PAINEWEBBER MASTER SERIES INC, N-30D, 1999-05-04

PAINEWEBBER MASTER SERIES INC
N-30D, 1999-05-04

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<PAGE>

PAINEWEBBER BALANCED FUND
SEMIANNUAL REPORT

April 16, 1999
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, 1999.

MARKET REVIEW

The stock market, as measured by the S&P 500 Index (the "Index"), gained 30.27%
for the six-month period ended February 28, 1999. As the period began, the
market had just lost 14.45% in August 1998. Stock prices came back through the
period, but endured considerable volatility along the way. The Federal Reserve
reduced short-term interest rates to quell investor anxieties, and the market --
led by technology stocks -- rebounded with strong gains at the end of 1998.
Prices remained volatile, however, and the Index posted a much lower gain in
January 1999. Investors began to worry that inflation might heat up and cause
interest rates to rise again. Concerns about decreasing demand for PCs and a
potential for year 2000 disruptions hurt technology stock prices. The Index lost
3.11% in February, its first monthly loss since August.

OUTLOOK

The economy is sending mixed signals -- auto sales look strong but airline
traffic has been weak. Unemployment is down, but inflation does not seem to be
increasing. We'll be watching for a clear signal on interest rates from the
Federal Reserve, but right now it looks as if monetary policy will remain on
hold.

The stock market has remained volatile since period-end -- the Dow Jones
Industrial Average recently surpassed 10,000 but promptly fell back almost 180
points intraday. Technology stocks are still correcting, and no other sector has
emerged yet as a market leader. This could be good for the long-term health of
the market, in that it may encourage investors to diversify into other
capitalization segments or styles as market volatility subsides.

- --------------------------------------------------------------------------------
PAINEWEBBER
BALANCED FUND
PROFILE

[ARROW] GOAL:
High total return with low volatility

[ARROW] PORTFOLIO MANAGERS:
Kirby Barneby,
Asset Allocator;
Dennis McCauley,
Fixed Income Sector;
Mark Tincher,
Equity Sector;
Susan Ryan,
Money Market Sector;
Mitchell Hutchins Asset
Management Inc.

[ARROW] TOTAL NET ASSETS:
$255.9 million as of
February 28, 1999

[ARROW] DIVIDEND PAYMENTS:
Semiannually
- --------------------------------------------------------------------------------

PORTFOLIO REVIEW

PERFORMANCE

The Fund's total return consists of the change in net asset value with dividends
reinvested. For the six-month period ended February 28, 1999, without deducting
sales charges, Class A shares gained 14.94%, Class B shares gained 14.44%, Class
C shares gained 14.52% and Class Y shares gained 15.03%.

The Fund's total return may be lower for shareowners who purchased or redeemed
Fund shares during the period. After deducting the maximum applicable sales
charges, Class A shares

<PAGE>

SEMIANNUAL REPORT

gained 9.78%, Class B shares gained 9.44% and Class C shares gained 13.52%.
Class Y shares are not subject to sales charges.

HIGHLIGHTS

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 allocated according to the model, with a minimum of 25%
of portfolio assets in bonds or cash at all times.

At the beginning of the period, our monthly survey indicated an improvement in
the outlook for stocks and a decline in the outlook for bonds. The Fund thus
started the period by increasing its stock weighting to 65% and decreasing its
bond weighting to 30%, with 5% in cash. There were no changes to the Fund's
asset allocation through November. In late November our survey indicated a
decline in the expected return for bonds, so for December we reduced the Fund's
bond allocation to 20% and increased cash to 15%.

Stocks remained weighted at 65% through December. By month-end, however, a
moderate decrease in expectations for corporate profits caused a decline in the
outlook for stocks relative to bonds. Accordingly, the Fund reverted to a
neutral allocation for January 1999: 60% stocks, 35% bonds and 5% cash. In
February the outlook for bonds improved further relative to stocks, largely
because of rising stock prices. As a result, the Fund's asset allocation shifted
to 50% stocks, 45% bonds and 5% cash, and finished the period there.* Over the
course of the fiscal period, the Fund's asset allocation shifts generally added
to performance.

The Fund's performance during the period was helped by positions in consumer
cyclical stocks (14.4%*) and technology stocks (8.2%*). The ongoing convergence
of telecommunications and media/entertainment has created good performers among
our holdings, for example, MCI WorldCom (1.4%*). Technology stocks such as Cisco
Systems (1.0%*) also were strong performers.

- --------------------------------------------------------------------------------
PAINEWEBBER
BALANCED FUND

[PIE CHARTS]

Asset Allocations*

As of August 31, As of February 28,
1998 1999

Stocks 48.7% 45.6%

Bonds 42.6% 41.1%

Cash 8.7% 13.3%
- --------------------------------------------------------------------------------

TOP FIVE EQUITY SECTORS*

8/31/98 2/28/99
----------------------------------------------------------------
Financial Services 12.0% Consumer Cyclical 14.4%
Consumer Cyclical 11.1 Technology 8.2
Technology 4.8 Financial Services 7.7
Healthcare 4.8 Healthcare 5.9
Utilities 3.5 Utilities 4.3
----------------------------------------------------------------

*Portfolio weightings represent percentages of portfolio assets as of February
28, 1999 except where noted otherwise. The Fund's portfolio is actively managed
and its composition will vary over time.

2
<PAGE>

PAINEWEBBER BALANCED FUND
SEMIANNUAL REPORT

Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have.

For a Quarterly Review on PaineWebber Balanced Fund or another fund in the
PaineWebber Family of Funds(1), please contact your Financial Advisor.

Sincerely,

/s/ Margo Alexander
MARGO ALEXANDER
Chairman and Chief Executive Officer
Mitchell Hutchins Asset Management Inc.

/s/ T. Kirkham Barneby
T. KIRKHAM BARNEBY
Managing Director and
Chief Investment Officer -- Quantitative Investments
Mitchell Hutchins Asset Management Inc.

