<PAGE>
SEMIANNUAL REPORT -- OCTOBER 15, 1996
DEAR SHAREHOLDER,
We are pleased to present you with the semiannual report for PaineWebber Money
Market Fund (the 'Fund') for the six months ended August 31, 1996.
GENERAL MARKET OVERVIEW
In general, after exceptional performance during most of 1995, the first half of
1996 was difficult for fixed income investors. Accelerating economic growth,
reflected in strong employment, retail sales and investment spending numbers, as
well as a surprisingly robust housing sector, combined to convince the market
that, contrary to expectations, the Fed would move to tighten interest rates.
The change in sentiment was clearly reflected in the 30-year U.S. Treasury bond,
the benchmark of bond market performance, as its yield increased from 5.95% on
December 29, 1995, to 6.75% by August 31, 1996. When bond yields increase, bond
prices decrease. Meanwhile, the Federal Reserve's Open Market Committee decided
to keep monetary policy unchanged at the March, May and July 1996 meetings; the
Fed's decision to do so suggested that officials did not foresee a recession or
accelerating inflation.
PORTFOLIO REVIEW
PaineWebber Money Market Fund's current yields for Class A, B and C shares for
the seven-day period ended August 31, 1996 were 4.06%, 3.54% and 3.44%,
respectively. The Fund had a weighted average maturity of 63 days as of
August 31, 1996.
Going forward, the Fund expects to maintain a neutral weighted average maturity
as short-term rates find stability. The Fund's investments are limited to
shorter-term money market instruments such as commercial paper, medium-term
notes, U.S. Treasuries, U.S. government agencies, banker acceptances and
certificates of deposit. Investment decisions in the Fund will continue to be
dominated by credit quality and liquidity. Although we are
<PAGE>
PORTFOLIO REVIEW
interested in maintaining higher yields, we will not do so by sacrificing the
Fund's emphasis on security, quality and liquidity.
We anticipate continued market volatility, and view any declines that occur as a
result of this volatility as opportunities to purchase securities. Furthermore,
with elections nearing, we believe that the Federal Reserve Board appears
confident with its current stance. However, any signs of movement in economic
figures could spur the Fed to shift its present position, further adding to
market instability.
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.
Sincerely,
<TABLE>
<S> <C>
MARGO N. ALEXANDER DENNIS L. MCCAULEY
President, Managing Director and
Mitchell Hutchins Asset Chief Investment
Management Inc. Officer--Fixed Income,
Mitchell Hutchins Asset
Management Inc.
SUSAN P. MESSINA PETER YUEN
Senior Vice President, Portfolio Manager
Mitchell Hutchins Asset PaineWebber
Management Inc. Money Market Fund
</TABLE>
2
<PAGE>
MONEY MARKET FUND
PAINEWEBBER
STATEMENT OF NET ASSETS AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- -------- -------------------- -------------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.25%
$ 1,000 Federal Home Loan Bank............................ 07/02/97 to 07/16/97 6.000 to 6.060% $ 1,000,000
1,000 Federal National Mortgage Association............. 09/04/96 5.390* 1,000,000
-----------
Total U.S. Government Agency Obligations
(cost - $2,000,000)......................................... 2,000,000
-----------
BANK NOTES - 7.53%
Domestic - 7.53%
800 BankAmerica Corp.................................. 07/15/97 6.000 799,667
1,000 Comerica Bank-Detroit............................. 09/04/96 5.510* 999,985
750 FCC National Bank................................. 04/17/97 5.640 749,506
1,000 Morgan Guaranty Trust Co.......................... 01/15/97 5.250 1,000,333
-----------
Total Bank Notes (cost - $3,549,491)........................ 3,549,491
-----------
CERTIFICATES OF DEPOSIT - 8.49%
Yankee - 8.49%
500 Bayerische Vereinsbank AG......................... 04/29/97 5.800 500,000
1,000 Commerzbank AG.................................... 01/21/97 5.520 1,000,074
1,000 Fuji Bank Ltd..................................... 09/16/96 5.390 1,000,004
500 Societe Generale.................................. 05/08/97 5.850 500,032
1,000 Sumitomo Bank Ltd................................. 09/09/96 5.420 1,000,008
-----------
Total Certificates of Deposit (cost - $4,000,118)........... 4,000,118
-----------
COMMERCIAL PAPER@ - 64.99%
Asset-Backed - 11.59%
2,000 Asset Securitization Cooperative Corp............. 09/20/96 5.380 1,994,321
