ANNUAL REPORT
April 17, 1998
Dear Shareholder,
We are pleased to present you with the annual report for the PaineWebber
Money Market Fund (the "Fund") for the fiscal year ended February 28, 1998.
GENERAL MARKET OVERVIEW
================================================================================
The bond markets pulled back briefly when the Federal Reserve raised
short-term interest rates in March 1997. Within a month, however, market
sentiment turned extremely bullish on good reports of both modest inflation and
modest economic growth. The bond markets entered a rally that lasted through the
fall.
Then in October came the crisis in the Asian markets. Investors "fled to
quality," sparking a surge in demand for U.S. bonds that continued through
December. The Federal Reserve left rates alone and market rates gradually
declined through the end of the year. Municipal bonds rose on the surge as well,
although they lagged the Treasury market. Long maturities led the municipal
rally as yields declined across the curve.
Interest rates continued to fall in January 1998 and the yield curve
steepened as shorter maturities rallied more than longer maturities. The flight
to quality in reaction to the Asian crisis continued and 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.
PORTFOLIO REVIEW
================================================================================
PERFORMANCE
The Fund's current yields were 4.13% for Class A shares, 3.63% for Class B
shares and 3.67% for Class C shares for the seven-day period ended February 28,
1998.
PORTFOLIO HIGHLIGHTS
The Fund invests in high-quality, short-term money market instruments such as
commercial paper, medium-term notes, U.S. Treasuries, U.S. government agencies,
bankers' acceptances and certificates of deposit. The Fund maintained a weighted
average maturity of 51 days as of February 28, 1998, at the IBC Financial Data
average for similar money market funds. We kept the Fund's maturity at the
average to maintain liquidity due to the volatility in assets. We also took
advantage of market volatility by purchasing securities when rates rose and
prices fell.
PAINEWEBBER
MONEY MARKET FUND
FUND HOLDINGS
(as percent of portfolio assets,
February 28, 1998)*
[THE FOLLOWING TABLE REPRESENTS A CHART IN THE PRINTED PIECE]
Commercial Paper ...................... 75.3%
Certificates of Deposit ............... 7.8%
Short-Term Corporate Obligations ...... 6.5%
U.S. Government & Agency Obligations .. 5.2%
Bank Notes ............................ 5.2%
* Allocations subject to change
1
<PAGE>
ANNUAL REPORT
PAINEWEBBER
MONEY MARKET FUND
PROFILE
GOAL:
Principal stability and current income
PORTFOLIO MANAGER:
Susan P. Ryan,
Mitchell Hutchins Asset Management Inc.
TOTAL NET ASSETS:
$33.0 million as of
February 28, 1998
DIVIDEND PAYMENTS:
Monthly
OUTLOOK
================================================================================
We think 1998 will be a strong year for the U.S. bond markets. The U.S.
economy is slowing slightly due to Asia, though the effects will not show up in
economic statistics for a while. Inflation is likely to run at a 1.5% annual
rate. The Federal budget is now running a surplus, which should reduce
government borrowing and ease the upward pressure on market interest rates. We
think rates could fall 10-30 basis points if present conditions persist.
Since volatility of short-term assets is still a concern, we currently expect
to try to maintain the Fund's weighted average maturity around the IBC Financial
Data average number of days. Although we are interested in maintaining higher
yields, we will not do so by sacrificing the Fund's emphasis on credit, quality
and liquidity.
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 Money Market Fund or another
fund in the PaineWebber Family of Funds1, please contact your investment
executive.
<PAGE>
Sincerely,
/s/Margo N. Alexander /s/Dennis L. McCauley
- --------------------- ---------------------
MARGO N. ALEXANDER DENNIS L. MCCAULEY
President Managing Director and
Mitchell Hutchins Chief Investment Officer --
Asset Management Inc. Fixed Income
Mitchell Hutchins Asset Management Inc.
/s/Susan P. Ryan
- ----------------
SUSAN P. RYAN
Senior Vice President
Mitchell Hutchins Asset Management Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year 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.
- --------------
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.