/s/ Dennis L. McCauley
DENNIS L. McCAULEY
Managing Director and
Chief Investment Officer -- Fixed Income
Mitchell Hutchins Asset Management Inc.

/s/ Mark A. Tincher
MARK A. TINCHER
Managing Director and
Chief Investment Officer -- Equities
Mitchell Hutchins Asset Management Inc.

/s/ Susan P. Ryan
SUSAN P. RYAN
Senior Vice President
Mitchell Hutchins Asset Management Inc.
PORTFOLIO REVIEW

(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, 1999, and reflects
our views at the time of its writing. Of course, these views may change in
response to changing circumstances. We encourage you to consult your
Financial Advisor regarding your personal investment program.

3
<PAGE>

PAINEWEBBER BALANCED FUND

PERFORMANCE RESULTS (unaudited)

<TABLE>
<CAPTION>
Net Asset Value Total Return(1)
----------------------------------------- -----------------------------------
12 Months 6 months
02/28/99 08/31/98 02/28/98 Ended 02/28/99 Ended 02/28/99
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.57 $11.27 $12.15 7.42% 14.94%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 11.81 11.48 12.39 6.53 14.44
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 11.58 11.28 12.18 6.62 14.52
</TABLE>

Performance Summary Class A Shares

<TABLE>
<CAPTION>
Net Asset Value
----------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $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
- ---------------------------------------------------------------------------------------------------------------------------
1998 11.38 12.00 1.2252 0.2196 18.95
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99-02/28/99 12.00 11.57 -- -- (3.58)
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $6.5308 $2.0545
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 02/28/99: 146.75%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

Performance Summary Class B Shares

<TABLE>
<CAPTION>
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
- ---------------------------------------------------------------------------------------------------------------------------
1998 11.61 12.26 1.2252 0.1331 18.02
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99-02/28/99 12.26 11.81 -- -- (3.67)
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $6.8302 $3.6811
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 02/28/99: 221.38%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

Performance Summary Class C Shares

(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included. Total return
for periods of less than one year has not been annualized.

The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.

4
<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 03/31/99 4.71% 3.89% 4.02% 0.00% (0.76)% 3.09%
- ---------------------------------------------------------------------------------------------------------------------------
Five Years Ended 03/31/99 13.96 13.12 13.12 12.90 12.88 13.12
- ---------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 03/31/99 N/A 11.25 N/A N/A 11.25 N/A
- ---------------------------------------------------------------------------------------------------------------------------
Commencement of Operations
Through 03/31/99+ 12.44 10.07 11.80 11.77 10.07 11.80
- ---------------------------------------------------------------------------------------------------------------------------
</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 investors, including
participants in certain investment programs that are sponsored by
PaineWebber and that may invest in PaineWebber mutual funds. For the six
months ended February 28, 1999 and since inception, March 26, 1998 through
February 28, 1999, Class Y shares had a total return of 15.03% and 4.21%,
respectively. For the year ended March 31, 1999 and since inception
through March 31, 1999, Class Y shares have an average annual total return
of 5.02% and 4.93%, respectively. Class Y shares do not have initial or
contingent deferred sales charges or ongoing distribution and service
fees.

5
<PAGE>

PAINEWEBBER BALANCED FUND

PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1999 (unaudited)

Number of
Shares Value
- --------- -----

COMMON STOCKS--48.95%

Airlines--0.38%
20,300 US Airways Group, Inc.* ...................... $ 961,713
----------

Apparel, Retail--0.88%
78,800 TJX Companies, Inc. .......................... 2,250,725
----------

Apparel, Textiles--0.30%
30,500 Westpoint Stevens Inc.* ...................... 777,750
----------

Banks--1.60%
9,600 Bank One Corp. ............................... 516,000
38,000 The Chase Manhattan Corp. .................... 3,025,750
8,000 Mellon Bank Corp. ............................ 541,000
----------
4,082,750
----------

Computer Hardware--3.61%
26,700 Cisco Systems Inc.* .......................... 2,611,594
53,000 Compaq Computer Corp. ........................ 1,868,250
13,500 Dell Computer Corp.(1)* ...................... 1,081,687
33,700 Hewlett-Packard Co. .......................... 2,238,944
8,400 International Business Machines .............. 1,428,000
----------
9,228,475
----------

Computer Software--2.42%
16,100 BMC Software, Inc.* .......................... 658,088
45,300 Cadence Design Systems, Inc.* ................ 1,090,031
18,400 Compuware Corp.* ............................. 1,029,250
29,800 Network Associates Inc.* ..................... 1,400,600
36,500 Sterling Software Inc.* ...................... 930,750
36,500 Unisys Corp.* ................................ 1,088,156
----------
6,196,875
----------

Consumer Durables--1.10%
27,700 Furniture Brands International Inc.* ......... 592,088
39,800 Maytag Corp. ................................. 2,231,287
----------
2,823,375
----------

Defense/ Aerospace--1.01%
21,500 Allied-Signal, Inc. .......................... 889,562
19,000 Lockheed Martin Corp. ........................ 716,063
20,400 Newport News Shipbuilding Inc. ............... 590,325
10,200 Precision Castparts Corp. .................... 378,675
----------
2,574,625
----------

Diversified Retail--2.61%
44,300 Dayton Hudson Corp. .......................... 2,771,519
19,000 Family Dollar Stores Inc. .................... 380,000
36,600 Federated Department Stores, Inc.* ........... 1,393,087
33,300 Fred Meyer Inc.* ............................. 2,139,525
----------
6,684,131
----------

Number of
Shares Value
- --------- -----

Drugs & Medicine--5.31%
25,350 Amerisource Health Corp.* .................... $1,891,744
25,300 Biogen, Inc.* ................................ 2,431,962
14,600 Bristol-Myers Squibb Co. ..................... 1,838,687
17,033 Cardinal Health, Inc. ........................ 1,229,570
15,300 Elan Corp. PLC, ADR(1)* ...................... 1,173,319
6,400 Pharmacia & UpJohn, Inc. ADR ................. 348,800
27,500 Schering-Plough Corp. ........................ 1,538,281
18,300 Warner Lambert Co. ........................... 1,263,844
38,900 Watson Pharmaceuticals, Inc.* ................ 1,879,356
----------
13,595,563
----------