1,500 Delaware Funding Corp............................. 09/18/96 5.280 1,496,260
1,000 New Center Asset Trust............................ 01/29/97 5.420 977,417
1,000 Triple-A One Funding Corporation.................. 10/07/96 5.310 994,690
-----------
5,462,688
-----------
Auto & Truck - 2.11%
1,000 Ford Motor Credit Co.............................. 09/23/96 5.250 996,792
-----------
Banking - 5.27%
2,500 ABN-AMRO N.A. Finance Inc......................... 10/21/96 5.000 2,482,639
-----------
</TABLE>
3
<PAGE>
MONEY MARKET FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- -------- -------------------- -------------- -----------
COMMERCIAL PAPER (CONCLUDED)
<S> <C> <C> <C> <C>
Broker/Dealer - 4.96%
$ 500 Goldman Sachs Group L.P........................... 09/20/96 5.300% $ 498,601
1,850 Merrill Lynch & Co. Inc........................... 10/08/96 to 10/28/96 4.950 to 5.310 1,837,881
-----------
2,336,482
-----------
Computer - 2.12%
1,000 International Business Machines Corp.............. 09/17/96 5.29 997,649
-----------
Drugs, Health Care - 13.54%
1,000 Bayer Corp........................................ 10/21/96 5.300 992,639
2,000 Merck & Co. Inc................................... 09/17/96 to 09/24/96 5.260 to 5.270 1,994,297
2,000 Pfizer Inc........................................ 09/23/96 5.260 1,993,571
1,400 Sandoz Corp....................................... 09/03/96 to 09/16/96 5.290 to 5.450 1,397,675
-----------
6,378,182
-----------
Electronics - 3.18%
1,500 Sony Capital Corp................................. 09/16/96 5.400 1,496,625
-----------
Energy - 4.24%
2,000 Chevron Oil Finance Co............................ 09/12/96 5.280 1,996,773
-----------
Finance - Conduit - 2.11%
1,000 Metlife Funding Inc............................... 09/20/96 5.280 997,213
-----------
Finance - Retail - 3.17%
1,500 American Express Credit Corporation............... 10/02/96 5.290 1,493,167
-----------
Food & Beverage - 3.18%
1,500 Coca Cola Enterprises Inc......................... 09/10/96 5.420 1,497,968
-----------
Insurance - 4.22%
2,000 Prudential Funding Corp........................... 10/09/96 5.300 1,988,811
-----------
Miscellaneous - 3.18%
1,500 Beta Finance Inc.................................. 09/13/96 5.300 1,497,350
-----------
Paper, Forest Products - 2.12%
1,000 Weyerhaeuser Co................................... 09/16/96 5.280 997,800
-----------
Total Commercial Paper
(cost - $30,620,139)...................................... 30,620,139
-----------
</TABLE>
4
<PAGE>
MONEY MARKET FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- -------- -------------------- -------------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM CORPORATE OBLIGATIONS - 9.81%
Banking - 6.63%
$ 1,000 Bankers Trust N.Y. Corp........................... 09/03/96 5.450%* $ 1,000,000
2,100 Norwest Corp...................................... 01/30/97 7.875 2,121,480
-----------
3,121,480
-----------
Broker/Dealer - 1.06%
500 Bear Stearns Companies Inc........................ 08/12/97 5.820 500,000
-----------
Finance - Consumer - 2.12%
1,000 American General Finance Corp..................... 04/01/97 5.800 1,001,166
-----------
Total Short-Term Corporate Obligations
(cost - $4,622,646)....................................... 4,622,646
-----------
REPURCHASE AGREEMENTS - 5.15%
1,200 Repurchase Agreement dated 8/30/96, with Daiwa
Securities America, Inc., collateralized by
$1,374,000 U.S. Treasury Bonds, 6.250% due
08/15/23; proceeds: $1,200,696.................. 09/03/96 5.220 1,200,000
1,226 Repurchase Agreement dated 8/30/96, with Dresdner
Securities (USA), Inc., collateralized by
$1,168,000 U.S. Treasury Notes, 9.000% due
05/15/98; proceeds: $1,226,715.................. 09/03/96 5.250 1,226,000
-----------
Total Repurchase Agreements (cost - $2,426,000)............. 2,426,000
-----------
Total Investments (cost - $47,218,394, which approximates
cost for federal income tax purposes) - 100.22%............. 47,218,394
Liabilities in excess of other assets - (0.22%)............. (102,500)
-----------
Net Assets (applicable to 20,063,473; 21,901,392;
and 5,159,825 shares of Class A, Class B, and
Class C, respectively, each equivalent to $1.00 per
share) - 100.00%............................................ $47,115,894
-----------
-----------
</TABLE>
- ------------------
* Variable Rate Security-Maturity date reflects earlier of reset date or
maturity date. The interest rates shown are the current rates as of August
31, 1996 and reset periodically.
