<PAGE>
PAINEWEBBER BALANCED FUND SEMIANNUAL REPORT
April 14, 1998
Dear Shareholder,
We are pleased to present you with the semiannual report for the PaineWebber
Balanced Fund (the "Fund") for the six-month period ended February 28, 1998.
GENERAL MARKET OVERVIEW
================================================================================
[LOGO]
STOCKS
After an August selloff, the stock market quickly regained its footing
in September when inflation came in lower than expected. The Asian markets
imploded in October, causing a sharp selloff in equity markets worldwide. This
event also caused a "flight to quality" into the U.S. Treasury bond market, and
bonds rallied substantially. As events unfolded, investors refocused on the
underlying strength of the U.S. economy and caused the stock market to stage a
comeback in November.
Volatility returned to the stock market in December as earnings
estimates were revised downward. By the end of January, negative earnings
reports stabilized when it became evident that the long-expected slowdown in
corporate earnings growth would not be felt until later this year. The market
hit a new high and continued to advance in February. As investors scrambled to
buy into the rising market, they focused on the more liquid, large cap stocks.
Sectors that fared poorly at the end of 1997 turned in outstanding
performances in early 1998. Technology stocks, consumer cyclicals such as
department stores and auto supply companies, and certain transportation
stocks--most notably airlines--all rebounded sharply from year-end slumps.
Consumer cyclicals responded to strong, steady consumer spending. Financials
continued to do reasonably well. Energy stocks performed the worst as weakening
economies in Asia drove down oil prices. Consumer nondurables, a traditional
defensive sector, continued to lag.
BONDS
Slow growth and stable interest rates persisted over the entire
six-month period, creating favorable conditions for bonds. Interest rates fell
in January 1998 and the yield curve steepened as shorter maturities rallied more
than longer maturities. The flight to quality continued in reaction to the Asian
crisis; economic growth and inflation continued to support the bond market. The
market sold off in February after Federal Reserve Chairman Alan Greenspan all
but ruled out lower interest rates in the first half of 1998. Intermediate
maturities (between two and five years) underperformed the short and long ends
of the curve.
The Fed is trying to discern the net effect of the countervailing
forces at work in the markets. The domestic economy is strong, as evidenced by
stock prices, housing, employment, income growth and consumer confidence.
However, the Asian situation still looms on the horizon.
[PIE CHART]
PAINWEBBER BALANCED FUND
Asset allocation as percent of net assets, February 28, 1998*
Equities 70.3%
Bonds 24.7%
Cash and cash equivalents 5.0%
*Allocations subject to change
[BAR GRAPH]
PAINWEBBER BALANCED FUND
Top five equity sectors as percent of equity assets, February 28, 1998*
Consumer Cyclicals 26.0%
Financial Services 24.8%
Technology 12.4%
Capital Goods 8.8%
Healthcare 8.7%
*Allocations subject to change
Page 1
<PAGE>
SEMIANNUAL REPORT
PORTFOLIO REVIEW
================================================================================
[LOGO]
PERFORMANCE
The Fund's total return (the net asset value change with dividends
reinvested) for the six-month period ended February 28, 1998, without deducting
sales charges, was 12.02% for Class A shares, 11.59% for Class B shares and
11.60% for Class C shares.
For shareowners who purchased or redeemed Fund shares during the period
the Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, the Fund's total return for the period was 6.97% for
Class A shares, 6.71% for Class B shares and 10.62% for Class C shares.
PORTFOLIO POSITIONING
The Fund employs a disciplined, model-based approach to calculate
expected returns for U.S. stocks, bonds and cash. Based on consensus
expectations for key economic variables such as interest rates, profit growth
and inflation, as well as fundamental valuation techniques, the Fund seeks to
determine whether the expected return from stocks is sufficient to offset the
additional risk when compared to bonds and "risk-free" cash investments (the
one-year U.S. Treasury bill). Fund assets are repositioned accordingly, with a
minimum of 25% of net assets in bonds at all times--including cash equivalents.
The Fund's portfolio began the six-month period with an allocation of
60% stocks, 35% bonds and 5% cash. This represented a normal weighting for the
Fund, in line with our assessment that both stocks and bonds had moved closer to
fair value, and that the excess returns over cash were in line with historical
norms. We held this allocation until the outlook for stocks improved in
November, at which time we shifted the Fund to 70% stocks, 25% bonds and 5%
cash.
After the stock market pulled back in December, our model pointed to
lower expected returns for stocks. As a result, in January we lowered the Fund's
stock position to 65%, raised bonds to 30% and held cash at 5%.
PORTFOLIO HIGHLIGHTS
The Fund's holdings in financial services stocks made the most positive
contribution over the six-month period. The largest holding was Chase (1.4% of
net assets on February 28, 1998). The Fund's energy holdings (4.5% of net assets
on February 28, 1998) became volatile during the period and did not fare as
well. On the other hand, the Fund's airline stock holdings did quite well, as
did technology and retail. Among the strong performers were American Airlines,
Dayton Hudson and Dell Computer (0.8%, 0.7% and 0.7%, respectively, of net
assets on February 28, 1998). The Fund maintained the duration of its bond
portion neutral to the Lehman Brothers Intermediate Treasury Bond Index. With
respect to the portfolio's corporate securities, no changes transpired as their
fundamental outlook remained the same.
PAINE WEBBER BALANCED FUND
PROFILE
Goal: High total return with low volatility
Portfolio Managers: Kirk Barneby, Asset
Allocator; Dennis McCauley, Fixed Income
Sector; Mark Tincher, Equity Sector; Susan
Ryan, Money Market Sector; Mitchell Hutchins
Asset Management Inc.
Total Net Assets: $227.5 million as of
February 28, 1998
Dividend Payments: Semiannually
Page 2
<PAGE>
PAINEWEBBER BALANCED FUND SEMIANNUAL REPORT
OUTLOOK
================================================================================
[LOGO]
The market seems a bit ahead of itself going into April, as earnings
estimates have drifted lower. A decline in interest rates or an improved
earnings outlook could bring valuation into line. With inflation nearly
absent, we expect the Federal Reserve to remain on hold, and anticipate a
fairly stable interest rate environment. In this environment, stock
selection--particularly attempting to avoid companies that may produce
negative surprises--will be of critical importance.
Meanwhile, the extent of the economic turmoil in Asia and its
ultimate impact on corporate profits is unclear. A greater than normal number
of decreased earnings estimates is evidence that Asia's drag on the global
economy remains a concern. We are cautious in the near term and expect
continued choppy markets ahead as the effect of negative earnings
announcements takes its toll. Over the longer term, however, we see little
cause for the market to lose strength.