Electric Utilities--1.65%
25,700 Carolina Power & Light Co. ................... 1,024,787
13,600 Consolidated Edison Co. of New York Inc. ..... 635,800
16,100 Duke Energy Co. .............................. 915,688
19,000 Energy East Corp. ............................ 1,018,875
18,200 Utilicorp United Inc. ........................ 625,625
----------
4,220,775
----------

Electrical Equipment--0.17%
14,000 SCI Systems Inc.* ............................ 433,125
----------

Electrical Power--0.43%
29,900 AES Corp. .................................... 1,111,906
----------

Energy Reserves & Production--0.49%
15,000 Mobil Corp. .................................. 1,247,813
----------

Environmental Services--0.62%
26,100 Allied Waste Industries Inc.* ................ 508,950
22,000 Waste Management, Inc. ....................... 1,075,250
----------
1,584,200
----------

Financial Services--0.49%
42,800 C.I.T. Group Inc. ............................ 1,262,600
----------

Forest Products, Paper--0.55%
36,700 Fort James Corp. ............................. 1,096,412
17,100 United Stationers Inc.* ...................... 313,144
----------
1,409,556
----------

GAS UTILITY--0.25%
12,650 Columbia Energy Group ........................ 638,825
----------

Industrial Parts--3.98%
10,400 American Standard Companies, Inc.* ........... 349,050
32,700 Ingersoll Rand Co. ........................... 1,553,250
55,900 Lucasvarity PLC, ADR ......................... 2,532,968
54,300 Mettler Toledo International Inc.* ........... 1,388,044
20,000 SPX Corp.* ................................... 1,142,500
26,000 United Technologies Corp. .................... 3,220,750
----------
10,186,562
----------

6
<PAGE>

PAINEWEBBER BALANCED FUND

Number of
Shares Value
- --------- -----

COMMON STOCKS--(concluded)

Industrial Services/Supplies--1.02%
7,000 Delphi Automotive Systems Corp. .............. $ 129,062
33,300 Tyco International Ltd. ...................... 2,478,769
----------
2,607,831
----------

Information & Computer Services--0.70%
14,600 Computer Sciences Corp.* ..................... 972,725
17,100 Valassis Communications Inc.* ................ 820,800
----------
1,793,525
----------

Leisure--0.80%
30,900 Eastman Kodak Co. ............................ 2,045,194
----------

Life Insurance--1.95%
27,500 American General Corp. ....................... 2,014,375
22,800 Conseco Inc. ................................. 682,575
25,900 Protective Life Corp. ........................ 893,550
30,700 Reliastar Financial Corp. .................... 1,393,012
----------
4,983,512
----------

Long Distance & Phone Companies--2.75%
9,600 AT&T Corp(1) ................................. 788,400
31,800 BellSouth Corp. .............................. 1,470,750
15,300 GTE Corp. .................................... 992,587
45,900 MCI WorldCom Inc.* ........................... 3,786,750
----------
7,038,487
----------

Media--0.48%
7,800 Comcast Corp. Class A ........................ 553,313
9,100 Fox Entertainment Group Inc.* ................ 236,600
18,400 Infinity Broadcasting Corp.* ................. 437,000
----------
1,226,913
----------

Medical Products--0.34%
34,800 St. Jude Medical, Inc.* ...................... 874,350
----------

MEDICAL PROVIDERS--0.74%
32,000 Tenet Healthcare Corp.* ...................... 630,000
16,100 Wellpoint Health Networks Inc.* .............. 1,269,888
----------
1,899,888
----------

Mining & Metals--0.42%
21,000 Martin Marietta Materials, Inc. .............. 1,077,563
----------

Motor Vehicles--0.92%
11,100 Borg Warner Automotive, Inc. ................. 483,544
31,500 Ford Motor Co. ............................... 1,868,343
----------
2,351,887
----------

Oil Refining--1.38%
30,513 BP Amoco PLC, ADR ............................ 2,593,605
29,600 Coastal Corp. ................................ 947,200
----------
3,540,805
----------

Number of
Shares Value
- --------- -----

Other Insurance--3.25%
38,400 ACE Ltd. ..................................... $1,046,400
30,900 Allstate Corp. ............................... 1,158,750
24,200 Ambac Financial Group Inc. ................... 1,355,200
11,010 American International Group Inc. ............ 1,254,452
8,200 Loews Corp. .................................. 641,138
22,500 MBIA, Inc. ................................... 1,385,156
17,600 Travelers Property Casualty Corp. ............ 667,700
13,000 Xl Capital Ltd ............................... 796,250
----------
8,305,046
----------

Real Property--0.23%
18,500 Lafarge Corp. ................................ 589,688
----------

Restaurants--0.61%
26,500 Brinker International Inc.* .................. 766,844
30,020 CKE Restaurants, Inc. ........................ 797,406
-----------
1,564,250
-----------

Securities & Asset Management--0.67%
18,800 Morgan Stanley Dean Witter & Co. ............. 1,701,400
-----------

Semiconductor--2.15%
40,800 Applied Materials, Inc.* ..................... 2,269,500
18,800 Intel Corp. .................................. 2,254,825
11,200 Uniphase Corp.* .............................. 987,000
-----------
5,511,325
-----------

Specialty Retail--2.00%
50,200 Office Depot Inc.* ........................... 1,791,512
29,350 Staples, Inc.* ............................... 863,073
51,400 Williams Sonoma Inc.* ........................ 1,757,238
21,400 Zale Corp.* .................................. 708,875
-----------
5,120,698
-----------

Thrift--0.47%
17,600 Dime Bancorp, Inc. ........................... 435,600
24,800 Greenpoint Financial Corp. ................... 761,050
-----------
1,196,650
-----------