@ Interest rates shown represent yield to maturity for discounted securities.
Weighted average maturity - 63 days
See accompanying notes to financial statements.
5
<PAGE>
MONEY MARKET FUND
PAINEWEBBER
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Interest.......................................... $1,295,141
----------
Expenses:
Investment advisory and administration............ 119,051
Service fees--Class A............................. 22,120
Service and distribution fees--Class B............ 91,853
Service and distribution fees--Class C............ 20,362
Legal and audit................................... 45,311
State registration fees........................... 34,366
Transfer agency and service fees.................. 32,972
Reports and notices to shareholders............... 32,136
Custody and accounting............................ 7,370
Directors' fees................................... 6,125
Other expenses.................................... 10,623
----------
422,289
----------
Net investment income............................. 872,852
Net realized gains from investment transactions... 9,985
----------
Net increase in net assets resulting from
operations...................................... $ 882,837
----------
----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
MONEY MARKET FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE
AUGUST 31, 1996 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 1996
--------------- -----------------
<S> <C> <C>
From operations:
Net investment income.................................. $ 872,852 $ 2,705,342
Net realized gains from investment transactions........ 9,985 2,889
--------------- -----------------
Net increase in net assets resulting from operations... 882,837 2,708,231
--------------- -----------------
Dividends to shareholders from:
Net investment income--Class A......................... (354,640) (832,449)
Net investment income--Class B......................... (425,866) (1,417,388)
Net investment income--Class C......................... (92,346) (455,505)
--------------- -----------------
(872,852) (2,705,342)
--------------- -----------------
Net decrease in net assets from capital stock
transactions......................................... (8,975,231) (20,224,020)
--------------- -----------------
Net decrease in net assets............................. (8,965,246) (20,221,131)
Net Assets:
Beginning of period.................................... 56,081,140 76,302,271
--------------- -----------------
End of period.......................................... $47,115,894 $ 56,081,140
--------------- -----------------
--------------- -----------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
PAINEWEBBER
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Master Series, Inc. ('Master Series') was
incorporated in Maryland on October 29, 1985 and 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 Money Market Fund ('Fund') and PaineWebber
Balanced Fund. The financial statements for PaineWebber Balanced
Fund are not included herein.
The Fund offers Class A, Class B and Class C shares. Each class
represents interest in the same assets of the Fund and the
classes are identical except for differences in their sales
charge structure, ongoing service and distribution charges and
certain 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 voting
privileges, except that each class has exclusive voting rights
with respect to its distribution plan. All classes of shares may
be obtained only through an exchange of shares of the
corresponding class of other PaineWebber mutual funds.
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 and Accounting for Investments--Investments are valued
at amortized cost which approximates market value. 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. Premiums are amortized and discounts are accreted
as adjustments to interest income and the identified cost of
investments.
Repurchase Agreements--The Fund's custodian takes possession of
the collateral pledged for investments in repurchase agreements.
The underlying collateral is valued daily on a mark-to-market
basis to ensure that the value, including accrued interest, is
at least equal to the repurchase price. In the event of default
of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction
of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to
legal proceedings. The Fund may participate in joint repurchase
agreement transactions with other funds managed by Mitchell
Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly
owned subsidiary of PaineWebber and investment adviser and
administrator of the Fund.
