribution
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the six months ended
August 31, 1995, no reimbursements were required pursuant to the above
limitation.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
PAINEWEBBER
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate service/distribution plans pertaining to the Class A, Class B and
Class D shares, the Fund pays Mitchell Hutchins monthly service fees at the
annual rate of 0.25% of the average daily net assets of each Class of shares,
and monthly distribution fees at an annual rate of 0.75% of the average daily
net assets of the Class B and Class D shares. At August 31, 1995, the Fund owed
Mitchell Hutchins $69,905 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charges
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
the Fund that for the six months ended August 31, 1995, it had earned the
following amounts in sales charges:
<TABLE>
<S> <C>
Initial sales charges--Class A.......................................... $17,260
Contingent deferred sales charges--Class B.............................. $62,967
</TABLE>
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services for the six months ended August 31, 1995, PaineWebber
earned $40,761 in service fees from the Fund. At August 31, 1995, the Fund owed
PaineWebber $6,433 for transfer agency service fees.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
PAINEWEBBER
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1995, was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1995, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value
over cost)........................................................ $15,590,929
Gross depreciation (investments having an excess of cost
over value)....................................................... (219,576)
-----------
Net unrealized appreciation of investments......................... $15,371,353
===========
</TABLE>
For the six months ended August 31, 1995, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases.......................................................... $221,399,048
Sales.............................................................. $258,739,448
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
PAINEWEBBER
CAPITAL STOCK
There are 10 billion shares of $0.001 par value common stock authorized for
Master Series, of which 3 billion is allocated to Balanced Fund. Transactions
in shares of common stock were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------------------------ ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
AUGUST 31, 1995:
Shares sold............. 120,014 $ 1,250,104 102,458 $ 1,086,510 28,623 $ 295,740
Shares repurchased...... (2,755,290) (28,498,260) (512,419) (5,371,911) (228,163) (2,339,960)
Dividends reinvested.... 114,648 1,216,428 8,420 90,438 2,636 28,054
Shares converted from
Class B to Class A..... 557,195 5,700,153 (552,320) (5,700,153) -- --
---------- ------------ ---------- ------------ -------- -----------
Net decrease............ (1,963,433) $(20,331,575) (953,861) $ (9,895,116) (196,904) $(2,016,166)
========== ============ ========== ============ ======== ===========
YEAR ENDED
FEBRUARY 28, 1995:
Shares sold............. 218,283 $ 2,388,730 617,150 $ 6,673,631 237,335 $ 2,622,457
Shares repurchased...... (5,295,097) (54,334,746) (1,856,614) (19,367,511) (566,186) (5,882,842)
Dividends reinvested.... 2,407,603 23,089,601 613,996 5,978,552 123,401 1,189,622
Shares converted from
Class B to Class A..... 2,514,073 26,115,618 (2,500,444) (26,115,618) -- --
---------- ------------ ---------- ------------ -------- -----------
Net decrease............ (155,138) $ (2,740,797) (3,125,912) $(32,830,946) (205,450) $(2,070,763)
========== ============ ========== ============ ======== ===========
</TABLE>
15
<PAGE>
BALANCED FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED FOR THE PERIOD
AUGUST 31, FEBRUARY 28, JULY 1, 1991+ TO
1995 ------------------------------ FEBRUARY 29,
(UNAUDITED) 1995 1994 1993 1992
------------ -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 9.80 $ 12.04 $ 11.54 $ 11.01 $ 10.09
-------- -------- -------- -------- ---------
Net investment income... 0.14 0.26 0.22 0.33 0.19
Net realized and
unrealized gains
(losses) from
investment
transactions........... 1.10 (1.07) 1.31 0.54 0.96
-------- -------- -------- -------- ---------
Net increase (decrease)
from investment
operations............. 1.24 (0.81) 1.53 0.87 1.15
-------- -------- -------- -------- ---------
Dividends from net
investment income...... (0.08) (0.23) (0.25) (0.34) (0.23)
Distributions from net
realized gains from
investment
transactions........... -- (1.20) (0.78) -- --
-------- -------- -------- -------- ---------
Total dividends and
distributions.......... (0.08) (1.43) (1.03) (0.34) (0.23)
-------- -------- -------- -------- ---------
Net asset value, end of
period................. $ 10.96 $ 9.80 $ 12.04 $ 11.54 $ 11.01
======== ======== ======== ======== =========
Total investment re-
turn(1)................ 12.70 % (6.02)% 13.57 % 8.09 % 11.43 %
======== ======== ======== ======== =========
Ratios/Supplemental
Data:
Net assets, end of pe-
riod (000's)........... $173,864 $174,761 $216,492 $154,594 $916
Ratio of expenses to av-
erage net assets....... 1.33 %* 1.26 % 1.21 % 1.18 % 1.30 %*
Ratio of net investment
income to average net
assets................. 2.70 %* 2.41 % 1.74 % 2.52 % 3.43 %*
Portfolio turnover...... 119.05 % 107.52 % 68.53 % 33.17 % 83.62 %
- ---------------------
</TABLE>
* Annualized
+ Commencement of offering of shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the period, reinvestment of all dividends and other
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of the period. The figures do not include sales
charges; results of Class A and Class B would be lower if sales charges
were included. Total investment returns for periods of less than one year
have not been annualized.