We think 1998 will be a strong year for the bond markets. The U.S.
economy is slowing slightly and we expect inflation to run at a 1.5% annual
rate. The Federal budget is now running a surplus, which should ease the
upward pressure on market interest rates. We think rates could fall one- to
three-tenths of a percent if present conditions persist.
Looking ahead to the next six months, we have increased the Fund's
stock weightings in technology, consumer cyclicals and financial services. The
economic projections for 1998--low inflation, low interest rates, slower
growth, high employment, high consumer confidence--should give a boost to
financial services and consumer cyclical stocks. After a period of volatility
in January, technology stocks now seem fairly valued; their fundamentals are
still positive. We have decreased the Fund's stock weightings in foods,
beverages and utilities--the traditional
Page 3
<PAGE>
SEMIANNUAL REPORT
defensive stocks that benefit from a recessionary environment, of which we see
no sign on the horizon.
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 Fund Profile on the PaineWebber Balanced Fund or
another fund in the PaineWebber Family of Funds(1), please contact your
investment executive.
Sincerely,
/s/ MARGO N. ALEXANDER /s/ MARK A. TINCHER
- ------------------------- -------------------------
MARGO N. ALEXANDER MARK A. TINCHER
President, Managing Director and
Mitchell Hutchins Asset Chief Investment Officer--
Management Inc. Equities
Mitchell Hutchins Asset Management Inc.
/s/ T. KIRKHAM BARNEBY /s/ DENNIS L. McCAULEY
- ------------------------- -------------------------
T. KIRKHAM BARNEBY DENNIS L. McCAULEY
Managing Director and Managing Director and
Chief Investment Officer-- Chief Investment Officer--
Quantitative Investments Fixed Income
Mitchell Hutchins Asset Mitchell Hutchins Asset Management Inc.
Management Inc.
/s/ SUSAN P. RYAN
- -------------------------
SUSAN P. RYAN
Senior Vice President
Mitchell Hutchins Asset Management Inc.
(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.
This letter is intended to assist shareholders in understanding how the
Fund performed during the six-month period ended February 28, 1998, and
reflects our views at the time we are writing this report. Of course,
these views may change in response to changing circumstances. We
encourage you to consult your investment executive regarding your
personal investment program.
Page 4
<PAGE>
PAINEWEBBER BALANCED FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return(1)
--------------------------------------------- ------------------------------
12 Months 6 months
02/28/98 08/31/97 02/28/97 Ended 02/28/98 Ended 02/28/98
-------- -------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Class A Shares ...................... $ 12.15 $ 12.50 $ 10.92 29.22% 12.02%
Class B Shares ...................... 12.39 12.70 11.09 28.37 11.59
Class C Shares ...................... 12.18 12.52 10.95 28.23 11.60
</TABLE>
<TABLE>
<CAPTION>
Performance Summary Class A Shares
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 .... $ 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)
1995 ................. 9.32 10.41 0.7468 0.3100 23.13
1996 ................. 10.41 10.61 1.0303 0.2516 14.74
1997 ................. 10.61 11.38 1.5503 0.2205 24.57
01/01/98-02/28/98 .... 11.38 12.15 -- -- 6.77
---- ----- ------ ------ -----
Totals: $ 5.3056 $ 1.8349
Cumulative Total Return as of 02/28/98: 129.70%
</TABLE>
<TABLE>
<CAPTION>
Performance Summary Class B Shares
Net Asset Value
------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid 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 0.1286 0.6768 10.84
1990 ................. 10.03 9.60 0.0021 0.6200 1.95
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)
1995 ................. 9.43 10.57 0.7468 0.2049 22.23
1996 ................. 10.57 10.79 1.0303 0.1632 13.81
1997 ................. 10.79 11.61 1.5503 0.1213 23.63
01/01/98-02/28/98 .... 11.61 12.39 -- -- 6.72
---- ----- ------ ------ -----
Totals: $5.6050 $3.5480
Cumulative Total Return as of 02/28/98: 199.18%
</TABLE>
<TABLE>
<CAPTION>
Performance Summary Class C Shares
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 .... $10.86 $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)
1995 ................. 9.35 10.45 0.7468 0.2188 22.15
1996 ................. 10.45 10.65 1.0303 0.1708 13.86
1997 ................. 10.65 11.42 1.5503 0.1343 23.61
01/01/98-02/28/98 .... 11.42 12.18 -- -- 6.65
---- ----- ------ ------ -----
Totals: $5.3056 $0.9899
Cumulative Total Return as of 02/28/98: 97.99%
</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.
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.
Page 5
<PAGE>
PAINEWEBBER BALANCED FUND
PERFORMANCE RESULTS (unaudited) (concluded)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
% Return Without Deducting % Return After Deducting
Maximum Sales Charge Maximum Sales Charge
---------------------------------- ---------------------------------
Class A* B** C*** A* B** C***
- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 03/31/98 ...... 36.36% 35.34% 35.32% 30.27% 30.34% 34.32%
Five Years Ended 03/31/98 ......... 14.21 13.35 13.33 13.16 13.11 13.33
Ten Years Ended 03/31/98 .......... N/A 11.34 N/A N/A 11.34 N/A
Commencement of Operations
Through 03/31/98+ ............. 13.63 10.48 13.21 12.85 10.48 13.21
</TABLE>
- ---------
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 services 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.
*** Maximum contingent deferred sales charge for Class C is 1.0% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1
distribution and service fees.
+ Commencement of operations was July 1, 1991, December 12, 1986 and July
2, 1992 for Class A, Class B and Class C shares, respectively.
Note: The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs sponsored by PaineWebber
that may invest in PaineWebber mutual funds. For the six months ended February
28, 1998, there were no Class Y shares outstanding.
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.