Net Investment Income and Investment Transactions--Income and
expenses (excluding class-specific expenses) are allocated
proportionately to each class of shares based upon the relative
net asset value of dividend-eligible shares of each class at the
beginning of the day (after adjusting for current capital share
activity of the respective classes). Realized and unrealized
gains and losses are allocated proportionately to each class of
shares based upon the relative value of shares outstanding 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.
8
<PAGE>
PAINEWEBBER
Dividends and Distributions--Dividends and distributions to
shareholders are recorded on the ex-dividend date. Dividends and
distributions are determined in accordance with federal income
tax regulations which may differ from generally accepted
accounting principles. These 'book/tax' differences are either
considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require
reclassification.
CONCENTRATION OF RISK
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
or region.
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, the 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
the Fund's average daily net assets. At August 31, 1996, the
Fund owed Mitchell Hutchins $17,850 for investment advisory and
administration fees.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and
has appointed PaineWebber as the exclusive dealer for the sale
of those shares. Under separate plans of service/distribution
pertaining to the Class A, Class B and Class C shares, the Fund
pays Mitchell Hutchins monthly service fees at the annual rate
of 0.25% of the average daily net assets of each class of shares
and monthly distribution fees at an annual rate of 0.50% of the
average daily net assets of Class B and Class C shares. At
August 31, 1996, the Fund owed Mitchell Hutchins $20,556 in
service and distribution fees.
Mitchell Hutchins also receives the proceeds of the contingent
deferred sales charges paid upon certain redemptions of Class A,
Class B and Class C shares. Mitchell Hutchins has informed the
Fund that for the six months ended August 31, 1996, it earned
$15,066 in contingent deferred sales charges.
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, 1996, PaineWebber earned $6,958
in service fees. At August 31, 1996, the Fund owed PaineWebber
$1,106 for such fees.
OTHER LIABILITIES
At August 31, 1996, the amounts payable for Fund shares
repurchased and dividends payable aggregated $62,022 and
$101,862, respectively.
9
<PAGE>
PAINEWEBBER
CAPITAL STOCK
There are 10 billion shares of $0.001 par value common stock
authorized for Master Series, of which 1 billion were allocated
to the Fund. Transactions in shares of common stock, at $1.00
per share, were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED FEBRUARY ENDED FEBRUARY ENDED FEBRUARY
AUGUST 31, 29, AUGUST 31, 29, AUGUST 31, 29,
1996 1996 1996 1996 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............ 73,668,361 68,390,061 13,278,217 47,337,869 26,846,839 57,291,344
Shares repurchased..... (78,098,950) (67,443,035) (17,840,418) (60,008,482) (27,515,753) (68,064,126)
Shares converted from
Class B to Class A... 493,350 1,031,503 (493,350) (1,031,503) -- --
Dividends reinvested... 265,313 713,442 349,998 1,169,924 71,162 388,983
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in shares
outstanding.......... (3,671,926) 2,691,971 (4,705,553) (12,532,192) (597,752) (10,383,799)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable
income and to comply with the other requirements of the Internal
Revenue Code applicable to regulated investment companies.
Accordingly, no provision for federal income taxes is required.
In addition, by distributing during each calendar year
substantially all of its net investment income, capital gains
and certain other amounts, if any, the Fund intends not to be
subject to a federal excise tax.
At February 29, 1996, the Fund had capital loss carryforwards of
$18,780 available as a reduction, to the extent provided in the
regulations, of future net realized gains, which will expire
between February 28, 1999 and February 28, 2003. To the extent
that such losses are used to offset future capital gains, it is
probable that the gains so offset will not be distributed.