Tobacco--0.22%
14,300 Philip Morris Companies, Inc. ................ 559,488
-----------

Total Common Stocks (cost--$102,027,321) ................. 125,259,844
-----------

PREFERRED STOCK--0.78%
Industrial Parts--0.78%
34,000 Federal Mogul Financing Trust+
(cost--$1,700,000) ........................... 1,984,750
-----------

7
<PAGE>

PAINEWEBBER BALANCED FUND

<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- -------- -----
<S> <C> <C> <C>
CORPORATE BONDS--10.03%
Bank--0.22%
$ 590 Norwest Financial Inc. ....................... 02/03/09 5.625% $ 563,126
-----------

Beverages & Entertainment--0.46%
1,180 Seagram Joseph E & Sons Inc. ................. 12/15/05 6.625 1,175,022
-----------

Cable--0.72%
1,800 TCI Communications Inc. ...................... 05/01/03 6.375 1,832,677
-----------

Financial Services--3.22%
1,915 Associates Corporation NA .................... 11/01/08 6.250 1,912,242
1,500 AT&T Capital Corp. ........................... 01/16/01 6.875 1,506,513
2,400 Ford Motor Credit Co. ........................ 01/14/03 6.000 2,397,171
2,430 Household International Netherlands BV ....... 12/01/03 6.200 2,431,587
-----------
8,247,513
-----------

Industrial Services/Supplies--0.38%
965 Tyco International Group SA .................. 06/15/01 6.125 967,716
-----------

Media--0.26%
620 News America Holdings Inc. ................... 10/17/96 8.250 676,906
-----------

Insurance--1.87%
2,000 American Re Corp. ............................ 12/15/26 7.450 2,168,724
700 Hartford Financial Services Group Inc. ....... 11/01/08 6.375 694,618
800 Loews Corp. .................................. 12/15/06 6.750 815,527
1,000 Lumbermans Mutual Casualty Co.+ .............. 07/01/26 9.150 1,124,143
-----------
4,803,012
-----------

SECURITIES & ASSET MANAGEMENT--0.68%
1,775 Morgan Stanley Group Inc. .................... 01/20/04 5.625 1,736,745
-----------

Tobacco--0.78%
1,850 Philip Morris Companies Inc. ................. 07/01/08 to 01/15/27 7.650 to 7.750 1,988,553
-----------

Yankee--1.44%
995 Canadian Imperial Bank Commerce .............. 08/01/00 6.200 1,001,619
2,655 Sony Corp. ................................... 03/04/03 6.125 2,677,735
-----------
3,679,354
-----------

Total Corporate Bonds (cost--$25,731,086) ................ 25,670,624
-----------
</TABLE>

8
<PAGE>

PAINEWEBBER BALANCED FUND

<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- -------- -----
<S> <C> <C> <C>
CONVERTIBLE BONDS--0.85%
Medical Providers--0.35%
$ 1,000 Omnicare Inc.+ ............................... 12/01/07 5.000% $ 900,000
----------

Specialty Retail--0.50%
500 Home Depot Inc. .............................. 10/01/01 3.250 1,287,500
----------

Total Convertible Bonds (cost--$1,500,000) ............... 2,187,500
----------

U.S. GOVERNMENT AND AGENCY OBLIGATIONS--22.14%
45 Federal Home Loan Mortgage Corporation Global 03/18/08 6.220 44,886
7,170 Federal Home Loan Mortgage Corporation
Reference Note ............................. 07/15/03 to 10/15/08 5.125 to 5.750 7,070,587
1,670 Federal National Mortgage Association MTN .... 11/21/07 6.550 1,675,437
5,630 Federal National Mortgage Association
Benchmark Note(1) .......................... 01/15/09 5.250 5,388,614
2,570 International Bank For Reconstruction &
Development ................................ 03/17/03 5.625 2,562,657
19,706 U.S. Treasury Bonds++ ........................ 08/15/13 to 11/15/27 6.125 to 12.000 25,848,690
5,958 U.S. Treasury Inflation Index Notes .......... 07/15/02 3.625 5,922,196
7,984 U.S. Treasury Notes(1) ....................... 04/30/02 to 05/15/08 5.625 to 6.625 8,146,370
----------
Total U.S. Government and Agency Obligations
(cost--$58,124,395) .................................... 56,659,437
----------

MORTGAGE BACKED SECURITIES--11.78%
Collateralized Mortgage Obligation--1.39
563 Amresco Commercial Mortgage Funding I Corp.,
Series 1997-C1,Class A1 .................... 06/17/29 6.730 573,639
326 CS First Boston Mortgage Securities Corp.,
Series 1997-2, Class A+ .................... 06/01/20 7.500 326,976
204 FDIC REMIC, Series 1994-C1, Class 2A2 ........ 09/25/25 7.850 206,008
306 FDIC REMIC, Series 1996-C1, Class 1A ......... 05/25/26 6.750 304,662
254 FNMA REMIC, Series 1996-M6, Class E .......... 09/17/19 7.750 253,865
513 GMAC Commercial Mortgage Security,
Series 1996-C1, Class A2A .................. 09/15/03 6.790 522,597
555 Merrill Lynch Mortgage Investments Inc.,
Series 1996-C1, Class A1 ................... 04/25/28 7.150 564,767
204 Morgan Stanley Capital I Inc.,
Series 1997-C1, Class A1A .................. 02/15/20 6.850 205,254
571 Morgan Stanley Capital I Inc.,
Series 1997-WF1, Class A1+ ................. 10/15/06 6.830 582,676
----------
3,540,444
----------

Federal National Mortgage Association--9.25%
580 FNMA ......................................... 09/01/28 6.500 576,414
1,033 FNMA ......................................... 01/01/26 to 02/01/26 7.500 1,062,872
18,865 FNMA TBA ..................................... TBA 6.000 18,313,595
3,715 FNMA TBA ..................................... TBA 6.500 3,732,044
----------
23,684,925
----------