Page 6
<PAGE>
PAINEWEBBER BALANCED FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998 (unaudited)
Number of
Shares Value
- --------- ---------
COMMON STOCKS--68.12%
Agriculture, Food & Beverage--0.22%
14,200 RJR Nabisco Holdings Corp...... $ 490,788
---------
Airlines--1.85%
15,500 Alaska Air Group Inc.*(1)...... 853,469
14,000 AMR Corp.*..................... 1,771,875
25,000 USAir Group, Inc.*............. 1,582,812
---------
4,208,156
---------
Apparel, Retail--0.80%
47,300 TJX Companies, Inc............. 1,826,963
---------
Apparel, Textiles--0.36%
15,500 Westpoint Stevens Inc.*........ 827,313
---------
Banks--3.28%
23,000 BankAmerica Corp............... 1,782,500
18,900 BB & T Corp.................... 1,172,981
26,700 First Union Corp............... 1,406,756
25,000 The Chase Manhattan Corp....... 3,101,563
---------
7,463,800
---------
Computer Hardware--2.73%
35,400 Cisco Systems, Inc.*........... 2,331,975
74,800 Compaq Computer Corp........... 2,398,275
10,600 Dell Computer Corp.*........... 1,482,675
---------
6,212,925
---------
Computer Software--2.32%
54,800 Cadence Design Systems Inc.*... 1,914,575
20,250 CHS Electronics Inc.*.......... 417,656
12,900 Computer Associates
International Inc............ 607,913
16,900 Networks Associates Inc.*...... 1,092,162
23,600 Sterling Software Inc.*........ 1,243,425
---------
5,275,731
---------
Construction, Real Property--2.18%
15,100 Chelsea GCA Realty Inc......... 564,363
28,400 Crescent Real Estate Equities.. 967,375
25,000 Equity Residential Properties
Trust........................ 1,198,437
25,100 Lafarge Corp................... 842,419
15,000 Starwood Lodging Corp.(1)...... 848,437
12,500 Vornado Reality Trust.......... 530,469
---------
4,951,500
---------
Consumer Durables--1.11%
36,700 Furniture Brands International
Inc.*........................ 1,004,663
10,000 Hon Industries, Inc............ 657,500
22,700 Interface, Inc................. 868,275
---------
2,530,438
---------
Defense/Aerospace--3.27%
26,250 AAR Corp....................... $ 797,344
17,500 Allied-Signal, Inc............. 744,844
20,000 Boeing Company................. 1,085,000
11,300 Lockheed Martin Corp........... 1,318,569
26,500 Loral Space Communications
Corp.*....................... 677,406
14,200 Precision Castparts Corp....... 787,212
16,700 Thiokol Corp................... 1,596,937
14,200 Tracor Inc.*................... 434,875
---------
7,442,187
---------
Diversified Retail--2.57%
20,000 Dayton Hudson Corp............. 1,546,250
34,300 Federated Department
Stores, Inc.*................ 1,607,813
40,600 Fred Meyer Inc.*(1)............ 1,804,162
26,000 Proffitts Inc.*................ 880,750
---------
5,838,975
---------
Drugs & Medicine--3.67%
21,000 American Home Products Corp.... 1,968,750
10,450 Amerisource Health Corp.*...... 611,325
24,100 Bergen Brunswig Corp........... 1,084,500
14,300 ICN Pharmaceuticals Inc........ 825,825
25,000 Schering-Plough Corp........... 1,901,562
5,000 Warner Lambert Company......... 731,250
34,000 Watson Pharmaceuticals, Inc.*.. 1,219,750
---------
8,342,962
---------
Electric Utilities--0.82%
25,500 New York State Electric
& Gas Corp.................. 957,844
25,100 Utilicorp United Inc........... 903,600
---------
1,861,444
---------
Electrical Equipment--1.18%
25,000 Digital Microwave Corp.*....... 459,375
13,200 Honeywell, Inc................. 1,046,100
26,400 SCI Systems Inc.*.............. 1,188,000
---------
2,693,475
---------
Energy Reserves & Production--2.37%
12,600 British Petroleum, plc, ADR.... 1,041,863
25,000 Mobil Corp..................... 1,810,937
18,900 Royal Dutch Petroleum Co....... 1,026,506
26,900 Texaco, Inc.................... 1,501,356
---------
5,380,662
---------
Page 7
<PAGE>
PAINEWEBBER BALANCED FUND
Number of
Shares Value
- --------- ---------
COMMON STOCKS (CONTINUED)
Entertainment--0.52%
38,000 CBS Corp....................... $1,175,625
---------
Environmental Services--0.40%
22,000 USA Waste Services Inc.*....... 915,750
---------
Financial Services--2.71%
18,900 American Express Co............ 1,702,181
20,000 C.I.T. Group Inc.* ............ 660,000
29,900 Morgan Stanley, Dean Witter,
Discover & Co.................. 2,083,656
41,350 SLM Holding Corp............... 1,708,272
---------
6,154,109
---------
Forest Products, Paper--0.72%
36,000 Fort James Corp................ 1,633,500
---------
Food Retail--0.32%
21,000 Safeway Inc.*.................. 732,375
---------
Freight, Air, Sea & Land--0.54%
33,600 Airbourne Freight Corp......... 1,215,900
---------
Gas Utility--0.76%
11,800 Columbia Gas System, Inc....... 900,487
22,700 MCN Corp....................... 835,644
---------
1,736,131
---------
Heavy Machinery--1.00%
22,700 Agco Corp...................... 638,438
29,100 Deere & Co..................... 1,633,237
---------
2,271,675
---------
Hotels--0.51%
25,000 Hilton Hotels Corp............. 745,313
21,600 Prime Hospitality Corp.*....... 410,400
---------
1,155,713
---------
Industrial Parts--4.06%
16,800 Aeroquip Vickers Inc........... 975,450
15,500 American Standard Cos Inc.*.... 689,750
25,300 Black & Decker Corp............ 1,274,488
21,300 Crane Co....................... 1,043,700
40,000 Ingersoll Rand Co.............. 1,905,000
24,000 Parker-Hannifin Corp........... 1,119,000
25,000 United Technologies Corp....... 2,232,812
---------
9,240,200
---------
Industrial Services/Supplies--0.41%
25,100 Cendant Corp.*................. $ 941,250
---------
Information & Computer Services--0.39%
23,400 Valassis Communications Inc.*.. 892,125
---------
Leisure--0.36%
33,600 Viad Corp...................... 812,700
---------
Life Insurance--2.10%
25,100 Conseco Inc.................... 1,178,131
16,800 Protective Life Corp........... 1,161,300
37,800 Reliastar Financial Corp....... 1,797,863
14,000 SunAmerica Inc................. 634,375
---------
4,771,669
---------
Long Distance & Phone Companies--0.59%
15,000 Bell Atlantic Corp............. 1,346,250
---------
Manufacturing--General--0.66%
13,100 Lucasvarity plc*............... 492,888
52,000 Mettler Toledo
International Inc.*.......... 1,014,000
---------
1,506,888
---------
Manufacturing--High Technology--1.96%
21,600 ASM Lithography Holdings N.V.*. 2,016,900
24,100 Johnson Controls, Inc.......... 1,339,056
23,800 KLA-Tencor Corp.*.............. 1,098,519
---------
4,454,475
---------
Medical Products--0.89%
40,000 Tyco International Limited..... 2,030,000
---------
Medical Providers--1.58%
14,200 Lincare Holdings Inc.*(1)....... 921,669
40,000 Tenet Healthcare Corp.*......... 1,492,500
20,300 Wellpoint Health Networks Inc... 1,186,281
---------
3,600,450
---------
Mining & Metals--1.34%
29,600 Ispat International N.V.*...... 728,900
26,900 Martin Marietta Inc............ 1,023,881
65,000 Wyman Gordon Co*(1)............ 1,300,000
---------
3,052,781
---------
Page 8
<PAGE>
PAINEWEBBER BALANCED FUND
Number of
Shares Value
- --------- ---------
COMMON STOCKS (CONCLUDED)
Motor Vehicles--2.32%
20,000 Borg Warner Automotive Inc..... $1,172,500
39,000 Chrysler Corp.................. 1,518,562
10,000 Ford Motor Co.................. 565,625
18,900 Lear Corp.*.................... 999,338
16,800 Magna International Inc........ 1,016,400
---------
5,272,425
---------
Oil Refining--1.09%
18,900 Coastal Corp................... 1,202,513
36,900 USX-Marathon Group............. 1,275,356
---------
2,477,869
---------
Oil Services--1.04%
5,700 Camco International Inc........ 333,450
17,000 Ensco International Inc........ 495,125