10
<PAGE>
[This page intentionally left blank]
11
<PAGE>
MONEY MARKET 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 Years Ended
For the --------------------------------------------- For the Period
Six Months Ended July 1, 1991+
August 31, February 29, February 28, to
1996 ------------ ----------------------------- February 29,
(unaudited) 1996 1995 1994 1993 1992
---------------- ------------ ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------------ ------- ------- ------- ------
Net investment income.... 0.020 0.046 0.037 0.016 0.022 0.026
------- ------------ ------- ------- ------- ------
Dividends from net
investment income...... (0.020) (0.046) (0.037) (0.016) (0.022) (0.026)
------- ------------ ------- ------- ------- ------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------------ ------- ------- ------- ------
------- ------------ ------- ------- ------- ------
Total investment
return(1).............. 2.05% 4.69% 3.95% 1.64% 2.25% 2.47%
------- ------------ ------- ------- ------- ------
------- ------------ ------- ------- ------- ------
Ratios/supplemental data:
Net assets, end of
period (000's)....... $ 20,066 $ 23,735 $21,042 $14,204 $11,716 $3,806
Ratio of expenses to
average net assets... 1.44%* 1.31% 1.06% 1.72% 1.74% 1.90%*
Ratio of net investment
income to average
net assets........... 4.00%* 4.68% 3.85% 1.70% 2.18% 3.61%*
</TABLE>
- ------------------
* Annualized
+ Commencement of issuance of shares
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable dates, and a
sale at net asset value on the last day of each period reported. The figures
do not include sales charges; results for each class would be lower if sales
charges were included. Total return information for periods less than one
year is not annualized.
12
<PAGE>
MONEY MARKET FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS C
- -------------------------------------------------------------------------- -----------------------------------------------------
For the For the Years Ended For the Years Ended
Six Months -------------------------------------------------- For the ----------------------------- For the Period
Ended Six Months Ended July 14, 1992+
August 31, February 29, Februray 28, February 29, August 31, February 29, Februray 28, to
1996 ------------ ------------------------ ----------- 1996 ------------ --------------- February 28,
(unaudited) 1996 1995 1994 1993 1992 (unaudited) 1996 1995 1994 1993
- ----------- ------------ ------- ------ ------- ----------- ---------------- ------------ ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------- ------------ ------- ------ ------- ----------- ------ ------ ------- ------ ------
0.017 0.041 0.032 0.011 0.016 0.039 0.017 0.041 0.033 0.012 0.009
- ----------- ------------ ------- ------ ------- ----------- ------ ------ ------- ------ ------
(0.017) (0.041) (0.032) (0.011) (0.016) (0.039) (0.017) (0.041) (0.033) (0.012) (0.009)
- ----------- ------------ ------- ------ ------- ----------- ------ ------ ------- ------ ------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------- ------------ ------- ------ ------- ----------- ------ ------ ------- ------ ------
- ----------- ------------ ------- ------ ------- ----------- ------ ------ ------- ------ ------
1.75% 4.18% 3.41% 1.12% 1.73% 4.16% 1.71% 4.14% 3.44% 1.19% 0.81%
- ----------- ------------ ------- ------ ------- ----------- ------ ------ ------- ------ ------
- ----------- ------------ ------- ------ ------- ----------- ------ ------ ------- ------ ------
$2,220
$ 21,892 $ 26,592 $39,123 $9,819 $15,280 $ 29,341 $5,158 $5,754 $16,137 $9,430 2.14%*
1.95%* 1.79% 1.55% 2.25% 2.28% 2.06% 2.03%* 1.79% 1.55% 2.14%
3.47%* 4.17% 3.46% 1.16% 1.69% 4.07% 3.39%* 4.27% 3.35% 1.36% 1.67%*
<PAGE>
PAINEWEBBER
SHAREHOLDER INFORMATION
A special meeting of shareholders was held on April 15, 1996, at
which the following proposals were approved (Shareholders of
Master Series, comprised of the Fund and another series, voted
together as a single class with respect to the election of board
members; other matters noted below were approved by shareholders
of the Fund):
PROPOSAL 1
To elect ten members of the Board of Directors:
</TABLE>
<TABLE>
<CAPTION>
SHARES
SHARES VOTED WITHHOLD
FOR AUTHORITY
------------ ---------------
<S> <C> <C>
Margo N. Alexander.................. 30,108,980 3,571,102
Richard Q. Armstrong................ 30,110,878 3,569,204