Government National Mortgage Association--1.14%
2,728 GNMA ......................................... 11/15/17 8.500 2,918,622
----------
Total Mortgage Backed Securities (cost--$30,282,387) ..... 30,143,991
----------
</TABLE>

9
<PAGE>

PAINEWEBBER BALANCED FUND

<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- -------- -----
<S> <C> <C> <C>
REPURCHASE AGREEMENTS--14.44%
$ 10,937 Repurchase Agreement dated 2/26/99 with SG
Cowen Securities, collateralized by $10,402,000
U.S. Treasury Bonds, 6.125% due 11/15/27
(value--$11,156,145); proceeds: $10,941,329 ... 03/01/99 4.750% $ 10,937,000
13,000 Repurchase Agreement dated 2/26/99 with
Dresdner Kleinwort Benson NA LLC,
collateralized by $12,737,000 U.S. Treasury
Notes, 5.875% due 11/15/05 (value--
$13,260,363); proceeds: $13,005,124 ........... 03/01/99 4.730 13,000,000
13,000 Repurchase Agreement dated 2/26/99 with
Warburg Dillon Reed LLC, collateralized
by $11,800,000 U.S. Treasury Bonds, 6.750%
due 8/15/26 (value--$13,260,250);
proceeds: $13,005,135 ......................... 03/01/99 4.740 13,000,000
------------
Total Repurchase Agreements (cost--$36,937,000) .......... 36,937,000
------------
Total Investments (cost--$256,302,189)--108.97% .......... 278,843,146
Liabilities in excess of other assets--(8.97)% ........... (22,961,008)
------------
Net Assets--100.00% $255,882,138
============
<CAPTION>
(Unrealized)
Number of Expiration Appreciation/
Contracts Strike Price Date (Depreciation)
- --------- ------------ ---- --------------

WRITTEN OPTIONS
<S> <C> <C> <C>
60 U.S. Treasury Bonds Futures Calls ............ $134 June 1999 $ 16,515
60 U.S. Treasury Bonds Futures Calls ............ 120 June 1999 (65,049)
--------
$(48,534)
========
</TABLE>

- ----------
* Non-Income producing security.

+ Security exempt from registration under 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.

++ Security, or a portion thereof, was pledged as collateral for written
options transactions.

ADR American Depository Receipt.

MTN Medium Term Note.

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.

REMIC Real Estate Mortgage Investment Conduit.

(1) Security, or portion thereof, was on loan at February 28, 1999.

See accompanying notes to financial statements

10
<PAGE>

PAINEWEBBER BALANCED FUND

STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1999 (unaudited)

<TABLE>
<CAPTION>
Assets

<S> <C>
Investments in securities, at value (cost--$256,302,189) ....................... $278,843,146
Investment of cash collateral for securities loaned (cost--$16,620,600) ........ 16,620,600
Receivable for investments sold ................................................ 398,230
Dividends and interest receivable .............................................. 1,163,763
Receivable for fund shares sold ................................................ 207,179
Other assets ................................................................... 15,037
------------
Total assets ................................................................... 297,247,955
------------

Liabilities

Collateral for securities loaned ............................................... 16,620,600
Payable for investments purchased .............................................. 23,849,440
Payable for fund shares repurchased ............................................ 379,613
Payable to affiliate ........................................................... 229,087
Due to custodian ............................................................... 14,927
Outstanding options written (premium received $59,280) ......................... 107,814
Accrued expenses and other liabilities ......................................... 164,336
------------
Total liabilities .............................................................. 41,365,817
------------

Net Assets

Capital Stock--$0.001 par value ................................................ 213,376,844
Undistributed net investment income ............................................ 646,545
Accumulated net realized gains from investment transactions .................... 19,366,326
Net unrealized appreciation of investments and options ......................... 22,492,423
------------
Net assets ..................................................................... $255,882,138
============

Class A:

Net assets ..................................................................... $203,650,434
Shares outstanding ............................................................. 17,601,375
Net asset value and redemption value per share ................................. $ 11.57

Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) ..................................................... $ 12.12

Class B:

Net assets ..................................................................... $31,788,785
Shares outstanding ............................................................. 2,691,189
Net asset value and offering price per share .................................. $ 11.81

Class C:

Net assets ..................................................................... $20,072,408
Shares outstanding ............................................................. 1,733,304
Net asset value and offering price per share ................................... $ 11.58

Class Y:

Net assets ..................................................................... $ 370,511
Shares outstanding ............................................................. 32,043
Net asset value and offering price per share ................................... $ 11.56
</TABLE>

See accompanying notes to financial statements

11
<PAGE>

PAINEWEBBER BALANCED FUND

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
For the Six
Months Ended
February 28, 1999
(unaudited)
-----------------
<S> <C>
Investment income:

Interest ........................................................................... $2,686,142
Dividends .......................................................................... 820,433
----------
3,506,575
----------

Expenses:

Investment advisory and administration ............................................. 919,112
Service fees--Class A .............................................................. 246,840
Service and distribution fees--Class B ............................................. 149,726
Service and distribution fees--Class C ............................................. 87,073
Transfer agency and service ........................................................ 82,624
Custody and accounting ............................................................. 75,391
Legal and audit .................................................................... 43,180
Reports and notices to shareholders ................................................ 35,934
State registration ................................................................. 29,874
Directors fees and expenses ........................................................ 6,695
Other expenses ..................................................................... 1,026
-----------
1,677,475
-----------
Net investment income .............................................................. 1,829,100
-----------

Realized and unrealized gains (losses) from investment activities:
Net realized gains from:
Investment transactions .......................................................... 16,695,098
Options and futures transactions ................................................. 48,749
Net change in unrealized appreciation/depreciation of:
Investments ...................................................................... 14,735,612
Options .......................................................................... (31,047)
-----------

Net realized and unrealized gains from investment activities ....................... 31,448,412
-----------

Net increase in net assets resulting from operations ............................... $33,277,512
===========
</TABLE>