5,000 Halliburton Co................. 232,500
17,400 Schlumberger Limited........... 1,311,525
---------
2,372,600
---------
Other Insurance--5.19%
17,600 ACE Limited.................... 1,740,200
18,900 Allstate Corp.................. 1,762,425
10,650 American International
Group Inc.................... 1,279,997
6,400 CIGNA Corp..................... 1,222,400
25,000 Everest Reinsurance
Holdings Inc................. 921,875
16,800 Exel Limited................... 1,111,950
16,800 Fremont General Corp........... 985,950
10,800 Loews Corp..................... 1,083,375
25,400 Old Republic International
Corp......................... 1,071,562
13,000 Orion Capital Corp............. 634,563
----------
11,814,297
----------
Publishing--1.02%
25,000 Meredith Corp.................. 1,073,437
18,900 New York Times Co., Class A.... 1,236,769
---------
2,310,206
---------
Railroads--0.62%
28,000 Trinity Industries Inc......... 1,407,000
---------
Securities & Asset Management--1.12%
24,500 Lehman Brothers Holdings Inc... $1,545,032
17,899 Travelers Group Inc. 997,869
---------
2,542,901
---------
Semiconductor--1.29%
50,000 Applied Materials Inc.*........ 1,840,625
33,400 Integrated Process Equipment
Corp.*....................... 617,900
19,900 National Semiconductor Corp.*.. 475,112
---------
2,933,637
---------
Specialty Retail--2.07%
47,200 Claire's Stores Inc............ 849,600
40,000 Dollar General Corp.(1)........ 1,845,000
43,000 Office Depot Inc.*............. 1,185,187
30,000 Zale Corp.*.................... 834,375
---------
4,714,162
---------
Thrift--1.41%
37,375 Ahmanson, H F & Co............. 2,333,602
11,900 Greenpoint Financial Corp...... 883,575
---------
3,217,177
---------
Tobacco--0.40%
20,700 Phillip Morris Cos Inc......... 899,156
---------
TOTAL COMMON STOCKS (COST--$115,183,490).... 154,948,315
-----------
PREFERRED STOCKS--2.18%
Financial Services--1.28%
15,000 Devon Financing Trust+......... 958,125
34,000 Federal Mogul Financing Trust+. 1,963,500
---------
2,921,625
---------
Oil Services--0.25%
13,000 EVI Inc.+...................... 563,875
---------
Thrift--0.32%
11,500 Tosco Financing Trust+......... 725,937
---------
Wireless Telecommunications--0.33%
10,000 ICG Funding LLC+............... 751,250
---------
TOTAL PREFERRED STOCKS (cost--$4,175,000)... 4,962,687
---------
Page 9
<PAGE>
PAINEWEBBER BALANCED FUND
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
----- ----- ----- -----
<S> <C> <C> <C>
CORPORATE BONDS--6.85%
Banks--1.50%
$1,370 ABN Amro Bank....................................... 12/01/26 7.300% $1,376,257
1,495 Canadian Imperial Bank Commerce..................... 08/01/00 6.200 1,500,847
550 IBJ Preferred Capital Company LLC+.................. 12/29/49 8.790 534,875
----------
3,411,979
----------
Financial Services--2.04%
850 Berkley (W.R.) Capital Trust........................ 12/15/45 8.197 879,917
1,000 BT Institutional Capital Trust A+................... 12/01/26 8.090 1,038,746
1,600 Ford Motor Credit Company........................... 01/25/01 5.750 1,585,976
1,100 Lehman Brothers Holdings Inc........................ 09/15/03 7.125 1,136,884
----------
4,641,523
----------
Leisure--0.34%
770 Royal Caribbean Cruises Limited..................... 10/15/27 7.500 784,708
----------
Life Insurance--0.32%
700 Equitable Life Assurance Society, USA+.............. 12/01/05 6.950 718,891
----------
Oil Services--0.59%
1,300 Occidental Petroleum Corp. Medium Term Note......... 09/15/04 8.500 1,337,804
----------
Other Insurance--1.66%
1,200 American Reinsurance Corp........................... 12/15/26 7.450 1,286,624
1,300 Loews Corp.......................................... 12/15/06 6.750 1,323,221
1,000 Lumbermans Mutual Casualty Company+................. 07/01/26 9.150 1,167,264
----------
3,777,109
----------
Tobacco--0.40%
850 Phillip Morris Companies Inc........................ 01/15/27 7.750 908,357
----------
TOTAL CORPORATE BONDS (COST--$14,963,941)....................... 15,580,371
----------
CONVERTIBLE BONDS--1.25%
Long Distance & Phone Companies--0.21%
400 Telephone Save Holdings Inc.+....................... 09/15/02 4.500 476,500
----------
Medical Providers--0.50%
1,000 Omnicare Inc.+...................................... 12/01/07 5.000 1,148,750
----------
Specialty Retail--0.32%
500 Home Depot Inc...................................... 10/01/01 3.250 724,375
----------
Wireless Telecommunications--0.22%
400 Smarttalk Teleservices Inc.+........................ 09/15/04 5.750 498,000
----------
TOTAL CONVERTIBLE BONDS (COST--$2,300,000)...................... 2,847,625
----------
</TABLE>
Page 10
<PAGE>
PAINEWEBBER BALANCED FUND
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
----- ----- ----- -----
<S> <C> <C> <C>
U.S. Government and Agency Obligations--11.94%
$3,045 Federal Home Loan Mortgage Corp............ 09/25/00 5.970% $3,060,974
2,815 Federal National Mortgage Association
Medium Term Notes....................... 07/26/04 to 11/21/07 6.550 to 6.750 2,845,270
3,000 U.S. Treasury Bills........................ 04/23/98 5.230@ 2,976,879
8,711 U.S. Treasury Bonds........................ 11/15/12 to 02/15/21 7.875 to 10.375 10,910,811
7,104 U.S. Treasury Notes........................ 04/30/02 to 02/15/05 5.500 to 7.500 7,368,692
----------
Total U.S. Government and Agency Obligations (cost--$27,215,142) 27,162,626
----------
MORTGAGE BACKED SECURITIES--5.97%
Federal National Mortgage Association--0.75%
1,667 FNMA (cost--$1,701,175)..................... 01/01/26 to 02/01/26 7.500 1,712,314
----------
Government National Mortgage Association--2.40%
3,867 GNMA................................................ 11/15/17 8.500 4,134,940
1,315 GNMA TBA ARM........................................ TBA 5.500 1,320,342
----------
Total Government National Mortgage Association (cost--$5,397,921) 5,455,282
----------
Collateralized Mortgage Obligations--2.82%
660 Amresco Commercial Mortgage Funding I Corp.,
Series 1997-C1, Class A1......................... 06/17/29 6.730 670,395
224 CS First Boston Mortgage Securities Corp.,
Series 1995-WF1,Class A1......................... 12/21/27 6.452 222,682
431 CS First Boston Mortgage Securities Corp.,
Series 1997-2,Class A+........................... 06/25/20 7.500 443,359
411 DLJ Mortgage Acceptance Corp.,
Series 1997-CF1, Class A1A+...................... 05/15/06 7.400 431,211
577 FDIC REMIC, Series 1994-C1, Class 2A2............... 09/25/25 7.850 581,226
520 FDIC REMIC, Series 1996-C1, Class 1A................ 05/25/26 6.750 522,585
561 FNMA REMIC, Series 1996-M4, Class A................. 03/17/17 7.750 570,967
668 FNMA REMIC, Series 1996-M6, Class E................. 09/17/19 7.750 680,916
571 GMAC Commercial Mortgage Security,
Series 1996-C1, Class A2A........................ 09/15/03 6.790 583,431
630 Merrill Lynch Mortgage Investments Inc.,
Series 1996-C1,Class A1.......................... 04/25/28 7.150 651,152
366 Morgan Stanley Capital I Inc.,
Series 1997-C1, Class A1A........................ 02/15/20 6.850 370,458
663 Morgan Stanley Capital I Inc.,
Series 1997-WF1, Class A1+....................... 10/15/06 6.830 679,058
----------
Total Collaterized Mortgage Obligations (cost--$6,309,706)...... 6,407,440
----------
Total Mortgage Backed Securities (cost--$13,408,802)............ 13,575,036
----------
Repurchase Agreement--4.57%
$10,382 Repurchase agreement dated 02/27/98 with Citicorp
Securities, Inc., collateralized by $8,340,000
U.S. Treasury Bonds, 8.000%, due 11/15/21
