<PAGE>
PaineWebber
===================================================================
BALANCED
FUND
ANNUAL REPORT
AUGUST 31, 1999
<PAGE>
PAINEWEBBER BALANCED FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber Balanced Fund
(Class B) and the S&P 500 Index and the Lehman Brothers Intermediate-Term
Government/Corporate Bond Index from August 31, 1989 through August 31, 1999
[GRAPHIC OMITTED]
Past performance is no guarantee of future performance. The performance of the
other classes will vary from the performance of the class shown because of
differences in sales charges and fees paid by shareholders investing in
different classes.
- --------------------------------------------------------------------------------
The graph depicts the performance of PaineWebber Balanced Fund (Class B) versus
the S&P 500 Index and the Lehman Brothers Intermediate-Term
Government/Corporate Bond Index. It is important to note PaineWebber Balanced
Fund is a professionally managed mutual fund while the Indices are not available
for investment and are unmanaged. The comparison is shown for illustrative
purposes only.
- --------------------------------------------------------------------------------
- ---------------------------------------------------
AVERAGE ANNUAL % TOTAL RETURN, PERIOD ENDED 8/31/99
- ---------------------------------------------------
1 Year 5 Years 10 Years Inception*
Before Deducting Class A** 16.20% 14.23% N/A 11.83%
Maximum Sales Charge
Class B*** 15.28% 13.38% 10.49% 9.76%
Class C+ 15.34% 13.37% N/A 11.09%
Class Y++ 16.42% N/A N/A 3.78%
After Deducting Class A** 10.98% 13.17% N/A 11.20%
Maximum Sales Charge
Class B*** 10.28% 13.14% 10.49% 9.76%
Class C+ 14.34% 13.37% N/A 11.09%
The investment return and 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.
* Inception: since commencement of issuance on July 1, 1991 for Class A,
December 12, 1986 for Class B, July 2, 1992 for Class C shares and March
26, 1998 for Class Y shares.
** Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
*** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after six years. Class B shares bear ongoing 12b-1
distribution and service fees.
+ Maximum contingent deferred sales charge for Class C shares is 1% and is
reduced to 0% after one year. Class C shares bear ongoing 12b-1
distribution and service fees.
++ The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs that are sponsored
by PaineWebber and that may invest in PaineWebber mutual funds, as well as
the trustee of the PaineWebber 401(k) Plus Plan. Class Y shares do not
bear initial or contingent deferred sales charges or ongoing distribution
and service fees.
1
<PAGE>
ANNUAL REPORT
October 15, 1999
- --------------------------------------------------------------------------------
PAINEWEBBER
BALANCED FUND
PROFILE
as of August 31, 1999
Investment Goal: high total return with low volatility
Portfolio Managers: Kirk Barneby, Asset Allocator; Dennis McCauley, Fixed Income
Sector; Mark Tincher, Equity Sector; Susan Ryan, Money Market Sector; Mitchell
Hutchins Asset Management Inc.
Commencement: July 1, 1991 (Class A); December 12, 1986 (Class B); July 2, 1992
(Class C); March 26, 1998 (Class Y)
Dividend Payments: semiannually
- --------------------------------------------------------------------------------
Dear Shareholder,
We are pleased to present you with the annual report for the PaineWebber
Balanced Fund (the "Fund") for the fiscal year ended August 31, 1999.
MARKET REVIEW
================================================================================
[GRAPHIC OMITTED] For most of 1998 and the first quarter of 1999 the market was
very narrow, focused on large-capitalization growth companies. This was a highly
unusual situation and we expected conditions to return to normal--i.e., near
parity between growth and value styles. The market did briefly turn around in
the second quarter, but only the deepest of the "deep value" stocks benefited
before investors got concerned about the surge in commodity prices, and
narrowness returned. However, for the 12 months ended August 31, 1999, the S&P
500 Index gained 39.81%.
Despite gains in the broad market, individual stock performance varied widely.
About two thirds of the stocks traded on the New York Stock Exchange have
actually posted losses year to date. The market weakened at the end of the
Fund's fiscal year, as investors became concerned about the possibility of the
Federal Reserve again raising short-term interest rates. Technology and consumer
cyclicals were the strongest sectors; the weakest sectors included healthcare,
utilities and capital goods.
OUTLOOK
================================================================================
[GRAPHIC OMITTED] We expect gross domestic product growth of around 3.80% for
1999, and about 2.90% growth for 2000. Our outlook calls for 2.25% inflation for
calendar year 1999, and about the same or slightly higher for calendar year
2000. We expect the yield on the long bond (30-year Treasury) to stay close to
6.10% for the rest of 1999, and to retreat below 6.00% in 2000. Overseas growth
does not seem strong enough to raise inflationary expectations to a great
degree, but should allow companies to maintain profitability.
PORTFOLIO HIGHLIGHTS
================================================================================
[GRAPHIC OMITTED] The Fund employs a disciplined, model-based approach to
calculate expected returns for U.S. stocks, bonds and cash. Based on an
assessment of key economic variables such as interest rates, economic growth and
inflation, as well as fundamental valuation techniques, the Fund seeks to
determine whether the expected return from stocks is sufficient to
2
<PAGE>
PAINEWEBBER BALANCED FUND ANNUAL REPORT
offset the additional risk when compared to bonds and "risk-free" cash
investments (U.S. Treasury bills). Fund assets are allocated according to the
model, with a minimum of 25% of net assets in bonds or cash at all times.
- --------------------------------------------------------------------------------
PAINEWEBBER BALANCED FUND
Top Five Equity Sectors*
As of 8/31/99
[The following table was depicted as a bar chart in the printed material.]
Consumer Cyclicals 14.2%
Technology 10.4%
Financial 7.3%
Healthcare 4.7%
Utilities 4.7%
As of 2/28/99
[The following table was depicted as a bar chart in the printed material.]
Consumer Cyclicals 14.4%
Technology 8.2%
Financial 7.7%
Healthcare 5.9%
Utilities 4.3%
- --------------------------------------------------------------------------------
CHARACTERISTICS*
8/31/99 2/28/99
------------------------------------------------------------------
Total Net Assets ($mm) $245.8 $255.9
Number of Securities 164 150
Dividend Yield 2.52% 2.77%
Stocks 55.2% 45.6%
Bonds 32.7% 41.1%
Cash & Cash Equivalents 12.1% 13.3%
------------------------------------------------------------------
In our asset allocation analysis, expectations for stocks improved during the
last six months of the fiscal year, and expectations for bonds deteriorated.