See accompanying notes to financial statements

12
<PAGE>

PAINEWEBBER BALANCED FUND

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
February 28, 1999 Ended August 31,
(unaudited) 1998
----------------- ----------------

From operations:

<S> <C> <C>
Net investment income ....................................................... $ 1,829,100 $ 4,003,592
Net realized gains from investment, option and futures transactions ......... 16,743,847 33,245,475
Net change in unrealized appreciation/depreciation of investments and options 14,704,565 (29,081,375)
------------- -------------
Net increase in net assets resulting from operations ........................ 33,277,512 8,167,692
------------- -------------

Dividends and distributions to shareholders from:

Net investment income--Class A .............................................. (2,021,399) (3,302,099)
Net investment income--Class B .............................................. (177,153) (237,412)
Net investment income--Class C .............................................. (125,018) (126,665)
Net investment income--Class Y .............................................. (2,930) (803)
Net realized gains from investment transactions--Class A .................... (19,640,107) (21,634,316)
Net realized gains from investment transactions--Class B .................... (2,933,076) (2,516,998)
Net realized gains from investment transactions--Class C .................... (1,816,995) (1,124,576)
Net realized gains from investment transactions--Class Y .................... (24,553) --
------------- -------------
Total dividends and distributions to shareholders ........................... (26,741,231) (28,942,869)
------------- -------------

From capital stock transactions:

Net proceeds from sale of shares ............................................ 21,069,754 44,392,815
Cost of shares repurchased .................................................. (19,565,526) (34,290,423)
Proceeds from dividends reinvested .......................................... 24,298,223 26,308,838
------------- -------------
Net increase in net assets from capital stock transactions .................. 25,802,451 36,411,230
------------- -------------
Net increase in net assets .................................................. 32,338,732 15,636,053

Net assets:

Beginning of period ......................................................... 223,543,406 207,907,353
------------- -------------
End of period (including undistributed net investment income
of $646,545 and $1,143,945 respectively) .................................. $ 255,882,138 $ 223,543,406
============= =============
</TABLE>

See accompanying notes to financial statements

13
<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 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.

The Fund currently offers Class A, Class B, Class C and Class Y shares. Each
class represents interests in the same assets of the Fund, and the classes are
identical except for differences in their sales charge structures, ongoing
service and distribution charges and 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 service
and/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 valued on
the exchange designated by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned asset management subsidiary of PaineWebber
Incorporated ("PaineWebber"), and investment adviser, administrator, and
distributor of the Fund, as the primary market. 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, securites 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.

14
<PAGE>

NOTES TO FINANCIAL STATEMENTS (unaudited)

Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to
interest income and the identified cost of investments.

Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.

Futures Contracts--Upon entering into a financial futures contract, the Fund
is required to pledge to a broker an amount of cash and/or U.S. Government
securities equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation margin,"
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying financial futures contracts. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss until the financial futures contract is closed, at which
time the net gain or loss is reclassified to realized.

Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Fund primarily uses financial futures contracts for hedging or to manage the
average duration of the Fund's portfolio. However, imperfect correlations
between futures contracts and the portfolio securities being hedged, or market
disruptions, do not normally permit full control of these risks at all times.

Option Writing--When the 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.

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.

15
<PAGE>

NOTES TO FINANCIAL STATEMENTS (unaudited)

WRITTEN OPTION ACTIVITY

Transactions in options written for the six months ended February 28, 1999
were as follows:

Number of
Options Premiums
------- --------
<S> <C> <C>
Options outstanding at August 31, 1998 ............ 50 $ 12,982
Options written ................................... 426 224,507
Options terminated in closing purchase transactions (293) (146,913)
Options expired ................................... (63) (31,296)
--------- ---------
Options outstanding at February 28, 1999 .......... 120 $ 59,280
========= =========
</TABLE>

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:

Annual
Average Daily Net Assets 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, 1999, the Fund owed Mitchell Hutchins $149,117 in
investment advisory and administration fees.

For the six months ended February 28, 1999, the Fund paid $2,166 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 the 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, 1999, the Fund owed Mitchell Hutchins
$79,491 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, 1999, it received $86,048 in sales charges.

SECURITY LENDING

The Fund may lend securities up to 33 1/3% of its total assets to qualified
institutions. The loans are secured at all times by cash or U.S. government
securities in an amount at least equal to the market value of the securities
loaned, plus accrued

16
<PAGE>

NOTES TO FINANCIAL STATEMENTS (unaudited)

interest and dividends, 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 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, who received $4,079 as
compensation from the Fund for the six months ended February 28, 1999. At
February 28, 1999, the Fund owed PaineWebber $479 in security lending fees. For
the six months ended February 28, 1999 the Fund earned $12,220 from security
lending transactions.

At February 28, 1999, the Fund's custodian held cash having an aggregate
value of $16,620,600 as collateral for portfolio securities loaned having a
market value of $15,720,451 which was invested as follows:

<TABLE>
<CAPTION>
Number of
Shares Value
------ -----

<S> <C> <C>
12,093,968 Janus Money Market Institutional Shares ...................................... $12,093,968
3,526,632 Liquid Assets Portfolio ...................................................... 3,526,632
1,000,000 MH Private Money Market Fund LLC ............................................. 1,000,000
-----------

Total investments of cash collateral for securities loaned (cost--$16,620,600) $16,620,600
===========
</TABLE>

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 sales or purchases 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, 1999, the Fund did not borrow under the
Facility.

TRANSFER AGENCY RELATED SERVICE FEES

PaineWebber provides certain 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, 1999, PaineWebber received approximately 58%
of the total service fees collected by PFPC, Inc.

INVESTMENTS IN SECURITIES

For federal income tax purposes, the cost of securities owned at February 28,
1999 was substantially the same as the cost of securities for financial
statement purposes.

At February 28, 1999, the components of net unrealized appreciation of
investments were as follows:

<TABLE>

<S> <C>
Gross appreciation (investments having an excess of value over cost) ......... $ 27,891,591
Gross depreciation (investments having an excess of cost over value) ......... (5,350,634)
------------
Net unrealized appreciation of investments ................................... $ 22,540,957
============
</TABLE>

For the six months ended February 28, 1999, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were
$290,587,126 and $289,187,435, respectively.