(value--$10,591,800); proceeds $10,386,871
(cost--$10,382,000)............................. 03/02/98 5.630% 10,382,000
----------
</TABLE>
Page 11
<PAGE>
PAINEWEBBER BALANCED FUND
<TABLE>
<CAPTION>
Number of
Shares Value
------ -----
<S> <C>
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--2.91%
Money Market Funds--2.91%
4,844,142 Liquid Assets Portfolio............................................................ $4,844,142
927,137 Prime Portfolio.................................................................... 927,137
677,296 TempCash Portfolio................................................................ 677,296
170,025 TempFund Portfolio................................................................. 170,025
------------
Total Investments of Cash Collateral for Securities Loaned (cost--$6,618,600).................. 6,618,600
------------
Total Investments (cost--$194,246,975)--103.79%................................................ 236,077,260
Liabilities in excess of other assets --(3.79)%................................................ (8,627,272)
------------
Net Assets--100.00%............................................................................ $227,449,988
============
</TABLE>
- ---------
* Non-Income producing security
+ 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.
@ Interest rate shown is the discount rate at date of purchase.
ADR American Depositary Receipt
ARM Adjustable Rate Mortgage Security; the interest rate shown is the current
rate at February 28. 1998.
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with an approximated (generally +/- 1.0%) principal amount and generally
stated maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
FDIC Federal Deposit Insurance Corp.
REMIC Real Estate Mortgage Investment Conduit
(1) Security, or portion thereof, was on loan at February 28, 1998.
<TABLE>
<CAPTION>
Number Underlying Expiration Exercise
Written Options of Options Contract Date Price Value
- --------------- ---------- -------- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Call ................ 100 Ford Motor Company Mar 98 $ 50.00 $63,750
Call ................ 30 CIGNA Corp. Mar 98 180.00 34,500
-------
Total Written Options (Premiums Received $38,615) $98,250
=======
</TABLE>
Page 12
<PAGE>
PAINEWEBBER BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1998 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost--$194,246,975)........................................ $236,077,260
Cash............................................................................................ 17,025
Dividends and interest receivable............................................................... 904,021
Receivable for investments sold................................................................. 817,124
Receivable for fund shares sold................................................................. 624,729
Other assets.................................................................................... 34,162
-----------
Total assets 238,474,321
-----------
LIABILITIES
Collateral for securities loaned................................................................ 6,618,600
Payable for investments purchased............................................................... 3,325,836
Payable to affiliate............................................................................ 385,554
Payable for fund shares repurchased............................................................. 313,554
Outstanding options written..................................................................... 98,250
Accrued expenses and other liabilities.......................................................... 282,539
-----------
Total liabilities.............................................................................. 11,024,333
-----------
NET ASSETS
Capital Stock--$0.001 par value................................................................ 173,573,352
Undistributed net investment income............................................................ 442,225
Accumulated net realized gains from investment and options transactions........................ 11,663,761
Net unrealized appreciation of investments and options......................................... 41,770,650
-----------
Net assets $227,449,988
============
CLASS A:
Net assets..................................................................................... $193,421,594
-----------
Shares outstanding............................................................................. 15,915,421
-----------
Net asset value and redemption value per share................................................. $12.15
======
Maximum offering price per share (net asset value plus sales charge of 4.50% of offering price) $12.72
======
CLASS B:
Net assets..................................................................................... $23,844,641
-----------
Shares outstanding............................................................................. 1,924,990
-----------
Net asset value and offering price per share................................................... $12.39
======
CLASS C:
Net assets..................................................................................... $10,183,753
-----------
Shares outstanding............................................................................. 835,958
-----------
Net asset value and offering price per share................................................... $12.18
======
</TABLE>
See accompanying notes to financial statements
Page 13
<PAGE>
PAINEWEBBER BALANCED FUND
STATEMENT OF OPERATIONS
For the Six
Months Ended
February 28,1998
(unaudited)
---------
Investment income:
Interest ................................................... $ 2,215,371
Dividends .................................................. 881,531
---------
3,096,902
---------
Expenses:
Investment advisory and administration ..................... 789,565
Service fees--Class A ...................................... 225,197
Service and distribution fees--Class B ..................... 106,443
Service and distribution fees--Class C ..................... 45,521
Transfer agency and service ................................ 79,667
Custody and accounting ..................................... 65,595
Reports and notices to shareholders ........................ 65,078
Legal and audit ............................................ 61,920
State registration ......................................... 58,264
Directors fees ............................................. 6,750
Other expenses ............................................. 28,620
---------
1,532,620
---------
Net investment income ...................................... 1,564,282
---------
Realized and unrealized gains from investment
activities:
Net realized gain from:
Investment transactions .................................. 17,871,662
Options written .......................................... 18,317
Net change in unrealized appreciation/depreciation of:
Investments .............................................. 4,961,052
Options written .......................................... (59,635)
---------
Net realized and unrealized gains from
investment activities .................................... 22,791,396
---------
Net increase in net assets resulting from operations ....... $ 24,355,678
============
See accompanying notes to financial statements
Page 14
<PAGE>
PAINEWEBBER BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six