Therefore, the Fund reversed its underweighting in stocks and overweighting in
bonds from the end of the last reporting period. As of fiscal year-end, the Fund
was slightly overweighted in stocks, underweighted in bonds and overweighted in
cash (see table above).
TOP TEN EQUITY HOLDINGS*
As of 8/31/99 As of 2/28/99
------------------------------------------------------------------
Cisco Systems, Inc. 1.7 MCI WorldCom Inc. 1.4
United Technologies Corp. 1.6 United Technologies Corp. 1.2
Tyco International Ltd. 1.6 The Chase Manhattan Corp. 1.1
The Chase Manhattan Corp. 1.5 Dayton Hudson Corp. 1.0
Applied Materials, Inc. 1.4 Cisco Systems, Inc. 0.9
Unisys Corp. 1.3 BP Amoco plc ADR 0.9
Biogen Inc. 1.2 Lucas Varity plc ADR 0.9
Dayton Hudson Corp. 1.2 Tyco International Ltd. 0.9
JDS Uniphase Corp. 1.2 Biogen Inc. 0.9
Microsoft Corp. 1.1 Applied Materials, Inc. 0.8
------------------------------------------------------------------
The Balanced Fund's performance standard over time is a portfolio that is
allocated 60% of the time to stocks, 35% of the time to bonds and 5% of the time
to cash. As of this writing (late September 1999) the models are suggesting, on
a risk-adjusted basis, that both stocks and bonds continue to be attractive
relative to cash. As of this writing, the Fund's equity weighting is at a
neutral position--where we would expect to be on average over time. The Balanced
Fund is now positioned at a 40%
* Weightings represent percentages of portfolio assets as of August 31, 1999,
except where noted otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
3
<PAGE>
ANNUAL FUND
weighting in fixed income, in contrast to its long run, or expected weighting of
about 35%. On a risk-adjusted basis, the models prefer bonds to cash enough that
we have slightly overweighted our bond position by 5%.
While we are positive on both markets relative to their long-term historical
risk/return profiles, we think bonds are a little more attractive and as a
result, we have a slight overweighting in them. We are neutral on stocks. This
does not mean we think the outlook for stocks is bearish--rather, we believe
that on a risk-adjusted basis the outlook for stocks is consistent with their
longer term or average return to investors. 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 /s/ Brian M. Storms
MARGO ALEXANDER Brian M. Storms
Chairman and Chief Executive Officer President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc.
/s/ T. Kirkham Barneby /s/ Dennis L. McCauley
T. KIRKHAM BARNEBY DENNIS L. MCCAULEY
Managing Director and Managing Director and Chief Investment
Chief Investment Officer -- Officer -- Fixed Income
Quantitative Investments Mitchell Hutchins Asset Management Inc.
Mitchell Hutchins Asset Management Inc.
/s/ Mark A. Tincher /s/ SUSAN P. RYAN
MARK A. TINCHER SUSAN P. RYAN
Managing Director and Chief Investment Senior Vice President
Officer -- Equities Mitchell Hutchins Asset Management Inc.
Mitchell Hutchins Asset Management Inc.
* Weightings represent percentages of portfolio assets as of August 31,
1999, except where noted otherwise. The Fund's portfolio is actively
managed and its composition will vary over time.
(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 fiscal year ended August 31, 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.
4
<PAGE>
PAINEWEBBER BALANCED FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value Total Return(1)
------------------------------------------ ------------------------------------
12 Months 6 months
08/31/99 02/28/99 08/31/98 Ended 08/31/99 Ended 08/31/99
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.60 $11.57 $11.27 16.20% 1.09%
- ----------------------------------------------------------------------------------------------------------------
Class B Shares 11.84 11.81 11.48 15.28 0.74
- ----------------------------------------------------------------------------------------------------------------
Class C Shares 11.60 11.58 11.28 15.34 0.72
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class A Shares
Net Asset Value
------------------------ Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $10.09 $11.02 -- $0.2293 11.53%
- ----------------------------------------------------------------------------------------------------------------
1992 11.02 11.24 -- 0.3414 5.18
- ----------------------------------------------------------------------------------------------------------------
1993 11.24 11.94 $0.7771 0.2510 15.63
- ----------------------------------------------------------------------------------------------------------------
1994 11.94 9.32 1.2011 0.2311 (9.88)
- ----------------------------------------------------------------------------------------------------------------
1995 9.32 10.41 0.7468 0.3100 23.13
- ----------------------------------------------------------------------------------------------------------------
1996 10.41 10.61 1.0303 0.2516 14.74
- ----------------------------------------------------------------------------------------------------------------
1997 10.61 11.38 1.5503 0.2205 24.57
- ----------------------------------------------------------------------------------------------------------------
1998 11.38 12.00 1.2252 0.2196 18.95
- ----------------------------------------------------------------------------------------------------------------
01/01/99-08/31/99 12.00 11.60 -- 0.0984 (2.53)
- ----------------------------------------------------------------------------------------------------------------
Totals: $6.5308 $2.1529
- ----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 08/31/99: 149.44%
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class B Shares
Net Asset Value
------------------------ Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/12/86-12/31/86 $10.00 $9.76 -- -- (2.40)%
- ----------------------------------------------------------------------------------------------------------------
1987 9.76 9.27 $0.1687 $0.4407 1.21
- ----------------------------------------------------------------------------------------------------------------
1988 9.27 9.79 -- 0.5225 11.34
- ----------------------------------------------------------------------------------------------------------------
1989 9.79 10.03 0.1286 0.6768 10.84
- ----------------------------------------------------------------------------------------------------------------
1990 10.03 9.60 0.0021 0.6200 1.95