2
<PAGE>
PAINEWEBBER MONEY MARKET FUND
STATEMENT OF NET ASSETS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- --------- --------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--5.30%
$ 750 Federal Home Loan Bank .................. 07/08/98 5.760% $ 750,166
1,000 Federal National Mortgage Association ... 03/03/98 5.459* 1,000,000
----------
Total U.S. Government Agency Obligations
(cost--$1,750,166) ............................. 1,750,166
----------
BANK NOTES--5.30%
DOMESTIC--5.30%
750 FCC National Bank ....................... 01/07/99 5.700 749,816
1,000 LaSalle National Bank ................... 04/13/98 6.230 1,000,000
----------
Total Bank Notes (cost--$1,749,816) ................. 1,749,816
----------
CERTIFICATES OF DEPOSIT--8.03%
DOMESTIC--4.54%
500 Bankers Trust Company ................... 09/09/98 5.950 499,872
1,000 Morgan Guaranty Trust Company ........... 03/19/98 5.910 999,981
----------
1,499,853
----------
YANKEE--3.49%
400 Credit Agricole Indosuez ................ 02/18/99 5.650 400,000
750 Societe Generale ........................ 03/19/98 5.690 750,016
----------
1,150,016
----------
Total Certificates of Deposit (cost--$2,649,869) .... 2,649,869
----------
COMMERCIAL [email protected]%
ASSET-BACKED--4.37%
1,454 Triple-A One Funding Corporation ........ 04/08/98 to 05/13/98 5.490 to 5.520 1,442,838
----------
AUTO & TRUCK--9.99%
1,800 Ford Motor Credit Company ............... 03/11/98 5.480 1,797,260
1,500 General Motors Acceptance Corporation ... 03/06/98 5.500 1,498,854
----------
3,296,114
----------
BANKING--12.28%
1,000 Abbey National North America ............ 04/07/98 5.480 994,368
1,000 B.B.V. Finance (Delaware) Incorporated .. 04/07/98 5.480 994,368
1,074 BBL North America Incorporated .......... 03/02/98 5.700 1,073,830
1,000 Citicorp ................................ 05/05/98 5.540 989,997
----------
4,052,563
----------
</TABLE>
3
<PAGE>
PAINEWEBBER MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- --------- --------- ---------
COMMERCIAL PAPER@ (CONCLUDED)
<S> <C> <C> <C>
BROKER-DEALER--6.04%
$1,000 Goldman Sachs & Company ................. 04/07/98 5.470% $ 994,378
1,000 Merrill Lynch & Company, Incorporated ... 03/17/98 5.490 997,560
----------
1,991,938
----------
BUILDING MATERIALS--3.01%
1,000 Sherwin-Williams Company ................ 04/06/98 5.460 994,540
----------
BUSINESS SERVICES--3.32%
1,100 Block Financial Corporation ............. 03/27/98 5.480 1,095,646
----------
FINANCE-CONDUIT--4.52%
1,000 Compagnie Bancaire
USA Funding Corporation ................. 03/10/98 5.770 998,557
500 Svenska Handelsbanken 06/03/98 5.480 492,846
----------
1,491,403
----------
FINANCE-CONSUMER--5.44%
1,800 Household Finance Corporation ........... 03/12/98 5.480 1,796,986
----------
FINANCE-DIVERSIFIED--3.03%
1,000 Associates Corporation of North America . 03/09/98 5.470 998,784
----------
FINANCE-INDEPENDENT--4.53%
1,500 National Rural Utilities Cooperative
Finance Corporation ................... 03/26/98 5.680 1,494,083
----------
FINANCE-SUBSIDIARY--1.50%
500 Deutsche Bank Financial Incorporated .... 04/17/98 5.540 496,384
----------
FOOD, BEVERAGE & TOBACCO--3.00%
1,000 Coca Cola Company ....................... 05/07/98 5.430 989,894
----------
INSURANCE--14.51%
1,800 American General Corporation ............ 03/10/98 5.480 1,797,534
1,500 Prudential Funding Corporation .......... 03/05/98 5.480 1,499,087
1,500 USAA Capital Corporation ................ 04/06/98 5.490 1,491,765
----------
4,788,386
----------
MISCELLANEOUS--1.49%
500 Beta Finance Incorporated ............... 05/26/98 5.490 493,443
----------
Total Commercial Paper (cost--$25,423,002) .......... 25,423,002
----------
</TABLE>
4
<PAGE>
PAINEWEBBER MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- --------- --------- ---------
SHORT-TERM CORPORATE OBLIGATIONS--6.67%
<S> <C> <C> <C>
BROKER-DEALER--2.12%
$ 500 Bear Stearns Companies, Incorporated .... 03/03/98 5.699%* $ 500,000
200 Lehman Brothers Holdings Incorporated ... 11/10/98 6.590 200,837
----------
700,837
----------
COMPUTERS--1.52%
500 IBM Credit Corporation .................. 03/03/98 5.879* 500,000
----------
MISCELLANEOUS--3.03%
1,000 Beta Finance Incorporated ............... 11/16/98 5.870 1,000,000
----------
Total Short-Term Corporate Obligations
(cost--$2,200,837) ................................ 2,200,837
----------
Total Investments (cost--$33,773,690 which
approximates cost for federal income
tax purposes)--102.33% ............................ 33,773,690
Liabilities in excess of other assets--(2.33)% ...... (767,529)
----------
Net Assets (applicable to 12,981,964, 14,725,500
and 5,310,041 shares of Class A, Class B,
and Class C, respectively, each equivalent
to $1.00 per share)--100.00% ...................... $33,006,161
===========
</TABLE>
- ----------
* Variable rate securities-maturity date reflects earlier of reset date or
maturity date. The interest rates shown are the current rates as of February
28, 1998, and reset periodically.