Months Ended For the
February 28, 1998 Year Ended
(unaudited) August 31, 1997
------------- -------------
<S> <C> <C>
From operations:
Net investment income .................................................................... $ 1,564,282 $ 3,699,369
Net realized gains from investment and options transactions .............................. 17,889,979 20,411,884
Net change in unrealized appreciation/depreciation of investments and options ............ 4,901,417 27,967,582
------------- -------------
Net increase in net assets resulting from operations ..................................... 24,355,678 52,078,835
------------- -------------
Dividends and distributions to shareholders from:
Net investment income--Class A ........................................................... (1,784,835) (3,518,807)
Net investment income--Class B ........................................................... (106,668) (292,933)
Net investment income--Class C ........................................................... (54,549) (111,333)
Net realized gains from investment transactions--Class A ................................. (21,634,316) (7,951,554)
Net realized gains from investment transactions--Class B ................................. (2,516,998) (1,065,949)
Net realized gains from investment transactions--Class C ................................. (1,124,576) (367,562)
------------- -------------
Total dividends and distributions to shareholders ........................................ (27,221,942) (13,308,138)
------------- -------------
From capital stock transactions:
Net proceeds from sale of shares ......................................................... 14,909,365 6,471,174
Cost of shares repurchased ............................................................... (17,245,894) (36,403,282)
Proceeds from dividends reinvested ....................................................... 24,745,428 12,258,447
------------- -------------
Net increase (decrease) in net assets from capital stock transactions .................... 22,408,899 (17,673,661)
------------- -------------
Net increase in net assets ............................................................... 19,542,635 21,097,036
Net assets:
Beginning of period ...................................................................... 207,907,353 186,810,317
------------- -------------
End of period (including undistributed net investment income
of $442,225 and $823,995, respectively) ................................................ $ 227,449,988 $ 207,907,353
============= =============
</TABLE>
See accompanying notes to financial statements
Page 15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
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 management investment company
which currently offers two series of shares: PaineWebber Balanced Fund (the
"Fund") and PaineWebber Money Market Fund. The financial statements for
PaineWebber Money Market Fund are not included herein.
Currently, the Fund offers Class A, Class B, Class C and Class
Yshares (no class Y shares were outstanding during the period). Each class
represents interests in the same assets of the Fund, and the classes are
identical except for differences in their sales charge structures, ongoing
service and distribution charges and certain transfer agency expenses. In
addition, Class B shares and all corresponding reinvested dividend shares
automatically convert to Class A shares approximately six years after
issuance. All classes of shares have equal voting privileges except that Class
A, Class B and Class C each have exclusive voting rights with respect to their
respective 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--Securities which are listed on stock
exchanges are valued at the last sale price on the day the securities are
being 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 generally valued on the exchange designated as the primary
market by Mitchell Hutchins Asset Management, Inc. ("Mitchell Hutchins"), an
asset management subsidiary of PaineWebber Incorporated ("PaineWebber") and
investment adviser, administrator and distributor of the Fund. Securities
traded in the over-the-counter ("OTC") market and listed on the Nasdaq Stock
Market, Inc. ("Nasdaq") are valued at the last available sale price, or last
bid price available if no sale occurs, on Nasdaq prior to the time of
valuation. Where market quotations are readily available, debt securities are
valued thereon, provided such quotations adequately reflect the fair value of
the securities in the judgment of Mitchell Hutchins. 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 securities are valued
at fair value as determined in good faith by, or under the direction of, the
Master Series' Board of Directors. The amortized cost method of valuation is
used to value short-term debt instruments with sixty days or less remaining to
maturity, unless the Board of Directors determines that this does not
represent fair value.
Repurchase Agreements--The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. The Fund occasionally
participates in joint repurchase agreement transactions with other funds
managed by Mitchell Hutchins.
Investment Transactions and Investment Income--Investment
transactions are recorded on trade date. Realized gains and losses from
investment transactions are calculated using the identified cost method.
Interest income is recorded on an accrual basis. Dividend income is recorded
on the ex-dividend date. Discounts are accreted and premiums are amortized as
adjustments to interest income and the identified cost of investments.
Page 16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
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.
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 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 Fund primarily uses written options to hedge
the Fund's portfolio and to enhance income.
Dividends and Distributions--Dividends and distributions to
shareholders are recorded on the ex-dividend date. The amount of dividends and
distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
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 and political developments
particular to a specific industry, country or region.
Written Option Activity
Transactions in options written for the six months ended February 28,
1998 were as follows:
Number of
Options Premiums
------- --------
Options outstanding at August 31, 1997 ............... -- --
Options written ...................................... 280 $ 115,507
Options terminated in closing purchase transactions .. (150) (76,892)
Options expired ...................................... -- --
------- --------
Options outstanding at February 28, 1998 ............. 130 $ 38,615
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, in accordance with the following schedule:
Page 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
Average Daily Net Assets Annual Rate
------------------------ -----------
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
At February 28, 1998, the Fund owed Mitchell Hutchins $260,963 in
investment advisory and administration fees.
For the six months ended February 28, 1998, the Fund paid $720 in
brokerage commissions to PaineWebber for transactions executed on behalf of
the Fund.
Distribution Plans
Mitchell Hutchins is the distributor of the Fund's shares and has
appointed PaineWebber as the exclusive dealer for the sale of those shares.