- ----------------------------------------------------------------------------------------------------------------
1991 9.60 11.01 -- 0.3478 18.52
- ----------------------------------------------------------------------------------------------------------------
1992 11.01 11.28 -- 0.2146 4.46
- ----------------------------------------------------------------------------------------------------------------
1993 11.28 12.02 0.7771 0.1173 14.66
- ----------------------------------------------------------------------------------------------------------------
1994 12.02 9.43 1.2011 0.1189 (10.51)
- ----------------------------------------------------------------------------------------------------------------
1995 9.43 10.57 0.7468 0.2049 22.23
- ----------------------------------------------------------------------------------------------------------------
1996 10.57 10.79 1.0303 0.1632 13.81
- ----------------------------------------------------------------------------------------------------------------
1997 10.79 11.61 1.5503 0.1213 23.63
- ----------------------------------------------------------------------------------------------------------------
1998 11.61 12.26 1.2252 0.1331 18.02
- ----------------------------------------------------------------------------------------------------------------
01/01/99-08/31/99 12.26 11.84 -- 0.0586 (2.96)
- ----------------------------------------------------------------------------------------------------------------
Totals: $6.8302 $3.7397
- ----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 08/31/99: 227.20%
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class C Shares
Net Asset Value
------------------------ Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $10.86 $11.25 -- $0.1619 5.08%
- ----------------------------------------------------------------------------------------------------------------
1993 11.25 11.94 $0.7771 0.1728 14.79
- ----------------------------------------------------------------------------------------------------------------
1994 11.94 9.35 1.2011 0.1313 (10.48)
- ----------------------------------------------------------------------------------------------------------------
1995 9.35 10.45 0.7468 0.2188 22.15
- ----------------------------------------------------------------------------------------------------------------
1996 10.45 10.65 1.0303 0.1708 13.86
- ----------------------------------------------------------------------------------------------------------------
1997 10.65 11.42 1.5503 0.1343 23.61
- ----------------------------------------------------------------------------------------------------------------
1998 11.42 12.02 1.2252 0.1496 (18.04)
- ----------------------------------------------------------------------------------------------------------------
01/01/99-08/31/99 12.02 11.60 -- 0.0641 (2.97)
- ----------------------------------------------------------------------------------------------------------------
Totals: $6.5308 $1.2036
- ----------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 08/31/99: 112.61%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at
net asset value on the payable dates and do not include sales charges;
results for each class would be lower if sales charges were included.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
5
<PAGE>
PAINEWEBBER BALANCED FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999
Number of
Shares Value
- ----------------- -----------
COMMON STOCKS -- 59.22%
Airlines -- 0.65%
31,400 Delta Air Lines, Inc. ........................ $ 1,595,513
-----------
Alcohol -- 0.28%
8,900 Anheuser-Busch Companies, Inc. ............... 685,300
-----------
Apparel, Retail -- 1.17%
99,200 TJX Companies, Inc. .......................... 2,864,400
-----------
Apparel, Textiles -- 0.62%
17,800 Tommy Hilfiger Corp.* ........................ 604,088
38,400 Westpoint Stevens Inc. ....................... 921,600
-----------
1,525,688
-----------
Banks -- 2.35%
30,774 Bank of New York Co. Inc. .................... 1,100,171
47,800 The Chase Manhattan Corp. .................... 4,000,262
20,200 Mellon Bank Corp. ............................ 674,175
-----------
5,774,608
-----------
Beverages & Tobacco -- 0.29%
37,800 Pepsi Bottling Group Inc. .................... 715,838
-----------
Cable -- 1.24%
28,800 JDS Uniphase Corp.*(1). ...................... 3,054,600
-----------
Chemicals -- 0.34%
7,400 Dow Chemical Co. ............................. 840,825
-----------
Computer Hardware -- 3.47%
67,300 Cisco Systems, Inc.* ......................... 4,563,781
27,100 Dell Computer Corp.* ......................... 1,322,819
21,200 IBM Corp. .................................... 2,640,725
-----------
8,527,325
-----------
Computer Software -- 3.48%
10,100 BMC Software, Inc.* .......................... 543,506
23,100 Compuware Corp.* ............................. 697,331
32,600 Microsoft Corp.* ............................. 3,017,538
46,000 Sterling Software Inc.* ...................... 925,750
78,600 Unisys Corp.* ................................ 3,379,800
-----------
8,563,925
-----------
Construction -- 0.26%
23,300 Lafarge Corp. ADR ............................ $ 640,750
-----------
Consumer Durables -- 0.64%
25,000 Maytag Corp. ................................. 1,565,625
-----------
Defense/Aerospace -- 0.68%
27,100 Allied-Signal, Inc. .......................... 1,659,875
-----------
Diversified Retail -- 2.69%
55,800 Dayton Hudson Corp. .......................... 3,236,400
23,900 Family Dollar Stores Inc. .................... 470,531
46,100 Federated Department Stores, Inc.* ........... 2,120,600
17,500 Walmart Stores, Inc. ......................... 775,469
-----------
6,603,000
-----------
Drugs & Medicine -- 2.74%
42,700 Biogen Inc.*(1) .............................. 3,277,225
2,100 Elan Corp. PLC, ADR*(1) ...................... 67,331
8,000 Pharmacia & Upjohn, Inc. ADR ................. 418,000
34,600 Schering-Plough Corp. ........................ 1,818,663
17,300 Warner Lambert Co. ........................... 1,146,125
-----------
6,727,344
-----------
Electric Utilities -- 1.59%
17,200 Consolidated Edison Co. of New York Inc.(1) .. 756,800
20,300 Duke Energy Corp. ............................ 1,167,250
47,800 Energy East Corp.* ........................... 1,195,000
34,400 Utilicorp United Inc. ........................ 797,650
-----------
3,916,700
-----------
Energy Reserves & Production -- 1.82%
18,900 Mobil Corp. .................................. 1,934,888