@ Interest rates shown are discount rates at date of purchase.
Weighted average maturity -- 51 days
See accompanying notes to financial statements
5
<PAGE>
PAINEWEBBER MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE YEAR
ENDED
FEBRUARY 28, 1998
--------------
INVESTMENT INCOME:
Interest ...................................................... $ 2,305,518
-----------
EXPENSES:
Investment advisory and administration ........................ 202,449
Service fees--Class A ......................................... 38,643
Service and distribution fees--Class B ........................ 141,332
Service and distribution fees--Class C ........................ 46,409
Legal and audit ............................................... 70,201
State registration fees ....................................... 68,744
Reports and notices to shareholders ........................... 58,908
Transfer agency and service fees .............................. 45,745
Directors' fees ............................................... 10,500
Custody and accounting ........................................ 4,024
Other expenses ................................................ 9,475
-----------
696,430
-----------
NET INVESTMENT INCOME ......................................... 1,609,088
NET REALIZED LOSS FROM INVESTMENT TRANSACTIONS ................ (327)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $ 1,608,761
===========
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FEBRUARY 28,
--------------------------
1998 1997
----------- -----------
FROM OPERATIONS:
<S> <C> <C>
Net investment income .......................................................... $ 1,609,088 $ 1,613,777
Net realized gain (loss) from investment transactions .......................... (327) 7,764
Net increase in net assets resulting from operations ........................... 1,608,761 1,621,541
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A ................................................. (663,134) (631,332)
Net investment income--Class B ................................................. (713,255) (804,674)
Net investment income--Class C ................................................. (232,699) (177,771)
----------- -----------
(1,609,088) (1,613,777)
----------- -----------
NET DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ..................... (2,693,832) (20,388,584)
----------- -----------
Net decrease in net assets ..................................................... (2,694,159) (20,380,820)
NET ASSETS:
Beginning of year .............................................................. 35,700,320 56,081,140
----------- -----------
End of year .................................................................... $33,006,161 $35,700,320
=========== ===========
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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
interests 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 service and/or
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"), an asset management
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 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.
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.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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
February 28, 1998, the Fund owed Mitchell Hutchins $29,595 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 and/or 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 February 28, 1998 the Fund owed
Mitchell Hutchins $32,909 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 year ended February 28,
1998, it earned $89,557 in sales charges.
TRANSFER AGENCY SERVICE FEES
Prior to August 1, 1997, the Fund paid PaineWebber an annual fee of $4.00 per
active PaineWebber shareholder account, plus certain out-of-pocket expenses, for
certain services not provided by the Fund's transfer agent. For these services
for the period ended July 31, 1997, PaineWebber earned $5,548 in service fees.
Subsequent to July 31, 1997, 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 seven months ended February 28, 1998, PaineWebber received
from PFPC, Inc., not the Fund, approximately 47% of the total transfer agency
and related service fees collected by PFPC, Inc. from the Fund.
OTHER LIABILITIES
At February 28, 1998, the amounts payable for Fund shares repurchased and
dividends payable aggregated $743,725 and $83,246, respectively.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
-------------------------- ---------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
---------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................. 83,455,097 125,631,344 38,617,856 19,555,704 168,632,470 76,050,153
Shares repurchased .......... (87,554,268) (139,742,746) (38,164,045) (26,762,760) (168,978,832) (76,435,118)
Shares Converted from
Class B to Class A ........ 4,719,104 1,679,739 (4,719,104) (1,679,739) -- --
Dividends reinvested ........ 555,101 503,194 592,135 678,507 150,654 133,138
------------ ------------ ------------ ------------ ------------- ------------
Net increase (decrease)
in shares outstanding ..... 1,175,034 (11,928,469) (3,673,158) (8,208,288) (195,708) (251,827)
============ ============ ============ ============ ============= ============
</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 federal excise tax.