E. Garrett Bewkes, Jr............... 30,110,878 3,569,204
Richard R. Burt..................... 30,015,121 3,664,961
Mary C. Farrell..................... 30,108,980 3,571,102
Meyer Feldberg...................... 30,027,076 3,653,006
George W. Gowen..................... 30,110,878 3,569,204
Frederic V. Malek................... 30,015,121 3,664,961
Carl W. Schafer..................... 30,110,878 3,569,204
John R. Torell III.................. 30,095,791 3,584,291
</TABLE>
PROPOSAL 2
To vote for or against the ratification of Price Waterhouse LLP as the
independent auditors for the fiscal year ending February 29, 1997:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAIN
------------ ------------ ---------
<S> <C> <C>
21,194,773 98,729 2,764,413
</TABLE>
PROPOSAL 3
Approval of the proposed changes to the Fund's fundamental investment
restrictions and policies:
To vote for or against the following changes to the Fund's fundamental
investment restrictions and policies:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAIN
------------ ------------ ---------
<S> <C> <C> <C>
Modification of Fundamental Restriction on Portfolio
Diversification for Diversified Funds................ 20,676,384 516,909 2,864,622
Modification of Fundamental Restriction on
Concentration........................................ 20,676,384 516,909 2,864,622
Modification of Fundamental Restriction on Senior
Securities and Borrowing............................. 20,676,384 516,909 2,864,622
Modification of Fundamental Restriction on Making
Loans................................................ 20,676,384 516,909 2,864,622
Modification of Fundamental Restriction on Underwriting
Securities........................................... 20,676,384 516,909 2,864,622
Modification of Fundamental Restriction on Real Estate
Investments.......................................... 20,676,384 516,909 2,864,622
Modification of Fundamental Restriction on Investing in
Commodities.......................................... 20,676,384 516,909 2,864,622
Elimination of Fundamental Restriction on Margin
Transactions......................................... 20,676,384 516,909 2,864,622
Elimination of Fundamental Restriction on Short
Sales................................................ 20,676,384 516,909 2,864,622
Elimination of Fundamental Restriction on Investments
in Oil, Gas and Mineral Leases and Programs.......... 20,676,384 516,909 2,864,622
Elimination of Fundamental Restriction on Investments
in Other Investment Companies........................ 20,676,384 516,909 2,864,622
</TABLE>
(Broker non-votes and abstentions are included within the 'Shares Withhold
Authority' or 'Shares Abstain' totals.)
14
<PAGE>
------------------------------------------------
BOARD OF DIRECTORS
DIRECTORS
E. Garrett Bewkes, Jr.
Meyer Feldberg
Chairman
George W. Gowen
Margo N. Alexander
Frederic V. Malek
Richard Q. Armstrong
Carl W. Schafer
Richard R. Burt
John R. Torell III
Mary C. Farrell
OFFICERS
Margo N. Alexander
Dianne E. O'Donnell
President
Vice President and Secretary
Victoria E. Schonfeld
Julian F. Sluyters
Vice President
Vice President and Treasurer
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective prospectus.
The financial information included herein is taken from the records of the Fund
without examination by independent accountants who do not express an opinion
thereon.
A prospectus containing more complete information for any of the Funds listed on
the back cover can be obtained from a PaineWebber investment executive or
correspondent firm. Read the prospectus carefully before investing.
<PAGE>
SEMIANNUAL REPORT
- ---
PaineWebber offers a family of 21 funds which encompass a diversified range of
investment goals. Investors may exchange their Fund shares with other Funds
within the family for a $5 exchange fee.
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 PAINEWEBBER
/ / National Tax-Free Income Fund
MONEY
/ / New York Tax-Free Income Fund
STOCK FUNDS
MARKET
/ / Capital Appreciation Fund
FUND
/ / Financial Services Growth Fund
/ / Growth Fund
/ / Growth and Income Fund
/ / Small Cap Fund
/ / Utility Income Fund
ASSET ALLOCATION FUNDS
/ / Balanced Fund
/ / Tactical Allocation Fund
GLOBAL FUNDS
/ / Emerging Markets Equity Fund
/ / Global Equity Fund
/ / Global Income Fund
(Copyright) PaineWebber Incorporated
Member SIPC AUGUST 31, 1996
123456-7890 U123