40,900 Royal Dutch Petroleum Co. ADR ................ 2,530,687
-----------
4,465,575
-----------
Financial Services -- 0.54%
18,200 Marsh & McLennan Companies, Inc. ............. 1,325,188
-----------
Food Retail -- 0.79%
83,900 Kroger Co.* .................................. 1,940,187
-----------
6
<PAGE>
PAINEWEBBER BALANCED FUND
Number of
Shares Value
- ----------------- -----------
COMMON STOCKS--(continued)
Forest Products, Paper -- 1.94%
13,400 Champion International Corp. ................. $ 737,000
46,200 Fort James Corp.(1) .......................... 1,489,950
37,200 Georgia-Pacific Corp. ........................ 1,539,150
17,800 Weyerhaeuser Co.(1) .......................... 1,001,250
-----------
4,767,350
-----------
Gas Utility -- 0.38%
15,950 Columbia Gas System Inc. ..................... 942,047
-----------
Household Products -- 0.68%
37,900 Avon Products, Inc. .......................... 1,662,862
-----------
Industrial Parts -- 4.21%
13,100 American Standard Companies Inc.* ............ 537,100
41,200 Ingersoll Rand Co. ........................... 2,621,350
68,300 Mettler Toledo International Inc.* ........... 1,818,487
12,069 SPX Corp.* ................................... 1,022,848
65,600 United Technologies Corp.(1) ................. 4,337,800
-----------
10,337,585
-----------
Industrial Services/Supplies -- 1.83%
14,167 Delphi Automotive Systems Corp. .............. 265,631
41,900 Tyco International Ltd. ...................... 4,244,994
-----------
4,510,625
-----------
Information & Computer Services -- 0.83%
9,100 Computer Sciences Corp.* ..................... 629,606
32,300 Valassis Communications Inc.* ................ 1,413,125
-----------
2,042,731
-----------
Leisure -- 1.07%
17,361 Eastman Kodak Co. ............................ 1,274,948
55,700 Hasbro, Inc. ................................. 1,361,169
-----------
2,636,117
-----------
Life Insurance -- 1.39%
34,600 American General Corp. ....................... 2,456,600
32,600 Protective Life Corp. ........................ 969,850
-----------
3,426,450
-----------
Long Distance & Phone Companies -- 2.79%
18,100 AT&T Corp. ................................... $ 814,500
40,000 BellSouth Corp. .............................. 1,810,000
19,200 GTE Corp. .................................... 1,317,600
38,400 MCI WorldCom, Inc.* .......................... 2,908,800
-----------
6,850,900
-----------
Media -- 0.81%
42,200 Comcast Corp., Class A ....................... 1,376,775
23,100 Infinity Broadcasting Corp. Class A*(1) ...... 625,144
-----------
2,001,919
-----------
Medical Products -- 1.07%
31,038 Boston Scientific Corp.* ..................... 1,053,352
43,800 St. Jude Medical, Inc.* ...................... 1,587,750
-----------
2,641,102
-----------
Medical Providers -- 0.60%
20,300 Wellpoint Health Networks, Inc. Class A* ..... 1,479,363
-----------
Medical - Wholesale Drug Distributors -- 0.67%
63,800 Amerisource Health Corp. Class A* ............ 1,646,837
-----------
Mining & Metals -- 0.96%
17,800 Alcoa, Inc. .................................. 1,149,213
26,500 Martin Marietta Materials Inc. ............... 1,209,062
-----------
2,358,275
-----------
Motor Vehicles -- 1.66%
14,000 Borg Warner Automotive, Inc. ................. 663,250
39,600 Ford Motor Co. ............................... 2,064,150
20,300 General Motors Corp. ......................... 1,342,337
-----------
4,069,737
-----------
Oil Refining -- 1.94%
18,400 Atlantic Richfield Co. ....................... 1,618,050
46,100 Coastal Corp. ................................ 1,996,706
36,800 USX-Marathon Group ........................... 1,145,400
-----------
4,760,156
-----------
7
<PAGE>
PAINEWEBBER BALANCED FUND
Number of
Shares Value
- ----------------- -----------
COMMON STOCKS--(concluded)
Other Insurance -- 2.00%
42,500 ACE Ltd. ..................................... $ 911,094
30,500 Ambac Financial Group Inc. ................... 1,610,781
17,262 American International Group, Inc. ........... 1,599,972
22,200 Travelers Property Casualty Corp. ............ 788,100
-----------
4,909,947
-----------
Publishing -- 0.93%
42,400 Knight Ridder, Inc. .......................... 2,286,950
-----------
Restaurants -- 0.32%
33,300 Brinker International Inc.* .................. 799,200
-----------
Securities & Asset Management -- 1.27%
17,700 AXA Financial Inc. ........................... 1,092,975
23,600 Morgan Stanley Dean Witter & Co. ............. 2,025,175
-----------
3,118,150
-----------
Semiconductor -- 3.35%
51,400 Applied Materials, Inc.* ..................... 3,652,612
22,200 Atmel Corp.* ................................. 872,738
23,600 Intel Corp. .................................. 1,939,625
26,100 Vitesse Semiconductor Corp.* ................. 1,774,800
-----------
8,239,775
-----------
Specialty Retail -- 1.97%
100,800 Office Depot Inc.* ........................... $ 1,052,100
36,950 Staples Inc.* ................................ 803,662
64,700 Williams Sonoma Inc.*(1) ..................... 2,523,300
13,479 Zale Corp.* .................................. 467,553
-----------
4,846,615
-----------
Thrift -- 0.33%
31,200 Greenpoint Financial Corp. ................... 807,300
-----------
Tobacco -- 0.27%
18,000 Philip Morris Companies, Inc. ................ 673,875
-----------
Wireless Telecommunications -- 0.31%
19,200 Century Telephone Enterprises, Inc. .......... 754,800
-----------
Total Common Stocks (cost -- $122,038,182) .................... 145,562,934
-----------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------------- ---------- -------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS -- 14.53%
Bank -- 0.93%
$ 670 Bank One Corp. ............................................. 08/01/06 6.875% $ 656,894
1,700 Providian National Bank .................................... 02/01/04 6.650 1,637,744
------------
2,294,638
------------
Beverages & Entertainment -- 0.46%
1,180 Seagram Joseph E. & Sons Inc. .............................. 12/15/05 6.625 1,125,847
------------
Cable -- 0.32%
800 TCI Communications Inc. .................................... 05/01/03 6.375 786,658
------------
Financial Services -- 3.04%
1,915 Associates Corp. NA ........................................ 11/01/08 6.250 1,777,137
1,500 AT&T Capital Corp. ......................................... 01/16/01 6.875 1,500,542
2,600 Ford Motor Credit Co. ...................................... 01/14/03 to 01/12/09 5.800 to 6.000 2,435,729