17
<PAGE>

NOTES TO FINANCIAL STATEMENTS (unaudited)

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>
For the Six Months Ended Class A Class B Class C Class Y
----------------- ---------------- ---------------- -----------------
February 28, 1999: Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold .......... 672,372 $ 8,003,510 577,415 $6,956,140 495,483 $5,917,270 16,170 $192,834
Shares repurchased ... (1,224,615) (14,597,450) (206,904) (2,524,883) (208,325) (2,417,150) (2,078) (26,043)
Dividends reinvested . 1,754,060 19,820,876 234,376 2,709,392 153,616 1,740,472 2,434 27,483
Shares converted from
Class B to Class A . 220,266 2,621,064 (216,176) (2,621,064) -- -- -- --
--------- ----------- ------- ---------- ------- ---------- ------ --------

Net increase ......... 1,422,083 $15,848,000 388,711 $4,519,585 440,774 $5,240,592 16,526 $194,274
========= =========== ======= ========== ======= ========== ====== ========
<CAPTION>
For the Six Months Ended Class A Class B Class C Class Y
----------------- ---------------- ---------------- -----------------
August 31, 1998: Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold .......... 1,263,207 $15,579,179 1,298,840 $16,390,056 980,331 $12,228,828 15,473 $194,752
Shares repurchased ... (1,907,300) (23,733,561) (354,528) (4,507,312) (486,939) (6,049,297) (21) (253)
Dividends reinvested . 2,052,585 22,750,251 215,129 2,429,905 101,409 1,127,879 65 803
Shares converted from
Class B to Class A . 661,504 8,252,506 (650,161) (8,252,506) -- -- -- --
--------- ----------- ------- ----------- ------- ----------- ------ --------

Net increase ......... 2,069,996 $22,848,375 509,280 $ 6,060,143 594,801 $ 7,307,410 15,517 $195,302
========= =========== ======= =========== ======= =========== ====== ========
</TABLE>

18
<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
Six For the
Months For the Six For the For the
Ended Years Months Year Years
February 28, Ended Ended Ended Ended
1999 August 31, August 31, February 29, February 28,
--------------- --------------
(unaudited) 1998 1997 1996 (2) 1996 1995 1994
----------- ---- ---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 11.27 $ 12.50 $ 10.27 $ 10.85 $ 9.80 $ 12.04 $ 11.54
--------- --------- --------- --------- --------- --------- ---------
Net investment income .................... 0.10++ 0.23++ 0.23++ 0.12++ 0.27++ 0.26 0.22
Net realized and unrealized gains (losses)
from investments, futures and options . 1.56++ 0.31++ 2.79++ (0.12)++ 1.84++ (1.07) 1.31
--------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations ............................. 1.66 0.54 3.02 0.00 2.11 (0.81) 1.53
--------- --------- --------- --------- --------- --------- ---------
Dividends from net investment income ..... (0.13) (0.22) (0.24) (0.10) (0.31) (0.23) (0.25)
Distributions from net realized gains from
investment transactions ................ (1.23) (1.55) (0.55) (0.48) (0.75) (1.20) (0.78
--------- --------- --------- --------- --------- --------- ---------
Total dividends and distributions to
shareholders ........................... (1.36) (1.77) (0.79) (0.58) (1.06) (1.43) (1.03)

Net asset value, end of period ........... $ 11.57 $ 11.27 $ 12.50 $ 10.27 $ 10.85 $ 9.80 $ 12.04
========= ========= ========= ========= ========= ========= =========
Total investment return (1) .............. 14.94% 4.69% 30.67% 0.03% 22.08% (6.02)% 13.57%
========= ========= ========= ========= ========= ========= =========

Ratios/supplemental data:
Net assets, end of period (000's) ........ $ 203,650 $182,362 $176,403 $157,525 $171,609 $174,761 $216,492
Expenses to average net assets ........... 1.22%* 1.26% 1.46% 1.34%* 1.29% 1.26% 1.21%
Net investment income to average
net assets ............................. 1.64%* 1.88% 2.02% 2.19%* 2.55% 2.41% 1.74%
Portfolio turnover rate .................. 126% 190% 188% 103% 188% 107% 69%
</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) Fiscal year changed to August 31.

19
<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 B
-----------------------------------------------------------------------------------------
For the
Six For the
Months For the Six For the For the
Ended Years Months Year Years
February 28, Ended Ended Ended Ended
1999 August 31, August 31, February 29, February 28,
----------------- --------------
(unaudited) 1998 1997 1996 (2) 1996 1995 1994
----------- ---- ---- -------- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.48 $12.70 $10.42 $11.00 $9.90 $12.10 $11.56
------ ------ ------ ------ ----- ------ ------
Net investment income ............... 0.05++ 0.14++ 0.14++ 0.08++ 0.19++ 0.44 0.26
Net realized and unrealized gains
(losses) from investments,
futures and options ............... 1.58++ 0.31++ 2.84++ (0.11)++ 1.86++ (1.32) 1.18
------ ------ ------ ------ ----- ------ ------
Net increase (decrease) from
investment operations ............. 1.63 0.45 2.98 (0.03) 2.05 (0.88) 1.44
------ ------ ------ ------ ----- ------ ------
Dividends from net
investment income ................. (0.07) (0.12) (0.15) (0.07) (0.20) (0.12) (0.12)
Distributions from net realized gains
from investment transactions ...... (1.23) (1.55) (0.55) (0.48) (0.75) (1.20) (0.78)
------ ------ ------ ------ ----- ------ ------
Total dividends and distributions
to shareholders ................... (1.30) (1.67) (0.70) (0.55) (0.95) (1.32) (0.90)
------ ------ ------ ------ ----- ------ ------
Net asset value, end of period ...... $11.81 $11.48 $12.70 $10.42 $11.00 $ 9.90 $12.10
====== ====== ====== ====== ====== ====== ======
Total investment return (1) ......... 14.44% 3.87% 29.70% (0.30)% 21.20% (6.68)% 12.62%
====== ====== ====== ====== ====== ====== ======

Ratios/supplemental data:
Net assets, end of period (000's) ... $31,789 $26,425 $22,768 $22,307 $26,627 $37,104 $83,178
Expenses to average net assets ...... 1.98%* 2.03% 2.22% 2.09%* 2.05% 1.98% 2.05%
Net investment income to average
net assets ........................ 0.87%* 1.13% 1.27% 1.43%* 1.81% 1.60% 1.00%
Portfolio turnover rate ............. 126% 190% 188% 103% 188% 107% 69%
</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 or program fees; results would be lower if sales
charges or program fees were included. Total investment return for periods
of less than one year has not been annualized.
(2) Fiscal year changed to August 31.