Under separate plans of service and/or distribution pertaining to Class A,
Class B and Class C shares, the Fund pays Mitchell Hutchins monthly service
fees at an 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 an annual rate of
0.75% of the average daily net assets of Class B and Class C shares. Class Y
shares have no service or distribution plan. At February 28, 1998, the Fund
owed Mitchell Hutchins $124,591 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales
charges paid by shareholders upon the purchase of Class A shares and the
contingent deferred sales charges paid by shareholders upon certain
redemptions of Class A, Class B and Class C shares. Mitchell Hutchins has
informed the Fund that for the six months ended February 28, 1998, it earned
$175,468 in sales charges.
Security Lending
The Fund may lend securities up to 331/3% of its total assets to
qualified institutions. The loans are secured at all times by cash or U.S.
government securities in an amount at least equal to the market value of the
securities loaned, plus accrued interest, determined on a daily basis and
adjusted accordingly. The Fund will regain record ownership of loaned
securities to exercise certain beneficial rights; however, the Fund may bear
the risk of delay in recovery of, or even loss of rights in, the securities
loaned should the borrower fail financially. The Fund receives compensation,
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. The Fund's lending agent is PaineWebber, which received $5,864 in
compensation in that capacity from the Fund for the six months ended February
28, 1998. At February 28, 1998, the Fund owed PaineWebber $1,171 in
compensation.
As of February 28, 1998, the Fund held cash and/or cash equivalents
having an aggregate value of $6,618,600 as collateral for portfolio securities
loaned having a market value of $6,432,679.
Bank Line of Credit
The Fund may participate with other funds managed by Mitchell
Hutchins in a $200 million committed credit facility ("Facility") to be
utilized for temporary financing until settlement of sale or purchase of
portfolio securities, the repurchase or redemption of shares of the Fund at
the request of the shareholders and other temporary or emergency purposes. In
connection therewith, the Fund has agreed to pay a commitment fee, pro rata,
based on the relative asset size of the Funds in the Facility. Interest is
charged to the Fund at rates based on prevailing market rates in effect at the
time of borrowings. For the six months ended February 28, 1998, the Fund did
not borrow under the Facility.
Page 18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
Transfer Agency Service Fees
PaineWebber provides transfer agency related services to the Fund
pursuant to a delegation of authority from PFPC, Inc., the Fund's transfer
agent, and is compensated for these services by PFPC, Inc., not the Fund. For
the six months ended February 28, 1998, PaineWebber received from PFPC, Inc.,
not the Fund, approximately 58% of the total transfer agency and related
service fees collected by PFPC, Inc., from the Fund.
Investments in Securities
For federal income tax purposes, the cost of securities owned at
February 28, 1998 was substantially the same as the cost of securities for
financial statement purposes.
At February 28, 1998, the components of net unrealized appreciation
of investments were as follows:
Gross appreciation (investments having
an excess of value over cost) ............... $ 43,493,488
Gross depreciation (investments having
an excess of cost over value) ............... (1,663,203)
------------
Net unrealized appreciation of investments ...... $ 41,830,285
============
For the six months ended February 28, 1998, aggregate purchases and
sales of portfolio securities, excluding short-term securities, were as
follows:
Purchases ....................................... $158,571,201
Sales ........................................... $162,550,132
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.
Capital Stock
There are 10 billion shares of $0.001 par value common stock
authorized for Master Series, of which 4 billion is allocated to Balanced
Fund. Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
For the Six Months Ended -------------------------- --------------------------- -------------------------
February 28, 1998: Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ............................ 378,524 $ 4,571,786 397,414 $ 4,909,732 437,451 $ 5,427,847
Shares repurchased ..................... (858,013) (10,657,547) (132,551) (1,688,128) (395,175) (4,900,219)
Dividends reinvested ................... 1,940,516 21,365,082 206,411 2,320,060 95,953 1,060,286
Shares converted from Class B
to Class A .......................... 345,098 4,297,595 (339,482) (4,297,595) -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase ........................... 1,806,125 $19,576,916 131,792 $ 1,244,069 138,229 $ 1,587,914
=========== =========== =========== =========== =========== ===========
For the Year Ended
August 31, 1997:
Shares sold ............................ 211,758 $2,447,467 223,601 $2,588,152 125,122 $1,435,555
Shares repurchased ..................... (2,662,267) (29,771,297) (436,949) (4,978,057) (145,940) (1,653,928)
Dividends reinvested ................... 978,372 10,584,456 112,620 1,234,648 40,580 439,343
Shares converted from Class B
to Class A .......................... 250,416 2,755,806 (246,655) (2,755,806) -- --
----------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) ................ (1,221,721) $(13,983,568) (347,383) $ (3,911,063) 19,762 $ 220,970
=========== =========== =========== =========== =========== ==========
</TABLE>
Page 19
<PAGE>
PAINEWEBBER BALANCED FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------------
For the For the
Six For the Six For the
Months Ended Year Months Year For the Years Ended
February 28, Ended Ended Ended -------------------------------
1998 August 31, August 31, February 29, February 28,
(unaudited) 1997 1996(3) 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 12.50 $ 10.27 $ 10.85 $ 9.80 $ 12.04 $ 11.54 $ 11.01
-------- -------- -------- -------- -------- -------- --------
Net investment income ..................... 0.10++ 0.23++ 0.12++ 0.27++ 0.26 0.22 0.33
Net realized and unrealized gains (losses)
from investments and options ............ 1.23++ 2.79++ (0.12)++ 1.84++ (1.07) 1.31 0.54
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations .............................. 1.33 3.02 0.00 2.11 (0.81) 1.53 0.87
-------- -------- -------- -------- -------- -------- --------
Dividends from net investment income ...... (0.13) (0.24) (0.10) (0.31) (0.23) (0.25) (0.34)
Distributions from net realized gains from
investment transactions ................. (1.55) (0.55) (0.48) (0.75) (1.20) (0.78) --
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions
to shareholders ......................... (1.68) (0.79) (0.58) (1.06) (1.43) (1.03) (0.34)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period ............ $ 12.15 $ 12.50 $ 10.27 $ 10.85 $ 9.80 $ 12.04 $ 11.54
======== ======== ======== ======== ======== ======== ========
Total investment return (1) ............... 12.02% 30.67% 0.03% 22.08% (6.02)% 13.57% 8.09%
======== ======== ======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period (000's) ......... $193,422 $176,403 $157,525 $171,609 $174,761 $216,492 $154,594
Expenses to average net assets ............ 1.34%* 1.46% 1.34%* 1.29% 1.26% 1.21% 1.18%
Net investment income to average net assets 1.60%* 2.02% 2.19%* 2.55% 2.41% 1.74% 2.52%
Portolio turnover rate .................... 76% 188% 103% 188% 107% 69% 33%
Average commission rate paid (2) .......... $ 0.0600 $ 0.0600 $ 0.0600 -- -- -- --
</TABLE>
- ---------
* Annualized
++ Calculated using the average shares outstanding for 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 and
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 would be lower if sales charges were
included. Total investment return for periods of less than one year has
not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose the average commission rate paid per share
of common stock investments purchased or sold.