1,850 Heller Financial Inc. ...................................... 03/19/04 6.000 1,756,834
------------
7,470,242
------------
Industrial Services/Supplies -- 0.39%
965 Tyco International Group SA ................................ 06/15/01 6.125 956,016
------------
</TABLE>
8
<PAGE>
PAINEWEBBER BALANCED FUND
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------------- ---------- -------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS -- (concluded)
Insurance -- 1.91%
$ 2,000 American Re Corp. .......................................... 12/15/26 7.450% $ 1,945,424
700 Hartford Financial Services Group Inc. ..................... 11/01/08 6.375 664,052
800 Loews Corp.(1) ............................................. 12/15/06 6.750 756,958
1,350 Lumbermans Mutual Casualty Co. ............................. 07/01/26 9.150 1,324,723
------------
4,691,157
------------
Media -- 0.24%
620 News America Holdings Inc. ................................. 10/17/96 8.250 592,951
------------
Securities & Asset Management -- 3.08%
2,305 Donaldson Lufkin & Jenrette ................................ 04/01/02 5.875 2,247,121
1,315 FMR Corp. .................................................. 06/15/29 7.570 1,260,407
1,350 Lehman Brothers Holdings Inc. .............................. 04/01/04 6.625 1,304,528
1,200 Merrill Lynch & Company Inc. ............................... 02/17/09 6.000 1,081,886
1,775 Morgan Stanley Group Inc. .................................. 01/20/04 5.625 1,679,145
------------
7,573,087
------------
Telecommunications -- 0.87%
2,345 US West Capital Funding Inc. ............................... 07/15/08 6.375 2,149,980
------------
Tobacco -- 1.16%
1,850 Philip Morris Companies Inc. ............................... 07/01/08 to 01/15/27 7.650 to 7.750 1,849,916
1,035 RJ Reynolds Tobacco Holdings Inc. .......................... 05/15/03 7.375 1,010,550
------------
2,860,466
------------
Yankee -- 2.13%
995 Canadian Imperial Bank Commerce ............................ 08/01/00 6.200 994,584
2,000 Household International Netherlands BV ..................... 12/01/03 6.200 1,941,846
1,400 Imperial Tobacco Overseas B V .............................. 04/01/09 7.125 1,310,154
1,000 Sony Corp. ................................................. 03/04/03 6.125 982,417
------------
5,229,001
------------
Total Corporate Bonds (cost -- $37,593,179) ............................... 35,730,043
------------
CONVERTIBLE BONDS -- 0.55%
Specialty Retail -- 0.55%
500 Home Depot Inc. (cost-- $500,000) .......................... 10/01/01 3.250 1,341,250
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 10.03%
45 Federal Home Loan Mortgage Corporation ..................... 03/18/08 6.220 42,687
4,230 Federal National Mortgage Association ...................... 01/15/09 5.250 3,765,808
2,570 International Bank For Reconstruction & Development ........ 03/17/03 5.625 2,501,769
5,769 U.S. Treasury Bonds(1) ..................................... 08/15/13 to 02/15/29 5.250 to 12.000 6,676,546
11,962 U.S. Treasury Notes(1) ..................................... 07/15/02 to 05/15/09 3.625 to 5.500 11,673,794
------------
Total U.S. Government and Agency Obligations (cost -- $25,694,724) ........ 24,660,604
------------
</TABLE>
9
<PAGE>
PAINEWEBBER BALANCED FUND
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------------- ---------- -------- ------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES -- 9.97%
Collateralized Mortgage Obligation -- 1.56%
$ 551 Amresco Commercial Mortgage Funding I Corp., Series
1997-C1, Class A1 .......................................... 06/17/29 6.730% $ 544,176
249 CS First Boston Mortgage Securities Corp., Series 1997-2,
Class A+ ................................................... 06/01/20 7.500 248,459
53 FDIC REMIC, Series 1994-C1, Class 2A2 ...................... 09/25/25 7.850 52,636
238 FDIC REMIC, Series 1996-C1, Class 1A ....................... 05/25/26 6.750 235,864
250 FNMA REMIC, Series 1996-M6, Class E ........................ 09/17/19 7.750 252,720
478 GMAC Commercial Mortgage Security, Series 1996-C1,
Class A2A .................................................. 09/15/03 6.790 477,927
1,400 LB Commercial Conduit Mortgage Trust, Series 1998-C4,
Class A1B .................................................. 10/15/08 6.210 1,298,808
174 Morgan Stanley Capital I Inc., Series 1997-C1, Class A1A ... 02/15/20 6.850 173,352
554 Morgan Stanley Capital I Inc., Series 1997-WF1, Class A1+ .. 10/15/06 6.830 550,960
------------
3,834,902
------------
Federal Home Loan Mortgage Corporation -- 0.69%
1,780 FHLMC 30 Yr TBA ............................................ TBA 6.500 1,685,438
------------
Federal National Mortgage Association -- 6.78%
557 FNMA ....................................................... 09/01/28 6.500 527,747
835 FNMA ....................................................... 01/01/26 to 02/01/26 7.500 831,782
12,780 FNMA 30 Yr TBA ............................................. TBA 6.000 11,745,612
2,720 FNMA 15 Yr TBA ............................................. TBA 6.500 2,641,800
995 FNMA 30 Yr TBA ............................................. TBA 6.500 941,519
------------
16,688,460
------------
Government National Mortgage Association -- 0.94%
2,223 GNMA ....................................................... 11/15/17 8.500 2,307,422
------------
Total Mortgage Backed Securities (cost -- $24,621,094) 24,516,222
------------
SHORT TERM U.S. GOVERNMENT AGENCY OBLIGATIONS -- 12.99%
10,000 Federal Home Loan Bank Consolidated Discount Notes ......... 09/15/99 5.080 9,980,244
16,000 Federal Home Loan Mortgage Discount Notes .................. 09/16/99 4.950 15,967,000
5,000 Federal National Mortgage Association Discount Notes ....... 09/27/99 5.090 4,981,619
1,000 Student Loan Marketing Discount Notes ...................... 09/02/99 4.980 999,862
------------
Total Short Term U.S. Government Agency Obligations (cost-- $31,928,725) .. 31,928,725
------------
Total Investments (cost -- $242,375,904) -- 107.29% ....................... 263,739,778
Liabilities in excess of other assets -- (7.29)% .......................... (17,924,013)
------------
Net Assets -- 100.00% ..................................................... $245,815,765
============
</TABLE>
- ----------
* Non-Income producing security.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
ADR American Depository Receipt.