16
<PAGE>
BALANCED FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS D
- ---------------------------------------------------------------------- ------------------------------------------------
FOR THE SIX FOR THE YEAR FOR THE YEAR FOR THE SIX FOR THE
MONTHS ENDED FOR THE YEARS ENDED ENDED ENDED MONTHS ENDED YEARS ENDED FOR THE PERIOD
AUGUST 31, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, AUGUST 31, FEBRUARY 28, JULY 2, 1992+ TO
1995 ---------------------------- ------------ ------------ 1995 ---------------- FEBRUARY 28,
(UNAUDITED) 1995 1994 1993 1992 1991 (UNAUDITED) 1995 1994 1993
- ------------ ------- ------- -------- ------------ ------------ ------------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.90 $ 12.10 $ 11.56 $ 10.99 $ 10.21 $ 9.86 $ 9.82 $12.03 $ 11.54 $ 10.86
------- ------- ------- -------- -------- -------- ------ ------ ------- -------
0.30 0.44 0.26 0.30 0.35 0.59 0.11 0.19 0.14 0.13
0.90 (1.32) 1.18 0.48 0.78 0.38 1.08 (1.07) 1.30 0.71
------- ------- ------- -------- -------- -------- ------ ------ ------- -------
1.20 (0.88) 1.44 0.78 1.13 0.97 1.19 (0.88) 1.44 0.84
------- ------- ------- -------- -------- -------- ------ ------ ------- -------
(0.03) (0.12) (0.12) (0.21) (0.35) (0.62) (0.04) (0.13) (0.17) (0.16)
-- (1.20) (0.78) -- -- -- -- (1.20) (0.78) --
------- ------- ------- -------- -------- -------- ------ ------ ------- -------
(0.03) (1.32) (0.90) (0.21) (0.35) (0.62) (0.04) (1.33) (0.95) (0.16)
------- ------- ------- -------- -------- -------- ------ ------ ------- -------
$ 11.07 $ 9.90 $ 12.10 $ 11.56 $ 10.99 $ 10.21 $10.97 $ 9.82 $ 12.03 $ 11.54
======= ======= ======= ======== ======== ======== ====== ====== ======= =======
12.17 % (6.68)% 12.62 % 7.25 % 11.24 % 10.29 % 12.17 % (6.69)% 12.75 % 7.78 %
======= ======= ======= ======== ======== ======== ====== ====== ======= =======
$30,912 $37,104 $83,178 $160,115 $346,290 $403,557 $7,368 $8,525 $12,916 $7,058
2.30 %* 1.98 % 2.05 % 1.98 % 2.02 % 1.83 % 2.07 %* 2.01 % 1.96 % 1.95 %*
1.75 %* 1.60 % 1.00 % 2.02 % 3.25 % 5.46 % 1.97 %* 1.62 % 0.97 % 1.91 %*
119.05 % 107.52 % 68.53 % 33.17 % 83.62 % 169.18 % 119.05 % 107.52 % 68.53 % 33.17 %
</TABLE>
17