20
<PAGE>

PAINEWEBBER BALANCED FUND

<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------------
For the
Six For the For the
Months Years Six For the
Ended Ended Months Year
February 28, August 31, Ended Ended
1999 ----------------- August 31, February 29,
(unaudited) 1998 1997 1996 (2) 1996
----------- ---- ---- -------- ----

<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.28 $12.52 $10.29 $10.88 $9.82
------ ------ ------ ------ -----
Net investment income ............... 0.05++ 0.14++ 0.14++ 0.08++ 0.19++
Net realized and unrealized gains
(losses) from investments,
futures and options ............... 1.56++ 0.31++ 2.80++ (0.12)++ 1.84++
------ ------ ------ ------ -----
Net increase (decrease) from
investment operations ............. 1.61 0.45 2.94 (0.04) 2.03
------ ------ ------ ------ -----
Dividends from net
investment income ................. (0.08) (0.14) (0.16) (0.07) (0.22)
Distributions from net realized gains
from investment transactions ...... (1.23) (1.55) (0.55) (0.48) (0.75)
------ ------ ------ ------ -----
Total dividends and distributions
to shareholders ................... (1.31) (1.69) (0.71) (0.55) (0.97)
------ ------ ------ ------ -----
Net asset value, end of period ...... $11.58 $11.28 $12.52 $10.29 $10.88
====== ====== ====== ====== ======

Total investment return (1) ......... 14.52% 3.89% 29.70% (0.38)% 21.12%
====== ====== ====== ====== ======
Ratios/supplemental data:
Net assets, end of period (000's) ... $20,072 $14,581 $8,736 $6,979 $7,469
Expenses to average net assets ...... 1.95%* 2.00% 2.21% 2.09%* 2.08%
Net investment income to average
net assets ........................ 0.91%* 1.18% 1.27% 1.44%* 1.77%
Portfolio turnover rate ............. 126% 190% 188% 103% 188%
</TABLE>

<TABLE>
<CAPTION>
Class C Class Y
----------------------- --------------------
For the For the
For the Six Period
Years Months March 26,
Ended Ended 1998+
February 28, February 28, through
------------------ 1999 August 31,
1995 1994 (unaudited) 1998
---- ---- ----------- ----

<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.03 $11.54 $11.27 $12.55
------ ------ ------ ------
Net investment income ............... 0.19 0.14 0.11++ 0.11++
Net realized and unrealized gains
(losses) from investments,
futures and options ............... (1.07) 1.30 1.56++ (1.28)++
------ ------ ------ ------
Net increase (decrease) from
investment operations ............. (0.88) 1.44 1.67 (1.17)
------ ------ ------ ------
Dividends from net
investment income ................. (0.13) (0.17) (0.15) (0.11)
Distributions from net realized gains
from investment transactions ...... (1.20) (0.78) (1.23) --
------ ------ ------ ------
Total dividends and distributions
to shareholders ................... (1.33) (0.95) (1.38) (0.11)
------ ------ ------ ------
Net asset value, end of period ...... $9.82 $12.03 $11.56 $11.27
====== ====== ====== ======

Total investment return (1) ......... (6.69)% 12.75% 15.03% (9.41)%
====== ====== ====== ======
Ratios/supplemental data:
Net assets, end of period (000's) ... $8,525 $12,916 $371 $175
Expenses to average net assets ...... 2.01% 1.96% 0.98%* 0.89%*
Net investment income to average
net assets ........................ 1.62% 0.97% 1.92%* 2.48%*
Portfolio turnover rate ............. 107% 69% 126% 190%
</TABLE>

21
<PAGE>

This Page Intentionally Left Blank.

<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
thereon.

A prospectus containing more complete information for any of the Funds listed on
the back cover can be obtained from a PaineWebber Financial Advisor or
corresponding firm. Read the prospectus carefully before investing.

<PAGE>

PaineWebber offers a family of 27 funds which encompass a diversified range of
investment goals.

BOND FUNDS

o High Income Fund
o Investment Grade Income Fund
o Low Duration U.S. Government Income Fund
o Strategic Income Fund
o U.S. Government Income Fund

TAX-FREE BOND FUNDS

o California Tax-Free Income Fund
o Municipal High Income Fund
o National Tax-Free Income Fund
o New York Tax-Free Income Fund

STOCK FUNDS

o Financial Services Growth Fund
o Growth Fund
o Growth and Income Fund
o Mid Cap Fund
o Small Cap Fund
o S&P 500 Index Fund
o Tax-Managed Equity Fund
o Utility Income Fund

ASSET ALLOCATION FUNDS

o Balanced Fund
o Tactical Allocation Fund

GLOBAL FUNDS

o Asia Pacific Growth Fund
o Emerging Markets Equity Fund
o Global Equity Fund
o Global Income Fund

MITCHELL HUTCHINS PORTFOLIOS

o Aggressive Portfolio
o Moderate Portfolio
o Conservative Portfolio

PAINEWEBBER MONEY MARKET FUND

PAINEWEBBER

BALANCED
FUND

SEMIANNUAL REPORT

FEBRUARY 28, 1999