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with an approximated principal amount (generally +/- 1.0%) 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 August 31, 1999.
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1999
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost--$242,375,904) .............................................. $263,739,778
Investment of cash collateral for securities loaned (cost--$19,214,874) ............................... 19,214,874
Receivable for investments sold ....................................................................... 896,862
Dividends and interest receivable ..................................................................... 1,349,895
Receivable for fund shares sold ....................................................................... 101,115
Other assets .......................................................................................... 23,549
------------
Total assets .......................................................................................... 285,326,073
------------
Liabilities
Collateral for securities loaned ...................................................................... 19,214,874
Payable for investments purchased ..................................................................... 18,867,864
Payable for fund shares repurchased ................................................................... 628,736
Payable to affiliates ................................................................................. 249,156
Payable to custodian .................................................................................. 370,202
Accrued expenses and other liabilities ................................................................ 179,476
------------
Total liabilities ..................................................................................... 39,510,308
------------
Net Assets
Capital Stock--$0.001 par value ....................................................................... 205,287,556
Undistributed net investment income ................................................................... 1,006,149
Accumulated net realized gains from investment transactions ........................................... 18,158,186
Net unrealized appreciation of investments ............................................................ 21,363,874
------------
Net assets ............................................................................................ $245,815,765
============
Class A:
Net assets ............................................................................................ $196,684,251
------------
Shares outstanding .................................................................................... 16,956,736
------------
Net asset value and redemption value per share ........................................................ $ 11.60
============
Maximum offering price per share (net asset value plus sales charge of 4.50% of offering price) ....... $ 12.15
============
Class B:
Net assets ............................................................................................ $ 28,718,607
------------
Shares outstanding .................................................................................... 2,426,201
------------
Net asset value and offering price per share .......................................................... $11.84
============
Class C:
Net assets ............................................................................................ $ 19,893,631
------------
Shares outstanding .................................................................................... 1,715,018
------------
Net asset value and offering price per share .......................................................... $ 11.60
============
Class Y:
Net assets ............................................................................................ $ 519,276
------------
Shares outstanding .................................................................................... 44,788
------------
Net asset value and offering price per share .......................................................... $ 11.59
============
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
PAINEWEBBER BALANCED FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<S> <C>
Investment income:
Interest ....................................................................... $ 6,055,004
Dividends ...................................................................... 1,572,149
------------
7,627,153
------------
Expenses:
Investment advisory and administration ......................................... 1,890,996
Service fees--Class A .......................................................... 505,425
Service and distribution fees--Class B ......................................... 305,401
Service and distribution fees--Class C ......................................... 190,716
Transfer agency and service .................................................... 166,820
Custody and accounting ......................................................... 153,799
Legal and audit ................................................................ 95,725
Reports and notices to shareholders ............................................ 73,300
State registration ............................................................. 47,056
Directors fees and expenses .................................................... 13,500
Other expenses ................................................................. 1,815
------------
3,444,553
Less: Fee waivers and reimbursements from investment advisor ................... (1,469)
------------
Net expenses ................................................................... 3,443,084
------------
Net investment income .......................................................... 4,184,069
------------
Realized and unrealized gains from investment activities:
Net realized gains from:
Investment transactions ...................................................... 16,866,913
Options and futures transactions ............................................. 1,406,413
Net change in unrealized appreciation of:
Investments .................................................................. 13,558,529
Options ...................................................................... 17,487
------------
Net realized and unrealized gains from investment activities ................... 31,849,342
------------
Net increase in net assets resulting from operations ........................... $ 36,033,411
============
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
PAINEWEBBER BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended August 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
From operations:
Net investment income ........................................................... $ 4,184,069 $ 4,003,592
Net realized gains from investment, option and futures transactions ............. 18,273,326 33,245,475
Net change in unrealized appreciation/depreciation of investments and options ... 13,576,016 (29,081,375)
------------- -------------
Net increase in net assets resulting from operations ............................ 36,033,411 8,167,692
------------- -------------
Dividends and distributions to shareholders from:
Net investment income--Class A .................................................. (3,728,464) (3,302,099)
Net investment income--Class B .................................................. (327,440) (237,412)
Net investment income--Class C .................................................. (237,032) (126,665)
Net investment income--Class Y .................................................. (7,148) (803)
Net realized gains from investment transactions--Class A ........................ (19,640,106) (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 ........................ (24,554) --
------------- -------------
Total dividends and distributions to shareholders ............................... (28,714,815) (28,942,869)
------------- -------------
From capital stock transactions:
Net proceeds from sale of shares ................................................ 36,103,042 44,392,815
Cost of shares repurchased ...................................................... (47,257,223) (34,290,423)
Proceeds from dividends reinvested .............................................. 26,107,944 26,308,838
------------- -------------
Net increase in net assets from capital stock transactions ...................... 14,953,763 36,411,230
------------- -------------
Net increase in net assets ...................................................... 22,272,359 15,636,053
Net assets:
Beginning of year ............................................................... 223,543,406 207,907,353
------------- -------------
End of year (including undistributed net investment income
of $1,006,149 and $1,143,945, respectively) ................................... $ 245,815,765 $ 223,543,406
============= =============
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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
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
WRITTEN OPTION ACTIVITY
Transactions in options written for the year ended August 31, 1999 were as
follows:
Number of
Options Premiums
--------- ---------
Options outstanding at August 31, 1998 .............. 50 $ 12,982
Options written ..................................... 426 $ 224,507
Options terminated in closing purchase transactions.. (413) $(239,978)
Options expired ..................................... (63) $ 2,489
---- ---------
Options outstanding at August 31, 1999 .............. 0 $ 0
==== =========
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 August 31, 1999, the Fund owed Mitchell Hutchins $159,413 in investment
advisory and administration fees. Mitchell Hutchins waived a portion of its
investment advisory and administration fees in connection with the Fund's
investment of cash collateral from security lending in the Mitchell Hutchins
Private Money Market Fund LLC. For the year ended August 31, 1999, Mitchell
Hutchins waived $1,469.
For the year ended August 31, 1999, the Fund paid $14,808 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 August 31, 1999, the Fund owed Mitchell
Hutchins $84,754 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
year ended August 31, 1999, it received $177,736 in sales charges.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 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 $17,852 as compensation from the Fund for the year ended August 31,
1999. At August 31, 1999, the Fund owed PaineWebber $4,989 in security lending
fees. For the year ended August 31, 1999 the Fund earned $52,381 as compensation
from securities lending transactions net of fees, rebates and expenses.