(3) Fiscal year changed to August 31.
Page 20
<PAGE>
PAINEWEBBER BALANCED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each period
is presented below:
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------------------
For the For the For the
Six For the Six For the Period
Months Ended Year Months Year For the Years Ended July 2,1992+
February 28, Ended Ended Ended -------------------- through
1998 August 31, August 31, February 29, February 28, February 28,
(unaudited) 1997 1996(3) 1996 1995 1994 1993
---------- ---------- --------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 12.70 $ 10.42 $ 11.00 $ 9.90 $ 12.10 $ 11.56 $ 10.99
-------- -------- -------- -------- -------- -------- --------
Net investment income...................... 0.05++ 0.14++ 0.08++ 0.19++ 0.44 0.26 0.30
Net realized and unrealized gains (losses)
from investments and options............. 1.26++ 2.84++ (0.11)++ 1.86++ (1.32) 1.18 0.48
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................... 1.31 2.98 (0.03) 2.05 (0.88) 1.44 0.78
-------- -------- -------- -------- -------- -------- --------
Dividends from net investment income....... (0.07) (0.15) (0.07) (0.20) (0.12) (0.12) (0.21)
Distributions from net realized gains from
investment transactions.................. (1.55) (0.55) (0.48) (0.75) (1.20) (0.78) --
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions to
shareholders............................. (1.62) (0.70) (0.55) (0.95) (1.32) (0.90) (0.21)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period............. $ 12.39 $ 12.70 $ 10.42 $ 11.00 $ 9.90 $ 12.10 $ 11.56
======== ======== ======== ======== ======== ======== ========
Total investment return (1)................ 11.59% 29.70% (0.30)% 21.20% (6.68)% 12.62% 7.25%
======== ======== ======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period (000's).......... $ 23,845 $ 22,768 $ 22,307 $ 26,627 $ 37,104 $ 83,178 $ 160,115
Expenses to average net assets............. 2.13%* 2.22% 2.09%* 2.05% 1.98% 2.05% 1.98%
Net investment income to average net assets 0.82%* 1.27% 1.43%* 1.81% 1.60% 1.00% 2.02%
Portolio turnover rate..................... 76% 188% 103% 188% 107% 69% 33%
Average commission rate paid (2)........... $ 0.0600 $ 0.0600 $ 0.0600 -- -- -- --
</TABLE>
- ---------
* Annualized
++ Calculated using the average shares outstanding for 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 and
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 would be lower if sales charges were
included. Total investment return for periods of less than one year has
not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose the average commission rate paid per share
of common stock investments purchased or sold.
(3) Fiscal year changed to August 31.
Page 21
<PAGE>
PAINEWEBBER BALANCED FUND
FINANCIAL HIGHLIGHTS (CONCLUDED)
Selected data for a share of capital stock outstanding throughout each period
is presented below:
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------------
For the For the
Six For the Six For the
Months Ended Year Months Year For the Years Ended
February 28, Ended Ended Ended -------------------------------
1998 August 31, August 31, February 29, February 28,
(unaudited) 1997 1996(3) 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.52 $ 10.29 $ 10.88 $ 9.82 $ 12.03 $ 11.54 $ 10.86
-------- -------- -------- -------- -------- -------- --------
Net investment income 0.05++ 0.14++ 0.08++ 0.19++ 0.19 0.14 0.13
Net realized and unrealized gains (losses)
from investments and options 1.24++ 2.80++ (0.12)++ 1.84++ (1.07) 1.30 0.71
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations 1.29 2.94 (0.04) 2.03 (0.88) 1.44 0.84
-------- -------- -------- -------- -------- -------- --------
Dividends from net investment income (0.08) (0.16) (0.07) (0.22) (0.13) (0.17) (0.16)
Distributions from net realized gains from
investment transactions (1.55) (0.55) (0.48) (0.75) (1.20) (0.78) --
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions to
shareholders (1.63) (0.71) (0.55) (0.97) (1.33) (0.95) 0.16)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 12.18 $ 12.52 $ 10.29 $ 10.88 $ 9.82 $ 12.03 $ 11.54
======== ======== ======== ======== ======== ======== ========
Total investment return (1) 11.60% 29.70% (0.38)% 21.12% (6.69)% 12.75% 7.78%
======== ======== ======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period (000's) $ 10,184 $ 8,736 $ 6,979 $ 7,469 $ 8,525 $ 12,916 $ 7,058
Expenses to average net assets 2.10%* 2.21% 2.09%* 2.08% 2.01% 1.96% 1.95%*
Net investment income to average net assets 0.85%* 1.27% 1.44%* 1.77% 1.62% 0.97% 1.91%*
Portolio turnover rate 76% 188% 103% 188% 107% 69% 33%
Average commission rate paid (2) $ 0.0600 $ 0.0600 $ 0.0600 -- -- -- --
</TABLE>
- ---------
* Annualized
+ Commencement of issuance of shares
++ Calculated using the average shares outstanding for 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 and
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 would be lower if sales charges were
included. Total investment return for periods of less than one year has
not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose the average commission rate paid per share
of common stock investments purchased or sold.
(3) Fiscal year changed to August 31.
Page 22
<PAGE>
BOARD OF TRUSTEES
- -----------------
E. Garrett Bewkes, Jr., Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
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
Mark A. Tincher, Vice President
Dennis L. McCauley, Vice President
Susan P. Ryan, Vice President
T. Kirkham Barneby, Vice President
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 conjunction 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 auditors who do not express an opinion
thereof.
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
corresponding firm. Read the prospectus carefully before investing.
Page 23
<PAGE>
PaineWebber offers a family of 26 funds which encompass a diversified range of
investment goals.
BOND FUNDS
- -- High Income Fund
- -- Investment Grade Income Fund
- -- Low Duration U.S. Government Income Fund
- -- Strategic Income Fund
- -- U.S. Government Income Fund
TAX-FREE BOND FUNDS
- -- California Tax-Free Income Fund
- -- Municipal High Income Fund
- -- National Tax-Free Income Fund
- -- New York Tax-Free Income Fund
STOCK FUNDS
- -- Financial Services Growth Fund
- -- Growth Fund
- -- Growth and Income Fund
- -- Mid Cap Fund
- -- Small Cap Fund
- -- S&P500 Index 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
PaineWebber
(Copyright) PaineWebber Incorporated
Member SIPC
PaineWebber
BALANCED FUND
SEMIANNUAL REPORT
FEBRUARY 28, 1998
Page 24