At February 28, 1998, the Fund had capital loss carryforwards of $11,343
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,
2006. 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.
9
<PAGE>
PAINEWEBBER MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------
FOR THE YEARS ENDED
--------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Net investment income ................................. 0.042 0.040 0.046 0.037 0.016
Dividends from net investment income .................. (0.042) (0.040) (0.046) (0.037) (0.016)
------ ------ ------ ------ ------
Net asset value, end of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total investment return(1) ............................ 4.33% 4.11% 4.69% 3.95% 1.64%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year (000's) ....................... $12,983 $11,808 $23,735 $21,042 $14,204
Expenses to average net assets ........................ 1.41% 1.42% 1.31% 1.06% 1.72%
Net investment income to average net assets ........... 4.29% 4.09% 4.68% 3.85% 1.70%
</TABLE>
- ----------
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each year reported, reinvestment of all dividends
and other distributions at net asset value on the payable dates, and a sale
at net asset value on the last day of each year reported. The figures do not
include sales charges; results for each class would be lower if sales
charges were included.
10
<PAGE>
PAINEWEBBER MONEY MARKET FUND
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------
FOR THE YEARS ENDED
--------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Net investment income ................................. 0.037 0.035 0.041 0.032 0.011
Dividends from net investment income .................. (0.037) (0.035) (0.041) (0.032) (0.011)
------ ------ ------ ------ ------
Net asset value, end of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total investment return(1) ............................ 3.81% 3.60% 4.18% 3.41% 1.12%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year (000's) ....................... $14,715 $18,389 $26,592 $39,123 $ 9,819
Expenses to average net assets ........................ 1.90% 1.90% 1.79% 1.55% 2.25%
Net investment income to average net assets ........... 3.78% 3.55% 4.17% 3.46% 1.16%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------
FOR THE YEARS ENDED
--------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Net investment income ................................. 0.037 0.034 0.041 0.033 0.012
Dividends from net investment income .................. (0.037) (0.034) (0.041) (0.033) (0.012)
------ ------ ------ ------ ------
Net asset value, end of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total investment return(1) ............................ 3.78% 3.50% 4.14% 3.44% 1.19%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year (000's) ....................... $ 5,308 $ 5,504 $ 5,754 $16,137 $ 9,430
Expenses to average net assets ........................ 1.95% 1.99% 1.79% 1.55% 2.14%
Net investment income to average net assets ........... 3.76% 3.47% 4.27% 3.35% 1.36%
</TABLE>
11
<PAGE>
PAINEWEBBER MONEY MARKET FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
PaineWebber Money Market Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
PaineWebber Money Market Fund (the "Fund", one of the portfolios constituting
PaineWebber Master Series, Inc.) at February 28, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 17, 1998
12
<PAGE>
PAINEWEBBER MONEY MARKET FUND
TAX INFORMATION
We are required by subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (February
28, 1998) as to the federal tax status of distributions received by stockholders
during such fiscal year. Accordingly, we are advising you that all distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. No portion of these distributions qualifies for the
corporate dividend received deduction available to corporate shareholders.
Distributions received by tax-exempt recipients (e.g., IRAs and Keoghs) need
not be reported as taxable income. Some retirement trusts (e.g., corporate,
Keogh and 403(b)(7) plans) may need this information for their annual
information reporting.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar 1998. The second notification, which will
reflect the amount to be used by calendar year taxpayers on their federal income
tax returns, will be made in conjunction with Form 1099 DIV and will be mailed
in January 1999. Shareholders are advised to consult their own tax advisers with
respect to the tax consequences of their investment in the Fund.
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DIRECTORS
E. Garrett Bewkes, Jr.
CHAIRMAN Meyer Feldberg
Mary C. Farrell
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
PRESIDENT VICE PRESIDENT AND TREASURER
Victoria E. Schonfeld Dennis McCauley
VICE PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell Susan P. Ryan
VICE PRESIDENT AND SECRETARY 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 CONNECTION WITH THE OFFERING OF SHARES OF THE
FUND UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
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PaineWebber
(C) 1998 PaineWebber Incorporated
Member SIPC
PaineWebber
Money Market
Fund
ANNUAL REPORT
February 28, 1998