At August 31, 1999, the Fund had securities on loan having a market value
of $18,296,716. The Fund's custodian held cash having an aggregate value of
$19,214,874 as collateral for portfolio securities loaned which was invested as
follows:
<TABLE>
<CAPTION>
Number of
Shares/Par Value
- ----------- -----------
<S> <C> <C>
5,000,000 Cayman Islands Bank Certificate of Deposit, 5.563% due 09/01/99 ..................... $ 5,000,000
3,084 Janus Investment Money Market Fund .................................................. 3,084
2,337,024 Liquid Assets Portfolio ............................................................. 2,337,024
10,943,839 MH Private Money Market Fund LLC .................................................... 11,865,089
9,677 Prime Portfolio ..................................................................... 9,677
-----------
Total investments of cash collateral for securities loaned (cost--$19,214,874) ...... $19,214,874
===========
</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 year ended August 31, 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 year ended August 31, 1999, PaineWebber received approximately 55% of the
total service fees collected by PFPC, Inc.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August
31, 1999 was substantially the same as the cost of securities for financial
statement purposes.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
At August 31, 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) ......... $ 29,420,752
Gross depreciation (investments having an excess of cost over value) ......... (8,056,878)
------------
Net unrealized appreciation of investments ................................... $ 21,363,874
============
</TABLE>
For the year ended August 31, 1999, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $546,570,570 and
$554,250,688, respectively.
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.
To reflect reclassifications for the Fund arising from permanent
"book/tax" differences for the year ended August 31, 1999, undistributed net
investment income was decreased by $21,781, accumulated net realized gains from
investment transactions were decreased by $2,737,619 and capital stock was
increased by $2,759,400 for redemptions utilized as distributions for federal
income tax purposes.
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 Year Ended Class A Class B Class C Class Y
August 31, 1999: ------------------------ ----------------------- --------------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ----------- --------- ----------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ............ 1,363,897 $16,172,983 937,633 $11,281,236 688,213 $8,183,147 39,441 $ 465,676
Shares repurchased ..... (2,932,983) (34,741,366) (608,260) (7,358,696) (428,296) (5,003,022) (12,955) (154,139)
Dividends reinvested ... 1,886,980 21,391,988 245,010 2,837,840 162,571 1,846,494 2,785 31,622
Shares converted from
Class B to Class A ... 459,550 5,425,191 (450,660) (5,425,191) -- -- -- --
---------- ----------- --------- ----------- -------- ----------- ------- ----------
Net increase ........... 777,444 $ 8,248,796 123,723 $1,335,189 422,488 $5,026,619 29,271 $ 343,159
========== =========== ========= =========== ======== =========== ======= ==========
<CAPTION>
For the Year 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>
This Page Intentionally Left Blank.
19
<PAGE>
PAINEWEBBER BALANCED FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------
For the
Six For the For the
For the Years Ended Months Year Year
August 31, Ended Ended Ended
------------------------------------ August 31, February 29, February 28,
1999 1998 1997 1996 (2) 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 11.27 $ 12.50 $ 10.27 $ 10.85 $ 9.80 $ 12.04
-------- -------- -------- -------- -------- --------
Net investment income ....................... 0.22++ 0.23++ 0.23++ 0.12++ 0.27++ 0.26
Net realized and unrealized gains (losses)
from investments, futures and options ..... 1.56++ 0.31++ 2.79++ (0.12)++ 1.84++ (1.07)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations ................................ 1.78 0.54 3.02 0.00 2.11 (0.81)
-------- -------- -------- -------- -------- --------
Dividends from net investment income ........ (0.22) (0.22) (0.24) (0.10) (0.31) (0.23)
Distributions from net realized gains
from investment transactions .............. (1.23) (1.55) (0.55) (0.48) (0.75) (1.20)
-------- -------- -------- -------- -------- --------
Total dividends and distributions to
shareholders .............................. (1.45) (1.77) (0.79) (0.58) (1.06) (1.43)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............. $ 11.60 $ 11.27 $ 12.50 $ 10.27 $ 10.85 $ 9.80
======== ======== ======== ======== ======== ========
Total investment return (1) ................. 16.20% 4.69% 30.67% 0.03% 22.08% (6.02)%
======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000's) ........... $196,684 $182,362 $176,403 $157,525 $171,609 $174,761
Expenses to average net assets,
net of waivers from adviser (3) ........... 1.22% 1.26% 1.46% 1.34%* 1.29% 1.26%
Net investment income to average net
assets, net of waivers from adviser (3) ... 1.81% 1.88% 2.02% 2.19%* 2.55% 2.41%
Portfolio turnover rate ..................... 234% 190% 188% 103% 188% 107%
</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.
(3) During the year ended August 31, 1999 Mitchell Hutchins waived a portion
of its advisory and administration fees. The ratios excluding the waiver
would be the same since the fee waiver represents less than 0.005%.
20
<PAGE>
PAINEWEBBER BALANCED FUND
FINANCIAL HIGHLIGHTS (continued)
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------------
For the
Six For the For the
For the Years Ended Months Year Year
August 31, Ended Ended Ended
------------------------------------ August 31, February 29, February 28,
1999 1998 1997 1996 (2) 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 11.48 $ 12.70 $ 10.42 $ 11.00 $ 9.90 $ 12.10
-------- -------- -------- -------- -------- --------
Net investment income ....................... 0.13++ 0.14++ 0.14++ 0.08++ 0.19++ 0.44
Net realized and unrealized gains (losses)
from investments, futures and options ..... 1.59++ 0.31++ 2.84++ (0.11)++ 1.86++ (1.32)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations ................................ 1.72 0.45 2.98 (0.03) 2.05 (0.88)
-------- -------- -------- -------- -------- --------
Dividends from net investment income ........ (0.13) (0.12) (0.15) (0.07) (0.20) (0.12)
Distributions from net realized gains
from investment transactions .............. (1.23) (1.55) (0.55) (0.48) (0.75) (1.20)
-------- -------- -------- -------- -------- --------
Total dividends and distributions to
shareholders .............................. (1.36) (1.67) (0.70) (0.55) (0.95) (1.32)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............. $ 11.84 $ 11.48 $ 12.70 $ 10.42 $ 11.00 $ 9.90
======== ======== ======== ======== ======== ========
Total investment return (1) ................. 15.28% 3.87% 29.70% (0.30)% 21.20% (6.68)%
======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000's) ........... $ 28,719 $ 26,425 $ 22,768 $ 22,307 $ 26,627 $ 37,104
Expenses to average net assets,
net of waivers from adviser (3) ........... 1.98% 2.03% 2.22% 2.09%* 2.05% 1.98%
Net investment income to average net
assets, net of waivers from adviser (3) ... 1.04% 1.13% 1.27% 1.43%* 1.81% 1.60%
Portfolio turnover rate ..................... 234% 190% 188% 103% 188% 107%
</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.
(3) During the year ended August 31, 1999 Mitchell Hutchins waived a portion
of its advisory and administration fees. The ratios excluding the waiver
would be the same since the fee waiver represents less than 0.005%.
21
<PAGE>
PAINEWEBBER BALANCED FUND
FINANCIAL HIGHLIGHTS (continued)
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------------
For the
Six For the For the
For the Years Ended Months Year Year
August 31, Ended Ended Ended
------------------------------------ August 31, February 29, February 28,
1999 1998 1997 1996 (2) 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $ 11.28 $ 12.52 $ 10.29 $ 10.88 $ 9.82 $ 12.03
-------- -------- -------- -------- -------- --------
Net investment income ......................... 0.14++ 0.14++ 0.14++ 0.08++ 0.19++ 0.19
Net realized and unrealized gains (losses)
from investments, futures and options ....... 1.56++ 0.31++ 2.80++ (0.12)++ 1.84++ (1.07)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations .................................. 1.70 0.45 2.94 (0.04) 2.03 (0.88)
-------- -------- -------- -------- -------- --------
Dividends from net investment income .......... (0.15) (0.14) (0.16) (0.07) (0.22) (0.13)
Distributions from net realized gains from
investment transactions ..................... (1.23) (1.55) (0.55) (0.48) (0.75) (1.20)
-------- -------- -------- -------- -------- --------
Total dividends and distributions to
shareholders ................................ (1.38) (1.69) (0.71) (0.55) (0.97) (1.33)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 11.60 $ 11.28 $ 12.52 $ 10.29 $ 10.88 $ 9.82
======== ======== ======== ======== ======== ========
Total investment return (1) ................... 15.34% 3.89% 29.70% (0.38)% 21.12% (6.69)%
======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000's) ............. $ 19,894 $ 14,581 $ 8,736 $ 6,979 $ 7,469 $ 8,525
Expenses to average net assets,
net of waivers from adviser (3) ............. 1.95% 2.00% 2.21% 2.09%* 2.08% 2.01%
Net investment income to average net assets,
net of waivers from adviser (3) ............. 1.08% 1.18% 1.27% 1.44%* 1.77% 1.62%
Portfolio turnover rate ....................... 234% 190% 188% 103% 188% 107%
<CAPTION>
Class Y
-----------------------
For the
For the Period
Year March 26, 1998+
Ended through
August 31, August 31,
1999 1998
-------- --------
<S> <C> <C>
Net asset value, beginning of period .......... $ 11.27 $ 12.55
-------- --------
Net investment income ......................... 0.26++ 0.11++
Net realized and unrealized gains (losses)
from investments, futures and options ....... 1.55++ (1.28)++
-------- --------
Net increase (decrease) from investment
operations .................................. 1.81 (1.17)
-------- --------
Dividends from net investment income .......... (0.26) (0.11)
Distributions from net realized gains from
investment transactions ..................... (1.23) --
-------- --------
Total dividends and distributions to
shareholders ................................ (1.49) (0.11)
-------- --------
Net asset value, end of period ................ $ 11.59 $ 11.27
======== ========
Total investment return (1) ................... 16.42% (9.41)%
======== ========
Ratios/supplemental data:
Net assets, end of period (000's) ............. $ 519 $ 175
Expenses to average net assets,
net of waivers from adviser (3) ............. 0.96% 0.89%*
Net investment income to average net assets,
net of waivers from adviser (3) ............. 2.11% 2.48%*
Portfolio turnover rate ....................... 234% 190%
</TABLE>
- ----------
* Annualized.
+ Commencement of issuance of shares.
++ Calculated using the average shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges 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.
(3) During the year ended August 31, 1999 Mitchell Hutchins waived a portion
of its advisory and administration fees. The ratios excluding the waiver
would be the same since the fee waiver represents less than 0.005%.
22
<PAGE>
PAINEWEBBER BALANCED FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
PaineWebber Balanced Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, 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 Balanced Fund (the
"Fund") at August 31, 1999, 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 August 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
October 25, 1999
23
<PAGE>
PAINEWEBBER BALANCED FUND
TAX INFORMATION (unaudited)
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 (August 31,
1999), as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the distributions
paid during the fiscal year by the Fund were taxable and are derived from the
following sources:
<TABLE>
<CAPTION>
Per Share Data: Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net investment income* .................................................. $0.2245 $0.1326 $0.1484 $0.2579
Short-term capital gains* ............................................... 0.2879 0.2879 0.2879 0.2879
Long-term capital gains ................................................. 0.9373 0.9373 0.9373 0.9373
Percentage of ordinary income dividends qualifying for the dividends
received deduction available to corporate shareholders .............. 18.61% 18.61% 18.61% 18.61%
</TABLE>
- ----------
* Taxable as ordinary income.
Dividends 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 year 1999. 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 2000. Shareholders are advised to
consult their own tax advisers with respect to the tax consequences of their
investment in the Fund.
24
<PAGE>
This Page Intentionally Left Blank.
25
<PAGE>
This Page Intentionally Left Blank.
26
<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
Brian M. Storms
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.
51 West 52nd Street
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.
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
correspondent firm. Read the prospectus carefully before investing.
<PAGE>
PaineWebber offers a family of 28 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 Strategy 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
(Copyright) 1999 PaineWebber Incorporated
Member SIPC
- -------------------------------------------------------------------------------
PAINEWEBBER
----------------------------------------
BALANCED
FUND
AUGUST 31, 1999
ANNUAL REPORT
